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CFTC and NFA Issue Additional COVID-19 Regulatory Relief

April 07, 2020

The Commodity Futures Trading Commission and the National Futures Association in recent weeks have issued relief in response to the challenges that many market participants face in light of the coronavirus (COVID-19) pandemic. This LawFlash covers the latest relief provided.

For background on the relief provided by the Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA) thus far, read our March 19 LawFlash.

OVERVIEW OF RECENT CFTC AND NFA RELIEF

Form PQR, Pool Annual Reports, and Pool Periodic Account Statement Requirements (CFTC Letter No. 20-11): The CFTC's Division of Swap Dealer and Intermediary Oversight (DSIO) has provided commodity pool operators (CPOs) with relief from Form CPO-PQR (the annual report for small or mid-sized CPOs and the quarterly report for large CPOs), Pool Annual Reports, and Pool Periodic Account Statements by providing an extension to the filing and reporting deadlines. The relief applies to Annual Reports and Periodic Account Statements under both 4.7 and 4.22.

The new deadlines:

  • Form CPO-PQR: May 15, 2020 (small or mid-sized CPOs); July 15, 2020 (large CPOs).
  • Pool Annual Reports due on or before April 30, 2020 must be filed with the NFA and distributed to pool participants no later than 45 days after the original due date for such report (e.g., for a report due on March 31, a CPO has until May 15).
  • Pool Periodic Account Statements must be distributed to pool participants within 45 days of the end of the reporting period for all reporting periods ending on or before April 30, 2020 (effectively, a 15-day extension).

NFA Relief from CPO Reporting Requirements (NFA Notice I-20-15): Consistent with the CFTC’s CPO reporting relief, NFA issued relief from NFA Compliance Rules 2-13 and 2-46. NFA extended the due date for the December 31, 2019 PQR (due March 30) until May 15, 2020, and the due date for the March 31, 2020 PQR (due May 30) until July 15, 2020. NFA also extended the Form PR due date for the March 31, 2020 Form PR from May 15, 2020 to June 30, 2020.

Introducing Broker Certified Financial Reports (NFA Notice I-20-16) – NFA issued relief to introducing brokers (IBs) for the requirements to file a certified financial report as of the close of its fiscal year end within 90 days after the close of its fiscal year, or within 60 days for IB embers who are also registered with the US Securities and Exchange Commission as securities brokers or dealers.

  • NFA has provided a 30-calendar day extension to these filing deadlines for fiscal years ending in December 2019 through March 2020.
  • Under the relief, IB members also receive a 10-business day extension with respect to financial reports (semi-annual, quarterly, or monthly, typically required within 17 business days of the date for which the report is prepared).

Introducing Broker and Associated Person Registration for Foreign Brokers (CFTC Letter No. 20-12): DSIO will permit 30.5 Foreign Brokers (non-US introducing brokers who have applied for an exemption from IB registration pursuant to Regulation 30.5 to solicit or accept orders for or involving any foreign futures or foreign options transactions) to accept futures and swap orders from US persons for execution on US designated contract markets (DCMs) notwithstanding that such 30.5 Foreign Brokers have not qualified for an exemption from registration as an IB in accordance with the provisions of CFTC Regulation 3.10(c)(4).[1]

In addition, personnel of the 30.5 Foreign Brokers who handle these orders will not be required to register as associated persons.

This relief is available until September 30, 2020, and is subject to the following conditions:

  • The 30.5 Foreign Broker is an affiliate of a CFTC-registered futures commission merchant (FCM).
  • The 30.5 Foreign Broker is appropriately licensed or registered in a jurisdiction for which the CFTC has issued an exemptive order under CFTC Regulation 30.10 (an exemption from FCM registration for certain non-US persons in jurisdictions identified in Appendix C to Part 30 and who satisfy the requirements of Regulation 30.10).
  • The 30.5 Foreign Broker introduces on a fully disclosed basis to registered FCMs only institutional customers, defined to have the same meaning as an eligible contract participant, for the purpose of trading on a DCM.
  • The 30.5 Foreign Broker accepts but does not solicit orders from, and does not handle the customer funds of, any person located in the United States for trading on a DCM.
  • Subject to the relief provided by DSIO under CFTC Staff Letter 20-03, the 30.5 Foreign Broker creates and maintains the records required by CFTC Regulation 1.35 (generally encompassing commodity interest transaction-related records, including records of oral communications) with respect to its brokerage activities with US persons, and complies with CFTC Regulation 1.31 with respect thereto, including providing prompt access thereto to representatives of the CFTC and the US Department of Justice upon request.
  • Each FCM with which the 30.5 Foreign Broker is affiliated files with NFA an acknowledgement that it will be jointly and severally liable for any violations of the Commodity Exchange Act or the CFTC’s regulations by the 30.5 Foreign Broker in connection with its introducing activities in which it engages in reliance on this letter.
  • The 30.5 Foreign Broker provides written notice to DSIO (DSIOLetters@cftc.gov) both when it begins reliance on the relief provided by this letter and, if it ceases to rely on this letter prior to September 30, 2020, when it ceases to rely on this letter.

Major Swap Participant Registration Threshold Calculation (CFTC Letter No. 20-10): The DSIO provided relief to an insured depository institution from considering energy-related commodity swaps in determining whether it must register with the CFTC as a major swap participant (MSP) after the unprecedented drop in global demand for crude oil as a result of COVID-19, followed closely by the OPEC+ supply cut disagreement, which led to an unprecedented increase in the institution’s swap counterparty exposure relevant to the MSP registration threshold.

The relief, available until September 30, 2020, permits the insured depository institution to exclude the following swaps in its “aggregate uncollateralized outward exposure” calculation (relevant to the MSP definition and used to determine whether a person has a “substantial position” in swaps):

  • The swaps are excluded from counting toward the swap dealer de minimis threshold because they are entered into by the insured depository institution with a customer in connection with originating a loan to that same customer[2]
  • The commodity underlying the swap is crude oil, natural gas, or natural gas liquids

WHAT’S NEXT?

The CFTC is actively monitoring futures and swaps markets and market participants to determine if markets are functioning appropriately and without disruption. Market participants are encouraged to reach out to CFTC staff if issues arise.

CORONAVIRUS COVID-19 TASK FORCE

For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge. We also have launched a resource page to help keep you on top of developments as they unfold. If you would like to receive a daily digest of all new updates to the page, please subscribe now to receive our COVID-19 alerts.

CONTACTS

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Chicago
Michael M. Philipp
Sarah V. Riddell

New York
Thomas V. D’Ambrosio
Christine M. Lombardo

Boston
Katherine Dobson Buckley

Washington, DC
John V. Ayanian
Amy Natterson Kroll
Ignacio A. Sandoval
Steven W. Stone



[1] Regulation 3.10(c)(4) provides an exemption from IB registration to a non-US person who is exempt from FCM registration pursuant to Regulation 30.10 so long as the non-US person is affiliated with a CFTC-registered FCM, limits its IB activities to institutional customers that it fully discloses to a registered FCM for the purpose of trading on a DCM, and does not solicit US persons for trading on a DCM, among other requirements.

[2] Pursuant to paragraph (4)(i)(C) of the definition of “swap dealer” in CFTC Regulation 1.3, or from being considered swap dealing activity pursuant to paragraph (5) of the definition of “swap dealer” in CFTC Regulation 1.3