CFTC Staff Letter 99-23: Denial of No-Action Request and Grant of Exemptive Relief Regarding Entity O

99-23
CFTC Letter No. 99-23
May 19, 1999
Division of Trading & Markets
Re: Denial of No-Action/Interpretative Request and Grant of Exemptive Relief Regarding "O" Dear :
This is in response to your letter dated March 12, 1999 to the Division of Trading and Markets (the "Division") of the Commodity Futures Trading Commission (the "Commission"), whereby you request that the Division confirm that "O" did not become a commodity pool operator ("CPO") solely as a result of becoming a general partner of "N" and "P"). In the alternative, you request that the Division confirm that "O" is eligible for exemption pursuant to Rule 4.13(a)1 from the requirement to register as a CPO. Based upon the representations made in your March 12, 1999 letter, in your prior letters to the Division dated October 28, 1998 and November 20, 1998, and in telephone conversations with Division staff, we understand the facts to be as follows. "N" is a Cayman Islands limited partnership. Prior to September, 1998, the sole general partner of "N" was "Q", a Cayman Islands limited partnership that is registered with the Commission as a CPO. The general partner of "Q", is "R", a Cayman Islands limited liability company that is wholly-owned by "S", which is also registered as a CPO. "N" trades with funds contributed to it by its limited partners, ten feeder funds. Investors participate in "N's" trading profits and losses by becoming participants in one or another of the feeder funds. Each of the feeder funds is operated by "S" and contributes substantially all of its assets to "N". "N" is advised by "S", by "T", and by "U". Each of "T" and "U" is under common ownership with "S" and is registered as a commodity trading advisor ("CTA"). As noted above, "S" is registered as a CPO.2 In September 1998, in response to severe financial stress at "N", fourteen financial institutions formed a consortium (the "Consortium") for the purpose of making an investment (the "Investment") in "N" that was "considered necessary at that time in light of the potential risk to the financial community and follow-on harm to the general public in the event that existing market and credit conditions were to suffer further deterioration."3 The Consortium organized "O" as the entity that would make the Investment. Initially, it had been contemplated that one of the feeder funds, "V", would be the vehicle through which the Investment would be made - i.e., "O" would contribute 99 percent of the Investment to "V", through which the funds would pass to "N", and it would contribute the remaining one percent of the Investment directly to "N" in exchange for a general partner interest in "N". To address certain foreign bank regulatory and tax considerations, it was determined to make "V" and "O" general partners of a new entity, "X", that would in turn contribute all of its assets to "N". "O" contributed 99 percent of the Investment to file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/99letters/tm99-23.htm (1 of 5) [5/6/2010 7:12:31 PM]