Gary DeWaal and Associates LL

CFTC Grants More Relief to FX Swap Dealers

News Developments Helpful to Getting the Business Done

Published Date: May 06, 2013

During the first two days of May, the CFTC's Division of Swap and Intermediary Oversight granted certain relief related to swap dealers and major swap participants engaging in certain FX transactions. A few days earlier, on the eve of May 1, DSIO granted certain relief to SDs and MSPs engaging in FX prime brokerage transactions involving physically settled FX swaps and forwards (see prior article on this website).

Specifically, on May 1 the CFTC granted such entities no action from disclosing a pre-trade mid-market mark (PTM) to non-SD, MSP counterparties (as otherwise would be required under the Commission's External Business Conduct rules) in connection with certain physically settled FX swap, forward and options where:

the currency involved is one of the BIS 31 currencies (see fn 16 of the CFTC letter included below) and in the case of a swap or forward, has a stated maturity of one year or less, or in the case of an option, six months or less;
real time tradeable bids and offers are generally available to counterparties electronically; and
the specific counterparty to the transaction agrees in advance that the SD or MSP does not need to disclose the PTM.

Also, the CFTC granted no action in connection to physically settled FX swaps and forwards transactions initiated on an anonymous electronic trading platform (whether or not a Swap Execution Facility or Designated Contract Market), where:

the SD or MSP does not know the identity of the counterparty;
real time tradeable bids and offers are generally available to counterparties electronically; and
the counterparty is a so-called eligible contract participant.

This relief does not impact the obligation of the SD or MSP to provide daily marks or report data regarding a transaction.

On the following day, May 2, the CFTC's DSIO granted no action relief related to certain FX transactions, which although intended to be "spot" transactions and exempted from the application of Dodd Frank, in fact are being treated as FX forward transactions by certain market participants. These are FX transactions that settle on greater than T+2 but by T+7 or before. Although these forwards would otherwise not be regulated as swaps (because of the Secretary of the Treasury's November 16, 2012 determination), SDs and MSPs engaging in such transactions are still required to comply with certain external business conduct standards adopted by the CFTC as of May 1.

In connection with this relief, prior to September 1, 2013, the CFTC will not recommend enforcement action against any SD or MSP for failure to comply with relevant external business conduct rules with respect to FX transactions with so-called eligible contract participants that have a settlement cycle of no more than seven local days.

For further information see:
http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/13-12.pdf
http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/13-13.pdf

The information contained in this article is not legal advice. For legal advice, please consult with your attorney. The information in this article is derived from sources believed to be reliable as of May 6, 2013, but no representation or warranty is made regarding the accuracy of any statement. To ensure compliance with requirements imposed by U.S. Treasury Regulations, Gary DeWaal and Associates LLC informs you that any U.S. tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Gary DeWaal and Associates may represent one or more entities mentioned in this article.