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Package swap procrastination postponed

The CFTC has issued a fourth no-action letter, extending relief for certain package swaps. Regulations 37.9 and 37.3(a)(2) will not be enforced until expiry of the relief on 15 November 2016 for the following package combinations:

  • MAT Swap/New Issuance Bond- an MAT swap and a primary market bond
  • MAT Swap/Futures- may include Treasury/Eurodollar futures
  • MAT Swap/Uncleared Swap- eg. Cleared swap and swaption
  • MAT Swap/Non-Swap- eg. Cleared swap and single-name CDS
  • MAT Swap/Non-CFTC Swap eg. Cleared Swap and security-based Swap under SEC jurisdiction

Commissioner Giancarlo issued a terse statement,

“After four delays, the CFTC should admit that forcing certain complex package transactions to trade via SEFs’ limited execution methods for Required Transactions is simply not workable. As I have previously stated, the package transaction issue is an example of the CFTC’s misguided approach to SEF execution.”

Although estimates vary widely, package trades certainly make up a significant proportion of market turnover. Aside from the largely interdealer Cleared/Cleared and Cleared/UST packages which continues to be subject to enforcement, it is difficult to see how the CFTC can begin to deal with the above combinations. Typically traded simultaneously and quoted as a single unit, the trades that make up a package are often still booked separately without any post-execution identifying link. Until a uniform, market-wide taxonomy and tagging system can be agreed and applied, even pre-trade credit checking of packages will remain an elusive goal.

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