Electronic Code of Federal Regulations (e-CFR)

Chapter I. COMMODITY FUTURES TRADING COMMISSION

Part 4. COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS

Subpart A. General Provisions, Definitions and Exemptions

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

17 CFR 4.14 – Exemption from registration as a commodity trading advisor.

4.14 Exemption from registration as acommodity trading advisor.

This section is organized as follows:Paragraph (a)of this section specifies the criteria that must be met to qualify for exemption from registration under this section, including the notice of exemption from registration and continuing obligations ofpersonswho have claimed exemption underparagraph (a)(8)of this section;paragraph (b)of this section concerns cash market transactions; andparagraph (c)of this section specifies the effect of registration on apersonwho has claimed an exemption from registration under this section or who is eligible to claim an exemption from registration hereunder.

(a)Apersonis not required to register under the Act as acommodity trading advisorif:

(1)It is a dealer, processor, broker, or seller in cash market transactions of anycommodity(or product thereof) and thepersoncommoditytrading 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 thepersoncommoditytrading advice is solely incidental to the conduct of its business as such association or organization;

(3)It is registered under the Act as anassociated personand thepersoncommoditytrading advice is issued solely in connection with its employment as anassociated person;

(4)It is registered under the Act as acommodity pool operatorand thepersoncommoditytrading advice isdirectedsolely to, and for the sole use of, the pool or pools for which it is so registered;

(5)It is exempt from registration as acommodity pool operatorand thepersoncommoditytrading advice isdirectedsolely to, and for the sole use of, the pool or pools for which it is so exempt;

(6)It is registered under the Act as anintroducing brokerand thepersons trading advice is solely in connection with its business as anintroducing broker;

(i)It is registered under the Act as aleverage transaction merchantand thepersons trading advice is solely in connection with its business as aleverage transaction merchant;

(ii)It is registered under the Act as a retail foreign exchange dealer and thepersons trading advice is solely in connection with its business as a retail foreign exchange dealer.

(8)It is registered as aninvestment adviserunder theInvestment Advisers Act of 1940or with the applicable securities regulatory agency of anyState, or it is exempt from such registration, or it is excluded from the definition of the term investment adviser pursuant to the provisions of sections 202(a)(2) and 202(a)(11) of theInvestment Advisers Act of 1940,Provided,That:

(i)Thepersoncommodity interesttrading advice isdirectedsolely to, and for the sole use of, one or more of the following:

(A)Qualifying entities, as that term is defined in 4.5(b), for which a notice of eligibility has been filed;

(B)Collective investment vehicles that are excluded from the definition of the termcommoditypool under 4.5(a)(4); and

(C)Commoditypools that are organized and operated outside of the United States, its territories or possessions, where:

(1)Thecommodity pool operatorof each such pool has not so organized and is not so operating the pool for the purpose of avoidingcommodity pool operatorregistration;

(2)With theexceptionof the pools operator, advisor and their principals, solely Non-UnitedStatespersons, as that term is defined in 4.7(a)(1)(iv), will contribute funds or other capital to, and will own beneficial interests in, the pool;Provided,That units of participation in the pool held bypersonswho do not qualify as Non-United Statespersonsor otherwise as qualified eligiblepersonsrepresent in the aggregate less than 10 percent of the beneficial interest of the pool;

(3)Nowith the pool conducts any marketing activity for the purpose of, or that could reasonably have the effect of, soliciting participation from other than Non-UnitedStatespersons; and

(4)Nowith the pool conducts any marketing activity from within the United States, its territories or possessions; and

(D)Acommodity pool operatorwho has claimed an exemption from registration under 4.13(a)(3), or, if registered as acommodity pool operator, who may treat each pool it operates that meets the criteria of 4.13(a)(3)as if it were not so registered; and

(A)Providescommodity interesttrading advice solely incidental to its business of providing securities or other investment advice to qualifying entities, collective investment vehicles andcommoditypools as described inparagraph (a)(8)(i)of this section; and

(B)Is not otherwise holding itself out as acommodity trading advisor.

(A)Apersonwho desires to claim the relief from registrationprovidedby this 4.14(a)(8)must file electronically a notice of exemption fromcommodity trading advisorregistration with the National Futures Association through its electronic exemption filing system. The notice must:

(1)Provide the name, main business address, main business telephone number, main facsimile number and main email address of the trading advisor claiming the exemption;

(2)Contain the section number pursuant to which the advisor is filing the notice (i.e.,under 4.14(a)(8)(i)) and represent that it will providecommodity interestadvice to itsclientsin accordance with the criteria of that paragraph or paragraphs; and

(3)Be filed by a representative duly authorized to bind theperson.

(B)Thepersonmust file the notice by no later than the time it delivers an advisory agreement for the trading program pursuant to which it will offercommodity interestadvice to aclient;Provided, That where the advisor is registered with theCommissionas acommodity trading advisor, it must notify itsclientsin written communication physically delivered or delivered through electronic transmission that it intends to withdraw from registration and claim the exemption and must provide each suchclientwith a right to terminate its advisory agreement prior to thepersonfiling a notice of exemption from registration.

(C)The notice will be effective upon filing,providedthe notice is materially complete.

(D)Annual notice.Eachpersonwho has filed a notice of exemption from registration under this section must affirm on an annual basis the notice of exemption from registration, withdraw such exemption due to the cessation of activities requiring registration or exemption therefrom, or withdraw such exemption and apply for registration within 60 days of the calendar year end through National Futures Associations electronic exemption filing system.

(E)Eachpersonwho has filed a notice of exemption from registration under this section must, in the event that any of the information contained or representations made in the notice becomes inaccurate or incomplete, amend the notice electronically through National Futures Associations electronic exemption filing system as may be necessary to render the notice accurate and complete. This amendment must be filed within 15business daysafter the trading advisor becomes aware of the occurrence of such event.

(iv)Eachpersonwho has filed a notice of registration exemption under this 4.14(a)(8)must:

(A)(1) Make and keep all books and records prepared in connection with its activities as a trading advisor, including all books and records demonstrating eligibility for and compliance with the applicable criteria for exemption under this section, for a period of five years from the date of preparation; and

(2)Keep such books and records readily accessible during the first two years of the five-year period. All such books and records must be available for inspection upon the request of any representative of theCommission, the United StatesDepartment of Justice, or any other appropriate regulatory agency; and

(B)Submit to such special calls as theCommissionmay make to demonstrate eligibility for and compliance with the applicable criteria for exemption under this section;

(9)It does not engage in any of the following activities:

(ii)Providingcommoditytrading advice based on, or tailored to, thecommodity interestor cash market positions or other circumstances or characteristics of particular clients; or

(10)If, asprovidedfor in section 4m(1) of the Act, during the course of the preceding 12 months, it has not furnishedcommoditytrading advice to more than 15personsand it does not hold itself out generally to the public as acommodity trading advisor.

(i)For the purpose ofparagraph (a)(10)of this section, the following are deemed a single person:

(2)Any relative, spouse, or relative of the spouse of the naturalpersonwho has the same principal residence;

(3)All accounts of which the naturalpersonand/or thepersonsreferred to inparagraph (a)(10)(i)(A)of this section are the only primary beneficiaries; and

(4)All trusts of which the naturalpersonand/or thepersonsreferred to inparagraph (a)(10)(i)(A)of this section are the only primary beneficiaries;

(B)(1) A corporation, general partnership, limited partnership, limited liabilitycompany, trust (other than a trust referred to in paragraph (a)(10)(i)(A)(4) of this section), or other legal organization (any of which are referred to hereinafter as a legal organization) that receivescommodity interesttrading advice based on its investment objectives rather than the individual investment objectives of its shareholders, partners, limited partners, members, or beneficiaries (any of which are referred to hereinafter as an owner); and

(2)Two or more legal organizations referred to in paragraph (a)(10)(i)(B)(1) of this section that have identical owners.

(ii)Special Rules.For the purpose ofparagraph (a)(10)of this section:

(A)An owner must be counted in its own capacity as apersonif theadvisory services to the owner separate and apart from the advisory servicesprovidedto the legal organization;Provided,That the determination that an owner is aclientwill not affect the applicability ofparagraph (a)(10)of this section with regard to any other owner;

(B)(1) A general partner of a limited partnership, or otherpersonacting as acommodity trading advisorto the partnership, may count the limited partnership as oneperson; and

(2)A manager or managingmemberof a limited liabilitycompany, or any otherpersonacting as acommodity trading advisorto thecompany, may count the limited liabilitycompanyas oneperson.

(C)Acommodity trading advisorthat has its principal office and place of business outside of the United States, its territories or possessions must count onlyclientsthat are residents of the United States, its territories and possessions; acommodity trading advisorthat has its principal office and place of business in the UnitedStatesor in any territory or possession thereof must count all clients.

(iii)Holding Out.Anycommodity trading advisorrelying onparagraph (a)(10)of this section shall not be deemed to be holding itself out generally to the public as acommodity trading advisor, within the meaning of section 4m(1) of the Act, solely because it participates in a non-public offering of interests in a collective investment vehicle under theSecurities Act of 1933.

(b)For purposes of this section, cash market transactions shall not include transactions involving contracts for the purchase or sale of acommodityforfuture deliveryor transactions subject toCommissionregulation under section 4c or 19 of the Act.

(1)Subject to the provisions ofparagraph (c)(2)of this section, if apersonwho is eligible for exemption from registration as acommodity trading advisorunder this section nonetheless registers as acommodity trading advisor, thepersonmust comply with the provisions of this part with respect to thoseclientsfor which it could have claimed an exemption from registration hereunder.

(2)If apersonprovidescommodity interesttrading advice to aclientdescribed inparagraph (a)of this section and to aclientfor which it must be, and is, registered as acommodity trading advisor, thepersonis exempt from the requirements applicable to a registeredcommodity trading advisorwith respect to theclientsso described;Provided,That thepersonfurnishes in writing to each prospectiveclientdescribed inparagraph (a)of this section a statement that it will providecommodity interesttrading advice to theclientas if it was exempt from registration as acommodity trading advisor;Provided Further,That theto each existingclientdescribed inparagraph (a)of this section a right to terminate its advisory agreement, and informs suchclientof that right no later than the time thepersoncommences to providecommodity interesttrading advice to theclientas if thepersonwas exempt from registration.

(Secs. 8a(5) and 19 of theCommodity Exchange Act, as amended,7U.S.C.12a(5)and23(1982);5U.S.C.552and552b)

[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;67 FR 77411, Dec. 18, 2002;68 FR 47233, Aug. 8, 2003;68 FR 52837, Sept. 8, 2003;68 FR 59114, Oct. 14, 2003;72 FR 1664, Jan. 16, 2007;75 FR 55428, Sept. 10, 2010;77 FR 11284, Feb. 24, 2012;77 FR 17330, Mar. 26, 2012]