The CFTC Division of Market Oversight ("DMO") extended time-limited no-action relief to swap execution facilities ("SEFs") from the "occurs away" requirement in the CFTC Rule 43.2 definition of "block trade."

As previously covered, CFTC Rule 43.2 defines a block trade as a swap transaction that "occurs away" from the registered SEF's or designated contract market's rules and procedures. The recently granted relief extends the relief from the conduct of pre-execution credit screening provided through CFTC Letter No. 17-60 (which in turn extended relief granted in CFTC Letters 14-11815-60 and 16-74).

The relief was extended in response to a request from the Wholesale Market Brokers' Association, Americas ("WMBAA"). WMBAA asserted that under the block trade definition in CFTC Rule 43.2, SEFs are not able to comply with the requirement to "facilitate pre-execution credit checks for block trades that 'occur away' from a SEF" obligated by CFTC Rule 37.702(b). WMBAA argued that a futures commission merchant ("FCM") uses a SEF's credit check functionality to perform credit checks.

In response to the request from WMBAA, the DMO agreed to extend the relief if the following conditions are met:

  • the block trade is not executed on the SEF's Order Book functionality;
  • the SEF adopts rules for cleared block trades indicating that the SEF relies on the relief provided in the letter;
  • the block trade (i) involves a swap listed on a registered SEF, (ii) is executed pursuant to the SEF's rules, (iii) meets the notional or principal amount at or above the appropriate minimum block size applicable to the swap, and (iv) is reported to a swap data repository pursuant to SEF and CFTC rules;
  • the FCM completes the pre-execution credit check pursuant to CFTC Rule 1.73 ("Clearing futures commission merchant risk management") at the time at which the order for a block trade enters the SEF's non-Order Book trading system or platform; and
  • the block trade is subject to void ab initio requirements where the swap is rejected on the basis of credit.

The extended relief will expire on the compliance date of the CFTC's recently adopted revisions to Part 43 real-time reporting requirements (see  previous coverage).

Primary Sources

  1. CFTC No-Action Letter 20-35: Extension of No-Action Relief for Swap Execution Facilities from Certain "Block Trade" Requirements in Commission Regulation 43.2
  2. CFTC Press Release: CFTC Staff Extends Relief for SEFs from Certain Block Trade Requirements

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