The US Commodity Futures Trading Commission adopted final rules on June 25 prohibiting post–trade name give-up for anonymously executed and intended-to-be-cleared swaps effected on swap execution facilities.
Employed by some swap execution facilities (SEFs), post–trade name give-up is the practice 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. The practice originated before the Dodd-Frank swap reforms when most swaps took place in the over-the-counter swaps markets where swaps were privately negotiated through voice brokers, and the swaps were often uncleared.
Post–trade name give-up allows a market participant to perform a credit check on its counterparty after a trade has been matched anonymously. Moreover, post–trade name give-up enables market participants to monitor credit exposure and payment obligations for individual counterparties, which is critical in a noncleared market. The market structure for most swap transactions changed in the wake of Dodd-Frank, with the adoption of the swap trade execution requirement and clearing requirement for many categories of interest rate and credit swaps, and mandatory SEF registration for multilateral swap trading platforms. Many traditional swap dealers requested that SEFs maintain the practice of post–trade name give-up even in the new swap regulatory environment and market structure. The US Commodity Futures Trading Commission (CFTC or Commission) previously considered the topic of post–trade name give-up during the original SEF rulemaking, but at the time the Commission decided not to disallow the practice, subject to further study.
Post–trade name give-up has been a controversial topic in the swap market. Many traditional swap dealers argue that post–trade name give-up is essential for their ability to make markets, and prohibiting the practice would harm liquidity because dealers would no longer be able to price liquidity based on their client relationships or review the allocation of liquidity and capital to clients over time. The buy side, on the other hand, argues that their trading on SEFs should be kept confidential and that prohibiting post–trade name give-up would prevent information leakage for swaps that are cleared where a swap counterparty does not incur bilateral credit risk. They argue that the practice limits participation on certain SEFs to artificially low levels and puts buy-side market participants at risk of discrimination or retaliation from dealers using name give-up to identify firms that participate on a SEF.
After requesting and reviewing public comment on its proposal to prohibit the practice of post–trade name give-up, the CFTC determined that the prohibition on post–trade name give-up would remove a significant barrier to increased participation on SEFs and increase the number of participants that trade on SEFs. According to the CFTC, prohibiting post–trade name give-up for swaps would be consistent with the objectives of the following:
Accordingly, at its public meeting on June 25, the CFTC adopted amendments to CFTC Regulation 37.9 to prohibit post–trade name give-up for swaps anonymously executed, prearranged, or prenegotiated on or pursuant to the rules of a SEF and intended to be cleared. The new rule prohibits a SEF from directly or indirectly disclosing the identity of a counterparty to any such swap; it also requires the SEF to establish and enforce rules that prohibit any person from doing so.
The CFTC has provided a limited exception from the rule for “package” transactions that include a cleared swap and a component that is not a swap or that is an uncleared swap. The uncleared swap or nonswap component of a package transaction presents bilateral credit, legal, or operational exposures that the counterparties must manage throughout the term of the swap.
Therefore, the Commission determined that disclosure of the counterparty’s identity is necessary for an uncleared swap or nonswap component of a package transaction. Such disclosure indirectly discloses the counterparty to the cleared swap component of a package transaction, which is why the CFTC has provided an exception for the entire package transaction, and not just the relevant components of the package transaction. The CFTC declined to provide an exception for workups or for resolving error trades, and also declined to narrow the scope of swaps subject to the prohibition to only those subject to a clearing requirement under Section 2(h)(1) of the Act, meaning that the prohibition applies to all cleared swaps effected on a SEF.
The compliance date for swaps subject to the trade execution requirement under Section 2(h)(8) of the Act is November 1, 2020. The compliance date for swaps not subject to the trade execution requirement is July 5, 2021.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Katherine Dobson Buckley
Michael M. Philipp
Thomas V. D’Ambrosio
Ignacio A. Sandoval
 Swaps subject to a CFTC clearing determination must be cleared by a registered or exempt derivatives clearing organization. In addition, swaps that are (1) subject to mandatory clearing and (2) made available to trade on a SEF or designated contract market are subject to a trade execution requirement pursuant to Section 2(h)(8) of the Commodity Exchange Act.
 As defined in the final rules, a “package transaction” consists of two or more component transactions executed between two or more counterparties where (1) execution of each component transaction is contingent upon the execution of all other component transactions; and (2) the component transactions are priced or quoted together as one economic transaction with simultaneous or near simultaneous execution of all components.