COMMODITY FUTURES TRADING COMMISSION 

2033 K STREET, N.W., WASHINGTON, D.C. 20581 

c§5- J8 

DIVISION OF 

TRADING AND MARKETS 

Dear 

October 16, 1985 

Re: Regulatory Requirerrents Applicable to the 

aperation of a Foreign Commodity Pool. 

This is in response to your letter dated July 12, 1985, as 

supplemented by the Confidential Information Memorandum dated June 26, 1985, 

in which you requested in connection with the operation by the Investment 

ConsultaJlt of the Company, a British Virgin Islands corporation, and its 

wholly-otlned Subsidiary, a Netherlands Antilles corporation, relief from 

certain of the requirements applicable to Ca'.l!Ta1ity pool operators ("CPOs") 

under Sections 4k(2), 4m and 4n of the Canrrodity Exchange Act (the "Act"), 7 

U.S.C. §§6k(2) , 6m and 6n, and the regulations promulgated by the Commission 

thereunder. y 

From the representations nade in your letter, as supplerrented, we 

understand tbe facts to be as follows: 

The Carpany is being organized for the principal 

purpose of engaging in securities arbitrage trading 

activities in the United States and other major 

international securities markets. These activities 

will involve, am:::mg other things, trading in 

securities, and options on securities, of one or more 

participants in an extraordinary corporate transaction, 

such as a rrerger or acquisition, leveraged buyout, 

liquidation, reorganization, recapitalization or 

bankruptcy. . . . Substantially all trading activities 

conducted by the Cornpany will be carried out through 

the Subsidiary. 

J:./ See, ~, Part 3, 17 C.F .R. Part 3 (1985) , which prescribes registration 

requirerrents for CPOs (and ti1eir principals and associated persons) and 

Part 4, 17 C.F .R. Part 4 (1985), which prescribes operational, 

disclosure, reporting and recordkeeping requirements for CPOs. 
Page 2 

.•. [I]n addition to the securities arbitrage 

trading activities referred to above, the Company may 

also engage to a lesser extent in other investment and 

trading activities. In that connection, ... the 

Company may engage in trading conrrodity futures and 

options contracts for speculative purposes. 

Ho.Never, . . . the Canpany has adopted an investment 

restriction, . . . prohibiting the corrrnitroent of rrore 

than 10% of the Canpany' s total assets to initial 

margin deposits or premiums for commodity futurP.s or 

options contracts. ?J 

v~i th the exception noted below, shares of the 

Company are being offered outside the United States 

exclusively to investors who are not "United States 

Persons" (as defined ..• ) . Shares may not generally 

be awned by or transferred to any United States Person, 

ru1d violation of the applicable restrictions on share 

o.Nnership and transfer may result in compulsory 

redemption of shares and finru1cial penalties. As 

indicated [in] . . . the Information Herrorandurn, 10% of 

the Company's Corrrron Shares will be o.Nned by "X", a New 

York partnership which is one of the owners of the 

Invesbrent Consultant. The Canpany does not intend to 

pemit any United States Person other than "X" to 

aCXIUire any shares of the Canpany. 

The Canpany' s investments will be managed by the 

Investment Consultant. The Investment Consultant is 

registered as a broker-dealer under the Securities 

Exchange Act. of 1934 and as an invesment adviser under 

the Investment Advisers Act of 1940 and is a member of 

the leading securities exchanges in the United States. 

In connection with the proposed activities of the 

Company, the Investment Consultant intends to register 

with the Carmission as a CPO. . 

Neither the Campany nor the Subsidiary will 

maintain an office in the United States. The Campany' s 

office in the British Virgin Islands will be maintajned 

by ·the Administrator of the Canpany, a British Virgin 

Islands corporation, and the Subsidiary's office in the 

Netherlands Antilles will be maintained by the Hanaging 

Director of the Subsidiary, a Netherlands Antilles 

corporation. The Administrator of the Canpany and the 

2/ This restriction is set fortll on page 12 of the Information Merrorandurn. 
Page 3 

Managing Director of the Subsidiary will be responsible 

for the following matters relating to the Company and 

the Subsidiary: (a) maintaining corporate and 

financial books and records; (b) preparing quarterly 

and annual financial staterrents; (c) computing the 

monthly net asset value of shares; (d) providing 

subscription agent, registrar, transfer agent and 

dividend disbursing agent services in connection with 

the issuance, transfer and redemption of shares and the 

payrrent of dividends thereon; and (e) performing all 

other accounting, administrative and clerical services 

necessary in connection with the affairs of the Company 

and the Subsidiary. The Administrator of the Company 

and the Managing Director of the SUbsidiary (which are 

under the canrron ownership and control of an 

international financial institution based in the 

Netherlru1ds) are engaged exclusively in the business of 

providing local corporate administrative and management 

services, canparable to those being provided to the 

Company and its Subsidiary, on behalf of corporations 

dOI11iciled in the British Virgin Islands and the 

Netherlands Antilles. • • • [T]he Administrator of the 

Company and the Managing Director of the Subsidim:y 

will receive a fixed annual fee based on the net assets 

of the Company. The Administrator of t.he Company and 

the Managing Director of the Subsidiary will not 

otherwise have any financial interest or participation 

in the Company or the Subsidiary nor receive any 

separate remuneration in connection with sales of the 

Company' s shares. Neither t.he Administrator of the 

Company nor the Managing Director of the Subsidiary 

maintains an office or transacts any business within 

the United States • 

• • • [T]he Company has undertaken to furnish to 

its shareholders an annual report including audited 

financial staterrents within 120 days follCMing the 

close of each fiscal year and quarterly reports 

including unaudited financial staterrents within 75 days 

follCMing the close of each intedm quarterly period. }/ 

••• [I]n addition to the items specifically 

referred to above, the Information Memorandum discloses 

3/ These requirements are set forth on page 30 of the Information 

Ivlerrorandum. 
Page 4 

information concerning, among other things, the 

business background of the Investment Consultant; fees 

and expenses payable by the Canpany and the Subsidiary; 

potential conflicts of interest; borrCMing policies 

and brokerage arrangerrents; the attributes of the 

Company' s shares, and the dividend, redemption, voting 

and other rights, privileges and restrictions 

applicable thereto; and ta'{ considerations. jj 

In further support of the relief requested, by letter dated 

Septerrber 23, 1985, the Investment Consultant made the follCMing additional 

representations: 

The ability of the Canpany to trade in comrrodity 

interests to a limited extent is intended to add to the 

Company's investment performance potential but is not 

intended to be a primary investment objective, and in 

our judgrrent, the financial success of the Company is 

not dependent up::m its ability to trade in corrrrcx::1ity 

interests. 

All of the beneficial owners of "X", a Ne.v York 

general partnership which holds a 50% interest in the 

Investment Consultant and holds 10% of the outstanding 

Common Shares of the Company, are professional 

employees of the Investment Consultant. (Such 

individuals participate in "X" through separate 

corporations which each of them controls. ) 

Based upon the foregoing representations, and as you have requested, 

pursuant to the authority delegated by Rule 140.93(a) (1), 17 C.F.R. 

§140.93(a) (1) (1985), the Division has determined to exempt the Invesbnent 

Consultant from certain of the requirements applicable to registered CPOs 

under Rules 4.21, 4.22 and 4.23. 5/ Rule 4.21 essentially requires each 

registered CPO to provide prospective pool participants with a Disclosure 

DocwTent containing specified inforrnat.ion and to file three copies of the 

Docwnent with the Carrmussion. Rule 4.22 essentially requires each registered 

4/ OUr review of the Information Hernorandum confinns these disclosures. 

~ Of course, and as you have acknCMledged, this exemption will only becc::m:.:; 

applicable upon the effectiveness of the registration of the Investment 

Consultant as a CPO. In this regard we note, and as was explained by 

Division staff in a telephone conversation with you on July 31, 1985, 

prior to effectiveness of registration the Investment Consultant m~y not 

engage in any cOI'l'lll'O<li ty interest trading -- i.e. , neither for hedging nor 

~)8culative purposes -- on behalf of the Company. 
Page 5 

CPO to furnish pool participants with periodic Account Statements and a 

certified Annual Report containing specified information and to file three 

copies of the Report with the Commission. Rules 4.23(a) (10) and 4.23(a) (11) 

respectively require each registered CPO to make and keep periodic Statements 

of Financial Condition and of Incare (Loss). Specifically 1 the Division has 

determined (1) to accept the Information Merrorandum of the Company 1 as it has 

been submitted to the Division in connection with our consideration of this 

request and as it may be arrended from ti.rre to ti.rre , 6 I as compliance with 

Rule 4 . 21; ( 2) to accept the unaudited quarterly reports and the audited 

annual reports of the Company as compliance with Rule 4.22; 71 and (3) to 

exempt the Investment Consultant from the requirerrents of Rules 4.23 (a) (10) 

and (a) (11) . 

You further have requested that we exempt the Investment Consultant 

from the requirerrent in Rule 4.23(a) to maintain at its main business office 

the books and records specified in paragraphs (2) 1 (4) 1 (5) 1 (6) 1 (8) and (9) 

of that rule, which basically pertajn to such financial records of the 

Company as are intended to be made and kept by the Administrator -- ~' a 

journal of original entry. 81 In support of this request, and in lieu of 

specific compliance with this requirerrent, you have represented that: 

( i) any such books and records which are not maintained 

at the main business office of the Investment 

Consultant will be maintained at the main business 

office of the Canpany or of the Subsidiary, and (ii) 

upon the request of the Commission represP~tative 1 the 

Investment Consultant will provide such books and 

records as requested at its main business office within 

72 hours after the Investment Consultant receives the 

request. 

61 This exemption presumes that any amendrrents to the Information Me:rrorandum 

will not materially alter the nature and scope of the discloffirres 

currently and planned to be made therein. 

7 I For this purpose, the requirements of Rule 4 . 2 2 (a) shall be satisfied by 

the quarterly reports and the requirerrents of Rule 4.22(c) shall be 

satisfied by the annual reports. 

81 'I'he other paragraphs of Rule 4.23 (a), for which you have not requested an 

exemption, basically pertain to records required of the Canpany' s trading 

activity, for which it is intended that the Investment Consultant will be 

responsible. 

You have not also requested, however, and therefore by tl1is letter we are 

not also considering, any such exemption from Rule 4. 23 (b) , which 

(Footnote continued) 
Page 6 

In light of the previous representations you have made to us 

concerning the Company' s overall operations, we believe that these 

representations concerning certain of the Company's books and records meets 

the spirit and intent of Rule 4.23. 9/ Accordingly, pursuant to the 

authority delegated by Rule 140.93(a)(l), your request for exemption fran 

Rule 4.23(a) is hereby granted. 10/ 

Finally, you have sought relief from the application of Sections 

4k(2), 4m and 4n of the Act and the regulations promulgated by the Commission 

thereunder on behalf of the Administrator and the Managing Director and in 

connection with their performance of services on behalf of the Company and 

the Subsidiary. Sections 4k(2), 4m and 4n concern the registration, 

reporting and related requirements of CPOs (and their principals and 

associated persons). 

In support of this request, you have noted the follo:.rving to us: 

(i) the prohibition against ownership of the Company's 

shares by "United States Persons" (other than "X"), 

(ii) the fact that the Company, the Subsidiary, the 

Administrator of t.he Canpany and the Managing Director 

of the Subsidiary do not and will not maintain any 

office in the United States, and (iii) the limited 

nature of the Company's proposed cormodity trading 

acti vi tie~:;, and [the intended) registration of t.he 

Investrcent Consultant as a CPO and its compliance with 

all requirerrents applicable to it in its capacity as 

the CPO of the Company pursuant to the Act and the 

regulations thereunder (except as exempted by order of 

the Commission) , • . . 

(Footnote continued) 

requires each registered CPO to make and keep certain books and records 

on its personal trading (and on that of its principals). 

2._/ In this regard, we note that Rule 4. 23 generally requires that where the 

main business office of the CPO is outside the United States, upon the 

request of a Commission representative the CPO must produce books and 

records at the place designated within 72 hours after receipt of the 

request. The purpose of this provision is to ensure that the Commission 

has "meaningful access" to the information contained in those documents. 

See 45 Fed. Reg. 51600, 51603 (August 4, 1980). 

10/ Here, too, and as you also have ackno:.rvledged, this exemption will only 

become applicable upon the effectiveness of the registrat.ion of the 

Investment Consultant as a CPO. 
Page 7 

We further note that Commission staff previously has provided relief 

similar to that which you have requested based on facts similar to those at 

issue here. Specifically, the staff has stated that it would not recornrend 

enforcement action based upon the failure of a person operating a commodity 

pool outside of the United States to register as a CPO where the follcwing 

facts are present: (1) such person is located outside the territorial United 

States; (2) such person confines its pool activities to areas outside the 

territorial United States; (3) none of the participants in the pool is a 

resident or citizen of the United States; 11/ and (4) no funds or other 

capital are contributed to the pool from United States sources. See CFTC 

Staff Interpretative Letter No. 76-21 [1975-1977 Transfer Binder] Camm. Fut. 

L. Rep. (CCH) ~20,222 (August 15, 1976). 12/ 

Accordingly, based upon the foregoing and pursuant to the authority 

delegated by Rule 140.93(a) (1), the Division will not recommend that the 

Commission take any enforcement action against the Administrator and the 

Managing Director in connection with their perforrrence of services on behalf 

of the Canpany and the Subsidiary for failure to comply with Sections 4k(2), 

4m and 4n of the Act and the regulations prcm11lgated thereunder. 

\ve note that this letter does not excuse the Investnent Consultant, 

the Administrator or the Managing Director from compliance with any other 

applicable requirements contained in the Act or in the Commission's 

regulations thereunder. For exanple, they would remain subject to the 

anti-fraud provisions of Section 4o of the Act, 7 U.S.C. §6o (1982) , and to 

the reporting requirements for traders set forth in Parts 15, 18 and 19 

(1985). Also, the Investment Consultant would remain subject to the 

reparations provisions of Section 14 of the Act, 7 U.S.C. §18 (1982). 

Finally, this exemption is applicable solely with respect to the operation of 

the Company and the Subsidiary. 13/ 

11/ For these purposes, we do not believe that "X" , one of the owners of the 

Investnent Consultant, should be deerred to be a participant. See Rule 

4.13(a) (2) (ii) which, for purposes of determining the availability of an 

exemption from registrat.ion for the CPO of a "family, club or small" 

pool, excludes from the canputation of "no ITDre than 15" participants 

allowable under that exemption such persons as certain imrediate family 

merrbers of the CPO. 

12/ See also, Division of Trading and Markets Interpretative Letter No. 84-2 

[1982-1984 Transfer Binder] Camm. Fut. L. Rep. (CCH) ~21,983 

(January 17, 1984). 

13/ It appears that the Investment Consultant may be exempt from registration 

as a comrodity trading advisor pursuant to Rule 4.14(a) (4). That 

regulation exempts from registration as a. corrm:xli. ty trading advisor any 

(Footnote continued) 
Page 8 

This letter is based on the infonnation that has been provided to us. 

Any different, changed or omitted facts or conditions might require us to 

reach a different conclusion. In this connection, we request that you notify 

us .im:rediately in the event the operations of the Canpany or the SUbsidiary, 

including the restrictions on corrm::xlity interest trading, change in any way 

from that as represented to us. 

Very truly yours, 

Andrea M. Corcoran 

Director 

cc: Daniel A. Driscoll, National Futures Association 

{Footnote continued) 

person who is registered under the Act as a CPO and whose corrm:xlity 

trading advice is directed solely to, and for the sole use of, 1:he pool 

or pools for which it is so registered.