CFTC Gives ABCP, CLOs a Pass

An even wider range of securitizations are now exempt from a requirement to register with the Commodity Futures Trading Commission.

On Friday, the CFTC published a no-action letter granting relief from its oversight to asset-backed commercial paper and collateralized loan obligations, among other types of deals.

The regulator also gave those securitization that do have to register more time to do so.

The new oversight is a result of rules mandated by the Dodd-Frank Act, which overhauled financial regulation in the wake of the 2008 financial crisis. In August of this year, the CFTC and the Securities and Exchange Commission jointly published rules subjecting a wide range of securitization transactions to regulation as commodity pools.

The rules, which went into effect Oct. 12, changed the definition of a ‘commodity pool operator’ from one that trades commodity futures and options on an exchange to one that specifically includes pools trading in swaps.

On Oct. 11, the CFTC granted relief to many types of asset-backed securities, but not ABCP and CLOs. But after further lobbying from the securitization industry, the regulator decided that ABCP and CLOs should be given a pass, too.

Specifically, the relief applies to securitization vehicles that have no greater use of derivatives than allowed under Reg AB or Rule 3a-7 and do not use swaps to create investment exposure. The interpretative portion of the letter provides specific examples of securitization vehicles that would not be considered commodity pools, including certain collateralized debt oblitgations, covered bonds and ABCP, and some that might be considered commodity pools.

Securitizations that can’t rely on either no-action letter now have until March 31, 2013 to register; the previous deadlines was Dec. 31, 2012. Only a minority of structured products, such as catastrophe bonds or synthetic securitizations, are likely to fall in this group, according to Moody’s Investors Service.

Moody’s published a report Dec. 13 saying the latest no-action letter was “credit positive” for securitizations. “Exemption from registration will relieve many operators of disclosure burdens while allowing them to manage risks through swaps,” the ratings agency said.

The American Securitization Forum also welcomed the news. “Although some securitization vehicles may still be within the definition of ‘commodity pool,’ we believe the actions of the CFTC staff to date appropriately address industry concerns,” executive director Tom Deutsch said in a press release.