Should Hedge Funds Register as Commodity Pool Operators?July 2, 2009 – Articles The Hedge Fund Law Report
© 2009, The Hedge Fund Law Report
A common mistaken belief among many is that hedge funds are unregistered and unregulated investment vehicles. While certain exemptions exist under the Investment Company Act of 1940 for registration, a hedge fund that trades in commodity options and futures contracts may be required to register as a commodity pool operator (CPO).
A commodity pool is an enterprise where funds are contributed by a number of persons for the combined purpose of trading futures contracts, commodity options, or to invest in another commodity pool. A CPO is an individual or entity that operates or solicits funds for a commodity pool. While there are exemptions, hedge fund managers should be aware that depending on the size – investors and net value – sophistication of the investors and the percentage of assets invested in commodities trading, a hedge fund may have to register with the National Futures Association (NFA) and Commodities Futures Trading Commission (CFTC) as a CPO if the manager invests in futures contracts or commodity options.
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