Swap dealers were provided another reprieve from cumbersome Commodities Futures Trading Commission (CFTC) disclosure requirements.
“The U.S. Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight (DMO) today issued a no-action letter extending relief associated with swap trade confirmation requirements that previously was provided in CFTC Staff Letter 16-25, which expires March 31, 2017.” A press release from the CFTC stated.
“The letter relieves swap execution facilities (SEFs) from the requirement in CFTC Regulation 37.6 that a SEF obtain documents that are incorporated by reference in a trade confirmation issued by a SEF, prior to issuing the confirmation,” the CFTC continued.
Rule 37.6 requires that a “SEF (swap execution facility) ‘provide each counterparty to a transaction that is entered into on or pursuant to the rules of the [SEF] with a written record of all of the terms of the transaction which shall legally supersede any previous agreement and serve as a confirmation of the transaction.’” According to a CFTC letter.
The rule – which was put in place as part of Dodd/Frank – requires swap dealers to maintain a plethora of data on each transaction and file it with the CFTC in order for the transaction to be made official.
But a trade group, the Wholesale Markets Brokers’ Association, Americas (WMBAA), recently asked for an extension, stating that the record keeping required to properly comply with this regulation is far too cumbersome.
“In a letter dated March 7, 2017, the WMBAA requested an extension to the relief provided in CFTC Letter No. 16-25 and that the Commission undertake a rulemaking to establish a permanent confirmation solution consistent with the terms of the no-action relief requested by the WMBAA. According to WMBAA, the relief granted in CFTC Letter No. 16-25 has not eased the operational concerns that prompted the original request for relief.” A letter from Amir Zaidi, CFTC’s Director of Market Oversight, stated in explaining the WMBAA’s position. “Due to the complexity of the issue, the WMBAA states that SEFs have been unable to develop a practicable and cost-effective method to request, accept and maintain a library of every underlying previously-negotiated freestanding agreement between counterparties.
“According to the WMBAA, counterparties maintain many of these agreements in paper form, or scanned PDF files, making them impossible to quickly digitize in a cost-effective manner. The WMBAA states that the resource cost is significant when considering the number of different agreements that exist to accommodate the different parties and different asset classes. Therefore, it requests that CFTC Letter No. 16-25 be extended until the earlier of (1) March 31, 2018, or (2) the effective date of revised Commission regulations that establish a permanent SEF confirmation solution.”
So far, the CFTC has kicked the can on implementation of the rule for several years.
While the rule was initially proposed in 2012, the CFTC has given reprieves to SEF’s every year since; a similar press release from the CFTC on March 14, 2016, kicked the can until March 30, 2017, and now implementation won’t occur until March 31, 2018, at the earliest.