[Code of Federal Regulations]
[Title 17, Volume 1]
[Revised as of April 1, 2006]
From the U.S. Government Printing Office via GPO Access
[CITE: 17CFR4.13]

[Page 178-181]
 
              TITLE 17--COMMODITY AND SECURITIES EXCHANGES
 
             CHAPTER I--COMMODITY FUTURES TRADING COMMISSION
 
PART 4_COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS--Table 
of Contents
 
        Subpart A_General Provisions, Definitions and Exemptions
 
Sec.  4.13  Exemption from registration as a commodity pool operator.

    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; paragraph (b) of this section governs 
the notice that must be filed to claim exemption from registration; 
paragraph (c) of this section sets forth the continuing obligations of a 
person who has claimed exemption under this section; paragraph (d) of 
this section specifies information certain persons must provide if they 
subsequently register; paragraph (e) of this section specifies the 
effect of registration on a person who has claimed an exemption from 
registration under this section or who is eligible to claim an exemption 
from registration hereunder; and paragraph (f) of this section specifies 
the effect of this section on Sec.  4.5 of this chapter.
    (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);
    (2)(i) None of the pools operated by it has more than 15 
participants at any time; and
    (ii) The total gross capital contributions it receives for units of 
participation in all of the pools it operates or that it intends to 
operate do not in the aggregate exceed $400,000.
    (iii) For the purpose of determining eligibility for exemption under 
paragraph (a)(2) of this section, the person may exclude the following 
participants and their contributions:
    (A) The pool's operator, commodity trading advisor, and the 
principals thereof;
    (B) A child, sibling or parent of any of these participants;
    (C) The spouse of any participant specified in paragraph 
(a)(2)(iii)(A) or (B) of this section; and
    (D) Any relative of a participant specified in paragraph 
(a)(2)(iii)(A), (B) or (C) of this section, its spouse or a relative of 
its spouse, who has the same principal residence as such participant;
    (3) For each pool for which the person claims exemption from 
registration under this paragraph (a)(3):
    (i) Interests in the pool are exempt from registration under the 
Securities Act of 1933, and such interests are offered and sold without 
marketing to the public in the United States;
    (ii) At all times, the pool meets one or the other of the following 
tests with respect to its commodity interest positions, including 
positions in security futures products, whether entered into for bona 
fide hedging purposes or otherwise:
    (A) The aggregate initial margin and premiums required to establish 
such positions, determined at the time the most recent position was 
established, will not exceed 5 percent of the liquidation value of the 
pool's portfolio, after taking into account unrealized profits and 
unrealized losses on any such positions it has entered into; Provided, 
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) of this 
chapter may be excluded in computing such 5 percent; or
    (B) The aggregate net notional value of such positions, determined 
at the time the most recent position was established, does not exceed 
100 percent of the liquidation value of the pool's portfolio, after 
taking into account unrealized profits and unrealized losses on any such 
positions it has entered into. For the purpose of this paragraph:
    (1) The term ``notional value'' shall be calculated for each such 
futures position by multiplying the number of contracts by the size of 
the contract, in contract units (taking into account

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any multiplier specified in the contract), by the current market price 
per unit, and for each such option position by multiplying the number of 
contracts by the size of the contract, adjusted by its delta, in 
contract units (taking into account any multiplier specified in the 
contract), by the strike price per unit; and
    (2) The person may net contracts with the same underlying commodity 
across designated contract markets, registered derivatives transaction 
execution facilities and foreign boards of trade; and
    (iii) The person reasonably believes, at the time of investment (or, 
in the case of an existing pool, at the time of conversion to a pool 
meeting the criteria of paragraph (a)(3) of this section), that each 
person who participates in the pool is:
    (A) An ``accredited investor,'' as that term is defined in Sec.  
230.501 of this title;
    (B) A trust that is not an accredited investor but that was formed 
by an accredited investor for the benefit of a family member;
    (C) A ``knowledgeable employee,'' as that term is defined in Sec.  
270.3c-5 of this title;
    (D) A ``qualified eligible person,'' as that term is defined in 
Sec.  4.7(a)(2)(viii)(A) of this chapter; or
    (E) A person eligible to participate in a pool for which the pool 
operator can claim exemption from registration under paragraph (a)(4) of 
this section; and
    (iv) Participations in the pool are not marketed as or in a vehicle 
for trading in the commodity futures or commodity options markets; 
Provided, That nothing in paragraph (a)(3) of this section shall 
prohibit the person from claiming an exemption under this section if it 
additionally operates one or more pools for which it meets the criteria 
of paragraph (a)(4) of this section; or
    (4) For each pool for which the person claims exemption from 
registration under this paragraph (a)(4):
    (i) Interests in the pool are exempt from registration under the 
Securities Act of 1933, and such interests are offered and sold without 
marketing to the public in the United States;
    (ii) The person reasonably believes, at the time of investment (or, 
in the case of an existing pool, at the time of conversion to a pool 
meeting the criteria of paragraph (a)(4) of this section), that:
    (A) Each natural person participant (including such person's self-
directed employee benefit plan, if any), is a ``qualified eligible 
person,'' as that term is defined in Sec.  4.7(a)(2); and
    (B) Each non-natural person participant is a ``qualified eligible 
person,'' as that term is defined in Sec.  4.7, or an ``accredited 
investor,'' as that term is defined in Sec.  230.501(a)(1)-(3), (a)(7) 
and (a)(8) of this title; Provided, That nothing in paragraph (a)(4) of 
this section will prohibit the person from claiming an exemption under 
this section if it additionally operates one or more pools that meet the 
criteria of paragraph (a)(3) of this section.
    (5)(i) Eligibility for exemption under this section is subject to 
the person furnishing in writing to each prospective participant in the 
pool:
    (A) A statement that the person is exempt from registration with the 
Commission as a commodity pool operator and that therefore, unlike a 
registered commodity pool operator, it is not required to deliver a 
Disclosure Document and a certified annual report to participants in the 
pool; and
    (B) A description of the criteria pursuant to which it qualifies for 
such exemption from registration.
    (ii) The person must make these disclosures by no later than the 
time it delivers a subscription agreement for the pool to a prospective 
participant in the pool.
    (b)(1) Any person who desires to claim the relief from registration 
provided by this section must file a notice of exemption from commodity 
pool operator registration with the National Futures Association (ATTN: 
Director of Compliance). The notice must:
    (i) Provide the name, main business address, main business telephone 
number, main facsimile number and main email address of the person 
claiming the exemption and the name of the pool for which it is claiming 
exemption;
    (ii) Contain the section number pursuant to which the operator is 
filing

[[Page 180]]

the notice (i.e., Sec.  4.13(a)(1), (a)(2), (a)(3), or (a)(4), or both 
(a)(3) and (a)(4)) and represent that the pool will be operated in 
accordance with the criteria of that paragraph or paragraphs; and
    (iii) Be manually signed by a representative duly authorized to bind 
the person.
    (2) The person must file the notice by no later than the time it 
delivers a subscription agreement for the pool to a prospective 
participant in the pool; Provided, That where a person registered with 
the Commission as a commodity pool operator intends to withdraw from 
registration in order to claim exemption hereunder, the person must 
notify its pool's participants in writing that it intends to withdraw 
from registration and claim the exemption, and it must provide each such 
participant with a right to redeem its interest in the pool prior to the 
person filing a notice of exemption from registration.
    (3) The notice will be effective upon filing, provided the notice is 
materially complete.
    (4) Each person who 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, file a supplemental notice with the National 
Futures Association to that effect which, if applicable, includes such 
amendments as may be necessary to render the notice accurate and 
complete. This supplemental notice must be filed within 15 business days 
after the pool operator becomes aware of the occurrence of such event.
    (c)(1) Each person who has filed a notice of exemption from 
registration under this section must:
    (i) Make and keep all books and records prepared in connection with 
its activities as a pool operator for a period of five years from the 
date of preparation;
    (ii) 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 the 
Commission, the United States Department of Justice, or any other 
appropriate regulatory agency; and
    (iii) Submit to such special calls as the Commission may make to 
demonstrate eligibility for and compliance with the applicable criteria 
for exemption under this section.
    (2) In the event the person distributes an annual report to 
participants in the pool for which it has filed the notice, the 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 of this chapter as applicable.
    (3) Each person who has filed a notice of exemption from 
registration pursuant to paragraph (a)(1) or (a)(2) of this section 
must:
    (i) Promptly furnish to each participant in the pool a copy of each 
monthly statement for the pool that the pool operator received from a 
futures commission merchant pursuant to Sec.  1.33 of this chapter; and
    (ii) 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.
    (d) Each person who applies for registration as a commodity pool 
operator subsequent to claiming relief under paragraph (a)(1) or (a)(2) 
of this section must include with its application the financial 
statements and other information required by Sec.  4.22(c)(1) through 
(5) for each pool that it has operated as an operator exempt from 
registration. 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 the provisions of this part with respect 
to each such pool.
    (e)(1) Subject to the provisions of paragraph (e)(2) of this 
section, if a person who is eligible for exemption from registration as 
a commodity pool operator under this section nonetheless registers as a 
commodity pool operator, the person must comply with the provisions of 
this part with respect to each commodity pool identified on its

[[Page 181]]

registration application or supplement thereto.
    (2) If a person operates one or more commodity pools described in 
paragraph (a)(3) or (a)(4) of this section, and one or more commodity 
pools for which it must be, and is, registered as a commodity pool 
operator, the person is exempt from the requirements applicable to a 
registered commodity pool operator with respect to the pool or pools 
described in paragraph (a)(3) or (a)(4) of this section; Provided, That 
the person:
    (i) Furnishes in writing to each prospective participant in a pool 
described in paragraph (a)(3) or (a)(4) of this section that it 
operates:
    (A) A statement that it will operate the pool as if the person was 
exempt from registration as a commodity pool operator;
    (B) A description of the criteria pursuant to which it will so 
operate the pool;
    (ii) Complies with paragraph (c) of this section; and
    (iii) Provides to each existing participant in a pool that the 
person elects to operate as described in paragraph (a)(3) or (a)(4) of 
this section a right to redeem the participant's interest in the pool, 
and informs each such participant of that right no later than the time 
the person commences to operate the pool as described in paragraph 
(a)(3) or (a)(4) of this section.
    (f) The filing of a notice of exemption from registration under this 
section will not affect the ability of a person to qualify for exclusion 
from the definition of the term ``commodity pool operator'' under Sec.  
4.5 in connection with its operation of another trading vehicle that is 
not covered under this Sec.  4.13.

(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; 67 FR 77411, Dec. 
18, 2002; 68 FR 47231, Aug. 8, 2003; 68 FR 52837, Sept. 8, 2003; 68 FR 
59113, Oct. 14, 2003; 69 FR 41426, July 9, 2004]