The CFTC has proposed an order providing exemptive relief from various swap trading provisions of the Dodd-Frank Act that would otherwise go into effect on July 16, 2011 because many of the rulemakings effectively required to enforce such provisions will not be completed by that date.
The Proposed Exemptive Relief
The proposed rule would grant temporary exemptive relief in two parts:
- The Commission is proposing to address provisions that would go into effect on July 16, but that reference terms such as “swap,” “swap dealer,” “major swap participant,” or “eligible contract participant,” which the Dodd-Frank Act requires the CFTC and SEC to “further define.” These definitional rulemakings will not be in place by July 16. Accordingly, the Commission is proposing to temporarily exempt persons or entities from complying with these provisions until the effective date of the definitional rulemaking for such terms or December 31, 2011, whichever is earlier. The exemption would apply only to the extent the provision specifically relates to entities or instruments such as swaps, swap dealers, major swap participants, and eligible contract participants.
- The Commission is proposing to address provisions of the CEA that will apply to certain transactions in exempt or excluded commodities (primarily financial and energy commodities) as a result of the repeal of various CEA exemptions and exclusions as of July 16, 2011. The Commission is proposing to temporarily exempt such transactions from certain CEA provisions until the repeal or replacement of certain of the Commission’s regulations or December 31, 2011, whichever is earlier.
The proposed Order would not limit in any way the CFTC’s ability to pursue fraud and manipulation under the applicable provisions of the Dodd-Frank Act.
Some provisions of the Dodd-Frank Act expressly require a rulemaking before becoming effective and thus do not require any exemptive relief to prevent them from going into effect on July 16, 2011.
Other provisions will become effective on July 16, 2011 and are not covered by the proposed exemptive relief. Examples of such provisions include the core principles for designated contract markets, the core principles for derivatives clearing organizations, and the prohibition on disruptive trading practices.
Summary Remarks by CFTC General Counsel
Dan Berkovitz, CFTC general counsel, provided the following summary remarks regarding the proposed exemptive relief:
- First, the draft order does not provide relief from the Commission’s anti-fraud and anti-manipulation authorities.
- Second, the draft order does not affect any Dodd-Frank Act implementing regulations that the Commission promulgates, including any implementation dates therein.
- Third, neither part of the proposed Order would affect the Commission’s authority with respect to futures contracts, options on futures, or transactions by retail customers in foreign currency or other commodities.
- Fourth, the proposed Order would not apply to any provision of Title VII of the Dodd-Frank Act that has already become effective.
- Fifth, the draft order states that the proposed relief would not limit the Commission’s authority under section 712(f), which provides the Commission with wide-latitude to engage in exemptions, rulemakings and other actions necessary to prepare for the effective dates of the provisions of Title VII.
- In addition, the draft proposed Order also would not affect the Commission’s ability to provide further exemptive relief, as appropriate, either prior to or after the expiration date.