On June 25, 2020, the CFTC approved a new rule under § 37.9(d) of its regulations (PTNGU rule). The new rule prohibits a SEF from directly or indirectly disclosing the identity of a counterparty to a swap that is (i) intended to be cleared, and (ii) executed, pre-arranged, or pre-negotiated anonymously on, or pursuant to the rules of, a SEF (PTNGU prohibition).[1] The PTNGU prohibition does not apply to swaps that are not intended to be executed anonymously, such as trades done via a name-disclosed request for quote.[2] The PTNGU rule also requires a SEF to establish and enforce rules that prohibit any person from effectuating such a disclosure.[3] The PTNGU rule provides an exception to the prohibition on post-trade name give-up for package transactions that include a component transaction that is not a swap intended to be cleared.[4] The Commission adopted the PTNGU rule with a phased compliance schedule. For swaps that are “made available to trade” and therefore subject to the trade execution requirement under Commodity Exchange Act (“CEA”) section 2(h)(8)[5] (MAT swaps), SEFs must comply with § 37.9(d) no later than November 1, 2020. For swaps not subject to the trade execution requirement under CEA section 2(h)(8), SEFs must comply with § 37.9(d) no later than July 5, 2021.
The following FAQ was developed by the Division of Market Oversight (DMO) in response to questions from market participants in advance of the November 1 compliance date:
When does the PTNGU prohibition become effective with respect to package transactions that include both (i) one or more MAT swaps (which are subject to a compliance date of November 1, 2020); and (ii) one or more non-MAT swaps that are intended to be cleared (which are subject to a compliance date of July 5, 2021)?
Commission Regulation 37.9(d) prohibits a SEF from directly or indirectly disclosing the identity of a counterparty to a swap that is subject to the prohibition on post-trade name give-up. Therefore, if disclosing the identity of a counterparty of a non-MAT swap would indirectly disclose the identity of a counterparty of a MAT swap, a SEF may not engage in post-trade name give-up with respect to either transaction as of November 1, 2020.
Participant A is a counterparty to a package transaction that contains a MAT swap and a non-MAT swap that is intended to be cleared. Participant B is Participant A’s counterparty with respect to the MAT swap, and Participant C is Participant A’s counterparty with respect to the non-MAT swap. Is post-trade name give-up permissible with respect to the non-MAT swap?
Between November 1, 2020 and July 5, 2021, post-trade name give-up between Participants A and C with respect to a non-MAT swap would be permissible only if there is no direct or indirect disclosure of the counterparties to the MAT swap. For example, Participants B and C are not directly or indirectly made aware that Participant A is a counterparty to the MAT swap; and Participants A and C are not directly or indirectly made aware that Participant B is a counterparty to the MAT swap. Beginning July 5, 2021, post-trade name give-up with respect to the non-MAT swap is also prohibited.
With respect to a non-MAT swap that is voluntarily cleared, is post-trade name give-up prohibited if the SEF does not know at the time of execution whether the transaction will be (i) cleared through a clearinghouse, or (ii) settled bilaterally between the counterparties?
As stated in the final PTNGU rule release, “to the extent a SEF’s current systems do not indicate whether a swap is intended to be cleared . . . the SEF must make necessary adjustments to its systems and processes to ensure that it can determine whether a swap is intended to be cleared before permitting post-trade name give-up.” 85 FR 44693, 44698 (July 24, 2020).
SEFs currently utilize functionalities and processes that reject an attempt by a branch of a bank to execute against the order of another branch of the same bank, by identifying a matching LEI on both sides of the transaction. May SEFs notify the parties as to the reason for the rejection of the trade, which may result in disclosure of the counterparty name of the affiliate branch?
In these circumstances, SEFs may notify the counterparties that the trade was rejected because the counterparty LEIs are the same.