Regulatory Alerts2014-11-20 | 2014-27285Forward Contracts With Embedded Volumetric Optionality
The Commodity Futures Trading Commission and the Securities and Exchange Commission jointly propose a clarification of the forward contract exclusion from swap definitions for agreements containing embedded volumetric optionality. The agencies outline seven specific criteria that must be met for such contracts to remain excluded, including requirements that actual delivery is the predominant feature and the optionality addresses physical supply or demand uncertainties. This proposed interpretation aims to resolve market participant confusion regarding the distinction between excluded forward contracts and regulated trade options.
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