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Interpretative Letters

Date
Interpretative Letters
02/05/1997
97-07 PDF Image; Rule 4.10(d); Interpretation
The Division of Trading and Markets confirmed that a limited partnership, formed for the purpose of investing in land rule estate, was not a commodity pool within the meaning and intent of Rule 4.10(d) where interests in the limited partnership were held by an individual and a family partnership solely consisting of immediate family members of the individual.
03/26/1997
97-26 PDF Image; Section 4m(1); Interpretation
In response to an inquiry concerning whether an individual could claim an exemption from CTA registration under Section 4m(1), the Division of Trading and Markets stated the two conditions were required in order to claim the exemption. First, during the course of the preceding twelve months, the person has not furnished commodity interest trading advice to more than fifteen persons, and secondly, the individual does not hold himself out to the public as a CTA.
03/21/1997
97-29 PDF Image; Rule 4.10(d)(1) & Rule 4.7(a)(1)(ii)(B)(2)(viii); Interpretation
The Division of Trading and Markets found that a partnership consisting of a husband and wife, custodial accounts for their children, and trusts established for the benefit of the husband or wife and their descendants was not a commodity pool within the meaning and intent of Rule 4.10(d)(1) and, consequently, that the General Partner was not a CPO thereof. Because the partnership qualified for treatment as a QEP under Rule 4.7(a)(1)(ii)(B)(2)(viii), the Division did not address the request for relief from the ten percent restriction imposed on the assets of a Rule 4.7(a) exempt pool that may be used to purchase units in other Rule 4.7(a) exempt pools where not all the investors in the investor fund will be QEPs.
03/26/1997
97-38 PDF Image; Act Section 4d; Rules 1.20 et seq.; Interpretation
The Division advised that neither the Commodity Exchange Act nor the Commission's rules promulgated thereunder would be violated if a registered investment adviser (RIA) provided cash management services to futures commission merchants (FCMs) with respect to segregated customer funds (provided that the RIA will have limited power of attorney or comparable limited discretion, and provided that each FCM client will maintain appropriate internal controls). Such services would include purchase and sale of instruments permitted by Rule 1.25, execution of reverse repurchase agreements and consummation of reverse repurchase transactions. The RIA would not handle customer funds, securities purchased with such funds, or proceeds of sales of such securities. Each individual FCM's customer funds would be separately accounted for, and the RIA's compensation would be paid directly by its client FCM, without use of customer funds. The Division stated it did not believe that the described activities would require the RIA to register with the Commission in any capacity.
06/09/1997
97-43 PDF Image; Rule 4.14(a)(6); Interpretation
The Division of Trading and Markets addressed the availability of the Rule 4.14(a)(6) exemption from registration as a commodity trading advisor (CTA) to introducing brokers (IBs) which manage customers accounts based upon commodity trading signals generated by systems developed by third parties (Third Party Advisors). The Division confirmed that when IBs enter into such arrangements, the registration status of the Third Party Advisor is a relevant factor to be considered in applying Rule 4.14(a)(6), but warned that if the Third Party Advisor is not registered as a CTA (but should be so registered), it may not be necessary to reach a determination under Rule 4.14(a)(6) since the IB may be violating the Commodity Exchange Act by aiding and abetting the Third Party Advisor in a violation of the CFTC's CTA registration requirements.
06/24/1997
97-52 PDF Image; Rules 4.10(d)(1) & 4.7(a)(1)(ii)(B)(2)(viii); Interpretation
The Division confirmed that a limited partnership (the Partnership) formed solely to serve the investment purposes of the family of a QEP in which the limited partners of the Partnership will be members of the family and trusts established for the benefit of members of the family is not a commodity pool within the meaning and intent of Rule 4.10(d)(1) and, consequently, that the general partner of the Partnership is not a CPO thereof. In addition, the Division confirmed that the Partnership will qualify as a QEP pursuant to Rule 4.7(a)(1)(ii)(B)(2)(viii) because the Partnership will have total assets in excess of $5 million, will not be formed for the specific purpose of investing in a Rule 4.7(a) exempt pool and the Partnership is not a pool.
07/15/1997
97-63 PDF Image; Section 4m(1) of the Act; Interpretation
The Division of Trading and Markets confirmed that a news wire service which wished to provide a listing of daily estimated rates of return and information on the net asset values of publicly offered pools would be excluded from the definition of a commodity trading advisor and would not appear to be otherwise violating the Commodity Exchange Act or Commission rules in publishing the listing. The news service represented that it would offer the listing in a manner that was solely incidental to its general financial reporting services. The information contained in the listing would be calculated by the pools' commodity pool operators (CPOs) and any calculations would be done in a manner consistent with Commission rules. Only data from pools operated by registered CPOs would be used. The Division emphasized that the CPOs remained subject to all applicable regulations and could be subject to enforcement action if they submitted false or misleading information to the news service. The news service also affirmed that it would print certain disclaimers in connection with the listing, including statements that the information contained therein may be estimated and was not independently verified.
07/15/1997
97-64 PDF Image; Rule 4.7, 4.31, 4.33; Interpretation
The Division of Trading and Markets addressed the applicability of Rules 4.7, 4.31, and 4.3 3 to a registered commodity trading advisor (CTA) located in Germany that wished to expand its client base to include qualified eligible clients in the United States. The Division explained the relief from the disclosure and recordkeeping requirements of Rules 4.31 and 4.33 made available to qualifying CTAs by Commission Rule 4.7(b). Regarding a question concerning the sufficiency of the CTA's recordkeeping arrangements for a particular client, the Division noted that Rule 4.33 requires that a registered CTA maintain at its main business office the books and records specified in the rule, but explained that the Division had granted relief from the location requirement of Rule 4.33 where a CTA has demonstrated a need to maintain its books and records at a location other than its main business office.
08/25/1997
97-74 PDF Image; Rule 3.10; Interpretation
The Division of Trading and Markets provided interpretative advice regarding the regulatory requirements under the Commodity Exchange Act for forming an FCM or IB. The staff advised that Rule 3.10 requires that certain documents be submitted to NFA, and that Rule 3.34 requires that registrants attend ethics training as specified in the rule. The staff noted that nothing in the Act or Commission rules prohibits a bank from registering as an FCM or IB, although due to certain financial requirements as well as restrictions imposed by banking regulators, banking enterprises generally create a subsidiary or affiliate to act as an FCM or IB.
09/10/1997
97-80 PDF Image; 1a(5); Interpretation
The Division of Trading and Markets provided interpretative guidance in response to any inquiry concerning whether a futures commission merchant (FCM) needed to register as a commodity trading advisor (CTA) if it solicited and managed retail customer accounts. The Division noted that Section la(5) of the Commodity Exchange Act provides a statutory exclusion from the CTA definition for certain categories or persons, among which are FCMs, who provide commodity interest trading advice in a manner "solely incidental" to the conduct of their business or profession. The Division noted that as a general rule, the Commission has not required an FCM which manages a customer's commodity interest account to register as a CTA so long as the firm is acting as an FCM with respect to the account, i.e. carrying the account on its books and accepting customer funds in a connection with commodity interest transactions.
11/18/1997
97-97 PDF Image; 1a(4) and 1a(5); Interpretation
The Division of Trading and Market provided interpretative guidance in response to an inquiry concerning the ability of a registered futures commission merchant (FCM) also to be registered as a commodity trading advisor (CTA) or commodity pool operator (CPO). The Division noted that nothing in the Act or in the Commission's rules prohibited an FCM from also being registered as a CPO or CTA. The Division explained that pursuant to Rule 4.13(a)(2), an FCM could claim an exemption from CPO registration if the aggregate gross value for all commodity pools operated by the FCM did not exceed $200,000 and none of the pools contained more than fifteen participants at any time. Furthermore, Section la(5) of the Act provides a statutory exclusion from the CTA definition for certain categories of persons which includes, among others, banks, teachers and FCMs who provide commodity trading advice in a manner "solely incidental" to the conduct of their business or profession. The Division explained that, as a general rule, the Commission has not required an FCM which manages a customer's commodity interest account to register as a CTA so long as the firm is acting as an FCM with respect to the account, i.e., carrying the account on its books and accepting customer funds in connection with commodity interest transactions.
02/21/1997
98-04 PDF Image; Section 4m(1); Rule 4.23(a); Interpretation
The Division of Trading and Markets confirmed that "A," a registered CPO that performed certain recordkeeping and administrative functions on behalf of "B" and "C," two other registered CPOs, would not be deemed to be a CPO with respect to the pools operated by B and C (although A would still be an agent and fiduciary of "B" and "C"). Comptemporaneously, the Division exempted "B" and "C" (in connection with "A"'s performance of recordkeeping services on their behalf) from the requirements to maintain at their main business offices the books and records specified in Rules 4.23(a)(1) and (a)(2), 4.23(a)(4) through (a)(8) and 4.23(a) (10) and (a) (11), provided that, among other things: (1) duplicates of such records would be kept, respectively, at "B"'s and/or "C"'s main business office; and (2) all books and records would be available to Commission or Justice Department representatives.
12/03/1997
98-13; Section 1a(11) and 2(a)(1)(A)(i) of the CEAct; Interpretation
On December 3, 1997, the CFTC's Division of Economic Analysis issued an interruptive letter indicating that, in its view, certain transactions in agricultural commodities are forward contracts. The contracts are to be entered into between commercial agricultural participants for a set amount of commodity. The price of the commodity is determined at the delivery and will be bounded by minimum and maximum prices. The contracts create binding delivery obligations and will be for a set amount of commodity which does not vary depending upon the commodity's price level. Cancellation of the contracts absent an event beyond the parties' control is not to be permitted.

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