On 10 June 2013, the CFTC’s Division of Clearing and Risk (DCR) issued a time-limited no-action letter for certain banks having assets of less than $10 billion (“Small Banks”).
Pursuant to section 2(h) of the Commodity Exchange Act (CEA), the second phase of mandatory clearing for certain interest rate and credit default swaps for Category 2 Entities (which includes Small Banks) began on 10 June 2013. An end-user exemption to the clearing requirement is available to Small Banks under section 2(j) of the Commodity Exchange Act (CEA), provided that they obtain board approval of any decision to enter into uncleared swaps.
Numerous Small Banks have expressed concern that they may be unable to obtain board approval by 10 June 2013. As such, the DCR is providing Small Banks with relief from the board approval requirement until 10 July 2013 subject to the following conditions:
- the Small Bank in question satisfies the requirements of Regulation 50.50(d)(i) and (ii);
- as soon as practicable, and no later than 10 July 2013, the Small Bank obtains retroactive board approval for entering into uncleared swaps pursuant to Regulation 50.50 on or after 10 June 2013; and
- beginning 10 June 2013, the Small Bank must be otherwise eligible to utilize Regulation 50.50.
The DCR notes that market participants electing the end-user exception from the clearing requirement do not have to comply with the reporting obligations under Regulation 50.50(b) until 9 September 2013.