CFTC rules an indirect hit on GPs

Private equity firms dealing in commodities will need to relay more information and provide more collateral to swap dealers as a result of CFTC and SEC rulemaking.

The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have finalised the definition of commodity or futures “swaps”. 

The agreed definition triggers Dodd-Frank inspired rules on record keeping and risk management for major swaps players who will likely need the help of their clients (including fund managers) in meeting their new compliance requirements, said Andrew Henderson, partner at law firm Ropes & Gray.

One London-based lawyer explained that the rules could result in swap dealers looking to GPs to post more collateral for arrangements and greater information requests. 

For private equity firms trading commodity interests, the rulemaking is not likely to result in CFTC registration, but GPs will need to confirm their claim of exemption on an annual basis.

“While GPs do not have to be registered as a swaps dealer the fact is that the swaps dealer who will be transacting on their behalf is going to be subject to certain requirements, for example posting a margin, and this is really viewed as one of the biggest changes,” said the London lawyer. 

The definitional rules will come into effect two months after their publication in the Federal Register which is expected to occur shortly.