CFTC broadens path for proprietary traders to act as market makers for swaps - 27 June 2019

The CFTC issued no-action relief for registered floor traders in an attempt to open up swap dealing to new sources of liquidity. The relief eliminates ambiguity for market participants wishing to engage in swaps activity in their capacity as a floor trader, encouraging new liquidity providers to trade cleared swaps on registered venues without regulatory uncertainty, benefiting market participants seeking to access liquid, competitive cleared swaps markets.

A registered floor trader does no longer need to consider designated contract market (DCM) and swap execution facility (SEF) Cleared Swaps when determining whether it is a swap dealer, in spite of the registered floor trader

1) entering into swaps other than DCM and SEF Cleared Swaps,

2) directly or indirectly negotiating the terms of swaps other than DCM and SEF Cleared Swaps, or

3) not submitting periodic risk reports as required by CFTC regulations. 

A floor trader relying on the relief must still comply with CFTC regulations with respect to each of its swaps (including swaps that are not DCM and SEF Cleared Swaps) as if it were a swap dealer. In addition, the relief is limited to cleared swap activities conducted on a SEF or DCM. Other off-facility or uncleared swaps that meet the definition of dealing swaps will still count towards the swap dealing registration threshold for these traders.

This move should improve price discovery as well as safety and resiliency of the swap market. The relief should help diversify liquidity because it will encourage new liquidity providers to trade cleared swaps on registered venues without regulatory uncertainty, benefiting market participants seeking to access liquid competitive cleared swaps markets. However, members of the Futures Industry Association Principal Traders Group (FIA PTG) are still hesitant to trade swaps on SEFs and DCMs because some conditions were overly restrictive and unclear.

For more information visit http://business.cch.com/srd/19-14.pdf and http://business.cch.com/srd/7950-19.pdf .