Better late than never. Last week the CFTC provided a no-action letter recommending that the Commission does not enforce the requirement for inter-affiliate swap reporting under Part 45 governing Swap Data Repository (SDR) rules. Under these rules, a non-financial corporate that centralizes its hedging activity by consolidating its group needs into a larger dealer-facing swap is still required to report the subsequent back-to-back intra-group trades to an SDR. Opponents of this rule felt there would be a significant increase in regulatory costs with no perceived benefit in helping to reduce systemic risk or transparency as the grouped trade was being reported by the swap dealer.
The no-action letter means that the Division of Market Oversight and Division of Clearing and Risk will not enforce this reporting but the rule still stands. So I guess it’s like jaywalking, where in some states in the U.S. it’s against the law to cross the street in the middle of the road instead of at the cross walk, but you won’t get fined for it. Of course it would have been nice to have an exemptive order to make it clear and permanent, but perhaps that can come later.
So slowly, but surely, non-financial end-users are getting out of what should never have been in Dodd-Frank to begin with, such as the end-user clearing requirement. The main outstanding item impacting end-users is the margin requirement that still stands for un-cleared bilateral trades with swap dealers. This may largely fall out of the CFTC’s jurisdiction as the Fed or other prudential regulators govern the swap dealers that are banks, and they want to protect the financial system by having all swaps covered by margin either through exchanges, clearing or in the un-cleared world.