The CFTC Division of Market Oversight ("DMO") extended previously issued relief (see CFTC Letter 15-68) exempting swap execution facilities ("SEFs") from the requirement to capture post-execution information in their audit trail data.

Under CFTC Rule 37.205(a), SEFs are generally required to collect audit trail data in order to identify and take action in response to market abuses. This requirement is also addressed in CFTC Rule 37.205(b)(2). In the request for relief, the parties reiterated that SEFs cannot capture such post-execution allocation data in their audit trail, since trade allocations generally occur between the clearing firm, or the customer, and the derivatives clearing organization. As a result, SEFs do not have access to the data. Even if it were possible to obtain, the parties asserted, the technological infrastructure necessary to accommodate transmittal is not currently in place.

The DMO agreed to extend the relief from these audit trail requirements, subject to the following conditions:

  • the SEF must institute a rule requiring market participants to provide post-execution allocation information if the CFTC directs the SEF to request such information; and
  • if the CFTC directs the SEF to obtain such information, the SEF must request, obtain and review the information as part of its investigation.

The relief will expire on November 15, 2020.

Commentary / Bob Zwirb

This no-action letter, along with the one issued today for package trades, illustrates the constant need for relief when rules adopted pursuant to Dodd-Frank meet the real world. For example, in March, the CFTC had to extend previously granted relief from swap trade confirmation requirements when it became apparent that SEFs were still unable to develop "a practicable and cost-effective method" for complying. Similarly, in August, previously granted relief from certain exemption and notice-filing requirements related to the new position limits aggregation rule had to be extended when SIFMA and FIA pointed out they were "unworkable" and "impose[d] substantial and undue burdens on investment funds, asset managers, and the passive investors on whose behalf they act."

Here, the call for relief arises from the requirement that SEFs capture and retain all audit trail data "from the time of receipt through fill, allocation, or other disposition." Acknowledging the "practical challenges" that SEFs face in obtaining such information, the CFTC is extending relief previously granted not just for one more year, as is typically done in these situations, but for three years, reaching into the next decade. Likewise relief is being extended for so-called package transactions for three years because compliance with CFTC requirements for such transactions, in the words of the CFTC, "remains unfeasible."

Granting such relief in these situations is both necessary and prudent, and allowing a generous extension period as the CFTC has done here is a bonus.

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