CFTC Issues Extension to No-Action Letter on Applicability of Transaction-Level Requirements in Certain Cross-Border Situations (CFTC Letter 14-74) (with Flynn Comment)

The CFTC issued a letter that extends time-limited no-action relief from certain transaction-level requirements under the CEA. These requirements include transactions when entering into swaps with non-U.S. persons, that are not guaranteed or conduit affiliates of a U.S. person, and that are using the SD's personnel or agents located in the United States to arrange, negotiate or execute such swaps.

The no-action relief follows a November 14, 2013 DSIO Advisory which stated that persons regularly arranging, negotiating or executing swaps for or on behalf of an SD are performing core, front-office activities of that SD's dealing business and, thus, "a non-U.S. SD . . . regularly using personnel or agents located in the U.S. to arrange, negotiate, or execute a swap with a non-U.S. person generally would be required to comply with the Transaction-Level Requirements." Subsequent to the issuance of the DSIO Advisory, concerns were raised by certain Non-U.S. SDs regarding compliance with the Transaction-Level Requirements, who represented that, in order to avoid market disruption for their non-U.S. counterparties, additional time would be necessary to come into compliance.

In view of the foregoing, the Divisions extended the date of the time-limited staff no-action relief provided in CFTC Letter 14-01 through September 15, 2014. CFTC Letter 14-74 further extends this relief until December 31, 2014, subject to the limitations in the letter.

Flynn Comment:DSIO's decision to extend the no-action relief underscores the uncertain status of the CT's approach to cross-border issues. Current policy is based on interpretive guidance, no-action letters and advisories that purport to impose substantive regulatory obligations on a wide range of market participants, but without the benefit of codified regulations or, in many cases, the procedural protections long required under the Administrative Procedure Act ("APE"). Although it is only a few pages long, the Disco's November 2013 Advisory incorporates a "territorial approach" to regulation into the CT's approach to cross-border issues. This makes the physical location of individual employees relevant to the jurisdictional analysis of every swap transaction. By comparison, the SEC dedicated hundreds of pages to this issue when it published its proposed cross-border rules in May 2013 and refrained from imposing new regulatory requirements before completing its analysis of this complex issue. There are potentially profound ramifications of the DSIO Advisory. Inviting public comment on this important issue allows for input on one small piece of a larger puzzle, one in which a broader overhaul of the CFTC's approach to cross-border issues should be considered.

For additional information, please contact Athena Eastwood, Doron Ezickson and Jonathan Flynn.

See: CFTC Letter 14-74.Related news: CFTC No-Action Letter (14-01) on Application of Transaction-Level Requirements to Non-U.S. Swap Dealers (with Lofchie Comment) (January 3, 2014); CFTC Issues Advisory on Applicability of Transaction-Level Requirements in Certain Cross-Border Situations (CFTC Letter 13-69) (with Lofchie Comment) (November 14, 2013); CFTC Requests Comment Regarding Activities of Non-U.S. Swap Dealers and O'Malia Dissents (with Lofchie Comment) (January 3, 2014) CFTC No-Action Letter (14-01) on Application of Transaction-Level Requirements to Non-U.S. Swap Dealers (with Lofchie Comment) (January 3, 2014); 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 Exemptive Order for Certain Swap Regulations (Fed. Reg. Version) (July 22, 2013); Delta Strategy Group Summary: Final CFTC Cross-Border Guidance and Accompanying Exemptive Order (July 19, 2013); CFTC Approves Cross-Border Guidance and Exemptive Order (with Lofchie Comment) (July 12, 2013).