“Made Available to Trade” Determination for Certain Overnight Index Swaps Linked to USD Secured Overnight Financing Rate and GBP Sterling Overnight Index Average Proposed to Go Live June 1

On April 12, 2023, Tradeweb filed with the U.S. Commodity Futures Trading Commission (CFTC) a “made available to trade” (MAT) determination covering certain overnight index swaps (OIS)¹ linked to the USD Secured Overnight Financing Rate (SOFR) and GBP Sterling Overnight Index Average (SONIA).² If approved by the CFTC, the determination would subject these OIS types to mandatory execution on a swap execution facility (SEF) or designated contract market (DCM), effective June 1, 2023. This would represent the first expansion of the CFTC’s trade execution mandate since 2014, when the first MAT determinations went live. If not already “onboarded” to a SEF or DCM that lists or offers the USD SOFR or GBP SONIA OIS covered by the determination, market participants looking to trade these types of OIS will need to make arrangements to do so to avoid any trading interruptions.

I. The Mandatory Trade Execution Requirement and the MAT Process

Under Section 2(h)(8) of the Commodity Exchange Act (CEA), any swap subject to mandatory clearing must be traded on a SEF or DCM unless no such platform “makes the swap available to trade”. A MAT determination has significant implications because it subjects the swap to the mandatory trade execution requirement under the CEA and the CFTC rules. This means, absent an exception or exemption,³ swaps subject to the mandatory trade execution requirement must be executed on a SEF or DCM.⁴

The MAT determination covers a subset of the USD SOFR OIS and GBP SONIA OIS products that are already subject to mandatory clearing. USD SOFR OIS and a significantly expanded list of GBP SONIA OIS⁵ became subject to mandatory clearing in 2022, in connection with the transition away from swaps referencing the London Interbank Offered Rate (LIBOR) and toward swaps referencing risk free rates, including SOFR and SONIA.

Unless the CFTC rejects the MAT determination, it will be deemed approved either 45 days after receipt by the CFTC or at the conclusion of an extended review period, if the CFTC extends the review period. Once approved and effective, the covered categories of USD SOFR and GBP SONIA OIS will be deemed MAT on any other SEFs or DCMs that list or offer such swap, and accordingly, in the case of SEFs, treated as “required transactions” that must be executed via order book or via a request-for-quote directed to no fewer than three other market participants in accordance with Part 37 of the CFTC’s rules.

II. Swaps Covered by the MAT Determination

Tradeweb’s MAT determination covers USD SOFR and GBP SONIA OIS with the below specifications. In its submission to the CFTC, Tradeweb highlighted, among other things, that the markets for these types of swaps are deep and liquid, with tight bid/ask spreads. Further, Tradeweb highlighted that the covered products are currently transacted on Tradeweb’s TW SEF by a wide range of market participants, including dealers, asset managers, banks, broker-dealers, government-sponsored entities, central banks, hedge funds, insurance firms, pension funds, endowments, proprietary trading firms, and real estate investment trusts.

III. Implications

If the CFTC approves Tradeweb’s MAT determination, the covered USD SOFR and GBP SONIA OIS, will, absent an applicable exception or exemption, be required to be executed on a SEF or DCM. Thus, market participants who are not already “onboarded” to a SEF or DCM that lists or offers these types of OIS will need to gain access to a SEF or DCM on which these OIS are traded to continue trading these products.

Market Participants Already “Onboarded” to a SEF or DCM

Many market participants have already been “onboarded” to a SEF or DCM, whether directly as SEF or DCM members or indirectly as customers of brokers that are members. Provided the relevant SEF or DCM lists the swaps subject to a MAT determination (or has plans to prior to the effectiveness of the determination), these market participants will be able to trade such products on that SEF or DCM without additional onboarding requirements.

Market Participants Not Yet “Onboarded” to a SEF or DCM

If a market participant wishes to trade swaps subject to a MAT determination on a SEF or DCM for which it is not already a member, such market participant will have to be “onboarded” as a member of that SEF or DCM or obtain indirect access through a member. Onboarding as a direct member generally entails entering into a participation agreement, meeting the relevant eligibility requirements, consenting to the jurisdiction of the SEF or DCM, and agreeing to be bound by the rulebook of the SEF or DCM.

Obtaining indirect access to a SEF or DCM through a member may subject a market participant to similar obligations and generally entails entering into a customer agreement with a member, meeting the relevant eligibility requirements, consenting to the jurisdiction of the SEF or DCM, and agreeing that all transactions on the SEF or DCM are subject to the SEF’s or DCM’s rulebook.

IV. Conclusion

If approved by the CFTC, Tradeweb’s MAT determination would be a significant milestone as the first expansion of the CFTC’s trade execution mandate since 2014. Market participants trading the USD SOFR and GBP SONIA OIS covered by the determination and who are not currently “onboarded” to a SEF or DCM that lists or offers these OIS will need to make arrangements to do so to avoid any trading interruptions.

¹ OIS are swaps where one leg is calculated based on a fixed rate and the other is calculated based on a daily overnight floating rate such as USD SOFR or GBP SONIA.

² A copy of Tradeweb’s MAT determination is available on the CFTC’s website.

³ Subpart C of Part 50 of the CFTC’s rules include exceptions and exemptions from the clearing requirement, which also operate as exemptions and exemptions to the trade execution mandate. These include the so-called end-user exception available under CFTC Rule 50.50 and the inter-affiliate clearing exemption available under CFTC Rule 50.52.

⁴ All swaps subject to the mandatory trade execution requirements are also required to be cleared.

⁵ The 2022 amendments to the clearing mandate expanded the list of GBP SONIA OIS subject to mandatory clearing, extending the upper limit of the termination date range from three years to 50 years.