Do you trade commodity futures, options or swaps with a partner
or a group of partners? If so, you need to know if your business
model is properly described as a commodity pool or as a proprietary
trading firm. The answer is not always clear and the regulatory
guidance is very limited. The answer is important in determining
whether your business is subject to CFTC and NFA registration and
regulatory requirements. It's also important because your
clearing broker will want to know who its customer is, and may
refuse to hold your account if the clearing broker believes
you are a pool operator that has failed to register (or claim an
applicable exemption).
By way of example, assume John and Jane are both employed as
traders for Oldco. They decide to open their own trading shop,
Newco. Their budget is tight but John's Dad has a deep pocket,
and he offers to bankroll Newco by investing $1 million. John and
Jane agree to handle all of the trading decisions. John, Dad,
