CFTC Staff Letter 98-83 (No-Action): Exemption from 10 Percent Restriction for CPO X

98-83
CFTC Letter No. 98-83
December 14, 1998
Division of Trading & Markets
Re: Request for Extension of Position under Rule 4.7.
Dear :
This is in response to your letter dated July 10, 1998, to the Division of Trading and Markets ("Division") of the Commodity Futures Trading Commission ("Commission"), as supplemented by your facsimile transmissions dated September 17, 1998, October 30, 1998 and December 1, 1998 and telephone conversations with Division staff, by which you request an extension of the position under Rule 4.71 that the Division previously had taken with respect to "X", a registered commodity pool operator ("CPO"), in connection with its operation of the Fund. Based upon the representations you made in your correspondence, we understand the facts to be as follows. The Fund has two classes of shares: Class A, which consists of persons who are not "qualified eligible participants" ("QEPs"), as that term is defined in Rule 4.7, and Class B, which consists solely of persons who are QEPs. Currently, there are 171 participants in the Fund, 16 of whom are Non-QEPs. As a percentage of the Fund's equity, the Non-QEPs represent $3,867,894 out of $617,597,931, or 0.6 percent. By letter dated August 12, 1993, the Division permitted "X" to file a Rule 4.7 claim of exemption with respect to the Class B units of the Fund, subject to compliance with certain conditions - e.g., that the Class A participants would continue to receive the full protections of Part 4 of the Commission's regulations.2 By letter dated January 17, 1995 the Division permitted "Y", a registered CPO, to treat the Fund as a QEP for the purpose of the Fund making an investment in "Z", a Rule 4.7 exempt pool it operated, notwithstanding that "X" had filed a Rule 4.7 claim of exemption solely with respect to the Class B shares of the Fund. The Division based its action upon, among others, representations that "X" would continue to comply with the conditions set forth in the Division's August 12, 1993 letter and that "X" would not accept any new Class A participants in the Fund. As you note, under Rule 4.7(a)(1)(ii)(B)(2)(xi) any pool with total assets in excess of $5,000,000, among other criteria, is a QEP. However, unless every participant in the pool also is a QEP, the pool is limited to investing no more than 10 percent of the fair market value of its assets in Rule 4.7 exempt pools (the "10 Percent Restriction"). As you also file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/98letters/tm98-83.htm (1 of 3) [5/6/2010 7:32:41 PM]