United States: CFTC Proposes Phased Compliance Program For Certain Swaps

Previously published on July 6, 2012.

Keywords: CFTC, cross-border application, Title VII, Dodd-Frank, exemptive order

On June 29, 2012, the US Commodity Futures Trading Commission (the "CFTC") proposed interpretive guidance (the "Proposed Guidance") regarding the cross-border application of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act").1 The same day, the CFTC issued a proposed exemptive order (the "Proposed Exemptive Order") that, if adopted, would implement temporary exemptions for certain swap regulations and give the CFTC time to finalize and implement the principles established in the Proposed Guidance.2 In brief, the Proposed Exemptive Order would provide swap dealers and major swap participants ("MSPs") that are subject to CFTC registration with temporary relief from certain "Entity-Level Requirements" (defined below) under the Commodity Exchange Act ("CEA"), as amended by the Dodd-Frank Act.3 The Proposed Exemptive Order would also grant non-US swap dealers and MSPs, as well as non-US branches of US swap dealers and MSPs, temporary relief from applicable "Transaction-Level Requirements" (defined below) with respect to transactions with non-US counterparties so long as these swap dealers, MSPs and branches comply with applicable non-US law. The Proposed Exemptive Order adopts key definitions from the Proposed Guidance US person, Entity-Level Requirements, and Transaction-Level Requirements and should be read in light of the interpretive positions expressed by the CFTC in the Proposed Guidance.

We identify and summarize below key aspects of the Proposed Exemptive Order, including page references to the version posted on the CFTC's website. Comments on the Proposed Exemptive Order are due 30 days after its publication in the Federal Register (whereas comments will be due on the Proposed Guidance 45 days after its publication in the Federal Register). Both the Proposed Guidance and the Proposed Exemptive Order are expected to be published shortly.

Entity-Level Requirements

As defined in the Proposed Guidance, Entity-Level Requirements are those requirements that apply to a swap dealer or MSP on a firm-wide basis and relate to: (i) capital adequacy; (ii) designation of a chief compliance officer; (iii) risk management; (iv) swap data recordkeeping; (v) swap data reporting ("SDR Reporting"); and (vi) physical commodity swaps reporting ("Large Trader Reporting") (see pages 14-20 of the Proposed Exemptive Order).

Delayed Compliance for Non-US Swap Dealers and MSPs

For non-US swap dealers and MSPs that are not affiliated with a US swap dealer:

  • If engaging in swaps with non-US counterparties, there is a 12 month exemption from all Entity-Level Requirements;4
  • If engaging in swaps with US counterparties, there is a 12 month exemption from Entity-Level Requirements other than SDR Reporting and Large Trader Reporting requirements.

For non-US swap dealers and MSPs that are affiliated with a US swap dealer, there is a 12 month exemption from Entity-Level Requirements other than SDR Reporting and Large Trader Reporting requirements for all swaps (with US or non-US counterparties).5

Non-US swap dealers and MSPs wishing to avail themselves of an Entity-Level Requirements exemption must:

  • apply to become registered (as a swap dealer or MSP) when registration is required; and
  • within 60 days of applying for registration, submit to the National Futures Association (the "NFA") a compliance plan addressing how they plan to comply with all applicable Entity-Level Requirements and Transaction-Level Requirements, including any comparability determinations they may seek (see pages 7-9 and 32-35).6

Delayed Compliance for US Swap Dealers and MSPs

The Proposed Order also would grant US swap dealers and MSPs additional time to prepare for the application of Entity-Level Requirements, except with respect to swap data recordkeeping, SDR Reporting and Large Trader Reporting requirements. This limited, temporary relief for US swap dealers and MSPs would be effective until January 1, 2013 (see page 34).

Transaction-Level Requirements

As defined in the Proposed Guidance, Transaction-Level Requirements relate to individual swap transactions and include requirements for: (i) clearing and swap processing; (ii) margining and segregation for uncleared swaps; (iii) trade execution; (iv) swap trading relationship documentation; (v) portfolio reconciliation and compression; (vi) real-time public reporting; (vii) trade confirmation; (viii) daily trading records; and (ix) external business conduct standards (see pages 20-24).

The Proposed Exemptive Order would grant a 12-month exemption from the Transaction-Level Requirements applicable to non-US swap dealers and MSPs, as well as those applicable to non-US branches of US swap dealers and MSPs, for swaps with a non-US counterparty provided that these non-US persons comply with applicable regulations in their home jurisdiction (or in the case of non-US branches of a US swap dealer or MSP, the non-US location of the branch) (see pages 7-8, 33-5).7 For swaps with a US counterparty, however, these non-US persons would be required to comply with all applicable Transaction-Level Requirements (see pages 33 and 34).8 

Learn more about our Financial Services Regulatory & Enforcement and Derivatives & Structured Products practices.


1. A copy of the Proposed Guidance is available from the CFTC website at http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/federalregister062912.pdf. Our Legal Update analyzing the Proposed Guidance is available at http://www.mayerbrown.com/Proposed-CFTC-Guidance-Regarding-the-Cross-Border-Application-of-US-Swaps-Regulations-07-02-2012/.

2. A copy of the Proposed Exemptive Order is available from the CFTC website at http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/federalregister062912b.pdf

3. As described herein, the exemptive relief from Entity-Level Requirements would be broader for non-US swap dealers and MSPs than for US swap dealers and MSPs. For purposes of this legal update, the modifier "non-US" will apply to persons, including legal entities, that are not "US persons" as that term is interpreted under the Proposed Guidance.

4. Except where noted otherwise, all exemptive periods described in this legal update would run from the date upon which swap dealers and MSPs must first apply for registration until 12 months following the publication of the Proposed Exemptive Order in the Federal Register.

5. Upon their respective effective dates and without an exemption under the Proposed Exemptive Order, the SDR Reporting and Large Trader Reporting requirements would therefore apply not only to the non-US affiliates of US banks that register as swap dealers but also to the non-US affiliates of non-US banks that register a US subsidiary as a swap dealer. 

6. Compliance plans should be updated periodically, as appropriate, and resubmitted to the NFA upon modification. In the Proposed Guidance, the CFTC indicates that it will seek to make any comparability determinations within the 12 month phase-in period with respect to Entity-Level Requirements.

7. The burden of applicable Transaction-Related Requirements varies based on the types of transactions and parties. For example, there effectively are no Transaction-Level Requirements applicable to transactions between a non-US swap dealer or MSP with a non-US counterparty unless that non-US counterparty is a conduit to, or guaranteed by, a US person. Accordingly, the utility of the exemption is correspondingly variable.

8. Consistent with the Proposed Guidance and for purposes of the Proposed Exemptive Order, a non-US branch of a US person is deemed a US person (that is, a part of a US person). Therefore the CFTC states that swaps entered into between a non-US branch of a US person with another non-US branch of a US person would be subject to Transaction-Level Requirements. On page 8, the CFTC requests comments on whether substituted compliance should be permitted for such swaps, allowing non-US branches to comply only with the regulations of the non-US location of the branches.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2012. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions