September 30, 2014

CFTC Staff Announced Extension of No-Action Relief Concerning Certain Straight Through Processing Obligations for SEFs and DCMs from Compliance with Certain Requirements of Commission Regulations for Package Transactions

Washington, DC — The U.S. Commodity Futures Trading Commission’s (CFTC) Divisions of Clearing and Risk and Market Oversight (Divisions) today announced that Swap Execution Facilities (SEFs) and Designated Contract Markets (DCMs) will have time-limited no-action relief from Commission Regulation 37.9(a)(2) regarding methods of execution for required transactions, or Commission Regulations 37.203(a) and 38.152 that prohibit pre-arranged trading, if a SEF or DCM permits a new trade, with terms and conditions that match the terms and conditions of the original trade, other than the time of execution, to be submitted for clearing. Effectively, SEFs and DCMs will be permitted to continue to use a “new trade, old terms” procedure that had previously been extended as part of implementation of the trade execution requirement for certain interest rate and credit default swaps [see Swaps Made Available To Trade Chart]. This no-action relief shall commence on the date of issuance of this letter and shall expire on February 16, 2015.

On September 26, 2013, the Divisions issued Staff Guidance on Swaps Straight-Through Processing (Staff Guidance). In the guidance, the staff stated, among other things, that:

  • Clearing FCMs must screen orders for execution on a SEF or DCM pursuant to either Commission Regulation 1.73(a)(2)(i) or (ii) regardless of the method of execution;

  • Pursuant to Commission Regulations 37.702(b) and 38.601(b), each SEF and DCM must make it possible for Clearing FCMs to screen as required by Regulation 1.73 on an order-by-order basis;

  • SEFs and DCMs must have rules stating that trades that are rejected from clearing are void ab initio; and

  • SEFs, DCMs, FCMs, and SDs may not require breakage agreements as a condition for trading swaps intended for clearing on a SEF.

On May 1, 2014 [see CFTC Press Release 6918-14], the Divisions granted no-action relief from the same requirements of § 37.9(a)(2), § 37.203(a) and § 38.152 of the Commission’s regulations for package transactions. The no-action relief granted in CFTC Letter No. 14-62 provided, in part, that subject to specified conditions, SEFs and DCMs would be permitted to establish a “new trade, old terms” procedure for legs of a package transaction that had been rejected from clearing because of the sequencing of submission of the legs of a package transaction. In granting that relief, the Divisions considered efforts by industry to implement solutions which would allow the legs of a package transaction to be measured together.

Since the grant of the no-action relief on May 1, 2014, market participants have continued efforts to develop and implement technological solutions that would allow for the legs of a package transaction to be measured together. According to market participants, however, these technological solutions will not be implemented by the expiration date, as previously anticipated, of the relevant no-action relief granted in CFTC Letter No. 14-62. Therefore the Divisions have extended this time-limited relief, with a minor change to the time frame for resubmission and a clarification relating to customer consent to resubmission, for the clearing of package transactions.

Last Updated: September 30, 2014