The primary derivatives regulator in the United States issued regulatory relief on April 9, 2013 from certain reporting obligations of smaller market participants (i.e., those that are not Swap Dealers or Major Swap Participants, as such terms are defined in the U.S. Commodity Exchange Act).
The U.S. Commodity Futures Trading Commission (CFTC) issued in a no-action letter new staggered dates for reporting requirements under Parts 43, 45 and 46 of CFTC regulations, which regulations, in certain limited circumstances, would otherwise have imposed an earlier obligation to report Swaps by both financial and non-financial entities (that are not Swap Dealers or Major Swap Participants, which currently are obligated to report certain trade data). The timing of certain reporting obligations referenced here will now depend on the nature of the "Swap."1 A series of new dates now need to be tracked and 2013 continues to be the year of compliance for participants in the over-the-counter (OTC) derivatives market.
NEW REPORTING OBLIGATIONS
When the CFTC has regulatory jurisdiction over a Swap and the parties to that derivative, the CFTC subjects the parties to a range of reporting and record retention requirements:
- Part 43 of the CFTC regulations imposes real-time, Swap data public reporting requirements
- Part 45 imposes record keeping rules
- Part 46 includes reporting and record keeping rules for certain Swaps entered into prior to the finalization of certain CFTC rules
Generally, under US law now in effect, the party to a Swap that is a Swap Dealer or Major Swap Participant is obligated to report the Swap and this obligation is in full effect today.
If neither of the two parties to a Swap is a Swap Dealer or Major Swap Participant, then one of the parties to the Swap must report the trade details. The April 9, 2013 relief goes to the obligations of the non-reporting parties (e.g., market participants, such as corporations, funds, credit unions and other entities in a wide range of industries, that trade Swaps but are not characterized as Swap Dealers or Major Swap Participants). Parties other than Swap Dealers and Major Swap Participants were required to be in compliance with certain reporting rules as of April 10, 2013.
RELIEF PROVIDED ON APRIL 9, 2013
On April 9, 2013, the CFTC granted relief "to non-reporting Swap counterparties that are not 'financial entities' as defined in Section 2(h)(7)(C) of the Commodity Exchange Act (non-financial swap counterparties), with reporting relief under Parts 43 and 45: (i) for interest rate and credit swaps, until July 1, 2013, and (ii) for equity, foreign exchange and other commodity swaps, until August 19, 2013. In addition, the no-action letter provides non-financial swap counterparties with reporting relief under Part 46, for all swap asset classes, until October 31, 2013."2
For a limited time after April 9, 2013, the CFTC will not take enforcement action against a financial Swap counterparty for failing to report Swap transaction data with respect to equity swaps, foreign exchange swaps and other commodity swaps. As a condition to relying on the April 9 no-action relief, a financial swap counterparty is now required, by June 29, 2013, to backload and report to a swap data repository (SDR) Swap transaction data, for the period from April 10, 2013 to May 29, 2013, that the financial swap counterparty would have been otherwise required to report pursuant in the absence of the no-action relief.
This development from the CFTC was criticized by one of its most vocal Commissioners, Scott O'Malia, who wrote in an April 9, 2013 statement that "[o]ur job as regulators is to utilize an open and transparent rulemaking process to promulgate clear rules that provide certainty for the market. Instead, we have resorted to an ad hoc, opaque process that has left us with a patchwork of exemptions and interpretations that only confuses the market."3
Frequent monitoring of ongoing CFTC action is imperative given the dynamic nature of the market under this regulator's jurisdiction and the manner in which it is regulated today by the CFTC. To assist you in keeping track of your regulatory requirements in the U.S., BLG has developed a CFTC compliance matrix for derivative reform. If you have any questions concerning our matrix or the latest CFTC developments, please contact the author or another member of BLG's Derivatives Focus Group.
Footnotes
1 As defined in the Commodity Exchange Act, a Swap is a term with an exceedingly broad definitional range to cover the majority of derivatives traded over-the-counter in the United States or with a counterparty under the jurisdiction of the CFTC.
2 CFTC Letter No. 13-10 (April 9, 2013).
3 Statement by CFTC Commissioner Scott O'Malia (April 9, 2013).
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