CFTC Approves SEF Rules and Swaps Block Rule

On Thursday the CFTC approved the Swaps Block Rule, the Made Available to Trade Rule, the SEF rules, and the Interpretive Guidance and Policy Statement on Disruptive Practices.
The Swaps Block Rule and the Made Available to trade rule were passed 3-2, the SEF rules were passed 4-1 and the Interpretive Guidance and Policy Statement on Disruptive Practices passed unanimously.

Commissioner Gensler has pushed for these rules for months in order to shift the information advantage away from the Wall Street Banks. After the successful vote, the chairman spoke to the significance of the new rules: “This rule significantly benefits mid-market America, mid-market pension funds, mid-market insurance companies, community banks, small corporates.”

After the CFTC vote, Commissioner Sommers, who cast the lone dissenting vote against the SEF rules, elaborated on the issue she had with the SEF rules. “Nothing in the statute mandates these minimum trade functionalities. We made them up,” Commissioner Sommers told Businessweek. “I believe we will regret this restrictive approach because it may cause the U.S. to lose this business to foreign jurisdictions that do not stifle illiquid contracts in this way.”

Under the SEF rules, the request for quote (RFQ) minimum is now three price quotes. There will be a yearlong phase-in period where the RFQ minimum will be two. Additionally, according to Businessweek, the SEF rules allow for companies that execute trades over the phone or any form of technology to operate as SEFs.

The CFTC rulings also determined the rules for blocks. A CFTC official told Businessweek, “Under the rule, a trade would be considered a block if it is larger than the 50th percentile for notional value in a given category of swaps. Starting in April, the threshold would rise to the 67th percentile. About 14 percent of interest-rate and credit swaps might be traded as blocks until the higher threshold takes effect. Businessweek and Chicago Business also mentioned that there will be a phase-in process with blocks.

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About the Author

Felix Shipkevich
Mr. Shipkevich’s practice focuses on regulatory, transactional, and enforcement matters in the fields of futures, commodities, and derivatives. He works with Futures Commission Merchants (FCMs), Retail Forex Exchange Dealers (RFEDs), Introducing Brokers (IBs), Commodity Pool Operators (CPOs), Commodity Trading Advisors (CTAs), Swap Dealers (SDs), Swap Execution Facilities (SEFs), and domestic and offshore hedge funds. Mr. Shipkevich guides clients on procedures related to registration with the U.S. Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA), as well as domestic and international regulators in local jurisdictions. Mr. Shipkevich prepares and helps implement compliance, anti-money laundering (AML), and Electronic Trading Systems (ETS) procedures for clients in the commodities and derivatives fields.