CFTC Issues No-Action Letters Relating to Swaps

by Katten Muchin Rosenman LLP

Commodity Futures Trading Commission Staff have released several no-action letters relating to various requirements associated with swap trading, including swap dealer (SD) reporting requirements, SD chief compliance officer (CCO) annual reports, swap data recordkeeping and reporting requirements, mandatory clearing requirements and de minimis calculations for participants on the Japan Securities Clearing Corporation (JSCC) and Natural Gas Exchange (NGX), and SD/major swap participant (MSP) pre-trade mid-market mark reporting obligations.

  • SD Reporting Requirements. In CFTC Letter No. 12-51, the CFTC’s Division of Market Oversight (DMO) issued no-action relief from certain SD reporting requirements. Pursuant to the letter, non-clearing member SDs will not be required to comply with the daily large swap trader reporting requirements in CFTC Regulation 20.4 until March 1, 2013. Furthermore, SDs that are not bank holding company affiliates, futures commission merchants (FCM), FCM affiliates, broker-dealers or broker-dealer affiliates are permitted to wait until September 1, 2013, to submit Section 20.4 reports. In order to rely on the relief provided under this letter, an entity must submit a notice by e-mail to the DMO no later than the date the entity applies for registration as an SD. CFTC Letter No. 12-51 is available here.
  • Annual Reports by SD Chief Compliance Officers. Pursuant to CFTC Letter No. 12-52, the CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO) granted no-action relief to certain SDs and SD CCOs from the annual report filing requirement for the fiscal year ending on December 31, 2012. In order to qualify for such relief, the SD must (i) be required to register by December 31, 2012; (ii) be regulated by a US prudential regulator or the Securities and Exchange Commission; and (iii) have a fiscal year-end of December 31. CFTC Letter No. 12-52 is available here.
  • Swap Data Recordkeeping and Reporting Requirements. In three separate no-action letters, DMO issued relief from certain swap data recordkeeping and reporting requirements. In CFTC Letter No. 12-50, DMO issued time-limited no-action relief from the timing requirements for the reporting data relating to allocated swap transactions set forth in CFTC Regulation 45.3(e)(ii). The no-action letter acknowledges global time zone and legal holiday differences and provides extended post-allocation reporting deadlines for agents reporting cross-jurisdiction allocation swaps. CFTC Letter No. 12-50 is available here.

In CFTC Letter No. 12-53, subject to specific criteria, DMO issued time-limited, no-action relief from Parts 43 and 45 for swap dealers entering into agreements that allow the allocation of swap reporting responsibilities between prime brokers and executing dealers in prime brokerage transactions. In addition, subject to certain conditions, the no-action relief extends to prime brokers’ reporting of unique swap identifiers for such prime brokerage transactions. CFTC Letter No. 12-53 is available here.

In CFTC Letter No. 12-55, DMO issued a no-action letter providing time-limited relief to SDs and MSPs from the obligation to report valuation data for cleared swaps to a swap data repository pursuant to CFTC Regulation 45.4(b)(2)(ii). The no-action relief applies to: SDs and MSPs that are reporting counterparties for which the SD or MSP has the obligation to report valuation data under Regulation 45.4(b)(2)(ii). CFTC Letter No. 12-55 is available here.

The no-action relief provided by CFTC Letters 12-50, 12-53 and 12-55 expires on June 30, 2013.

  • Relief for Japan Securities Clearing Corporation and Natural Gas Exchange Participants. In two separate no-action letters, the CFTC’s Division of Clearing and Risk (DCR) and DSIO provided relief to JSCC and to certain JSCC and NGX participants. In CFTC Letter No. 12-56, DCR issued relief to JSCC from derivatives clearing organization (DCO) registration requirements. In addition, qualified JSCC clearing participants are exempt from the requirement to clear certain credit default swaps (CDS) and yen-denominated interest rate swaps through a registered DCO. Such relief is available until the earlier of December 31, 2013, or the date on which JSCC registers as a DCO with respect to its interest rate swap clearing. CFTC Letter No. 12-56 is available here.

In CFTC Letter No. 12-57, DSIO indicated that a person trading swaps executed on NGX will not be required to include such swaps for purposes of the SD de minimis exception under CFTC Regulation 1.3(ggg)(4). Such relief is available until the earlier of March 31, 2013, or the date in which NGX’s registration application as a foreign board of trade is accepted or denied. CFTC Letter No. 12-57 is available here.

  • Relief for SDs and MSPs from Certain Pre-Trade Mid-Market Mark Reporting Obligations. Pursuant to CFTC Letter No. 12-58, DSIO granted relief to SDs and MSPs from pre-trade mid-market mark reporting obligations to a counterparty in a transaction involving certain CDS and interest rate swaps. Such relief is available until final CFTC regulations governing the registration of swap execution facilities (SEFs) have been issued, provided that real-time tradeable bid and offer prices are available for such swaps, and the counterparty agrees that the SD or MSP does not need to disclose the pre-trade mid-market mark. Such counterparty agreement must be in writing before the transaction occurs.

Upon issuance of the final SEF regulations, the relief provided in this letter will continue to be available for transactions in which the bid and offer prices for such transactions are available on a designated contract market or SEF, and the counterparty agrees in writing, before the transaction occurs, that the SD or MSP does not need to disclose the pre-trade mid-market mark. CFTC Letter No. 12-58 is available here.


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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