The Division of Clearing and Intermediary Oversight granted exemptive relief from certain of the Part 4 regulations to the registered CPO of two commodity pools, whose shares the CPO intended to publicly offer and lis...

Summary: The Division of Clearing and Intermediary Oversight granted exemptive relief from certain of the Part 4 regulations to the registered CPO of two commodity pools, whose shares the CPO intended to publicly offer and list for trading on a national securities exchange. As is discussed in the letter, this relief was in the nature of substituted compliance with those regulations.

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

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. 10-22

Exemption

June 3, 2010

Division of Clearing and Intermediary Oversight

Re:

Regulations 4.21, 4.22 and 4.23

Request for exemption from certain Disclosure Document, reporting and

recordkeeping requirements in connection with the operation of two commodity

pools whose units of participation will be listed for trading on a national

securities exchange

Dear :

This is in response to your letters dated March 31, 2010 and May 18, 2010, to the

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

Trading Commission (the “Commission”), as supplemented by e-mail messages dated May 19,

20 and 21, 2010 (the “correspondence”)

Dear :

This is in response to your letters dated March 31, 2010 and May 18, 2010, to the

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

Trading Commission (the “Commission”), as supplemented by e-mail messages dated May 19,

20 and 21, 2010 (the “correspondence”). By the correspondence, you request on behalf of a

registered commodity pool operator (“CPO”), “A” (“The CPO”), exemption from certain

provisions of Commission Regulations 4.21, 4.22, and 4.23,1 which concern, respectively, the

disclosure, reporting and recordkeeping requirements applicable to registered CPOs, in

connection with The CPO’s operation of “B” and “C” (the “Funds” and each individually a

“Fund”).

Based upon the representations made in the correspondence, we understand the facts to

be as follows. The offering and sale of units of participation (“Shares”) of each Fund will be

made pursuant to an effective registration statement filed with the Securities and Exchange

Commission (“SEC”) (the “Registration Statement”), and the Fund’s Shares will be listed for

trading on a national securities exchange.2 Each Fund has been structured and will be operated

1

Commission regulations referred to in this letter are found at 17 C.F.R. Ch. I (2009).

They can be accessed through the Commission’s website, at: http://www.cftc.gov.

2

Your request assumes, and the Funds’ Registration Statements state, that the Shares are

securities for purposes of the U.S. federal securities laws and will be offered, sold and transferred

as such. While we may not necessarily agree with this categorization, the Division will not

recommend that the Commission commence any enforcement action against the Funds or market

ttp://www.cftc.gov.

2

Your request assumes, and the Funds’ Registration Statements state, that the Shares are

securities for purposes of the U.S. federal securities laws and will be offered, sold and transferred

as such. While we may not necessarily agree with this categorization, the Division will not

recommend that the Commission commence any enforcement action against the Funds or market

Page 2

in a manner substantially similar to an exchange-traded fund, or ETF. As is explained more fully

in the correspondence, the sale of Shares of a Fund to Authorized Participants will be conducted

in compliance with Regulation 4.21. Authorized Participants will receive (and will provide to

The CPO written acknowledgement of such receipt) a Disclosure Document, which will comply

in full with the requirements in Part 4 of the Commission’s regulations, and which The CPO will

update in accordance with Commission requirements. The current Disclosure Document for

each Fund will be posted on the Internet website maintained by The CPO, and The CPO expects

that prospective and actual investors will utilize the services of a registered broker-dealer, who

either will inform them where they can obtain the current Disclosure Document, or, upon

request, will deliver a copy of the current Disclosure Document. The same information that

would otherwise be provided in each Fund’s monthly Account Statements, including the Fund’s

net asset value and the certification required by Regulation 4.22(h), similarly will be readily

available via The CPO’s website, and each Fund’s Disclosure Document will advise participants

of this location

upon

request, will deliver a copy of the current Disclosure Document. The same information that

would otherwise be provided in each Fund’s monthly Account Statements, including the Fund’s

net asset value and the certification required by Regulation 4.22(h), similarly will be readily

available via The CPO’s website, and each Fund’s Disclosure Document will advise participants

of this location.

You state that The CPO intends that certain financial books and records of each Fund

will be kept by the Fund’s administrator, custodian and transfer agent (in each case “D” (“The

Administrator”), a banking corporation organized under the laws of the “E”) at the address

specified in the correspondence. “F” (“The Distributor”) has been appointed distributor for each

of the Funds to assist The CPO and The Administrator with certain functions and duties relating

to distribution and marketing. The Distributor will retain all marketing materials at the address

specified in the correspondence.

The Administrator and the Distributor have each provided the Division with signed

acknowledgments that the books and records of each Fund may be inspected and copied by any

representative of the Commission or the United States Department of Justice and may be

inspected and copied during normal business hours by Fund participants.3 Included with The

Administrator’s and The Distributor’s acknowledgments are schedules specifying the classes of

books and records, by subparagraph of Regulation 4.23, that each of The Administrator and the

Distributor will be keeping.

participants in connection with the offer, sale and transfer of Shares in the manner contemplated

by your request and the Disclosure Documents for the Funds

Included with The

Administrator’s and The Distributor’s acknowledgments are schedules specifying the classes of

books and records, by subparagraph of Regulation 4.23, that each of The Administrator and the

Distributor will be keeping.

participants in connection with the offer, sale and transfer of Shares in the manner contemplated

by your request and the Disclosure Documents for the Funds.

Further in this regard, we note that listing on a national securities exchange does not

affect The CPO’s obligation to comply with any other provision of the Commodity Exchange

Act (the “Act”) or the Commission’s regulations issued thereunder applicable to CPOs in

particular or to persons in general. The Act is found at 7 U.S.C. §1, et seq. (2006), and also may

be accessed through the Commission’s website, at: http://www.cftc.gov.

3

Upon a participant’s request, copies of original books and records will be transmitted to

the CPO and made available, within five business days following the request, for inspection and

copying by the participant at the CPO’s offices during normal business hours.

Page 3

You further ask for confirmation that neither The Administrator nor The Distributor be

deemed to be acting as a CPO solely by reason of keeping a Fund’s records in the manner

described in your correspondence, which the Division hereby so confirms. In this regard, the

Division notes that neither The Administrator nor The Distributor will be acting in the manner

contemplated by the statutory definition of a “commodity pool operator” – e.g., neither will be

promoting the pool by soliciting, accepting or receiving from others property for the purpose of

commodity interest trading, and neither will have the authority to hire (and to fire) a Fund’s

commodity trading advisor, and to select (and to change) a Fund’s futures commission

merchant.4

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

granting your request wo

ting the pool by soliciting, accepting or receiving from others property for the purpose of

commodity interest trading, and neither will have the authority to hire (and to fire) a Fund’s

commodity trading advisor, and to select (and to change) a Fund’s futures commission

merchant.4

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 The CPO in connection with its operation of each of the Funds

from: (1) the requirement of Regulation 4.21(b) to obtain a signed acknowledgment of receipt of

a Disclosure Document in the case of sales of Shares by the Authorized Participants to the public

or sales of Shares on a national securities exchange, provided that the information required to be

contained in the Disclosure Document is maintained and kept current on The CPO’s website; (2)

the requirement of Regulation 4.22 to deliver monthly Account Statements to purchasers of

Shares, provided that the information that would otherwise be contained in such reports is

maintained on The CPO’s website; and (3) the requirement of Regulation 4.23 to keep required

books and records at The CPO’s main business office to the extent that such books and records

are maintained at the offices of The Administrator or The Distributor

iver monthly Account Statements to purchasers of

Shares, provided that the information that would otherwise be contained in such reports is

maintained on The CPO’s website; and (3) the requirement of Regulation 4.23 to keep required

books and records at The CPO’s main business office to the extent that such books and records

are maintained at the offices of The Administrator or The Distributor.

Consistent with prior practice,5 the exemption from the books and records location

requirement of Regulation 4.23 is subject to the conditions that: (1) The CPO notify the Division

and NFA if the location of any of the books and records required to be kept by Regulation 4.23

changes from that as represented to the Division; (2) The CPO remain responsible for ensuring

that all books and records required by Regulation 4.23 are kept in accordance with Regulation

1.31 and for assuring the availability of such books and records to the Commission, NFA, and

any other agency authorized to review such books and records in accordance with the Act and

Commission regulations; (3) within forty-eight hours after a request by a representative of any of

the foregoing, The CPO obtain the original books and records from The Administrator’s or The

Distributor’s office, as the case may be, at the address previously specified, and provide them for

inspection at The CPO’s main business office in “G”; (4) The CPO disclose in the Disclosure

Document of each Fund the location of its books and records that are required under Regulation

4

See, e.g., 49 Fed. Reg. 4778, 4780 (Feb. 2, 1984) (Commission acknowledged staff

practice of employing these criteria in determining whether a person is, or is not, a CPO); and

CFTC Staff Letter No. 09-39 [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶31,473 (Jul.

30, 2009) (Division granted a CPO an exemption to keep pool books and records with the pool’s

administrator and its distributor, neither of which was thereby deemed to be acting as a CPO of

the pool)

staff

practice of employing these criteria in determining whether a person is, or is not, a CPO); and

CFTC Staff Letter No. 09-39 [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶31,473 (Jul.

30, 2009) (Division granted a CPO an exemption to keep pool books and records with the pool’s

administrator and its distributor, neither of which was thereby deemed to be acting as a CPO of

the pool).

5

See, e.g., Staff Letter 09-39.

Page 4

4.23 (and update the Disclosure Document promptly to reflect any change in the location of that

Fund’s books and records) and to disclose the participant’s right to inspect and copy original

books and records at such location(s) or to have copies sent to The CPO for inspection and

copying at The CPO’s offices; and (5) The CPO remain fully responsible for compliance with

Regulation 4.23.

This letter exempts The CPO from Regulations 4.21, 4.22 and 4.23, as stated above. It

does not excuse The CPO from compliance with any other aspect of the Commission’s

disclosure, reporting and recordkeeping requirements for registered CPOs, nor does it excuse

The CPO from compliance with any other applicable requirements contained in the Act or in the

Commission’s regulations issued thereunder. For example, The CPO remains subject to

Regulation 1.31, and the Commission maintains its right under that regulation to inspect the

required books and records of The CPO at the offices of The Administrator or The Distributor.

Additionally, The CPO remains subject to all antifraud 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 compliance with

the conditions set forth above. Any different, changed or omitted material facts or circumstances

might render this letter and the exemptions granted herein void

quirements 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 compliance with

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 The CPO or either Fund 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