On November 13, 2014, the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) approved for publication in the Federal Register a proposed interpretation clarifying the CFTC’s interpretation regarding forwards with embedded volumetric optionality contained in the Product Definitions Release. The CFTC has requested comment on all aspects of the proposed interpretation, with the comment period ending on December 22, 2014.

BACKGROUND -

On August 12, 2012, the CFTC and SEC jointly published final rules and interpretations further defining the terms “swap” and “security-based swap” among other terms (the “Product Definitions Release”). The Product Definitions Release included an interim final interpretation and request for comment with respect to forward contracts that provide for optionality with respect to the amount of commodity to be delivered (i.e., volumetric optionality). Forward contracts that meet the requirements of the interpretation are considered to be forward contracts excluded from the definition of the term “swap” contained in section 1a(47) of the Commodity Exchange Act (CEA), as well as the definition of the term “future delivery” contained in section 1a(27) of the CEA, notwithstanding that they contain embedded volumetric optionality.