The CFTC and NFA Offer No-Action Relief to Market Participants Facing Unprecedented Conditions Posed by the COVID-19 Pandemic
On March 17, 2020, the CFTC provided market participants with temporary no-action relief from compliance with certain regulatory requirements that have become very difficult or impossible to comply with in light of the COVID-19 pandemic and the displacement of registrant personnel from their usual business sites due to social distancing and other precautionary measures. While registrant firms are implementing their Business Continuity/Disaster Relief Plans, both the Division of Swap dealer and Intermediary Oversight (DSIO) and the Division of Market Oversights (DMO) issued no action letters providing temporary relief to market participants from certain regulatory requirements subject to the conditions expressly set forth in the letters. The following day, the NFA joined the CFTC and provided temporary no-action relief to its members from the corresponding NFA rules. Best practices dictate that, when in doubt, communicate with regulators.
DSIO — Temporary No-Action Relief for FCMs, IBs, Swap Dealers, Retail FX Dealers, Floor Brokers, DCMs and SEFs[1]
DSIO will refrain from recommending enforcement actions for failure to comply with the following regulations subject to the conditions set forth in the letters being met. The no-action relief applies through June 30, 2020.
Recording of Oral Communications pursuant to CFTC Regulation 1.35.[2] DSIO has granted temporary no-action relief to FCMs, IBs, Swap Dealers, Retail FX Dealers and Floor Brokers from the requirement of recording of oral communications related to voice trading if the personnel required to use recorded lines are required to be absent from their normal business site provided that: (A) a written record of the oral communication is created (including date, time, participants and subject matter) and maintained as a written communication in accordance with Commission Regulation 1.35; and (B) the registrant takes affirmative steps to collect any written materials pertaining to the content of the oral communication and maintains them in its required books and records pursuant to Commission Regulation 1.31.
Time-Stamps pursuant to CFTC Regulation 1.35, 5.18 or 155.3.[3] DSIO has granted temporary no-action relief to FCMs, IBs, Swap Dealers, Retail FX Dealers, Floor Brokers, DCMs and SEFs from the requirement to record the date and time by time-stamp if the personnel responsible for making such records are required to be absent from their normal business site provided that a record of the date and time, to the nearest minute, is otherwise created and maintained in accordance with CFTC Regulation 1.35, 5.18, or 155.3, respectively.
Chief Compliance Officer Annual Reports to the Commission pursuant to CFTC Regulation 3.3.[4] DSIO has granted FCMs, IBs, and Swap Dealers a 30-day extension of time to furnish annual compliance reports to the CFTC for all reports required to be provided to the CFTC before September 1, 2020.
Location and IB Registration pursuant to CFTC Regulation 1.3.[5] DSIO has granted no-action relief from the requirement that Floor Brokers be physically located on the premises of a contract market if the Floor Broker is required by the contract market’s business continuity plan to be absent. Such absent Floor Brokers are not required to register as introducing brokers.
DMO — Temporary No-Action Relief for Certain DCMs and SEFs[6]
DMO will not recommend enforcement actions against SEFs and certain DCMs for failure to comply with the following regulations subject to the conditions set forth in the letters being met. The no-action relief applies through June 30, 2020.
Swap Execution Facilities. DMO is providing targeted no-action relief to SEFs, but warns that SEFs “are expected to establish and maintain a supervisory system that is reasonably designed to supervise the activities of personnel while acting from the remote locations” during the pandemic. DMO further advised that it expects that as COVID-19-related risks decrease, SEFs will return to compliance with all regulations.[7]
DMO has granted temporary no-action relief to SEFs from the CFTC regulations requiring recording of oral communications related to voice trading that will make them unable to comply with certain audit trail requirements, recordkeeping requirements related to maintaining a complete audit trail, and monitoring requirements related to audit trail reconstruction.[8] The relief is subject to the following conditions:
- Voice communications are continued to be recorded at the normal business sites;
- The offsite voice trading personnel create written or electronic records of unrecorded oral communications (including date, time, participants, and subject matter) as soon as practicable after the communication;
- The terms of all transactions executed on the SEF continue to be captured and recorded on the SEF systems;
- Orders entered into the trading facility or platform will be retained in the SEF’s normal electronic audit trail and subject to credit and risk filters;
- Relief from 37.400(b) is limited to instances where the SEF cannot in-person real-time monitor voice trading personnel;
- Requirements of 37.1000(a)(1) and 37.1001 will continue to apply except the requirement requiring a complete audit trail; and
- Record retention requirements under 37.1000(a)(1) and 37.1001 will continue to apply to all trading activity records.
DMO also has granted SEFs a 60-day extension of time to furnish annual compliance reports and the fourth fiscal quarter financial report to the CFTC for all reports required to be provided to the CFTC before September 1, 2020.[9]
Designated Contract Markets. DMO is providing targeted no-action relief to certain DCMs, but warns that, as COVID-19-related risks decrease, the DCMs are expected to comply with all regulations.[10] DMO has granted no-action relief from the audit trail and related requirements pursuant to CEA sections 5(d)(4) and (10), and regulation promulgated thereunder, to the extent that the non-compliance results from COVID-19–related displacement of affected market participants from an exchange’s trading floor and/or other designated premises from which customer orders may be placed. The relief is subject to the following conditions:
- The DCMs require affected market participants to conduct customer nosiness in accordance with exchange rules applicable to the trading floor or in compliance with the no-action relief granted by DSIO (as set forth above);
- Orders entered into the trading platform will be retained in the DCM system’s normal electronic audit trail and subject to credit and risk filters; and
- All other exchange rules will continue to apply to affected market participant trading activity.
NFA — Temporary No-Action Relief for FCM, Forex Dealer, Swap Dealer and IB Members[11]
Joining the CFTC, on March 18, 2020 the NFA issued temporary no-action relief from similar NFA recordkeeping requirements (timestamping and recording oral communications) provided that the members comply with the terms of the CFTC’s March 17, 2020 no-action letters. NFA is also extending by 30 days the time for FCMs, Swap Dealers and Forex Dealers to provide NFA with a copy of the CCO Annual Report for all reports due before September 30, 2020.
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Mintz will continue to monitor regulatory developments in light of COVID-19 and will provide further updates. If you have any questions, please contact your attorney at Mintz or one of the authors.
Endnotes
1 CFTC Release No. 8132-20 (Mar. 17, 2020) available at https://www.cftc.gov/PressRoom/PressReleases/8132-20.
2 CFTC Letter Nos. 20-03, 20-04, 20-05, 20-06 (Mar. 17, 2020).
3 CFTC Letter Nos. 20-02, 20-03, 3, 20-04, 20-05, 20-06 (Mar. 17, 2020).
4 CFTC Letter Nos. 20-03, 20-06 (Mar. 17, 2020).
5 CFTC Letter No. 20-04 (Mar. 17, 2020).
6 CFTC Release No. 8133-20 (Mar. 17, 2020) available at https://www.cftc.gov/PressRoom/PressReleases/8133-20.
7 CFTC Letter No. 20-07 No-Action (Mar. 17, 2020).
8 CFTC Regulations 37.205(a)-(b), 37.400(b), 37.406, 37.1000(a)(1) and 37.1001.
9 CFTC Letter No. 20-08 No-Action (Mar. 17, 2020).
10 CFTC Letter No. 20-09 No-Action (Mar. 17, 2020).
11 NFA Notice to Members 1-20-13 (Mar. 18, 2020) available at https://www.nfa.futures.org/news/newsNotice.asp?ArticleID=5216.
Authors
Therese M. Doherty
Member / Co-Chair, Financial Services Practice
