CFTC Staff Responds to FAQs Regarding Commodity Options

On September 30, CFTC staff issued responses to several frequently asked questions (FAQs) related to commodity options. Pursuant to Section 1a(47) of the Commodity Exchange Act, which defines the term “swap” to include an “option of any kind that is for the purchase or sale, or based on the value, of 1 or more . . . commodities,” commodity options are generally regulated as swaps. The CFTC has provided certain exceptions and exemptions for commodity options that are embedded in a forward contract, including volumetric options, and trade options. The FAQs provide the conditions for qualifying for these limited exceptions and includes specific guidance on the trade option exemption.

To qualify as a trade option, a commodity option must: (i) involve a physical commodity; (ii) be offered by an eligible contract participant or commercial participant; (iii) be offered to a commercial participant; and (iv) be intended to be physically settled. A trade option that meets these conditions is exempt from most of the rules applicable to swaps. The FAQs also provide guidance on the recordkeeping and reporting requirements that apply to trade options.

The FAQs are available here.

Topics:  CFTC, Commodities, Commodities Exchange Act, Swaps, Trade Options

Published In: Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Katten Muchin Rosenman LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »