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Final Rules on Commodity Options under Dodd-Frank Issued by CFTC
Practical Law Legal Update 6-519-0488 (Approx. 3 pages)
Final Rules on Commodity Options under Dodd-Frank Issued by CFTC
by PLC Finance
| Published on 19 Apr 2012 • USA (National/Federal) |
The CFTC adopted final rules subjecting commodity options to Dodd-Frank swaps rules applicable to other non-security-based swaps, but issued an interim final rule exempting options on many physically settled commodities used for commercial business purposes.
On April 18, 2012, the CFTC adopted final rules subjecting commodity options to Dodd-Frank swaps rules, now part of the Commodity Exchange Act (CEA), applicable to other non-security-based swaps.
However, the CFTC also adopted interim final rules (IFR) exempting commodity options from a number of Dodd-Frank swaps rules when used by commercial entities in the delivery and/or receipt of physical commodities in connection with their business.
In order to qualify for the exemption, however, parties to exempt commodity options contracts must satisfy obligations under Dodd-Frank swaps rules on:
- Position limits (see Practice Note, The Dodd-Frank Act: Commodity Position Limits).
- Large-trader reporting and other swap data reporting and recordkeeping (see Practice Note, Summary of the Dodd-Frank Act: Swaps and Derivatives: Swap Data Reporting Requirements).
- Antifraud and anti-manipulation (see Practice Note, Summary of the Dodd-Frank Act: Swaps and Derivatives: Non-security-based Swap Antifraud Rules).
- Certain requirements for swap dealers and major swap participants (see Practice Note, Summary of the Dodd-Frank Act: Swaps and Derivatives: Requirements for Swap Dealers and Major Swap Participants (MSPs)).
Exchange-traded options on commodity futures are excluded from the definition of the term "swap" under Title VII of the Dodd-Frank Act, and are therefore exempt from all Dodd-Frank swaps rules, including data reporting.
The final rules and the IFR are effective 60 days after they are published in the Federal Register, but the relevant compliance dates do not occur until 60 days after the term "swap" is further defined by the CFTC and SEC in final Dodd-Frank rulemaking.
The CFTC released a fact sheet and Q&A on the final rules.