Frequently Asked Questions (FAQ) - Division of Swap Dealer and Intermediary Oversight (“DSIO”) Responds to FAQs About Swap Entities

Frequently Asked Questions (FAQ) on the Reporting of Cleared Swaps

Q&A: On Start of Swap Data Reporting

The Division will not recommend that the Commission take enforcement action against certain foreign entities for failure to include a swap executed prior to the earlier of December 31, 2012, or the effective date of a definition of “U.S. person” in a final exemptive order, in its calculations required under the swap dealer and major swap participant definitions, so long as the counterparty to such swap does not fall within certain enumerated categories. The no-action letter also provides similar relief concerning certain swap transactions by certain foreign entities when the counterparty is a foreign branch of a person that falls within one of the enumerated categories and that intends to register as a swap dealer.
Regulations 1.3(ggg)(4) and 1.3(hhh); No-Action
12-22

Time Limited No-action Relief: Foreign Exchange Swaps and Foreign Exchange Forwards Not to be Considered in Calculating Aggregate Gross Notional Amount for Purposes of Swap Dealer De Minimis Exception or in Calculating Substantial Position in Swaps or Substantial Counterparty Exposure for Purposes of the Major Swap Participant Definition. Time-Limited No-action Relief for persons that meet the definitions of Commodity Pool Operators and Commodity Trading Advisors Solely as a Result of their Foreign Exchange Swap and Foreign Exchange Forward Activities.
Commission Regulation 1.3(ggg)(4); No-Action
12-21

The Division will not recommend that the Commission take enforcement action against any person for failure to include, in its calculation of the aggregate gross notional amount of swaps connected with its swap dealing activity for purposes of Commission Regulation 1.3(ggg)(4), a swap that (i) references an exempt commodity or agricultural commodity, and (ii) is executed prior to October 20, 2012. The Division also will not recommend that the Commission take enforcement action against any person for failure to include, in its calculation of daily average aggregate uncollateralized outward exposure and daily average aggregate potential outward exposure for purposes of Commission Regulation 1.3(jjj)(4), such exposures arising from any swap that references an exempt commodity or agricultural commodity, from October 12, 2012, through October 20, 2012, inclusive.
Commission Regulations 1.3(ggg)(4) and 1.3(hhh); No-Action
12-20

The Division of Swap Dealer and Intermediary Oversight issued an interpretative letter that clarifies, in light of the recent vacatur of the position limits rule, the scope of the bona fide hedging exemption from the trading thresholds as applied to the operators of registered investment companies pursuant to Regulation 4.5.
Commission Regulations 4.5 and 1.3(z);; Interpretation
12-19

The letter provides that the Division of Swap Dealer and Intermediary Oversight will not recommend that the Commission commence an enforcement action against a non-financial entity that regularly transacts in the physical energy markets for failure to apply to be registered as a swap dealer, if the entity limits its swaps connected with its dealing activities with publicly-owned, government-owned and federal agency utilities to no more than $800 million per year and other requirements set out in the letter are met.
1.3(ggg)(4); No-Action
12-18

Interpretations and no-action positions related to ECP status.
1a(18)(A); 2(e); 13(a); 17 C.F.R. § 23.430; No-Action; Interpretation
12-17

The letter provides that DSIO will not recommend that the Commission take enforcement action against any person for failure to include, in its calculation of the aggregate gross notional amount of swaps connected with its swap dealing activity for purposes of Commission Regulation 1.3(ggg)(4), a swap that (i) references an exempt commodity or agricultural commodity, (ii) is executed prior to December 31, 2012, and (iii) is either cleared on a derivatives clearing organization registered with the Commission, or entered into contingent upon its being subsequently exchanged for and cleared as a futures position as part of an exchange for related position transaction conducted in accordance with a DCM’s rules.
Regulation 1.3(ggg)(4); No-Action
12-16

The Commodity Futures Trading Commission’s (CFTC) Division of Swap Dealer and Intermediary Oversight (DSIO) issued several registration “no-action” positions. In the first position, DSIO announced that it will not recommend that the CFTC commence an enforcement action against any person who, solely by virtue of its swaps activity, would be required to register as an introducing broker, commodity pool operator, commodity trading advisor, AP of any of the foregoing or of an FCM, floor broker or floor trader, provided that on or before December 31, 2012, the person applies for registration. In the second position, DSIO announced a similar registration no-action position for any person who finds themselves required to register solely because of their involvement with the transition of certain contracts on ICE and NYMEX to clearing as commodity futures and options, provided that on or before December 31, 2012, the person applies for registration. In the third position, DSIO announced a no-action position that will permit an SD or MSP to employ a person as an AP, notwithstanding that the person is subject to a statutory disqualification, provided that the SD or MSP requests and receives from the National Futures Association advice that, notwithstanding the disqualification, the person would have been granted registration as an AP.
CEA Sections 4d, 4e, 4m, 4s(b)(6); and CFTC Part 3 Regulations; No-Action
12-15

The Division of Swap Dealer and Intermediary Oversight issued an interpretative letter excluding certain securitization vehicles from the definition of commodity pool, subject to certain conditions.
Section 1a(10) of the CEA and Commission Regulation 4.10(d); Interpretation
12-14

The Division of Swap Dealer and Intermediary Oversight determined that equity real estate investment trusts that satisfy certain criteria are outside the definition of commodity pool as that term is defined in Section 1a(10) of the Commodity Exchange Act and Commission Regulation 4.10(d). The requirements include deriving its income primarily from the ownership and operation of real estate and use derivatives for the limited purpose of mitigating their exposure to changes in interest rates or fluctuations in currency; complying with applicable provisions of the Internal Revenue Code; and identifying itself as an equity REIT on applicable Internal Revenue Service forms. The relief is self executing.
Section 1a(10) and Commission Regulation 4.10(d); Interpretation
12-13

The letter maintains the regulatory status quo with respect to the group of petitioners that have requested a an Order pursuant to Section 4(c)(6) of the CEA for certain government and cooperatively-owned electric utilities. The no-action letters will permit these market participants to continue to operate while the Commission considers the comments received on the proposed Orders issued in response to the respective petitions (the comment period has closed).
No action with respect to all provisions except general enforcement provisions; No-Action
12-12

Staff from the Division of Market Oversight, Division of Swap Dealer and Intermediary Oversight, and the Division of Clearing and Risk issued a No-Action Relief letter preserving the regulatory status quo with respect to provisions of the CEA that may apply to RTOs, ISOs, and/or their participants. The Commission is still considering comments regarding the Proposed Order to Exempt Specified Transactions Authorized by a Tariff or Protocol Approved by the Federal Energy Commission or the Public Utility Commission of Texas from Certain Provisions of the Commodity Exchange Act (77 FR 52137). The relief granted terminates upon the earliest of the Commission taking final action on the Proposed Order or March 31, 2013.
Section 4(c)(6); No-Action
12-11

Division of Clearing and Risk staff issued a no action preserving the regulatory status quo with respect to swaps cleared by a DCO (and related) collateral which expires on the compliance date for Part 22 regulations, November 8, 2012.
4d(f)(2), (3), (4), and (6); No-Action
12-10

Division of Clearing and Risk Issues Extension of Time for Compliance with Certain Pre-Trade Screening Requirements

1.73(a)(2)(i), 1.73(a)(2)(iv), 1.73(a)(2)(v); No-Action

12-09

The staff of the Division of Market Oversight issued a no-action letter providing that, for a limited time, market participants can rely on the trade option exemption in CFTC regulation 32.3 without complying with specified provisions thereof. The no action letter is effective until the earlier of December 31, 2012, or the effective date of any final action taken by the Commission in response to comments on the Trade Option Exemption Interim Final Rules (77 FR 25320). To rely on the no-action relief, market participants must comply with: (1) the conditions for qualifying as a “trade option” (§ 32.3(a)); (2) speculative position limits (§ 32.3(c)(2)); and (3) prohibitions on fraud, manipulation and other abusive trade practices (§ 32.3(d)).
Regulation 32.3 Trade Options; No-Action
12-06

The Division of Market Oversight issued a letter to market participants providing temporary no-action relief in order to give effect to the Commission’s commitment to “coordinate the disposition” of a May 30, 2012 notice of proposed rulemaking regarding aggregation (“Aggregation Notice”) with the implementation of position limits under part 151 (“Position Limits Rule”), as well as “to provide an orderly transition to the compliance dates” for the Position Limits Rule. The no-action relief provides two alternative methods for compliance: (1) as if the Position Limits Rule were amended to include the provisions proposed in the Aggregation Notice; and (2) in conformity with the dis-aggregation criteria specified in the no-action relief. This temporary relief is intended to provide sufficient time for persons to transition to fully compliant aggregation by 60 days after the earlier of the date the Commission publishes a rule finalizing changes to the Commission’s aggregation policy or the date the Commission issues an order declining to take further action on the Aggregation Notice. The relief is time limited to no later than December 31, 2012.
Part 151: Position Limits for Futures and Swaps; No-Action
12-05

The Division of Market Oversight issued a letter to market participants providing temporary no-action relief for reporting by non-clearing member swap dealers under the CFTC’s large trader reporting system for physical commodity swaps and swaptions. This temporary relief is intended to provide sufficient time for non-clearing member swap dealers to transition to fully compliant reporting by 60 days after the Commission’s deadline for entities to apply to register as swap dealers. In addition, the letter provides a further six months of no-action relief to non-clearing member swap dealers that satisfy the conditions of Section 20.10(e) of the Commission’s regulations.

Part 20: Large Trader Reporting for Physical Commodity Swaps; No-Action

12-04

The Division of Swap Dealer and Intermediary Oversight (“the Division”) of the Commodity Futures Trading Commission (“CFTC”) today issued a notice of the availability of time-limited no action relief for commodity pool operators (“CPOs”) and commodity trading advisors (“CTAs”) who would have been exempt or excluded from registration but for the recent amendments to Regulations 4.13 and 4.5. The Division has determined not to recommend that the Commission take an enforcement action against CPOs or CTAs for failure to register as such until December 31, 2012, subject to certain requirements, including the filing of a notice with the Division. Once filed, this no-action relief is effective immediately.

Part 4: Registration and Compliance Obligations for CPOs and CTAs; No-Action
12-03

The Division of Market Oversight issued a letter to market participants providing temporary no-action relief for less than fully compliant reporting of positions based on ownership under the CFTC’s large trader reporting system for physical commodity swaps and swaptions. This temporary relief is intended to provide sufficient time for the industry to transition to fully compliant reporting for positions based on ownership by July 27, 2012. As a condition of this relief, market participants must submit, by July 30, 2012, fully compliant reports dating back to July 2, 2012.

Part 20: Large Trader Reporting for Physical Commodity Swaps; No-Action
12-02