United States: CFTC Staff Issues No-Action Relief From Mandatory Swaps Clearing For Small Bank Holding Companies, Small Savings And Loan Holding Companies, And Community Development Financial Institutions

Last Updated: January 22 2016
Article by Julian E. Hammar

On January 8, 2016, the Division of Clearing and Risk ("Division") of the Commodity Futures Trading Commission ("CFTC") issued no-action letters providing relief from the mandatory clearing requirement for swaps under Section 2(h)(1)(A) of the Commodity Exchange Act ("CEA") to small bank holding companies ("BHCs"), small savings and loan holding companies ("SLHCs"), and community development financial institutions ("CDFIs").1


The CFTC has designated for mandatory clearing four types of interest rate swaps and two types of index credit default swaps, which means that, absent an exemption, these types of swaps must be cleared through a derivatives clearing organization registered with the CFTC.2 Prior to the issuance of this relief by the Division, only four types of financial institutions with no more than $10 billion in assets could qualify for an exemption (under certain conditions) from the clearing requirement for swaps that the CFTC has determined are required to be cleared (the "Original Institutions"). The Original Institutions were as follows:

  • A bank, as defined in Section 3(a) of the Federal Deposit Insurance Act, the deposits of which are insured by the Federal Deposit Insurance Corporation ("FDIC");
  • A savings association, as defined in Section 3(b) of the Federal Deposit Insurance Act, the deposits of which are insured by the FDIC;
  • A farm credit system institution chartered under the Farm Credit Act of 1971; and
  • An insured federal credit union or a State chartered credit union under the Federal Credit Union Act.3

Provided the Original Institutions satisfied the conditions for electing the exemption from mandatory clearing for non-financial entities (generally referred to as commercial end users) in CFTC Reg. 50.50,4 they could elect not to clear their swaps. These conditions require, among other things, that the institution report certain information, including how the institution meets its financial obligations associated with uncleared swaps to a CFTC-registered swap data repository,5 and that the uncleared swap be used by the institution to hedge or mitigate commercial risk.6 Small BHCs, small SLHCs, and CDFIs were not covered by this exemption.


Under CFTC Staff Letter No. 16-01, the Division is providing no-action relief from the mandatory clearing requirement to small BHCs and SLHCs if:

  • The aggregate value of the assets of all of the BHC's or SLHC's subsidiaries on the last day of each subsidiary's most recent fiscal year does not exceed $10 billion; and
  • The BHC or SLHC complies with the same conditions that a bank or savings association must comply with under CFTC Reg. 50.50 in order to elect not to clear a swap subject to the CFTC's clearing requirement.

Under CFTC Staff Letter No. 16-02, the Division is providing no-action relief to CDFIs from the mandatory clearing requirement. This relief is more limited than the relief for BHCs and SLHCs described above, in that it extends to only two types of interest rate swaps, and also contains the limitations on the number of transactions and the notional amount per year of swaps that may be transacted. Under this no-action relief, a CDFI may elect not to clear a swap subject to mandatory clearing if:

  • The CDFI has been certified and maintains its certification from the U.S. Treasury Department as a CDFI;
  • The CDFI elects not to clear interest rate swaps in the fixed-to-floating swap class and the forward rate agreement class denominated in U.S. dollars that are subject to mandatory clearing;
  • Such interest rate swaps and forward rate agreements do not exceed $200 million of total aggregate notional value per year;
  • The CDFI elects not to clear no more than 10 such swap transactions per year; and
  • The CDFI satisfies the other conditions of CFTC Reg. 50.50.

The relief under both no-action letters does not extend to the uncleared swaps margin rules recently finalized by the CFTC and the federal banking regulators and, in the absence of relief from those rules, BHCs, SLHCs, and CDFIs generally are "financial end users" subject to the rules' margin requirements for their uncleared swaps with swap dealers and major swap participants.7 By contrast, the Original Institutions are exempt from the margin requirements for uncleared swaps under a companion interim final rule to the margin rules issued by the CFTC and the federal banking regulators.

CFTC Staff Letter No. 16-01 is available here and CFTC Staff Letter No. 16-02 is available here.


 1 A BHC is defined in the Bank Holding Company Act of 1956 generally as a company that has control over either a bank or a company that is or will become a BHC. See 12 U.S.C. 1841(a)(1). An SLHC is defined in the Home Owners' Loan Act generally as a company that directly or indirectly controls a savings association or that controls another company that is an SLHC. See 12 U.S.C. 1467a(a)(1)(D)(i). A CDFI is defined in the Community Development Banking and Financial Institutions Act of 1994 generally as a person (other than an individual) that has a primary mission of promoting community development, serves an investment area or targeted population, provides development services in conjunction with equity investments or loans, and meets certain other requirements. See 12 U.S.C. 4702(5). Under implementing regulations, institutions that meet these requirements may include banks, credit unions, and certain other entities whose predominant business activity is the provision in arm's-length transactions of financial products and/or services; such institutions must apply for and receive certification from the U.S. Department of the Treasury ("Treasury Department") as CDFIs. See 12 C.F.R. 1805.201.

2 See 17 C.F.R. 50.4.

3 See 17 C.F.R. 50.50(d)(1). These institutions were exempted pursuant to Section 2(h)(7)(C)(ii) of the CEA, which authorized the CFTC to consider whether to exempt them from the definition of the term "financial entity" in Section 2(h)(7)(C)(i). Financial entities are ineligible for the exemption from mandatory clearing available to non-financial entities.

4 17 C.F.R. 50.50.

5 See 17 C.F.R. 50.50(b).

6 See 17 C.F.R. 50.50(c).

7 For further information regarding the CFTC's and federal bank regulators' uncleared swaps margin rules, please see our client alert here.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Julian E. Hammar
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.