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April 17, 2014

Temporary Relief for Swap Data Reporting Requirements

CFTC issues no-action letter establishing uniform compliance dates and temporary relief for reporting of swap transaction data for swap dealers.

On November 19, the Commodity Futures Trading Commission's (CFTC's) Division of Swap Dealer and Intermediary Oversight (DSIO) and Division of Market Oversight (DMO) issued a no-action letter (No-Action Letter) providing swap dealers with (1) a temporary stay for swap reporting by entities that register as a swap dealer prior to December 31, 2012, and (2) a 30-day relief period for the reporting of historical swaps.[1] This establishes uniform compliance dates for swap data reporting requirements for swap dealers that will be newly subject to the reporting requirement.

Under the CFTC's swap dealer registration rules, an entity generally must register as a swap dealer no later than two months after the end of the month in which its swap dealing activity exceeds one of two de minimis thresholds,[2] and the entity also must begin reporting its swap transactions on the date that it becomes registered. For example, an entity that exceeded one of the de minimis thresholds in October 2012 would be required to register as a swap dealer by December 31, 2012. It could, however, register at an earlier date, but its swap data reporting requirements would become effective as of that earlier registration date.

Temporary Relief from Swap Transaction Data Reporting

Publicly reported swap data does not identify the counterparties to a swap. However, potential swap dealer registrants expressed concern to the CFTC that the first entities to register as swap dealers and begin reporting would be the first to have the pricing data of their swap transactions with counterparties publicly disseminated, potentially allowing third parties to identify the counterparties to the reported swaps. In response to this concern, the No-Action Letter provides that DSIO and DMO will not recommend that the CFTC take enforcement action against a registered swap dealer for failing to report swap transaction data under part 43 of the CFTC regulations (which sets forth rules for real-time public reporting of swap transaction data) and part 45 of the CFTC regulations (which sets forth swap data repository (SDR) reporting requirements) until the earlier of (1) 12:01 a.m. ET on the swap dealer registration deadline applicable to that swap dealer, regardless of whether that swap dealer may have applied to register as a swap dealer before its applicable swap dealer registration deadline, and (2) 12:01 a.m. ET on April 10, 2013, which is the date that all swaps must be reported under parts 43 and 45.

Temporary Relief from Historical Swap Reporting

The reporting obligations in part 46 of the CFTC regulations for historical swaps, which include pre-enactment and transition swaps, commence simultaneously with the reporting requirements under parts 43 and 45.

Potential swap dealer registrants expressed concern that a large volume of historical swaps will need to be reported on the same dates that reporting requirements under parts 43 and 45 become effective, presenting a technological and operational challenge. In response to this concern, the No-Action Letter provides that the DSIO and DMO will not recommend that the CFTC take enforcement action against a registered swap dealer for failing to report historical swaps data until the earlier of (1) 12:01 a.m. ET on the date that is 30 days after the date on which the swap dealer is required to begin reporting swap transaction data for the asset class to which the historical swap belongs, and (2) 12:01 a.m. ET on April 10, 2013. DSIO and DMO also noted that swap dealers that anticipate needing more than 30 days to complete reporting of historical swaps data may begin to report before the 30-day relief period begins.

Implications

As a result of the No-Action Letter, swap dealers may now comply with the CFTC's swap data reporting requirements based on the schedule set forth in the below table. The reporting obligation starts at 12:01 a.m. ET on the date specified in the table. The temporary relief provided by the No-Action Letter ends at 12:01 a.m. ET on April 10, 2013—the date by which all swap counterparties, regardless of registration status, are required to be in full compliance with the swap data reporting rules for all swap asset classes.

Month Swap Dealer De Minimis Threshold Exceeded

October 2012

November 2012

December 2012

January 2013

February 2013

Swap Dealer Registration Deadline

December 31, 2012

January 31, 2013

February 28, 2013

March 31, 2013

April 30, 2013

Part 43 (Real-Time) and Part 45 (SDR) Reporting (regardless of date of registration)

Interest Rate and Credit Swaps—December 31, 2012

Equity Swaps,[3] Foreign Exchange Swaps, and Other Commodity Swaps—January 10, 2013

January 31, 2013

February 28, 2013

March 31, 2013

April 10, 2013

Part 46 (Historical Swap) Reporting (regardless of date of registration)

Interest Rate and Credit Swaps—January 30, 2012

Equity Swaps, Foreign Exchange Swaps, and Other Commodity Swaps—February 9, 2013

March 2, 2013

March 30, 2013

April 10, 2013

April 10, 2013


[1]. View the No-Action Letter here.

[2]. CFTC Rule 1.3(ggg)(4) provides a de minimis exception from the definition of "swap dealer" for persons entering into swap positions over the previous 12 months that have an aggregate gross notional amount of no more than $8 billion and of no more than $25 million with counterparties that are "special entities" (e.g., ERISA plans and other pension plans).

[3]. For CFTC reporting purposes, equity swaps include swaps on broad-based equity indices. They do not include security-based swaps subject to the jurisdiction of the Securities and Exchange Commission.

Copyright © 2014 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

About the Author

Of Counsel

Michael A. Piracci is of counsel in Morgan Lewis's Investment Management and Securities Industry Practice. Mr. Piracci focuses his practice on exchange traded futures, foreign exchange, and matters related to futures commission merchants, introducing brokers, commodity pool operators, and commodity trading advisors. He provides advice and counsel relating to a broad range of regulatory issues, including compliance under the Commodity Exchange Act, regulatory examinations, and trading and market practices.

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About the Author

Associate

Zachary E. Vonnegut-Gabovitch is an associate in Morgan Lewis's Investment Management Practice. The lawyers in our Investment Management Practice focus on regulatory issues affecting broker-dealers, investment advisers, futures clearing merchants, CTAs, swap dealers and security-based swap dealers, securities, futures and swap exchanges, crossing platforms, and clearinghouses and public and private funds.

Prior to joining Morgan Lewis, Mr. Vonnegut-Gabovitch worked at Chinatrust Commercial Bank.

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