Another week, another volte-face from the CFTC. The agency announced Monday evening that packaged swaps will not be immediately subject to the 15th February SEF mandate.
The no-action letter provides relief until 15th May 2014. Packaged swaps are combination swaps, created by the simultaneous execution of multiple legs, such as spread, butterfly and curve trades. These swaps represent a significant percentage of market volume; while they can be disaggregated, if their multiple legs are separately executed, there are attendant trade risks and costs On the 16th January, the CFTC “clarified” that the SEF mandate would apply to packaged swaps if any of its component legs would, in isolation, be subject a MAT ruling. If packaged swaps are not included, the SEF mandate could be trivially sidestepped by adding another leg to an otherwise vanilla swap. In hindsight, the CFTC realises that it not might be as simple as just saying “do it”. The no action letter acknowledges that, in respect of packaged swaps, clearing systems are not currently set up to credit check, screen and accept simultaneous multiple legs. Acting Chairman Mark Wetjen said, presumably without ironic intent, “…we will continue to figure out a more thoughtful solution to these type of transactions”.
 A Saturday, followed by the President’s Day national holiday. The SEF mandate will practically start on 18th February 2014