U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-5977

Facsimile: (202) 418-5407

gbarnett@cftc.gov

Division of Swap Dealer and

Intermediary Oversight

Gary Barnett

Director

CFTC Letter No. 13-70

No-Action

November 15, 2013

Division of Swap Dealer and Intermediary Oversight

Re: No-Action Relief: Swaps Intended to be Cleared

Ladies and Gentlemen:

On June 27, 2013, the Division of Swap Dealer and Intermediary Oversight (“Division”) 

of the Commodity Futures Trading Commission (“Commission”) published No-Action Letter 

No. 13-33 (the “June No-Action Letter”), which responded to requests received by the Division 

from the International Swaps and Derivatives Association (“ISDA”) and the Asset Management 

Group of the Securities Industry and Financial Markets Association (“AMG” and, together with 

ISDA, the “Requesting Associations”), each on behalf of its members who enter into swaps that 

are intended to be submitted for clearing contemporaneously with execution.1 The June NoAction Letter provided no-action relief for these swaps from certain disclosure and notice 

requirements and other duties imposed on swap dealers (“SDs”) and major swap participants 

(“MSPs”) pursuant to Commission regulations §§ 23.402, 23.430, 23.431, 23.432, 23.434,

23.440, 23.450, and 23.451, as well as certain documentation requirements imposed on SDs and 

MSPs pursuant to Commission regulation § 23.504.

Subsequent to issuance of the June No-Action Letter, circumstances in the market for 

swaps intended to be submitted for clearing contemporaneously with execution have changed. 

Specifically, as of October 2, 2013, swap execution facilities (“SEFs”) began mandatory 

registration with the Commission.

2

 Further, on September 26, 2013, the Commission’s Division 

of Clearing and Risk and its Division of Market Oversight issued staff guidance on the 

Commission’s swaps straight-through-processing requirements (the “STP Guidance”).3

 

1 Although the relief contained in the June No-Action Letter was requested by ISDA and AMG on behalf of their 

members, such relief was made available to all swap market participants that enter into swaps intended to be 

submitted for clearing contemporaneously with execution, subject to the conditions set forth in the June No-Action 

Letter.

2 As of the date of this letter, 18 SEF’s have temporarily registered with the Commission, and for the week ending 

October 25, 2013, more than a quarter of a trillion dollars in notional amount of swaps was trading on such SEFs on 

average per day.

3 The STP Guidance is available on the Commission’s website: 

http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/stpguidance.pdf.
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Pursuant to the STP Guidance, such Divisions reminded futures commission merchants 

(“FCMs”), SEFs, designated contract markets (“DCMs”), and derivatives clearing organizations 

(“DCOs”) of their obligations to comply with the Commission’s straight-through-processing 

regulations with respect to swaps executed on a SEF or DCM that are intended to be cleared. 

Specifically, the Divisions reiterated the Commission’s regulations requiring FCMs, SEFs, 

DCMs, and DCOs to coordinate with each other to facilitate prompt and efficient processing by 

DCOs, and noted that pursuant to these regulations, there should be near-instantaneous 

acceptance or rejection of each trade for execution and clearing, thereby reducing risk. Further, 

the Division notes that the STP Guidance specifically stated that DCMs, SEFs, FCMs, and SDs 

“should not require breakage agreements as a condition for access to trading on a SEF or DCM.”

Given that a significant volume of trading is now occurring on a total of 18 registered 

SEFs and that such SEFs are expected to comply with their obligations with respect to 

facilitating straight-through-processing, the Division is now reissuing the no-action relief 

contained in the June No-Action Letter, but with modified conditions that recognize the required 

prompt and efficient processing of swaps from execution to clearing. In consequence of 

statements in the STP Guidance that swaps executed on or subject to the rules of a SEF or DCM 

and intended to be cleared, but fail to clear should be void ab initio,

4

the Division has removed 

those conditions that required a fallback or any other agreement (including breakage agreements)

between an SD or MSP and its counterparty prior to execution of such swaps. In addition, the 

Division believes that no fallback or any other agreement (including breakage agreements) 

between and SD or MSP and its counterparty should be necessary for swaps that are intended to 

be cleared but not executed on or subject to the rules of a SEF or DCM so long as the swap is 

submitted for clearing within the same time frame that would be required if such swap were 

executed on a SEF or DCM.

5

I. Background

The following background discussion appeared in the June No-Action Letter and is 

repeated here for ease of reference, with minor updates and corrections.

On July 21, 2010, President Obama signed the Dodd-Frank Act.6 Title VII of the DoddFrank Act7

amended the Commodity Exchange Act (“CEA”)8to establish a comprehensive 

 

4

Id.

5 The STP Guidance reiterates the requirements of Commission regulation 39.12(b)(7) that a SEF must route trades 

to a DCO “as quickly after executed as would be technologically practicable if fully automated systems were used.” 

The Division notes that Commission regulation 39.12(b)(7)(i)(B) also requires each FCM, SD, and MSP to 

“establish systems that enable the clearing member, or the DCO acting on its behalf, to accept or reject each trade 

submitted to the DCO for clearing by or for the clearing member or a customer of the clearing member as quickly as 

would be technologically practicable if fully automated systems were used.” As stated in the STP Guidance, DCOs 

now accept at least 93% of trades within three seconds or less, and 99% of trades within ten seconds. 

6

 See Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010). 

The text of the Dodd-Frank Act may be accessed at:

http://www.cftc.gov/LawRegulation/OTCDERIVATIVES/index.htm.
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regulatory framework to reduce risk, increase transparency, and promote market integrity within

the financial system by, among other things: (1) providing for the registration and 

comprehensive regulation of SDs and MSPs; (2) imposing clearing and trade execution 

requirements on standardized derivative products; (3) creating rigorous recordkeeping and realtime reporting regimes; and (4) enhancing the Commission’s rulemaking and enforcement 

authorities with respect to all registered entities and intermediaries subject to the Commission’s 

oversight.

In the nearly three years since its enactment, the Commission has finalized approximately

66 rules, orders, and guidance to implement Title VII of the Dodd-Frank Act. In 2012, the 

Commission, jointly with the Securities and Exchange Commission, finalized the main 

foundational elements of the Dodd-Frank regulatory framework by adopting regulations further 

defining the terms “swap dealer” and “major swap participant,”9as well as the regulations 

further defining the term “swap.”10 The Commission also adopted regulations setting forth a 

comprehensive scheme for the registration process for SDs and MSPs.11 Other finalized rules 

include various substantive requirements applicable to SDs and MSPs under CEA section 4s,12

which address reporting and recordkeeping,13 business conduct standards,14 documentation 

standards,15 duties,16 and designation of chief compliance officers.17

Among other things, upon registration, an SD or MSP must submit documentation 

demonstrating its compliance with any Commission regulation issued pursuant to section 4s(e), 

(f), (g), (h), (i), (j), (k), and (l) of the CEA that is applicable to it and for which the compliance 

date has passed. Such Commission regulations include business conduct standards under subpart 

H of part 23 of the Commission’s regulations promulgated under section 4s(h) of the CEA, and 

 

7

 Pursuant to Section 701 of the Dodd-Frank Act, Title VII may be cited as the “Wall Street Transparency and 

Accountability Act of 2010.”

8

 7 U.S.C. 1 et seq.

9

See Further Definition of “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap Participant,” “Major 

Security-Based Swap Participant,” and “Eligible Contract Participant,” 77 FR 30596 (May 23, 2012).

10 See Further Definition of “Swap,” “Security-Based Swap,” and “Security-Based Swap Agreement”; Mixed 

Swaps; Security-Based Swap Agreement Recordkeeping, 77 FR 48208 (Aug. 13, 2012).

11 See Registration of Swap Dealers and Major Swap Participants, 77 FR 2613 (Jan. 19, 2012).

12

 7 U.S.C 6s.

13 See Swap Dealer and Major Swap Participant Recordkeeping, Reporting, and Duties Rules; Futures Commission 

Merchant and Introducing Broker Conflicts of Interest Rules; and Chief Compliance Officer Rules for Swap 

Dealers, Major Swap Participants, and Futures Commission Merchants, 77 FR 20128 (Apr. 3, 2012).

14 See Business Conduct Standards for Swap Dealers and Major Swap Participants With Counterparties, 77 FR 9734 

(Feb. 17, 2012).

15 See Confirmation, Portfolio Reconciliation, Portfolio Compression, and Swap Trading Relationship

Documentation Requirements for Swap Dealers and Major Swap Participants, 77 FR 55904 (Sept. 11, 2012).

16 See supra note 13.

17 Id.
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documentation standards under subpart I of part 23 of the Commission’s regulations promulgated 

under section 4s(i) of the CEA.

Business Conduct Standards with Counterparties

With respect to business conduct standards with counterparties, section 4s(h) of the CEA 

provides the Commission with both mandatory and discretionary rulemaking authority to impose 

business conduct standards on SDs and MSPs in their dealings with counterparties, including 

Special Entities.

Pursuant to section 4s(h) of the CEA, on December 22, 2010, the Commission published 

in the Federal Register proposed subpart H of part 23 of the Commission’s regulations.18 There 

was a 60-day period for the public to comment on the proposing release. On May 4, 2011, the 

Commission published in the Federal Register a notice to re-open the public comment period for 

an additional 30 days, which ended on June 3, 2011.19 On February 17, 2012, the Commission 

adopted as final rules subpart H to part 23, which set forth business conduct standards for swap 

dealers and major swap participants in their dealings with counterparties (the “External 

BCS”).

20

 SDs and MSPs were required to comply with the External BCS by May 1, 2013.21

Of note in relation to this letter, a number of the Commission’s rules under the External 

BCS require SDs and MSPs to provide or obtain specific information from their counterparties, 

to obtain specific representations in writing from their counterparties, and to perform certain due 

diligence inquiries with respect to their counterparties prior to entering into (or in some cases, 

offering to enter into) a swap with such counterparties.22 Certain safe harbors under the External 

 

18 Business Conduct Standards for Swap Dealers and Major Swap Participants With Counterparties, 75 FR 80638 

(proposed Dec. 22, 2010).

19 Reopening and Extension of Comment Periods for Rulemakings Implementing the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, 75 FR 25274 (May 4, 2011).

20 Business Conduct Standards for Swap Dealers and Major Swap Participants With Counterparties, 77 FR 9734 

(Feb. 17, 2012).

21 The External BCS final rules required that SDs and MSPs must comply with the rules in subpart H of part 23 on 

the later of 180 days after the effective date of these rules or the date no which swap dealers or major swap 

participants are required to apply for registration pursuant to Commission rule 3.10. However, in subsequent 

rulemakings, the compliance date for §§ 23.402; 23.410(c); 23.430; 23.431(a)-(c); 23.432; 23.434(a)(2), (b), and (c); 

23.440; and 23.450 was deferred first until January 1, 2013 (see Confirmation, Portfolio Reconciliation, Portfolio 

Compression, and Swap Trading Relationship Documentation Requirements for Swap Dealers and Major Swap 

Participants, 77 FR 55904, 55942 (Sept. 11, 2012)), and then again until May 1, 2013 (see Business Conduct and 

Documentation Requirements for Swap Dealers and Major Swap Participants; Extension of Compliance Date, 78 FR 

17 (Jan. 2, 2013)).

22 See Commission regulation § 23.402(b) (requiring SDs to obtain essential facts about their counterparty prior to 

execution of a transaction); § 23.430(a) (requiring SDs and MSPs to verify that a counterparty meets the eligibility 

standards for an eligible contract participant before offering to enter into or entering into a swap with such 

counterparty); § 23.431(a) (requiring SDs and MSPs to provide material information concerning a swap to its 

counterparty at a reasonably sufficient time prior to entering into the swap); § 23.431(b) (requiring SDs and MSPs to 

provide notice to counterparties that they can request and consult on the design of a scenario analysis; § 23.431(d) 

(requiring SDs and MSPs to provide notice to counterparties of the right to receive the daily mark from a DCO for 
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BCS permit SDs and MSPs to rely on written representations from their counterparties and 

standardized disclosures, each of which may require amendments or supplements to an SD’s or 

MSP’s relationship documentation with such counterparties prior to entering into a swap with 

such counterparties.23 

Swap Trading Relationship Documentation

Documentation standards for SDs and MSPs have been adopted by the Commission 

pursuant to Sections 4s(i)(1) and 4s(h) of the CEA, which requires SDs and MSPs to “conform 

with such standards as may be prescribed by the Commission by rule or regulation that relate to 

timely and accurate confirmation, processing, netting, documentation, and valuation of all 

swaps,” and Section 4s(i)(2) of the CEA, which requires the Commission to adopt rules 

“governing documentation standards for swap dealers and major swap participants.” On

February 8, 2011, the Commission proposed regulations governing swap trading relationship 

documentation.24 There was a 60-day comment period for the proposal. On September 11, 

2012, the Commission issued final rules governing swap trading relationship documentation 

(§ 23.504).25 Commission regulation § 23.504 requires that an SD or MSP execute swap trading 

relationship documentation meeting the requirements of the rule with a counterparty prior to or 

contemporaneously with entering into a swap transaction with such counterparty.26 

Regarding the content of swap trading relationship documentation, each SD and MSP

must establish policies and procedures reasonably designed to ensure that the parties have agreed 

in writing to all terms governing their trading relationship, including, among other things, terms 

related to credit support arrangements, such as initial and variation margin requirements and 

custodial arrangements, and terms addressing payment obligations, netting of payments, events 

of default or other termination events, calculation and netting of obligations upon termination, 

transfer of rights and obligations, governing law, valuation, and dispute resolution.

27

 With 

respect to valuation of swaps, SDs and MSPs must include agreement on the process for 

determining the value of each swap at any time from execution to the termination, maturity, or 

expiration of the swap, for the purposes of complying with: (1) the margin requirements under 

 

cleared swaps); § 23.432 (requiring SDs and MSPs to provide notice to counterparties of the right to select clearing 

and the DCO on which a swap is to be cleared); § 23.434 (requiring SDs and MSPs that recommend a swap to have 

a reasonable basis to believe that the swap is suitable for the counterparty); § 23.440 (requiring SDs and MSPs that 

act as an advisor to a Special Entity to act in such entity’s best interest); § 23.450 (requiring SDs and MSPs to 

inquire into the knowledge and status of a representative of a counterparty that is a Special Entity); and § 23.451 

(prohibiting SDs from entering into swaps with certain governmental entities if it has made political contributions to 

an official of such entity).

23 See § 23.402(d), (e), and (f).

24 Swap Trading Relationship Documentation for Swap Dealers and Major Swap Participants, 76 FR 6715 (proposed 

Feb. 8, 2011).

25 Confirmation, Portfolio Reconciliation, Portfolio Compression, and Swap Trading Relationship Documentation 

Requirements for Swap Dealers and Major Swap Participants, 77 FR 55904 (Sept. 11, 2012). 

26 See § 23.504(a)(2).

27 See § 23.504(b)(1) and (3).
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section 4s(e) of the CEA and Commission regulations; and (2) the risk management 

requirements under section 4s(j) of the CEA and Commission regulations.28 The documentation 

also must include either: (1) alternative methods for determining the value of the swap, in the 

event of the unavailability or other failure of any input required to value the swap; or (2) a 

valuation dispute resolution process.29 SDs and MSPs are also required to perform a periodic 

audit of their swap trading relationship documentation, and the audit must be sufficient to 

identify any material weakness in documentation policies and procedures.30

Straight-Through-Processing of Cleared Swaps

A number of Commission regulations, acting in concert, require that swaps that are 

intended to be cleared are in fact cleared within a reasonably short period of time. Ensuring a 

short period between swap execution and acceptance for clearing by a derivatives clearing 

organization (“DCO”) mitigates the credit risk that exists from the swap prior to clearing.

31

 

Relevant for this letter, Commission regulation § 23.506 (Swap processing and clearing) 

requires each SD and MSP to have the capacity to route swap transactions intended to be cleared, 

but not executed on a SEF or DCM32, to a DCO in coordination with the DCO to facilitate 

prompt and efficient swap transaction processing in accordance with the requirements of 

Commission regulation § 39.12(b)(7) (Time frame for clearing).

33

 For swaps subject to 

mandatory clearing, an SD or MSP must submit the swap to the DCO as soon as technologically 

practicable but no later than the close of business on the day of execution; swaps not subject to 

mandatory clearing must be submitted by the next business day after execution of the swap.34 

 

28 See § 23.504(b)(4)(i).

29 See § 23.504(b)(4)(ii).

30 See § 23.504(c).

31 See Customer Clearing Documentation, Timing of Acceptance for Clearing, and Clearing Member Risk 

Management, 77 FR 21278, 21284 (Apr. 9, 2012), stating:

Minimizing the time between trade execution and acceptance into clearing is an important risk 

mitigant. This time lag potentially presents credit risk to the swap counterparties, clearing 

members, and the DCO because the value of a position may change significantly between the time 

of execution and the time of novation, thereby allowing financial exposure to accumulate in the 

absence of daily mark-to-market. Among the purposes of clearing are the reduction of risk and the 

enhancement of financial certainty, and this time lag diminishes the benefits of clearing swaps that 

Congress sought to promote in the Dodd-Frank Act.

32 Pursuant to Commission regulations §§ 37.702 and 38.601, each SEF and DCM must coordinate with each DCO 

to which it submits transactions for clearing in the development of rules and procedures to facilitate prompt and 

efficient transaction processing to meet the requirements § 39.12(b)(7). Commission regulation § 39.12(b)(7)(ii) 

requires a DCO to accept or reject swaps executed on a SEF or DCM for clearing “as quickly after execution as 

would be technologically practicable if fully automated systems were used.” See id. at 21309.

33 See 17 CFR §§ 23.506(a) and Customer Clearing Documentation, Timing of Acceptance for Clearing, and 

Clearing Member Risk Management, 77 FR 21278, 21307 (Apr. 9, 2012).

34 See 17 CFR §§ 23.506(b) and Customer Clearing Documentation, Timing of Acceptance for Clearing, and 

Clearing Member Risk Management, 77 FR 21278, 21307-08 (Apr. 9, 2012). See also 17 CFR § 50.2 and Clearing 

Requirement Determination Under Section 2(h) of the CEA, 77 FR 74284, 74335-36 (Dec. 13, 2012) (requiring all 
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Regulation § 39.12(b)(7) in turn requires DCOs to accept or reject swaps not executed on 

a SEF or DCM “as quickly after submission to the derivatives clearing organization as would be 

technologically practicable if fully automated systems were used.”35 In addition, Commission 

regulation § 1.74 (FCM acceptance for clearing) requires each futures commission merchant 

(“FCM”) that is a clearing member of a DCO to establish systems that enable the FCM to accept 

or reject each trade submitted to the DCO by the FCM for a customer of the FCM as quickly as 

would be technologically practicable if fully automated systems were used.36 37

Finally, Commission regulation § 1.35 (Records of commodity interest and cash 

commodity transactions) allows for bunched orders to be executed in a single trade with the 

intention that the position will be allocated among multiple counterparties after execution (such 

as when an asset manager executes a single swap with the intention to allocate the swap to 

multiple accounts under its management). For such bunched orders in swaps not executed on a 

SEF or DCM, but submitted for clearing by a DCO, the swap must be allocated “no later than a 

time sufficiently before the end of the day the order is executed to ensure that clearing records 

identify the ultimate customer for each trade.”38 

II. Relief Requested

The Requesting Associations noted that many of the Commission’s regulations under the 

External BCS do not apply either (i) when the SD or MSP does not know the identity of the 

counterparty to a swap prior to the execution of the swap, or (ii) when the swap is initiated on a 

designated contract market (“DCM”) or swap execution facility (“SEF”) and the SD or MSP 

does not know the identity of the counterparty to a swap prior to the execution of the swap.39 

 

swaps subject to a clearing requirement to be submitted to a DCO as soon as technologically practicable after 

execution, but in any event by the end of the day of execution).

35 See 17 CFR §§ 23.506(a) and 39.12(b)(7)(iii), and Customer Clearing Documentation, Timing of Acceptance for 

Clearing, and Clearing Member Risk Management, 77 FR 21278, 21306-10 (Apr. 9, 2012). As stated in the 

adopting release, these rules, taken as a whole, “require SEFs, DCMs, SDs, MSPs, and DCOs to coordinate in order 

to facilitate real time acceptance or rejection of trades for clearing.” Id. at 21296.

36 See id. at 21307.

37 The STP Guidance notes that DCOs now accept at least 93% of trades within three seconds or less, and 99% of 

trades within ten seconds, and therefore DCOs clearing swaps within 10 seconds after submission are compliant 

with the timing standard of Commission regulation 39.12(b)(7).

38 See 17 CFR § 1.35(b)(5)(iv)(A) and Adaptation of Regulations to Incorporate Swaps, 77 FR 66288, 66326 (Nov. 

2, 2012).

39 See § 23.402(b) and (c) (requiring SDs and MSPs to obtain and retain certain information only about each 

counterparty “whose identity is known to the SD or MSP prior to the execution of the transaction”), § 23.430(e) (not 

requiring SDs and MSPs to verify counterparty eligibility when a transaction is entered on a DCM or SEF and the 

SD or MSP does not know the identity of the counterparty prior to execution), § 23.431(c) (not requiring disclosure 

of material information about a swap if initiated on a DCM or SEF and the SD or MSP does not know the identity of 

the counterparty prior to execution), § 23.450(h) (not requiring SDs and MSPs to have a reasonable basis to believe 

that a Special Entity has a qualified, independent representative if the transaction with the Special Entity is initiated 

on a DCM or SEF and the SD or MSP does not know the identity of the Special Entity prior to execution), and 
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Similarly, the Requesting Associations observed that § 23.504 contains an exception to 

the requirement that an SD or MSP execute swap trading relationship documentation with a 

counterparty prior to or contemporaneously with entering into a swap transaction with such 

counterparty. Section 23.504(a)(1) states that such documentation is not required with respect to 

swaps executed on a DCM or anonymously on a SEF if such swaps are cleared by a DCO and all 

terms of the swaps conform to the rules of the DCO and § 39.12(b)(6) of the Commission’s 

regulations.40 

The Division recognizes that rationales for these exceptions include: (i) the impossibility 

or impracticability of compliance with certain rules, or the full extent of certain rules, by an SD 

or MSP when the identity of the counterparty is not known prior to execution; (ii) the likelihood 

that swaps initiated anonymously on a DCM or SEF will be standardized and, thus, information 

about the material risks and characteristics of such swaps is likely to be available from the DCM 

or SEF or other widely available source (including the product specifications of a DCO if the 

swaps are accepted for clearing); and (iii) the fact that following clearing of a swap, the SD or 

MSP and its counterparty have no further obligations to each other, so there is no on-going 

relationship that would be governed by the trading relationship documentation required by 

Commission regulation § 23.504. The Division also notes that relief from certain requirements 

of the External BCS for swaps initiated anonymously on a DCM or SEF would provide an 

incentive to transact on such platforms, enhancing transparency in the swaps market, a major 

policy goal of the Dodd-Frank Act. Similarly, the relief from the swap trading relationship 

documentation requirements for swaps submitted for clearing would provide an incentive to clear 

swaps, another major policy goal of the Dodd-Frank Act.

Recognizing the exceptions to the documentation requirements and the External BCS

outlined above, and encouraged by the pre-clearing risk mitigation provided by compliance with 

the Commission’s regulations for straight-through-processing of swaps intended to be cleared in 

parts 1, 23, 39, and 50 of the Commission’s regulations, the Requesting Associations sought

 

§ 23.451(b)(2)(iii) (disapplying the prohibition on entering into swaps with a governmental Special Entity within 

two years after any contribution to an official of such governmental Special Entity if the swap is initiated on a DCM 

or SEF and the SD or MSP does not know the identity of the Special Entity prior to execution).

40 Section 39.12(b)(6) of the Commission’s regulations provides:

(6) A derivatives clearing organization that clears swaps shall have rules providing that, upon 

acceptance of a swap by the derivatives clearing organization for clearing:

(i) The original swap is extinguished;

(ii) The original swap is replaced by an equal and opposite swap between the derivatives 

clearing organization and each clearing member acting as principal for a house trade or acting 

as agent for a customer trade;

(iii) All terms of a cleared swap must conform to product specifications established under 

derivatives clearing organization rules; and

(iv) If a swap is cleared by a clearing member on behalf of a customer, all terms of the swap, 

as carried in the customer account on the books of the clearing member, must conform to the 

terms of the cleared swap established under the derivatives clearing organization’s rules.
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relief that would extend such exceptions based on the same rationales outlined above. Thus, the 

Requesting Associations sought relief from certain requirements under the External BCS and 

certain aspects of the documentation requirements of Commission regulation § 23.504 that the 

Requesting Associations find superfluous, and therefore unduly burdensome, in the execution 

and post-trade processing of swaps that are (i) of a type accepted for clearing by a DCO, and (ii) 

intended to be submitted for clearing contemporaneously with execution (such swaps, 

“Intended-To-Be-Cleared Swaps” or “ITBC Swaps”).

As noted above, many of the External BCS require SDs and MSPs to provide notices or 

disclosures to, or obtain specific information or representations from, their counterparties prior to 

entering into (or in some cases, offering to enter into) a swap with such counterparties.41 

Knowledge of its counterparty’s identity is, of course, essential to comply with these

requirements under the External BCS, but the Requesting Associations argued that these 

requirements intended to protect counterparties are either impossible to perform if the 

counterparty’s identity is not known prior to execution of an ITBC Swap, or only meaningful or 

effective where an SD or MSP has an on-going relationship with the counterparty, which it will 

not in the case of ITBC Swaps.

Similarly the Requesting Associations argued that the swap trading relationship 

documentation required by § 23.504 is not relevant for ITBC Swaps because there is no on-going 

relationship between the SD or MSP and its counterparty once the swap is accepted for clearing 

by a DCO.

III. Staff Position

Based on the foregoing, the Division is of the view that all ITBC Swaps should be 

provided relief from the documentation requirements of § 23.504, subject to certain conditions.

In addition, with respect to the External BCS requirements, the Division is of the view 

that ITBC Swaps executed non-anonymously42 on or subject to the rules of a SEF or DCM

 

41 See Commission regulation § 23.402(b) (requiring SDs to obtain essential facts about their counterparty prior to 

execution of a transaction); § 23.430(a) (requiring SDs and MSPs to verify that a counterparty meets the eligibility 

standards for an eligible contract participant before offering to enter into or entering into a swap with such 

counterparty); § 23.431(a) (requiring SDs and MSPs to provide material information concerning a swap to its 

counterparty at a reasonably sufficient time prior to entering into the swap); § 23.431(b) (requiring SDs and MSPs to 

provide notice to counterparties that they can request and consult on the design of a scenario analysis; § 23.431(d) 

(requiring SDs and MSPs to provide notice to counterparties of the right to receive the daily mark from a DCO for 

cleared swaps); § 23.432 (requiring SDs and MSPs to provide notice to counterparties of the right to select clearing 

and the DCO on which a swap is to be cleared); § 23.434 (requiring SDs and MSPs that recommend a swap to have 

a reasonable basis to believe that the swap is suitable for the counterparty); § 23.440 (requiring SDs and MSPs that 

act as an advisor to a Special Entity to act in such entity’s best interest); § 23.450 (requiring SDs and MSPs to 

inquire into the knowledge and status of a representative of a counterparty that is a Special Entity); and § 23.451 

(prohibiting SDs from entering into swaps with certain governmental entities if it has made political contributions to 

an official of such entity).

42 See supra note 39 for a list of exceptions from the External BCS where the SD or MSP does not know the identity 

of a counterparty prior to execution.
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(“Disclosed SEF/DCM Swaps”) and currently accepted for clearing by a DCO, or subject to a 

mandatory clearing determination by the Commission, are sufficiently standardized such that 

relief from compliance with a broad scope of External BCS requirements is warranted.

However, the Division has no basis to conclude that Disclosed SEF/DCM Swaps that 

begin to be accepted for clearing by a DCO after the date of this letter will be sufficiently 

standardized to warrant relief from the same broad scope of External BCS, unless such swaps are

subject to a mandatory clearing determination by the Commission. The Division is of the view 

that swaps that are found appropriate for a mandatory clearing determination by the Commission 

are likely to be sufficiently standardized to warrant the full scope of External BCS relief. 

Otherwise, the Division is of the view that only more limited relief from the External BCS 

requirements is warranted such that compliance with the core pre-execution material disclosure 

requirements of the External BCS is preserved. 

In summary, the Division believes that no-action relief for SDs and MSPs is warranted 

with respect to certain External BCS requirements and the swap trading relationship 

documentation requirement under Commission regulation § 23.504 in the context of an ITBC 

Swap, subject to conditions, including whether or not the SD or MSP knows the identity of the 

counterparty prior to execution of the ITBC Swap, whether or not the swap is executed on or 

subject to the rules of a SEF or DCM, and whether or not the swap is currently cleared by a DCO 

or subject to a mandatory clearing determination by the Commission.

Accordingly, the Division will not recommend that the Commission commence an 

enforcement action against an SD or MSP for:

(A) Failure to comply with the requirements of the External BCS specified in Table 1 of 

Appendix A attached hereto, or the requirements of Commission regulation § 23.504 

(Swap trading relationship documentation) with respect to an ITBC Swap where:

(i) The SD or MSP does not know the identity of the counterparty prior to execution 

of the swap; and

(ii) The ITBC Swap is not executed on or subject to the rules of a SEF or DCM;

43 and

(iii) The SD or MSP ensures that both parties submit the ITBC Swap for clearing as 

quickly after execution as would be technologically practicable if fully automated 

systems were used; or

(B) Failure to comply with the requirements of the External BCS specified in Table 1 of 

Appendix A attached hereto, or the requirements of Commission regulation § 23.504 

(Swap trading relationship documentation) with respect to an ITBC Swap where:

 

43 Commission regulation 23.504 and many of the External BCS do not apply to swaps executed on or subject to the 

rules of a SEF or DCM and cleared on a DCO where the SD or MSP does not know the identity of the counterparty 

prior to execution of the swap. See supra note 39 and accompanying text.
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Cleared Swaps

(i) The SD or MSP knows the identity of the counterparty prior to execution of the 

swap; 

(ii) The ITBC Swap is executed on or subject to the rules of a SEF or DCM; and 

either

(iii) The ITBC Swap is of a type that is accepted for clearing by a DCO as of the date 

of this letter; or 

(iv) The ITBC Swap is of a type that is, as of the date of execution, required to be 

cleared pursuant to 2(h)(1) of the CEA and part 50 of the Commission’s 

regulations; or

(C) Failure to comply with the requirements of the External BCS specified in Table 2 of 

Appendix A attached hereto, or the requirements of Commission regulation § 23.504 

(Swap trading relationship documentation) with respect to an ITBC Swap where:

(i) The SD or MSP knows the identity of the counterparty prior to execution of the 

swap; 

(ii) The ITBC Swap is executed on or subject to the rules of a SEF or DCM; 

(iii) The ITBC Swap is of a type that was not being accepted for clearing by a DCO as 

of the date of this letter; and 

(iv) The ITBC Swap is not of a type that is, as of the date of execution, required to be 

cleared pursuant to 2(h)(1) of the CEA and part 50 of the Commission’s 

regulations; or

(D) Failure to comply with the requirements of Commission regulation § 23.504 (Swap 

trading relationship documentation) with respect to an ITBC Swap where:

(i) The SD or MSP knows the identity of the counterparty prior to the execution of 

the swap; and

(ii) The ITBC Swap is not executed on or subject to the rules of a SEF or DCM; and

(iii) The SD or MSP ensures that both parties submit the ITBC Swap for clearing as 

quickly after execution as would be technologically practicable if fully automated 

systems were used.

The relief specified above is, in each case, subject to the following conditions:
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Cleared Swaps

1. The SD or MSP is either a clearing member of the DCO to which the ITBC Swap will be 

submitted, or has entered into an agreement with a clearing member of such DCO for 

clearing of swaps of the same type as the ITBC Swap; and

2. The SD or MSP does not require the counterparty or its clearing FCM to enter into a 

breakage agreement or similar agreement as a condition to executing the ITBC Swap.

This letter, and the positions taken herein, represent the view of this Division only, and 

do not necessarily represent the position or view of the Commission or of any other office or 

division of the Commission. The relief issued by this letter does not excuse persons relying on it 

from compliance with any other applicable requirements contained in the Act or in the 

Regulations issued thereunder, including all antifraud provisions of the Act. Specifically, the 

relief issued by this letter does not relieve any person from an obligation to report a swap or 

information concerning a swap under part 43 or part 45 of the Commission’s regulations. 

Further, this letter, and the relief contained herein, is based upon the representations made to the 

Division. Any different, changed or omitted material facts or circumstances might render this 

no-action relief void.

This letter supersedes No-Action Letter No. 13-33. No person may rely upon the relief 

provided in such letter after the date hereof.

Should you have any questions, please do not hesitate to contact me at 202-418-5977, or 

Frank Fisanich, Chief Counsel, at 202-418-5949.

Very truly yours,

Gary Barnett

Director

Division of Swap Dealer and Intermediary Oversight

cc: Regina Thoele, Compliance

National Futures Association, Chicago

Jamila A. Piracci, OTC Derivatives

National Futures Association, New York
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Cleared Swaps

APPENDIX A

Specified External BCS Requirements

TABLE 1

Commission Regulation Subject Matter

§ 23.402(b)-(f) Know your counterparty, True name and 

owner, Reasonable reliance on representations, 

Manner of disclosure, and Disclosures in a 

standard format

§ 23.430 Verification of counterparty eligibility

§ 23.431(a) Material risks, characteristics, incentives, midmarket mark

§ 23.431(b) Scenario analysis

§ 23.431(d)(1) Notice of right to receive daily mark from 

DCO for cleared swaps

§ 23.432(a) Notice of right to select DCO

§ 23.432(b) Notice of right to clearing

§ 23.434 Recommendations to counterparties--

institutional suitability

§ 23.440 Requirements for swap dealers acting as 

advisors to Special Entities

§ 23.450 Requirements for swap dealers and major swap 

participants acting as counterparties to Special 

Entities

§ 23.451 Political contributions by certain swap dealers

TABLE 2

Commission Regulation Subject Matter

§ 23.402(b)-(f) Know your counterparty, True name and 

owner, Reasonable reliance on representations, 

Manner of disclosure, and Disclosures in a 

standard format

§ 23.430 Verification of counterparty eligibility

§ 23.431(b) Scenario analysis

§ 23.431(d)(1) Notice of right to receive daily mark from 

DCO for cleared swaps

§ 23.432(a) Notice of right to select DCO

§ 23.432(b) Notice of right to clearing

§ 23.451 Political contributions by certain swap dealers