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www.cftc.gov Division of Clearing andRisk CFTC Letter No. 13-47 No-ActionJuly 19, 2013Division of Clearing and Risk RE: Extension of Time-Limited No-Action Relief from the Clearing Requirement for SwapsEntered into by Cooperatives
On July 17, 2012, the
Commodity Futures Trading Commission (“
publishedfor public comment a notice of proposed rulemaking to exempt certain swaps entered into byqualifying cooperatives from required clearing, subject to certai
n conditions (the “Proposed
xemption”).
The Commission received 25 comment letters on its proposal. Manycommenters noted the importance of exempting these swaps from the clearing requirement andexpressed support for the proposal. The Commission has not yet finalized the proposedcooperative 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
the November 28 No-Action Relief, 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 whenthe Commission finalizes the Proposed Cooperative Exemption.
The November 28 No-ActionRelief provided that the Division would not recommend that the Commission commence anenforcement action against a person for failure to comply with the requirements of section2(h)(1)(A) of the
and part 50
of the Commission’s regulations
to clear a credit default swap
or interest rate swap subject to required clearing in § 50.4 of the Commission’s regulations
, provided that certain conditions were met.
Staff No-Action Letter 12-36, available at http://www.cftc.gov/LawRegulation/CFTCStaffLetters/12-36. Under section 2(h)(1)(A) of the CEA
, “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 [(
)] 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, theCommission 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”).
July 19, 2013Page 2The November 28 No-Action Relief expired on April 1, 2013. Most recently,
on June 21,2013, the Division granted time-limited no-
action relief (“June
21 No-
Action Relief”) t
hat wassubstantially similar to the November 28 No-Action Relief.
The June 21 No-Action Relief willexpire on July 19, 2013. Without further action by the Division or the Commission, after July 19,2013, all cooperatives that are Category 2 Entities, as defined in the Swap Transaction Complianceand Implementation Schedule,
that are not able to claim an exception, exemption, or other relief from required
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
In view of the foregoing, the Division is extending the relief provided in the June 21 No-Action Relief until August 16, 2013. Accordingly, the Division will not recommend that theCommission 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 swa
p 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 acooperative;
The Division also granted time-limited no-action relief that was substantially similar to the November 28 No-ActionRelief on June 7, 2013, which expired on June 21, 2013.
Staff No-Action Letter 13-24, available athttp://www.cftc.gov/LawRegulation/CFTCStaffLetters/13-24.
Staff No-Action Letter 13-30, available at http://www.cftc.gov/LawRegulation/CFTCStaffLetters/13-30.
Swap Transaction Compliance and Implementation Schedule: Clearing Requirement Under Section 2(h) of theCEA, 77 FR 44441 (July 30, 2012).
Pursuant to the compliance schedule, swap dealers major swap participants and private funds active in the swapsmarket 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
. All other financial entitieswere required to clear swaps beginning on June 10, 2013, for swaps entered into on or after that date
(“Category 2Entities”)
Clearing Requirement Determination, 77 FR at 74319-21. With regard to the CDS indices onEuropean corporate names, iTraxx, the Clearing Requirement Determination provided that, if no DCO offered iTraxxfor 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 fromICE Clear Credit LLC, a Commission-registered DCO, that it had begun offering customer clearing of the iTraxx CDSindices that are subject to the clearing requirement in § 50.4(b)
. In accordance withthe timeframe previously set forth by the Commission, the following compliance dates apply to the clearing of iTraxxindices: Category 1 Entities: Friday, April 26, 2013; Category 2 Entities: Thursday, July 25, 2013; and Category 3Entities: Wednesday, October 23, 2013.
Press Release, CFTC’s Division of Clearing and Risk Announces
Revised Compliance Schedule for Required Clearing of iTraxx CDS Indices (Feb. 25, 2013), available athttp://www.cftc.gov/PressRoom/PressReleases/pr6521-13.
July 19, 2013Page 3
(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 financialentity solely because of section 2(h)(7)(C)(i)(VIII) of the CEA, suchmember 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 e
xempt from the definition of “financial entity” pursuant to § 50.50(d) of the Commission’s regulations.
The swap:(a) Is entered into with a member of the exempt cooperative inconnection with originating a loan or loans for the member, whichmeans the requirements of § 1.3(ggg)(5)(i), (ii), and (iii) are
satisfied; provided that, for this purpose, the term “insureddepository institution” as used in those sections is replaced with theterm “exempt cooperative” and the word “customer” is replaced with
e 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 proposedcooperative exemption.
This no-action relief expires on the earlier of August 16, 2013, or theeffective date of a Commission rulemaking finalizing the Proposed Cooperative Exemption.This no-action letter, and the positions taken herein, represent the view of the Divisiononly, 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 th
ereunder. 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
77 FR 41940 (proposed as § 39.6).