June 10, 2016

CFTC Extends No-Action Relief to SEFs and DCMs from Certain CFTC Regulations for Correction of Errors

Washington, DC — The U.S. Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight (DMO) and Division of Clearing and Risk (together, the Divisions) today issued a no-action letter extending the relief provided in CFTC Letter No. 15-24, which expires on June 15, 2016. That no-action letter provides relief from certain CFTC regulations to permit swap execution facilities (SEFs) and designated contract markets (DCMs) to correct clerical or operational errors that caused a swap to be rejected for clearing and thus become void. The no-action letter also permits SEFs and DCMs to correct clerical or operational errors discovered after a swap has been cleared.

Specifically, to enable SEFs and DCMs to correct clerical or operational errors that cause a swap to be rejected for clearing, the Divisions will not recommend that the CFTC take any enforcement action against a SEF or DCM for failure to comply with the required methods of execution in CFTC Regulations 37.9(a)(2) and 38.500 and the prohibition against pre-arranged trading in CFTC Regulations 37.203 and 38.152 if, within one hour after a trade has been rejected for clearing, the SEF or DCM corrects an error by permitting a new, pre-arranged trade with terms and conditions that match the terms and conditions of the original trade, other than any such error and time of execution, to be submitted for clearing, without having been executed pursuant to methods in CFTC Regulations 37.9(a)(2) or 38.500.

The relief also enables SEFs and DCMs to correct operational or clerical errors that are not discovered until after a swap has been cleared. The Divisions will not recommend that the CFTC take any enforcement action against a SEF or DCM for failure to comply with the required methods of execution in CFTC Regulations 37.9(a)(2) and 38.500 and the prohibition against pre-arranged trading in CFTC Regulations 37.203 and 38.152 if, after a trade has been cleared and an error is discovered, the SEF or DCM permits a pre-arranged trade between the original parties that offsets the swaps carried on the DCO’s books, without that trade having been executed pursuant to required methods of execution in CFTC Regulations 37.9(a)(2) and 38.500. The SEF or DCM may also permit the original or intended counterparties to enter into a pre-arranged transaction that reflects the correct terms to which the parties agreed without that trade having been executed pursuant to the required methods of execution in CFTC Regulations 37.9(a)(2) and 38.500 and without violating the prohibition against pre-arranged trading in CFTC Regulations 37.203 and 38.152.

The no-action letter announced today extends relief to the earlier of 11:59 pm (Eastern Time) June 15, 2017 or the effective date of revised CFTC regulations that establish a permanent solution to addressing clerical or operational errors. The relief is subject to the terms and conditions in the letter.

Last Updated: June 10, 2016