CFTC Issues Limited No-Action Relief from Required Clearing for Partial Novations and Terminations of Swaps (CFTC Letter No. 13-02)

The CFTC's Division of Clearing and Risk issued a no-action letter that provides relief from required clearing for a limited set of swaps ("stub swaps") that remain after the partial novation or partial termination of an original swap that was not required to be cleared because it was executed prior to an applicable compliance date for required clearing.

The no-action relief is subject to, among others, the following conditions:

1. the original swap must not have been cleared;
2. the original swap was executed prior to an applicable compliance date for required clearing;
3. the partial novation or termination may reduce only the notional amount of the original swap, with all other terms of the stub swap remaining unchanged; and
4. the records relating to the original swap are amended solely to reflect the reduced notional amount of the swap.

For partial novations, the relief is also subject to the condition that the novated swap is submitted for clearing pursuant to CEA Section 2(h)(1)(A) and CFTC Rules Part 50 ("Clearing Requirement and Related Rules").

All new swaps that are subject to required clearing under Part 50, including those that partially or fully offset the risk of original swaps, must be submitted for clearing, unless an exception or exemption under Part 50 applies.

Click here to view letter in full (links externally to CFTC website).See also: CFTC No-Action Relief from Clearing Swaps Resulting from Multilateral Portfolio Compression Exercises (CFTC Letter No. 13-01).