On October 18, 2013, swap execution facility (SEF) Javelin SEF, LLC submitted for CFTC certification the first "made available to trade" (MAT) determination under final Dodd-Frank Title VII swaps rules (Part 37 of the CFTC Regulations). The MAT covers most commonly traded interest rate swaps and could expedite the wholesale movement of the interest rate swaps market onto derivatives exchanges. Swaps for which the CFTC has certified a MAT determination must be executed on a swap execution facility (SEF) or designated contract market (DCM) in accordance with the trade execution requirement under section 2(h)(8) of the Commodity Exchange Act (CEA), and may no longer be traded bilaterally as bespoke swaps.

On October 21, 2013, DCM TrueEx also submitted a MAT determination for CFTC certification, but for a much narrower segment of interest rate swap products.

The CFTC has stayed both the Javelin and TrueEx submissions, allowing comment on the Javelin submission until November 19, 2013 and allowing comment on the TrueEx submission until November 21, 2013. Thereafter, the CFTC's extended analysis periods on these certifications will end on January 16, 2014 and January 20, 2014, respectively.

Under CFTC Regulation 40.6, SEFs and DCMs may make an initial determination that certain types of swaps have been MAT. The infrastructure's MAT determination, if not objected to or stayed by the CFTC, goes into effect 10 days after submission, requiring exchange trading of these swaps on a SEF or DCM. Under CFTC Regulations 40.6(c) and 40.7(a)(2)(iii), the CFTC has the authority to stay MAT submissions in order to request comment and gain additional time to analyze the submissions. Determinations are not infrastructure specific, meaning that if one determination is certified, then all swaps covered by that determination must be exchange traded but are not required to be traded on the infrastructure that sought the determination.

The Javelin application includes all interest rate swaps with tenors between 1 day and 51 years, payable at various intervals, including monthly, quarterly, semi-annually and annually and denominated in:

The TrueEx application only includes swaps with the most common tenors that have the greatest liquidity and that trade with the highest frequency: swaps with tenors of 2, 3, 5, 7, 10, 15, 20 and 30 years, payable semi-annually, and with a floating rate index based on LIBOR.

These swaps are all currently available to trade on exchanges but they may still be entered into bilaterally until the MAT is certified by the CFTC. The two applications outlined two different approaches to these determinations, with Javelin applying for a determination on an entire set of interest rate swaps with a range of tenors and TrueEx only applying for a determination on the most commonly traded and liquid types of interest rate swaps.

By including the entire range of interest rate swaps with tenors between 1 day and 51 years in its MAT analysis, Javelin's determination could expedite the movement of the vast majority of the interest rate swaps market onto exchanges. This could present logistical problems but offers a clear deadline. By contrast, in only making the most common swaps available to trade, TrueEx estimates that its determination would only force about half of the interest rate swaps market onto exchanges based on the comparable futures market. While the Truex proposal would allow a more gradual transition to exchange traded interest rate swaps, it may also complicate the transition by forcing market participants to determine if a specific swap has been MAT before being able to proceed with any particular transaction. This could pose particular problems for commercial end users that are less familiar with the swaps market or that may not be current with specific MAT certifications.

To learn more about mandatory swap clearing and exchange trading under Title VII and related rulemaking, see Practice Note, Summary of the Dodd-Frank Act: Swaps and Derivatives: Swap Clearing and Exchange Trading under Title VII.

For more information on SEFs, see Legal Update, SEFs Go Live, CFTC Issues Limited No-action Relief from Some SEF Rules.

For details on DCMs, see Practice Note, Summary of the Dodd-Frank Act: Swaps and Derivatives: Swap and SBS Clearinghouses: DCOs and Clearing Agencies.