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CFTC Adopts Swaps|and Commodity Rules

WASHINGTON (CN) - New rules adopted by the Commodity Futures Trading Commission governing commodity options and defining statutory terms for over-the-counter swaps go into effect June 26.

Adopted at the CFTC's open meeting on April 18, the rules were not published in the Federal Register until late last week.

The rules would treat most commodity options under the same rules applied to all other swaps.

The commission and the Securities and Exchange Commission developed joint definitions of terms like "swaps," "swap dealer," and "major swap participant" so that the agencies use the same language to define transactions that differ mostly in the value traded in the swap.

As under the recently adopted SEC definitions, the commission's definitions are meant to focus regulatory scrutiny on large entities rather than small scale investors and dealers who do not regularly engage in swaps.

The threshold for definition as a "major swap participant" will be trades worth more than $3 billion in a twelve month period after a phase-in threshold of $8 billion.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act the CFTC is charged with regulating all swaps not based on securities, which are regulated by the SEC.

An interim-final rule also adopted by the CFTC specifically exempts commodity options from counting toward the threshold amount for swap regulation if the options are for physical delivery of the underlying commodity.

The exemption conditions include position limits, large trader reporting, appropriate recordkeeping and reporting requirements, antifraud and anti-manipulation rules, and the record retention requirements for swap dealers and major swap participants.

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