October 12, 2012

CFTC’s Division of Swap Dealer and Intermediary Oversight Issues No-Action Letter Regarding the Swaps Calculation by Certain Foreign Entities for Purposes of the Swap Dealer and Major Swap Participant Definitions

Washington, DC — The Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) today issued a no-action letter addressing the swap calculation by certain foreign entities of swaps for purposes of the swap dealer and major swap participant definitions.

On July 12, 2012, the Commission published for public comment Proposed Cross-Border Interpretive Guidance and a Proposed Cross-Border Exemptive Order, in which the Commission proposed a definition of the term “U.S. person” that would encompass both persons (or classes of persons) located within the United States as well as those that may be domiciled or operating outside the United States. The proposed definition would provide clarity to market participants in making the calculations required under the swap dealer and major swap participant definitions. The Commission continues to diligently review the many comments received in anticipation of finalizing the guidance and exemptive order.

Prior to the Commission’s issuance of final guidance or a final exemptive order setting forth a definition of “U.S. person,” foreign entities may adopt either potentially over-inclusive or potentially under-inclusive categorizations of their counterparties for purposes of determining whether their swap dealing activities exceed the thresholds under the swap dealer and major swap participant definitions and registration requirements. Either result would not be consistent with the Commission’s intent, in issuing the proposed guidance and proposed exemptive order for public comment, to establish a uniform and consistent standard, through a definition of “U.S. person.”

To address that concern, DSIO staff issued a no-action letter today, which provides time-limited no-action relief to enable swap market participants to apply a uniform and readily ascertainable standard regarding which swaps, as of October 12, 2012, must be included in their calculations under the swap dealer and major swap participant definitions.

Specifically, the Division will not recommend that the Commission take enforcement action against certain foreign entities for failure to include a swap executed prior to the earlier of December 31, 2012, or the effective date of a definition of “U.S. person” in a final exemptive order, in its calculations required under the swap dealer and major swap participant definitions, so long as the counterparty to such swap is not:

(i) A natural person who is a resident of the United States;

(ii) A corporation, partnership, limited liability company, business or other trust, association, joint-stock company, fund or any form of enterprise similar to any of the foregoing, in each case that is organized or incorporated under the laws of the United States;

(iii) A pension plan for the employees, officers or principals of a legal entity described in (ii) above, unless the pension plan is exclusively for foreign employees of such entity;

(iv) An estate or trust, the income of which is subject to U.S. income tax regardless of source; or

(v) An individual account (discretionary or not) where the beneficial owner is a person described in (i) through (iv) above.

The no-action relief will apply where the counterparty to such swap is not a person described in (i) through (v) above, regardless of whether that counterparty’s obligations under the swap are guaranteed by a person that is described in (i) through (v) above.

The no-action letter also provides similar relief concerning certain swap transactions by certain foreign entities when the counterparty is a foreign branch of one of the persons described in (i) through (v) above that intends to register as a swap dealer.

Last Updated: October 12, 2012