CFTC Staff Letter 99-59: Exemption to Treat an LLC as a Qualified Eligible Client

99-59
CFTC Letter No. 99-59
August 11, 1999
Exemption
Division of Trading & Markets
Re: Request to Treat an LLC as a Qualified Eligible Client Dear :
This is in response to your letter dated January 26, 1999 to the Division of Trading and Markets (“Division”) of the Commodity Futures Trading Commission (“Commission”), as supplemented by telephone conversations with Division staff. By your correspondence, you request that “X”, a registered commodity trading advisor (“CTA”), be permitted to treat “Y” as a qualified eligible client (“QEC”) for purposes of Rule 4.7(b).1 Based upon the representations made in your correspondence, we understand the facts to be as follows. “A” established “Y” solely for estate planning purposes, and “Y” wishes to be a client of “X”. However, as you note in your letter, “Y” does not come within the definition of a QEC because it does not meet the $5 million total asset criterion of Rule 4.7 (b)(1)(ii)(B)(2)(viii). In support of your request to treat “Y” as a QEC, you explain that: (1) “A”, who is a member of “Y” and a QEC, is responsible for all investment decisions for “Y”, and he will have access to all information pertinent to “Y’s” trading account; (2) “A”, as a listed principal, registered associated person, chief trader and sole shareholder of “Z”, a registered CPO and CTA, has nearly 20 years of experience managing commodity interest trading accounts; (3) “A” is the only person who has contributed capital to “Y”; (4) the “Trust”, which is not itself a QEC because it does not meet the $5 million total asset criterion of Rule 4.7(b)(1)(ii)(B)(2)(vii), is the only other member of “Y”; and (5) “A” has agreed that “Y” may be treated as a QEC. Additionally, you explain that “A” established the Trust along with “Y” for estate planning purposes. Upon “A’s” death, under the terms of the Trust, “Y’s” assets will revert to the Trust.2 You effectively are requesting that the Division look to “A” in making a determination as to whether “X” should be permitted to treat “Y” as a QEC. As noted above, “Y” does not meet the applicable QEC criteria. As also noted above, however, “A”, “Y’s” sole source of funding and the person responsible for “Y’s” investment decisions, is a QEC. file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/99letters/tm99-59.htm (1 of 2) [5/6/2010 7:14:18 PM]