The Division of Clearing and Intermediary Oversight provided no-action relief to the general partners of two commodity pools from registering as CPOs under Section 4m(1) of the Commodity Exchange Act, and allowed an a...

Summary: The Division of Clearing and Intermediary Oversight provided no-action relief to the general partners of two commodity pools from registering as CPOs under Section 4m(1) of the Commodity Exchange Act, and allowed an affiliated, registered CPO (“designee”) to serve as the CPO of the pools instead, where, among other things: (1) the general partners and the designee are under common ownership and control; (2) the general partners have delegated all of their management authority to the designee; (3) the general partners do not engage in the solicitation of investors for the pool and do not manage property of the pool; and (4) each general partner and the designee executed and submitted to the Division a written acknowledgement of joint and several liability for any violation by either of them of the Act or the Commission’s regulations in connection with the operation of their respective pools.

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. 11-01

No-Action

March 22, 2011

Division of Clearing and Intermediary Oversight

Re: Section 4m(1) – Request for CPO Registration Relief for Affiliated General

Partners of Several Commodity Pools

Dear :

This is in response to your letter dated January 10, 2011 to the Division of Clearing and

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

“Commission”), as supplemented by a telephone conversation between you and Division staff on

January 27, 2011, an email from you on February 23, 2011, and a telephone conversation with

your associate, “A”, on February 25, 2011 (collectively, the “correspondence”)

ry 10, 2011 to the Division of Clearing and

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

“Commission”), as supplemented by a telephone conversation between you and Division staff on

January 27, 2011, an email from you on February 23, 2011, and a telephone conversation with

your associate, “A”, on February 25, 2011 (collectively, the “correspondence”). By the

correspondence, you seek relief from the requirement to register with the Commission as a

commodity pool operator (“CPO”) under Section 4m(1) of the Commodity Exchange Act (the

“Act”)1 on behalf of: (i) “B”, in connection with serving as the general partner of “C”; and (ii)

“D”, in connection with serving as the general partner of “E”, such that “F” may serve as the

CPO of each of the “C” and “E”.

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

to be as follows. “F” is registered as a CPO with the Commission. “F” has entered into certain

arrangements with “B” and “D” in order to achieve more favorable tax treatment through the

allocation of performance fees to “B” and “D”.2

In support of your request you represent that:

1

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

www.cftc.gov.

2

The Division takes no position, however, regarding the advisability or legality of this

conclusion under federal or state law, or regulations issued by the Department of the Treasury.

.2

In support of your request you represent that:

1

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

www.cftc.gov.

2

The Division takes no position, however, regarding the advisability or legality of this

conclusion under federal or state law, or regulations issued by the Department of the Treasury.

Page 2

1. “B” and “D” are not subject to statutory disqualification under Section 8a(2) or 8a(3) of

the Act.

2. “F”, “B”, and “D” are under common ownership and control.3

3. Pursuant to the “C’s” investment management agreement with “F”, the investment

management functions and investment discretion with respect to the “C” have been

delegated to “F”. In addition, the “C’s” general partner, “B”, does not engage in the

solicitation of investors for the “C” or manage any of the “C’s” property.

4. Pursuant to the “E’s” investment management agreement with “F”, the investment

management functions and investment discretion with respect to the “E” have been

delegated to “F”. In addition, the “E’s” general partner, “D”, does not engage in the

solicitation of investors for the “E” or manage any of the “E’s” property.

5. All books and records of the “C” and the “E” are maintained at the offices of “F”.

6. “B” and “D” have no employees or other persons acting on their respective behalf, and do

not perform any functions or provide any services that are subject to the Act or

Commission’s regulations.

In further support of this request “B” and “D” have each entered into an

acknowledgement with “F” to be jointly and severally liable for any violation of the Act or

Commission’s regulations, to the extent that such violation is applicable to activities as CPOs in

connection with the operation of “B” and “D’s” respective funds

services that are subject to the Act or

Commission’s regulations.

In further support of this request “B” and “D” have each entered into an

acknowledgement with “F” to be jointly and severally liable for any violation of the Act or

Commission’s regulations, to the extent that such violation is applicable to activities as CPOs in

connection with the operation of “B” and “D’s” respective funds.

Based upon the foregoing, and consistent with prior practice in this area,4 the Division

will not recommend that the Commission commence any enforcement action against “B” or “D”

for failure to register as a CPO under Section 4m(1) of the Act in connection with serving as a

general partner of the “C” and “E”, respectively. This position is, however, subject to the

conditions that: (1) “F” serves as the CPO of the “C” and “E”; and (2) “F” remains registered as

a CPO.

The relief issued by this letter does not excuse “B” or “D” from compliance with any

other applicable requirements contained in the Act or in the Commission’s regulations issued

thereunder. For example, “B” and “D” remain subject to all antifraud provisions of the Act and

the Commission’s regulations, as well as the reporting requirements for traders set forth in Parts

3

“G”, directly or indirectly, owns 100% of the general partners of “F”, “B”, and “D”.

4

See, e.g., CFTC Staff Letter 10-33 [Current Transfer Binder] Comm. Fut. L. Rep.

¶31,523 (Sep. 21, 2010).

under. For example, “B” and “D” remain subject to all antifraud provisions of the Act and

the Commission’s regulations, as well as the reporting requirements for traders set forth in Parts

3

“G”, directly or indirectly, owns 100% of the general partners of “F”, “B”, and “D”.

4

See, e.g., CFTC Staff Letter 10-33 [Current Transfer Binder] Comm. Fut. L. Rep.

¶31,523 (Sep. 21, 2010).

Page 3

15, 18 and 19 of the Commission’s regulations, and all applicable provisions of Part 4, including

Regulations 4.20 and 4.41.5

This letter, and the position taken herein, are based upon the representations made to us

and are subject to compliance with the conditions stated above. Any different, changed or

omitted material facts or circumstances might render this letter void. In this regard, you must

notify the Division immediately in the event that the operations or activities of “F”, “B”, “D”, the

“C”, or the “E” change in any material respect from those as represented to us. Further, this

letter and the position taken herein represent the view of this Division only, and do not

necessarily represent the position or view of the Commission or of any other office or division of

the Commission.

If you have any questions concerning this correspondence, please contact Zachary J.

King, an attorney on my staff, at (202) 418-5364.

Very truly yours,

Ananda Radhakrishnan

Director

5

Commission Regulations may similarly be found at www.cftc.gov.