CFTC Issues Two Temporary Exemptions from the Clearing Requirement for Swaps: (i) Affiliated Counterparties and (ii) Cooperatives

The CFTC Division of Clearing and Risk (DCR) announced the issuance of two time-limited, no-action letters granting relief from required clearing under Section 2(h)(1)(A) of the Commodity Exchange Act and the Commission’s newly adopted Part 50 regulations for certain swaps entered into by either qualifying affiliated counterparties or qualifying cooperatives. 

  Affiliate Letter.  The no-action letter provides that DCR 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.  On August 21, 2012, the Commission published for public comment in the Federal Register a notice of proposed rulemaking to exempt swaps between two affiliated counterparties from required clearing.

Co-operative Letter:  The no-action letter provides that DCR 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.  The conditions are substantially similar to the conditions included in the proposed cooperative exemption rule published by the Commission in the Federal Register on July 17, 2012.

The no-action relief will remain in effect until the earlier of April 1, 2013, or the effective date of a Commission rulemaking finalizing the proposed inter-affiliate clearing exemption rule, or the proposed qualifying cooperative exemption rule, respectively.

CFTC Letter 12-35: Section 2(h) of the CEA; Time-Limited No-Action Relief from the Clearing Requirement for Swaps between Affiliated Counterparties.
CFTC Letter 12-36: Section 2(h) of the CEA; Time-Limited No-Action Relief from the Clearing Requirement for Swaps Entered into by Cooperatives.

 

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