COMMODITY FUTURES TRADING COMMISSION 

2033 K STREET, N.W., WASHINGTON, D.C. 20561 

(202) 254-8955 

(202) 254-3534 FACSIMILE 

DIVISION OF 

TRADING AND MARKETS 

Re: 

Dear 

April 25, 1991 

, 

Request for No-Action Relief 

Operator Registration; 

Action Relief from Commodity 

tion. 

and 

from Commodity Pool . -- Request for NoTrading Advisor RegistraThis is in response to your letter dated September 7, 1990, 

as supplemented by your letters dated September 26 1 1990 and 

November 9, 1990 1 and telephone conversations with Division 

staff, wherein you request in connecti9n with the operation of 

"The Guarantee Fund, Limited" and "The 

Trading Fund, Limited" (collectively, the "Funds") that the 

Division not recommend enforcement action to the commission if: 

{1) , and , the directors of each of the Funds (the "Directors''); do not register as 

commodity pool operators ("CPOs"); and (2) , who 

will select commodity trading advisors ( 11 CTAs 11 ) for the Funds, 

does not itself register as a CTA. 

Preliminarily, we note your explanation that the Funds' 

names were used merely to differentiate the two Funds, because 

actual names that will be used cannot be determined until the 

Funds are formed. Accordingly, the relief issued below is 

subject to receipt by the Division of the Funds' names when those 

names are selected. 

Based upon the representations made in your September 7, 

1990 letter, as supplemented, we understand the facts to be as 

follows: 

1. Both Funds will be incorporated under the International 

Business Companies Act of 1989 in accordance with the 

laws of the commonwealth of the Bahamas. The Funds' 

principal place of business will be in Nassau, Bahamas. 

The Trading Fund, Limited will engage in 

trading futures contracts, options on futures contracts, commodities, spot contracts and forward contracts. The Guarantee Fund, Limited will 
I' 

Page 2 

guarantee return bf the initial investment of each 

person in the Trading Fund throughout the purchase of 

zero coupon bonds. 

2. Messrs. , and are all United States 

citizens and are all registered in some capacity with 

the Commodity Futures Trading Commission. Specifically, is registered as an associated person 

("AP") of _ . , a 

registered CTA; is registered as an AP of 

, a registered CPO and CTA, 

as an AP of , a registered futures commission merchant, and also registered individually as a 

CPO and CTA; and is registered as an AP of 

3. will be organized and established as an "International Business Company" in accordance with the laws of 

The Commonwealth of the Bahamas, with its principal 

place of business in Nassau, the Bahamas. 

and will each own one-third of 

will be President, and will 

be Secretary and Treasurer of will monitor 

and select the CTAs for the Funds. All CTAs will be 

registered with the Commission as such, or be exempt 

from such registration. All futures commission merchants and all introducing brokers (if any) that the 

Funds use will be registered with the Commission. 

's sole clients will be the Funds. 

4. The interests in the Funds will not be held directly or 

indirectly by residents or citizens of the United 

States, and the Funds will not contain any capital 

directly or indirectly contributed from sources within 

the United States. 1/ 

1/ For the purpose of the positions we are taking herein, we 

are presuming the term "residents or citizens of the United 

states" to include a resident or citizen of the United 

States or any of its territories or possessions or areas 

subject to its jurisdiction, a partnership organized under 

the laws of any state, territory or possession of the United 

States, a corporation organized under the laws of the United 

States or any state, territory or possession thereof, or any 

estate or trust, the income of which is subject to United 

States income tax regardless of source. Entities organized 

under the laws of a foreign jurisdiction which have any 

United states residents or citizens holding beneficial 

interests would also be included. 
Page 3 

5. No meetings of holders of interests in the Funds will 

be held in the United States. 

In light of the foregoing, you request that the Division 

take a "no-action" position such that the Division will not 

recommend enforcement action based upon the Directors' failure to 

register as CPOs. 

Based upon our review of the representations set forth in 

your letter and the Division's prior positions, we note that this 

situation presents many of the same facts that have supp~~ted 

prior ''no-action" positions regarding CPO registration. -1 

Specifically, your request presents the following facts: (1) the 

CPO will confine all pool activities to areas outside the United 

states; (2) none of the participants in the pool will be a 

resident or citizen of the United States; (3) no funds or other 

capital will be contributed to the pool from United states 

sources; and (4) all shareholder meetings will be conducted 

outside the United States. 

However, the instant case presents the further facts that 

the applicants for CPO registration "no-action" relief are all 

United States citizens. Where a CPO is located in and is a 

citizen of the United States but all of its pool activities are 

offshore, the CPO must register as such. Upon request, the 

Division generally has granted the cP

7

o relief from Rules 4.21, 

4.22, and 4.23(a) (10) and (a) (11). 1 As registered APs, , and have undergone fitness and 

qualifications examinations. Thus, the only additional requirements which they would have to meet if they registered as CPOs 

and then requested and received exemptions from Part 4 would be 

the recordkeeping requirements of Rules 4.23(a) (1)-(a) (9) and 

(b) (1)-(b) (3). In this regard, you have represented that the 

Directors will make and keep at their main business office in the 

United States booki and records equivalent to those required 

under these recordkeeping rules with respect to the operation of 

the Funds, and that the Directors will make these books and 

records available for inspection by representatives of the 

commission and the National Futures Association. Accordingly, 

based upon the representations you have made to us, the Division 

will not recommend that the commission take any enforcement 

action against and as a result of 

~/ See, ~, CFTC Interpretative Letter No. 76-21 [1975-1977 

Transfer Binder] comm. Fut. L. Rep. (CCH) ~20,222 (August 

15, 1976). 

1/ See, ~' Division of Trading and Markets Interpretative 

Letter No. 90-6, [Current Transfer Binder) Comm. Fut. L. 

Rep. (CCH) ~24,825 (April 25, 1990). commission rules 

referred to herein are found at 17 c.F.R. Ch. I (1990). 
Page 4 

their engaging in the activities described above without registering as CPOs. This position is subject to the condition that 

and . remain registered as APs. 

In light of the foregoing representations, you also request 

that the Division take a registration "no-action" position with 

respect to the failure of to register as a CTA. 

Rule 4.31 requires each registered CTA who seeks to direct 

or to guide a prospective client's account to first deliver a 

Disclosure Document to the prospective client. In the case of , we agree with your conclusion that --·- should not be required to deliver a Disclosure Document to the Directors. This 

is because , . and each owns one-third 

of , and will be President, and will be 

Secretary and ·Treasurer of . Therefore, they would already be 

aware of the information that the Disclosure Document would 

contain. In this regard, we again note ·that as APs of other duly 

registered entities, , and have 

undergone fitness and qualifications examinations. Thus, the 

only additional requirements which would have to meet if it · were required to register as a CTA would be the recordkeeping 

requirements of Rule 4.32. You have represented that the Directors will: (1) make and keep at their main business office in the 

United States books and records equivalent to those required 

under Rule 4.32; (2) make these books and records available for 

inspection by representatives of the Commission and the National 

Futures Association; and (3) as the sole officers, directors and 

shareholders of , be liable for . 1 s activities to the extent 

they would be liable under the commodity Exchange Act (the "Act") 

as if were registered as a CTA. Based upon the foregoing 

representations, the Division will not recommend that the Commission take any enforcement action for failure to register as a CTA 

against if it engages in the activities described above. 

The relief issued by this letter does not excuse the Directors and from compliance with any other applicable requirements contained in the Act or the Commission' s· regulations thereunder. For example, they each remain subject to the anti-f~aud 

provisions of Section 4Q of the Act, 7 u.s.c. §6Q (1988), i/ to 

i/ In this regard, we note that in furtherance of the antifraud provisions of Section 4Q of the Act, the Division has 

issued an Advisory concerning material information that must 

be displayed' with''respect to so-called "guaranteed" commodity pools, such as the Funds appear to be. ·§gg Division of 

Trading and Markets Advisory No. 86-1, [1986-87 Transfer 

Binder] Comm. Fut. L. Rep. (CCH) ~23,035 (April 25, 1986). 

In particular, the Division stated that: 

(continued •.. ) 
Page 5 

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

and 19 of the Commission's regulations, and to all other provi- sions under Part 4. 2/ Finally, this letter is applicable to 

the Directors and solely in connection with the operation of 

the Funds. 

This letter is based upon the representations that have been 

made to us and is subject to compliance with the conditions 

stated above. 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 immediately in the 

event the operations of the Funds, including their shareholder 

and Board of Directors compositions or the AP registrations of , and (including loss of sponsorship), change in any way from those as represented to us. This 

letter represents the positions of this Division only. It does 

not necessarily reflect the views of the commission or any other 

office or division of the Commission. 

i/ ( ... continued) 

~1£~£:~_~ __ ......_ 

susan c. Ervin 

Chief' counsel 

[A]ny statements that suggest that the risks 

of futures trading are decreased by reason of 

[a guarantee) structure have a high potential 

to mislead or deceive and could result in 

serious violations of the •.• anti-fraud 

provisions. Id. at pp. 32,058-59. 

Accordingly, this letter should in no way be construed as 

approving or passing upon the Directors' disclosure materials for the Funds or any other aspect of their business as 

the CPOs of the Funds. -

2/ For example, the Directors remain subject to the prohibition 

against commingling of funds found in Rule 4.20(c), which 

applies to each person who comes within the CPO definition, 

regardless of whether that person must register as a CPO.