On November 24, 2020, the CFTC issued No-Action Letters 20-39 (NAL 20-39) and 20-40 (NAL 20-40), extending relief intended to provide greater certainty to the global derivatives marketplace in connection with Brexit. Additionally, on December 4, 2020, the CFTC issued No-Action Letter 20-42 (NAL 20-42), permitting market participants to transfer certain swaps to an affiliate without such swaps becoming subject to the CFTC swap clearing requirement or CFTC uncleared swap margin requirements.

NAL 20-39 supersedes and extends relief originally provided by No-Action Letter 19-08 (see Legal Update, CFTC Issues No-Action Brexit Relief to UK Firms). NAL 20-39 provides relief from the following CFTC regulatory actions to account for Brexit and will not take enforcement against:

Additionally, facilities that are granted an exemption from SEF registration are eligible facilities upon which counterparties may satisfy the trade execution requirement under CEA section 2(h)(8) if that counterparty executes a swap subject to the trade execution requirement on an MTF or OTF authorized within the UK. NAL 20-39 becomes effective as of the Brexit transition period expiration date, which is set to take place on December 31, 2020. The relief will expire on the earlier of:

NAL 20-40 supersedes and extends relief originally provided in No-Action Letter 19-09 (see Legal Update, CFTC Issues No-Action Brexit Relief to UK Firms). This relief permits certain UK entities to rely on longstanding relief provided to certain EU entities under:

NAL 20-40 becomes effective on the Brexit transition expiration date, which is set to take place on December 31, 2020.

NAL 20-42 was issued in response to a request from ISDA® for relief from CFTC uncleared swap margin rules (CFTC margin rules) and the uncleared swap clearing requirement for certain legacy swaps assigned or novated to certain affiliates planning for, or in response to, the end of the transition period following the withdrawal of the UK from the EU (Brexit transition period). Though the CFTC margin rules generally do not apply to legacy swaps, a legacy swap that is amended or novated on or after the applicable compliance date becomes subject to the CFTC margin rules. Because such Brexit-related swap transfers would require an amendment of the transferred swaps, absent relief, amended legacy swaps would lose their legacy status and could become covered swaps subject to initial margin (IM) and variation margin (VM) requirements under the CFTC margin rules (see Practice Note, The Dodd-Frank Act: Margin Collection and Exchange Rules for Uncleared Swaps: Final CFTC Margin Rules).

ISDA anticipates that a free trade agreement negotiated by the UK and EU is unlikely to include continued rights for UK firms to carry on cross-border activities with EU counterparties. This creates a need for SDs to be able to transfer uncleared swaps between affiliates as part of their strategic response to the impact of Brexit on their business. Therefore, ISDA requested that the CFTC extend relief to SDs to facilitate voluntary transfers of the following legacy swaps between affiliates solely in preparation for or in response to the end of the Brexit transition period:

The CFTC, in NAL 20-42, has granted the requested relief and stated that any amendment made solely to transfer a swap in response to the end of the Brexit transition period will not impact a swap's legacy status, provided the following conditions are met: