May 1, 2014

CFTC Further Implements Trade Execution Mandate

Washington, DC — The Commodity Futures Trading Commission’s (CFTC or Commission) Divisions of Market Oversight (DMO) and Clearing and Risk (DCR) announced today further implementation of the trade execution requirement for certain interest rate and credit default swaps. Beginning May 16, 2014, market participants executing swaps subject to the trade execution requirement that are part of a so-called “package transaction” must be traded on a Swap Execution Facility (SEF) or Designated Contract Market (DCM), pursuant to a phased compliance timeline. DMO previously provided no-action relief for certain swaps that otherwise were required to be traded on a SEF or DCM to the extent that those swaps were part of a package transaction.

During the past several weeks, DMO and DCR reviewed comments from market participants, SEFs, DCMs and other interested parties concerning application of the trade execution requirement to package transactions. In addition, the Commission staff hosted a staff roundtable discussion regarding package transactions. Accordingly, DMO and DCR are issuing today CFTC No-Action Letter No. 14-62, providing the following phased compliance timeline for the following package transactions which include at least one swap that has been made available to trade and is therefore subject to the trade execution requirement:

• For package transactions in which all components are swaps that have been made available to trade and are subject to the trade execution requirement, no additional relief is provided beyond 11:59 p.m. (Eastern time) May 15, 2014;
• For package transactions in which the components include at least one swap component that has been made available to trade and is subject to the trade execution requirement; and all other components are swaps subject to the clearing requirement under CEA section 2(h)(1)(A) and § 50.4 of the Commission’s regulations, relief shall be provided until 11:59 p.m. (Eastern time) June 1, 2014;
• For package transactions in which the swap components have been made available to trade and are subject to the trade execution requirement; and all other components are U.S. Treasury securities (U.S. Dollar Swap Spreads), relief shall be provided until 11:59 p.m. (Eastern time) June 15, 2014;
• For package transactions (excluding U.S. Dollar Swap Spreads) in which the components include at least one swap component that has been made available to trade and is subject to the trade execution requirement; and at least one component that is not a swap, relief shall be provided until 11:59 p.m. (Eastern time) November 15, 2014;
• For package transactions in which the components include at least one swap component that has been made available to trade and is subject to the trade execution requirement; and at least one swap component that is under the Commission’s exclusive jurisdiction and not subject to the clearing requirement under CEA section 2(h)(1)(A) and § 50.4 of the Commission’s regulations, relief shall be provided until 11:59 p.m. (Eastern time) November 15, 2014;
• For package transactions in which the components include at least one swap component that has been made available to trade and is subject to the trade execution requirement; and at least one swap component that is a swap over which the Commission does not have exclusive jurisdiction, relief shall be provided until 11:59 p.m. (Eastern time) November 15, 2014.

In addition, further time-limited relief is provided for the clearing of package transactions as follows. SEFs and DCMs will have time-limited no-action relief from Commission Regulation 37.9(a)(2) regarding methods of execution for required or permitted 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 implement rules that establish a “new trade, old terms” procedure. This no-action relief shall commence on May 16, 2014 and be provided until 11:59 p.m. (Eastern time) September 30, 2014.

Last Updated: May 1, 2014