Position Limits - Economically Equivalent Contracts
Economically equivalence means an OTC contract that is of equivalence to an exchange traded contract by adhering to what the regulator deems as “equivalence”. The CFTC and European definition of an economically equivalent swap are the same. Such swaps must be netted with their equivalent listed contract.
Note these aren’t just Swaps but all in scope contracts for Mifid II and in CFTC position limits monitoring, under the “final rule” https://www.cftc.gov/LawRegulation/FederalRegister/finalrules/2020-25332.html effective from March 15 2021.
FundApps have written about this in the blog here: https://www.fundapps.co/services/position-limits/resources/cftc-position-limits-changes-part-4
FundApps have not build out functionality to support the identification/matching of economically equivalent swaps but have developed the functionality to enable clients to tell FundApps if an OTC swap is economically equivalent so FundApps can correctly net that contract.
How do you send an economically equivalent swap?
The client must upload the swap contract with the following:
- IsOTC property set to TRUE
- Market set to the market of the economically equivalent swap
- CommoditySymbol set to the commodity symbol of the economically equivalent swap.
The rest should be set as per the contract specification.