CFTC Clarifies Exclusions And Exceptions For Non-Financial Energy And Environmental Commodities

On July 10, 2012, the Commodity Futures Trading Commission (CFTC) issued final rule clarifications and interpretations of relative importance for companies involved in trading or managing risks associated with any kind of energy and environmental commodities. CFTC's rulemakings were made pursuant to its obligation to implement certain purposes and requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

End-User Clearing Exception

CFTC implemented an exception (with accompanying criteria) for non-financial entities and small financial institutions engaging in swap transactions as a hedge against business or commercial risk. Mandatory clearing requirements will not apply to such transactions if one of the counterparties is a non-financial entity (e.g., energy utility or company) using the swap to hedge or mitigate commercial risk. The final rule establishes criteria for determining whether a swap hedges or mitigates commercial