On June 10, the Commodity Futures Trading Commission’s Division of Market Oversight and Division of Clearing and Risk issued No-Action Letter No. 16-58 granting designated contract markets (DCMs) and swap execution facilities (SEFs) relief from relevant provisions of CFTC regulations that would otherwise prohibit the DCM or SEF from facilitating transactions entered into to correct clerical or operational errors that cause a swap to be rejected for clearing and become void or that are discovered after clearing. The No-Action letter extends relief previously granted in No-Action Letter No. 15-24, which was to expire on June 15, 2016. Specifically, a DCM or SEF will be able to permit parties to correct clerical or operational errors that cause a swap to be rejected for clearing within one hour of such rejection by allowing a new and pre-arranged trade that retains the terms and conditions of the original trade but for any error and the time of execution. Similarly, a DCM or SEF will be able to permit parties to correct clerical or operational errors discovered after clearing by allowing (1) the original parties to engage in a new, prearranged trade to offset swaps carried on the derivatives clearing organization’s (DCOs) books, or (2) the original or intended parties to engage in a pre-arranged trade reflecting the correct terms to which the parties agreed. In both instances, the CFTC will not recommend any action against a DCM or SEF for failure to comply with CFTC Regulations 37.9(a)(2) and 38.500, which pertain to required methods of execution, and CFTC Regulations 37.203 and 38.152, which prohibit pre-arranged trading. Relief extends until the earlier of June 15, 2017 or the effective date of revised CFTC regulations that lay out a formal solution to clerical and operational errors.

The CFTC’s No-Action letter is available here.