On September 30, CFTC staff issued responses to several frequently asked questions (FAQs) related to commodity options. Pursuant to Section 1a(47) of the Commodity Exchange Act, which defines the term “swap” to include an “option of any kind that is for the purchase or sale, or based on the value, of 1 or more . . . commodities,” commodity options are generally regulated as swaps. The CFTC has provided certain exceptions and exemptions for commodity options that are embedded in a forward contract, including volumetric options, and trade options. The FAQs provide the conditions for qualifying for these limited exceptions and includes specific guidance on the trade option exemption.

To qualify as a trade option, a commodity option must: (i) involve a physical commodity; (ii) be offered by an eligible contract participant or commercial participant; (iii) be offered to a commercial participant; and (iv) be intended to be physically settled. A trade option that meets these conditions is exempt from most of the rules applicable to swaps. The FAQs also provide guidance on the recordkeeping and reporting requirements that apply to trade options.

The FAQs are available here.