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CFTC grants no-action relief from registration to family office commodity trading advisors

The U.S. Commodity Futures Trading Commission (the “CFTC”) recently issued a no-action letter (the “CTA Letter”) granting relief from registration for certain family office commodity trading advisors (“CTAs”) in connection with advisory services they provide to family clients, as each of the foregoing italicized terms is defined by the U.S. Investment Advisers Act of 1940, as amended (the “Advisers Act”).

In granting the no-action relief, the CFTC cited the CFTC Staff Letter 12-37 of November 29, 2012 (the “CPO Letter”) pursuant to which the CFTC granted no-action relief from registration for certain commodity pool operators (“CPOs”) who meet the SEC’s definition of family office and file the requisite notice with the CFTC.

Advisers Act Rule 202(a)(11)(G)-1(b) defines a family office as a company that (1) has no clients other than family clients; (2) is wholly owned by family clients and is exclusively controlled (directly or indirectly) by one or more family members and/or family entities; and (3) does not hold itself out to the public as an investment adviser.

Advisers Act Rule 202(a)(11)(G)-1(d)(4) further defines family client to include: (i) current and former family members, current key employees and certain former key employees, and estates of the foregoing; (ii) charitable organizations for which all the funding came exclusively from one or more other family clients; (iii) any irrevocable trust (a) in which one or more other family clients are the only current beneficiaries or (b) which is funded exclusively by one or more other family clients, in which other family clients and charitable organizations are the only current beneficiaries; (iv) a revocable trust with one or more other family clients as the sole grantor, (v) a trust of which each trustee is a key employee, each settlor is a key employee (or the key employee's current and/or former spouse or spousal equivalent who, at the time of contribution, holds a shared ownership interest with the key employee); and (vi) any company wholly owned (directly or indirectly) exclusively by, and operated for the sole benefit of, one or more other family clients, provided that if any such entity is a pooled investment vehicle, it is excepted from the definition of “investment company” under the Investment Company Act of 1940, as amended.

While the CPO Letter did not address relief for family offices from registration as CTAs, the CFTC noted in the CTA Letter that the arguments raised in favor of providing no-action relief from registration as CPOs for family offices are equally applicable in the context of CTA registration. Accordingly, consistent with the relief in the CPO Letter, the CFTC granted no-action relief from CTA registration for family offices eligible for relief under the CPO Letter, in connection with their advisory services to “Family Clients”. In order to perfect this no-action relief, a family office must (i) submit a claim electing the relief, and (ii) remain in compliance with Advisers Act Rule 202(a)(11)(G)-1, regardless of whether the family office seeks to be excluded from the Advisers Act.

As noted above, this relief from CTA registration is not self-executing; in order to claim the relief, an eligible family office must file a claim (which is effective upon filing) that: (i) contains the name, main business address, and main business telephone number of the family office claiming the relief; (ii) sets forth the capacity (i.e., CTA) and, where applicable, the name of the pool(s), for which the claim is being filed; (iii) is electronically signed by the family office; and (iv) is filed with the CFTC at dsionoaction@cftc.gov with the subject line “Family Office CTA Relief.”

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GlobalNote™ is a newsletter of Tannenbaum Helpern Syracuse & Hirschtritt LLP’s Investment Management practice. It provides in-depth strategic perspectives on legal developments and market trends impacting hedge funds, private equity funds, investment management, financial services, capital markets and financial services related transactions and matters. To subscribe for the newsletter, send email to thsh@thsh.com.

12.01.2014  |  PUBLICATION: GlobalNote  |  TOPICS: Estate Planning, Family Office, Investment Management  |  INDUSTRIES: Private Investment Funds, Family Offices

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