3.7.  Commodity Pools

A commodity pool is an investment vehicle that pools the funds of several investors for trading in futures and options. Investors place their funds in the pool, and the pool uses the funds to make its investments. Investors share the pool’s profits and losses on a pro rata basis. A pool is not open to the general public, and it usually requires an investment of at least $10,000. Once a pool reaches a certain size, it stops adding new members to the pool. Commodity pools are regulated both by the SEC and the Commodity Futures Trading Commission (CFTC).

Note: A futures contract is a standardized agreement to buy or sell a specified commodity at a specified future price, time, and place. These terms are specified by the futures exchange that issues and markets the contract. Only the quantity of the product and its price are left to the discretion of the buyers or sellers. All futures contracts are traded on the exchange in a highly regulated and highly liquid market.

A commodity pool may be structured in a variety of ways. Most commonly, it is organized as a limited partnership or a limited liability company. In a limited partnership, the commodity pool operator (CPO) acts as the general partner and the individual investors are the limited partners. In a limited liability company, the CPO is the managing owner and the other owners are called members.

The commodity pool operator (CPO) is a firm or individual that manages the pool. The individual may be someone hired from outside the firm, such as a commodity trading advisor (CTA), to make its investment decisions. A commodity pool may have multiple classes or series of funds due to differences in trading strategies and fee structures. In this case, a program may hire several CTAs to manage the funds, but only one will be designated the commodity pool operato