CFTC Announces Extension of No-Action Relief Concerning Certain Straight-through Processing Obligations for SEFs and DCMs (CFTC Letter 14-121)

The CFTC Divisions of Clearing and Risk and Market Oversight announced that swap execution facilities ("SEFs") and designated contract markets ("DCMs") will have time-limited no-action relief from certain CFTC rules if a SEF or DCM permits a new trade, with terms and conditions that match those of the original trade other than time of execution, to be submitted for clearing.

Specifically, the CFTC announced that SEFs and DCMs will have time-limited no-action relief from CFTC Rule 37.9(a)(2) ("Methods of Execution for Required and Permitted Transactions"), or CFTC Rule 37.203(a) ("Rule Enforcement Program") and Rule 38.152 ("Abusive Trading Practices Prohibited"), both of which prohibit prearranged trading.

Essentially, SEFs and DCMs will be permitted to continue to use a "new trade, old terms" procedure that had been extended previously as part of the implementation of the trade execution requirement for certain interest rate and credit default swaps. The no-action relief will begin on September 30, 2014, and expire on February 16, 2015.

The no-action relief is an extension of the relief granted in Letter 14-62, which granted relief from the same requirements of CFTC Rules 37.9(a)(2), 37.203(a) and 38.152 and permitted SEFs and DCMs to establish a "new trade, old terms" procedure for legs of a package transaction that had been rejected from clearing because of the submission sequence of the legs. In granting that relief, the CFTC considered efforts by industry to implement solutions that would allow the legs of a package transaction to be measured together.

According to the CFTC, while market participants have continued their efforts to develop and implement technological solutions that would allow for the legs of a package transaction to be measured together, these solutions will not be implemented by the expiration date of Letter 14-62. Therefore, the CFTC extended the relief for the clearing of package transactions, with a minor change to the time frame for resubmission and clarification relating to customer consent to resubmission.

See: CFTC Letter 14-121; CFTC Press Release.
Related news: CFTC Issues Staff Guidance on Swaps Straight-through Processing (with Delta Strategy Group Summary) (September 27, 2013); CFTC Provides No-Action Relief for "Package Transactions" (CFTC Letter 14-62) (with Patel Comment) (May 1, 2014).