On August 4, 2015, the OCC issued a bulletin clarifying its expectations regarding the extent to which national banks and federal branches or agencies of foreign banks may make or take delivery of a physical commodity to hedge commodity derivatives risks. Among other things, the bulletin includes guidance on the calculation required to determine whether physical hedging activities are a nominal portion of risk management activities. Pursuant to the OCC bulletin, physical hedging positions are considered “nominal” if the bank’s commodity position is no more than 5 percent of the notional value of the bank’s derivatives that: (i) are in that particular commodity; and (ii) allow for physical settlement within 30 days. The guidance also reiterates the OCC’s expectation that a bank, prior to engaging in physical commodity hedging activities, should submit to the OCC a detailed plan for such activities and receive from the OCC a prior written supervisory nonobjection.
The OCC bulletin is available at: http://www.occ.gov/news-issuances/bulletins/2015/bulletin-2015-35.html.