CFTC No-Action Relief from Certain External Business Conduct Standards and Documentation Standards (Letter 13-33) (with Lofchie Comment)

The CFTC's Division of Swap Dealer and Intermediary Oversight ("DSIO") issued a no-action letter as to certain duties imposed on swap dealers pursuant to the CFTC's Business Conduct Standards with Counterparties ("External BCS"), as well as from certain documentation requirements imposed on SDs pursuant to CFTC Rule 23.504 ("Swap trading relationship documentation").

The relief is available for an "Intended-to-Be-Cleared Swap" ("ITBC Swap"), a swap that is intended to be submitted for clearing contemporaneously with the execution of such swap. Subject to extensive conditions, the letter provides relief from the business conduct requirements listed in Appendix A to the letter (page 14) and the swap trading relationship documentation requirement under CFTC Rule 23.504. One of the conditions in the no-action letter is that an SD must first enter into a fallback agreement, as defined in the letter, with the applicable counterparty (or its duly authorized representative). Another of the conditions in the letter is that, in the case of a bunched order that fails to clear, the account manager for the order be responsible, apparently as principal, for the obligations of its advised client - a condition that would likely be very unattractive to advisers.

Lofchie Comment: This CFTC no-action letter is subject to complicated and difficult conditions that significantly limit its usefulness. Further, the imposition of an additional type of documentation requirement places yet another strain on market participants.

See: CFTC Letter 13-33.