CFTC Provides Further Relief for Swaps Entered into by Eligible Treasury Affiliates (CFTC Letter 14-144) (with Lofchie Comment)

The CFTC Division of Clearing and Risk issued no-action relief to eligible treasury affiliates entering into swaps that are subject to the clearing requirement in CEA Section 2(h)(1) and CFTC Rules Part 50. The no-action letter modifies relief previously issued for treasury affiliates on June 4, 2013 in CFTC Letter 13-22.

As with Letter 13-22, Letter 14-144 provides relief from required clearing for "eligible treasury affiliates" that are wholly-owned by a non-financial parent company, and are "financial entities" under CEA Section 2(h)(7)(C)(i)(VIII) because of the activities undertaken on behalf of its non-financial affiliates.

Letter 14-144 also provides further relief to non-financial corporate groups and their treasury affiliates. Among other changes, the letter:

• amends requirements placed on operations between a treasury affiliate and its affiliates;
• removes restrictions as to the number of financial affiliates that may be within the corporate group; and
• allows treasury entities affiliated with non-bank financial companies designated as systemically important by the Financial Stability Oversight Council to elect the relief subject to certain conditions.

For an eligible treasury affiliate seeking to elect the relief from required clearing, the swap activity must still meet several conditions, including that the eligible treasury affiliate enters into the swaps for the sole purpose of hedging or mitigating the commercial risk of one or more non-financial affiliates.

Lofchie Comment: The CFTC staff is on pace to issue over 150 no-action letters this year. In effect, many of them constitute rule amendments in that they apply to the markets as a whole, rather than with specific situations. It is time for the CFTC to consider undertaking a review of the rules that generate the need to issue these no-action letters. Rules relating to trading and cross-border guidance would be a good place to start.

See: CFTC Letter 14-144; CFTC Press Release. Related News: CFTC Conditional No-Action Relief from Clearing for Swaps Entered into by Eligible Treasury Affiliates (Letter 13-22) (with Lofchie Comment) (June 4, 2013).