Last week the Commodity Futures Trading Commission (“CFTC”) issued a No-Action Letter that helps harmonize the CFTC’s pay-to-play rules for swap dealers (Regulation 23.451) with both the SEC and Municipal Securities Rulemaking Board (“MSRB”) pay-to-play regulations. The Letter also provided guidance regarding the two-year “look back” period, during which time swap dealers may be prohibited from doing business with a governmental Special Entity if a prohibited political contribution was made by the swap dealer or one of its covered associates.

Under Regulation 23.451, a swap dealer is prohibited from offering to enter into or entering into a swap or trading strategy with a governmental Special Entity if a prohibited contribution was made in the past two years. In the Letter, the CFTC clarified that this two-year “look back” period does not include any time period that precedes the date on which a swap dealer is required to register as a swap dealer with the CFTC. Thus, for an entity required to register as a swap dealer on December 31, 2012, any contributions made by it or its covered associates prior to then are not included in the “look back” period.

The CFTC also eliminated disparities between its pay-to-play rule, on the one hand, and the SEC and MSRB pay-to-play rules on the other, regarding which state and local officials are subject to the contribution ban. Regulation 23.451 prohibits swap dealers and their covered associates from making political contributions to government officials (or soliciting contributions to those same officials) of a “governmental Special Entity” and/or “government plans,” as defined in Section 3 of the Employee Retirement Income Security Act of 1974 (“ERISA”). This definition includes federal officials as well as state and local officials. Because most swap dealers are subject to all three rules, this change should help simplify compliance.