The CFTC Division of Swap Dealer and Intermediary Oversight ("DSIO") granted no-action relief to swap dealers ("SDs") acting as a prime broker from providing certain disclosures under CFTC Rule 23.431(a)-(b). According to the DSIO, the relief is intended to facilitate more market participants, particularly prime brokers, to trade swaps on swap execution facilities ("SEFs").
The relief covers the situations in which an SD enters into a prime brokerage arrangement with a client in which the client enters into (i) a swap on an SEF (an "on-SEF transaction") and (ii) an offsetting bilateral transaction with the SD (an "off-SEF transaction"). The DSIO notes that the on-SEF transaction typically will rely on an exception in Rule 23.431(c) for anonymous transactions on a SEF and, given that the terms of the off-SEF transaction are effectively determined by the on-SEF transaction that the client had initiated, the DSIO would not recommend enforcement under the SD for failing to provide relevant disclosures under 23.431(a)-(b) as to the off-SEF transaction.
The relief came in response to a request made by the Financial Markets Lawyers Group.
Commentary / Nihal Patel
The relief was likely primarily intended to address the disclosure of certain pre-trade economic terms that would be wholly irrelevant in the "PB" context. For example, it would make little sense for an SD to disclose the mid-market mark of a swap to a customer that dictated the terms of the swap by entering into the offsetting swap as the SD's agent. However, firms should note that the staff relief is not limited to just those economic terms; it covers all disclosures required under 23.431(a) and (b).
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