On October 11, 2016, the U.S. Commodity Futures Trading Commission (“CFTC“) unanimously approved proposed rules relating to the application of certain swap provisions of the Commodity Exchange Act (CEA) and CTFC to cross-border transactions. The proposed rules address, among other things, key terms for cross-border transactions, registration thresholds and external business conduct standards. The comment period ends 60 days after publication of the proposal in the Federal Register. Press Release.
CEA
CFTC Provides Relief from the Clearing Requirement for Swaps Entered into by Eligible Treasury Affiliates
On November 26, CFTC issued a no-action letter providing additional relief for eligible treasury affiliates that enter into swaps that are subject to the clearing requirement in section 2(h)(1) of the Commodity Exchange Act (CEA) and part 50 of the CFTC’s regulations. The no-action letter modifies relief that was previously issued for treasury affiliates on June 4, 2013 in CFTC No-Action Letter 13-22. “Eligible treasury affiliates” are entities that are wholly-owned by a non-financial parent company, and are “financial entities” under section 2(h)(7)(C)(i)(VIII) of the CEA because of the activities undertaken on behalf of its non-financial affiliates. Among other changes, the no-action letter modifies the rules placed upon operations between a treasury affiliate and its affiliates and removes restrictions as to the number of financial affiliates that may be within a corporate group. Release. Letter.
CFTC Temporary No-Action Relief for Small Bank Board Approval Requirements
On June 10, the CFTC Division of Clearing and Risk issued a no-action letter providing temporary relief to banks, savings associations, farm credit system institutions and credit unions having assets of less than $10 billion, and which are issuers of securities, from the board approval requirements of Section 2(j) of the CEA and regulation 50.50, subject to certain conditions. This no-action relief expires on July 10. CFTC Release. CFTC No-Action Letter.
CFTC Final Regulations on Phase in Compliance with Clearing Requirements and Proposed Rule on Clearing Determination
On July 24, the CFTC approved final regulations establishing a schedule to phase in compliance with new clearing requirements under the Dodd-Frank Act. As amended by the Dodd-Frank Act, the Commodity Exchange Act provides that a person may not engage in a swap unless the swap is submitted for clearing to a derivatives clearing organization registered under the CEA, or is exempt from registration under the CEA. The regulations will phase in the clearing requirement based on the type of market participant entering into swaps subject to the clearing requirement. The compliance schedule identifies three categories of market participants, and allots a compliance timeframe for each based on level of activity, market experience, resources, and status as registrants with the CFTC or SEC. The CFTC also issued the first proposed clearing determination for credit default swaps and interest rate swaps. The compliance schedule will be triggered upon the final clearing determination. Final Rule Release. Final Rule. Proposed Rule Release. Proposed Rule.
CFTC Approves Guidance on Cross-Border Application of Swaps Provisions of Dodd-Frank
On June 29, the CFTC approved for public comment proposed interpretive guidance on the cross-border application of the swaps provisions of Title VII of the Dodd-Frank Act. The proposed guidance interprets Section 2(i) of the Commodity Exchange Act (CEA), which states that the swaps provisions of the CEA shall not apply to activities outside the United States unless those activities have a direct and significant connection with activities in, or effect on, commerce of the United States. Comments must be submitted within 45 days after publication in the Federal Register. CFTC Release.
CFTC Proposed Extension of the Effective Date for Swap Regulation
On October 18, the CFTC proposed to amend a final order issued on July 14 granting temporary exemptive relief from certain provisions of the Commodity Exchange Act that would have taken effect on July 16. The proposed order would extend such exemptive relief from December 31 to July 16, 2012. The original order grants relief from: (i) provisions added or amended by Title VII of the Dodd-Frank Act that reference one or more terms regarding entities or instruments that Title VII requires to be further defined and (ii) provisions that may apply to certain agreements, contracts, and transactions in exempt or excluded commodities as a result of the repeal of various CEA exemptions and exclusions. CFTC Fact Sheet.
CFTC Extension of Effective Date of Title VII of the Dodd-Frank Act
On June 14, the CFTC extended the general effective date of Title VII of the Dodd-Frank Act beyond July 16. For provisions of Title VII that reference the terms “swap“, “swap dealer“, “major swap participant“, or “eligible contract participant“, which the Dodd-Frank Act requires the CFTC to further define, persons or entities will be exempt from compliance with such provisions until the earlier of: (i) the effective date of definitional rulemaking for such terms; or (ii) December 31. For those provisions that will apply to certain transactions in exempt or excluded commodities as a result of the repeal of various exemptions and exclusions under the CEA as of July 16, the CFTC will temporarily exempt such transactions until the earlier of: (i) the repeal or replacement of applicable CFTC regulations; or (ii) December 31. CFTC Webcast of Open Meeting. CFTC Fact Sheet.