MFA submitted a letter to the CFTC’s Division of Market Oversight (Division) requesting time-limited, conditional no-action relief from the trade execution requirement for swaps executed as part of package transactions in the interest rate asset class. For purposes of the request for such relief, MFA defined the term “Package Transaction” to mean any transaction commonly entered into in the interest rate asset class that satisfies all of the following criteria:
(a) it comprises two or more legs (each, a “Component”) that are priced as a package and executed at substantially the same point in time between the same two market participants;
(b) at least one Component is a swap subject to the trade execution requirement (each, a Made Available-to-Trade or MAT Swap);
(c) economically, the Components are a combination of “buys” and “sells” or “payers” and “receivers”;
(d) there is a reasonable and readily quantifiable degree of correlation between the Components; and
(e) the interest rate risk of the offsetting Components is reasonably equivalent.
MFA also requested that the Division view the requests for relief in our letter in light of the comments in MFA’s prior letter, dated November 21, 2013, regarding the MAT determinations of Javelin SEF, LLC; trueEX, LLC; and TW SEF for certain interest rate swaps.
January 24, 2014
Topics: CFTC Commodity Futures Trading Commission, Division of Market Oversight, execution, swaps, package transactions, interest rate swaps, no-action relief, market participants, made available for trading, MAT, MAT swap, Citadel LLC, OTC derivatives, mandatory clearing, central clearing, mandatory central clearing, swap execution facilities, SEF, designated contract markets, DCM, systemic risk, Javelin SEF, expense risk, execution risk, risk management, trueEX, deemed certified, swap curves, swap butterflies, swap spreads, securities, MBS basis, invoice spreads, cash/futures basis, delta-neutral option packages, unwind packages, futures commission merchant, FCM, derivatives clearing organization, DCO, benchmark index, swap spread, US Treasuries, exchange for related position, CME Group, EFRPs,
To:
Vincent A. McGonagle, CFTCMark Wetjen, Bart Chilton, Scott O'Malia, CFTC