COMMODITY FUTURES TRADING COMMISSION 

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

DIVISION OF 

TRADING AND MARKETS 

November 6, 1985 

:RP.: J\pnlicrttion of Cornr1ission RulP. 4. 5 to R Separate Account. 

s:':.~)£,__ec'1 of SinolP. F.n~J:~~;wr Pen.sion_P_l_<'l_n_P_, ________ _ 

This JS in responsP. to your lett.P.r d?.b?d Auqu~t 16, 1985, in which you 

sr>ek our vi.P\·J~ cm:cerning t11e applic2tion to "X" of Commission rule 4. 5, 50 

FPd. R~q. 15f)68 (April 23, 1985) , and the defi:rition of the tem "c()!TlTil()(lity 

i~rn_(lir•a advisor" in Section 2(a) (1) (A) of the CClPlmOdity Exch2nge Act ("A.ct"), 

7 o.s.c. / (198::'). 

Fule 4.5 provider 

"conw.x]i tv poo}. opr-'.rator" 

eligiJ)le for t.hRt rPJ ief, 

eligih}.e and the cri t.P.ria 

n~qui:rPd to be operated. 

no-Lire of eliqihli t.? with 

an excluf'ion from ·the de£inition of the term 

("CPO") • The n1le specifies the pAn;ons who an~ 

the Cj\lrtlifying entities for which they are so 

pursuant to which those qualif~'inq entities are 

Thc-tt relief is effPctive upon the filincr of a 

thP. Comni s s ion . 

(o.) Surlject to compliance with the provisions of 

t11is sect.iofl, the follovJing r:en=:ons, and an~r principal 

or ~Il'ployee t.hPreof, shrtll be PXcluded frcro the 

definitior: of the term "cornrnodity JX!Ol operator" \¥ith 

respPct to tlle. operc.tion of a qua.lifying efltit.y 

spr~cified in pa.ragx-rtph (h) of t11is section: 

* * * 

(2) An insurance CCJl'!lpany subject tc regulation by 

c:my State; and 

* * * 

(4) A tn1stee or named fiduciary of a pension plan 

that is rubject t.o rri tle I of the Rmployee Retirement 

Inccme Securit~l Act of 1974; Provided, b._~ever, That 
Page 2 

for purposes of this §4.5 the following pension plans 

shall not be construed to he pools: 

(i) A noncontributory plan, whether defined 

benefit or defined contribution, covered under Title I 

of t11e Employee RPtirernent Incc:rne Sec"U-r:-ity Act of 1974; 

(ii) A cont:.ributory defined benefit plan covered 

unck:r Title IV of the Employee Retirement Income 

Secm·it.v Act of 1974; Provided, hovvever, That with 

respect- to any such plan to whir:h an employee may 

voluntarily contribute, no portion of an employee 1 s 

contribution is committed as margin or premiums for 

futt1Yes or options contracts; and 

(iii) A plan defined as a governmental plan in 

Section 3 (32) of Title I of the Employee P..etirement 

Income Security Act of 1974. 

(b) For the purposes of this section, the term 

"qualifying entity" means: 

* * * 

(2) vht11 respect to any person specified in 

parcsrraph (a) (2) of this section, a separate account 

estab1.ished and m.:1:Lntained or offered by ar. insurance 

cornpan:r pursuant to the lav-78 of any State or territory 

of the United States, under which income gains and 

losses, vlhether o:r not realized, from assets allocated 

to such accou~t, are 1 in. accordance with t11e applicable 

contract, credited to or charged Rgainst such account, 

without. regEtrd to other incoroe gains or losses of the 

ir.surance company; 

* * * 

(4) V'lith respect to cmy person specified in 

par2graph (a) (4) 1 and subject to the proviso thereof, a 

pension plan that ir sub-ject to Title I of thP Employee 

Retirernent Income Security Act of 1974; 

Provided, however 1 That such entity Vlill be opera teo in 

the marmer specified. . 

From the repreeentations made in your letter, w::. understand the facts 

to be as follovlS: 

"X" is a [State] life inEurance company licensed as 

such in all 50 statef' and the District of 
P0ge 3 

Col'IJITlbia ..•. 

A mc.jor IX'rtion of of 11X" 's business is issuing group 

pension contn'l_cts to th; trustee or plc:m sponsor of 

employee pension benefit plans. . . . Such plans are 

of two types, defined benefit plans and defined 

contribution plan:=. A defined benefit pla.r:. E'pecifies 

the benefits at retj.rement but not the cont-ributions; a 

dl:'fine<'l contribution plan does the opposite. 

The plan sponsor or trustee purchases a group pension 

contract to obtain from the insurer one or both of two 

types of services for the ple.r: (i) invesbrent 

facilities for contributions to the plan, an.d (ii) the 

right to purrhase annuities to pay retirement. benefits. 

'l'h:i.r letter is concerned only with "X"' s inves'buent 

facilities for contributions, not. with the flmds set 

aGide for the purchase of annuities. 

The jnvesbnent f2.cility under a group pension contrflct 

is an tmallocated fund. Amounts directed to it are not 

allocated for the purchase of annuities. Under the 

tenns of the group pen:=ion contract, the trustee or 

plan sponsor directs hovl the unallocated f-und is to be 

invested: in "X"'s general account and/or in one or 

mon=: separate accounts. 

"X"'s general account is its corporate account. The 

separate accounts are established in accordance with 

Sections . . . of the (State] General Statutes. 

Investment performance of a separate account's 

portfolio is isolated or accounted for separately from 

that. of all other accounts, c>..nd may be guaranteed in 

whole or in part, or not guaranteed, by "X". 

State le.\v provides that the plan sponsor or trustee has 

no legal or beneficial interest in the assets of the 

general account portfolio or of any separate account 

portfolio, and that "X" ovms the assets allocated to 

itP general or sepnrate aC'counts and is not a trust.P.e 

with respect to those ?c:3sets. The trustee or plan 

sponsor, through its contract, is a cn=~ditor of "X". 

Separate accounts arA of t--wo types, "pooled" accounts 

o.nd "non-pooled" or "single-custc:rner" acc01.mts. The 

assets of a single-·custOTrlf'r separate account support 

"X"'s obligRtions under R contract issuAd to fund the 

plan or plans of a single employer or an affiliated 

group of e.-mployers. Pooled separate accounts hold 
ass0.ts suprorting contracts issued to fund the plans of 

more than onP employer or affiliated group. . . • 

EssPntiRJ.ly 1 you seek our concur:rence in ;rour contention t.hat "X" • s 

o~ration of one or m::>re smgle-cnstorner separatP ?.ccounts 1 each of 'Which is 

used solel~' to fund ••xu 1 s investmeJOt obligations undPr a contract issued to 

pension pl2.ns describPd in Conmission rule 4.5(a) (4) (i) 1 (ii) or (iii), 

should not be characterized as the operation of a canmodity 11 pool 11 and, 

thP.refore, v.;rould not JOe.cessitr.te complic.nc.P vlith thP operative requiremP.nt.s 

c,f rule 4 . 5 . 

In c-:upport. of your position, you have st.ated the follovJing: 

Al t.hough [ rul8 4. 5] d08s r.ot adc1reEs the CPO st ..atus of 

a life ino:tJ.rance cornpcmy operating one or more separate 

accounts each of vlhich is used solely to nmd 11X111 s 

obligations to a single [pPnsion] plan [desn:ibed in 

Commission rule 4.5 (a) (4) (i), (ii) or (iii)) 1 t.he 

explanator~' releasP strongly suggests that if there is 

no comTunc:rling of a.ssets relating to different pension 

plans, t.here are no "pool" concerns at. the pension plan 

level or at anv other level: 

11 this ["pool"] exclusion is only applicable 

at the pension plan level itself and not at any 

subsequent level where the asset_f, of anv such 

pension plan 2re cornming1ec1 vJith the c:msPts of anv 

ot.hRr person in trading cormDdit~' 

intRrests. . . . 11 1/ 

"X111 s view is th?lt each such single-customer sepurate 

account t.ru:.Rs the 11 not. a pool" status of the plan whose 

contract is ftmcJed through t.he separatA account, that 

operating "not a pool" separatP accounts does not 

require 11X11 to register as n CPO or to comply with the 

"quaE:':'ing entity" requ:i.rf'Tl:1ents of paragraphs (c) 

through (f) of the Rule as to those sP.parate accounts 

to be [ e)ccluded] from CPO [re~rula.tion] . . 

~'Je initially note that you have not elected to se.Pk exclusion from the 

cyo definition pu:rFuant to CommiF.sion rules 4.5 (a) (2), (b) (2) and (c) v1hich, 

if ava.ilal,le, would require "X" to file a notice of eligibility and to 

operc~te each separate account pursuant to certain specified criteria -- ~, 

the PU:LJXlSes for which COPlf')'JOity mten~sts may be traded. Instead, you 

l_/ 50 FP.d. Reg. at 15873. 
contend that the rnt.ioncle for excluc1inq certain pension plans fr6m the 

definition cf "yx:ml" shoulc1 be extencled b~' analogy t.o "X"' s single-custcmer 

separate accounts which fnnd similar pension plans. In this regard, we note 

that th•~ Commis~io!' ha.s confi:rme0. that nJ.le 4. 5 is a "safe harror" and does 

nm:.~ provide the exclusive meEms for relief from CPO requlation. 2/ Moreover, 

the Commission has directed the stRff to continue to issue such Interpretations of rule 4. 5 as may rJP. necessary and appropriate to fulfill t.he 

purrose~' of the rule. 3 I Accordirgl y, nob vi thst<:>ndinq the absence of an 

expn'PG rule pJ~ovision-that adc1resses your particular-situation, the Division 

is autnorized to consider tne relief requested. 

l-\s we hu.\'e J11ade cleo.r in two previous interpretative letters 

cor"!c0::-ning rule 4. 5, 4/ where the assets of multiple pension plans are 

cc::Jl11:ling1Pc1 unde:c fl 9eparate trading vehicle, it is the separate trading 

vehicle that is t.he quc:tlifyinq entity. Accordingly, a determination of 

whether action iF required or not. required under rule 4. 5 must be based upon 

em evaluation of tne structure and trading activities in commoc1i t.:-r interests 

of thf' t.r-ading vehicle as a single entity. Such an evaluation would include 

not. onb' a consideration. of the cha)·acteristics of each pension plan uncl("T 

the trading w~hicle, but. also an ane.lysis of how the assets of all such plans 

Rre cornmingled and investe(\, the manner in \>lhich gains rmd losses from 

trading in comrrodity interesb< nre alloca.t.ed to each plan and the purposes 

for \1hich t.he trading vehicle was fomteel.. 

This is because the Con.rnJssion has mo.dR clRar that even though a rule 

4. 5 (E'.) (4) exclupj_on from the pool definition may be applicable to an 

individual pension plan, it. dmc- not necessn.rily follov7 t.llat the rule 

4. 5 (a) ( 4) e..v:clusion will be avo.ilcble t.o a different ent.ity (such o.s a :TnClster 

trust. or R separate account) which commingles stlch a pension plan• s asset.s 

\·rith the RP-!"Pt.E'. of other persons for trading in cornmoclity interest.s. 

Specifically, t.he COJmlissio:n has stated that the rule 4.5(a) (4) exclusion 

from the [DOl definition i:r rule 4.10(c1) may not bP applicable: 2/ 

uhere the af'.set.s of any such pension plan [i.e., a plan 

described by rules 4.5(2,) (4) (i)~(iii)) are comningled 

v1ith the asset.s of any other person in trading 

commodity interests a'Jd gains and losses are not 

'};_/ 50 Fed. I«=-~g. at 15870. 

'}__/ Id. 

4/ Division of Trading and Narkets Interpretative I.etters 85-13, Comm. Fut. 

L. Rep. (CCH) ~22,734 (August 2, 1985) and 85-15, Canrn. Fut. L. RPp. 

(CQI) C!l22, 736 (August 15, 1985). 

'!!_/ 50 Fed. Reg. at 15873. 
sepa:rate1y accoun.ted for. For example, i11 the event -

thfl.t tJ1e assets of tv;o or mo:re such plans are 

ccmningled in a trust Account o:r other type of 

investment vehicle which irt:.en<'l.s to tracP in, among 

other things, cCJr:[ll()(lity in.tereFts, the CoJm1ission, ir 

~_:rjate cases when~ thett_ vehicle was not sub~ect to 

an effective exclusion under §4.5, would dee..m the 

operation of such vehicle as the operation of a 

c0Jl"l!TD<3.ity pool and such planP as its pool 

participants . In such event, ,,7itJ1 respect to sur;h 

vehicle, complicmce with the p1-ovisions of §4. 5 ··- or 

n:gulation as a CPO --· would be requin~d. (Emphasis 

udded.) 

Thuf,, the Canmission has e~<p:ressed concern that a person who operates a 

trading vehicle which is not subject to an exclusion from the ]XlOl definition 

but who solicits or accepts investors' funds for t_he pu:r-pose of tretding in 

corrrrrodity interests not evade regulettory requirements applicable to CPOs 

merelv bv including an otherwise excluded entity in its commingled t!:'ading 

vehicle. 

v\le believe that the concerns noted above are not raised where a 

separate account is fundec\ ~olelv by assets of a single-custaner' s pension 

plans which are all excluded from the y::ool definition by Canmission rule 

4. 5 (a) ( 4) (i) , (ii) or (iii) , the insurance r;ornpany is "otherwise regulated" 

b~' State letvl ard there are no other indicia that would warrant 

characterization as a comrrx-x1i.ty pool, such as marketing or operating the 

separate account primarily as a vehicle for trading in the camrrodity interest 

!Th-"lr:-kets. §j Under euch circumstances, we believe that the rationale noted by 

the Commission for excluding certain individual pension plans in rules 

4.:-J(a) (4) (i) a..'l.d (ii) fran the pool definition --i.e., they do not involve 

~/ AB w.ade clear by the Division in Interpretat:.ive Letters 85-13 and 85··15 

concerning :rule 4. 5, the purposes for vmich tl1e trading vehicle was 

formed constitute an ef'sential ele.m8nt in deciding whether to extend a 

rule 4.5(a) (4) exclusion from the definition of pool to different levels 

of trading vehicles. See n.4, above. This is because the relief from 

regulation as a CPO was intended for entities which, inter alia: 

[have] not been, 2nd will not be, marketing 

participations to the public as or in a comrrodity pool 

or otherwise as or in a vehicle for trading in the 

com:rodities markets. 

S. Rep. No. 384, 97th Cong., 2d Sess. 80 (1982). 
the plar::PP1ent of investors' funds- at risk in comrrodity interest trading 7/ ---

similarly applies and that such a single-customer- sepRrate account itself 

generally should be excluded from the pool definition. Similarly, since the 

Corrmission hRs stoted that goverJOmental pension plane. are not appropriRte 

s®jects for CDmniEcsion regulation, 8/ we believe that a single-custaDer 

separate account funded soi.e]-v by assets derive<1 from governmf>ntal pension 

plRns described in rule 4. 5 (a) ( 4.) (iii) also generally should be excluded from 

the d.P.finition of "pool." 

Accordingly, basffi upon the foregoing representations and subject to 

the conditior>f' set forth arove, \ve believe that "X" would not be required to 

file a not.ice of e~,~clusion under rule 4.5 -- or to take anv other action 

to claim the exclusion from the pool definition available under rule 

4.5(R) (4) (i), (ii) or (iii) in connection with the operation of the 

single-cust.omer sepcrrat.e ac:counts descdhed abovP. 2_/ 

You furt.her contend that. "X" should not be characterized as a 

COJl\fll()(_1it.v t.rading advisor ( "CTA") with rer;pect to providing tra.ding advice on 

ccTrlnC'A:lit:y interest.f' to the 2inale-cuPt<JJner separcrte 0ccounts describec1 above. 

In supp0rt of thii': position, you havf> statec1 the following: 

7/ As noted bv tJ1e Comrif'.::o.inn in 50 Fed. R•~g. at 15873: 

(A] nc.p~-contriJ:>utory plElf1., i.e. , one in which all 

contributions crre s.olely JTk1.de by an e.mployer, can never 

be a cormnodity pool, bec:c=mse no funds are solicited 

from participants and only the employer bears the 

flmdinq re:=:ponsibili ty of the plan if there axe losses. 

Similarly, defined benefit plans ere not likel~r to be 

CX1I'Jn1ocJ.it.y pools, even if contributions are pe:rm.:Ltted, 

because such plans nom!Cllly require the employer to 

covAr losses and pennit the employer to benefit from 

excess eaxni.ngs not needed to fund the b(~nefit. 

8/ 50 Fed. PPg. at 15873. 

9/ Consif',tent uit.h our views as expressed aJJOve, howew~r, we believe that 

vmere a single-custon\Pr sPpara-t:e account is funded not only by the assets 

of plcms which are excluded from the pool definition by rule 

4.5(0) (4) (i), (ii) or (iii), but P.lso of other pension plans which are 

not similarly excluded, the exclusion from the pool definition generally 

shouJ.d not be available to such a separate acc:o1mt. In such a case, a 

notice of eligiblity must be filed with respPct to the separate account 

to claim the relief available under- rule 4. 5. This is so even if these 

other plans were operated pursuant to the requif",ite criteria. specified in 

1-ule 4.5(c). See n.4., above. 
ThP tenn "ccrumodity trading advisor" is defined . . 

as: 

"any person vJho, for canpensation or profit, 

engages in -t.:.he business of advising others. . . as 

to value of or thP advisability of tra<l.ing in any 

contract of sale of a commodity for future 

delivery. . " 

In our vie,:.v, in the management of its own separat_e 

accounts, "X" if' not engaged in the bu:=d ne:=;s of 

advir::;ing others. The assets of those accounts are 

"X"' s own. . . • 

[Noreover,} in Rule 4.14 (a) (5) , the Carmission provides 

relief fran the erA regist.ration require.me.nts for 2JlY 

person "Pxempt frOJ'l"'. registration as a CPO and [whose} 

cOJ.11JT'Odity trading c.dvice is directed solely to, and for 

the sole. use of, the pool or poolE for which it is so 

exempt .... 11 [errphasis ours}. 

Although Sta.te law rncy characterize the assets placed in a special or 

general occount as asf.'ets belonging to the insurance company, we believe that 

tJ1e economic rc0Jity of a t.ransaction should control our analysis of the 

applicability of the Cormnodi ty Excha.r"I.<JC Act to the discretionary management 

ac-tiv:;. U.es of 11X''. Clearly, "Z" 's "investment facilities" under its pension 

cortrGcts constitute the offer of discretionary investment managEment ir. 

cormnoclity interests to pension plan sp:>nsors and subjects those plans' asset_s 

to possible gain or loss in the comrrodity interest markets. This is 

precisely the type of activity intended to be encompassed by t.lle CTA def.injtion in Section 2(a) (1) (A} of the Act. 

Rule 4.14, 17 C.F.R. §4.14 (1985}, provides for an exempt.ion from 

registration as a CTA for tJle persons specified therein. As you have notect, 

rule 4.14 (a) (5) exe.mpts a person from registration as a CTA if: 

It is exe.mpt from registration as a cOITIJllOC1i t.y pool 

operator and thP person's trading advice is directed 

solely to, and for the solP purpose of, the pool or 

pools for which it is so exe..mpt. . 

Since "X" would not be requinod to register as a CPO with respect to the 

operation of single-customer separate accounts described above which, inter 

alia, include assets derived from pension plans described in rule 

4. 5 (a) (4) (i) , (ii) or (iii) , you essentially contend that the rationale 

underlying rule 4.14 (a) (5) s)1ould be applied by anr.logy to "X" when acting 

solely in such capacity. 

ThE'! Division notes that rule 4.14(a) (5) applies solely to persons who, 

-~_!:er ali2l;, are exempt from registration as a CPO. Rule 4.14(a) (5) thus does 
Page 9 

not expressly apply to perr·.ons v;rho are excluded from the definition of CPO by 

rule 4.5 or to persons whose non-CPO ::tatus is premised upon the fact that 

the entities under their control are excluded from the definition of "pool" 

under rule 4. 5 (a) ( 4) . Cleo.rly, the mere fact that an entity is not a 

c~ity pc-ol does not mean that it£", adviser is not a CTA. 

Nom~theless, rule 4.14 (a) (5) doeG reflect a general Co!Wlission intP.nt 

t0 elim.inat.e any unnecessary costs and burdens of regulation. 10/ Consistent 

'V"Ji th thEtt intent, the Divisioi' helieves that adoption of a "no-action" 

position with reppect to a person's CTA registro.tion would be appropriate 

under other circurnstances not specified in rule 4.14 (a) v;rhere the costs and 

burdem: of CTA registration would appear to out\•7eigh any regulatory benefit. 

Fux:-therrrore, adoption of such a position would be conr.istent with the genero.l 

policy of rule 4. 5, which essentia.lly n=>.flects a Congressional a:rtd Corrmission 

intent to avoid, where appropriate, unnecessary and duplicative CPO 

regulation for certain "ot.he.rv;rise regulated" persons. 11/ 

In this regard, the Division notes that the sjngle-customer separate 

accounts which ar-e funded by t11e asset.s of pension plans described in rules 

4.5{<~) (4) (i)-(iii) 21re excluded frorn the definition of "pool" because, in the 

case o::: rule 4.5(a) (4) (i) and (ii) pletns, they are subject to the Employee 

Hetin"ment Income Security Act of 1974, insured by the Pension Benefit 

10/ The practical effect of rule 4.14(a) (5) is to exempt frOin CTA 

regiGtration persons who operate and advise essentially family, club etnd 

small, c.msolicited comrrodity rools, a.s specified in rule 4.13, 17 C.F.R. 

§4.13 (1985). Cf. 44 Fed. Reg. 1918 at 1919 (January·8, 1979), wherein 

the Conmiss:i.on stated that. those exe.mptions were adopted because 11 the 

costs of compliance with the Part 4 rules outweigh the br=mefi ts to be 

gained from regulating family, club and sffic1.ll pools." 

11/ S. Rep. No. 384, 97th Cong., 2d Sess. 79-80 (1982), which directed the 

ComnisPion to 21dopt rule 4. 5, e:>cplains in pertinent part: 

lS) ince virtu2J 1 y all of the persons or entities to 

which this exception would apply are regulated by other 

Federc..1 or State agencies, it is re21sonahle to take 

them out of this regulatory mech2.nism. 

Therefore, while the Comr:lission should retain 

discn=~tion in this area, the Com:nittee ~lieves that, 

unless otherwise inappropr-iat.e, exe.mption by rule, 

regulation or ordPr from [CPO] registration and related 

requirenBnts . . . should generally be granted to these 

clasl:'es of entity. (Emphasis added.) 
Page 10 

Guaranty Corporation c=u;d the p21rticipc=mts 1 af.f'.ets are not subject -to rj sk of 

loss in commod.ity interest trading; in the cape of rule 4.5(a) (4) (iii) 

goven\ffient-al plar1.s, considerations of state and local sovereignty argue for 

non-interference bv the Comr:tission. 12/ Moreow:r, in the instant case, rule 

4 ':"5 .. recognizes that "X11 -·- who \•Jill be serving as both the "CPO" and the 

"CTA" of eetch single-custort\Pr separate account -·- is 11 otherwise regul0ted 11 

under State law. Under such c irc\.lf\1.stances, the:r, the Divis ion bA lieves thc"1t 

relief from regulation as a CTA would bA appropriate provided t_hat the 

ccrnmodity intereFt advisory activities of 11X" with respect to the 

single-·customer accounts desr.riJJed above arco essentially incidental to t.he 

conduct of its b1.1siness of offering invesm.ent manage111ent fetcilities for 

cont.rjJ)utions to those accounts. }.}_/ 

Accordingly, the Division will not recCJlTI!Ylend that t.he Commission taJ<.e 

PJtY enforcement action against 11X" if it does not register as a CTA solely in 

connection with providing advice on comrrodity interest trn.dil'g to the 

single-customer separate ar.co\mts ur.der its management desr.rH)ed above and 

such advice is incidental to the other investment manageJ!"8nt facilities 

12/ 50 Feel.. Reg. 2t 15873. Of course, participants' assets would not be a1: 

risk in ccmncdity intPrest tra.ding if such governmental plans also were 

noncontrDJutory plans or defined benefit planP. of the type SpPcified in 

rule 4 . 5 (a) ( 4) ( i i) . Of course , the sponsors of all such plans bear tl1e 

d sk of loss fron< co:m:ncx:1i ty interest trading. 

13/ In t.his n:~gard, v;e l'Dte that witJ1. respect t.o the assets of a "separ2.te 

unit of investment for which it is acting as a fiduciary and for which it. 

is VPsted with investment authority," a bank or trust ccmpany is bot.h 

eliqible for relief from requlation as a CPO under rule 4. 5 and is 

e~cluded from the CTA definition pursuilll.t to section 2(a) (1) (A) of the 

Act, provided that the furnishing of advir.e is solely incic'lental tn the 

conduct of its business. Cf. Division of Tradina and t1arkets 

Interpretative Let.ter 83--2-,-Comn. Fut. L. Rep. (CCH) ~JL21, 788 (Iviarch 18, 

1983) , v1herein t.he Division deterrninecl that a bank \vould be acting 

"solely incidental 11 t_o the conduct of its business and therefore V7onlc1 be 

excluded frcrn the C'I'A definition in offering a financial futures n.dvisory 

service limited 2<s follov-rs: (1) the service would be offered solely in 

connection Hi th the bank 1 s rendi t.ion of other commercial bankinq services 

and to such persons as correspondent baDks, savings and loan associations 

and comrnercial and industrial corporations v1hich had e:dsting 

relationshipr; vd.th the ban};: and which used various other services of the 

bank -- i.e., they vlere not merely depositors; (2) the service would be 

limited to hedging progrnms usinq financial futures; (3) the bank would 

not actively mc'1rket the service; and (4) revenues fran the service would 

constitute a minima.l percentage of the bculk 1 s consolidated revenue and 

also of its banking revenue, as separately stated. 
offered for such separate acc01.mts -- i.e., the trading of commodity 

interest.s j_n the separate accounts is solely incidental to those accounts 1 

invesi:Jnent act.ivities in the underlying cash markets. For example, in the 

event "X" holds itself out to prospective or existing single-custaner 

s~ate Recounts of the type described ahove as (capable of) providing 

special commodit.y interest advice and expPrtise, t11is positioP \vould no 

longer obtain. 14/ 

This letter addresses the application of rule 4. 5 and the CTA 

definition in Section 2 (a) (1) (A) of the Act to a sing1e-customo.r separate 

account vJhich is funded solely from the assAts of pension plans which are all 

excluoed frorr, the definition of cororncx:1ity pool by Corrmission rule 

4.5 (a) (4) (i), (ii) or (iii) anc1 is not marketed or operated primarily as a 

vehicle for tradinq in commodity intPrests. 15/ In the event that. "X" (or 

any other personl oJY?.rates the assets of sucila separate account in such a 

manner tha.t assetf', frcm the separate account are commingled in another 

trac.ing vehicle \'7i th the assetf' of ot.her customers 1 separate accounts, 

pers.ons or entities and are traded in commodity int.erests, we believe that it 

would be approp;~iatP to vievJ that other trading vehicle as a sepct-r-ate ·trading 

VP.hicle for thP. purJXlsef of determining the applicability of rule 4. 5. As 

previoucly noted, that dPterminF1.tion \"lould depAnc1 ur-on the facts of each 

co?.se. S:imi.larb:, ou..r- conclusion with n~spect to "X" 1 s CTA registration 

requirements would not autanatically apply to the operation of such 

cOPlfningled er'cotmts. 

'l'he oplnlon~. v.re have exprP.ssed above are ba::;Pd upon the facts and 

circrlf1stanr.es stated in yotrr letter and on our tmc1ersto.nding of thoe.P 

represer~tations cP. set forth c.lnve. Any different, changed or onittPC1. facts 

or conditions might require us to reach a different. conclusion. 

14/ Cf. Division of Trading and l'-1a.rkets Interpretative I...etter 85-10, Conm. 

-- Fut. L. Hep. (CCH) <[22, 730 (J·uly 22, 1985), wherein the Division 

concluded tha·t a f'lonk was tmable to claim relief under rule 4. 5 because, 

inter alia., the Division found tlmt the trading of corrmxlity interests 

would lJe essential -- not inciclentc1.l ~- to the conduct of a fund t11e bank 

intended to operate. Further in this regard, the Division stated that it 

did not believe the bank could make such stateJnents as "The Fund's use of 

stock index futures is not Cl. critical, or even Cl partjc;ularly 

significant, component of it.s overall performance" anc1 that "The Fund 1 s 

use of stock index futures is merely incidental to its activities in the 

cash equities markets." 

15/ See n. 6, alxwe. 

--
Page 12 

If vou have any questions on this mc1tter, please do not hesitate t.o 

contact BarbcTil R. StPrn, Esq., Asf':istant Chief Counsel, or 

Robert H. RosPnfelc1, Esq., Division staff attorney, at (202) 254-8955. 

Ver7 truly yours, 

Andrea ~L Corcoran 

Director