Security-Based Swap Agreements

In accordance with swap rules, commissions have established that certain agreements, contracts and transactions are not considered Securities VII instruments regulated by the Commission, including certain 1) FX Forwards and FX Swaps, 2) insurance products, 3) physically processed futures contracts, 4) Embedded Futures with Commodity Options or Volume Optionalability, 5) Security Forwards , 6) Consumer and Commercial Agreements, Contracts and Transactions , 7) 8) Bona Fide FX Spot transactions and 9) currency options (when traded on a stock exchange). In accordance with the swap rules, the Commission has clarified that the following agreements, contracts and transactions are considered swaps and are therefore subject to CFTC regulations: swap rules provide a comprehensive and complex framework for determining whether a product can be considered a swap, SBS, security-based exchange agreement or mixed swap and , as such, this memorandum should not provide a comprehensive analysis of swap rules. , however, contains a summary of some key attributes of swap rules and some potential effects on hedge funds. Similarly, agreements, contracts and transactions with an “optional volumetric character” apply to the exclusion of the term and not to a swap if, according to the facts and circumstances, “i) embedded electoral addiction does not undermine the overall nature of the agreement as a futures contract; (ii) the main feature of the agreement is the actual supply; (iii) integrated choice cannot be separated and marketed separately from the overall agreement in which it is incorporated; (iv) the seller of the non-financial commodity that underlies the agreement intends to deliver, at the time of the contract, the underlying non-financial commodity, where the optional nature is exercised; v) the buyer intends to take charge of the delivery at the time of the contract, if he exercises the choice; (vi) both parties are commercial parties; and (vii) the exercise or non-exercise of the non-activity is primarily based on physical factors or regulatory requirements that are not subject to the control of the parties and which affect the demand or delivery of the non-financial product.” With respect to CDS, the Commissions use another test to determine whether a reference to the basis of a given CDS is based on a narrow security index or on the issuer of a narrow security index (and therefore as a security-based swap).

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