With recent release, the CFTC hopes to eliminate market uncertainty on forward contracts with embedded volumetric optionality.

UPDATE (June 18, 2015): On May 12, 2015, the CFTC adopted the Proposal as proposed (as used herein, the Final Interpretation) with some additional clarifications. Updates to this client alert related to the Final Interpretation are displayed in italicized type.

The comment period recently closed for a proposed interpretation (the Proposal) to further clarify what constitutes a forward contract with embedded volumetric optionality. On November 14, 2014, the US Commodity Futures Trading Commission (the CFTC or the Commission) issued the Proposal which primarily focuses on modifying the seventh element of the “embedded volumetric optionality” test - a test that has been the center of much concern to the energy industry, which is an industry that heavily relies on the forward contract exclusion from the definition of “swap” under the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder (Dodd-Frank Act). The comment period for the Proposal ended on December 22, 2014.