On August 5, 2016, the CFTC proposed amendments to CFTC Regulation 3.10(c), which would amend the conditions for certain foreign persons to be exempt from registration if they engage solely in commodity-interest transactions on behalf of non-US persons and certain international financial institutions.

Foreign persons who would qualify for the exemption include those acting in any of the following capacities:

These parties are collectively referred to as "foreign intermediaries."

Under CFTC Regulation 3.10(c), a foreign intermediary seeking the registration exemption and acting only on behalf of a non-US person is subject to a clearing requirement even if its activities involve a swap not subject to a clearing requirement under CFTC regulations. The proposed amendment removes this clearing requirement and codifies the relief granted in CFTC No-Action Letter 15-37 and CFTC No-Action Letter 16-08, which exempted foreign intermediaries from registration requirements under the CEA for swaps not subject to CFTC clearing requirements (see Legal Update, Certain Non-US Parties Exempt from CFTC Registration for Non-US Swaps).

The CFTC is seeking public comment on the proposed amendment. The comment period closes on September 6, 2016. Comments may be submitted by mail or electronically here.

CFTC Regulation 3.10(c) provides the framework for which intermediaries such as FCMs, IBs, CTAs, and CPOs must register with the CFTC in order to engage in a commodity-interest transaction. The term "commodity interest" is defined in Section 1.3 of the Commodity Exchange Act (CEA), and includes futures, options on futures, and swaps traded on US trading facilities, including designated contract markets (DCMs) and swap execution facilities (SEFs). 17 C.F.R. § 1.3(yy).

CFTC Regulation 3.10(c)(3)(i) provides an exemption from registration as a CPO, CTA, or IB for foreign intermediaries if all the following criteria are met:

17 C.F.R. § 3.10(c)(3)(i).

Regulation 3.10(c)(2)(i) provides a similar exemption for foreign intermediaries acting as an FCM. 17 C.F.R. § 3.10(c)(2)(i).

The definition of "commodity interest" under Regulation 1.3(yy) was amended in 2012 when swaps became subject to regulation under the CEA as a result of Title VII of the Dodd-Frank Act. (see Practice Note, The Dodd-Frank Act: Expanded "Commodity Pool" Definition and CPO/CTA Rules). As a result of the expanded definition of "commodity interest" under Regulation 1.3 to include commodity swaps, foreign intermediaries became subject to registration requirements for entering into swaps, including commodity-interest swaps. 17 C.F.R. § 1.3(yy).

The CFTC proposes to amend CFTC Regulation 3.10(c)(2)(i) and (3)(i) to exempt foreign intermediaries from registration for engaging in a commodity-interest transaction if the foreign intermediary only acts on behalf of either:

The amendment removes the clearing requirement and references to DCMs and SEFs currently found in CFTC Regulation 3.10(c). The amendment would effectively codify the relief granted in No-Action Letters 15-37 and 16-08, with the definitions of "foreign brokers" and "IFIs" for added clarity on the scope of the amendment.

The CFTC adopted the amendment because non-US persons subject to clearing requirements under the CEA are required to comply regardless of a registration exemption for foreign intermediaries. Furthermore, this amendment is consistent with CFTC policy to focus market protection on domestic firms and foreign intermediaries seeking transactions with domestic customers, and leaving the regulation of foreign intermediaries seeking transactions with non-US customers with the jurisdiction of the customer.

For details on registration requirements under the CEA, see Practice Note, The Dodd-Frank Act: Expanded "Commodity Pool" Definition and CPO/CTA Rules.