March 13, 2019
Mr. Christopher Kirkpatrick
Secretary of the Commission
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street NW
Washington, DC 20581
U.S.A.

Comments on Swap Execution Facilities and Trade Execution Requirement
published by the Commodity Futures Trading Commission

We, the Japanese Bankers Association (JBA), would like to express our gratitude for thisopportunity to comment on Swap Execution Facilities and Trade Execution Requirement
published on November 30, 2018 by the U.S. Commodity Futures Trading Commission(CFTC). We respectfully expect that the following comments will contribute to your furtherdiscussion.
We understand that the proposed rules seek to improve swaps trading on SEFs andfurther enhance flexibility, efficiency and transparency for SEFs and SEF users, having taken
into account the issues identified for CFTC’s current swap execution facility (SEF)
regulations.
However, we would like to point out following three concerns over the proposed rules,
which may potentially lead to the extraterritorial application and include excessively strict
requirements that could impair liquidity of the global derivatives markets.
First, the proposal to expand the scope of the registration requirement, in particular toforeign swaps broking entities, may result in the extraterritorial application of the requirement
to non-U.S. persons because non-U.S. platforms will be deemed as SEFs.
Second, the expansion of the trade execution requirement may cause a substantial
increase in the number of products subject to this requirement. This will increase costs tocomply with duplicative regulations established in the U.S. and home jurisdiction (for some1

products), and may result in non-compliance with the U.S. regulations as entities comply withtheir home jurisdiction’s regulations under the situation where there are inconsistencies(discrepancies) between the two regulations.
Third, the strict proposal that prohibits pre-execution communications off-SEF may
have significant impacts on block trades and it is unclear how the proposal will be enforced in
extraterritorial application.
All of these proposals can be major factors for non-U.S persons to avoid transactions
with U.S. persons. We agree with CFTC's policy to establish SEF rules avoiding market
fragmentation between non-U.S. persons and U.S. persons in the global swap markets asindicated in White Paper 2.01 released by the CFTC Chairman in October 2018. We are
however concerned that these proposed rules may contradict to such a policy, and rather
aggravate market fragmentation.
Consequently, we would respectfully request the CFTC to carefully assess the degree ofimpacts of these revisions and the concerns raised by market participants in finalizing theproposed revisions, since the revisions cover a wide range of areas and include major changes
on the current framework. Especially, we consider that the review of the scope of regulations
and due consideration on regulations established in other jurisdictions are significant issues.
From perspectives including practical point of view, etc., we have organized thecomments according to the following three important issues: Expansion of the SEF
registration requirement, Expansion of the trade execution requirement, and Prohibition ofpre-execution communications.
1. Expansion of the SEF registration requirement
The proposed rule requires a platform that conducts multiple-to-multiple trading
activities to register as a SEF. As a result, swaps broking entities (SBEs) and foreign SBEs will
also be subject to the new registration requirement. We are particularly concerned about thelatter.
Foreign SBEs generally provide a range of services globally to market participants. Ifthey are registered as SEFs based on the fact that they provide services to U.S. persons, eventhough the U.S. persons account for only a very small proportion of the total number of theirclients, a large number of other non-U.S. persons will also be subject to supervision by U.S.
authorities through the self-regulation by the platforms. This will cause an unexpected indirect
1See https://www.cftc.gov/sites/default/files/2018-10/Whitepaper_CBSR100118_0.pdf

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extraterritorial application to non-U.S. persons. Furthermore, this extraterritorial application
would overlap with supervision by home (non-U.S.) authorities, which give rise to duplicatedregulatory costs.
Therefore, foreign SBEs that are subject to regulations established by authority of theirhome jurisdiction might refuse or avoid providing services to U.S. persons in order to avoid
being subject to the CFTC’s regulations. Even if quantitative threshold (de minimis threshold)were set in the future, given a burden of managing such a threshold from time to time as well
as a risk of non-compliance with the regulation2, offering services to U.S. persons is expected
to be extremely limited, or consequentially avoided. Therefore, we are strongly concerned thatuniformly requiring foreign SBEs to register as SEFs contravenes the policy recommended in
White paper 2.03, and is highly likely to trigger the fragmentation of the U.S. and non-U.S.
markets. These are fundamental issues inherent in the proposed rules and cannot be resolved
by simply allowing a transition period for the registration.
As noted above, considering reduced market liquidity caused by avoiding services toU.S. persons and the risk of market fragmentation triggered by such a situation, we believethat foreign SBEs should not be subject to the SEF registration requirement because platforms
in other jurisdictions should not be unduly bounded by the U.S. regulations. It is reasonable todelegate the supervisory function on such entities to their home authorities to minimize
negative effects by the expansion of the registration requirement.
2. Expansion of the trade execution requirement
The proposed rules remove the current “made available to trade” (MAT) process, andapply the trade execution requirement to all swaps that meet the criteria. While we do not haveany opposing view on this policy, we request the CFTC to fully analyze the impact of asignificant expansion in the scope of the requirement on the markets, and consider thefollowing important issues in particular.
(1) Concern about regulatory inconsistencies
Under the proposal, some products may be subject to the duplicative regulations. For
example, if a JPY interest rate swap is included in the scope, Japanese entities subject to therequirement need to comply with the regulations established by both CFTC and Japanese
authorities (i.e., the Financial Services Agency) if they trade such products.

2In fact, under the SD registration requirement that sets the threshold of $8 billion in notional value, some of our member
banks have been avoiding transactions with U.S. persons, and similar disincentive may occur for SEFs.
3 See https://www.cftc.gov/sites/default/files/2018-10/Whitepaper_CBSR100118_0.pdf., which states “[t]his White Paper
recommends that, using this authority, the CFTC should generally exempt from SEF registration non-U.S. trading venues thatare regulated in Comparable Jurisdictions with respect to all types of swaps.”

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Therefore, the CFTC should establish a flexible framework that, for example, exempts
entities from the trade execution requirement if products subject to the requirement areproperly supervised either by U.S. authority or their home authority.
(2) Practical burdens
If the scope of products subject to the requirement expands, relevant parties bear costs
for constructing new flows and systems. For example, under the operation which is added
every time the products subject to trade execution requirement are listed on SEF, entities needto check the related website every time they enter into a transaction. Furthermore, if even oneof the SEFs is capable of handling products subject to the requirement, entities are required touse that specific SEF in order to execute the transaction involving such products, whichrequires additional procedures. These procedures impose high practical burdens, and thereby
increase costs. Such a situation may motivate non-U.S. persons to avoid using SEFs definedby this requirement, leading to further serious fragmentation between U.S. and non-U.S.
markets.
Therefore, we request the CFTC to consider solutions to reduce practical burdens. Suchsolutions may include specifying a timing for changing product subject to the requirement andsetting a notification period, or select products listed on multiple SEFs.
On the other hand, we support the exemptions proposed by CFTC based on theviewpoint of practical efficiency and market efficiency, for the following reasons.
 We agree to exempt all “Inter-affiliate transactions,” from the trade execution
requirement regardless of whether they are cleared or uncleared, since suchtransactions do not necessarily seek competitive pricing, but are generally based on
intra-group risk management and trading strategies.
 We agree to exempt “swaps that are only listed by exempt SEFs” because it isvirtually impossible from the viewpoint of supervisory authority to identify suchswaps and announce them as products subject to the trade execution requirement andtherefore such operation do not function properly.
 We agree to exempt “swap transactions excepted or exempted from the clearing
requirement” because if they are included in the scope, it would incur regulatory costs
and benefits gained from the current exception or exemption from the clearing
requirement would be impaired.

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3. Prohibition of pre-execution communications
The proposed rules prohibit pre-execution communications off-SEF and eliminate
existing exceptions.
We believe that these proposed rules, as described in the following three reasons,contain many uncertainties and are unduly strict, which could result in a decline in liquidity oftransactions executed on SEFs and potentially have negative impacts on the markets.
Therefore, the CFTC should clarify and reconsider the scope of transactions and thecontents of the requirement after careful analysis of its effects.
First, the relationship between the proposed prohibition on pre-execution
communications and the CFTC’s extraterritorial application rule is unclear. Proposed Rules
related to the trade execution do not seem to extend to transactions between non-U.S. persons
in accordance with the extraterritorial application. Therefore, we would like to confirm that
this prohibition can be treated in the same way.
Second, the definition of “pre-execution communications” is ambiguous. We request theCFTC to clarify what information can be or cannot be communicated off-SEF, such as whether
the exchange of market information or a hearing of potential transaction needs at the initialstage of a transaction would be deemed as “pre-execution communications.” Excessive
regulations would increase costs and impair efficient operation and market liquidity.
Third, the provision regarding prohibited off-SEF pre-execution communications also
applies to block trades which are required to be traded on SEFs. However, we are concernedthat it would be difficult to obtain accurate information such as market conditions, and thatpre-execution communications aggregated on SEFs might be leaked to outside parties, leading
to an increase in costs and deterioration in efficiency, and thereby disincentivize entities fromexecuting block trades.

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