Alert October 16, 2012

CFTC Issues No-Action Letter Temporarily Allowing Exclusion of Swaps of Exempt or Agricultural Commodities from Swap Dealer De Minimis Threshold Calculations

On October 12, 2012, the CFTC’s Division of Swap Dealer and Intermediary Oversight (the “Division”) issued a no-action letter regarding the calculation of the amount of swap dealing activity for purposes of the de minimis exception to the definition of “swap dealer.”  The letter provides that the Division will not recommend that the CFTC take enforcement action against any person for failure to include, for purposes of calculation of the aggregate gross notional amount of swaps connected with its swap dealing activity for purposes of the de minimis exception, a swap that (i) references an exempt commodity (such as energy commodities or metals) or agricultural commodity, (ii) is executed prior to December 31, 2012, and (iii) is either cleared on a registered derivatives clearing organization or “entered into contingent upon its being subsequently exchanged for and cleared as a futures position as part of an exchange for related position transaction conducted in accordance with a [designated contract market’s] rules.” 

The relief responds to what some commentators have referred to as the “futurization” of swaps:  as explained in the letter, “[o]ver the past several weeks, several major platforms that have been providing over-the-counter markets for cleared swaps in exempt commodities have announced their intention to transition the cleared swap activities offered on those markets to cleared futures contracts.”  The relief cites IntercontinentalExchange and The CME Group, and adds that “[t]he Division has also received information indicating that other trading platforms are contemplating offering futures contracts and/or options on futures contracts as replacements for or as alternatives to cleared swaps currently transacting on such platforms.”

Later that day, the Division issued an additional no-action relief letter providing similar relief regarding swaps that (i) reference an exempt commodity or agricultural commodity and (ii) are executed prior to October 20, 2012.  It also applies similar relief for the definition of “major swap participant.”