Dodd-Frank Swaps Roundup: Ownership and Control Data Reporting, Swap Dealer Rule Correction and More | Practical Law

Dodd-Frank Swaps Roundup: Ownership and Control Data Reporting, Swap Dealer Rule Correction and More | Practical Law

A roundup of recent CFTC swaps regulatory activity.

Dodd-Frank Swaps Roundup: Ownership and Control Data Reporting, Swap Dealer Rule Correction and More

by Practical Law Finance
Published on 24 Jul 2014 • USA (National/Federal)
A roundup of recent CFTC swaps regulatory activity.
The following is a roundup of recent CFTC swaps regulatory activity:

Relief from Certain Ownership and Control (OCR) Swap Data Reporting Requirements

On July 23, 2014, the CFTC in No-action Letter 14-95 (No-action 14-95), granted relief to all members of the Futures Industry Association (FIA) that are obligated to report futures and swap transaction data to the CFTC under Parts 15, 17, 18 and 20 of the CFTC's regulations, the final large-trader ownership and control (OCR) data reporting rules. The final OCR rule expanded upon the CFTC's pre-existing large-trader position and transaction reporting programs by requiring the electronic submission of trader identification and market participant data on New Form 102A, New Form 102B, New Form 102S, New Form 40/40S and New Form 71. No-action 14-95 grants relief to market participants that are required to report on these forms from electronically reporting via:
  • New Form 102A and New Form 10281 until February 11, 2015.
  • New Form 102B until March 11, 2015.
  • New Form 40/408 and New Form 71 until February 11, 2016.
The relief was granted to provide the industry with sufficient time to:
  • Build and test systems in keeping with industry standard technology risk management practices for purposes of complying with the electronic reporting requirements of the OCR final rule.
  • Educate clients globally and collect the new data required for OCR reporting.
Among other conditions, the relief requires that the parties report to the CFTC via Legacy Form 102, Legacy Form 40 and Legacy Form 40S in accordance with the reporting requirements in place prior to the implementation of the OCR final rule until the date when the relief expires or as otherwise determined by the CFTC.

Corrections to Final CFTC Rules for Swap Dealers and MSPs

On July 10, 2014, the CFTC issued correcting amendments to final rules under Part 23 of the CFTC's regulations relating to the risk management program for swap dealers (SDs) and major swap participants (MSPs), which were published in the Federal Register on April 3, 2012. The CFTC published the corrections to clarify errors in the final regulations that were misleading. The final rules mistakenly referred to "quarterly review" instead of an "annual review" which is discussed in that section. The correction changed the word "quarterly" to "annual" to match the rest of the paragraph, which discussed annual risk management reviews under the risk management program for SDs and MSPs. These reviews must be conducted annually by SDs and MSPs, not quarterly.
The revised paragraph reads as follows:
"The annual reviews of the Risk Management Program shall include an analysis of adherence to, and the effectiveness of, the risk management policies and procedures, and any recommendations for modifications to the Risk Management Program. The annual testing shall be performed by qualified internal audit staff that are independent of the business trading unit being audited or by a qualified third party audit service reporting to staff that are independent of the business trading unit. The results of the annual review of the Risk Management Program shall be promptly reported to, and reviewed by, the chief compliance officer, senior management, and governing body of the swap dealer or major swap participant."

CFTC Releases Rule Enforcement Review of ICE Futures US Exchange

On July 22, 2014, the CFTC released the results of a rule enforcement review by its Division of Market Oversight (DMO), which assessed ICE Futures US Exchange's compliance with elements of designated contract market (DCM) core principles 4 and 5, relating to the exchange market surveillance programs. The DMO:
  • Found that the exchange has appropriate tools for monitoring daily trading activity and large trader positions.
  • Found that the exchange has adequate procedures for monitoring deliverable supply of physical-delivery contracts.
  • Held that sanctions for violations related to market surveillance imposed by the exchange via warning letters and monetary fines are generally reasonable.
  • Identified certain areas in which the exchange needs to make improvements and made corresponding recommendations.
Copies of the report are available from the CFTC's Office of Public Affairs, or on the CFTC's website.

Relief from Requirement to Provide Acknowledgment Letter

No-action Letters 14-93 and 14-94: Relief Granted to ICE Clear Europe Limited and LCH.Clearnet Limited

On July 10, 2014, the CFTC issued:
  • No-action Letter 14-93, which granted relief to ICE Clear Europe Limited (ICE Clear Europe) from CFTC Regulation 120(g)(4).
  • No-action Letter 14-94, which granted relief to LCH.Clearnet Limited (LCH) from CFTC Regulations 1.20(g)(4) and 22.5.
Regulations 1.20(g)(4) and 22.5 require derivatives clearing organizations (DCOs) to obtain an acknowledgment letter from each depository with which the DCO deposits futures customer funds by July 12, 2014 (see Checklist, Dodd-Frank Swaps Calendar: July 12, 2014). ICE Clear Europe and LCH had requested the extension to provide time to obtain and execute a modified version of he acknowledgment letter with the Bank of England. The relief granted expires on the earlier of:
  • 90 days from the issuance of the no-action letter.
  • The date on which the CFTC responds to the separate request for specified modification to the acknowledgment letter.

No-action Letter 14-92: Relief Granted to CME Clearing

On July 8, 2014, the CFTC, in No-action Letter 14-92 granted relief to:
  • The Clearing House of the Chicago Mercantile Exchange, Inc. (CME Clearing).
  • Certain clearing members of CME Clearing.
  • Depositories holding futures customer funds or cleared swaps customer funds for such clearing members.
from requirements under CFTC Regulations 1.20(d) and 22.5(a) which require a futures commission merchant (FCM) to obtain an acknowledgment letter from each depository from which the FCM deposits futures customer funds or cleared swaps customer funds by July 12, 2014 (see Checklist, Dodd-Frank Swaps Calendar: July 12, 2014). CME Clearing requested an extension of time in order to address a potential conflict between the terms of the acknowledgment letter and the requirements of Regulation 39.13(g)(14) and has submitted a separate letter to permit modifications to the acknowledgment letter. The CFTC granted relief to CME Clearing, affected clearing members and affected depositories from the requirement to obtain and provide an acknowledgment letter under Regulation 1.20(d) and 22.5(a). This relief will expire on the date when the CFTC responds to the separate letter.

Public Comment on Request from ICE Clear Europe

On July 11, 2014, the CFTC requested public comment on a petition submitted by ICE Clear Europe requesting an amendment of a CFTC order which permitted ICE Clear Europe and its clearing members that are FCMs to:
The petition requested that this relief be extended to FCMs that carry contracts cleared at ICE Clear Europe through a clearing member, even if they are not themselves clearing members. Comments were due by July 21, 2014. The unusually short comment period reflects the desire for a quick resolution on portfolio margining issues at the clearinghouse, highlighting the importance of customer funds issues for the CFTC (see Legal Update, CFTC Extends Relief on FCM Segregation of Customer Funds).