Update: This letter has been replaced by letter 14-126.

Summary: Update: This letter has been replaced by letter 14-126.

U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-6700

Facsimile: (202) 418-5547

gbarnett@cftc.gov

Division of Swap Dealer

and

Intermediary Oversight

Gary Barnett

Director

CFTC Staff Letter No. 14-69

Other Written Communication

May 12, 2014

Division of Swap Dealer and Intermediary Oversight

Re: Requesting Registration No-Action Relief on an Expedited Basis for Commodity Pool

Operators who Delegate Certain Activities to a Registered Commodity Pool Operator

under Certain Circumstances

I. Introduction.

The Division of Swap Dealer and Intermediary Oversight (“DSIO” or “Division”) of the

Commodity Futures Trading Commission (“CFTC” or “Commission”) has received numerous

requests over the past several years asking that the Division provide no-action relief in

accordance with Commission Regulation 140.991 for failure to register as a commodity pool

operator (“CPO”) under Commodity Exchange Act ( “Act” or “CEA”) Section 4m(1) if another

person would serve as the registered CPO of the commodity pool at issue in lieu of the

requesting CPO. Generally, the requests seek registration no-action relief for a CPO that has

delegated investment management authority as a CPO of a commodity pool (“Delegating CPO”)

to another person who is registered as a CPO (“Designated CPO”), and the Delegating CPO does

not engage in the solicitation of participants for, or the management of property of, the

applicable commodity pool. The Division has previously received and considered such requests

for individual CPOs and where certain facts were present, and subject to certain conditions, staff

issued the requested relief. 2

1

Regulation 140.99 governs requests for staff exemptive, no-action and interpretative

letters. The Commission’s regulations are found at 17 C.F.R

Division has previously received and considered such requests

for individual CPOs and where certain facts were present, and subject to certain conditions, staff

issued the requested relief. 2

1

Regulation 140.99 governs requests for staff exemptive, no-action and interpretative

letters. The Commission’s regulations are found at 17 C.F.R. Part 1 et seq. (2013). They may be

accessed through the Commission’s website, www.cftc.gov.

2

See, e.g., CFTC Staff Letters No. 13-20, 12-24, 11-01, 10-06, 09-44, 07-19, 06-12, 05-11,

04-20, 03-02, 02-21, 01-07, 00-82, 99-30, 98-04, 97-11, 96-66, 95-80, 94-69, and 93-50. Each

Staff Letter referred to in this letter is available on the Commission’s website. This letter does

not affect the efficacy of any prior Staff Letters issued by the Division with respect to CPO

registration relief for a Delegating CPO.

2

Given the significant number of requests received, the Division has developed the

standardized, streamlined approach described in this letter for requests that meet the criteria

specifically set forth below. The streamlined approach allows the Division to more efficiently

address many of the numerous requests for relief in this area. The Division recognizes that there

may be CPO delegation situations involving other circumstances in which CPO registration no-

action relief may be warranted, but where the requirements to utilize the approach set forth in

this letter cannot be met. Accordingly, DSIO intends to continue to evaluate requests for CPO

registration no-action relief from persons who are not able to utilize the approach for requesting

such relief set forth in this letter.

The Division emphasizes that this letter does not, by itself, provide CPO registration

relief. Rather, this letter establishes the circumstances under which the Division intends to

provide relief through the streamlined approach described herein.

II. Regulatory Background

relief from persons who are not able to utilize the approach for requesting

such relief set forth in this letter.

The Division emphasizes that this letter does not, by itself, provide CPO registration

relief. Rather, this letter establishes the circumstances under which the Division intends to

provide relief through the streamlined approach described herein.

II. Regulatory Background.

Section 1a(11)(A)(i) of the Commodity Exchange Act (“Act” or “CEA”)3 defines the

term “commodity pool operator” to mean any person –

(i) engaged in a business that is of the nature of a commodity pool,

investment trust, syndicate, or similar form of enterprise, and who, in

connection therewith, solicits, accepts, or receives from others, funds,

securities, or property, either directly or through capital contributions,

the sale of stock or other forms of securities, or otherwise, for the

purpose of trading in commodity interests, including any –

(I) commodity for future delivery, security futures product, or swap;

(II) agreement, contract, or transaction described in section

2(c)(2)(C)(i) of this title or section 2(c)(2)(D)(i) of this title;

(III) commodity option authorized under section 6c of this title; or

(IV) leverage transaction authorized under section 23 of this title. . . .4

CEA Section 4m(1) makes it unlawful for any person who comes within the CPO definition,

“unless registered under [the Act], to make use of the mails or any means or instrumentality of

interstate commerce in connection with his business as such . . . [CPO].” CEA Sections 8a(2)

3

7 U.S.C. §1 et seq. (2012).

4

CEA Section 1a(10)(A) correspondingly defines the term “commodity pool” to mean –

any investment trust, syndicate, or similar form of enterprise operated

for the purpose of trading in commodity interests, including any –

commerce in connection with his business as such . . . [CPO].” CEA Sections 8a(2)

3

7 U.S.C. §1 et seq. (2012).

4

CEA Section 1a(10)(A) correspondingly defines the term “commodity pool” to mean –

any investment trust, syndicate, or similar form of enterprise operated

for the purpose of trading in commodity interests, including any –

(i) commodity for future delivery, security futures product, or swap;

(ii) agreement, contract, or transaction described in section

2(c)(2)(C)(i) of this title or section 2(c)(2)(D)(i) of this title;

(iii) commodity option authorized under section 6c of this title; or

(iv) leverage transaction authorized under section 23 of this title.

3

and 8a(3) provide for registration disqualifications if certain circumstances are present

(“Statutory Disqualification”). Each person who must register as a CPO is subject to the

membership requirements of the National Futures Association (“NFA”), which is registered as a

futures association with the Commission.5

III. Prior Staff Registration No-Action Letters Involving Delegation of CPO

Activity and Authority.

For many years, Commission staff received and considered requests to the staff not to

recommend that the Commission commence an enforcement action against a particular person

for failure to register as a CPO under CEA Section 4m(1) where another person would serve in

lieu thereof as the registered CPO of the commodity pool at issue.6 As noted above, where

certain facts were present and certain conditions were met, staff issued the requested relief

requests to the staff not to

recommend that the Commission commence an enforcement action against a particular person

for failure to register as a CPO under CEA Section 4m(1) where another person would serve in

lieu thereof as the registered CPO of the commodity pool at issue.6 As noted above, where

certain facts were present and certain conditions were met, staff issued the requested relief.

Early on, Commission staff typically received requests for, and issued CPO registration

no-action relief with respect to, commodity pools that were organized as limited partnerships

(“LPs”) with two or more general partners, such that only one of the general partners was

required to register as a CPO.7 More recently, the Division received an increased number of

CPO registration no-action requests involving delegation, and some of those requests concern

pools with other forms of organization.8 For example, staff received requests and issued CPO

registration no-action relief with respect to pools organized as LPs or limited liability companies

(“LLCs”) having, respectively, a general partner or managing member affiliated with the pool’s

investment manager, such that the investment manager was permitted to serve as the registered

CPO in lieu of the general partner or managing member.9 Additionally, from time to time,

5

See NFA Bylaw 1101. To date, NFA is the sole registered futures association.

6

Registrants informed staff that separate CPOs may be involved for a number of reasons

including for separate asset management purposes, tax-related reasons, to account for different

ownership and compensation arrangements, or to comply with licensing requirements in other

jurisdictions. See, e.g., CFTC Staff Letters No. 13-17 and 12-23.

7

See, e.g., CFTC Staff Letters No. 93-09 and 86-30

Registrants informed staff that separate CPOs may be involved for a number of reasons

including for separate asset management purposes, tax-related reasons, to account for different

ownership and compensation arrangements, or to comply with licensing requirements in other

jurisdictions. See, e.g., CFTC Staff Letters No. 13-17 and 12-23.

7

See, e.g., CFTC Staff Letters No. 93-09 and 86-30.

8

The increase in the number of requests for no-action relief likely arose, at least in part,

due to the rescission of Regulation 4.13(a)(4), which previously provided an exemption from

registration to certain types of CPOs. See Commodity Pool Operators and Commodity Trading

Advisors: Compliance Obligations, 77 Fed. Reg. 11252 (Feb. 24, 2012).

9

See, e.g., CFTC Staff Letters No. 13-18 and 13-19. DSIO has observed a number of

commonalities in the forms of organization typically present in previously issued CPO

registration no-action requests involving delegation. For example, with respect to commodity

pools domiciled and located in the United States, its territories or possessions, DSIO’s

experience is that the Delegating CPO and the Designated CPO are non-natural persons; the

pools are organized as LPs or LLCs; and each pool’s Delegating CPO is the general partner of

the LP or managing member or manager of the LLC. For commodity pools domiciled and

4

Commission staff received requests, and issued no-action relief, for one or more persons serving

as members of a board of directors or other governing body (“Board”) of a commodity pool

domiciled and located outside the United States, its territories and possessions.10

In such instances in which relief was provided, staff generally required the Delegating

CPO and the Designated CPO to agree to be jointly and severally liable for any violation of the

CEA or the Commission’s regulations committed by the other in connection with the operation

of the pool (“CPO Joint and Several Liability”)

ocated outside the United States, its territories and possessions.10

In such instances in which relief was provided, staff generally required the Delegating

CPO and the Designated CPO to agree to be jointly and severally liable for any violation of the

CEA or the Commission’s regulations committed by the other in connection with the operation

of the pool (“CPO Joint and Several Liability”). More recently, however, various counsel for

Board members seeking CPO registration no-action relief have asserted that such persons should

not be required to agree to CPO Joint and Several Liability, particularly if the Board member has

little or no relationship with the Designated CPO.11

Because many of the fact patterns presented in the relief requests are similar, the Division

is instituting this streamlined approach to facilitate consideration of individual requests that meet

the criteria set forth herein more quickly and efficiently. Accordingly, by this letter, the Division

is clarifying the circumstances in which it intends to grant CPO registration relief by way of this

streamlined approach, the conditions to the relief, and how the relief is to be requested in

accordance with Regulation 140.99. This streamlined approach includes the use of a simplified

form of request, a template of which is attached to this letter.

The requirements that must be met in order to obtain CPO registration relief through the

approach set forth in this letter are based on prior staff no-action letters

conditions to the relief, and how the relief is to be requested in

accordance with Regulation 140.99. This streamlined approach includes the use of a simplified

form of request, a template of which is attached to this letter.

The requirements that must be met in order to obtain CPO registration relief through the

approach set forth in this letter are based on prior staff no-action letters. In addition, the Division

is clarifying that it intends to provide relief, upon a duly submitted request, for a Board member

of a commodity pool without requiring the Board member to agree to CPO Joint and Several

Liability if the Board member is not affiliated with the Designated CPO.12 Accordingly, this

letter also addresses the circumstances under which a person who is an “Unaffiliated Board

Member”, as defined below, may utilize the streamlined approach for requesting CPO

registration relief without being subject to CPO Joint and Several Liability.

As noted above, the Division recognizes that there may be CPO delegation situations

involving facts or circumstances that do not meet the requirements for requesting relief through

located outside of the United States, its territories or possessions, sometimes a pool is organized

as a company with a board of directors, each of whose members is a natural person.

10

See, e.g., CFTC Staff Letters No. 97-73 and 96-44.

11

Counsel explained that these Board members are often included on the Board to satisfy

the requirements of the laws of the jurisdiction in which the pool has been organized or at the

request of pool participants to provide independent oversight of the operations of the pool

f directors, each of whose members is a natural person.

10

See, e.g., CFTC Staff Letters No. 97-73 and 96-44.

11

Counsel explained that these Board members are often included on the Board to satisfy

the requirements of the laws of the jurisdiction in which the pool has been organized or at the

request of pool participants to provide independent oversight of the operations of the pool.

12

This approach to directors who are not affiliated with the Designated CPO is consistent

with the Commission’s view that the investment adviser of a registered investment company is

the entity that should register as the CPO for the company, not the members of the company’s

board. 77 Fed. Reg. 11259 (Feb. 24, 2012). (Although not a prerequisite for relief under this

letter, staff understands that the entity to which CPO duties are delegated is in many instances an

investment manager for the commodity pool.)

5

the streamlined approach set forth in this letter, but which might nonetheless also warrant relief.

Accordingly, DSIO intends to continue to evaluate other requests for CPO registration no-action

relief in the delegation context where the circumstances do not permit the requestor to utilize this

streamlined approach. In addition, the Division may expand the streamlined approach to

additional scenarios in the future as appropriate.

IV. The Streamlined Approach.

The Division intends to provide no-action relief from the registration requirement in

Section 4m(1) of the Act to a Delegating CPO who requests such relief from the Division

through the approach set forth in Section IV.B, if the Delegating CPO has delegated its

investment management authority over a commodity pool to a Designated CPO and the

requirements of Section IV.A are satisfied.

A. The Criteria.

The following facts (“Criteria”) must be satisfied to request CPO registration no-action

relief through the streamlined approach set forth in Section IV.B:

1. a

ugh the approach set forth in Section IV.B, if the Delegating CPO has delegated its

investment management authority over a commodity pool to a Designated CPO and the

requirements of Section IV.A are satisfied.

A. The Criteria.

The following facts (“Criteria”) must be satisfied to request CPO registration no-action

relief through the streamlined approach set forth in Section IV.B:

1. a. Pursuant to a legally binding document,13 the Delegating CPO has delegated to the

Designated CPO all of its investment management authority with respect to the

commodity pool;

b. The Delegating CPO does not participate in the solicitation of participants for the

commodity pool; and

c. The Delegating CPO does not manage any property of the commodity pool.

2. The Designated CPO is registered as a CPO.

3. The Delegating CPO is not subject to a Statutory Disqualification.

4. There is a business purpose for the Designated CPO being a separate entity from the

Delegating CPO that is not solely to avoid registration by the Delegating CPO under

the CEA and the Commission’s regulations.

5. The books and records of the Delegating CPO with respect to the commodity pool are

maintained by the Designated CPO in accordance with Regulation 1.31.

6. If the Delegating CPO and the Designated CPO are each a non-natural person, then

one such CPO controls, is controlled by, or is under common control with the other

CPO.

13

The legally binding document could include, but is not limited to, a separate delegation

agreement, a document that establishes the pool, or an investment management agreement

between the Delegating CPO and the Designated CPO.

n-natural person, then

one such CPO controls, is controlled by, or is under common control with the other

CPO.

13

The legally binding document could include, but is not limited to, a separate delegation

agreement, a document that establishes the pool, or an investment management agreement

between the Delegating CPO and the Designated CPO.

6

7. If a Delegating CPO is a non-natural person, then such Delegating CPO and the

Designated CPO have executed a legally binding document whereby each undertakes

to be jointly and severally liable for any violation of the CEA or the Commission’s

regulations by the other in connection with the operation of the commodity pool.

8. If a Delegating CPO is a natural person and is not an Unaffiliated Board Member, as

defined below, then such Delegating CPO and the Designated CPO have executed a

legally binding document whereby each undertakes to be jointly and severally liable

for any violation of the CEA or the Commission’s regulations by the other in

connection with the operation of the commodity pool.

9. If a Delegating CPO is an Unaffiliated Board Member, then such Delegating CPO

must be subject to liability as a Board member in accordance with the laws under

which the commodity pool is established.

For purposes of this letter, the term “Unaffiliated Board Member” means a natural person

who is a voting member of the board of directors or an equivalent governing body of the

commodity pool who: (i) is not a member of the management or an employee of the Designated

CPO or any affiliate thereof; (ii) is not a substantial beneficial owner of the Designated CPO or

any affiliate thereof or of any company holding more than 5% of such Designated CPO’s

beneficial ownership interests or any affiliate thereof; and (iii) has no other interest or

relationship that could interfere with his/her ability to act independently of management of the

Designated CPO or any affiliate thereof or of any company holdin

a substantial beneficial owner of the Designated CPO or

any affiliate thereof or of any company holding more than 5% of such Designated CPO’s

beneficial ownership interests or any affiliate thereof; and (iii) has no other interest or

relationship that could interfere with his/her ability to act independently of management of the

Designated CPO or any affiliate thereof or of any company holding more than 5% of such

Designated CPO’s beneficial ownership interests or any affiliate thereof.14

B. Requesting Relief.

To request relief using the streamlined approach, the Delegating CPO(s) must submit a

request for relief pursuant to Regulation 140.99 in the form of the Attachment to this letter. The

request must include the following:

1.

The name, main business address, main business telephone number and name of a

contact person of each of the Delegating CPO(s) and the Designated CPO;15

14

Whether a director has an interest or relationship under clause (iii) will be based on the

relevant facts and circumstances. For example, interests or relationships that are indicative of an

affiliation with the Designated CPO that could trigger clause (iii) may include: the director being

a material service provider or investment counterparty to the Designated CPO or any of its

affiliates, or is, or within the past three years was, employed in an executive capacity by, or was

a principal or employee of, a material service provider or investment counterparty to, the

Designated CPO or any of its affiliates.

15

If the request is made by a person other than the person on whose behalf the Letter is

sought, the request must also contain the name, main business address and main business

telephone number of the requestor. See Regulation 140.99.

capacity by, or was

a principal or employee of, a material service provider or investment counterparty to, the

Designated CPO or any of its affiliates.

15

If the request is made by a person other than the person on whose behalf the Letter is

sought, the request must also contain the name, main business address and main business

telephone number of the requestor. See Regulation 140.99.

7

2.

The NFA ID Number of the Designated CPO;

3.

The name(s) of the commodity pool(s) with respect to which relief is being

sought;16

4.

A representation that the applicable Criteria are met;17 and

5.

A statement from the Designated CPO acknowledging that it has been designated

as the registered CPO of the commodity pool(s) and that it satisfies the applicable

Criteria.18

The Division intends to issue responses to each request for relief made pursuant to this

letter.

* * * * *

If you have any questions concerning this letter, please contact the undersigned at (202)

418-5977, Erik Remmler, Deputy Director, at (202) 418-7630, Barbara S. Gold, Associate

Director, at (202) 418-5441, or Israel Goodman, Special Counsel, at (202) 418-6715.

Very truly yours,

Gary Barnett

Director

Division of Swap Dealer

and Intermediary Oversight

16

A single request for relief may be requested by a Delegating CPO with respect to

multiple commodity pools.

17

The representation may be made by an authorized representative of the Delegating

CPO(s).

18

The acknowledgement may be made by an authorized representative of the Designated

CPO.

and Intermediary Oversight

16

A single request for relief may be requested by a Delegating CPO with respect to

multiple commodity pools.

17

The representation may be made by an authorized representative of the Delegating

CPO(s).

18

The acknowledgement may be made by an authorized representative of the Designated

CPO.

8

ATTACHMENT

Form of Request

Gary Barnett

Director

Division of Swap Dealer and Intermediary Oversight

Commodity Futures Trading Commission

1155 21st Street N.W.

Washington, D.C. 20581

Re: Request by Delegating Commodity Pool Operator for No-Action Relief

from the Requirement to Register as a Commodity Pool Operator

under Section 4m(1) of the Commodity Exchange Act

Dear Mr. Barnett:

In accordance with the requirements of Commodity Futures Trading Commission

(“CFTC” or “Commission”) Regulation 140.99, request is hereby made that the Division of

Swap Dealer and Intermediary Oversight (“Division”) not recommend that the Commission

commence an enforcement action for failure to register as a commodity pool operator (“CPO”)

under Section 4m(1) of the Commodity Exchange Act against each Delegating CPO named

herein. This letter is submitted pursuant to CFTC Staff Letter 14-69 and the Delegating CPO(s)

named below represent(s) that all of the applicable Criteria” are met. Capitalized terms used in

this letter have the meaning given to such terms in CFTC Staff Letter 14-69.

1. The name, main business address, main business telephone number, and contact

person of the Delegating CPO(s) are as follows:

a. Name:________________________________.

b. Main business address:________________________________.

c. Main business telephone number:________________________.

d. Contact person:________________________________.

2. The name, main business address, main business telephone number, and contact

person of the Designated CPO are as follows:

a

rson of the Delegating CPO(s) are as follows:

a. Name:________________________________.

b. Main business address:________________________________.

c. Main business telephone number:________________________.

d. Contact person:________________________________.

2. The name, main business address, main business telephone number, and contact

person of the Designated CPO are as follows:

a. Name:________________________________.

b. Main business address:________________________________.

c. Main business telephone number:________________________.

d. Contact person:________________________________.

3. The NFA identification number of the Designated CPO is ____________.

4. The name of the commodity pool(s) with respect to which the Delegating CPO(s)

is/are requesting relief is/are: _____________________.

9

Attached as “Exhibit A” to this request is the certification and undertaking required by

Commission Regulation 140.99(c)(3). Attached as “Exhibit B” to this request is the

acknowledgement of the Designated CPO required by CFTC Staff Letter No. 14-69.

Very truly yours,

______________________

[Delegating CPO(s) or

Authorized Representative]

10

EXHIBIT A

Certification and Undertaking pursuant to Regulation 140.99

I hereby certify that the material facts set forth in the attached letter dated _______ are

true and complete to the best of my knowledge. If at any time any material representation made

in the attached letter ceases to be true and complete, I will ensure that Division staff is informed

promptly in writing of all materially changed facts and circumstances.

Very truly yours,

_______________________

[Delegating CPO(s) or

Authorized Representative]

f my knowledge. If at any time any material representation made

in the attached letter ceases to be true and complete, I will ensure that Division staff is informed

promptly in writing of all materially changed facts and circumstances.

Very truly yours,

_______________________

[Delegating CPO(s) or

Authorized Representative]

11

EXHIBIT B

The Designated CPO hereby acknowledges that it has been designated as the registered

CPO of the commodity pool(s), as set forth in the attached letter dated _______. The Designated

CPO hereby represents that it meets all of the applicable Criteria.

Very truly yours,

______________________

[Designated CPO/s or

Authorized Representative]