CFTC Issues Time-Limited No-Action Letter Regarding the Treatment of Swap Transactions by Persons Engaging in Floor Trader Activities (13-61) (with Lofchie Comment)

The CFTC Division of Swap Dealer and Intermediary Oversight issued a no-action letter providing relief for persons engaging in floor trader activities for purposes of making calculations under the Swap Dealer definition. The CFTC will not take action against an entity for failure to include, in its calculation of the aggregate gross notional amount of swaps connected with its swap dealing activity for purposes of CFTC Rule 1.3(ggg)(4) ("De minimis exception"), a swap that is submitted for clearing to a registered derivatives clearing organization. The letter also includes conditions that entities must follow in order to qualify for the no-action, including: (i) the entity does not have a registered swap dealer affiliate; (ii) the entity has entered into the swap using proprietary funds for its own account; and (iii) the entity complies with the requirements set forth in CFTC Rule 1.3(ggg)(6)(iv)(D)-(H) ("Swaps That Are Not Considered in Determining Whether a Person Is a Swap Dealer"). Additionally, the letter extends no-action relief in letters 13-37 and 12-60. The relief in the Letter will expire on November 1, 2013.

Lofchie Comment: This letter is perfectly illustrative of how wasteful both the CFTC's rulemaking and no-action processes are. The fundamental problem is that a rule exemption which would be available to floor brokers in swaps is not available because the deadline in the exemption was unworkable. Accordingly, the CFTC has issued two prior no-action letters extending the deadline. The deadline is still not workable because the SEF rules are still in flux. So the CFTC issues a no-action letter, dated September 30, but not publicly available until some time on October 1, that provides yet another short-term extension from the deadline, provided firms relying on the extension write a letter to the CFTC by October 2 - even though (i) no purpose can be served by such letters, (ii) nobody will be at the CFTC to review the letters and (iii) the firms will already have written letters to the CFTC in connection with the prior extensions.

See: CFTC No-Action Letter 13-61; CFTC Press Release.Related News: Time-Limited No-Action Relief (13-37) Regarding the Treatment of Swap Transactions by Floor Traders for Purposes of Swap Dealer Definition(June 17, 2013); CFTC Issues Time-Limited No-Action Relief Regarding the Treatment of Swap Transactions, by Persons Engaging in Floor Trader Activities, for Purposes of Making Calculations under the Swap Dealer Definition (December 19, 2012).