Tuesday, April 2, 2013

CFTC Finalizes Important Exemption for Inter-Affiliate Swaps

Author: David Schwartz J.D. CPA
The Commodities Futures Trading Commission may have chosen April Fools' Day to approve an important exemption for inter-affiliate swaps transactions, but exemption is no joke. It provides some much needed relief from a perceived flaw in the new swaps regime under Dodd-Frank. The Dodd-Frank legislation amended the Commodity Exchange Act to require clearing of any and all swaps the CFTC determined should be subject to mandatory clearing, but provided no exemption for transactions between affiliates. Inter-affiliate swaps serve some vital business purposes and pose significantly fewer risks than swaps transactions between unaffiliated investors. For this reason, financial institutions have been urging the CFTC to grant them the option to opt out of mandatory clearing requirements for this fairly narrow kind of transactions. Applying the clearing requirement to every inter-affiliate transaction, they argued, made little sense under the circumstances, and thus was an unnecessary burden. The CFTC obliged initially with some temporary exemptive orders, and in August 2012 proposed to make this temporary relief more permanent. On April 1, 2013, the CFTC approved an order making the previously temporary relief permanent.
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