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April 19, 2014

Commodity Futures Trading Commission "CFTC" Issues Final Order on Cross-Border Swaps

The Commodity Futures Trading Commission has issued a final exemptive order regarding the cross-border application of certain swaps provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act. Pursuant to the final order, the CFTC adopted or modified many of the provisions set forth in previous CFTC proposals and staff letters, including the definition of “US person,” calculation of the de minimis threshold for non-US persons, compliance with certain entity-level swap requirements for non-US swap dealers (SDs) and major swap participants (MSPs), and compliance with certain transaction-level swap requirements for non-US SDs, non-US MSPs and foreign branches of US SDs and MSPs. The exemptions conferred by the final order expire on July 12, 2013.

For purposes of the final order, the definition of “US person” is similar to the definition set forth in CFTC Letter No. 12-22 with a few notable changes, including (i) the inclusion of any entity, including an entity not organized under the laws of the United States, with its principal place of business in the United States; (ii) the treatment of certain pension plans for foreign employees; (iii) the treatment of estates and trusts; and (iv) the treatment of joint accounts. The CFTC will not consider foreign entities with a principal place of business in the United States to be US persons until April 1, 2013, whereas all other changes to the definition of US person became effective on December 31, 2012.

The final order also provides relief to non-US persons from including certain swap dealing transactions in their de minimis calculations. A non-US person does not need to include in its de minimis calculation swap transactions where the counterparty is either a non-US person or a foreign branch of a US person that is registered, or intends to register, as an SD. Similarly, a non-US person is not required to aggregate the swap transactions of certain affiliates in determining whether it exceeds the de minimis threshold.

Non-US SDs and MSPs are also temporarily exempt from certain entity-level requirements, and non-US SDs and MSPs and foreign branches of US SDs and MSPs are exempt from certain transaction-level requirements for swap transactions with non-US counterparties.

The final exemptive order is available here; CFTC Letter No. 12-22 is available here.

©2014 Katten Muchin Rosenman LLP

About the Author

Kenneth M. Rosenzweig, Katten Muchin Law Firm, Financial Institutions
Partner

Kenneth M. Rosenzweig focuses his practice on financial services matters, with an emphasis on the trading and clearing of financial instruments. Ken represents derivatives clearing organizations, designated contract markets and swap execution facilities, in addition to futures commission merchants, banks and other commercial participants in the exchange-traded and over-the-counter derivatives markets.

312-902-5381

About the Author

James M. Brady, Katten Muchin Law Firm, Finance Attorney
Associate

James Brady concentrates his practice in financial services matters.

312-902-5362
Blake J. Brockway, Finance Attorney, Katten Muchin Law Firm
Associate

Blake J. Brockway concentrates his practice in financial service matters.

Mr. Brockway received his Bachelor of Science, with distinction, from Iowa State University in 2005. He received his Juris Doctor, magna cum laude, from DePaul University College of Law in 2009, where he was selected to the Order of the Coif. During law school, Mr. Brockway served a research staff member of the DePaul Business and Commercial Law Journal and his comment, "Applying Federal Securities Laws to Chapter 11 Claim Conversions," was published in Volume 7, Issue 4...

312.902.5438

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