On September 30, 2013, the Commodity Futures Trading Commission’s (“CFTC”) Division of Market Oversight (“DMO”) released responses to Frequently Asked Questions (“FAQs”) regarding commodity options.  The topics addressed in the responses to the FAQs included general information regarding the filing of the CFTC Form TO (Annual Notice Filing for Counterparties to Unreported Trade Options), trade options reporting, and exceptions to commodity options being regulated as swaps.

In its response, the DMO clarified that while commodity options will be regulated as swaps, a commodity option that includes a physical commodity may not be regulated as a swap so long as it is a: (1) commodity option embedded in a forward contract; (2) a volumetric commodity option embedded in a forward contract; or (3) a trade option.  According to the DMO, an embedded volumetric commodity option is often seen in contracts involving energy commodities.

In addition, the DMO clarified information and procedures regarding the annual Form TO filing requirements.  These responses included stating that a Form TO filing is required when unreported trade options are entered into during a calendar year, and that the initial Form TO, for calendar year 2013, is due by March 1, 2014.  The DMO also stated that the Form TO filing covering the 2013 calendar year (and only the 2013 calendar year) should include unreported trade options entered into on or after April 10, 2013. 

A copy of the DMO’s responses to the FAQs is available here.