Regulatory Developments: CFTC's Office of General Counsel Responds to Frequently Asked Questions Regarding Certain Physical Commercial Agreements for the Supply and Consumption of Energy—the "however paragraph"

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On November 14, 2012, the Office of the General Counsel (the "OGC") responded to frequently asked questions regarding which commercial agreements for the supply and consumption of energy would be considered a commodity option, and therefore a swap, subject to the Dodd Frank Act.

In its rules issued jointly with the SEC further defining certain key terms such as "Swap," and "Security-Based Swap," published in August 2012, the CFTC included an interpretation regarding certain physical commercial agreements for the supply and consumption of energy that provide flexibility, such as tolls on power plants, transportation agreements on natural gas pipelines, and natural gas storage agreements. The CFTC stated that it will interpret an agreement, contract ortransaction not to be a commodity option if three elements are satisfied: (1) the agreement is for the use of a specified facility rather than the purchase or sale of the commodity that is to be created, transported, processed or stored there; (2) the agreement grants the buyer the exclusive use of the facility during its term; and (3) payment represents a payment for use of the facility rather than the option to use it.

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Topics:  CFTC, Dodd-Frank, Energy, Natural Gas, SEC, Swaps

Published In: Administrative Agency Updates, General Business Updates, 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.

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