On December 18, 2019, the Commodity Futures Trading Commission (CFTC) proposed a rule that would prohibit the practice of “post-trade name give-up” by swap execution facilities (SEFs) for swaps that are anonymously executed and are intended to be cleared.1 This proposal follows the CFTC’s consideration of comments received in response to its November 2018 request for comments regarding the practice (2018 Release).2
Post-trade name give-up is the practice that some SEFs employ of disclosing or causing to be disclosed the identity of each swap counterparty to the other after a swap transaction has been matched anonymously on a SEF and submitted for clearing to a derivatives clearing organization.
If adopted, the proposed rule would require SEFs to establish and enforce rules prohibiting any person, including the SEF itself and any third-party trade processing service utilized by a SEF, from disclosing the identity of counterparties to swaps that are executed anonymously on a SEF and intended to be cleared. The prohibition would not apply to uncleared swaps or with respect to any method of execution whereby the identity of a counterparty is disclosed prior to execution (such as a disclosed request for quote system).
In the release, the CFTC stated its belief that the proposed rule would advance the statutory objectives of promoting swaps trading on SEFs and promoting fair competition among market participants. This is consistent with comments received from several market participants who, in response to the 2018 Release, generally took the position that the practice of post-trade name give-up deters some market participants from trading on SEFs that employ this practice, due to concerns about “information leakage” that could expose a market participant’s trading positions, strategies and objectives. The CFTC acknowledged that other market participants believed that post-trade name give-up promotes swap liquidity and accurate pricing because, among other things, it permits swap dealers to assess how their swap liquidity and underlying capital is allocated among their clients. Market participants have different views on whether prohibiting post-trade name give-up is appropriate. Comments on the proposal will therefore be vital to the CFTC’s deliberations.
The CFTC posed 17 specific questions in the proposing release, in addition to a general request for comments on whether the proposed rule would advance the statutory and regulatory goals and requirements discussed in the release. The questions relate to, among other things, how the rule would affect liquidity and pricing, and whether the rule should apply to so-called “package transactions” in which a cleared swap is a component of a larger transaction that includes an uncleared swap component or a non-swap instrument component (such as Treasury securities).
Comments on the proposal must be submitted to the CFTC on or before March 2, 2020.