On March 29, 2013, the Commodity Futures Trading Commission’s ("CFTC") Division of Swap Dealer and Intermediary Oversight (the "Division") issued CFTC Letter No. 13- 07 (the "March No-Action Letter") to provide time-limited no-action relief for securitization vehicles that do not satisfy the conditions set forth in CFTC Letter No. 12-14 and CFTC Letter No. 12-45 (described below).

Background

The March No-Action Letter is one in a series of no-action letters issued by the Division providing relief for securitization vehicles from the requirement that their operator register as a Commodity Pool Operator ("CPO"). On October 10, 2012, the Division issued CFTC Letter No. 12- 14, which excluded from the definition of "commodity pool" certain securitization vehicles that met five conditions, such that an operator of the vehicle would not be required to register as a CPO with respect to that vehicle.2 This letter also provided no-action relief for certain securitization vehicles that were formed prior to October 12, 2012.3 On December 7, 2012, the Division issued CFTC Letter No. 12-45, which expanded the types of securitization vehicles that are to be excluded from the definition of "commodity pool."4 On December 21, 2012, the Division issued CFTC Letter No. 12-67, which provided time-limited no-action relief for investment pools investing in certain securitization vehicles formed prior to October 12, 2012.5

March No-Action Letter

In the March No-Action Letter, the Division stated that it will not recommend enforcement action be taken against the operator of a securitization vehicle that is required to register by March 31, 2013, for failure to comply with Part 46 of the CFTC’s regulations until June 30, 2013, subject to three requirements.

First, the CPO must initiate registration as a CPO (and pay any required fees) by March 31, 2013, through the filing of Forms 7-R and 8-R, as necessary.7 Second, the CPO must file notice with the Division via email to dsionoaction@cftc.gov under the subject line "Securitization Compliance No-Action." Lastly, during the no-action period, the CPO must comply with all provisions of Part 4, subject to, in the case of the operated securitization vehicle only, the terms and conditions provided in (a) through (g) below:

  1. The CPO of a securitization vehicle comprising a static pool of assets that does not have either an equity tranche or debt issuances rated lower than BB will not be required to comply with the performance disclosures required under Regulation 4.25 with respect to that securitization vehicle;
  2. With respect to the calculation of net asset value with respect to the securitization vehicle, fixed income securities rated BB and higher should be treated as debt and all other fixed income securities and equity tranches should be treated as equity;
  3. With respect to the "de minimis" exemption under Regulation 4.13(a) (3), the commodity pool operator of a securitization vehicle that did not or does not pay any initial margin with respect to the vehicle’s swaps positions must use the alternative net notional test under Regulation 4.13(a)(3)(ii)(B) to determine eligibility for exemption from registration under that section;
  4. In lieu of the financial statement requirements under Regulation 4.22 for the operated securitization vehicle, the commodity pool operator of that securitization vehicle provides basic, material information concerning the structure of the securities and distributions thereon; the nature, performance, and servicing of the assets supporting the securities; and any swaps held in that securitization vehicle’s portfolio, including a discussion of that vehicle’s counterparties;
  5. The CPO of a securitization vehicle need not comply with the specific requirements of the reporting obligations under Regulation 4.21(b), the disclosure obligations under Regulations 4.24(a) and (s), or the requirement under Regulation 4.23 that books and records be maintained at the main business office with respect to the operated securitization vehicle;
  6. The CPO of a securitization vehicle with an amortizing pool of assets need not comply with the performance disclosures required under Regulations 4.25(a)(1)(F) and (G) with respect to the operated securitization vehicle; and
  7. With respect to the requirement under Regulation 4.24(h) that the CPO of a securitization vehicle disclose the percentage of that securitization vehicle’s assets used to trade commodity interests, the commodity pool operator of that securitization vehicle that holds static swap positions must provide full and complete disclosure regarding the swaps positions and their functions within that securitization vehicle in addition to a percentage.

Future Guidance

The Division stated in the March No- Action Letter that it is continuing to discuss issues relating to compliance with Part 4 of the regulations with the securitization industry. Accordingly, further relief may be forthcoming.