Bona fide hedging transaction or position
Bona fide hedging transaction or position means a transaction or position in commodity derivative contracts in a physical commodity, where:
(1) Such transaction or position:
(i) Represents a substitute for transactions made or to be made, or positions taken or to be taken, at a later time in a physical marketing channel;
(ii) Is economically appropriate to the reduction of price risks in the conduct and management of a commercial enterprise; and
(iii) Arises from the potential change in the value of—
(A) Assets which a person owns, produces, manufactures, processes, or merchandises or anticipates owning, producing, manufacturing, processing, or merchandising;
(B) Liabilities which a person owes or anticipates incurring; or
(C) Services that a person provides or purchases, or anticipates providing or purchasing; or
(2) Such transaction or position qualifies as a:
(i) Pass-through swap and pass-through swap offset pair. Paired positions of a pass-through swap and a pass-through swap offset, where:
(A) The pass-through swap is a swap position entered into by one person for which the swap would qualify as a bona fide hedging transaction or position pursuant to paragraph (1) of this definition (the bona fide hedging swap counterparty) that is opposite another person (the pass-through swap counterparty);
(B) The pass-through swap offset:
(1) Is a futures contract position, option on a futures contract position, or swap position entered into by the pass-through swap counterparty; and
(2) Reduces the pass-through swap counterparty's price risks attendant to the pass-through swap; and
(C) With respect to the pass-through swap offset, the pass-through swap counterparty receives from the bona fide hedging swap counterparty a written representation that the pass-through swap qualifies as a bona fide hedging transaction or position pursuant to paragraph (1) of this definition, and the pass-through swap counterparty may rely in good faith on such written representation, unless the pass-through swap counterparty has information that would cause a reasonable person to question the accuracy of the representation; or
(ii) Offset of a bona fide hedger's qualifying swap position. A futures contract position, option on a futures contract position, or swap position entered into by a bona fide hedging swap counterparty that reduces price risks attendant to a previously-entered-into swap position that qualified as a bona fide hedging transaction or position at the time it was entered into for that counterparty pursuant to paragraph (1) of this definition.