CFTC Issues Relief For Cross-Border Trading Of Swaps On Qualifying Multilateral Trading Facilities In The European Union

On February 12, 2014, the Division of Market Oversight (DMO) of the United States Commodity Futures Trading Commission (CFTC) issued a no-action letter1 clarifying that it would not recommend enforcement action against: (1) a multilateral trading facility (MTF) overseen by its European Union Member State competent authority (Competent Authority) for failure to register with the CFTC as a swap execution facility (SEF); or (2) any swap market counterparty, including "US persons" and "guaranteed affiliates",2 for failure to comply with an applicable trade execution mandate, until the earlier of the date when DMO issues a letter acknowledging and granting an MTF's request to be treated as a Qualifying MTF (as described below) or 11:59 p.m. on March 24, 2014.

Simultaneously, DMO and the CFTC's Division of Swap Dealer and Intermediary Oversight (DSIO) (together, the Divisions) issued a joint no-action letter3 that:

permits an MTF that meets certain stated compliance requirements (each, a Qualifying MTF) to provide US persons or persons located in the United States the ability to trade or execute swaps on or through the MTF without requiring such MTF to register as a SEF pursuant to Section 5h(a)(1) of the United States Commodity Exchange Act (CEA) and CFTC Rule 37.3(a)(1); provides relief to any swap market participant that executes swaps on a Qualifying MTF from any applicable trade execution mandate pursuant to Section 2(h)(8) of the CEA or any otherwise applicable obligations to report such swaps pursuant to Parts 43 and 45 of the CFTC Rules; and provides relief for swap dealers and major swap participants (together, Swap Entities) executing swaps on Qualifying MTFs from certain conduct of business requirements under Part 23 of the CFTC Rules. To become a Qualifying MTF, an MTF must submit a request for relief to DMO by March 24, 2014 addressing the criteria set out in the Qualifying MTF Letter, which are described in more detail below. The Divisions recommend, however, that an applicant submit its request no later than March 10, 2014 "in order to secure seamless relief" from SEF registration and trade execution requirements. Any MTF that does not avail itself of the relief provided by the Qualifying MTF Letter must either operate its business so as to avoid creating a jurisdictional nexus to the United States for application of the CEA and CFTC Rules or register as a SEF.

BECOMING A QUALIFYING MTF

To become a Qualifying MTF, an applicant must demonstrate compliance with the conditions set out in the Qualifying MTF Letter. These conditions reflect the terms of the political agreement struck in July 2013 between the CFTC and the European Commission, known as the "Path Forward".4 In particular, the Qualifying MTF Letter refers to the undertaking by the CFTC in the Path Forward agreement to provide regulatory relief to European trading platforms "that are subject to requirements that achieve regulatory outcomes that are comparable to those achieved by the requirements for SEFs".

The conditions to the relief in the Qualifying MTF Letter cover the following topics. The Divisions require the relevant Competent Authority to have established regulations addressing the applicable requirements. An applicant that is not subject to sufficient local regulation may not meet the standards set out in the Qualifying MTF Letter through voluntary compliance with its terms.

Trading Methodology

An applicant must demonstrate that it maintains...