Quick Guide to “Eligible Contract Participant” Status

Written by Ricky Nave in Investment Fund Law & Regulation

Certain types of interest rate, cryptocurrency, and other commodity transactions can only be legally performed by “eligible contract participants” (ECPs). The complete definition for who qualifies as an ECP can be found in this excerpt from the Commodity Exchange Act (CEA), but for convenience, I have summarized and structured the definition of who qualifies in the list below. This summary leaves out many of the “or a foreign person operating in a similar function and operating under similar foreign regulation” type caveats, so if you are not a U.S. resident, citizen, or company, you’ll probably want to reference the full definition linked above. If you are trying to determine ECP status for a U.S. citizen, resident, or company, then this summary should provide the answer in 99% of cases.

  • (A) Acting for its own account, any of the following:
    • (i) a financial institution;
    • (ii) an insurance company that is regulated by a State;
    • (iii) an investment company subject to regulation under the Investment Company Act;
    • (iv) a commodity pool that:
      • (I) has total assets exceeding $5,000,000; and
      • (II) is formed and operated by a person subject to regulation under the Commodity Exchange Act, regardless of whether each investor in the commodity pool is itself an ECP (except that for purposes of sections 2(c)(2)(B)(vi) and 2(c)(2)(C)(vii), the commodity pool only qualifies as an ECP if each of its investors is also an ECP);
    • (v) a corporation, partnership, proprietorship, organization, trust, or other entity that satisfies one of the following conditions:
      • (I) has total assets (not net worth) exceeding $10,000,000;
      • (II) has contractual obligations guaranteed or otherwise supported by a letter of credit or keepwell by an entity previously described, or an entity described in (A)(vii) or (C);
      • (III) satisfies both of the following conditions:
        • (aa) has a net worth exceeding $1,000,000; and
        • (bb) only enters into ECP-gated contracts in order to hedge commercial risk
    • (vi) an employee benefit plan subject to the Employee Retirement Income Security Act of 1974, or a governmental employee benefit plan, which also satisfies one of the following conditions:
      • (I) has total assets exceeding $5,000,000; or
      • (II) the investment decisions are made by one of the following persons:
        • (aa) an investment adviser or commodity trading adviser subject to regulation under the Investment Advisers Act or the Commodity Exchange Act;
        • (bb) a foreign person performing a similar role and subject to similar foreign regulation;
        • (cc) a financial institution; or
        • (dd) an insurance company regulated by a State;
    • (vii) a governmental entity (including the United States, a State, or a foreign government), a political subdivision of a governmental entity, a multinational or supranational government entity, or an instrumentality, agency, or department of any of those entities, except that political subdivisions, instrumentalities, agencies, and departments must also satisfy one of the following conditions:
      • (aa) the entity is described in clause (i), (ii), or (iii) of paragraph (17)(A);
      • (bb) the entity owns and invests, on a discretionary basis, $50,000,000 or more; or
      • (cc) the contemplated ECP-status-gated contract or transaction is offered by, and entered into with, an entity that is listed in any of subclauses (I) through (VI) of section 2(c)(2)(B)(ii) of the Commodity Exchange Act;
    • (viii) Any of the following:
      • (I) a broker or dealer subject to regulation under the Securities Exchange Act, except that if the broker or dealer is a natural person or proprietorship, then the broker or dealer shall not be considered to be an ECP unless that broker or dealer also meets the requirements of clause (v) or (xi);
      • (II) an associated person of a registered broker or dealer concerning the financial or securities activities of which the registered person makes and keeps records under section 15C(b) or 17(h) of the Securities Exchange Act; or
      • (III) an investment bank holding company (as defined in section 17(i) of the Securities Exchange Act);
    • (ix) a futures commission merchant (FCM) subject to regulation under the CEA, except that if such FCM is a natural person or proprietorship, then the FCM shall not be considered an ECP unless they also meet the requirements of clause (v) or (xi);
    • (x) a floor broker or floor trader subject to regulation under the CEA shall be considered an ECP in connection with any transaction that takes place on or through the facilities of a registered entity (other than an electronic trading facility with respect to a significant price discovery contract) or an exempt board of trade, or any affiliate thereof, on which such person regularly trades; or
    • (xi) an individual who has amounts invested on a discretionary basis in excess of:
      • (I) $10,000,000; or
      • (II) $5,000,000 if that person is entering ECP-status-gated transactions to hedge reasonable commercial risk
  • (B) either of the following:
    • (i) a person described in clause (i), (ii), (iv), (v), (viii), (ix), or (x) of subparagraph (A) or in subparagraph (C), acting as broker or performing a similar role on behalf of another person described in subparagraph (A) or (C);
    • (ii) an investment adviser subject to regulation under the Investment Advisers Act, a commodity trading advisor subject to regulation under the CEA, or a person described in subparagraph (C) or clauses (i), (ii), (iv), (v), (viii), (ix), or (x) of subparagraph (A) who is acting as investment manager or fiduciary (but excluding a person acting as broker or perfomring an equivalent agency function) for another person described in subparagraph (A) or (C) and who is authorized by such person to commit such person to the transaction;
  • (C) any other person that the CFTC determines to be eligible in light of the financial or other qualifications of the person

Ricky Nave

In college, Ricky studied physics & math, won a prestigious research competition hosted by Oak Ridge National Laboratory, started several small businesses including an energy chewing gum business and a computer repair business, and graduated with a thesis in algebraic topology. After graduating, Ricky attended grad school at Duke University in the mathematics PhD program where he worked on quantum algorithms & non-Euclidean geometry models for flexible proteins. He also worked in cybersecurity at Los Alamos during this time before eventually dropping out of grad school to join a startup working on formal semantic modeling for legal documents. Finally, he left that startup to start his own in the finance & crypto space. Now, he helps entrepreneurs pay less capital gains tax.

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