On August 5, 2016, the US Commodity Futures Trading Commission (CFTC) published a proposed rule in the Federal Register that, if adopted as proposed, would liberalize and clarify existing exemptions from registration for certain persons located outside the United States acting in the capacity of a futures commission merchant (FCM), introducing broker (IB), commodity trading adviser (CTA) or commodity pool operator (CPO) in connection with commodity interest (including swaps) transactions solely on behalf of persons located outside of the United States. The proposal would remove a condition that the commodity interest transaction be submitted for clearing and would make the exemptions available to persons located outside the United States who act on behalf of certain international financial institutions.

Currently, CFTC Regulation 3.10(3)(c)(i) exempts a person from IB, CTA or CPO registration if the person and the commodity interest transaction (in connection with which the person engages in the otherwise registrable activity) meet the following conditions:

1. The person is located outside the United States, its territories or possessions;
2. The person acts only on behalf of persons located outside the United States, its territories or possessions; and
3. The commodity interest transaction is submitted for clearing through a registered FCM.

CFTC Regulation 3.10(c)(2)(i) provides a similar exemption from registration for any foreign intermediary acting as an FCM.

Earlier this year, CFTC staff issued no-action letter 16-08 (February 12, 2016) granting relief, with respect to swaps that are not subject to a CFTC clearing requirement (as set forth in CFTC Regulations Part 50), from the condition of CFTC Regulation 3.10(c)(3)(i) that commodity interest transactions be submitted for clearing. In no-action letter 15-37 (June 4, 2015), the CFTC staff provided relief for persons located outside the United States from registration as an IB solely with regard to activities involving swaps for a customer that is one of certain specified international financial institutions and from registration as a CTA in connection with providing advice that is solely incidental to those activities.

The proposed rule would codify and, in certain respects, expand upon this no-action relief by eliminating the condition that commodity interest transactions be submitted for clearing, permitting an intermediary to act on behalf of specified international financial institutions with respect to any type of commodity interest transaction and in any of the capacities covered by the exemption, and removing the references to the manner in which the commodity interest transaction is executed (bilaterally or on a designated contract market (DCM) or swap execution facility (SEF)) from both Regulation 3.10(c)(2) and (3).

The CFTC notes in the proposing release that the registration exemptions do not in themselves excuse any person (including an international financial institution) from complying with the clearing requirement or any other CFTC regulation or provision of the Commodity Exchange Act to which that person is subject. In its cost-benefit analysis, the CFTC states that the proposed regulation should foster legal certainty, competitiveness and greater depth in swaps markets accessed by US persons.

Comments on the proposed regulation must be received on or before September 6, 2016.