DERIVATIVES—CFTC issues staff advisory related to prime brokerage arrangements and DCO registration requirements - 19 May 2023

The CFTC’s staff advisory encourages entities using prime brokerage arrangements to examine the specific nature of their activities for the potential need to register as a derivatives clearing organization.

The CFTC’s Division of Clearing and Risk (DCR) issued a staff advisory encouraging entities using prime brokerage arrangements that provide credit substitution on a centralized basis to examine the specific nature of their activities for the potential need to register as a DCO with the CFTC (CFTC Letter No. 23-06, May 17, 2023).

DCR staff recently encountered potential DCO registration issues involving derivatives transactions executed through prime brokerage arrangements used by swap execution facilities (SEF) or those seeking to register as SEFs, particularly through the use of market structures that require the use of a single prime broker to provide centralized credit substitution to all SEF participants.

The staff advisory serves as a reminder to these entities of their obligations under the Commodity Exchange Act and CFTC regulations. In addition, the advisory urges the entities to contact DCR if they need more information.

This is CFTC Letter No. 23-06.

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