DIVISION OF 

TRADING AND MARKETS 

COMMODITY FUTURES TRADING COMMISSION 

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

T&M 88-6 

January 28, 1988 

Re: Foreign Funds - CPO and erA Regulation 

Dear 

This is in response to your letter dated January 21, 1988, as suppleIrented by your telephone conversation with Division staff on January 25, 

1988, wherein you requested on behalf of certain persons relief fran 

canm:xli ty pool operator ("CPO") and comrodi ty trading advisor ("erA") 

regulation. 

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

we understand the facts in general to be as follc:Ms: A proposes sponsoring 

thirteen offshore mutual funds (the "Funds") which will trade in securities 

and ccmocx:lity interests. 1/ Three Funds will be organized under the laws of 

the Grand Duchy of LuxembOurg. The other ten Funds will be organized under 

the laws of the Netherlands Antilles. The organizational documents and 

prospectus of each Fund will state that shares of the Fund may not be offered 

for sale or sold, either directly or indirectly, to a United States person. 

In addition, shareholders will be prohibited from transferring any of their 

shares to a United States person. 

Each Fund will have as its Directors the follc:Ming four United States 

citizens or residents: C, D, E, and F. Messrs. C and D are each registered 

as a CPO. You have represented with respect to Messrs. E and F that while 

neither is so registered, nor is either subject to a statutory disqualification under Section 8(a) (2) or 8(a) (3) of the Act, 7 u.s.c. 12(a) (2) or 

12(a) (3). Each Netherlands Antilles Fund, as required by the laws of that 

jurisdiction, will also have a "Managing Director," G, which will manage the 

Y 'I\-10 of the persons for whom you sought relief fran CPO registration were 

A and B. The Ccmnission has stated that a person would come within the 

statutory definition of the term "ccmocx:lity pool operator" in Section 

2(a) (1) (A) of the Ccmrodity Exchange Act (the "Act"), 7 U.S.C. 2, if it 

engaged in such activities as prcrooting a corrmodity pool and if it had 

the authority to hire (and to fire) the pool 1 s erA and to select (and to 

change) the pool 1 s futures conmi.ssion merchant. See 49 Fed. Reg. 4 778 

(February 8, 1984) . Accordingly, in light of the facts that A only will 

be sponsoring the Funds and that, as described ll.'Dre fully belCM, B only 

will be assisting each Fund in fulfilling cleri~~l responsibilities, we 

do not believe that they would come within the CPO definition and, 

accordingly, no such relief is necessary with respect to them. 
Page 2 

business of those Funds rmder the supervision of the Board. Further, H, a 

registered CPO domiciled in the United States, will serve as a rrember of Fund 

x' s Board of Directors. In sum: ( 1) the Luxembourg Frmds will have four 

Directors; (2) excepting Frmd X the Netherlands Antilles Funds will have five 

Directors; and (3) Fund X will have six Directors. Under these facts, you 

have made three requests for relief from CPO regulation. 

The first is a request for CPO registration "no-action" relief such 

that Messrs. c and D and, further with respect to Frmd X, H,. each of wham is 

registered as a CPO, are the only persons who need to be registered as a CPO 

in connection with the operation of the Frmds and that Messrs. E and F, and, 

further with respect to the Netherland Antilles Frmds, G, need not so 

register. In this regard, we note that the instant case presents the 

following facts which similarly were present in cases where Commission staff 

took a CPO registration "no-action" position: (1) the ccmroclity pool 

activities of the Fund will be confined to areas outside the territorial 

United States; (2) none of the participants in the Frmd may be a United 

States resident or citizen; and (3) no funds or other capital may be comnitted 

to the Frmd fran United States sources. 2/ On the other hand, like those 

cases where staff declined to issue a "nO-action" position but provided 

certain other relief, it presents the fact that certain members of the Frmd's 

Board of Directors may be United States citizens or residents. 3 I Further in 

this regard, we note that the instant case presents such further facts as: 

(1) at least 50% of the Directors of each Fund who are citizens or residents 

of the United States are registered as a CPO; (2) the two United States 

Directors who are not so registered, Messrs. E and F, are not subject to a 

statutory disqualification; and (3) the sole non-United States Director of 

the Netherland Antilles Frmds, G, will manage the business of those Funds 

under the supervision of the Board. Accordingly, based upon the representations you have made to us, the Division will not reCCJirlreild that the Comnission 

take any enforcement action for failure to register as a CPO against Messrs. 

E and F in connection with their operation of all of the Frmds or against G 

in connection with its operation of the Netherlands Antilles Funds. i/ 

~/ See, ~·, CFI'C Staff Interpretative Letter No. 76-21, Cc:mn. Fut. L. Rep. 

(CCH) ~20,222 (August 15, 1976). 

1../ See, ~·, Division of Trading and Markets Interpretative Letter No. 

83-14, Camm. Fut. L. Rep. (OCH) ~21,967 (June 6, 1983). 

Y Cf. Division of Trading and Markets Interpretative Letter No. 86-7, Conrn. 

Fut. L. Rep. (CCH) S[23,013 (February 6, 1986), wherein the Division took 

a CPO registration "no-action" position with respect to each member of 

the Board of Directors of a foreign com:rodi ty pool because of, anong 

other things, the fact that a minority of those members would be United 

States citizens or residents. 
Page 3 

Second, you have requested that each registered CPO of each Fund 

(~1essrs. C and D, and further with respect to Fund X, H, be relieved fran the 

disclosure, reporting and recordkeeping requirerrents of Rules 4. 21, 4. 22 and 

4.23(a) (10)-(a) (11), respectively. 5/ This would be consistent with our 

prior practice in similar cases where, as noted above, each Fund's danicile, 

shareholders and sources of capital will be foreign but its (registered) CPOs 

are United States citizens or residents. 6/ Accordingly, based upon the 

representations you have made to us and pursuant to the authority delegated 

by Rule 140.93 (a) (1) , each registered CPO of each Fund is hereby exempted 

from Rules 4.21, 4.22 and 4.23(a) (10)-(a) (11) in connection with its operation 

of a Fund. 

Third, you have requested that each registered CPO of each Fund be 

relieved from the requirerrent in Rule 4.23 (a) to maintain at its main business 

office the books and records required by the rule and, in lieu thereof, be 

allowed to maintain those books and records at the main business office of B. 

In this regard, we note that B will serve as each Fund's administrator (or 

sub-administrator) and, in such capacity, specifically will have the responsibility of assisting each Fund (and each CPO thereof) with its clerical 

responsibilities. We further note, however, that Rule 4.23(a) is intended to 

ensure that the Ccmnission and pool participants have "meaningful access." 21 

Accordingly, pursuant to Rule 140.93 (a) (1) , your request for exemption from 

Rule 4.23(a) is hereby granted subject to compliance with the conditions 

that: (1) such books and records as will be maintained by B will be made 

available for audit, inspection and copying by duly authorized Comnission 

representations at all reasonable times; (2) those books and records will be 

available to each respective Fund' s participants for inspection and copying 

during normal business hours; and (3) each registered CPO remains responsible 

for corrpliance with all of the provisions of Rule 4. 23 (a) . 

Ccmrrodity interest trading decisions will be made by different CI'As 

for different Funds and, accordingly, you have requested certain CI'A registration relief based upon those differences. For the purpose of that relief, 

and as you have done by your letter, the Funds may be divided into three 

categories. 

First, all but three of the Funds will be advised by certain Foreign 

Advisors. Each Foreign Advisor is incorporated outside of the United States, 

has its principal offices outside of the United States and will perform its 

2J Unless otherwise noted, all references to Canmission rules may be found 

at Title 17 of the Code of Federal Regulations. 

~/ See Interpretative l€tter No. 83-14, supra n. 5. 

21 See,~., 45 Fed. Reg. 51600, 51603 (August 4, 1980). 
Page 4 

advisory or sub-advisory services outside of the United States. The Board of 

Directors of each Foreign Advisor consists of a majority of non-United States 

persons. No United States member of the Board is subject to a statutory 

disqualification under Section 8(a) (2) or 8(a) (3) of the Act. Under these 

facts, and as noted above the foreign nature of each Fund, the Division will 

not recommend that the Commission take any enforcement action for failure to 

register as a CTA against any Foreign Advisor in connection with its providing 

corrm::xli ty interest trading advice to a Fund. '§_/ 

The second category consists of two Funds for which corrurodi ty trading 

decisions will be made by B. In this regard, you have represented that: 

( 1) each Fund will be operated pursuant to the criteria of Rule 4. 5 (c) ( 2) , 

although because of its foreign nature the Fund has not (and absent an 

exemption from the Securities and Exchange Commission cannot be) registered 

as an investment carpany under the Investment Carpany Act of 1940 and therefor 

the Fund is not an eligible person or qualifying entity under Rule 4.5 (a) or 

(b); (2) B is registered as an investment adviser under the Investment 

Advisers Act of 1940; and (3) B will ccroply with the criteria of Rule 

4.14(a) (8) in providing ccmrodity trading advice to the Funds. 9/ Based upon 

the foregoing, and the foreign nature of the Fund, the Divisionwill not 

recommend tl1at the Commission take any enforcement action for failure to 

register as a ~~ against B in connection witll its providing commodity 

interest trading advice to the Funds. This position is, hCMever, subject to 

campliar~e witil the condition that B will submit to such special calls as the 

Division may make of it to derronstrate compliance with the terms and 

conditions of tilis "no-action" position. 

The third category of Funds consists of Fund X. H, one of tile Fund 1 s 

CPOs, will also serve as its CTA. By this letter we confinn the availability 

of the exemption fran CTA registration in Rule 4.14(a) (4) to H in connection 

with advising Fund X -- because it is registered as a CPO and its ccmrodity 

interest trading advice will be directed to a pool for which it is so 

registered. 

\tJe note that this letter does not excuse any person covered hereby 

from compliance with any other applicable requirements contained in the Act 

or in the Corrmission 1 s regulations thereunder. For example, each would 

remain subject to the anti-fraud provisions of Section 4£ of the Act, 7 

'§_/ See Interpretative Letter No. 86-7, supra n. 6. 

2_/ Rule 4.14 (a) (8) makes an exemption fram CTA registration available to a 

registered investment adviser to a Rule 4. 5 trading vehicle -- ~. , a 

registered investment company -- under certain criteria -- ~·, tllat tile 

advisor will provide cormodity trading advice solely incidental to its 

business of providing securities advice and that it will not otilerwise 

hold itself out as a CTA. 52 Fed. Reg. 41975 (November 2, 1987). 
Page 5 

u.s.c. 6o (1982) 1 and to the reporting requirements for traders set forth in 

Parts 15:- 18 and 19 of the Comnission' s regulations. Further 1 the positions 

we have taken herein are solely applicable to such persons in connection with 

their involvement in the activities of the Funds. 

This letter is based upon the representations that have been made to 

us and is subject to cornpliance with certain conditions set forth 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 

inmediately in the event the operations of any person subject to this letter 

or any Fund change in any way from that as represented to us. 

BSG/mad 

Ve1:y truly yours, 

Andrea M. Corcoran 

Director 

cc: Daniel A. Driscoll, National Futures Association