Risk Transfer Market Receives CPO Registration Relief from CFTC
On November 21, 2025, the Structured Finance Association, on behalf of the risk transfer market, received no-action relief on the issue of registration as a commodity pool operator (“CPO”) from the staff of the Division of Market Participants of the Commodity Futures Trading Commission (“CFTC”). This long-awaited relief provides greater certainty that participants in certain credit risk transfer (“CRTs”) transactions do not need to register as CPOs.
The relief is effective immediately. In this Legal Update, we provide background on the CPO issue for certain CRTs and describe how the CFTC staff’s no-action relief (“NAL 25-37”) addresses it.
Background
Under the Commodity Exchange Act, among other things, a CPO must register with the CFTC.1 A CPO is a person who is engaged in a business that is of the nature of a commodity pool, investment trust, syndicate, or similar form of enterprise, and who, in connection with that business, solicits, accepts, or receives from others, funds, securities, or property for the purpose of trading in commodity interests.2 The Dodd-Frank Act amended the definition of a commodity interest to include swaps.3 The Act also required the CFTC to narrow the exemptions from registration available to a CPO. In implementing that amendment, the CFTC said that executing a single swap contract may make a vehicle a commodity pool, and thereby transform its operator into a CPO.4 The CFTC staff has granted exemptions from CPO status on a case-by-case basis through interpretative letters and exemptive and no action relief.
In 2014, the CFTC granted relief to government-sponsored housing enterprises from registration as CPOs in connection with certain risk transfer transactions they entered into, but arguably that relief was not available to private parties that participate in CRTs.5
Separately, CFTC Rule 4.13(a)(3) provides an exemption from CPO registration if a vehicle uses a de minimis level of commodity interests.6 While the structure of most CRTs generally would satisfy three of the criteria for this exemption, it arguably might fail the fourth criteria that the vehicle issuing securities to investors may not be marketed as a vehicle to trade in commodity interests.7 The CFTC broadly interprets the marketing criteria as being violated when a swap is a vehicle’s primary source of potential gains and losses, and the CFTC staff subsequently identified that interpretation as raising concerns for CRTs.8 Therefore, it was unclear to the market if an operator could rely on the Rule 4.13(a)(3) exemption for a vehicle used in a CRT.
CRTs and NAL 25-37
Banks may execute a CRT for many reasons, including to manage internal credit risk limits, deconcentrate from specific types of credit risk, or reduce the amount of regulatory capital they must hold for a designated pool of assets. On this latter point, regulatory capital rules for banking organizations expressly recognize CRTs as a credit risk mitigant that reduces the amount of risk-weighted assets the banking organization has when calculating its risk-based capital requirements (“capital relief”).9
A CRT may take various forms as long as it satisfies the credit risk mitigation criteria in the regulatory capital rules. Most notably, these criteria require that the banking organization transfer the credit risk of the financial assets “through the use of one or more credit derivatives or guarantees.”10 Further, the Federal Reserve has explained that a qualifying CRT may involve the banking organization executing a credit derivative with a special purpose vehicle (“SPV”) so that the SPV may issue credit-linked notes (“CLNs”) to investors.11 As discussed above, some in the market expressed concern that the use of an SPV to execute the credit derivative with the banking organization and the issuance of CLNs to investors might cause the operator of the SPV to be considered a CPO, which was not eligible for the Rule 4.13(a)(3) exemption. This is despite the fact that the investors in the SPV are focused on acquiring exposure to the financial assets held by the banking organization, and are not being solicited to invest in, or to participate in an investment in, commodity interests.
The CFTC staff recognized in NAL 25-37 that CRTs use credit derivatives simply as a tool to transfer the risk of a designated pool of reference assets from the issuing institution through the SPV to the ultimate investors. Rather, it is the performance of the underlying pool of assets, and not the risks and rewards of executing swaps, that determines whether holders of the CLNs receive a return of their principal plus agreed-upon interest. Therefore, the CFTC staff noted that it “believes that the CRT SPV structure is distinguishable from commodity pools.” Accordingly, CFTC staff stated in NAL 25-37 that they will not recommend the agency take enforcement action against a participant in a CRT if it fails to register as a CPO.
To rely on the relief provided in NAL 25-37, a CRT must satisfy certain criteria summarized below.
- The CRT (i) may only hedge the risk of assets owned by the issuing banking organization, (ii) must transfer credit risk to the extent necessary to create a sufficient hedge, and (iii) must qualify for capital relief under the regulatory capital rules.12
- The CRT must satisfy the securities offering, credit derivative position size, and investor criteria of CFTC Rule 4.13(a)(3).13
- The operator of an SPV used in a CRT must file a notice of eligibility with the National Futures Association for the exemption from CPO registration in CFTC Rule 4.13(a)(3) for each SPV used in a CRT.
- The notice must comply with the requirements of CFTC Rule 4.13(b), including that the initial notice is filed no later than the time that prospective investors in the CRT receive a subscription agreement and that annual renewal notice filings are submitted.
- The only commodity interest transaction that may be executed by the SPV is a credit default swap having the terms necessary to accomplish the risk transfer from the banking organization to the investors in the CLNs; there may be no active management of the SPV; and any marketing materials or disclosure documents circulated by or on behalf of the banking organization with respect to the SPV must indicate that (i) the operator of the SPV is not registered with the CFTC as a CPO, and (ii) complies with the conditions of the no-action position provided in NAL 25-37.
- The SPV must hold the proceeds of the sale of the CLNs in the form of cash or highly-liquid cash equivalents (i.e., must be able to be converted into cash within one business day without material discount in value) and must be subject to qualifying security agreements between the SPV and banking organization and SPV and CLN investors.14
- The collateral held by the SPV must be subject to specific arrangements designed to protect the banking organization if the SPV becomes subject to an insolvency proceeding. These arrangements include typical securitization SPV requirements, such as a governing board with independent directors.
Takeaways
The issuance of NAL 25-37 provides welcome certainty to issuers and investors in CRTs that they should not be required to register with the CFTC as a CPO. More broadly, it provides helpful detail regarding the manner in which CFTC staff analyzes the marketing prong of Rule 4.13(a)(3).
That said, the US CRT market has been flat for most of 2025 for many reasons beyond the risk of being required to register as a CPO. Therefore, it is unlikely that NAL 25-37 will result in a flood of new CRTs being issued. However, it may encourage smaller regional banks to consider CRT as a balance sheet optimization strategy by removing an element of risk and complexity.
1 7 U.S.C. § 6m(1). A CPO is subject to registration and reporting requirements. Categorization as a CPO also is significant because it may subject the entity to certain clearing and margin requirements.
2 7 U.S.C. § 1a(11); 17 C.F.R. § 1.3. A commodity pool is any enterprise for the purpose of trading in commodity interests. 7 U.S.C. § 1a(10)(A); 17 C.F.R. § 1.3.
3 See Dodd-Frank Act § 721, 124 Stat. at 1658-72 (codified at 7 U.S.C. § 1a).
4 77 Fed. Reg. 11,252, 11,258 (Feb. 24, 2012).
5 CFTC No-Action Letter 14-111 (Aug. 25, 2014).
8 77 Fed. Reg. 11,252, 11,259 (Feb. 24, 2012); CFTC No-Action Letter 14-111 (Aug. 25, 2014) (“it is difficult to argue that the swap is not literally the primary source of investment gains and losses to investors.”).
9 12 C.F.R. §§ 3.41(b), 217.41(b), 324.41(b).
10 12 C.F.R. §§ 3.3, 217.3, 324.3.
11 Federal Reserve Board, Frequently Asked Questions about Regulation Q (Sept. 28, 2023), https://www.federalreserve.gov/supervisionreg/legalinterpretations/reg-q-frequently-asked-questions.htm.
12 A CRT that is used solely to manage internal credit risk limits or deconcentrate from specific types of credit risk should be exempt from the CPO registration requirement for the same reasons that CRTs used for capital relief have been exempted.
13 As a practical matter, all CRTs should easily satisfy the credit derivative position size and investor criteria. Further, most, if not all, CRTs are sold in compliance with SEC Rule 144A or Regulation S, and therefore, should satisfy the securities offering criteria.
14 While the regulatory capital requirements do not require CLN investors to have a second-position security interest in the collateral, this is a commonly requested term during CRT negotiations.
