The CFTC Adopts and Proposes Rules Regarding Exemptions to Swap Clearing Requirements

On Tuesday, July 10, 2012, the Commodity Futures Trading Commission ("CFTC") voted to adopt a final rule and approve a proposed rule regarding exceptions to the swap clearing requirement established in Section 2(h)(1) of the Commodity Exchange Act (the "CEA"), as amended by Section 723 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). The final rule implements the end-user exceptions established in Section 2(h)(7) of the CEA, as amended by Section 723 of the Dodd-Frank Act, available to swap counterparties meeting certain conditions. The final rule generally exempts a non-financial entity or a small financial institution that is using the swap to hedge or mitigate commercial risk, and that notifies the CFTC how it generally will meet its financial obligations associated with the exempt (non-cleared) swap. The final rule establishes criteria for determining whether a swap hedges or mitigates commercial risk for purposes of the exemption. The rule also specifies the information that counterparties must report to satisfy the notification requirement.

The CFTC also proposed a rule pursuant to its authority under Section 4(c) of the CEA that would allow cooperatives meeting certain conditions to elect not to submit certain swaps that would otherwise be required to clear in accordance with Section 2(h)(1) of the CEA. This proposed rule would provide a potential exemption for cooperatives that are "financial entities," as defined in Section 2(h)(7) of the CEA, and that do not otherwise qualify for the end-user exception because they are not eligible to qualify for the small financial institution exemption.

The CFTC Proposes Guidance on the Cross-Boarder Application of Certain Swaps Regulations

On Thursday, July 12, 2012, the CFTC published for public comment a proposed interpretive guidance and policy statement regarding the cross-border application of certain swaps provisions of the CEA that were enacted by Title VII of the Dodd-Frank Act, and the CFTC's regulations promulgated thereunder. Specifically, the proposed interpretive guidance and policy statement describes the following: 

• The general manner in which the CFTC will consider whether a person's swap dealing activities or swap positions may require registration as a swap dealer or major swap participant, respectively, and the application of the related requirements under the CEA to swaps involving such persons;
• The application of the clearing, trade execution, and certain reporting and recordkeeping provisions under the CEA, to cross-border swaps involving one or more counterparties that are not swap dealers or major swap participants; and
• The general policy and procedural framework under which the CFTC may permit compliance with a comparable regulatory requirement of a foreign jurisdiction to substitute for compliance with the requirements of the CEA.

The CFTC Again Delays the Effective Date of Certain Swap Regulations

On Friday, July 13, 2012, the CFTC issued a final order further amending its July 14, 2011 final order that granted temporary exemptive relief from certain provisions of the CEA that otherwise would have taken effect on July 16, 2011, the general effective date of Title VII of the Dodd-Frank Act. The CFTC previously amended the July 2011 order on December 23, 2011 to, in part, extend the expiration from December 31, 2011 to July 16, 2012.

This final order extends the July 2011 order with certain modifications. Specifically, this final order: 

• Removes references to certain entities terms, including "swap dealer," "major swap participant," and "eligible contract participant," in light of the final joint rulemaking of the CFTC and Securities and Exchange Commission further defining those terms issued on April 18, 2012; 
• Extends the potential latest expiration date of the July 2011 Order to December 31, 2012, or, depending on the nature of the relief, such other compliance date as may be determined by the CFTC;
• Allows the clearing of agricultural swaps; and
• Removes any reference to the exempt commercial market and the exempt board of trade grandfather relief previously issued by the CFTC.

© 2012 Perkins Coie LLP