Trigger swaps must be reported to a swap data repository (SDR) as soon as technologically practicable upon execution (deemed to occur at the time of the pricing event for the trigger swap). The CFTC’s amended regulations incorporate public reporting rules applicable to swaps prime brokerage agency arrangements. SUMMARY OF RULES RELATED TO SWAPS PRIME BROKERAGE AGENCY ARRANGEMENTS The compliance dates are 18 months for most of the amended regulations, including the swaps prime brokerage agency arrangement reporting rules, after the rules are published in the Federal Register, and 30 months after the rules are published in the Federal Register for Regulation 43.4(h) (post-initial cap size) and Regulation 43.6 (block trades and large notional off-facility swaps). The amendments are effective 60 days after the rules are published in the Federal Register. After a client seeks bids for its desired swap from approved executing dealers, and agrees on the terms of a swap with an executing dealer, both the client and the executing dealer provide the prime broker with a notice of the terms for the “trigger swap.” Once the prime broker accepts the swap (and it must accept the swap if the terms are within the predefined parameters), the prime broker enters into a “mirror swap” with the client with identical economic terms and pricing (with an adjustment for the prime brokerage servicing fee).Pursuant to the give-up arrangements, the executing dealers face the prime broker as counterparty for the resulting “trigger swap.” The prime broker enters into “give-up” arrangements with the approved executing dealers that permit the executing dealers to agree to negotiate swaps with the prime broker’s clients, acting as an agent for the prime broker, again subject to predefined limits and parameters.A swap counterparty (the prime broker’s client) opens an account with a prime broker who grants limited agency powers to the client, enabling the client (as agent for the prime broker) to enter into swaps with executing dealers approved by the prime broker, provided that the swaps are within predefined limits and parameters.What Is a Swaps Prime Brokerage Agency Arrangement? The practical effect of the rulemaking for parties in a swaps prime brokerage agency arrangement (see below) is to clarify that mirror swaps do not need to be reported under the CFTC’s real-time reporting rules and to identify the party responsible for reporting the trigger swap. The September 17 amendments largely codify the no-action relief, but introduce new concepts and defined terms to prevent duplicative swap reporting by limiting the scope of mirror swaps that should not be reported to those swaps that are integrally related to trigger swaps and their related pricing events. The CFTC previously issued no-action relief that addressed mirror swaps in prime brokerage agency arrangements, providing relief from the real-time public reporting obligations in response to concerns that public reporting of both legs of a prime brokerage transaction would incorrectly suggest the presence of more trading activity in the market than actually existed (see CFTC No-Action Letter No. The Commodity Futures Trading Commission (CFTC) has unanimously approved amendments to the real-time swap reporting rules in Part 43 of the CFTC’s regulations by, among other things, clarifying the applicability of the rules to swaps executed in a prime brokerage agency arrangement.
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