Co-authored by Maureen C. Guilfoile and Blake J. Brockway.
On June 27, the Commodity Futures Trading Commission issued a notice of proposed rulemaking concerning block trades in swap contracts. The CFTC has defined a block trade as a publicly reportable transaction that: (1) involves a swap that is listed on a registered swap execution facility (SEF) or designated contract market (DCM); (2) occurs away from the registered SEF or DCM’s trading system or platform (and is executed pursuant to the rules of such SEF or DCM); (3) has a notional or principal amount at or above the appropriate minimum block size applicable to such swap; and (4) is reported subject to the rules and procedures of the SEF or DCM and CFTC regulations, including the appropriate time delay requirements.
Like futures contracts, the proposed rules would prohibit the aggregation of orders for different trading accounts in order to satisfy the minimum block size or cap size requirements (“cap size” defined as the maximum notional or principal amount of a publicly reportable swap transaction that is publicly disseminated) except for orders aggregated by certain commodity trading advisors (CTA), investment advisers and certain foreign persons with more than $25 million in total assets under management. In addition, parties to a block trade must individually qualify as eligible contract participants (ECP), except where a DCM allows certain CTAs, investment advisers and foreign persons, to transact block trades for customers who are not ECPs, if such CTA, investment adviser or foreign person has more than $25 million in total assets under management. Persons transacting block trades on behalf of customers must receive prior written instruction or consent from the customer.
Any comments to the proposed rules must be received on or before July 27.
The proposed rule is available here.