The U.S. Commodity Futures Trading Commission’s (CFTC) Divisions of Clearing and Risk (DCR) and Market Oversight (DMO) today each extended previously-issued no-action relief from the clearing and trade execution requirements for certain inter-affiliate transactions. As described further below, DCR and DMO are extending, until December 31, 2017, no-action relief that was previously provided in DCR No-Action Letter 15-63 and DMO No-Action Letter 15-62, respectively.
On April 11, 2013, the CFTC issued a final rule providing an exemption from required clearing for swaps between certain affiliated entities, subject to specific requirements and conditions (the Inter-Affiliate Exemption). One of those conditions requires the clearing of swaps between affiliated counterparties that satisfy CFTC regulation 50.52(a) (Eligible Affiliate Counterparties), and unaffiliated counterparties. However, the Inter-Affiliate Exemption provided that the condition would not apply until March 11, 2014, provided that Eligible Affiliate Counterparties complied with the alternative compliance framework prescribed in CFTC regulation 50.52(b)(4)(ii)-(iii) (the Alternative Compliance Framework).
DCR’s No-Action Letter 15-63 provided that Eligible Affiliate Counterparties that were otherwise eligible to rely on the Alternative Compliance Framework could continue to do so until December 31, 2016. DCR’s letter today extends that relief until the earlier of (i) December 31, 2017, or (ii) with respect to a particular jurisdiction, 60 days after the date on which the CFTC announces that it has made a comparability determination described in regulation 50.52(b)(4)(i). DCR believes this extension will allow for an orderly transition as jurisdictions establish and implement clearing requirements.
To be eligible for this relief:
- The Eligible Affiliate Counterparties claiming the Inter-Affiliate Exemption must otherwise satisfy all of the requirements of CFTC regulation 50.52;
- A counterparty to the swap must not be located in a non-U.S. jurisdiction in which the CFTC has determined a comparable and comprehensive clearing requirement exists; and
- The Eligible Affiliate Counterparties electing the relief provided by this no-action letter must promptly provide to DCR, upon request, documentation regarding their compliance with any aspect of this no-action letter and CFTC regulation 50.52.
With regard to DMO’s relief, in the preamble to the rules establishing the process for a designated contract market or swap execution facility to make a swap available to trade, the CFTC stated that inter-affiliate swaps that satisfy the Inter-Affiliate Exemption are not subject to the trade execution requirement under section 2(h)(8) of the Commodity Exchange Act.
DMO’s No-Action Letter 15-62 provided temporary relief from the trade execution requirement to affiliate counterparties that satisfy CFTC regulation 50.52(a) but do not satisfy CFTC regulations 50.52(b), (c) or (d) and are not exempt from clearing. DMO’s letter today extends that relief until December 31, 2017. During this period of relief, DMO will continue to evaluate whether applying the trade execution requirement to such inter-affiliate swap transactions would promote pre-trade price transparency in the swaps market.