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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 3

RIN 3038-XXXX

Exemption from Registration for Certain Foreign Persons Acting as Commodity 

Pool Operators of Offshore Commodity Pools

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of Proposed Rulemaking; Reopening of Comment Period.

SUMMARY: The Commodity Futures Trading Commission (Commission) is proposing to 

amend the conditions in Commission regulation 3.10(c) under which a person located outside of 

the United States engaged in the activity of a commodity pool operator (CPO; each person 

located outside of the United States a non-U.S. CPO) in connection with commodity interest 

transactions on behalf of persons located outside the United States (collectively, an offshore 

commodity pool or offshore pool) would qualify for an exemption from CPO registration and 

regulation with respect to that offshore pool. Specifically, through amendments to Commission 

regulation 3.10(c), the Commission is proposing that non-U.S. CPOs may claim an exemption 

from registration with respect to its qualifying offshore commodity pools, while maintaining 

another exemption from registration, relying on an exclusion, or registering as a CPO with 

respect to the operation of other commodity pools. The Commission is also proposing to add a 

safe harbor by which a non-U.S. CPO of an offshore commodity pool may rely upon the 

proposed exemption in Commission regulation 3.10(c) if they satisfy enumerated factors related 

to the operation of the offshore commodity pool. Additionally, the Commission is proposing to 

permit certain U.S. control affiliates of a non-U.S. CPO to contribute capital to such CPO’s 
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offshore pools as part of the initial capitalization without rendering the non-U.S. CPO ineligible 

for the exemption from registration under Commission regulation 3.10.

DATES: Comments must be received on or before [Insert date 60 days from publication in the 

Federal Register].

ADDRESSES: You may submit comments, identified by RIN 3038-XXXX, by any of the 

following methods:

CFTC Comments Portal: http://comments.cftc.gov. Select the “Submit Comments” link for this 

rulemaking and follow the instructions on the Public Comment Form.

Mail: Send to Christopher Kirkpatrick, Secretary of the Commission, Commodity Futures 

Trading Commission, Three Lafayette Center, 1155 21st Street NW, Washington, DC 20581.

Hand Delivery/ Courier: Same as mail above.

Please submit your comments using only one of these methods. To avoid possible delays 

with mail or in-person deliveries, submissions through the CFTC Comments Portal are 

encouraged.

All comments must be submitted in English, or if not, accompanied by an English 

translation. Comments will be posted as received to https://comments.cftc.gov. You should 

submit only information that you wish to make publicly available. If you wish the Commission 

to consider information that may be exempt from disclosure under the Freedom of Information 
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Act (FOIA), a petition for confidential treatment of the exempt information may be submitted 

according to the procedures established in § 145.9 of the Commission’s regulations.1

The Commission reserves the right, but shall have no obligation, to review, pre-screen, 

filter, redact, refuse or remove any or all of your submission from https://comments.cftc.gov

that it may deem to be inappropriate for publication, such as obscene language. All submissions 

that have been redacted or removed that contain comments on the merits of the rulemaking will 

be retained in the public comment file and will be considered as required under the 

Administrative Procedure Act and other applicable laws, and may be accessible under FOIA.

FOR FURTHER INFORMATION CONTACT: Joshua B. Sterling, Director, (202) 418-

6056, jsterling@cftc.gov, Amanda Lesher Olear, Deputy Director, (202) 418-5283, 

aolear@cftc.gov, or regarding Section III of this Notice of Proposed Rulemaking, Frank 

Fisanich, Chief Counsel, (202) 418-5949, ffisanich@cftc.gov, Division of Swap Dealer and 

Intermediary Oversight, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 

21st Street, N.W., Washington, DC 20581. 

SUPPLEMENTARY INFORMATION:

I. Background

Section 1a(11) of the Commodity Exchange Act (CEA or Act)

2 defines the term 

“commodity pool operator” as any person3 engaged in a business that is of the nature of a 

 

1

17 CFR 145.9. Commission regulations referred to herein are found at 17 CFR Chapter I (2019).

2

See 7 U.S.C. 1, et seq. (2019). The CEA and the Commission’s regulations are accessible through the 

Commission’s website, https://www.cftc.gov.

3 See 17 CFR 1.3 (defining “person” to include individuals, associations, partnerships, corporations, and trusts).
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commodity pool, investment trust, syndicate, or similar form of enterprise, and who, with 

respect to that commodity pool, solicits, accepts, or receives from others, funds, securities, or

property, either directly or through capital contributions, the sale of stock or other forms of 

securities, or otherwise, for the purpose of trading in commodity interests.4 CEA section 1a(10) 

defines a “commodity pool” as any investment trust, syndicate, or similar form of enterprise 

operated for the purpose of trading in commodity interests.5 CEA section 4m(1) generally 

requires each person who satisfies the CPO definition to register as such with the Commission.6 

With respect to CPOs, the CEA also authorizes the Commission, acting by rule or regulation, to 

include within or exclude from the term “commodity pool operator” any person engaged in the 

business of operating a commodity pool if the Commission determines that the rule or 

regulation will effectuate the purposes of the CEA.

7

 

Additionally, CEA section 4(c), in relevant part with respect to this proposal, provides 

that the Commission, to promote responsible economic or financial innovation and fair 

competition, by rule, regulation, or order, after notice and opportunity for hearing, may exempt, 

among other things, any person or class of persons offering, entering into, rendering advice, or 

rendering other services with respect to commodity interests from any provision of the Act.

8

 

 

4 7 U.S.C. 1a(11). See also 17 CFR 1.3 (defining “commodity interest” to include any contract for the purchase or 

sale of a commodity for future delivery, and any swap as defined in the CEA); Adaptation of Regulations to 

Incorporate Swaps, 77 FR 66288, 66295 (Nov. 2, 2012) (discussing the modification of the term “commodity 

interest” to include swaps).

5

7 U.S.C. 1a(10).

6 7 U.S.C. 6m(1).

7 7 U.S.C. 1a(11)(B).

8 7 U.S.C. 6(c)(1).
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Section 4(c) authorizes the Commission to grant exemptive relief if the Commission determines, 

inter alia, that the exemption would be consistent with the “public interest.”9

To provide an exemption pursuant to section 4(c) of the Act with respect to registration 

as a CPO, the Commission must determine that the agreements, contracts, or transactions 

undertaken by the exempt CPO should not require registration and that the exemption from 

registration would be consistent with the public interest and the Act.10 The Commission must 

further determine that the agreement, contract, or transaction will be entered into solely 

between appropriate persons and that it will not have a material adverse effect on the ability of 

the Commission or any contract market to discharge its regulatory or self-regulatory duties 

under the Act.11 The term “appropriate person” as used in Section 4(c) includes “a commodity 

pool formed or operated by a person subject to regulation under the Act.”12 The Commission 

has previously interpreted the clause “subject to regulation under the Act” as including persons 

who are exempt from registration or excluded from the definition of a registration category.13

Part 3 of the Commission’s regulations governs the registration of intermediaries 

engaged in, inter alia, the offering and selling of, and the provision of advice concerning, all 

 

9 See Conference Report, H.R. Report 102–978 at 8 (Oct. 2, 1992) (‘‘The goal of providing the Commission with 

broad exemptive powers . . . is to give the Commission a means of providing certainty and stability to existing and 

emerging markets so that financial innovation and market development can proceed in an effective and competitive 

manner.’’).

10 7 U.S.C. 6(c)(2)(A).

11 Id. at 6(c)(2)(B).

12 Id. at 6(c)(3)(E).

13 See, Further Definition of “Swap Dealer”, 77 FR 30596, 30655 (May 23, 2012) (finding, in the context of the 

eligible contract participant definition, that “construing the phrase ‘formed and operated by a person subject to 

regulation under the [CEA]’ to refer to a person excluded from the CPO definition, registered as a CPO or properly 

exempt from CPO registration appropriately reflects Congressional intent”).
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commodity interest transactions. Commission regulation 3.10 establishes the procedure that

intermediaries, including CPOs, must use to register with the Commission.14 Commission 

regulation 3.10 also establishes certain exemptions from registration.15 In particular, 

Commission regulation 3.10(c)(3) (referred to herein as the 3.10 Exemption) provides that, 

inter alia, a person engaged in the activity of a CPO, in connection with any commodity interest 

transaction executed bilaterally or made on or subject to the rules of any designated contract 

market or swap execution facility, is not required to register as a CPO, provided that:

1. The person is located outside the United States, its territories, and possessions (the 

United States or U.S.) (a non-U.S. CPO);

2. The person acts only on behalf of persons located outside the United States (an offshore 

commodity pool); and

3. The commodity interest transaction is submitted for clearing through a registered futures 

commission merchant.

16

A person acting in accordance with the 3.10 Exemption remains subject to the antifraud 

provisions of CEA section 4o,

17 but is otherwise not required to comply with those provisions of 

 

14

See, e.g., 17 CFR 3.10(a)(1)(i) (requiring the filing of a Form 7-R with the National Futures Association (NFA)).

15

See 17 CFR 3.10(c) (exemption from registration for certain persons).

16 17 CFR 3.10(c)(3)(i). But see CFTC Staff Letters No. 16-08 and 15-37. Pursuant to these letters, Commission staff 

in the Division of Swap Dealer and Intermediary Oversight (DSIO) recognized that not all swaps are required to be 

cleared, and thus provided relief from registration for certain intermediaries acting on behalf of persons located 

outside the United States or on behalf of certain International Financial Institutions in connection with swaps not 

subject to a Commission clearing requirement. In 2016, the Commission published a proposed rule that would 

codify the position articulated in these DSIO staff letters. See Exemption from Registration for Certain Foreign 

Persons, 81 FR 51824 (Aug. 5, 2016). The Commission is reopening the comment period on such proposed rule 

pursuant to this Proposal. See Section III, infra .

17 7 U.S.C. 6o.
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the CEA or Commission regulations applicable to any person registered in such intermediary 

capacity or persons required to be so registered.

18 The 3.10 Exemption provides that it is 

available to non-U.S. CPOs whose activities, in connection with any commodity interest 

transaction executed bilaterally or made on or subject to the rules of any designated contract 

market or swap execution facility, are confined to acting on behalf of offshore commodity 

pools.19 This exemption was first adopted in 2007 and was based on a long-standing no-action 

position articulated by the Commission’s Office of General Counsel in 1976.20

In adopting the final rule amending Commission regulation 3.10, the Commission agreed 

with commenters who cited its longstanding policy of focusing “‘customer protection activities 

upon domestic firms and upon firms soliciting or accepting orders from domestic users of the 

futures markets.’”21 The Commission further stated that the protection of non-U.S. customers 

of non-U.S. firms may be best deferred to foreign regulators.22 The Commission noted its 

understanding that, pursuant to the terms of the 3.10 Exemption, “[a]ny person seeking to act 

in accordance with any of the foregoing exemptions from registration should note that the 

prohibition on contact with U.S. customers applies to solicitation as well as acceptance of 

 

18 17 CFR 3.10(c)(3)(ii). As market participants, however, such persons remain subject to all other applicable 

provisions of the CEA and the Commission’s regulations promulgated thereunder.

19 17 CFR 3.10(c)(3)(i). 

20 Exemption from Registration for Certain Foreign Persons, 72 FR 63976, 63977 (Nov. 14, 2007). See CFTC Staff 

Interpretative Letter 76-21.

21 Id. at 63977, quoting Introducing Brokers and Associated Persons of Introducing Brokers, Commodity Trading 

Advisors and Commodity Pool Operators; Registration and Other Regulatory Requirements, 48 FR 35248, 35261 

(Aug. 3, 1983).

22 Id. The Commission also cited this policy position in the initial proposal for what ultimately became Commission 

regulation 3.10(c)(3)(i). See Exemption from Registration for Certain Foreign Persons, 72 FR 15637, 15638 (Apr. 2, 

2007).
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orders.”

23 Moreover, the Commission stated that “[if] a person located outside the U.S. were to 

solicit prospective customers located in the U.S. as well as outside of the U.S., these exemptions 

would not be available, even if the only customers resulting from the efforts were located 

outside the U.S.”

24

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank 

Act)25 amended the definition of “commodity pool operator” and “commodity pool” to include 

those persons operating collective investment vehicles that engage in swaps,26 which resulted in 

an expansion of the universe of persons captured within the statutory definitions of both CPOs 

and commodity pools. When combined with the rescission of Commission regulation 4.13(a)(4)

in 2012,

27 an increasing number of non-U.S. CPOs were required to either register with the 

Commission or claim an available exemption or exclusion with respect to the operation of their 

commodity pools, both offshore pools and those offered to U.S. participants. 

In 2018, the Commission proposed adding a new exemption in Commission regulation

4.13 to codify the relief provided in CFTC Staff Advisory 18-96 (Advisory 18-96).28 As part of 

that proposal, the Commission noted that the proposed exemption based on Advisory 18-96 

 

23 Exemption From Registration for Certain Foreign Persons, 72 FR at 63977-78.

24 Id. at 63978.

25 Pub. L. 111-203, H.R. 4173 (2010).

26 See Section 721 of the Dodd-Frank Act.

27 See Commodity Pool Operators and Commodity Trading Advisors; Compliance Obligations, 77 FR 11252, 11264 

(Feb. 24, 2012). Former Commission regulation 4.13(a)(4) provided an exemption from registration as a CPO for 

operators of commodity pools offered and sold to sophisticated participants. See, 17 CFR 4.13(a)(4) (2010).

28 Registration and Compliance Requirements for Commodity Pool Operators and Commodity Trading Advisors, 

83 FR 52902 (Oct. 18, 2018); CFTC Staff Advisory 18-96 (Apr. 11, 1996).
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could be claimed on a pool-by-pool basis, and stated that “[t]his characteristic would effectively 

differentiate the [proposed exemption] from the relief currently provided” under the 3.10 

Exemption.

29 The Commission received several comments regarding that aspect of the 

proposal. One commenter noted that the 3.10 Exemption “is widely relied on around the world 

by non-U.S. managers of offshore funds that are not offered to U.S. investors but that may trade 

in the U.S. commodity interest markets.”

30 This commenter further noted that “CPO 

registration for these offshore entities with global operations is not a viable option[,]” due to the 

logistical and regulatory issues involved.31 Another commenter stated that, “it is critical to bear 

in mind that the Commission ... to our knowledge has never addressed, the separate and distinct 

question of whether an offshore CPO may rely on Rule 3.10(c)(3)(i) with respect to some of its 

offshore pools in combination with relying on other exemptions with respect to its other 

pools.”32 Several other commenters expressed similar views and requested that the 

Commission affirm the ability to claim the 3.10 Exemption on a pool-by-pool basis and to rely 

upon that exemption in addition to other exemptions, exclusions, or registration.33

 

29 Registration and Compliance Requirements for Commodity Pool Operators and Commodity Trading Advisors, 

83 FR at 52914.

30 See Comment letter from the Asset Management Group of the Securities Industry and Financial Markets 

Association (SIFMA AMG) at 9 (Dec. 17, 2018), available at 

https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=61922&SearchText=.

31 Id. at 12.

32 See Comment letter from Fried, Frank, Harris, Shriver, & Jacobson, LLP (Fried Frank) at 6 (Dec. 17, 2018), 

available at https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=61920&SearchText=. 

33 See, e.g., Comment letter from Willkie, Farr, and Gallagher, LLP (Willkie) at 6 (Dec. 11, 2018), available at 

https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=61927&SearchText=; Comment letter from 

Alternative Investment Management Association (AIMA) at 6 (Dec. 17, 2018), available at 

https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=61907&SearchText=.
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In 2019, the Commission withdrew its proposal to codify the relief provided in Advisory 

18-96, and, in light of the comments received in response to the discussion of the 3.10 

Exemption, instead undertook an inquiry as to whether the 3.10 Exemption should be amended 

to respond to the current CPO space and the issues articulated by commenters.

34 Based on the 

foregoing, and in light of the increasingly global nature of the commodity pool space, the 

Commission preliminarily believes that the statutory and regulatory developments since 2007 

have resulted in a growing mismatch between the Commission’s stated policy purposes 

underlying the 3.10 Exemption, which are to focus the Commission’s resources on the 

protection of U.S. persons, and the 3.10 Exemption as adopted in 2007. Therefore, the 

Commission has preliminarily determined that it is appropriate to amend the 3.10 Exemption to 

better align the terms of the exemption with the Commission’s continued policy goals. The 

result is this proposal.

II. The Proposal

The Commission is proposing, pursuant to its authority under CEA section 4(c), several 

amendments to the current 3.10 Exemption (the Proposal). Specifically, the Commission is 

proposing amendments to the 3.10 Exemption such that non-U.S. CPOs may rely on that 

exemption on a pool-by-pool basis to better reflect the current state of operations of CPOs. The 

Commission is also proposing a conditional safe harbor to enable non-U.S. CPOs who, by virtue 

of the structure of their offshore pool, cannot with certainty represent that there are no U.S. 

participants in their operated pool, to rely on the 3.10 Exemption. The Commission is further 

proposing that the revised 3.10 Exemption be available to be claimed along with other 

 

34 Registration and Compliance Requirements for Commodity Pool Operators (CPOs) and Commodity Trading 

Advisors: Family Offices and Exempt CPOs, 84 FR 67355, 67357 (Dec. 10, 2019).
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exemptions or exclusions available to CPOs generally and to provide an exception from the U.S. 

participant prohibition in the 3.10 Exemption for initial capital contributions received from a 

U.S. controlling affiliate of an offshore pool’s non-U.S. CPO. 

a. Pool-by-Pool Exemption

The Commission understands that non-U.S. CPOs may operate both offshore commodity 

pools and commodity pools on behalf of persons located inside the United States (U.S. 

commodity pools or U.S. pools). As stated previously, however, the 3.10 Exemption prohibits

persons from relying on that relief with respect to certain pools, but not others. Under a

categorical prohibition on contact with U.S. persons by non-U.S. CPOs seeking to rely on the 

3.10 Exemption, a non-U.S. CPO that operates both offshore pools and pools offered to U.S. 

persons would not be eligible for registration relief under Commission regulation 3.10(c). As a 

result, a non-U.S. CPO that operates a combination of offshore and onshore commodity pools 

would be required to either list its offshore pools with the Commission and comply with part 4

of the Commission’s regulations with respect to the operation of those pools as if those pools 

were no different from U.S. commodity pools, find another available exemption from 

registration, or claim a regulatory exclusion with respect to those offshore pools. 

The Commission continues to believe that it is advisable to focus its customer protection 

activities on U.S. persons and on the persons and firms that solicit derivatives transactions from 

those U.S. person customers.35 The Commission’s regulatory regime was designed with a view

to ensuring U.S. persons solicited for and participating in commodity pools receive the full 

benefit of the customer protections provided under the Act. The current terms of the 3.10 

 

35 See, id. at 63977.
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Exemption may result in the Commission overseeing the operation of commodity pools that are 

themselves not domestic either in terms of their location or participants. The Commission’s 

mandate regarding protection of customers in the U.S. commodity interest markets with respect 

to the operation of commodity pools is primarily focused on protecting U.S. pool participants, 

not commodity pools located outside the United States that have only non-U.S. pool 

participants. Reducing regulation of commodity pools that are outside of the Commission’s 

primary customer protection mandate also allows the Commission to more effectively apply its 

resources for this purpose. Therefore, the Commission is proposing to amend Commission 

regulation 3.10(c)(3) such that non-U.S. CPOs may avail themselves of the 3.10 Exemption on a 

pool-by-pool basis by specifying that the availability of the 3.10 Exemption would be 

determined by whether all of the participants in a particular offshore pool are located outside 

the United States. The Commission preliminarily believes that amending the 3.10 Exemption 

such that non-U.S. CPOs may claim relief on a pool-by-pool basis appropriately focuses

Commission oversight on those pools that solicit and/or accept U.S. persons as pool 

participants.

Moreover, since the adoption of the 3.10 Exemption in 2007, Congress expanded the 

Commission’s jurisdiction to include, among other things, transactions in swaps36 and rolling 

spot retail foreign exchange transactions.

37 When combined with amendments to, as well as the 

rescission of, various regulatory exemptions, this has necessarily resulted in an increase in the 

 

36 Wall Street Transparency and Accountability Act of 2010, Pub. L. 111–203, 124 Stat. 1376 (2010).

37 Food, Conservation, and Energy Act of 2008, Pub. L. 110-246, 122 Stat. 1651, 2189-2204 (2008).
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variety of persons captured within the definition of a CPO.38 Additionally, the Commission 

notes the increasing globalization of the commodity pool industry. For example, unlike when 

Commission regulation 3.10(c)(3)(i) was originally adopted, when measured by assets under 

management, today several of the largest CPOs are located outside the United States, and these 

larger CPOs typically operate many different commodity pools including some pools for U.S. 

investors and other pools for non-U.S. investors. Upon consideration of these developments, 

the Commission has preliminarily concluded that the 3.10 Exemption should be amended to 

reflect the Commission’s regulatory interests in such an integrated international investment 

management environment. Therefore, the Commission preliminarily believes that the Proposal, 

if adopted, would provide much-needed regulatory flexibility for non-U.S. CPOs operating

offshore commodity pools by taking into account the global nature of their operations without 

compromising the Commission’s mission of protecting U.S. pool participants.

For the reasons stated above, the Commission preliminarily believes that amending the 

3.10 Exemption such that non-U.S. CPOs may claim the exemption from registration with 

respect to the operation of their offshore pools, while claiming an alternative exemption or 

exclusion, or registering regarding the operations of their commodity pools that are offered or 

sold to U.S. persons, is an appropriate exercise of its exemptive authority under section 4(c) of 

the CEA. Additionally, the Commission preliminarily believes that clearly enabling non-U.S. 

CPOs to avoid the additional organizational complexity associated with separately organizing 

 

38 See, e.g., 17 CFR 4.13(a)(3) (swaps added to the enumerated commodity interests subject to the de minimis 

threshold following the Dodd-Frank Act, which effectively narrowed the availability of the exemption); Commodity 

Pool Operators and Commodity Trading Advisors: Amendments to Compliance Obligations, 76 FR 7976 (Feb. 11, 

2011) (rescinding Regulation 4.13(a)(4), which provided an exemption from registration for certain privately 

offered commodity pools).
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their offshore and domestic facing businesses in an effort to comply with the provisions of the 

3.10 Exemption may result in more non-U.S. CPOs undertaking to design and offer commodity 

pools for persons in the United States. Moreover, the Commission preliminarily believes that 

this could result in greater diversity of pool participation opportunities for U.S. persons and that 

this increased competition amongst commodity pools and CPOs could foster additional 

innovation regarding commodity pool operations, which is already one of the more dynamic 

sectors of the Commission’s responsibility. The Commission further preliminarily believes that 

this potential for increased competition and variation in commodity pools and CPOs would 

further promote the vibrancy of the U.S. commodity interest markets. 

The Commission has preliminarily determined that the proposed revisions to the 3.10 

Exemption set forth herein will not have a material adverse effect on the ability of the 

Commission or any contract market to discharge their duties under the Act, because non-U.S. 

CPOs that would be exempt under the terms of this Proposal would remain subject to the 

statutory and regulatory obligations imposed on all participants in the U.S. commodity interest 

markets.39 The Commission notes that this preliminary conclusion is consistent with section 

4(d) of the Act, which provides that any exemption granted pursuant to section 4(c) will “not 

affect the authority of the Commission to conduct investigations in order to determine 

compliance with the requirements or conditions of such exemption or to take enforcement 

action for any violation of any provision of the CEA or any rule, regulation or order thereunder 

 

39 See, e.g., 7 U.S.C. 9 (prohibiting the use or employment of any manipulative or deceptive device in connection 

with any swap or contract of sale of any commodity in interstate commerce, or for future delivery on or subject to 

the rules of any registered entity).
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caused by the failure to comply with or satisfy such conditions or requirements.”

40 Moreover, 

the Commission would retain the authority to take enforcement action against any non-U.S. 

CPO claiming the 3.10 Exemption based on their activities within the U.S. commodity interest 

markets consistent with its authority regarding market participants generally.

b. Proposed Safe Harbor with Respect to Inadvertent Participation of 

U.S. Participants in Offshore Pools

As discussed above, one of the criteria for relief in current Commission regulation

3.10(c)(3)(i) is that, in connection with any commodity interest transaction executed bilaterally 

or made on or subject to the rules of any designated contract market or swap execution facility, 

the claiming non-U.S. CPO be acting “only on behalf of persons located outside the United 

States, its territories, or possessions.”

41 The Commission understands that non-U.S. CPOs of 

offshore pools that are traded in offshore secondary markets may not have the ability to make 

such a representation with certainty as they cannot be assured that only persons located outside 

the U.S. would be accepted as participants because the participation units are not purchased 

directly from the offshore pool. Moreover, the Commission also understands that, given the 

common use of complex entity structures for tax purposes, a non-U.S. CPO may not have 

complete visibility into the ultimate beneficial owners of its offshore pool’s participation units, 

even in the absence of secondary market trading. 

Despite this fairly common lack of visibility into the ultimate ownership of some offshore 

pools, the Commission preliminarily believes that a non-U.S. CPO should be able to rely on the 

 

40 7 U.S.C. 6(d).

41 17 CFR 3.10(c)(3)(i).
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3.10 Exemption provided that the non-U.S. CPO undertakes reasonable efforts to minimize the 

possibility of U.S. persons being solicited for or sold participation units in the offshore pool. 

The Commission preliminarily believes that non-U.S. CPOs should not be foreclosed from 

relying upon the relief available under the 3.10 Exemption solely due to the nature and structure 

of the operated offshore pool preventing them from representing with absolute certainty that no 

U.S. persons are participating in that pool, provided that such non-U.S. CPOs take reasonable 

actions available to them to ensure that only non-U.S. persons are solicited and admitted as 

pool participants. 

Therefore, the Commission is proposing to add a safe harbor as new Commission 

regulation 3.10(c)(3)(iv) for non-U.S. CPOs that have taken, what the Commission preliminarily 

believes are, reasonable steps designed to ensure that participation units in the operated 

offshore pool are not being offered or sold to persons located in the United States. Pursuant to 

that proposed safe harbor, a non-U.S. CPO would be permitted to engage in the U.S. commodity 

interest markets on behalf of offshore pools for which it cannot represent with absolute 

certainty that all of the pool participants are offshore, consistent with the requirements under 

the 3.10 Exemption, provided that such non-U.S. CPO meets the following conditions with 

respect to the operated offshore pool:

1. The offshore pool’s offering materials and any underwriting or distribution agreements 

include clear, written prohibitions on the offshore pool’s offering to participants located 

in the United States and on U.S. ownership of the offshore pool’s participation units;

42

 

42 The Commission notes that, for purposes of the safe harbor, and consistent with the proposed exception for 

initial capital contributions from a U.S. controlling affiliate, proposed Commission regulation 3.10(c)(3)(iii) 

discussed infra, such U.S. controlling affiliate is not considered to be a “participant.”
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2. The offshore pool’s constitutional documents and offering materials: (a) are reasonably 

designed to preclude persons located in the United States from participating therein, and 

(b) include mechanisms reasonably designed to enable the CPO to exclude any persons 

located in the United States who attempt to participate in the offshore pool

notwithstanding those prohibitions;

3. The non-U.S. CPO exclusively uses non-U.S. intermediaries for the distribution of 

participations in the offshore pool;

4. The non-U.S. CPO uses reasonable investor due diligence methods at the time of sale to 

preclude persons located in the United States from participating in the offshore pool; and

5. The offshore pool’s participation units are directed and distributed to participants 

outside the United States, including by means of listing and trading such units on 

secondary markets organized and operated outside of the United States, and in which the 

non-U.S. CPO has reasonably determined participation by persons located in the United 

States is unlikely.

For this purpose, the Commission has preliminarily determined that a non-U.S. 

intermediary would include a non-U.S. branch or office of a U.S. entity, or a non-U.S. affiliate of 

a U.S. entity, provided that the distribution takes place exclusively outside of the United States.

By satisfying the factors of the safe harbor, for example, that the offshore pool’s offering 

materials clearly prohibit ownership by participants that are U.S. persons,43 and by using 

offshore distribution channels and exchanges, the Commission preliminarily believes that the 

 

43 See note 45, supra.
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non-U.S. CPO is exercising sufficient diligence with respect to those circumstances within its 

control to demonstrate its intention to avoid engaging with U.S. persons concerning the offered 

offshore pool. Moreover, the Commission preliminarily believes that if a non-U.S. CPO meets 

the five factors in the safe harbor, the absence of U.S. participants is sufficiently ensured so as to 

allow reliance on the 3.10 Exemption. As with any of the Commission’s other registration 

exemptions available to CPOs, whether domestic or offshore, the Commission would expect 

non-U.S. CPOs claiming the 3.10 Exemption to maintain adequate documentation to 

demonstrate compliance with the terms of the safe harbor. 

The Commission preliminarily believes that providing a safe harbor with appropriate 

conditions for non-U.S. CPOs of commodity pools, regarding the absence of U.S. participants in

their offshore pools to avail themselves of the exemptive relief in the 3.10 Exemption, may result 

in more offshore pools choosing to engage in the commodity interest markets in the United 

States. Moreover, as noted above, pursuant to section 4(d) of the Act, the Commission expressly 

retains the statutory authority to conduct investigations in order to determine compliance with 

the requirements or conditions of such exemption or to take enforcement action for any 

violation of any provision of the CEA or any rule, regulation or order thereunder caused by the 

failure to comply with or satisfy such conditions or requirements.44 Moreover, again as noted 

above, the Commission would retain the authority to take enforcement action against any nonU.S. CPO claiming the 3.10 Exemption based on their activities within the U.S. commodity 

interest markets. Therefore, the Commission preliminarily believes that the safe harbor 

proposed herein is an appropriate exercise of its authority pursuant to section 4(c) of the Act. 

 

44 7 U.S.C. 6(d).
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c. Utilizing the 3.10 Exemption Concurrent with Other Regulatory Relief 

Available to CPOs

As discussed above, the Commission is proposing that the 3.10 Exemption for non-U.S. 

CPOs be available on a pool-by-pool basis. Consistent with these proposed amendments, the 

Commission also preliminarily believes it is appropriate to propose amendments to explicitly 

provide that non-U.S. CPOs may claim the 3.10 Exemption while that CPO also claims other 

registration exemptions or regulatory exclusions with respect to other pools it operates, e.g., the 

de minimis exemption under Commission regulation 4.13(a)(3),

45 or an exclusion from the 

definition of CPO under Commission regulation 4.5,46 or to register with respect to such pools,47

in order to address the concerns articulated by commenters to the 2018 Proposal.48 The 

Commission understands that this practice is known colloquially as the ability to “stack” 

exemptions.

Currently, the 3.10 Exemption does not have a provision that contemplates its 

simultaneous use with other exemptions available under other Commission regulations. This 

stands in contrast with the language in Commission regulation 4.13(f), for example, which 

states, “[t]he filing of a notice of exemption from registration under this section will not affect 

the ability of a person to qualify for exclusion from the definition of the term ‘commodity pool 

 

45 17 CFR 4.13(a)(3).

46 17 CFR 4.5.

47 The Commission notes that including registration among the provisions a non-U.S. CPO may “stack” with the 

3.10 Exemption is not strictly necessary, as such status is implied given the amendments described earlier to allow 

the 3.10 Exemption to apply on a pool-by-pool basis. Nevertheless, the Commission is explicitly stating that such a 

status is possible to provide certainty to affected non-U.S. CPOs. 

48 See, e.g., AIMA, at 6; Willkie, at 6.
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operator’ under § 4.5 in connection with its operation of another trading vehicle that is not 

covered under this § 4.13.”49 

With respect to those non-U.S. CPOs that operate both U.S. pools and pools that meet 

the terms of the 3.10 Exemption, the Commission preliminarily believes that such non-U.S. 

CPOs should have the ability to rely on other regulatory exemptions or exclusions that they 

qualify for, just like any other CPO. The Commission preliminarily believes that the fact that the 

CPO of a U.S. commodity pool that otherwise meets the criteria for its operator to claim 

registration relief under Commission regulation 4.13(a)(3), for example, has also claimed the 

3.10 Exemption for one or more of its offshore pools does not raise heightened regulatory 

concerns regarding the operation of the U.S. pool. The Commission has independently 

developed the terms under which CPOs of U.S. commodity pools may claim registration relief,

and the fact that a non-U.S. CPO operates both offshore and U.S. commodity pools does not 

undermine the rationale providing the foundation for the Commission’s other regulatory 

exemptions available to CPOs generally. 

The Commission therefore preliminarily concludes that a non-U.S. CPO relying upon the 

3.10 Exemption for one or more of its offshore pools should not be, by virtue of that reliance,

foreclosed from utilizing other relief generally available to CPOs of U.S. pools. Thus, the 

Commission is also proposing to add Commission regulation 3.10(c)(3)(iv) to establish that a

non-U.S. CPO’s reliance upon the 3.10 Exemption for one or more pools will not affect that 

CPO’s ability to claim other exclusions or exemptions, including those in Commission 

regulations 4.5 or 4.13, or to register with respect to the other pools that it operates. 

 

49 17 CFR 4.13(f).
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d. Affiliate Investment Exception 

The Commission is also proposing to add Commission regulation 3.10(c)(3)(iii), which 

provides that initial capital contributed by a non-U.S. CPO’s U.S. controlling affiliate to that 

CPO’s offshore commodity pool would not be considered in assessing whether that pool is an 

offshore pool for purposes of the 3.10 Exemption because the U.S. controlling affiliate would not 

be considered a “participant” for purposes of either proposed Commission regulation 

3.10(c)(3)(ii) or 3.10(c)(3)(iv). For the purpose of this proposed amendment, the term “control” 

would be defined as the possession, direct or indirect, of the power to direct or cause the 

direction of the management and policies of a person, whether through the ownership of voting 

shares, by contract, or otherwise.50

Although the 3.10 Exemption is intended to focus the Commission’s resources on

protecting U.S. participants, the Commission preliminarily believes that the control typically 

exercised by a controlling affiliate over its non-U.S. CPO affiliate should provide a meaningful 

degree of protection and transparency with respect to the controlling affiliate’s contribution of 

initial capital to the non-U.S. CPO’s offshore commodity pool. Moreover, the majority of a 

CPO’s compliance obligations generally focus on customer protection through a variety of 

disclosures regarding a person’s participation in a pool, which is information the controlling 

affiliate would likely already be in a position to obtain independent of the Commission’s 

 

50 The Commission currently uses this definition of “control” in its part 49 regulations on swap data reporting. See

17 CFR § 49.2(a)(4). In January 2020, the Commission also proposed to implement this definition of “control” in 

the context of cross-border regulation of swap dealers. See Cross-Border Application of the Registration 

Thresholds and Certain Requirements Applicable to Swap Dealers and Major Swap Participants, 85 FR 952, 1002

(Jan. 8, 2020) (proposing to add the “control” definition at § 23.23(a)(1)).
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regulations, thereby obviating the need for the Commission to mandate such disclosure and 

reporting.

51 

A controlling person must, by definition, have the corporate or other legal authority to 

require the controlled CPO to provide more information than is required by the Commission, 

such as detailed information about the non-U.S. CPO’s finances, management and operations,

and, more relevant to the proposal herein, access to investment and performance information 

for the offshore pool. Accordingly, the Commission preliminarily believes that due to the 

fundamentally different features of the relationship between a controlling affiliate and a nonU.S. CPO as compared to an outside investor and a CPO, a U.S. controlling affiliate’s 

participation, through an initial investment, in its affiliated non-U.S. CPO’s offshore pool does 

not raise the same customer protection concerns as similar investments in the same pool by 

unaffiliated persons located in the United States. 

Commission staff in the Division of Swap Dealer and Intermediary Oversight (DSIO) 

previously granted staff no-action relief for a non-U.S. CPO of offshore pools that received 

initial capital contributions from U.S. sources affiliated with the non-U.S. CPO for a limited 

period of time.

52 Specifically, in CFTC Staff Letter 15-46, DSIO articulated a no-action position 

related to initial capital contributions provided to offshore pools operated by a non-U.S. CPO 

derived from the U.S. employees of the affiliated U.S. investment advisers to the offshore 

 

51 See 17 CFR 4.22(c)(8) (providing that a CPO need not distribute an annual report to pools operated by persons 

controlling, controlled by, or under common control with the CPO, provided that information regarding the 

underlying pool is contained in the investor pool’s annual financial statement).

52 See CFTC Staff Letter 15-46 (May 8, 2015).
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pools.53 In that instance, in part because the participants were natural person employees of the 

affiliated U.S. investment advisers, staff determined that it was appropriate to limit the time in 

which the U.S. derived capital could remain in the offshore pools without the non-U.S. CPO 

registering with the Commission.54 

With respect to the exception proposed herein, the Commission preliminarily believes 

that imposing a time limit is not necessary where the initial investment capital is deriving not 

from natural person employees, but rather the corporate funds of a U.S. controlling affiliate. 

Unlike the facts presented in CFTC Staff Letter 15-46, the Commission preliminarily believes 

that the control that a U.S. controlling affiliate is able to exercise with respect to the operations 

of the non-U.S. CPO and its offshore pools provides adequate assurances that the U.S. 

controlling affiliate is able to obtain and act upon the information relevant to its participation in 

the offshore pool.55

The Commission preliminarily intends to limit the exception for U.S. controlling affiliate 

capital contributions to those made at or near a pool’s inception, which generally result from 

commercial decisions by the U.S. controlling affiliate, typically in conjunction with the non-U.S. 

CPO, to support the offshore pool until such time as it has an established performance history 

for solicitation purposes, although the contributed capital may remain in the offshore pool for 

the duration of its operations. The Commission preliminarily believes that this limitation is 

 

53 Id. at 2.

54 Id.

55 The Commission notes that certain control affiliates may be subject to the time limitations imposed on the contribution of 

initial capital to affiliated covered funds under the Volcker Rule due to their status as banking entities. See 17 CFR 75.12. 

The exemption proposed herein with respect to initial capital contributions does not affect or negate any other limitations 

imposed by other statutory or regulatory provisions applicable to the control affiliate.
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appropriate to ensure that the capital is being contributed in an effort to support the operations 

of the offshore pool at a time when its viability is being tested, rather than as a mechanism for

the U.S. controlling affiliate to generate returns for its own investors. 

The Commission notes, however, that the proposed exclusion may not be used to evade 

the Commission’s CPO compliance requirements with respect to offshore commodity pools. For 

example, a controlling affiliate located in the U.S. could invest in its affiliated non-U.S. CPO’s 

offshore pool, and then solicit persons located in the U.S. for investment in that controlling 

affiliate, for the purpose of providing such investors indirect exposure to that offshore pool. 

Under these circumstances, the Commission preliminarily believes that such practices would 

generally constitute evasion of the Commission’s regulation of CPOs and commodity pools 

soliciting and serving participants located in the U.S. and would render the non-U.S. CPO 

ineligible for the 3.10 Exemption. Additionally, the Commission preliminarily believes that U.S. 

controlling affiliates that are barred from participating in the U.S. commodity interest markets 

should not be permitted to gain indirect access to those markets through an affiliated non-U.S. 

CPO’s offshore pool as this would undermine the purposes of such a ban. Therefore, the 

Commission is proposing to include provisions in the proposed exemption to prohibit such 

evasive conduct marked by either pooling of U.S. participant capital in the U.S. controlling 

affiliate or the contribution of initial capital to an offshore pool by a person subject to a

statutory disqualification, ongoing registration suspension or bar, prohibition on acting as a 

principal, or trading ban with respect to participating in the U.S. commodity interest markets.

Consistent with its authority under section 4(c) of the Act, the Commission preliminarily 

believes that providing an exception for initial capital contributions by U.S. controlling affiliates 

in offshore pools operated by affiliated non-U.S. CPOs could result in increased economic or 
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financial innovation by non-U.S. CPOs and their offshore pools participating in the U.S. 

commodity interest markets. The Commission further preliminarily believes enabling U.S. 

controlling affiliates to provide initial capital to offshore pools operated by affiliated non-U.S. 

CPOs could provide such non-U.S. CPOs with the ability to test novel trading programs or 

otherwise engage in proof of concept testing with respect to innovations in the collective 

investment industry that might otherwise not be possible due to a lack of a performance history 

for the offered pool. For the reasons set forth above, the Commission has preliminarily 

concluded that it is appropriate to provide an exception for initial capital contributions by U.S. 

controlling affiliates in offshore pools operated by affiliated non-U.S. CPOs from the U.S. 

participant prohibition in the 3.10 Exemption pursuant to section 4(c) of the Act. 

e. General Request for Comment

The Commission requests comment on all aspects of the Proposal. Specifically, given the 

concerns regarding potential evasion of CPO regulation using the controlling affiliate provision, 

the Commission seeks comment on several potential additional conditions on the exception that 

could be included in the final regulation. 

1. To establish that the funds of the controlling affiliate are being used for seeding 

purposes, should the exception state that the purpose of the investment by the controlling 

affiliate shall be for establishing the commodity pool and providing sufficient initial equity to 

permit the pool to attract unaffiliated non-U.S. investors? Similarly, should the exception be 

conditioned on the investment being limited in time to one, two, or three years after which time 

the investments of the controlling affiliate must be reduced to a de minimis amount of the pool’s 

capital, such as 3 or 5 percent? What customer protection benefits would such limitations 

serve?
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2. Regarding the nature of controlling affiliates, to protect the U.S. persons invested 

therein, should the exception be limited to entities or persons that are otherwise financial 

institutions that are regulated in the United States to provide investor protections? For 

example, should the exception only be available to U.S. controlling affiliates regulated by the 

Securities and Exchange Commission, a federal banking regulator, or an insurance regulator? 

3. The Proposal notes that one of the reasons underlying the U.S. controlling affiliate 

exception is the affiliate’s likely ability to demand that the non-U.S. CPO provide it with the 

information necessary to assess the operations and performance of the offshore pool. However, 

because these offshore pools are by definition non-U.S. entities and it is not possible to 

ascertain with certainty whether such information must be provided to a U.S. controlling 

affiliate under the laws applicable to the non-U.S. CPO and offshore pool, should the exception 

be conditioned on there being an obligation on the non-U.S. CPO that is legally binding in its 

home jurisdiction to provide the U.S. controlling affiliate with information regarding the

operation of the offshore pool by the affiliated non-U.S. CPO? 

III. Reopening of Comment Period under 2016 Proposal

On July 27, 2016, the Commission proposed to amend Commission regulation 3.10(c) to 

amend the conditions under which the exemption from registration would apply.56 Generally, 

the proposed amendment would permit a foreign broker or persons located outside the United 

States acting in the capacity of an introducing broker, commodity trading advisor, or 

commodity pool operator, each as defined in Commission regulation 1.3, to be eligible for an 

exemption from registration with the Commission if the foreign broker or person, in connection 

 

56 Exemption from Registration for Certain Foreign Persons, 81 FR 51824 (Aug. 5, 2016)(the “2016 Proposal”). 
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with a commodity interest transaction, only acts on behalf of (1) persons located outside the 

United States, or (2) International Financial Institutions (as defined in the proposed rule 

amendments), without regard to whether such persons or institutions clear such commodity 

interest transaction. 

In response to the Proposal, the Commission received six comments,57 most of which 

were supportive of the proposal. Given the passage of time, however, the Commission now 

requests comment on whether it would be appropriate to finalize the 2016 Proposal along with 

the other amendments to Commission regulation 3.10 proposed in this release. Thus, the 

Commission is reopening the comment period on all aspects of the 2016 Proposal for 60 days.

In addition, with respect to the 2016 Proposal, the Commission requests specific 

comment on whether Commission regulation 3.10 should require commodity interest 

transactions of persons located outside of the United States or of International Financial 

Institutions that are required or intended to be cleared on a registered derivatives clearing 

organization (DCO) to be submitted for clearing through a futures commission merchant 

registered in accordance with section 4d of the Act, unless such person or International 

Financial Institution is itself a clearing member of such registered DCO?

IV. Related Matters

a. Regulatory Flexibility Act

 

57 These comment letters are on the Commission’s web site at: 

http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1724.
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The Regulatory Flexibility Act (RFA) requires Federal agencies, in promulgating 

regulations, to consider whether the rules they propose will have a significant economic impact 

on a substantial number of small entities and, if so, to provide a regulatory flexibility analysis 

regarding the economic impact on those entities. Each Federal agency is required to conduct 

an initial and final regulatory flexibility analysis for each rule of general applicability for which 

the agency issues a general notice of proposed rulemaking.58 

The Proposal by the Commission today would affect only CPOs. The Commission has 

previously established certain definitions of “small entities” to be used by the Commission in 

evaluating the impact of its rules on such entities in accordance with the requirements of the 

RFA.59 With respect to CPOs, the Commission previously has determined that a CPO is a small 

entity for purposes of the RFA, if it meets the criteria for an exemption from registration under 

Commission regulation 4.13(a)(2).60 With respect to small CPOs operating pursuant to 

Commission regulation 4.13(a)(2), the Commission preliminarily believes that, should the 

amendments to the 3.10 Exemption be adopted as final, certain of those small CPOs may choose 

to operate additional pools outside the United States, which could provide additional 

opportunities to develop their operations not currently available to them. The Commission 

notes, however, that such small CPOs would remain subject to the total limitations on aggregate 

gross capital contributions and pool participants set forth in Commission regulation 4.13(a)(2) 

 

58 5 U.S.C. 601, et seq.

59

See, e.g., Policy Statement and Establishment of Definitions of “Small Entities” for Purposes of the Regulatory Flexibility 

Act, 47 FR 18618, 18620 (Apr. 30, 1982).

60

Id. at 18619-20. Commission regulation 4.13(a)(2) exempts a person from registration as a CPO when: 1) none of the pools

operated by that person has more than 15 participants at any time, and 2) when excluding certain sources of funding, the total 

gross capital contributions the person receives for units of participation in all of the pools it operates or intends to operate do 

not, in the aggregate, exceed $400,000. See 17 CFR 4.13(a)(2).
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because that exemption is based on the entirety of the CPO’s pool operations. Because 

investment vehicles operated under the 3.10 Exemption remain commodity pools under the 

CEA, the Commission preliminarily does not believe that the amendments proposed herein 

would result in a significant economic impact on a substantial number of small CPOs. Further, 

the Commission notes that the Proposal would impose no new obligation, significant or 

otherwise. Accordingly, the Chairman, on behalf of the Commission, hereby certifies pursuant 

to 5 U.S.C. 605(b) that the Proposal, if adopted, will not have a significant economic impact on a 

substantial number of small entities. 

b. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (PRA) imposes certain requirements on Federal 

agencies, including the Commission, in connection with their conducting or sponsoring any 

collection of information, as defined by the PRA. 61 An agency may not conduct or sponsor, and 

a person is not required to respond to, a collection of information unless it displays a currently 

valid control number. The Commission has preliminarily determined that the proposed 

amendments, if adopted, will not impose any new recordkeeping or information collection 

requirements, or other collections of information that require approval of the Office of 

Management and Budget (OMB) under the PRA. 

The Commission invites the public and other interested parties to comment on this PRA 

determination. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission generally solicits 

comments in order to: (1) evaluate whether a proposed collection of information is necessary for 

the proper performance of the functions of the Commission, including whether the information 

 

61 44 U.S.C. 3501, et seq.
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will have practical utility; (2) evaluate the accuracy of the Commission's estimate of the burden 

of a proposed collection of information; (3) determine whether there are ways to enhance the 

quality, utility, and clarity of the information to be collected; and (4) mitigate the burden of a

collection of information on those who are to respond, including through the use of automated 

collection techniques or other forms of information technology. The Commission specifically 

invites public comment on the accuracy of its estimate that no additional information collection 

requirements or changes to existing collection requirements would result from the regulatory 

amendments proposed herein. 

Comments may be submitted directly to the Office of Information and Regulatory Affairs

(OIRA), by fax at (202) 395-6566 or by email at OIRAsubmissions@omb.eop.gov. Please 

provide the Commission with a copy of submitted comments, so that all comments can be 

summarized and addressed in the final rule preamble. Refer to the ADDRESSES section of this 

notice of proposed rulemaking for comment submission instructions to the Commission. OMB 

is required to make a decision concerning a collection of information between 30 and 60 days 

after publication of this document in the Federal Register. Therefore, a comment is best assured 

of having its full effect if OMB receives it within 30 days of publication.

c. Cost-Benefit Considerations

Section 15(a) of the CEA requires the Commission to consider the costs and benefits of its 

actions before issuing new regulations under the CEA.62 Section 15(a) of the CEA further 

specifies that the costs and benefits of the proposed rules shall be evaluated in light of five broad 

areas of market and public concern: (1) protection of market participants and the public; (2) 

 

62 7 U.S.C. 19(a).
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efficiency, competitiveness and financial integrity of the futures markets; (3) price discovery; (4) 

sound risk management practices; and (5) other public interest considerations. The 

Commission may, in its discretion, give greater weight to any of the five enumerated areas of 

concern and may, in its discretion, determine that, notwithstanding its costs, a particular rule is 

necessary or appropriate to protect the public interest or to effectuate any of the provisions or to 

accomplish any of the purposes of the CEA. The Commission invites public comment on its 

cost-benefit considerations. 

As explained above, the current 3.10 Exemption provides relief from registration to nonU.S. CPOs operating offshore pools with foreign participants.63 The 3.10 Exemption provides 

that it is only available to non-U.S. CPOs acting on behalf of offshore commodity pools. In a 

prior proposal that discussed the 3.10 Exemption, the Commission stated that the current 

registration exemption is not available on a pool-by-pool basis, meaning that a non-U.S. CPO 

would be unable to claim the exemption with respect to its offshore pools meeting the specified 

criteria for the 3.10 Exemption while maintaining CPO registration with respect to other pools—

e.g., pools, regardless of domicile, with U.S. participants. Therefore, non-U.S. CPOs that 

operate a mix of some offshore pools that are not available to U.S. participants and other pools 

that are offered and sold to U.S. participants would have to either register and list all of their 

operated pools or claim an alternative exemption or exclusion. One such available source of 

exemptive relief is Staff Advisory 18-96 (Advisory 18-96), which, although still requiring 

 

63 See, supra, Section I.
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registration of the CPO, does provide relief from the majority of the compliance obligations set 

forth in part 4 of the Commission’s regulations. 64 

The Commission is proposing several amendments to the current 3.10 Exemption. 

Specifically, the Commission is proposing to amend the 3.10 Exemption such that non-U.S. 

CPOs may rely on that exemption on a pool-by-pool basis through proposed Commission 

regulation 3.10(c)(3)(ii). Next, proposed Commission regulation 3.10(c)(3)(iii) would make it 

clear that a non-U.S. CPO’s eligibility to rely upon the 3.10 Exemption is unaffected by any 

contributions the non-US CPO’s offshore pools might receive from the non-US CPO’s U.S. 

controlling affiliate. The Commission is also proposing Commission regulation 3.10(c)(3)(iv), 

which would establish a regulatory safe harbor for those non-U.S. CPOs that cannot represent 

with absolute certainty that there are no U.S. participants in the operated offshore pool. Finally, 

the Commission is proposing Commission regulation 3.10(c)(3)(v), which would permit nonU.S. CPOs to claim an available exemption from registration, claim an exclusion, or register 

with respect to the other pools they operate. The proposed amendments would grant non-U.S. 

CPOs relief that will likely generate costs and benefits. The baseline against which these costs 

and benefits are compared is the regulatory status quo set forth in current Commission 

regulation 3.10(c)(3).

The consideration of costs and benefits below is based on the understanding that the 

markets function internationally, with many transactions involving U.S. firms taking place 

across international boundaries; with some Commission registrants being organized outside of 

the United States; with some leading industry members typically conducting operations both 

 

64 CFTC Staff Advisory 18-96 (Apr. 11, 1996).
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within and outside the United States; and with industry members commonly following 

substantially similar business practices wherever located. Where the Commission does not 

specifically refer to matters of location, the discussion of costs and benefits below refers to the 

effects of this proposal on all activity subject to the proposed amended regulations, whether by 

virtue of the activity’s physical location in the United States or by virtue of the activity’s 

connection with activities in or effect on U.S. commerce under CEA section 2(i).65

i. Proposed Commission Regulation 3.10 (c)(3)(ii): Providing that

the 3.10 Exemption may be Claimed on a Pool-by-Pool Basis

Specifically, pursuant to the Proposal, a non-U.S. CPO would be able to claim the 3.10 

Exemption from registration with respect to its eligible offshore pools, while either registering 

as a CPO or claiming another available exemption or exclusion for its other pools that are either 

located in the U.S., or that solicit and/or accept as participants persons located within the U.S. 

Absent the proposed amendment, such CPOs would face some costs and compliance burdens 

associated with the operation of their offshore pools,66 despite the Commission’s historical focus 

on prioritizing customer protection with respect to persons located in the United States. For 

example, certain registered U.S. and non-US CPOs file self-executing notices pursuant to 

Advisory 18-96 with respect to their offshore pools. The Advisory provides compliance relief 

with respect to all of the pool-based disclosures required under the Commission’s regulations, 

as well as many of the reporting and recordkeeping obligations that otherwise would apply to 

registered CPOs, with the exception of the requirement to file Form CPO-PQR under 

 

65 7 U.S.C. 2(i).

66 As discussed, infra, certain CPOs may be eligible for significant compliance relief pursuant to Advisory 18-96.
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Commission regulation 4.27. The relief pursuant to Advisory 18-96 also allows qualifying, 

registered U.S. CPOs to maintain their offshore pool’s original books and records at the pool’s 

offshore location, rather than at the CPO’s main business office in the United States.

67

Currently, based on the notices filed pursuant to Advisory 18-96, the Commission is 

aware of 23 non-U.S. CPOs that operate 84 offshore pools and 20 U.S. CPOs that operate 88 

offshore pools. In total, 43 CPOs file 18-96 notices. However, the Commission preliminarily 

believes that there are likely a number of registered non-U.S. CPOs that do not list their offshore 

pools with the Commission, and, therefore, do not claim relief under Advisory 18-96. Although 

these exemption notices must be filed by hardcopy, the Commission believes the administrative 

costs are low.68 CPOs must employ at least one staff-person to manage and file the one-time 

notice under Advisory 18-96. For a notice under Advisory 18-96 to be effective, the CPO must 

provide, among other things, business-identifying and contact information; representations that 

its principals are not statutorily disqualified; enumerated rules from which the CPO seeks relief; 

and contact information for person(s) who will maintain offshore books and records.69 Under 

the Proposal, the current 23 registered non-U.S. CPOs would be able to delist their offshore 

pools and no longer file 18-96 notices acknowledging that they operate one of the 84 offshore 

pools. Upon delisting of such pools, those registered non-U.S. CPOs would no longer have to 

include their offshore pools in their Form CPO-PQR filings, which will result in cost savings for 

 

67 See note 28, supra.

68 See https://www.nfa.futures.org/members/cpo/cpo-exemptions.html.

69 See note 28, supra.
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those CPOs. The 20 U.S. CPOs, however, would continue to claim relief under Advisory 18-96, 

because they remain ineligible for the 3.10 Exemption due to their location in the United States.

Currently, one way that a registered CPO can avoid the requirement to list its offshore 

pools with the Commission is to establish a separate, foreign-domiciled CPO for all of the pools 

that are eligible for the 3.10 Exemption. The Commission preliminarily believes that the 

Proposal would eliminate the incentive to establish a separately organized CPO solely to operate 

the pools that would qualify for the 3.10 Exemption. The Commission preliminarily believes, 

however, that the financial expenses associated with establishing a foreign CPO varies 

depending on the operating size and structure of the registered CPO. The Commission further 

notes that incentives to establish additional CPOs may also be affected by the amount of the 

financial outlay to establish foreign-domiciled CPOs given that set-up costs—such as, costs to 

pay staff and experts; expenses for business licenses and registrations; costs to draft operational 

and disclosure documents; fees to establish technological services—would be expected to vary 

by jurisdiction. Therefore, although the Commission believes that there are costs associated 

with establishing a separate, foreign-domiciled CPO, the Commission preliminarily believes that 

such costs may be marginal and would be dependent on the organization and domicile of the 

registered CPO.

The Commission expects that amending the 3.10 Exemption such that non-U.S. CPOs 

may claim the exemption on a pool-by-pool basis would result in such CPOs saving the costs 

associated with forming and maintaining a new CPO to operate the other pools in its overall 

structure, and would thereby remove unnecessary complexity in pool operations. Therefore, by

amending the 3.10 Exemption such that non-U.S. CPOs may claim the exemption on a pool-bypool basis, the Commission preliminarily believes that it would eliminate a large portion of 
Voting Draft – As approved by the Commission on 5/28/2020

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CFTC-registered, non-U.S. CPOs’ compliance costs associated with the operation of their 

offshore pools, which by their very characteristics implicate fewer of the Commission’s 

regulatory interests. This is only for U.S. compliance costs, as non-U.S. CPOs would still have 

compliance costs with non-US regulatory regimes. Moreover, the Commission preliminarily 

believes that this targeting of its CPO oversight appropriately recognizes the global nature of the 

asset management industry.

The Commission also does not expect that non-U.S. CPOs would experience any 

increased costs associated with the amendments such that the 3.10 Exemption may be claimed 

on a pool-by-pool basis. As noted above, the Commission is proposing to permit the exemption 

to be claimed without any filing by the non-U.S. CPO. This is no different from how the current 

exemption is implemented. The current terms of the 3.10 Exemption would require a CPO to 

monitor the operations of its offshore pools to ensure that the pools are not offered in the 

United States and that they do not have any participants located in the United States. Under the 

terms of the Proposal, such CPOs would continue to be required to engage in such monitoring. 

The Commission preliminarily believes that there may be some loss of information 

available to the public regarding the existence of the offshore pools operated by registered nonU.S. CPOs because such offshore pools would no longer be listed with the Commission, and 

consequently, the pools’ existence and identifying information would not be publicly disclosed 

on NFA’s BASIC database. The Commission has preliminarily concluded that this loss of 

information would have a minimal impact on the general public because persons located within 

the United States would typically not be permitted by the non-U.S. CPO to participate in such 

pools.
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ii. Proposed Commission Regulation 3.10(c)(3)(iv): Regulatory Safe 

Harbor for non-U.S. CPOs with Possible Inadvertent U.S. 

Participants in Offshore Pools

As explained previously, the Commission is proposing Commission regulation 

3.10(c)(3)(iv) to provide a regulatory safe harbor for those non-U.S. CPOs who, due to the 

structure of their offshore pools, cannot represent with absolute certainty that there are no U.S. 

participants in their offshore pools, provided that such non-U.S. CPOs take certain enumerated 

actions to ensure that no U.S. persons are participating in the offshore pool. The Commission 

preliminarily believes that proposed Commission regulation 3.10(c)(3)(iv) benefits non-U.S. 

CPOs by making the registration relief provided under the 3.10 Exemption more widely 

available by recognizing the informational limitations inherent in certain pool structures. 

Therefore, the Commission preliminarily believes that this proposed safe harbor could result in 

more non-U.S. CPOs relying upon the 3.10 Exemption with respect to more pools. At this time, 

the Commission lacks sufficient information to quantify the number of additional non-U.S. 

CPOs and offshore pools that may claim relief under proposed Commission regulation 

3.10(c)(3)(iv) because the Commission does not currently receive information of the nature 

necessary to determine which offshore pools currently listed with the Commission are offered 

and sold solely to offshore participants and what subset of those pools may have participation 

units traded in the secondary market. Given, however, that exchange traded commodity pools 

currently comprise less than 1% of the total number of pools listed with the Commission, the 

Commission preliminarily believes that it is reasonable to estimate the number of offshore pools 

operated in a similar manner to be equally small. 
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The Commission preliminarily believes that non-U.S. CPOs that would be eligible for 

registration relief under proposed Commission regulation 3.10(c)(3)(iv) would avail themselves 

of that relief. This could result in the Commission receiving less information regarding the 

operation of such offshore pools operated pursuant to the proposed regulatory safe harbor. As 

noted above, the Commission preliminarily believes that the amount of information lost as a 

result of the deregistration of such non-U.S. CPOs and associated delisting of their eligible 

offshore pools would be minimal due to the expected small number of CPOs and pools relative 

to the total population of registered CPOs and listed pools. 

The Commission also preliminarily expects that there may be some inadvertent U.S. 

participants in offshore pools who would lose the customer protection afforded by part 4 of the 

Commission’s regulations should a non-U.S. CPO decide to delist its offshore pools and claim 

relief under the 3.10 Exemption, given the clarity and certainty provided by the regulatory safe 

harbor. The Commission preliminarily believes that the enumerated actions comprising the 

regulatory safe harbor provide assurance that the number of U.S. persons so impacted would be 

small. Moreover, the Commission preliminarily believes that such U.S. persons, to the extent 

that they are aware that they are participating in what is known to be an offshore pool through 

the purchase of participation units sold in an offshore secondary market, may not expect to 

benefit from the customer protection provisions in part 4 of the Commission’s regulations, but 

would instead expect to rely upon the regulatory protections of the offshore pool’s home 

jurisdiction.

iii. Proposed Commission Regulation 3.10(c)(3)(v): Utilizing the 

3.10 Exemption Concurrent with Other Available Exclusions and 

Exemptions
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As explained above, the Commission is also proposing to add Commission regulation 

3.10(c)(3)(v) such that non-U.S. CPOs may rely upon the 3.10 Exemption concurrent with other 

exemptions and exclusions, or, alternatively, registration under the Commission’s regulations. 

The Commission preliminarily believes that proposed Commission regulation 3.10(c)(3)(v) 

therefore benefits non-U.S. CPOs through consistent treatment of CPOs of pools that are 

operated in a substantively identical manner with respect to their use of derivatives or their size, 

regardless of where the CPO is based. The Commission has also preliminarily determined that 

these proposed amendments will benefit the non-U.S. CPO industry generally by providing 

certainty regarding the ability to simultaneously rely upon the 3.10 Exemption and other 

exclusions and exemptions available under the Commission’s regulations. The Commission also 

notes that this proposed amendment is consistent with other instances in its CPO regulatory 

program, where the Commission already permits CPOs to claim more than one type of 

exemption or exclusion or to register with respect to the variety of commodity pools operated by 

them.70

The Commission further preliminarily believes that by clarifying the permissibility of 

using Commission regulation 4.13 exemptions, for example, in conjunction with the 3.10 

Exemption, non-U.S. CPOs may be more likely to claim the relief under Commission regulation 

4.13 for their eligible pools, rather than registering and listing those pools. The Commission 

preliminarily concludes that clearly establishing the availability of other exemptions and 

exclusions or, alternatively, registration with respect to the operation of certain pools offered or 

sold to persons within the United States will further enable the Commission to more efficiently 

 

70 See, e.g., 17 CFR 4.13(e)(2) and 4.13(f).
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deploy its resources in the oversight of CPOs and commodity pools that it has previously 

determined more fully implicate its regulatory concerns and interests under the CEA.

If more non-U.S. CPOs claim exemptions under Commission regulation 4.13(a)(3), for 

example, for some of their U.S. facing pools as a result of the Proposal, this could result in pools 

that were previously listed and associated with a CPO registration being delisted. Under these 

circumstances, the Commission would, as a result, no longer receive financial reporting with 

respect to those pools, including on Form CPO-PQR. Because these commodity pools would in 

fact already be operated consistent with an existing exemption or exclusion, and because the 

Commission has previously determined that pools operated in such a manner generally do not 

require a registered CPO, the Commission has preliminarily determined that any resulting loss 

of insight into such pools and their CPOs would also be consistent with the Commission’s 

overall regulatory policy concerning CPOs and commodity pools.71

iv. Proposed § 3.10(c)(3)(iii): Exclusion of Controlling Affiliate 

Investments in Offshore Pools from the 3.10 Exemption 

Eligibility Determination

The Commission is also proposing to permit non-U.S. CPOs to rely upon the 3.10 

Exemption for the operation of an offshore pool, even if a controlling affiliate within the United 

States provides initial capital for the offshore pool. Absent the relief provided by proposed 

Commission regulation 3.10(c)(3)(iii), a non-U.S. CPO of an offshore pool receiving initial

capital from a controlling affiliate within the U.S. would generally be required to register as a 

 

71 The Commission notes that it retains special call authority with respect to those CPOs claiming an exemption 

from registration pursuant to Commission regulation 4.13, which enables the Commission to obtain additional 

information regarding the operation of commodity pools by such exempt CPOs. See 17 CFR 4.13(c)(iii).
Voting Draft – As approved by the Commission on 5/28/2020

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CPO and list that pool with the Commission, unless another exemption or exclusion was 

available. As a registered CPO with respect to that offshore pool, the non-U.S. CPO would then 

be required to comply with the compliance obligations set forth in part 4 of the Commission’s 

regulations.

As discussed previously, the Commission has preliminarily concluded that participation 

in an offshore pool by a U.S. controlling affiliate does not raise the same regulatory concerns as 

would an investment in the same pool by an unaffiliated participant located within the United 

States. In addition to the reasons outline above, the Commission preliminarily believes that this 

proposed relief or condition to the proposed 3.10 Exemption would provide regulatory relief for 

a small number of currently-registered CPOs. Based on the number of claims filed under 

Advisory 18-96, there are 23 non-U.S. CPOs that operate 84 offshore commodity pools. The 

Commission is unaware, however, of whether any of the offshore pools operated by those nonU.S. CPOs actually received initial capital contributions from a U.S. controlling affiliate, in part, 

because the Commission does not collect such information. Nevertheless, because of the small 

number of claims by non-U.S. CPOs under Advisory 18-96, the Commission preliminarily 

believes that the number of these CPOs that would be subject to proposed Commission 

regulation 3.10(c)(3)(iii) would be less than the 23. The Commission preliminarily believes that 

there may be an unknown number of registered non-U.S. CPOs that have never listed their 

offshore pools with the Commission, and hence did not seek relief under the Advisory. 

Therefore, the total number of non-U.S. CPOs utilizing this exemption could also be higher. In 

addition, as a result of the Commission being unware of the current number of offshore pools 

operated by a non-U.S. CPO receiving seed capital from a U.S. controlling affiliate, it is unable 
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to predict how many pools will utilize this proposed exclusion in the future, if this Proposal is 

finalized.

The Commission also preliminarily believes that this proposed amendment would result 

in reduced costs for non-U.S. CPOs with initial capital contributions from U.S. controlling 

affiliates by removing such investments from consideration for 3.10 Exemption eligibility, 

thereby eliminating any registration and compliance costs for such pools. The proposed 

amendment would, however, result in U.S. controlling affiliates not being able to rely upon the 

protections provided by CPO registration and by part 4 of the Commission’s regulations, with 

respect to their investments in an offshore pool operated by their affiliated non-U.S. CPO.72 The 

Commission preliminarily believes that this loss would be mitigated by such a U.S. controlling 

affiliate’s ability to exercise control over the operations of the affiliated non-U.S. CPO, and 

thereby obtain whatever information regarding the offshore pool a U.S. controlling affiliate may 

deem material to its investment. Moreover, the Commission preliminarily believes this 

approach is consistent with the Commission’s focus on protecting U.S. investors participating in 

commodity pools and recognizes that U.S. controlling affiliates may also be regulated by other 

federal and state authorities.

In the event, should this proposal be finalized, that a non-U.S. CPO has listed one or 

more offshore pools with the Commission due to the fact that the offshore pool received initial 

capital contributions from a U.S. controlling affiliate, and such non-U.S. CPO determines to 

delist the offshore pool in question and instead rely upon the revised 3.10 Exemption, the 

 

72 For example, a U.S. controlling affiliate would not be able to rely upon the Commission’s part 4 regulations to 

require its affiliated non-U.S. CPO to provide the controlling affiliate with disclosures and reporting generally 

mandated by those rules.
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Commission would as a result no longer receive financial reporting with respect to such pool, 

including on Form CPO-PQR. Because, however, the Commission has preliminarily determined 

that initial capital contributions by a U.S. controlling affiliate do not raise the same customer 

protection concerns as capital received from other U.S. participants, the Commission has 

preliminarily determined that any resulting loss of insight into such pools and their CPOs would 

also be consistent with the Commission’s overall regulatory policy concerning CPOs and 

commodity pools.

Section 15(a) Factors

1. Protection of Market Participants and the Public

The Commission preliminarily believes that the Proposal would not have a material 

negative effect on the protection of market participants and the public. The proposed 

amendments enhance the Commission ability to focus its efforts on protecting U.S. investors. 

The Commission will continue to receive identifying information from U.S. CPOs operating 

offshore pools and pools offered to U.S. investors. Regarding a non-U.S. CPO whose offshore 

pools receive initial capital contributions from a controlling affiliate in the United States, the 

Commission preliminarily believes that although those offshore pools may no longer be subject 

to part 4 of the Commission’s regulations, controlling affiliates, by virtue of their control over 

the non-U.S. CPO, need not be as reliant upon the customer protection provided by compliance 

with the Commission’s regulations. The Commission also preliminarily expects that some U.S. 

participants in offshore pools operated pursuant to the regulatory safe harbor may also lose the 

customer protections afforded by part 4 of the Commission’s regulations; however, the 

Commission preliminarily expects the number of such U.S persons to be small due to the 

criteria required for reliance upon the safe harbor.
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2. Efficiency, Competitiveness and Financial Integrity of the 

Futures Markets

The Commission has not identified any impact that the Proposal would have on the 

efficiency, competitiveness and financial integrity of the futures markets.

3. Price Discovery

The Commission has not identified any particular impact that the Proposal would have 

on price discovery.

4. Sound Risk Management Practices

The Commission has not identified any impact that the Proposal would have on sound 

risk management practices.

5. Other Public Interest Considerations

The Commission has not identified any other public interest considerations impacted by 

the Proposal beyond those preliminarily identified as part of its analysis supporting the 

Commission’s exercise of its authority under section 4(c) of the Act.

d. Anti-Trust Considerations

Section 15(b) of the Act requires the Commission to take into consideration the public 

interest to be protected by the antitrust laws and endeavor to take the least anticompetitive 

means of achieving the purposes of the CEA, in issuing any order or adopting any Commission 

rule or regulation (including any exemption under CEA section 4(c) or 4c(b)), or in requiring or 

approving any bylaw, rule, or regulation of a contract market or registered futures association 
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established pursuant to section 17 of the Act.

73 The Commission believes that the public interest 

to be protected by the antitrust laws is generally to protect competition.

The Commission has considered the Proposal to determine whether it is anticompetitive 

and has preliminarily identified no anticompetitive effects. The Commission requests comment 

on whether the Proposal is anticompetitive and, if it is, what the anticompetitive effects are.

Because the Commission has preliminarily determined that the Proposal is not 

anticompetitive and has no anticompetitive effects, the Commission has not identified any less 

anticompetitive means of achieving the purposes of the Act. The Commission requests 

comment on whether there are less anticompetitive means of achieving the relevant purposes of 

the Act that would otherwise be served by adopting the Proposal.

v. Request for Comment

The Commission is seeking comment on all aspects of the costs and benefits associated 

with this Proposal. The Commission specifically seeks comment regarding the treatment of U.S. 

CPOs operating both U.S. and offshore pools by foreign regulatory bodies.

List of Subjects

17 CFR Part 3

Definitions, Foreign futures, Consumer protection, Foreign options, Registration 

requirements.

PART 3 -- REGISTRATION

1. The authority citation for part 3 continues to read as follows:

 

73 7 U.S.C. 19(b).
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Authority: 5 U.S.C. 522, 522b; 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b-1, 6c, 6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 

6n, 6o, 6p, 6s, 8, 9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21, and 23.

2. Amend § 3.10(c) by revising paragraph (c)(3)(i), revising and renumbering paragraph 

(c)(3)(ii) as (c)(3)(v), and adding new paragraphs (c)(3)(ii), (c)(3)(iii), and (c)(3)(iv), to read as 

follows:

§ 3.10 Registration of futures commission merchants, retail foreign exchange 

dealers, introducing brokers, commodity trading advisors, commodity pool 

operators, swap dealers, major swap participants, and leverage transaction 

merchants.

* * * * *

(c) * * *

(3)(i) A person located outside the United States, its territories or possessions engaged 

in the activity of: An introducing broker, as defined in § 1.3 of this chapter; or a commodity 

trading advisor, as defined in § 1.3 of this chapter, in connection with any commodity interest 

transaction executed bilaterally or made on or subject to the rules of any designated contract 

market or swap execution facility only on behalf of persons located outside the United States, its 

territories or possessions, is not required to register in such capacity provided that any such 

commodity interest transaction is submitted for clearing through a futures commission 

merchant registered in accordance with section 4d of the Act.

(ii) A person located outside the United States, its territories or possessions engaged in 

the activity of a commodity pool operator, as defined in § 1.3 of this chapter, in connection with 

any commodity interest transactions that are executed bilaterally or made on or subject to the 

rules of any designated contract market or swap execution facility, is not required to register in 
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such capacity when such transactions are executed on behalf of a commodity pool the

participants of which are all located outside the United States, its territories or possessions, and 

provided that, any such commodity interest transaction is submitted for clearing through a 

futures commission merchant registered in accordance with section 4d of the Act.

(iii) With respect to paragraphs (c)(3)(ii) and (c)(3)(iv), initial capital contributed to a 

commodity pool by an affiliate, as defined by § 4.7(a)(1)(i) of this chapter, that controls, as 

defined by § 49.2(a)(4) of this chapter, the pool’s commodity pool operator shall not be a 

“participant” for purposes of determining whether such commodity pool operator is executing

commodity interest transactions on behalf of a commodity pool, the participants of which are all 

located outside of the United States, its territories or possessions, provided that: 

(A) The control affiliate and its principals are not subject to a statutory disqualification, 

ongoing registration suspension or bar, prohibition on acting as a principal, or 

trading ban with respect to participating in commodity interest markets in the United 

States, its territories or possessions; and

(B) Interests in the control affiliate are not marketed as providing access to trading in

commodity interest markets in the United States, its territories or possessions.

(iv) With respect to paragraph (c)(3)(ii), a commodity pool operated by a person located 

outside the United States, its territories or possessions shall be considered to be satisfying the 

terms of paragraph (c)(3)(ii) if:

(A)The commodity pool is organized and operated outside of the United States, its 

territories or possessions; 
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(B)The commodity pool’s offering materials and any underwriting or distribution 

agreements include clear, written prohibitions on the commodity pool’s offering to 

participants located in the United States and on U.S. ownership of the commodity 

pool’s participation units;

(C) The commodity pool’s constitutional documents and offering materials (a) are 

reasonably designed to preclude persons located in the United States from 

participating therein and (b) include mechanisms reasonably designed to enable its 

operator to exclude any persons located in the United States who attempt to 

participate in the offshore pool notwithstanding those prohibitions; 

(D)The commodity pool operator exclusively uses non-U.S. intermediaries for the 

distribution of participations in the commodity pool; 

(E) The commodity pool operator uses reasonable investor due diligence methods at the 

time of sale to preclude persons located in the United States from participating in the 

commodity pool; and

(F)The commodity pool’s participation units are directed and distributed to participants 

outside the United States, including by means of listing and trading such units on 

secondary markets organized and operated outside of the United States, and in which 

the commodity pool operator has reasonably determined participation by persons 

located in the United States is unlikely.

(v) Claiming an exemption under paragraph (c)(3)(ii) will not affect the ability of a 

person to register with the Commission or qualify for and/or claim an exclusion or exemption

otherwise available under § 4.5 or § 4.13 of this chapter, with respect to the operation of a

qualifying commodity pool or trading vehicle not covered by the relief in this section.
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(vi) A person acting in accordance with paragraph (c)(3)(i) or (c)(3)(ii) of this section 

remains subject to section 4o of the Act, but otherwise is not required to comply with those 

provisions of the Act and of the rules, regulations and orders thereunder applicable solely to any 

person registered in such capacity, or any person required to be so registered.

* * * * *

Issued in Washington, DC, on May __, 2020, by the Commission.

Christopher J. Kirkpatrick

Secretary of the Commission