Time-Limited No-Action Relief for Certain Swap Dealers from Compliance with the Requirements of Commission Regulation 3.3 Relating to Annual Reports by Chief Compliance Officers

Summary: Time-Limited No-Action Relief for Certain Swap Dealers from Compliance with the Requirements of Commission Regulation 3.3 Relating to Annual Reports by Chief Compliance Officers

U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-5977

Facsimile: (202) 418-5407

gbarnett@cftc.gov

Division of Swap Dealer and

Intermediary Oversight

Gary Barnett

Director

CFTC Letter No. 13-85

No-Action

December 30, 2013

Division of Swap Dealer and Intermediary Oversight

Re:

Time-Limited No-Action Relief for Certain Swap Dealers from Compliance with the

Requirements of Commission Regulation 3.3 Relating to Annual Reports by Chief

Compliance Officers

Ladies and Gentlemen:

This letter is in response to a letter, dated December 23, 2013, to the Division of Swap

Dealer and Intermediary Oversight (“Division”) of the Commodity Futures Trading Commission

(“Commission”) from Davis Polk & Wardwell, LLP (“DavisPolk”) requesting no-action relief

from Commission Regulation 3.31 for swap dealers (“SDs”) that: (1) are not required, prior to

December 31, 2013, to register with the Commission as SDs; and (2) have a fiscal year-end of

December 31, 2013 (“Covered Firms”). Specifically, DavisPolk seeks relief from the

requirement that the chief compliance officer (“CCO”) of a Covered Firm prepare an Annual

Report, and furnish such Report to the Commission, for the fiscal year that ends on December

31, 2013.

Regulatory Background

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-

Frank Act”),2 in relevant part, added section 1a(49) to the Commodity Exchange Act (“CEA”),

which defined the term “swap dealer” for purposes of the CEA

a Covered Firm prepare an Annual

Report, and furnish such Report to the Commission, for the fiscal year that ends on December

31, 2013.

Regulatory Background

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-

Frank Act”),2 in relevant part, added section 1a(49) to the Commodity Exchange Act (“CEA”),

which defined the term “swap dealer” for purposes of the CEA. On April 18, 2012, the

Commission, jointly with the Securities and Exchange Commission, issued final rules to further

define “swap dealer,” among other terms.3 Included in the final rule release was Regulation

1.3(ggg)(4)(i), which provides that a person shall not be deemed to be an SD if the aggregate

gross notional amount of their swap dealing activity falls below certain thresholds. Further,

pursuant to Regulation 1.3(ggg)(4)(iii), a person whose aggregate gross notional amount of swap

dealing activity exceeds any applicable threshold must register as an SD no later than “two

months after the end of the month in which that person becomes no longer able to take advantage

1 17 CFR 3.3.

2 Pub. L. No. 111-203, 124 Stat. 1376 (2010).

3 Further Definition of “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap Participant,” “Major Security-

Based Swap Participant,” and “Eligible Contract Participant,” 77 Fed. Reg. 30,596, 30,744 (May 23, 2012).

Davis Polk

Chief Compliance Officer Annual Reports

Page 2

of the [de minimis] exception.”4 Consequently, any person whose aggregate gross notional

amount of swap dealing activity exceeded an applicable threshold in October 2013 will be

required to register as an SD by December 31, 2013.

Section 731 of the Dodd-Frank Act, in relevant part, added section 4s(k) to the CEA,5

which requires each SD and major swap participant to designate an individual to serve as its

CCO

exception.”4 Consequently, any person whose aggregate gross notional

amount of swap dealing activity exceeded an applicable threshold in October 2013 will be

required to register as an SD by December 31, 2013.

Section 731 of the Dodd-Frank Act, in relevant part, added section 4s(k) to the CEA,5

which requires each SD and major swap participant to designate an individual to serve as its

CCO. Section 4s(k) requires that CCOs perform certain duties and responsibilities, including the

preparation of an Annual Report “in accordance with rules prescribed by the Commission.”6

To implement that statutory provision, the Commission promulgated Commission

Regulation 3.3, which, among other things, requires the designation of a CCO meeting certain

qualifications and sets forth the duties and responsibilities of a CCO.7 One of the responsibilities

of a CCO is to prepare and sign an Annual Report.8 The Annual Report must cover the most

recently completed fiscal year of the SD, and at a minimum, must contain the information

enumerated in Commission Regulation 3.3, including a certification by the CCO or chief

executive officer.9

An Annual Report submitted by a Covered Firm for fiscal year 2013 will be of limited

value to the Commission. The time period that would be covered in the Annual Report would

total, at most, a single day (December 31, 2013) for Covered Firms that are required to register

by, and become registered on, December 31, 2013. Moreover, each Covered Firm will be

required to submit to the National Futures Association, as part of the registration process, the

policies and procedures of the Covered Firm establishing its compliance with the CEA and

Commission Regulations. The adequacy and content of such policies and procedures, and the

Covered Firm’s compliance therewith, represent major components of the Annual Report

oreover, each Covered Firm will be

required to submit to the National Futures Association, as part of the registration process, the

policies and procedures of the Covered Firm establishing its compliance with the CEA and

Commission Regulations. The adequacy and content of such policies and procedures, and the

Covered Firm’s compliance therewith, represent major components of the Annual Report.

Time-Limited No-Action Relief Granted

Based on the foregoing and the information provided by DavisPolk, the Division will not

recommend that the Commission take an enforcement action against a Covered Firm, or a CCO

of a Covered Firm, for failing to prepare an Annual Report and furnish such Report to the

Commission for the fiscal year that ends on December 31, 2013. This no-action relief is limited

to the Annual Report required to be furnished by a Covered Firm to the Commission for the

fiscal year that ends on December 31, 2013.

4 See 17 CFR 23.21 (Commission regulation requiring the registration of SDs and major swap participants).

5 7 U.S.C. § 1 et seq.

6 7 U.S.C. § 4s(k)(3).

7 Commission Regulation 3.3 is applicable to futures commission merchants and major swap participants, in

addition to SDs. The relief provided in this no-action letter is not applicable to futures commission merchants and

major swap participants; thus, such firms are not discussed herein.

8 17 CFR 3.3(d)(6).

9 17 CFR 3.3(f)(3).

participants).

5 7 U.S.C. § 1 et seq.

6 7 U.S.C. § 4s(k)(3).

7 Commission Regulation 3.3 is applicable to futures commission merchants and major swap participants, in

addition to SDs. The relief provided in this no-action letter is not applicable to futures commission merchants and

major swap participants; thus, such firms are not discussed herein.

8 17 CFR 3.3(d)(6).

9 17 CFR 3.3(f)(3).

Davis Polk

Chief Compliance Officer Annual Reports

Page 3

This letter, and the positions taken herein, represent the view of the Division only, and do

not necessarily represent the position or view of the Commission or of any other office or

division of the Commission. The relief issued by this letter does not excuse persons relying on it

from compliance with any other applicable requirements contained in the Act or in the

Regulations issued thereunder. Further, this letter, and the relief contained herein, is based upon

the representations made to the Division. Any different, changed or omitted material facts or

circumstances might render this no-action relief void.

Should you have any questions, please do not hesitate to contact Frank Fisanich, Chief

Counsel, at 202-418-5949, Ward Griffin, Associate Chief Counsel, at 202-418-5425, or Marcia

Blase, Special Counsel, at 202-418-5138.

Very truly yours,

Gary Barnett

Director

Division of Swap Dealer and Intermediary Oversight

cc:

Regina Thoele, Compliance

National Futures Association, Chicago

Jamila A. Piracci, OTC Derivatives

National Futures Association, New York