CFTC Publishes Concept Release on Reviewing Bona Fide Hedging Exemptions for Swap Dealers

By: David S. Mitchell, Mark Molle

The Commodity Futures Trading Commission (the “CFTC”) recently published a concept release in the form of an advance notice of proposed rulemaking requesting comment on whether to eliminate the bona fide hedge exemption for swap dealers and replace it with a more limited risk management  exemption.  74 Fed. Reg. 12282 (March 24, 2009) (hereinafter, the “Concept Release.”)  The new risk management exemption would be conditioned upon, among other things, (i) an obligation to report to the CFTC and applicable self-regulatory organizations when certain “noncommercial” swap counterparties reach a specified position level and/or (ii) a certification that none of a swap dealer’s “noncommercial” swap counterparties exceed applicable speculative position limits in the related exchange-traded futures contracts.  For this purpose, a “noncommercial” counterparty would include any entity other than a traditional commercial hedger involved in the production, processing or marketing of a commodity.  The Concept Release is implementing Recommendation Five contained in the Staff Report on Commodity Swap Dealers and Index Traders with Commission Recommendations, Commodity Futures Trading Commission, September 2008 at 6 (the “September 2008 Report”).  Comments are due on or before May 26, 2009.

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