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RELEASE: pr7055-14

  • November 10, 2014

    CFTC Further Implements Trade Execution Requirement

    Washington, DC — The Commodity Futures Trading Commission’s (CFTC or Commission) Division of Market Oversight (Division) announced today further implementation of the trade execution requirement for certain interest rate and credit default swaps. The Division previously provided no-action relief for certain swaps required to be traded on a swap execution facility (SEF) or designated contract market (DCM) to the extent that those swaps were part of a package transaction. The Division has determined that further relief is appropriate to enable market participants the necessary time to fully comply with the trade execution requirement with respect to swap components of certain categories of package transactions.

    Market participants will also have the opportunity to transition their trading of these swap components onto SEFs and DCMs.

    The Division has tailored the relief by category—for example, SEFs and DCMs are provided with flexibility in offering methods of execution for swap components of certain package transactions via their trading systems, facilities, or platforms. Finally, with respect to certain categories of package transactions, the time-limited relief will enable the Division to gather data not previously available to the agency to further assess whether SEFs and DCMs can appropriately offer the capability to transact swap components of such package transactions via competitive means of execution.

    Accordingly, the Division is issuing today CFTC No-Action Letter No. 14-137, providing the following phased compliance timeline below. This summary is intended to be used for reference only and does not represent any grant of no-action relief from the Commodity Exchange Act or the Commission’s regulations. Please refer to CFTC Letter 14-137 for the grant of Division relief.

    Last spring, the Division, through two previously issued no-action letters, provided similar no-action relief for certain package transactions. The no-action relief for some of these package transactions expired and trading of the swap components for these package transactions are now subject to the trade execution requirement.

    Package 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) until February 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.

    Last Updated: November 10, 2014

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