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CFTC- what animal are you?

The CFTC has issued three no action letters in as many days, variously relating to: SEF documentation of uncleared swap confirmations, customer account templates for the CME and Indian Rupee clearing by the Clearing Corporation of India Ltd. Each is only of specific import, a brief summary follows:

SEF Documentation of Uncleared Swap Confirmations: Letter No. 14-408. Time-limited, conditional relief of enforcement action pursuant to Commission Regulation 37.6(b), effectively absolving SEFs from the need to collate thousands of ISDA Masters, but only for just over a year- see this post for greater detail. The regulation requires an SEF to provide each counterparty with a de novo agreement, for each transaction, superseding previous agreements and confirming the transaction. The agreement must specify all terms, not merely the PETs required for reporting to an SDR. The relief allows an SEF to incorporate previously-negotiated agreements into a confirmation without a copy being submitted to the SEF. It also exempts an SEF from the recordkeeping obligations of parts 37 and 45 in this respect. As long as copies of the underlying agreements are made available to the Commission within a reasonable time, an SEF will not be sanctioned for failure to obtain such copies by the time of a trade’s execution. The relief expires 30 September 2015.

CME customer account written acknowledgement: Letter No. 14-106. Permanent relief of enforcement action against the CME, its clearing members and depositories in respect of non-compliance with Commission Regulation 1.20. The regulation requires FCMs to obtain written acknowledgement from depositaries that deposited funds belong to customers; the Commission adopted a standard template to this effect. However, the template does not account for the CME account option enabling customers to pledge HQLA as initial margin, granting CME rights over these assets. The permanent relief grants CME the right to use an approved, modified version of the template letter that acknowledges their first priority security interest.

CCIL: Letter No. 14-107. Time-limited relief for CCIL for failing to register as a DCO pursuant to Section 5b(a) CEA. The relief is restricted to CCIL’s Indian Rupee IRS and FRA clearing for the proprietary trading of US clearing members. The grant expires on the sooner of the CCILs registration as a DCO or 31 December 2014.

While the above may be characterised as fine-tuning rather than re-engineering, consequential action is still to be preferred over increasingly inconsequential no-action. Despite the new Chairman’s promised focus on enforcement, if not predation, and a marked disinclination to change its spots- only the most optimistic observer would compare the CFTC to a leopard. In the light of continuing no-action, perhaps sloth may be its most appropriate “spirit animal”.

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