The CFTC approved interim final rules delaying the compliance dates for certain business conduct and documentation requirements applicable to swap dealers and major swap participants. Additionally, the CFTC voted 5-0 to approve the interim final rules, which will become effective immediately upon publication in the Federal Register. The CFTC also indicated that it will consider any comments received during a 30-day period following publication of the interim final rules and may revise the rules based on comments received.
The rulemaking comes in response to requests from a variety of market participants for additional time to achieve compliance with rules that have significant documentation components. The rulemaking provides limited additional time to establish compliant documentation in light of the fact that only a small percentage of affected parties have agreed to update relevant documentation despite significant outreach efforts.
For Part 23 rules adopted as part of the CFTC external business conduct rulemaking, as well two other Part 23 rules (listed below), the compliance date has been delayed to May 1, 2013. The formerly phased compliance dates for Part 23 rules relating to required portfolio reconciliations and swap trading relationship documentation have been delayed to July 1, 2013.
A list follows of the regulations for which compliance dates were delayed, as well as a list of regulations that were adopted as part of the relevant rulemakings but for which compliance dates were not delayed.
Business Conduct Requirements
Compliance dates for the CFTC external business conduct requirements, which were published at 77 Fed. Reg. 9734 (February 17, 2012), have been extended as follows:
Extended to May 1, 2013:
• Rule 23.402: “know your counterparty” requirements; true name and owner information; requirements for reliance on representations; manner of disclosure standards;
• Rule 23.410(c): confidential treatment of counterparty information;
• Rule 23.430: verification of eligible contract participant and special entity status;
• Rules 23.431(a)-(c): material risk and information disclosures, including pre-trade marks;
• Rule 23.432: clearing disclosures;
• Rule 23.434(a)(2): counterparty-specific suitability requirements;
• Rule 23.440: requirements for swap dealers acting as advisors to special entities;
• Rule 23.450: requirements for trading with special entities.
No extension provided:
• Rule 23.410(a)-(b): anti-fraud;
• Rule 23.431(d)(1): requirement to provide notice that valuations for cleared swaps are available from the relevant DCO;
• Rule 23.431(d)(2): requirement to provide daily marks for uncleared swaps;
• Rule 23.434(a)(1): general product suitability requirements;
• Rule 23.451: restrictions on political contributions.
Compliance dates for CFTC swap documentation requirements, which were published at 77 Fed. Reg. 55904 (September 11, 2012), have been extended as follows:
Extended to May 1, 2013:
• Rule 23.505: end user exception documentation (note: mandatory clearing requirements for end users don’t go into effect until after May 1).
Extended to July 1, 2013:
• Rule 23.502: portfolio reconciliations;
• Rule 23.504: swap trading relationship documentation, including agreements as to valuation methodologies.
No extension provided:
• 23.501: swap confirmation;
• 23.503: portfolio compression.
Effective Date: From the date of publication in the Federal Register.
Lofchie Comment: That this relief would be granted had been promised more or less in a recent speech by CFTC Commissioner Chilton. See Related News Story: CFTC Commissioner Chilton Calls for Six-Month Transition Compliance Period.
The CFTC staff has made what is unquestionably a valiant effort to finalize Dodd-Frank rules as quickly as possible. (I cannot deny the level of effort, notwithstanding my fundamental disagreement with the approach to financial regulation taken by Dodd-Frank and my disagreement with particular rules and with rule particulars.) That said, it should have long ago become clear, and the most recent CFTC action emphasizes, that the attempt to bring swaps rules online as fast as they could be adopted just did not work.
I do note it was not only the CFTC that was making a valiant effort. Much of the financial industry and the various participants in the commodities industries were frantic to meet deadlines that we all understood could not be met under the best of circumstances, and which we hoped and guessed would be partially delayed at the next-to-last minute. Now that has been largely done, and it would be better if the rules were completely delayed.
It should now be time for the CFTC to adopt the approach taken by the SEC in its swaps rulemaking: to propose a comprehensive set of rules that can be understood as a whole and commented upon a whole; to confront the questions of international jurisdiction before adopting rules that have international effect; and eventually to adopt a feasible schedule for rule implementation.
View 17 CFR Part 23 (links externally to CFTC website).