CFTC No-Action Letter on the Obligation of Providing a Pre-Trade Mid-Market Mark for Certain Foreign Exchange Transactions

The CFTC Division of Swap Dealer and Intermediary Oversight (DSIO) has issued the attached no-action letter providing swap dealers with relief from the requirement to disclose the pre-trade mid-market mark to counterparties in certain FX transactions that are identified in the no-action letter (“Covered Forex Transactions”). The disclosure requirements prescribed in Rule 23.431 ("Disclosures of material information") state that a swap dealer or major swap participant must disclose to certain counterparties the pre-trade mid-market mark of a swap. This no-action letter states that a swap dealer or major swap participant need not disclose the pre-trade mid-market mark for a Covered Forex Transaction, provided that:

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

Covered Forex Transactions are those in the top 13 deliverable foreign currencies (see the list of currencies in footnote 4 of the letter) that (i) in the case of forex swaps and forwards have a stated maturity of not more than one year and (ii) in the case of physically-settled vanilla forex options have a stated maturity of not more than six months.

Lofchie Comment: The "written agreement in advance" requirement is just one more documentation burden put on both dealers and customers. I have to believe that the regulators have little idea of the difficulty of obtaining, maintaining and organizing information as to hundreds and thousands of counterparties.

See: CFTC Letter 12-42: Commission Regulation 23.431; No-Action