A hedge fund manager must register as a commodity pool operator, commonly referred to as a CPO, under the Commodity Exchange Act if the fund trades commodity futures contracts or options thereon. Beyond the DE minimum’s amount, as a CPO, the manager is subject to various record-keeping, reporting and disclosure requirements under the Commodity Exchange Act and the regulations thereunder adopted by the Commodity Futures Trading Commission.

In addition to the registration requirement, the hedge fund’s offering document must, ordinarily, be approved by the National Futures Association prior to its use. If, among other things, the hedge fund’s aggregate initial margin and option premiums for commodity transactions do not exceed 10% of the fund’s assets, or if investors in the fund are limited to “qualified eligible participants,” the fund may request an exemption from many of the regulatory requirements otherwise applicable to it as a CPO.

In general, a “qualified eligible persons” includes any person who the hedge fund manager reasonably believes, at the time that person invests in the fund:

  • owns securities (including pool participations) of issuers not affiliated with such participant and other investments with an aggregate market value of at least $2,000,000; or

  • has had on deposit with a futures commission merchant, for its own account at any time during the six-month period preceding the date of sale to that person of an interest in the fund, at least $200,000 in exchange-specified initial margin and option premiums for commodity interest transactions.