Statement of Commissioner Summer K. Mersinger on Revision and Extension of Staff No-Action Positions for Swaps Intended to be Cleared
February 02, 2023
I support the revised and extended staff no-action relief regarding swaps intended to be cleared (“No-Action Relief”). This expanded No-Action Relief appropriately recognizes the developments in the cleared swaps market in the decade following the issuance of the existing no-action positions in 2013, including the Commission’s issuance of exemptions from registration to certain non-US clearing organizations and swap execution facilities as provided for in the Commodity Exchange Act (“CEA”).[1] This approach facilitates the efficient use of cleared swaps and furthers our mandate to recognize comparable, comprehensive supervision and regulation of derivatives market infrastructure providers in other countries.[2]
However, I am concerned that this staff relief has been on the books for almost a decade without becoming the subject of notice-and-comment rulemaking by the Commission. Today’s staff action to modify that relief and extend it for almost three more years is yet another instance of the Commission’s continuing reliance on no-action positions to address issues that the Commission has failed to address permanently.
If Three Strikes Means You Are Out, What Happens after 11 Strikes?
The use of perpetual staff no-action relief to continuously “kick the can down the road,” and other band-aids and workarounds undertaken when the Commission avoids tackling difficult issues – or even tackling simple and straightforward ones – has become sadly commonplace at the CFTC. This is now the 11th time it has happened during my brief tenure as a Commissioner.[3] We must bring this unwelcome pattern to an end, and the Commission must fulfill its responsibilities.
Narrowly-tailored and time-limited no-action relief, where appropriate, is an important tool in an effective regulatory program – but it must be paired with prompt work to address problems that arise. Unfortunately, though, the Commission did not include a proposed rulemaking to address the shortcomings in its rules that necessitate this No-Action Relief in its recent Fall 2022 regulatory agenda.[4] And the fact that this No-Action Relief remains operative until December 31, 2025, suggests that the Commission does not plan to take corrective action in the near term.
Conclusion
I commend the agency’s staff for providing appropriate relief to market participants in the absence of action to address this issue by the Commission.[5] Further inaction by the Commission is unfair to market participants, undermines the integrity of the Commission’s regulatory framework, and runs counter to a Core Value of the Commission – clarity through transparency to market participants about our rules and processes.[6] We can and should do better.
[1] CEA Sections 5b(h), 7 U.S.C. § 7a-1(h) (clearing organizations), and 5h(g), 7 U.S.C. § 7b-3(g) (swap execution facilities), respectively.
[2] In Section 752(a) of the Dodd-Frank Act, Public Law 111-203, 124 Stat. 1376 (2010), Congress specifically directed the Commission, “[i]n order to promote effective and consistent global regulation of swaps,” to “consult and coordinate with foreign regulatory authorities on the establishment of consistent international standards with respect to the regulation . . . of swaps [and] swap entities . . .”
[3] See 1) Statement of Commissioner Summer K. Mersinger on Extension of Staff No-Action Letter Regarding Investments in Securities with Adjustable Rate of Interest Benchmarked to SOFR (December 23, 2022), available here; 2) Statement of Commissioner Summer K. Mersinger on Order Regarding TeraExchange, LLC Application for Reinstatement of Registration as a SEF (December 6, 2022), available here; 3) Statement of Commissioner Summer K. Mersinger on Order of Registration Regarding SpectrAxe LLC SEF (December 5, 2022), available here; 4) Statement of Commissioner Summer K. Mersinger Regarding Extension of CFTC Staff No-Action Letter Addressing Certain Swap Reporting Obligations (December 2, 2022), available here; 5) Statement of Commissioner Summer K. Mersinger Regarding Extension of Staff No-Action Letter 20-31 for Swaps Executed as part of Certain Package Transactions (November 9, 2022), available here; 6) Statement of Commissioner Summer K. Mersinger Regarding Extension of Staff No-Action Letter 20-37 (October 28, 2022), available here; 7) Statement of Commissioner Summer K. Mersinger Regarding No-Action Relief to Korea Exchange (October 17, 2022), available here 8) Statement of Commissioner Summer K. Mersinger Regarding Extension of No-Action Relief from Certain Position Aggregation Requirements under CFTC Regulation 150.4 (August 10, 2022), available here; 9) Statement of Commissioner Summer K. Mersinger on Extension of No-Action Relief to Shanghai Clearing House (July 26, 2022), available here; and 10) Statement of Commissioner Summer K. Mersinger on Order of Registration Regarding AEGIS SEF, LLC (July 20, 2022), available here.
[4] See Regulatory Information Service Center, Unified Agenda of Regulatory and Deregulatory Actions (Fall 2022), available at CFTC Agency Rule List - Fall 2022 (reginfo.gov).
[5] I am pleased to see that the No-Action Relief eliminates certain prior relief granted with respect to Commission regulation 23.451, 17 C.F.R. § 23.451, which prevents swap dealers (“SDs”) from using political contributions to induce swap transactions with certain governmental entities, and so should be vigorously enforced by the Commission. I commend the SD community for their strides, which are acknowledged in the No-Action Relief (at page 8), in preventing corruption, or the appearance of corruption, to advance this public policy imperative.
[6] CFTC Core Values, Clarity, available at https://www.cftc.gov/About/AboutTheCommission.
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