Certain Non-US Parties Exempt from CFTC Registration for Non-US Swaps | Practical Law

Certain Non-US Parties Exempt from CFTC Registration for Non-US Swaps | Practical Law

The CFTC issued no-action relief from IB, CTA, and CPO registration requirements under the CEA for parties located outside the United States that enter into non-US swaps on behalf of another non-US person.

Certain Non-US Parties Exempt from CFTC Registration for Non-US Swaps

Practical Law Legal Update w-001-4504 (Approx. 4 pages)

Certain Non-US Parties Exempt from CFTC Registration for Non-US Swaps

by Practical Law Finance
Published on 18 Feb 2016 • USA (National/Federal)
The CFTC issued no-action relief from IB, CTA, and CPO registration requirements under the CEA for parties located outside the United States that enter into non-US swaps on behalf of another non-US person.
On February 12, 2016, the CFTC issued No-action Letter 16-08 (No-action 16-08), granting relief from introducing broker (IB), commodity trading advisor (CTA), and commodity pool operator (CPO) registration requirements under the Commodity Exchange Act (CEA) for parties located outside the United States that enter into non-US swaps on behalf of another non-US person.
CFTC Regulation 3.10(c)(3)(i) currently provides an exemption from registration as an IB, CTA or CPO (collectively, foreign intermediaries) for a person executing swaps bilaterally or on or subject to the rules of a swap execution facility (SEF) or designated contract market (DCM) so long as:
  • The person is located outside of the United States;
  • The person acts only on behalf of persons located outside of the United States; and
  • The commodity interest transaction is subject to clearing through a registered futures commission merchant (FCM) (note that in the context of the CEA and related regulations, the term "commodity interest" means any futures contract, swap or other transaction subject to CFTC regulation) (17 C.F.R. § 1.3(yy)).
(17 C.F.R. § 3.10(c)(3)(i).)
No-action 16-08 was issued in response to market concerns that the third requirement listed above is unreasonable, as CFTC regulations do not require all swaps to be cleared and certain swaps are not yet accepted for clearing by any clearing organization. Therefore, market participants have met with some confusion as to whether the language of 3.10(c)(3)(i) creates an independent clearing requirement on swaps involving foreign intermediates that would otherwise not be subject to CFTC regulations.
No-action 16-08 confirms that CFTC Regulation 3.10(c)(3)(i) does not impose any additional clearing requirements on such transactions so long as the other two prongs are satisfied and, therefore, such swaps are not required to be cleared.
The relief is to continue until the CFTC takes any further action amending Regulation 3.10(c)(3)(i).
For details on registration requirements under the CEA, see Practice Note, The Dodd-Frank Act: Expanded "Commodity Pool" Definition and CPO/CTA Rules: Expanded "Commodity Pool" Definition: Swaps Now Included.