U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-5000

Facsimile: (202) 418-5521

www.cftc.gov

CFTC Letter 15-24

No-Action

April 22, 2015

Division of Market Oversight

Division of Clearing and Risk

Re: No-Action Relief for Swap Execution Facilities and Designated Contract Markets in 

Connection with Swaps with Operational or Clerical Errors Executed on a Swap 

Execution Facility or Designated Contract Market

Ladies and Gentlemen:

This letter responds to a request received by the Division of Market Oversight and the 

Division of Clearing and Risk (together, the “Divisions”) of the Commodity Futures Trading 

Commission (the “Commission”) from the Wholesale Markets Brokers’ Association,

Americas (“WMBAA”)1for no-action relief for swap execution facilities (“SEFs”) from certain 

of the requirements under Commission Regulations 37.9(a)(2) and 37.203(a)2to enable SEFs to 

correct clerical or operational errors of swaps that have been rejected for clearing and separately 

to correct operational or clerical errors identified after clearing.3 The no-action relief, which 

applies to SEFs and designated contract markets (“DCMs”),

4

shall commence on the date of 

issuance of this letter and shall expire at 11:59 p.m. (Eastern Time) June 15, 2016. 

Background

Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the 

“Dodd-Frank Act”)5amended the Commodity Exchange Act (“CEA”) to establish a 

comprehensive new regulatory framework for swaps. Among other things, CEA section 2(h)(8) 

requires that transactions involving swaps subject to the CEA section 2(h)(1) clearing 

requirement be executed on or pursuant to the rules of a DCM or SEF, unless no DCM or SEF 

 

1 WMBAA is an independent industry body that represents BGC Derivatives Markets, L.P., GFI 

Swaps Exchange LLC, ICAP SEF (US) LLC, ICAP Global Derivatives LTD, tpSEF, Inc., and 

Tradition SEF, Inc. Each of the WMBAA member firms is temporarily registered with the 

Commission as a swap execution facility.

2

See 17 C.F.R. §§ 37.9(a)(2) and 37.203(a). 

3

Staff construes operational or clerical errors to mean any type of error. Transactions that are 

rejected from clearing for credit reasons are not covered by this relief. 

4 Consistent with the Divisions’ previous action in No-Action Letter 14-50 (April 18, 2014), this 

no-action letter also extends the relief provided herein to DCMs from the requirements under 

Commission Regulations 38.152 and 38.500. See 17 C.F.R. §§ 38.152 and 38.500.

5

Pub. L. 111-203, 124 Stat. 1376 (2010).
No Action Relief for Swap Operational or Clerical Errors 

Page 2

makes such swaps available to trade or such swaps qualify for the clearing exception under CEA 

section 2(h)(7) (the “trade execution requirement”).

6

 

On June 4, 2013, the Commission published regulations governing SEFs.7 Under 

Commission Regulation 37.9(a)(2), a swap that is subject to the trade execution requirement 

(referred to as a “Required Transaction”) and is not a block trade, as defined under Commission 

Regulation 43.2,8shall be executed on a SEF through either (1) an Order Book, as defined in 

Commission Regulation 37.3(a)(3)9or (2) a Request for Quote System, as defined in 

Commission Regulation 37.9(a)(3),10 that operates in conjunction with an Order Book. 

Commission Regulation 37.203(a) requires that a SEF prohibit certain abusive trading practices, 

including pre-arranged trading (except for block trades or other types of transactions certified to 

or approved by the Commission, pursuant to Part 40 of the Commission’s regulations).

On April 9, 2012, the Commission published regulations governing DCMs that impose 

similar requirements.

11

 Under Commission Regulation 38.152, a DCM must prohibit abusive 

trading practices on its markets by members and market participants including, among other 

things, pre-arranged trading. Commission Regulation 38.500 requires, with limited exceptions,

that trades on a DCM be competitively executed as it requires a DCM to provide a competitive, 

open and efficient market and a mechanism for executing transactions that protects the price 

discovery process of trading in the centralized market. 

On April 9, 2012, the Commission also published regulations governing the clearing of 

swaps, including the timing of acceptance for clearing.

12

 Commission Regulations 1.74, 23.610 

and 39.12(b)(7)13 set forth time frames for futures commission merchants (“FCMs”), swap 

dealers (“SDs”), major swap participants (“MSPs”) and derivatives clearing organizations

(“DCOs”), respectively, to accept or reject a trade for clearing.14 These regulations require that a 

trade be submitted and accepted or rejected for clearing as quickly as would be technologically 

practicable as if fully automated systems were used. 

Finally, on September 26, 2013, the Divisions issued Staff Guidance on Swaps StraightThrough Processing (“Staff Guidance”). The Staff Guidance stated, among other things, that: (a) 

 

6

7 U.S.C. § 2(h)(8).

7 Core Principles and Other Requirements for Swap Execution Facilities, 78 Fed. Reg. 33,476 

(June 4, 2013). 

8

See 17 C.F.R. § 43.2.

9

See 17 C.F.R. § 37.3(a)(3).

10 See 17 C.F.R. § 37.9(a)(3).

11 Core Principles and Other Requirements for Designated Contract Markets, 77 Fed. Reg. 

33,612 (June 19, 2012).

12 See Customer Clearing Documentation, Timing of Acceptance for Clearing, and Clearing 

Member Risk Management, 77 Fed. Reg. 21,278 (Apr. 9, 2012).

13 See 17 C.F.R. §§ 1.74, 23.610, and 39.12(b)(7), respectively.

14 See id. at 21,285.
No Action Relief for Swap Operational or Clerical Errors 

Page 3

FCMs must screen orders for execution on a SEF pursuant to either Commission Regulations

1.73(a)(2)(i) or (ii), regardless of the method of execution;15 (b) pursuant to Commission 

Regulation 37.702(b), each SEF must make it possible for clearing FCMs to screen as required 

by Regulation 1.73 on an order-by-order basis;

16 (c) SEFs must have rules stating that trades that 

are rejected from clearing are void ab initio;

17 and (d) SEFs, FCMs, SDs and MSPs may not 

require breakage agreements as a condition for trading swaps intended for clearing on a SEF.18

After issuing the Staff Guidance, the Divisions were informed by market participants that 

some swap trades are rejected by a DCO because of operational or clerical errors that are readily 

correctable. For example, some clearing submissions fail to match on a material economic term 

due to an operational error; the trades are then rejected from clearing and deemed void ab initio. 

In response, on October 25, 2013, the Divisions issued No-Action Letter 13-66 providing time 

limited relief from Commission Regulation 37.9(a)(2), regarding methods of execution for 

required transactions, and Regulation 37.203(a), prohibiting pre-arranged trading, if, after a trade 

has been rejected for clearing, a SEF permits a new trade between the original parties, with terms 

and conditions that match the terms and conditions of the original trade, other than any such 

error and the time of execution, to be submitted for clearing without having been executed 

pursuant to the methods set forth in Regulation 37.9(a)(2).

19

 On April 18, 2014, the Commission 

provided similar relief to DCMs until June 30, 2014.20 Both letters expired on June 30, 2014. 

Market participants also informed the Divisions that issues could arise because DCOs 

clear package transactions on a leg-by-leg basis rather than clearing all legs simultaneously.21 

As a result, there may be an operational error in which an individual leg of a package transaction 

may be rejected by a DCO because the risk of the leg, measured in isolation, could cause a trader 

to exceed its credit limit; however, if the legs had been submitted in a different sequence or had 

been cleared simultaneously, the net risk may not have exceeded the credit limit and no legs 

would have been rejected. On May 1, 2014, the Divisions issued No-Action Letter 14-62, which 

in part permitted SEFs and DCMs to establish a “new trade, old terms” procedure for legs of a 

package transaction that had been rejected from clearing because of the sequencing of the 

 

15 Staff Guidance at 2.

16 Id. at 3

17 Id. at 6. 

18 Id. 

19 No-Action Letter 13-66 (Oct. 25, 2013).

20 No-Action Letter 14-50 (Apr. 18, 2014).

21 For purposes of this letter, a “package transaction” is a transaction involving two or more 

instruments: (1) that is executed between two or more counterparties; (2) that is priced or quoted 

as one economic transaction with simultaneous or near simultaneous execution of all 

components; (3) that has at least one component that is a swap that is made available to trade and 

therefore is subject to the CEA section 2(h)(8) trade execution requirement; and (4) where the 

execution of each component is contingent upon the execution of all other components.
No Action Relief for Swap Operational or Clerical Errors 

Page 4

submission of the legs.22 On September 30, 2014, the Divisions issued No-Action Letter 14-121, 

which extended that relief granted in No-Action Letter 14-62 until February 16, 2015.23

Requested Relief

In its no-action request, WMBAA indicates that the industry continues to work on

solutions to reduce operational and clerical errors but that, at this time, trades continue to be 

rejected as void ab initio because of readily correctable operational or clerical errors. WMBAA 

requests that the relief provided in No-Action Letter 13-66 be reinstated to provide additional 

time for SEFs to develop solutions for such errors. 

WMBAA also indicates that because trades are required to be submitted for clearing 

immediately after execution, counterparties to a transaction may not have an opportunity to 

identify an error until after the transaction has cleared. 

If an error is identified after a swap has cleared, any correction or cancellation necessarily 

would have to be undertaken by the DCO because only the DCO is able to make corrections or 

cancellations to swaps carried on its books. According to WMBAA, some DCOs decline or are 

unable to correct or cancel the swaps carried on their books. As a result, to undo a cleared 

erroneous swap, counterparties must arrange and execute a transaction that offsets the swaps 

carried on the DCO’s books and, if the parties desire, execute a new transaction that reflects the 

correct terms agreed to by the counterparties. Similar to the no-action relief provided in NoAction Letter 13-66, WMBAA seeks time limited no-action relief from Commission Regulation 

37.9(a)(2) regarding methods of execution for required transactions and Regulation 37.203(a)’s 

prohibition of pre-arranged trading, so that a SEF may permit counterparties to undo an

erroneous cleared swap by executing a pre-arranged trade that offsets the swaps carried on the 

DCO’s books, without requiring that trade to be executed pursuant to the methods set forth in 

Regulation 37.9(a)(2).

No-Action Relief

The Divisions are issuing this no-action letter to provide relief similar to that provided in 

No-Action Letters 13-66 and 14-50 and to permit a similar procedure to be followed in situations 

where an error is not discovered until after a swap has been cleared. Specifically, subject to the 

conditions listed below, the Divisions will not recommend that the Commission take any 

enforcement action against a SEF for failure to comply with Commission Regulation 37.9(a)(2) 

or against a DCM for failure to comply with Commission Regulation 38.500, regarding methods 

of execution or to comply with Commission Regulations’ 37.203 and 38.152 prohibition against 

pre-arranged trading if, after a trade has been rejected for clearing, the SEF or DCM permits a 

new trade, with terms and conditions that match the terms and conditions of the original trade, 

 

22 No-Action Letter 14-62 (May 1, 2014).

23 No-Action Letter 14-121 (Sep. 30, 2014).
No Action Relief for Swap Operational or Clerical Errors 

Page 5

other than any such error and time of execution, to be submitted for clearing without having been 

executed pursuant to methods set forth in Commission Regulations 37.9(a)(2) or 38.500.

The Divisions also will provide this relief to the situation where an error is not discovered 

until after a swap has been cleared. Thus, relief is provided to a SEF or a DCM if, after a trade 

has been cleared and an error is discovered, the SEF or DCM permits a prearranged trade 

between the original parties that offsets the swaps carried on the DCO’s books, without that trade 

having been executed pursuant to the methods required in Commission Regulations 37.9(a)(2) 

and 38.500. The SEF or DCM may also permit the original or intended24 counterparties to enter 

into a pre-arranged transaction that reflects the terms to which the parties mutually assented 

without that trade having been executed pursuant to the methods set forth in Commission 

Regulations 37.9(a)(2) and 38.500. 

This relief is subject to the following conditions:

1. The pre-arranged transactions subject to this relief must be only (1) for the correction 

of an operational or clerical error or omission made by the SEF, DCM, one of the 

counterparties, or an agent of one of the counterparties that causes a trade to be 

rejected from clearing and void ab initio, or (2) for the purpose of offsetting swaps 

carried on a DCO’s books where a clerical or operational error or omission made by 

the SEF, DCM, counterparty, or an agent of the counterparty is not identified until 

after the trade has been cleared. In the latter situation, a new transaction that corrects

the errors in the original transaction also is subject to this relief.25

2. The SEF or DCM must have error trade rules that are consistent with Commission 

regulations and provide for trade price adjustments or trade cancellations and rules 

that are transparent to the market and subject to standards that are clear, fair and 

publicly available. Further, consistent with the obligations of SEFs and DCMs to 

prevent market abuses, such standards should account for whether a transaction 

cancellation or price adjustment will adversely impact market integrity, facilitate 

market manipulation or other illegitimate activity, or otherwise violate the CEA, 

Commission regulations, or the SEF’s or DCM’s rules. 

 

24 In certain instances, the wrong legal entity may be assigned as a counterparty to a trade. The 

relief will allow the swap with the wrong counterparties to be undone and the execution of a new 

swap with the correct counterparties.

25 Staff notes that the relief will apply to the leg of a package transaction that is rejected from 

clearing or for which an error is discovered after the leg has been cleared. Accordingly, this 

letter provides relief similar to that provided in No-Action Letter 14-121 and a SEF or DCM may 

establish a “new trade, old terms” procedure for legs of a package transaction that had been 

rejected from clearing because of the sequencing of the submission of the legs. This relief does 

not apply to the legs of a package that have been accepted for clearing.
No Action Relief for Swap Operational or Clerical Errors 

Page 6

3. For swaps rejected for non-credit reasons, the new trade must be executed on the SEF 

or DCM and submitted for clearing as quickly as technologically practicable after 

receipt of notice of the rejection by the DCO to the clearing members, but, in any 

event, no later than one hour from the issuance of the notice.26 For erroneous cleared 

swaps, the trade to offset the swaps carried on the DCO’s books and the new 

transaction that corrects the errors in the original transaction must be executed and 

submitted for clearing no later than three days after the erroneous cleared swap was

executed.

4. The SEF or DCM must have rules setting forth the conditions, if any, under which it 

will determine that an error has occurred, and the procedures it will follow to execute 

a trade subject to the relief set forth in this letter. The rules must provide that if the 

facility is able to determine how to correct an error, the facility will execute the new 

trades without obtaining consent from the counterparties. The rules must also provide 

what the facility will do if it is unable to determine how to correct an error. The 

facility may either not fix the error, or it may seek guidance on how to address the 

error from the counterparties. Any such guidance may not be implemented without 

consent from both counterparties.

5. With respect to swaps rejected from clearing for non-credit reasons, if the new 

transaction that corrects the errors in the original transaction is also rejected for 

clearing, it is void ab initio and the parties will not be provided a second opportunity 

to submit a new trade subject to the relief provided herein.

27

6. In making its determination whether to permit the execution of a trade subject to this 

relief, a SEF or DCM must make an affirmative finding that the trade or some term 

therein resulted from an error.

28

7. The SEF or DCM must report the swap transaction data to the relevant swap data 

repository (“SDR”) as soon as technologically practicable after the original trade is 

rejected by the DCO, including: 

i. A part 43 cancellation for the original trade; 

 

26 No-Action Letter 13-66 provided 30 minutes for the execution of a new swap. Staff has 

increased the time frame to 60 minutes in response to requests from market participants for such 

time.

27 As explained in the Staff Guidance, all trades executed on or subject to the rules of a SEF or 

DCM that are rejected from clearing, whether for credit or non-credit reasons, are void ab initio. 

This no-action letter allows for the submission of a new trade with the old terms, correcting for 

the error, for non-credit rejections. However, submission of a second new trade with the original 

old terms is not permissible.

28 A SEF is not required to keep any additional records with respect to conditions four and six.
No Action Relief for Swap Operational or Clerical Errors 

Page 7

ii. A part 45 termination indicating that the original trade is void ab initio; and

iii. Swap transaction data pursuant to Parts 43 and 45 for the newly executed trade(s). 

Staff reminds SEFs and DCMs that both the erroneous trade and any subsequent trade 

subject to the relief in this letter must be subject to pre-execution credit checks that comply with 

Commission Regulation 1.73 and/or Regulation 23.609 and the Staff Guidance. In addition, both 

the erroneous trade and any subsequent trade subject to relief in this letter must be processed in 

accordance with the time frames set forth in Commission Regulations 1.74, 23.610, 39.12(b)(7), 

43.3(e), 45.14, and the Staff Guidance. 

This no-action relief shall commence on the date of issuance of this letter and shall expire 

on June 15, 2016. Staff expects that SEFs, DCMs and market participants will use this time to 

reduce the frequency of errors. 

Market participants should be aware that the no-action positions taken herein do not 

excuse affected persons from compliance with any other applicable requirements of the CEA or 

the Commission’s regulations thereunder, in particular, the applicable swap data reporting 

requirements and clearing requirements. This letter, and the no-action positions taken herein, 

represent the views of the Divisions only, and do not necessarily represent the positions or views 

of the Commission or of any other division or office of the Commission’s staff. As with all noaction letters, the Divisions retain the authority to condition further, modify, suspend, terminate 

or otherwise restrict the terms of the no-action relief provided herein, in its discretion.

If you have any questions concerning this correspondence, please contact Nancy 

Markowitz, Deputy Director, Division of Market Oversight, at (202) 418-5453 or 

nmarkowitz@cftc.gov, or Jonathan Lave, Associate Director, Division of Market Oversight, at 

(202) 418-5983 or jlave@cftc.gov.

Sincerely,

Vincent A. McGonagle Phyllis P. Dietz

Director Acting Director

Division of Market Oversight Division of Clearing and Risk