The U.S. Commodity Futures Trading Commission (“CFTC”) has issued final rules (“Final Rules”) setting minimum block trade sizes for different types of CFTC regulated swaps that are permitted to be executed off-facility and with a time delay in public reporting. These rules are an exception to CFTC regulations requiring real-time reporting of swap transaction and pricing data. This DechertOnPoint describes how investment advisers (“Advisers”) may engage in these types of excepted trades, including when client consent is necessary, when aggregating orders across multiple clients to reach the minimum blocktrade sizes is permitted and the steps Advisers may need to take to obtain client consent to aggregate orders.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) directs the CFTC to promulgate regulations that require the real-time reporting of swap transaction and pricing data. However, Dodd-Frank also provides an exception to the real-time reporting requirement by requiring the CFTC to establish “the criteria for determining what constitutes a large notional swap transaction (block trade) for particular markets and contracts” and “the appropriate time delay for reporting [such large trades] to the public.” In making this determination, the CFTC must consider whether real time disclosure “will materially reduce market liquidity.” In addressing market liquidity, the CFTC acknowledged that real-time reporting of large trades could reduce market liquidity by alerting swap dealers and other market participants that a counterparty to a large trade would likely also need to enter into a large offsetting trade, giving swap dealers and other market participants the ability to charge a premium for such an offsetting trade.
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