Summary of the CFTC and SEC joint proposed rules regarding product definitions

The long-awaited centerpiece of the Dodd-Frank Wall Street Reform and Consumer Protection Act Regulatory Scheme for commodity derivatives was recently unveiled. Weighing in at more than 300 pages, the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC, and together with the CFTC, Commissions) have released joint proposed rules and proposed interpretations that address the statutory terms "swap," "security-based swap," "security-based swap agreement," and "mixed swap" (the Definition Rules). They withdraw the existing exemption for energy contracts, but confirm a forward contract exclusion and indicate that book-outs terminating a delivery obligation will not be viewed as swaps. They also explain the circumstances in which commodity options embedded in forward contracts will be excluded from coverage and address the exemption process applicable to ISO/RTO products.

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