CFTC: No grandfather relief for commodity swaps

Washington, DC – The Commodity Futures Trading Commission (“CFTC”) today issued a notice that it has determined not to issue grandfather relief at this time to parties that petition the Commission to continue to operate in reliance upon the Commodity Exchange Act’s (“CEA’s”) exempt commodity exemption for bilateral swaps after the deletion of that provision from the CEA by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).

Effective July 15, 2011, the Dodd-Frank Act will delete various provisions from the CEA that were first established by the Commodity Futures Modernization Act of 2000 to permit the trading of derivative instruments off of regulated markets. Among other such provisions, the Dodd-Frank Act will strike the exempt commodity exemption, which generally provides that bilateral swaps between certain sophisticated counterparties in exempt commodities (i.e., energy and metals products) are exempt from all of the provisions of the CEA, except for the anti-fraud and anti-manipulation provisions.

Although the Dodd-Frank Act authorizes the CFTC to grant grandfather relief to parties seeking to continue their reliance on the exempt commodity exemption after its deletion from the CEA, the CFTC is issuing notice that it will not be granting any such grandfather relief.

Rather than issuing blanket grandfather relief at the present time, the CFTC determined that it is more appropriate to accommodate transitioning issues for bilateral swaps activity in the context of the rulemaking process for Dodd-Frank Act-required regulations. If such activity presents difficulties that cannot be addressed in final regulations, the Commission is committed to use its available exemptive authorities to address such a situation.

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