At an open meeting, the CFTC voted to reopen the comment period on proposed swap dealer capital rules and approved a proposal that would implement an alternative compliance framework for the inter-affiliate swaps clearing exemption. The CFTC also finalized amendments to agency rulemaking procedures and proposed a rule on settlements in enforcement matters.

Swap Dealer Capital. In a 3-2 vote, the CFTC voted to reopen the comment period for a proposed rule on capital and financial reporting for swaps dealers and major swap participants. The proposal was first published in December 2016. The comment period will be reopened upon, and until 75 days after, publication in the Federal Register.

CFTC Commissioners Dan M. Berkovitz and Rostin Behnam dissented from reopening the comment period, each arguing that the action was like a re-proposal and ran afoul of Administrative Procedure Act requirements. Commissioner Berkovitz stated, "[i]n virtually every instance, the questions and accompanying discussion seek alternatives that would reduce the level of capital required or create greater flexibility for the swap dealers to comply."

Inter-Affiliate Clearing. In a unanimous vote, the CFTC approved a proposal that would implement an alternative compliance framework for the inter-affiliate swaps clearing exemption. According to the CFTC, the proposal would amend CFTC Rule 50.52 to "reinstate the expired alternative compliance frameworks for the inter-affiliate swaps clearing exemption, with minor revisions to reflect the current variation margining practices of affiliated counterparties electing the exemption." The CFTC indicated that the proposal would (i) codify staff no-action letters providing exceptions and (ii) offer the two alternative compliance frameworks to associated entities permanently. Comments on the proposal must be submitted within 60 days following its publication in the Federal Register.

Public Rulemaking Procedures. By unanimous vote, the CFTC agreed to finalize proposed amendments to Part 13 regulations. As previously covered, the proposed amendments would do away with Part 13 regulations "that set forth the procedure for the formulation, amendment, or repeal of rules or regulations." As stated in the proposed regulation, "because the Administrative Procedure Act ("APA") governs the Commission's rulemaking process, the Commission believes that it is unnecessary to codify the rulemaking process in a Commission regulation. Part 13, as amended, will be comprised solely of the procedure for filing petitions for rulemakings as the APA does not address this process."

Settlements in Administrative and Civil Proceedings. CFTC Chair Heath P. Tarbert stated that the CFTC Division of Enforcement will publish an updated enforcement manual. He also said that he will instruct staff not to agree to consent orders that restrict the CFTC or its staff from stating personal views on a case or to put forth settlements that "unduly" restrict a defendant's ability to speak publicly about an enforcement matter.


Nihal Patel

By "reopening" the capital rule comment period, the CFTC is following the SEC lead. The approach raises procedural questions, but as a substantive matter suggests that the CFTC will be looking to finalize the rules in the near future and push away from a proposal that was issued in the final months of former CFTC Chair Timothy Massad's tenure. Based on the CFTC approach, it seems reasonable to expect that the CFTC will finalize capital requirements for swap dealers that are consistent with the SEC rules for security-based swap dealers.

The amendments to the inter-affiliate exception have long been needed. As noted before, Rule 50.52(b) contains provisions that make little sense in light of current market practices, and were conceptually problematic even when adopted.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.