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)
The CFTC Divisions of Swap Dealer and Intermediary Oversight, Clearing and Risk, and Market Oversight issued a no-action letter that provides time-limited relief to swap dealers ("SDs") registered with the CFTC that are established under non-U.S. jurisdictions ("Non-U.S. SDs") from certain "transaction-level" requirements under the CEA ("TLRs").
On November 14, 2013, the CFTC issued an Advisory (Letter 13-69) in response to inquires from swap market participants regarding the applicability of TLRs in certain situations, including, most notably, when TLRs apply to a non-U.S. SD trading out of a U.S. branch or office. Subsequent to the issuance of the Advisory, concerns were raised by certain Non-U.S. SDs who said that, in order to avoid market disruption for their non-U.S. counterparties, additional time would be necessary to come into compliance.
Letter 13-71 provides no-action relief to Non-U.S. SDs until January 14, 2014 as to compliance with TLRs when trading with non-U.S. persons, subject to the limitations set forth in the letter.
Lofchie Comment: This letter is illustrative of a number of problems with the CFTC's approach to implementing its swap rules.The terms used in the letter are not clear. What does it mean to say that a non-U.S. person who "regularly" arranges, negotiates or executes swaps through persons in the United States is "generally" subject to TLRs? Does "regularly" refer to a volume of swaps (and if so, what volume?) or to a number of personnel (and if so, what number?) or to a frequency (every day?)? What does it mean that a person would be "generally" required to comply? (Does that mean on some swaps? Does that mean that there are some conditions which would make compliance inapplicable?) What does it mean to "arrange" a swap? It would seem to mean something more than a referral, but there is no explanation of the term.Moreover, the letter continues the CFTC's trend of unworkable deadlines followed by last-minute no-action letters. For Non-U.S. SDs with personnel and systems to bring into compliance, two months is a short period.
See: CFTC Letter 13-71. Related news: CFTC Issues Advisory on Applicability of Transaction-Level Requirements in Certain Cross-Border Situations (CFTC Letter 13-69) (with Lofchie Comment) (November 14, 2013).