CFTC Final Rule: Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade

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Gavel.png FINAL RULE: Approved on May 16, 2013. Entered Federal Register on June 4, 2013. Effective Date August 5, 2013
Timeline, Made Available to Trade Provisions
Final Rule Issue First MAT Determination First Compliance Date
June 4, 2013 January 16, 2014 February 15, 2014

On May 16, 2013, the CFTC approved a final rule that sets the process by which a designated contract market or swap execution facility shall make a swap "available to trade" (MAT) The rule will become effective August 5, 2013, 60 days after it appeared in the Federal Register.

On January 16, 2014, the CFTC made its first MATT determination on January 16, 2014. The execution requirement begins on February 15, 2014 for the first set of swaps - vanilla interest rate swaps on U.S. dollar LIBOR and euro-denominated EURIBOR. Subsequent determinations were made on January 23 and 28, 2014. Its January 28 determination included the first classes of credit default swaps. For more information, see the MAT section below.

Background

Section 723 of the Dodd-Frank Act mandates that, pursuant to CFTC regulations, all swaps eligible for clearing shall be executed on either a swap execution facility or a designated contract market. At its December 16, 2010 open meeting, the commission approved a proposed rulemaking regarding the core principles and other requirements for SEFs. This proposal included a provision regarding the definition of "made available for trading" (MAT). Subsequent to the proposal, market participants have requested a clarification of MAT the requirements of SEFs and DCMs. At its December 5, 2011 open meeting, the CFTC approved a proposed rulemaking that would further define the process by which a swap execution facility or designated contract market shall make a swap "available for trade" under Section 2(h)(8) of the Commodity Exchange Act.

On January 30, 2012, CFTC staff hosted a roundtable to discuss the "made available to trade" provision. A summary of the meeting and commentary can be viewed HERE.

Summary of the Final Rule

Under the final rule, a DCM or SEF may submit to the commission a determination that a swap is available to trade, either for approval or under self-certification procedures. The determination should have considered at least one of the following criteria:

  • whether there are ready and willing buyers and sellers;
  • the frequency or size of transactions;
  • the trading volume;
  • the number and types of market participants;
  • the bid/ask spread; and
  • the usual number of resting firm or indicative bids and offers.

Once a swap is deemed available to trade, that swap would be subject to the trade execution requirement, and all SEFs and DCMs that choose to list or offer these swaps for trading must follow the trade execution requirement.

Trade Execution Compliance Schedule

After the rules become effective August 5, 2013, market participants must comply by later of:

As swaps are added to the list of those available to trade, the CFTC will post the specs to its web site. These will also be posted below.

Swaps Made Available to Trade

The CFTC made its first determinations on January 16, 2014, making February 15, 2014 the date at which the first swaps will be subject to the execution requirements. Subsequent determinations were made on January 26 and 28. For more information on rulemakings related to swap execution facilities, click here.

Fixed-to-Floating Interest Rate Swap, USD
Mandatory Execution Begins Feb. 15, 2014 Feb. 15, 2014 Feb. 21, 2014
Floating Rate Indexes USD LIBOR (3,6 Mo.) USD LIBOR (3,6 Mo.) USD LIBOR
Trade Start Type Spot Starting (T+2) IMM Start Date (next two quarterly IMM start dates) IMM Start Date (next two quarterly IMM start dates)
Optionality No No No
Fixed Leg Specs Semi-annual, Annual pmt

30/360, Actual/360 day count

Semi-annual, Annual pmt

30/360, Actual/360 day count

Semi-annual pmt

30/360 day count

Floating Leg Specs Quarterly reset (3 Mo LIBOR), semi-annual reset (3 or6 Mo LIBOR)

Actual/360 day count

Quarterly reset (3 Mo LIBOR), semi-annual reset (3 or6 Mo LIBOR)

Actual/360 day count

Quarterly, semi-annual reset

Actual/360 day count

Dual Currencies No No No
Notional Fixed Notional Fixed Notional Fixed Notional
Fixed Rate Par Par Standard Coupon
Tenors 2, 3, 4, 5, 6, 7, 10, 12, 15, 20, 30 years 2, 3, 4, 5, 6, 7, 10, 12, 15, 20, 30 years 1, 2, 3, 4, 5, 7, 10, 15, 20, 30 years
Holiday Calendar NY/London NY/London NY/London


Fixed-to-Floating Interest Rate Swap, Non-USD
Mandatory Execution Begins Feb. 26, 2014 Feb. 15, 2014
Floating Rate Indexes Sterling (GBP) (3, 6 Mo.) EURIBOR (Euro)
Trade Start Type Spot Starting (T+0) Spot Starting (T+2)
Optionality No No
Fixed Leg Specs Quarterly, Semi-annual pmt

Actual/365 day count

Semi-annual, Annual pmt

30/360, Actual/360 day count

Floating Leg Specs Quarterly reset (3 Mo. GBP LIBOR, semi-annual reset (6 Mo. GBP LIBOR)

Actual/365 day count

Quarterly reset (3 Mo. EURIBOR), semi-annual reset (6 Mo. EURIBOR)

Actual/360 day count

Dual Currencies No No
Notional Fixed Notional Fixed Notional
Fixed Rate Par Par
Tenors 2, 3, 4, 5, 6, 7, 10, 15, 20, 30 years 2, 3, 4, 5, 6, 7, 10, 15, 20, 30 years
Holiday Calendar London TARGET


Untranched Credit Default Swap Indices
Mandatory Execution Begins Feb. 26, 2014 Feb. 26, 2014
Reference Entities Corporate Corporate
Region North America Europe
Indices CDX.NA.IG (North American Investment Grade CDS))

CDX.NA.HY (North American High Grade CDS)

iTraxx Europe (125 Most Actively Traded Names)

iTraxx Europe Crossover (Sub-investment Grade)

Tenor CDX.NA.IG 5Y

CDX.NA.HY 5Y

iTraxx Europe 5Y

iTraxx Europe Crossover 5Y

Applicable Series At any time, the then-current on-the-run series and the preceding series that was replaced by the current one

Package Transactions Update

In November 2014, the CFTC updated its compliance dates for a number of package transactions. At issue are three requirements related to the execution rules:

  • Trade execution: Any swap that is made available to trade must trade on a designated contract market (DCM) or a swap execution facility (SEF)
  • Method of execution: A DCM or SEF is permitted to offer any method of execution for the swap components
  • Order book minimum functionality: a trading system or platform in which all market participants can enter multiple bids and offers, observe bids and offers entered by other market participants, and transact on such bids and offers.


Related Documents: Fact Sheet, Q&A, and Federal Register Entry

References

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