82,891
edits
CFTC Representations: Difference between revisions
→Background
Amwelladmin (talk | contribs) m (Text replace - " "" to " “") |
Amwelladmin (talk | contribs) |
||
| (One intermediate revision by the same user not shown) | |||
| Line 1: | Line 1: | ||
==Introduction== | ==Introduction== | ||
The U.S. [[Commodity Futures Trading Commission]] (“'''{{tag|CFTC}}'''”) has jurisdiction over ALL products traded on any US exchange (this captures virtually all financial products, except for foreign jurisdiction specific products that are not traded in the US). | The U.S. [[Commodity Futures Trading Commission]] (“'''{{tag|CFTC}}'''”) has jurisdiction over ALL products traded on any US exchange (this captures virtually all financial products, except for foreign jurisdiction specific products that are not traded in the US). | ||
All {{tag|ISDA}}s must include certain representations in the {{ | All {{tag|ISDA}}s must include certain representations in the {{tag|ISDA}} Schedule to ensure that the {{isdama}} and the underlying Transactions fall into a safe harbor exempting the {{isdama}} / Transactions from regulation by the [[Commodity Futures Trading Commission]] (“'''{{tag|CFTC}}'''”) and are not deemed illegal off-exchange transactions. | ||
==Background== | ==Background== | ||
In order to comply with U.S. Commodity Futures Trading Commission (“{{tag|CFTC}}”) regulations, we include two market standard representations, “ | In order to comply with U.S. Commodity Futures Trading Commission (“{{tag|CFTC}}”) regulations, we include two market standard representations, “[[Eligible Contract Participant]]” (“'''ECP'''”) and “[[Eligible Commercial Entity]]” (“'''ECE'''”), in our {{tag|ISDA}} Schedule and other [[Master Agreements]]. The United States [[Commodity Exchange Act]] (“CEA”) was passed in 1936 and provides for federal regulation of all commodities and futures trading activities and requires that all futures and commodity options be traded on organized exchanges, and its primary enforcer, the {{tag|CFTC}}, regulates all futures markets in the United States in which commodities are traded. The CEA defines “commodity” very broadly (see definition below, emphasis added). | ||
{{quote|7USC.1a.Definitions. (4) '''Commodity'''. The term “commodity” means wheat, cotton, rice, corn, oats, barley, rye, <br> flaxseed, grain sorghums, mill feeds, butter, eggs, Solanum tuberosum (Irish potatoes), wool, wool tops, fats and <br>oils (including lard, tallow, cottonseed oil, peanut oil, soybean oil, and all other fats and oils), cottonseed meal, <br>cottonseed, peanuts, soybeans, soybean meal, livestock, livestock products, and frozen concentrated orange juice, and <br>all other goods and articles, except onions as provided in section 13-1 of this title, and all services, rights, and <br>interests in which contracts for future delivery are presently or in the future dealt in.}} | {{quote|7USC.1a.Definitions. (4) '''Commodity'''. The term “commodity” means wheat, cotton, rice, corn, oats, barley, rye, <br> flaxseed, grain sorghums, mill feeds, butter, eggs, Solanum tuberosum (Irish potatoes), wool, wool tops, fats and <br>oils (including lard, tallow, cottonseed oil, peanut oil, soybean oil, and all other fats and oils), cottonseed meal, <br>cottonseed, peanuts, soybeans, soybean meal, livestock, livestock products, and frozen concentrated orange juice, and <br>all other goods and articles, except onions as provided in section 13-1 of this title, and all services, rights, and <br>interests in which contracts for future delivery are presently or in the future dealt in.}} | ||
| Line 13: | Line 13: | ||
To promote certainty for the markets and to distinguish between on-exchange futures contracts and over-the-counter derivatives transactions, the United States government enacted the [[Commodity Futures Modernization Act]] of 2001 as an amendment to the CEA, clarifying certain defined terms and exemptions for over-the-counter derivative transactions. Any over-the-counter derivatives transactions in a “commodity” could be considered an illegal off-exchange Futures contract unless the transaction and the parties to such transaction fall into one or more of the categories of trades that are exempt from regulation as a futures contract. Specifically, certain derivative transactions may only be entered into by “eligible contract participants” to be exempt from regulation as a futures contract. | To promote certainty for the markets and to distinguish between on-exchange futures contracts and over-the-counter derivatives transactions, the United States government enacted the [[Commodity Futures Modernization Act]] of 2001 as an amendment to the CEA, clarifying certain defined terms and exemptions for over-the-counter derivative transactions. Any over-the-counter derivatives transactions in a “commodity” could be considered an illegal off-exchange Futures contract unless the transaction and the parties to such transaction fall into one or more of the categories of trades that are exempt from regulation as a futures contract. Specifically, certain derivative transactions may only be entered into by “eligible contract participants” to be exempt from regulation as a futures contract. | ||
={{tag|CFTC}} Jurisdiction and the [[Commodity Futures Modernization Act]] = | ={{tag|CFTC}} Jurisdiction and the [[Commodity Futures Modernization Act]] = | ||
Whether a transaction is subject to {{tag|CFTC}} jurisdiction depends upon the type of contract being negotiated. The {{tag|CFTC}} has exclusive jurisdiction over transactions involving sales of a commodity “for future delivery” and commodity option transactions. | Whether a transaction is subject to {{tag|CFTC}} jurisdiction depends upon the type of contract being negotiated. The {{tag|CFTC}} has exclusive jurisdiction over transactions involving sales of a commodity “for future delivery” and commodity option transactions. | ||
| Line 40: | Line 41: | ||
Accordingly, the '''[[Eligible Contract Participant]]''' (“'''ECP'''”) representation is included in our ISDA Schedule to ensure we can meet the standard of having a “reasonable belief” that our counterparty is an ECP, and therefore the transaction in question is considered to be of a class of transaction to be exempt or excluded from the regulatory framework of the CEA and its primary enforcer, the {{tag|CFTC}}. | Accordingly, the '''[[Eligible Contract Participant]]''' (“'''ECP'''”) representation is included in our ISDA Schedule to ensure we can meet the standard of having a “reasonable belief” that our counterparty is an ECP, and therefore the transaction in question is considered to be of a class of transaction to be exempt or excluded from the regulatory framework of the CEA and its primary enforcer, the {{tag|CFTC}}. | ||
The definition of '''Eligible Contract Participant''' includes most entities having, or being guaranteed by entities having, total assets exceeding USD 10 million, ERISA plans having total assets exceeding USD 5 million, governmental entities, and some other categories of investors. | The definition of '''Eligible Contract Participant''' includes most entities having, or being guaranteed by entities having, total assets exceeding USD 10 million, {{tag|ERISA}} plans having total assets exceeding USD 5 million, governmental entities, and some other categories of investors. | ||
===[[ECP]] Rep wording=== | ===[[ECP]] Rep wording=== | ||