The Division of Clearing and Intermediary Oversight granted exemptive relief from the books and records location requirement of Regulations 4.7 and 4.23. This exemption was conditioned upon: (1) the contractual obliga...

Summary: The Division of Clearing and Intermediary Oversight granted exemptive relief from the books and records location requirement of Regulations 4.7 and 4.23. This exemption was conditioned upon: (1) the contractual obligation of the alternative recordkeepers to retain books and records of the CPO for the period required in Commission regulations and to make them available as required in Commission regulations; (2) availability within 48 hours (72 hours for offshore locations) of original books and records at the CPO’s main business office); (3) the CPO remaining responsible for ensuring compliance with Regulations 1.31, 4.7 and 4.23, and for availability of books and records to CFTC and NFA; (4) disclosure of the location of required books and records on the CPO’s pool Disclosure Documents; and (5) notification to the Division if the location of required books and records changes.

U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-5430

Facsimile: (202) 418-5547

aradhakrishnan@cftc.gov

Division of Clearing and

Intermediary Oversight

Ananda Radhakrishnan

Director

CFTC Letter No. 08-04

February 26, 2008

Exemption

Division of Clearing and Intermediary Oversight

Re:

Regulation 4.23 – Request for exemption from requirement to keep books

and records at a CPO’s main business office

Dear :

This is in response to your letter dated from February 1, 2008, to the Division of Clearing

and Intermediary Oversight (the “Division”) of the Commodity Futures Trading Commission

(the “Commission”), as supplemented by telephone conversations between Division staff and

“A”, Director of Compliance of “B” (the “correspondence”)

s office

Dear :

This is in response to your letter dated from February 1, 2008, to the Division of Clearing

and Intermediary Oversight (the “Division”) of the Commodity Futures Trading Commission

(the “Commission”), as supplemented by telephone conversations between Division staff and

“A”, Director of Compliance of “B” (the “correspondence”). By the correspondence, you

request, on behalf of “B”, a registered commodity pool operator (“CPO”), exemption from

certain provisions of Commission Regulation 4.23.1

Regulation 4.23 specifies the types of books and records a registered CPO must make in

the course of operating a pool, and requires that those books and records be kept at the CPO’s

main business office. The books and records must be available to pool participants for

inspection and copying during normal business hours, and must be open and available for

inspection by any representative of the Commission or the United States Department of Justice.

The purpose of the regulation is “to enable pool participants and the Commission to ascertain

whether the CPO is dealing properly with pool funds.”2

Based upon the representations made in the correspondence, we understand the relevant

facts to be as follows. “B” has contracted with two firms to perform administrator, registrar and

transfer agent functions, including keeping and maintaining required books and records, with

respect to the pools “B” operates. “C” will perform such services with respect to “B’s” U.S.

1

Commission regulations referred to in this letter are found at 17 C.F.R. Ch. I (2007).

They can be accessed through the Commission’s website, at:

http://www.cftc.gov/cftc/cftclawreg.htm.

2

44 Fed. Reg. 1918 at 1922 (Jan. 8, 1979).

cords, with

respect to the pools “B” operates. “C” will perform such services with respect to “B’s” U.S.

1

Commission regulations referred to in this letter are found at 17 C.F.R. Ch. I (2007).

They can be accessed through the Commission’s website, at:

http://www.cftc.gov/cftc/cftclawreg.htm.

2

44 Fed. Reg. 1918 at 1922 (Jan. 8, 1979).

Page 2

commodity pools (the “U.S. Pools”), 3 and “D” will perform such services with respect to “B’s”

offshore commodity pool (the “Offshore Pool”).4 “C” has agreed to maintain books and records

required under Regulation 4.23(a)(1), (2), (4), (5), (6) and (8). Pursuant to a claim of exemption

under Regulation 4.7, “B”, as the CPO of the Offshore Pool, is exempt from the specific

requirements of Regulation 4.23, provided that “B” maintains the periodic reports and annual

reports and all books and records prepared in connection with its activities as the CPO of the

offshore pool (including without limitation, records relating to the qualifications of qualified

eligible persons and substantiating any performance representations). Accordingly, “D” has

agreed to maintain the records required under the proviso in Regulation 4.7(b)(4).

In order for “B” to be able to avail itself of the contractual provisions under which “C”

and “D” would keep and maintain books and records for “B’s” pool, you request exemption from

the location requirement of Regulation 4.23(a), such that books and records of the U.S. Pools

may be kept by “C”, and from Regulation 4.7(b)(4), such that books and records of the Offshore

Pool may be kept by “D”. “C” intends to keep such books and records at either “E”, or at “F”.

“D” intends to keep such books and records at “G”.

You further ask for the same relief with respect to any future commodity pool for which

“B” serves as the registered CPO

and records of the U.S. Pools

may be kept by “C”, and from Regulation 4.7(b)(4), such that books and records of the Offshore

Pool may be kept by “D”. “C” intends to keep such books and records at either “E”, or at “F”.

“D” intends to keep such books and records at “G”.

You further ask for the same relief with respect to any future commodity pool for which

“B” serves as the registered CPO.

Based upon the representations made in the correspondence, the Division believes that

granting your request would not be contrary to the public interest and to the purposes of the

regulations at issue. Accordingly, pursuant to the authority delegated in Regulation 140.93(a)(1),

the Division hereby exempts “B” in connection with the operation of the U.S. Pools and the

Offshore Pool from the requirements of Regulations 4.23 and 4.7 to keep required books and

records at “B’s” main business office to the extent that such books and records are maintained at

the offices of “C” or “D”, respectively. Consistent with prior practice,5 the exemption from the

books and records location requirement of Regulations 4.23 and 4.7 is subject to the conditions

that: (1) “B” notify the Division if the location of any of the books and records required to be

kept by Regulation 4.23 or Regulation 4.7 changes from that as represented to the Division; (2)

“B” remain responsible for ensuring that all books and records required by Regulations 4.23 and

4.7 are kept in accordance with Regulation 1.31 and for assuring the availability of such books

and records to the Commission, the National Futures Association (“NFA”), and any other agency

authorized to review such books and records in accordance with the Commodity Exchange Act

3

The U.S. Pools are: “H”; “I”; “J”; “K”; “L”; “M”; “N”; and “O”.

4

The Offshore Pool is “P”, an “X” domiciled public commodity pool.

5

See, e.g., CFTC Staff Letter 06-27 [2005-2007 Transfer Binder] Comm. Fut. L. Rep.

(CCH) ¶30,397 (Sep. 26, 2006)

utures Association (“NFA”), and any other agency

authorized to review such books and records in accordance with the Commodity Exchange Act

3

The U.S. Pools are: “H”; “I”; “J”; “K”; “L”; “M”; “N”; and “O”.

4

The Offshore Pool is “P”, an “X” domiciled public commodity pool.

5

See, e.g., CFTC Staff Letter 06-27 [2005-2007 Transfer Binder] Comm. Fut. L. Rep.

(CCH) ¶30,397 (Sep. 26, 2006). (Division granted a CPO an exemption to keep pool books and

records with the pool’s administrator and its distributor, subject to Commission and Department

of Justice access, and continued responsibility of the CPO for compliance with recordkeeping

requirements.)

Page 3

(the “Act”)6 and Commission regulations; (3) within forty-eight hours after a request by a

representative of the foregoing (seventy-two hours in the case of books and records maintained

by “D”), “B” obtain the original books and records from “C’s” offices or from “D’s” offices, as

the case may be, and provide them for inspection at “B’s” main business office in “Q”; (4) “B”

disclose in each U.S. Pool’s Disclosure Document and the Offshore Pool’s offering

memorandum the location of its books and records that are required under Regulation 4.23 or

Regulation 4.7, respectively; and (5) “B” remain fully responsible for compliance with

Regulations 4.23 and 4.7.

With respect to any additional pool that “B” may operate in the future, the exemption

provided above will apply, provided that the pool’s records that are not maintained at “B’s” main

business office are maintained at the office of “C” or “D”, and provided further, that the

representations made in this letter are true and the conditions stated above are met. In this

regard, “B” must notify NFA in writing of the name of each such additional pool, and represent

that “B” qualifies for the exemption as provided herein in connection with its operation of the

pool

at “B’s” main

business office are maintained at the office of “C” or “D”, and provided further, that the

representations made in this letter are true and the conditions stated above are met. In this

regard, “B” must notify NFA in writing of the name of each such additional pool, and represent

that “B” qualifies for the exemption as provided herein in connection with its operation of the

pool.

This letter exempts “B” from provisions of Regulations 4.23 and 4.7, as stated above. It

does not excuse “B” from compliance with any other aspect of the Commission’s disclosure,

reporting and recordkeeping requirements for registered CPOs, nor does it excuse “B” from

compliance with any other applicable requirements contained in the Act or in the Commission’s

regulations issued thereunder. For example, “B” remains subject to Regulation 1.31, and the

Commission maintains its right under that regulation to inspect the required books and records of

“B” at “C’s” offices and at “D’s” offices.7 Additionally, “B” remains subject to all antifraud

6

7 U.S.C. §1, et seq. (2000). The Act can be accessed through the Commission’s website,

at: http://www.cftc.gov/cftc/cftclawreg.htm.

7

Each of the service agreements between “B” and “C” for the U.S. Pools specifies which

classes of records “C” intends to retain and provides that such records may be inspected by

representatives of the Commission, NFA and U.S. Department of Justice “during normal

business hours,” and that such records will be maintained for five years (and kept readily

accessible during the first two years of such period). You represent that each of these

agreements is identical in these respects, and you have provided as an example the relevant text

from one of the agreements. A letter agreement between “B” and “D” provides that “D” intends

to retain the records required under Regulation 4.7, that such records may be inspected by

representatives of the Commission, NFA and U.S

first two years of such period). You represent that each of these

agreements is identical in these respects, and you have provided as an example the relevant text

from one of the agreements. A letter agreement between “B” and “D” provides that “D” intends

to retain the records required under Regulation 4.7, that such records may be inspected by

representatives of the Commission, NFA and U.S. Department of Justice “during normal

business hours”, and that such records will be maintained for five years (and kept readily

accessible during the first two years of such period). However, neither Regulation 4.23, 4.7, nor

1.31 (which is the Commission’s general recordkeeping regulation) limits to “normal business

hours” the time during which a CPO’s books and records may be inspected by representatives of

the Commission, NFA or the U.S. Department of Justice. Neither does the exemptive relief

provided by this letter in any way modify the rights of the Commission, NFA or the U.S.

Page 4

provisions of the Act and the Commission’s regulations, to the reporting requirements for traders

set forth in Parts 15, 18 and 19 of the Commission’s regulations, and to all other applicable

provisions of Part 4.

This letter is based upon the representations made to us and is subject to the conditions

set forth above. Any different, changed or omitted material facts or circumstances might render

this letter and the exemptions granted herein void. In this connection, you must notify us

immediately in the event that the operations of “B”, “C” or “D” change in any material way from

those represented to us.

If you have any questions concerning this correspondence, please contact me or

Christopher W. Cummings, Special Counsel, at (202) 418-5445

l facts or circumstances might render

this letter and the exemptions granted herein void. In this connection, you must notify us

immediately in the event that the operations of “B”, “C” or “D” change in any material way from

those represented to us.

If you have any questions concerning this correspondence, please contact me or

Christopher W. Cummings, Special Counsel, at (202) 418-5445.

Very truly yours,

Ananda Radhakrishnan

Director

Department of Justice under those regulations to inspect the books and records of the pools

operated by “B”.