§ 43.6 Block trades and large notional off-facility swaps. ( a ) *Commission determination.* The Commission shall establish the appropriate minimum block size for publicly reportable swap transactions based on the swap categories set forth in paragraphs (b) and (c) of this section, as applicable, in accordance with the provisions set forth in paragraph (d), (e), (f), (g), (h), or (i) of this section, as applicable.
( b ) *Initial swap categories.* Swap categories shall be established for all swaps, by asset class, in the following manner: ( 1 ) *Interest rates asset class.* Interest rate asset class swap categories shall be based on unique combinations of the following: ( i ) Currency by: ( A ) Super-major currency;
( B ) Major currency; or
( C ) Non-major currency; and
( ii ) Tenor of swap as follows: ( A ) Zero to 46 days;
( B ) Greater than 46 days to three months (47 to 107 days);
( C ) Greater than three months to six months (108 to 198 days);
( D ) Greater than six months to one year (199 to 381 days);
( E ) Greater than one to two years (382 to 746 days);
( F ) Greater than two to five years (747 to 1,842 days);
( G ) Greater than five to ten years (1,843 to 3,668 days);
( H ) Greater than ten to 30 years (3,669 to 10,973 days); or
( I ) Greater than 30 years (10,974 days and above).
( 2 ) *Credit asset class.* Credit asset class swap categories shall be based on unique combinations of the following: ( i ) Traded Spread rounded to the nearest basis point (0.01) as follows: ( A ) 0 to 175 points;
( B ) 176 to 350 points; or
( C ) 351 points and above;
( ii ) Tenor of swap as follows: ( A ) Zero to two years (0-746 days);
( B ) Greater than two to four years (747-1,476 days);
( C ) Greater than four to six years (1,477-2,207 days);
( D ) Greater than six to eight-and-a-half years (2,208-3,120 days);
( E ) Greater than eight-and-a-half to 12.5 years (3,121-4,581 days); and
( F ) Greater than 12.5 years (4,582 days and above).
( 3 ) *Equity asset class.* There shall be one swap category consisting of all swaps in the equity asset class.
( 4 ) *Foreign exchange asset class.* Swap categories in the foreign exchange asset class shall be grouped as follows: ( i ) By the unique currency combinations of one super-major currency paired with one of the following: ( A ) Another super major currency;
( B ) A major currency; or
( C ) A currency of Brazil, China, Czech Republic, Hungary, Israel, Mexico, Poland, Russia, and Turkey; or
( ii ) By unique currency combinations not included in paragraph (b)(4)(i) of this section.
( 5 ) *Other commodity asset class.* Swap contracts in the other commodity asset class shall be grouped into swap categories as follows: ( i ) For swaps that are economically related to contracts in appendix B of this part, by the relevant contract as referenced in appendix B of this part; or
( ii ) For swaps that are not economically related to contracts in appendix B of this part, by the following futures-related swaps: ( A ) CME Cheese;
( B ) CBOT Distillers' Dried Grain;
( C ) CBOT Dow Jones-UBS Commodity Index;
( D ) CBOT Ethanol;
( E ) CME Frost Index;
( F ) CME Goldman Sachs Commodity Index (GSCI), (GSCI Excess Return Index);
( G ) NYMEX Gulf Coast Sour Crude Oil;
( H ) CME Hurricane Index;
( I ) CME Rainfall Index;
( J ) CME Snowfall Index;
( K ) CME Temperature Index;
( L ) CME U.S. Dollar Cash Settled Crude Palm Oil; or
( iii ) For swaps that are not covered in paragraphs (b)(5)(i) and (b)(5)(ii) of this section, the relevant product type as referenced in appendix D of this part.
( c ) *Post-initial swap categories.* Swap categories shall be established for all swaps, by asset class, in the following manner: ( 1 ) *Interest rate asset class.* Swaps in the interest rate asset class shall be grouped into swap categories as follows: ( i ) Based on a unique combination of the following currencies and tenors: ( A ) A currency of one of the following countries or union: ( 1 ) Australia;
( 2 ) Brazil;
( 3 ) Canada;
( 4 ) Chile;
( 5 ) Czech Republic;
( 6 ) The European Union;
( 7 ) Great Britain;
( 8 ) India;
( 9 ) Japan;
( 10 ) Mexico;
( 11 ) New Zealand;
( 12 ) South Africa;
( 13 ) South Korea;
( 14 ) Sweden; or
( 15 ) The United States; and
( B ) One of the following tenors: ( 1 ) Zero to 46 days;
( 2 ) Greater than 46 and less than or equal to 107 days;
( 3 ) Greater than 107 and less than or equal to 198 days;
( 4 ) Greater than 198 and less than or equal to 381 days;
( 5 ) Greater than 381 and less than or equal to 746 days;
( 6 ) Greater than 746 and less than or equal to 1,842 days;
( 7 ) Greater than 1,842 and less than or equal to 3,668 days;
( 8 ) Greater than 3,668 and less than or equal to 10,973 days; or
( 9 ) Greater than 10,973 days.
( ii ) Other interest rate swaps not covered in the paragraph (c)(1)(i) of this section.
( 2 ) *Credit asset class.* Swaps in the credit asset class shall be grouped into swap categories as follows. ( i ) Based on the CDXHY product type, without options and a tenor greater than 1,477 days and less than or equal to 2,207 days;
( ii ) Based on the CDXHY product type, with only options and a tenor greater than 1,477 days and less than or equal to 2,207 days;
( iii ) Based on the iTraxx Europe product type, without options and a tenor greater than 1,477 days and less than or equal to 2,207 days;
( iv ) Based on the iTraxx Europe product type, with only options and a tenor greater than 1,477 days and less than or equal to 2,207 days;
( v ) Based on the iTraxx Crossover product type, without options and a tenor greater than 1,477 days and less than or equal to 2,207 days;
( vi ) Based on the iTraxx Crossover product type, with only options and a tenor greater than 1,477 days and less than or equal to 2,207 days;
( vii ) Based on the iTraxx Senior Financials product type, without options and a tenor greater than 1,477 days and less than or equal to 2,207 days;
( viii ) Based on the iTraxx Senior Financials product type, with only options and a tenor greater than 1,477 days and less than or equal to 2,207 days;
( ix ) Based on the CDXIG product type and a tenor greater, without options than 1,477 days and less than or equal to 2,207 days;
( x ) Based on the CDXIG product type with only options and a tenor greater, than 1,477 days and less than or equal to 2,207 days;
( xi ) Based on the CDXEmergingMarkets product type and a tenor greater than 1,477 days and less than or equal to 2,207 days;
( xii ) Based on the CMBX product type; and
( xiii ) Other credit swaps not covered in paragraphs (c)(2)(i)-(xii) of this section.
( 3 ) *Equity asset class.* There shall be one swap category consisting of all swaps in the equity asset class.
( 4 ) *Foreign exchange asset class.* Swaps in the foreign exchange asset class shall be grouped into swap categories as follows: ( i ) By the unique currency combinations of the United States currency paired with a currency of one of the following countries or union: Argentina, Australia, Brazil, Canada, Chile, China, Colombia, the European Union, Great Britain, India, Indonesia, Japan, Malaysia, Mexico, New Zealand, Peru, Philippines, Russia, South Korea, or Taiwan.
( ii ) By the unique currency pair consisting of two separate currencies from the following countries or union: Argentina, Australia, Brazil, Canada, Chile, China, Colombia, the European Union, Great Britain, India, Indonesia, Japan, Malaysia, Mexico, New Zealand, Peru, Philippines, Russia, South Korea, and Taiwan.
( iii ) Other swap categories in the foreign exchange asset class not covered in paragraph (c)(4)(i) or (ii) of this section.
( 5 ) *Other commodity asset class.* Swaps in the other commodity asset class shall be grouped into swap categories as follows: ( i ) For swaps that have a physical commodity underlier listed in appendix D of this part, by the relevant physical commodity underlier; or
( ii ) Other commodity swaps that are not covered in paragraph (c)(5)(i) of this section.
( d ) *Methodologies to determine appropriate minimum block sizes and cap sizes.* In determining appropriate minimum block sizes and cap sizes for publicly reportable swap transactions, the Commission shall utilize the following statistical calculations— ( 1 ) *67-percent notional amount calculation.* The Commission shall use the following procedure in determining the 67-percent notional amount calculation: ( i ) For each relevant swap category, select all reliable SDR data for at least a one-year period;
( ii ) Convert the notional amount to the same currency or units and use a trimmed data set;
( iii ) Determine the sum of the notional amounts of swaps in the trimmed data set;
( iv ) Multiply the sum of the notional amount by 67 percent;
( v ) Rank order the observations by notional amount from least to greatest;
( vi ) Calculate the cumulative sum of the observations until the cumulative sum is equal to or greater than the 67-percent notional amount calculated in paragraph (d)(1)(iv) of this section;
( vii ) Select the notional amount associated with that observation;
( viii ) Round the notional amount of that observation up to two significant digits, or if the notional amount associated with that observation is already significant to only two digits, increase that notional amount to the next highest rounding point of two significant digits; and
( ix ) Set the appropriate minimum block size at the amount calculated in paragraph (d)(1)(viii) of this section.
( 2 ) *75-percent notional amount calculation.* The Commission shall use the procedure set out in paragraph (d)(1) of this section with 75-percent in place of 67-percent.
( 3 ) *50-percent notional amount calculation.* The Commission shall use the procedure set out in paragraph (d)(1) of this section with 50-percent in place of 67-percent.
( e ) *No appropriate minimum block sizes for swaps in the equity asset class.* Publicly reportable swap transactions in the equity asset class shall not be treated as block trades or large notional off-facility swaps.
( f ) *Initial appropriate minimum block sizes.* Prior to the Commission making a determination as described in paragraph (g)(1) of this section, the following initial appropriate minimum block sizes shall apply: ( 1 ) *Prescribed appropriate minimum block sizes.* Except as otherwise provided in paragraph (f)(1) of this section, for any publicly reportable swap transaction that falls within the swap categories described in paragraph (b)(1), (b)(2), (b)(4)(i), (b)(5)(i), or (b)(5)(ii) of this section, the initial appropriate minimum block size for such publicly reportable swap transaction shall be the appropriate minimum block size that is in appendix F of this part.
( 2 ) *Certain swaps in the foreign exchange and other commodity asset classes.* All swaps or instruments in the swap categories described in paragraphs (b)(4)(ii) and (b)(5)(iii) of this section shall be eligible to be treated as a block trade or large notional off-facility swap, as applicable.
( 3 ) *Exception.* Publicly reportable swap transactions described in paragraph (b)(5)(i) of this section that are economically related to a futures contract in appendix B of this part shall not qualify to be treated as block trades or large notional off-facility swaps (as applicable), if such futures contract is not subject to a designated contract market's block trading rules.
( g ) *Post-initial process to determine appropriate minimum block sizes* — ( 1 ) *Post-initial period.* The Commission shall establish, by swap categories, the appropriate minimum block sizes as described in paragraphs (g)(2) through (6) of this section. No less than once each calendar year thereafter, the Commission shall update the post-initial appropriate minimum block sizes.
( 2 ) *Post-initial appropriate minimum block sizes for certain swaps.* The Commission shall determine post-initial appropriate minimum block sizes for the swap categories described in paragraphs (c)(1)(i), (c)(2)(i) through (xii), (c)(4)(i), and (c)(5)(i) of this section by utilizing a one-year window of swap transaction and pricing data corresponding to each relevant swap category reviewed no less than once each calendar year, and by applying the 67-percent notional amount calculation to such data. If the Commission is unable to determine an appropriate minimum block size for any swap category described in paragraph (c)(1)(i) of this section, the Commission shall assign a block size of zero to such swap category.
( 3 ) *Certain swaps in the foreign exchange asset class.* The parties to a swap in the foreign exchange asset class described in paragraph (c)(4)(ii) of this section may elect to receive block treatment if the notional amount of either currency in the exchange is greater than the minimum block size for a swap in the foreign exchange asset class between the respective currency, in the same amount, and U.S. dollars described in paragraph (c)(4)(i) of this section.
( 4 ) All swaps or instruments in the swap category described in paragraphs (c)(1)(ii), (c)(2)(xiii), (c)(4)(iii), and (c)(5)(ii) of this section shall have a block size of zero and be eligible to be treated as a block trade or large notional off-facility swap, as applicable.
( 5 ) *Commission publication of post-initial appropriate minimum block sizes.* The Commission shall publish the appropriate minimum block sizes determined pursuant to paragraph (g)(1) of this section on its website at *http://www.cftc.gov .*
( 6 ) *Effective date of post-initial appropriate minimum block sizes.* Unless otherwise indicated on the Commission's website, the post-initial appropriate minimum block sizes described in paragraph (g)(1) of this section shall be effective on the first day of the second month following the date of publication.
( h ) *Required notification* — ( 1 ) *Block trades entered into on a trading system or platform, that is not an order book as defined in § 37.3(a)(3) of a swap execution facility, or pursuant to the rules of a swap execution facility or designated contract market.* ( i ) If the parties make such an election, the reporting counterparty shall notify the swap execution facility or designated contract market, as applicable, of the parties' election. The parties to a publicly reportable swap transaction may elect to have a publicly reportable swap transaction treated as a block trade if such swap: ( A ) Is executed on the trading system or platform, that is not an order book as defined in § 37.3(a)(3) of this chapter of a swap execution facility, or pursuant to the rules of a swap execution facility or designated contract market; and
( B ) That has a notional amount at or above the appropriate minimum block size.
( ii ) The swap execution facility or designated contract market, as applicable, shall notify the swap data repository of such a block trade election when reporting the swap transaction and pricing data to such swap data repository in accordance with this part.
( iii ) The swap execution facility or designated contract market, as applicable, shall not disclose swap transaction and pricing data relating to a block trade subject to the block trade election prior to the expiration of the applicable delay set forth in § 43.5(d).
( 2 ) *Large notional off-facility swap election.* The parties to a publicly reportable swap transaction that is an off-facility swap and that has a notional amount at or above the appropriate minimum block size may elect to have the publicly reportable swap transaction treated as a large notional off-facility swap. If the parties make such an election, the reporting counterparty for such publicly reportable swap transaction shall notify the applicable swap data repository of the reporting counterparty's election when reporting the swap transaction and pricing data in accordance with this part.
( i ) *Special provisions relating to appropriate minimum block sizes and cap sizes.* The following special rules shall apply to the determination of appropriate minimum block sizes and cap sizes— ( 1 ) *Swaps with optionality.* The notional amount of a swap with optionality shall equal the notional amount of the component of the swap that does not include the option component.
( 2 ) *Swaps with composite reference prices.* The parties to a swap transaction with composite reference prices may elect to apply the lowest appropriate minimum block size or cap size applicable to one component reference price's swap category of such publicly reportable swap transaction.
( 3 ) *Notional amounts for physical commodity swaps.* Unless otherwise specified in this part, the notional amount for a physical commodity swap shall be based on the notional unit measure utilized in the related futures contract or the predominant notional unit measure used to determine notional quantities in the cash market for the relevant, underlying physical commodity.
( 4 ) *Currency conversion.* Unless otherwise specified in this part, when the appropriate minimum block size or cap size for a publicly reportable swap transaction is denominated in a currency other than U.S. dollars, parties to a swap and registered entities may use a currency exchange rate that is widely published within the preceding two business days from the date of execution of the swap transaction in order to determine such qualification.
( 5 ) *Successor currencies.* For currencies that succeed a super-major currency, the appropriate currency classification for such currency shall be based on the corresponding nominal gross domestic product classification (in U.S. dollars) as determined in the most recent World Bank, World Development Indicator at the time of succession. If the gross domestic product of the country or nation utilizing the successor currency is: ( i ) Greater than $2 trillion, then the successor currency shall be included among the super-major currencies;
( ii ) Greater than $500 billion but less than $2 trillion, then the successor currency shall be included among the major currencies; or
( iii ) Less than $500 billion, then the successor currency shall be included among the non-major currencies.
( 6 ) *Aggregation.* The aggregation of orders for different accounts in order to satisfy the minimum block trade size or the cap size requirement is permitted for publicly reportable swap transactions only if each of the following conditions is satisfied: ( i ) The aggregation of orders is done by a person who: ( A ) Is a commodity trading advisor registered pursuant to section 4n of the Act, or exempt from such registration under the Act, or a principal thereof, and who has discretionary trading authority or directs client accounts;
( B ) Is an investment adviser who has discretionary trading authority or directs client accounts and satisfies the criteria of § 4.7(a)(2)(v) of this chapter; or
( C ) Is a foreign person who performs a similar role or function as the persons described in paragraph (i)(6)(i)(A) or (B) of this section and is subject as such to foreign regulation;
( ii ) The aggregated transaction is reported pursuant to this part and part 45 of this chapter as a block trade or large notional off-facility swap, as applicable, subject to the cap size thresholds;
( iii ) The aggregated orders are executed as one swap transaction; and
( iv ) Aggregation occurs on a designated contract market or swap execution facility if the swap is listed for trading by a designated contract market or swap execution facility.
( j ) *Eligible block trade parties.* ( 1 ) Parties to a block trade shall be “eligible contract participants,” as defined in section 1a(18) of the Act and 17 CFR chapter I. However, a designated contract market may allow: ( i ) A commodity trading advisor registered pursuant to section 4n of the Act, or exempt from registration under the Act, or a principal thereof, and who has discretionary trading authority or directs client accounts,
( ii ) An investment adviser who has discretionary trading authority or directs client accounts and satisfies the criteria of § 4.7(a)(2)(v) of this chapter, or
( iii ) A foreign person who performs a similar role or function as the persons described in paragraph (j)(1)(i) or (ii) of this section and is subject as such to foreign regulation, to transact block trades for customers who are not eligible contract participants.
( 2 ) A person transacting a block trade on behalf of a customer shall receive prior written instruction or consent from the customer to do so. Such instruction or consent may be provided in the power of attorney or similar document by which the customer provides the person with discretionary trading authority or the authority to direct the trading in its account.
[85 FR 75482, Nov. 25, 2020]