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Portfolio Reconciliation- CFTC no action no surprise

Following a request from ISDA and in the new spirit of cross-Atlantic amity, the CFTC has extended no action relief for portfolio reconciliation of uncleared swaps (regulation § 23.502) until 15 September 2013. Readers will recognise the date as coincident with the start of EMIR obligations with respect to portfolio reconciliation and dispute revisions. The no-action relief will only apply to those SD/MSP’s who “intend to rely upon, and be compliant with” the EMIR regime, and who satisfy the other conditions set forth in letter No. 13-45. Although the CFTC recognises that, in this regard, the two regimes are “essentially identical”; it may be argued that the EMIR regulations are slightly less burdensome. While the scope and frequency of the obligations are common to both regimes, the CFTC requires SD/MSP’s to resolve discrepancies in trade terms immediately and to resolve valuation differences within 5 business days; under EMIR, valuation differences that have not been resolved within 5 business days are subject to a mutually agreed escalation procedure[1]. It is on these and other differences that market participants will make their election as to jurisdiction. However, it should be noted that this is a rare affirmative no-action letter- providing a degree of certainty, rather than lamely acceding to the disparity between legislative intention and market reality.

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