November 2, 2015

CFTC’s Division of Market Oversight Extends Time-Limited No-Action Relief for Swap Execution Facilities from Certain “Block Trade” Requirements

Washington, DC — The U.S. Commodity Futures Trading Commission’s (Commission) Division of Market Oversight (Division) today extended time-limited no-action relief to Swap Execution Facilities (SEFs) from certain requirements in the definition of “block trade” in Commission regulation Section 43.2.

Commission regulation Section 43.2 defines a “block trade” as, among other things, a publicly reportable swap transaction that “[o]ccurs away from the registered [SEF]’s or [DCM]’s trading system or platform and is executed pursuant to the registered [SEF]’s or [DCM]’s rules and procedures.”

The No-Action Letter extends time-limited relief to SEFs from the “occurs away” requirement under Section 43.2 until November 15, 2016, at 11:59 pm EST. The extended relief will provide the Division staff time to continue to review and evaluate SEF trading practices and functionalities for pre-execution credit checks. The extension will also allow the Division to consider, develop and evaluate best practices and more permanent solutions to the issues involved in screening block trade orders for compliance with risk-based limits including, if appropriate, amendments to Commission regulations.

The relief is subject to the following conditions:

• The block trade is not executed on the SEF’s Order Book functionality, as defined in Section 37.3(a)(3);
  
  
• The SEF adopts rules pertaining to cleared blocks that indicate that the SEF is relying on the relief provided in the no-action letter and that require each cleared block trade executed on a non-Order Book trading system or platform to comply with the other requirements in the block trade definition in Section 43.2;
  
  
• The FCM completes the pre-execution credit check pursuant to Section 1.73 at the time the order for a block trade enters the SEF’s non-Order Book trading system or platform; and
  
  
• The block trade is subject to void ab initio requirements where the swap is rejected on the basis of credit.

Parties to a swap who do not use the SEF functionalities provided by this letter must ensure the required credit check occurs before execution.

Last Updated: November 2, 2015