Commodity Pool Operators

Overview of Commodity Pool Operators

Commodity pools are setup with three primary entities: (1) commodity pool operators (CPO), (2) limited partners, and (3) commodity pool trading advisors (CTA). In this arrangement, the commodity pool operator is the general partner of the commodity pool. This individual is responsible for ensuring that the commodity pool falls within the rules and regulations set forth by the governing financial body. Some of the responsibility for the commodity pool operators is to provide a risk disclosure document and documentation of past trading performance. Every futures exchange has its own futures clearinghouse. The futures clearinghouses play a critical role in the day-to-day operations by providing the ability to close out positions without the requirement of having a buyer or seller to execute the transaction. This provides traders the ability to close out a position without having to wait for the original second party to finalize the transaction. The clearinghouse also supervises the delivery of commodities against futures positions and guaranteeing each futures contract that it clears. The members of the clearinghouse must be associated with their respective exchange and they must meet strict financial requirements. Each futures clearinghouse member is required to invest and maintain a level of margin with the clearing house in the event of adverse price fluctuations.

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