U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-5977

Facsimile: (202) 418-5407

gbarnett@cftc.gov

Division of Swap Dealer and

Intermediary Oversight

Gary Barnett

Director

CFTC Letter No. 13-37

No-Action

June 27, 2013

Division of Swap Dealer and Intermediary Oversight

Re: Time-Limited No-Action Relief: Request that Certain Swaps Not Be Considered in 

Calculating Aggregate Gross Notional Amount for Purposes of the Swap Dealer 

(“SD”) De Minimis Exception for Persons Engaging in Floor Trader Activities

Ladies and Gentlemen:

This letter is in response to a request dated June 18, 2013, from the Futures Industry 

Association Principal Traders Group (“FIA PTG”) to the Division of Swap Dealer and 

Intermediary Oversight (“DSIO”) of the U.S. Commodity Futures Trading Commission 

(“Commission”), in which FIA PTG requests additional time-limited no-action relief that would 

allow firms to exclude certain cleared swaps from their aggregate gross notional amount of swap 

transactions in determining whether they may rely on the de minimis exception from SD 

registration set forth in Commission Regulation (“Regulation”) 1.3(ggg)(4).1 Specifically, FIA 

PTG requests that the Division extend the time-limited no-action relief that it issued on 

December 19, 2012 (pursuant to CFTC Letter No. 12-60),2 which expires July 1, 2013. FIA 

PTG contends that the extension is necessary because the conditions necessitating the earlier noaction relief have not been fully resolved. FIA PTG requests that market participants who would 

otherwise be entitled to take advantage of the relief provided by Regulation 1.3(ggg)(6)(iv)3be 

permitted to trade in cleared swaps that are not traded on, or subject to the rules of, a designated 

contract market (“DCM”) or a swap execution facility (“SEF”) without having these swaps 

included in their aggregate gross notional amount of swap transactions until 90 days after the 

compliance date for the rules governing the registration and operation of SEFs.4

 

1

17 C.F.R. § 1.3(ggg)(4); see Further Definition of “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap 

Participant,” “Major Security-Based Swap Participant,” and “Eligible Contract Participant,” 77 Fed. Reg. 30,596, 

30,744 (May 23, 2012) [hereinafter the “Entity Definition Rules”].

2 CFTC Letter No. 12-60, available at http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/12-

60.pdf.

3

17 C.F.R. 1.3(ggg)(6)(iv); Entity Definition Rules, 77 Fed. Reg. at 30,746.

4 Core Principles and Other Requirements for Swap Execution Facilities; Final Rule, 78 Fed. Reg. 33,476 (June 4, 

2013). The final trading rules with respect to DCMs became effective on August 20, 2012. Core Principles and 

Other Requirements for Designated Contract Markets. 77 Fed. Reg. 36,611 (June 19, 2012). 
Page 2

Applicable Regulatory Requirements

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,5in relevant 

part, added § 1a(49) to the Commodity Exchange Act (the “CEA” or “Act”), which defined the 

term “swap dealer” for purposes of the CEA.6Section 1a(49)(D) of the CEA states that “[t]he 

Commission shall exempt from designation as a swap dealer an entity that engages in a de 

minimis quantity of swap dealing in connection with transactions with or on behalf of its 

customers. The Commission shall promulgate regulations to establish factors with respect to the 

making of this determination to exempt.”7

On April 18, 2012, the Commission, jointly with the Securities and Exchange 

Commission (“SEC”), issued final rules to further define “swap dealer,” “security-based swap 

dealer,” “major swap participant,” “major security-based swap participant,” and “eligible 

contract participant” (the “Entity Definition Rules”).8Included in the Entity Definition Rules 

was Regulation 1.3(ggg)(4)(i), which provides that a person shall not be deemed a swap dealer if 

the aggregate gross notional amount of their swap dealing activity falls below certain thresholds.

9

 

The Entity Definition Rules also include a list of swaps that are not considered in 

determining whether a person is a swap dealer.10 In particular, Regulation 1.3(ggg)(6)(iv) 

provides that: 

[i]n determining whether a person is a swap dealer, each swap that 

the person enters into in its capacity as a floor trader as defined by 

section 1a(23) of the Act or on or subject to the rules of a swap 

execution facility shall not be considered for the purpose of 

determining whether the person is a swap dealer if the person: 

(A) Is registered with the Commission as a floor trader pursuant 

to § 3.11 of this chapter;

(B) Enters into swaps with proprietary funds for that trader’s 

own account solely on or subject to the rules of a 

designated contract market or swap execution facility and 

 

5

Pub. L. No. 111-203, 124 Stat. 1376 (2010). 

6

7 U.S.C. § 1a(49).

7

7 U.S.C. § 1a(49)(D). 

8

See Entity Definition Rules, supra note 1. 

9

Id. at 30,744. Regulation 1.3(ggg)(4)(i) provides that:

a person that is not currently registered as a swap dealer shall be deemed not to 

be a swap dealer as a result of its swap dealing activity involving counterparties, 

so long as the swap positions connected with those dealing activities into which 

the person—or any other entity controlling, controlled by or under common 

control with the person—enters over the course of the immediately preceding 12 

months (or following the effective date of final rules implementing Section 

1a(47) of the Act, 7 U.S.C. 1a(47), if that period is less than 12 months) have an 

aggregate gross notional amount of no more than $3 billion, subject to a phase in 

level of an aggregate gross notional amount of no more than $8 billion.

10 Entity Definition Rules, 77 Fed. Reg. at 30,746; see Regulation 1.3(ggg)(6), 17 C.F.R. § 1.3(ggg)(6). 
Page 3

submits each such swap for clearing to a derivatives 

clearing organization; 

(C) Is not an affiliated person of a registered swap dealer; 

(D) Does not directly, or through an affiliated person, negotiate 

the terms of swap agreements, other than price and quantity 

or to participate in a request for quote process subject to the 

rules of a designated contract market or a swap execution 

facility; 

(E) Does not directly or through an affiliated person offer or 

provide swap clearing services to third parties; 

(F) Does not directly or through an affiliated person enter into 

swaps that would qualify as hedging physical positions 

pursuant to paragraph (ggg)(6)(iii) of this section or 

hedging or mitigating commercial risk pursuant to 

paragraph (kkk) of this section (except for any such swap 

executed opposite a counterparty for which the transaction 

would qualify as a bona fide hedging transaction); 

(G) Does not participate in any market making program offered 

by a designated contract market or swap execution facility; 

and 

(H) Notwithstanding the fact such person is not registered as a 

swap dealer, such person complies with §§ 23.201, 23.202, 

23.203, and 23.600 of this chapter with respect to each such 

swap as if it were a swap dealer.11

On July 18, 2012, the Commission approved, jointly with the SEC, final rules further 

defining the products terms “swap,” “security-based swap,” “security-based swap agreement,” 

and “mixed swap.”12 The effective date of these joint final rules was October 12, 2012. All 

swaps entered into by a person after October 12, 2012, in connection with the person’s swap 

dealing activities are relevant in determining whether the person meets the SD definition and 

therefore must register with the Commission as a SD. 

In a letter dated December 11, 2012 requesting relief, FIA PTG stated that because the 

Commission had not, at that time, finalized its rules regarding SEFs, there could be no swaps to 

trade on, or subject to the rules of, a SEF.13 Thus, any market participants that had wanted to 

deal in swaps would not have been able to qualify for the exception for floor traders provided in 

Regulation 1.3(ggg)(6)(iv) and would have been required to register as SDs unless their dealing 

activity fell below the de minimis threshold. 

To allow market participants to deal in certain cleared swaps prior to the issuance of final 

rules governing the registration and operation of SEFs without requiring such persons to register 

 

11 Id. at 30,746; 17 C.F.R. § 1.3(ggg)(6)(iv). 

12 Further Definition of “Swap,” “Security-Based Swap,” and “Security-Based Swap Agreement”; Mixed Swaps; 

Security-Based Swap Agreement Recordkeeping, 77 Fed. Reg. 48,208 (Aug. 13, 2012). 

13 Letter from FIA PTG to Gary Barnett at 2 (Dec. 11, 2012). 
Page 4

as swap dealers, FIA PTG requested relief for firms who have not registered a swap dealer 

affiliate and enter into swaps with proprietary funds that are submitted to a derivatives clearing 

organization (“DCO”) for clearing, and would be permitted to be transacted by a floor trader but 

for the fact that the swap is not transacted on a SEF or DCM. The requested relief would apply 

when computing the aggregate notional amount of swaps connected with an entity’s swap 

dealing activity based on the condition that the firm in good faith intends to apply as a floor 

trader based on reasonable assumptions made today regarding the future development of the 

cleared swaps markets in conjunction with the final trading rules surrounding DCMs and SEFs.14

On December 19, 2012, the Division issued CFTC Letter No. 12-60, which granted noaction relief until July 1, 2013. Specifically, the Division stated that it would not recommend 

that the Commission take an enforcement action against any entity for failure to include, prior to 

July 1, 2013, in its calculation of the aggregate gross notional amount of swaps connected with 

its swap dealing activity for purposes of Regulation 1.3(ggg)(4), a swap that is submitted to a 

registered DCO for clearing, provided that: (1) the entity does not have a registered SD affiliate; 

(2) the entity entered into the swap using proprietary funds for its own account; and (3) the entity 

complies with the requirements set forth in Regulations 1.3(ggg)(6)(iv)(D)-(H).15

The no-action relief provided in CFTC Letter No. 12-60 was not self-executing; rather, 

an entity that was eligible for the relief had to file a claim to perfect the use of the relief. The 

Division stated that a claim submitted would be effective upon filing, so long as the claim was 

materially complete. Specifically, the claim of no-action relief had to:

a. State the name, main business address, and main business telephone number of 

the entity for which the relief is being claimed; 

b. Be electronically signed by a person authorized to bind the entity; and 

c. Be filed with the Division using the email address dsionoaction@cftc.gov, with 

the subject line of such email “Floor Trader,” prior to December 31, 2012. 

Summary of Request for Relief

The FIA PTG states that additional time-limited no-action relief is needed because “[t]he 

core reason for our initial request was that [SEFs] were not operational and, thus no swaps were 

offered subject to the rules of a SEF, and few, if any, swaps were offered on [DCMs].”16 FIA 

PTG further contends as follows: 

These conditions remain present in the current market and we, 

therefore, request that the Commission confirm that it will not 

initiate an enforcement action against firms if, prior to 90 days 

after the compliance date of the final rules governing the 

 

14 Id. at 3. 

15 Regulation 1.3(ggg)(6)(iv)(G) states that, to qualify for the floor trader exception, a person must not participate in 

any market making program offered by a DCM or SEF. To qualify for the no-action relief provided in this letter, a 

person must not participate in any market making program offered by the trading platform on which the person’s 

swaps are transaction.

16 Letter from FIA PTG to Gary Barnett at 2 (June 18, 2013). 
Page 5

registration and operation of SEFs, each such firm excludes certain 

cleared swaps from its aggregate gross notional amount of swap 

transactions in determining whether such person may rely on the 

de minimis exception from swap dealer registration set forth in 

[Regulation] 1.3(ggg)(4). . . . Until SEFs are operational and listing 

swaps subject to their rules or swaps are actively traded on a DCM, 

the floor trader exclusion does not serve its intended purpose, 

which is to exclude certain swaps entered into by floor traders 

from the de minims calculation.17

Accordingly, FIA PTG asks the Division to continue to not recommend enforcement 

actions if firms that do not have registered SD affiliates exclude swaps entered into with 

proprietary funds that are submitted to DCOs for clearing from the aggregate notional amount of 

swaps connected with an entity’s swap trading activity, under the condition that the firm in good 

faith intends to apply as a floor trader based on reasonable assumptions made today regarding the 

future development of the cleared swaps market. FIA PTG states that the extending this noaction relief would allow those market participants who in good faith intend to apply for 

registration as floor traders to continue to undertake dealing activities in cleared swaps and 

facilitate the efficient migration of bilateral swap markets to centrally cleared environments. 

Division No-Action Position

Based upon the information provided by FIA PTG, the Division believes that additional 

time-limited no-action relief is warranted. Accordingly, the Division has agreed to extend the 

no-action relief that was granted in CFTC Letter No. 12-60 (and described in this letter above) 

until the compliance date for the Commission’s SEF Rules (October 2, 2013).

18

 Specifically, the 

Division will not recommend that the Commission take an enforcement action against any entity 

for failure to include, prior to the compliance date for the Commission’s SEF Rules (October 2, 

2013), in its calculation of the aggregate gross notional amount of swaps connected with its swap 

dealing activity for purposes of Regulation 1.3(ggg)(4), a swap that is submitted to a registered 

DCO for clearing, provided that: (1) the entity does not have a registered SD affiliate; (2) the 

entity entered into the swap using proprietary funds for its own account; and (3) the entity 

complies with the requirements set forth in Regulations 1.3(ggg)(6)(iv)(D)-(H). As with the 

relief granted in CFTC Letter No. 12-60, the relief granted in this letter is not self-executing. 

Rather, an entity that is eligible for the relief must file a claim to perfect the use of the relief in 

the manner prescribed by CFTC Letter No. 12-60, except that, in addition to (i) stating the name, 

main business address, and main business telephone number of the entity for which the relief is 

being claimed and (ii) being electronically signed by a person authorized to bind the entity,

claims for relief must be filed with the Division using the email address dsionoaction@cftc.gov, 

with the subject line of such email “Floor Trader,” prior to July 1, 2013. 

 

17 Letter from FIA PTG to Gary Barnett (Jun 18. 2013). 

18 To the extent that FIA PTG requested relief for an additional 90 days after the compliance date for the 

Commission’s SEF Rules, that request is denied.
Page 6

This letter, and the positions taken herein, represent the view of this Division only, and 

do not necessarily represent the position or view of the Commission or of any other office or 

division of the Commission. The relief issued by this letter does not excuse persons relying on it 

from compliance with any other applicable requirements contained in the Act or in the 

Regulations issued thereunder. Further, this letter, and the relief contained herein, is based upon 

the representations made to the Division. Any different, changed or omitted material facts or 

circumstances might render this no-action relief void.

Should you have any questions, please do not hesitate to contact me at (202) 418-5977; 

Frank Fisanich, Chief Counsel, at (202) 418-5949; or Ward Griffin, Associate Chief Counsel, at 

(202) 418-5425; or Gregory Scopino, Special Counsel, at (202) 418-5175.

Very truly yours,

Gary Barnett

Director

Division of Swap Dealer and Intermediary Oversight

cc: Regina Thoele, Compliance

National Futures Association, Chicago

Jamila A. Piracci, OTC Derivatives

National Futures Association, New York