CFTC Further Delays Package Swaps Exchange Trading | Practical Law

CFTC Further Delays Package Swaps Exchange Trading | Practical Law

The CFTC issued a revised timeline for the phase-in of mandatory exchange trading of certain packaged transactions that include a swap component which is subject to the trade execution requirement under Title VII of the Dodd-Frank Act.

CFTC Further Delays Package Swaps Exchange Trading

Practical Law Legal Update 6-587-9005 (Approx. 4 pages)

CFTC Further Delays Package Swaps Exchange Trading

by Practical Law Finance
Published on 12 Nov 2014 • USA (National/Federal)
The CFTC issued a revised timeline for the phase-in of mandatory exchange trading of certain packaged transactions that include a swap component which is subject to the trade execution requirement under Title VII of the Dodd-Frank Act.
On November 10, 2014, the CFTC issued No-action Letter 14-137 (No-action 14-137), providing a revised timeline for the phase-in of mandatory exchange trading for package transactions that include a swap which is subject to the trade execution requirement under Title VII of the Dodd-Frank Act. Under the Title VII trade execution requirement, swaps that have been made available to trade (MAT) must be entered into on a swap execution facility (SEF) or designated contract market (DCM) (see Practice Note, The Dodd-Frank Act: Swap Clearing and Exchange Trading under Title VII: Swap Exchange Trading under Title VII).
A package transaction is a transaction involving two or more instruments that:
  • Is executed between two or more counterparties.
  • Is priced or quoted as one economic transaction with simultaneous or near simultaneous execution of all components.
  • Has at least one component that is a swap that is made available to trade and therefore is subject to trade execution requirements under section 2(h)(8) of the Commodity Exchange Act (CEA).
  • The execution of each component is contingent upon the execution of all other components.
No-action 14-137 was issued in response to letters received from market participants requesting, among other things, an extension of the no-action relief provided in No-action Letter 14-62 (No-action 14-62) (see Legal Update, Exchange-trading Timeline for Package Swaps Set by CFTC).
No-action 14-137 provides the following revised timeline for compliance with trade execution requirements for the following package transactions that involve a swap that is subject to Title VII MAT requirements:
  • MAT swap and agency mortgage-backed Securities (MBS) package transactions. Package transactions in which each of the swap components is subject to the trade execution requirement and all other components are agency mortgage-backed securities must comply with the Title VII trade execution requirement by 11:59 p.m. ET on May 15, 2015.
  • MAT swap and new-issuance bond package transactions. Package transactions that include at least one individual swap component that is subject to the trade execution requirement and at least one individual component that is a bond issued and sold in the primary market must comply with the Title VII trade execution requirement by 11:59 p.m. ET on February 12, 2016.
  • MAT swap and futures package transactions. Package transactions that include at least one individual swap component that is subject to the trade execution requirement and all other components that are contracts for the purchase or sale of a commodity for future delivery (futures contracts) must comply with the Title VII trade execution requirement by 11:59 p.m. ET on November 14, 2015.
  • MAT swap and non-MAT uncleared package transactions. For package transactions that include at least one individual swap component that is subject to the trade execution requirement and at least one individual swap component that is subject to the CFTC's exclusive jurisdiction but not subject to the clearing requirement under section 2(h)(1)(A) of the CEA and section 50.4 of the CFTC's regulations, the following compliance dates apply:
    • entities or counterparties executing the swap components of a MAT/non-MAT uncleared package transaction must comply with the Title VII trade execution requirement by 11:59 p.m. ET on February 15, 2015; and
    • SEFs and DCMs that facilitate trading the swap components of a MAT/non-MAT uncleared package transaction must comply with the Title VII trade execution requirement by 11:59 p.m. ET on February 12, 2016.
  • MAT swap and non-swap package transactions. For package transactions that include at least one individual swap component that is subject to the Title VII trade execution requirement and at least one individual component that is not a swap:
    • entities or counterparties executing the swap components of a MAT/non-swap package transaction must comply with Title VII trade execution requirement by 11:59 p.m. ET on February 15, 2015; and
    • SEFs and DCMs that facilitate trading the swap components of a MAT/non-swap package transaction must comply with the Title VII trade execution requirement by 11:59 p.m. ET on February 12, 2016.
  • MAT swap and non-CFTC swap package transactions. For package transactions that include at least one individual swap component that is subject to the Title VII trade execution requirement and at least one individual swap component that is a swap over which the CFTC does not have exclusive jurisdiction:
    • entities or counterparties executing the CFTC-swap components of a MAT/non-CFTC swap package transaction must comply with the Title VII trade execution requirement by 11:59 p.m. ET on February 15, 2015; and
    • SEFs and DCMs that facilitate trading the CFTC-swap components of a MAT/non-CFTC swap package transaction must comply with the Title VII trade execution requirement by 11:59 p.m. ET on February 12, 2016.
No-action 14-137 does not extend the timeline for compliance with trade execution requirements for the following package transactions:
  • Multiple MAT swaps. For package transactions in which all the components are swaps subject to the Title VII trade execution requirement, relief expired on May 15, 2014 under CFTC No-action Letter 14-12.
  • MAT swap and non-MAT swap. For package transactions in which at least one of the components is subject to the Title VII trade execution requirement and all the other components are subject to the Title VII mandatory swap clearing requirement, relief expired on June 1, 2014 under No-action 14-62.
  • US-dollar swap spreads. For package transactions in which all the swap components are subject to the Title VII trade execution requirement and all other components are US Treasury securities, relief expired on June 15, 2014 under No-action 14-62.
For more detail on past compliance deadlines for Title VII trade execution requirements, see Legal Update, Exchange-trading Timeline for Package Swaps Set by CFTC and Legal Update, MAT Summary: CFTC Swap Exchange-trading Mandates and Effective Dates.