CFTC staff on Wednesday issued Letter No. 26-20, granting no-action positions tied to post-trade risk reduction services for swaps provided by Capitolis Partners LLC, Quantile Technologies Limited (part of the London Stock Exchange Group plc) and TriOptima AB (part of OSTTRA).
The relief covers two services: portfolio rebalancing and basis risk mitigation. The three providers received a no-action position for failure to register as swap execution facilities. Market participants using the covered services will not face enforcement for failure to comply with certain trade execution, clearing and real-time public reporting obligations, subject to the letter’s conditions.
The services help swap counterparties reduce credit or timing risk in their books without materially changing market exposure. The transactions are non-price forming and use pre-identified pricing with no negotiation.
Key conditions include that exercises must be market risk neutral, accepted on an all-or-nothing basis, and cannot move risk from a cleared environment to an uncleared one. The letter says the providers are registered as introducing brokers and remain subject to CFTC and NFA rules. The relief is time-limited.
The letter extends to portfolio rebalancing and basis risk mitigation much of the framework CFTC staff previously applied to portfolio compression, and cites parallel moves already underway in the UK, EU and Australia.
