CFTC Withdraws Advisory on SEF-Related Prime Brokerage Arrangements

The CFTC's Division of Clearing and Risk withdrew its Staff Advisory Relating to Prime Brokerage Arrangements and Derivatives Clearing Organization Registration, effective immediately. 

In the withdrawn Advisory ("Letter No. 23-06"), the Division encouraged persons using prime brokerage arrangements in certain swap execution facilities ("SEF") to consider whether the arrangements required derivatives clearing organization ("DCO") registration. As previously covered, the Division found potential DCO registration issues in SEF structures (or firms seeking to register as SEFs) that "require the use of a single prime broker to provide centralized credit substitution to all SEF participants." In the withdrawn advisory, the Division said it did not believe that all prime brokerage arrangements would meet the DCO definition in CEA Section 1a(15) ("Definitions") and it had informed several SEFs and SEF applicants that their structures would require registration.

The withdrawal notice offered no guidance as to the CFTC's ongoing position on the arrangements; the Division advised market participants to "contact [CFTC] staff ... regarding the potential need to register as a derivatives clearing organization."