Alert June 14, 2011

CFTC Votes to Postpone Effectiveness of Various Elements of New Dodd-Frank Regulatory Framework for Swaps; SEC to Take Related Action for Security-Based Swaps

The CFTC voted to propose granting temporary exemptive relief from certain requirements in the Commodity Exchange Act (the “CEA”) resulting from the Dodd-Frank Act that otherwise become effective on July 16, 2011 under the terms of the Act.  The proposed relief contains two principal elements.  The first would provide a temporary exemption from provisions that reference terms such as “swap,” “swap dealer,” “major swap participant,” or “eligible contract participant” that the Dodd-Frank Act requires the CFTC and SEC to “further define” (which the agencies will not have done by July 16); the exemption would continue until the effective date of final rules defining those terms or December 31, 2011, whichever is earlier.   The second element of the CFTC proposal would temporarily exempt certain transactions (primarily in financial and energy commodities) from certain CEA provisions that will apply as a result of the repeal of various CEA exemptions and exclusions under the Dodd-Frank Act; the exemption would apply until the repeal or replacement of certain CFTC regulations or December 31, 2011, whichever is earlier.  Additional details on the CFTC proposal are available in a CFTC Fact Sheet and Q&A, on which this article is based.  A formal release with full details of the proposed exemptive relief will eventually be published for comment in the Federal Register with a 14-day comment period.

The SEC also announced that it will be taking steps in the coming weeks to clarify which elements of the Dodd-Frank Act’s regulatory scheme for security-based swaps, to be overseen by the SEC, will apply beginning on July 16, 2011, the effective date for that scheme under the terms of the Act.  The SEC will also act to address the application of pre‑Dodd-Frank requirements under the Securities Exchange Act of 1934 to security-based swaps.  In each instance, the SEC will consider granting appropriate temporary exemptive relief.