CFTC Gives Three-Month SEF Relief to Packaged Swaps

Under the CFTC's process for introducing SEFs, the market utilities themselves are allowed to determine which instruments will trade electronically by submitting a request for certification to the regulator. Market participants and commentators, however, have raised concerns that packaged swap transactions with multiple legs may cause conflict, given that some include instruments such as futures that would be included in the mandate. Having to break up the execution, participants said, would introduce expense and complexity.

The CFTC will allow a 90-day period of exemption for a solution to be reached, acting chairman Mark Wetjen said yesterday, at a meeting of the Technology Advisory Committee (TAC).

"This relief is proof that it is never too late to do the right thing and take a first step to fix our broken rules," said Commissioner Scott O'Malia, in a statement following the meeting. "I previously raised serious concerns with the MAT process. This process does not provide the Commission or staff with a means to consider issues such as package transactions before a MAT determination becomes effective. I am pleased that the Commission staff will review all possible package transactions for technological, operational, and jurisdictional issues. The roughly 90 day no-action relief will provide staff with the time to perform the necessary analysis."

As the CFTC has approved several MAT determinations from SEFs, certain instruments will begin executing electronically from February 16. The regulator advised in the TAC meeting, however, that as this date falls on a Saturday, February 18 will be the practical implementation date.

This relief is proof that it is never too late to do the right thing and take a first step to fix our broken rules. - Scott O'Malia, CFTC.