As many are aware, the Dodd-Frank Act amended the definition of “commodity pool”, making it broader by including any enterprise operated for the purpose of trading in swaps. Trading in swaps may seem like a high bar, but there is little guidance as to the type of entity that constitutes a “commodity pool.” Some of that guidance suggests that entering into a single swap may be sufficient to trigger the registration requirement. The CFTC has issued various interpretative letters clarifying that certain entities (such as business development companies, family offices, equity REITs, etc.) that might inadvertently be included within the “commodity pool” definition should not be considered commodity pools to the extent that these entities satisfy the specified CFTC conditions for relief.
Institutions that use repackaging vehicles or that use trust vehicles to issue structured products should consider whether any of these vehicles may be considered a commodity pool. In CFTC Letter No. 12-45 issued on December 7, 2012, the CFTC provides further relief for certain legacy and other securitization vehicles.9 However, the CFTC also notes in that letter that certain vehicles may be deemed commodity pools, including, for example “a repackaging vehicle that issues credit-linked or equity-linked notes where the repackaging vehicle owns high quality financial assets, but sells credit protection on a broad based index or obtains exposure to a broad based stock index through a swap. The vehicle finances its acquisition of the high quality assets by issuing notes to investors that are linked to credit risks or price changes in the stock index.” The CFTC notes that this type of vehicle may be a commodity pool. Further, the CFTC also points to another example: “a repackaging vehicle that acquired a three year bond, issued a tranche of notes, and used swaps to extend the investment experience of the bond (and thus the tranche of notes) to four years may be deemed to be a commodity pool, as would a repackaging vehicle that paired the three year bond with a swap to provide inflation rate protection.” In light of this commentary and the over broad definition of “commodity pool,” any structured product that relies on the use of a trust or other collective investment vehicle should be analyzed closely.