CFTC Plans To Lighten Regulatory Burdens on End-Users Trading Commodity Options

On April 30, 2015, the Commodity Futures Trading Commission (“Commission” or “CFTC”) issued a notice of proposed rulemaking to amend its commodity trade option regulation. The proposed changes are intended to reduce recordkeeping and reporting obligations for physical commodity option transactions between commercial end-users which are not Swap Dealers (“SDs”) or Major Swap Participants (“MSPs”).  The Commission also proposed what it called a “non-substantive” amendment to remove a reference in the commodity trade option regulation to a previously-vacated position limits regulation. Many energy market participants are hoping such change is a signal that the Commission will similarly remove commodity trade options from new position limits proposed in another pending rulemaking process. 

The most significant modifications to the commodity trade option regulation proposed on April 30th include:

• Elimination of the annual Form TO filing requirement for commodity trade options;
• Removal of a provision in the CFTC’s existing regulation that, in the absence of no-action relief granted previously by CFTC Staff, would have required an non-SD/MSP trade option counterparty to report its trade options immediately to a Swap Data Repository (“SDR”) on a transaction-by-transaction basis if it reported any other kind of swap to an SDR in the past calendar year; and
• Addition of a provision requiring non- SD/MSP trade option counterparties to provide notice by email to the CFTC’s Division of Market Oversight (“DMO”) within 30 days after entering into trade options, whether reported or unreported, that have an aggregate notional value in excess of $1 billion in any calendar year.  In the alternative, a non-SD/MSP may provide notice by email to DMO that it reasonably expects to enter into trade options, whether reported or unreported, having an aggregate notional value in excess of $1 billion during any calendar year.

There is a 30-day comment period now open to voice support for or opposition to these proposed changes.