CFTC Publishes Guidance, No-Action Letter and Interim Final Rule to Promote Trading on SEFs and Support an Orderly Transition to Mandatory Trading (CFTC Letter 14-12)

The CFTC announced measures to promote trading on swap execution facilities (“SEFs”) and support an orderly transition to the mandatory trading of swaps, which begins for certain interest rate swaps on February 15, 2014.

The CFTC stated that, in connection with the commencement of the trading mandate, the CFTC Division of Market Oversight (“DMO”) took the following measures:

  1. In order to protect the identities of counterparties trading on SEFs and incentivize anonymous trading on regulated platforms, the CFTC issued an interim final rule to clarify the scope of “permissible access” by market participants to swap data and information maintained by a registered swap data repository (“SDR”).  The interim final rule is consistent with the requirements of Section 21(c)(6) (“Swap Data Repositories”), which prohibit a party to an anonymous trade executed on a SEF or designated contract market (“DCM”) from accessing information in swap data repositories in order to obtain the identity of its counterparty.
  2. The DMO issued a time-limited no-action letter providing relief until May 15, 2014 from mandatory trading of certain swaps executed as part of a “package transaction.” The DMO reminded SEFs that they may facilitate the trading of swaps subject to the trade mandate, if executed as part of such a “package transaction,” only if (i) the methods for executing such swaps comply with the trading protocols applicable to Required Transactions in CFTC Rule 37.9 (“Methods of Execution for Required and Permitted Transactions”) and (ii) such SEFs have rules in effect that permit the trading of package transactions under the terms of the relief.  Accordingly, DMO staff announced a public meeting on February 12, 2014 to discuss potential challenges surrounding the execution of package transactions through SEFs or DCMs.
  3. The DMO published guidance which clarifies that, while CFTC Rule 37.202(b) (“Access Requirements”) requires that market participants trading on a SEF consent to its jurisdiction, it is a reasonable interpretation that such consent does not need to be obtained through an affirmative writing. The DMO stated that an SEF may comply with the rule by providing in its rulebook that any person initiating or executing a transaction on or subject to the rules of the SEF directly or through an intermediary, and any person for whose benefit such a transaction has been initiated or executed, consent to the jurisdiction of the SEF.
  4. The DMO announced that it published a centralized list of swaps subject to the mandate on the CFTC website.  The webpage is intended to provide notice to market participants of the swaps subject to the mandate and includes specific terms defining each such swap.

See:  (1) Interim Final Rule and Comment Request; (2) CFTC Staff No-Action Letter 14-12; (3) DMO Guidance on Swap Execution Facility Jurisdiction; (4) Swaps Made Available-to-Trade charts.
Related news:  CFTC Holds TAC Focusing on SEF Issues (February 11, 2014).
See also:  Commissioner O’Malia’s Statement of Support for the Measures to Promote Trading on SEFs and an Orderly Transition to Mandatory Trading.