§27c — Title 7 Agriculture | U.S. Code

Summary

When a hybrid financial product is mostly a banking product, the Commodity Exchange Act does not apply and the Commodity Futures Trading Commission cannot regulate it. A hybrid is treated as mainly a banking product if four things are true: (1) the issuer gets full payment about the same time the product is delivered; (2) the buyer never must pay extra money like margin or settlement during the life of the product or at the end; (3) the product does not require mark-to-market margining; and (4) it is not sold as a futures contract or option. For condition (3), “mark-to-market” does not include a secured debt issuer having to add more pledged collateral to protect the buyer.

Title 7, §27c

Agriculture — Source: USLM XML via OLRC

(a)No provision of the Commodity Exchange Act [7 U.S.C. 1 et seq.] shall apply to, and the Commodity Futures Trading Commission shall not exercise regulatory authority with respect to, a banking product if the product is a hybrid instrument that is predominantly a banking product under the predominance test set forth in subsection (b).

(b)A hybrid instrument shall be considered to be predominantly a banking product for purposes of this section if—

(1)the issuer of the hybrid instrument receives payment in full of the purchase price of the hybrid instrument substantially contemporaneously with delivery of the hybrid instrument;

(2)the purchaser or holder of the hybrid instrument is not required to make under the terms of the instrument, or any arrangement referred to in the instrument, any payment to the issuer in addition to the purchase price referred to in paragraph (1), whether as margin, settlement payment, or otherwise during the life of the hybrid instrument or at maturity;

(3)the issuer of the hybrid instrument is not subject by the terms of the instrument to mark-to-market margining requirements; and

(4)the hybrid instrument is not marketed as a contract of sale of a commodity for future delivery (or option on such a contract) subject to the Commodity Exchange Act [7 U.S.C. 1 et seq.].

(c)For purposes of subsection (b)(3) of this title, mark-to-market margining requirements shall not include the obligation of an issuer of a secured debt instrument to increase the amount of collateral held in pledge for the benefit of the purchaser of the secured debt instrument to secure the repayment obligations of the issuer under the secured debt instrument.

Notes & Related Subsidiaries

Editorial Notes

References in Text

The Commodity Exchange Act, referred to in subsecs. (a) and (b)(4), is act Sept. 21, 1922, ch. 369, 42 Stat. 998, which is classified generally to this chapter. For complete classification of this Act to the Code, see section 1 of this title and Tables. Codification Section was enacted as part of the Legal Certainty for Bank Products Act of 2000, and also as part of the Commodity Futures Modernization Act of 2000, and not as part of the Commodity Exchange Act which comprises this chapter.

§27c Exclusion of Certain Other Identified Banking Products

Summary

Title 7, §27c

Notes & Related Subsidiaries

Editorial Notes

References in Text

Citations & Metadata