Eligible Contract Participant
Eligible Contract Participant is a concept under the US Commodity Exchange Act.
Definition
The definition of ECP (see 7 U.S.C. § 1a(12) (2003), here) includes, among others, corporations and other business entities:
- (i) with assets exceeding $10 million; or
- (ii) the obligations of which under the contract are guaranteed by an entity with total assets exceeding $10 million; or
- (iii) that have a net worth exceeding $1 million and enter into the contract in connection with their business or to manage the risk associated with an asset or liability owned or incurred or reasonably likely to be owned or incurred in the conduct of their business.
Enforceability: the “ECP Rep"
Under the Commodity Futures Modernization Act of 2000, a commodity contract entered between Eligible Contract Participant or persons reasonably believed to be ECPs will be deemed enforceable. Therefore a representation to that effect in a commodity contract is advisable. the following text is recommended by Sullivan & Cromwell:
- Each Party represents and warrants to the other Party that:
- (1) it is an “eligible contract participant” as such term is defined in the Commodity Exchange Act, as amended
- 7 U.S.C. § 1 (a) (12); [and
- (2) it is an “eligible commercial entity” as such term is defined in the Commodity Exchange Act, as amended
- 7 U.S.C. § 1 (a) (11).]
(Note that the second limb here isn't strictly necessary for the ECP rep; this is indeed the “ECE rep”, about which you can read to your heart's content here.)
The Alternative “Factual Rep"
Every now and then you come across a counterparty in some far-flung backwater (continental Europe, for example) who expresses bafflement or even affrontery at the thought of subjugating itself to the law of the . That this might happen takes some Americans by surprise. Then again, that it takes Americans by surprise takes everyone else by surprise. It is a fruitless task trying to get the bottom of who is most justifiably surprised (but, for the record, it’s us).No matter: there is a sensible compromise. Simply have that counterparty give a rep to the factual content of the ECP rep. For example:
- “Each Party represents and warrants to the other Party that [DELETE ONE OR OTHER] it has, or is guaranteed by an entity that has, assets exceeding $10 million] [its net worth exceeds $1 million and it is entering into the contract in connection with its business].”