Triple International Financial Law Review Articles on SEFs
IFLR.com
Linked below are three articles that were published in the International Financial Law Review ("IFLR") and pertain principally to three recent CFTC regulations related to swap-execution facilities ("SEFs") and other recent CFTC SEF-related actions. Together, these provide an excellent prÉcis on the CFTC's May 2013 final regulations with respect to SEF core principles and other requirements, "Made Available to Trade" determinations and minimum block trade sizes, as well as some of the major related implementation and cross-border issues.
"First Steps on the Path Forward" was co-authored by Robert Dilworth (Bank of America Merrill Lynch), James Schwartz (Morrison Foerster) and Marissa Golden (formerly of Morrison Foerster) for the September 2013 issue of IFLR. It provides a practical summary of the three CFTC regulations, and compares the progress that the U.S. and EU have made since the 2009 G20 leaders' agreement that standardized swaps should be centrally cleared and executed on regulated platforms. It also compares and contrasts relevant CFTC, SEC and EU rules (final or proposed) for, respectively, SEFs, Security-Based Swap Execution Facilities and Multilateral Trading Facilities / Organized Trading Facilities. The article also reviews both the July 12, 2013, "Path Forward" statement between the CFTC and the European Commission, and the CFTC's final Cross-Border Guidance, as they relate to mandatory trade execution in the transatlantic context.
The second and third articles are updates by Robert Dilworth that discuss the numerous implementation challenges in the follow-up to the CFTC's October 2, 2013, SEF registration deadline. "Update: The Path Forward" is an introduction to problems with respect to participant onboarding, SEF-issued confirmations, clearing certainty and extra-territoriality, which culminate for many SEFs and other market participants in the desire for more time to prepare an orderly transition with minimal market disruption.
The third article and second update, "The Latest Developments," was published immediately after the two-week U.S. federal government shutdown and the October 2 SEF launch. It discusses the status of the transition and several CFTC no-action letters that made possible the arguably nominal observance of the deadline. These letters offered very time-limited and conditional relief to certain SEFs and participants for full compliance with onboarding, rule enforcement, reporting, confirmation and other obligations. The article also describes the CFTC's September 26 guidance letter with respect to clearing certainty in an emerging straight-through-processing environment.
The two updates also mention a prolonged uncertainty over the application of the CFTC's SEF registration requirement (particularly in footnote 88 of the CFTC's final SEF rule) to non-U.S. multilateral platforms that trade "swaps" with participants having varying degrees of U.S. nexus, as well as the resulting liquidity fragmentation. The second update questions whether continued uncertainty is consistent with the spirit of the "Path Forward," since the CFTC had stated the intent to extend appropriate time-limited transitional relief to EU MTFs in the event that the CFTC's SEF trading mandate applies before March 15, 2014 (costly registration and compliance now might be for naught if excused later). (Editor's note: A study published August 30 by a G20 subgroup of financial services regulators in response to an April 2013 mandate by G20 Finance Ministers and Central Bank Governors had called for the adoption of "appropriate transitional measures and a reasonable but limited transition period" for foreign entities to implement OTC derivatives reforms. Also, on September 30, EU Financial Services Commissioner Michel Barnier requested the CFTC to grant such platforms a five-month extension from enforcement of the SEF registration requirement.)
To read the full articles, see: "EU-US Derivatives Regulation: First Steps on the Path Forward" (authored by James E. Schwartz, Marissa N. Golden and Robert J. Dilworth); "EU-US Derivatives Regulation Update: The Path Forward" (authored by Robert J. Dilworth); "EU-US Derivatives Regulation: The Latest Developments" (authored by Robert J. Dilworth). These articles were used with the permission of International Financial Law Review (www.IFLR.com); all rights reserved.
Related News: "CFTC Issues Time-Limited No-Action Letter for FCMs and SEFs (13-62) (with Lofchie Comment)" (October 1, 2013); "CFTC Issues Time-Limited No-Action Letter Relief for Temporarily Registered SEFs and Designated Contract Markets from the One-Business-Day Product Review Period Requirement (13-60)" (October 1, 2013); "CFTC's DMO Issues Time-Limited No-Action Relief for Temporarily Registered SEFs (with Lofchie Comment)" (September 30, 2013); "Two CFTC No-Action Letters (13-55 and 13-56) on Swap Data Reporting (with Lofchie Comment)" (September 30, 2013); "CFTC's DMO Provides Time-Limited No-Action Relief to SEFs and Market Participants (with Lofchie Comment)" (September 27, 2013); "CFTC Issues Staff Guidance on Swaps Straight-Through Processing (with Delta Strategy Group Summary)" (September 27, 2013).