CFTC Issues Relief to Support Prime Brokerages on SEFs

The relief gives swap dealers, acting as a prime broker, exemption from providing certain disclosures.

This Friday, the Swap Dealer and Intermediary Oversight (DSIO) division of the Commodity Futures Trading Commission (CFTC) announced that it would provide a no-action relief to help support prime brokerage activities on swap execution facilities (SEFs).

As per Commission regulation 23.431(c), a swap dealer does not have to make certain disclosures to its counterparty before it enters into a swap – if that swap is entered into anonymously, and it is made on a SEF.

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The relief announced today will excuse swap dealers, acting as a prime broker, from having to provide disclosures when entering into an equal, but opposite transaction, entered as part of a prime brokerage arrangement, as it is off-SEF, with a prime brokerage client.

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Commenting on the relief, DSIO Director Matthew Kulkin said: “Today’s relief is intended to encourage more market participants, particularly prime brokers, to trade swaps on SEFs. Providing clarity regarding pre-trade disclosures for these trades will bring increased liquidity onto registered venues without regulatory uncertainty.”

CFTC Puts in Place Swaps Brexit Contingency Plan

Today’s announcement follows on from the American regulator revealing a post-Brexit contingency plan for swaps. As Finance Magnates reported, should the United Kingdom leave the European Union without a deal, the watchdog confirmed that certain uncleared swaps would not suddenly face CFTC margin requirements from which they were previously excluded.

Earlier this week, the regulator unanimously approved an interim final rule, which will allow an uncleared swap to retain its legacy status under the CFTC Margin Rule or Prudential Margin Rule when transferred. However, this will only come into play if the UK leaves the bloc without a negotiated withdrawal agreement in place.

The final interim rule allows UK entities to transfer legacy swaps to an affiliate, regardless of its location, without losing their legacy status under the watchdog’s margin regulation. Therefore, they can transfer swaps to an EU entity, allowing them to be serviced under European Union law after a hard Brexit.

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