The CFTC’s Office of General Counsel has issued an interpretative and no action letter regarding Eligible Contract Participant (ECP) issues.
The letter provides interpretations stating that swap guarantors generally must be ECPs, a non-ECP generally may not be jointly and severally liable for swap obligations, and cash proceeds from a loan may be included within the calculation of total assets for purposes of qualifying as an ECP under Commodity Exchange Act.
The letter also provides no-action relief, subject to specified conditions, with respect to certain ECP guarantee arrangements, “anticipatory ECPs,” and certain determinations regarding “amounts invested on a discretionary basis.”
This is a broad issue that will affect every bank participating in the swaps market, and is particularly important for banks lending to small and middle market customers that want long-term fixed rate loans.
ABA is currently the only trade association that has been working on this topic.
Read the letter.