CFTC Staff Extends No-Action Relief on "Block and Cap" Reporting
The CFTC Division of Market Oversight extended until July 1, 2024 no-action relief from compliance with recent amendments to CFTC rules for reporting block transactions in swaps.
In a Letter, the CFTC addressed requirements under CFTC Rule 43.3 on post-initial cap sizes and under Rule 43.6 on block trades and large notional off-facility swaps. The rules were initially scheduled to become effective on May 25, 2023, but were extended in CFTC Letter 22-03 (see previous coverage) through December 4, 2023, provided that the relevant persons comply with the regulations that were in effect for CFTC Rules Parts 43, 45, 46 and 49 as of January 1, 2021.
The CFTC staff published relevant block and cap sizes on April 19, 2023. On February 16, 2023, the CFTC published an Order designating the unique product identifier ("UPI") and product classification system to be used for reporting and recordkeeping purposes starting on January 29, 2024. In requesting relief, swap data repositories indicated that the lack of alignment in the timing for Letter 22-03 and the UPI requirements is "unworkable."
The Division granted an extension of the relief in Letter 22-03 through July 1, 2024, while indicating that "it does not currently intend to extend the no-action position provided in this letter beyond July 1, 2024."
Statement
In a joint statement, Commissioners Summer K. Mersinger and Caroline D. Pham supported the extension, but said that they were "deeply disturbed" by the statement that staff did not intend to extend the no-action position and that the stakes on the issue are "simply too high for the [CFTC] to (continue to) stick its head in the sand on this subject." The Commissioners further criticized the process the CFTC has taken on block transactions, arguing that the CFTC "has never applied a data-driven analysis to reliable data" to determine appropriate sizes. The Commissioners urged the CFTC to extend the relief through December 4, 2024.
Commentary
The staff statement that it "does not currently intend" to extend the relief is odd. Saying one does not "currently intend" to extend a deadline set for 6+ months in the future is tonally different from, but substantively similar to saying "we'll continue to look at this issue over the next six months." (Perhaps the CFTC staff has learned a lesson after making a definitive statement on FCM separate accounts in 2019 that it "will not be extending [relief] at any point" only to proceed to extend that relief multiple times over.)
The sharp criticism from Commissioners Pham and Mersinger suggests some discord as to this wording and likely some internal debate at the CFTC about the feasibility of implementing the relevant requirements by July. But it's hard to see how this public row is a positive for industry; the majority of the CFTC supported the earlier deadline and staff would reasonably be motivated to push for the earlier compliance timeframe given its expressed intention.