United States: CFTC Provides Dealer Registration Relief For Transactions With Multilateral Institutions

The CFTC Division of Swap Dealer and Intermediary Oversight ("DSIO") granted relief to non-U.S. persons entering into swaps with multilateral institutions for purposes of determining whether registration as "swap dealers" or "major swap participants" is required.

Under the terms of the letter, a non-U.S. person that is neither a guaranteed affiliate nor the conduit affiliate of a U.S. person (as such terms are used in the CFTC cross-border guidance) would not need to count, for purposes of determining whether it must register as a swap dealer or major swap participant, swaps with entities that are identified as "international financial institutions" ("IFIs") in the letter.

The DSIO noted that the relief is consistent with previous CFTC treatment of IFIs for purposes of foreign futures and options transactions, the swap dealer definition, and mandatory clearing.

Commentary / NihalPatel

Though the letter does not explicitly say so, it essentially reverses, in part, a determination made in the Cross-Border Guidance. In the guidance, the CFTC noted that SIFMA specifically requested that "supranational organizations, such as the World Bank and International Monetary Fund" be excluded from the interpretation of "U.S. person." The CFTC did not provide such an exclusion. Instead, the CFTC, in footnotes 531 and 598 of the guidance, indicated that it "generally would not expect" compliance with "transaction-level" requirements for IFIs. Essentially, the CFTC provided that IFIs could be U.S. persons, but, if they were, (generally) only some of the relevant requirements would apply.

Given that the CFTC goes out of its way to explain that this relief is consistent with its past practice and approach in others areas of swap regulation, the question to be asked is: Why are IFIs treated as ordinary U.S. persons for any other purposes? The number of exceptions to the "general" rule is adding up. The better approach would be to create a rule tailored to the particular areas where the CFTC wants IFIs to be subject to regulatory requirements. For example, is there a substantial CFTC interest in having non-U.S. swap dealers report data on transactions with IFIs?

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