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CFTC seeks comment on NPR to prohibit block trade aggregation

The Commodity Futures Trading Commission is seeking public comment on a notice of proposed rule-making that would prohibit traders from lumping several smaller trade orders together to avoid trading on open platforms.

The 2010 Dodd-Frank Act mandates that all swaps must be traded on open platforms unless they are substantial enough to qualify as a block trade.

The new rule would prohibit traders from aggregating various orders to satisfy the minimum block requirements, though there is an exemption for those aggregated orders by trading advisors, foreign entities or investment advisors if the total assets under their management exceed $25 million.

Wall Street groups have maintained that, as block trades are so substantial, the groups require additional time to hedge risk and, therefore, cannot report to regulators immediately, adding that requiring them to do so would damage liquidity, DealBook reports.

The rule would further require that all parties of a block trade must individually qualify as eligible participants. If trading in a designated contract market, however, those individuals may be allowed to transact a block trade for customers not defined as eligible contract participants.

Additionally, the rule requires that all individuals participating in block trades on behalf of customers must receive written consent or instructions from the customer.

The CFTC originally proposed the rule in December 2010 as part of a broader regulatory package but then decided to re-propose the rule through a private vote.

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