DIVISION OF 

TRADING AND MARKETS 

COMMODITY FUTURES TRADING COMMISSION 

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

April 4, 1986 

Re: Multiple-Employer Master Trust --

Requests for CPO and CTA 11No-Action11 Positions 

Dear 

This is in response to your letter dated February 3, 1986, wherein 

you requested that the Division not recommend that the Commission take any 

enforcement action against 11X&Y Inc., II Mr. 11X11 and Mr. nyn for failure to 

register as a canmodi ty pool operator ("CPO") or as a caumodi ty trading 

advisor ("CTA") in connection with the proposed use of financial futures 

contracts ];./ by the "X&Y Inc." Joint Master Trust as described below. ?:../ 

Based upon the representations made in your letter, we understand the 

facts to be as follavlS : 

"X&Y Inc." [is] a registered invesunent adviser under 

the Invesb'nent Advisers Act of 1940 (the "Advisers 

Act") and the invesb'nent manager (as defined in the 

Employee Retirement Income Security Act of 1974 

("ERISA") ) for the "X&Y Inc. " Joint Master Trust (the 

"Trust") . 

The Trust is a qualified group pension trust fonned 

for the collective investment of assets of qualified 

pension and profit sharing plans (the "Plans 11 ). The 

Trust is organized under the laws of the State of 

Washington pursuant to an Agreement and Declaration of 

1/ In a telephone conversation held with Division staff on February 26, 

1986, you explained that for purposes of this request the tenn "financial 

futu't'es contracts" includes futures contracts based on debt securities 

and on stnck indices. 

Y You also requested such a "no-action" position with respect to the Trust 

itself. Inasmuch as the Trust appears to be the "pool" that a CPO would 

operate or a CTA would advise, it has been unnecessary for us to consider 

that request. 
Page 2 

Trust (the "Trust Agreement") entered into am:mg the 

Plans, "X&Y Inc." as Investment Manager, Mr. "X" and 

Mr. "Y'i as Trustees, and Rainier National Bank as 

Olstodian. The Trust was formed to allow the participating Plans, each of which is a pension plan that is 

subject to the reporting, disclosure, administration 

and enforcement provisions of Title I of ERISA, to cammingle all or portions of their respective assets for 

investment in order to obtain the benefits of various 

economies of scale. Under the tenus of the Trust 

Agreement, each of the Plans adopts and incorporates 

the Trust Agreement by reference as part of its qualified plan under Section 401 (a) of the Internal Revenue 

Code of 1954 (the "Code"). The Trust Agreement authorizes "X&Y Inc. " to manage, acquire, control or 

otherwise dispose of the assets of the Trust and, as 

the Investment Manager, "X&Y Inc. " has assumed the 

investment management authority and the associated 

fiduciary duties with respect to those assets. 

Olrrently, the Trust has assets of approximately 

$260 million. The assets of the Trust are invested in 

four investment funds according to the investment 

criteria of the Plans: (1) an investment company fund, 

which includes equity mutual funds and rroney market 

mutual funds; (2) an equity fund, which includes equity 

mutual funds and rroney market mutual funds, as well as 

a portfolio of stocks and rroney market securities; (3) 

a bond fund, \vhich includes treasury bonds and rroney 

market securities; and (4) a rroney market fund, which 

includes high quality debt securities with maturities 

of one year or less. 

"X&Y Inc." intends to use only financial futures 

(and has no intention of using commodity options) 

solely for bona fide hedging purposes within the 

meaning and intent of Rule 1.3(z) (1), 17 CFR §1.3(z) (1) 

(1985) . 

"X&Y Inc. , " the Trust and the Trustees have given 

notice of their desire to claim the exclusion from the 

definition of CPO pursuant to Rule 4. 5, 50 Fed. Reg. 

15868 (April 23, 1985), in conformity with the 

requirements of paragraph (c) of that Rule and, for 

purposes of the exclusion and this request, the staff 
Page 3 

should assume that the Trust will be operated in the 

manner specified in paragraph (c) of Rule 4. 5. ~/ 

Mr. "X" and Mr. "Y" as the Trustees of the Trust 

Although you recognize that the activities of the Trust could constitute the operation of a ccmrodi ty pool, you assert that the rule 4. 5 exclusion fran the definition of the term "ccmrodi ty pool operator" should be 

available to the Trustees. In this regard, the Division notes that the 

relevant provision of the rule is found in paragraph (a) (4), which essentially provides that "a trustee or named fiduciary of a pension plan that is 

subject to Title I of [ERISA]" is eligible for exclusion fran the definition 

of the term "CPO" with respect to the operation of a qualifying entity 

specified in paragraph (b) -~i.e., a pension plan subject to Title I of 

ERISA and operated pursuant to the criteria specified in paragraph {c). 

However, the Trust itself does not fall within the express definition of a 

"qualifying entity" under rule 4.5(b) (4) for which a notice of eligibility 

may be filed. 

As we have indicated in previous interpretative letters concerning 

rule 4.5(a) (4), 4/ Where the assets of multiple pension plans are commingled 

under a separate-trading vehicle, one looks to that separate trading vehicle 

for the purposes of the "qualifying entity" definition. Accordingly, a 

determination of whether relief is available or not under rule 4.5 must be 

based upon an evaluation of tlle structure and trading activities in commodity 

interests of the trading vehicle as a single entity. Such an evaluation 

would consider, among other things, the characteristics of each pension plan 

under the trading vehicle and the purposes for which the trading vehicle was 

fonned. 

~ Commission records confirm that the Trustees filed such (intended) notice 

of eligibility on September 24, 1985. 

We note that the structure of the Trust appears to be similar to that of 

a registered "series" invest:rnent ca:npany, a qualifying entity under rule 

4.5(b) (1). In this regard, the Commission has stated that it intends to 

interpret rule 4. 5 such that, arrong other things, each portfolio of the 

investment company that intends to trade commodity interests must separately meet the operating criteria of rule 4.5(c). See 50 Fed. Reg. 15868 

at 15872. We believe that, in light of the similarity in structures, 

each investment fund of the Trust that intends to trade commodity interests similarly must separately meet the operating criteria of rule 

4.5(c). 

if Division of Trading and Markets Interpretative Letters 85-13, Comm. Fut. 

L. Rep. (CCH) CJt22, 734 (August 2, 1985), 85-15, Conm. Fut. L. Rep. (CCII) 

(Footnote continued) 
Page 4 

Those previous interpretative letters addressed the application of 

~le 4.5 to a trading vehicle comprised of single-employer pension plans 

""mere (1) each such plan individually v.ras excluded from the "pool" definition 

by rule 4.5(a) (4) (i), (ii) or (iii), 51 and (2) the trading vehicle had been 

created for the administrative convenience of the employer. 61 On those 

facts, each of those letters concluded that neither the filing of a notice of 

eligibility nor any other action would be necessary to clatm the exclusion 

from the "pool" definition available under rule 4.5(a) (4). 

The instant request presents a question of first tmpression, then. 

Unlike the facts presented in the previous letters, those of the instant 

request pertain to a trading vehicle comprised of multiple-employer pension 

plans where E"..ach such plan individually would be a "qualifying entity" under 

rule 4.5 (b) for which a notice of eligibility must be filed. Moreover, there 

is no evidence that the trading vehicle was created for the administrative 

convenience of the various employers sponsoring those plans. In light of 

this, the Division believes that the Trust would not be a "qualifying entity" 

for the purposes of rule 4.5(b) and that Messrs. "X" and "Y" \'lOUld not be 

able to claim an exclusion from the CPO definition under rul~ 4.5(a) with 

respect to their operation of the Trust. 

The Division further believes, however, that under the facts presented 

certain relief from CPO regulation is merited. 71 Since each pension plan 

participating in the Trust is required to adopt and incorporat..e the Trust 

Agreement a.s a part of the plan, Messrs. "X" and "Y," the trustees of the 

Trust, also would be the trustees or named fiduciaries of each individual 

(Footnote continued) 

<][22,736 (August 15, 1985) and 86-5A to be reprinted in Corrm. Fut. L. Rep. 

(CCH) (November 6, 1985). 

2_1 If a pension plan is excluded from tl1e "pool" definition by rule 

4.5(a) (4) (i), (ii) or (iii), no action needs to be taken to claim relief 

from CPO regulation. (If there is no "pool," there is no CPO.) 

§_I AS the Division noted in Interpretative Letter 85-15, supra, n.4, at 

p. 31,081: 

[This letter] does not address the case where a financial depository institution (or other such persons as a 

private brokerage firm or invesbnent advisory company) 

were to initiate formation of a master trust (or other 

ccmningled trading vehicle) in order to obtain customers for its business. [Emphasis added.] 

7 I In this regard, we note tl1at the Canrnission has directed the Division to 

interpret rule 4. 5 as may be necessary and appropriate to fulfill the 

purposes of the rule. See 50 Fed. Reg. 15868 at 15870. 
Page 5 

plan. 8/ Moreover, Messrs. "X" and "Y" have represented to the Commission 

that they intend to operate the Trust in compliance with tlle criteria of rule 

4.5(c).' 

Accordingly, the Division will not recommend that the Commission take 

any enforcement action against the Trustees for failure to register as a CPO 

in connection with their operation of the Trust. 2._/ 

You also have requested a "no-action" position in the event the Trustees fail to register as a erA in connection with their operation of the 

Trust. In light of the nature of the responsibilities of those persons as 

described above-- i.e., essentially only the selection of the Trust's investment managers, we do not believe that their activities would require them 

to register as a CTA. See 49 Fed. Reg. 4778 at 4780 (February 8, 1984), 

wherein the Ccmnission explained that rule 4.20(a), 17 C.F.R. §4.20(a) 

(1985) , which establishes certain organizational require:rrents for CPOs, is 

intended to clarify the responsibility of CPOs for the activities and investment policies of their pools. The Ccm:nission further explained: 

[F]requently, Commission staff is called upon by 

members of the public to offer guidance on determining 

'Who, in fact, would be the CPO of a particular pool. 

In providing such guidance, the staff typically looks 

at such factors as who will be acting in the manner 

contemplated by the statutory definition of the term 

"carrnodity pool operator" -- ~, who will be praroting the pool by soliciting, accepting or receiving 

fran others, property for the purposes of carrnodi ty 

interest trading -- and who will have the authority to 

hire (and to fire) the pool's CTA and to select (and to 

change) the pool's F01. 

Thus, the Commission has stated t.hat because the choosing of a pool' s CTA is 

consistent with the functions of a CPO, no separate registration as a CTA by 

the CPO is required. 

"X&Y Inc. " as the Investment Adviser to the Trust 

8/ Specifically, in a telephone conversation held with Division staff on 

February 26, 1986, you represented that as a. result of this requirement 

Messrs. "X" and "Y" are deemed to be named as trustees of each individual 

plan in the "plan documents" and, accordingly, as trustees of that plan 

for ERISA purposes. 

2_/ This "no-action" position supersedes, then, the notice of eligiblity. 
Page 6 

\ 

We agree with your assertion that the activities of "X&Y Inc." in its 

capacity as t..he investment adviser to the Trust do not appear to bring "X&Y 

Inc." within the definition of the term "ccmrodity pool operator" as set 

forth in section 2 (a) (1) (A) of the Corrrnodity E.,'{change Act (the "Act"), 7 

U.S.C. §2 (1982). This is because, as you have noted, the activities of "X&Y 

Inc." as investment adviser to the Trust are analogous to the investment 

activities of an investment adviser to an investment company. In this 

regard, the Cortmission previously has concluded that: 10/ 

The Commission does not believe that the activities in 

which such persons [investment advisers and certain 

others] typically engage are, without more, the activities in which a CPO typically engages. Rather, the 

Commission believes that such persons are outside the 

CPO definition and, therefore, that relief from regulation as a CPO is not necessary in order to exclude 

such persons from the CPO definition. [Footnotes 

omitted.] 

Accordingly, and as you have requested, the Division will not recommend that 

the Commission take any enforcement action against "X&Y Inc." if it fails to 

register as a CPO in connection with serving as an investment adviser to the 

Trust. 

FinRlly, you contend that "X&Y Inc. 11 should not be required to 

register as a CTA because, under the facts presented, "X&Y Inc." appears to 

fall within the spirit, if not the lettP.r, of rule 4.14(a) (5), 17 C.F.R. 

§4.14(a) (5) (1.985). That rule provides that a person is not required to 

register as a CTA if --

it is exempt from registration as a comrrodity pool 

operator and the person's trading advice is directed 

solely to, and for the sole use of, the pool or pools 

for which it is so 8-'{empt. 

Although you recognize that rule 4.14(a) (5) applies solely to persons: 

who are exempt from registration as a CPO and does not expressly apply to 

persons who are excluded fram the definition of CPO by rule 4. 5, you assert 

that the activities of "X&Y Inc. 11 with respect to the Trust are analogous to 

the activities described in a recent Division "no-action" position concerning 

CTA registration. 11/ There, the Division stated that it would not recommend 

that the Cammissionttake any enforcement action for failure to register as a 

10/ 50 Fed. Reg. 15868 at 15871 (April 23, 1985). 

11/ Division of Trading and Markets Interpretative Letter 85-21 (November 8,, 

1985), 2 Comm. Fut. L. Rep. (CCH) ~22,795. 
Page 7 

I 

CTA against a person registered as an investment adviser in the event that 

person provided comnodity interest trading advice to only one rule 4.5 

qualifying entity --- i.e., a registered investment company -- that it had 

helped to form and for which a notice of eligibility had been filed with the 

Commission. As the Division explained~ ];];_/ 

Nonetheless, rule 4.l4(a) (5) does reflect a general 

Commission intent to el~ate any unnecessary costs 

and burdens of regulation. Consistent with that intent, the Division believes that adoption of a noaction position with respect to a person's CTA registration would be appropriate under otller circumstances 

not specified in rule 4 .14 (a) where the costs and burdens of erA registration would appear to out'\veigh any 

regulatory benefit -- ~' in the instant situation. 

Furthermore, adoption of such a position in this situation would be consistent with the general policy of 

rule 4.5, which ess~ntially reflects a Congressional 

and Corrmission intent to avoid, where appropriate, 

unnecessary and duplicative CPO regulation for certain 

"otherwise regulated" person..c;. 

In support of the instant request you have represented that "X&Y Inc." 

was formed to provide investment advice to the Trust and that although "X&Y 

Inc." has other clients, the Trust is the only client that "X&Y Inc." would 

currently advise to use commodity options or futures contracts of any 

kind. 13 I Moreover, we note that the sole principals of "X&Y Inc. , " Messrs. 

"X" and"Y," individually are trustees or n.arred fiduciaries of both the •rrust 

and each underlying plan and, thus, are persons who are "otherwise regulated" 

persons under rule 4.5(a) (4). 14/ In light of the foregoing, we agree that 

the facts of this case and the prior "no-action" case are similar. 

Accordingly, based upon the foregoing, the Division will not recorrmend 

that the Commission take any enforcement action against "X&Y Inc." if it 

fails to register as a CTA in connection with providing advice on commodity 

interest trading to the .Trust. I,i.ke the position we took in the prior case, 

however, this position is subject to compliance with the following two 

conditions: (1) upon the request of a duly-authorized Comnission 

representative, "X&Y Inc." must provide access to the books and records it 

keeps and maintains in connection with directing the commodity interest 

12/ Id. at pp. 31,333-34. 

13/ This representation was made by you in a letter dated February 13, 1986. 

14/ For the reasons provided above, however, the Trust would not be a 

"qualifying entity" under rule 4. 5 (b) (4). 
Page 8 

trading of the Trust; 15/ and (2) "X&Y Inc." must agree to comply with 

whatever n1le the Commission may adopt to e...xempt from registration as a CTA 

-- or to reqt1ire registxation as a CTA -- persons who are registered as an 

investment adviser and who provide advice on comnodity interest trading to 

persons or entities who have claimed exclusion from the CPO definition 

pursuant to n1le 4 . 5. 

* * * * * 

The positions we have taken herein are based upon the representations 

you have made to us and are strictly limited to those representations. For 

example, in the event the Trust is not operated in compliance with the 

criteria of rule 4.5(c) or if "X&Y Inc." provides advice on comnodity 

interest trading to one or rrore other persons, the "no-action" positions we 

have taken with respect to the need for Messrs. "Y" and "X" to register as a 

CPO and for "X&Y Inc." to register as a CTA would no longer obtain. 

We note that this letter does not excuse Messrs. "Y" and "X" , "X&Y 

Inc . " and the Trust fram compliance with any other applicable requirements 

contained in the Act or in the Corrmission' s regulations thereunder. For 

e~ample, they each would remain subject to the anti-fraud provisions of 

section 4o of the Act, 7 U.S.C. §6o (1982), and to the reporting require~nts 

for traders set forth in Parts 15,-18 and 19 of the regulations, 17 C.F.R. 

Parts 15, 18 and 19 (1985). 

This letter is based upon the representations made to us and is subject to compliance with the conditions stated above. Any differe.nt, changed 

or omitted facts might require us to reach a different conclusion. In this 

connection, we request that you notify us inmediatel y in the event that the 

activities of "X&Y Inc.," Messrs. "Y" and "X" or the Trust change in any way 

from that as represented to us. 

If you have further questions on this matter, please do not hesitate 

to contact Barbara R. Stem, Assistant Chief Counsel, or Robert H. Rosenfeld, 

Division staff attorney, at (202) 254-8955. 

Very truly yours, 

Andrea M. Corcoran 

Director 

15/ We expect that those books and records would be in the nature of those 

required of registered CTAs by Rule 4.32, 17 C.F.R. §4.32 (1985).