U.S. CFTC Staff Issues No-Action Relief to Simplify Cross-Border Swaps Regulation

On December 9, 2025, the staff of the U.S. Commodity Futures Trading Commission (CFTC) issued a no-action letter (Letter 25-42)¹ that simplifies the CFTC’s fragmented framework for the cross-border application of its swap regulations. Letter 25-42 permits market participants to apply the “U.S. person” and “guarantee” definitions adopted in the CFTC’s 2020 cross-border rules across a broader range of swap requirements, including requirements that historically were subject to the CFTC’s 2013 cross-border guidance. As a result, Letter 25-42 narrows the scope of transactions and entities subject to certain U.S. swap regulatory requirements. Letter 25-42 is available here.

The letter responds to longstanding industry concerns regarding inconsistent cross-border definitions, duplicative counterparty representations, and unnecessary compliance burdens. The letter also advances the CFTC’s stated objective of harmonizing its cross-border swaps framework with the parallel framework adopted by the Securities and Exchange Commission (SEC) for security-based swaps. The relief is a welcome development for market participants that transact in swaps across international borders.

Key Takeaways

Letter 25-42 provides immediate and meaningful operational and compliance relief for swaps market participants. In particular:

• Narrower application of swap requirements on a cross-border basis. The relief narrows the categories of non-U.S. persons subject to certain CFTC swap requirements, such as mandatory clearing, trade execution, real-time swap reporting, swap data reporting and recordkeeping, and certain other requirements (collectively, the so-called Unaddressed Requirements) as follows:
  • Non-U.S. funds and other collective investment vehicles that were previously treated as “U.S. persons” solely because they were majority-owned by U.S. persons will no longer be subject to the Unaddressed Requirements when entering into swaps with non-U.S. person counterparties.
  • Nonrecourse credit support arrangements (i.e., credit support arrangements that do not provide the beneficiary with rights of recourse against the guarantor) will no longer be treated as “guarantees.” As a result, the Unaddressed Requirements will no longer apply to a non-U.S. person solely because its swap obligations are supported by nonrecourse credit support, such as an equity commitment letter or keepwell that, in each case, does not provide the beneficiary with rights of recourse against the guarantor.
  • “Conduit affiliate” status may be disregarded for purposes of determining the applicability of the Unaddressed Requirements.
• Simplified documentation and onboarding. Market participants are now permitted to rely on a single set of CFTC “U.S. person” and “guarantee” definitions² and may continue to rely on cross-border representations obtained prior to November 13, 2020, rather than being required to obtain new representations beginning in 2028. Absent the relief provided by Letter 25-42, market participants would have been required to obtain new counterparty representations beginning in 2028, following the scheduled expiration of prior safe harbors at the end of 2027.³
• Immediate and durable relief. The relief is effective immediately, does not require any filing or election, and is not time limited. It will remain in effect unless and until it is withdrawn or replaced by permanent CFTC rules.

Background

Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Title VII) established a comprehensive framework for regulation of the over-the-counter derivatives markets in the wake of the global financial crisis. Recognizing the inherently cross-border nature of the swaps markets, Title VII added a new Section 2(i) to the Commodity Exchange Act (CEA), which provides that the swaps provisions of the CEA do not apply to activities outside the United States unless those activities have a direct and significant connection with activities in, or effect on, commerce of the United States or if necessary to prevent evasion of Title VII.⁴

The CFTC has interpreted Section 2(i)’s “direct and significant connection” standard through a series of rulemakings and guidance that apply different standards across regulatory requirements:

• the CFTC’s 2013 swaps cross-border guidance (the 2013 Guidance),⁵ which applied broadly across CFTC swap requirements and introduced definitions of “U.S. person” and “guarantee” as well as the concept of a “conduit affiliate”
• the CFTC’s 2016 uncleared swaps margin rules (the 2016 Margin Rule),⁶ which, for purposes of the margin requirements applicable to nonbank CFTC-registered swap dealers, adopted narrower definitions of “U.S. person” and “guarantee” and did not retain the “conduit affiliate” concept
• the CFTC’s 2020 cross-border swaps rules (the 2020 Rule),⁷ which superseded the 2013 Guidance for swap dealer and major swap participant registration thresholds and the CFTC’s “Part 23” rules (other than uncleared swaps margin requirements for nonbanks, which continued to be governed by the 2016 Margin Rule) whileleaving the “Unaddressed Requirements” subject to the 2013 Guidance⁸

As a result, market participants have long been required to navigate a patchwork of overlapping and, in some cases, inconsistent cross-border definitions when determining the applicability of different CFTC requirements to the same swap activity.

“U.S. Person” Definitions

The CFTC has adopted differing definitions of “U.S. person” across the 2013 Guidance, 2016 Margin Rule, and 2020 Rule, with the 2013 Guidance taking the most expansive approach and the 2020 Rule adopting the narrowest definition. The definition included in the 2020 Rule aligns with the SEC’s parallel security-based swap “U.S. person” framework.

As a practical matter, Letter 25-42 permits market participants to apply the 2020 Rule’s narrower “U.S. person” definition⁹ across a much broader set of CFTC swap requirements, reducing the circumstances in which non-U.S. entities are treated as U.S. persons for cross-border purposes.

A comparison of the “U.S. person” definitions is included in the attached Annex.

Guarantees

Like the definition of “U.S. person,” the CFTC’s definition of “guarantee” has narrowed over time. While the 2013 Guidance treated a wide range of financial support arrangements as guarantees, including keepwells, equity commitment letters, and other forms of financial support not traditionally viewed as guarantees, the 2016 Margin Rule and the 2020 Rule both limit the term to arrangements providing a right of recourse against a guarantor.¹⁰ For this purpose, “a party to a swap has rights of recourse against a guarantor if the party has a conditional or unconditional legally enforceable right to receive or otherwise collect, in whole or in part, payments from the guarantor with respect to its counterparty's obligations under the swap.”¹¹

Letter 25-42 permits market participants to apply this narrower definition across the Unaddressed Requirements, with the result that nonrecourse credit support arrangements will no longer, by themselves, subject non-U.S. persons to U.S. swap requirements.

Conduit Affiliates

The 2013 Guidance introduced the concept of a “conduit affiliate,” pursuant to which certain non-U.S. entities are treated as U.S. persons based on their relationship to, and risk transfer back to, U.S. affiliates. Neither the 2016 Margin Rule nor the 2020 Rule retained this concept.

Under Letter 25-42, market participants may disregard the conduit affiliate concept when determining the applicability of the Unaddressed Requirements, instead evaluating non-U.S. entities under the 2020 Rule’s definitions. As a result, certain offshore affiliates that previously were treated as U.S. persons by virtue of conduit affiliate status may now fall outside the scope of the Unaddressed Requirements when transacting with non-U.S. counterparties.

The No-Action Relief

Under Letter 25-42, the CFTC staff will not recommend enforcement action solely as a result of a market participant’s

• classifying counterparties for purposes of determining the applicability of the Unaddressed Requirements and CFTC margin requirements for uncleared swaps based on the definitions of “U.S. person” and “guarantee” in the 2020 Rule
• relying on counterparty representations made under the “U.S. person” and “guarantee” definitions in the 2016 Margin Rule or the 2013 Guidance for purposes of determining the applicability of certain of the CFTC’s “Part 23” rules,¹² provided such representations were made prior to the November 13, 2020, effective date of the 2020 Rule¹³
• disregarding the concept of “conduit affiliates” for purposes of determining the applicability of the Unaddressed Requirements

The relief is effective immediately, does not require any filing or election, and is not time limited; it will be in effect until it is withdrawn or the CFTC promulgates rules addressing the disparate definitions of “U.S. person” and “guarantee.” At this time there is no indication whether the CFTC plans to do this in the foreseeable future.

Additional Market Implications

Access to Non-U.S. Trading Platforms

Non-U.S. trading platforms that previously prohibited participation by “U.S. persons” or guaranteed or conduit affiliates may become available to additional categories of market participants. This will affect not only traditional “swap” trading platforms but also trading platforms that list “perpetual futures,” as those contracts are widely considered to be “swaps” for purposes of the CEA and CFTC regulations requiring registration.

Limitations on the Relief

Letter 25-42 is limited to its terms and does not address, among other considerations, questions surrounding the registration or exemption of commodity pool operators (CPOs) and commodity trading advisors. By way of example, notwithstanding that trading in swaps may cause a collective investment vehicle to be a “commodity pool” and trigger a registration requirement for its CPO, the “foreign CPO” registration exemption under CFTC Rule 3.10(c)(5) continues to look to whether the CPO, the pool, and all participants in the pool are “located” outside the United States. Whether the pool is majority owned by U.S. persons, as defined for swaps regulatory purposes, is not relevant when applying the foreign CPO exemption.

Annex