The CFTC’s Further No-Action Relief for Operators of Securitization Vehicles that May Constitute Commodity Pools

by Morrison & Foerster LLP
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In a letter dated March 29, 2013 (the “March 29 Letter”), the Division of Swap Dealer and Intermediary Oversight (the “Division”) of the Commodity Futures Trading Commission (the “CFTC”), extended by three months, but subject to new and stringent conditions, no-action relief that the Division had previously given for operators of securitization vehicles (each, an “SV”) possibly falling within the definition of “commodity pool” by reason of the SV’s trading in swaps. In view of the CFTC’s ongoing discussions with the securitization industry regarding compliance issues, and the undetermined nature of any additional relief that the Division might provide, the March 29 Letter states that, subject to conditions, the Division will not recommend enforcement action against the commodity pool operator (“CPO”) of an SV for failure to comply fully with Part 4 of the CFTC’s regulations (“Commodity Pool Operators and Commodity Trading Advisors”) until June 30, 2013. In a previous letter issued on December 7, 2012 (the “December 7 Letter”), the Division had, in addition to giving guidance as to the nature of derivatives trading that might permit an SV to remain permanently excluded from the definition of “commodity pool,” granted no-action relief until March 31, 2013, for any operator of an SV not registering as a CPO.

The temporary relief provided by the March 29 Letter is subject to significant conditions that did not apply to the temporary relief previously provided by the December 7 Letter, most notably the requirement that, in the period of time before June 30, the CPO of an SV must comply with all applicable provisions contained in Part 4 of the CFTC’s regulations, as those regulations are modified for purposes of the March 29 Letter. Because the CFTC may offer additional relief for operators of SVs, such as further exclusions from the definition of “commodity pool,” this requirement appears to mean that operators of SVs must, until June 30, comply with many regulations applicable to CPOs even though such compliance may later be determined to be unnecessary. In addition, under the March 29 Letter, an SV’s operator must (i) give email notice to the Division with reference to the no-action relief and (ii) have initiated registration as a CPO no later than March 31, 2013, by filing required forms and paying required fees.

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