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. 13-45 Corrected

No-Action

July 11, 2013

Division of Swap Dealer and Intermediary Oversight

Re: No-Action Relief for Registered Swap Dealers and Major Swap Participants from 

Certain Requirements under Subpart I of Part 23 of Commission Regulations in 

Connection with Uncleared Swaps Subject to Risk Mitigation Techniques under 

EMIR

Ladies and Gentlemen:

The Division of Swap Dealer and Intermediary Oversight (Division) of the Commodity 

Futures Trading Commission (Commission) has determined that relief from certain requirements 

applicable to registered swap dealers (SDs) or major swap participants (MSPs) organized or 

established in the United States or European Union1is warranted with respect to certain 

transactions (as defined below) entered into by registered SDs when such transactions are subject 

to both section 4s of the Commodity Exchange Act (CEA) and Article 11 of the European 

Market Infrastructure Regulation (EMIR),

2

including the related regulatory technical standards 

(EMIR Regulatory Technical Standards), for which, under both regimes, the requirements are 

essentially identical.3 

Regulatory Background

Following the financial crisis of 2008, the United States (US) and the European Union

(EU) undertook efforts to regulate over-the-counter (OTC) derivatives markets and market 

 

1 Of the 80 SDs currently registered with the Commission, 35 are organized or established outside the United States, 

of which 22 are established in the European Union.

2

See Regulation (EU) No. 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC 

derivatives, central counterparties and trade repositories. 

3

See Articles 11, 12, 13, 14, 15, 16 and 17 of the Commission Delegated Regulation (EU) No. 149/2013 of 19 

December 2012 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with 

regard to regulatory technical standards on indirect clearing arrangements, the clearing obligation, the public 

register, access to a trading venue, non-financial counterparties, and risk mitigation techniques for over-the-counter 

(OTC) derivatives contracts not cleared by a central counterparty (CCP).
EMIR Risk Mitigation Rules

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participants. For swaps, Title VII of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act) added a new section 4s(i) to the CEA, which required the 

Commission to prescribe standards for SDs and MSPs related to the timely and accurate 

confirmation, processing, netting, documentation, and valuation of swaps. The Commission’s 

rules include, but are not limited to, requirements applicable to SDs and MSPs for swap 

confirmation, portfolio reconciliation, portfolio compression, valuation, and dispute resolution.

On August 16, 2012, the European Commission (EC), on behalf of the EU, adopted 

EMIR to establish standards regarding the registration and operation of clearinghouses and trade 

repositories; the clearing and regulatory reporting of OTC transactions; and risk mitigation 

techniques relating to uncleared OTC transactions. Pursuant to authority granted under EMIR, 

the European Securities and Markets Authority (ESMA) developed technical standards that were 

adopted by the European Commission on December 19, 2012, published in the Official Journal 

on February 23, 2013 and entered into force on March 15, 2013. 

The Division has determined to provide the relief described herein to certain registered 

SDs and MSPs because, except as may be noted below, the Division believes Regulation 

§§ 23.501, 23.502 (other than 23.502(c)), 23.503, 23.504(b)(2), and 23.504(b)(4), as

promulgated under section 4s(i) of the CEA and codified in Subpart I of Part 23 of the 

Commission’s regulations (solely for purposes of this letter, these requirements will be referred 

to as the “CFTC Risk Mitigation Rules”) are essentially identical to provisions set forth under 

Article 11 of EMIR and the related EMIR Regulatory Technical Standards (solely for purposes 

of this letter, these requirements will be referred to as the “EMIR Risk Mitigation Rules”). 

The Division’s view that the CFTC Risk Mitigation Rules and the EMIR Risk Mitigation

Rules are essentially identical, as described in greater detail below, is based upon consultation 

and coordination with representatives of the EC and ESMA. Accordingly, it is the view of the 

Division that a registered SD’s or MSP’s compliance, in the alternative, with EMIR Risk 

Mitigation Rules with respect to certain swaps (as defined below) be deemed to constitute 

compliance with the CFTC Risk Mitigation Rules, and the Division will not recommend 

enforcement action for failure to comply with CFTC Risk Mitigation Rules, subject to the 

conditions in this letter. 

The Division believes the relief provided by this letter is appropriate because it will 

enable SDs and MSPs to mitigate the risks associated with swap transactions that are subject to 

both the CEA and EMIR in an effective and efficient manner. 

Scope of Relief

The scope of relief provided in this letter is limited by the following statements regarding 

products and participants.
EMIR Risk Mitigation Rules

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Products

The no-action relief provided in this letter applies to swap transactions4that are: (1) 

uncleared5swaps6or (2) 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.7 In 

such instances, the relief applies where such swap transactions are subject to both CFTC Risk 

Mitigation Rules and EMIR Risk Mitigation Rules. For purposes of this letter swap transactions 

that are subject to both sets of rules will be referred to as “Covered Swaps.”

Participants

Part 23 of the Commission’s regulations applies only to swap transactions that are 

entered into by an SD or MSP registered with the Commission; no rules under part 23 apply if 

neither counterparty to the swap transaction is an SD or MSP registered with the Commission. 

Thus, for the CFTC Risk Mitigation Rules to apply to a swap transaction between a counterparty 

in the US and a counterparty in the EU, at least one of such counterparties must be an SD or 

MSP registered with the Commission. A swap transaction between a US counterparty that is not 

an SD or MSP and an EU counterparty that also is not an SD or MSP would not be subject to the 

CFTC Risk Mitigation Rules.

Conversely, if either the US counterparty or the EU counterparty were an SD or MSP, the 

CFTC Risk Mitigation Rules would apply to a swap transaction between them, regardless of the 

registration status of the other counterparty, and, of course, the CFTC Risk Mitigation Rules 

would apply to a swap transaction if both the US counterparty and the EU counterparty were an 

SD or MSP.

The EMIR Risk Mitigation Rules apply to financial counterparties and non-financial 

counterparties which have non-hedging positions above a certain clearing threshold8and that are 

 

4

For purposes of this letter, the term “swap transaction” has the same meaning as Commission regulation 

§ 23.500(l): “any event that results in a new swap or in a change to the terms of a swap, including execution, 

termination, assignment, novation, exchange, transfer, amendment, conveyance, or extinguishing of rights or 

obligations of a swap.” 

5

For purposes of this letter, “uncleared” refers to (1) a swap that is not subject to the clearing requirement of section 

2(h)(1)(A) of the CEA and part 50 of the Commission’s regulations, and (2) a swap that is entered into without the 

intention that it be cleared contemporaneously with execution.

6

Swaps are defined in section 1a(47) of the CEA and Commission regulation § 1.3(xxx), 17 CFR 1.3(xxx).

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

77 FR 69694 (Nov. 20, 2012).

8

Pursuant to Article 10 of EMIR and Article 11 of the EMIR Regulatory Technical Standards, the clearing threshold 

values for determining if the EMIR Risk Mitigation Rules apply to a non-financial counterparty are:
EMIR Risk Mitigation Rules

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established in the EU or otherwise subject to EMIR. In addition, certain risk mitigation 

techniques under the EMIR Risk Mitigation Rules (i.e., timely confirmation, portfolio 

reconciliation and compression, and dispute resolution) apply to non-financial counterparties 

below the clearing threshold that are established in the EU or otherwise subject to EMIR.

9

 Thus, 

the EMIR Risk Mitigation Rules apply to a swap transaction whenever at least one of the 

counterparties is established in the EU or otherwise subject to EMIR.

10

As stated above, the relief provided under this letter applies where a swap transaction that 

is subject to both CFTC Risk Mitigation Rules and EMIR Risk Mitigation Rules. Accordingly, 

the relief provided in this letter is available for transactions where: (i) one of the counterparties is 

established in the EU or otherwise subject to EMIR; (ii) one of the counterparties is a US person; 

and (iii) one of the counterparties is an SD or MSP registered with the Commission.11 Relief is 

also available in other circumstances where swap transactions are subject to both CFTC Risk 

Mitigation Rules and EMIR Risk Mitigation Rules.

12

 

(a) EUR 1 billion in gross notional value for OTC credit derivative contracts;

(b) EUR 1 billion in gross notional value for OTC equity derivative contracts;

(c) EUR 3 billion in gross notional value for OTC interest rate derivative contracts;

(d) EUR 3 billion in gross notional value for OTC foreign exchange derivative contracts;

(e) EUR 3 billion in gross notional value for OTC commodity derivative contracts and other OTC 

derivative contracts not defined under points (a) to (d).

9 Absent express authorization from the Division or the Commission, the relief provided in the letter will not extend 

to swaps executed pursuant to the laws of a third country (i.e., a jurisdiction other than the EU or the US) that the 

EC has deemed to be equivalent with EMIR.

10 It is the Division’s understanding that EMIR will apply to the counterparties unless and until the EC makes an 

“equivalency” determination with respect to a foreign jurisdiction’s regulatory regime governing OTC derivatives. 

If the EC finds such regulatory regime “equivalent” then a Covered Swap between an EU counterparty and a 

counterparty in the foreign jurisdiction could be subject only to the foreign regulatory regime. The EC is expected 

to make a number of equivalency determinations by the end of 2013. As noted above, this relief does not extend to 

third countries deemed by the EC to be equivalent with EMIR.

11 The Division notes that other foreign jurisdictions have made significant steps toward implementing new 

regulations for swaps market participants. However, as of the date of this letter, with regard to the important risk 

mitigation techniques discussed herein, the Division is not aware of regulations in other jurisdictions that are 

essentially identical to the requirements under the CFTC Risk Mitigation Rules and the EMIR Risk Mitigation

Rules. The Division may consider similar relief with respect to other jurisdictions, provided that such foreign 

jurisdictions adopt essentially identical risk mitigation requirements.

12 Guaranteed affiliates of US persons organized in jurisdictions outside the US have a direct and significant 

connection with activities in, or effect on, commerce of the US and must comply with the Dodd-Frank Act. Thus 

swap transactions of an SD or MSP that is established in the EU and a guaranteed affiliate of a US person would be 

subject to both CFTC Risk Mitigation Rules and EMIR Risk Mitigation Rules.
EMIR Risk Mitigation Rules

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In addition, to the extent not otherwise included, the definition of “Covered Swaps” and 

the relief provided under this letter applies to swap transactions between two SDs or MSPs that 

are registered with the Commission, but are organized under the laws of the EU, and that are: (1) 

uncleared swaps or (2) 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.

Comparison of Corresponding Regulatory Provisions Under Part 23 and EMIR

A. Swap Confirmation

1. Commission Rule

In promulgating its swap confirmation standards, the Commission stated that “timely and 

accurate confirmation of swaps is critical for all downstream operational and risk management 

processes, including the correct calculation of cash flows, margin requirements, and discharge of 

settlement obligations as well as accurate measurement of counterparty credit exposures.”13

To that end, pursuant to section 4s(i) of the CEA, Commission regulation § 23.501 

requires SDs and MSPs to confirm their swap transactions14 with counterparties that are also SDs 

or MSPs as soon as technologically practicable, but in any event by the end of the first business 

day following the day of execution. With respect to swap transactions with non-SDs and nonMSPs, SDs must establish policies and procedures reasonably designed to ensure confirmation 

by the end of the first business day following the day of execution if the counterparty is a 

financial entity, or the end of the second business day if the counterparty is a non-financial 

entity. SDs are also required to send an acknowledgement of a swap transaction to a 

counterparty that is not an SD by the end of the first business day following the day of execution. 

SDs are required to provide a draft confirmation to non-SDs prior to execution of a swap 

transaction, if requested. Each of the time requirements described are subject to phase-in periods 

provided in § 23.501(c).

Pursuant to Commission regulation § 23.501(a)(5), the “day of execution” of a swap 

transaction is determined by reference to the business days of the counterparties and whether the 

swap was executed after 4:00 p.m. in the place of at least one of the counterparties. Regulation 

§ 23.501 does not apply to swaps executed on a swap execution facility (SEF) or designated 

contract market (DCM) if the trading platform provides for confirmation of swap transactions at 

the same time as execution, nor does the rule apply to swap transactions that are submitted for 

clearing on a derivatives clearing organization (DCO) within the time otherwise required for 

confirmation.

 

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

for Swap Dealers and Major Swap Participants, 77 FR 55904, 55917 (Sept. 11, 2012).

14 As defined in Commission regulation § 23.500(l). See note [4] above.
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2. Comparison with EMIR Risk Mitigation Rules

Pursuant to the EMIR Risk Mitigation Rules, and subject to a phase-in period, OTC 

derivative contracts entered into between financial counterparties or non-financial counterparties 

above the clearing threshold must be confirmed as soon as possible and at the latest by the end of 

the next business day following the date of execution,15 which corresponds to Commission 

regulation § 23.501(a)(1) and (3)(i), requiring confirmation with other SDs, MSPs, and financial 

entities by the end of the first business day following the day of execution. 

For OTC derivative contracts with all other non-financial counterparties, confirmation is 

required as soon as possible and, at the latest, by the end of the second business day following 

the date of execution.16 This approach corresponds to the Commission regulation 

§ 23.501(a)(3)(ii), which requires written policies and procedures reasonably designed to ensure 

confirmation with non-SDs, non-MSPs, or non-financial entities by the end of the second 

business day following the day of execution. 

As with Commission regulation § 23.501(a)(5), which provides for a next business day 

adjustment for transactions executed after 4:00 pm or on a non-business day, the EMIR Risk 

Mitigation Rules provide that transactions concluded after 4:00 p.m. local time, or with a 

counterparty located in a different time zone that does not allow confirmation by the set deadline, 

the confirmation must take place as soon as possible and, at the latest, one business day 

following the otherwise applicable deadline.

Based on the foregoing, the Division believes that the swap transaction confirmation 

requirements of the EMIR Risk Mitigation are essentially identical to the swap transaction 

confirmation requirements of Commission regulation § 23.501.

B. Portfolio Reconciliation

1. Commission Rule

In promulgating its rule on portfolio reconciliation, the Commission stated that “for the 

swap market to operate efficiently and to reduce systemic risk . . . portfolio reconciliation should 

be a proactive process that delivers a consolidated view of counterparty exposure down to the 

transactional level.”17 Thus, pursuant to section 4s(i) of the CEA, the Commission adopted 

 

15 See Article 12 of the EMIR Regulatory Technical Standards.

16 See id.

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

for Swap Dealers and Major Swap Participants, 77 FR 55904, 55926 (Sept. 11, 2012).
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regulation § 23.502, requiring SDs and MSPs to engage in portfolio reconciliation with other 

SDs and MSPs, as well as non-SD/MSP counterparties. 

Pursuant to regulation § 23.502(a) and (b), SDs and MSPs must agree in writing with 

their counterparties on the terms of portfolio reconciliation to be conducted with each

counterparty.18 With respect to counterparties that are also SDs or MSPs, an SD or MSP must 

reconcile the terms and valuations of each uncleared swap in the swap portfolio no less 

frequently than:

 Each business day for portfolios of 500 or more swaps;

 Once each week for portfolios of 50 to 500 swaps; and

 Quarterly for portfolios of less than 50 swaps.

Commission regulation § 23.502(a)(5) requires SDs and MSPs to resolve discrepancies in 

material terms discovered under portfolio reconciliation immediately; and SDs and MSPs must 

have policies and procedures to resolve discrepancies of more than 10% in valuations within 5 

business days, provided that the SD or MSP has policies and procedures for identifying how it 

will comply with variation margin requirements pending resolution of a valuation dispute. 

For swap portfolios with other counterparties, Commission regulation § 23.502(b) 

requires SDs and MSPs to establish policies and procedures for engaging in portfolio 

reconciliation no less frequently than quarterly for portfolios of more than 100 swaps and 

annually for portfolios of less than 100 swaps. Discrepancies in material terms and valuations of 

more than 10% discovered as part of the portfolio reconciliation or otherwise must be subject to 

procedures for resolving such discrepancies in a timely fashion.

SDs and MSPs must report any valuation dispute exceeding $20 million (or the 

equivalent in any other currency) to the Commission, and to its applicable US prudential 

regulator, if not resolved within 3 business days, with respect to disputes with other SDs, or 5 

business days, with respect to disputes with any other counterparty. While the Division 

recognizes that the notice provision in EMIR is similar, reporting valuation disputes over $20 

million directly to the Commission is essential for Commission staff to monitor the swap market 

and SD and MSP swap activities. Therefore, Commission regulation § 23.502(c) has been 

excluded from the definition of “CFTC Risk Mitigation Rules” for purposes of the relief 

provided in this letter.

2. Comparison with EMIR Risk Mitigation Rules

Pursuant to the EMIR Risk Mitigation Rules, financial and non-financial counterparties 

must agree in writing with each of their OTC derivatives counterparties on the terms on which 

 

18 Commission regulations § 23.502(a)(2) and (b)(2) allow portfolio reconciliation to be performed on behalf of the 

counterparties by a third-party.
EMIR Risk Mitigation Rules

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portfolios will be reconciled,19 which corresponds to the requirement in Commission regulation 

§ 23.502(a) and (b) that SDs and MSPs agree in writing with each counterparty (financial and 

non-financial) on the terms for conducting portfolio reconciliation. 

The EMIR Risk Mitigation Rules require portfolio reconciliation covering key trade 

terms of each OTC derivative contract, including at least the valuation of each contract,20 which 

corresponds to the requirements under Commission regulation § 23.502 that discrepancies in 

material terms and valuations be resolved. 

Frequency of reconciliation required under the EMIR Risk Mitigation Rules for financial 

counterparties and non-financial counterparties over the clearing threshold is daily when the 

number of outstanding OTC derivative contracts between counterparties is greater than 500, 

weekly when the number of outstanding OTC derivative contracts between counterparties is 

greater than 50 and less than 500, and quarterly when the number of OTC derivative contracts 

between counterparties is less than 50,21 which corresponds with the frequency required of SDs 

and MSPs outlined above with respect to portfolios with other SDs and MSPs. EMIR requires 

reconciliation with non-financial counterparties less frequently; quarterly for portfolios of 100 or 

more transactions; annually otherwise,22 which corresponds with the requirement of Commission 

regulation § 23.502(b)(3).

The EMIR Risk Mitigation Rules require financial counterparties to report to the relevant 

competent authority any disputes between counterparties relating to an OTC derivative contract, 

its valuation or the exchange of collateral for an amount or a value higher than €15 million and 

outstanding for at least 15 business days,23 while Commission regulation § 23.502(c) has a 

similar reporting requirement for disputes of at least $20 million outstanding from 3 to 5 days, 

depending on counterparty type. The EMIR Risk Mitigation Rules, similar to § 23.502(a)(5), 

require financial and non-financial counterparties to have detailed procedures and processes for 

resolving disputes related to valuation.

Based on the foregoing, the Division believes that the portfolio reconciliation 

requirements of the EMIR Risk Mitigation Rules are essentially identical to the portfolio 

reconciliation requirements of Commission regulation § 23.502.

 

19 See Article 13 of the EMIR Regulatory Technical Standards. In addition, Article 13(2) permits the reconciliation 

to per performed by a third-party, which corresponds to Commission regulation § 23.502(a)(2) and (b)(2).

20 See Article 13(2) of the EMIR Regulatory Technical Standards.

21 See Article 13(3)(a) of the EMIR Regulatory Technical Standards.

22 See Article 13(3)(b) of the EMIR Regulatory Technical Standards.

23 See Article 15(2) of the EMIR Regulatory Technical Standards.
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C. Portfolio Compression

1. Commission Rule

In promulgating its portfolio compression rule, the Commission stated that “[p]ortfolio

compression is an important, post-trade processing and netting mechanism that can be an 

effective and efficient tool for the timely and accurate processing and netting of swaps by market 

participants.”24

Thus, pursuant to section 4s(i) of the CEA, the Commission adopted regulation § 23.503, 

under which SDs and MSPs must establish policies and procedures for: (i) terminating fully 

offsetting uncleared swaps, when appropriate; (ii) periodically engaging in bilateral and 

multilateral compression exercises for uncleared swaps with other SDs and MSPs, when 

appropriate; and (iii) engaging in such exercises for uncleared swaps with any other counterparty 

to the extent requested by such counterparty.

2. Comparison with EMIR Risk Mitigation Rules

The EMIR Risk Mitigation Rules require financial counterparties and non-financial 

counterparties with 500 or more OTC uncleared derivative contracts outstanding with a 

counterparty to have procedures to regularly, and at least twice a year, analyze the possibility to 

conduct a portfolio compression exercise in order to reduce their counterparty credit risk and 

engage in such a portfolio compression exercise,25 which corresponds to the requirement under 

§ 23.503 that SDs and MSPs establish procedures for periodically engaging in compression 

exercises with their counterparties. 

Under the EMIR Risk Mitigation Rules, financial counterparties and non-financial 

counterparties also must ensure that they are able to provide a reasonable and valid explanation 

to the relevant competent authority for concluding that a portfolio compression exercise is not 

appropriate.26 This requirement corresponds directly to regulation § 23.503 that SDs and MSPs 

engage in compression exercises with their counterparties “when appropriate,” which would 

necessarily require such registrants to demonstrate to the Commission why a compression 

opportunity was not appropriate.

Based on the foregoing, the Division believes that the portfolio compression requirements 

of the EMIR Risk Mitigation Rules are essentially identical to the portfolio compression 

requirements of Commission regulation § 23.503.

 

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

for Swap Dealers and Major Swap Participants, 77 FR 55904, 55932 (Sept. 11, 2012).

25 See Article 14 of the EMIR Regulatory Technical Standards.

26 See id.
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D. Swap Trading Relationship Documentation

1. Commission Rule

To promote the “timely and accurate documentation of all swaps” the Commission 

promulgated, pursuant to section 4s(i) of the CEA, regulation § 23.504, which sets forth the 

requirements for swap trading relationship documentation. The Division notes that this letter 

only provides relief from two provisions of the rule (i.e., § 23.504(b)(2) and (4)), discussed 

below. Relief is not provided from the core requirement that SDs and MSPs establish policies 

and procedures, approved in writing by senior management of the SD or MSP, reasonably 

designed to ensure that they have entered into swap trading relationship documentation with each 

counterparty prior to or contemporaneously with entering into a swap transaction with such 

counterparty.27 

Moreover, the relief provided herein does not extend to the requirement that such 

documentation include terms addressing payment obligations, netting of payments, events of 

default or other termination events, calculation and netting of obligations upon termination, 

transfer of rights and obligations, governing law, dispute resolution, and credit support 

arrangements, as well as notice of the status of the counterparty under the orderly liquidation 

procedures of Title II of the Dodd-Frank Act, and the effect of clearing on swaps executed 

bilaterally.28 Nor does this letter relieve an SD or MSP from the documentation audit and 

recordkeeping requirements under § 23.504(c) and (d).

Commission regulation § 23.504(b)(2) brings the written confirmations of swap 

transactions required under Commission regulation § 23.501 into swap trading relationship 

documentation, making clear that the such written confirmations are part of the documentation of 

an SD’s or MSP’s swap trading relationship.

Regulation § 23.504(b)(4) requires SDs and MSPs to include in their relationship 

documentation with counterparties that are other SDs and MSPs, financial entities, and (upon 

request) other counterparties, the process for determining the value of each swap at any time 

from execution to termination or maturity for the purposes of complying with the Commission’s 

margin requirements under section 4s(e) of the CEA and risk management requirements for SDs 

under section 4s(j) of the CEA.29 Documentation of the agreement on valuation must include a 

dispute resolution process and alternative methods for determining the value of a swap if any 

input required to value the swap becomes unavailable. The valuation must be based on recently-

 

27 See Commission regulation § 23.504(a)(2), 17 CFR 23.504(c)(2).

28 See § 23.504(b)(1), (3), (5), and (6).

29 The Commission has promulgated risk management requirements for SDs and MSPs. See 17 CFR 23.600.
EMIR Risk Mitigation Rules

Page 11

executed transactions, valuations provided by independent third parties, or other objective 

criteria, to the maximum extent practicable. 

2. Comparison with EMIR Risk Mitigation Rules

The EMIR Risk Mitigation Rules, as discussed above, require OTC derivative contracts 

entered into between financial counterparties or non-financial counterparties to be confirmed in 

writing,30 which corresponds to the requirements of Commission regulation § 23.504(b)(2).

Pursuant to EMIR Article 11, financial counterparties and non-financial counterparties 

above the clearing threshold are required to value outstanding OTC derivatives contracts on a 

mark-to-market basis daily, or where market conditions determine otherwise, a “reliable and 

prudent marking to model” may be used.31 This corresponds with Commission regulation 

§ 23.504(b)(4)(i), which requires SDs and MSPs to engage in daily valuation with other SDs and 

MSPs, and financial entities, but allows such procedures to be included in documentation with 

non-financial counterparties to the extent such counterparties request them. 

Under Article 15 of the EMIR Regulatory Technical Standards, when concluding OTC 

derivative contracts with each other, counterparties must have agreed detailed procedures and 

processes in relation to the identification, recording, and monitoring of disputes relating to the 

recognition or valuation of the contracts and to the exchange of collateral between counterparties 

and in relation to the resolution of disputes in a timely manner, including a specific process for 

disputes that are not resolved within five business days. These aspects of the EMIR Risk 

Mitigation Rules correspond to the valuation documentation requirements under Commission 

regulation § 23.504(b)(4), which also require use of market transactions for valuations to the 

extent practicable, or other objective criteria, and an agreement on detailed processes for 

valuation dispute resolution for purposes of complying with margin requirements.

Based on the foregoing, the Division believes the confirmation and valuation 

documentation requirements of the EMIR Risk Mitigation Rules are essentially identical to the 

swap trading relationship documentation requirements of Commission regulations § 23.504(b)(2) 

and (4).

 

30 See Article 12 of the EMIR Regulatory Technical Standards.

31 See Article 11(2) of EMIR. See also Article 16 of the EMIR Regulatory Technical Standards (describing the 

market conditions that prevent marking-to-market) and Article 17 of the EMIR Regulatory Technical Standards 

(describing the criteria for using marking-to-model).
EMIR Risk Mitigation Rules

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Division No-Action Position

Based upon the foregoing, the Division believes that no-action relief for SDs and MSPs is 

warranted for CFTC Risk Mitigation Rules with respect to Covered Swaps. Accordingly, the 

Division will not recommend that the Commission commence an enforcement action against an 

SD or MSP for failure to comply with the CFTC Risk Mitigation Rules, and for complying, in 

the alternative, with the EMIR Risk Mitigation Rules, when entering into Covered Swaps, 

subject to the following conditions:

1. The SD or MSP fully complies with the EMIR Risk Mitigation Rules applicable to the 

Covered Swaps, the SD or MSP, and its counterparty;32 and

2. The SD or MSP fully complies with all requirements of Subpart I of Part 23 of the 

Commission’s Regulations that are otherwise applicable to the SD or MSP.33

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

do not necessarily represent the positions or views of the Commission or 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 Commodity Exchange 

Act or in the regulations issued thereunder. In particular, the Division notes that the Commission 

retains the right to access the books and records of any registered SD or MSP, regardless of its 

location, pursuant to sections 4s(f)(1) and 4s(j)(4) of the CEA and Commission regulations 

§ 23.203 and § 23.606. 

 

32 Nothing in this letter provides relief to any SD or MSP from compliance with all registration requirements under 

Part 23 of the Commission’s regulations, including, but not limited to, the submission of all required policies and 

procedures to the National Futures Association. 

33 The relief described in this letter does not apply to other sections of subpart I of Part 23. These requirements 

include § 23.502(c) (requiring reporting to the Commission of any swap valuation dispute in excess of $20,000,000 

(or its equivalent in any other currency)), § 23.504 (except for (b)(2) and (b)(4)), § 23.505 (end-user exception 

documentation), and § 23.506 (swap processing and clearing).
EMIR Risk Mitigation Rules

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Further, this letter, and the relief contained herein, is based upon the Division’s 

understanding of the regulatory provisions applicable in the European Union. 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 Frank Fisanich, Chief 

Counsel, at 202-418-5949, Erik Remmler, Deputy Director, at 202-418-7630, or Andrew Chapin, 

Associate Director, at 202-418-5465.

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