Skip to content

CFTC’s early Christmas package for SEFs

Following Chairman Timothy Massad’s 5 November speech, alluding to an extension of no-action relief with respect to swap packages, the CFTC yesterday issued Letter No. 14-137. The letter revisits the expiration of relief for the most basic package categories and institutes a new calendar of phased-in relief for the remaining package types.  The relief serves a number of purposes: extra time for market participants to comply with trade execution requirements, flexibility for SEF\DCMs in packaged offerings, and to provide time for the Agency to gather data on the various means of execution.

The CFTC’s press release provides a summary list of the expired relief and the extensions to expiry- reproduced below-

Transaction Category Relief Expiration
1. MAT/MAT: Each of the components is a swap subject to the trade execution requirement Relief expired May 15, 2014 at the expiration of CFTC Letter 14-12.
2. MAT/Non-MAT (Cleared): At least one of the components is subject to the trade execution requirement and each of the other components is subject to the clearing requirement Relief expired June 1, 2014 pursuant to Package Transaction NAL 14-62.
3. US Dollar Swap Spreads: Each of the swap components is subject to the trade execution requirement and all other components are U.S. Treasury securities Relief expired June 15, 2014 pursuant to Package Transaction NAL 14-62.
4. MAT/Agency MBS: Each of the swap components is subject to the trade execution requirement and all other components are agency mortgage-backed securities Relief from CEA section 2(h)(8) until May 15, 2015. Under this relief, the swaps components subject to the trade execution requirement are not required to be executed on a SEF or DCM.

Relief from Commission Regulation § 37.9 and CEA section 5(d)(9) until May 15, 2015, which permits a SEF or DCM to offer any method of execution for the swap components subject to the trade execution requirement.

5. MAT/Non-MAT (Uncleared): At least one of the swap components is subject to the trade execution requirement and at least one of the components is a CFTC swap that is not subject to the clearing requirement. This category may include:

  • MAT swap v. swaptions
  • MAT swap v. uncleared credit default swap
Relief from CEA section 2(h)(8) until February 15, 2015. Under this relief, the swap components subject to the trade execution requirement are not required to be executed on a SEF or DCM.

Relief from Commission Regulation § 37.9 and CEA section 5(d)(9) until February 12, 2016, which permits a SEF or DCM to offer any method of execution for the swap components.

Relief from Commission Regulation § 37.3(a)(2) until February 12, 2016, which permits SEFs to not offer an Order Book as a minimum trading functionality for the swap components.

6. MAT/Non-Swap Instruments: At least one of the swap components is subject to the trade execution requirement and at least one of the components is not a swap. This category excludes U.S. Dollar Swap Spreads, MAT/Futures, MAT/Agency MBS, and MAT/New Issuance Bond. This category may include:

  • MAT swap v. single-name credit default swap
  • MAT swap v. bond (secondary market transaction)
Relief from CEA section 2(h)(8) until February 15, 2015. Under this relief, the swap components subject to the trade execution requirement are not required to be executed on a SEF or DCM.

Relief from Commission Regulation § 37.9 and CEA section 5(d)(9) until February 12, 2016, which permits a SEF or DCM to offer any method of execution for the swap components.

Relief from Commission Regulation § 37.3(a)(2) until February 12, 2016, which permits SEFs to not offer an Order Book as a minimum trading functionality for the swap components.

7. MAT/Non-CFTC Swap: At least one of the swap components is subject to the trade execution requirement and at least one of the components is a swap over which the CFTC does not have exclusive jurisdiction (e.g., a mixed swap) Relief from CEA section 2(h)(8) until February 15, 2015. Under this relief, the swap components subject to the trade execution requirement are not required to be executed on a SEF or DCM.

Relief from Commission Regulation § 37.9 and CEA section 5(d)(9) until February 12, 2016, which permits a SEF or DCM to offer any method of execution for the swap components.

Relief from Commission Regulation § 37.3(a)(2) until February 12, 2016, which permits SEFs to not offer an Order Book as a minimum trading functionality for the swap components.

8. MAT/New Issuance Bond: At least one individual swap component is subject to the trade execution requirement and at least one individual component is a bond issued and sold in the primary market Relief from CEA section 2(h)(8) unti lFebruary 12, 2016. Under this relief, the swap components subject to the trade execution requirement are not required to be executed on a SEF or DCM.

Relief from Commission Regulation § 37.9 and CEA section 5(d)(9) until February 12, 2016, which permits a SEF or DCM to offer any method of execution for the swap components.

Relief from Commission Regulation § 37.3(a)(2) until February 12, 2016, which permits SEFs to not offer an Order Book as a minimum trading functionality for the swap components.

9. MAT/Futures: At least one individual swap component is subject to the trade execution requirement and all other components are contracts for the purchase or sale of a commodity for future delivery, i.e., futures contracts. This category may include:

  • MAT swap v. Treasury futures
  • MAT swap v. Eurodollar futures
Relief from CEA section 2(h)(8) until November 14, 2015. Under this relief, the swap components subject to the trade execution requirement are not required to be executed on a SEF or DCM.

Relief from Commission Regulation § 37.9 and CEA section 5(d)(9) until November 14, 2015, which permits a SEF or DCM to offer any method of execution for the swap components.

Relief from Commission Regulation § 37.3(a)(2) until November 14, 2015, which permits SEFs to not offer an Order Book as a minimum trading functionality for the swap components.

Perhaps counterintuitively, this extensive past action + no-action letter substantially completes the CFTC’s rulings on SEF usage for IRS and CDS. Although the CFTC cannot, at least in this regard, be accused of undue haste; they are considerably in advance of their European counterparts. On the same day as the above announcement, ESMA announced its latest re-iteration of its consultation on revised RTS for EMIR reporting. In order to price uncertainty in supply and demand, markets require a degree of definition in their regulatory framework. US electronic trading may now have a solid floor to the past years’ regulatory quicksand.  It’s not a race, but if it were- the US would be about two years ahead.

Contact Us