by Nate Endrud | March 16, 2016
The CFTC approved a final rule today that removes trade option* reporting and recordkeeping requirements applicable to non-swap dealer/major swap participant counterparties (“Non-SD/MSPs” or “end users” for purposes of this summary). The rule will become effective upon publication in the federal register, which should occur prior to the April 1, 2016 expiration of the CFTC’s temporary no-action relief (under CFTC No-Action Letter No. 16-10) from the Form TO reporting requirement for calendar year 2015. Accordingly, the CFTC’s press release states that “CFTC staff is of the view that a trade option counterparty that is a Non-SD/MSP is not required to report its otherwise unreported trade options for calendar year 2015 on Form TO.”
Removal of Reporting Requirements
The primary result of the new rule is the elimination of the Form TO reporting requirement with respect to unreported trade options, which had previously been in effect for two reporting cycles (CY2013 and 2014). In addition, the application of any Part 45 swap data reporting requirements to end users with respect to trade options (which had been the subject of long-standing no-action relief) was also eliminated by the final rule. Moreover, the CFTC abandoned the requirement in its proposed rule that would have required end users to provide notice to the CFTC in the event that they entered into trade options with an aggregate notional value in excess of $1 billion in any calendar year. These changes effectively eliminate all direct reporting obligations of end users with respect to trade options, except with respect to those end users subject to the Commission’s Part 20 large trader reporting requirements.
Removal of Recordkeeping Requirements
The Commission also deleted the requirement that an end user must comply with the recordkeeping requirements of Part 45 in connection with its trade option activities, subject only to the following exception: an end user that enters into a trade option with any SD/MSP counterparty must obtain a Legal Entity Identifier (LEI) pursuant to CFTC Rule 45.6 and provide such LEI to the SD/MSP counterparty. The purpose of this exception is to enable SD/MSP counterparties to comply with their swap data reporting obligations with respect to trade options.
As proposed, the Commission deleted any reference in the final rule to trade options being subject to the CFTC’s position limits rule. In addition, the Commission explicitly stated in the accompanying release that “[t]he Commission believes that federal speculative position limits should not apply to trade options.” To that end, the Commission intends to address such exclusion in its proposed rulemaking on position limits, if such rule is adopted.
* A “trade option” is a commodity option for which: (1) the offeror is either an eligible contract participant or a producer, processor, commercial user of, or merchant handling the commodity that is the subject of the commodity option transaction, or the products or byproducts thereof (a “commercial party”) that offers or enters into the commodity option transaction solely for purposes related to its business as such; (2) the offeree is, and the offeror reasonably believes the offeree to be, a commercial party that is offered or enters into the transaction solely for purposes related to its business as such; and (3) the option is intended to be physically settled so that, if exercised, the option would result in the sale of an exempt or agricultural commodity8 for immediate or deferred shipment or delivery.
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