The Commodity Futures Trading Commission (CFTC) released a no-action letter recently, offering relief to public utilities that were having trouble finding market participants willing to work with them for hedging purposes.

The public utilities no-action letter should clear up an issue with the definition of the word “swap dealer” that has been negatively affecting public utilities since 2012.

Under normal circumstances, any trader dealing swaps at a total notional volume of less than $8 billion dollars would be exempt from having to register as a swap dealer. However, for “special entities” like public utilities, exemption status was lowered significantly, with only entities trading a total notional volume of less than $25 million dollars qualifying for exemption.

Due to this lower threshold, market participant who traded with public utilities would be much more likely to have to register as swap dealers, which comes with a list of requirements such as margin, capital and business conduct.

Most market participants would rather not have to deal with these extra requirements, and, as a result, public utilities were left with very few trading entities willing to work with them.

The public utilities no-action letter states that market participants engaging in ‘utility operations-related’ trades with special entities will not have to register as swaps dealers, which should greatly improve hedging opportunities for public utilities.