CFTC Staff Issues Four No-Action Letters on Cross-Border Swaps Issues (Letters 13-43, 13-44, 13-45, 13-46) (with Lofchie Comment)

The CFTC issued four no-action letters that address certain issues relating to swaps regulation, following the announcement earlier today by European Commissioner Barnier and CFTC Chairman Gensler of a "Path Forward" for how to jointly approach cross-border derivatives.

Two of the letters were issued by the CFTC's Division of Clearing and Risk ("DCR") to two European-based clearing organizations, respectively, intended to facilitate their provision of certain clearing services to clearing members that are U.S. persons, during the pendency of their derivatives clearing organization ("DCO") registration applications. In the respective letters, DCR provided no-action relief as follows:

• DCR will not recommend that the CFTC take enforcement action against LCH.Clearnet SA ("LCH.C SA") for failing to register as a DCO under CEA Section 5b(a) with respect to clearing certain credit default swaps on a broad-based index of reference entities ("Index CDS").
  • In addition, DCR will not recommend enforcement action against U.S. clearing members of LCH.C SA for failing to clear their proprietary Index CDS business through a registered DCO.
• DCR will not recommend that the CFTC take enforcement action against Eurex Clearing AG ("Eurex Clearing") for failing to register as a DCO under CEA Section 5b(a) with respect to clearing certain interest rate swaps ("IRS") and certain Index CDS.
  • In addition, DCR will not recommend enforcement action against U.S. clearing members of Eurex Clearing for failing to clear their proprietary IRS and Index CDS business through a CFTC-registered DCO.

In each case, the relief will be effective until the earlier of (1) December 31, 2013, or (2) the date upon which the CFTC approves LCH.C SA's or Eurex Clearing's (as applicable) pending application for registration as a DCO.

A third no-action letter was issued by the CFTC's Division of Swap Dealer and Intermediary Oversight ("DSIO"), providing relief from certain designated risk mitigation requirements applicable to registered swap dealers ("SDs") and major swap participants ("MSPs") organized or established in the United States or European Union with respect to certain transactions, when such transactions are subject to both CEA Section 4s and Article 11 of the European Market Infrastructure Regulation ("EMIR"). Under the terms of the no-action letter, DSIO stated that relief would be extended to SDs and MSPs for whom, under both regimes, the requirements are essentially identical and the SD or MSP complies with the requirements under EMIR. The scope of relief provided in the no-action letter is subject to the specific conditions that are enumerated in the letter, including its limitation to the products and participants described in the letter.

Finally, the CFTC's Division of Market Oversight ("DMO") issued a no-action letter that expands the relief previously provided under the terms of the 16 existing direct access no-action letters issued by CFTC staff. Pursuant to the previous no-action letters, a foreign board of trade ("FBOT") may permit identified members or other participants located in the United States to enter trades directly into the trade matching system of the FBOT only with respect to futures and option contracts. Under the terms of the no-action letter issued today, DMO amended the previous no-action letters to permit those FBOTs to list swap contracts for trading by direct access, subject to certain conditions that are enumerated in the letter.

Lofchie Comment: These no-action letters are being issued on the eve of the CFTC's open meeting on cross-border issues. To the extent that the issuance of these letters and the adoption of the "Path Forward" signals that the CFTC is going to adopt cross-border regulatory rules that have not been subject to public comment or review, that is unfortunate.

See: CFTC Letter 13-43; CFTC Letter 13-44; CFTC Letter 13-45; CFTC Letter 13-46.See also: Attachment A-Products Offered for Clearing by Eurex Clearing AG.Related News: "The CFTC and the European Commission on Common "Path Forward" for Regulating Derivatives (with Lofchie Comment)" (July 11, 2013).