As a result of the pending expansion of the jurisdiction of the Commodity Futures Trading Commission (CFTC) to include most swaps, some publicly traded real estate investment trusts (REITs) may soon be considered “commodity pools” whose directors or trustees would be subject to CFTC regulation as commodity pool operators (CPOs) and whose investment managers could be subject to CFTC regulation as commodity trading advisors (CTAs).

How Can a REIT be Subject to CFTC Regulation?

In July 2011, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) amended the Commodity Exchange Act (CEA) to add swaps to the CFTC’s jurisdiction under a broad statutory definition, which includes many of the products REITs use to hedge their interest rate risks. To give effect to this expanded jurisdiction, Congress enacted an expanded version of the CFTC’s long-standing definition of “commodity pool” so that a commodity pool will include “any investment trust, syndicate, or similar form of enterprise operated for the purpose of trading in commodity interests, including any … swap.” Congress also amended the existing definitions of CPO and CTA to include references to swaps. When considered in conjunction with prior CFTC staff positions, these new definitions of commodity pool, CPO and CTA may well capture many publicly traded mortgage REITs, as well as their operators and investment managers, even if they use only a single swap.