CFTC’s DSIO Issues Time-Limited No-Action Relief to SDs and MSPs Regarding Certain Recordkeeping Obligations (CFTC Letter 13-06) (with Lofchie Comment)

The CFTC Division of Swap Dealer and Intermediary Oversight ("DSIO") issued time-limited no-action relief for swap dealers ("SDs") and major swap participants ("MSPs") concerning certain recordkeeping obligations under Part 23 of the CFTC regulations. The no-action letter is an extension of relief previously granted to SDs and MSPs which was scheduled to have expired on March 31, 2013. See CFTC Letter No. 12-29 (October 26, 2012).

The new no-action letter extends until June 30, 2013, the compliance date for the following provisions:

(1) For landline telephones that are not located in one of the following geographic jurisdictions: United States, United Kingdom, Singapore, Hong Kong, Japan, Australia, Switzerland, or Canada, the requirement that SDs and MSPs make and keep records of all oral communications related to pre-execution swap trade information (and communications that lead to the conclusion of a related cash or forward transaction) pursuant to Regulations 23.202(a) and (b);

(2) The requirement that SDs and MSPs maintain all transaction records and daily trading records in a manner "identifiable and searchable" by transaction and counterparty pursuant to Regulations 23.201(a)(1), 23.202(a) and 23.202(b), subject to the condition that the Firms continue to maintain such records using existing search capabilities in their relevant systems;

(3) The requirement that SDs and MSPs use a Coordinated Universal Time ("UTC") timestamp when recording quotations prior to and at the time of execution of a swap pursuant to Regulations 23.202(a)(1)(ii), (a)(2)(iv), (a)(3)(ii), (b)(3), and (b)(4), subject to the condition that the data recorded in local time is convertible to UTC within a reasonable timeframe after a regulatory request for such time data, and subject to the condition that the Firms will continue to commit to using a UTC time standard in newly installed or upgraded systems; and

(4) The requirement that SDs and MSPs retain swap records at their principal places of business or such other principal offices as designated by the SD or MSP, subject to the condition that records otherwise subject to Regulation 23.203(a)(1) be promptly available at the designated principal place of business or other such principal office located in the United States, its territories, or possessions within 72 hours upon request of a CFTC representative.

Lofchie Comment: While this relief will clearly be welcomed by the market, it is disappointing that, yet again, the CFTC has issued a no-action position as to a rule, which no one is technologically able to comply with, after the effective date of the rule. Further, the CFTC has only made the relief available for three months, even though it is clearly impossible that the market will be in a position to comply with the relevant rules within that period. When the CFTC issues its next no-action letter on this topic, I hope it will be prospective rather than retrospective. A consistent pattern of adopting rules that are impossible to fulfill, and then issuing temporary exemptions after the rules have become effective, lessens confidence in the regulatory system.

Click here to view CFTC Letter 13-06 (links externally to CFTC website).Related News: "CFTC Issues Time-Limited No-Action Relief Regarding Certain Recordkeeping Obligations (with Lofchie Comment)" (October 26, 2012). (This story links to CFTC Letter No. 12-29.)