• Temporary Relief for Swaps From Some Dodd-Frank Provisions
  • August 18, 2011 | Authors: Brian C. Harms; John J. Leonti
  • Law Firms: Troutman Sanders LLP - Atlanta Office ; Troutman Sanders LLP - Irvine Office
  • The Commodity Futures Trading Commission recently issued a final order clarifying which OTC derivatives rules under Dodd-Frank will take effect on their scheduled implementation date of July 16, 2011. The CFTC’s order also proposed temporary exemptions from many Dodd-Frank swaps requirements and delayed the implementation of various self-executing swaps rules.

    While the basic framework of many swaps regulations is established under Title VII of  Dodd-Frank, many of the details are left up to a rulemaking process that is behind schedule.

    The temporary relief applies to those provisions of the Commodity Exchange Act (CEA) that were either added or amended by Dodd-Frank and reference a swap entity, swap instrument or other term to be “further defined” under Dodd-Frank, such as “swap,” “swap dealer,” “major swap participant” or “eligible contract participant.” Although notices of proposed rulemakings have been issued regarding these terms, the final rulemakings were not in place as of July 16, 2011.

    Additionally, temporary relief has been granted to those provisions of the CEA that are scheduled to apply to certain transactions in exempt or excluded commodities on July 16. Prior to Dodd-Frank’s repeal of certain provisions, transactions in various commodities were exempt or excluded under the CEA.

    Generally, these commodities include financial, energy and metals commodities. The exemption is based on the CFTC’s existing “Part 35” exemption for swap agreements, but will be available for certain transactions that may not otherwise qualify under those rules (e.g., cleared swaps).

    It should be noted that the order does not provide a blanket temporary relief. For example, it does not limit the application of the CEA anti-fraud or anti-manipulation rules for swaps, nor does it apply to any provision of Dodd-Frank or CEA that became effective prior to July 16 (e.g., certain swap record-keeping requirements).

    The temporary relief became effective as of July 16 and continues until the earlier of the effective day of final rules or December 31, 2011.

    Issued concurrently with the order for temporary relief, the CFTC Division of Clearing and Intermediary Oversight and Market Oversight issued a joint staff, no-action letter regarding certain Dodd-Frank amendments to the CEA. The no-action letter covers certain Dodd-Frank provisions that may not have been covered by the final order for temporary relief due to the CFTC’s limited exemptive authority.

    Specifically, the no-action letter addressed concerns related to the segregation requirements for uncleared swaps, registration obligations for derivatives clearing organizations and certain chief compliance officer requirements for swap dealers and major swap participants.

    Similar to the temporary relief, the no-action relief continues until the earlier of the effective day of final rules or December 31, 2011.