CFTC Staff Issues Time-Limited No-Action Relief from Some Swap Data Reporting Requirements for Certain Counterparties

Transcription

1 April 12, 2013 CFTC Staff Issues Time-Limited No-Action Relief from Some Swap Data Reporting Requirements for Certain Counterparties Key Takeaways: > Non-SD/MSP financial entities now have until May 29, 2013 to comply with certain reporting requirements for equity, foreign exchange and other commodity swaps, subject to certain conditions. > Non-SD/MSP financial entities now have until September 30, 2013 to report historical swaps. > No relief was granted to Non-SD/MSP financial entities from the April 10, 2013 deadlines for the Part 43 real-time reporting and Part 45 SDR reporting requirements for interest rate and credit swaps. Contents Overview... 1 No-Action Relief for Non- SD/MSP Financial Entities 2 No-Action Relief for End- Users... 3 Conclusion... 3 > Non-financial end-users now have until July 1, 2013 to comply with certain reporting requirements for interest rate and credit swaps, and until August 19, 2013 for equity, foreign exchange and other commodity swaps, in both cases, subject to certain conditions. > Non-financial end-users now have until October 31, 2013 to report historical swaps. > No relief was granted from the swap recordkeeping requirements. Overview On April 9, 2013, the Commodity Futures Trading Commission s (the CFTC ) Division of Market Oversight (the DMO ) released Staff Letter No (the No-Action Letter ), 1 which provides no-action relief to extend the date by which a swap counterparty that is not a swap dealer or a major swap participant (a Non-SD/MSP ) must be in compliance with the CFTC s (i) Part 43 real-time reporting rule 2 (the Real-Time Reporting Rule ), (ii) Part 45 swap data 1 2 See the CFTC s Press Release here: a copy of the No-Action Letter is available at See 17 C.F.R et seq.; see also Real-Time Public Reporting of Swap Transaction Data, 77 Fed. Reg (January 9, 2012). 1

2 repository reporting rule 3 (the SDR Reporting Rule ) and (iii) Part 46 historical swap data reporting rule 4 (the Historical Swap Reporting Rule ). Absent such relief, all Non-SD/MSPs would have had to comply with the swap data reporting rules from April 10, The No-Action Letter provides broad relief for non-financial Non-SD/MSPs ( End- Users ) and slightly narrower relief for Non-SD/MSPs that are financial entities 5 ( Non-SD/MSP Financial Entities ). No-Action Relief for Non-SD/MSP Financial Entities For Non-SD/MSP Financial Entities, the No-Action Letter provides relief from the Real-Time Reporting Rule and the SDR Reporting Rule with respect to the equity, 6 foreign exchange 7 and other commodity 8 swap asset classes. From April 10, 2013 until May 29, 2013, the DMO will not recommend that the CFTC commence an enforcement action against a Non-SD/MSP Financial Entity for failing to report such swaps pursuant to the Real-Time Reporting Rule or the SDR Reporting Rule. The No-Action Letter does not grant relief to Non-SD/MSP Financial Entities with respect to interest rate 9 and credit swaps, 10 and thus required reporting began on April 10, See 17 C.F.R et seq.; see also Swap Data Recordkeeping and Reporting Requirements, 77 Fed. Reg (January 13, 2012). See 17 C.F.R et seq.; see also Swap Data Recordkeeping and Reporting Requirements: Pre-Enactment and Transition Swaps, 77 Fed. Reg (June 12, 2012). Financial entity is defined in Section 2(h)(7)(C) of the Commodity Exchange Act and generally includes swap dealers, major swap participants, commodity pools, employee benefit plans and any other person predominately engaged in activities that are financial in nature. However, the term financial entity does not include (A) an entity whose primary business is providing financing, and uses derivatives for the purpose of hedging underlying commercial risks related to interest rate and foreign currency exposures, 90 percent or more of which arise from financing that facilitates the purchase or lease of products, 90 percent or more of which are manufactured by the parent company or another subsidiary of the parent company or (B) any entity exempt from the definition of financial entity in the end-user clearing exception at 17 C.F.R The term equity swap means any swap that is primarily based on equity securities, including, without limitation: any swap primarily based on one or more broad-based indices of equity securities; and any total return swap on one or more equity indices. The term foreign exchange swap means a transaction that solely involves: (A) an exchange of 2 different currencies on a specific date at a fixed rate that is agreed upon at the inception of the contract covering the exchange; and (B) a reverse exchange of the 2 currencies described in subparagraph (A) at a later date and at a fixed rate that is agreed upon at the inception of the contract covering the exchange. It does not include swaps primarily based on rates of exchange between different currencies, changes in such rates, or other aspects of such rates (sometimes known as cross-currency swaps ). The term other commodity swap means any swap not included in the credit, equity, foreign exchange, or interest rate asset classes, including, without limitation, any swap for which the primary underlying item is a physical commodity or the price or any other aspect of a physical commodity. The term interest rate swap means any swap which is primarily based on one or more interest rates, such as swaps of payments determined by fixed and floating interest rates; or any swap which is primarily based on rates of exchange between different currencies, changes in such rates, or other aspects of such rates (sometimes known as cross-currency swaps ). 2

3 For any Non-SD/MSP Financial Entities relying on the No-Action Letter, as a condition to relief, the Non-SD/MSP Financial Entity must backload and report to an SDR (by June 29, 2013) all swap transaction data for the period from April 10, 2013, to May 29, 2013 which would have been reported pursuant to the SDR Reporting Rule absent the No-Action Letter. With respect to the Historical Swap Reporting Rule, Non-SD/MSP Financial Entities have no-action relief until September 30, The No-Action Letter does not directly address the treatment of continuation data reporting requirements for uncleared historic swaps which have not expired or terminated on or before April 10, No-Action Relief for End-Users Unlike the no-action relief for Non-SD/MSP Financial Entities, the no-action relief for End-Users encompasses all asset classes. However, that relief expires earlier for interest rate and credit swaps than for equity, foreign exchange and other commodity swaps. With respect to interest rate and credit swaps, End-Users need not report under the Real-Time Reporting Rule or the SDR Reporting Rule until July 1, End-Users must, however, backload and report to an SDR by August 1, 2013 all transaction data for the period from April 10, 2013 to July 1, 2013 that would have been reported absent the no-action relief. With respect to equity, foreign exchange and other commodity swaps, the No- Action Letter grants End-Users relief until August 19, 2013 on the condition that they backload and report to an SDR by September 19, 2013 transaction data that they would have been required to report in the absence of the no-action relief. With respect to the Historical Swap Reporting Rule, End-Users were granted noaction relief until October 31, 2013 by the DMO, but similarly to the relief for Non- SD/MSP Financial Entities, the No-Action Letter does not directly address the treatment of continuation data reporting requirements by End-Users for uncleared historic swaps which have not terminated or expired on or before April 10, Conclusion The relief provided by the DMO in the No-Action Letter does not extend to other types of entities with reporting obligations under the swap data reporting rules. If a Non-SD/MSP Financial Entity or an End-User becomes a swap dealer or a 10 The term credit swap means any swap that is primarily based on instruments of indebtedness, including, without limitation: any swap primarily based on one or more broad-based indices related to instruments of indebtedness; and any swap that is an index credit swap or total return swap on one or more indices of debt instruments. 3

4 major swap participant during the no-action period, it will be required to be in full compliance with its reporting obligations by the date upon which it becomes a swap dealer or major swap participant. The No-Action letter does not affect any of the swap data recordkeeping obligations of Non-SD/MSP Financial Entities or End-Users. As a result of this, all Non-SD/MSP Financial Entities and End-Users must have obtained their CFTC Interim Compliant Identifier since it is required for compliance with the recordkeeping obligations under the SDR Reporting Rule. 11 Finally, the failure to expressly address the treatment of continuation data reporting for uncleared historical swaps injects ambiguity into the relief as it could be read implicitly to include such continuation data or plausibly to exclude it, but, in the latter case, such a reading would beget a host of logistical problems (e.g., how might one go about reporting continuation data in respect of historical swaps which themselves had not yet been reported). 11 The CFTC Interim Compliant Identifier is also referred to as the LEI/CICI in the ISDA August 2012 DF Protocol and ISDA March 2013 DF Protocol. An LEI/CICI may be obtained through the CICI Utility web portal available at 4

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