CFTC Issues ISDA No-Action Letter on Providing Pre-Trade Mid-Market Marks for Certain CDS and Interest Rate Swaps (with Lofchie Comment)

The CFTC's Division of Swap Dealer and Intermediary Oversight ("DSIO") issued the attached no-action letter that provides swap dealers and major swap participants with relief from the requirement to disclose the pre-trade mid-market mark to counterparties in certain credit default swaps and interest rate swaps which are identified in said no-action letter (Covered Derivative Transactions). The disclosure requirements prescribed in Rule 23.431 state that a SD or MSP must disclose to certain counterparties the pre-trade mid-market mark of a swap. The no-action letter issued today by DSIO states that a SD or MSP need not disclose the pre-trade mid-market mark for a Covered Derivative Transaction prior to the issuance of final CFTC Rules governing the registration of swap execution facilities (SEFs), subject to any compliance implementation period contained therein, provided that:

(1) real-time tradeable bid and offer prices for the Covered Derivative Transaction are available electronically, in the marketplace, to the counterparty; and (2) the counterparty to the Covered Derivative Transaction agrees in advance, in writing, that the swap dealer or major swap participant need not disclose a pre-trade mid-market mark.

The no-action letter also states that a SD or MSP need not disclose the pre-trade mid-market mark for a Covered Derivative Transaction subsequent to the issuance of final CFTC Rules governing the registration of SEFs, subject to any compliance implementation period contained therein, provided that:

(1) real-time executable bid and offer prices for the Covered Derivative Transaction are available on a designated contract market or SEF; and (2) the counterparty to the Covered Derivative Transaction agrees in advance, in writing, that the swap dealer or major swap participant need not disclose a pre-trade mid-market mark.

The relief provided in the no-action letter is available to all swap dealers and major swap participants.

Lofchie Comment: While any and all relief may be welcome to the industry, I think it is going to prove problematic, given the incredible complexity of swap regulation, that so much of the relief granted by the CFTC has been granted subject to conditions including to various documentation and consent requirements. Are firms really going to be able to keep track of all these requirements and keep their salespersons current on which clients have given written consent? Limited conditional relief that requires client-by-client documentation is going to end up being cold comfort.

See: CFTC Letter 12-58: Commission Regulation 23.431; No-Action