CFTC Adopts Final Trade Option Rule

On March 16, 2016, the Commodity Futures Trading Commission ("CFTC") unanimously approved amendments to the rules applicable to certain physically-settled options referred to as "trade options."  This final rule substantially reduces the regulatory burdens for end-users entering into trade options by eliminating reporting and recordkeeping requirements.  The CFTC also confirmed that it does  not intend to impose position limits on trade options.  The final rule becomes effective upon publication in the Federal Register, which we expect to occur later this week or early next week.¹

Trade Option Background

Although the CFTC interprets the definition of "swap" under the Commodity Exchange Act ("CEA") to include physically-settled options, in 2012 the CFTC adopted interim-final rule 32.3, which established an exemption for physically-settled options that meet certain criteria.²  The 2012 interim-final rule exempted trade options from all provisions of the CEA