United States: The CFTC’s Further No-Action Relief For Operators Of Securitization Vehicles That May Constitute Commodity Pools

In a letter dated March 29, 20131 (the "March 29 Letter"), the Division of Swap Dealer and Intermediary Oversight (the "Division") of the Commodity Futures Trading Commission (the "CFTC"), extended by three months, but subject to new and stringent conditions, no-action relief that the Division had previously given for operators of securitization vehicles (each, an "SV") possibly falling within the definition of "commodity pool"2 by reason of the SV's trading in swaps. In view of the CFTC's ongoing discussions with the securitization industry regarding compliance issues, and the undetermined nature of any additional relief that the Division might provide, the March 29 Letter states that, subject to conditions, the Division will not recommend enforcement action against the commodity pool operator ("CPO") of an SV for failure to comply fully with Part 4 of the CFTC's regulations ("Commodity Pool Operators and Commodity Trading Advisors") until June 30, 2013.3 In a previous letter issued on December 7, 2012 (the "December 7 Letter"), the Division had, in addition to giving guidance as to the nature of derivatives trading that might permit an SV to remain permanently excluded from the definition of "commodity pool," granted no-action relief until March 31, 2013, for any operator of an SV not registering as a CPO.4

The temporary relief provided by the March 29 Letter is subject to significant conditions that did not apply to the temporary relief previously provided by the December 7 Letter, most notably the requirement that, in the period of time before June 30, the CPO of an SV must comply with all applicable provisions contained in Part 4 of the CFTC's regulations, as those regulations are modified for purposes of the March 29 Letter.5 Because the CFTC may offer additional relief for operators of SVs, such as further exclusions from the definition of "commodity pool," this requirement appears to mean that operators of SVs must, until June 30, comply with many regulations applicable to CPOs even though such compliance may later be determined to be unnecessary. In addition, under the March 29 Letter, an SV's operator must (i) give email notice to the Division with reference to the no-action relief and (ii) have initiated registration as a CPO no later than March 31, 2013, by filing required forms and paying required fees.6

For purposes of CPOs' interim compliance with Part 4 of the CFTC's regulations until June 30, 2013, the March 29 Letter modifies Part 4 of the CFTC's regulations to reflect the following requirements and exclusions:


  • With regard to the requirement under CFTC regulation 4.24(h) that a CPO disclose the percentage of a commodity pool's assets that is used to trade commodity interests, a CPO with respect to an SV that holds static swap positions is required to provide, in addition to such percentage, full and complete disclosure regarding the swaps and their functions within the SV.
  • Instead of distributing to pool participants financial statements as required by CFTC regulation 4.22, the CPO of an SV must provide "material information concerning the structure of the securities and distributions thereon, the nature, performance and servicing of the assets supporting the securities, and any swaps held in [the SV's] portfolio, including a discussion of [the SV's] counterparties."7
  • With respect to CFTC regulation 4.13(a)(3), which provides an exemption from CPO registration, the CPO of an SV not paying any initial margin with respect to the SV's swaps positions is required to use the alternative net notional test contained in CFTC regulation 4.13(a)(3)(ii)(B) to determine the operator's eligibility for exemption from CPO registration under that section.
  • For purposes of calculating an SV's net asset value, fixed income securities rated "BB" and higher are to be treated as debt, and all other fixed income securities and equity tranches are to be treated as equity.8


  • The CPO of an SV "comprised of a static pool of assets that does not have either an equity tranche or debt issuances rated lower than BB" 9 is not required to comply with CFTC regulation 4.25, relating to disclosures of performance, with respect to that SV.
  • The CPO of an SV with an amortizing pool of assets is not required to comply with CFTC regulation 4.25(a)(1)(F) and (G), which require information regarding the largest draw-downs in the most recent five calendar years, with respect to that SV.
  • The CPO of an SV is not required to comply with the following CFTC regulations:
  • regulation 4.21(b), under which a CPO may not accept funds from a prospective participant unless the operator receives a written acknowledgment that the prospective participant has received the commodity pool's disclosure document;
    • regulations 4.24(a) and (s), under which a commodity pool's disclosure document must contain, among other things, (i) a statement that the CFTC has not passed on the merits of a particular pool and (ii) information as to the minimum subscriptions necessary for the commodity pool to commence trading in commodity interests; and
    • regulation 4.23, with regard to the requirement that books and records be maintained at the main business office with respect to the SV.10

Between now and June 30, 2013, when the no-action relief contained in the March 29 Letter is scheduled to expire, the CFTC will have an opportunity to clarify its guidance and, market participants hope, further broaden the permanent relief that it has granted, with respect to SVs potentially subject to regulation as commodity pools. In an initial no-action letter last year11, the Division stated that an SV would not constitute a commodity pool if, among numerous other things, the issuer of the asset-backed securities were operated in a manner consistent with the conditions set forth in Regulation AB12 or Rule 3a-7.13 In the December 7 Letter, the CFTC broadened this relief, excluding from the definition of "commodity pool" certain SVs not satisfying the trading or operating limitations contained in Regulation AB or Rule 3a-7, so long as (i) the relevant SV's activities are limited to passive ownership and holding of financial assets, either fixed or revolving, that by their terms will be converted to cash, and certain other rights or assets and (ii) the SV's use of derivatives is limited to uses permitted under Regulation AB, including credit enhancement and the alteration of payment characteristics of cash flows of the SV's assets by means of interest rate or foreign currency swaps.14 Among the types of SVs that could, depending on the nature and extent of their use of derivatives, fall outside the definition of "commodity pool" are asset-backed commercial paper conduits, collateralized debt obligations and special purpose vehicles used in relation to covered bond transactions.15


1 CFTC Letter No. 13-07, No-Action, March 29, 2013, Division of Swap Dealer and Intermediary Oversight, "Time-Limited No-Action Relief for Securitization Vehicles Regarding Compliance with Part 4 of the Commission's Regulations."

2 The possibility that an SV might be characterized as a commodity pool arises primarily because the Dodd-Frank Wall Street Reform and Consumer Protection Act amended the definition of "commodity pool" to include enterprises that are operated "for the purpose of" trading in swaps. The definition of "commodity pool," contained in § 1a(10) of the Commodity Exchange Act (the "CEA"), includes any "investment trust, syndicate, or similar form of enterprise operated for the purpose of trading in commodity interests," which now include, among other things, any swap. Under CEA § 1a(10)(B), the CFTC, "by rule or regulation, may include within, or exclude from, the term 'commodity pool' any investment trust, syndicate, or similar form of enterprise if the Commission determines that the rule or regulation will effectuate the purposes" of the CEA.

3 March 29 Letter at 1.

4 CFTC Letter No. 12-45, Interpretation and No-Action, December 7, 2012, Division of Swap Dealer and Intermediary Oversight, "Further Exclusions from Commodity Pool Regulation for Certain Securitization Vehicles; No-Action Relief for Certain Securitization Vehicles Formed Prior to October 12, 2012" at 1-4, 6.

5 March 29 Letter at 1.

6 Id. at 1, 2.

7 Id. at 2

8 Id.

9 Id.

10 Id.

11 CFTC Letter No. 12-14, Interpretation, October 11, 2012, Division of Swap Dealer and Intermediary Oversight, "Request for Exclusion from Commodity Pool Regulation for Securitization Vehicles."

12 70 Fed. Reg. 1506 (January 7, 2005). Regulation AB sets out detailed rules addressing registration, disclosure and reporting requirements for asset-backed securities.

13 17 CFR 270.3a-7. Rule 3a-7 sets out the requirements for issuers of asset-backed securities not to constitute investment companies for purposes of the Investment Company Act of 1940.

14 December 7 Letter at 3, 2.

15 Id. at 3-4. 

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.