The Commodity Futures Trading Commission’s Market Participants Division today announced it has issued a no-action letter to the Structured Finance Association, in the context of qualifying credit risk transfer (CRT) t...

Summary: The Commodity Futures Trading Commission’s Market Participants Division today announced it has issued a no-action letter to the Structured Finance Association, in the context of qualifying credit risk transfer (CRT) transactions engaged in by their member financial institutions and certain commodity pool operator (CPO) requirements.

CFTC Letter No. 25-37 No-Action November 21, 2025

U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581

www.cftc.gov

Market Participants

Division

Thomas J. Smith

Acting Director

Frank Tallerico

Director—ABS Policy

Structured Finance Association

1776 I Street NW

Suite 501

Washington, DC 20006

RE: No-Action Position Regarding Commodity Pool Operator Registration for

Operators of Certain Credit Risk Transfer Transactions1

Dear Mr. Tallerico:

This is in response to your letter, dated August 18, 2025 (Request Letter), additional

written communications, and multiple telephone conferences (together with the Request Letter,

the Correspondence) with staff of the Market Participants Division (Division or MPD) of the

Commodity Futures Trading Commission (Commission or CFTC). In the Correspondence, the

Structured Finance Association (SFA) describes certain risk-sharing transactions, referred to in

the Correspondence as credit risk transfer (CRT) transactions, that are designed to manage the

risks associated with loans, receivables, leases, and other financial exposures held on balance

sheets by transferring the risks from SFA-member financial institutions to voluntary

sophisticated investors

Structured Finance Association (SFA) describes certain risk-sharing transactions, referred to in

the Correspondence as credit risk transfer (CRT) transactions, that are designed to manage the

risks associated with loans, receivables, leases, and other financial exposures held on balance

sheets by transferring the risks from SFA-member financial institutions to voluntary

sophisticated investors. Specifically, you request that the Division provide a no-action position

with respect to commodity pool operator (CPO) registration applicable to certain SFA members,

their affiliates, or any other person involved in setting up or operating the special purpose

vehicles (SPVs) in the CRT transactions, who claim the exemption from commodity pool

operator (CPO) registration contained in CFTC Regulation 4.13(a)(3)2 with respect to the CRTs,

1 This letter contains one or more collections of information under Office of Management and Budget (“OMB”)

number 3038-0049. No person is required to respond to a request for information unless a valid OMB number is

displayed.

2 17 CFR 4.13(a)(3). Commission regulations referenced herein may be found in 17 CFR ch. I.

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Page 2

notwithstanding that such CRT transactions may involve disclosures that do not comply with the

requirements of that exemption’s “marketing prong.”3

Background

In the Request Letter, you make the following representations regarding the SFA, its

members, and the operation, structure, and mechanisms of the CRTs: You state that the SFA is a

trade association with over 370 institutional members that include issuers and investors, broker-

dealers, rating agencies, data analytic firms, law firms, servicers, trustees, and accounting firms

ong.”3

Background

In the Request Letter, you make the following representations regarding the SFA, its

members, and the operation, structure, and mechanisms of the CRTs: You state that the SFA is a

trade association with over 370 institutional members that include issuers and investors, broker-

dealers, rating agencies, data analytic firms, law firms, servicers, trustees, and accounting firms.

You further state that the no-action position with respect to CPO registration in the context of the

CRTs is requested by SFA on behalf of “regulated financial institutions” that are SFA members

(the SFA Banks), i.e., national banks, bank holding companies, savings and loan holding

companies, US branches of foreign banking organizations, state member banks of the Federal

Reserve System, and any other entity prudentially regulated by the Board of Governors of the

Federal Reserve (Federal Reserve), the Federal Depository Insurance Corporation (FDIC), the

Office of the Comptroller of the Currency (OCC), and/or state banking regulators. You explain

further that the SFA Banks utilize CRT transactions to manage the risks associated with loans,

receivables, leases (and related assets), and other financial exposures on their balance sheets, and

that the CRTs are used to obtain capital relief for the SFA Banks under Federal Reserve, FDIC,

and OCC regulatory requirements.4 CRT transactions are specifically identified in the capital

adequacy regulations of the prudential regulators as eligible risk mitigants routinely used by SFA

Banks to lower their minimum capital requirements and to manage their balance sheet risk(s). In

the Request Letter, you also represent that the requested no-action position would cover only

CRT transactions used to hedge the risk of assets owned by the SFA Banks, and that such CRTs

would transfer credit risk only to the extent necessary to create a sufficient hedge and qualify

SFA Banks for prudential regulators’ available capital relief

nts and to manage their balance sheet risk(s). In

the Request Letter, you also represent that the requested no-action position would cover only

CRT transactions used to hedge the risk of assets owned by the SFA Banks, and that such CRTs

would transfer credit risk only to the extent necessary to create a sufficient hedge and qualify

SFA Banks for prudential regulators’ available capital relief. You further explain that, given

prospective changes to federal banking regulations intended to implement certain Basel III

recommendations and other industry factors, there has been renewed focus and interest on the

role of CRT transactions in mitigating and determining banks’ minimum capital requirements

since 2020.5

With respect to the CRT transactions themselves, you explain that they may be structured

in a number of ways; a typical CRT, however, implements the following format: (a) the

establishment of an SPV that will issue notes in the form of debt securities (the notes) to

sophisticated investors (the noteholders); and (b) the use of a credit default swap (CDS) or other

3 17 CFR § 4.13(a)(3)(iv), stating: “Participations in the pool are not marketed as or in a vehicle for trading in

commodity futures or commodity options markets; …”.

4 As stated above, the SFA Banks are prudentially regulated by the Federal Reserve, OCC, and FDIC, whose

regulations require them to maintain minimum capital levels calculated as a percentage of risk-weighted assets.

Request Letter, p. 1-2 (citing Regulation Q, 12 CFR pt. 217 (Federal Reserve), 12 CFR pt. 3 (OCC), and 12 CFR pt.

324 (FDIC).

5 Request Letter, p. 3 (defining the “Basel III Endgame,” and citing 88 Fed. Reg. 64028 (Sept. 18, 2023)).

ated by the Federal Reserve, OCC, and FDIC, whose

regulations require them to maintain minimum capital levels calculated as a percentage of risk-weighted assets.

Request Letter, p. 1-2 (citing Regulation Q, 12 CFR pt. 217 (Federal Reserve), 12 CFR pt. 3 (OCC), and 12 CFR pt.

324 (FDIC).

5 Request Letter, p. 3 (defining the “Basel III Endgame,” and citing 88 Fed. Reg. 64028 (Sept. 18, 2023)).

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risk-sharing agreement between the SPV and the SFA Bank.6 You provide the following

additional details regarding the structure, rights, and responsibilities of the typical CRT

transaction SFA Banks intend to use:

• The SFA Bank designates a reference pool of assets that includes assets such as

loans, leases, and mortgages subject to the risk transfer. The reference pool of

assets will not include the following: (i) asset-backed securities, (ii) collateralized

loan obligations or collateralized debt obligations, (iii) collateralized fund

obligations, (iv) other structured securities issued by another special purpose

vehicle or by another financial institution, (v) equity securities, (vi) partnership

interests or membership interests, (vii) fee interests in real estate, or (viii) other

physical assets. The transaction documentation may permit the designation of

additional assets to the reference pool over time or the substitution of new assets

for existing assets.7 Assets may exit the SPV’s reference pool when they are paid

in full or sold by the SFA Bank, when a corresponding credit event occurs

(explained in further detail below), or as a result of substitution in limited

circumstances explained in the CRT documentation.

• The SFA Bank or another entity involved in setting up or operating the SPV then

forms an SPV that offers and issues fixed-income, credit-linked notes. Potential

purchasers are limited to sophisticated institutional investors

en a corresponding credit event occurs

(explained in further detail below), or as a result of substitution in limited

circumstances explained in the CRT documentation.

• The SFA Bank or another entity involved in setting up or operating the SPV then

forms an SPV that offers and issues fixed-income, credit-linked notes. Potential

purchasers are limited to sophisticated institutional investors. The SPV notes are

issued either pursuant to Rule 144A and Regulation S under the Securities Act of

1933 (Securities Act), in which an offering document will be provided and

prospective investors may have access to a data room with the opportunity to

conduct their own due diligence on the CRT’s origination and servicing, or to

Section 4(a)(2) of the Securities Act, in which case prospective investors will be

provided access to a data room for purposes of conducting due diligence.

• In connection with the issuance and sale of the notes, the SFA Bank and the SPV

enter into a CDS, risk-sharing agreement or other similar agreement, by which the

SFA Bank agrees to pay credit premiums to the SPV, and the SPV agrees to make

payments to the SFA Bank in the event that a “credit event” occurs in relation to

the referenced pool of assets. This swap agreement remains in place until

6 You state further that, with respect to the Federal Reserve’s Regulation Q, notes issued by such SPVs must meet

the definition of “synthetic securitization” found in 12 CFR 217.2, and the SFA Bank must also meet operational

requirements found in 12 CFR 217.41(b), to qualify for relief from the minimum capital requirements

eferenced pool of assets. This swap agreement remains in place until

6 You state further that, with respect to the Federal Reserve’s Regulation Q, notes issued by such SPVs must meet

the definition of “synthetic securitization” found in 12 CFR 217.2, and the SFA Bank must also meet operational

requirements found in 12 CFR 217.41(b), to qualify for relief from the minimum capital requirements.

7 You explain that the potential for additions to the asset pool would be explained in the transaction documentation

and/or disclosures provided to potential investors; additionally, you state that CRT transaction documentation

typically explains that (i) additional assets may include revolving lines of credit issued by the member institutions,

including credit cards, home equity lines of credit, or revolving corporate credit agreements; (ii) additional assets

designated or existing assets increased will be consistent with the parameters set forth in the transaction

documentation, including defined “replenishment periods,” designed to maintain the credit profile of the pool of

assets and subject to usual credit migration; or (iii) any such additions or substitutions of assets in the underlying

pool require the consent of not less than a majority of the noteholders or their designated representative(s) (including

when additions or substitutions come from an agreed-upon “whitelist” of assets, and safeguards are included to

prevent additions or substitutions in the event of credit deterioration of whitelist assets).

(iii) any such additions or substitutions of assets in the underlying

pool require the consent of not less than a majority of the noteholders or their designated representative(s) (including

when additions or substitutions come from an agreed-upon “whitelist” of assets, and safeguards are included to

prevent additions or substitutions in the event of credit deterioration of whitelist assets).

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maturity or redemption of the SPV notes, and the SPV will not enter into

additional swaps that would cause it to exceed the trading thresholds specified in

CFTC Regulation 4.13(a)(3)(ii)(A) or (B).

• The documentation for each CRT transaction explains in detail its loss allocation

structure: when a credit event occurs, i.e., a specified loss in value of the

underlying pool of assets is incurred, the SPV makes a payment to the SFA Bank

to compensate for losses related to the credit event. Any such payment by the

SPV to the SFA Bank results in a corresponding reduction in the principal balance

of the notes issued by the SPV and held by the noteholders; therefore, any losses

resulting from such credit event(s) related to the underlying assets will be borne

by the noteholders on a dollar-for-dollar basis, subject to the loss allocation

structure specified in the transaction documentation.

• The cash proceeds from the sale of the notes are used to collateralize the SPV’s

obligations to make payments of principal to the noteholders, as well as to make

payments to the SFA Bank according to the loss allocation structure when a credit

event occurs

e

by the noteholders on a dollar-for-dollar basis, subject to the loss allocation

structure specified in the transaction documentation.

• The cash proceeds from the sale of the notes are used to collateralize the SPV’s

obligations to make payments of principal to the noteholders, as well as to make

payments to the SFA Bank according to the loss allocation structure when a credit

event occurs. As such, the notes’ proceeds are either held in bank deposits or in

permitted investments that would be cash-equivalent, “highly liquid” assets

consistent with CFTC Regulation 1.25 and limited to the following: (a)

obligations of the United States and obligations fully guaranteed as to principal

and interest by the United States; (b) interests in government money market funds

as defined in 17 CFR 270.2a-7; (c) interests in exchange-traded funds, as defined

in 17 CFR 270.6c-11, which seek to replicate the performance of a published

short-term U.S. Treasury security index composed of bonds, notes, and bills with

a remaining maturity of 12 months or less, issued by, or unconditionally

guaranteed as to the timely payment of principal and interest by the U.S.

Department of the Treasury; (d) general obligations of Canada, France, Germany,

Japan, and the United Kingdom; (e) repurchase agreements relating to any of the

foregoing investments and instruments; and (f) obligations issued by the Federal

National Mortgage Association (Fannie Mae) or the Federal Home Loan

Mortgage Association (Freddie Mac), so long as these entities operate under the

conservatorship or receivership of the Federal Housing Finance Authority with

capital support from the United States.

• The noteholders receive a stated rate of return and will be entitled to ultimate

repayment of principal (as lessened by any credit event and corresponding

payments made by the SPV to the SFA Bank) upon the conclusion of the swap

agreement, which remains in place until the maturity or redemption of the notes

f the Federal Housing Finance Authority with

capital support from the United States.

• The noteholders receive a stated rate of return and will be entitled to ultimate

repayment of principal (as lessened by any credit event and corresponding

payments made by the SPV to the SFA Bank) upon the conclusion of the swap

agreement, which remains in place until the maturity or redemption of the notes.

The stated rate of return is paid from the credit premium(s) paid to the SPV by the

SFA Bank and from investment earnings on the collateral to the extent available.

Principal on the notes, as may be reduced by payments from the SPV to the SFA

Bank as a result of specified credit events, is returned as the reference pool of

assets and the CDS amortizes. In any event, the noteholders will not receive more

than the agreed rate of return plus the amount of principal invested in the SPV.

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• As stated above, prospective investors are given access to information to assess

the risks of the SPV’s reference pool of assets, to independently assess the

investment, and to model any potential returns arising therefrom. By purchasing

notes issued by the SPV, the noteholders assume the risk for credit events on the

reference assets under the CDS between the SFA Bank and the SPV, risks

associated with servicing and processes related to the referenced assets, and

general risks associated with the performance of the SFA Bank opposite the SPV

in the CDS, and through the notes’ fixed rate of return, the noteholders are

compensated for taking on those risks. Each CRT transaction is structured and

priced to yield the anticipated rate of return to noteholders, if credit events do not

exceed assumed levels (as explained in the CRT documentation’s loss allocation

structure). As noted above, the referenced assets are limited to those held on the

SFA Bank’s balance sheet

fixed rate of return, the noteholders are

compensated for taking on those risks. Each CRT transaction is structured and

priced to yield the anticipated rate of return to noteholders, if credit events do not

exceed assumed levels (as explained in the CRT documentation’s loss allocation

structure). As noted above, the referenced assets are limited to those held on the

SFA Bank’s balance sheet.

• Each CRT transaction will consist of the issuance of a single series of notes

referencing exposure to a designated pool of reference assets owned directly or

indirectly by the SFA Bank. Such series may comprise multiple classes of credit-

tranched notes representing different levels of risk exposure to the reference pool.

Each series will be issued by either (i) a newly formed SPV that will be limited in

its organizational purpose to entering into a CDS, issuing notes and engaging in

activities required by or related to such issuance, such as investment of the note

issuance proceeds as collateral for the SPV’s obligations to the SFA Bank and to

the SPV’s investors, or (ii) a newly formed series of a series limited liability

company or cell of a protected cell company that will be subject to similar

organizational limits applied to a newly formed SPV. Each such series or cell of

such company is effectively a self-contained, ring-fenced vehicle, with a legally

segregated pool of assets and liabilities, and only one series of CRT notes would

be issued by any such statutorily segregated series or cell.8

You explain further in the Correspondence that prospective investors and SPV

noteholders receive disclosures and reporting that are consistent with market standards and

applicable SEC requirements

a self-contained, ring-fenced vehicle, with a legally

segregated pool of assets and liabilities, and only one series of CRT notes would

be issued by any such statutorily segregated series or cell.8

You explain further in the Correspondence that prospective investors and SPV

noteholders receive disclosures and reporting that are consistent with market standards and

applicable SEC requirements. Such disclosures provide extensive detail about the mechanics of

the CRT transaction, including details regarding the CDS between the SPV and SFA Bank,

circumstances under which payments would be made to the SFA Bank by the SPV, how

proceeds from the sale of the notes would be invested and held, how and when monthly

payments would be made to noteholders, and other relevant information. Additionally, the

noteholders are provided with monthly or quarterly reports that will disclose payments made and

received under the CDS, payments made to noteholders, the occurrence of any credit events with

respect to the referenced assets, the effect of those credit events on the SPV and noteholders, and

the current balance of the collateral at the end of the relevant reporting period. Noteholders do

8 The Request Letter states further that many U.S. and non-U.S. jurisdictions, for administrative efficiency, authorize

the formation of legal entities that can establish multiple, segregated series or cells within such entities. Request

Letter, p. 6-7 (citing, as an example, Delaware Series LLCs, which include statutory segregation, non-commingling,

and limitation of liability provisions applicable to each individual series in the Delaware Series LLC structure).

tions, for administrative efficiency, authorize

the formation of legal entities that can establish multiple, segregated series or cells within such entities. Request

Letter, p. 6-7 (citing, as an example, Delaware Series LLCs, which include statutory segregation, non-commingling,

and limitation of liability provisions applicable to each individual series in the Delaware Series LLC structure).

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not receive, however, typical reporting required for commodity pool investments, e.g., audited

financial statements, net asset value calculations, or schedules of investments.

Legal Analysis

The Request Letter requests a no-action position regarding the ability of the SFA Banks,

their affiliates, or any person involved in setting up or operating an SPV in a CRT transaction to

claim the CPO registration exemption contained in CFTC Regulation 4.13(a)(3), with respect to

the SPV-CRT structures explained above. In the Request Letter, you state that, given previous

interpretations and applications of the definition, the SPVs established in the described CRT

transactions could possibly be considered “commodity pools”; additionally, you cite previous

occasions where this Division’s predecessor (the Division of Swap Dealer and Intermediary

Oversight or DSIO) granted no-action positions permitting reliance on the CPO exemption in

CFTC Regulation 4.13(a)(3) under similar factual circumstances.9

Specifically, there are four requirements in CFTC Regulation 4.13(a)(3) that a pool must

meet for its CPO to be eligible for a registration exemption with respect to that pool:

1. Interests in the pool are exempt from registration under the Securities Act, and the

interests are marketed and advertised to the public in the United States solely, if at all,

in compliance with 17 CFR 230.506 or with Rule 144A (17 CFR 230.144A), as

applicable;

2

gulation 4.13(a)(3) that a pool must

meet for its CPO to be eligible for a registration exemption with respect to that pool:

1. Interests in the pool are exempt from registration under the Securities Act, and the

interests are marketed and advertised to the public in the United States solely, if at all,

in compliance with 17 CFR 230.506 or with Rule 144A (17 CFR 230.144A), as

applicable;

2. At all times, the pool meets one or the other of the following de minimis tests with

respect to its commodity interest positions, whether entered into for bona fide

hedging purposes or otherwise:

a. The margins, premiums and required minimum security deposits do not

exceed 5% of the liquidation value of the pool’s assets after giving effect to

unrealized profits or losses; or

b. The aggregate net notional value of the pool’s commodity interest positions,

determined at the time the most recent position was established, does not

exceed 100 percent of the liquidation value of the pool’s portfolio, after taking

into account unrealized profits and unrealized losses;

3. The CPO reasonably believes, at the time of investment, that each person who

participates in the pool is one of several categories of sophisticated investor, e.g.,

accredited investors or qualified eligible persons (QEPs, as defined in CFTC

Regulation 4.7(a)); and

9 Request Letter, p. 6 (citing CFTC Letters 14-111 and 14-152).

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4. Participations in the pool are not marketed as or in a vehicle for trading in commodity

interests.10

With respect to the first three requirements of this exemption, the Request Letter represents that,

based on the planned offering and structure of the CRT transactions, the SPVs would easily meet

them.

The fourth requirement (the marketing prong) requires more analysis and consideration

4. Participations in the pool are not marketed as or in a vehicle for trading in commodity

interests.10

With respect to the first three requirements of this exemption, the Request Letter represents that,

based on the planned offering and structure of the CRT transactions, the SPVs would easily meet

them.

The fourth requirement (the marketing prong) requires more analysis and consideration.

Based on the facts stated above, the Division understands that the CDS held by the SPV is

designed to function as the payment mechanism between the SFA Bank, the SPV, and

ultimately, the noteholders, and that the CRT’s offering documents and/or marketing materials

will necessarily describe, in detail, this flow of payments, how the addition or exit of reference

assets will work, the anticipated loss allocation structure, and other features of the CDS, along

with providing detailed data regarding the referenced SFA Bank assets for prospective investors

to consider and analyze. In 2012, the Commission listed multiple factors it said should be

considered in a facts and circumstances analysis of whether or not a pooled investment vehicle or

fund is being marketed as a vehicle for trading in commodity interests, in violation of CFTC

Regulation 4.13(a)(3)(iv), while emphasizing that such factors are “instructive, and that no single

factor is dispositive.”11 In the context of the SFA Banks and CRTs, most of those seven factors

are irrelevant or inapplicable, except for factor 6: “Whether the futures/options/swap

transactions engaged in by the fund or on behalf of the fund will directly or indirectly be its

primary source of potential gains and losses.”12

You state in the Request Letter that the disclosures and marketing materials for each CRT

transaction will describe the transaction structure in detail, including the use of CDS between the

SFA Bank and its SPV, but that such disclosures “will focus primarily on the fact that the notes

are debt securities with a stated rate of return that create exposu

ource of potential gains and losses.”12

You state in the Request Letter that the disclosures and marketing materials for each CRT

transaction will describe the transaction structure in detail, including the use of CDS between the

SFA Bank and its SPV, but that such disclosures “will focus primarily on the fact that the notes

are debt securities with a stated rate of return that create exposures to the credit risk of a pool of

reference assets. … [T]he disclosures will not describe the SPVs as vehicles for trading in swaps

10 17 CFR 4.13(a)(3)(i)-(iv); with respect to the marketing prohibition prong in paragraph (a)(3)(iv), see also CFTC

Letter 14-152, fn. 15 (“As explained above, in 2012, the Commission added swaps to the transactions considered in

the trading threshold calculations contained in Regulation 4.13(a)(3)(ii) by specifically referencing the term

‘commodity interest,’ which as defined in Regulation 1.3[] includes futures, options, and swaps. In order to

consistently interpret the prongs of the exemption in Regulation 4.13(a)(3), Division staff similarly considers swaps

added to the transactions listed in the marketing prong of that exemption, though the Commission has not yet

explicitly amended Regulation 4.13(a)(3)(iv) to also include swaps.”).

11 77 Fed. Reg. 11252, 11259 (Feb. 24, 2012). These seven factors include, (1) the name of the fund; (2) whether

the fund’s primary investment objective is tied to a commodity index; (3) whether the fund makes use of a

controlled foreign corporation for its derivatives trading; (4) whether the fund’s marketing materials, including its

prospectus or disclosure statement, refer to the benefits of the use of derivatives in a portfolio or make comparisons

to a derivative index; (5) whether, during the course of normal trading activities, the fund or entity on its behalf has a

net short speculative exposure to any commodity through a direct or indirect investment in other derivatives; (6)

whether the futures/options/swaps transactions enga

or disclosure statement, refer to the benefits of the use of derivatives in a portfolio or make comparisons

to a derivative index; (5) whether, during the course of normal trading activities, the fund or entity on its behalf has a

net short speculative exposure to any commodity through a direct or indirect investment in other derivatives; (6)

whether the futures/options/swaps transactions engaged in by the fund or on behalf of the fund will directly or

indirectly be its primary source of potential gains and losses; and (7) whether the fund is explicitly offering a

managed funds strategy. Id.

12 77 Fed. Reg. at 11259.

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or other commodity interests.”13 Moreover, you state that the CDS between the SFA Bank and

SPV “is merely a tool to transfer the risk of the underlying reference assets to the SPV and in

turn through the SPV to the [noteholders],” and that it is the performance of the underlying

designated pool of assets that ultimately determines whether the noteholders receive their

principal plus marketed rate of return.14 You explain further that the instant situation is

comparable to prior instances where DSIO staff determined entities offering similarly structured

transactions could also qualify for the exemption from CPO registration in CFTC Regulation

4.13(a)(3) in slightly different factual circumstances.15 Finally, you offer that, consistent with

no-action positions previously issued by DSIO, the SFA Banks “will likewise focus their

marketing on the reference assets rather than the risks and rewards of the swap,” and that they

are prepared to “restrict their operations and activities only to those necessary or appropriate to

support the [CRT] transaction, including through holding no commodity interests other than the

[CDS].”16

In the instant situation, and consistent with previously issued no-action positions, the

Division believes that the CRT SPV structure is distinguishable from commodity pools, in which

active management and t

restrict their operations and activities only to those necessary or appropriate to

support the [CRT] transaction, including through holding no commodity interests other than the

[CDS].”16

In the instant situation, and consistent with previously issued no-action positions, the

Division believes that the CRT SPV structure is distinguishable from commodity pools, in which

active management and trading strategies involving a variety of asset classes, including multiple

types of commodity interest, are commonly used to drive the performance experienced by such

pools’ participants, and the other factors listed above regarding commodity interest marketing

come into play. The Division believes it appropriate to provide the requested no-action position,

where the SPV is prohibited from holding commodity interests other than the CDS necessary to

accomplish the desired risk-sharing of SFA Banks’ balance sheet assets with participating

sophisticated investors; where the disclosures will understandably focus on the quality and

performance of the underlying assets, the risk of which is being transferred; and where additional

conditions, as outlined below, are met.

Accordingly, based on the foregoing, and subject to the specific conditions listed below,

the Division has determined that it will not recommend to the Commission that it take an

enforcement action against any SFA Bank, an affiliate thereof, or any other person involved in

setting up or operating the SPVs in the CRT transactions described above on behalf of an SFA

Bank, for failure to register as a CPO pursuant to Section 4m(1) of the Commodity Exchange

Act,17 provided that the conditions listed below are met in each such CRT structure:

13 Request Letter, p. 7.

14 Request Letter, p. 10

gainst any SFA Bank, an affiliate thereof, or any other person involved in

setting up or operating the SPVs in the CRT transactions described above on behalf of an SFA

Bank, for failure to register as a CPO pursuant to Section 4m(1) of the Commodity Exchange

Act,17 provided that the conditions listed below are met in each such CRT structure:

13 Request Letter, p. 7.

14 Request Letter, p. 10.

15 See CFTC Letter 14-111 (granting no-action position to Fannie Mae and Freddie Mac with respect to mortgage

credit risk transfer structures permitting them to claim and rely upon the de minimis exemption) and 14-152

(granting no-action position with respect to the offering of insurance-linked notes, permitting the operators of such

vehicles to qualify for the de minimis exemption).

16 Request Letter, p. 8.

17 CEA Section 4m(1), 7 U.S.C. 6m(1).

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1. Eligible CRT transactions are limited to those used to hedge the risk of assets owned

by the SFA Banks, and that transfer credit risk to the extent necessary to create a

sufficient hedge and qualify SFA Banks for prudential regulators’ capital relief.

2. An SFA Bank, the applicable SPV, and/or any affiliate or other person involved in the

operations of the CRT transaction on an SFA Bank’s behalf (the CRT CPO)

continually meets the requirements of the exemption found in CFTC Regulations

4.13(a)(3)(i)-(iii).

a. Should the CRT CPO become aware that the SPV is unable to meet any of the

requirements found in CFTC Regulations 4.13(a)(3)(i)-(iii), it promptly

notifies the Division in writing, providing copies of such notice to the SFA

Bank and the noteholders pursuant to notice procedures in the CRT

transaction documentation, and neither issues more notes nor engages in

additional risk transfer arrangements until it is once again able to comply with

the exemption in its entirety.

3

ements found in CFTC Regulations 4.13(a)(3)(i)-(iii), it promptly

notifies the Division in writing, providing copies of such notice to the SFA

Bank and the noteholders pursuant to notice procedures in the CRT

transaction documentation, and neither issues more notes nor engages in

additional risk transfer arrangements until it is once again able to comply with

the exemption in its entirety.

3. The CRT CPO files a notice of eligibility for the exemption in CFTC Regulation

4.13(a)(3) from CPO registration with the National Futures Association (NFA),

pursuant to CFTC Regulation 4.13(b) and meets the other terms of CFTC Regulation

4.13, with respect to each SPV, or each separate series or cell of such SPV, utilized in

CRT transactions.

4. The only commodity interest transaction held by the SPV, or in the case of a multi-

use SPV, by a single series or cell of the series limited liability company or protected

cell company forming the SPV, will be the CDS necessary to accomplish the risk-

sharing initiative between the SFA Bank and the SPV noteholders with respect to the

referenced pool of SFA Bank assets; there will be no active management of assets and

liabilities over the lifetime of the SPV; any marketing materials or disclosure

documents circulated by or on behalf of an SFA Bank with respect to the CRT SPV

must indicate that the CRT CPO is not registered with the Commission as a CPO and

is in compliance with the conditions of the no-action position provided in this letter.

5. The assets purchased with the proceeds of the sale of SPV notes at all times shall be

in the form of cash, or cash-equivalent, “highly liquid” (as defined in CFTC

Regulation 1.25(b)(1)) assets that have a maturity date on or before the termination of

the CDS or are convertible to cash by the issuer/obligor of the collateral upon demand

by the SPV

-action position provided in this letter.

5. The assets purchased with the proceeds of the sale of SPV notes at all times shall be

in the form of cash, or cash-equivalent, “highly liquid” (as defined in CFTC

Regulation 1.25(b)(1)) assets that have a maturity date on or before the termination of

the CDS or are convertible to cash by the issuer/obligor of the collateral upon demand

by the SPV. The payment obligations of the SPV to the SFA Bank and to the

noteholders must be secured by the collateral, and the security agreements must

provide that obligations to the SFA Bank will be satisfied from the collateral, prior to

any proceeds of the collateral being used to repay principal or interest to the

noteholders. The collateral shall be maintained by the SPV such that it is available to

be distributed in the form of cash or in kind to the SFA Bank at the time a payment

becomes due under the CDS.

Structured Finance Association

Page 10

6. The collateral held by the SPV shall be subject to arrangements that protect the SFA

Bank in the event the SPV becomes subject to an insolvency proceeding, to the extent

possible under applicable law. This condition will be satisfied if the SPV satisfies the

following criteria:

a. The powers of the SPV shall be limited so that the SPV may not engage in

business or activity other than as necessary or appropriate for serving as the

SPV for an SFA Bank’s CRT transaction;

b. The SPV shall be restricted from incurring additional debt, except as

appropriate for entering into additional CRT offerings in the case of a multi-

use SPV, in which case the obligation to repay such additional debt shall be

secured solely by additional collateral obtained in connection with such

additional CRT note offering;

c

te for serving as the

SPV for an SFA Bank’s CRT transaction;

b. The SPV shall be restricted from incurring additional debt, except as

appropriate for entering into additional CRT offerings in the case of a multi-

use SPV, in which case the obligation to repay such additional debt shall be

secured solely by additional collateral obtained in connection with such

additional CRT note offering;

c. The SPV shall be restricted from entering into any additional commodity

interest transactions beyond the CDS necessary for the CRT transaction,

except that in the case of a multi-use SPV, the SPV may enter into additional

CDS transactions to the extent it is necessary or appropriate to effectuate

additional CRT offerings on behalf of an SFA Bank;

d. The SPV shall be governed by a board of directors (or other similar body)

comprised of individuals independent of the SFA Bank;

e. Corporate formalities shall be observed between the SPV, on the one hand,

and the SFA Bank or the CRT CPO, on the other hand, such that each entity

maintains its separate corporate status and identity, in compliance with CFTC

Regulation 4.20;18

f. As a condition to any agreement imposing obligations on the SPV,

noteholders, the SFA Bank, and any other potential creditors of the SPV shall

be required to waive any right to file an involuntary bankruptcy petition for

the SPV or otherwise initiate an insolvency, liquidation, dissolution, or other

action having substantially similar effect with respect to the SPV; and

g. The SPV shall be required to maintain, at all times, an independent director

whose vote is required for the filing of a voluntary petition for bankruptcy and

shall be subject to separateness covenants, with respect to its transactions with

affiliates, that are consistent with a bankruptcy-remote structure.

This letter, and the position taken herein, represent the views of MPD only, and do not

necessarily represent the position or view of the Commission or of any other office or division of

the Commission

of a voluntary petition for bankruptcy and

shall be subject to separateness covenants, with respect to its transactions with

affiliates, that are consistent with a bankruptcy-remote structure.

This letter, and the position taken herein, represent the views of MPD only, and do not

necessarily represent the position or view of the Commission or of any other office or division of

the Commission. This letter and the no-action position taken herein are not binding on the

Commission.19 Further, this letter, and the position taken herein, are based upon the facts and

circumstances presented to MPD staff. Any different, changed or omitted material facts or

18 See 17 CFR 4.20.

19 See Commission Regulation 140.99(a)(2), 17 C.F.R. § 140.99(a)(2) (“A no-action letter binds only the issuing

Division . . . and not the Commission or other Commission staff.”).

Structured Finance Association

Page 11

circumstances might render the position taken in this letter void. Finally, as with all staff letters,

MPD retains the authority to condition further, modify, suspend, terminate, or otherwise restrict

the terms of the position taken herein, in its discretion.

If you have any questions concerning this correspondence, please contact Frank Fisanich,

Deputy Director, at ffisanich@cftc.gov; Jacob Chachkin, Associate Director, at

jchachkin@cftc.gov; Michael Ehrstein, Special Counsel, at mehrstein@cftc.gov; or Elizabeth

Groover, Special Counsel, at egroover@cftc.gov.

Sincerely,

_________________

Thomas J. Smith

Acting Director

Market Participants Division

cc:

Kathleen Clapper, Compliance

National Futures Association, Chicago

Michael Otten, OTC Derivatives

National Futures Association, New York