CFTC Issues No-Action Relief for Dealers in Five Jurisdictions from Certain Entity-Level Internal Business Conduct Requirements (CFTC Letter 13-78)

The CFTC Division of Swap Dealer and Intermediary Oversight issued a time-limited no-action letter providing relief to non-U.S. swap dealers (“SDs”) and non-U.S. major swap participants (“MSPs”) established in Australia, Canada, the European Union, Japan, and Switzerland from compliance with CFTC Rule 23.600(c)(2) (“Periodic Risk Exposure Reports as Part of a Risk Management Program for SDs and MSPs”) and Rule 23.608 (“Restrictions on Counterparty Clearing Relationships”), and, in the case of a non-U.S. SD or non-U.S. MSP established in Switzerland, Rule 23.609 (“Clearing Member Risk Management”). 

The delay given in the CFTC no-action letter is effective until March 3, 2014.  According to the CFTC, no delay was required for dealers based in Hong Kong (which was the other jurisdiction to receive a determination that its entity level requirements were generally comparable to those in the United States), as the CFTC reported that the exemption was not required for dealers based in Hong Kong.

Lofchie Comment: First, the CFTC issues “guidance” that is not a rule, but with which firms are expected to comply as if it were actually a rule, except that, at the same time that it issues the guidance, it also issues exemptions from that guidance subject to its further interpretation.  In the instant matter, on Friday, December 20, after the close of business, the CFTC issued an interpretation that partially revokes the requirement to comply with its guidance but with which firms are expected to comply (even though it is not a rule).  Then, on Monday, December 23, after the date that firms were required to comply with this non-rule guidance, the CFTC grants a time-limited exemption from it.   

This is not actually the way that the law or the regulatory process is supposed to work.

See: CFTC Letter 13-78.
Related news: CFTC Comparability Determinations for Six Jurisdictions and Related No-Action Letter (No-Action Letter 13-75) (December 20, 2013).

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