CFTC Staff Grants No-Action Relief from Pre-Trade Mid-Market Mark Disclosure

The CFTC Market Participants Division ("MPD") granted no-action relief to swap dealers ("SDs") if they fail "to satisfy the Pre-Trade Mid-Market Mark ("PTMMM") requirements for their swaps with non-Swap counterparties."

The relief effectively allows SDs to omit providing PTMMM to counterparties prior to executing a swap.

The letter responds to a request by the International Swaps and Derivatives Association ("ISDA"), the Institute of International Bankers ("IIB") and the Securities Industry and Financial Markets Association ("SIFMA"). The associations argued that the PTMMM requirement under CFTC Regulation 23.431(a)(3)(i) ("Disclosures of material information") is operationally burdensome and offers little benefit to sophisticated counterparties. The associations argued that:

• the PTMMM Requirement does not achieve its intended purpose. The associations asserted there is no empirical evidence that it reduces information asymmetry or facilitates negotiations. They argued that swap counterparties are sophisticated and already have access to robust pricing data and tools, rendering the PTMMM of little value. Additionally, they said the market has evolved to offer greater pricing transparency through real-time data, and counterparties often ignore or actively request not to receive PTMMMs.
• the PTMMM Requirement imposes significant compliance burdens. The associations stated that swap entities must maintain complex infrastructure to produce PTMMMs, incurring high costs and operational challenges. They argued that PTMMM calculations can delay trade execution, and eliminating the requirement would align CFTC rules with SEC rules for security-based swaps, which do not mandate PTMMMs.

The MPD conditioned the relief on swap entities continuing to (i) provide daily marks under CFTC Regulation 23.431(d) and (ii) comply with swap reporting obligations under Parts 43 and 45. The MPD said the no-action relief remains in place until the CFTC adopts a new regulation addressing the PTMMM Requirement.