On April 10, 2020 the Commodity Futures Trading Commission ( the “CFTC” or the “Commission”) extended certain currently-open comment periods for several pending proposed rules in light of the COVID-19 pandemic. The Commission completed voting to adopt the relatively short extensions on Thursday, April 9. The measure passed by a final tally of 3-2, with both the Democratic commissioners dissenting on the basis that the extensions were too short, making them meaningless. Of the extensions, Chairman Heath P. Tarbert said “[t]hese extensions reflect my commitment to providing market participants with additional flexibility during this pandemic. Commenters on recently proposed rules will now have at least 90 days, and in many cases more, to provide feedback that we value tremendously as we seek to finalize rules.”
After consultation with market participants, in order to identify relief and assistance that would support orderly and liquid markets, the Division of Market Oversight (“DMO”) sought to extend the comment period for the five proposed rules discussed below. The extensions are applicable to rules proposed by DMO with comment periods that began in January and February of 2020. Extensions were approved to allow the comment periods for all the proposed rules relating to swap data reporting to terminate on the same date – May 22, 2020.
- Position Limits for Derivatives – This rule was originally proposed on January 30, 2020 with a closing date for comments set for April 29, 2020. The comment period has been extended by roughly two weeks to May 15, 2020. The proposal applies speculative position limits to a wider range of contracts than the nine agricultural contracts currently subject to federal position limits. It also provides additional exemptions from such limits, including expansion of the bona fide hedging exemption. Previously the CFTC interpreted the Dodd-Frank Act to require limits on all physical commodity futures contracts and economically equivalent swaps, obviating the need for a “necessity” finding. Therefore the proposal represents a significant departure from the CFTC’s previous attempts at implementing position limits rules. Covington’s client alert on the proposal can be found here.
- Swap Execution Facility Requirements and Real-Time Reporting Requirements – As with the position limits rule, this proposal was originally proposed on January 30, 2020 with a closing date for comments set for April 29, 2020. This comment period has also been extended to May 22, 2020. The proposal addresses certain issues pertaining to the CFTC’s SEF rules that were identified in letters granting no-action relief and, in many cases, codifies such relief. Topics covered include error trades, block trades, and the execution of package transactions. Overall, the proposal represents a pared down version of previous CFTC Chairman Giancarlo’s proposal to overhaul SEF trading.. The original proposal received substantial industry opposition.
- Certain Swap Data Repository and Data Reporting Requirements – On February 20, 2020, the CFTC re-opened the comment period for this rule, which was first published in the Federal Register on May 13, 2019. The comment period was set to end on May 20, 2020, but has been extended by two days to May 22, 2020. The proposed rule amends Part 49 to update requirements to verify swap data with reporting counter parties, update requirements to correct swap data errors and omissions, and update and clarify certain Swap Data Repository (“SDR”) operational and governance requirements. Part 49 governs SDR registration requirements, SDR operational duties, and the Commission’s oversight over SDRs generally.
- Amendments to Real-Time Public Reporting Requirements – This proposal was originally released on February 20, 2020, with the comment period scheduled to close on May 20, 2020. The comment period has been extended two days to May 22, 2020. The proposed amendments to Part 43, real-time public reporting requirements, span 223 pages, revealing both the breadth and depth of the issues the Commission has committed to addressing with this proposed rule. A key feature of this proposal is the delay in reporting for block trades. In 2011, in its Dodd-Frank implementing regulations, the CFTC settled on phasing-in a 15 minute delay for most block or large notional trades. The proposed rule increases such delay to 48 hours. However, the proposal also tweaks the definition for block trades, resulting in fewer transactions qualifying for such 48 hour delay.
- Amendments to the Swap Data Record-keeping and Reporting Requirements – As with the other rule proposals relating to swap data reporting, this proposal was originally released on February 20, 2020, with the comment period scheduled to close on May 20, 2020. The comment period has again been extended two days to May 22, 2020. The thrust of the proposal is to streamline and simplify Part 45. Part 45 governs regulatory reporting, swap data reporting that is sent to an SDR and not publicly disseminated. The proposal includes a technical specification that identifies 116 standardized data fields that will help replace fields now in use by SDRs. The proposal also removes the current “catch-all” reporting requirement to report “any other term(s) of the swap matched or affirmed” by the counter parties.
The Futures and Derivatives team at Covington, with its experience and expertise in these markets and before the CFTC, is well-positioned to assist clients in drafting and submitting comments, as well as engaging the Commission on the substance of these proposed rules as they applies to each participant’s unique circumstances.