CFTC No-Action Relief Set to Expire — On June 30, 2013, temporary no-action relief provided by the Commodity Futures Trading Commission (the “CFTC”) regarding certain equity total return swaps on foreign securities (“compo equity swaps” or “compo equity total return swaps”) is set to expire. This time-limited no-action relief allowed compo equity total return swaps to be treated as “securities-based swaps” and not as “mixed swaps” until June 30, 2013. The classification of a derivative product as a “swap,” “security based swap” or “mixed swap” impacts, among other things, the tests investment managers use to determine whether such manager may be exempt from registering with the CFTC as a “commodity pool operator” or “CPO.”

Security-based swaps are regulated by the Securities and Exchange Commission instead of the CFTC. As such, under the CFTC’s no-action relief, these compo equity swaps could be excluded when an investment manager calculates whether it meets the standards under the de minimis exemptions from registration as a CPO set forth under Regulations 4.13(a)(3) or 4.5 of the Commodity Exchange Act. Investment managers that are currently relying on the de minimis exemption found under CFTC Regulation 4.13(a)(3) as to private funds and CFTC Regulation 4.5 as to registered funds, will need to, starting on July 1, include any compo equity swaps in their calculations in order to determine whether they may continue to claim the exemptions from registration under 4.13(a)(3) or 4.5. If an investment manager no longer qualifies for such exemptions, such manager may need to change the composition of its funds’ portfolios or register as a CPO. As of the date of this Financial Services Update, there is no indication that the CFTC will extend the no-action relief for compo equity total return swaps.

In a recent speech Mythili Raman, acting assistant attorney general in the Justice Department's criminal division, discussed the growing trend among federal agencies to cooperate in the investigation and prosecution of Foreign Corrupt Practices Act ("FCPA") violations. As explained by Corporate Counsel, Raman emphasized how that spirit of cooperation has led to greater U.S. interagency cooperation and to greater cooperation across borders as well. See also SEC Actions.

Last month's Securities and Exchange Commission ("SEC") and Justice Department FCPA case against France-based Total S.A. ("Total") exemplifies that cooperative trend. The regulators allege that Total paid $60 million in bribes to intermediaries of an Iranian government official to help the company obtain oil and gas field development contracts. The SEC's order requires Total to pay disgorgement of $153 million and retain an independent compliance consultant to review and report on Total's compliance with the FCPA. In the parallel criminal proceedings, Total agreed to pay a $245.2 million penalty as part of a deferred prosecution agreement. Charges also were recommended by the prosecutor of Paris for violations of French laws. In the Matter of Total S.A., SEC Release No. 34-69654. See also CNN (summarizing French allegations). Despite this evidence of greater cross-border cooperation, Main Justice noted that global anti-bribery efforts continue to be dominated by the U.S., citing statistics from a just-released Organization for Economic Cooperation and Development study.

June 10, 2013 – Clearing Exemption for Swaps Between Certain Affiliated Entities. 78 FR 21749.

August 5, 2013 – Core Principles and Other Requirements for Swap Execution Facilities. 78 FR 33475.

August 5, 2013 – Process for a Designated Contract Market or Swap Execution Facility To Make a Swap Available to Trade, Swap Transaction Compliance and Implementation Schedule, and Trade Execution Requirement Under the Commodity Exchange Act. 78 FR 33605.

June 1, 2013 – Loan Originator Compensation Requirements Under the Truth in Lending Act (Regulation Z). 78 FR 11279.

July 22, 2013 – Rules of Practice and Procedure: Enterprise and Federal Home Loan Bank Housing Goals Related Enforcement Amendment. 78 FR 37101

July 1, 2013 – United States-Korea Free Trade Agreement. 78 FR 32356