CFTC Further Extends SEFs Relief from Block Trade Requirements

The CFTC’s Division of Market Oversight further extended the no-action relief which was granted to swap execution facilities (SEFs) from certain ‘occurs-away’ requirements in the definition of block trades.

The latest no-action relief permits SEFs to execute block trades on SEF’s trading systems and platforms until the relief expires on “the compliance date of the Part 43 Real-time Public Reporting Requirements final rule.”

Specifically, CFTC letter extends the relief previously granted to SEFs from the requirement in CFTC Regulation 43.2 concerning block trades occurring away from the SEFs’ trading system or platform. The previous letter extended the relief until November 15, 2020, or the effective date of any CFTC action with respect to the issues discussed in this no-action letter.

Relief was granted in order to give DMO staff sufficient time to continue to review and evaluate SEF trading practices and functionalities for pre-execution credit checks. Furthermore, it should help the division develop and evaluate best practices and permanent solutions to the issues involved in screening block trade orders for compliance with risk-based limits, including possible amendments to CFTC regulations.

According to CFTC Regulation Section 43.2, the block trade is a publicly reportable swap transaction that occurs away from the trading system or platform of the registered SEF and is executed pursuant to the registered entity rules and procedures.

The DMO specified the conditions for relief which include that block trades are not executed on the SEF’s Order Book functionality and are subject to void ab initio requirements where the swap is rejected on the basis of credit.

“On September 17, 2020, the Commission approved the Part 43 Real-time Public Reporting Requirements final rule, amending certain real-time public swap reporting and dissemination requirements. [See CFTC Press Release 8247-20] The final rule codified the relief provided in CFTC Staff Letter 17-60 by amending the definition of “block trade” to allow block trades for intended-to-be-cleared swap blocks to be executed on a SEF’s non-order book trading systems or platforms,” the CFTC further explains.

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