United States: CFTC Announces Measures To Promote Trading On Swap Execution Facilities And Support An Orderly Transition To Mandatory Trading

On 10 February 2014, the Commodity Futures Trading Commission ("CFTC") announced measures to promote trading on swap execution facilities ("SEFs") and support an orderly transition to mandatory trading of swaps, which begins for certain interest rate swaps on 15 February 2014.

In connection with the commencement of the trading mandate, the CFTC and the Division of Market Oversight ("DMO"), respectively, have taken the following measures:

1) In order to protect the identities of counterparties trading on SEFs and incentivize anonymous trading on regulated platforms, on 10 February 2014, the CFTC issued an interim final rule clarifying that consistent with the requirements of section 21(c)(6) of the Commodity Exchange Act, a party to an anonymous trade executed on a SEF or designated contract market ("DCM") cannot access information in swap data repositories in order to obtain the identity of its counterparty.

The full text of the final rule is available at: http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/federalregist er021014.pdf

2) On 10 February 2014, DMO issued a no-action letter providing relief until 15 May 2014 from mandatory trading of certain swaps executed as part of a "package transaction." Accordingly, DMO reminds SEFs that they may facilitate the trading of swaps subject to the trade mandate, if executed as part of such a "package transaction," only if (i) the methods for executing such swaps comply with the trading protocols applicable to Required Transactions in § 37.9 of the Commission's regulations or (ii) such SEFs have rules in effect that permit the trading of package transactions under the terms of the relief. DMO staff will hold a public meeting on February 12, 2014 to discuss potential challenges surrounding the execution of package transactions through SEFs or DCMs.

The full text of the no-action is available at: http://www.cftc.gov/ucm/groups/public/@newsroom/documents/letter/14-12.pdf

3) DMO published guidance on 10 February 2014 clarifying that while Rule 37.202(b) requires that market participants trading on a SEF consent to its jurisdiction, it is a reasonable interpretation that such consent need not be obtained through an affirmative writing. DMO stated that at this time a SEF may comply with Rule 37.202(b) by providing in its rulebook that any person initiating or executing a transaction on or subject to the rules of the SEF directly or through an intermediary, and any person for whose benefit such a transaction has been initiated or executed, consents to the jurisdiction of the SEF. The full text of the CFTC guidance is available at: http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/dmostaffguid ance021014.pdf

4) DMO announced that it has published on the CFTC's website a centralized list of swaps subject to the mandate. This dedicated webpage is intended to provide notice to market participants of the swaps subject to the mandate and includes specific terms defining each such swap.

A copy of the centralized list of swaps can be found at:

http://www.cftc.gov/ucm/groups/public/@otherif/documents/ifdocs/swapsmadeav ailablechart.pdf

The full text of the CFTC press release is available at: http://www.cftc.gov/PressRoom/PressReleases/pr6853-14

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