The CFTC Extends No Action Relief for Oral Recordkeeping Requirements
On April 25, 2014, the DSIO of the CFTC extended no-action relief from the oral recordkeeping requirements of CFTC Rule 1.35 for CTAs that are members of DCMs or SEFs in connection with the execution of swaps transactions. The no action relief was the result of a request filed by SIFMA.
CFTC Rule 1.35 requires that each member of a DCM or SEF keep records of all transactions relating to its dealing in commodity interests and related cash and forward transactions. As part of their records, CFTC Rule 1.35 requires DCM and SEF members who are registrants to keep records of all written and oral communications that lead to the execution of a transaction in a commodity interest, and related cash and forward transaction. CFTC Rule 1.35 exempts CPOs from these requirements, but not CTAs. SIFMA is in the process of lobbying the CFTC to include an exclusion for CTAs. The no action relief is extended until December 31, 2014.
The CFTC has requested comments on its swaps data reporting rules, which are primarily set forth in Part 45 of the CFTC’s rules. The extensive request sets forth 69 questions with various subparts seeking feedback and primarily technical information concerning the type of information collected. Specifically, the Request seeks additional information concerning, among other things, confirmation data, continuation data, transaction types, entities and workflows, PET (Primary Economic Terms) data, reporting of cleared swaps, other SDR (Swaps Data Repository) and counterparty obligations, swap dealer/major swap participant registration and compliance, risk monitoring, ownership of swap data and transfer of data across SDRs, as well as general comments from registrants, financial entities and non-financial entities.
The Request was the result of work by the inter-divisional staff working group which was appointed by the CFTC in January 2014, and tasked with the responsibility of reviewing Part 45 and the CFTC’s swaps reporting requirements. In conjunction with the request, Commissioner O’Malia issued a statement urging the public, in addition to responding to the Request, to also take the opportunity to notify the CFTC of any other data reporting issues that they had encountered, but may not have been addressed in the request. Comments are due by May 27, 2014.
In March, ISDA issued a comment letter concerning the CFTC’s November Advisory 13-69, which held that swaps transactions entered into between a non-U.S. swaps dealer and a non-U.S. person facilitated by U.S. personnel would be subject to the jurisdiction of the CFTC and thus must comply with Transaction-Level Requirements. In its comment letter, ISDA recommends that the CFTC not adopt CFTC Advisory 13-69 or, in the alternative, urges the CFTC not to distinguish between non-U.S. SD that may be guaranteed or conduit affiliates and those that are not. ISDA also asserted that the adoption of CFTC Advisory 13-69 lacked any statutory basis and should not be utilized to determine the extra-territorial application of Title VII of the Dodd-Frank Act. Finally, ISDA also asserts that transactions that fall within the purview of CFTC Advisory 13-69 should be able to meet substituted compliance requirements instead of the transaction-level Requirements.
ISDA has issued an FAQ addressing a counterparty’s right to request a swap dealer segregate the counterparty’s initial margin requirements pursuant to CFTC Rules 23.702 and 23.703. The ISDA FAQ addresses a host of issues including the regulatory framework governing notice and requests for segregation of initial margin, a counterparty’s rights under applicable CFTC rules, the effects of requesting or foregoing segregation and certain compliance deadlines for existing swaps transactions. For existing swaps transactions, if the transaction was entered into prior to January 6, 2014, then the compliance deadline for the transaction is May 5, 2014. For transactions entered into after January 6, 2014, the compliance deadline is November 3, 2014. The FAQ also noted that investment advisers and asset managers may need to provide a representation that they have the authority to make a segregation election on behalf of their underlying client. Finally, ISDA notes that there is no protocol associated with the segregation election.