DIVISION OF 

ECONOMIC ANALYSIS 

COMMODITY FUTURES TRADING COMMISSION 

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

(202) 254-6265 FACSIMILE 

July 24, 1990 

Re: Request for No Action Regarding Speculative Position Limits 

Dear : 

By letter dated June 29, 1990, you requested the Division's 

views with regard to the application of speculative position 

limits to the positions of and Letter from to 

Paul M. Architzel, Division of Economic Analysis, dated June 29, 

1990 (June 29 letter). That correspondence included a cover 

letter, an affidavit of on behalf of , an internal 

memorandum to all and , employees, an 

affidavit of on behalf of 

, an internal memorandum to all employees 

from , and Disclosure Documents for both and 

These were supplemented with two additional letters 

dated July 12 and 13, 1990. From this correspondence, we 

understand the facts to be as follows. 

is a registered commodity trading advisor (CTA). 

, as a limited partner, has joined with 

, as the general partner, to form , also a 

registered CTA. is predominantly owned by and 

has no ownership interest in 

will be owned 90 percent by 

will manage both customer and proprietary accounts, using a technical trading system. This trading system 

was developed through the joint research of and 

beginning in 1985 and prior to "any involvement with the 

principals of " Moreover, technical trading 

system operates independently from 

trading is long-term and trend-following in 

nature, with only three to four transactions per year 

per market on average, and all trading decisions are 

made basis market closes for action to be taken the 

next day. The system, in contrast, is 

short-term in orientation, with trades initiated basis 

intra-day market. action and may have positions with or 

against the prevailing long-term trend. 

June 29 letter, at page 2. 
will maintain its place of business in I 

apart from offices, which are situated in 

and will be responsible for the day-to-day 

operation of , and involvement in 

will be limited to "the development of strategic planning initiatives, including marketing plans." Id. 

The trading system is a technical, 

nondiscretionary computer-based trading system which, under the 

partnership agreement, will be followed ·on a·· nondiscretionary 

basis. anticipates providing with a weekly 

summary of trades for the purpose of demonstrating 

adherence to the terms of the agreement. However, the staff 

member having access to trading data will have no 

involvement in the trading of customer or proprietary 

accounts, and will have no access to trade position data. 

Both and have written screening procedures to 

keep confidential the trading positions of each from the other.~/ 

Your letter contends that "[t]he closest analogy to the 

facts presented above is to be found in the information presented 

by commodity pool operators in seeking relief under Commission 

Rule 150.3(b), the multi-advisor pool rule" (June 29 letter, at 

page 2). Howeve'r, the exemption from speculative position limits 

~/ In this regard, an internal memorandum to all employees of 

and , from 

states that: 

Persons having information on past, current, or 

anticipated trades are cautioned that they must refrain 

from discussing such matters where they may be heard by 

persons not authorized to receive such information. 

Also, written materials must be maintained at all times 

so that they are not accessible to unauthorized 

persons. In particular, it is important to emphasize 

that persons having trading authority for or 

involved in the process of filling trades may not 

discuss with or in any way make such information · 

available to persons having trading authority for 

or involved in the process of filling 

trades, nor may they receive from persons 

having trading authority at or involved in 

the process of filling trades any 

confidential information on past, present, 

or future trades. 

A reciprocal memorandum was sent by 

employees. 

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to its 
provided for under Commission Rule 150.3(a)(4) does not, on its 

face, apply to the facts outlined in your letter. 

The exemption under Commission Rule 150.3 for positions 

which have a common owner, but which are independently controlled, is limited to the positions of commodity pool operators 

or similar entities. In proposing this rule, the Commission 

considered whether the exemption should be broadened to include 

other entities such as CTAs. The Commission determined that, in 

light of the unprecedented nature of· this· exemption, caution was 

warranted. In particular, the Commission determined that an 

"initial period for study and reflection of the effect and 

operation of the rule is appropriate," 53 Fed. Reg. 41563, 41567 

(October 24, 1988). In this regard, the Commission reasoned 

that: 

This will provide the Commission with a reasonable 

opportunity to ascertain how the exemptive procedures 

operate, to study further the trading of commodity 

pools and others, and to determine, based upon actual 

experience with the rules, what, if. any, additional 

inf'ormation may be required for a broadened exemption. 

Nevertheless, the facts represented in your letter are 

analogous to those required to be established by affiliated 

account controllers to be deemed to qualify for exemption under 

Commission Rule 150.3(b). In this regard, the Division believes 

that the June 29, and July 12 and 13, letters, affidavits, and 

internal memoranda demonstrate sufficient indicia of independence 

to deem the account controllers to be independent under the 

analytic framework of Commission Rule 150.3. In particular, we 

note that you have outlined written procedures designed to 

preclude the affiliated account controllers from gaining access 

to, or receiving data about, the trades of each other, and you 

have represented that the two trading systems to be used were 

separately developed and are independent in nature. Moreover, 

the account controllers are separately registered, will use a 

separate Disclosure Document, and~ as you represent, will market 

the trading programs separately.l 

Zl With regard to the separate marketing of these trading 

programs, the Division notes that Rule 4.21, 17 

C.F.R. §4.21, requires registered commodity pool operators 

to disclose their past performance and the past performance 

of their principals, the past performance of the pool's CTA, 

and the principals thereof. Rule 4.31, 17 C.F.R. §4.31, 

(Footnote Continued) 

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Thus, although affiliated CTAs are not eligible for exemptive relief under Commission Rule 150.3(a)(4), the facts, as 

represented in your letter, would otherwise meet the requirements 

for exemptive relief under that rule. Moreover, the Commission 

is considering amending Commission Rule 150.3(a)(4) to include 

CTAs within the class of entities eligible for exemptive relief. 

Accordingly, in light of the representations in your letter, and 

the pending proposal to amend the rule, the Division will not 

recommend to the Commission any enforcement action under §4a(l) 

of the Commodity Exchange ·Act (7 u.s-.c.· §6a(li) to the extent 

that and together may maintain maximum net positions of twice the speculative position limit contained in 

Commission Rule 150.2. However, this ~osition is conditioned 

upon and individuallyd not exceeding the applicable spot-month, single-month, or all-futures speculative limit, 

and upon both and in the aggregate not exceeding 

the applicable spot-month limit. This position is further conditioned on and compliance with any future rules 

promulgated by the Commission r~lating to this issue. 

The above position is based upon your letters of June 29, 

and July 12 and 13, 1990, including, in particular, the affidavits, facts, representations, and documentation contained therein. Any different, omitted, or changed facts or conditions might 

require a different conclusion. This position does not excuse 

or from complying with any otherwise applicable 

provisions of the Commodity Exchange Act or Commission regulations, nor does it address trading by any other entities. In 

particular, this position in no way diminishes or otherwise 

affects the requirements of Commission registrants "to diligently 

supervise the handling •.• of all commodity interest accounts •.• ," 

(Footnote Continued) 

requires CTAs to disclose their past performance and the 

past performance of their principals. Commission staff has 

interpreted these requirements to mean that commodity 

trading advisors must disclose the past performance of any 

advisor with which they are affiliated in their Disclosure 

Documents. The affiliated advisor similarly.must disclose 

the past performance of the pool operator or trading advisor 

in directing accounts in its Disclosure Documents. These 

disclosures, required under Rules 4.21 and 4.31, would not 

constitute marketing. 

J/ and individual positions, for purposes of 

speculative position limits, would include all of the 

positions held or controlled by the respective entities and 

their account controllers. Thus, any positions of 

and , the account controllers for , and 

, would be aggregated with those of 

4 
17 C.F.R. §166.3 (1989), including the responsibility to ensure 

that trading information is not improperly used. See also, 

§2(a)(1)(A) of the Commodity Exchange Act, 7 U.S.C. §2. It 

should be noted that this position is that of the Division of 

Economic Analysis, and is not binding upon the Commission or any 

other of its staff. 

Sincerely, 

Steven Manaster 

Director 

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