DIVISION OF 

TRADING AND MARKETS 

COMMODITY FUTURES TRADING COMMISSION 

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

April 29, 1986 

Re: CPO Registration "No-Action" Position vfuere Pool Consists 

of 'l'vlo Foreign Participants 

Dear 

This is in respom:;e to your letter dated February 7, 1986, as supplerrented by telephone conversat.ions vvit'.h Division staff, whereby you requested 

an interpretative letter that the General Partner, in connection with the 

operation of the Partnership, need not. comply with the registration, reporting c..nd related requirements applicable to comrodit;r pool operators 

( "CPOs") , co.rm'.odi ty trading advisors ("eTAs") , or their principals or 

associated pe:rsons ("APs") 1.mcler Sections 4k, 4m and 4n, respectively, of the 

Comrrodity F....'ZchangP. Act (the "Act"), 7 U.S.C. §§6k, 6m and 6n, and the 

Corrrrnission' s regulations issued thereunder. J:../ 

Based upon the representations made in your letter, as supplemented, 

we understand the facts in general to be as follows: The Partnership is a 

NP.vv York limited partnership, which was fanned and corrroenced business in 

April of 1985. Its priDcipal business purpose is to permit foreign investors 

to invest and trade in securities through the Partnership. 

ll In this regard we note that, among other things, the CamQission's 

regulations prescribe for such persons registration requirements at Part 

3, 1.7 C.P.R. Part 3 (1985), and disclosure, reporting, recordkeeping and 

advertising requirements at Part 4, 1.7 C.F.R. Part 4 (1985). 

Alternatively, you have requested that the Commission issue an order 

exempting the General Partner, its principals and APs from such 

registration, reporting and related requirements. In light of the 

positions we are taking below, however, it has not been necessary to 

consider that alternate request. 
Page 2 

The General Partner is a New York general partnership whose sole business activity is to serve as the general partner and the investment manager 

of the Partnership. 'The General Partner's three partners are "X," who 

organized the Partnership, and "X"' s father and "X"' s brother-in-law, both of 

whom are u.s. persons. Other than the Partnership, none of the partners of 

the General Partner currently conducts any investment advisory activities 

involving securities or c0IT1!1.'DC1ity interests for other persons. Moreover, in 

connection with receipt of the requested interpretative letter, you have 

represented that neither the Gene:tal Partner nor any individual partner 

thereof "vJould do anything further in cCJ!tUl1CX:1.ities. outside the Partnership." !:_I 

'rhere are two limited pa.rtners in the Partnership. One is a non-resident alien individual who has been known both socially and professionally to 11X11 for 10 years and to his father for 15 years. The other li.rrlited partner 

is a foreign corporation whose sole shareholder is a non-resident alien 

individual who has been knovm socially to "X" for 2 years and to his father 

for 4 years. These individuals sought out "X11 to manage their funds and, 

accordingly, the Partnership ,.ms fonred as a result of a series of informal 

conversations between the parties. 1J 

Net profits and losses of the Partnership are allocated among the 

partners in accordance with their respective capital accounts, except that 

(1) any net profits are first allocated to the limited partner's in an amount 

sufficient to provide them with a preferred return equal to an agreed upon 

pPrcentage of their capital, and (2) any net profits in excess of that amount 

a!:'P split between the limited partners and the General Partner in accordance 

'"i th an agreed upon percentage. 

viith respect to the Partnership's trading activities in particular, 

your letter represents: 

Since its inception, the preponder0nce of investments of the Partnership Th~Ve consisted of investments 

in securities and options and rights relating thereto. 

However, the Partnership' s investment focus has e.'q)anded recently to include, to a ve~' limited extent, 

futures contracts on Treasury bond and municipal rond 

indices. 

2/ :t-larch 5, 1986 telephone conversation. 

3/ Id. 
Page 3 

The Partnership's primary investment focus and the 

bulk of its assets have been and will remain carrmi tted 

to i:rwesi::rrlents in secm:ities. Within the Partnership's 

overall inw~stment program, tradinq in futures contracts, in te~s of aggregate contract values and of 

margin deposits re]ative to the total assets, ... 

will ... be a limited secondary activity (and will be 

incidental to the Partnership's overall trading activity 4/]. In this regard, the General Partner and the 

Pa~tnership represent that at no time will the Partnership cc:mnit more than five percent of its assets for 

initial margin deposits and preroiums for commodity 

futures contracts and options thereon. 

Based upon the foregoing representations, the DDrision will not recommend that the Commission take any enforcement action against the General 

Partner if it fails to register as a CPO in connection with the operation of 

the Partnership. This position is basec'l upon, among other things, our 

understanding of the facts as stated above that: (1) the Partnership was 

formed to trade ir the securities markets and its commodity interest trading 

will be incidental to its overall trading activities; (2) the Partnership 

will commit no more than 5% of its assets for initial margin deposits and 

premi~s for its commodity interest positions; (3) the limited partners are 

non-U.S. citizens or residents who have known t.v1o of the partners of the 

Gnneral Partner for the past several vears; aT'd (4) neither the General 

Partner nor any individua.l partner thereof intends to "do anything further in 

COITIJ:'lYxiities outside the Partnership." ~/ 

4/ March 5, 1986 telephone conversation. 

5/ Compare Division of Trading and Markets Interpretative Letter No. 84-2, 

Conm. Fut. L. Rep. (CCH) <JI21,983 (January 17, 1984), whe:r-ein we 

concluded, based on similar facts, that the trading vehicle at issue 

would not be a comrrodi ty "pool" -- and that the vehicle' s investment 

manager and its :managing director would not be CPOs. In that case, 

however, both the trading vehicle i·tself and the managing director were 

located outside the United States. 

Compare also Division of Trading and Markets Interpretative Letter No. 

86-10, April 24, 1986, to ~ reprinte~ in Ca:ron. Fut. L. Rep. (CCH) , wherein we also concluc'led that the trading vehicle at issue would not be 

a "pool" -- and that the vehicle ' s general partners '\._rould not be CPOs. 

Like the instant case, the (U.S.) participants in the trading vehicle had 

kno.-m the individual partners of the GP for several ye.-ars. Unlike the 

instant case, however, which concerns a "passive" investment vehicle, in 

that ot~er case t~e trading vehicle itself was actively engaged in a 

(Footnote continued) 
Page 4 

In light of the fC'lct that the General Partner will be providing advice 

on commodity interest trading to a u.s. person (the Partnership), we believe 

that, absent relief, it would be required to register as a CTA. In this 

regard, v7e note that SectioE 4m(l) of the Act provides for an exemption fran 

CTA registration for any person ·--

who, during the course of the preceding twelve :rronths, 

has not furnished comrrodity trading advice to more than 

fifteen persons and who does not hold hirokself out 

generally to the public as a commodity trading advisor. 

We fu_"Lther note that, bn_sed upon our understanding of the facts as stated 

abovP, it appears that the General Partner would be eligible to clabn this 

exemption. With respect to the first criterion of the exemption, tllere are 

essentially two -- "not .•. more than fifteen" -- clients. vJith respect to 

the second criterion, in light of the facts that these individuals sought out 

the General Partner to manage their funds and that the Partnership was formed 

as a result of a series of informal conversations between the parties, it 

appears that the General Partner has not held itself "out generally to the 

public as a cornrrodity t-rading advisor." ~/ 

You should be aware that this letter does not excuse the General 

Partner fr.om any otherwise applicable requirements contained in the Act or 

the Commission's regulations thereunder. For example, it remains subject to 

the 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 of the 

Commission's regulations, 17 C.F.R. Parts 15, 18 and 19 (1985). 

This letter is b0sed on the representations that have been made to us 

and is strictly lbnited to those representations. Any different, changed or 

emitted facts or conditions might require us to reach a different conclusion. 7 I In this coJmection, we request that you notify us i.nmediately in 

the event the Partnership's operation, including its investrrent objectives 

(Footnote continued) 

6/ 

7/ 

commercial business i.e., that of a securities options market maker. 

Moreover, as such, the vehicle's activities were subject to ongoing 

oversight by various regulatory aut..ho:ri.ties. 

Thus, there would appear to be no APs of the General Partner, as that 

term is defined in Section 4k(3) of the Act -- i.e._, a person associated 

with a CTA in any capacity which involves the solicitation of a client's 

or prospective client's discretionarjr account or the supervision thereof. 

For example, in the event the General Partner accepted more participants 

into the Partnership the conclusions reached herein may no longer obtain. 
Page 5 

and membership composition, changes in any way from that as represented in 

your letter and in telephone conversations with Division staff. 

Very truly yours, 

Andrea M. Corcoran 

Director 

cc: Daniel A. Driscoll, National Futures Association