Last week, the Commodity Futures Trading Commission ("CFTC") issued a series of guidance and no-action letters providing last-minute clarification and relief to various industry participants that otherwise would have been subject to registration and other requirements effected by the various swap rules that became effective on October 12th.
RTOs and ISOs. The CFTC issued no-action relief preserving the regulatory status quo with respect to provisions of the Commodity Exchange Act ("CEA") that may apply to regional transmission organizations ("RTOs") and independent system operators ("ISOs"), and certain government and cooperatively-owned electric utilities. See CFTC Letter No. 12-11 and CFTC Letter No. 12-12.
REITs and Securitizations. Guidance has been issued stating that equity real estate investment trusts ("REITs") and securitization funds that meet certain criteria are not included within the definition of "commodity pool" and their operators are not "commodity pool operators."See CFTC Letter No. 12-13 and CFTC Letter No. 12-14.
Registration Deadline for CPOs, CTAs, etc. The registration requirement has been delayed until December 31, 2012, for any person who would have been required to register immediately as an introducing broker, commodity pool operator, commodity trading advisor, associated person, floor broker, or floor trader, solely by virtue of its swaps activity, or solely because of its involvement with the transition of certain contracts on ICE and NYMEX to clearing as commodity futures and options. See CFTC Letter No. 12-15.
ECP Guidance. Interpretive guidance has been issued in respect of eligible contract participants ("ECPs"). The guidance states that: (i) swap guarantors generally must be ECPs; (ii) a non-ECP generally may not be jointly and severally liable for swap obligations; and (iii) cash proceeds from a loan may be included in the calculation of total assets. In addition, no-action relief was provided with respect to the application of CEA sections 2(e) and 13(a) to certain ECP guarantee arrangements, "anticipatory ECPs", and certain determinations regarding "amounts invested on a discretionary basis" under the CEA, subject to certain conditions. See CFTC Letter No. 12-17.
Utility Special Entities. Temporary no-action relief has been issued with regard to certain requirements in the de minimis exception from the definition of the term swap dealer. Certain utility special entities active in the physical energy markets may deal in utility commodity swaps with publicly-owned, government-owned or federal agency utilities with an aggregate gross notional amount of up to $800 million per year without being required to register as swap dealers. See CFTC Letter No. 12-18.
Bona Fide Hedging Under Reg. 4.5. Following the recent court decision vacating the position limits rule, clarification has been issued regarding the scope of the bona fide hedging exemption from the trading thresholds as applied to registered investment companies. See CFTC Letter No. 12-19.
Agricultural and Exempt Commodities. Two no-action letters have been issued regarding the treatment of agricultural and exempt commodities in making calculations for purposes of the swap dealer and major swap participant definitions. See CFTC Letter No. 12-16 and CFTC Letter No. 12-20.
FX Swaps and FX Forwards. In anticipation of an expected determination by the Secretary of the Treasury exempting foreign exchange swaps and foreign exchange forwards from the definition of "swap" under the CEA, and in order to address uncertainty with regard to such a determination by market participants that engage in a significant volume of such trading activity, the CFTC has issued time-limited no-action relief from the obligation to include foreign exchange swaps or foreign exchange forwards in the calculation determining whether a person is a major swap participant. No-action relief has also been issued for persons meeting the definition of "commodity pool operator" or commodity trading advisor" solely as a result of their foreign exchange swap and foreign exchange forward activities. See CFTC Letter No. 12-21.
Non-US Entities. Time-limited no-action relief has been issued addressing the swap calculation by certain foreign entities for purposes of the swap dealer and major swap participant definitions. Foreign entities will not need to include a swap executed prior to the earlier of December 31, 2012, or the effective date of a definition of "U.S. person" in a final exemptive order, in their calculations required under the swap dealer and major swap participant definitions, so long as certain conditions are met. See CFTC Letter No. 12-22.