External Meetings: Definitions Meeting with Vitol

The meeting discussed the definition of hedging and mitigating commercial risk in connection with the definition of major swap participant (MSP), in particular focusing on the distinction between using swaps to hedge commercial risk and for speculation, investment or trading.  Vitol sought clarification of a sentence in footnote 128 of the proposing release which states that “Swap positions that hedge other positions that themselves are held for the purpose of speculation or trading are also speculative or trading positions.”  Vitol said the rule should clarify this distinction, and clarify how different types of swaps would be treated, when the swap relates to a physical commodity that the swap user produces, manufactures, processes or merchandises.  Vitol said the rule should clarify whether a swap that qualifies as bona fide hedging under the CFTC’s rules could be excluded from the definition of hedging commercial risk if the swap were found to have a speculative, investment or trading purpose.