ABA Calls for Clarity, Flexibility on Eligible Contract Participant Definition

As the Commodity Futures Trading Commission continues its ongoing initiative to simplify and modernize its rules, ABA last week wrote to the CFTC to highlight how a relatively inflexible definition of “eligible contract participant” under CFTC regulations has constrained banks from helping borrows mitigate risk by participating in swaps transactions.

Under the CEA, only eligible contract participants, or ECPs, may enter into a swaps transaction. However, ABA identified five circumstances in which the CFTC could provide greater clarity and flexibility around the definition of an ECP: small businesses with multiple non-spousal borrowers; borrowers who lose ECP status after the execution of a loan and related hedge; borrowers that have received bona fide commitments from lenders to fund loans in excess of $10 million in total assets; non-ECP entities that partially or fully own collateral provided to support the obligations of an ECP swap counterparty; and individuals guaranteeing the swap of their small business. For more information, contact ABA’s Ananda Radhakrishnan.