CFTC Provides Temporary No-Action Relief for SEFs from Certain Block Trade Requirements (CFTC Letter 14-118)

The CFTC's Division of Market Oversight ("DMO") provided temporary no-action relief concerning Swap Execution Facility ("SEF") access for block trade execution. This relief is intended to facilitate market compliance with credit screening and efficient straight-through processing requirements for block trades. This temporary relief to SEFs expires on December 15, 2015.

According to the CFTC, there are concerns, due to technological limitations, about the ability to perform pre-execution credit checks for block trades away from the facility. DMO is providing this relief to SEFs from the "occurs away" requirement under CFTC Rule 43.3 ("Method and Timing for Real-Time Public Reporting") to allow SEFs to facilitate the execution of block trades on their non-Order Book trading systems or platforms.

The relief is subject to the following conditions:

• the block trade is not executed on the SEF's Order Book functionality;
• the SEF adopts rules pertaining to cleared blocks that indicate that the SEF is relying on the relief provided in the no-action letter and that require each cleared block trade executed on a non-Order Book trading system or platform to comply with the other requirements set forth in the block trade definition;
• the futures commission merchant completes the pre-execution credit check at the time the order for a block trade enters the SEF's non-Order Book trading system or platform; and
• the block trade is subject to void ab initio requirements where the swap is rejected on the basis of credit.

Parties to a swap who do not use the SEF functionalities provided by this letter must ensure the required credit check occurs before execution.

See: CFTC Letter 14-118.