The ABS industry right now is very focused on the Oct. 12 changes the U.S. Commodity Futures Trading Commission (CFTC) plans to make that would render deals "commodity pools."
Dodd-Frank amended the Commodities and Exchange Act to include a new definition of commodity pools to explicitly include swaps. The change, according to a Sept. 13 teleconference hosted by Mayer Brown, has created the ambiguity that any ABS that has any swaps in it could potentially be a commodity pool. As such, the sponsor or servicer of an ABS transaction would be responsible for registering as a commodity pool operator.
"When you are a commodity pool operator you have to live with a regulatory regime that is unfamiliar, costly and difficult," said Stuart Litwin, partner and co-head of the finacnce practice at Mayer Brown. Litwin said on the call earlier this month that the changes would present additional work and effort that would be "unusual of asset-backed deals."
One sellside market source said that the upcoming changes could be one reason why volumes in the credit card space have seen the most issuance since 2009. "Issuers may be looking to get ahead of these changes," he said.
Securitizations today are eligible to enter into interest rate, currency and other types of swaps under the Commodity Exchange Act. Credit card securitizations are commonly structured to include interest rate or currency swaps.
Often, the securitization vehicle enters into swaps to hedge against fluctuations in interest rates or exchange rates or to tailor returns for specific classes of investors.
Litwin said that the CFTC hasn't been definite with whether it will move ahead with the upcoming October compliance requirement or it will push the date to the end of the year. "If it is Oct. 12, that would mean many securitization sponsors or servicers would have to register as commodity pool operators or get some prompt relief from the commodities future trading commission to extend the compliance date or [told] that it is not required for most ABS transactions," he said.