Few, if any, securitization vehicles today are subject to regulation by the Commodity Futures Trading Commission (CFTC) as “commodity pools” and most, if not all, securitization vehicles today are eligible to enter into interest rate, currency and other types of swaps as “eligible contract participants” under the Commodity Exchange Act (CEA). A combination of the Dodd-Frank Act and CFTC interpretations inadvertently threatens to change both outcomes. Unless the CFTC acts to provide relief, in a matter of months those who operate securitization vehicles that use swaps, including those in existence prior to the change in law, are in serious jeopardy of being required to register with the CFTC as “commodity pool operators” and meet the resulting regulatory burdens in order for the vehicles to continue to be eligible to enter into swaps to hedge their other assets. Otherwise, these vehicles would be foreclosed from entering into swaps and could encounter a variety of problems even in maintaining pre-existing swaps.

Expanded Definition of ‘Commodity Pool’

The Dodd-Frank Act amended the CEA to add “swaps” to the CFTC’s jurisdiction. Although the CFTC and SEC have not yet adopted the final rule defining “swap” that will give effect to this amendment, the broad statutory definition includes the products typically used by securitization vehicles to hedge interest rate or currency risk.3 Among the related changes to the CEA, the Dodd-Frank Act added “swaps” to the list of “commodity interests” in the definition of “commodity pool.”4 As a result, securitization vehicles that enter into swaps — even a single swap used purely for hedging purposes — will hold “commodity interests” and accordingly could be viewed as commodity pools by the CFTC.

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