CFTC Grants Relief for Energy Commodity End-User Swaps from Dealer Threshold
Commentary by Stephan Ariyan
The CFTC Market Participants Division ("MPD") issued no-action relief allowing persons to exclude energy commodity swaps with commercial end-users from swap dealer de minimis threshold calculations. The relief is subject to recordkeeping and monthly reporting requirements for a three-month pilot period.
The relief applies to energy commodity swaps where the counterparty is not a financial entity and is a producer, processor, commercial user, or merchant handling the energy commodity for business purposes ("Energy Commodity End-User Swaps"). According to the letter, the Edison Electric Institute, an association that represents all U.S. investor-owned electric companies, requested the relief, arguing that "aggregate gross notional amount" is not a reliable metric for non-financial commodity swaps because commodity price volatility can cause market participants to exceed the $8 billion swap dealer threshold despite unchanged dealing activity levels.
To rely on the relief, covered persons must file a notice of intent with MPD specifying their legal name and Legal Entity Identifier, maintain records in accordance with CFTC Rule 45.2 ("Swap Recordkeeping"), and submit monthly reports for three months containing aggregate notional value ranges and counterparty counts by commodity sub-category. The reports must be filed by the 10th day of each month following the month in which the person files its notice of intent.
The relief remains in effect until the effective date of a Commission rulemaking or guidance addressing the application of the swap dealer de minimis threshold to Energy Commodity End-User Swaps. MPD stated the "pilot period reporting would permit Commission staff to re-evaluate the [swap dealer] de minimis threshold as it pertains ... to Energy Commodity End-User Swaps and evaluate whether [the relief] results in lower energy costs ... by expanding hedging opportunities."
Commentary
This No-Action letter offers significant benefits for energy companies navigating the complexities of swap dealer registration. By excluding certain energy commodity end-user swaps from the de minimis calculation, the relief expands hedging options, enabling more energy companies to participate as counterparties. This increased participation is expected to enhance market liquidity and drive down hedging costs, making risk management more accessible across the sector.
Importantly, the relief provides a clear—albeit temporary—regulatory pathway, granting companies the confidence to plan and execute hedging strategies without the immediate concern of triggering swap dealer registration requirements. This blanket exception should also make it easier for middle office compliance and risk professionals to track compliance with the Dodd-Frank Act’s swap reporting obligations.
Furthermore, the pilot reporting period presents a valuable opportunity for industry stakeholders to contribute data and feedback, potentially influencing future CFTC rulemaking and shaping long-term policy. The operational requirements for relying on this relief—namely, recordkeeping, notice filing, and short-term monthly reporting—are straightforward, ensuring that most energy companies can readily comply and benefit from the expanded flexibility.
In order to comply, market participants should:
- Assess Eligibility: Determine if your swaps and counterparties qualify under the letter’s definitions.
- Prepare Notice: File the required notice with the CFTC before relying on the relief.
- Set Up Reporting: Ensure you can track and report the required data for the pilot period.
- Monitor Developments: Stay alert for future CFTC rulemaking or guidance that may extend, modify, or end this relief.