On April 18, 2012, the Commodity Futures Trading Commission (CFTC or the Commission) adopted a final rule that will generally regulate commodity options as swaps (the Final Rule) under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). As part of the Final Rule, the CFTC adopted an interim final rule that, subject to certain conditions, will exempt physically settled commodity options (Physical Options) from several key Dodd-Frank Act requirements.

Although the Final Rule (including the interim final rule) will become effective on June 26, 2012, compliance will not be required until 60 days after the final definition of “swap” is published in the Federal Register. The “swap” definition will likely be issued by the CFTC and the Securities and Exchange Commission (SEC) in the coming months. Market participants will not be required to comply with any applicable condition referencing a swap rule, regulation or order, with respect to commodity options, until such time as the rule, regulation or order is applicable to other swaps. The Final Rule also contains a grandfather provision, which provides that commodity options transacted pursuant to current CFTC regulations prior to June 26 will not be affected by the Final Rule (i.e., compliance with the new Dodd-Frank Act requirements for swaps will not be required).