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CFTC Further Extends SEF Relief From Certain Block Trade Requirements
Practical Law Legal Update w-003-8895 (Approx. 3 pages)
CFTC Further Extends SEF Relief From Certain Block Trade Requirements
by Practical Law Finance
| Published on 12 Oct 2016 • USA (National/Federal) |
The CFTC further extended until November 15, 2017 no-action relief for swap execution facilities (SEFs) from certain block trade requirements under CFTC Regulation 43.2.
On October 7, 2016, the CFTC issued No-Action Letter 16-74 (No-Action 16-74), which further extends until November 15, 2017 relief granted to swap execution facilities (SEFs) from the requirement under CFTC Regulation 43.2 that block trades occur away from the trading system or platform of a registered SEF or designated contract market (DCM) (17 C.F.R. § 43.2).
This is an extension of relief granted in No-Action Letter 15-60 (No-Action 15-60), which was set to expire on November 15, 2016 (see Legal Update, CFTC Further Extends SEF Block Trade Relief).
The relief was requested in a letter from the Wholesale Markets Brokers' Association, Americas (WMBAA) on September 21, 2016. The WMBAA requested the extension due to uncertainties regarding feasibility of futures commission merchant (FCM) and SEF compliance with CFTC Regulation 43.2 along with CFTC Regulations 1.73 and 37.702(b) regarding credit and straight-through processing requirements for block trades executed off-facility.
CFTC Regulation 43.2 defines a block trade as a publicly reportable swap that "[o]ccurs away from the registered [SEF's] … trading system or platform and is executed pursuant to the registered [SEF's] … rules and procedures."
No-Action 16-74 permits SEFs to temporarily facilitate block trades for swaps on a SEF trading system or platform. The relief is subject to the same conditions as set forth in No-Action 15-60:
- The block trade must not be executed using the SEF's order book functionality, as defined in CFTC Regulation 37.3(a)(3) (17 C.F.R. § 37.3(a)(3)).
- The SEF must adopt rules regarding cleared block trades that indicate the SEF intends to rely on the relief extended in No-Action 16-74 and that each cleared block trade executed on a non-order-book trading system or platform complies with CFTC Regulation 43.2.
- The block trade must:
- involve a swap that is listed on a registered SEF;
- be executed pursuant to the SEF's rules and procedures;
- meet the notional or principal amount at or above the appropriate minimum block trade size applicable to the swap; and
- be reported to a swap data repository (SDR).
- The FCM must complete the pre-execution credit check as required by CFTC Regulation 1.73 at the time the order for a block trade enters the SEF's non-order book trading system or platform (17 C.F.R. § 1.73).
- The block trade must be subject to "void ab initio" requirements if the swap is rejected on the basis of credit.
This relief further extends relief granted under No-Action Letter 14-118 (see Legal Update, CFTC Issues Limited Relief to SEFs, DCOs, DCMs from Certain Dodd-Frank Rules).