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On December 9, 2025, the staff of the Commodity Futures Trading Commission ("CFTC") issued no-action relief to harmonize how the regulatory requirements for swaps are applied to trades involving certain non-US persons ("NAL 25-42"). This relief has been long sought by the market, and should reduce some of the compliance burden associated with establishing and maintaining swap trading relationships.
NAL 25-42 is effective immediately and has no expiration date. In this Legal Update, we provide background on the US person issue and discuss how NAL 25-42 addresses it.
Background
As part of the implementation of the Dodd-Frank Act, the CFTC was required to implement a comprehensive regulatory framework for swaps, including requirements for dealer and major participant registration, central clearing, exchange trading of standardized contracts, trade reporting, and capital and margin for uncleared trades.1 Further, Section 722(d) of the Dodd-Frank Act provides that the swaps requirements may be applied to cross-border activities when certain conditions are met.2
In 2013, the CFTC implemented Section 722(d) by issuing interpretive guidance on the regulation of cross-border swap activities ("2013 Guidance").3 The 2013 Guidance addressed all aspects of the swap regulatory framework, including those requirements that had not yet been finalized. As noted in NAL 25-42, the 2013 Guidance turned, in large part, on whether one or both parties to a swap was a US person or was guaranteed by a US person or was a non-US conduit for transferring swap exposure to a US affiliate (a "conduit affiliate"). Further, the 2013 Guidance took an expansive view of what constituted a US person or a guarantee by a US person.
In 2015 and 2016, the CFTC and others finalized margin requirements for uncleared swaps that included provisions addressing how the requirements apply to cross-border transactions.4 The CFTC margin requirements for uncleared swaps deviated from the 2013 Guidance by adopting new, generally narrower definitions of "US person" and "guarantee," and eliminating the concept of a conduit affiliate. However, these changes applied only to the margin requirements, while the 2013 Guidance continued to govern all other swap requirements.
In 2020, the CFTC amended the cross-border application of the registration requirements for dealer and major participant status and the additional requirements that apply to registered dealers and major participants.5 The 2020 rules adopted a definition of "US person" that is narrower than that used in either the 2013 Guidance or margin requirements for uncleared swaps, and generally used the definition of "guarantee" from the margin requirements for uncleared swaps. However, the 2020 rulemaking did not change or apply to non-registration requirements, so the definitions from the 2013 Guidance continued to govern the requirements for mandatory clearing and trade execution and real-time and regulatory reporting.
NAL 25-42
The multiple definitions of US person and guarantee within the swap requirements were widely recognized as burdensome and confusing.6 Further, they added an element of complexity to the framework for swap regulation that was entirely unnecessary. NAL 25-42 addresses these concerns by harmonizing the definitions of US person and guarantee in several ways.
First, NAL 25-42 provides that parties to a swap may use the definitions of US person and guarantee from the 2020 registration rulemaking for determining the applicability of all swap requirements, including the requirements for margin for uncleared swaps, mandatory clearing and trade execution, and real-time and regulatory reporting.
Second, NAL 25-42 permits parties to a swap to continue to rely on counterparty representations that use the US person and guarantee definitions from the 2013 Guidance or margin requirements for uncleared swaps, as long as the representations were made prior to the effective date of the 2020 registration rulemaking.
Third, NAL 25-42 eliminates the concept of a conduit affiliate for determining whether the requirements for mandatory clearing and trade execution and real-time and regulatory reporting apply to a swap with a non-US person.
Additionally, NAL 25-42 indicates that this harmonization of the US person and guarantee definitions should be read into existing no-action letters that use the definitions from the 2013 Guidance or margin requirements for uncleared swaps.
Takeaways
NAL 25-42 should reduce the complexity associated with onboarding new swap counterparties by eliminating the need to ask a party to make multiple representations regarding US person status. Additionally, managing swap trading relationships should be easier, because parties will not need to track multiple US person statuses for each counterparty.
NAL 25-42 should reduce the substantive compliance burden for certain swaps involving non-US persons because the definition of US person from the 2020 registration rulemaking is narrower than the definitions in the 2013 Guidance and margin requirements for uncleared swaps. What this means is that parties that were a US person under the 2013 Guidance or margin requirements for uncleared swaps, but are not a US person under the 2020 registration rulemaking, should no longer need to comply with the requirements for uncleared margin, requirements for mandatory clearing and trade execution, and real-time and regulatory reporting.
Footnotes
1. Pub. L. 111-203, tit. VII, 124 Stat. 1376, 1641-1802 (2010).
2. Pub. L. 111-203 § 722(d), 124 Stat. at 1673 (codified at 7 U.S.C. 2(i)).
3. 78 Fed. Reg. 45,292 (July 26, 2013). See our Legal Update on the 2013 Guidance.
4. 81 Fed. Reg. 34,818 (May 31, 2016); see also 84 Fed. Reg. 43,872 (Aug. 22, 2019); 81 Fed. Reg. 636 (Jan. 6, 2016); 80 Fed. Reg. 74,840 (Nov. 30, 2015).
5. 85 Fed. Reg. 69,498 (Nov. 3, 2020) (codified at 17 C.F.R. § 23.23).
6. For example, the 2013 Guidance includes certain collective investment vehicles as US persons if the individuals who formed and promoted the vehicle were located in the United States when they did so, while the 2020 registration rulemaking expressly excludes that as a factor in determining US person status. Further, the 2013 Guidance includes unlimited liability vehicles with majority US-ownership as US persons, while the margin requirements for uncleared swaps include unlimited liability vehicles as US persons if they have at least one US person owner who has unlimited liability.
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