Financial Services Bulletin: Action At The CFTC

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CFTC Seeks Comment on Chicago Mercantile Exchange New Swap Rules

On Wednesday, November 28, 2012, the Commodity Futures Trading Commission (the "CFTC") requested public comment on a request from the Chicago Mercantile Exchange Inc. ("CME") for approval of Rule 1001 submitted pursuant to section 40.5 of the CFTC’s regulations.  Rule 1001 provides that:

“[f]or all swaps cleared by the Clearing House, and resulting positions, creation and continuation data shall be reported to CME's swap data repository for purposes of complying with applicable CFTC rules governing the regulatory reporting of swaps.  Upon the request of a counterparty to a swap cleared at the Clearing House, the Clearing House shall provide the same creation and continuation data to a swap data repository selected by the counterparty as the Clearing House provided to CME's swap data repository under the preceding sentence[.]”

Read the CFTC press release

CFTC Issues Clearing Determination for Certain Credit Default Swaps and Interest Rate Swaps

On Wednesday, November 28, 2012, the CFTC issued new rules to require certain credit default swaps and interest rate swaps to be cleared by registered derivatives clearing organizations.  The rules establish the first clearing requirement determinations by the CFTC under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act").  The rules identify four interest rate swap classes and two credit default swap classes that are required to be cleared.  Under the rules, market participants are required to submit a swap that is identified in the rule for clearing by a derivatives clearing organization as soon as technologically practicable and no later than the end of the day of execution.

Read the CFTC press release

CFTC Issues Swaps Related No-Action Letters

On Wednesday, November 28, 2012 and Friday November 30, 2012, the CFTC issued several swap related no-action letters. 

The CFTC's Division of Swap Dealer and Intermediary Oversight ("DSIO") issued a no-action letter stating that it will not recommend that the CFTC take enforcement action against the operators of family offices for failure to register as commodity pool operators under the Commodity Exchange Act and the CFTC’s regulations, subject to certain conditions described in the letter.  DSIO also issued a time limited no-action letter that states it will not recommend that the CFTC take enforcement action against a commodity pool operator of a fund of funds for failure to register as such until the later of June 30, 2013, or six months after the effective date (or compliance date, if later) of any revised guidance that DSIO issues on the application of the de minimis thresholds to funds of funds in the context of CFTC regulations 4.5 and 4.13(a)(3), provided that the commodity pool operator files a claim for no-action relief and that claim meets certain criteria specified in the letter.

The CFTC’s Division of Clearing and Risk ("DCR") issued two time-limited no-action letters granting relief from required clearing under section 2(h)(1)(A) of the Commodity Exchange Act and the CFTC’s newly adopted Part 50 regulations for certain swaps.  The first no-action letter provides that it will not recommend an enforcement action for failure to clear a swap entered into by affiliated counterparties if one of the counterparties to the swap is majority owned by the other counterparty or both counterparties are majority owned by a third party and the financial statements of both counterparties and the third party majority owner, if any, are reported for accounting purposes on a consolidated basis.  In addition, both affiliates must agree not to clear the swap.

The second DCR no-action letter provides that it will not recommend an enforcement action for failure to clear a swap entered into by a cooperative if the cooperative and the swap meet certain conditions set forth in the no-action letter.  To qualify for the no-action relief, one of the counterparties to the swap must be a cooperative whose members are either non-financial entities or cooperatives whose members are non-financial entities.  In addition, the no-action relief only applies to swaps entered into in connection with originating loans to cooperative members or that are related to loans to, or swaps with, members.

Lastly, the CFTC’s Division of Market Oversight ("DMO") issued a time-limited no-action letter granting relief for bespoke or complex swaps, as defined by the no-action letter, from certain reporting obligations under Part 43 and Part 45 of the CFTC’s regulations.  The no-action letter provides that for bespoke or complex swaps, DMO will not recommend an enforcement action against (1) a reporting party for failure to report certain data fields required by Part 43 or (2) a reporting counterparty for failure to report certain data fields required by Part 45.  In addition, for certain bespoke or complex swaps that are uncleared inter-affiliate swaps, the letter provides no-action relief from certain confirmation data reporting obligations under Part 45.  The relief will expire on the earlier of such time that the relevant data elements can be electronically represented in the FpML (Financial products Markup Language) schema or June 30, 2013.

Read the CFTC family office press release

Read the CFTC operators of certain funds of funds press release

Read the CFTC affiliated counterparties press release

Read the CFTC certain cooperatives press release

Read the CFTC bespoke or complex swaps press release

Topics:  CFTC, CME, Derivatives Clearing Organizations, No-Action Relief, Swaps

Published In: Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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