CFTC Extends No-Act SEFs and DCMs from Certain CFTC Regulations for Correction of Errors

Washington, DC — Today, a no-action letter issued by the U.S. Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight and Division of Clearing and Risk (Divisions) will serve as an extension to the relief granted in CFTC Letter No. 16-58 which will be expiring on June 15, 2017. In addition to the no-action letter providing relief from certain CFTC regulations to allow swap execution facilities (SEFs) and designated contract markets (DCMs) to rectify clerical or operational errors that resulted in a swap being rejected for clearing and consequently becoming void, it also permits SEFs and DCMs to amend clerical or operational errors brought to light after a swap has been cleared.

In order to enable SEFs and DCMs to correct clerical or operational errors that result in a swap being rejected for clearing, the Divisions will recommend that the CFTC to not take any enforcement action against a SEF or DCM for a lack of compliance with  the required methods of execution in CFTC Regulations 37.9(a)(2) and 38.500 as well as the prohibition against pre-arranged trading in CFTC Regulations 37.203 and 38.152 provided that within one hour after a trade has been rejected for clearing, the SEF or DCM corrects all errors by allowing a new, pre-arranged trade with terms and conditions that comply with the terms and conditions of the original trade.

The relief also caters to operational and clerical errors that have only been discovered after the swap has been cleared to be corrected.  The Divisions will not recommend that the CFTC engage in any enforcement action against a SEF or DCM for failure to comply with the required methods of execution in CFTC Regulations 37.9(a)(2) and 38.500 and the prohibition against pre-arranged trading in CFTC Regulations 37.203 and 38.152 if, after a trade has been cleared and an error is discovered, the SEF or DCM permits a pre-arranged trade between the original parties that counteracts the swaps carried on the DCO’s books. To read more, please click here.