CFTC Letter 13-47 Exempts from Clearing Certain Swaps Entered Into by Cooperatives (with Lofchie Comment)

The Division of Clearing and Risk (DCR) issued a time-limited, no-action letter granting relief from required clearing under section 2(h)(1)(A) ("Standard for Clearing") of the CEA and part 50 ("Clearing Requirement") of the CFTC rules for certain swaps entered into by qualifying cooperatives. The no-action letter provides that DCR will not recommend an enforcement action for a cooperative's failure to clear a swap, if the cooperative and the swap meet certain conditions set forth in the no-action letter, including that the swap either is entered into in connection with certain qualifying loans or is being used to hedge or mitigate commercial risk. The no-action relief expires on August 16 or on the effective date of a CFTC rule covering the same subject matter.

Lofchie Comment:This no-action relief provides yet another example of the CFTC imposing "deadlines" and "expiration dates" that serve no purpose whatsoever. This is the third no-action letter on this topic (following no-action letters 12-26 and 13-30, both of which have now expired). Compounding the problem of wasted resources by virtue of the multiple no-action letters is the CFTC's pattern of issuing no-action letters either at the last minute or after the last minute. According to this letter, the 12-26 relief expired on April 1, 2013, but the CFTC did not get around to renewing the relief until June 21. The June 21 relief expired on July 19 and was not extended by this letter until that same day of expiration. Essentially, there is no way for market participants to know whether the CFTC intends to allow relief to continue or to expire, and even if relief has expired, it is not possible to know whether it has really expired or the CFTC has just not gotten around to renewing the relief. In short, it is hard to know what is a "rule" and what is not under these circumstances.

See: No-Action Letter 13-47; CFTC Press Release.