By Andrew Cross and Tom Watterson
Attention investment managers, banks, CPOs, insurance companies and anyone who currently must clear their interest rate swaps, the requirement to trade interest rate swaps on a swap execution facility ("SEF") will come into force on February 15, 2014.
Part 1: What will be covered by the trading mandate?
The CFTC certified Javelin SEF’s "Made Available to Trade" submission (the "MAT Submission") (for a summary of the submission see our earlier post "CFTC Taking Comments on Requiring Interest Rate Swaps to be Executed on SEFs or DCMs"). Javelin’s initial MAT Submission covered interest rate swaps across the curve, but revised its MAT Submission to limit the scope to interest rate swaps with the benchmark tenors. The swaps that are subject to Javelin’s MAT Submission ("Covered Swaps"), whether listed or offered by Javelin or any other SEF will become subject to the trading requirement beginning on February 15, 2014. As a result, unless exempted from the trading requirement (such as through the end-user exception) transactions involving Covered Swaps must be traded on a SEF or a designated contract market .
The Press Release is available here.
Covered Swaps include the following fixed for floating interest rate swaps:
|Floating Rate Index||USD Libor||Euribor|
|Trade Start Type||
Spot Starting (T+2) or
| IMM Start Date
(next two quarterly IMM start dates)
|Notional||Fixed Notional||Fixed Notional|
|Tenors||2, 3, 5, 7, 10, 12, 15, 20, 30 years||2, 3, 5, 7, 10, 12, 15, 20, 30 years|
Covered Swaps do not include interest rate swaps with optionality or multiple currencies.
However, the CFTC Division of Market Oversight ("DMO") clarified that status of “package transactions” or "multi-legged transaction," transactions involving more than one swap or financial instrument. According to the DMO, the inclusion of a Covered Swap in a package transaction "would not per se relieve market participants" from the trading requirement for that Covered Swap.
Because the market does not currently facilitate trading package transactions on SEFs,the DMO will be holding a public roundtable to discuss "whether and under what conditions to grant limited relief for package transactions to ensure proper implementation of the execution mandate."
"Part 2 Countdown to the trading mandate — what to do now" will be arriving shortly.
Good day. Good certification? TSR