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Dodd-Frank Legislative History Reveals What is Expected of SEC and CFTC REgarding Block Trades

By Jim Hamilton

Block trades are transactions involving a very large number of shares or dollar amount of a particular security or commodity and which transactions could move the market price for the security or contract, and are very common in the securities and futures markets. Block trades, which are normally arranged privately off exchange, are subject to certain minimum size requirements and time delayed reporting. Dodd-Frank authorizes the SEC and CFTC to establish what constitutes a block trade or large notional swap transaction for particular contracts and commodities as well as an appropriate time delay in reporting such transaction to the public.

Congress expects the SEC and CFTC to distinguish between different types of swaps based on the commodity involved, size of the market, term of the contract and liquidity in that contract and related contracts, i.e; for instance the size/dollar amount of what constitutes a block trade in 10-year interest rate swap, 2-year dollar/euro swap, 5-year CDS, 3-year gold swap, or a 1-year unleaded gasoline
swap are all going to be different. (Cong. Record, July 15, 2010, S5921).

While Congress expects the SEC and CFTC to distinguish between particular contracts and markets, said Senator Lincoln, the guiding principal in setting appropriate block trade levels should be that the vast majority of swap transactions should be exposed to the public market through exchange trading. With respect to delays in public reporting of block trades, Congress expects the SEC and CFTC to keep the reporting delays as short as possible. (Cong. Record, July 15, 2010, S5922).

Full post as published by Jim Hamilton's World of Securities Regulation on August 24, 2010 (boomark / email).