The Commodity Futures Trading Commission’s Division of Market Oversight (DMO) has reissued a document addressing frequently asked questions (FAQs) on commodity options. The FAQs document, which DMO originally issued on September 30, 2013, reminds market participants that commodity options are generally regulated as swaps, but that the CFTC has adopted certain exceptions and exemptions for commodity options (including volumetric options) that are embedded in forward contracts and trade options. To qualify as a trade option, a commodity option must (i) involve a physical commodity, (ii) be offered by either an eligible contract participant or a commercial participant, (iii) be offered to a commercial participant and (iv) be intended to be physically settled.

The FAQs document also reminds trade option participants of certain reporting requirements under Parts 32 and 45 of the CFTC’s Regulations. For trade options in which neither counterparty is a swap dealer (SD) or major swap participant (MSP), the counterparties may report such trade options through an annual Form TO filing in lieu of reporting such trade options to a swap data repository pursuant to Part 45 of the CFTC’s Regulations. If a non-SD/MSP is already reporting other swaps to a swap data repository, then such non-SD/MSP must notify DMO via email no later than 30 days after entering into trade options having an aggregate notional value in excess of $1 billion in any calendar year to qualify for such relief. 

DMO’s FAQs document is available here.