Swaps Definitions Regulation - Physical Commercial Agreements - CFTC Office of General Counsel, November 2012

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Gavel.png FINAL RULE: CFTC/SEC Joint Final Rule on Swap Product Definitions approved at July 10, 2012 open meeting, and by the SEC on July 6, 2012
Dodd-Frank Timeline, Swap Product Definitions
Final Rule Issue Effective Date Compliance Date
August 13, 2012 October 12, 2012 October 12, 2012

At its July 10, 2012 open meeting the CFTC approved a final joint rulemaking on the further definitions of the terms “swap,” “security-based swap,” and “security-based swap agreement.” [1]

On July 6, 2012, the SEC unanimously approved the joint rule.[2]

On November 14, 2012, the CFTC office of General Counsel (OGC) issued a frequently asked questions ("FAQ") sheet regarding the classification of certain physical commercial agreements for the supply and consumption of energy that provide flexibility set forth in the CFTC/SEC Joint Final Rule on Swap Product Definitions, which appeared in the Federal Register on August 13, 2012. Specifically, the OGC is addressing the issue of determining when physical commercial agreements should and not be considered to be commodity options, which are considered swaps under the swap definition rules. [3]

The OGC will use a three criteria which, if all three elements are satisfied, an agreement will 'not be considered a swap:

  1. the subject of the agreement, contract or transaction is usage of a specified facility or part thereof rather than the purchase or sale of the commodity that is to be created, transported, processed or stored using the specified facility;
  2. the agreement, contract or transaction grants the buyer the exclusive use of the specified facility or part thereof during its term, and provides for an unconditional obligation on the part of the seller to grant the buyer the exclusive use of the specified facility or part thereof; and
  3. the payment for the use of the specified facility or part thereof represents a payment for its use rather than the option to use it.

The FAQ sheet can be found below.


  1. CFTC to Hold Open Meeting to Consider Final Rule on the Further Definition of the term “Swap,” Final Rule on the End-User Exception to Clearing, and Proposed Rule to Exempt from Clearing Certain Swaps by Cooperatives. CFTC. Retrieved on July 10, 2012.
  2. CFTC Approves Swap Definition Triggering Dodd-Frank Rules. Bloomberg BusinessWeek. Retrieved on July 11, 2012.
  3. CFTC’s Office of General Counsel Responds to Questions Regarding Certain Physical Commercial Agreements for the Supply and Consumption of Energy. CFTC. Retrieved on November 19, 2012.

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