March 18, 2013

CFTC’s Division of Clearing and Risk Issues Limited No-Action Relief from Required Clearing for Swaps Resulting from Multilateral Compression Exercises

Washington, DC — The Commission’s Division of Clearing and Risk (Division) today issued a no-action letter that provides relief from required clearing for a limited set of swaps that are generated as part of a multilateral portfolio compression exercise.

The Division will not recommend that the Commission take enforcement action against any person for failing to clear (1) swaps that are amended in order to reduce notional value as part of a multilateral portfolio compression exercise and (2) new swaps that are entered into to replace the original swaps as a result of a multilateral portfolio compression exercise in order to reduce notional exposures or aggregate outstanding gross notional exposure, provided that the original swaps were executed prior to the date on which the counterparties must begin complying with the clearing requirement (and therefore, not required to be cleared). Both the multilateral portfolio compression exercise and the resulting amended or replacement swaps must meet certain conditions specified in the letter.

The no-action relief is subject to, among others, the following conditions: (1) no cleared swaps can be part of the multilateral portfolio compression exercise; (2) no swap executed after an applicable compliance date that is subject to required clearing can be part of the multilateral portfolio compression exercise; (3) all amended swaps and replacement swaps generated by the multilateral portfolio compression exercise must be entered into between the same counterparties as the original swap that is amended or terminated; (4) with the exception of reducing the notional amount, the amended or replacement swaps must have the same material terms as the original swaps; and (5) the amended or replacement swaps must be entered into for the sole purpose of reducing operational or counterparty credit risk.

Last Updated: March 18, 2013