By Brad Rosen, J.D.
In further response to the coronavirus/COVID-19 pandemic, the CFTC’s Division of Swap and Intermediary Oversight (DSIO) issued two additional no-action letters which provide temporary, targeted relief to various market participants. One of those no-action letters was issued to a large U.S. bank involved in providing finance to oil and gas sector customers, while the other was directed to registered commodity pool operators (CFTC Letter 20-10 and CFTC Letter 20-11 both dated March 20, 2020).
The CFTC’s most recent pandemic-related relief follows on the heels of five no-action letters issued by DSIO on March 17, 2020 and three no-action letters issued by the agency’s Division of Market Oversight (DMO) on March 18th. Separately, but also in response to market turbulence related to the COVID-19 crisis, the CFTC’s Energy and Environmental Markets Advisory Committee (EEMAC) amended its agenda for a public meeting on Tuesday, March 24, 2020. The EEMAC meeting will explore recent developments in the financial markets, with a focus on the energy derivatives markets.
A summary of the relief provided in the no-action letters includes the following:
Relief for a large bank from major swap participant registration in connection with threshold calculation. In CFTC Letter 20-10, DSIO granted no-action relief to a major insured depository institution (IDI) from considering energy-related commodity swaps in determining whether that institution must register with the CFTC as a major swap participant (MSP) as a result of unprecedented drops in the demand and price of crude oil. The no action letter issued to the IDI, which is referred to as “X” in the letter states, “The unprecedented drop in global demand for crude oil as a result of the COVID-19 pandemic followed closely by the OPEC + supply cut disagreement have resulted in the price of crude oil decreasing by approximately 48 [percent] year to date.”
The letter further notes that given the nature of “X’s” lending and risk management business with oil exploration and production customers, the volatility and low oil prices associated with the extraordinary market events, it is highly likely “X” will exceed the MSP registration threshold by the end of the next calendar quarter. Accordingly, relief from the applicable registration requirement was granted.
Relief for Commodity Pool Operators. In CFTC Letter 20-11, DSIO granted no-action relief to (Commodity Pool Operators) CPOs from certain reporting requirements. The relief issued by DSIO pertains to the filing deadlines for Form CPO-PQR, Pool Annual Reports, and Pool Periodic Account Statements.
The chairman speaks. In connection with the latest round of no-action relief, CFTC Chairman Heath P. Tarbert observed, “End users involved in energy exploration and production are facing unique challenges, and the CFTC is committed to providing targeted relief, where appropriate, that helps these companies weather volatile market conditions. ” The chairman added, “We are also taking additional steps to provide flexibility for investment funds by granting temporary relief from certain reporting requirements that have become challenging to meet under the present circumstances.”
EEMAC to focus on recent energy market developments. EEMAC sponsor, CFTC Commissioner Dan Berkovitz, recently announced amendments to the agenda for the committee’s public meeting on Tuesday, March 24th. Under the revised agenda, the CFTC’s DMO Market Intelligence Branch (MIB) will present on recent developments in the financial markets, with a focus on the energy derivatives markets.
Berkovitz stated, “MIB’s presentation will provide our market participants with information and perspective on recent historic market activity.” He added, “MIB has been closely following developments in these markets and their analyses have been of great benefit to the Commission’s heightened oversight of the financial markets in the current conditions.” In an effort to accommodate immediate attention to recent market events, Berkovitz indicated that the originally scheduled discussion on the CFTC’s 2020 position limits proposal will be rescheduled for a later meeting.
The no-action letters are CFTC Letter 20-10 and CFTC Letter 20-11.