CFTC Releases Joint Statement with EC and Two No-Action Letters for European Exchanges (CFTC Letters 14-15 and 14-16) (with Lofchie Comment)

CFTC Acting Chairman Mark Wetjen and Commissioner Michel Barnier of the European Commission ("EC") announced at the Global Markets Advisory Committee meeting that there has been "significant progress" toward harmonizing the regulatory framework for CFTC-regulated swap execution facilities ("SEFs") and EU-regulated multilateral trading facilities ("EU MTFs"). The CFTC staff subsequently released two related no-action letters intended to implement the "Path Forward" statement issued by the regulators in July 2013, under which the regulators had agreed to work together.

CFTC Letter 14-15 provides time-limited no-action relief for EU MTFs overseen by "competent authorities" from the U.S. SEF registration requirement set out in CEA Section 5h(a)(1) ("Swap Execution Facilities") and CFTC Rule 37.3(a)(1) ("Requirements and Procedures for Registration"). Additionally, the letter provides relief to parties executing swap transactions on MTFs from the trade execution mandate set out in CEA Section 2(h)(8) ("Jurisdiction of Commission; Liability of Principal for Act of Agent; Commodity Futures Trading Commission; Transaction in Interstate Commerce"). The letter specified that the relief will commence upon the letter's issuance and will expire for any particular MTF upon the earlier of: (i) the DMO's issuance of a letter acknowledging the receipt of, and granting, an MTF's relief request pursuant to CFTC Letter No. 14-16, or (ii) 11:59 p.m. on March 24, 2014.

CFTC Letter 14-16, issued jointly by the Division of Market Oversight ("DMO") and the Division of Intermediary Oversight ("DSIO"), provides no-action relief for:

• qualifying EU MTFs overseen by competent authorities designated by European Union Member States ("Qualifying MTFs") from the SEF registration requirement set out in CEA Section 5h(a)(1) and CFTC Rule 37.3(a)(1);
• parties executing swap transactions on Qualifying MTFs from the trade execution mandate set out in CEA Section 2(h) and their obligations to report such transactions in the method and manner prescribed in applicable CFTC Rule 43 ("Real-Time Public Reporting") and CFTC Rule 45 ("Swap Data Recordkeeping and Reporting Requirements"); and
• swap dealers ("SDs") and major swap participants ("MSPs") executing swap transactions on Qualifying MTFs from (i) certain business conduct requirements under CFTC Rule 23, Subpart H ("Business Conduct Standards for Swap Dealers and Major Swap Participants Dealing with Counterparties, Including Special Entities"), which sets forth business conduct standards for SDs and MSPs in their dealings with counterparties (the "External BCS"); (ii) the confirmation requirement under CFTC Rule 23.501 ("Swap Confirmation"); and (iii) the swap trading relationship documentation requirements under CFTC Rule 23.504 ("Swap Trading Relationship Documentation").

Letter 14-16 specified that its relief will expire upon the effective date of any final rules implementing the CFTC's authority, under CEA Section 5h(g), to exempt facilities that are "subject to comparable, comprehensive supervision and regulation on a consolidated basis by . . . the appropriate governmental authorities in the home country of the facility" from the SEF registration requirement of CEA Section 5h(a)(1) and CFTC Rule 37.3(a)(1). Also, Footnote 44 sounds a note of caution by providing that (i) the CFTC may withdraw the relief if it determines that the level of U.S. MTF participation and trading volume reaches a "significant" (albeit undefined) level and (ii) requires EU MTS to keep track of their U.S. vs. non-U.S. participation.

Lofchie Comment: These are further modest yet meaningful steps by Acting Chairman Wetjen to repair the CFTC's relationship with its colleague regulators in Europe, and to establish a cross border regulatory framework that does not entirely separate the financial markets of the United States and Europe. There is a lot of cleanup work still to be done.

See: CFTC No-Action Letter 14-15; CFTC No-Action Letter 14-16; CFTC Press Release; Summary of Proposed No-Action Letter Regarding Qualifying Multilateral Trading Facilities; Commissioner O'Malia's Opening Statement of the Global Markets Advisory Meeting.Related news: The CFTC and the European Commission on Common "Path Forward" for Regulating Derivatives (with Lofchie Comment) (July 11, 2013); CFTC Staff Issues Four No-Action Letters on Cross-Border Swaps Issues (Letters 13-43, 13-44, 13-45, 13-46) (with Lofchie Comment) (July 11, 2013).