The Commodity Trading Advisor (CTA) model presents, at least on its face, a complex operational challenge in the U.S. futures industry: how to express a single trading strategy across multiple customer accounts held at different FCMs—while maintaining regulatory compliance, fair allocation, and execution quality. In practice, however, the structure works far more smoothly than most people expect when it is built correctly.

In today’s environment, a CTA may trade through its own account at FCM 1 while customers are cleared at FCM 2, FCM 3, FCM 4, and beyond. For the most complete list of FCMs we could find please click here. Yet the CTA can still enter a single bunched order, allocate fills proportionally, and ensure that every customer—regardless of where they clear—receives identical exposure to the underlying strategy. The model works because the CTA centralizes execution, while each FCM acts as the independent custodian and official recordkeeper for its customer accounts.

This operational setup rests on three pillars:

  1. Proper FCM Authorization
    Each customer signs the CTA’s advisory agreement and provides the FCM with a power-of-attorney or limited trading authorization. This permits the CTA to transmit orders without ever taking custody or control of customer funds.
  2. A Consistent Bunched Order Trade and Allocation Workflow
    The CTA can initiate a bunched trade, receive a single fill report, and then submit an allocation across participating accounts. The FCMs handle the bookings internally, ensuring that each trade is reflected in accordance with their own operational processes.
  3. A Rules-Based Allocation Methodology
    The CTA must follow a transparent, pre-defined allocation formula that meets the requirements of CFTC Regulation 1.35, NFA Compliance Rule 2-10, and the firm’s own disclosure document. This ensures fairness, consistency, and defensibility during an audit.

When those elements are aligned, the multi-FCM structure works with surprising efficiency. The CTA can scale a strategy across a diverse client base without commingling accounts or requiring clients to change FCM relationships. FCMs maintain custody and clearing; the CTA focuses on execution and risk management; and customers receive a uniform investment experience regardless of where they clear.

  1. The CTA Execution Account: Routing, Not Custody

Most CTAs maintain an execution-only account at a preferred FCM. Although this looks like a trading account, it is not used to hold customer funds or positions.

Under CFTC Regulation 1.35 and NFA guidance, this execution account serves only as a staging point for order entry. It exists to:

  • Route orders into the market
  • Consolidate fills
  • Apply average-price calculations for bunched orders
  • Feed allocations to the appropriate customer FCMs

Importantly:

Customer positions and balances always remain at the customer’s own FCM.

A CTA’s execution account never carries proprietary exposure on behalf of clients; it functions solely as the order-routing account used to place a bunched order before fills are allocated to each customer’s account at their respective FCM. A major benefit of the CTA structure for investors is that they retain full control over their own accounts — they can see positions and activity in real time, verify exactly what trades have been entered for them, and maintain direct custody of their funds. They also preserve liquidity and flexibility because they can revoke the power of attorney at any time.

  1. Bunched Orders: How a CTA Executes One Trade for Many Accounts

CFTC and NFA rules allow a CTA to enter a single “bunched” order on behalf of multiple client accounts.

A properly formed bunched order includes:

  • Identification of the CTA as the trading decision-maker
  • A list or file of participating accounts
  • The CTA’s pre-documented allocation methodology
  • Time-stamped allocation instructions (pre- or post-trade, depending on methodology)

Bunched orders provide efficiency and price fairness. Instead of entering 30 or 300 separate tickets, the CTA submits one unified order, receives one combined fill, and allocates that execution across all accounts.

  1. The Allocation Process: Average Pricing and Fairness

Once a bunched order is filled in the CTA’s execution account, the resulting fills are allocated to each customer account according to an approved allocation methodology. This may include the Average Price System (APS) or any other CFTC- and NFA-permitted approach, such as systematic pro-rata or predetermined, non-preferential formulas that the firm documents in advance.

APS ensures that:

  • All accounts receive the same average price
  • Allocations follow the CTA’s documented method (equity-based, percentage-based, model-weighted, or other)
  • No account is systematically disadvantaged

NFA requires the allocation method to be:

  • Pre-disclosed
  • Non-preferential
  • Documented
  • Consistently applied
  • Supported by records of how each allocation was calculated

This is the foundation of allocation compliance under NFA Compliance Rule 2-10.

  1. Pass-Through / Give-Up Execution: Moving Fills to the Customer’s FCM

This is the step that often confuses industry participants.

After the CTA receives fills in its execution account, the executing FCM must distribute those fills to each customer’s carrying FCM.

This process is known as:

  • Give-up (traditional industry term)
  • Pass-through execution (modern, investor-friendly vernacular)

The mechanics are straightforward:

  1. FCM 1 executes the trade
  2. FCM 1 applies the CTA’s allocation instructions
  3. FCM 1 “gives up” each account’s portion of the fill
  4. Customers’ respective FCM books the position into the customer’s actual trading account

This is typically facilitated by:

Critically:

The CTA is not moving money or transferring positions.
The executing FCM simply delivers each customer’s portion of the fill to their clearing FCM.

This structure allows a CTA to trade efficiently while clients maintain long-standing clearing relationships.

  1. Why CTAs Use a Central Execution Account Instead of Trading at Each FCM

The industry moved toward centralized execution accounts because:

  • Multiple FCM screens create latency and operational risk
  • Average-price calculations are simpler and more accurate at one FCM
  • Liquidity is better when orders are aggregated
  • Post-trade allocations require less reconciliation
  • Surveillance and audit trails are improved
  • NFA exams are easier when allocation controls are centralized

In short:

Centralized execution + distributed clearing = the modern CTA model.

  1. Key Compliance Considerations for CTAs

NFA expects CTA allocation and bunched-order practices to include:

  • A documented allocation policy
  • Testing of allocation methodology
  • Time-stamped order tickets
  • Pre-allocation instructions (when required)
  • Monthly and quarterly allocation reviews
  • Policies addressing give-ups and FCM reconciliation
  • Oversight of any third-party technology used for order aggregation or APS calculations

Firms must also supervise:

  • Communication between execution desks and carrying FCMs
  • Average-price calculations
  • Allocation exceptions
  • Out-trades

This is a frequent exam topic.

  1. Common Industry Misunderstandings (and the Correct Interpretations)

Misunderstanding 1:

“CTA trades in its own account and then sends trades to clients.”

Correction:
The CTA’s execution account does not hold positions. It routes orders and facilitates bunched allocation.

Misunderstanding 2:

“Give-ups mean the client’s funds leave their FCM.”

Correction:
Only the fill information is given up.
Funds and positions remain at the customer’s FCM.

Misunderstanding 3:

“Each client must open an account at the CTA’s execution FCM.”

Correction:
They can maintain their existing FCM relationship.
Give-up agreements enable distributed clearing.

Misunderstanding 4:

“Allocations are discretionary and happen after the fact.”

Correction:
Allocations must follow documented, non-preferential methodologies and be supported by time-stamped instructions.

Conclusion: A Clear Framework for CTA Operations

CTA execution is often described using outdated or inconsistent terminology, which creates confusion in the industry. In reality, the workflow is standardized, highly regulated, and designed to ensure fairness, efficiency, and proper segregation of customer funds.

The core concepts are:

  • One execution point
  • Many carrying FCMs
  • One bunched order
  • Fair average-price allocation
  • Regulatory oversight under CFTC and NFA rules

As CTAs continue to grow—especially in options, event-driven strategies, and commodity-focused programs—understanding this structure is essential not just for managers, but also for FCMs, IBs, allocators, compliance officers, and service providers.

Turnkey will continue to provide clarity and guidance on the operational and regulatory expectations that underpin today’s CTA landscape.

If you want to explore becoming a Commodity Trading Advisor, Turnkey offers competitive startup support services and top in class ongoing service. To learn more how Turnkey can help, please contact us here or email us at info@turnkeytradingpartners.com