Consistent with CFTC Staff Letters 12-37 and 14-143, and its past practice in this area, the Division granted no-action relief from CPO and CTA registration to a family office that provides investment management and a...

Summary: Consistent with CFTC Staff Letters 12-37 and 14-143, and its past practice in this area, the Division granted no-action relief from CPO and CTA registration to a family office that provides investment management and advisory services to a single family.

Division of Swap Dealer and

Eileen T. Flaherty

Intermediary Oversight

Director

U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-6700

Facsimile: (202) 418-5528

eflaherty@cftc.gov

CFTC Letter 16-46

No-Action

March 31, 2016

Division of Swap Dealer and Intermediary Oversight

RE:

Request for No-Action Relief from Commodity Pool Operator and Commodity

Trading Advisor Registration on behalf of “A”

Dear :

This letter is in response to your request submitted to the Division of Swap Dealer and

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

(“Commission” or “CFTC”) on July 17, 2015, (the “Correspondence”), on behalf of “A”. In the

Correspondence, you request that the Division not recommend that the Commission take an

enforcement action, pursuant to Section 4m(1) of the Commodity Exchange Act (“CEA”),1

against “A” for failure to register with the Commission as a commodity pool operator (“CPO”)

or commodity trading advisor (“CTA”), with respect to its management of assets belonging to

and provision of advisory services to its clients.

Background

“A” is a limited liability company that provides services to the family and descendants of

the “B Family”. “A’s” services to the “B Family” include asset allocation advice, investment

due diligence, investment management, recordkeeping assistance, tax advice, management and

administration of the various “B Family” investment entities, real estate management,

management and administration of trusts for the “B Family”, including providing trustees, as

well as numerous other responsibilities

Family”. “A’s” services to the “B Family” include asset allocation advice, investment

due diligence, investment management, recordkeeping assistance, tax advice, management and

administration of the various “B Family” investment entities, real estate management,

management and administration of trusts for the “B Family”, including providing trustees, as

well as numerous other responsibilities. You represent that “A” may from time to time

determine to invest in investment vehicles that invest in futures contracts or swaps, or directly

invest in futures or swaps. You also state that “A” provides advisory services, which may

include offering advice on the propriety and advisability of entering into commodity interest

transactions. Through each of these avenues, direct or indirect investment exposure to

1 7 U.S.C. 6m(1).

RE: No-Action Relief from CPO and CTA Registration for “A”

Page 2

commodity interests and providing advice as to whether a person should invest in commodity

interests, “A” could be determined to be a CPO or CTA for the “B Family”, and be required to

register as such with the Commission, absent an exemption, exclusion, or comparable relief

issued by the Division. You request no-action relief consistent with CFTC Staff Letters 12-37

and 14-143, which the Division issued based upon the “Family Office Exclusion” adopted by the

Securities and Exchange Commission (“SEC”) with respect to investment advisers (“IAs”).2

You represent that “A” satisfies all of the “family office” requirements of the SEC’s

Family Office Exclusion except that one of “A’s” clients and LLC members is not a “family

client” because she is the sister of a spouse of a lineal descendant of the “B Family” (“Sister-in-

Law”).3 You further state that the Sister-in-Law has important familial ties to her brother, her

brother’s wife (a “B” lineal descendant), and their children, which has resulted in her becoming

an integral part of the “B Family”

n except that one of “A’s” clients and LLC members is not a “family

client” because she is the sister of a spouse of a lineal descendant of the “B Family” (“Sister-in-

Law”).3 You further state that the Sister-in-Law has important familial ties to her brother, her

brother’s wife (a “B” lineal descendant), and their children, which has resulted in her becoming

an integral part of the “B Family”. You also represent that “A” filed an application for an order

of exemption with the SEC,4 and received in response an exemptive order declaring that “A” “is

a person not within the intent of section 202(a)(11)” of the Investment Advisers Act of 1940,

which statutorily defines the term “investment adviser.” “A” represented in its application to the

SEC that, “[“A”] does not hold itself out to the public as an investment adviser,” and “[“A”] is a

‘family office’ for the “B Family” and the [Sister-in-Law] (collectively, the ‘Extended “B

Family”’) and will not offer its Services to anyone other than the Extended “B Family”.”5

No-Action Relief for “A”

Based upon the foregoing, the Division believes it is appropriate to grant no-action relief

to “A” under these circumstances where the potential CPO/CTA does not hold itself out to or

solicit the public, and provides services only to a specific set of family member clients, thereby

2 See CFTC Staff Letter 12-37 (Nov. 29, 2012) and CFTC Staff Letter 14-143 (Nov. 5, 2014). CFTC Staff Letters

12-37 and 14-143 provided no-action relief from CPO and CTA registration, respectively, to entities able to meet the

terms of the exclusion from the investment adviser definition for “family offices” adopted by the SEC in 2011. See

17 CFR 275.202(a)(11)(G)-1 and 76 Fed. Reg. 37983 (June 29, 2011). CFTC Staff Letters may be found at the

Commission’s website, www.cftc.gov

. CFTC Staff Letters

12-37 and 14-143 provided no-action relief from CPO and CTA registration, respectively, to entities able to meet the

terms of the exclusion from the investment adviser definition for “family offices” adopted by the SEC in 2011. See

17 CFR 275.202(a)(11)(G)-1 and 76 Fed. Reg. 37983 (June 29, 2011). CFTC Staff Letters may be found at the

Commission’s website, www.cftc.gov.

3 The “family client” definition includes, among other categories, “family members,” who are “all lineal descendants

… of a common ancestor …, and such lineal descendants’ spouses or spousal equivalents; provided that the

common ancestor is no more than 10 generations removed from the youngest generation of family members.” See

17 CFR 275.202(a)(11)(G)-1(d)(5). This single client of “A” fits neither the “family member” nor the “family

client” definitions associated with the SEC’s Family Office Exclusion. Due to the Sister-in-Law’s participation, “A”

does not technically meet the terms of the exclusion and, therefore, cannot claim the CPO/CTA registration relief

provided to “family offices” by the Division in CFTC Staff Letters 12-37 and 14-143.

4 IAA Section 202(a)(11)(H); see Correspondence, Exhibit D, at 21.

5 Correspondence, Exhibit C, p. 4.

RE: No-Action Relief from CPO and CTA Registration for “A”

Page 3

limiting the Commission’s regulatory concerns and objectives. Accordingly, and consistent with

prior practice in this area,6 the Division will not recommend enforcement action against “A”,

pursuant to CEA Section 4m(1) for failure to register with the Commission as a CPO or CTA,

with respect to its operation of “A” as a “family office,” or its provision of advisory services to

the “B Family” and the Sister-in-Law. 7

This letter, and the positions 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

er with the Commission as a CPO or CTA,

with respect to its operation of “A” as a “family office,” or its provision of advisory services to

the “B Family” and the Sister-in-Law. 7

This letter, and the positions 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. The relief issued by this letter does not excuse “A” from

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

regulations issued thereunder. Further, this letter, and the relief contained herein, is based upon

representations made to the Division. Any different, changed or omitted material facts or

circumstances might render this letter void. Finally, the Division retains the authority to

condition further, modify, suspend, terminate, or otherwise restrict the terms of the relief

provided herein, in its discretion.

If you have any questions regarding this letter, please contact Amanda Olear, Associate

Director, at 202-418-5283 or aolear@cftc.gov, or Elizabeth Groover, Special Counsel, at 202-

418-5985 or egroover@cftc.gov.

Very truly yours,

Eileen T. Flaherty

Director

Division of Swap Dealer and

Intermediary Oversight

6 See, e.g., CFTC Staff Letters 96-11 (Jan. 18, 1996), and 14-104 (Jun. 20, 2014).

7 Alternatively, you request in the Correspondence interpretive relief that would permit reliance on CFTC Staff

Letters 12-37 and 14-143 by any “family office” granted an SEC exemptive order similar to that described in this

letter. Because of the no-action relief granted herein, the Division need not address that alternative request.