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21 March 2014

CFTC gives EU firms more time to meet rules

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The CFTC has given European trading platforms more time to register and meet strict new rules to make the market more transparent, in anticipation of comparable rules abroad. However, there are fears that the changes could be extensive and leave some MTFs struggling to meet the revised May deadline.

The Commodity Futures Trading Commission’s (CFTC or Commission) Division of Market Oversight (DMO) announced the issuance of a no-action letter extending time-limited relief for (1) Multilateral Trading Facilities overseen by competent authorities designated by European Union Member States (MTFs) from the swap execution facility (SEF) registration requirement set out in section 5h(a)(1) of the Commodity Exchange Act (CEA or Act) and Commission regulation 37.3(a)(1); and (2) parties executing swap transactions on or pursuant to the rules of MTFs from the trade execution mandate set out in section 2(h)(8) of the Act.

DMO and the CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO) intend to issue in the near future a no-action letter providing conditional, long-term relief for MTFs that, upon publication by the Commission, will supersede CFTC No-Action Letter No 14-16 (Replacement Long-Term No-Action Letter). The conditional relief that will be provided in the Replacement Long-Term No-Action Letter will generally track the conditional relief provided in CFTC No-Action Letter No. 14-16 in both substance and process, but will contain several notable clarifications and amended conditions for qualifying for such conditional relief.

DMO is providing this additional period of time to allow MTFs and parties executing swap transactions on or pursuant to the rules of MTFs to consider the clarifications and amended conditions that will be featured in the Replacement Long-Term No-Action Letter once it is published by the Commission.

This short-term no-action relief will expire for any particular MTF upon the earlier of: (1) DMO’s issuance of a letter acknowledging receipt of, and granting an MTF’s relief request pursuant to the Replacement Long-Term No-Action Letter or (2) 11:59 pm EDT on May 14, 2014.

Press release


Swaps uncertainty reigns despite revised deadline

Operators of European platforms, the vast majority of which are based in London and regulated by the Financial Conduct Authority, were initially given until March 24 to make their platforms compatible with US rules and register them with the CFTC, the lead US derivatives regulator. On 21 March, this deadline was extended until May 15 after venues — known in Europe as multilateral trading facilities — told the CFTC they would struggle to meet yesterday’s deadline.

The CFTC told the European venues that it would provide more detail about the conditions it set for MTFs to achieve recognition under the Dodd-Frank Act. But there are fears that the changes could be extensive and leave some MTFs struggling to meet the revised May deadline.

Dan Marcus, global head of strategy and business development at Tradition, which runs derivatives venues in the US and Europe, said: “There are gaps between [US derivatives venues known as] swap execution facilities and MTFs. SEF rules are long and prescriptive, while the MTF rules are short and are based on a principles approach. I still don’t know what exactly what will be required to become recognised as a qualifying MTF. We await further guidance from the CFTC." A spokeswoman for the CFTC said further guidance was forthcoming, but was unable to provide a timeframe.

According to MTF operators, one of the main issues is whether they will be governed by national regulators, the CFTC, or a combination of the two. This will affect regulatory requirements such as surveillance, pre-trade credit checks and legal definitions. Alex McDonald, chief executive at the Wholesale Markets Brokers’ Association, said: “The recognition of European venues under US rules is still a work in progress. It is clear that both the CFTC and FCA are working hard to achieve this recognition, but re-engineering the MTF regime to bring it closer to the SEF regime requires a lot of work.” A spokeswoman for the FCA said the regulator would continue to work closely with the CFTC to minimise overlaps or conflicts in global derivatives regulation.

Further reporting © Financial News (subscription)

© CFTC - Commodity Futures Trading Commission

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