On May 12, 2015, the Commodity Futures Trading Commission (“CFTC”) and Securities and Exchange Commission (“SEC”) jointly issued the CFTC’s final interpretation clarifying its interpretation concerning forward contracts with embedded volumetric optionality (“Final Interpretation”). The Final Interpretation appears to signal that, going forward, the CFTC will take a more relaxed view of which transactions constitute “forward contracts” that are not subject to regulation as swaps. This view should be helpful to many commercial parties entering into contracts that provide for volumetric optionality, which means the right to receive or deliver a commodity in an amount that is more or less than was originally contracted for, including many types of energy supply contracts.

BACKGROUND -

The Final Interpretation modifies the interpretation concerning forward contracts with embedded volumetric optionality contained in the CFTC’s and SEC’s product definitions release further defining the terms “swap” and “security-based swap,” published in 2012 (the “Product Definitions Release”). It follows, with some minor clarifications, the CFTC’s and SEC’s proposed interpretation to amend the interpretation in the Product Definitions Release that was published in November 2014.