What Is a Commodity Pool Operator (CPO)?
A commodity pool operator or CPO is anyone who works for a commodity pool and solicits funds or money to be invested in that pool. A commodity pool is an organization that receives money from investors with the intent on trading futures and options in commodity investments that can include retail forex and swaps.
The Basics of CPOs
A CPO is someone who is connected with a commodity pool that solicits funds for trading in securities such as futures contracts, or off-exchange foreign exchange contracts.
Commodity pool operators are regulated by the CFTC or Commodities Futures Trading Commission and must register through the National Futures Association or NFA. CPOs must register as a principal or an associated person. A principal is typically a partner in the firm and controls the business interests of the commodity pool. The associated person is the individual who solicits the orders and clients of the commodity pool as well as the funds. In short, the associated person is the salesperson for the organization that's a commodity pool or can be the supervisor of the sales team.
Real World Example
CPOs are the salespeople for the commodity pool. For example, they can work for a hedge fund or investment fund that takes positions in crude oil whereby the firm uses futures or options contracts to take a position in oil.
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 to reduce the downside risk of holding equity shares in oil producers in the event of a bear market in crude oil. The CPO would solicit investors to allocate their capital to the fund.