What is 'Excluded Commodity'

An excluded commodity is a commodity that is not susceptible to measures of influence or manipulation. Excluded commodities include most financial products and any relevant event associated with the commodity that is outside the control of any interested party. Excluded commodities can also include intangible assets.

BREAKING DOWN 'Excluded Commodity'

Excluded commodities are created for assets with no cash market. When an investor trades interest or exchange rate futures, currency contracts or derivatives, that person is trading with excluded commodities. Because many of these products are large in scale, such as derivatives on economic indicators or weather, they are considered beyond the influence of interested investors. These commodities are called excluded because they are exempt from regulation when exchanged between eligible contract participants and are not transacted on an official trading facility.

Instead of having an actual cash value, excluded commodities are dependent on speculation in changes in the value of actual commodities like livestock, grains, metals, and other goods. In 2015, the Commodity Futures Trading Commission ruled that virtual currencies like Bitcoin were commodities and therefore subject to regulation, unlike excluded commodities.

According to the Commodity Futures Modernization Act of 2000, excluded commodities can include:

  • An interest rate, exchange rate, currency, security, security index, credit risk or measure, debt or equity instrument, index or measure of inflation, or other macroeconomic index or measure.
  • Any other rate, differential, index, or measure of economic risk, return, or value that is 1.) not based in substantial part on the value of a narrow group of commodities not described above or 2.) based solely on one or more commodities that have no cash market.
  • Any economic or commercial index based on prices, rates, values, or levels that are not within the control of any party to the relevant contract, agreement or transaction.
  • An occurrence, extent of an occurrence, or contingency (other than a change in the price, rate, value, or level of a commodity not described above that is 1.) beyond the control of the parties to the relevant contract, agreement or transaction, and 2.) associated with a financial, commercial or economic consequence.

Example of ‘Excluded Commodity’

One category of excluded commodities is intangible assets which are not physical in nature but are licenses, patents, trademarks, brands, customer lists, capitalized development expenses, and more.  Other examples are financial instruments such as a security, currency, interest rate, debt instrument, or credit rating; any economic or commercial index other than a narrow-based commodity index; or any other value that is out of the control of participants and is associated with an economic consequence.

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