What Is a Commodity Pool Operator (CPO)?
A commodity pool operator (CPO) is a money manager or investment fund (called a commodity pool) that oversees investments made in commodities securities such as futures and options contracts, or foreign exchange (forex) contracts. The commodity pool operator may also make trading decisions or advise other members of the commodity pool on potential investments for the pool.
A CPO is similar to a commodity trading advisor (CTA), but a CTA is an individual or firm that instead provides individualized advice regarding the buying and selling of commodities-related securities.
- A commodity pool operator (CPO) manages pooled funds that invest in commodities futures and related securities.
- A CPO may work for a hedge fund or investment fund that takes positions in commodities.
- CPOs must register with the Commodities Futures Trading Commission (CFTC).
Understanding Commodity Pool Operators (CPOs)
A commodity pool is a type of investment fund, but 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 additional reporting requirements since the enactment of the Dodd-Frank Act in 2010.
A commodity pool buys and sells securities that track the underlying prices of goods such as corn or beef or natural resources such as gold or oil. The commodity pool operator is the salesperson who finds 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 seeks 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 would not be possible for an individual investor. Investing in futures and options contracts can be quite complex, and by deferring to an expert that's licensed to trade derivatives, investors save money from the potential costly mistakes of going it alone when 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 also be asked to pass the FINRA Series 31 exam.
Example of a CPO
A CPO may 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 might have underlying equity positions in large oil companies. Typically, as the price of crude oil rises and falls, so do the stock prices of oil-producing companies. The hedge fund might hedge their equity positions with crude oil options contracts. That is intended to reduce the downside risk of holding equity shares in oil producers if there is a bear market in crude oil. The CPO's job would be to solicit new investors in that fund.