CFTC Staff Letter 99-58: Exemption for CPO to Treat Affiliate Employees as QEPs

99-58
CFTC Letter No. 99-58
September 15, 1999
Exemption
Division of Trading & Markets
Re: Rule 4.7(a) -- Request for Exemptive Relief so that a CPO May Treat Employees of an Affiliated Company as QEPs Dear :
This is in response to your letter dated June 24, 1999 to the Division of Trading and Markets ( Division ) of the Commodity Futures Trading Commission ( Commission ), as supplemented by your letter dated August 10, 1999, the letter from A dated August 19, 1999, and telephone conversations with Division staff. By your correspondence you request an exemption from Rule 4.7(a) on behalf of P , a registered commodity pool operator ( CPO ) and the CPO of three pools ( Pools ), 1 so that P may treat five employees of its wholly-owned affiliate, Q , as though they satisfy the qualified eligible participant ( QEP ) criteria of Rule 4.7(a).2 Based upon the representations made in your correspondence, we understand the facts to be as follows. The Pools are operated pursuant to the criteria of Rule 4.7(a).3 Q performs research and executes trades for the Pools. P now wishes to admit as participants in the Pools five non-QEP employees (the Non-QEPs ) of Q . You represent that the Non-QEPs are all knowledgeable employees under the Investment Company Act of 1940, because each is either an executive officer of Q or a non-clerical employee of Q who regularly participates in Q s investment activities and who has been participating in Q s or a previous employer s investment activities for at least twelve months.4 You note that Q is a small organization, and Q s management philosophy is to integrate the work of analysts and traders. All Q analysts participate in trading, and all Q traders participate in analysis of transactions. Thus, Q s small size ensures that each analyst and trader is actively involved in making recommendations and decisions that affect the Pools portfolios. Specifically, the Non-QEPs and their qualifications are as follows:

1. B , who is Q s senior trader. B has worked at Q as a trader for almost three years. As Q s senior trader,
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