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. 13-40

No-Action

June 27, 2013

Division of Swap Dealer and Intermediary Oversight

Re: Time-Limited No-Action Relief Regarding Commission Regulation 23.502 for Swap 

Dealers and Major Swap Participants

Ladies and Gentlemen:

This letter is in response to a request from the International Swaps and Derivatives 

Association (“ISDA”), on behalf of its members that are swap dealers (“SDs”) or major swap 

participants (“MSPs”), and other similarly situated persons, received by the Division of Swap 

Dealer and Intermediary Oversight (“Division”) of the Commodity Futures Trading Commission 

(“Commission”), that the Commission extend the July 1, 2013 compliance date for Regulations 

23.502 and 23.504.

1

ISDA represents that, despite good faith efforts, SDs and MSPs face unforeseen delays in 

the development of market-wide operational infrastructure needed for an efficient portfolio 

reconciliation process. The relief provided in this no-action letter is available to all SDs and

MSPs. The Division has determined to provide no-action relief, as detailed herein.

Applicable Regulatory Requirements

Section 731 of the Dodd-Frank Act2amended the Commodity Exchange Act (“CEA”) by 

adding a new Section 4s, which established requirements relating to the registration and 

regulation of SDs and MSPs.

3

 

CEA Section 4s(h)(1) requires that SDs and MSPs comply with business conduct 

standards promulgated by the Commission in the categories set forth in Sections 4s(h)(1)(A)-(D) 

and 4s(h)(3). Additionally, Section 4s(i)(1) of the CEA requires SDs and MSPs to “conform 

with such standards as may be prescribed by the Commission by rule or regulation that relate to 

timely and accurate confirmation, processing, netting, documentation, and valuation of all 

swaps.”4

 

1

17 C.F.R. §§ 23.502 and 23.504. However, the scope of this no-action letter is limited to Regulation 23.502.

2

See Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 (2010).

3

7 U.S.C. § 6s.

4

7 U.S.C. § 6s(i).
Portfolio Reconciliation

Page 2

On September 11, 2012, the Commission issued final rules governing swap confirmation 

(§ 23.501), portfolio reconciliation (§ 23.502), portfolio compression (§ 23.503), swap trading 

documentation (§ 23.504), and end user exception documentation (§ 23.505) (collectively, the 

“Documentation Rule”).

5 Among other things, § 23.502 requires SDs and MSPs to establish, 

maintain, and follow written policies and procedures reasonably designed to ensure they engage 

in portfolio reconciliation with each of their counterparties who are not SDs or MSPs.

6

In response to requests from market participants, on January 2, 2013, the Commission 

deferred the compliance date for Regulation 23.502 for all types of counterparties until July 1, 

2013.7

Summary of Request for Relief

In their request, ISDA represents that the industry effort to implement the necessary 

infrastructure and processes for portfolio reconciliation, as defined in Regulation 23.500, 

requires additional time for completion. According to ISDA’s letter, the industry had set a 

March 2013 milestone date for delivery by DTCC of enhanced data feeds, which is necessary for 

compliance with the portfolio reconciliation rule. However, according to ISDA, DTCC made 

enhanced swap data repository (“SDR”) data feeds for all asset classes, except for rates,

available to market participants for user acceptance testing (“UAT”) on April 29 and made such 

data feeds for rates available for UAT on May 20. Moreover, the availability of the enhanced 

SDR data feeds to UAT enables, but does not complete, the necessary development for portfolio 

reconciliation, and, to date, UAT by market participants remains ongoing and must be completed 

before DTCC migrates its SDR enhanced data feeds from testing to production. In separate 

letters, DTCC and TriOptima confirmed the assertions made by ISDA regarding the delay from 

the original estimated delivery date of March 2013 for the delivery of the enhanced reports and 

supported granting the requested relief.

8

 

5

See Confirmation, Portfolio Reconciliation, Portfolio Compression, and Swap Trading Relationship 

Documentation Requirements for Swap Dealers and Major Swap Participants, 77 FR 55904 (Sept. 11, 2012) 

(hereinafter “Documentation Rules”). With regard to the portfolio reconciliation requirements found in § 23.502, 

the Commission staggered the compliance dates by providing extended compliance dates for those SDs and MSPs 

that have not been previously regulated by a prudential regulator, and thus are least likely to have the infrastructure 

in place to begin regular reconciliation with their counterparties. Id. at 55941-42. 

6

See § 23.502(b).

7

See Business Conduct and Documentation Requirements for Swap Dealers and Major Swap Participants; 

Extension of Compliance Date, 78 FR 17 (Jan. 2, 2013) (hereinafter, “Extension of Compliance Date”). The 

Extension of Compliance Dates announced on January 2, 2013 applied to several other Regulations, in addition to 

Regulation 23.502. 

8

See Letter from Christopher M. Childs, Chief Executive Officer, DDRL (US) LLC, to Gary Barnett, Director, 

Division of Swap Dealer and Intermediary Oversight (June 5, 2013) and Letter from Raf Pritchard, Chief Executive 

Officer, TriOptima, to Gary Barnett, Director, Division of Swap Dealer and Intermediary Oversight (June 7, 2013) 

(both supporting ISDA’s June 4, 2013 letter as it relates to portfolio reconciliation).
Portfolio Reconciliation

Page 3

Division No-Action Position

Based upon the representations made by ISDA (and by DTCC and TriOptima in the 

supporting letters), the Division believes that time-limited no-action relief from Regulation 

23.502 is warranted. Accordingly, the Division will not recommend that the Commission take 

an enforcement action against an SD or MSP for failure to comply, prior to August 23, 2013, 

with Regulation 23.502. 

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; 

Ward Griffin, Associate Chief Counsel, at (202) 418-5425; or Jason Shafer, Attorney-Advisor, at 

(202) 418-5097.

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