The US Commodity Futures Trading Commission’s (CFTC) Division of Swap Dealer and Intermediary Oversight (DSIO) has issued a time-limited no-action letter for swap dealers doing business in the EU.
The letter states that, from 4 February 2017 to 8 May 2017, it will not recommend an enforcement action against a swap dealer (SD) that is subject to, and in compliance with, the margin requirements for non-centrally cleared OTC derivatives in the European Union (EMIR RTS) for failure to comply with the CFTC’s final margin rule.
On 4 February 2017, many SDs must begin complying with the EMIR RTS. Some of the same SDs have had to comply with the Final Margin Rule since 1 September 2016.
Pursuant to the substituted compliance framework established in the CFTC’s Cross-Border Margin Rule, the CFTC has been diligently analysing the European Commission’s (EC) request that the CFTC determine that the EMIR RTS provide a sufficient basis for an affirmative finding of comparability with respect to the Final Margin Rule, but has not yet made a determination.
DSIO understands that the EC has likewise been diligently pursuing an equivalence determination with respect to the Final Margin Rule, but has not yet completed its work in this regard.
Nevertheless, without a comparability determination by the CFTC with respect to the EMIR RTS (or an equivalence determination from the EU regulatory authorities with respect to the Final Margin Rule), starting February 4, 2017 many SDs operating in the EU will be required to comply with both the Final Margin Rule and the EMIR RTS. Thus, DSIO believes this relief is necessary to give SDs certainty about their regulatory obligations while the CFTC undertakes its substituted compliance determination and the EC its equivalence decision.
