On April 30, 2015, the Commodity Futures Trading Commission (“CFTC”) approved for publication in the Federal Register proposed amendments to the trade option exemption (the “Proposal”) that would reduce reporting and recordkeeping requirements for trade option counterparties that are not swap dealers or major swap participants (“Non-SD/MSPs”). Notably, the Proposal would eliminate the annual Form TO filing requirement for Non-SD/MSPs in connection with their trade options, while requiring them to notify the CFTC’s Division of Market Oversight (“DMO”) if their trade options have, or are expected to have, an aggregate notional value in excess of $1 billion in any calendar year. The Proposal will be available for public comment for 30 days after its forthcoming publication in the Federal Register.

BACKGROUND -

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) amended the Commodity Exchange Act (“CEA”) to include a definition of the term “swap,” which includes commodity options, whether physically or financially settled. Commodity options that qualify for the trade option exemption are exempt from most requirements applicable to swaps under Dodd-Frank. Under current CFTC rules that the Proposal would not modify, to qualify for the trade option exemption, a commodity option must involve a nonfinancial commodity (i.e., an exempt or agricultural commodity) and must be...