CFTC Issues Time-Limited No-Action Letter Relating to Certain CDS Clearing-Related Swaps Executed Pursuant to a CDS Settlement Price Process

On December 31, CFTC issued a no-action letter providing time-limited relief relating to certain occasional, off-facility, cleared credit default swaps (CDSs) that are entered into pursuant to a DCO’s rules related to its price submission process for determining end-of-day settlement prices for cleared CDSs.  ReleaseLetter.

CFTC No-Action Letters

From December 14 through December 31, 2012, the CFTC released the following no-action letters:

Goldman Sachs Sued by CIFG Assurance

CIFG Assurance North America, Inc. (CIFG) filed a summons with notice against Goldman, Sachs & Co. (Goldman) in New York State Supreme Court on December 4, 2012.  CIFG alleges that Goldman fraudulently induced CIFG to provide a financial guaranty insurance policy on a credit default swap in connection with the Fortius II CDO.  CIFG alleges that Goldman did not disclose that the CDO manager, Aladdin Capital Management, was acting at Goldman’s behest to include in the CDO particular collateral, including RMBS that Goldman wanted to sell.  CIFG asserts claims for fraud and for material misrepresentation in the inducement of an insurance contract.  It is seeking reimbursement of the nearly $34 million dollars it allegedly paid under the policy it issued when the Fortius II CDO failed.  Summons.

CFTC Final Rule on Clearing of Credit Default Swaps and Interest Rate Swaps

On November 28, the CFTC issued final rules requiring certain credit default swaps and interest rate swaps to be cleared by registered derivatives clearing organizations (DCOs).  Market participants will be required to submit a swap that is identified in the rule for clearing by a DCO as soon as technologically practicable and no later than the end of the day of execution.  The final rules will be effective 60 days after publication in the Federal Register. CFTC Release.  CFTC Final Rule.

ESMA Consultation Paper on Draft Guidelines for the Exemption of Market Making Activities under the Short Selling Regulation

ESMA has published a consultation paper on its draft guidelines in relation to the exemption for market making activities and primary dealer operations under the Regulation on short selling and certain aspects of Credit Default Swaps (the “Regulation”).  Certain market making activities (as defined under Article 2.1 of the Regulation) enjoy exemptions (under Article 17 of the Regulation) from net short position transparency requirements and the restrictions on uncovered short sales.  ESMA is consulting on the scope and definition of market making activities and how the exemption of such activities should be applied in practice.

ESMA’s consultation includes questions on:

  • the definition and scope of the exemption for market making activities;
  • determination of the competent authority that should be notified;
  • the general principles applicable to persons intending to make use of the exemption; and
  • the qualifying criteria of eligibility for the exemption.

ESMA invites responses to its consultation paper by October 5.

ISDA Releases Two Transparency Studies

On December 8, ISDA published two studies on transparency in the OTC derivatives industry with respect to credit default swaps and interest rates swaps. The studies highlight the spectrum of methods that can be used to increase transparency while analyzing the benefits and costs of doing so. ISDA Release.

EU Public Consultation on Short Selling and Credit Default Swaps

On June 14, the European Commission launched a public consultation on options being considered for a forthcoming legislative proposal dealing with potential risks arising from short selling and credit default swaps. Responses to the consultation are requested by July 10. Consultation. FAQs. Consultation Document.