CFTC Issues Fourth No-Action Delay for Certain Package Transactions (CFTC Letter 15-55)
Commentary by Steven Lofchie
The CFTC Division of Market Oversight ("DMO") extended existing time-limited no-action relief for swaps executed as part of certain package transactions. The relief isgranted by CFTC Letter 14-137 from requirements under CEA Sections 2(h)(8)("Exception") and 5(d)(9) ("Designation of Boards of Trade as Contract Markets"), and CFTC Rules Parts 37.3(a)(2) ("Requirements and Procedures for Registration") and 37.9("Methods of Execution for Required and Permitted Transactions").
The CFTC claimed that this extension of time-limited relief would "enable the Division to continue to further assess the appropriate response for applying the trade execution requirement to swaps in certain types of package transactions."
CFTC Commissioner J. Christopher Giancarlo criticized the extension, which delays compliance with the trade execution requirements for these products for the fourth time, by characterizing it as a "new 'Permitted-Lite' set of execution methods in addition to the Required and Permitted methods" that were produced by CFTC staff. He called on the CFTC to "follow congressional direction that [would] allow . . . swap execution facilities the flexibility to utilize methods of execution best matched to the existing way in which package transactions currently trade in global markets" instead of issuing "this added no-action relief complexity."
Commentary
When the effectiveness of a set of rules is delayed so many times, and particularly when the purpose of the delays is to reconsider policy for reasons that are not limited to diagnosing technology problems, it is a sign that the rules were not well considered from the start. Given the degree of turnover at the CFTC, it would be reasonable for the commissioners to engage in a do-over by reconsidering how these rules apply to package transactions entirely. Since it is no secret that many of the CFTC's swap rules were adopted without being fully vetted, why should the Commissioners forsake the opportunity to rethink them completely, and instead merely tinker with rules that deserve total reconstruction?