CFTC No-Action Letter (14-01) on Application of Transaction-Level Requirements to Non-U.S. Swap Dealers (with Lofchie Comment)

On the second business day of the new year, the CFTC issued its first major no-action letter. The CFTC Divisions of Swap Dealer and Intermediary Oversight, Clearing and Risk, and Market Oversight ("Divisions") issued a time-limited (until September 15, 2014) no-action letter that extends relief previously granted, in Letter 13-71, to non-U.S. swap dealers ("SDs") doing business with non-U.S. customers. This relief generally exempts them from complying with "Transaction-Level" requirements, even when an individual in the United States is involved in effecting the transaction.

The CFTC said that concerns had been raised as a result of the staff's guidance, issued in November, regarding compliance by non-U.S. swap dealers with the transaction-level requirements. According to the CFTC, non-U.S. swap dealers had represented that, in order to avoid market disruption for their non-U.S. counterparties, additional time is necessary to come into compliance with the requirements.

Lofchie Comment: The real issue is not with the need for market participants to come into compliance with the CFTC staff's no-action letter; the real issue is with the legality of the CFTC's interpretative guidance. The 8 1/2 month window to come into compliance was necessary only because both the guidance and the related no-action letter relates to a rule adopted in violation of the Administrative Procedures Act. That the CFTC thinks it necessary to grant firms extensions of the better part of a year to come into compliance with non-official guidance and a staff no-action letter seems equivalent to a confession that the CFTC is on the losing side of the legal challenge to the interpretative guidance brought to it by market participants. The new chairperson of the CFTC might begin by taking up better cross-border "rulemaking."

See: CFTC No-Action Letter 14-01; Press Release.Related news: CFTC Issues No-Action Letter Providing Relief to Non-U.S. SDs from Certain CEA Transaction-Level Requirements (CFTC Letter 13-71) (with Lofchie Comment) (November 26, 2013); CFTC Requests Comment Regarding Activities of Non-U.S. Swap Dealers and O'Malia Dissents (with Lofchie Comment).