CFTC releases final interpretation on forward contracts with embedded volumetric optionality

The U.S. Commodity Futures Trading Commission (CFTC) today released its final interpretation on forward contracts with embedded volumetric optionality. The interpretation identifies when an agreement, contract, or transaction would fall within the forward contract exclusions from the “swap” and “future delivery” definitions in the Commodity Exchange Act, notwithstanding that it allows for variations in the delivery amount (i.e., contains “embedded volumetric optionality”). The unanimous vote was conducted via seriatim.

In accordance with section 712(d)(4) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the interpretation was issued jointly with the U.S. Securities and Exchange Commission after consultation with the Board of Governors of the Federal Reserve System.

Although the interpretation was issued jointly, it is an interpretation solely of the CFTC and does not apply to the exclusion from the swap and security-based swap definitions for security forwards or to the distinction between security forwards and security futures products.

The complete document relating to the final interpretation from the CFTC can be viewed here.

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