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Legal Update

CFTC Provides Derivatives Prime Brokerage Limited No-action Relief from External Business Conduct Rules

1 May 2013
Mayer Brown Legal Update

Today, compliance is required for the first time with previously deferred provisions of the swap dealer external business conduct rules of the Commodity Futures Trading Commission (the “Commission”). In response to market concerns regarding the potentially disruptive impact of the compliance date on derivatives prime brokerage arrangements, the Commission’s Division of Swap Dealer and Intermediary Oversight yesterday issued a no-action letter (CFTC Letter No. 13-11) that permits prime brokers and executing dealers that are registered swap dealers to contractually apportion responsibility for most external business conduct rule obligations in prime brokerage arrangements for swaps (other than those subject to a Commission clearing mandate) and physically-settled foreign exchange forwards and swaps. The no-action letter offers a two-week phase-in period for existing prime brokerage arrangements in order to allow the parties involved to properly document relationships in accordance with the letter’s requirements.

In their current form, the external business conduct rules do not fully take into account the tandem roles of the executing dealer and the prime broker in the execution of customer transactions. The no-action letter permits derivatives prime brokerage arrangements involving registered swap dealers to continue until a final rule or order is in effect that treats prime brokerage more appropriately than the current external business conduct rules.

For certain foreign exchange prime brokerage arrangements in which only the prime broker, but not the executing dealer, is a registered swap dealer, the no-action letter specifically relieves the prime broker from the requirements to deliver price and a pre-trade mid-market mark, and to provide requested scenario analysis, but does not otherwise provide for apportionment of external business conduct responsibility. 

We are pleased to have assisted The Financial Markets Lawyers Group and the International Swaps and Derivatives Association, Inc. in seeking this relief.

For more information about the topics raised in this Legal Update, please contact at +1 212 506 2539 or at +1 212 506 2224.


  • Joshua Cohn
    Senior Counsel, Independent Contractor
    T +1 212 506 2539
  • Curtis A. Doty
    T +1 212 506 2224

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