Commodity Futures Trading Commission (CFTC)

As discussed above, the Commodity Options Final Rule permits commodity options to be transacted pursuant to all rules applicable to swaps. In addition, the offeror must be either:. Only comments pertaining to the interim final rule will be considered in any further action related to these rules. The Commission is extending the comment period for the Trade Options Proposal in light of the Commission's recent interpretation concerning forward contracts with embedded volumetric optionality. To provide commenters with a sufficient period of time to respond to questions raised and points made at the Agricultural Advisory Committee meeting, the Commission is reopening the comment periods for an additional 45 days. The first of these compliance dates, which applies to trades between the largest derivatives users, is September 1, On December 9, , the Commission's Agricultural Advisory Committee held a public meeting that considered, among other matters, deliverable supply and exemptions for bona fide hedging positions.

Executive Summary The CFTC recently amended its trade option exemption to exclude certain reporting and recordkeeping requirements if a party to the option .

CFTC approves commodity options final rule, establishing trade option exemption

Additionally, the CFTC discussed the comments it received regarding transactions regulated by the Federal Energy Regulatory Commission, but it did not make any policy decision regarding these transactions in the Commodity Options Final Rule. The Commodity Options Final Rule contains an IFR that establishes a new "trade option exemption" for certain physical delivery commodity options. The proposed rule would have removed the trade option exemption without implementing a replacement.

As discussed above, the Commodity Options Final Rule permits commodity options to be transacted pursuant to all rules applicable to swaps. Commenters noted that many non-ECPs enter into commodity options transactions and thus the rule would have prohibited those participants from transacting in OTC physical options unless granted exemptive relief.

To address these concerns, the new trade option exemption exempts qualifying trade options from many, but not all, of the rules that apply to swaps. To qualify for the new trade option exemption, a transaction must meet the following three requirements:.

The offeror must "reasonably believe" that the offeree meets the requirements for being an offeree under the regulation. In determining whether the option, if exercised, is a "forward," the CFTC pointed out, as instructive, the discussion of "forwards" in the proposed Swap Definitional Rule and "such other guidance" that may be adopted in the final Swap Definitional Rule.

The IFR applies only to an option that, if exercised, is intended for physical delivery and that is purchased by a commercial end user of the underlying commodity.

Conversely, commodity option transactions that include embedded optionality that affect volume but do not allow for zero physical delivery should be addressed under the forward contract exclusion in the final Swap Definitional Rule.

Although the trade option exemption provides a general exemption from the rules otherwise applicable to swaps, such as mandatory clearing and exchange trading, the IFR subjects exempted trade options to certain enumerated rules otherwise applicable to swaps. Under the IFR, all trade options are subject to the recordkeeping requirements of 17 C. In relation to reporting trade options, market participants that must comply with the swap reporting rules for other swaps besides trade options will be required to report trade options just like the other swaps it reports.

If neither counterparty is required to report a trade option under part 45, then both counterparties must submit an annual filing to the CFTC, described further below. If only one counterparty previously had to comply with part 45, then that counterparty is the reporting counterparty. If both counterparties had to previously report, then the determination of which counterparty will report is determined pursuant to the normal hierarchy in the swap reporting rules. If neither party is required to report under this rule, then both counterparties must make an.

Filers must provide the following information in Form TO:. Specifically, the CFTC requests comments on the costs and benefits of the annual notice filing and its relation to the goal of ensuring CFTC visibility of trade option positions.

Comments are due June 26, Accordingly, market participants may want to comment on the IFR, especially with respect to its relation to the final Swap Definitional Rule.

Participants may also want to comment on those alternatives. The first Form TO will be due by March 1, for transactions entered into between January 1, and December 31, The Commission's Agricultural Advisory Committee has scheduled a public meeting to be held on December 9, , which will consider, among other matters, deliverable supply and exemptions for bona fide hedging positions.

To provide commenters with a sufficient period of time to respond to questions raised and points made at the Agricultural Advisory Committee meeting, the Commission is reopening the comment periods for an additional 45 days. Comments should be limited to the following issues as they pertain to agricultural commodities: Hedges of a physical commodity by a commercial enterprise; and the process for estimating deliverable supplies used in the setting of spot month limits.

In addition, the Commission directed staff to hold a public roundtable on June 19, , to consider certain issues regarding position limits for physical commodity derivatives. In order to provide interested parties with an opportunity to comment on the issues to be discussed at the roundtable, the Commission published notice in the Federal Register on May 29, , that the comment periods for the Position Limits Proposal and the Aggregation Proposal were reopened, starting June 12, one week before the roundtable and ending July 3, two weeks following the roundtable.

To provide commenters with a sufficient period of time to respond to questions raised and points made at the roundtable, the Commission is now further extending the comment period.

Comments should be limited to the issues of hedges of a physical commodity by a commercial enterprise, including gross hedging, cross-commodity hedging, anticipatory hedging, and the process for obtaining a non-enumerated exemption; the setting of spot month limits in physical-delivery and cash-settled contracts and a conditional spot-month limit exemption; the setting of non-spot limits for wheat contracts; the aggregation exemption for certain ownership interests of greater than 50 percent in an owned entity; and aggregation based on substantially identical trading strategies.

The Commission has directed staff to hold a public roundtable on June 19, , to consider certain issues regarding position limits for physical commodity derivatives. In order to provide interested parties with an opportunity to comment on the issues to be discussed at the roundtable, the Commission will reopen the comment periods for the Position Limits Proposal and the Aggregation Proposal for a three-week period starting June 12, one week before the roundtable and ending July 3, two weeks following the roundtable.

In connection with establishing these limits, the Commission proposes to update some relevant definitions; revise the exemptions from speculative position limits, including for bona fide hedging; and extend and update reporting requirements for persons claiming exemption from these limits. The Commission proposes appendices that would provide guidance on risk management exemptions for commodity derivative contracts in excluded commodities permitted under the proposed definition of bona fide hedging position; list core referenced futures contracts and commodities that would be substantially the same as a commodity underlying a core referenced futures contract for purposes of the proposed definition of basis contract; describe and analyze fourteen fact patterns that would satisfy the proposed definition of bona fide hedging position; and present the proposed speculative position limit levels in tabular form.

For a transaction to be within the trade option exemption, the option, the offeror seller , and the offeree buyer , as applicable, must satisfy certain eligibility requirements, including that the option, if exercised, be physically settled, that the option seller meet certain eligibility requirements, and that the option buyer be a commercial user of the commodity underlying the option, and certain other regulatory conditions. Only comments pertaining to the interim final rule will be considered in any further action related to these rules.

Cornell Law School Search Cornell. Code Rulemaking What Cites Me. United States Code U. Title 17 published on Jun The section you are viewing is cited by the following CFR sections. Additional Documents type regulations. Notice of proposed rulemaking; provision of Table 11a; and reopening of comment periods; correction.

Publications

CFTC Approves Final Rule to Amend the Trade Option Exemption by Eliminating Certain Reporting and Recordkeeping Requirements for End-Users Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today approved a final rule that removes reporting and recordkeeping requirements for trade option counterparties that are neither swap. The Commodity Options Final Rule contains an IFR that establishes a new "trade option exemption" for certain physical delivery commodity options. Since , CTFC regulations have included a trade option exemption that exempted options offered to commercial end users from the CFTC’s prohibition against off-exchange commodity option transactions. On March 16, , the Commodity Futures Trading Commission ("CFTC") approved a final rule ("TO Final Rule") that amends its trade option exemption regulation by eliminating reporting and recordkeeping requirements for trade option counterparties that are not swap dealers ("SD") or major swap participants ("MSP").