In light of the July 16, 2011 effective date for certain derivatives provisions of the Dodd-Frank Act and the number of swap rulemakings that had not been finalized, both the CFTC and the SEC issued guidance regarding the effective date of various statutory and regulatory requirements for swaps. The CFTC issued a proposed exemptive order in June, and issued the final exemptive order, essentially as proposed, on June 14, 2011. The SEC issued a final exemptive order effective June 15, 2011. Under the Dodd-Frank Act, the derivatives provisions without a designated effective date would become effective on the later of (1) where rulemaking was required, not less than 60 days after publication of a final rule, or (2) where rulemaking was not required, July 16, 2011 (the “self-effectuating provisions”).
CFTC Guidance. Similar to the proposed order, the final CFTC order categorizes the derivatives provisions of the Dodd-Frank Act as (1) provisions requiring a rulemaking; (2) self-effectuating provisions that reference terms requiring further definition; (3) self-effectuating provisions that do not reference terms requiring further definition and that repeal provisions of current law; and (4) self-effectuating provisions for which relief is not being proposed. The final order states that the provisions in categories 1 and 4, which are listed in an appendix to the final order, are outside of the scope of the temporary relief and would take effect on the effective date of the required CFTC rule (for category 1) or on July 16, 2011 (for category 4).
With respect to category 2, the final order temporarily exempts persons or entities from complying with requirements of the Commodity Exchange Act (“CEA”) that became effective on July 16 and that refer to one or more terms requiring further definition, including “swap,” “swap dealer,” “major swap participant” or “eligible contract participant.” The relief applies only to those requirements or portions of such provisions that specifically relate to the referenced terms. On July 14, 2011, the CFTC also issued a no-action letter regarding the category 2 provisions which may not be subject to the exemptive relief granted in the final order. The final order and the no-action letter extend relief to the earlier of the effective date of the rules defining the relevant terms or December 31, 2011.
With respect to category 3, the final order expands the current derivatives exemption under Part 35 of the CEA to replace the CEA exemptions for swaps and other transactions that were repealed effective July 16. The temporary relief exempts certain transactions in exempt or excluded commodities from the CEA if the transaction would otherwise comply with Part 35, notwithstanding that: (1) the transaction may be executed on a multilateral transaction execution facility; (2) the transaction may be cleared; (3) persons offering or entering into the transaction may be eligible contract participants as defined in the CEA prior to July 16; (4) the transaction may be part of a fungible class of agreements that are standardized as to their material economic terms; and/or (5) no more than one of the parties to the transaction is entering into the transaction in conjunction with its line of business, but is neither an eligible contract participant nor an eligible swap participant as defined in the CEA, and the transaction was not and is not marketed to the public. The final order extends relief to the earlier of the repeal or replacement of Part 35 or Part 32 of the CEA or December 31, 2011.
SEC Guidance. The SEC order provides guidance and temporary relief with respect to the July 16 effective date for certain Dodd-Frank Act provisions relating to security-based swaps. The SEC order identifies those provisions requiring rulemaking for effectiveness, including those that are dependent on such rulemaking, and states that such provisions will go into effect not less than 60 days after publication of a final rule. The SEC order also notes that a number of the Dodd-Frank Act provisions relating to security-based swaps apply only to “registered” persons and that until the registration processes have been established by final SEC rules and such persons have become registered pursuant to the rules, they will not be required to comply with the provisions. The SEC order also identifies those provisions that are self-effectuating and states whether temporary relief has been granted with respect to the provisions, or, if temporary relief was not granted in the order, whether the SEC will consider requests for relief from compliance with the provision. The SEC order states that the temporary relief will expire upon the adoption of related final rules and the compliance dates specified in the related final rules.
Additionally, the SEC order provides temporary relief from Section 29(b) of the Exchange Act, which may act to void a contract made in violation of any provision of the Exchange Act, or the rules thereunder. The SEC order temporarily exempts any security-based swap contract entered into on or after July 16 from being void or considered voidable by reason of Section 29 of the Exchange Act because any person that is a party to the security-based swap contract violated a provision of the Exchange Act that was amended or added by the Dodd-Frank Act and that has been determined to not be effective as of July 16.