On September 30, the Commodity Futures Trading Commission’s Divisions of Market Oversight and Clearing and Risk (Divisions) issued No-Action Letter No. 14-121 extending no-action relief previously granted to swap execution facilities (SEFs) and designated contract markets (DCMs) from the CFTC’s straight-through processing requirements for package transactions. A “package transaction” is a transaction: (i) between two or more counterparties involving two or more instruments; (ii) priced or quoted as one economic transaction with simultaneous or near-simultaneous execution of all components; (iii) that contains at least one component that is a swap subject to the SEF or DCM trade execution requirement; and (iv) where the execution of each component is contingent upon the execution of all other components. As previously reported in the Corporate and Financial Weekly Digest edition of May 2, 2014, the Divisions had issued Letter No. 14-62 granting no-action relief to SEFs and DCMs from straight-through processing requirements in CFTC Regulations 37.9(a)(2), 37.203(a) and 38.152, which generally require that a swap that is rejected from clearing for credit-related reasons (Rejected Transaction) be treated as having been void ab initio. The aforementioned relief was to expire on September 30, but Letter No. 14-121 extends to February 16, 2015, that portion of Letter No. 14-62 that permits a Rejected Transaction to be resubmitted for clearing on the same terms and conditions other than the time of execution if the Rejected Transaction was not accepted for clearing because of the sequencing of submission of the legs of a package transaction.
The extended relief requires resubmission be made within 120 minutes (as opposed to 60 minutes as required by the earlier relief) from the issuance of a notice of rejection. A SEF or DCM relying on the relief must satisfy a number of other conditions, including a requirement that the SEF or DCM have rules stating that if the resubmitted trade is also rejected, it is void ab initio without a second opportunity to submit a new trade.
CFTC Letter No. 14-121 is available here.