COMMODITY FUTURES TRADING COMMISSION 

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

DIVISION OF 

TRADING AND MARKETS 

Dear 

September 7, 1984 

Re; Regulation as a ccmrodi ty trading advisor or 

a carrrcx:1i ty pool operator. 

This is in response to your letter dated July 26, 1984, in which you 

requested on behalf of (the "Trust Canpany") our 

opinion that: (1) certain corporate employee benefit plan assets for which 

the Trust Carpany acts as a fiduciary would not be a "pool" within the 

meaning of Rule 4.10(d), 17 C.F.R. §4.10(d) (1983); and (2) that the Trust 

canpany would not be either a ccmocxlity trading advisor ("CTA") or a conm:xlity 

pool operator ("CPO") as those terms are defined in Section 2(a) (1) (A) of the 

Cormodity Exchange Act (the "Act") ,,7 U.S.C. §2 (1982). 

From the representations made in your letter, we understand the facts to 

be as folloos: 

ll 

A. Trust Canpany 

The Trust Carpany is a non-depository trust canpany organized under the banking laws of the State of 

• • • • As a trust carpany operating under 

the state banking laws, the Trust CaTpany is 

subject to regulation and examination by the Supervisor 

of Banking of the State of \'lashington ••• • y 

B. Provision of Trust Services 

The Trust Carpany offers caTlprehensive trust 

services to employee stock bonus, pension or profitsharing plans which treet the requirerrents for 

In this connection, your letter represents that the requirarents of the 

Administrative Code for a state chartered bank 

trust departrrent are substantially the same as the requirarents applicable to a national bank trust department subject to direct regulation by 

the Carptroller of the Currency. 
Page 2 

qualification under Section 401 of the Internal Revenue 

COde (referred to hereafter as "Corporate Ertployee 

Benefit Plans") • 

The Trust Ccmpany, as a trustee or "investment 

rranager", enters into written agreerrents ("Trust Agreerrents") establishing fiduciary relationships with 

respect to property then held and subsequently acquired 

by the Corporate Enployee Benefit Plans. The Trust 

Agreenents ooligate the Trust Carpany to hold and 

manage the property for the benefit of the beneficiaries of the trust in accord with the provisions of 

the Trust Agreenents and applicable laws, including 

ERISA. 

At June 30, 1984, the Trust Canpany served as 

"trustee" or "investroont rranager" for approxi.m:\tely 

$1.2 billion of assets held by Corporate Employee 

Benefit Plans SfOnsored by approxi.m:\tely 110 different 

corporations. Although the Trust Ccnpany is empc:Mered 

to invest Corporate Employee Benefit Plan assets on a 

non-ccmn.ingled basis and on occasion does so, nost 

assets are invested in portfolio securities through 

collective trust funds naintained by the Trust CCl!Tpal1y. £/ 

C. Collective Trust Funds 

The Trust Agreerrents provide that each trust's 

assets may be ccmningled with assets of other trusts 

for which the Trust canpany is a trustee or investrrent 

rranager, and invested in one or rrore collective trust 

funds consisting exclusively of funds transferred to it 

by Corporate Employee Benefit Plans. 

The Trust Ccmpany currently maintains eight 

collective trust funds for this purpose, each with 

different investment objectives and policies: 

and 

. . . . 

Your letter further explains that, in order for the collective trust 

funds to not be subject to Federal incare tax, the Trust Colpany "nust 

conduct and does conduct" its operations and the operations of its 

collective trust funds in conformity with the substantive provisions of 

12 C.F.R. Part 9, "which Part constitutes the regulations adopted by the 

canptroller of the Currency for application to trust depa.rbrents of 

national banking associations." 
Page 3 

The Trust Carpany is the sole trustee of each of 

the collective trust funds, and has final and c:atplete 

authority to determine the specific securities purchased and sold by each collective trust fund. Howev~, 

the Trust Cal\JanY retains the services of a nurrber of 

investrrent advisers to advise and to make reccmnendations. • • • [T) hese recarnendations are reviewed and 

approved by officers of the Trust Canpany, which have 

final authority with respect to investrrents. 

D. Use of Futures Contracts 

The Trust Crntpany, in its capacity as trustee or 

investrrent manager, intends to invest in financial 

instrurrent futures and stock index futures including 

options thereon (hereafter collectively referred to as 

"Futures") on behalf of both Corporate Eitployee Benefit 

Plans and the collective trust funds (hereafter collectively referred to as the "Trusts"). 

Futures investrrents in the Trusts shall not be for 

speculation and shall be limited to hedging transactions 

(i.e., "short hedge" and "long hedge" transactions) and 

are intended to reduce risks in the management of trust 

assets which arise fran the potential change in the 

value of such assets, 

In this regard, the Trust Ccrrpany' s Trusts will 

use Futures for each Trust solely for bona fide hedging 

purposes, as defined by Regulation §1.3(z) (1), ••• 

To insure that the Trust' s use of Futures xreets this 

definition, the Trust will enter into them for the 

purposes and with the hedging intent specified in 

Regulation §1,3(z) (1) and that a substantial majority 

-- approximately 75% of Futures purchases -- will be 

"completed. " 

In addition, the Trust Carpany (1) will not enter 

into Futures ccmnitrrents which would require as 

deposits for initial margin or premiums for the Futures 

(and options thereon) rrore than 5% of the fair market 

value of a Trust's total assets (taken at market value 

at the t.i.rre of entering into the Futures contract) 1 (2) 

will not market to the public participation in the 

Trusts as or in a camr::x:1i ty pool or otherwise as or in 

a vehicle for trading in the ccmrodi ties futures or 

ccmrodity options markets7 and (3) will disclose in 

writing to each prospective participant in the Trusts 
Page 4 

the purpose of and the limitations on the scope of the 

Futures trading. 3 I 

Investments in Futures will be made upon the 

reccmrendation of the various investment advisers to 

the Trust Carpany. HCMever, the Trust Coopany • • • 

will have final and carplete authority to accept or 

reject the inv~stment advisers' recommendations •••• 

I. Regulation as a CTA. 

Section 2 (a) (1) (A) of the Act defines the term "carrrodity trading 

advisor" to rrean in relevant part: 

[A]ny person who, for compensation or profit, 'engages 

in the business of advising others, either directly or 

through publications, writings or electronic rredia, as 

to the value of or the advisability of trading in any 

contract of sale of a commodity for futures delivery 

made or to be made on or subject to the rules of a 

contract market, any carm::xlity option authorized under 

section 4c, or any leverage transaction authorized 

under section 19 or who, for compensation or profit, 

and as part of a regular business, issues or promulgates analyses or reports concerning any of the foregoing; but such term does not include (i) any bank or 

trust canpany or any person acting as an employee 

thereof, ••• Provided, that the furnishing of such 

services by the foregoing persons is solely incidental 

to the conduct of their business or profession. • • • 

Thus, the Act excludes fran the CTA definition any bank or trust canpany, 

provided that the furnishing of services which would otherwise bring such an 

entity within the statutory definition is solely incidental to the conduct of 

its business. Ccmn:i..ssion staff· previously has expressed the view that the 

words "solely incidental" must be interpreted "in the context of the business 

concerned and the factual situation in which the services are rendered." See 

CFTC Staff Interpretative Letter No. 76-l, [1975-1977 Transfer Binder] ~ 

Fut. L. Rep. (CCH) ~20 ,907. (February 26, 1976). With respect to the instant 

situation, your letter represents that law provides that arrong the 

prirrmy corporate pCMers of an entity engaged in a business such as the Trust 

Company is the po.-;er "to execute trusts of every description." 4/ Thus, your 

2/ In a telephone conversation with Division staff held an August 6, 1984, 

you explain that these disclosures would be made to the fiduciary, 

co-trustee, or administrator of a Corporate Eiiployee Benefit Plan -- · 

i.e. , the person who has the authority to appoint the Trust carpany to 

serve as a fiduciary of the Plan. . 

Your letter represents that this authority is provided in 

Code ch. 30.08, §150(11) (1974). 

Rev. 
Page 5 

letter further represents that the Trust Crnpa.ny is authorized to act in the 

capacity of fiduciary as a regular part of its business and its senrices as a 

fiduciary are arrong the range of banking services it may lawfully offer. 

Based upon our review of the representations made in your letter, it 

appears that the Trust Corrpany, and its employees, would care within the 

statutory exclusion fran the definition of the tenn "camodity trading 

advisor" contained in Section 2 (a) (1) (A) of the Act. We note that this 

opinion is based _upon, among other things, the fact that any carm::xlity 

trading advice the Trust carpany may furnish will be furnished solely incidental to the conduct of its business as a non-depository trust 

canpany and in its capacity as a fiduciary of the Trusts. §./ 

II. Regulation as a CPO. 

As you are aware, on February 2, 1984, the Catmission issued proposed 

Rule 4. 5 , which would exempt certain otherwise regulated persons fran registration as a cro and fran the provisions of Subpart B of Part 4 of the Cromission' s 

regulations. 6/ See 49 Fed. Reg. 4778 (February 8, 1984), 49 Fed. Reg. 

6910-11 (FebrUary 24, 1984). Based upon our review of the representations 

made in your letter, it appears that the Trust Canpany would be eligible for 

this proposed exemption inaErnUch as the Trust Canpany: (1) is arrong the 

persons covered by the proposal -- i.e., a trust carpany subject to State 

regulation; (2) will engage in commodity interest transactions as a fiduciary 

of the Trusts solely for bona fide hedging purposes; (3) will not deposit as 

initial margin or premiums for a Trust's commodity interest transactions rrore 

than 5% of such Trust's total assets; (4) will not, and has not, marketed any 

Trust as a ccmrodi ty pool or otherwise as a vehicle for trading in the 

ccmrodity interest markets; and (5) will disclose in writing to the prospective participants in the Trusts the purpose of and the lirn:i. tations on the 

scope of such ccmrodi ty interest trading. 

Accordingly, this Division will not recommend that the ~ssion take 

any enforcement action against _ __ for failure to 

register as a CPO or to comply with the provisions of SUbpart B of Part 4 of 

2./ 

&/ 

See Division Trading and Markets Staff Interpretative letter No. 83-2 

[1982-1984 Transfer Binder] Comm. Fut. L. Rep. (CCH) ~21,788 (March 18, 

1983) • 

We note that you have not requested, and therefore that by our letter we 

also are not providing or inplying, an opinion that any of the 

investrrent advisers to the Trusts are not erAs. 

Section 4m(1) of the Act, 7 u.s.c. §6m(1) (1982) , requires each person 

who canes within the CPO definition to register as a CPO with the 

Commission. The provisions of Subpart B of Part 4 ooncem the 

operational, disclosure 1 reporting and recordkeeping requirerrents of 

registered CPOs. See 17 C.F.R. §§4.20-4.23 (1983), as amended by 48 

Fed. Reg. 3524'8 (August 3, 1983). -
Page 6 

the carrnission' s regulations. l/ This position is, ho.vever, subject to the 

condition that the Trust Coopany will carply with Rule 4.5 as adopted by the 

carmission or with any other such rule that the Ccmnission may adopt to 

exempt certain othe:rwise regulated persons fran regulation as a CPO. 8/ 

Therefore, this position will cease upon the effective date of Rule 475 or of 

such other rule. 

. In this connection,· we note that previously we have issued opinions to 

certain other persons that they would not be pools wi th.in the meaning and 

.intent of Rule 4.10 (d) based upon representations similar to those made by 

the Trust Corrpany. 2_/ HCMever, in light of the Ccmnission' s recent proposal 

in this area, we believe that such a "no-action" position is the appropriate 

relief that should be afforded at this ti.rre. We further note that with 

respect to such persons and the filing of certain notices proposed in Rule 

4. 5, the Coomission has stated: 

11 

'§_/ 

[We do] not believe that it should be necessary for the 

recipients of such interpretative letters to, in 

effect, "re-sul:mit" an application for exemption -- i.e., to file an initial notice of eligibility -- .in 

the event the proposal is adopted. Hcwever, to insure 

that these persons (and entities) would be .in coopliance with the requirerrents of the proposed role, the 

Commission intends to take the position that such 

persons must file supplemental notices in the event 

that any of the representations they previously had 

made to the Ccmnission changed or that, to the extent 

that the proposal would require any additional 

Inasmuch as proposed Rule 4 • 5 would provide exemption for a trust 

corrpany subject to regulation by any State, and any principal or enployee 

thereof, and as you have requested, the position we are taking herein 

also would apply to any principal or enployee of the Trust Catpany --

~' its officers. 

For example, the rule as adopted may or may not contain the sane standards 

and indicia of bona fide hedging transactions and positions contained in 

the rule as proposed. tvbreover, to the extent tru:tt the rule as adopted 

is less restrictive than the rule as proposed -- with respect to the 

standards and indicia of bona fide hedging transactions and positions or 

to any other aspect of the proposal - the Trust Canpany would be able 

to trade cammodity interests subject to such other restrictions provided, 

of course, that such trading is conducted in accordance with the rule as· 

adopted. 

See Ccmn. Fut. L. Rep. (CCH) !21,908 (available 

Noverrber 3, 1983); Ccmn. Fut. L. Rep. (CCH) ~21,906 (available October 21, 1983); e 

. , Ccmn. Fut. L. Rep. (CCH) '.!I21 ,905 (available Septerrber 13, 

1983). See also . , Ccmn. Fut. L. Rep. (CCH) 

'.!I21,910 (available November 21, 1983). 
Page 7 

representations, they were not in canpliance with them. 

This position would ensure equal treabrent of all 

persons claiming exemption under the rule. 49 Fed. 

Reg. 4778 at 4782-83. 

We believe, and intend to recanrend, that the Ccmnission should take this 

same position with respeq to the Trust Ccrrpany. 

* * * * 

You should be aware that the positions we have taken in this letter do 

not excuse the Trust Ccrnpany fran canpliance with any otherwise applicable 

requirenBnts contained in the Act or in the Carmission' s regulations thereunder. For example, as a CPO it remains subject to the anti -fraud provisions 

of Section 4o of the Act, 7 u.s.c. §6o (1982), and as a "person" under the 

Act it remains subject to the reporting requirerrents for traders set forth in 

Parts 15, 18 and 19 of the Commission's regulations, 17 C.F.R. Parts 15, 18 

and 19 (1983) , as wended. 

The positions we have taken herein are based upon the representations 

that have been ma.de to us. Any different, changed or emitted facts or conditions might require us to reach different conclusions. In this connection, 

we request that you notify us immediately in tre event the Trust Company's 

operations and activities change in any W.?J..Y fran that as represented to us. 

1

, :Z:7) / L/ __ L Andrea H. Corcoran ~. Director