CFTC Exclusion from Commodity Pool Regulation for Securitization Vehicles

The CFTC has issued the attached interpretative guidance letter to asset-backed securities funds. The guidance states that securitization funds which meet certain criteria are not included within the definition of "commodity pool" and their operators are not "commodity pool operators" under the Commodity Exchange Act and the CFTC's regulations.

The relevant criteria include:

• The issuer of the asset-backed securities is operated consistently time with the conditions set forth in Regulation AB, or Rule 3a-7, whether or not the issuer's security offerings are in fact regulated pursuant to either regulation, such that the issuer, pool assets, and issued securities satisfy the requirements of either regulation;

• The entity's activities are limited to passively owning or holding a pool of receivables or other financial assets, which may be either fixed or revolving, that by their terms convert to cash within a finite time period, plus any rights or other assets designed to assure the servicing or timely distributions of proceeds to security holders;

• The entity's use of derivatives is limited to the uses of derivatives permitted under the terms of Regulation AB, which include credit enhancement and the use of derivatives such as interest rate and currency swap agreements to alter the payment characteristics of the cash flows from the issuing entity;

• The issuer makes payments to securities holders only from cash flow generated by its pool assets and other permitted rights and assets, and not from or otherwise based upon changes in the value of the entity's assets; and

• The issuer is not permitted to acquire additional assets or dispose of assets for the primary purpose of realizing gain or minimizing loss due to changes in market value of the vehicle's assets.

See: CFTC Letter 12-14 (links externally to PDF).