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CFTC- no action unwrapped for swap packages

The CFTC yesterday unveiled its “thoughtful” approach to the thorny problem of how to shoehorn packaged swaps onto SEFs. After much thinking, they have arrived at a crystal-clear phase-in approach. No-Action Letter 14-62 provides the following reliefs from 16th May 2014:

  • expires 1st June 2014. Packages that consist of one leg MAT swap and all other legs are swaps subject to clearing
  • expires 15th June 2014., packages in which the swap legs are MAT but all other are T-Bonds ($ swap spreads)
  • expires 15th November 2014– everything else, namely:
    • Packages that are one leg MAT and one leg not a swap
    • Packages that are one leg MAT and one swap leg subject to the CTFC’s exclusive jurisdiction but not subject to clearing
    • Packages that are one leg MAT and one swap leg that is not subject to the CFTC’s exclusive jurisdiction

Note- there is no additional relief for packages which consist only of MAT swaps which will have to be traded via SEFs from 16th May.

Packaged swaps, which may include something as simple (but illiquid) as changing the tenor of a long-dated swap, account for approximately 30% of the overall market. SEFs largely mirror the futures-execution model, the design of which is spectacularly unsuited to the relatively complex structures and longer execution times of the swap market; no-action relief in this case represents a bandage on a disease instead of a wound. Patching together the shaky house-that-Gensler-built may take longer and cost less than it would to demolish and rebuild.

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