CFTC Staff Grants Temporary Major Swap Participant Relief to Bank
The CFTC Division of Swap Dealer and Intermediary Oversight ("DSIO") granted time-limited no-action relief to a bank from "major swap participant" ("MSP") status. The DSIO action was taken in response to a request for relief due to compliance challenges caused by COVID-19.
The relief was granted to an unnamed U.S. bank (the "IDI") that is not registered as a swap dealer (and has no affiliated swap dealer), and that enters into swaps with loan customers, the majority of which do not count for swap dealer de minimis purposes. The IDI offers financing to oil and natural gas producers through commodity swaps for hedging purposes and loans.
The DSIO letter concluded that given that the IDI does not post margin to its energy customers, its MSP calculation (in particular, its "aggregate uncollateralized outward exposure") is pressed higher during times of severe downturns in commodity prices.
The CFTC relief applies through September 30, 2020 for swaps that are (i) excluded for dealing de minimis or similar purposes and (ii) based on specified oil and gas commodities. The relief is also conditioned on the IDI providing the CFTC with relevant calculations, including and excluding the swaps for which no-action relief is granted.
Commentary
There is a somewhat limited class of persons for whom this letter will be relevant, given the fact-specific nature of the relief and the relatively few persons for whom MSP status is a legitimate concern. However, the letter generally does indicate that the CFTC is open to considering needed relief related to the current severe market conditions.