A Commodity pool operator (CPO) is an individual or organization that solicits or receives funds to use in the operation of a commodity pool, syndicate, investment trust, or other similar fund, specifically for trading in commodity interests. Such interests include commodity futures, swaps, options and/or leveragetransactions. A commodity pool may refer to funds that trade in commodities and can include hedge funds. A CPO may make trading decisions for a fund or the fund can be managed by one or more independent commodity trading advisors. The definition of CPO may apply to investment advisors for hedge funds and private funds including mutual funds and exchange-traded funds in certain cases. CPOs are generally regulated by the United States federal government through the Commodity Futures Trading Commission and National Futures Association.
In the United States, trading of futures contracts for agricultural commodities dates back to at least the 1850s. In the 1920s, the federal government proposed the first regulation aimed at futures trading and, in 1922, the Grain Futures Act was passed. Following amendments in 1936, this law was replaced by the Commodity Exchange Act. However, it was not until 1974, when the Commodity Futures Trading Commission (CFTC) was established under the Commodity Futures Trading Commission Act, that the “commodity pool operator” was recognized in legislation. At that time the majority of trading was in futures contracts for agricultural commodities, but, as noted by the CFTC, in later years “the futures industry has become increasingly varied and complex”.
In July 2010, the definition of commodity pool operator under the Commodity Exchange Act was expanded by the Dodd-Frank Wall Street Reform and Consumer Protection Act to include “persons operating collective investment vehicles that trade swaps”. Prior to this, swaps were not included in the CPO definition.
Prior to 1974, commodity pool operators were unregulated except for limited requirements to maintain records. In 1979, the CFTC adopted the first comprehensive regulation for commodity pool operators, which was later strengthened by additional rules in 1982 and 1983, increasing the CFTC’s oversight of such entities. Also in 1983, the CFTC authorized the National Futures Association (NFA) to carry out processing of registration for entities including CPOs.