Relief from CFTC's New Commodity Pool Regulation May Be In Sight for Certain Securitization Transactions as Deadline Looms

Summary: Under new Commodity Futures Trading Commission (CFTC) rules scheduled to become effective on October 12th of this year, if an investment trust or similar entity is viewed as "trading" in swaps, its sponsor and other responsible parties may be required to register with the CFTC as "commodity pool operators" (CPOs) or may be required to register as “commodity trading advisors” (CTAs). There has been concern that holding even one swap will be treated as “trading.” Accordingly, any securitization vehicle that holds a swap would then be subject to possible CFTC regulation, and any such vehicle sponsored by a banking entity would be considered at risk for treatment as a “commodity pool,” and therefore a “covered fund” under the proposed Volcker Rule regulations.

Industry participants have been seeking relief from the CFTC, and have received preliminary indications that some form of relief will be made available. It is hoped that any such relief would be in the form of an exemptive order, and that the CFTC would provide relief on a temporary basis, pending the effective date of such an exemptive order, by a no-action letter no later than October 12th. The scope and timing of such any such exemptive order remains uncertain.

This client alert supersedes our client alert dated September 28, 2012, issued prior to the most recent developments, and describes certain factors which will have to be considered, as any no-action letter or exemptive order is considered.