19–006 

112TH CONGRESS REPT. 112–345 " ! HOUSE OF REPRESENTATIVES 1st Session Part 1 

SWAP EXECUTION FACILITY CLARIFICATION ACT 

DECEMBER 23, 2011.—Ordered to be printed 

Mr. BACHUS, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

[To accompany H.R. 2586] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 2586) to refine the definition of swap execution facility 

in the provisions regulating swap markets added by title VII of the 

Dodd-Frank Wall Street Reform and Consumer Protection Act, having considered the same, report favorably thereon with an amendment and recommend that the bill as amended do pass. 

The amendment is as follows: 

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE. 

This Act may be cited as the ‘‘Swap Execution Facility Clarification Act’’. 

SEC. 2. DEFINITION OF SWAP EXECUTION FACILITY. 

(a) COMMODITY EXCHANGE ACT.—Section 1a(50) of the Commodity Exchange Act 

(7 U.S.C. 1a(50)) is amended— 

(1) by striking ‘‘The term’’ and inserting the following: 

‘‘(A) IN GENERAL.—The term’’; 

(2) by redesignating subparagraphs (A) and (B) as clauses (i) and (ii), respectively (and by moving the margins 2 ems to the right); and 

(3) by adding at the end the following: 

‘‘(B) INTERPRETATION.—In interpreting or further defining the term ‘swap 

execution facility’, the Commission shall not require a swap execution facility to— 

‘‘(i) have a minimum number of participants receive a bid or offer or 

respond to any trading system or platform functionality; 

‘‘(ii) display or delay bids or offers for any period of time; 

‘‘(iii) limit the means of interstate commerce utilized by market participants to enter into and execute any swap transactions on the trading system or platform; or 

‘‘(iv) require bids or offers on one trading system or platform operated 

by the swap execution facility to interact with bids or offers on another 

trading system or platform operated by the swap execution facility’’. 


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(b) SECURITIES EXCHANGE ACT OF 1934.—Section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) is amended— 

(1) by striking ‘‘The term’’ and inserting the following: 

‘‘(A) IN GENERAL.—The term’’; 

(2) by redesignating subparagraphs (A) and (B) as clauses (i) and (ii), respectively (and by moving the margins 2 ems to the right); and 

(3) by adding at the end the following: 

‘‘(B) INTERPRETATION.—In interpreting or further defining the term ‘security-based swap execution facility’, the Commission shall not require a security-based swap execution facility to— 

‘‘(i) have a minimum number of participants receive a bid or offer or 

respond to any trading system or platform functionality; 

‘‘(ii) display or delay bids or offers for any period of time; 

‘‘(iii) limit the means of interstate commerce utilized by market participants to enter into and execute any security-based swap transactions on the ‘method of trading functionality; or 

‘‘(iv) require bids or offers on one trading system or platform operated 

by the swap execution facility to interact with bids or offers on another 

method of trading functionality operated by the swap execution facility.’’. 

PURPOSE AND SUMMARY

Title VII of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act (PL 111–203) requires that cleared swaps be executed either on exchanges or on swap execution facilities (SEFs) 

regulated by either the Commodity Futures Trading Commission 

(CFTC) or the Securities and Exchange Commission (SEC). The 

drafters of the Dodd-Frank Act intended for SEFs to serve as an 

alternative to exchanges by providing an execution facility for illiquid or thinly-traded swaps. The CFTC’s and SEC’s proposed 

rules for SEFs, however, fail to provide the flexibility necessary to 

execute illiquid or thinly-traded swaps. Introduced by Representatives Garrett, Maloney, Hurt, and Meeks, H.R. 2586, the ‘‘Swap 

Execution Facility Clarification Act,’’ directs the CFTC and SEC to 

promulgate SEF rules that would effectuate Congress’s intent that 

SEFs serve as an alternative to exchanges and provide an execution facility for illiquid or thinly-traded swaps. 

In order to ensure that SEFs provide a viable means of execution 

for illiquid or thinly-traded swaps, H.R. 2586 prohibits the CFTC 

and the SEC from requiring a SEF to have a minimum number of 

participants receive bids or offers. The bill also prohibits the CFTC 

and the SEC from requiring that market participants request or receive more than one quote, and from requiring SEFs to display or 

delay bids or offers for a specific time period. H.R. 2586 permits 

market participants to use any means of interstate commerce to 

execute swap transactions and prohibits the CFTC or SEC from 

writing rules that allow only voice-based and hybrid trading models 

for the execution of block trades. Finally, the bill prohibits the 

CFTC and SEC from requiring SEFs that operate multiple trading 

systems to force those systems to interact with each other to execute swap transactions. 

BACKGROUND AND NEED FOR LEGISLATION

The Dodd-Frank Act requires the CFTC and the SEC to draft 

rules governing SEFs. While Congress intended that SEFs would 

provide a venue for executing illiquid or thinly-traded swaps, market participants have pointed out that the proposed rules are overly prescriptive and would inhibit the execution of swap trades. 


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Market participants have identified the following shortcomings in 

the proposed rules. First, the CFTC’s proposed rules would require 

market participants to obtain at least five quotes through a ‘‘request for quote’’ system before entering into a swap transaction. 

This requirement forces market participants to reveal confidential 

trading strategies to at least five market participants. Second, the 

SEC’s and CFTC’s proposed rules would require a SEF to display 

or delay quotes for a specific period of time. Market participants 

have pointed out that this rule is ill-suited for the swaps market, 

where timing delays will cause confusion and poor trade execution 

because swap markets do not have the continuous pricing and trading that characterize equity markets. Third, the CFTC’s rules limit 

the means by which market participants may execute non-block 

trades on a SEF. Finally, under the SEC’s proposed rule, multiple 

trading systems would be required to interact with each other on 

the same SEF, which would force large trades to be broken up and 

prevent market participants from executing large trades that fall 

short of a block trade. H.R. 2586 prohibits the SEC and CFTC from 

including these requirements in their SEF rules, thereby enabling 

market participants to more easily execute illiquid or thinly-traded 

swaps. 

At a legislative hearing on H.R. 2586 held by the Subcommittee 

on Capital Markets and Government-Sponsored Enterprises on October 14, 2011, Conrad Voldstad, Chief Executive Officer of the 

International Swaps and Derivatives Association, explained that 

H.R. 2586 would ‘‘correct a number of flaws in the current proposed 

regulatory interpretation and better align the proposed rules with 

Congressional intent.’’ Mr. Volstad also testified that the proposed 

SEF rules ‘‘have the potential to significantly and adversely affect 

the dynamics of the swaps market by reducing liquidity and choice 

and by increasing costs and ultimately risks for OTC derivatives 

markets participants.’’ During that same hearing, Shawn Bernardo, 

Chairman of the Wholesale Markets Brokers Association, testified 

that the ‘‘SEF Clarification Act will provide regulators with a clear 

expression of Congress’ legislative intent and ensure that the final 

rules remain within the framework of competitive OTC markets.’’ 

Brenda Boultwood, Chief Risk Officer and Senior Vice President of 

Constellation Energy, testified on behalf of the Coalition of Derivatives End-Users at the October 14 hearing and stated that ‘‘we support the goals of H.R. 2586,’’ which she said seeks to ‘‘ensure that 

end-users will have a variety of options for hedging their risk.’’ 

HEARING

On October 14, 2011, the Subcommittee on Capital Markets and 

Government-Sponsored Enterprises held a hearing entitled ‘‘Legislative Proposals to Bring Certainty to the Over-the-Counter Derivatives Market,’’ to consider H.R. 2586, and four other bills. This was 

a one-panel hearing, and the following witnesses testified: 

• Mr. Keith Bailey, Managing Director, Fixed Income, Currencies and Commodities, Barclays Capital, on behalf of the Institute of International Bankers 

• Mr. Shawn Bernardo, Senior Managing Director, Tullett 

Prebon, on behalf of the Wholesale Market Brokers’ Association Americas 


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• Ms. Brenda Boultwood, Chief Risk Officer and Senior Vice 

President, CE Risk Management Division Office, Constellation 

Energy, on behalf of the Coalition of Derivatives End-Users • Mr. James Cawley, CEO, Javelin Capital Markets LLC • Mr. Kent Mason, Davis & Harman LLP, on behalf of the 

American Benefits Council and the Committee on the Investment of Employee Benefit Assets • Mr. Conrad Voldstad, Chief Executive Officer, International Swaps and Derivatives Association 

COMMITTEE CONSIDERATION

The Subcommittee on Capital Markets and Government-Sponsored Enterprises met in open session on November 15, 2011, and 

ordered H.R. 2586 favorably reported to the full Committee by 

voice vote. 

On November 30, 2011, the Committee on Financial Services met 

in open session and ordered H.R. 2586, as amended, favorably reported to the House by voice vote. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. A motion by Chairman Bachus to report the bill, as amended, to the House with a 

favorable recommendation was agreed to by a voice vote. 

During consideration of H.R. 2586 by the Committee, the following amendments were considered: 

1. An amendment offered by Ms. Waters, no. 2, to strike all after 

the enacting clause and require, within three months, the SEC and 

CFTC to jointly establish rules to interpret and define the terms 

‘‘swap execution facility’’ and ‘‘security-based swap execution facility,’’ was not agreed to by a record vote of 23 yeas and 31 nays 

(Record vote no. FC–54). 

RECORD VOTE NO. FC–54 

Representative Aye Nay Present Representative Aye Nay Present 

Mr. Bachus ................................. ........... X ............. Mr. Frank (MA) ................ X ........... .............

Mr. Hensarling ........................... ........... X ............. Ms. Waters ...................... X ........... .............

Mr. King (NY) ............................. ........... X ............. Mrs. Maloney ................... X ........... .............

Mr. Royce ................................... ........... X ............. Mr. Gutierrez ................... ........... ........... .............

Mr. Lucas ................................... ........... X ............. Ms. Vela ́zquez ................. ........... ........... .............

Mr. Paul ..................................... ........... ........... ............. Mr. Watt .......................... X ........... .............

Mr. Manzullo .............................. ........... X ............. Mr. Ackerman .................. X ........... .............

Mr. Jones .................................... X ........... ............. Mr. Sherman ................... X ........... .............

Mrs. Biggert ............................... ........... X ............. Mr. Meeks ....................... X ........... .............

Mr. Gary G. Miller (CA) .............. ........... X ............. Mr. Capuano ................... X ........... .............

Mrs. Capito ................................ ........... X ............. Mr. Hinojosa .................... X ........... .............

Mr. Garrett ................................. ........... X ............. Mr. Clay .......................... X ........... .............

Mr. Neugebauer .......................... ........... X ............. Mrs. McCarthy (NY) ........ X ........... .............

Mr. McHenry ............................... ........... X ............. Mr. Baca ......................... X ........... .............

Mr. Campbell ............................. ........... X ............. Mr. Lynch ........................ X ........... .............

Mrs. Bachmann .......................... ........... ........... ............. Mr. Miller (NC) ................ X ........... .............

Mr. McCotter .............................. ........... X ............. Mr. David Scott (GA) ...... X ........... .............

Mr. McCarthy (CA) ..................... ........... X ............. Mr. Al Green (TX) ............ ........... ........... .............

Mr. Pearce .................................. ........... X ............. Mr. Cleaver ..................... X ........... .............

Mr. Posey .................................... ........... X ............. Ms. Moore ....................... X ........... .............

Mr. Fitzpatrick ............................ ........... X ............. Mr. Ellison ....................... X ........... .............

Mr. Westmoreland ...................... ........... X ............. Mr. Perlmutter ................. X ........... .............


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RECORD VOTE NO. FC–54—Continued 

Representative Aye Nay Present Representative Aye Nay Present 

Mr. Luetkemeyer ......................... ........... X ............. Mr. Donnelly .................... X ........... .............

Mr. Huizenga .............................. ........... X ............. Mr. Carson ...................... ........... ........... .............

Mr. Duffy .................................... ........... X ............. Mr. Himes ....................... X ........... .............

Ms. Hayworth ............................. ........... X ............. Mr. Peters ....................... X ........... .............

Mr. Renacci ................................ ........... X ............. Mr. Carney ...................... ........... ........... .............

Mr. Hurt ...................................... ........... X 

Mr. Dold ..................................... ........... X 

Mr. Schweikert ........................... ........... X 

Mr. Grimm .................................. ........... X 

Mr. Canseco ............................... ........... X 

Mr. Stivers .................................. ........... X 

Mr. Fincher ................................. ........... X 

The following amendment and motion were also considered by 

the Committee: 

1. An amendment offered by Mr. Garrett, no. 1, to make technical changes, was agreed to by voice vote. 

2. A motion offered by Mr. Hurt to move the previous question 

on H.R. 2586 was agreed to by voice vote. 

COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the Committee has held hearings and made 

findings that are reflected in this report. 

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House 

of Representatives, the Committee establishes the following performance related goals and objectives for this legislation: 

The objective of H.R. 2586, the ‘‘Swap Execution Facility Clarification Act,’’ is to direct the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) to 

promulgate rules governing the operations of swap execution facilities (SEFs) that would effectuate Congress’s intent that SEFs serve 

as an alternative to exchanges and provide an execution facility for 

illiquid or thinly-traded swaps. Title VII of the Dodd-Frank Wall 

Street Reform and Consumer Protection Act (PL 111–203) requires 

that cleared swaps be executed either on exchanges or on SEFs 

regulated by either the CFTC or the SEC. The drafters of the 

Dodd-Frank Act intended for SEFs to serve as an alternative to exchanges by providing an execution facility for illiquid or thinlytraded swaps. The CFTC’s and SEC’s proposed rules for SEFs, 

however, fail to provide the flexibility necessary to execute illiquid 

or thinly-traded swaps. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND

TAX EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 


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COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

CONGRESSIONAL BUDGET OFFICE ESTIMATE

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House 

of Representatives, the following is the cost estimate provided by 

the Congressional Budget Office pursuant to section 402 of the 

Congressional Budget Act of 1974: 

DECEMBER 14, 2011. 

Hon. SPENCER BACHUS, 

Chairman, Committee on Financial Services, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 2586, the Swap Execution 

Facility Clarification Act. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Susan Willie. 

Sincerely, 

DOUGLAS W. ELMENDORF. 

Enclosure. 

H.R. 2586—Swap Execution Facility Clarification Act 

The Dodd-Frank Wall Street Reform and Consumer Protection 

Act established entities known as swap execution facilities (SEFs) 

where multiple parties are able to trade swaps. (A swap is a contract that calls for an exchange of cash between two participants 

based on an underlying rate or index, or on the performance of an 

asset). 

H.R. 2586 would amend the definition of an SEF to prevent the 

regulatory agencies—the Commodity Futures Trading Commission 

(CFTC) and the Securities and Exchange Commission (SEC)—from 

imposing certain requirements on such facilities. The bill would 

prevent the agencies from developing regulations that require an 

SEF to follow certain business practices, such as setting a minimum number of participants to receive a bid. 

Neither the CFTC nor the SEC has finalized regulations regarding swap execution facilities. Based on information from the two 

agencies, CBO expects that incorporating the provisions of H.R. 

2586 at this point in the regulatory process would not have a significant effect on the workload of either agency. Therefore, CBO estimates that any change in discretionary spending to implement 

the legislation, which would be subject to the availability of appropriated funds, would not be significant. Enacting H.R. 2586 would 

not affect direct spending or revenues; therefore, pay-as-you-go procedures do not apply. 

H.R. 2586 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act and would 

impose no costs on state, local, or tribal governments. 

The CBO staff contact for this estimate is Susan Willie. The estimate was approved by Theresa Gullo, Deputy Assistant Director 

for Budget Analysis. 


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FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office 

pursuant to section 423 of the Unfunded Mandates Reform Act. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

accommodations within the meaning of the section 102(b)(3) of the 

Congressional Accountability Act. 

EARMARK IDENTIFICATION

H.R. 2586 does not contain any congressional earmarks, limited 

tax benefits, or limited tariff benefits as defined in clause 9 of rule 

XXI. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

This section provides a short title to the bill by citing it as the 

‘‘Swap Execution Facility Clarification Act.’’ 

Section 2. Definition of swap execution facility 

This section amends the definition of a ‘‘swap execution facility’’ 

in Section 1(a)(50) of the Commodity Exchange Act, and the definition of a ‘‘security-based swap execution facility’’ in Section 3(a)(77) 

of the Securities and Exchange Act of 1934, by prohibiting the 

Commodity Futures Trading Commission and the Securities Exchange Commission from requiring a swap execution facility or a 

securities-based swap execution facility to (i) have a minimum 

number of participants receive a bid or offer or respond to any 

trading system or platform functionality; (ii) display or delay bids 

or offers for any period of time; (iii) limit the means of interstate 

commerce utilized by market participants to enter into and execute 

any swap transactions on the trading system or platform; or (iv) require bids or offers on one trading system or platform operated by 

the swap execution facility to interact with bids or offers on another trading system or platform operated by the swap execution 

facility. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

existing law in which no change is proposed is shown in roman): 


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COMMODITY EXCHANGE ACT 

* * * * * * * 

SEC. 1a. DEFINITIONS. 

As used in this Act: 

(1) * * * 

* * * * * * * 

(50) SWAP EXECUTION FACILITY.—øThe term¿ 

(A) IN GENERAL.—The term ‘‘swap execution facility’’ 

means a trading system or platform in which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by multiple participants in 

the facility or system, through any means of interstate 

commerce, including any trading facility, that— 

ø(A)¿ (i) facilitates the execution of swaps between 

persons; and 

ø(B)¿ (ii) is not a designated contract market. 

(B) INTERPRETATION.—In interpreting or further defining 

the term ‘‘swap execution facility’’, the Commission shall 

not require a swap execution facility to— 

(i) have a minimum number of participants receive a 

bid or offer or respond to any trading system or platform functionality; 

(ii) display or delay bids or offers for any period of 

time; 

(iii) limit the means of interstate commerce utilized 

by market participants to enter into and execute any 

swap transactions on the trading system or platform; 

or 

(iv) require bids or offers on one trading system or 

platform operated by the swap execution facility to 

interact with bids or offers on another trading system 

or platform operated by the swap execution facility 

* * * * * * * 

SECURITIES EXCHANGE ACT OF 1934 

TITLE I—REGULATION OF SECURITIES EXCHANGES 

* * * * * * * 

DEFINITIONS AND APPLICATION OF TITLE

SEC. 3. (a) When used in this title, unless the context otherwise 

requires— 

(1) * * * 

* * * * * * * 

(77) SECURITY-BASED SWAP EXECUTION FACILITY.—øThe 

term¿ 

(A) IN GENERAL.—The term ‘‘security-based swap execution facility’’ means a trading system or platform in which 

multiple participants have the ability to execute or trade 

security-based swaps by accepting bids and offers made by 

multiple participants in the facility or system, through any 


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means of interstate commerce, including any trading facility, that— 

ø(A)¿ (i) facilitates the execution of security-based 

swaps between persons; and 

ø(B)¿ (ii) is not a national securities exchange. 

(B) INTERPRETATION.—In interpreting or further defining 

the term ‘‘security-based swap execution facility’’, the Commission shall not require a security-based swap execution 

facility to— 

(i) have a minimum number of participants receive a 

bid or offer or respond to any trading system or platform functionality; 

(ii) display or delay bids or offers for any period of 

time; 

(iii) limit the means of interstate commerce utilized 

by market participants to enter into and execute any security-based swap transactions on the ‘method of trading functionality; or 

(iv) require bids or offers on one trading system or 

platform operated by the swap execution facility to 

interact with bids or offers on another method of trading functionality operated by the swap execution facility. 

* * * * * * * 

Æ 


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