On February 10th, the CFTC granted time-limited no-action relief for so-called "Package Transactions". The relief expires at 11:59 p.m. (eastern time) on May 15, 2014.
QUESTION: What is a Package Transaction?
ANSWER: A Package Transaction is a transaction involving two or more instruments:
(1) that is executed between two counterparties;
(2) that is priced or quoted as one economic transaction with simultaneous execution of all components;
(3) that has at least one component that is a swap that is subject to the mandatory SEF trading requirement (i.e., a swap that has been made available to trade or "MATTED"); and
(4) where the execution of each component is contingent upon the execution of all other components.
So, by way of non-limiting example, here are some package transactions:
Treasury note or Treasury futures vs. interest rate swaps (commonly called an "invoice spread");
Swaption vs. an interest rate swap (commonly called a "swap spread");
TBA MBS vs.. swap spread (commonly called an MBS basis trade);
A single-name credit default swap vs. a credit default index swap or "CDX"; and
A package of two interest rate swaps of differing tenors (a so-called "swap curve").
What about a package of a CDX and a Treasury security, like a TIP (i.e., a synthetic corporate inflation protected bond)? (And, if you are a mutual fund, then you solved your section 18 asset segregation issues all at once.)
Good day. Good relief. TSR
This article is presented for informational purposes only and is not intended to constitute legal advice.
