
[Code of Federal Regulations]
[Title 17, Volume 1]
[Revised as of April 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 17CFR4]

[Page 160-178]
 
              TITLE 17--COMMODITY AND SECURITIES EXCHANGES
 
             CHAPTER I--COMMODITY FUTURES TRADING COMMISSION
 
PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS--Table of Conte
nts
 
Subpart A--General Provisions, Definitions and Exemptions

Sec. 4.1  Requirements as to form.

    (a) Each document distributed pursuant to this part 4 must be:
    (1) Clear and legible;
    (2) Paginated; and
    (3) Fastened in a secure manner.
    (b) Information that is required to be ``prominently'' disclosed 
under this part 4 must be displayed in capital letters and in boldface 
type.
    (c) Where a document is distributed through an electronic medium:
    (1) The requirements of paragraphs (a) of this section shall mean 
that required information must be presented in a format that is readily 
communicated to the recipient. For purposes of this paragraph (c), 
information is readily communicated to the recipient if it is accessible 
to the ordinary user by means of commonly available hardware and 
software and if the electronically delivered document is organized in 
substantially the same manner as would be required for a paper document 
with respect to the order of presentation and the relative prominence of 
information. Where a table of contents is required, the electronic 
document must either include page numbers in the text or employ a 
substantially equivalent cross-reference or indexing method or tool;
    (2) The requirements of paragraph (b) of this section shall mean 
that such information must be presented in capital letters and boldface 
type or, as warranted in the context, another manner reasonably 
calculated to draw the recipient's attention to the information and 
accord it greater prominence than the surrounding text; and
    (3) A complete paper version of the document that complies with the 
applicable provisions of this part 4 must be provided to the recipient 
upon request.
    (d) If graphic, image or audio material is included in a document 
delivered to a prospective or existing client or pool participant, and 
such material cannot be reproduced in an electronic filing, a fair and 
accurate narrative description, tabular representation or transcript of 
the omitted material must be included in the filed version of

[[Page 161]]

the document. Inclusion of such material in a Disclosure Document shall 
be subject to the requirements of Sec. 4.24(v) in the case of pool 
Disclosure Documents, and Sec. 4.34(n) in the case of commodity trading 
advisor Disclosure Documents.

(Approved by the Office of Management and Budget under control number 
3038-0005)

[46 FR 26013, May 8, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 62 
FR 39115, July 22, 1997]

Sec. 4.2  Requirements as to filing.

    (a) All material filed with the Commission under this part 4 must be 
filed with the Commission at its Washington, DC office (Att: Managed 
Funds Branch, Division of Trading and Markets, CFTC, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581); Provided, however, 
that Disclosure Documents, profile documents, and amendments thereto may 
be filed at the following electronic mail address: ddoc-efile@cftc.gov.
    (b) All such material shall be considered filed when received by the 
Commission at the address specified in paragraph (a) of this section.

(Approved by the Office of Management and Budget under control number 
3038-0005)

[46 FR 26013, May 8, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 60 
FR 49334, Sept. 25, 1995; 62 FR 18268, Apr. 15, 1997; 65 FR 58649, Oct. 
2, 2000]

Secs. 4.3-4.4  [Reserved]

Sec. 4.5  Exclusion for certain otherwise regulated persons from the 
          definition of the term ``commodity pool operator.''

    (a) Subject to compliance with the provisions of this section, the 
following persons, and any principal or employee thereof, shall be 
excluded from the definition of the term ``commodity pool operator'' 
with respect to the operation of a qualifying entity specified in 
paragraph (b) of this section:
    (1) An investment company registered as such under the Investment 
Company Act of 1940;
    (2) An insurance company subject to regulation by any State;
    (3) A bank, trust company or any other such financial depository 
institution subject to regulation by any State or the United States; and
    (4) A trustee of, a named fiduciary of (or a person designated or 
acting as a fiduciary pursuant to a written delegation from or other 
written agreement with the named fiduciary) or an employer maintaining a 
pension plan that is subject to title I of the Employee Retirement 
Income Security Act of 1974; Provided, however, That for purposes of 
this Sec. 4.5 the following employee benefit plans shall not be 
construed to be pools:
    (i) A noncontributory plan, whether defined benefit or defined 
contribution, covered under title I of the Employee Retirement Income 
Security Act of 1974;
    (ii) A contributory defined benefit plan covered under title IV of 
the Employee Retirement Income Security Act of 1974; Provided, however, 
That with respect to any such plan to which an employee may voluntarily 
contribute, no portion of an employee's contribution is committed as 
margin or premiums for futures or options contracts;
    (iii) A plan defined as a governmental plan in section 3(32) of 
title I of the Employee Retirement Income Security Act of 1974;
    (iv) Any employee welfare benefit plan that is subject to the 
fiduciary responsibility provisions of the Employee Retirement Income 
Security Act of 1974; and
    (v) A plan defined as a church plan in Section 3(33) of title I of 
the Employee Retirement Income Security Act of 1974 with respect to 
which no election has been made under 26 U.S.C. 410(d).
    (b) For the purposes of this section, the term ``qualifying entity'' 
means:
    (1) With respect to any person specified in paragraph (a)(1) of this 
section, an investment company registered as such under the Investment 
Company Act of 1940;
    (2) With respect to any person specified in paragraph (a)(2) of this 
section, a separate account established and maintained or offered by an 
insurance company pursuant to the laws of any State or territory of the 
United States, under which income gains and losses,

[[Page 162]]

whether or not realized, from assets allocated to such account, are, in 
accordance with the applicable contract, credited to or charged against 
such account, without regard to other income, gains, or losses of the 
insurance company;
    (3) With respect to any person specified in paragraph (a)(3) of this 
section, the assets of any trust, custodial account or other separate 
unit of investment for which it is acting as a fiduciary and for which 
it is vested with investment authority; and
    (4) With respect to any person specified in paragraph (a)(4) of this 
section, and subject to the proviso thereof, a pension plan that is 
subject to title I of the Employee Retirement Income Security Act of 
1974; Provided, however, That such entity will be operated in the manner 
specified in paragraph (c)(2) of this section.
    (c) Any person who desires to claim the exclusion provided by this 
section shall file with the Commission a notice of eligibility; 
Provided, however, That a plan fiduciary who is not a named fiduciary 
but who has an agreement with a named fiduciary as described in 
paragraph (a)(4) of this section may claim the exclusion through the 
notice filed by the named fiduciary.
    (1) The notice of eligibility must contain the following 
information:
    (i) The name of such person;
    (ii) The applicable subparagraph of paragraph (a) of this section 
pursuant to which such person is claiming exclusion;
    (iii) The name of the qualifying entity which such person intends to 
operate pursuant to the exclusion; and
    (iv) The applicable subparagraph of paragraph (b) of this section 
pursuant to which such entity is a qualifying entity.
    (2) The notice of eligibility must contain representations that such 
person will operate the qualifying entity specified therein in a manner 
such that the qualifying entity:
    (i) Will use commodity futures or commodity options contracts solely 
for bona fide hedging purposes within the meaning and intent of 
Sec. 1.3(z)(1); Provided, however, That in addition, with respect to 
positions in commodity futures or commodity option contracts which do 
not come within the meaning and intent of Sec. 1.3(z)(1), a qualifying 
entity may represent that the aggregate initial margin and premiums 
required to establish such positions will not exceed five percent of the 
liquidation value of the qualifying entity's portfolio, after taking 
into account unrealized profits and unrealized losses on any such 
contracts it has entered into; And, Provided further, That in the case 
of an option that is in-the-money at the time of purchase, the in-the-
money amount as defined in Sec. 190.01(x) may be excluded in computing 
such 5 percent;
    (ii) Will not be, and has not been, marketing participations to the 
public as or in a commodity pool or otherwise as or in a vehicle for 
trading in the commodity futures or commodity options markets;
    (iii) Will disclose in writing to each prospective participant the 
purpose of and the limitations on the scope of the commodity futures and 
commodity options trading in which the entity intends to engage; and
    (iv) Will submit to such special calls as the Commission may make to 
require the qualifying entity to demonstrate compliance with the 
provisions of this Sec. 4.5(c);

Provided, however, That the making of such representations shall not be 
deemed a substitute for compliance with any criteria applicable to 
commodity futures or commodity options trading established by any 
regulator to which such person or qualifying entity is subject.
    (3) The notice of eligibility must be filed with the Commission 
prior to the date upon which such person intends to operate the 
qualifying entity pursuant to the exclusion provided by this section.
    (4) The notice of eligibility shall be effective upon filing.
    (d)(1) Each person who has claimed exclusion hereunder must, in the 
event that any of the information contained or representations made in 
the notice of eligibility becomes inaccurate or incomplete, file a 
supplemental notice with the Commission to that effect which, if 
applicable, includes such amendments as may be necessary to render the 
notice of eligibility accurate and complete.

[[Page 163]]

    (2) The supplemental notice required by paragraph (d)(1) of this 
section shall be filed within fifteen business days after the occurrence 
of such event.
    (e) An exclusion claimed hereunder shall cease to be effective upon 
any change which would render:
    (1) A person as to whom such exclusion has been claimed ineligible 
under paragraph (a) of this section;
    (2) The entity for which such exclusion has been claimed ineligible 
under paragraph (b) of this section; or
    (3) Either the representations made pursuant to paragraph (c)(2) of 
this section inaccurate or the continuation of such representations 
false or misleading.
    (f) Any notice required to be filed hereunder must be:
    (1) In writing;
    (2) Signed by a duly authorized representative of a person specified 
in paragraph (a) of this section;
    (3) Filed with the Commission at the address specified in Sec. 4.2; 
and
    (4) Filed with the National Futures Association at its headquarters 
office (Attn: Director of Compliance, Compliance Department).

[50 FR 15882, Apr. 23, 1985; 50 FR 18859, May 3, 1985, as amended at 58 
FR 6374, Jan. 28, 1993; 58 FR 43793, Aug. 18, 1993; 65 FR 24128, Apr. 
25, 2000; 65 FR 25980, May 4, 2000]

Sec. 4.6  Exclusion for certain otherwise regulated persons from the 
          definition of the term ``commodity trading advisor.''

    (a) Subject to compliance with the provisions of this section, the 
following persons, and any principal or employee thereof, shall be 
excluded from the definition of the term ``commodity trading advisor:''
    (1) An insurance company subject to regulation by any State, or any 
wholly-owned subsidiary or employee thereof; Provided, however, That its 
commodity interest advisory activities are solely incidental to the 
conduct of the insurance business of the insurance company as such; and
    (2) A person who is excluded from the definition of the term 
``commodity pool operator'' by Sec. 4.5; Provided, however, That:
    (i) Its commodity interest advisory activities are solely incidental 
to its operation of those trading vehicles for which Sec. 4.5 provides 
relief; and
    (ii) Where necessary, prior to providing any commodity interest 
trading advice to any such trading vehicle the person files a notice of 
eligibility as specified in Sec. 4.5 to claim the relief available under 
that section.
    (b) Any person who has claimed an exclusion under this Sec. 4.6 must 
submit to such special calls as the Commission may make to require the 
person to demonstrate compliance with the provisions of paragraph (a) of 
this section.
    (c) An exclusion claimed under this Sec. 4.6 shall cease to be 
effective upon any change which would render the person claiming the 
exclusion ineligible under paragraph (a) of this section.

[52 FR 41984, Nov. 2, 1987]

Sec. 4.7  Exemption from certain part 4 requirements for commodity pool 
          operators with respect to offerings to qualified eligible 
          persons and for commodity trading advisors with respect to 
          advising qualified eligible persons.

    This section is organized as follows: Paragraph (a) contains 
definitions for the purposes of Sec. 4.7; paragraph (b) contains the 
relief available to commodity pool operators under Sec. 4.7; paragraph 
(c) contains the relief available to commodity trading advisors under 
Sec. 4.7; paragraph (d) concerns the Notice of Claim for Exemption under 
Sec. 4.7; and paragraph (e) addresses the effect of an insignificant 
deviation from a term, condition or requirement of Sec. 4.7.
    (a) Definitions. Paragraph (a)(1) of this section contains general 
definitions, paragraph (a)(2) of this section contains the definition of 
the term qualified eligible person with respect to those persons who do 
not need to satisfy the Portfolio Requirement and paragraph (a)(3) of 
this section contains the definition of the term qualified eligible 
person with respect to those persons who must satisfy the Portfolio 
Requirement. For the purposes of this section:
    (1) In general--(i) Affiliate of, or a person affiliated with, a 
specified person means a person that directly or indirectly through one 
or more persons, controls, is controlled by, or is under

[[Page 164]]

common control with the specified person.
    (ii) Exempt account means the account of a qualified eligible person 
that is directed or guided by a commodity trading advisor pursuant to an 
effective claim for exemption under Sec. 4.7.
    (iii) Exempt pool means a pool that is operated pursuant to an 
effective claim for exemption under Sec. 4.7.
    (iv) Non-United States person means:
    (A) A natural person who is not a resident of the United States;
    (B) A partnership, corporation or other entity, other than an entity 
organized principally for passive investment, organized under the laws 
of a foreign jurisdiction and which has its principal place of business 
in a foreign jurisdiction;
    (C) An estate or trust, the income of which is not subject to United 
States income tax regardless of source;
    (D) An entity organized principally for passive investment such as a 
pool, investment company or other similar entity; Provided, That units 
of participation in the entity held by persons who do not qualify as 
Non-United States persons or otherwise as qualified eligible persons 
represent in the aggregate less than 10% of the beneficial interest in 
the entity, and that such entity was not formed principally for the 
purpose of facilitating investment by persons who do not qualify as Non-
United States persons in a pool with respect to which the operator is 
exempt from certain requirements of Part 4 of the Commission's 
regulations by virtue of its participants being Non-United States 
persons; and
    (E) A pension plan for the employees, officers or principals of an 
entity organized and with its principal place of business outside the 
United States.
    (v) Portfolio Requirement means that a person:
    (A) Owns securities (including pool participations) of issuers not 
affiliated with such person and other investments with an aggregate 
market value of at least $2,000,000;
    (B) Has had on deposit with a futures commission merchant, for its 
own account at any time during the six-month period preceding either the 
date of sale to that person of a pool participation in the exempt pool 
or the date that the person opens an exempt account with the commodity 
trading advisor, at least $200,000 in exchange-specified initial margin 
and option premiums for commodity interest transactions; or
    (C) Owns a portfolio comprised of a combination of the funds or 
property specified in paragraphs (a)(1)(v)(A) and (B) of this section in 
which the sum of the funds or property includable under paragraph 
(a)(1)(v)(A), expressed as a percentage of the minimum amount required 
thereunder, and the amount of futures margin and option premiums 
includable under paragraph (a)(1)(v)(B), expressed as a percentage of 
the minimum amount required thereunder, equals at least one hundred 
percent. An example of a composite portfolio acceptable under this 
paragraph (a)(1)(v)(C) would consist of $1,000,000 in securities and 
other property (50% of paragraph (a)(1)(v)(A)) and $100,000 in exchange-
specified initial margin and option premiums (50% of paragraph 
(a)(1)(v)(B)).
    (vi) United States means the United States, its states, territories 
or possessions, or an enclave of the United States government, its 
agencies or instrumentalities.
    (2) Persons who do not need to satisfy the Portfolio Requirement to 
be qualified eligible persons. Qualified eligible person means any 
person, acting for its own account or for the account of a qualified 
eligible person, who the commodity pool operator reasonably believes, at 
the time of the sale to that person of a pool participation in the 
exempt pool, or who the commodity trading advisor reasonably believes, 
at the time that person opens an exempt account, is:
    (i) A futures commission merchant registered pursuant to section 4d 
of the Act, or a principal thereof;
    (ii) A broker or dealer registered pursuant to section 15 of the 
Securities Exchange Act of 1934, or a principal thereof;
    (iii) A commodity pool operator registered pursuant to section 4m of 
the Act, or a principal thereof; Provided, That the pool operator:
    (A) Has been registered and active as such for two years; or

[[Page 165]]

    (B) Operates pools which, in the aggregate, have total assets in 
excess of $5,000,000;
    (iv) A commodity trading advisor registered pursuant to section 4m 
of the Act, or a principal thereof; Provided, That the trading advisor:
    (A) Has been registered and active as such for two years; or
    (B) Provides commodity interest trading advice to commodity accounts 
which, in the aggregate, have total assets in excess of $5,000,000 
deposited at one or more futures commission merchants;
    (v) An investment adviser registered pursuant to section 203 of the 
Investment Advisers Act of 1940 (``Investment Advisers Act'') or 
pursuant to the laws of any state, or a principal thereof; Provided, 
That the investment adviser:
    (A) Has been registered and active as such for two years; or
    (B) Provides securities investment advice to securities accounts 
which, in the aggregate, have total assets in excess of $5,000,000 
deposited at one or more registered securities brokers;
    (vi) A ``qualified purchaser'' as defined in section 2(51)(A) of the 
Investment Company Act of 1940 (the ``Investment Company Act'');
    (vii) A ``knowledgeable employee'' as defined in Sec. 270.3c-5 of 
this title;
    (viii)(A) With respect to an exempt pool:
    (1) The commodity pool operator, commodity trading advisor or 
investment adviser of the exempt pool offered or sold, or an affiliate 
of any of the foregoing;
    (2) A principal of the exempt pool or the commodity pool operator, 
commodity trading advisor or investment adviser of the exempt pool, or 
of an affiliate of any of the foregoing;
    (3) An employee of the exempt pool or the commodity pool operator, 
commodity trading advisor or investment adviser of the exempt pool, or 
of an affiliate of any of the foregoing (other than an employee 
performing solely clerical, secretarial or administrative functions with 
regard to such person or its investments) who, in connection with his or 
her regular functions or duties, participates in the investment 
activities of the exempt pool, other commodity pools operated by the 
pool operator of the exempt pool or other accounts advised by the 
trading advisor or the investment adviser of the exempt pool, or by the 
affiliate; Provided, That such employee has been performing such 
functions and duties for or on behalf of the exempt pool, pool operator, 
trading advisor, investment adviser or affiliate, or substantially 
similar functions or duties for or on behalf of another person engaged 
in providing commodity interest, securities or other financial services, 
for at least 12 months;
    (4) Any other employee of, or an agent engaged to perform legal, 
accounting, auditing or other financial services for, the exempt pool or 
the commodity pool operator, commodity trading advisor or investment 
adviser of the exempt pool, or any other employee of, or agent so 
engaged by, an affiliate of any of the foregoing (other than an employee 
or agent performing solely clerical, secretarial or administrative 
functions with regard to such person or its investments); Provided, That 
such employee or agent:
    (i) Is an accredited investor as defined in Sec. 230.501(a)(5) or 
(6) of this title; and
    (ii) Has been employed or engaged by the exempt pool, commodity pool 
operator, commodity trading advisor, investment adviser or affiliate, or 
by another person engaged in providing commodity interest, securities or 
other financial services, for at least 24 months;
    (5) The spouse, child, sibling or parent of a person who satisfies 
the criteria of paragraph (a)(2)(viii)(A)(1), (2), (3) or (4) of this 
section; Provided, That:
    (i) An investment in the exempt pool by any such family member is 
made with the knowledge and at the direction of the person; and
    (ii) The family member is not a qualified eligible person for the 
purposes of paragraph (a)(3)(xi) of this section;
    (6)(i) Any person who acquires a participation in the exempt pool by 
gift, bequest or pursuant to an agreement relating to a legal separation 
or divorce from a person listed in paragraph (a)(2)(viii)(A)(1), (2), 
(3), (4) or (5) of this section;
    (ii) The estate of any person listed in paragraph 
(a)(2)(viii)(A)(1), (2), (3), (4) or (5) of this section; or

[[Page 166]]

    (iii) A company established by any person listed in paragraph 
(a)(2)(viii)(A)(1), (2), (3), (4) or (5) of this section exclusively for 
the benefit of (or owned exclusively by) that person and any person 
listed in paragraph (a)(2)(viii)(A)(6)(i) or (ii) of this section;
    (B) With respect to an exempt account:
    (1) An affiliate of the commodity trading advisor of the exempt 
account;
    (2) A principal of the commodity trading advisor of the exempt 
account or of an affiliate of the trading advisor;
    (3) An employee of the commodity trading advisor of the exempt 
account or of an affiliate of the trading advisor (other than an 
employee performing solely clerical, secretarial or administrative 
functions with regard to such person or its investments) who, in 
connection with his or her regular functions or duties, participates in 
the investment activities of the trading advisor or the affiliate; 
Provided, That such employee has been performing such functions and 
duties for or on behalf of the trading advisor or the affiliate, or 
substantially similar functions or duties for or on behalf of another 
person engaged in providing commodity interest, securities or other 
financial services, for at least 12 months;
    (4) Any other employee of, or an agent engaged to perform legal, 
accounting, auditing or other financial services for, the commodity 
trading advisor of the exempt account or any other employee of, or agent 
so engaged by, an affiliate of the trading advisor (other than an 
employee or agent performing solely clerical, secretarial or 
administrative functions with regard to such person or its investments); 
Provided, That such employee or agent:
    (i) Is an accredited investor as defined in Sec. 230.501(a)(5) or 
(a)(6) of this title; and
    (ii) Has been employed or engaged by the commodity trading advisor 
or the affiliate, or by another person engaged in providing commodity 
interest, securities or other financial services, for at least 24 
months; or
    (5) The spouse, child, sibling or parent of the commodity trading 
advisor of the exempt account or of a person who satisfies the criteria 
of paragraph (a)(2)(viii)(B)(1), (2), (3) or (4) of this section; 
Provided, That:
    (i) The establishment of an exempt account by any such family member 
is made with the knowledge and at the direction of the person; and
    (ii) The family member is not a qualified eligible person for the 
purposes of paragraph (a)(3)(xi) of this section;
    (6)(i) Any person who acquires an interest in an exempt account by 
gift, bequest or pursuant to an agreement relating to a legal separation 
or divorce from a person listed in paragraph (a)(2)(viii)(B)(1), (2), 
(3), (4) or (5) of this section;
    (ii) The estate of any person listed in paragraph 
(a)(2)(viii)(B)(1), (2), (3), (4) or (5) of this section; or
    (iii) A company established by any person listed in paragraph 
(a)(2)(viii)(B)(1), (2), (3), (4) or (5) of this section exclusively for 
the benefit of (or owned exclusively by) that person and any person 
listed in paragraph (a)(2)(viii)(B)(6)(i) or (ii) of this section;
    (ix) A trust; Provided, That:
    (A) The trust was not formed for the specific purpose of either 
participating in the exempt pool or opening an exempt account; and
    (B) The trustee or other person authorized to make investment 
decisions with respect to the trust, and each settlor or other person 
who has contributed assets to the trust, is a qualified eligible person;
    (x) An organization described in section 501(c)(3) of the Internal 
Revenue Code (the ``IRC''); Provided, That the trustee or other person 
authorized to make investment decisions with respect to the 
organization, and the person who has established the organization, is a 
qualified eligible person;
    (xi) A Non-United States person;
    (xii)(A) An entity in which all of the unit owners or participants, 
other than the commodity trading advisor claiming relief under this 
section, are qualified eligible persons;
    (B) An exempt pool; or
    (C) Notwithstanding paragraph (a)(3) of this section, an entity as 
to which a notice of eligibility has been filed pursuant to Sec. 4.5 
which is operated in accordance with such rule and in which all unit 
owners or participants, other than the commodity trading advisor

[[Page 167]]

claiming relief under this section, are qualified eligible persons.
    (3) Persons who must satisfy the Portfolio Requirement to be 
qualified eligible persons. Qualified eligible person means any person 
who the commodity pool operator reasonably believes, at the time of the 
sale to that person of a pool participation in the exempt pool, or any 
person who the commodity trading advisor reasonably believes, at the 
time that person opens an exempt account, satisfies the Portfolio 
Requirement and is:
    (i) An investment company registered under the Investment Company 
Act or a business development company as defined in section 2(a)(48) of 
such Act not formed for the specific purpose of either investing in the 
exempt pool or opening an exempt account;
    (ii) A bank as defined in section 3(a)(2) of the Securities Act of 
1933 (the ``Securities Act'') or any savings and loan association or 
other institution as defined in section 3(a)(5)(A) of the Securities Act 
acting for its own account or for the account of a qualified eligible 
person;
    (iii) An insurance company as defined in section 2(13) of the 
Securities Act acting for its own account or for the account of a 
qualified eligible person;
    (iv) A plan established and maintained by a state, its political 
subdivisions, or any agency or instrumentality of a state or its 
political subdivisions, for the benefit of its employees, if such plan 
has total assets in excess of $5,000,000;
    (v) An employee benefit plan within the meaning of the Employee 
Retirement Income Security Act of 1974; Provided, That the investment 
decision is made by a plan fiduciary, as defined in section 3(21) of 
such Act, which is a bank, savings and loan association, insurance 
company, or registered investment adviser; or that the employee benefit 
plan has total assets in excess of $5,000,000; or, if the plan is self-
directed, that investment decisions are made solely by persons that are 
qualified eligible persons;
    (vi) A private business development company as defined in section 
202(a)(22) of the Investment Advisers Act;
    (vii) An organization described in section 501(c)(3) of the IRC, 
with total assets in excess of $5,000,000;
    (viii) A corporation, Massachusetts or similar business trust, or 
partnership, other than a pool, which has total assets in excess of 
$5,000,000, and is not formed for the specific purpose of either 
participating in the exempt pool or opening an exempt account;
    (ix) A natural person whose individual net worth, or joint net worth 
with that person's spouse, at the time of either his purchase in the 
exempt pool or his opening of an exempt account exceeds $1,000,000;
    (x) A natural person who had an individual income in excess of 
$200,000 in each of the two most recent years or joint income with that 
person's spouse in excess of $300,000 in each of those years and has a 
reasonable expectation of reaching the same income level in the current 
year;
    (xi) A pool, trust, insurance company separate account or bank 
collective trust, with total assets in excess of $5,000,000, not formed 
for the specific purpose of either participating in the exempt pool or 
opening an exempt account, and whose participation in the exempt pool or 
investment in the exempt account is directed by a qualified eligible 
person; or
    (xii) Except as provided for the governmental entities referenced in 
paragraph (a)(3)(iv) of this section, if otherwise authorized by law to 
engage in such transactions, a governmental entity (including the United 
States, a state, or a foreign government) or political subdivision 
thereof, or a multinational or supranational entity or an 
instrumentality, agency, or department of any of the foregoing.
    (b) Relief available to commodity pool operators. Upon filing the 
notice required by paragraph (d) of this section, and subject to 
compliance with the conditions specified in paragraph (d) of this 
section, any registered commodity pool operator who offers or sells 
participations in a pool solely to qualified eligible persons in an 
offering which qualifies for exemption from the registration 
requirements of the Securities Act pursuant to section 4(2) of that Act 
or pursuant to Regulation S, 17

[[Page 168]]

CFR 230.901 et seq., and any bank registered as a commodity pool 
operator in connection with a pool that is a collective trust fund whose 
securities are exempt from registration under the Securities Act 
pursuant to section 3(a)(2) of that Act and are offered or sold, without 
marketing to the public, solely to qualified eligible persons, may claim 
any or all of the following relief with respect to such pool:
    (1) Disclosure relief. (i) Exemption from the specific requirements 
of Secs. 4.21, 4.24, 4.25 and 4.26 with respect to each exempt pool; 
Provided, That if an offering memorandum is distributed in connection 
with soliciting prospective participants in the exempt pool, such 
offering memorandum must include all disclosures necessary to make the 
information contained therein, in the context in which it is furnished, 
not misleading; and that the following statement is prominently 
disclosed on the cover page of the offering memorandum, or, if none is 
provided, immediately above the signature line on the subscription 
agreement or other document that the prospective participant must 
execute to become a participant in the pool:

    ``PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING 
COMMISSION IN CONNECTION WITH POOLS WHOSE PARTICIPANTS ARE LIMITED TO 
QUALIFIED ELIGIBLE PERSONS, AN OFFERING MEMORANDUM FOR THIS POOL IS NOT 
REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE COMMISSION. THE 
COMMODITY FUTURES TRADING COMMISSION DOES NOT PASS UPON THE MERITS OF 
PARTICIPATING IN A POOL OR UPON THE ADEQUACY OR ACCURACY OF AN OFFERING 
MEMORANDUM. CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS 
NOT REVIEWED OR APPROVED THIS OFFERING OR ANY OFFERING MEMORANDUM FOR 
THIS POOL.''

    (ii) Exemption from disclosing the past performance of exempt pools 
in the Disclosure Document of non-exempt pools except to the extent that 
such past performance is material to the non-exempt pool being offered; 
Provided, That a pool operator that has claimed exemption hereunder and 
elects not to disclose any such performance in the Disclosure Document 
of non-exempt pools shall state in a footnote to the performance 
disclosure therein that the operator is operating or has operated exempt 
pools whose performance is not disclosed in this Disclosure Document.
    (2) Periodic reporting relief. Exemption from the specific 
requirements of Secs. 4.22(a) and (b); Provided, That a statement signed 
and affirmed in accordance with Sec. 4.22(h) is prepared and distributed 
to pool participants no less frequently than quarterly within 30 
calendar days after the end of the reporting period. This statement must 
indicate:
    (i) The net asset value of the exempt pool as of the end of the 
reporting period;
    (ii) The change in net asset value from the end of the previous 
reporting period; and
    (iii) The net asset value per outstanding unit of participation in 
the exempt pool as of the end of the reporting period.
    (3) Annual report relief. (i) Exemption from the specific 
requirements of Secs. 4.22(c) and (d); Provided, That within 90 calendar 
days after the end of the exempt pool's fiscal year, the commodity pool 
operator files with the Commission and with the National Futures 
Association and distributes to each participant in lieu of the financial 
information and statements specified by those sections, an annual report 
for the exempt pool, signed and affirmed in accordance with Sec. 4.22(h) 
which contains, at a minimum:
    (A) A Statement of Financial Condition as of the close of the exempt 
pool's fiscal year (elected in accordance with Sec. 4.22(g));
    (B) A Statement of Income (Loss) for that year; and
    (C) Appropriate footnote disclosure and any other material 
information.
    (ii) Such annual report must be presented and computed in accordance 
with generally accepted accounting principles consistently applied and, 
if certified by an independent public accountant, so certified in 
accordance with Sec. 1.16 as applicable.
    (iii) Legend. (A) If a claim for exemption has been made pursuant to 
this section, the commodity pool operator must make a statement to that 
effect

[[Page 169]]

on the cover page of each annual report.
    (B) If the annual report is not certified in accordance with 
Sec. 1.16, the pool operator must make a statement to that effect on the 
cover page of each annual report and state that a certified audit will 
be provided upon the request of the holders of a majority of the units 
of participation in the pool who are unaffiliated with the commodity 
pool operator.
    (4) Recordkeeping relief. Exemption from the specific requirements 
of Sec. 4.23; Provided, That the commodity pool operator must maintain 
the reports referred to in paragraphs (b)(2) and (b)(3) of this section 
and all books and records prepared in connection with his activities as 
the pool operator of the exempt pool (including, without limitation, 
records relating to the qualifications of qualified eligible persons and 
substantiating any performance representations) at his main business 
address and must make such books and records available to any 
representative of the Commission, the National Futures Association and 
the United States Department of Justice in accordance with the 
provisions of Sec. 1.31.
    (c) Relief available to commodity trading advisors. Upon filing the 
notice required by paragraph (d) of this section, and subject to 
compliance with the conditions specified in paragraph (d) of this 
section, any registered commodity trading advisor who anticipates 
directing or guiding the commodity interest accounts of qualified 
eligible persons may claim any or all of the following relief with 
respect to the accounts of qualified eligible persons who have given due 
consent to their account being an exempt account under Sec. 4.7:
    (1) Disclosure relief. (i) Exemption from the specific requirements 
of Secs. 4.31, 4.34, 4.35 and 4.36; Provided, That if the commodity 
trading advisor delivers a brochure or other disclosure statement to 
such qualified eligible persons, such brochure or statement shall 
include all additional disclosures necessary to make the information 
contained therein, in the context in which it is furnished, not 
misleading; and that the following statement is prominently displayed on 
the cover page of the brochure or statement or, if none is provided, 
immediately above the signature line of the agreement that the client 
must execute before it opens an account with the commodity trading 
advisor:

    ``PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING 
COMMISSION IN CONNECTION WITH ACCOUNTS OF QUALIFIED ELIGIBLE PERSONS, 
THIS BROCHURE OR ACCOUNT DOCUMENT IS NOT REQUIRED TO BE, AND HAS NOT 
BEEN, FILED WITH THE COMMISSION. THE COMMODITY FUTURES TRADING 
COMMISSION DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN A TRADING 
PROGRAM OR UPON THE ADEQUACY OR ACCURACY OF COMMODITY TRADING ADVISOR 
DISCLOSURE. CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS 
NOT REVIEWED OR APPROVED THIS TRADING PROGRAM OR THIS BROCHURE OR 
ACCOUNT DOCUMENT.''

    (ii) Exemption from disclosing the past performance of exempt 
accounts in the Disclosure Document for non-exempt accounts except to 
the extent that such past performance is material to the non-exempt 
account being offered; Provided, That a commodity trading advisor that 
has claimed exemption hereunder and elects not to disclose any such 
performance in the Disclosure Document for non-exempt accounts shall 
state in a footnote to the performance disclosure therein that the 
advisor is advising or has advised exempt accounts for qualified 
eligible persons whose performance is not disclosed in this Disclosure 
Document.
    (2) Recordkeeping relief. Exemption from the specific requirements 
of Sec. 4.33; Provided, That the commodity trading advisor must 
maintain, at its main business office, all books and records prepared in 
connection with his activities as the commodity trading advisor of 
qualified eligible persons (including, without limitation, records 
relating to the qualifications of such qualified eligible persons and 
substantiating any performance representations) and must make such books 
and records available to any representative of the Commission, the 
National Futures Association and the United States Department of Justice 
in accordance with the provisions of Sec. 1.31.

[[Page 170]]

    (d) Notice of claim for exemption. (1) A notice of a claim for 
exemption under this section must:
    (i) Be in writing;
    (ii) Provide the name, main business address, main business 
telephone number and the National Futures Association commodity pool 
operator or commodity trading advisor identification number of the 
person claiming the exemption;
    (iii)(A) Where the claimant is a commodity pool operator, provide 
the name(s) of the pool(s) for which the request is made; Provided, That 
a single notice representing that the pool operator anticipates 
operating single-investor pools may be filed to claim exemption for 
single-investor pools and such notice need not name each such pool;
    (B) Where the claimant is a commodity trading advisor, contain a 
representation that the trading advisor anticipates providing commodity 
interest trading advice to qualified eligible persons;
    (iv) Contain representations that:
    (A) Neither the commodity pool operator or commodity trading advisor 
nor any of its principals is subject to any statutory disqualification 
under section 8a(2) or 8a(3) of the Act unless such disqualification 
arises from a matter which was previously disclosed in connection with a 
previous application for registration if such registration was granted 
or which was disclosed more than thirty days prior to the filing of the 
notice under this paragraph (d);
    (B) The commodity pool operator or commodity trading advisor will 
comply with the applicable requirements of Sec. 4.7; and
    (C) Where the claimant is a commodity pool operator, that the exempt 
pool will be offered and operated in compliance with the applicable 
requirements of Sec. 4.7;
    (v) Specify the relief claimed under Sec. 4.7;
    (vi) Where the claimant is a commodity pool operator, state the 
closing date of the offering or that the offering will be continuous;
    (vii) Be signed by the commodity pool operator or commodity trading 
advisor as follows: If it is a sole proprietorship, by the sole 
proprietor; if a partnership, by a general partner; and if a 
corporation, by the chief executive officer or chief financial officer;
    (viii) Be filed in duplicate with the Commission at the address 
specified in Sec. 4.2 and with the National Futures Association at its 
headquarters office (Attn: Director of Compliance, Compliance 
Department); and
    (ix)(A)(1) Where the claimant is a commodity pool operator, except 
as provided in paragraph (d)(1)(iii)(A) of this section with respect to 
single-investor pools and in paragraph (d)(1)(ix)(A)(2) of this section, 
be received by the Commission:
    (i) Before the date the pool first enters into a commodity interest 
transaction, if the relief claimed is limited to that provided under 
paragraphs (b)(2), (3) and (4) of this section; or
    (ii) Prior to any offer or sale of any participation in the exempt 
pool if the claimed relief includes that provided under paragraph (b)(1) 
of this section.
    (2) Where participations in a pool have been offered or sold in full 
compliance with Part 4, the notice of a claim for exemption may be filed 
with the Commission at any time; Provided, That the claim for exemption 
is otherwise consistent with the duties of the commodity pool operator 
and the rights of pool participants and that the commodity pool operator 
notifies the pool participants of his intention, absent objection by the 
holders of a majority of the units of participation in the pool who are 
unaffiliated with the commodity pool operator within twenty-one days 
after the date of the notification, to file a notice of claim for 
exemption under Sec. 4.7 and such holders have not objected within such 
period. A commodity pool operator filing a notice under this paragraph 
(d)(1)(ix)(A)(2) shall either provide disclosure and reporting in 
accordance with the requirements of Part 4 to those participants 
objecting to the filing of such notice or allow such participants to 
redeem their units of participation in the pool within three months of 
the filing of such notice.
    (B) Where the claimant is a commodity trading advisor, be received 
by the Commission before the date the trading advisor first enters into 
an

[[Page 171]]

agreement to direct or guide the commodity interest account of a 
qualified eligible person pursuant to Sec. 4.7.
    (2) The notice will be effective upon receipt by the Commission with 
respect to each pool for which it was made where the claimant is a 
commodity pool operator and otherwise generally where the claimant is a 
commodity trading advisor; Provided, That any notice which does not 
include all the required information shall not be effective, and that if 
at the time the Commission receives the notice, an enforcement 
proceeding brought by the Commission under the Act or the regulations is 
pending against the pool operator or trading advisor or any of its 
principals, the exemption will not be effective until twenty-one 
calendar days after receipt of the notice by the Commission and that in 
such case an exemption may be denied by the Commission or made subject 
to such conditions as the Commission may impose.
    (3) Any exemption claimed hereunder shall cease to be effective upon 
any change which would cause the commodity pool operator of an exempt 
pool to be ineligible for the relief claimed with respect to such pool 
or which would cause a commodity trading advisor to be ineligible for 
the relief claimed. The pool operator or trading advisor must promptly 
file a notice advising the Commission of such change.
    (4)(i) Any exemption from the requirements of Sec. 4.21, 4.22, 4.23, 
4.24, 4.25 or 4.26 claimed hereunder with respect to a pool shall not 
affect the obligation of the commodity pool operator to comply with all 
other applicable provisions of Part 4, the Act and the Commission's 
rules and regulations, with respect to the pool and any other pool the 
pool operator operates or intends to operate.
    (ii) Any exemption from the requirements of Sec. 4.31, 4.33, 4.34, 
4.35 or 4.36 claimed hereunder shall not affect the obligation of the 
commodity trading advisor to comply with all other applicable provisions 
of Part 4, the Act and the Commission's rules and regulations, with 
respect to any qualified eligible person and any other client to which 
the commodity trading advisor provides or intends to provide commodity 
interest trading advice.
    (e) Insignificant deviations from a term, condition or requirement 
of Sec. 4.7. (1) A failure to comply with a term or condition of 
Sec. 4.7 will not result in the loss of the exemption with respect to a 
particular pool or client if the commodity pool operator or the 
commodity trading advisor relying on the exemption shows that:
    (i) The failure to comply did not pertain to a term, condition or 
requirement directly intended to protect that particular qualified 
eligible person;
    (ii) The failure to comply was insignificant with respect to the 
exempt pool as a whole or to the particular exempt account; and
    (iii) A good faith and reasonable attempt was made to comply with 
all applicable terms, conditions and requirements of Sec. 4.7.
    (2) A transaction made in reliance on Sec. 4.7 must comply with all 
applicable terms, conditions and requirements of Sec. 4.7. Where an 
exemption is established only through reliance upon paragraph (e)(1) of 
this section, the failure to comply shall nonetheless be actionable by 
the Commission.

[65 FR 47854, Aug. 4, 2000]

Sec. 4.8  Exemption from certain requirements of rule 4.26 with respect 
          to pools offered or sold in certain offerings exempt from 
          registration under the Securities Act.

    (a) Notwithstanding paragraph (d) of Sec. 4.26 and subject to the 
conditions specified herein, the registered commodity pool operator of a 
pool offered or sold solely to ``accredited investors'' as defined in 17 
CFR 230.501 in an offering exempt from the registration requirements of 
the Securities Act of 1933 pursuant to Rule 505 or 506 of Regulation D, 
17 CFR 230.505 or 230.506, may solicit, accept and receive funds, 
securities and other property from prospective participants in that pool 
upon filing with the Commission and providing to such participants the 
Disclosure Document for the pool.
    (b) Notwithstanding paragraph (d) of Sec. 4.26 and subject to the 
conditions specified herein, the registered commodity pool operator of a 
pool offered or sold in an offering exempt from the registration 
requirements of the Securities Act of 1933 pursuant to Rule 505

[[Page 172]]

or 506 of Regulation D, 17 CFR 230.505 or 230.506, that is operated in 
compliance with, and has filed the notice required by, Sec. 4.12(b) may 
solicit, accept and receive funds, securities and other property from 
prospective participants in that pool upon filing with the Commission 
and providing to such participants the Disclosure Document for the pool.
    (c) The relief provided under Sec. 4.8 is not available if an 
enforcement proceeding brought by the Commission under the Act or the 
regulations is pending against the commodity pool operator or any of its 
principals or if the commodity pool operator or any of its principals is 
subject to any statutory disqualification under Secs. 8a(2) or 8a(3) of 
the Act.

[57 FR 34865, Aug. 7, 1992; 57 FR 41173, Sept. 9, 1992, as amended at 60 
FR 38182, July 25, 1995]

Sec. 4.9  [Reserved]

Sec. 4.10  Definitions.

    For purposes of this part:
    (a) Commodity interest means:
    (1) Any contract for the purchase or sale of a commodity for future 
delivery; and
    (2) Any contract, agreement or transaction subject to Commission 
regulation under section 4c or 19 of the Act.
    (b) Net asset value means total assets minus total liabilities, 
determined in accord with generally accepted accounting principles, with 
each position in a commodity interest accounted for at fair market 
value.
    (c) Participant means any person that has any direct financial 
interest in a pool (e.g., a limited partner).
    (d)(1) Pool means any investment trust, syndicate or similar form of 
enterprise operated for the purpose of trading commodity interests.
    (2) Multi-advisor pool means a pool in which:
    (i) No commodity trading advisor is allocated or intended to be 
allocated more than twenty-five percent of the pool's funds available 
for commodity interest trading; and
    (ii) No investee pool is allocated or intended to be allocated more 
than twenty-five percent of the pool's net asset value.
    (3) Principal-protected pool means a pool (commonly referred to as a 
``guaranteed pool'') that is designed to limit the loss of the initial 
investment of its participants.
    (4) Investee pool means any pool in which another pool or account 
participates or invests, e.g., as a limited partner thereof.
    (5) Major investee pool means, with respect to a pool, any investee 
pool that is allocated or intended to be allocated at least ten percent 
of the net asset value of the pool.
    (e)(1) Principal, when referring to a person that is a principal of 
a particular entity, shall have the same meaning as the term 
``principal'' under Sec. 3.1(a) of this chapter.
    (2) Trading principal means:
    (i) With respect to a commodity pool operator, a principal who 
participates in making trading decisions for a pool, or who supervises, 
or has authority to allocate pool assets to, persons so engaged; and
    (ii) With respect to a commodity trading advisor, a principal who 
participates in making trading decisions for the account of a client or 
who supervises or selects persons so engaged.
    (f) Direct, as used in the context of trading commodity interest 
accounts, refers to agreements whereby a person is authorized to cause 
transactions to be effected for a client's commodity interest account 
without the client's specific authorization.
    (g) Trading program refers to the program pursuant to which a person 
(1) directs a client's commodity interest account, or (2) guides the 
client's commodity interest trading by means of a systematic program 
that recommends specific transactions.
    (h) Trading manager means, with respect to a pool, any person, other 
than the commodity pool operator of the pool, having sole or partial 
authority to allocate pool assets to commodity trading advisors or 
investee pools.
    (i) Major commodity trading advisor means, with respect to a pool, 
any commodity trading advisor that is allocated or is intended to be 
allocated at least ten percent of the pool's funds available for 
commodity interest trading. For this purpose, the percentage allocation 
shall be the amount of funds

[[Page 173]]

allocated to the trading advisor by agreement with the commodity pool 
operator (or trading manager) on behalf of the pool, expressed as a 
percentage of the lesser of the aggregate value of the assets allocated 
to the pool's trading advisors or the net assets of the pool at the time 
of allocation.
    (j) Break-even point--(1) Means the trading profit that a pool must 
realize in the first year of a participant's investment to equal all 
fees and expenses such that such participant will recoup its initial 
investment, as calculated pursuant to rules promulgated by a registered 
futures association pursuant to section 17(j) of the Act; and
    (2) Must be expressed both as a dollar amount and as a percentage of 
the minimum unit of initial investment and assume redemption of the 
initial investment at the end of the first year of investment.
    (k) Draw-down means losses experienced by a pool or account over a 
specified period.
    (l) Worst peak-to-valley draw-down means the greatest cumulative 
percentage decline in month-end net asset value due to losses sustained 
by a pool, account or trading program during any period in which the 
initial month-end net asset value is not equaled or exceeded by a 
subsequent month-end net asset value. Such decline must be expressed as 
a percentage of the initial month-end net asset value, together with an 
indication of the months and year(s) of such decline from the initial 
month-end net asset value to the lowest month-end net asset value of 
such decline.\1\ For purposes of Secs. 4.25 and 4.35, a peak-to-valley 
draw-down which began prior to the beginning of the most recent five 
calendar years is deemed to have occurred during such five- calendar-
year period.
---------------------------------------------------------------------------

    \1\ For example, a worst peak-to-valley draw-down of ``4 to 8-92/
25%'' means that the peak-to-valley draw-down lasted from April to 
August of 1992 and resulted in a twenty-five percent cumulative draw-
down.

[46 FR 26013, May 9, 1981, as amended at 49 FR 8225, Mar. 5, 1984; 60 FR 
38182, July 25, 1995; 66 FR 53522, Oct. 23, 2001]

Sec. 4.11  Exemption from section 4n(3)(B).

    The provisions of section 4n(3)(B) of the Act shall not apply to any 
commodity pool operator or commodity trading advisor that is registered 
under the Act as such or that is exempt from such registration.

Sec. 4.12  Exemption from provisions of part 4.

    (a) In general. (1) The Commission may exempt any person or any 
class or classes of persons from any provision of this part 4 if it 
finds that the exemption is not contrary to the public interest and the 
purposes of the provisions from which the exemption is sought.
    (2) The Commission may grant the exemption subject to such terms and 
conditions as it may find appropriate.
    (b) Exemption from subpart B for certain commodity pool operators. 
(1) Any person who is registered as a commodity pool operator, or has 
applied for such registration, may claim any or all of the relief 
available under paragraph (b)(2) of this section if:
    (i) The pool for which it makes such claim:
    (A) Will be offered and sold pursuant to the Securities Act of 1933 
or pursuant to an exemption from said Act;
    (B) Will generally and routinely engage in the buying and selling of 
securities and securities derived instruments;
    (C) Will not enter into commodity futures and commodity options 
contracts for which the aggregate initial margin and premiums exceed 10 
percent of the fair market value of the pool's assets, after taking into 
account unrealized profits and unrealized losses on any such contracts 
it has entered into; Provided, however, That in the case of an option 
that is in-the-money at the time of purchase, the in-the-money amount as 
defined in Sec. 190.01(x) may be excluded in computing such 10 percent; 
and
    (D) Will trade such commodity interests in a manner solely 
incidental to its securities trading activities.
    (ii) Each existing participant and prospective participant in the 
pool for which it makes such request is informed in writing of the 
restrictions set forth in paragraph (b)(1)(i) (C) and (D) of this 
section prior to the date the

[[Page 174]]

pool commences trading commodity interests. The pool operator may 
furnish this information by way of the pool's Disclosure Document, 
Account Statement, a separate notice or other similar means.
    (2) The commodity pool operator of a pool which meets the criteria 
of paragraph (b)(1) of this section may claim the following relief:
    (i) In the case of Sec. 4.21, that the Commission accept in lieu and 
in satisfaction of the Disclosure Document specified by that section an 
offering memorandum for the pool which does not contain the information 
required by Secs. 4.24(a), 4.24(b), and 4.24(n); Provided, however, that 
the offering memorandum:
    (A) Is prepared pursuant to the requirements of the Securities Act 
of 1933, as amended, or the exemption from said Act pursuant to which 
the pool is being offered and sold;
    (B) Contains the information required by Secs. 4.24(c) through (m) 
and (o) through (u); and
    (C) Complies with the requirements of Secs. 4.24(v) and (w).
    (ii) In the case of Sec. 4.22 (a) and (b), that the Commission 
accept in lieu and in satisfaction of the Account Statement and 
prescribed frequency respectively specified by those sections a 
statement which indicates the net asset value of the pool as of the end 
of the reporting period and the change in net asset value from the end 
of the previous reporting period, to be prepared and distributed no less 
frequently than quarterly; Provided, however, That each such statement 
complies with the other requirements of Sec. 4.22 (a) and (b), including 
the references in those sections to Sec. 4.22 (g) and (h).
    (iii) In the case of Sec. 4.22 (c) through (e), that the Commission 
accept in lieu and in satisfaction of the financial information and 
statements in the Annual Report specified by those sections an annual 
report for the pool which contains, at a minimum, a Statement of 
Financial Condition as of the close of the pool's fiscal year and a 
Statement of Income (Loss) for that year; Provided, however, That:
    (A) Each such annual report complies with the other requirements of 
Sec. 4.22(c), including the reference in that section to Sec. 4.22(h) 
and the requirement in Sec. 4.22(c)(5) that the annual report must 
contain appropriate footnote disclosure and further material 
information; and
    (B) The financial statements in such annual report must be presented 
and computed in accordance with generally accepted accounting principles 
consistently applied and must be certified by an independent public 
accountant.
    (iv) In the case of Sec. 4.23(a) (10) and (11), to exempt the pool 
operator from the requirements of those sections with respect to the 
pool.
    (3) Any registered commodity pool operator who desires to claim the 
relief available under this Sec. 4.12(b) must file a claim of exemption 
with the Commission. Such claim must:
    (i) Be in writing;
    (ii) Provide the name, main business address and main business 
telephone number of the registered commodity pool operator, or applicant 
for such registration, making the request;
    (iii) Provide the name of the commodity pool for which the request 
is being made;
    (iv) Contain representations that the pool will be operated in 
compliance with paragraph (b)(1)(i) of this section and the pool 
operator will comply with the requirements of paragraph (b)(1)(ii) of 
this section;
    (v) Specify the relief sought under paragraph (b)(2) of this 
section;
    (vi) Be signed by the pool operator, as follows: If the pool 
operator is a sole proprietorship, the request must be signed by the 
sole proprietor; if a partnership, by a general partner; and if a 
corporation, by the chief executive officer or chief financial officer; 
and
    (vii) Be filed, along with a copy, with the Commission at the 
address specified in Sec. 4.2.
    (viii) A copy also must be filed with the National Futures 
Association at its headquarters office (Attn: Director of Compliance, 
Compliance Department).
    (4)(i) The claim of exemption must be filed before the date the 
commodity pool first enters into a commodity interest transaction.
    (ii) The claim of exemption shall be effective upon filing; 
Provided, however, That any exemption claimed hereunder shall cease to 
be effective upon any

[[Page 175]]

change which would render the representations made pursuant to paragraph 
(b)(3)(iv) of this section inaccurate or the continuation of such 
representations false or misleading.
    (5)(i) If a claim of exemption has been made under 
Sec. 4.12(b)(2)(i), the commodity pool operator must make a statement to 
that effect on the cover page of each offering memorandum, or amendment 
thereto, that it is required to file with the Commission pursuant to 
Sec. 4.26.
    (ii) If a claim of exemption has been made with respect to paragraph 
(b)(2)(iii) of this section, the pool operator must make a statement to 
that effect on the cover page of each annual report that it is required 
to file with the Commission pursuant to Sec. 4.22(c).
    (6)(i) Any claim of exemption effective hereunder shall be effective 
only with respect to the pool for which it has been made.
    (ii) The effectiveness of such claim shall not affect the 
obligations of the commodity pool operator to comply with all other 
applicable provisions of this part 4, the Act and the Commission's rules 
and regulations issued thereunder with respect to the pool and any other 
pool the pool operator operates or intends to operate.

[52 FR 41984, Nov. 2, 1987, as amended at 60 FR 38183, July 25, 1995]

Sec. 4.13  Exemption from registration as a commodity pool operator.

    (a) A person is not required to register under the Act as a 
commodity pool operator if:
    (1)(i) It does not receive any compensation or other payment, 
directly or indirectly, for operating the pool, except reimbursement for 
the ordinary administrative expenses of operating the pool;
    (ii) It operates only one commodity pool at any time;
    (iii) It is not otherwise required to register with the Commission 
and is not a business affiliate of any person required to register with 
the Commission; and
    (iv) Neither the person nor any other person involved with the pool 
does any advertising in connection with the pool (for purposes of this 
section, advertising includes the systematic solicitation of prospective 
participants by telephone or seminar presentation); or
    (2)(i) The total gross capital contributions it receives for units 
of participation in all of the pools that it operates or that it intends 
to operate do not in the aggregate exceed $200,000; and
    (ii) None of the pools operated by it has more than 15 participants 
at any time. For purposes of computing the number of participants for 
paragraph (a)(2)(ii) of this section, the following participants shall 
be excluded:
    (A) The pool's operator, commodity trading advisor, and the 
principals thereof; and
    (B) Any relative, spouse or relative of such spouse living in the 
same household as such participant.
    (b)(1) No person who is exempt from registration as a commodity pool 
operator under paragraph (a)(1) or (a)(2) of this section and who is not 
registered as such pursuant to that exemption may, directly or 
indirectly, solicit, accept or receive funds, securities or other 
property from any prospective participant in a pool that it operates or 
that it intends to operate unless, on or before the date it engages in 
that activity, the person delivers or causes to be delivered to the 
prospective participant a written statement that must disclose this fact 
as follows: ``The commodity pool operator of this pool is not required 
to register, and has not registered, with the Commodity Futures Trading 
Commission. Therefore, unlike a registered commodity pool operator, this 
commodity pool operator is not required by the Commission to furnish a 
Disclosure Document, periodic Account Statements, and an Annual Report 
to participants in the pool.'' The person must:
    (i) Describe in the statement the exemption pursuant to which it is 
not registered as a commodity pool operator;
    (ii) Provide its name, main business address and main business 
telephone number on the statement;
    (iii) Manually sign the statement as follows: if such person is a 
corporation, by the chief executive officer, chief financial officer or 
counterpart thereto; if a partnership, by a general partner;

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and if a sole proprietorship, by the sole proprietor; and
    (iv) By the earlier of seven business days after the date the 
statement is first delivered to a prospective participant and the date 
upon which the pool commences trading in commodity interests:
    (A) File two copies of the statement with the Commission at the 
address specified in Sec. 4.2; and
    (B) File one copy of the statement with the National Futures 
Association at its headquarters office (Attn: Director of Compliance, 
Compliance Department).
    (2) Each person who is exempt from registration as a commodity pool 
operator under paragraph (a)(1) or (a)(2) of this section and who is not 
registered as such pursuant to that exemption must:
    (i)(A) Promptly furnish to each participant in each pool that it 
operates a copy of the monthly statement for the pool that such person 
received from a futures commission merchant pursuant to Sec. 1.33, and
    (B) Clearly show on such statement, or on an accompanying 
supplemental statement, the net profit or loss on all commodity 
interests closed since the date of the previous statement; and
    (ii)(A) Maintain all books and records prepared in connection with 
its activities as a commodity pool operator for a period of five years 
from the date of preparation, and
    (B) Keep such books and records readily accessible during the first 
two years of the five-year period. All such books and records shall be 
open to inspection by any representative of the Commission or the United 
States Department of Justice.
    (c) Each person who applies for registration as a commodity pool 
operator must include with its initial application the financial 
statements and other information required by Sec. 4.22(c) (1) through 
(5) for each pool it operates when such application is made. That 
information must be presented and computed in accordance with generally 
accepted accounting principles consistently applied. If the person is 
granted registration as a commodity pool operator, it must comply with 
this part 4 with respect to each pool it operates. The provisions of 
this paragraph (c) shall apply even though such person was exempt from 
registration as a commodity pool operator pursuant to the provisions of 
paragraph (a) of this section at the time it applied for registration.
    (d) If a person exempt from registration under the Act as a 
commodity pool operator under paragraph (a)(1) or (a)(2) of this section 
registers as a commodity pool operator, that person must comply with 
this part 4 as if such person were not exempt from registration as a 
commodity pool operator.

(Approved by the Office of Management and Budget under control number 
3038-0005)

(Secs. 2(a)(1), 4c(a)-(d), 4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, 
Commodity Exchange Act (7 U.S.C. 2, 4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 
12a, 19 and 21; 5 U.S.C. 552 and 552b))

[46 FR 26013, May 8, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 47 
FR 57011, Dec. 22, 1982; 50 FR 15883, Apr. 23, 1985]

Sec. 4.14  Exemption from registration as a commodity trading advisor.

    (a) A person is not required to register under the Act as a 
commodity trading advisor if:
    (1) It is a dealer, processor, broker, or seller in cash market 
transactions of any commodity (or product thereof) and the person's 
commodity trading advice is solely incidental to the conduct of its cash 
market business;
    (2) It is a non-profit, voluntary membership, trade association or 
farm organization and the person's commodity trading advice is solely 
incidental to the conduct of its business as such association or 
organization;
    (3) It is registered under the Act as an associated person and the 
person's commodity trading advice is issued solely in connection with 
its employment as an associated person;
    (4) It is registered under the Act as a commodity pool operator and 
the person's commodity trading advice is directed solely to, and for the 
sole use of, the pool or pools for which it is so registered;
    (5) It is exempt from registration as a commodity pool operator and 
the person's commodity trading advice is directed solely to, and for the 
sole use of, the pool or pools for which it is so exempt;

[[Page 177]]

    (6) It is registered under the Act as an introducing broker and the 
person's trading advice is solely in connection with its business as an 
introducing broker;
    (7) It is registered under the Act as a leverage transaction 
merchant and the person's trading advice is solely in connection with 
its business as a leverage transaction merchant;
    (8) It is registered as an investment adviser under the Investment 
Advisers Act of 1940 or is excluded from the definition of the term 
``investment adviser'' pursuant to the provisions of sections 202(a)(2) 
and 202(a)(11) of that Act; Provided, however, That:
    (i) The person's commodity interest trading advice:
    (A) Is directed solely to, and for the sole use of, entities which 
are excluded from the definition of the term ``pool'' under Sec. 4.5 or 
are qualifying entities under Sec. 4.5 for which a notice of eligibility 
has been filed;
    (B) Is solely incidental to its business of providing securities 
advice to each such entity; and
    (C) Employs only such strategies as are consistent with eligibility 
status under Sec. 4.5.
    (ii) The person is not otherwise holding itself out as a commodity 
trading advisor; and
    (iii) Prior to the date upon which such person intends to engage in 
business as a commodity trading advisor, the person files a notice of 
exemption with the Commission.
    (A) The notice must provide the name, main business address and main 
business telephone number of the person filing the notice.
    (B) The notice must represent that the person qualifies for 
exemption under this Sec. 4.14(a)(8) and that it will comply with the 
criteria of this section.
    (C) The notice shall be effective upon filing; Provided, however, 
That an exemption claimed hereunder shall cease to be effective upon any 
change which would render the representations made pursuant to paragraph 
(a)(8)(iii)(B) of this section inaccurate or the continuation of such 
representations false or misleading.
    (iv) In the event a person who has filed a notice of exemption under 
this paragraph (a)(8) subsequently becomes registered as a commodity 
trading advisory, the person must file a supplemental notice of that 
fact.
    (v) Any notice required to be filed hereunder must be:
    (A) In writing;
    (B) Signed by a duly authorized representative; and
    (C) Filed, along with a copy, with the Commission at the address 
specified in Sec. 4.2.
    (D) A copy also must be filed with the National Futures Association 
at its headquarters office (ATTN: Director of Compliance, Compliance 
Department); or
    (9) It does not engage in any of the following activities:
    (i) Directing client accounts; or
    (ii) Providing commodity trading advice based on, or tailored to, 
the commodity interest or cash market positions or other circumstances 
or characteristics of particular clients.
    (b) For purposes of this section, ``cash market transactions'' shall 
not include transactions involving contracts for the purchase or sale of 
a commodity for future delivery or transactions subject to Commission 
regulation under section 4c or 19 of the Act.
    (c) If a person exempt from registration under the Act as a 
commodity trading advisor under paragraph (a) of this section registers 
as a commodity trading advisor, that person must comply with this part 4 
as if such person were not exempt from registration as a commodity 
trading advisor.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982); 5 U.S.C. 552 and 552b)

[46 FR 26013, May 8, 1981; 46 FR 26761, May 15, 1981; 48 FR 35298, Aug. 
3, 1983; 49 FR 5526, Feb. 13, 1984; 52 FR 41985, Nov 2, 1987; 52 FR 
43827, Nov 16, 1987; 65 FR 12943, Mar. 10, 2000]

Sec. 4.15  Continued applicability of antifraud section.

    The provisions of section 4o of the Act shall apply to any person 
even though such person is exempt from registration under this part 4, 
and it shall continue to be unlawful for any such person to violate 
section 4o of the Act.

[50 FR 15884, Apr. 23, 1985]

[[Page 178]]

Sec. 4.16  Prohibited representations.

    It shall be unlawful for any commodity pool operator, commodity 
trading advisor, principal thereof or person who solicits therefor to 
represent or imply in any manner whatsoever that such commodity pool 
operator or commodity trading advisor has been sponsored, recommended or 
approved, or that its abilities or qualifications have in any respect 
been passed upon, by the Commission, the Federal government or any 
agency thereof.
