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CFTC Looks To Curb Swap Contract Bundling

Joe Mont | June 28, 2012

The work-around of bundling swap contracts to get around a requirement for trading on open platforms would be done away with under proposed rulemaking by the Commodity Futures Trading Commission

This week, the CFTC approved for publication in the Federal Register a Notice of Proposed Rulemaking that re-proposes adding certain provisions to Part 43 of the Commission's Regulations pertaining to block trades in swap contracts. It evolved from related mandates of the Dodd-Frank Act that drew a distinction between large block trades and smaller transactions.

The provisions contained in the proposed rulemaking would:

  • Prohibit the aggregation of orders for different trading accounts in order to satisfy the minimum block size or cap size requirements, except for orders aggregated by certain commodity trading advisers, investment advisers and foreign persons, if such qualifying persons have more than $25,000,000 in total assets under management.
  • Provide that parties to a block trade must individually qualify as eligible contract participants, except where a designated contract market allows certain commodity trading advisers, investment advisers and foreign persons to transact block trades for customers who are not eligible contract participants, if such qualifying commodity trading adviser, investment adviser or foreign person has more than $25,000,000 in total assets under management; and
  • Require that persons transacting block trades on behalf of customers must receive prior written instructions or consent from the customer.

Public comments on the proposal, which stems from provisions initially outlined in December 2010, will be accepted for 30 days following publication in the Federal Register. Comments may be submitted electronically through the CFTC's Comments Online Process. All comments will be posted on the Commission's website.

To better explain the proposal, the Commission has also posted a fact sheet, and guidance in the form of questions and answers, online.