CFTC Extends Swaps Dealer Business Conduct Relief to UK Trading Venues
Commentary by Mark Highman
The CFTC's Market Participants Division ("MPD") issued a letter extending its no-action position on swaps intended to be cleared ("ITBC Swaps") and traded on eligible UK Trading venues.
New CFTC Letter 25-49 permits CFTC-registered swap dealers to rely on exceptions from certain external business conduct standards and swap trading relationship documentation requirements in connection with ITBC Swaps initiated on eligible UK trading venues.
The letter was issued in conjunction with the CFTC’s adoption of rule amendments which provide CFTC-registered swap dealers with significant exceptions from various external business conduct standards and swap trading relationship documentation requirements in connection with ITBC Swaps (See related coverage). The CFTC rule amendment includes exceptions for ITBC Swaps initiated non-U.S. trading venues formally exempted from registration as a swap execution facility (an "Exempt SEF") under Section 5h(g) of the Commodity Exchange Act. Post-Brexit, eligible UK trading venues currently operate under a CFTC staff no-action position (CFTC Rule 24-11) rather than a formal CFTC SEF exemption order. Consequently, ITBC swaps initiated on UK trading venues fall outside the scope the definition of "ITBC Swaps" eligible for the exceptions from external business conduct standards and swap trading relationship documentation requirements.
To address this gap, CFTC Letter No. 25-49 permits a CFTC-registered swap dealer to treat an eligible U.K. trading venue as an Exempt SEF for the purposes of the exceptions from external business conduct rules and trading documentation for ITBC Swaps.
Commentary
CFTC Letter 25-49 is an important adjunct to the CFTC rulemaking on ITBC Swaps, providing CFTC-registered swap dealers with the same relief from business conduct and documentation requirements with respect to ITBC Swaps conducted on specified U.K. trading platforms as apply to ITBC Swaps conducted on Exempt SEFs in the European Union, Singapore and Japan.