December 14, 2017

CFTC Divisions Extend Time-Limited No-Action Relief from the Swap Clearing and Trade Execution Requirements for Certain Affiliated Counterparties

Washington, DC — The 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 swap clearing and trade execution requirements for certain inter-affiliate transactions (CFTC Letters 16-80, 16-81, and 16-84). As described further below, DCR is extending and modifying no-action relief that was previously provided, until the earlier of December 31, 2020, or the date on which amendments to relevant CFTC regulations take effect. Similarly, DMO is extending no-action relief that was previously provided until December 31, 2020, or the effective date of Commission action providing a permanent solution for the execution of inter-affiliate swaps.

On April 11, 2013, the CFTC issued a final rule providing an inter-affiliate exemption from required clearing for swaps between certain affiliated counterparties, subject to specific conditions. One condition requires the clearing of swaps between affiliated counterparties and unaffiliated counterparties. However, to facilitate compliance with the condition, two alternative compliance frameworks were permitted under CFTC regulation 50.52(b)(4)(ii)-(iii) until March 11, 2014.

DCR has provided no-action relief extending the availability of the two alternative compliance frameworks regularly since 2014. Most recently, under CFTC Letter 16-81, affiliated counterparties that are otherwise eligible to rely on the alternative compliance frameworks can continue to do so until December 31, 2017. Under CFTC Letter 16-84, because of the CFTC’s expanded clearing requirement for interest rates swaps, DCR permitted affiliated counterparties located in Australia and Mexico to avail themselves of the same relief available to counterparties located in the European Union, Japan, and Singapore under CFTC regulation 50.52(b)(4)(ii) until December 31, 2017.

DCR’s letter today combines and modifies the relief provided in CFTC Letters 16-81 and 16-84 to include affiliated counterparties located in Canada, Hong Kong, and Switzerland that seek to rely on CFTC regulation 50.52(b)(4)(ii). The letter extends relief until the earlier of (i) December 31, 2020, or (ii) the date on which amendments to CFTC regulation 50.52 take effect. This extension will continue to allow market participants to comply with the inter-affiliate exemption as they have done since the exemption was adopted by the CFTC in 2013.

With regard to DMO’s relief, in the preamble to the rules setting forth 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 under CFTC regulation 50.52 are not subject to the trade execution requirement under section 2(h)(8) of the Commodity Exchange Act.

DMO’s CFTC Letter 16-80 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 the earlier of (i) December 31, 2020 or (ii) the effective date of Commission action providing a permanent solution for the execution of inter-affiliate swaps. 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.

Last Updated: December 14, 2017