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CFTC Issues No-Action Relief for Prime Brokerage Trading on SEFs

The Division of Swap Dealer and Intermediary Oversight (DSIO) of the Commodity Futures Trading Commission has issued no-action relief to swap dealers (SDs) for certain swaps with prime brokerage customers where the customer initiates the swap by executing a trade as agent for the SD on a swap execution facility (SEF).

SDs generally are required to make certain disclosures to non-SD counterparties prior to entering into a swap, unless the transaction is executed anonymously on a designated contract market or a SEF. In a derivatives prime brokerage relationship, a swap can arise automatically between the SD and a non-SD prime brokerage customer as a result of a mirror swap negotiated by the customer on behalf of the SD, in which case the SD has no opportunity to make any disclosures to the customer.

In recognition of that practical problem, DSIO has extended the disclosure requirement exclusion to include transactions occurring off-SEF pursuant to a prime brokerage arrangement, so long as the terms of the off-SEF transaction are determined by a transaction that is executed by the prime brokerage customer for the SD anonymously on a SEF.

CFTC Letter No. 19-06 is available here.

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About this Author

Guy Dempsey Jr., Bank Regulations Legal Specialist, Katten Muchin
Partner

Guy C. Dempsey Jr. concentrates his practice on derivatives and structured products and on bank regulation. He advises clients on derivatives transactions of all types across all asset classes, as well as on the corporate governance, regulatory, collateral, compliance, insolvency and litigation issues associated with such products.

Much of Guy’s work involves helping bank and non-bank clients analyze the details and impact of the Dodd-Frank Act. He maintains deep knowledge of the banking laws and regulations relating to capital markets activities....

212-940-8593
James M. Brady, Katten Muchin Law Firm, Finance Attorney
Associate

James Brady concentrates his practice in financial services matters.

While in law school, James was an editor of the Michigan Journal of International Law. He also served as a judicial intern to the Honorable Stephen J. Markman of the Michigan Supreme Court. http://www.kattenlaw.com/James-Brady

312-902-5362