By Andrew Cross and Crystal Travanti
OVERVIEW
The CFTC recently issued no-action relief from certain swap data reporting requirements for swaps entered into between affiliated counterparties. The relief is conditioned upon several factors, which we have summarized in greater detail in the table below.
In general, Letter 13-09 grants relief from: historical swap reporting (Part 46); "regular" swap reporting under Part 45 for swaps entered into on or after April 10, 2013; and reporting requirements under the end-user exception (Part 50). The following is a list of the specific regulatory reporting requirements for which Letter 13-09 grants relief:
- CFTC Rule 45.3(d)(1) - Primary economic terms data reporting
- CFTC Rule 45.3(d)(3) - Confirmation data reporting
- CFTC Rule 45.4(c)(1)(ii) - Life cycle event and state data reporting
- CFTC Rule 45.4(c)(2)(ii) - Current daily mark valuation reporting
- CFTC Rule 45.5 - Unique swap identifier requirements
- CFTC Rule 46.3(a) - Reporting of historical swaps in existence on or after 4/25/2011
- CFTC Rule 46.3(b) - Reporting of historical swaps expired or terminated prior to 4/25/2011
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CFTC Rule 50.50 - Reporting of swaps for which end-user exception central clearing has been claimed
Additionally, it is important to note that the no-action relief granted for swaps that involve wholly-owned subsidiaries differs from the relief granted for swaps that involve majority-owned subsidiaries.
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By way of prime example, in the majority-owned subsidiary context, there is a new quarterly reporting requirement, whereby a non-SD/non-MSP reporting counterparty relying on the Letter 13-09 relief must report all swap data to a swap data repository ("SDR") no later than 30 days following the end of each fiscal quarter. This new quarterly reporting requirement will commence on June 30, 2013. |
Under Letter 13-09, the relief is available where the affiliation arises by virtue of either:
1) A parent-subsidiary relationship between the affiliates; or
2) A brother-sister relationship (i.e., common parent relationship) between the affiliates.
In either case, the affiliation can be direct or indirect. Finally, the relief granted in Letter 13-09 does not apply to any swaps for which the affiliated counterparties have elected to claim the inter-affiliate exemption from central clearing pursuant to CFTC Rule 50.52.
SUMMARY OF RELIEF GRANTED UNDER LETTER 13-09: PART 45, PART 46 & PART 50
In this section of the posting, we will provide a more detailed summary of the specific relief granted under Letter 13-09. To facilitate a "snapshot view" of that letter, we have prepared a table that summarizes the conditions of the relief in respect of the Part 45 and Part 50 reporting requirements listed above - we address Part 46 in the final paragraph that immediately follows the table.
| CONDITION |
APPLICABILITY TO AFFILIATION BASED ON WHOLLY-OWNED SUBSIDIARY RELATIONSHIP |
APPLICABILITY TO AFFILIATION BASED ON MAJORITY-OWNERSHIP RELATIONSHIP |
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Affiliates must report financial results on a consolidated basis in accordance with GAAP/IFRS |
APPLIES There must be 100% ownership of equity securities of the affiliate(s) or, if partnership affiliate(s), |
APPLIES There must be majority ownership of equity securities of the affiliate(s) or, if partnership affiliate(s), |
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Neither affiliate may be: 1) A SD or MSP; 2) Affiliated with a SD or MSP; or 3) Affiliated with a financial company that has been designated as systemically important FSOC under Title I of the Dodd-Frank Act |
APPLIES | APPLIES |
| Swap may not be executed on a SEF or futures exchange | APPLIES | APPLIES |
| Swap may not be submitted for central clearing | APPLIES | APPLIES |
| Affiliated counterparties may not elect the inter-affiliate clearing exemption under CFTC Rule 50.52 | APPLIES | APPLIES |
| Swaps between one of the affiliates and an unaffiliated counterparty must be reported pursuant to Parts 43, 45 & 46 |
APPLIES This condition applies without regard to the location of the affiliate. So, in other words, a foreign affiliate relying on the relief in Letter 13-09 would appear to be required to report all of its swaps with unaffiliated counterparties |
APPLIES This condition applies without regard to the location of the affiliate. So, in other words, a foreign affiliate relying on the relief in Letter 13-09 would appear to be required to report all of its swaps with unaffiliated counterparties |
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For each swap entered into on or after April 10, 2013, records required by Part 45 must be maintained and made available to CFTC upon request As part of recordkeeping requirement, an internally generated swap identifier (a unique alphanumeric code) must be assigned to each swap subject to the relief |
APPLIES | APPLIES |
| Swap must not be subject to real-time reporting under Part 43 |
DOES NOT APPLY |
APPLIES |
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Report swap data required by Part 45 to an SDR on a quarterly basis (beginning with the first fiscal quarter ending on or after 6/30/2013) |
DOES NOT APPLY |
APPLIES |
Finally, with respect to Part 46, the CFTC clarified that a reporting counterparty must satisfy the conditions summarized in the first four rows of the table. Furthermore, any such reporting counterparty must adhere to the recordkeeping requirements of the Part 46 rules.
Good day. Good relief. TSR