On Dec. 21, 2013, the U.S. Commodity Futures Trading Commission issued broadly applicable no-action relief deferring (through May 1, 2014) the effectiveness of recordkeeping requirements that would have required fund managers registered as commodity trading advisors who hold swap execution facility memberships to preserve oral communications (including telephone calls) relating to any trading of commodity interests.
This relief, requested by the Asset Management Group of the Securities Industry and Financial Markets Association and the Managed Funds Association, covers “asset managers” registered as CTAs, many of which are obtaining SEF memberships as a direct and necessary response to the Dodd-Frank Act’s central clearing mandates.
The request for relief related to certain unanticipated effects of recent amendments to Regulation 1.35(a), a long-standing rule that imposed recordkeeping rules on a variety of CFTC registrants. The 2013 amendments, which were to go into effect on Dec. 21, were drafted to accommodate the new statutory framework for cleared swaps under the Dodd-Frank Act (including the creation of SEFs) which, by definition, preceded the actual formation of SEFs; some of the SEF documentation published subsequent to the amendments, when combined with other CFTC guidance, resulted in an effective conclusion that registered CTAs that hold SEF memberships are covered by the revised Regulation 1.35(a).
Revised Regulation 1.35(a) requires that registrants holding SEF memberships "keep full, complete, and systematic records … of all transactions relating to its business of dealing in commodity interests[;]" however, the rule also states that:
[I]ncluded among the records required to be kept ... are all oral and written communications provided or received concerning quotes, solicitations, bids, offers, instructions, trading, and prices that lead to the execution of a transaction in a commodity interest and related cash or forward transactions, whether communicated by telephone, voicemail, facsimile, instant messaging, chat rooms, electronic mail, mobile device, or other digital or electronic media. [Emphasis added.]
In the revised Regulation 1.35(a), the CFTC included an exclusion to the oral recordkeeping requirements for CPOs, but notably not for CTAs. Absent no-action relief, private fund managers (and others) that are registered CTAs and that are members of SEFs would have had to implement systems to capture and classify voice communications related to all their commodity interest trading (and not limited to the trading done on a SEF). Covered CTAs deemed this obligation to be onerous, unnecessary and potentially counterproductive and with this delay the CTFC will be examining those concerns more closely.
As noted above, this relief is time-limited and is effective through May 1, 2014.