CFTC Letter 03-25

CFTC letter No. 03-25 

June 3, 2003 

No-Action 

Division of Clearing and Intermediary Oversight

X 

XX 

XXX 

XXXX 

XXXXX 

Re: Request for relief with respect to CTA performance disclosure requirements under Rule 4.35 

Dear X: 

This is in response to your letter dated October 28, 2002, to the Division of Clearing and Intermediary 

Oversight ("Division") of the Commodity Futures Trading Commission ("Commission"), as 

supplemented by your letter dated January 15, 2003 and by telephone conversations with Division staff. 

By your correspondence, you request that the Division confirm that it will not recommend that the 

Commission commence any enforcement action against XXX (“XXX”), a registered commodity trading 

advisor (“CTA”), regarding its presentation of past performance in accordance with Commission Rule 

4.35.[1]

Based upon your representations, we understand the facts to be as follows. XXX is an investment 

adviser (“IA”) registered with the Securities and Exchange Commission (“SEC”), as well as a registered 

CTA and member of National Futures Association (“NFA”). XXX uses exchange-traded index put 

options as a hedging mechanism to offset downside equity risk for a portion of the securities portfolios 

that XXX manages on behalf of its clients. While XXX has one basic trading program or strategy, 

trading for each client account may vary from the recommended strategy as the clients themselves may 

implement restrictions on certain securities, sectors, or allocations. Specifically, for a variety of reasons, 

at any point in time XXX may have a small number of accounts whose rates of return are not materially 

similar to other accounts in the program, and these may not be the same accounts from month to month. 

As of May 31, 2002, XXX had approximately 9000 clients, of which only two had open futures 

positions. These two accounts comprised one million dollars of the eleven billion dollars under 

management by XXX – less than 0.1%. XXX’s most recent disclosure document filed with NFA 

indicates that as of December 31, 2002, XXX did not manage any accounts with open futures positions. 

You have represented that XXX is regulated and subject to examination by the SEC. XXX’s advisory 

activities are directed principally to clients’ securities portfolios and its use of futures and options on 

futures is minimal and primarily limited to hedging purposes. You have further represented that in its 

recent audit of XXX, the SEC did not note any issues regarding XXX’s disclosure of past performance 

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CFTC Letter 03-25

under SEC regulations. 

Based on the foregoing, in particular, that less than 1% of XXX’s assets under management represent 

commodity interest trading, and the fact that XXX is a registered IA, subject to regulation by the SEC, 

the Division believes that granting XXX relief from the specific disclosure requirements of Rule 4.35 is 

not contrary to the public interest, and the purposes of the Commodity Exchange Act (“Act”)

[2] and the 

Commission’s rules thereunder. Therefore, the Division will not recommend that the Commission 

commence any enforcement action against XXX based solely upon its failure to present its past 

performance information pursuant to the specific requirements of Rule 4.35, provided that XXX remains 

in compliance with applicable requirements under securities laws and its commodity interest trading 

continues to represent less than 1% of its assets under management.[3]

The no-action position taken in this letter does not excuse XXX from compliance with any other 

applicable requirements contained in the Act or in the Commission’s regulations. In this regard, XXX 

remains subject to all of the antifraud provisions of the Act,[4] to the reporting requirements for traders 

set forth in Parts 15, 18 and 19 of the Commission’s rules, and to all applicable provisions of Part 4. 

Moreover, this letter is applicable to XXX solely in connection with the activities described in your 

correspondence. 

This letter, including the no-action position granted herein, is based upon the representations that have 

been made to the Division. Any different, changed, or omitted facts or conditions might render this 

position void. You must notify the Division immediately in the event the operations or activities of XXX 

change in any material way from those represented to the Division. Further, the no-action position taken 

in this letter represents the position of this Division only and does not necessarily represent the position 

of the Commission or of any other Office or Division of the Commission. 

If you have any questions concerning this correspondence, please contact Kevin P. Walek, Assistant 

Director, at (202) 418-5463. 

Very truly yours, 

Jane Kang Thorpe 

Director 

cc: Regina Thoele, Managing Director, Compliance, NFA 

[1] Commission rules cited herein are found at 17 C.F.R. Ch. 1 (2002).

[2] 7 U.S.C. § 1 et seq. (2000).

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CFTC Letter 03-25

[3] See 15 U.S.C. 80b-1 et. seq. (2000), and regulations thereunder.

[4] See, e.g., 7 U.S.C. §§ 6b and 6o (2000). 

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