Mandatory Exchange Trading of Interest Rate Swaps to Begin on February 15, 2014 | Practical Law

Mandatory Exchange Trading of Interest Rate Swaps to Begin on February 15, 2014 | Practical Law

The CFTC has issued a trade execution mandate certifying the Made Available to Trade (MAT) Determination submitted by Javelin SEF, LLC, triggering mandatory trade execution requirements under Title VII of the Dodd-Frank Act and section 2(h)(8) of the Commodity Exchange Act (CEA) for many common interest rate swaps. As of February 15, 2014, these contracts must be entered into on a SEF or DCM.

Mandatory Exchange Trading of Interest Rate Swaps to Begin on February 15, 2014

Practical Law Legal Update 9-555-1445 (Approx. 4 pages)

Mandatory Exchange Trading of Interest Rate Swaps to Begin on February 15, 2014

by Practical Law Finance
The CFTC has issued a trade execution mandate certifying the Made Available to Trade (MAT) Determination submitted by Javelin SEF, LLC, triggering mandatory trade execution requirements under Title VII of the Dodd-Frank Act and section 2(h)(8) of the Commodity Exchange Act (CEA) for many common interest rate swaps. As of February 15, 2014, these contracts must be entered into on a SEF or DCM.
On January 16, 2014, the CFTC and its division of Market Oversight issued a trade execution mandate certifying the Made Available to Trade (MAT) Determination submitted by Javelin SEF, LLC last year, triggering mandatory trade execution requirements under Title VII of the Dodd-Frank Act and section 2(h)(8) of the Commodity Exchange Act (CEA) for many common interest rate swap transactions. As of February 15, 2014, these contracts must be entered into on a SEF or DCM.
Javelin submitted the first MAT Determination, which covered a range of interest rate swaps, in October 2013, after which the CFTC elected to take a 90-day extended review period as permitted under Title VII of the Dodd-Frank Act (see Legal Update, First SEF Available-to-trade Determination Could Move Most Interest Rate Swaps onto Exchanges). While Javelin subsequently reduced the scope of its MAT submission (see Legal Update, New MATs Likely to Expedite Exchange Trading of CDS and Interest Rate Swaps), it still includes a broad range of fixed-to-floating interest rate swaps.
  • Single currency swaps denominated in US Dollars with fixed notional amounts and no optionality. These swaps reference USD LIBOR as its floating rate index and may either have a Spot Starting (T+2) or an IMM Start Date (next two quarterly IMM start dates). These swaps may have tenors of:
    • 2;
    • 3;
    • 5;
    • 7;
    • 10;
    • 12;
    • 15;
    • 20; or
    • 30 years.
  • Single currency swaps denominated in Euros with fixed notional amounts and no optionality. These swaps reference EURIBOR as its floating rate index, must have a Spot Starting (T+2), and are available in all of the above tenors, except for the 12-year tenor.
The release includes the following table of Fixed-to-Floating Interest Rate Swaps that are covered by this MAT and which must now be exchange traded:
Currency
US Dollar (USD)
US Dollar (USD)
Euro (EUR)
Floating Rate Indexes
USD LIBOR
USD LIBOR
EURIBOR
Trade Start Type
Spot Starting (T+2)
IMM Start Date  (next two quarterly IMM start dates)
Spot Starting (T+2)
Optionality 
No
No
No
Dual Currencies
No
No
No
Notional
Fixed Notional
Fixed Notional
Fixed Notional
Tenors
2, 3, 5, 7, 10, 12, 15, 20, 30 years
2, 3, 5, 7, 10, 12, 15, 20, 30 years
2, 3, 5, 7, 10, 15, 20, 30 years
Packaged transactions that combine one or more of these interest rate swaps with other transactions do not necessarily fall outside of these trade execution requirements and require further consideration by the CFTC. As a result, the CFTC is currently accepting public comment on whether to, and under what conditions it might, exempt from the trade execution requirement interest rate swaps that are part of a larger packaged transaction but which are included in the MAT.
For more information on mandatory swap clearing and exchange trading under Title VII and related rulemaking, see Practice Note, Summary of the Dodd-Frank Act: Swaps and Derivatives: Swap Clearing and Exchange Trading under Title VII.