March 09, 2020
In the wake of significant market discussion, the CFTC has proposed an amendment to Part 37 of the Commission’s regulations to eliminate the practice of “post-trade name give-up” for swaps traded on certain swap execution facilities (SEF). The proposed rule, if adopted, would prohibit a SEF from disclosing the identity of one counterparty to the other for a swap that is intended to be cleared where the parties are matched anonymously on the SEF. SEFs would also be required to have their own rules that would prevent any person from disclosing such information related to post-trade name give-up.
The practice of post-trade name give-up has been controversial for some time. Following complaints by some market participants about the practice, the CFTC had previously solicited comments regarding post-trade name give-up by SEFs in an earlier release. The CFTC stated that a majority of the commenters, including many buy-side market participants, opposed the practice of post-trade name give-up and thought it should be prohibited, while comments on behalf of certain swap dealers generally supported the practice. Specifically, commenters opposed generally took the view that there was no legitimate justification for post-trade name give-up where a transaction is executed anonymously and is submitted for clearing (given that the original parties have no ongoing exposure to each other in a cleared transaction).
Commenters opposed to the practice also raised concerns that such disclosures harm competition and liquidity on SEFs, because the risk of information leakage that could expose a counterparty’s trading strategies or objectives discourages use of SEFs. Many of the commenters agreed that removal of this practice would promote participation and competition, potentially leading to greater swap liquidity.
By contrast, comments in support of allowing post-trade name give-up suggested that a prohibition would harm liquidity. Name give-up may, in this view, better enable dealers to price liquidity based on client relationships, and assess how liquidity and underlying capital are allocated to clients over time.
In proposing a prohibition on post-trade name give-up, the CFTC expressed a concern that the current practice may impede the policy objective underlying the impartial access requirement for SEFs. The CFTC further expressed the view that the prohibition would encourage greater participation and competition on anonymous SEF platforms for cleared swaps, and reduce concerns about information leakage and anticompetitive behavior.
The proposed amendments would adopt a new Rule 37.9(d) that would:
(i) prohibit a SEF from directly or indirectly, including through a third-party service provider, disclosing the identity of a counterparty to a swap executed anonymously on the SEF that is intended to be cleared and (ii) require a SEF to establish and enforce rules that prohibit any person from directly or indirectly, including through a third-party service provider, making such a disclosure. The restrictions would not apply to uncleared swaps (as the parties will have an ongoing bilateral relationship following execution) or any method of execution pursuant to which the identity of a counterparty would be disclosed prior to execution (such as certain request-for-quote systems).
The CFTC is requesting public comment regarding both the proposed amendments and seventeen specific questions seeking additional perspective regarding the impact of the proposal on various market participants. Comments are due March 2, 2020.