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Commodity Pool Regulation of Securitization Vehicles – CFTC Staff Expands Prior Relief and Provides Broad Exclusion from Commodity Pool Definition; Also Provides No Action Relief for Legacy Transactions and Extension of CPO Registration Deadline to March

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December 21, 2012
Chapman Clint Alert

By letter dated December 7, 2012, the Division of Swap Dealer and Intermediary Oversight of the Commodity Futures Trading Commission released interpretive guidance significantly expanding the scope of its October 11, 2012 interpretive letter. The October 11 Letter confirmed that securitization vehicles that satisfy five criteria, including a requirement that they operate consistent with either Regulation AB or Rule 3a-7 under the Investment Company Act of 1940, should not be “commodity pools” as a result of holding a swap nor should their operators be required to register as “commodity pool operators” under the Commodity Exchange Act and CFTC rules. 

In the December 7 Letter the Division stated its view that certain securitization vehicles that do not satisfy the operating or trading limitations contained in Regulation AB or Rules 3a-7 should not be “commodity pools,” so long as their activities are limited to owning or holding financial assets, their use of swaps is no greater than that contemplated by Regulation AB or Rule 3a-7, and such swaps are not used in any way to create an investment exposure. The Division specifically identifies three types of securitization vehicles — traditional asset-backed commercial paper vehicles, covered bonds and certain CDOs with no synthetic assets — that it believes are not commodity pools.

The Division also provided broad no action relief from CPO registration requirements for legacy securitizations that issued fixed income securities before October 12, 2012 and that satisfy the other conditions described below. Finally, for securitization vehicles that do not fall within the scope of the interpretive relief or the legacy no-action relief, the Division extended the deadline for registration as a commodity pool operator from December 31, 2012 to March 31, 2013. 

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