CFTC Issues Two No-Action Letters Regarding CCO Reporting Requirements (CFTC Letters 13-84 and 13-85) (with Lofchie Comment)

The CFTC's Division of Swap Dealer and Intermediary Oversight issued two time-limited no-action letters regarding the annual reporting requirements for chief compliance officers ("CCOs") pursuant to CFTC Rule 3.3 ("Chief Compliance Officer").The first letter provided no-action relief from CFTC Rule 3.3 to permit all futures commission merchants ("FCMs"), swap dealers, and major swap participants ("MSPs") with Annual Reports due in calendar year 2014 to submit such reports 90 days after the FCM's fiscal year-end without being required to submit them at the same time as the Form 1-FR-FCM or FOCUS Reports. Initially, SDs and FCMs were required to file simultaneously their CCO Annual Reports and the FOCUS report (in the case of FCMs) or the financial condition report (in the case of SDs) within 90 days of the end of their fiscal year. The effective date of the reduced 60-day period is January 13, 2014. SDs with a fiscal year ending on or before December 31, 2013 still have the 90-day period during which to prepare their 2013 Annual Report and are not impacted by the reduced 60-day period.

The second letter provided time-limited relief for firms that are not required to register with the CFTC as Swap Dealers ("SDs") prior to December 31, 2013, and have a fiscal year-end of December 31, 2013, as well as time-limited relief for chief compliance officers from preparing and furnishing Annual Reports to the CFTC for the fiscal year that ends on December 31, 2013. The letter reasons that the reports would "be of little value to the Commission," stating that the covered time period would be, at most, one day.

Lofchie Comment: Both of these CFTC no-action letters are needed because of carelessly drafted rules. Rather than issuing this time-limited relief, thereby forcing the CFTC to repeat the relief again next year, the CFTC should make it open-ended in time, which would then give the CFTC an opportunity to fix its rules. In the case of the first letter, the relief is necessary because the CFTC established a time period for reporting which is (a) unduly short and (b) off-schedule with that of other regulators. In the case of the second letter, the relief is necessary because the CFTC requires swap dealers to register as of the last day of a month - e.g., December 31 - rather than the first day of the new year. As a result, newly registered firms become subject to meaningless reporting requirements for a one-day period. It would be a benefit to the market if the newly acting chairman of the CFTC used his transitionary term to inventory CFTC rules that required cleanup. It is an expense to market participants and the CFTC to have to deal with rules that are flawed in ways both big and small.

See: CFTC No-Action Letter 13-84; CFTC No-Action Letter 13-85.