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Footnote 195- extend and pretend

The CFTC’s Division of Market Oversight yesterday issued no-action letter 16-25, extending no-action relief for SEF confirmation and recordkeeping requirements under CFTC Regulations 37.6(b), 37.1000, 37.1001, 45.2 and 45.3(a). Connoisseurs of CFTC no-action will immediately recognise the notorious regulations that require SEFs to obtain pre-trade physical copies of the master agreements to which their trade confirmations refer. Despite the successive years granted to overcome this seemingly insuperable paperwork problem, in a letter dated 1 March 2016 the Wholesale Market Brokers Association Americas (WMBAA) states that SEFs have been “unable to develop a method to request, accept and maintain a library of every underlying previously-negotiated freestanding agreement between counterparties that is not cumbersome and cost prohibitive”. While the regulations represent an initial burden to the SEFs, a swap data “library” also constitutes a significant opportunity for the buy-side and a large potential resource for the regulator. Full digitisation of master agreements would enable the buy-side to have portfolio-wide comprehension of the risks and opportunities contained in opaque documentation and would allow regulators to measure market-wide systemic risk arising from, but not limited to, the following: events of default, collateral calculation variables, netting provisions, rehypothecation terms and termination events. The universal utility of a “swap data library” was jointly envisioned by the SEC and CFTC as far back as April 2011. The WMBAA believes that SEFs “will not be able” to creating a coherent resource from the various formats in which master agreements are currently held- paper, pdf, TIFF etc. and have therefore been granted further no-action relief pending a revision of the regulations. Although clearly a significant undertaking, in the much-heralded age of Big Data the task of digitising a relatively small number of agreements is hardly Herculean; this particular no-action saga should be seen as a lost opportunity for both the regulator and the wider market.

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