CFTC Amends No-Action Relief to SDs and MSPs Regarding Intended-To-Be-Cleared Swaps (CFTC Letter 13-70)

The CFTC Division of Swap Dealer and Intermediary Oversight issued what is in effect an amended no-action letter as to the regulatory obligations of SDs and MSPs regarding “Intended-To-Be-Cleared Swaps.”  Essentially, this letter restates prior Letter 13-33, except that it amends the prior letter to take account of the CFTC staff’s “guidance” that where a trade is expected to be cleared, but is not, the trade is deemed void ab initio and neither party is permitted to charge a breakage fee.  The relief in this letter, as in the prior letter, goes to certain requirements under the external business conduct rules and CFTC Rule 23.504 (“Swap Trading Relationship Documentation”). The letter states that no person may rely upon the relief provided in Letter No. 13-33 after November 15, 2013.

Lofchie Comment:  It certainly seems that there are Administrative Procedures Act issues here.  On June 27, 2013, the CFTC issued “no-action letter” 13-33, which provides “The eligible account manager . . . [is required] to be responsible for any obligations of the counterparty . . . [as to] trade breakage costs. . . ”  (We put “no-action letter” in quotation marks, because Letter 13-33 appears to be in many respects a rulemaking, not a no-action letter.)  Then, on September 26, the CFTC staff issued “guidance” that it is improper (illegal?) to charge breakage costs in connection with a swap that is expected to be cleared, but is not.  Then, on November 15, the CFTC staff withdrew, without any time notice, the discussion of breakage costs in Letter 13-33.

See: CFTC No-Action Letter 13-70.
Related News: Staff Guidance on Swaps Straight-Through-Processing