On Friday, September 10, 2010, the Commodity Futures Trading Commission (“CFTC”) issued a notice that the agency had decided not to issue a one-year exemption as grandfathered relief for bilateral exempt commodity swaps (“bilateral swaps”) operating under the current exemption pursuant to the Commodity Exchange Act (“CEA”). The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) as implemented, deletes this exemption provision from the CEA as of July 15, 2011, but the Dodd-Frank Act did give the CFTC the discretion to grant grandfather relief to parties.
Several energy trade associations and energy companies asked the CFTC to grant a one-year exemption to existing bilateral swaps in order to deal with the implementation of the Dodd-Frank Act and its new regulations. The new law will standardize many swaps and require the deals to be conducted on exchanges and cleared through clearinghouses. The parties that requested the blanket exemption sought certainty through continued risk-management and extra time for those who engage in bilateral swap transactions while the CFTC implements the Dodd-Frank Act provisions.
Since the CFTC denied blanket grandfathered relied, companies that engage in these types of transactions will now have to file individual exemption petitions with the CFTC by September 20, 2010. However, the CFTC also failed to give any guidance to those filing individual petitions as requested by the trade associations.
CFTC announced it will not grant blanket grandfathered relief in a press release dated September 10, 2010. Further, the CFTC found it will be more “appropriate” to deal with transitioning issues for swap activities during the rulemaking process for the Dodd-Frank Act required regulations.
A copy of the CFTC’s release PR5890-10 is available here.