U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-5000

Facsimile: (202) 418-5521

www.cftc.gov

Division of Clearing and 

Risk

CFTC Letter No. 13-24

No-Action

June 7, 2013

Division of Clearing and Risk

RE: Time-Limited No-Action Relief from the Clearing Requirement for Swaps Entered into 

by Cooperatives

On July 17, 2012, the Commodity Futures Trading Commission (“Commission”) published 

for public comment a notice of proposed rulemaking to exempt certain swaps entered into by 

qualifying cooperatives from required clearing, subject to certain conditions (the “Proposed 

Cooperative Exemption”).1 The Commission received 25 comment letters on its proposal. Many 

commenters noted the importance of exempting these swaps from the clearing requirement and 

expressed support for the proposal. The Commission has not yet finalized the proposed 

cooperative exemption.

On November 28, 2012, in CFTC Letter No. 12-36, the Division of Clearing and Risk 

(“Division”) granted time-limited no-action relief (“November 28 No-Action Relief”) for swaps 

where one of the counterparties is an “exempt cooperative,” as defined in No-Action Letter No. 

12-36, subject to certain conditions, in order to alleviate the uncertainty for all market participants

during the period between when the clearing requirement became effective and when the 

Commission finalizes the Proposed Cooperative Exemption.

2

 The November 28 No-Action Relief 

provided that the Division would not recommend that the Commission commence an enforcement 

action against a person for failure to comply with the requirements under section 2(h)(1)(A) of the 

Commodity Exchange Act (“CEA”) and part 50 of the Commission’s regulations to clear a credit 

default swap (“CDS”) or interest rate swap subject to required clearing in § 50.4 of the 

Commission’s regulations, provided that certain conditions were met. 

 

1

See Clearing Exemption for Certain Swaps Entered Into by Cooperatives, 77 FR 41940 (July 17, 2012). 

2

See Staff No-Action Letter 12-36, available at http://www.cftc.gov/LawRegulation/CFTCStaffLetters/12-36. Under 

section 2(h)(1)(A) of the Commodity Exchange Act, “it shall be unlawful for any person to engage in a swap unless 

that person submits such swap for clearing to a derivatives clearing organization [(DCO)] that is registered under [the 

CEA] or a [DCO] that is exempt from registration under [the CEA] if the swap is required to be cleared.” On 

December 13, 2013, the Commission issued its first clearing requirement determination for credit default swaps and 

interest rate swaps. Clearing Requirement Determination Under Section 2(h) of the CEA, 77 FR 74284 (Dec. 13, 

2012) (hereinafter “Clearing Requirement Determination”). The Clearing Requirement Determination and attendant 

rules became effective on February 11, 2013, subject to phased-in compliance deadlines, described below. 
June 7, 2013

Page 2

The November 28 No-Action Relief expired on April 1, 2013. Without further action by 

the Division or the Commission, starting on June 10, 2013, all Category 2 Entities, as defined in 

the Swap Transaction Compliance and Implementation Schedule,3that are not able to claim an 

exception or exemption from clearing pursuant to section 2(h)(7) of the CEA or part 50 of the 

Commission’s regulations, will be required to clear swaps subject to the clearing requirement in §

50.4 of the Commission’s regulations.4 

In view of the foregoing, the Division is issuing no-action relief, consistent with the relief 

that was granted in the November 28 No-Action Relief. Accordingly, the Division will not 

recommend that the Commission commence an enforcement action against a person for failure to 

comply with the requirement under section 2(h)(1)(A) of the CEA and part 50 of the 

Commission’s regulation to clear a CDS or interest rate swap subject to required clearing in § 50.4 

of the Commission’s regulations, provided that the following conditions are met:

1. One of the counterparties is an “exempt cooperative,” which, for 

purposes of the no-action relief, means a cooperative: 

(a) That is formed and existing pursuant to Federal or state law as a 

cooperative;

(b) That is a “financial entity,” as defined in section 2(h)(7)(C)(i) of 

the CEA, solely because of section 2(h)(7)(C)(i)(VIII) of the CEA; 

and

(c) Each member of which is not a “financial entity,” as defined in 

section 2(h)(7)(C)(i) of the CEA, or if any member is a financial 

entity solely because of section 2(h)(7)(C)(i)(VIII) of the CEA, such 

 

3

See Swap Transaction Compliance and Implementation Schedule: Clearing Requirement Under Section 2(h) of the

CEA, 77 FR 44441 (July 30, 2012).

4

Pursuant to the compliance schedule, swap dealers major swap participants and private funds active in the swaps 

market were required to comply with the clearing requirement starting on March 11, 2013 (“Category 1 Entities”). 

Accounts managed by third-party investment managers, as well as ERISA pension plans, have until September 9, 

2013, to begin clearing swaps entered into on or after that date (“Category 3 Entities”). All other financial entities are 

required to clear swaps beginning on June 10, 2013, for swaps entered into on or after that date (“Category 2 

Entities”). See Clearing Requirement Determination, 77 FR at 74319-21. With regard to the CDS indices on 

European corporate names, iTraxx, the Clearing Requirement Determination provided that, if no DCO offered iTraxx 

for client clearing by February 11, 2013, the Commission would delay compliance for those swaps until 60 days after 

an eligible DCO offers iTraxx indices for client clearing. On February 25, 2013, the Commission received notice from 

ICE Clear Credit LLC, a Commission-registered DCO, that it had begun offering customer clearing of the iTraxx CDS 

indices that are subject to the clearing requirement in § 50.4(b) of the Commission’s regulations. In accordance with 

the timeframe previously set forth by the Commission, the following compliance dates apply to the clearing of iTraxx 

indices: Category 1 Entities: Friday, April 26, 2013; Category 2 Entities: Thursday, July 25, 2013; and Category 3 

Entities: Wednesday, October 23, 2013. See Press Release, CFTC’s Division of Clearing and Risk Announces 

Revised Compliance Schedule for Required Clearing of iTraxx CDS Indices (Feb. 25, 2013), available at 

http://www.cftc.gov/PressRoom/PressReleases/pr6521-13.
June 7, 2013

Page 3

member is: (i) Exempt from the definition of “financial entity” 

pursuant to § 50.50(d) (previously designated as § 39.6(d)) of the 

Commission’s regulations; or (ii) A cooperative formed under 

Federal or state law as a cooperative and each member thereof is 

either not a “financial entity,” as defined in section 2(h)(7)(C)(i) of 

the CEA, or is exempt from the definition of “financial entity” 

pursuant to § 50.50(d) of the Commission’s regulations.

2. The swap: 

(a) Is entered into with a member of the exempt cooperative in 

connection with originating a loan or loans for the member, which 

means the requirements of § 1.3(ggg)(5)(i), (ii), and (iii) are 

satisfied; provided that, for this purpose, the term “insured 

depository institution” as used in those sections is replaced with the 

term “exempt cooperative” and the word “customer” is replaced with 

the word “member”; or

(b) Hedges or mitigates commercial risk, in accordance with §

50.50(c) (previously designated as § 39.6(c)) of the Commission’s 

regulations, related to, or associated with, loans to members or 

arising from a swap or swaps that meet the requirements of 

paragraph (2)(a) above. 

 

The conditions above are essentially the same as the requirements in the proposed 

cooperative exemption.

5

 This no-action relief expires on the earlier of June 21, 2013 or the 

effective date of a Commission rulemaking finalizing the proposed cooperative exemption. 

This no-action letter, and the positions taken herein, represent the view of the 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 the affected 

persons from compliance with any other applicable requirements contained in the CEA or in the 

Commission’s regulations issued thereunder. Further, this letter, and the relief contained herein, is 

based upon the information available to the Division. Any different or changed material facts or 

circumstances might render this letter void. As with all no-action letters, the Division retains the 

authority to, in its discretion, further condition, modify, suspend, terminate or otherwise restrict the 

terms of the no-action relief provided herein.

 

5

See 77 FR 41940 (proposed as § 39.6).
June 7, 2013

Page 4

If you have any questions, please do not hesitate to contact Brian O’Keefe at (202) 418-

5658.

Sincerely,

Ananda Radhakrishnan

Director