The Commodity Futures Trading Commission acted on April 30, 2013 to provide firms that trade swaps under prime brokerage arrangements with guidance and relief on how to meet the external business conduct (“EBC”) duties to counterparties. This relief was provided to address a disconnect between EBC assumptions and prime brokerage reality. The EBC standards assume that a single swap dealer participates in a trade and can both vet the counterparty and provide required information about the trade. In prime brokerage arrangements, however, the prime broker knows the counterparty, while the executing dealer knows the trade. Together, they can meet EBC, but separately they cannot.
This FS Regulatory Brief describes the relief provided for EBC compliance by firms in prime brokerage arrangements and highlights the practical steps necessary to put this relief into action.