CFTC Proposes Temporary Exemptions From Certain New OTC Swap Laws


The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) put many over-the-counter (“OTC”) derivatives under federal regulation and directed regulators to finish implementing regulations by July 16, 2011, the Dodd-Frank Act’s general effective date. The Commodity Futures Trading Commission (“CFTC”) and the Securities and Exchange Commission (“SEC”) have announced, however, that many rules will not be in place by this date, raising concern about which parts of the Dodd-Frank Act will take effect on July 16, 2011.

Yesterday the CFTC took the following steps to address this concern:

Temporary exemptions from certain CEA provisions

Exemption for parties from CEA provisions referencing “swap,” “swap dealer,” “major swap participant,” or “eligible contract participant”

The CFTC proposed an order that temporarily exempts parties from complying with CEA provisions that reference certain terms, including the terms “swap,” “swap dealer,” “major swap participant,” or “eligible contract participant,” which the Dodd-Frank Act requires the CFTC and SEC to define further. The exemption extends until the earlier of the effective date of the rules defining such terms or December 31, 2011. Although the proposed order will expire on December 31, 2011, the CFTC notes that such expiration will not affect its ability to provide further relief.

Beneficiaries of this temporary exemption include the general partner (or similar entity) and investment adviser of a pooled investment vehicle that trades, or may trade, swaps, who could be a commodity pool operator (“CPO”) or commodity trading advisor (“CTA”), respectively, under the CEA. Under current law, such definitions only apply with respect to pooled investment vehicles or other clients that trade, or may trade, futures, options on futures or commodities, or certain foreign currency transactions. When the expanded definitions of CPO and CTA become effective, the general partner and investment adviser of a pooled investment vehicle or other client that invests in any interest rate derivatives, commodity derivatives, derivatives over a broad-based securities index or broad-based credit default index, or most types of currency derivatives, for example, will become a CPO or CTA, respectively.

Please see full article below for more information.

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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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