Alert October 16, 2012

CFTC Provides Temporary No-Action Relief from Registration Requirements Arising from Swaps

The CFTC’s Division of Swap Dealer and Intermediary Oversight issued a no-action letter allowing introducing brokers (IBs), commodity pool operators (CPOs), commodity trading advisors (CTAs), Associated Persons (APs) of any of the foregoing, floor brokers (FBs), floor traders (FTs), and APs of futures commission merchants (FCMs) to obtain temporary relief from their obligation to register with the CFTC “where the requirement to be registered as such arises solely from the swaps activity of such person, or from the person being involved with” the transition of certain contracts by the Intercontinental Exchange, Inc. and the New York Mercantile Exchange to clearing as commodity futures and options transactions.  Effectively, the relief provides additional time for a registration to become effective, provided that it is in process. 

The relief is conditioned upon the person applying for registration with the National Futures Association (NFA) on or before December 31, 2012 and making a good faith effort to comply with the Commodity Exchange Act and CFTC regulations as if registered.  IBs, FBs, and FTs must file or provide certain additional documents identified in the letter.  The relief terminates on the date on which the NFA provides notice that the person is actually registered, or five days after the NFA provides notice that the person may be disqualified from registration.

The above relief explicitly does not apply to futures commission merchants (FCMs) (as distinguished from APs of FCMs).  The letter explains that the fact that FCMs accept customer funds in their own name requires such persons to be “fully vetted before being permitted to engage in that business.”  It also explicitly does not apply to swap dealers (SDs) or major swap participants (MSPs), citing the ability of an SD to delay registration pursuant to the provisions of the de minimis threshold and the ability of an MSP to delay registration until two months after the end of the quarter in which it meets the MSP definition.

 The no-action letter also relieves, without a termination date but subject to the conditions set forth in the letter, SDs and MSPs from the provisions of Section 4s(b)(6) of the Commodity Exchange Act, thereby potentially allowing a statutorily disqualified AP of an SD or MSP to effect swaps on behalf of the SD or MSP.  The relief is not self-executing but requires the SD or MSP to make certain notifications and submissions to the NFA and receive notification from the NFA.  Accordingly, SDs and MSPs interested in taking advantage of the relief should examine the requirements carefully.