CFTC issues swap risk-reduction no-action relief for service providers

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CFTC swap risk relief

Highlights

CFTC divisions granted Capitolis Partners LLC, Quantile Technologies Limited, and TriOptima AB no-action relief from swap execution facility registration requirements.
Relief covers users of portfolio rebalancing and basis risk mitigation services for failures involving trade execution and clearing mandates under Section 2(h) of the Commodity Exchange Act.
The no-action letter clarifies post-trade risk reduction services are not subject to real-time public reporting under Part 43, offering time-limited regulatory certainty for swap market participants.

No-action relief for swap service providers

As announced by the CFTC, its Division of Clearing and Risk, Division of Market Oversight, and Market Participants Division are taking no-action positions in response to a request from Capitolis Partners LLC, Quantile Technologies Limited, part of London Stock Exchange Group plc, and TriOptima AB, part of OSTTRA.

The letter provides relief to the three providers from enforcement action for failing to register as swap execution facilities. It notes that the firms are registered with the CFTC as introducing brokers and remain subject to CFTC regulations and National Futures Association rules.

The relief also extends to any person using portfolio rebalancing and basis risk mitigation services, covering failures to execute swaps on a designated contract market, a swap execution facility, or an exempt swap execution facility under the trade execution requirement in Section 2(h)(8) of the Commodity Exchange Act. It also covers failures to submit swaps that must be cleared to a derivatives clearing organization under Section 2(h)(1) of the act and Part 50 of CFTC regulations.

Reporting treatment and market impact

The no-action letter reiterates the commission's discussion of risk reduction services in its 2020 Part 43 final rule. It clarifies that when post-trade risk reduction services meet the description set out in that adopting release, they do not fall within the definition of a publicly reportable swap transaction and are not subject to real-time public reporting and dissemination requirements under Part 43.

For the swaps market, the move provides additional regulatory certainty for firms using compression-style and risk-mitigation tools to reduce exposures after trades are executed. The CFTC says the relief is time-limited and subject to the terms and conditions laid out in the letter, indicating that market participants still need to monitor the scope and duration of the accommodation.

Our earlier coverage of the Federal Reserve’s updated projections explained how policymakers turned more cautious on inflation after an oil-driven price shock, with more officials signaling that higher interest rates may be needed. We noted that firmer labor-market expectations and elevated PCE inflation forecasts reduced the urgency for rate cuts and shifted the debate toward the possibility of renewed tightening.

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