The CFTC Divisions of Swap Dealer and Intermediary Oversight, Clearing and Risk, and Market Oversight have issued a time-limited no-action letter that provides relief to swap dealers (“SDs”) registered with the CFTC that are established under the laws of jurisdictions other than the U.S. (“Non-U.S. SDs”) from certain transaction-level requirements under the CEA.
On November 14, 2013, the CFTC issued an Advisory (Letter 13-69) in response to inquires from swap market participants regarding the applicability of the CFTC’s Transaction-Level Requirements in certain situations. Subsequent to the issuance of the Advisory, concerns were raised by certain Non-U.S. SDs regarding compliance with the Transaction-Level Requirements who said that, in order to avoid market disruption for their non-U.S. counterparties, additional time would be necessary to come into compliance.
Letter 13-71 provides no-action relief to Non-U.S. SDs until January 14, 2014, subject to the limitations set forth in the letter.
Lofchie Comment: This letter is illustrative of a number of problems with the CFTC’s approach to “rule” making.
First, the terms of the underlying requirements are entirely unclear. What does it mean to say that a non-U.S. person who “regularly” arranges, negotiates or executes swaps through persons in the United States is “generally” subject to Transaction-Level Requirements? Does “regularly” refer to a volume of swaps (and if so, what volume?) or to a number of personnel (and if so, what number?) or to a frequency (every day?)? What does it mean that a person would be “generally” required to comply? (Does that mean on some swaps? Does that mean that there are some conditions which would make compliance inapplicable?) What does it mean to “arrange” a swap? It would seem to mean something more than a referral, but there is no explanation of the term.
Second, the statement that the Divisions have not recommended any enforcement action against a non-U.S. swap dealer for failing to comply with any applicable Transaction-Level Requirements that does not conform to the CFTC’s swap guidance seems inconsistent with the statement made at the hearing where the CFTC adopted that guidance. At that meeting, it was expressly stated that the guidance did not constitute a rule which could form the basis of an enforcement action. Here, the Divisions seem to be assuming that the CFTC’s guidance is effectively a rule that can be violated, which would seem to imply that that the guidance was adopted in violation of the Administrative Procedures Act.
Third, the CFTC’s constant establishment of unworkable deadlines followed by last-minute no-action letters is simply no way to run an economy.
See: CFTC Letter 13-71.
Related news: CFTC Issues Advisory on Applicability of Transaction-Level Requirements in Certain Cross-Border Situations (CFTC Letter 13-69) (November 15, 2013).