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CFTC no-action- missing the big picture

25 October 2013. The CFTC has issued a conditional, time-limited no-action letter exempting SEF’s from Regulations 37.9(a)(2) and 37.203(a). The Regulations respectively deal with prescribed execution methods and prohibit pre-arranged trading. The no-action letter will only apply to those trades which have been rejected for clearing due to operational or clerical deficiencies. In such cases a new (necessarily pre-arranged) amended trade may be submitted for clearing, exempt from the prescribed execution methods. It should be noted that the relief will only apply once per trade; if the second trade is also rejected, there will be no third try. The relief is also subject to the following conditions:

 • Only clerical or operational error applies e.g. failing a credit check would not trigger the relief.
• SEF rules must void any trade that is denied clearing. The amended trade must be booked as new.
• Each clearing member must agree to the new trade and, if applicable, obtain customer consent.
• The original and the new trade must be subject to the prescribed credit checks and time-frames.
• Both trades must be fully reported to, and disseminated by, the relevant SDR.
• The SEF rules may not require, and must prohibit, breakage agreements as a condition of access.

 A little under one month into its official life, the SEF regime is struggling to fulfil its mandate to provide transparency in the swaps market. Data is variously reported on a previous-day,daily or weekly basis, double-counted and in disparate currencies. Rather than fine and complex adjustments to existing rules, the CFTC ‘s valuable time might be better spent in ensuring basic consistency among SEF’s to begin with. This latest no-action relief will expire on 30th June 2014.

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