The Division of Market Oversight (DMO) of the Commodity Futures Trading Commission (Commission) herein extends existing no-action relief from requirements in sections 2(h)(8) and 5(d)(9) of Commodity Exchange Act (CEA...

Summary: The Division of Market Oversight (DMO) of the Commodity Futures Trading Commission (Commission) herein extends existing no-action relief from requirements in sections 2(h)(8) and 5(d)(9) of Commodity Exchange Act (CEA or the Act) and from requirements in Commission Regulations 37.3(a)(2) and 37.9 for swaps executed as part of certain package transactions.

U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-5000

Facsimile: (202) 418-5521

www.cftc.gov

CFTC Letter No. 15-55

No-Action

October 14, 2015

Division of Market Oversight

Extension of No-Action Relief from the Commodity Exchange Act Sections 2(h)(8) and

5(d)(9) and from Commission Regulation § 37.9 and No-Action Relief for Swap Execution

Facilities from Commission Regulation § 37.3(a)(2) for Swaps Executed as Part of Certain

Package Transactions

The Division of Market Oversight (DMO) of the Commodity Futures Trading

Commission (“Commission”) herein extends existing no-action relief from requirements in

sections 2(h)(8) and 5(d)(9) of Commodity Exchange Act (“CEA” or the “Act”) and from

requirements in Commission Regulations § 37.3(a)(2) and § 37.9 for swaps executed as part of

certain package transactions.

By way of background, section 2(h)(8) of the Act (the “trade execution requirement”)

requires that transactions involving swaps subject to the CEA section 2(h)(1) clearing requirement be

executed on a designated contract market (“DCM”) or swap execution facility (“SEF”), unless no

DCM or SEF makes such swap available to trade or such swap transactions qualify for the clearing

exception under CEA section 2(h)(7).1 The Commission adopted rules in parts 37 and 38 of its

regulations that specify procedures for DCMs and SEFs to make a swap available to trade

(“MAT”), and thus subject to the trade execution requirement.2 On a SEF, such swaps must be

executed on either (1) an Order Book, as defined in § 37.3(a)(3); or (2) a R

h swap transactions qualify for the clearing

exception under CEA section 2(h)(7).1 The Commission adopted rules in parts 37 and 38 of its

regulations that specify procedures for DCMs and SEFs to make a swap available to trade

(“MAT”), and thus subject to the trade execution requirement.2 On a SEF, such swaps must be

executed on either (1) an Order Book, as defined in § 37.3(a)(3); or (2) a Request for Quote

System, as defined in § 37.9(a)(3), that operates in conjunction with an Order Book.3 On a

DCM, such swaps must be executed pursuant to subpart J of part 38 of the Commission’s

regulations,4 which implements DCM Core Principle 9 under section 5(d)(9) of the CEA.5

1

7 U.S.C. § 2(h)(8).

2

See Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade,

Swap Transaction Compliance and Implementation Schedule, and Trade Execution Requirement Under the

Commodity Exchange Act, 78 Fed. Reg. 33606 (June 4, 2013). At this time, five MAT determinations for

various interest rate and credit default swaps have been certified and become effective. Accordingly, these

MAT swaps, whether listed or offered for trading by any SEF or DCM, are subject to the trade execution

requirement and must be executed on a DCM or a SEF. See CFTC, Swaps Made Available to Trade,

http://www.cftc.gov/idc/groups/public/@otherif/documents/file/swapsmadeavailablechart.pdf.

3

17 C.F.R. § 37.9(a)(1).

4

17 C.F.R. § 38.500.

5

7 U.S.C. § 7(d)(9).

fective. Accordingly, these

MAT swaps, whether listed or offered for trading by any SEF or DCM, are subject to the trade execution

requirement and must be executed on a DCM or a SEF. See CFTC, Swaps Made Available to Trade,

http://www.cftc.gov/idc/groups/public/@otherif/documents/file/swapsmadeavailablechart.pdf.

3

17 C.F.R. § 37.9(a)(1).

4

17 C.F.R. § 38.500.

5

7 U.S.C. § 7(d)(9).

Page 2

SEFs and DCMs have faced various technological and operational challenges in

facilitating the execution of swaps that are components of package transactions to comply with

these requirements. 6 In response to these challenges, on February 10, 2014, the Division

provided no-action relief from CEA sections 2(h)(8) and 5(d)(9), and § 37.9 of the Commission’s

regulations, for all swaps subject to the trade execution requirement that are executed as part of a

package transaction (“NAL 14-12”) until May 15, 2014. On May 1, 2014, the Division extended

this relief in response to ongoing difficulties faced by SEFs and DCMs in facilitating the trading

of such swaps that are executed as a component of one of five specified categories of package

transactions (“NAL 14-62”).7 NAL 14-62 provided relief for three of the five categories of

package transactions until November 15, 2014 (“November 15, 2014 Packages”).8 Based on the

continued challenges faced by SEFs and DCMs in facilitating the November 15, 2014 Packages,

the Division issued NAL 14-137 on November 10, 2014 to further extend the relief for these

three categories.9

This letter provides further time-limited no-action relief for swaps executed as part of a

package transaction in the categories, described herein, that currently receive relief under NAL

6

For purposes of the relief granted in this letter, a “package transaction” is a transaction involving two or more

instruments: (1) that is executed between two or more counterparties; (2) that is priced or quoted as one

economic transactio

of a

package transaction in the categories, described herein, that currently receive relief under NAL

6

For purposes of the relief granted in this letter, a “package transaction” is a transaction involving two or more

instruments: (1) that is executed between two or more counterparties; (2) that is priced or quoted as one

economic transaction with simultaneous or near simultaneous execution of all components; (3) that has at least

one component that is a swap that is made available to trade and therefore is subject to the CEA section 2(h)(8)

trade execution requirement; and (4) where the execution of each component is contingent upon the execution

of all other components. The Division maintains the definition of “package transaction” provided in NAL 14-

137 for purposes of the relief granted herein. See CFTC Letter 14-137 at 4 (definition of “package

transaction”).

8

The categories include package transactions in which at least one individual swap component is made available

to trade (“MAT”) and therefore subject to the trade execution requirement; and (1) each of the other swap

components is subject to the clearing requirement under CEA section 2(h)(1)(A) and § 50.4 of the

Commission’s regulations (“MAT/Non-MAT Cleared Package Transactions”); (2) at least one individual swap

component is under the Commission’s exclusive jurisdiction and not subject to the clearing requirement

(“MAT/Non-MAT Uncleared Package Transactions”); (3) at least one individual component is not a swap

(“MAT/Non-Swap Instruments Package Transactions”); (4) at least one individual swap component is a swap

over which the Commission does not have exclusive jurisdiction (“MAT/Non-CFTC Swap Package

Transactions”) and (5) all other components are U.S. Treasury securities (“U.S. Dollar Swap Spreads”). The

no-action relief expired for MAT/Non-MAT Cleared Package Transactions and U.S. Dollar Swap Spreads

categories on June 1, 2014 and June 15, 2014, respectively

one individual swap component is a swap

over which the Commission does not have exclusive jurisdiction (“MAT/Non-CFTC Swap Package

Transactions”) and (5) all other components are U.S. Treasury securities (“U.S. Dollar Swap Spreads”). The

no-action relief expired for MAT/Non-MAT Cleared Package Transactions and U.S. Dollar Swap Spreads

categories on June 1, 2014 and June 15, 2014, respectively. See CFTC Letter 14-62 at 4-7. In addition to

providing no-action relief from CEA sections 2(h)(8) and 5(d)(9) and § 37.9 of the Commission’s regulations,

NAL 14-62 also provided time-limited no-action relief from certain requirements of § 37.9(a)(2), § 37.203(a),

and § 38.152. This letter does not provide that relief. See CFTC Letter 15-24 at 3 n.21.

8

The November 15, 2014 Packages include MAT/Non-MAT Uncleared Package Transactions; MAT/Non-Swap

Instruments Package Transactions (specifically excluding U.S. Dollar Swap Spreads); and MAT/Non-CFTC

Swap Package Transactions. See CFTC Letter 14-62 at 5-7.

9

In addition to some existing categories established in NAL 14-62, NAL 14-137 also established additional -

categories of package transactions: MAT/Agency MBS Package Transactions; MAT/New Issuance Bond

Package Transactions; and MAT/Futures Package Transactions. Under NAL 14-62, these categories were

included in the MAT/Non-Swap Instruments Package Transactions category.

Page 3

14-137.10 This letter provides continued relief from CEA section 5(d)(9) and § 37.9 of the

Commission’s regulations, permitting SEFs and DCMs to continue to offer any method of

execution, i.e., a trading system, facility, or platform, for such component swaps.11 Additionally,

the letter extends time-limited no-action relief to SEFs from § 37.3(a)(2) of the Commission’s

regulations, during which period an Order Book is not required to be offered for any of the swap

components of package transactions in such categories.12

For package transactions in some categories, entities or counterparties must execute such

platform, for such component swaps.11 Additionally,

the letter extends time-limited no-action relief to SEFs from § 37.3(a)(2) of the Commission’s

regulations, during which period an Order Book is not required to be offered for any of the swap

components of package transactions in such categories.12

For package transactions in some categories, entities or counterparties must execute such

component swaps through any method of execution offered on a SEF or DCM. For component

swaps of package transactions in certain other categories, however, this letter also provides

further relief to entities or counterparties from the trade execution requirement, as described

further herein. Pursuant to this relief, the component swaps subject to the trade execution

requirement are not required to be executed on a SEF or DCM.

I. Extension of No-Action Relief from the Commodity Exchange Act Sections 2(h)(8) and

5(d)(9) and from Commission Regulation § 37.9 and No-Action Relief for Swap

Execution Facilities from Commission Regulation § 37.3(a)(2) for Swaps Executed as

Part of Certain Package Transactions

Discussion

Since the issuance of NAL 14-137, the Division has re-evaluated the compliance timeline

established in that letter, based on ongoing discussions with market participants and a letter

request, among other things, an extension of the no-action relief provided in NAL 14-137 for

swap components of certain categories of package transactions. This letters and the Division’s

discussions indicate that trading certain package transactions on a SEF or DCM still presents

challenges to both counterparties as well as the SEFs and DCMs. For example, it has been

represented to staff that the bilateral nature and pricing of the uncleared swap in a MAT/Non-

MAT Uncleared Package Transaction makes it difficult to facilitate the execution of such

package transactions through required methods of execution

ding certain package transactions on a SEF or DCM still presents

challenges to both counterparties as well as the SEFs and DCMs. For example, it has been

represented to staff that the bilateral nature and pricing of the uncleared swap in a MAT/Non-

MAT Uncleared Package Transaction makes it difficult to facilitate the execution of such

package transactions through required methods of execution. The Division has found that many

10 This letter responds to no-action relief requested in the following: Letter from International Swaps and

Derivatives Association (“ISDA”), Request for Continued Relief from the Requirement to Execute Certain

Package Transactions on a SEF pursuant to the requirements in §37.9(a) of the Commission’s Regulations

(Sept. 8, 2015). Notwithstanding the scope of relief sought in this request, relief is limited to that provided

herein.

11 Pursuant to the relief provided from § 37.9 of the Commission’s regulations and CEA section 5(d)(9), SEFs and

DCMs were respectively permitted to facilitate the execution of component swaps subject to the trade execution

requirement through any method of execution offered on a SEF or DCM, i.e., permitted methods of execution

on a SEF, or a market or mechanism away from the centralized market of a DCM.

12 The Division notes that to the extent that such swap components are not executed as part of a package

transaction qualifying for relief herein, § 37.3(a)(2) of the Commission’s regulations requires SEFs to offer an

Order Book functionality as a method of execution for such transactions.

ed methods of execution

on a SEF, or a market or mechanism away from the centralized market of a DCM.

12 The Division notes that to the extent that such swap components are not executed as part of a package

transaction qualifying for relief herein, § 37.3(a)(2) of the Commission’s regulations requires SEFs to offer an

Order Book functionality as a method of execution for such transactions.

Page 4

of the conditions and challenges previously warranting no-action relief for certain package

transactions continue to exist.

Based on that evaluation, the Division is extending relief to enable market participants to

continue to execute certain package transactions. This letter provides SEFs and DCMs with the

continued flexibility in choosing the methods of execution they may offer for swap components

of certain package transactions via their trading systems, facilities, or platforms. Accordingly,

market participants will continue to have the opportunity to trade these swap components on

SEFs and DCMs in a flexible manner. Finally, the extension of time-limited relief will enable

the Division to continue to assess how best to enable SEFs and DCMs the ability to facilitate

trading of certain package transactions in a manner that balances the utility of package

transactions against the policy goals of the trade execution requirement.

Time-Limited No-Action Relief

The Division is granting relief for swap components, executed as part of the following

categories of package transactions set forth below, for the time periods indicated.13 For purposes

of the relief granted in this letter, a “package transaction” is a transaction involving two or more

instruments: (1) that is executed between two or more counterparties; (2) that is priced or quoted

as one economic transaction with simultaneous or near simultaneous execution of all

components; (3) that has at least one component that is a swap that is made available to trade and

therefore is subject to the CEA section 2(h)(8) trade exec

age transaction” is a transaction involving two or more

instruments: (1) that is executed between two or more counterparties; (2) that is priced or quoted

as one economic transaction with simultaneous or near simultaneous execution of all

components; (3) that has at least one component that is a swap that is made available to trade and

therefore is subject to the CEA section 2(h)(8) trade execution requirement; and (4) where the

execution of each component is contingent upon the execution of all other components.

1) MAT/New Issuance Bond Package Transactions

Package transactions which include at least one individual swap component that is subject to

the trade execution requirement and at least one individual component that is a bond issued

and sold in the primary market (“MAT/New Issuance Bond Package Transactions”)14:

13 Appendix A is a summary of the no-action relief granted in this letter and previously expired no-action relief.

The Division notes that where a package transaction may be eligible for relief under more than one of the

categories established herein, entities or counterparties may avail themselves of the broadest relief among those

categories.

14 This category does not include package transactions which include at least one individual swap component that

is subject to the trade execution requirement and at least one individual component that is a bond transaction

that occurs in the secondary market; such transactions would qualify as MAT/Non-Swap Instruments Package

Transactions as defined herein. See infra at 6-7. The Division understands that a bond issued and sold in the

primary market that may constitute part of a package transaction is a “security,” as defined in section 2(a)(1) of

the Securities Act of 1933 or section 3(a)(10) of the Securities Exchange Act of 1934

econdary market; such transactions would qualify as MAT/Non-Swap Instruments Package

Transactions as defined herein. See infra at 6-7. The Division understands that a bond issued and sold in the

primary market that may constitute part of a package transaction is a “security,” as defined in section 2(a)(1) of

the Securities Act of 1933 or section 3(a)(10) of the Securities Exchange Act of 1934. To the extent that SEFs

and DCMs may be facilitating package transactions on their respective trading systems, facilities, or platforms

that involve a security, or any component agreement, contract, or transaction over which the Commission does

not have exclusive jurisdiction, the Division does not opine on whether such activity complies with other

applicable law and regulations. The no-action positions taken herein represent only the positions of the

Division and do not bind the Commission, other Commission staff, or any other Federal agency.

Page 5

a) The Division will grant time-limited no-action relief to: (1) entities or counterparties

executing the swap components of a MAT/New Issuance Bond Package Transaction

from the requirements of CEA section 2(h)(8); and (2) SEFs and DCMs, with respect

to the swap components of a MAT/New Issuance Bond Package Transaction for

which they facilitate trading, from the requirements of § 37.3(a)(2) and § 37.9 of the

Commission’s regulations, and CEA section 5(d)(9), respectively, until 11:59 p.m.

(Eastern time) November 15, 2016

New Issuance Bond Package Transaction

from the requirements of CEA section 2(h)(8); and (2) SEFs and DCMs, with respect

to the swap components of a MAT/New Issuance Bond Package Transaction for

which they facilitate trading, from the requirements of § 37.3(a)(2) and § 37.9 of the

Commission’s regulations, and CEA section 5(d)(9), respectively, until 11:59 p.m.

(Eastern time) November 15, 2016.

b) The Division will not recommend that the Commission take enforcement action

against any entity or counterparty that executes the swap components of a MAT/New

Issuance Bond Package Transaction without complying with CEA section 2(h)(8), or

against any SEF or DCM that facilitates trading in swap components of a MAT/New

Issuance Bond Package Transaction without complying with § 37.3(a)(2) or § 37.9 of

the Commission’s regulations, or CEA section 5(d)(9), respectively, if such swaps are

executed before or at the expiration of the no-action relief.

2) MAT/Futures Package Transactions

Package transactions which include at least one individual swap component that is subject to

the trade execution requirement and all other components that are contracts for the purchase

or sale of a commodity for future delivery, i.e., futures contracts (“MAT/Futures Package

Transactions”):

a) The Division will grant time-limited no-action relief to: (1) entities or counterparties

executing the swap components of a MAT/Futures Package Transaction from the

requirements of CEA section 2(h)(8); and (2) SEFs and DCMs, with respect to the

swap components of a MAT/Futures Package Transaction for which they facilitate

trading, from the requirements of § 37.3(a)(2) and § 37.9 of the Commission’s

regulations, and CEA section 5(d)(9), respectively, until 11:59 p.m. (Eastern time)

November 15, 2016

components of a MAT/Futures Package Transaction from the

requirements of CEA section 2(h)(8); and (2) SEFs and DCMs, with respect to the

swap components of a MAT/Futures Package Transaction for which they facilitate

trading, from the requirements of § 37.3(a)(2) and § 37.9 of the Commission’s

regulations, and CEA section 5(d)(9), respectively, until 11:59 p.m. (Eastern time)

November 15, 2016.

b) The Division will not recommend that the Commission take enforcement action

against any entity or counterparty that executes the swap components of a

MAT/Futures Package Transaction without complying with CEA section 2(h)(8), or

against any SEF or DCM that facilitates trading in swap components of a

MAT/Futures Package Transaction without complying with § 37.3(a)(2) or § 37.9 of

the Commission’s regulations, or CEA section 5(d)(9), respectively, if such swaps are

executed before or at the expiration of the no-action relief.

3) MAT/Non-MAT Uncleared Package Transactions

Package transactions which include at least one individual swap component that is subject to

the trade execution requirement and at least one individual swap component that is subject to

the Commission’s exclusive jurisdiction, but not subject to the clearing requirement under

Page 6

CEA section 2(h)(1)(A) and § 50.4 of the Commission’s regulations (“MAT/Non-MAT

Uncleared Package Transactions”):

a) The Division will grant time-limited no-action relief to SEFs and DCMs, with respect

to the swap components of a MAT/Non-MAT Uncleared Package Transaction for

which they facilitate trading, from the requirements of § 37.3(a)(2) and § 37.9 of the

Commission’s regulations, and CEA section 5(d)(9), respectively, until 11:59 p.m.

(Eastern time) November 15, 2016

eared Package Transactions”):

a) The Division will grant time-limited no-action relief to SEFs and DCMs, with respect

to the swap components of a MAT/Non-MAT Uncleared Package Transaction for

which they facilitate trading, from the requirements of § 37.3(a)(2) and § 37.9 of the

Commission’s regulations, and CEA section 5(d)(9), respectively, until 11:59 p.m.

(Eastern time) November 15, 2016. During this period of time, SEFs and DCMs

may provide a trading system, facility, or platform that facilitates trading of swap

components through methods of execution that do not comply with the required

methods of execution in § 37.9 of the Commission’s regulations or CEA section

5(d)(9), respectively.15

b) The Division will not recommend that the Commission take enforcement action

against any SEF or DCM that facilitates trading in swap components of a MAT/Non-

MAT Uncleared Package Transaction without complying with § 37.3(a)(2) or § 37.9

of the Commission’s regulations, or CEA section 5(d)(9), respectively, if such swaps

are executed before or at each respective expiration of no-action relief.16

The Division notes that entities or counterparties must execute the swap components of a

MAT/Non-MAT Uncleared Package Transaction that is subject to the trade execution

requirement on a SEF or DCM. Entities or counterparties, however, may execute such swap

components through any method of execution offered on a SEF or DCM, i.e., a trading system,

facility, or platform, pursuant to no-action relief provided, herein, from the requirements of §

37.9 of the Commission’s regulations and CEA section 5(d)(9), respectively

tion that is subject to the trade execution

requirement on a SEF or DCM. Entities or counterparties, however, may execute such swap

components through any method of execution offered on a SEF or DCM, i.e., a trading system,

facility, or platform, pursuant to no-action relief provided, herein, from the requirements of §

37.9 of the Commission’s regulations and CEA section 5(d)(9), respectively.

4) MAT/Non-Swap Instruments Package Transactions

Package transactions which include at least one individual swap component that is subject to

the trade execution requirement and at least one individual component that is not a swap

(“MAT/Non-Swap Instruments Package Transactions”).17 This category specifically

15 The Division expects that SEFs and DCMs will implement and enforce rules that will allow them to verify that

only eligible swap components are executed in reliance on the relief granted in this letter.

16 If the Commission determines at some future date that all of the swap components that are currently not subject

to the clearing requirement are required to be cleared pursuant to CEA section 2(h)(1)(A) and § 50.2 of the

Commission’s regulations, then this no-action relief would no longer apply to the swap components of a

MAT/Non-MAT Uncleared Package Transaction. The Division notes that should this no-action relief no longer

apply, however, it would then consider a phased-in compliance schedule for these package transactions

ement are required to be cleared pursuant to CEA section 2(h)(1)(A) and § 50.2 of the

Commission’s regulations, then this no-action relief would no longer apply to the swap components of a

MAT/Non-MAT Uncleared Package Transaction. The Division notes that should this no-action relief no longer

apply, however, it would then consider a phased-in compliance schedule for these package transactions.

17 The Division understands that non-swap instruments that may constitute part of a package transaction include a

“security,” as defined in section 2(a)(1) of the Securities Act of 1933 or section 3(a)(10) of the Securities

Exchange Act of 1934, which includes a “security-based swap.” To the extent that SEFs and DCMs may be

facilitating package transactions on their respective trading systems, facilities, or platforms that involve a

security, or any component agreement, contract, or transaction over which the Commission does not have

Page 7

excludes U.S. Dollar Swap Spreads; MAT/Futures Package Transactions; MAT/Agency

MBS Package Transactions; and MAT/New Issuance Bond Package Transactions.

a) The Division will grant time-limited no-action relief to SEFs and DCMs, with respect

to the swap components of a MAT/Non-Swap Instruments Package Transaction for

which they facilitate trading, from the requirements of § 37.3(a)(2) and § 37.9 of the

Commission’s regulations, and CEA section 5(d)(9), respectively, until 11:59 p.m.

(Eastern time) November 15, 2016. During this period of time, SEFs and DCMs

may provide a trading system, facility, or platform that facilitates trading of swap

components through methods of execution that do not comply with the required

methods of execution in § 37.9 of the Commission’s regulations or CEA section

5(d)(9), respectively

and CEA section 5(d)(9), respectively, until 11:59 p.m.

(Eastern time) November 15, 2016. During this period of time, SEFs and DCMs

may provide a trading system, facility, or platform that facilitates trading of swap

components through methods of execution that do not comply with the required

methods of execution in § 37.9 of the Commission’s regulations or CEA section

5(d)(9), respectively.

b) The Division will not recommend that the Commission take enforcement action

against any SEF or DCM that facilitates trading in swap components of a MAT/Non-

Swap Instruments Package Transaction without complying with § 37.3(a)(2) or § 37.9

of the Commission’s regulations, or CEA section 5(d)(9), respectively, if such swaps

are executed before or at each respective expiration of no-action relief.

The Division notes that entities or counterparties must execute the swap components of a

MAT/Non-CFTC Swap Package Transaction that is subject to the trade execution requirement,

on a SEF or DCM. Entities or counterparties, however, may execute such swap components

through any method of execution offered on a SEF or DCM, i.e., a trading system, facility, or

platform, pursuant to no-action relief provided, herein, from the requirements of § 37.9 of the

Commission’s regulations and CEA section 5(d)(9), respectively.

5) MAT/Non-CFTC Swap Package Transactions

Package transactions which include at least one individual swap component that is subject to

the trade execution requirement and at least one individual swap component that is a swap

over which the Commission does not have exclusive jurisdiction (“MAT/Non-CFTC Swap

Package Transactions”).18

exclusive jurisdiction, the Division does not opine on whether such activity complies with other applicable law

and regulations

over which the Commission does not have exclusive jurisdiction (“MAT/Non-CFTC Swap

Package Transactions”).18

exclusive jurisdiction, the Division does not opine on whether such activity complies with other applicable law

and regulations. The no-action positions taken herein represent only the positions of the Division and do not

bind the Commission, other Commission staff, or any other Federal agency.

18 A “mixed swap,” as defined in section 1a(47)(D) of the CEA, is an example of a swap over which the CFTC

may share jurisdiction with the U.S. Securities and Exchange Commission. See Further Definition of “Swap,”

“Security-Based Swap,” and “Security-Based Swap Agreement”; Mixed Swaps; Security-Based Swap

Agreement Recordkeeping, 77 Fed. Reg. 48208, 48291-93 (Aug. 13, 2012). To the extent that SEFs and DCMs

may be facilitating package transactions on their respective trading systems, facilities, or platforms that involve

a security, or any component agreement, contract, or transaction over which the Commission does not have

exclusive jurisdiction, the Division does not opine on whether such activity complies with other applicable law

and regulations. The no-action positions taken herein represent only the positions of the Division and do not

bind the Commission, other Commission staff, or any other Federal agency.

, or any component agreement, contract, or transaction over which the Commission does not have

exclusive jurisdiction, the Division does not opine on whether such activity complies with other applicable law

and regulations. The no-action positions taken herein represent only the positions of the Division and do not

bind the Commission, other Commission staff, or any other Federal agency.

Page 8

a) The Division will grant time-limited no-action relief to SEFs and DCMs, with respect

to the swap components of a MAT/Non-CFTC Swap Package Transaction for which

they facilitate trading, from the requirements of § 37.3(a)(2) and § 37.9 of the

Commission’s regulations, and CEA section 5(d)(9), respectively, until 11:59 p.m.

(Eastern time) November 15, 2016. During this period of time, SEFs and DCMs

may provide a trading system, facility, or platform that facilitates trading of swap

components through methods of execution that do not comply with the required

methods of execution in § 37.9 of the Commission’s regulations or CEA section

5(d)(9), respectively.

b) The Division will not recommend that the Commission take enforcement action

against any SEF or DCM that facilitates trading in swaps as part of a MAT/Non-

CFTC Swap Package Transaction without complying with § 37.3(a)(2) or § 37.9 of

the Commission’s regulations, or CEA section 5(d)(9), respectively, if such swaps are

executed before or at each respective expiration of no-action relief.

The Division notes that entities or counterparties must execute the swap components of a

MAT/Non-CFTC Swap Package Transaction that is subject to the trade execution requirement

on a SEF or DCM. Entities or counterparties, however, may execute such swap components

through any method of execution offered on a SEF or DCM, i.e., a trading system, facility, or

platform, pursuant to no-action relief provided, herein, from the requirements of § 37.9 of the

Commission’s regulations and CEA section 5(d)(9), respectively.

II

at is subject to the trade execution requirement

on a SEF or DCM. Entities or counterparties, however, may execute such swap components

through any method of execution offered on a SEF or DCM, i.e., a trading system, facility, or

platform, pursuant to no-action relief provided, herein, from the requirements of § 37.9 of the

Commission’s regulations and CEA section 5(d)(9), respectively.

II. Conclusion

Industry participants should note that the no-action positions taken herein do not excuse

affected persons from compliance with any other applicable requirements of the CEA or the

Commission’s regulations thereunder.19 This letter, and the no-action positions taken herein,

represent the positions of the Division only, and do not necessarily represent the positions of, or

bind, the Commission, any other division or office of the Commission’s staff, or any other

Federal agency. As with all no-action letters, the Division retains the authority to condition

further, modify, suspend, terminate or otherwise restrict the terms of the no-action relief

provided herein, in its discretion.

19 The applicable swap reporting requirements are set forth under parts 43, 45, and 50 of the Commission’s

regulations. The applicable clearing requirements are set forth under CEA section 2(h)(1) and part 50 of the

Commission’s regulations. The applicable pre-execution credit check requirements are set forth under § 1.73 of

the Commission’s regulations. The applicable straight-through processing requirements are set forth under §

1.74, § 37.702(b), § 38.601, and § 39.12(b)(7) of the Commission’s regulations.

e applicable clearing requirements are set forth under CEA section 2(h)(1) and part 50 of the

Commission’s regulations. The applicable pre-execution credit check requirements are set forth under § 1.73 of

the Commission’s regulations. The applicable straight-through processing requirements are set forth under §

1.74, § 37.702(b), § 38.601, and § 39.12(b)(7) of the Commission’s regulations.

Page 9

If you have any questions concerning this correspondence, please contact Nancy

Markowitz, Deputy Director, at (202) 418-5453 or nmarkowitz@cftc.gov, Nhan Nguyen, Special

Counsel, at (202) 418-5932 or nnguyen@cftc.gov, or Roger Smith, Special Counsel, at (202)

418-5344 or rsmith@cftc.gov.

Sincerely,

Vincent A. McGonagle

Director

Division of Market Oversight

Page 10

APPENDIX A: SUMMARY OF PACKAGE TRANSACTION RELIEF

Note: This appendix reflects a summary of the relief that the Division of Market Oversight (“Division”) of the

Commodity Futures Trading Commission (“Commission”) has granted since February 10, 2014 with respect to

package transactions; this summary is intended to be used for reference only and does not represent a grant of any

no-action relief from the Commodity Exchange Act or the Commission’s regulations. Please refer to CFTC Letter

14-12, CFTC Letter 14-62, CFTC Letter 14-137, and CFTC Letter 15-55 for the grant of Division relief related to

package transactions.

Package Transaction Category

Relief Expiration

MAT/MAT: Each of the components is a

swap subject to the trade execution

requirement

Relief expired May 15, 2014 pursuant to CFTC Letter

14-12.

MAT/Non-MAT (Cleared): At least one of

the components is subject to the trade

execution requirement and each of the other

components is subject to the clearing

requirement

Relief expired June 1, 2014 pursuant to CFTC Letter 14-

62.

US Dollar Swap Spreads: Each of the swap

components is subject to the trade execution

requirement and all other components are

U.S

uant to CFTC Letter

14-12.

MAT/Non-MAT (Cleared): At least one of

the components is subject to the trade

execution requirement and each of the other

components is subject to the clearing

requirement

Relief expired June 1, 2014 pursuant to CFTC Letter 14-

62.

US Dollar Swap Spreads: Each of the swap

components is subject to the trade execution

requirement and all other components are

U.S. Treasury securities

Relief expired June 15, 2014 pursuant to CFTC Letter

14-62.

MAT/Agency MBS: Each of the swap

components is subject to the trade execution

requirement and all other components are

agency mortgage-backed securities

Relief expired May 15, 2015 pursuant to CFTC Letter

14-137.

MAT/New Issuance Bond: At least one

individual swap component is subject to the

trade execution requirement and at least one

individual component is a bond issued and

sold in the primary market

Relief from CEA section 2(h)(8) until November 15,

2016. Under this relief, the swap components subject to

the trade execution requirement are not required to be

executed on a SEF or DCM.

Relief from Commission Regulation § 37.9 and CEA

section 5(d)(9) until November 15, 2016, which permits

a SEF or DCM to offer any method of execution for the

swap components.

Relief from Commission Regulation § 37.3(a)(2) until

November 15, 2016, which permits SEFs to not offer an

Order Book as a minimum trading functionality for the

swap components.

to be

executed on a SEF or DCM.

Relief from Commission Regulation § 37.9 and CEA

section 5(d)(9) until November 15, 2016, which permits

a SEF or DCM to offer any method of execution for the

swap components.

Relief from Commission Regulation § 37.3(a)(2) until

November 15, 2016, which permits SEFs to not offer an

Order Book as a minimum trading functionality for the

swap components.

Page 11

Package Transaction Category

Relief Expiration

MAT/Futures: At least one individual swap

component is subject to the trade execution

requirement and all other components are

contracts for the purchase or sale of a

commodity for future delivery, i.e., futures

contracts. This category may include:

•

MAT swap v. Treasury futures

•

MAT swap v. Eurodollar futures

Relief from CEA section 2(h)(8) until November 15,

2016. Under this relief, the swap components subject to

the trade execution requirement are not required to be

executed on a SEF or DCM.

Relief from Commission Regulation § 37.9 and CEA

section 5(d)(9) until November 15, 2016, which permits

a SEF or DCM to offer any method of execution for the

swap components.

Relief from Commission Regulation § 37.3(a)(2) until

November 15, 2016, which permits SEFs to not offer an

Order Book as a minimum trading functionality for the

swap components.

MAT/Non-MAT (Uncleared): At least one

of the swap components is subject to the

trade execution requirement and at least one

of the components is a CFTC swap that is

not subject to the clearing requirement.

This category may include:

•

MAT swap v. swaption

•

MAT swap v. uncleared credit

default swap

Relief from Commission Regulation § 37.9 and CEA

section 5(d)(9) until November 15, 2016, which permits

a SEF or DCM to offer any method of execution for the

swap components.

Relief from Commission Regulation § 37.3(a)(2) until

November 15, 2016, which permits SEFs to not offer an

Order Book as a minimum trading functionality for the

swap components

p v. uncleared credit

default swap

Relief from Commission Regulation § 37.9 and CEA

section 5(d)(9) until November 15, 2016, which permits

a SEF or DCM to offer any method of execution for the

swap components.

Relief from Commission Regulation § 37.3(a)(2) until

November 15, 2016, which permits SEFs to not offer an

Order Book as a minimum trading functionality for the

swap components.

MAT/Non-Swap Instruments: At least one

of the swap components is subject to the

trade execution requirement and at least one

of the components is not a swap. This

category excludes U.S. Dollar Swap

Spreads, MAT/Futures, MAT/Agency MBS,

and MAT/New Issuance Bond. This

category may include:

•

MAT swap v. single-name credit

default swap

•

MAT swap v. bond (secondary

market transaction)

Relief from Commission Regulation § 37.9 and CEA

section 5(d)(9) until November 15, 2016, which permits

a SEF or DCM to offer any method of execution for the

swap components.

Relief from Commission Regulation § 37.3(a)(2) until

November 15, 2016, which permits SEFs to not offer an

Order Book as a minimum trading functionality for the

swap components.

MAT/Non-CFTC Swap: At least one of the

swap components is subject to the trade

execution requirement and at least one of

the components is a swap over which the

CFTC does not have exclusive jurisdiction

(e.g., a mixed swap)

Relief from Commission Regulation § 37.9 and CEA

section 5(d)(9) until November 15, 2016, which permits

a SEF or DCM to offer any method of execution for the

swap components.

Relief from Commission Regulation § 37.3(a)(2) until

November 15, 2016, which permits SEFs to not offer an

Order Book as a minimum trading functionality for the

swap components.