CFTC Certifies First “Available to Trade” Designation: Certain Interest Rate Swaps Must be Executed on a SEF or DCM Beginning on February 15, 2014

by Eversheds Sutherland (US) LLP
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As market participants are aware, certain swaps that are subject to mandatory clearing must be executed on a registered swap execution facility (SEF) or a designated contract market (DCM) (i.e., an exchange) once a swap is designated as “available to trade.” Commodity Futures Trading Commission (CFTC) regulations set forth a detailed process for swaps to be designated as available to trade.1

Earlier today, the CFTC certified the first available-to-trade-determination (MAT Determination) in response to an application submitted by Javelin SEF, LLC (the Javelin MAT Application). The MAT Determination applies with respect to the following types of fixed-to-floating interest rate swaps:

Currency

U.S. Dollar (USD)

U.S. Dollar (USD) 

Euro (EUR)

Floating Rate Indexes

USD LIBOR

USD LIBOR

EURIBOR

Trade Start Type

Spot Starting (T+2)

IMM Start Date

 

(next two quarterly IMM start dates)

Spot Starting (T+2)

 

 

Optionality

No

No

No

Dual Currencies

No

No

No

Notional

Fixed Notional

Fixed Notional

Notional

Beginning on February 15, 2014, market participants must execute interest rate swaps that are captured by the MAT Determination on any registered SEF or DCM that lists them. In the interim, market participants should be taking steps to prepare to utilize SEFs or DCMs to the extent that they engage in the interest rate swap transactions that are covered by the MAT Determination. Such steps include:

  • SEF Onboarding. A market participant must identify and prepare to onboard with SEFs that offer interest rate swaps subject to the MAT Determination. It is important to note that the onboarding process for SEFs requires a great deal of due diligence, including, among other things, reviewing a SEF’s rulebooks and signing a participant agreement with a SEF. Market participants should be aware that, by executing the relatively short participating agreement, they typically will be subject to lengthy SEF rules that vary from SEF to SEF. Below is a list of provisionally registered SEFs that plan to offer, or are offering, certain interest rate swaps, which may include swaps subject to the MAT Determination: 
  • BGC Derivatives Markets, L.P.;
  • Bloomberg SEF, LLC;
  • DW SEF, LLC;
  • GFI Swaps Exchange, LLC;
  • ICAP SEF US, LLC;
  • Javelin SEF, LLC;
  • LatAm SEF, LLC;
  • SwapEx, LLC;
  • TeraExchange, LLC;
  • tpSEF Inc.;
  • Tradition SEF, Inc.;
  • trueEX, LLC; and
  • TW SEF, LLC.
  •  Ensure Operational Preparedness. Market participants should begin to develop and put in place the required personnel, policies and procedures for successful execution of the relevant interest rate swaps on a SEF or DCM. 
  • Stay Tuned. The CFTC is expected to certify additional made-available-to-trade determinations in the coming days. The timing for these certifications will depend on when individual SEFs submitted applications for a made-available-to-trade determination to the CFTC. Sutherland has prepared a comparison chart that estimates when such certifications will be issued, which is available here.

It should be noted that the MAT Determination does not exempt “package transactions” (i.e., transactions that involve more than one swap or financial instrument and at least one swap subject to the trade execution requirement). However, the CFTC plans to hold a roundtable where it will consider whether to grant limited relief from the trade execution requirement for package transactions. In addition, the CFTC’s Technology Advisory Committee is scheduled to meet on January 21, 2014. Additional guidance with respect to SEF trading may be provided at that time. An agenda for the meeting is available on the CFTC’s website.

1In order for a swap to be subject to a made-available–to-trade determination, it must be subject to mandatory clearing. For additional information on the trade execution and available–to-trade determination requirements, please see Sutherland’s July 3, 2013 Legal Alert.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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