The Commodity Futures trading Commission has given the derivatives industry until May 1, 2014 to comply with recordkeeping requirements for swap execution facilities (SEFs).

The CFTC said it would take no action for failure to comply with its rule that SEF participants record oral communications that lead to the execution of a transaction in a commodity interest and related cash or forward transactions.

In its no-action letter, the CFTC noted that the industry had requested relief from the oral recordkeeping requirement due to the onerous requirements it would impose on participants.

The industry noted that, given that SEFs have only recently begun publishing their rulebooks, certain members of SEFs may need additional time to adjust their current recordkeeping processes in order to be compliant with the recordkeeping requirements.

“Asset managers will need time to implement the requirements of the rule and evaluate how best to comply,” Timothy Cameron, managing director of Sifma’s Asset Management Group, said in a December 10 letter to the CFTC. “Compliance may include revamping asset managers’ current recordkeeping processes, engaging third-party service providers and/or building technology to comply with elements of the rule, such as taping and record retention in the manner prescribed by the Commission, all of which will take a substantial period of time and resources.”

Cameron noted that references to members of SEFs in the rule should not be interpreted to apply to asset managers that trade on a SEF with discretion on behalf of and in the name of advisory clients. Instead, the Rule should be interpreted to apply exclusively to market intermediaries.

All of the entities explicitly named in the Rule (i.e., FCMs, retail foreign exchange dealers, introducing brokers) are market intermediaries or liquidity providers, he said. These intermediaries take orders from customers in connection with trade execution, provide two-sided markets and are paid transaction-based compensation. In addition, designated contract market (“DCM”) members also act in the capacity of market intermediaries and order execution agents for customers.

Although most intermediaries are market makers, they all specialize in providing liquidity to customers as opposed to providing investment advice or trading expertise.

Cameron further noted a distinction between “Liquidity Providers” (i.e., professional market intermediaries) and “Liquidity Takers” (i.e., end-users and their discretionary advisers and agents). In that regard, the Commission distinguished between “traders” and “dealers.”

According to the CFTC, dealers’ activities are distinguished by activities such as “providing liquidity by accommodating demand for or facilitating interest in the instrument, holding out as willing to enter into swaps” and acting as a market maker on an organized exchange or trading system for swaps.

The Commission has noted that non-dealers, or traders, on the other hand, are “hedgers or investors” and are not engaged in the business of seeking to profit by providing liquidity in connection with swaps.

“Interpreting the phrase ‘member of SEFs’ to exclude asset managers trading on a SEF on behalf of discretionary customers is consistent with the types of records that the rule seeks to collect,” Cameron said. “Asset managers participating on a SEF are not acting as dealers but instead are acting, with discretion, on behalf of and in the name of advisory clients.”