On August 18, the Commodity Futures Trading Commission’s Division of Market Oversight issued No-Action Letter No. 14-108, which provides time-limited conditional relief to swap execution facilities (SEFs) from certain confirmation and recordkeeping requirements. CFTC Regulation 37.6(b) requires a SEF to provide to each counterparty a written confirmation of each transaction entered into on or pursuant to the rules of the SEF that contains all terms of the transaction and which must legally supersede the terms in any previously negotiated master or other agreement that has been entered into by the parties to the transaction. In connection with this requirement, the CFTC has previously taken the position that in order for a SEF to incorporate the terms of any previously negotiated agreements into such confirmations, such agreements must be submitted to the SEF prior to the execution of the relevant transaction. A SEF is also required to keep records of the documents incorporated by reference in the SEF’s confirmations under Regulation 45.2(a). Letter No. 14-108 provides relief to SEFs from two requirements regarding confirmations. First, a SEF may incorporate by reference in the confirmation of the transaction that is issued by the SEF terms from previously negotiated agreements without copies of those agreements being submitted to the SEF prior to execution. Second, a SEF is not required to receive or maintain copies of any such documents that may be incorporated by reference in the confirmation. The relief from both requirements applies only to uncleared swaps executed on or pursuant to the rules of the SEF, and is conditioned on any such agreements being made available to the CFTC upon request within a reasonable period of time. Further, in apparent contradiction of the relief granted by Letter No. 14-108, a SEF that does take advantage of such relief must nonetheless review the terms of any incorporated documents and report the confirmation data set forth therein to a swap data repository. Relief provided by Letter 14-108 will expire on September 30, 2015.
CFTC Letter 14-108 is available here.