On May 1, 2013, the CFTC granted further limited no-action relief under No-action Letter 13-12 (Letter 13-12) to swap dealers (SDs) and major swap participants (MSPs) entering into certain FX transactions with non-SD/non-MSP counterparties from the obligation under CFTC Regulation 23.431 to disclose to their counterparty a pre-trade mid-market mark, as required under final Dodd-Frank external business conduct standards (EBCS) for SDs and MSPs that became effective May 1, 2013. The no-action relief expands the scope of the previous limited no-action relief issued in December 2012.

Regulation 23.431 requires SDs and MSPs to disclose to any non-SD or non-MSP swap counterparty any material information concerning the swap that will allow the counterparty to assess the material incentives and conflicts of interest that the SD or MSP may have in connection with the swap, including the price of the swap and the pre-trade mid-market mark of the swap (PTM). The PTM is the price of the swap as calculated according to the SD or MSP's methodology and assumptions, which methodology and assumptions must be disclosed to the counterparty. The PTM excludes amounts for profit, credit reserve, hedging, funding, liquidity or any other costs or adjustments, and may not necessarily be the value of the swap that is marked on the books of the SD or MSP.

However, under Regulation 23.431, an SD or MSP does not need to provide the PTM to its non-SD/non-MSP swap counterparty if both of the following apply:

The CFTC granted limited no-action relief (Letter 12-42) on December 6, 2012 from the PTM requirement for limited types of FX transactions because it was shown that the PTM that would be disclosed under Regulation 23.431 was substantially similar to publicly available information. The CFTC then received additional requests for no-action relief, asking the CFTC to expand the scope of the no-action relief under Letter 12-42.

In response, the CFTC has granted no-action relief to SDs or MSPs for failure to disclose the PTM to a counterparty in a transaction, as required by Regulation 23.431, as long as:

The CFTC has also granted no-action relief to SDs or MSPs for failure to comply with Regulation 23.341 in connection with a physically-settled FX swap or forward that is exempted from the definition of "swap" by the US Treasury (Exempt FX Transaction) (see Legal Update, FX Swaps and Forwards Exempted from Dodd-Frank Clearing and Exchange Trading Requirements), as long as:

The no-action relief does not extend to any obligation to provide a daily mark or to report a transaction or information concerning a transaction under Part 43 or Part 45 of the CFTC's regulations, which are the final SDR swap data reporting rules and the final real-time data reporting rules (see Practice Note, US Derivatives Regulation: CFTC Swap Data Reporting and Recordkeeping Rules).

For information on other types of derivatives transactions for which the CFTC has provided no-action relief to SDs from the obligation to provide the pre-trade mid-market mark, see Legal Update, Making Sense of All the No-action Swaps Action: Exemption from Obligation to Provide Pre-trade Mid-market Mark for Certain Swaps.

For more information on the CFTC's final external business conduct standards (ECBS) for SDs and MSPs, see Practice Note, Swap Dealers and MSPs: Final Dodd-Frank External Business Conduct (EBC) Rules: Swap Disclosure Documentation Requirements under Final EBC Rules for SDs and MSPs.