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Legal Alert: Nearly at the Buzzer, CFTC Affords End-Users Relief from Dodd-Frank Reporting Requirements

January 1, 2013

On the brink of the compliance date for arguably one of the most burdensome requirements that end-users face under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the Commodity Futures Trading Commission’s (CFTC) Divisions of Market Oversight (DMO) and Clearing and Risk (DCR) issued no-action letters affording end-users (1) temporary relief from the general, historical and real-time swap data reporting requirements under Dodd-Frank; and (2) conditional relief from the reporting requirements applicable to (a) interaffiliate swaps and (b) trade options.  Please note, however, that the no-action letters discussed herein do not afford end-users any relief from the recordkeeping requirements under Part 45.  This Legal Alert provides a high-level summary of the relief afforded by each of these letters and the conditions that end-users must meet to qualify for the relief.

Temporary Relief from the General, Historical and Real-time Swap Data Reporting Requirements

On the evening of April 9, 2013, with only a few hours left before the 12:01 a.m. scheduled reporting deadline for end-users, the DMO issued CFTC Letter No. 13-10 granting a temporary extension of the compliance date.  However, as described below, CFTC Letter No. 13-10 distinguishes between, and affords distinct treatment to, financial entity end-users and non-financial entity end-users.[1]

  1. Relief Afforded to Financial Entities

With regard to the general reporting (Part 45 of the CFTC’s regulations) and real-time reporting (Part 43 of the CFTC’s regulations) requirements, which would apply to trades executed on or after April 10, 2013 (i.e., prospectively):

  • No relief has been afforded with respect to interest rate and credit swaps.  Therefore, the compliance date with respect to such swaps was 12:01 a.m. on April 10, 2013.[2]
  • The reporting deadline for equity, foreign exchange and other commodity swaps has been extended to 12:01 a.m. on May 29, 2013.
    • As a condition of the relief, data for swaps entered into between April 10, 2013 and May 29, 2013 must be backloaded and reported to a swap data repository (SDR), in accordance with Part 45, by 12:01 a.m. on June 29, 2013.

With regard to the historical reporting (Part 46 of the CFTC’s regulations) requirement:

  • The reporting deadline for all asset classes has been extended to 12:01 a.m. on September 30, 2013.
    • Any swap entered into prior to 12:01 a.m. on April 10, 2013 will be reported as a historical swap (i.e., the extension of the compliance deadlines for reporting under Parts 43 and 45 does not cause swaps executed between the original deadline and the revised deadline to be classified as historical swaps).[3]
  1. Relief Afforded to Non-Financial Entities

With regard to the general reporting (Part 45 of the CFTC’s regulations) and real-time reporting (Part 43 of the CFTC’s regulations) requirements, which would apply to trades executed on or after April 10, 2013 (i.e., prospectively).

  • The reporting deadline for interest rate and credit swaps has been extended to 12:01 a.m. on July 1, 2013.
    • As a condition of the relief, data for swaps entered into between April 10, 2013 and July 1, 2013 must be backloaded and reported to an SDR, in accordance with Part 45, by 12:01 a.m. on August 1, 2013.
  • The reporting deadline for equity, foreign exchange and other commodity swaps has been extended to 12:01 a.m. on August 19, 2013.
    • As a condition of the relief, data for swaps entered into between April 10, 2013 and August 19, 2013 must be backloaded and reported to an SDR, in accordance with Part 45, by 12:01 a.m. on September 19, 2013.
  • With regard to the historical reporting (Part 46 of the CFTC’s regulations) requirement:
    • The reporting deadline for all asset classes has been extended to 12:01 a.m. on October 31, 2013.
      • Any swap entered into prior to 12:01 a.m. on April 10, 2013 will be reported as a historical swap (i.e., the extension of the compliance deadlines for reporting under Parts 43 and 45 does not cause swaps executed between the original deadline and the revised deadline to be classified as “historical”).

 



[1] The term “financial entity” is defined in Section 2(h)(7)(C)(i) of the Commodity Exchange Act, 7 U.S.C. § 2(h)(7)(C)(i), and means: (1) a swap dealer; (2) a security-based swap dealer; (3) a major swap participant; (4) a major security-based swap participant; (5) a commodity pool; (6) a private fund, as defined in Section 202(a) of the Investment Advisers Act of 1940; (7) an employee benefit plan as defined in paragraphs (3) and (32) of Section 3 of the Employee Retirement Income Security Act of 1974; or (8) a person predominantly engaged in activities that are in the business of banking, or in activities that are financial in nature, as defined in Section 4(k) of the Bank Holding Company Act of 1956.  The term does not include an entity whose primary business is providing financing that uses derivatives for the purpose of hedging underlying commercial risks related to interest rate and foreign currency exposures, 90% or more of which arise from financing that facilitates the purchase or lease of products, 90% or more of which are manufactured by the parent company or another subsidiary of the parent company.  Moreover, for purposes of CFTC Letter No 13-10, “small financial institutions” that are eligible for the end-user exception are also carved out of the financial entity definition.  See CEA § 2(h)(7)(C)(ii), 7 U.S.C. § 2(h)(7)(C)(ii), and CFTC Regulation 50.50(d), 17 C.F.R. § 50.50(d) (2013).

[2] All references in this Legal Alert are to Eastern time.

[3] “Historical” swaps are (1) “pre-enactment swaps,” which are swaps entered into prior to the enactment of the Dodd-Frank Act (July 21, 2010), the terms of which had not expired as of that date and (2) “transition swaps” are swaps that were entered into on or after the enactment of the Dodd-Frank Act (July 21, 2010) and prior to the applicable compliance date for reporting historical swaps data pursuant to Part 46 (i.e., April 10, 2013).

 

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