The Commodity Futures Trading Commission (CFTC) Thursday issued an order clarifying the effective date of the provisions in the swap regulatory regime established under the Dodd-Frank financial reform law, providing temporary relief from certain provisions that would otherwise kick in as of Saturday, until the CFTC completes the rulemakings specified in the order.
Thursday's announcement follows on and clarifies the legal basis for an earlier announcement of a proposed extension made by the CFTC in June (see Daily GPI, June 15) until the effective date of final rules or Dec. 31. The Thursday order essentially duplicates the June proposal.
"In our effort to protect the American public, the CFTC is now approving final rules called for in the Dodd-Frank Act with more final rules to be considered in upcoming meetings next week, in August and throughout the fall. Today, we are granting temporary relief from certain provisions that would otherwise apply to swaps or swap dealers on July 16," said Chairman Gary Gensler. "This order enables the Commission to continue its progress in finalizing rules."
Specifically, the CFTC provided temporary exemptions from certain provisions of the Commodity Exchange Act (CEA), in two parts. First, the CFTC provided relief from certain provisions of the CEA added or amended by the Dodd-Frank Act that do not require a rulemaking but that reference one or more terms regarding swap entities or instruments that the Dodd-Frank Act requires be "further defined" (such as the terms "swap," "swap dealer," "major swap participant," or "eligible contract participant").
Commissioner Scott D. O'Malia said the order "will provide much needed legal certainty to the market, at least until Dec. 31, 2011, while the Commission continues its efforts to adopt final rules under the Dodd-Frank Act." O'Malia also said he was "disappointed in the lack of harmonization between our order and the exemptive relief that the Securities and Exchange Commission provided. I am also disappointed that the final order ignored a number of comments from market participants, those that have most at stake in each of the Commission's decisions. I hope that this order does not foreshadow the direction of final rulemakings to come."
The CFTC listed the provisions subject to the exemption in the appendix to the Commission's order.
In the second part of the order the CFTC provided relief from certain provisions of the CEA that will or may apply to certain agreements, contracts, and transactions in exempt or excluded commodities (generally, financial, energy and metals commodities) as a result of the repeal of various CEA exemptions and exclusions by the Dodd-Frank Act as of Saturday. This exemption is based on the CFTC's existing "Part 35" exemption for swap agreements, but will be available for certain agreements, contracts, and transactions that may not otherwise qualify under those rules (for example, if they are cleared). This exemption also is temporary, and shall expire upon the earlier of the Commission's repeal or withdrawal of Part 35, or Dec. 31, 2011.
The temporary exemptions issued Thursday are subject to several important conditions, including no:
The CFTC will be considering four final rules and one proposed rule in an open meeting on July 19. These include:
The CFTC, jointly with the Securities and Exchange Commission, has issued two notices of proposed rulemaking to further define these terms, but these final rulemakings will not be in place as of Saturday.
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