In determination letter 21-03, Market Participants Division staff approved a swap dealer capital model proposal from the National Futures Association (“NFA”). And the Market Participants Division joined the Division of Market Oversight to release two no-action letters extending record keeping relief for floor brokers, introducing brokers, and futures commission merchants on designated contract markets.
The Commodity Futures Trading Commission (“CFTC”) delegated authority to the Market Participants Division for determining that a review process for swap dealer internal capital models are comparable to those under the CFTC’s rules. Swap dealers are required to calculate exposure to market risk and credit risk when demanding margin. If a swap dealer wants to use internal models to calculate that exposure and related margin demands, it needs approval from the CFTC or a “registered futures association of which the swap dealer is a member”. (17 CFR 23.102(a)). This Market Participants Division approval of the NFA’s proposed review process for swap dealer’s internal exposure modeling via letter 21-03 permits swap dealers to gain approval for internal modeling faster and increases the potential impact of NFA examinations on swap dealers.
In no-action letters 21-04 and 21-05 from the Market Participants Division and the Division of Market Oversight, CFTC staff extended recordkeeping relief. To permit remote work in 2020’s response to the COVID-19 pandemic, the CFTC staff issued no-action letters permitting floor brokers and introducing brokers to keep written records of oral communications rather than recording those communications. Further, the CFTC staff gave designated contract markets analogous recordkeeping relief. In 2020 the CFTC staff also gave no-action relief to floor brokers, futures commission merchants, and introducing brokers from time-stamping orders that couldn’t be “immediately entered into a trade matching engine”. The fourth and fifth letters from CFTC staff in 2021 extend that relief.
In its fourth no-action letter of 2021, CFTC staff states it won’t recommend enforcement action for failures to record oral communications until March 31, 2021 if written records are maintained and collected and all other designated contract market rules are followed. However, CFTC staff warns that it doesn’t expect to extend this relief again. Expect floor brokers, introducing brokers, and designated contract markets to promptly invest in recording remote workers’ client communications and retaining those recordings.
Similarly, in its fifth no-action letter of 2021, CFTC staff extends no-action relief until April 15, 2021 for futures commission merchants, introducing brokers, and floor brokers from time-stamping customer orders that cannot be entered into a trade-matching engine immediately upon receipt. Again, however, the CFTC staff cautions that if you rely on this no-action relief you must document your attempts to create time-stamping systems.
Thematically, these CFTC staff letters urge back-office development of compliance systems that meet regulatory requirements no matter where work happens.