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. 13-13

No-Action

May 2, 2013

Division of Swap Dealer and Intermediary Oversight

Re: Time-Limited Relief for Swap Dealers and Major Swap Participants from

Compliance with Business Conduct Standards in Foreign Exchange Transactions 

with a Settlement Cycle of No More than Seven Local Business Days 

Ladies and Gentlemen:

This letter is in response to a request from the Asset Management Group of the Securities 

Industry and Financial Markets Association ( “AMG”) to the Division of Swap Dealer and 

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

(“Commission”), in which AMG requested relief from the Division from compliance by swap 

dealers (“SDs”) and major swap participants (“MSPs”) with business conduct standards rules 

found in subpart H of part 23 of the Commission’s regulations1 when entering into certain 

foreign exchange transactions with a settlement cycle of no more than seven local business days, 

as described further herein. 

Applicable Regulatory Requirements

Section 4s(h) of the Commodity Exchange Act (“CEA”) provides the Commission with 

both mandatory and discretionary rulemaking authority to impose business conduct standards on 

SDs and MSPs in their dealings with counterparties, including Special Entities. Pursuant to 

section 4s(h) of the CEA, on December 22, 2010, the Commission published in the Federal 

Register proposed Business Conduct Standards for Swap Dealers and Major Swap Participants 

with Counterparties as subpart H of part 23 of the Commission’s regulations.2 There was a 60-

day period for the public to comment on the proposing release. On May 4, 2011, the 

 

1

See 17 CFR §§ 23.400-23.451; Business Conduct Standards for Swap Dealers and Major Swap Participants With 

Counterparties, 77 FR 9734 (Feb. 17, 2012) (hereinafter, the “External Business Conduct Standards”).

2 Business Conduct Standards for Swap Dealers and Major Swap Participants With Counterparties, 75 FR 80638 

(proposed Dec. 22, 2010).
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Commission published in the Federal Register a notice to re-open the public comment period for 

an additional 30 days, which ended on June 3, 2011.3 On February 17, 2012, the Commission 

published in the Federal Register final business conduct rules for SDs and MSPs as subpart H of 

part 23.

4

 The initial compliance date for the External Business Conduct Standards rules was the 

later of 180 days after the effective date of the External Business Conduct Standards rules or “the 

date on which swap dealers or major swap participants are required to apply for registration 

pursuant to Commission rule 3.10.”5 The Commission subsequently postponed the compliance 

date for a number of the provisions of the External Business Conduct Standards rules until May 

1, 2013.6 

The Division notes that pursuant to section 1a(47)(E) of the CEA,7the Secretary of the 

Treasury (“Secretary”) is vested with the authority to determine whether foreign exchange swaps 

and forwards8should be regulated as swaps under the CEA, provided that the Secretary makes a 

written determination satisfying certain criteria specified in CEA section 1b. On November 16, 

2012, the Secretary issued a written determination that foreign exchange forwards and foreign 

exchange swaps should not be regulated as swaps under the CEA (“Treasury Determination”).9 

Nonetheless, CEA section 1a(47)(E)(iv) states that, notwithstanding the Secretary’s written 

determination, “any party to [an Exempt FX Transaction10] that is a SD or MSP shall conform to 

the business conduct standards contained in section 4s(h).”11 Thus, SDs and MSPs are required 

to comply with the business conduct standards adopted by the Commission in subpart H of part 

23 of the Commission’s regulations with respect to Exempt FX Transactions by May 1, 2013.

 

3 Reopening and Extension of Comment Periods for Rulemakings Implementing the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, 75 FR 25274 (May 4, 2011).

4

See supra note 1.

5 External Business Conduct Standards at 9734.

6

In September 2013, the Commission changed the compliance date of §§ 23.402; 23.410(c); 23.430; 23.431(a)–(c); 

23.432; 23.434(a)(2), (b), and (c); 23.440; and 23.450 to January 1, 2013. See Confirmation, Portfolio 

Reconciliation, Portfolio Compression, and Swap Trading Relationship Documentation Requirements for Swap 

Dealers and Major Swap Participants, 77 FR 55904, 55942 (Sept. 11, 2012). The Commission later changed the 

compliance date for these provisions to May 1, 2013. See Business Conduct and Documentation Requirements for 

Swap Dealers and Major Swap Participants; Extension of Compliance Date, 78 FR 17, 20 (Jan. 2, 2013).

7

7 U.S.C. 1a(47)(E).

8

Foreign exchange swaps and foreign exchange forwards are defined in Sections 1a(24) and 1a(25), respectively, of 

the Commodity Exchange Act. 

9 Determination of Foreign Exchange Swaps and Foreign Exchange Forwards Under the Commodity Exchange Act, 

77 Fed. Reg. 69694 (Nov. 20, 2012) (hereinafter, the “Treasury Determination”).

10 Physically-settled foreign exchange forwards and swap agreements that have been exempted from the definition 

of swap by the U.S. Department of the Treasury are hereinafter referred to as “Exempt FX Transactions.” See

Treasury Determination.

11 Additionally, foreign exchange swaps and foreign exchange forwards are subject to reporting obligations, 

pursuant to Section 1a(47)(E)(iii) of the CEA, 7 U.S.C. § 1a(47)(E)(iii).
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Summary of Request for Relief

AMG represents that some SDs, for operational reasons relating to regulatory 

compliance, are treating all foreign exchange transactions that settle on a greater than “T+2” 

basis, regardless of whether they would otherwise qualify as spot transactions, as potential 

foreign exchange forwards for administrative ease, notwithstanding the interpretation of the 

Commission in the adopting release for its rules further defining the term “swap” regarding the 

distinction between foreign exchange spot transactions and foreign exchange forwards, and the

extension of the T+2 deadline for spot transactions in securities conversion transactions.

12

 

According to AMG, treatment of these spot transactions as foreign exchange forwards by 

their counterparties is causing a significant impediment to normal operations, especially as they 

continue to try to get all of their clients that trade swaps or Exempt FX Transactions to provide 

all necessary information, representations and agreements to permit SDs to be in full compliance 

with the External Business Conduct Standards rules by May 1, 2013. Thus, because of the 

difficulties surrounding certain foreign exchange transactions settling on longer than a “T+2” 

basis, AMG requests that the Division provide no-action relief for an appropriate period while 

market participants develop the necessary systems and standards for distinguishing between 

foreign exchange spot transactions, foreign exchange forwards and other foreign exchange 

transactions that are not foreign exchange spot transactions, in accordance with the 

Commission’s interpretation. 

For at least some foreign jurisdictions that AMG is aware of, the settlement cycle for 

certain securities conversion transactions, after giving effect to customary extensions, can be 

significantly longer than “T+2.” AMG believes therefore that temporary relief for foreign 

 

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

Swaps; Security-Based Swap Agreement Recordkeeping, 77 FR 48208, 48256-58 (Aug. 13, 2012), stating, in 

relevant part that the Commission was:

. . . providing an interpretation that a bona fide foreign exchange spot transaction, i.e., a foreign 

exchange transaction that is settled on the customary timeline of the relevant spot market, is not 

within the definition of the term “swap.” In general, a foreign exchange transaction will be 

considered a bona fide spot transaction if it settles via an actual delivery of the relevant currencies 

within two business days. In certain circumstances, however, a foreign exchange transaction with 

a longer settlement period concluding with the actual delivery of the relevant currencies may be 

considered a bona fide spot transaction depending on the customary timeline of the relevant 

market.

The CFTC will [also] consider the following to be a bona fide spot foreign exchange 

transaction: An agreement, contract or transaction for the purchase or sale of an amount of foreign 

currency equal to the price of a foreign security with respect to which (i) the security and related 

foreign currency transactions are executed contemporaneously in order to effect delivery by the 

relevant securities settlement deadline and (ii) actual delivery of the foreign security and foreign 

currency occurs by such deadline (such transaction, a “Securities Conversion Transaction”). For 

Securities Conversion Transactions, the CFTC will consider the relevant foreign exchange spot 

market settlement deadline to be the same as the securities settlement deadline.
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exchange transactions with a settlement cycle of no more than “T+7” is appropriate to provide 

assurance that spot transactions will not be considered foreign exchange forwards during a brief 

period while market participants develop the necessary systems and standards for distinguishing 

between foreign exchange spot transactions, foreign exchange forwards and other foreign 

exchange transactions that are not foreign exchange spot transactions in accordance with the 

Commission’s interpretation. AMG argues that if SDs and MSPs are not required to comply 

with the External Business Conduct Standards rules for a transition period with respect to foreign 

exchange transactions with a settlement cycle of no more than “T+7” local business days, a large 

number of counterparties that believe they are only engaging in bona fide spot foreign exchange 

transactions could continue their activities without the potential for disruption. 

Division No-Action Position

Based on the representations of AMG, the Division believes that relief is warranted with 

respect to the External Business Conduct Standards rules in the context of certain foreign 

exchange transactions that all parties involved intend to be foreign exchange spot transactions

but that, solely due to current operational constraints, SDs are unable to readily recognize and 

treat as such. Accordingly, prior to September 1, 2013, the Division will not recommend that 

the Commission commence an enforcement action against an SD or MSP for failure to comply 

with the External Business Conduct Standards rules with respect to a foreign exchange 

transaction with an eligible contract participant that has a settlement cycle of no more than seven 

local business days in the place of settlement. 

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. In particular, nothing in this letter is intended to interpret or amend 

the definition of foreign exchange forward, any type of swap involving foreign exchange, or any 

other foreign exchange transaction. 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.
Page 5

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 Adam Kezsbom, Special Counsel, 

at (202) 418-5372.

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