Staff of three divisions of the Commodity Futures Trading Commission granted no-action relief for the fifth time to non-US swap dealers engaging in over-the-counter swap transactions with other non-US persons. Previously, in November 2013, the CFTC issued an advisory that said if a non-US swap dealer regularly uses personnel or agents in the US to arrange, negotiate or execute swaps with non-US persons, the non-US swaps dealer must comply with certain transaction-level requirements. (Transaction-level requirements address mandatory clearing and swap processing, margining and segregation for uncleared swaps, mandatory trade execution, swap trading relationship documentation, real-time reporting; trade confirmation; daily trading records, and external business conduct standards, among other matters.) However, CFTC staff subsequently delayed the date of compliance with such requirement until January 14, 2o14. Afterwards, the CFTC extended the compliance date three more times, and with this no-action letter, a fifth time overall. In response, Commissioner J. Christopher Giancarlo wrote in a side statement, “[w]hen a regulatory action needs five delays, I think we all can admit that it is just not workable and should be scrapped.” The three divisions that issued this relief are the Divisions of Swap Dealer and Intermediary Oversight, Clearing and Risk and Market Oversight.
My View: If the CFTC adopted a rule and sought to amend it, the Commission would first propose the revised rule and seek public input before adopting a finalized amendment, as required under the Administrative Procedure Act. However, apparently, CFTC staff believe they can amend or even cancel no-action relief unilaterally and unexpectedly – no matter how widespread reliance on the relief may be. In its no-action letter extending certain relief to non-US swaps dealers for the fifth time, three CFTC divisions expressly write, “[a]s with all no-action letters, the Divisions retain the authority to condition further, modify, suspend, terminate or otherwise restrict the terms of the no-action relief provided herein, in its discretion.” If true, this dangling of a Damoclean sword over non-US swap dealers renders Commissioner Giancarlo’s exhortation even more critical to implement: CFTC staff should formally withdraw their November 2013 advisory that said if a non-US swap dealer regularly uses personnel or agents in the US to facilitate swaps with non-US persons, the non-US swaps dealer must comply with certain transaction-level requirements.