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The New Year Rings in New Requirements for NFA Member Asset Managers

In the final weeks of 2018, the National Futures Association (“NFA”) issued new requirements applicable to asset managers who are members of the NFA that will take effect in 2019. First, the NFA amended its Interpretive Notice 9070, “NFA Compliance Rules 2-9, 2-36 and 2-49: Information Systems Security Programs” (the “Cybersecurity Notice”). The amended Cybersecurity Notice adds an NFA notification obligation, employee training requirements, and specific approval procedures to the written information systems security program (“ISSP”) required of each NFA member firm (a “firm”) under the original Cybersecurity Notice issued in 2016. In addition, Interpretive Notice “NFA Compliance Rule 2-9: CPO Internal Controls System” (the “Internal Controls Notice”) requires commodity pool operator (“CPO”) members to establish a system of internal controls and provides guidance on designing and implementing such controls. The Cybersecurity Notice will become effective on April 1, 2019 and we expect the Internal Controls Notice to be effective on April 1 or soon thereafter.

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Update Regarding Trade Execution Mandate for Certain Interest Rate Swaps


Time to Read: 2 minutes Practices: Hedge Funds, Investment Management, Private Investment Funds

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The Commodity Futures Trading Commission (“CFTC”) Division of Market Oversight (the “Division”) announced yesterday that Javelin SEF, LLC’s (“Javelin”) self-certification of available-to-trade determinations (“MAT Determinations”) for certain benchmark interest rate swap contracts is deemed certified. Under CFTC regulations, the swaps that are subject to these MAT Determinations, whether listed or offered by Javelin or any other designated contract market (“DCM”) or swap execution facility (“SEF”), must be executed through a DCM or a SEF beginning no later than February 15, 2014. Please refer to Ropes & Gray’s prior Alert for more information.

Beginning on February 15, 2014, the following fixed-to-floating interest rate swaps must be executed through a DCM or a SEF:

Currency  U.S. Dollar (USD) U.S. Dollar (USD) Euro (EUR)
Floating Rate Indices USD LIBOR USD LIBOR EURIBOR
Trade Start Type Spot Starting (T+2) IMM Start Date (next two quarterly IMM start dates) Spot Starting (T+2)
Optionality No No No
Dual Currencies No No No
Notional Fixed Notional Fixed Notional Fixed Notional
Tenors 2, 3, 5, 7, 10, 12, 15, 20, 30 years 2, 3, 5, 7, 10, 12, 15, 20, 30 years 2, 3, 5, 7, 10, 15, 20, 30 years

The Division declined to offer categorical relief for “package transactions,” or transactions involving more than one swap or financial instrument, at least one of which is subject to the trade execution requirement. However, the Division indicated in a press release that it will consider whether to grant limited relief for package transactions following an upcoming public roundtable on execution issues related to such transactions.

Additional interest rate swaps and certain credit default index swaps are expected to become subject to the trade execution requirement in the coming weeks.

In order to trade on a SEF, buy-side entities will be required to sign agreements directly with one or more SEFs and become a member of the SEF. Becoming a member of the SEF will subject buy-side entities to the jurisdiction of the SEF with respect to the enforcement of its rules and to the SEF’s ability to inspect books and records, among other things. Additionally, SEF members are subject to CFTC Rule 1.35, which includes specific oral and written recordkeeping requirements with respect to communications that lead to the execution of a commodity interest transaction. This rule also requires registered commodity trading advisors, among others, to record certain oral communications related to such transactions.

Please contact the Ropes & Gray attorney who usually advises you with any questions.

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