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Many standard subsidiary guarantees in secured financing transactions may be illegal under rules recently issued by the Commodity Futures Trading Commission (“CFTC”) under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). These rules, which became effective on March 31, 2013, expanded the meaning of the term “swap” to include a guarantee of a swap and made it illegal for any person other than an “eligible contract participant” (ECP) to enter into a swap that is not on, or subject to the rules of, a designated contract market (DCM). ECPs include entities with total assets exceeding $10 million, those whose obligations are guaranteed by an ECP, and those with a net worth exceeding $1 million that are hedging commercial risk.

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