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Comment for Proposed Rule 76 FR 7976

  • From: James Adams
    Innisfree Investments LLC

    Comment No: 35483
    Date: 4/8/2011

    Comment Text:

    This letter is in response to the request of the Commodity Futures Trading Commission ("CFTC") for public comment on its proposed repeal of certain exemptions, currently set out in Rules 4.13 and 4.14 of the CFTC's regulations, from rules requiring registration as a Commodity Pool Operator ("CPO") and Commodity Trading Advisor ("CTA"). We respectfully submit these comments as a family office.

    We request that the CFTC withdraw its proposed repeal of the Rule 4.13 and 4.14 exemptions. If the CFTC does repeal the exemptions, we respectfully request instead that, before enacting such repeal, the CFTC exempt or otherwise by Rule exclude family offices and family investment vehicles from having to register as CPOs or CTAs.

    Family offices are multi-purpose entities that are intended to provide a broad range of services, including investment management services, to members of an extended family. Family offices employ a broad range of organizational, management, and employment arrangements to manage the assets of one or more particular families and to achieve economies of scale. In particular, many family offices operate collective investment vehicles primarily owned by family members. Direct or indirect trading of commodity interests is often among the many purposes of such collective investment vehicles. Without an exemption or other form of relief, these family investment vehicles and the family offices that operate them would constitute "pools" and "commodity pool operators," respectively, and they would be required to register as CPOs.

    CFTC staff have repeatedly interpreted the definition of "pool" in Rule 4.10(d) to exclude types of family investment vehicles from its scope, typically where all direct or indirect participants were members of the same immediate or extended family, trusts for their benefit, and even long-time business associates of the applicable family. The basis for these exclusions was that the family investment vehicles were not within the meaning and intent of the commodity "pool" definition or the primary purpose of the CPO registration requirements -- to protect unsophisticated investors from undesirable managerial and trading practices.

    If the current exemptions are repealed without the CFTC taking other exclusionary action, many family offices would have to register or seek appropriate no-action letters. This would be unduly burdensome for both the CFTC and these family offices. It would also be inconsistent with the clear and stated intent of Congress when enacting the Dodd-Frank Wall Street Reform and Consumer Protection Act. Congress expressly recognized in Section 409 of Dodd-Frank that there is no federal interest in regulating family offices that generally provide advice only to members of a family by making them subject to the Investment Advisers Act of 1940. Congress directed the Securities and Exchange Commission to provide family offices with a broad exemption from registration as investment advisers. We respectfully suggest that the CFTC should follow Dodd-Frank's clear policy mandate regarding family offices.

    To summarize, we respectfully request that, if the CFTC retain existing exemptions under Rules 4.13 and 4.14. We further request respectfully that if the CFTC does repeal the existing exemptions, the CFTC exclude a wide variety of family offices from the CPO and CTA registration requirements. Such exemptions should be drafted in a manner consistent with the Congressional intent to cover not only the family office itself but also family investment vehicles managed by family offices.

    Thank you for the opportunity to comment.

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