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The purpose of this page is not to restate the reporting requirements of Part 20 (Large Trader Reporting for Physical Commodity Swaps), but merely to provide some detail around areas of the regulation which are vague or misleading.
On several occassions in the past we have seen the very title of the regulation being misinterpretted as meaning that it applies to large trades - i.e. to individual trades over some size threshold. It does not; it applies to large traders - i.e. to organisations which the CFTC believe are "large".
The words "Physical" and "Swaps" in the title of the regulation are unfortunate, in that they might have a tendency to mislead the casual reader. The regulation is not limited to physically-settled trades/positions, and is not limited to swaps.
For example, the definition of "Swap" used by the regulation excludes: "any sale of a nonfinancial commodity or security for deferred shipment or delivery, so long as the transaction is intended to be physically settled".
Equally, the definition of "Swap" includes products which one might not naturally consider to be a swap: "a put, call, cap, floor, collar, or similar option".
In addition to applying to clearing organisations, the regulation applies to clearing members and swap dealers. So what is a "clearing member"? According to §20.1, "Clearing member means any person who is a member of, or enjoys the privilege of, clearing trades in its own name through a clearing organization." If we ignore the completely misplaced second comma (which should be after "through"), it's clear that the definition requires us to know what is meant by a "clearing organization". Fortunately, §20.1 defines that too: "Clearing organization means the person or organization that acts as a medium between clearing members for the purpose of clearing swaps or swaptions or effecting settlements of swaps or swaptions."
In addition to applying to clearing organisations, the regulation applies to clearing members and swap dealers. So what is a "swap dealer"?
At the time the regulation became effective, the term "swap" had not yet been defined by the CFTC. It therefore provides a provisional definition "until the effective date of any definitional rulemaking regarding “swap” by the Commission under section 1a of the Act." Unfortunately, the definition of "swap" which the CFTC ultimately provided (see 77 FR 48207 or §1.3) is not a simple one. We have reformatted it on a separate page to make to nesting of clauses easier to follow.