No Action ≠ Do Nothing

As the year draws to a close, we are seeing a steady stream of no action and other determinations coming out of the CFTC. ISDA has been actively involved in seeking those decisions from the CFTC in response to members’ concerns and very practical considerations that made compliance in the timeframes required increasingly challenging as deadlines loomed. We and market participants are grateful for the responsiveness of the CFTC to the concerns that have been raised. We believe that the dialogue we have established in this process will serve the industry well as regulations come into effect in 2013.

We have just posted a presentation on our website that gives an update on the status of the various no-action requests. Where the request has been granted, links are included to the letter issued by the CFTC, which includes the terms and conditions on which the relief was granted.

An important lesson to take away from the no action process is that the industry’s efforts to achieve compliance with new regulations must proceed with an undiminished level of intensity even in the face of the actions taken by the CFTC. This is for a number of reasons.

First, certain requirements are not delayed. Most importantly, reporting for credit and interest rate swaps kicks in at the end of the year. And, while reporting for equity, FX and commodity trades has been delayed, it is only until Feb. 28, 2013. So January will be busy regardless.

Second, one of the reasons that the CFTC was receptive to providing these targeted delays in effectiveness of certain provisions was because they saw demonstrable efforts being made toward compliance. For example, the ISDA Dodd-Frank Protocol now has over 4,000 adhering parties, and that number is growing steadily. But the rate of uptake on questionnaire delivery via our ISDA Amend solution  lags behind. So ISDA and market participants must show that the additional time will be warranted to  achieve greater compliance rates with the use  of these effective tools.

Finally, more deadlines will loom next year as the requirements in Europe begin to take effect. We just heard that the timetable is jelling around reporting starting mid year, reconciliation and dispute resolution in late summer and frontloading of trades into clearing later in the year. Clearing mandates won’t likely apply until summer 2014, but many other steps will need to be taken in anticipation of those mandates. So the short delays achieved in the US through the no action process will only lead to a compression of compliance activity globally.

ISDA stands ready to assist its members in understanding and implementing these regulatory changes. We will also maintain an active dialogue with regulators to help them understand where the pressure points may be in the compliance process so that the changes are implemented in a way that achieves policy goals with the least disruption to market liquidity and the ability of companies to hedge risk.

So enjoy the holidays and be prepared to join with us as we continue to address the major changes underway.