19–006 

112TH CONGRESS REPT. 112–345 " ! HOUSE OF REPRESENTATIVES 2d Session Part 2 

SWAP EXECUTION FACILITY CLARIFICATION ACT 

FEBRUARY 8, 2012.—Committed to the Committee of the Whole House on the State 

of the Union and ordered to be printed 

Mr. LUCAS, from the Committee on Agriculture, 

submitted the following 

R E P O R T 

together with 

ADDITIONAL VIEWS 

[To accompany H.R. 2586] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Agriculture, 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 DoddFrank 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 increasing the indentation of each such provision by 2 ems; 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 method of trading functionality; 

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


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‘‘(iii) limit the means of interstate commerce utilized by market participants to enter into and execute any swap transactions on the method of trading functionality.’’. 

(b) SECURITIES EXCHANGE ACT OF 1934.—Section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)), as added by section 761(a)(6) of the DoddFrank Wall Street Reform and Consumer Protection Act, 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 increasing the indentation of each such provision by 2 ems; 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 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.’’. 

SEC. 3. IMPLEMENTATION. 

The amendments made by this Act shall be implemented— 

(1) without regard to— 

(A) chapter 35 of title 44, United States Code; and 

(B) the notice and comment provisions of section 553 of title 5, United 

States Code; and 

(2) through the promulgation of an interim final rule. 

BRIEF EXPLANATION

The Dodd-Frank Wall Street Reform and Protection Act (P.L. 

111–203) (the Dodd-Frank Act) mandates that all swaps required 

to be cleared must also be submitted for trading on a regulated exchange or a ‘‘swap execution facility’’ (SEF). While Dodd-Frank provides a statutory definition of SEF, the Commodity Futures Trading Commission (CFTC), and the Securities and Exchange Commission (SEC) with regard to security-based swap execution facilities, 

are granted authority to further define the term. H.R. 2586 is 

aimed at clarifying congressional intent with regard to the further 

definition of SEF by prohibiting the CFTC from: requiring a SEF 

to have a minimum number of participants receive bids or offers 

through a Request for Quote system (RFQ), requiring SEFs to 

delay bids or offers for a specific time period, and limiting the use 

of any means of interstate commerce to execute swap transactions. 

There are mirroring provisions placing prohibitions on the SEC’s 

ability to further define security-based swap execution facilities. 

PURPOSE AND NEED

Section 1a(50) of the Commodity Exchange Act as amended by 

Section 721(a)(50) of Dodd-Frank defines a SEF as ‘‘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 market participants in the facility or system, through any 

means of interstate commerce . . .’’ The CFTC is then given authority to further define the term and establish requirements for 

SEFs. There is a mirroring provision in Subtitle B of Title VII related to security-based swap execution facilities with authority 

granted to the SEC to further define the term. 


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In the CFTC’s proposed rule ‘‘Core Principles and Other Requirements for Swap Execution Facilities,’’ the CFTC requires that a 

SEF either execute trades on an ‘‘order book’’ or ‘‘Request for 

Quote’’ system. An order book model is used by exchanges, where 

numerous bids and offers are aggregated and the market sees the 

prices at which participants are willing to buy and sell. An RFQ 

allows a customer to transmit a request for bids or offers to only 

certain market participants. 

The CFTC’s rule would require that market participants submit 

an RFQ to at least 5 other market participants; the SEC’s permits 

an RFQ to go to 1 or more. In addition, the CFTC proposed to prohibit ‘‘voice only’’ transactions—transactions that occur by phone 

before they are entered into an electronic system. In addition, both 

the SEC and CFTC require that bids and offers be displayed for 

a minimum amount of time before execution. 

Market participants have expressed concerns that these proposals will reduce liquidity in the swaps markets, by requiring that 

they make known to the market their trading strategies ahead of 

execution. This gives others in the market the opportunity to front 

run the trade, making it more expensive for the counterparty to lay 

off the risk associated with the transaction. They have argued for 

more flexibility in mode and method of execution, to allow SEFs to 

evolve naturally. 

The primary provisions in H.R. 2586 prohibit the regulators from 

requiring a minimum number of participants to receive or respond 

to quote requests, in line with the SEC’s approach. The bill also 

prohibits the regulators from limiting the means of interstate commerce that market participants can use to execute swaps (i.e. voice 

only). In addition, H.R. 2586 prohibits the agencies from requiring 

a SEF to display or delay quotes for any specific period of time. 

While SEFs were included in Dodd-Frank as a means to improve 

the pricing that end-users and other market participants receive on 

their swap transactions by enhancing transparency, the rigid approach of the CFTC in mandating mode and method of execution 

will actually have the opposite effect. Contrary to Congress’ intent, 

it could make swaps more expensive for market participants. H.R. 

2586 is needed to ensure the regulatory agencies provide enough 

flexibility, particularly in the initial stages of developing this new 

market infrastructure, to permit SEFs to evolve naturally toward 

the best mode of execution, without imposing undue costs on market participants. 

SECTION-BY-SECTION

Section 1 is the short title, ‘‘Swap Execution Facility Clarification 

Act’’ 

Section 2(a) amends the Commodity Exchange Act to prohibit the 

Commodity Futures Trading Commission from defining a Swap 

Execution Facility (SEF) to require a minimum number of participants that receive bids or offers; place a timing requirement on displaying bids or offers; limit the means of interstate commerce used 

by market participants to enter into or execute swap transactions 

on the trading system or platform, or require bids or offers on one 

trading system or platform operated by the SEF to interact with 

bids and offers on another trading system or platform operated by 

the SEF. 


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Section 2(b) has a similar amendment to the Securities and Exchange Act. 

Section 3 excludes the amendments made by this bill from the 

requirements of the Paperwork Reduction Act and from notice and 

comment requirements of the Administrative Procedure Act. 

COMMITTEE CONSIDERATION

I. HEARINGS

In the 112th Congress, the Committee has held seven hearings, 

four Full Committee and two General Farm Commodities and Risk 

Management Subcommittee hearings to examine the implementation of Title VII of the Dodd-Frank Act and one Full Committee 

hearing to examine legislative proposals related thereto, including 

H.R. 2586. The Committee took testimony from witnesses that represented a broad spectrum of participants in the derivatives markets. 

In the following hearings, witnesses testified to the importance 

of clarifying the definition of ‘‘swap execution facility’’ (SEF) to 

allow SEFs to evolve naturally toward the best mode of execution, 

without imposing undue costs on market participants: 

Public hearing to review implementation of title VII of the 

Dodd-Frank Wall Street Reform and Consumer Protection Act: February 10, 2011 

Public hearing to review implementation of title VII of the 

Dodd-Frank Wall Street Reform and Consumer Protection Act, Part II: February 15, 2011 

To review legislative proposals amending Title VII of the 

Dodd-Frank Wall Street Reform and Consumer Protection Act: October 12, 2011 

For example, on October 12, Mr. Chris Giancarlo of GFI Group, 

on behalf of the Wholesale Markets Brokers Association, Americas 

testified: 

‘‘Mr. Chairman, introduction, consideration, and passage 

of 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. The WMBAA remains concerned, as 

it has expressed in its comment letters to the SEC and the 

CFTC, that limitations on permitted modes of trade execution or requirements to display or delay quotes will cause 

significant disruptions to OTC swaps markets with the potential to drive trading offshore. We question what substantive analysis has been done on the economic effects of 

the CFTC proposed rule, which could run up transaction 

costs in the U.S. swaps markets.’’ 

II. FULL COMMITTEE

The Committee on Agriculture met, pursuant to notice, with a 

quorum present, on January 25, 2012, to consider 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 


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Street Reform and Consumer Protection Act, and other pending 

business. Chairman Lucas offered an opening statement, as did 

Ranking Member Peterson. 

By unanimous consent, the Subcommittee on General Farm Commodities and Risk Management was discharged from further consideration and the bill, H.R. 2586 was placed before the Committee 

for consideration and without objection a first reading of the bill 

was waived and it was opened for amendment at any point. The 

Chairman offered an Amendment in the Nature of a Substitute to 

the bill, and counsel provided a brief explanation of the amendment. 

Mr. Peterson was recognized to offer and explain an amendment 

to expedite implementation by excluding the amendments made by 

the bill from the requirements of the Paperwork Reduction Act and 

from notice and comment requirements of the Administrative Procedure Act and modifies the applicable to the CFTC in interpreting 

or further defining the term ‘‘swap execution facility’’. By a voice 

vote the Peterson amendment was adopted. 

There being no further amendments, the Peterson motion to approve the Amendment in the Nature of a Substitute to H.R. 2586, 

as amended was adopted by a voice vote. 

By a voice vote, the Peterson motion to report the bill favorably 

to the House with the recommendation that it do pass was adopted. 

Chairman Lucas then advised Members that pursuant to the 

rules of the House of Representatives that Members have 2 calendar days to file such views with the Committee. 

Without objection, staff was given permission to make any necessary clerical, technical or conforming changes to reflect the intent 

of the Committee. 

Chairman Lucas thanked all the Members and adjourned the 

meeting. 

REPORTING THE BILL—ROLL CALL VOTES

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

House of Representatives, H.R. 2586 was reported by voice vote 

with a majority quorum present. There was no request for a recorded vote. 

COMMITTEE OVERSIGHT FINDINGS

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

of Representatives, the Committee on Agriculture’s oversight findings and recommendations are reflected in the body of this report. 

BUDGET ACT COMPLIANCE (SECTIONS 308, 402, AND 423) 

The provisions of clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives and section 308(a)(1) of the Congressional 

Budget Act of 1974 (relating to estimates of new budget authority, 

new spending authority, new credit authority, or increased or decreased revenues or tax expenditures) are not considered applicable. The estimate and comparison required to be prepared by the 

Director of the Congressional Budget Office under clause 3(c)(3) of 

rule XIII of the Rules of the House of Representatives and sections 

402 and 423 of the Congressional Budget Act of 1974 submitted to 

the Committee prior to the filing of this report are as follows: 


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FEBRUARY 6, 2012. 

Hon. FRANK D. LUCAS, 

Chairman, Committee on Agriculture, 

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. Specifically, 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. Further, under current law, 

the SEC is authorized to collect fees sufficient to offset its appropriation each year; CBO expects that the agency would set fee 

rates each year to offset amounts provided in appropriation acts. 

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. 

On December 14, 2011, CBO transmitted an estimate for H.R. 

2586, the Swap Execution Facility Clarification Act, as ordered reported by the House Committee on Financial Services on November 

30, 2011. The earlier bill would make similar changes in the definition of a swap execution facility. CBO estimates that enacting either version of the legislation would have an insignificant cost. 

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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PERFORMANCE GOALS AND OBJECTIVES

With respect to the requirement of clause 3(c)(4) of rule XIII of 

the Rules of the House of Representatives, the performance goals 

and objectives of this legislation are 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. 

CONSTITUTIONAL AUTHORITY STATEMENT

The Committee finds the Constitutional authority for this legislation in Article I, section 8, clause 18, that grants Congress the 

power to make all laws necessary and proper for carrying out the 

powers vested in Congress by the Constitution of the United States 

or in any department or officer thereof. 

COMMITTEE COST ESTIMATE

Pursuant to clause 3(d)(2) of rule XIII of the Rules of the House 

of Representatives, the Committee report incorporates the cost estimate prepared by the Director of the Congressional Budget Office 

pursuant to sections 402 and 423 of the Congressional Budget Act 

of 1974. 

ADVISORY COMMITTEE STATEMENT

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

Federal Advisory Committee Act was created by this legislation. 

APPLICABILITY TO THE 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 section 102(b)(3) of the Congressional Accountability Act (Public Law 104–1). 

FEDERAL MANDATES STATEMENT

The Committee adopted 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 

(Public Law 104–4). 

EARMARK STATEMENT REQUIRED BY CLAUSE 9 OF RULE XXI OF THE

RULES OF THE HOUSE OF REPRESENTATIVES

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

tax benefits, or limited tariff benefits as defined in clause 9(e), 9(f), 

or 9(g) of rule XXI of the Rules of the House Representatives. 

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 method of trading 

functionality; 

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

(iii) limit the means of interstate commerce utilized 

by market participants to enter into and execute any 

swap transactions on the method of trading 

functionality. 

* * * * * * * 

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 

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. 


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(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 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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ADDITIONAL VIEWS 

For the past year, our Committee has held several hearings and 

listened to a host of stakeholders who are concerned about how the 

Dodd-Frank Act is being implemented with regard to improving 

oversight and accountability in derivative markets. I recommended 

patience and caution for those seeking to change the law. It is premature to move on legislation until we see the final rules. Looking 

at the Dodd-Frank rules that have already been finalized by the 

CFTC, it is safe to say that, so far, the CFTC has done a pretty 

good job. 

The battle over H.R. 2586 is primarily a Wall Street battle. It is 

between those who currently do most of the swap business—the 

major banks—and those that wish to challenge them for that business. The CFTC has proposed rules to help open up this market, 

provide greater pre-trade transparency and lead to greater competition. 

Some are concerned that parts of the CFTC’s proposed rules governing swap execution facilities (SEFs) are arbitrary or prohibit 

certain means of swap trading. Others support many aspects of the 

proposed rule as positive steps toward ensuring these new swaps 

marketplaces benefit all market participants, not just a few. Attached to these additional views are two letters, one from the 

Swaps and Derivatives Markets Association and another from the 

Industrial Energy Consumers of America. Both organizations oppose H.R. 2586. All members should review these letters because 

their concerns merit our attention. These SEFs must be open, 

transparent marketplaces where competition governs. 

To that end, the Peterson Amendment was offered to H.R. 2586. 

It removed provisions of H.R. 2586 that limit the CFTC’s ability to 

bring transparency to these new markets. The Peterson amendment 

does not satisfy the objections of those who oppose H.R. 2586 but it 

does take a step in the right direction. 

Finally, as part of the Peterson Amendment, the Committee approved language that should look very familiar to Farm Bill veterans. It is the exact same provisions that we incorporate in each 

Farm Bill for implementation of the Title I commodity programs. 

In that context, it exempts USDA from provisions of the Paperwork 

Reduction Act and notice and comment provisions of the Administrative Procedures Act. 


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With this change, comments can still be sent to the CFTC. Anyone would still be able to meet with CFTC officials to share their 

thoughts on how these bills should be implemented. Farm groups 

certainly did not have any trouble sharing their views on Farm Bill 

implementation. Given the openness the CFTC has already demonstrated, this provision will not hurt anyone’s ability to provide 

input to the CFTC. 

COLLIN C. PETERSON. JOE COURTNEY. JAMES P. MCGOVERN. CHELLIE PINGREE. TIMOTHY J. WALZ. JIM COSTA. PETER WELCH. 


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