CFTC Issues CPO/CTA No-Action Relief for Interest Rate Hedging Transactions
The CFTC Market Participants Division (the "Division") issued CPO and CTA registration relief to a company that acquires biopharmaceutical royalty interests and uses swaps to hedge its interest rate risk on floating rate debt used to finance the company's operations.
The company had previously relied on the de minimis exemption from CPO registration in CFTC Rule 4.13(a)(3). However, following its initial public offering, the company was no longer able to rely on that exemption, as Rule 4.13(a)(3) is only available to pools whose interests are exempt from registration under the Securities Act.
The Division granted CPO and CTA registration relief on the conditions that the company:
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only enters into swaps for the purpose of reducing interest rate risk;
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does not hold swaps positions for speculation or trading;
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does not incur new risks from swaps transactions other than counterparty credit risk;
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enters into swaps on terms that are consistent with those "generally available in the traditional swaps market";
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conducts swaps activities consistent with the thresholds under CFTC Rule 4.13(a)(3); and
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employs a reasonable risk management system, including periodic compliance testing, to confirm compliance with the terms of the relief.