It came down to the wire, but sense seems to have prevailed, as the Commodity Futures Trading Commission (CFTC) has issued a time limited ‘No Action’ letter that exempts Prime Brokers and rolling spot trades * from certain aspects of Dodd-Frank rules.
There had been widespread concern that rolling spot trades (where net open positions are rolled forward) would be classified as swaps, and thus subject to the Dodd-Frank rules, and Prime Brokers who ‘roll the trades’ would be required to comply with additional reporting requirements.
However the CFTC recognises the arguments presented by industry trade bodies, that the prime broker would merely be reporting “mirror” trades that were not initiated by a market participant, merely they are part of the process of the “give up” between executing dealer and prime brokerage customer.
The no action relief will apply in respect to:
External Business Conduct Standards as they relate to Covered Transactions executed under prime brokerage arrangements where the prime broker and the executing dealer are each swap dealers (SD).
Exempt FX Transactions where there is significant participation by executing dealers that are not required to be registered as SDs, the Division believes that no-action relief is warranted with respect to the External Business Conduct Standards as they relate to Exempt FX Transactions executed under prime brokerage arrangements where the prime broker is an SD, but the executing dealer is not an SD.
Limited Relief: The SD acting as prime broker, is exempt from the obligation to disclosure of the mid-market mark of the Exempt FX Transaction, and that the SD provide its counterparty with a scenario analysis if requested.
Full transcript of the CFTC No Action Letter here