Commodity Pool Operator (CPO)
What Is a Commodity Pool Operator (CPO)?
A commodity pool operator (CPO) is a money manager or investment fund (called a commodity pool) that supervises investments made in commodities securities, for example, futures and options contracts, or foreign exchange (forex) contracts. The commodity pool operator may likewise go with trading choices or instruct different individuals regarding the commodity pool on possible investments for the pool.
A CPO is like a commodity trading advisor (CTA), yet a CTA is an individual or firm that rather gives individualized counsel with respect to the buying and selling of commodities-related securities.
Understanding Commodity Pool Operators (CPOs)
A commodity pool is a type of investment fund, however federal regulations require those funds that trade in commodities to register with the Commodities Futures Trading Commission (CFTC) as commodity pools. Commodity pools have been subject to extra reporting requirements since the enactment of the [Dodd-Frank Act](/dodd-frank-monetary administrative change bill) in 2010.
A commodity pool trades securities that track the underlying prices of goods like corn or meat or natural resources like gold or oil. The commodity pool operator is the salesperson who tracks down new investors for that fund, or pool.
A principal is a partner in the firm and controls the business interests of the commodity pool. An associated person is an employee who solicits orders and looks for new investors for the commodity pool. In short, the associated person is the salesperson for a commodity pool or a supervisor of its sales team.
Commodity pools benefit investors since they gain access to trades that wouldn't be feasible for an individual investor. Investing in futures and options contracts can be very complex, and by conceding to an expert that is licensed to trade derivatives, investors set aside cash from the expected exorbitant errors of going solo while investing in commodity futures.
Commodity pool operators are regulated by the CFTC. They must register with the CFTC as principals or as associated persons. A CPO may likewise be approached to pass the FINRA Series 31 exam.
Example of a CPO
A CPO might work for a hedge fund or investment fund that takes positions in crude oil through the vehicles of futures or options contracts.
The hedge fund could have underlying equity positions in large oil companies. Normally, as the price of crude oil rises and falls, so do the stock prices of oil-delivering companies. The hedge fund could hedge their equity positions with crude oil options contracts. That is planned to reduce the downside risk of holding equity shares in oil producers assuming that there is a bear market in crude oil. The CPO's job is request new investors in that fund.
Features
- A CPO might work for a hedge fund or investment fund that takes positions in commodities.
- CPOs must register with the Commodities Futures Trading Commission (CFTC).
- A commodity pool operator (CPO) oversees pooled funds that invest in commodities futures and related securities.
