Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

Today, the CFTC Division of Market Oversight published a response to frequently asked questions regarding commodity options, including reporting obligations with respect to trade options. The response clarified a few important issues and reiterated others. Below are some of the highlights, with numbers corresponding to those in the CFTC’s response.

3. As a refresher, to qualify as a trade option (which are subject to lower regulatory burdens than other options or swaps), a commodity option must involve a physical commodity and meet three conditions: (1) the option is offered by either an “eligible contract participant” (generally speaking, a financially sophisticated entity) or a commercial participant (a producer, processor, commercial user of, or merchant handling, the underlying physical commodity); (2) the option is offered to a commercial participant; 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 commodity for immediate or deferred shipment or delivery.

6. Under the CFTC’s Trade Option No-Action Letter, Non-Swap Dealer/Major Swap Participants (Non-SD/MSPs) are effectively exempt from ever having to report trade options on a transaction-by-transaction basis pursuant to Part 45 of the CFTC’s swap reporting rules, provided that they: (1) report all unreported trade options (i.e., those trade options in which both counterparties are Non-SD/MSPs) through an annual Form TO filing; and (2) notify DMO, through an email to, no later than 30 days after entering into trade options having an aggregate notional value in excess of $1 billion in any calendar year. The practical effect of this will likely be that trade options in which at least one counterparty is an SD/MSP will be reported by the reporting SD/MSP pursuant to Part 45, while trade options in which both counterparties are Non-SD/MSPs will be reported by both counterparties on Form TO.

8. Form TO, the form for reporting otherwise unreported trade options, is to be completed and submitted via the Commission’s web-based submission form at The form must be filed no later than March 1 for the prior calendar year (e.g., March 1, 2014 for calendar year 2013).

9. The Form TO reporting requirement is triggered by entering into unreported trade options during the calendar year. However, the value reported on the form is the value of options exercised during the calendar year.

13. The first Form TO filing, covering calendar year 2013, should include only unreported trade options entered into on or after April 10, 2013. Options and swaps entered into prior to that date are considered “historical,” and reporting of historical trade options was not contemplated by the CFTC’s regulations.

16. Trade options are subject to the Part 151 position limits requirements (which requirements have been vacated by court decision, appeal pending). However, position limits do not apply to qualifying hedge positions and, further, apply only to swaps or futures contracts linked to one of 28 referenced contracts (with respect to energy contracts, NYMEX’s Henry Hub Natural Gas, Light Sweet Crude Oil, NY Harbor Gasoline Blendstock, and NY Harbor Heating Oil contracts).

Check frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.