The CFTC’s No-Action Letter Relating to Eligible Contract Participants and Swap Guarantee Arrangements

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In a no-action letter issued on October 12, 2012 (the “No-Action Letter”), the Office of the General Counsel (“OGC”) of the Commodity Futures Trading Commission (the “CFTC”) clarified a number of matters relating to the parties and guarantors that will qualify for treatment as “Eligible Contract Participants” under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Dodd-Frank both amended the definition of “Eligible Contract Participant” (hereinafter, “ECP”) contained in the CEA and made it unlawful for a party that is not an ECP to enter into a swap except on, or subject to the rules of, a designated contract market (a “DCM”). The No-Action Letter, one of more than a dozen interpretive letters that the CFTC issued last week, should significantly aid market participants in understanding which counterparties and which guarantee arrangements are permissible under Dodd-Frank.

In the No-Action Letter, as set out in greater detail in Part I below, the OGC gives interpretive guidance that...

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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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