Announcements of Interest to Hedge Fund Managers

May 21, 1999

Use of On-Line Brokers For Small Trades

Gene Gohlke, an associate director of the SEC’s Office of Compliance, Inspections and Examinations, has suggested that it is generally in a client’s best interest for an investment advisor to execute small trades through an on-line broker, which typically provide better execution and lower commissions than full-service brokers. Speaking at the third annual Investment Advisors Compliance Conference, Mr. Gohlke said that small trades made through a full-service broker might indicate to SEC regulators that an investment advisor was not acting in the client’s best interests. A full-service broker was still the best resource for larger trades, Mr. Gohlke said.

Proposed Exemption from CFTC Registration

After having had its initial petition rebuffed by the Commodity Futures Trading Commission ("CFTC") in July, 1998, the National Futures Association ("NFA") will again petition the CFTC to create an exemption from registration for managers and advisors of hedge funds and other collective investment vehicles which engage in a de minimis amount of futures transactions. Under the NFA’s proposed amendments to Regulations 4.13 and 4.14, the manager of a fund which invests less than 5% of its liquidation value in futures - and which does not hold itself out as a commodity pool - will be exempt from registration as either a Commodity Pool Operator ("CPO") or Commodity Pool Advisor ("CPA"). The NFA claims the proposed exemptions will enable it to devote greater resources to professionals who deal more extensively in futures investments. However, investment managers exempt from registration under the proposed amendments would still be considered CPO’s for other purposes of the Commodity Exchange Act, in particular, its anti-fraud provisions.

To discuss other issues relating to hedge funds and their investment managers, contact Howard A. Neuman at (212) 818-9200 .