Overview
On February 22, 2024, the Commodity Futures Trading Commission (CFTC) Market Participants Division (MPD) issued a No-Action Letter (NAL 24-02) to swap dealer (SD) and major swap participant (MSP) registrants as former members of the Alternative Reference Rates Committee (ARRC) Regulatory Working Group, from pre-trade mid-market mark (PTMM) requirements for overnight index swaps referencing the Secured Overnight Financing Rate (SOFR). The CFTC has previously reached settlement with several SDs involving violations of PTMM requirements, CFTC Rule 23.431(a)(3)(i). The no-action letter is only the second issued by CFTC staff this year.
The relief means that the MPD will not recommend an enforcement action against SD and MSP registrants for failing to disclose the PTMM with respect to an overnight index swap (OIS) referencing the SOFR and meeting the specifications set out in the swap clearing mandate (CFTC Rule 50.4). The request for relief was submitted to ensure SOFR OIS received similar relief from PTMM requirements as afforded to the then-predominant LIBOR-referencing swaps in No-Action Letter 12-58.
SOFR OIS with termination dates ranging from seven days to 50 years, without optionality, dual currencies and conditional notional amounts, as quoted or priced by SD or MSP registrants, are eligible for the relief, provided that (1) real-time tradeable bid and offer prices for the swap are available electronically, in the marketplace, to the counterparty; and (2) the counterparty to the swap agrees in advance, in writing, that the Swap Entity need not disclose a PTMM for the swap.
In considering whether SOFR OIS transactions are covered under the relief, SDs should review the material terms of transactions to help ensure alignment with CFTC Rule 50.4. Firms should also review trading or compliance documentation, such as the ISDA Dodd-Frank Protocols, to ensure the counterparty’s prior written consent to not disclose the PTMM is received.
The ARRC Regulatory Working Group sought this relief to provide clarity that would benefit all SD and MSP registrants. Steptoe’s Ryan Hayden and Micah Green provided ongoing counsel in this effort. Visit the CTFC website to view a copy of the relief request letter.
About Steptoe
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