August 10, 2020

Volume X, Number 223

August 10, 2020

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Commodity Futures Trading Commission Issues No-Action Relief for Swap Dealers who Comply with EU Uncleared Swap Requirements

On February 1, 2017, the Division of Swap Dealer and Intermediary Oversight (“DSIO”) of the Commodity Futures Trading Commission (“CFTC”) issued a no-action letter granting relief from compliance with certain provisions of the CFTC’s margin requirements for uncleared swaps.  This relief applies to swap dealers entering into swaps with counterparties subject to the non-centrally cleared over-the-counter derivative margin requirements of the European Union (the “EMIR RTS”).  The relief is effective beginning February 4, 2017, and expires on May 8, 2017.

The CFTC published its final rule on margin for uncleared swaps for swap dealers and major swap participants in January 2016, and certain entities were required to begin compliance on September 1, 2016.  Meanwhile, the EMIR RTS entered into force on January 4, 2017, and on February 4, 2017, the first phase of counterparties will have to comply with its initial and variation margin requirements.  Pursuant to its final rule regarding cross-border application of the margin requirements for uncleared swaps, the CFTC will exempt entities subject to the CFTC’s margin rule from certain aspects of those requirements if they are in compliance with the requirements of a foreign jurisdiction that are comparable to the CFTC’s rule, known as “substituted compliance.”  However, the CFTC has not yet made a comparability determination as to the EMIR RTS.  Thus, on February 4, 2017, certain swap dealers could be required to comply with both the CFTC’s margin requirements and EMIR RTS.  The no-action letter grants temporary relief from this possibility, allowing swap dealers who comply with EMIR RTS to be exempt from compliance with the CFTC’s requirements until May 8, 2017.

DSIO notes in the no-action letter that swap dealers “should not presume that the Commission’s ultimate determination on substituted compliance for the European Union will be comparable to the relief provided for under this letter.” However, it is worth noting that Acting CFTC Chair J. Christopher Giancarlo has previously criticized the CFTC’s cross-border approach, arguing that it’s rule-by-rule substituted compliance approach is overly prescriptive and harms the goal of cross-border harmonization and consistency.  This could have an impact on how future comparability determinations, including that for EMIR RTS, are made.

© 2020 Covington & Burling LLPNational Law Review, Volume VII, Number 33


About this Author

Jason Grimes, corporate lawyer, Covington

Jason Grimes is an associate in the firm’s financial institutions and futures and derivatives practice groups. He advises clients on a wide range of regulatory matters, including compliance with various state and federal banking laws, and compliance with the Commodity Exchange Act.

Representative Matters

  • Advised a CFTC-registered swap dealer on compliance issues related to trading on swap execution facilities
  • Advised a major financial institution in connection with the treatment of non-deliverable...
Stephen Humenik, regulatory and public policy lawyer, Covington
Of Counsel

Stephen M. Humenik leads the firm’s futures and derivatives practice. He has extensive experience on cross-border regulatory, compliance and enforcement matters involving the U.S. Commodity Futures Trading Commission (CFTC) and markets for derivatives and physical and financial commodities. Mr. Humenik applies his business, operational, and government experience to the implementation of CFTC regulations, including the registration, trading, clearing and other compliance obligations of the Dodd-Frank Act and other global regulatory reforms.

Anne M. Termine, Covington, securities litigation attorney
Of Counsel

Anne Termine is a member of the firm’s Global Futures and Derivatives Practice and leads the Derivatives Enforcement Team. She is also a member of the white collar defense and investigations practice. Ms. Termine advises clients in handling internal investigations and regulatory enforcement inquiries related to the derivatives markets and the cryptocurrency markets.

Prior to joining Covington, Ms. Termine was a Chief Trial Attorney in the U.S. Commodity Futures Trading Commission's (CFTC) Division of Enforcement, where she was responsible for investigating and...