CFTC Takes a U-Turn and Issues No-Action Letter to Swap Dealers on Risk Exposure Reports

During the latter part of March, we reported that the Commodity Futures Trading Commission (CFTC) had finalized the set of procedures to be implemented in relation to risk exposure reports becoming a mandatory document for inspection along with the annual report from the compliance officer of all swap dealers operating under the US regulator’s jurisdiction.

It will likely be good news that the Division of Market Oversight (DMO) within the CFTC has announced the issuance of a no-action letter providing swap counterparties that are not swap dealers or major swap participants (“non-SD/MSP counterparties”), with certain relief from the reporting requirements of the CFTC’s swap data reporting rules, which are set forth at Parts 43, 45 and 46 of the CFTC’s regulations.

Swap dealers and major swap participants are already required to be in compliance with their reporting obligations under the swap data reporting rules. The rules establish a compliance date of April 10, 2013, for non-SD/MSP counterparties.

DMO’s no-action letter provides non-SD/MSP counterparties that are not “financial entities”, as defined in Section 2(h)(7)(C) of the Commodity Exchange Act (“non-financial swap counterparties”), with reporting relief under Parts 43 and 45: (i) for interest rate and credit Swaps Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Read this Term, until July 1, 2013, and (ii) for equity, foreign exchange and other commodity swaps, until August 19, 2013. In addition, the no-action letter provides non-financial swap counterparties with reporting relief under Part 46, for all swap asset classes, until October 31, 2013.

Consistent with the compliance schedule established in the swap data reporting rules, non-SD/MSP counterparties that are “financial entities”, as defined in Section 2(h)(7)(C) of the Commodity Exchange Act (“financial swap counterparties”), must be in compliance with their Part 43 and 45 reporting obligations with respect to interest rate and credit swaps on April 10, 2013. DMO’s no-action letter provides financial swap counterparties with reporting relief under Parts 43 and 45, with respect to equity, foreign exchange and other commodity swaps, until May 29, 2013. In addition, the no-action letter provides financial swap counterparties with reporting relief under Part 46, for all swap asset classes, until September 30, 2013.

As a condition of relying on any relief from Part 43 and 45 reporting obligations that is provided in DMO’s no-action letter, a non-SD/MSP counterparty must, within one month after the end of the applicable relief period, backload and report to a swap data repository all swap transaction data, for the applicable relief period, that the non-SD/MSP counterparty would have been required to report pursuant to Part 45 in the absence of the no-action relief.

Two large Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term companies which recently registered in the US as swap dealers are FXCM and GAIN Capital, both of which would have fallen into this category, however will now not require to take any action.

During the conference call yesterday with FXCM and GAIN Capital’s senior management regarding the proposed merger between the two companies, a significant amount of detail was covered on the subject of the joining of the two entities reducing of operating expenses as it would free up capital otherwise tied up in the cost of meeting the requirements of regulators. Such streamlining would empower the new merged entity to acquire other companies and further strengthen their business as only one set of capital adequacy, compliance and reporting cost as well as operating expenses would be required.

This exemption will further free up the need for these, along with other swap dealers, to expend resources on meeting the risk exposure report and annual compliance officer report requirements.