Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 82313 

1 7 U.S.C. 7b–3. 

2The Dodd-Frank Act also added to the CEA 

certain provisions related to the trading of swaps on 

designated contract markets (‘‘DCMs’’). Given that 

almost all platform trading of swaps in the U.S. 

occurs on SEFs, the Commission is not at this time 

amending any regulatory requirements pertaining to 

DCMs within part 38 of the Commission’s 

regulations. 

3Core Principles and Other Requirements for 

Swap Execution Facilities, 78 FR 33476 (June 4, 

2013) (hereinafter ‘‘SEF Core Principles Final 

Rule’’). 

4 17 CFR 37.3(a)(2). An Order Book is defined as 

(i) an ‘‘electronic trading facility,’’ as that term is 

defined in CEA section 1a(16); (ii) a ‘‘trading 

facility,’’ as that term is defined in CEA section 

1a(51); or (iii) a trading system or platform in which 

all market participants have the ability to enter 

multiple bids and offers, observe or receive bids 

and offers entered by other market participants, and 

transact on such bids and offers. See 17 CFR 

37.3(a)(3). 

5CEA section 2(h)(8) requires that transactions 

involving swaps subject to the CEA section 2(h)(1) 

clearing requirement be executed on or pursuant to 

the rules of a DCM or SEF, or a SEF that is exempt 

from registration, unless no DCM or SEF makes 

such swaps available to trade (‘‘MAT’’) or such 

swaps qualify for the clearing exception under CEA 

section 2(h)(7) (the ‘‘trade execution requirement’’). 

See 7 U.S.C. 2(h)(8). 

Airway Segment Changeover Points 

FROM TO DISTANCE FROM 

§ 95.8003 VOR Federal Airway Changeover Point 

V157 is Amended to Add Changeover Point 

ALMA, GA VORTAC .............................................. ALLENDALE, SC VOR ........................................ 58 ALMA 

J8 is Amended to Modify Changeover Point 

GALLUP, NM VORTAC ......................................... FORT UNION, NM VORTAC .............................. 103 GALLUP 

J19 is Amended to Modify Changeover Point 

BUKKO, NM FIX .................................................... FORT UNION, NM VORTAC .............................. 80 BUKKO 

[FR Doc. 2020–26551 Filed 12–17–20; 8:45 am] 

BILLING CODE 4910–13–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 36 and 37 

RIN 3038–AE94 

Swap Execution Facility Requirements 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final rule. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’ or 

‘‘CFTC’’) is adopting final rules to 

amend certain parts of its regulations 

relating to the execution of package 

transactions on swap execution facilities 

(‘‘SEFs’’) and the resolution of error 

trades on SEFs. These matters are 

currently the subject of relief in certain 

no-action letters from Commission staff. 

DATES: The rules will become effective 

February 16, 2021. 

FOR FURTHER INFORMATION CONTACT: 

Roger Smith, Associate Chief Counsel, 

(202) 418–5344, rsmith@cftc.gov, 

Division of Market Oversight, 

Commodity Futures Trading 

Commission, 525 West Monroe Street, 

Suite 1100, Chicago, Illinois 60661, or 

Michael Penick, Senior Economist, (202) 

418–5279, mpenick@cftc.gov, Office of 

the Chief Economist, Commodity 

Futures Trading Commission, Three 

Lafayette Centre, 1151 21st Street NW, 

Washington, DC 20581. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. Part 37 of the Commission’s Regulations 

B. Summary of Proposed Changes to Parts 

36 and 37 

C. Consultation With Other U.S. Financial 

Regulators 

II. Final Rules 

A. Addition of § 37.9(d) and Amendment 

of § 37.9(a) for the Execution of Certain 

Package Transactions 

1. Proposed Rules 

2. Public Comment 

3. Commission Determination 

B. Addition of § 37.3(a)(4) 

1. Proposed Rule 

2. Public Comment 

3. Commission Determination 

C. Exemption of New Issuance Bond 

Package Transactions From the Trade 

Execution Requirement—Addition of 

§ 36.1 

1. Proposed Exemption 

2. Public Comment 

3. Commission Determination and 

Discussion of CEA Section 4(c) Authority 

D. Error Trades: Execution of Trades To 

Correct Operational and Clerical Errors 

on Swap Execution Facilities—Addition 

of § 37.9(e) 

1. Proposed Rules 

2. Public Comment 

3. Commission Determination 

III. Effective Date 

IV. Related Matters 

A. Regulatory Flexibility Act 

B. Paperwork Reduction Act 

C. Cost-Benefit Considerations 

D. Antitrust Considerations 

I. Background 

A. Part 37 of the Commission’s 

Regulations 

The Dodd-Frank Wall Street Reform 

and Consumer Protection Act (‘‘DoddFrank Act’’) amended the Commodity 

Exchange Act (‘‘CEA’’ or ‘‘Act’’) by 

adding section 5h, which establishes 

registration requirements and core 

principles for swap execution facilities 

(‘‘SEFs’’).1 The Commission 

implemented CEA section 5h by 

adopting regulations that establish 

various trading requirements for swaps 

traded on SEFs 2 and articulating, where 

appropriate, guidance and acceptable 

practices. In particular, the Commission 

promulgated part 37 of its regulations to 

implement section 5h of the CEA and 

set forth the registration and operational 

requirements for SEFs.3 Among those 

are requirements in part 37 specifying 

minimum trading functionality that a 

SEF must offer to participants for all 

listed swaps, i.e., an ‘‘order book,’’ as 

defined in § 37.3 (‘‘Order Book’’); 4

specifying the types of systems or 

platforms that a SEF must offer for 

swaps trading, including swaps subject 

to the trade execution requirement 

under CEA section 2(h)(8); 5 and setting 

forth other relevant regulations 

applicable to the fifteen core principles 

with which a SEF must comply to 

obtain and maintain registration with 

the Commission. 

Commission regulation 37.9 

prescribes the methods of execution that 

a SEF must offer to market participants 

to execute swap transactions on the 

SEF. In particular, § 37.9(a) defines 

‘‘Required Transactions’’ as swaps 

subject to the trade execution 

requirement. Section 37.9(a) also 

requires a SEF to offer, as required 

methods of execution, either (i) an 

Order Book or (ii) a request-for-quote 


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82314 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 

6 17 CFR 37.9(a). With the exception of block 

trades, as defined in § 43.2 of the Commission’s 

regulations, Required Transactions must be 

executed on a SEF’s Order Book or RFQ System. 

See 17 CFR 37.9(a)(2)(i). 

7 17 CFR 37.9(c). 

8For example, under § 37.9(b), the Commission 

implemented a fifteen-second time-delay 

requirement for Required Transactions that are prearranged or pre-negotiated by a broker and 

submitted as cross trades for execution through the 

SEF’s Order Book. This requirement allows a broker 

or dealer to execute a Required Transaction by 

trading against a customer’s order, or executing two 

customers’ orders against each other, through prenegotiation or pre-arrangement, provided that one 

side of the transaction is exposed to the Order Book 

for fifteen seconds before the other side of the 

transaction is submitted for execution. See 17 CFR 

37.9(b). 

9As defined in § 140.99(a)(2) of the Commission’s 

regulations, a no-action letter is a written statement 

issued by a Division stating that it will not 

recommend enforcement action to the Commission 

for failure to comply with a specific provision of the 

Act or a Commission rule, regulation, or order. A 

no-action letter represents only the issuing 

Division’s position and binds only that Division. 17 

CFR 140.99(a)(2). 

10See Swap Execution Facility Requirements and 

Real-Time Reporting Requirements, 85 FR 9407 

(Feb. 19, 2020). The relief in many instances also 

applies to DCMs. See supra note 2. 

11 In addition to what is specified below, in the 

Proposal, the Commission proposed to amend the 

definition of ‘‘block trade’’ in § 43.2 to enable SEFs 

to offer non-Order Book methods of execution for 

market participants to execute swap block trades on 

the SEF. The proposed amendment would codify 

CFTC No-Action Letter No. 17–60 (‘‘NAL No. 17– 

60’’) while also allowing block trades for swaps that 

are not intended to be cleared (‘‘ITBC’’) to be 

executed on SEF via non-Order Book methods of 

execution. On September 17, 2020, the Commission 

adopted final rules amending certain regulations 

setting forth the real-time public swap reporting 

and dissemination requirements. Within those final 

rules, the Commission adopted, with minor 

technical changes, the Proposal’s proposed 

amendment to the definition of ‘‘block trade’’ in 

§ 43.2. Real-Time Public Reporting Requirements, 

85 FR 75422 (Nov. 25, 2020) (‘‘2020 Part 43 Final 

Rules’’). 

12As used herein a package transaction consists 

of two or more component transactions executed 

between two or more counterparties where: (i) At 

least one component transaction is a Required 

Transaction; (ii) execution of each component 

transaction is contingent upon the execution of all 

other component transactions; and (iii) the 

component transactions are priced or quoted 

together as one economic transaction with 

simultaneous or near-simultaneous execution of all 

components. 

13NAL No. 20–31, Re: Extension of No-Action 

Relief from Sections 2(h)(8) and 5(d)(9) of the 

Commodity Exchange Act and from Commission 

Regulations 37.3(a)(2) and 37.9 for Swaps Executed 

as Part of Certain Package Transactions (Oct. 9, 

2020). NAL No. 20–31 extended no-action relief and 

related conditions previously granted by 

Commission staff. See CFTC Letter No. 14–12, NoAction Relief from the Commodity Exchange Act 

Sections 2(h)(8) and 5(d)(9) and from Commission 

Regulation § 37.9 for Swaps Executed as Part of a 

Package Transaction (Feb. 10, 2014) (‘‘NAL No. 14– 

12’’); CFTC Letter No. 14–62, No-Action Relief from 

the Commodity Exchange Act Sections 2(h)(8) and 

5(d)(9) and from Commission Regulation § 37.9 for 

Swaps Executed as Part of Certain Package 

Transactions and No-Action Relief for Swap 

Execution Facilities from Compliance with Certain 

Requirements of Commission Regulations 

§ 37.9(a)(2), § 37.203(a) and § 38.152 for Package 

Transactions (May 1, 2014) (‘‘NAL No. 14–62’’); 

CFTC Letter No. 14–121, Extension of No-Action 

Relief for Swap Execution Facilities and Designated 

Contract Markets from Compliance with Certain 

Requirements of Commission Regulations 

§ 37.9(a)(2), § 37.203(a) and § 38.152 for Package 

Transactions (Sept. 30, 2014) (‘‘NAL No. 14–121’’); 

CFTC Letter No. 14–137, Extension of No-Action 

Relief from the Commodity Exchange Act Sections 

2(h)(8) and 5(d)(9) and from Commission 

Regulation § 37.9 and Additional No-Action Relief 

for Swap Execution Facilities from Commission 

Regulation § 37.3(a)(2) for Swaps Executed as Part 

of Certain Package Transactions (Nov. 10, 2014) 

(‘‘NAL No. 14–137’’); CFTC Letter No. 15–55, 

Extension of No-Action Relief from the Commodity 

Exchange Act Sections 2(h)(8) and 5(d)(9) and from 

Commission Regulation § 37.9 and No-Action Relief 

for Swap Execution Facilities from Commission 

Regulation § 37.3(a)(2) for Swaps Executed as Part 

of Certain Package Transactions (Oct. 15, 2015) 

(‘‘NAL No. 15–55’’); CFTC Letter No. 16–76, Re: 

Extension of No-Action Relief from the Commodity 

Exchange Act Sections 2(h)(8) and 5(d)(9) and from 

Commission Regulation § 37.9 and No-Action Relief 

for Swap Execution Facilities from Commission 

Regulation § 37.3(a)(2) for Swaps Executed as Part 

of Certain Package Transactions (Nov. 1, 2016) 

(‘‘NAL No. 16–76’’); CFTC Letter No. 17–55, Re: 

Extension of No-Action Relief from Sections 2(h)(8) 

and 5(d)(9) of the Commodity Exchange Act and 

from Commission Regulations 37.3(a)(2) and 37.9 

for Swaps Executed as Part of Certain Package 

Transactions (Oct. 31, 2017) (‘‘NAL No. 17–55’’). 

NAL No. 20–31 also provides relief for package 

transactions where at least one individual swap 

component is subject to the trade execution 

requirement and all other components are futures 

contracts (‘‘MAT/Futures package transactions’’). 

The Commission did not propose any regulations 

related to the MAT/Futures package transactions in 

the Proposal. As such, the Commission continues 

to evaluate MAT/Futures package transactions and 

their regulatory treatment. 

Further, NAL No. 20–31 also applies to package 

transactions occurring on a DCM. See supra note 2. 

14The Proposal also did not propose to codify the 

supplemental conditions to NAL No. 17–27 

contained in CFTC No-Action Letter No. 20–01, Re: 

Supplemental No-Action Relief for Swap Execution 

Facilities and Designated Contract Markets in 

Connection with Swaps with Operational or 

Clerical Errors Executed on a Swap Execution 

Facility or Designated Contract Market (Jan. 8, 2020) 

(‘‘NAL No. 20–01’’), conditions that allow market 

participants to correct error trades that have been 

accepted for clearing with an ex post facto review 

by the SEF. As discussed below, nothing in this 

adopting release would prohibit SEFs from 

incorporating such conditions within their error 

trade rules. 

system that sends a request-for-quote to 

no less than three unaffiliated market 

participants and operates in conjunction 

with an Order Book (‘‘RFQ System’’) for 

the execution of these transactions.6

Swaps that are not subject to the trade 

execution requirement are defined as 

‘‘Permitted Transactions,’’ for which a 

SEF may offer any execution method 

and for which market participants may 

voluntarily trade on a SEF.7 The 

Commission’s regulations specify 

additional requirements that correspond 

to the use of an Order Book or RFQ 

System to execute Required 

Transactions.8

B. Summary of Proposed Changes to 

Parts 36 and 37 

During the implementation of part 37, 

market participants and SEFs identified 

certain operational and compliance 

burdens related to various requirements. 

To mitigate these burdens, Commission 

staff issued to SEFs and market 

participants time-limited no-action 

relief from certain provisions of the CEA 

and the Commission’s regulations.9

Based on this implementation 

experience, on February 19, 2020, the 

Commission released a proposal 10 (the 

‘‘Proposal’’) to amend the SEF 

regulatory framework to address the 

following issues, which had been 

identified in staff no-action letters. In 

particular, within the Proposal:11

• The Commission proposed to 

amend part 37 to allow the swap 

components of certain categories of 

‘‘package transactions’’ 12 to be executed 

on-SEF through flexible means of 

execution pursuant to § 37.9(c)(2), rather 

than through the required methods of 

execution under § 37.9(a) for ‘‘Required 

Transactions.’’ In addition, the 

Commission proposed to amend part 36 

to include an exemption from the trade 

execution requirement for swap 

transactions that are executed as a 

component of a package transaction that 

also includes a component that is a new 

issuance bond (‘‘New Issuance Bond 

package transactions’’). CFTC No-Action 

Letter No. 20–31 (‘‘NAL No. 20–31’’),13

which extended and replaced NAL 17– 

55, currently provides no-action relief 

for the swap components of certain 

categories of package transactions from 

the required methods of execution, and 

in some instances, from the trade 

execution requirement. 

• The Commission proposed to 

amend part 37 to establish a principlesbased approach for SEF error trade 

policies that incorporated relief from the 

required methods of execution under 

§ 37.9(a) for Required Transactions for 

trades intended to resolve error trades. 

The amendment would enable SEFs to 

permit market participants to execute 

swaps transactions to correct 

operational or clerical errors using 

execution methods other than those 

required under § 37.9(a) for Required 

Transactions. The Proposal did not seek 

to codify the specific conditions 

contained in CFTC No-Action Letter No. 

17–27 (‘‘NAL No. 17–27’’).14 Rather, the 

Proposal intended to capture the intent 

of NAL No. 17–27 to permit market 

participants to correct error trades in 

Required Transactions through nonrequired methods of execution while 

providing flexibility for SEFs to 

determine the most suitable error trade 


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Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 82315 

15NAL No. 17–27, Re: No-Action Relief for Swap 

Execution Facilities and Designated Contract 

Markets in Connection with Swaps with 

Operational or Clerical Errors Executed on a Swap 

Execution Facility or Designated Contract Market 

(May 30, 2017). NAL No. 17–27 extended no-action 

relief and related conditions previously granted by 

Commission staff. See CFTC Letter No. 16–58, Re: 

No-Action Relief for Swap Execution Facilities and 

Designated Contract Markets in Connection with 

Swaps with Operational or Clerical Errors Executed 

on a Swap Execution Facility or Designated 

Contract Market (June 10, 2016) (‘‘NAL No. 16–58’’); 

CFTC Letter No. 15–24, Re: No-Action Relief for 

Swap Execution Facilities and Designated Contract 

Markets in Connection with Swaps with 

Operational or Clerical Errors Executed on a Swap 

Execution Facility or Designated Contract Market 

(Apr. 22, 2015) (‘‘NAL No. 15–24’’); and CFTC 

Letter No. 13–66, Time-Limited No-Action Relief 

for Swap Execution Facilities from Compliance 

with Certain Requirements of Commission 

Regulation 37.9(a)(2) and 37.203(a) (Oct. 25, 2013) 

(initial relief provided by Commission staff with 

respect to error trades that are rejected from 

clearing)(‘‘NAL No. 13–66’’). NAL No. 17–27 also 

applies to swap transactions occurring on a DCM. 

See supra note 2. In addition, DMO released NAL 

No. 20–01, which supplements the conditions in 

NAL No. 17–27 to allow market participants, sua 

sponte, to correct error trades that have been 

accepted to clearing with an ex post facto review 

by the SEF. NAL No. 20–01, Re: Supplemental NoAction Relief for Swap Execution Facilities and 

Designated Contract Markets in Connection with 

Swaps with Operational or Clerical Errors Executed 

on a Swap Execution Facility or Designated 

Contract Market (Jan. 8, 2020). 

Further, NAL 17–27 and NAL 20–01 also apply 

to operational or clerical errors occurring on a DCM. 

See supra note 2. 

16The following entities submitted comment 

letters: Citadel; The Futures Industry Association 

(‘‘FIA’’); IHS Markit (‘‘Markit’’); International 

Energy Credit Association (‘‘IECA’’); International 

Swaps and Derivatives Association, Inc. (‘‘ISDA’’); 

and ICAP Global Derivatives Limited (‘‘IGDL’’) and 

tpSEF, Inc. (‘‘tpSEF’’) (collectively the ‘‘TP ICAP 

SEFs’’). In addition, the Commission received five 

letters from Better Markets; Carnegie Mellon; Chris 

Barnard; Foreign Exchange Professionals 

Association (‘‘FXPA’’); and Massachusetts Institute 

of Technology (‘‘MIT’’) that commented exclusively 

on proposals that were addressed in the 2020 Part 

43 Final Rules. As such, they are not addressed 

further in this rulemaking. See 2020 Part 43 Final 

Rules. 

17 Dodd-Frank Act, Public Law 111–203, title VII, 

sec. 712(a)(1), 124 Stat. 1376 (2010). 

18See supra note 12. The Commission notes that 

there are transactions that otherwise meet the 

package transaction definition but do not involve a 

swap subject to the trade execution requirement. 

While these transactions may colloquially be 

referred to as package transactions, the Commission 

notes that such transactions are not the subject of 

these final rules. 

19See infra note 29 for a more precise description 

of various package transactions. 

To the extent that counterparties may be 

facilitating package transactions that involve a 

‘‘security,’’ as defined in section 2(a)(1) of the 

Securities Act of 1933 or section 3(a)(10) of the 

Securities Exchange Act of 1934, or any component 

agreement, contract, or transaction over which the 

Commission does not have exclusive jurisdiction, 

the Commission does not opine on whether such 

activity complies with other applicable law and 

regulations. 

20Some non-swap components may be subject to 

different regulatory requirements than the swap 

components in the package transactions. 

21For example, while a swap that is subject to the 

trade execution requirement is suitable to be 

executed through the required methods of 

execution as an outright transaction, when that 

same swap is bundled together with an illiquid and 

bespoke component in a package transaction, the 

package transaction takes on the liquidity and 

trading profile of the illiquid and bespoke 

component. 

22For example, a market participant seeking to 

execute two component transactions independent 

of one another, instead of executing the two 

components together in a package transaction, 

would be forced to pay the bid/offer spread on each 

leg, which in many cases is more costly and less 

efficient than paying the single bid/offer spread for 

a package transaction composed of the same two 

components. 

23See supra note 12. Consistent with the 

definition of package transaction under § 37.9(d) the 

Commission notes that, unless otherwise stated, the 

term ‘‘swap component(s)’’ as used herein refers to 

a swap component that is subject to the trade 

execution requirement under CEA section 2h(8), 

and therefore a Required Transaction. 

24As noted above, pursuant to § 37.9(a), SEFs 

must provide as the required methods of execution 

for Required Transactions either an Order Book or 

an RFQ System. 

rules for their markets and 

participants.15

The Commission received six 

comment letters regarding the 

Proposal.16 After considering the 

comments, the Commission is adopting 

the rules as proposed. The Commission 

believes the rules adopted herein will 

decrease execution risks, improve 

efficiency, decrease transaction costs, 

promote operational efficiency, and lead 

to a more effective regulatory framework 

for SEFs. 

C. Consultation With Other U.S. 

Financial Regulators 

In adopting these rules, the 

Commission has consulted with the 

Securities and Exchange Commission, 

pursuant to section 712(a)(1) of the 

Dodd-Frank Act.17

II. Final Rules 

A. Addition of § 37.9(d) and 

Amendment of § 37.9(a) for the 

Execution of Certain Package 

Transactions 

1. Proposed Rules 

Package transactions generally 

involve the execution of multiple 

component transactions together that 

market participants consider to 

represent one economic transaction.18

The types of transactions that constitute 

a package transaction are wide-ranging 

and diverse. In particular, there are 

package transactions that consist solely 

of swaps subject to the trade execution 

requirement; those that include a mix of 

swaps subject to the trade execution 

requirement and swaps that are not; 

those made up of swaps and non-swaps; 

and those comprised of both swaps that 

are and swaps that are not exclusively 

subject to the Commission’s 

jurisdiction.19 These components range 

from being very liquid and standardized 

to being illiquid and bespoke.20 The 

variety of package transactions derives, 

in part, from the fact that the different 

types of package transactions are fit for 

distinct purposes. The Commission 

understands that certain package 

transactions are utilized as tools within 

market participants’ portfolio 

management and hedging programs, 

while other types of package 

transactions are used to allow market 

participants to express views of the 

market—for example, by allowing 

participants to trade the spread between 

certain products or different maturities 

in the same product. 

Given the diverse characteristics of 

the component transactions that may be 

involved, the Commission understands 

that package transactions often pose 

unique pricing and execution 

characteristics. The Commission 

understands that the negotiation or 

arrangement of each of these 

components generally occurs 

concurrently or on a singular basis; in 

particular, negotiations for the pricing of 

such package transactions may be based 

primarily on the components that are 

not subject to the trade execution 

requirement. Further, given the 

individual liquidity and trading 

characteristics of each component, 

certain package transactions will have to 

trade through methods of execution that 

are suitable for an illiquid and bespoke 

component, which in many cases are 

not the required methods of 

execution.21

Notwithstanding the complexity of 

their pricing and execution, the 

Commission is aware of the benefits of 

such package transactions. By executing 

multiple components together as part of 

a package transaction, market 

participants can improve transaction 

pricing and cost, increase execution 

efficiency, and decrease execution risk 

beyond what would have been possible 

if the market participant had executed 

each component individually, i.e., 

‘‘legged’’ or ‘‘legging’’ into the 

transaction.22

During the implementation of the 

trade execution requirement for certain 

interest rate swaps and credit default 

swaps, SEFs and market participants 

informed the Commission that requiring 

swaps that are otherwise Required 

Transactions—but are components of a 

package transaction 23—to be executed 

through the required methods of 

execution 24 under § 37.9 was in many 

cases impracticable and increased 

execution risks and operational 

challenges. Market participants and 


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25See, e.g., NAL No. 14–12 at 2–3 n.10 

(describing the inability of a derivatives clearing 

organization (‘‘DCO’’) to simultaneously screen and 

accept all components of a package transaction for 

clearing). 26See, e.g., CFTC Public Roundtable: Trade 

Execution Requirements and Package Transactions, 

72, 84–85 (Feb. 12, 2014), available at https://

www.cftc.gov/sites/default/files/idc/groups/public/ 

@newsroom/documents/file/transcript021214.pdf 

(commenting on the challenges of applying required 

methods of execution to package transactions with 

complex component swaps). 

27The Commission notes that there are 

transactions which otherwise meet the package 

transaction definition but do not involve a swap 

that is subject to the trade execution requirement. 

While these transactions may colloquially be 

referred to as package transactions, the Commission 

notes that such transactions are not the subject of 

these final rules. See supra note 12. 

28Under § 37.9(d)(3), consistent with the noaction relief, this category specifically excludes 

package transactions in which all non-swap 

components are U.S. Treasury securities (‘‘U.S. 

Dollar Spreadover package transactions’’); MAT/ 

Futures package transactions; package transactions 

in which all other non-swap components are agency 

mortgage-backed securities (‘‘MAT/Agency MBS 

package transactions’’); and New Issuance Bond 

package transactions. See also Section II.A.7— 

Exemption of New Issuance Bond Package 

Transactions from the Trade Execution 

Requirement—Addition of § 36.1. 

To the extent that counterparties may be 

facilitating package transactions that involve a 

‘‘security,’’ as defined in section 2(a)(1) of the 

Securities Act of 1933 or section 3(a)(10) of the 

Securities Exchange Act of 1934, or any component 

agreement, contract, or transaction over which the 

Commission does not have exclusive jurisdiction, 

the Commission does not opine on whether such 

activity complies with other applicable law and 

regulations. 

29The Commission notes that the swap 

components of different categories of package 

transactions have been subject to time-limited noaction relief provided by Commission staff from the 

trade execution requirement and required methods 

of execution. These categories of package 

transactions include those where: (i) Each of the 

components is a swap subject to the trade execution 

requirement (‘‘MAT/MAT package transactions’’); 

(ii) at least one of the components is subject to the 

trade execution requirement and each of the other 

components is subject to the clearing requirement 

(‘‘MAT/Non-MAT (Cleared)’’); (iii) U.S. Dollar 

Spreadover package transactions; (iv) MAT/Agency 

MBS package transactions; (v) New Issuance Bond 

package transactions; (vi) MAT/Futures package 

transactions; (vii) MAT/Non-MAT (Uncleared); 

(viii) excluding aforementioned categories, MAT/ 

Non-Swap Instruments; and (ix) MAT/NonExclusive CFTC Swap. See NAL No. 14–12; NAL 

No. 14–62; NAL No. 14–121; NAL No. 14–137; NAL 

No. 15–55; NAL No. 16–76; NAL No. 17–55; and 

NAL No. 20–31. 

Subsequently, the swap components of the 

following categories of package transactions were 

no longer provided relief: MAT/MAT package 

transactions, MAT/Non-MAT (Cleared) package 

transactions, U.S. Dollar Spreadover package 

transactions, and MAT/Agency MBS package 

transactions. As a result, the swap components of 

these package transactions must be executed 

through the required methods of execution under 

§ 37.9(a). 

Currently, the swap components of the following 

categories of package transactions receive no-action 

relief from the required methods of execution under 

§ 37.9 pursuant to NAL No. 20–31: (i) MAT/NonMAT (Uncleared) package transactions; (ii) MAT/ 

Non-Swap Instruments package transactions 

(subject to the exclusions previously discussed); 

and (iii) MAT/Non-Exclusive CFTC Swap package 

transactions. The addition of § 37.9(d) is consistent 

with the relief from the required methods of 

execution under NAL No. 20–31. Within section II, 

the term ‘‘relevant package transactions,’’ unless 

context requires otherwise, refers to these three 

categories of package transactions. 

In addition to the relief from the required 

methods of execution in § 37.9(a), NAL No. 20–31 

also provides relief from the trade execution for the 

swap components of MAT/Futures package 

transactions and New Issuance Bond Package 

transactions. As discussed above, the Commission 

is still evaluating MAT/Futures package 

transactions. See supra note 13. 

Further, as discussed in more detail below, the 

Commission is exempting the swap components of 

New Issuance Bond package transactions from the 

trade execution requirement. This is consistent with 

the relief currently provided to New Issuance Bond 

package transactions under NAL No. 20–31. To the 

extent that counterparties may be facilitating 

package transactions that involve a ‘‘security,’’ as 

defined in section 2(a)(1) of the Securities Act of 

1933 or section 3(a)(10) of the Securities Exchange 

Act of 1934, or any component agreement, contract, 

or transaction over which the Commission does not 

have exclusive jurisdiction, the Commission does 

not opine on whether such activity complies with 

other applicable law and regulations. 

30Citadel at 1–2; IHS Markit at 8; IECA at 1–4; 

ISDA at 1; and TP ICAP SEFs at 1–3. 

31 ISDA at 1. 

32Citadel at 1–2. 

SEFs informed the staff and the 

Commission that these risks and 

challenges generally reflect (i) an initial 

lack of market infrastructure available to 

trade and clear certain package 

transactions; 25 and (ii) the complex, 

bespoke, and idiosyncratic nature of 

several categories of package 

transactions that precluded them from 

being suitable for execution through 

required methods of execution.26

Since the Division of Market 

Oversight’s (DMO’s) issuance of this noaction relief, the Commission has gained 

considerable knowledge and experience 

with the dynamics of the trading of 

package transactions, particularly with 

respect to the existing no-action relief 

from the required methods of execution. 

Based on this knowledge and 

experience, the Commission believed 

that certain aspects of the current 

requirements for the required methods 

of execution under § 37.9 should be 

enhanced to better account for the 

complex nature of the relevant package 

transactions. 

As a result, in the Proposal the 

Commission proposed to add § 37.9(d) 

and amend § 37.9(a)(2) to permit the 

swap components of certain package 

transactions to be executed via flexible 

methods of execution pursuant to 

§ 37.9(c)(2). The Commission proposed 

to define a ‘‘package transaction’’ as a 

transaction consisting of two or more 

component transactions executed 

between two or more counterparties 

where: (i) At least one component 

transaction is a Required Transaction; 

(ii) execution of each component 

transaction is contingent upon the 

execution of all other component 

transactions; and (iii) the component 

transactions are priced or quoted 

together as one economic transaction 

with simultaneous or near-simultaneous 

execution of all components.27 Based on 

this proposed definition and consistent 

with existing no-action relief, the 

Commission proposed to allow the 

Required Transaction swap component 

of the following three categories of 

package transactions to be executed via 

flexible means of execution pursuant to 

§ 37.9(c)(2): 

(1) A package transaction where at 

least one of the components is a swap 

exclusively within the Commission’s 

jurisdiction that is not subject to the 

clearing requirement (‘‘MAT/Non-MAT 

Uncleared’’); 

(2) A package transaction where at 

least one of the components is not a 

swap (excluding certain package 

transaction categories as discussed 

below) (‘‘MAT/Non-Swap 

Instrument’’); 28 and 

(3) A package transaction where at 

least one of the components is a swap 

for which the CFTC does not have 

exclusive jurisdiction, e.g., a mixed 

swap (‘‘MAT/Non-Exclusive CFTC 

Swap’’).29

2. Public Comment 

Citadel, IHS Markit, IECA, ISDA, and 

the TP ICAP SEFs generally support the 

proposed addition of § 37.9(d) and 

amendment of § 37.9(a)(2) to permit the 

swap components of certain package 

transactions to be executed via flexible 

methods of execution pursuant to 

§ 37.9(c)(2).30

In particular, ISDA commends the 

Commission for codifying no-action 

relief, such as the package transaction 

relief, as it will ‘‘will reduce operational 

and compliance uncertainty, enhance 

efficiency, and improve regulatory 

oversight.’’ 31

Citadel notes that the transition of 

package transactions from no-action 

relief to SEF trading has: (i) ‘‘improved 

pricing and liquidity as SEFs offer 

access to more competitive and 

transparent trading with a greater 

number of liquidity providers;’’ (ii) 

‘‘enhanced market stability and integrity 

given the monitoring and surveillance 

capabilities of SEFs;’’ and (iii) ‘‘reduced 

operational risk through the pre-trade 

credit check and straight-throughprocessing requirements that are 

applicable to SEF trades.’’ 32 Citadel 

believes that such benefits would be 

threatened if the scope of package 

transactions eligible for flexible 

execution methods were expanded, 


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33 Id. at 2. 

34 Id. 

35TP ICAP SEFs at 2. 

36 Id. 

37 Id. at 3. 

38 Id. 

39 IECA at 4. 

40 Id. 

41Citadel at 2. 

42 ISDA at 1–2. 

43 IECA at 5. Further, IECA requested clarification 

that uncleared bilateral swaps that are permitted 

transactions, in particular such swaps that include 

a counterparty that has elected the end-user or 

affiliate exceptions under CEA section 2(h)(7), ‘‘are 

exempt from the prohibition against pre-arranged 

trading.’’ See IECA at 7. The Commission did not 

propose any changes to the pre-arranged trading 

prohibition in § 37.203(a) in the Proposal. 

Accordingly, § 37.203(a) continues to apply, as 

applicable, to such transactions. 

44 ISDA at 2. 

45TP ICAP SEFs at 4–5. 

46Citadel at 1–2; IHS Markit at 8; IECA at 1–4; 

ISDA at 1; and TP ICAP SEFs at 1–3. The 

Commission is also re-designating existing § 37.9(d) 

to § 37.9(f) in order to keep the rules setting forth 

permissible execution methods in § 37.9 grouped 

together. In conjunction with re-designating 

existing § 37.9(d) to § 37.9(f), the Commission is 

making ministerial edits to correct internal cross 

references in re-designated § 37.9(f). 

47See IHS Markit at 8. 

48The Commission will continue to evaluate 

these categories of package transactions for new 

developments in execution methods on SEFs and 

may in the future revise the categories of package 

transactions in which the swap component is 

eligible to be executed through flexible means of 

execution. 

49See ISDA at 1, TP ICAP SEFs 2–3, and IECA 

4. 

such as altering block treatment for 

package transactions that have 

successfully transitioned onto SEFs.33

However, Citadel supports codifying the 

remaining no-action relief for the ‘‘small 

number of categories’’ of package 

transactions as proposed in the 

Proposal.34

The TP ICAP SEFs believe that the 

proposed rules for package transactions 

strike ‘‘an appropriate balance between 

the ’utility of package transactions 

against the policy goals of the trade 

execution requirement’[.]’’ 35 The TP 

ICAP SEFs support the increased 

flexibility for execution methods for 

swap components of the relevant 

package transactions ‘‘to be executed 

on-SEF through flexible means of 

execution pursuant to proposed Rule 

37.9(c)(2), rather than through the 

required methods of execution under 

Commission Rule 37.9. . . .’’ 36 The TP 

ICAP SEFs support allowing SEF trades 

to be executed through any means of 

interstate commerce.37 As such, the TP 

ICAP SEFs believe that Proposal for 

package transactions brought the SEF 

‘‘regime closer to the flexible framework 

envisioned by Congress in 2010, and 

will assist in the liquidity formation and 

trade execution of package transactions, 

further promoting the trading of swaps 

on SEFs.’’ 38

Similarly, IECA supports flexible 

methods of execution for package 

transactions.39 IECA believes that 

allowing flexible methods of execution 

for package transactions ‘‘will encourage 

SEFs to develop new and innovative 

trade execution methods’’ for package 

transactions and the development of 

new and innovative execution methods 

may result in commercial end-users and 

their hedging affiliates executing more 

transactions on SEFs.40

The Commission received two 

comments regarding MAT/Future 

package transactions. Citadel 

recommends that the Commission work 

to bring MAT/Futures package 

transactions onto SEFs to bring ‘‘greater 

price transparency to market 

participants.’’ 41 However, ISDA 

recommends that MAT/Futures package 

transactions be exempted from the 

Trade Execution Requirement.42

The Commission received one 

comment, from IECA, requesting that 

the Commission clarify that § 37.203(a)’s 

prohibition of pre-arranged trading does 

not apply to package transactions.43

ISDA requested that the Commission 

reevaluate the process for determining 

the scope of the trade execution (‘‘MAT 

Process’’) requirement in order to permit 

SEFs and market participants ‘‘to 

modify the scope of contracts subject to 

the trade execution requirement, which 

is particularly important during times of 

increased market stress.’’ 44

Finally, the TP ICAP SEFs requested 

that the Commission adopt other 

Commission staff no-action letters not 

included in the Proposal.45

3. Commission Determination 

The Commission is adopting the 

addition of § 37.9(d) and amendment of 

§ 37.9(a)(2) to permit the swap 

components of certain package 

transactions to be executed via flexible 

methods of execution pursuant to 

§ 37.9(c)(2) as proposed and as was 

supported by commenters.46 While, as 

noted above and commented on by 

Citadel, the swap components of several 

types of package transactions have been 

successfully transitioned to SEFs and 

are executed via the required methods 

of execution, the Commission believes, 

and agrees with IHS Markit, that the 

types of package transactions covered by 

this final rulemaking are not suitable to 

be traded through the required methods 

of execution due to their specific 

characteristics.47 In particular, the 

Commission recognizes that these 

package transactions contain 

components that are illiquid and 

bespoke, such as swaptions, or contain 

components that are subject to 

regulatory requirements other than or in 

addition to the CEA and the 

Commission’s regulations issued 

thereunder.48

The Commission believes that if 

market participants are unable to utilize 

flexible methods of execution for the 

swap components of these package 

transactions, they would potentially be 

forced to break the package transaction 

into its individual components, 

otherwise known as ‘‘legging’’ into the 

transaction. The Commission 

understands from market participants 

that legging into a package transaction is 

inefficient and increases transaction 

costs and execution risks. Given that 

components of package transactions are 

each priced or quoted together as part of 

one economic transaction, the 

Commission recognizes the 

impracticality of breaking the package 

transaction into individual legs or 

components in order to trade the swap 

components via the required methods of 

execution under § 37.9(a). 

Based on its experience with the 

existing no-action relief and supported 

by commenters, the Commission 

believes that the addition of § 37.9(d) 

and amendment of § 37.9(a) will allow 

market participants to choose the most 

suitable execution method for their 

package transactions, which will 

decrease execution risks, improve 

efficiency, and decrease transaction 

costs because market participants will 

no longer be forced to leg into 

transactions.49 Given the inherent 

complexity of the relevant package 

transactions, the Commission believes 

that this final rule ensures that market 

participants are able to trade these 

package transactions in the most 

effective, efficient, transparent, and 

economical manner. As a result of this 

final rulemaking, SEFs will be able to 

offer, and market participants would be 

able to utilize, methods of execution 

that best suit the characteristics of the 

relevant package transaction being 

traded. The Commission believes this 

will help preserve the benefits and 

purpose of executing such package 

transactions. 

In addition to causing inefficient 

execution and increasing risks and cost, 

forcing the swap components of the 

relevant package transactions through 

required methods of execution may also 

limit the commercial utility of such 

transactions or entirely frustrate the 

purposes of entering in such package 

transactions in the first place. For 

example, the Commission understands 

that in some of the relevant package 


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50See TP ICAP SEFs at 3. See also 7 U.S.C. 7b– 

3(e). 

51Further, while the final rules also provide 

flexibility from the required methods of execution 

that are otherwise intended to help promote pretrade transparency on SEFs, the Commission notes 

that permitting market participants to use flexible 

methods of execution is consistent with how 

package transactions are treated within other 

jurisdictions. For example, in the European Union 

(‘‘EU’’), certain package transactions (including 

package transactions for which the Commission 

currently requires the swap component to be 

executed through the required methods of 

execution, such as U.S. Dollar Spreadover package 

transactions) are eligible to be waived from the EU’s 

transparency regime. The Commission believes that 

these final rules strike an appropriate balance 

between promoting pre-trade transparency and 

ensuring that U.S. markets and their participants 

are not unnecessarily burdened. See Regulation 

(EU) 2016/1033 of the European Parliament and of 

the Council of 23 June 2016 amending Regulation 

(EU) No 600/2014 on markets in financial 

instruments, Regulation (EU) No 596/2014 on 

market abuse and Regulation (EU) No 909/2014 on 

improving securities settlement in the European 

Union and on central securities depositories, 

Commission Delegated Regulation (EU) 2017/2194 

of 14 August 2017 supplementing Regulation (EU) 

No 600/2014 of the European Parliament and of the 

Council on markets in financial instruments with 

regard to package orders, and Commission 

Delegated Regulation (EU) 2017/583 of 14 July 2016 

supplementing Regulation (EU) No 600/2014 of the 

European Parliament and of the Council on markets 

in financial instruments with regard to regulatory 

technical standards on transparency requirements 

for trading venues and investment firms in respect 

of bonds, structured finance products, emission 

allowances and derivatives. The Commission 

further believes that in this regard, these final rules 

further the establishment of consistent international 

standards with respect to the regulation of swaps 

as directed by Congress in the Dodd-Frank Act. See 

Section 752(a) of the Dodd-Frank Act, supra. 

52See IECA at 4. 

53See Citadel at 1–2. 

54See id. In response to Citadel’s comment that 

the scope of package transactions eligible to be 

executed through flexible methods of execution 

should not be expanded, such as altering the 

treatment of block package transactions, the 

Commission notes that it did not propose any 

changes related to the treatment of block package 

transactions. Therefore, the Commission is taking 

no action related to the treatment of block package 

transactions in these final rules. 

55The Commission notes the MAT/Futures 

package transactions continue to fall within the 

bounds of current Commission staff relief provided 

in NAL No. 20–31 for MAT/Futures package 

transactions. 

56See IECA at 5. 

57However, such swap components of package 

transactions may still be executed subject to the 

requirements of § 37.9(b)(1). 17 CFR 37.9(b)(1). 

58See 17 CFR 37.203(a). 

59 ISDA at 1–2. 

60See TP ICAP SEFs at 4–5. 

transactions, (i) the swap component 

serves as the hedging instrument to 

other instruments in the package 

transaction, or (ii) the package 

transaction as a whole may be utilized 

as part of a market participant’s 

portfolio management program. If the 

swap component of such package 

transactions were impractical or unable 

to be executed due to the required 

methods of execution, market 

participants would be prevented from 

entering or effectively entering into the 

package transaction, nullifying the 

package transaction’s purpose and 

benefits as a hedging and portfolio 

management tool. Based on its 

experience with the existing no-action 

relief, the Commission believes that 

these final rules will allow market 

participants to utilize flexible methods 

of execution for the swap component of 

the relevant package transaction, 

thereby ensuring that market 

participants are able to continue to 

utilize these effective hedging tools. 

Further, the Commission agrees with 

the TP ICAP SEFs that these final rules 

will advance the SEF statutory goal of 

promoting trading on SEFs.50 These 

final rules provide relief from execution 

method requirements that are generally 

intended to help promote trading on 

SEFs.51 However, the swap components 

of the relevant package transactions are 

not suitable for trading via such 

required methods of execution, as 

discussed above. Accordingly, the 

Commission believes that in this case 

flexibility with respect to execution 

methods will better promote trading of 

such component swaps on SEFs, 

consistent with the statutory SEF goals. 

In addition, the Commission agrees with 

IECA that flexible methods of execution 

for the swap components of the package 

transactions in these final rules may 

encourage SEFs to develop new and 

innovative methods of executions.52

The Commission agrees with Citadel 

that the transition of the swap 

components of package transactions 

from no-action relief to SEF trading has: 

(i) Improved pricing and liquidity as 

SEFs offer access to more competitive 

and transparent trading with a greater 

number of liquidity providers; (ii) 

enhanced market stability and integrity 

given the monitoring and surveillance 

capabilities of SEFs; and (iii) reduced 

operational risk through the pre-trade 

credit check and straight-throughprocessing requirements that are 

applicable to SEF trades.53 Therefore, 

the Commission agrees with Citadel that 

the swap components of package 

transactions not currently subject to 

existing no-action relief should continue 

to be subject to the required methods of 

executions under § 37.9(a).54

In response to Citadel and ISDA’s 

comments regarding MAT/Futures, as 

noted above, the Commission notes that 

it did not propose any regulations 

related to MAT/Futures package 

transactions and is continuing to 

evaluate the regulatory treatment of 

MAT/Futures package transactions. 

Therefore, the Commission declines to 

adopt any regulations related to MAT/ 

Futures package transactions in this 

release.55 IECA asked the Commission 

to clarify that package transactions are 

not subject to the pre-arranged trading 

ban in § 37.203(a).56 The Commission 

did not propose to change any 

requirements related to pre-arranged 

trading in the Proposal. However, the 

Commission makes clear that the 

requirements in § 37.203(a) apply to the 

swap components of package 

transactions. While not suitable for 

swap components of package 

transactions that have successfully 

transitioned onto SEF,57 the 

Commission does note that for swap 

components of package transactions 

subject to this final rule—MAT/NonMAT Uncleared, MAT/Non-Swap 

Instrument, and MAT/Non-Exclusive 

CFTC Swap—the existing pre-arranged 

trading prohibition already provides an 

exception by allowing a SEF to adopt 

trading practices that are certified or 

approved by the Commission pursuant 

to part 40 of the Commission’s 

regulations.58 Accordingly, the 

Commission anticipates that a SEF 

would implement final § 37.9(d) by selfcertifying or adopting rules subject to 

Commission review under part 40 that 

specify the manner in which 

counterparties may execute the swap 

components of MAT/Non-MAT 

Uncleared, MAT/Non-Swap Instrument, 

and MAT/Non-Exclusive CFTC Swap 

package transactions. 

The Commission acknowledges 

ISDA’s comment regarding amending 

the MAT Process to allow modification 

of the swaps that are subject to the trade 

execution requirement, especially 

during times of market stress.59

However, the Commission did not 

propose any amendments to the MAT 

Process in the Proposal. Further, the 

Commission believes that such a 

substantive change should be subject to 

notice and comment rulemaking. 

Therefore, the Commission declines to 

adopt ISDA’s suggested amendment to 

the MAT process at this time. 

Further, the Commission 

acknowledges the TP ICAP SEFs’ 

request that the Commission evaluate 

adopting additional no-action relief that 

was not proposed to be codified in the 

Proposal.60 The Commission will 

evaluate whether there is additional noaction relief that is currently 

outstanding that should be codified but 

declines to codify at this time without 

further notice and comment any noaction relief that was not proposed to be 

codified in the Proposal. 


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61The Commission notes that upon the effective 

date of these rules, the addition of § 37.9(d) and 

amendment of § 37.9(a)(2), as well as the adoption 

of § 37.3(a)(4) as discussed below, will negate the 

need for the relief provided in NAL No. 20–31 for 

MAT/Non-MAT Uncleared, MAT/Non-Swap 

Instrument, and MAT/Non-Exclusive CFTC Swap 

package transactions. 62However, the Proposal did not alter any 

requirement applicable to such swap components to 

the extent they are executed in transactions that 

were not package transactions covered by the 

Proposal. The text of proposed § 37.3(a)(4) made 

clear that § 37.3(a)(2) of the Commission’s 

regulations would continue to apply to such swap 

components and SEFs would be required to offer 

Order Books for these Required Transactions as 

outright transactions. 

63CEA section 1a(16) defines ‘‘electronic trading 

facility’’ as a trading facility that (i) operates by 

means of an electronic or telecommunications 

network; and (ii) maintains an automated audit trail 

of bids, offers, and the matching of orders or the 

execution of transactions on the facility. 7 U.S.C. 

1a(16). 64CEA section 1a(51) defines ‘‘trading facility’’ as 

‘‘a person or group of persons that constitutes, 

maintains, or provides a physical or electronic 

facility or system in which multiple participants 

have the ability to execute or trade agreements, 

contracts, or transactions (i) by accepting bids or 

offers made by other participants that are open to 

multiple participants in the facility or system; or (ii) 

through the interaction of multiple bids or multiple 

offers within a system with a pre-determined nondiscretionary automated trade matching and 

execution algorithm.’’ 7 U.S.C. 1a(51)(A). 

65 17 CFR 37.3(a)(3). 

66See Citadel at 1–2; IHS Markit at 8; IECA at 2– 

4; ISDA at 1; and TP ICAP SEFs at 1–3. The TP 

ICAP SEFs based part of their support on the idea 

that Permitted Transactions ‘‘[do] not require an 

Order Book under the Commission’s regulations.’’ 

TP ICAP SEFs at 3. Out of an abundance of caution, 

the Commission notes that while Permitted 

Transactions are not required to be executed 

through Order Books or RFQ Systems, as part of the 

§ 37.9(a)’s required methods of execution, SEF’s are 

still required to provide Order Books for permitted 

transactions as part of the minimum trading 

functionality requirements in § 37.3(a)(2). 

67However, these final rules do not alter any 

requirement applicable to such swap components to 

the extent they are executed in transactions that are 

not package transactions covered by this 

amendment. The text of § 37.3(a)(4) makes clear that 

§ 37.3(a)(2) of the Commission’s regulations 

continues to apply to such swap components and 

SEFs would be required to offer Order Books for 

these Required Transactions as outright 

transactions. 

68See section II.A.—Addition of § 37.9(d) and 

Amendment of § 37.9(a) for the Execution of Certain 

Package Transactions. 

69The Commission notes that nothing in these 

final rules would preclude a SEF from offering an 

Order Book if it is able to develop an Order Book 

solution that is effective in trading the swap 

component of the relevant package transactions. 

70See supra note 61. 

Therefore, for the reasons stated 

above, the Commission is adopting the 

addition of § 37.9(d) and amendment of 

§ 37.9(a)(2) to permit the swap 

components of certain package 

transactions to be executed via flexible 

methods of execution pursuant to 

§ 37.9(c)(2) as proposed.61

B. Addition of § 37.3(a)(4) 

1. Proposed Rule 

In the Proposal, the Commission 

proposed to add § 37.3(a)(4) to allow 

SEFs not to offer an Order Book for the 

swap components of the following 

package transactions: (i) MAT/NonMAT Uncleared package transactions; 

(ii) MAT/Non-Swap Instrument package 

transactions; and (iii) MAT/NonExclusive CFTC Swap package 

transactions.62

An Order Book is one of the two 

required methods of execution under 

§ 37.9(a). The Commission designated 

an Order Book as the ‘‘minimum trading 

functionality’’ each SEF must maintain 

and offer for each swap that it lists for 

trading. An Order Book is defined under 

§ 37.3(a)(3) as (i) an electronic trading 

facility; 63 (ii) a trading facility; 64 or (iii) 

a trading system or platform in which 

all market participants in the trading 

system or platform have the ability to 

enter multiple bids and offers, observe 

or receive bids and offers entered by 

other market participants, and transact 

on such bids and offers.65

Generally speaking, it may be 

complex to apply the existing Order 

Book requirement in § 37.3(a)(2) to the 

swap components of the package 

transactions covered by this proposed 

amendment. In some situations, 

§ 37.3(a)(2) may require that a SEF 

maintain separate Order Books for the 

same type of swap: One Order Book for 

when the swap is executed as a single 

transaction (referred to as an ‘‘outright 

transaction’’), and a separate Order Book 

for when the swap is executed as part 

of a package transaction. In fact, 

multiple Order Books could be required 

for the same type of swap if it were 

included as part of multiple types of 

package transactions. The Commission 

understands that, in part because of the 

availability of relief under the staff 

letters described above, SEFs have put 

in place relatively few Order Books for 

swaps to be executed as part of the 

package transactions covered by the 

Proposal, and any such Order Books in 

place are not actively used. 

2. Public Comment 

Citadel, IECA, ISDA, and the TP ICAP 

SEFs generally support the codification 

of existing relief for package 

transactions which includes relief from 

having to provide an Order Book for (i) 

MAT/Non-MAT Uncleared package 

transactions; (ii) MAT/Non-Swap 

Instrument package transactions; and 

(iii) MAT/Non-Exclusive CFTC Swap 

package transactions.66

3. Commission Determination 

The Commission agrees with 

commenters and is adopting § 37.3(a)(4) 

as proposed to allow SEFs not to offer 

an Order Book for the swap components 

of the following package transactions: (i) 

MAT/Non-MAT Uncleared package 

transactions; (ii) MAT/Non-Swap 

Instrument package transactions; and 

(iii) MAT/Non-Exclusive CFTC Swap 

package transactions.67 As noted 

above,68 executing Required 

Transaction swap components of certain 

package transactions through the 

required methods of execution is 

operationally complex, and in many 

instances, impracticable. Given that the 

Commission continues to believe that it 

is infeasible or inefficient to facilitate 

swap components of these package 

transactions through the required 

methods of execution, which includes 

an Order Book under § 37.3(a), it 

logically follows that requiring SEFs to 

offer an Order Book for the swap 

components of package transactions 

would be superfluous. 

Finally, the Commission believes that 

not requiring SEFs to offer an Order 

Book for the swap components of the 

relevant package transactions would 

help reduce operating costs for SEFs, as 

they would no longer be required to 

operate and maintain order book 

systems that are not suitable for trading 

the swap components of the relevant 

package transactions. Instead of 

employing resources to build (or 

attempt to build) and support an unused 

or underutilized Order Book for the 

swap components of certain package 

transactions, the final rules will instead 

provide a SEF with the flexibility to 

determine how to allocate its resources, 

particularly as it relates to developing 

methods of execution that are better 

suited to trading the relevant package 

transactions.69

Therefore, for the reasons stated 

above, the Commission is adopting 

§ 37.3(a)(4) as proposed to allow SEFs 

not to offer an Order Book for the swap 

components of the following package 

transactions: (i) MAT/Non-MAT 

Uncleared package transactions; (ii) 

MAT/Non-Swap Instrument package 

transactions; and (iii) MAT/NonExclusive CFTC Swap package 

transactions.70

C. Exemption of New Issuance Bond 

Package Transactions From the Trade 

Execution Requirement—Addition of 

§ 36.1 

1. Proposed Exemption 

In the Proposal, the Commission 

proposed new rules under part 36 of the 

Commission’s regulations to establish 

an exemption to the trade execution 


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71 7 U.S.C. 6(c). 

72See supra note 29 (describing the no-action 

relief from the trade execution requirement 

provided by Commission staff for categories of 

package transactions). 

73The Commission understands that a bond 

issued and sold in the primary market that may 

constitute part of a package transaction is a 

‘‘security,’’ as defined in section 2(a)(1) of the 

Securities Act of 1933 or section 3(a)(10) of the 

Securities Exchange Act of 1934. To the extent that 

counterparties may be facilitating package 

transactions that involve a security, or any 

component agreement, contract, or transaction over 

which the Commission does not have exclusive 

jurisdiction, the Commission does not opine on 

whether such activity complies with other 

applicable law and regulations. 

74For example, a bond issuer seeks to pay 

variable rates on its bonds, but prospective 

investors may seek a fixed rate of return. By 

arranging a New Issuance Bond package 

transaction, the bond issuer can issue a fixed-rate 

bond and simultaneously enter into an offsetting 

IRS. The IRS enables the issuer to receive a fixed 

rate that matches the fixed rate on its bond to be 

issued, while paying the variable rate that it 

originally sought. Ultimately, this arrangement may 

allow the bond issuer to issue the fixed-rate bond 

at a lower cost. 

75The Commission notes that these types of 

package transactions differ from other package 

transactions that involve the purchase or sale of a 

security in the secondary market, given that they 

involve the issuance of a new security. 

76See NAL No. 20–31 at 2–3. 

77See Section II.A.2. 

78The Commission notes that this definition is 

consistent with the definition for package 

transaction in § 37.9(d)(1). 

79See Citadel at 1–2; IHS Markit at 8; IECA at 2– 

4; ISDA at 1; and TP ICAP SEFs at 1–3. 

80 ISDA at 1–2. 

81 7 U.S.C. 6(c); see also 7 U.S.C. 2(d). 

82House Conf. Report No. 102–978, 1992 

U.S.C.C.A.N. 3179, 3213. 

83The Commission notes that this exemption 

would not apply to swap components of package 

transactions that include sovereign debt, such as 

U.S. Treasury bonds, notes, and bills. 

requirement for swap transactions that 

are components of a ‘‘New Issuance 

Bond’’ package transaction. The 

Commission believes that exempting 

these types of transactions from the 

trade execution requirement is 

authorized by, and would be consistent 

with the objectives of, CEA section 

4(c).71 The Proposal was consistent with 

the time-limited no-action relief 

provided by Commission staff for this 

category of package transactions.72

New Issuance Bond package 

transactions include at least one 

individual swap component that is 

subject to the trade execution 

requirement and at least one individual 

component that is a bond issued and 

sold in the primary market.73 An 

underwriter (on behalf of an issuer) 

arranges the issuance of a bond 

packaged with a fixed-to-floating 

interest rate swap (‘‘IRS’’) that features 

the issuer as a counterparty. The terms 

of the IRS, which include tenor and 

payment terms, typically match the 

terms of the bond issuance. By issuing 

a bond with a fixed-to-floating IRS, 

issuers are able to effectively turn fixedrate liabilities into variable-rate 

liabilities, or vice versa.74 To match the 

terms between these two components 

and facilitate the bond issuance in an 

efficient and cost-effective manner, the 

IRS component is customized and 

negotiated in a manner that closely 

corresponds to the bond issuance 

process. 

Given the process under which the 

swap is negotiated,75 this type of 

package transaction has not been 

conducive to execution on a SEF trading 

system or platform. The Commission 

notes that the no-action relief that has 

been provided by Commission staff for 

these swaps components reflects the 

ongoing lack of an available execution 

method on an appropriate trading 

venue.76 Based on the integral role of 

the bond issuance in facilitating the 

component swap execution, the 

Commission believes that the IRS 

component is not suitable for execution 

on a SEF, even if a SEF were able to 

offer flexible means of execution, as the 

Commission proposed for swap 

components of other package 

transactions in the Proposal.77

Therefore, consistent with current noaction relief provided by Commission 

staff, the Commission proposed to 

exempt swap components of a New 

Issuance Bond package transaction from 

the trade execution requirement within 

new § 36.1. The proposed exemption 

would establish that a ‘‘package 

transaction’’ consists of two or more 

component transactions executed 

between two or more counterparties, 

where (i) at least one component 

transaction is subject to the trade 

execution requirement in section 2(h)(8) 

of the Act; (ii) execution of each 

component transaction is contingent 

upon the execution of all other 

component transactions; and (iii) the 

component transactions are priced or 

quoted together as one economic 

transaction with simultaneous or nearsimultaneous execution of all 

components.78

2. Public Comment 

Citadel, IECA, ISDA, and the TP ICAP 

SEFs generally support the codification 

of existing relief for package 

transactions which includes relief from 

the trade execution requirement for the 

swap components of New Issuance 

Bond package transactions.79

In addition, as noted above, ISDA 

recommends that MAT/Futures package 

transactions be exempted from the 

Trade Execution Requirement.80

3. Commission Determination and 

Discussion of CEA Section 4(c) 

Authority 

Section 4(c) of the CEA grants the 

Commission the authority to exempt 

any transaction or class of transactions, 

including swaps, from certain 

provisions of the CEA, including the 

Commission’s trade execution 

requirement, in order to ‘‘promote 

responsible economic or financial 

innovation and fair competition.’’ 81

Section 4(c)(2) of the CEA further 

provides that the Commission may not 

grant exemptive relief unless it 

determines that: (i) The exemption is 

appropriate for the transaction and 

consistent with the public interest; (ii) 

the exemption is consistent with the 

purposes of the CEA; (iii) the 

transaction will be entered into solely 

between ‘‘appropriate persons;’’ and (iv) 

the exemption will not have a material 

adverse effect on the ability of the 

Commission or any contract market to 

discharge its regulatory or selfregulatory responsibilities under the 

CEA. In enacting section 4(c), Congress 

noted that the purpose of the provision 

is to give the Commission a means of 

providing certainty and stability to 

existing and emerging markets so that 

financial innovation and market 

development can proceed in an effective 

and competitive manner.82

The Commission believes that 

exempting swap components of New 

Issuance Bond package transactions 

from the trade execution requirement is 

consistent with the objectives of CEA 

section 4(c).83 The Commission 

recognizes the inherent challenges in 

trading or executing these swap 

components on a SEF or DCM and, 

therefore, recognizes the benefits of 

continuing to allow market participants 

to maintain established market practices 

with respect to this type of package 

transaction. 

The Commission recognizes the 

importance of new bond issuances in 

helping market participants to raise 

capital and fund origination loans for 

businesses and homeowners. The 

Commission recognizes that allowing 

the swap components of New Issuance 

Bond package transactions to be 

executed away from a SEF or DCM— 

consistent with current market 

practice—is integral to facilitating the 

bond issuance. Further, the Commission 


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84 7 U.S.C. 6(c)(3)(K). 

85See, e.g., Clearing Exemption for Swaps 

Between Certain Affiliated Entities, 78 FR 21750, 

21754 (Apr. 11, 2013). 

86 Id. 

87The Commission notes that upon the effective 

date of these rules, exemption from the trade 

execution requirement for swap components of 

New Issuance Bond package transactions will 

negate the need for the relief provided in NAL No. 

20–31 for New Issuance Bond package transactions. 

88As proposed, an ‘‘error trade’’ would be defined 

as any trade executed on or subject to the rules of 

a swap execution facility that contains an 

operational or clerical error. 

89Citadel at 1–2; IHS Markit at 8; IECA at 2; ISDA 

at 1; and TP ICAP SEFs at 1–4. 

90 ISDA at 1. 

91Citadel at 1. 

92 Id. at 2. 

93 Id. at 3. 

94TP ICAP SEFs at 3. 

recognizes that the exemption is limited 

in nature, i.e., the swap transaction 

remains subject to all other applicable 

Commission rules and regulations. 

Therefore, the Commission believes 

that the exemption from the trade 

execution requirement for swap 

components of New Issuance Bond 

package transactions is appropriate and 

would be consistent with the public 

interest and purposes of the CEA. 

The Commission further believes that 

the regulation would not have a material 

adverse effect on the ability of the 

Commission or any SEF or DCM to 

discharge its regulatory or selfregulatory duties under the CEA. The 

Commission notes that the exemption is 

limited in scope and the swap 

components subject to this exemption 

are still required to be reported to a 

swap data repository pursuant to parts 

43 and 45 of the Commission’s 

regulations. Further, the Commission 

retains its special call, anti-fraud, and 

anti-evasion authorities, which will 

enable it to adequately discharge its 

regulatory responsibilities under the 

CEA. 

The Commission notes that under the 

exemption, swap transactions would 

still be entered into solely between 

eligible contract participants (‘‘ECPs’’), 

whom the Commission determines, for 

purposes of this exemption, to be 

appropriate persons within the scope of 

section 4(c)(3)(K) of the CEA.84 This 

determination is consistent with, and 

rests on the same reasoning of, previous 

Commission determinations that ECPs 

are appropriate persons.85 As the 

Commission has noted, the elements of 

the ECP definition (as set forth in 

section 1a(18)(A) of the CEA and 

Commission regulation 1.3) generally 

are more restrictive than the comparable 

elements of the enumerated 

‘‘appropriate person’’ definition.86

Given that only ECPs are permitted to 

enter into swaps off of a DCM, there is 

no risk that a non-ECP or a person who 

does not satisfy the requirements for an 

‘‘appropriate person’’ could enter into a 

New Issuance Bond package transaction 

using this exemption. Therefore, the 

Commission believes that the class of 

persons eligible to rely on the 

exemption for New Bond Issuance 

package transactions will be limited to 

‘‘appropriate persons’’ within the scope 

of section 4(c)(3) of the CEA. 

For the reasons stated above, the 

Commission is finalizing the exemption 

from the trade execution requirement 

for New Issuance Bond package 

transactions with the addition of new 

§ 36.1.87 In response to ISDA’s comment 

regarding MAT/Futures, as noted above, 

the Commission notes that it did not 

propose any regulations related to MAT/ 

Futures package transactions and is 

continuing to evaluate the regulatory 

treatment of MAT/Futures package 

transactions. As such, the Commission 

declines to adopt any regulations related 

to MAT/Futures package transactions in 

this release. 

D. Error Trades: Execution of Trades To 

Correct Operational and Clerical Errors 

on Swap Execution Facilities—Addition 

of § 37.9(e) 

1. Proposed Rules 

In the Proposal, the Commission 

proposed to amend the SEF regulatory 

framework by adding subsection (e) to 

§ 37.9 to establish a flexible SEF error 

trade policy standard that would, among 

other things, incorporate the intent of 

the existing no-action relief in NAL No. 

17–27 and NAL No. 20–01 for resolving 

errors in Required Transactions. 

Proposed § 37.9(e)(2)(i) requires that a 

SEF must maintain rules and 

procedures that are fair, transparent, 

consistent, and allow for timely 

resolution of an ‘‘error trade,’’ as 

defined under proposed 

§ 37.9(e)(1)(ii).88 The error trade rules in 

the Proposal would apply to any error 

trade that occurs on a SEF, regardless of 

whether the swap is submitted for 

clearing or not. 

Further, proposed § 37.9(e)(2)(i) 

would require SEFs to have error trade 

rules and procedures that require 

market participants to provide prompt 

notice to the SEF of an error trade and, 

as applicable, the corresponding 

correcting trade and offsetting trade. 

The Proposal made clear that this notice 

need not be separate from the error trade 

correction process. 

In the Proposal, for correcting trades 

associated with an error trade that has 

been rejected from clearing, proposed 

§ 37.9(e)(2)(i)(A) would require the SEF 

to submit the correcting trade for 

clearing to the registered DCO or exempt 

DCO as soon as technologically 

practicable, but no later than one hour 

after notice of the rejection to the 

relevant clearing members. For an 

offsetting trade and a correcting trade 

associated with an error trade that 

already has been accepted for clearing, 

proposed § 37.9(e)(2)(i)(B) would 

require the SEF to submit both types of 

trades to the registered DCO or exempt 

DCO as soon as technologically 

practicable, but no later than three days 

after the registered DCO or exempt DCO 

accepted the error trade for clearing. In 

addition to these proposed timeframes, 

proposed § 37.9(e)(2)(ii) would prohibit 

counterparties from executing a second 

correcting trade to fix an error trade if 

the initial correcting trade is rejected 

from clearing. 

2. Public Comment 

Citadel, IHS Markit, IECA, ISDA, and 

the TP ICAP SEFs generally supported 

the Proposal to establish a flexible SEF 

error trade policy standard in 

§ 37.9(e).89

In particular, ISDA commended the 

Commission for codifying no-action 

relief, such as the relief granted for error 

trades, as it ‘‘will reduce operational 

and compliance uncertainty, enhance 

efficiency, and improve regulatory 

oversight.’’ 90

Citadel stated that it supports ‘‘the 

Proposal’s formal codification of the 

remaining no-action relief that allows 

. . . the efficient resolution of error 

trades on SEFs.’’ 91 In particular, Citadel 

supports the codification of the existing 

error trade no-action relief ‘‘which 

enables SEFs and market participants to 

efficiently correct transactions that have 

an operational or clerical error. This 

includes permitting SEFs to allow 

members to quickly correct an error 

trade on their own, with an ex post facto 

review performed by the SEF.’’ 92

Further, Citadel believes it is important 

that ‘‘error trade cancellations and 

corrected trades be properly reported 

pursuant to Parts 43 and 45’’ and 

recommends that the Commission 

address the reporting of error trades in 

the final rules.93

The TP ICAP SEFs support the 

Proposal as it would ‘‘establish a 

principles-based approach for SEF error 

trade policies that incorporates relief 

from the required methods of execution 

under proposed Rule 37.9 for Required 

Transactions for trades intended to 

resolve error trades.’’ 94 The TP ICAP 

SEFs believe the principles-based 

approach provides ‘‘flexibility for SEFs 


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95 Id. 

96 Id. at 3–4. 

97 Id. at 4. 

98 IHS Markit at 8. 

99 IECA at 4. 

100 Id. 

101 Id. at 5. 

102As adopted, an ‘‘error trade’’ would be defined 

as any trade executed on or subject to the rules of 

a SEF that contains an operational or clerical error. 

With respect to ‘‘package transactions,’’ as defined 

under final § 37.9(d)(1), the Commission deems the 

submission of the component transactions in a 

sequence that causes a rejection from clearing of an 

individual component to constitute an operational 

error that could be resolved through a correcting 

trade under final § 37.9(e)(2)(i)(A). Market 

participants had previously informed the 

Commission that an individual component 

transaction may be rejected from clearing if 

prematurely submitted because the risk of that 

component, in isolation, could cause a trader to 

exceed its credit limit. Under a different submission 

sequence of component transactions to the DCO, 

however, the net risk of all of those transactions 

may not have exceeded the credit limit, thereby 

avoiding the rejection. The Commission 

emphasizes, however, the use of a corrective trade 

may only apply to the rejected component and 

otherwise would not apply to the other legs of the 

package transaction that have been accepted for 

clearing. 

103The Commission further reiterates that any 

SEF offering trading in swaps subject to the posttrade name give up prohibition under existing 

§ 37.9(d) (re-designated to § 37.9(f) in this final 

rulemaking. See supra note 46) must ensure its 

rules and procedures for error trades allow for error 

trade remediation without disclosure of the 

identities of counterparties to one another. See PostTrade Name Give-Up on Swap Execution Facilities, 

85 FR 44693, 44701 (July 24, 2020). 

104The Commission notes that swaps that are 

Permitted Transactions, including those that are 

submitted to a DCO for clearing, may already be 

executed through any method of execution offered 

by a SEF pursuant to § 37.9(c)(2). 

105See Citadel at 1–3, IECA at 4, ISDA at 1, and 

TP ICAP SEFs at 3–4. 

106See 7 U.S.C. 7b–3(e). 

to determine the most suitable error 

trade rules for their markets and 

participants.’’ 95 Further, the TP ICAPs 

SEFs believe that the Proposal’s 

approach in providing flexibility that is 

consistent with the SEF core principles 

‘‘is an appropriate approach to 

implementing the related statutory 

provision with the regulatory certainty 

of a Commission rule, while preserving 

discretion for SEFs to formulate the 

specific approach most appropriate for 

their customers.’’ 96

In addition, on the basis that SEF 

participants are sophisticated 

institutions, the TP ICAP SEFs support 

the proposed requirements in 

§ 37.9(e)(2)(i) ‘‘that SEFs must have 

error trade rules and procedures that 

require market participants to provide 

prompt notice to the SEF of an error 

trade and, as applicable, the 

corresponding correcting trade and 

offsetting trade.’’ 97

While IHS Markit commends the 

Commission for codifying the errortrade no-action relief in the Proposal, 

IHS Markit recommended that, 

especially during periods of market 

stress, the ‘‘appropriate timeline for 

submitting correcting trades [should] be 

five (5) business days.’’ 98

IECA supports flexible methods of 

execution for error trades.99 IECA 

believes that allowing flexible methods 

of execution for error trades ‘‘will 

encourage SEFs to develop new and 

innovative trade execution methods’’ for 

error trades and the development of new 

and innovative execution methods may 

result in commercial end-users and their 

hedging affiliates to execute more 

transactions on SEF.100 Further, IECA 

requested that the Commission clarify 

that § 37.203(a)’s prohibition of prearranged trading does not apply to error 

trades.101

3. Commission Determination 

The Commission has determined to 

adopt § 37.9(e) as proposed. Final 

§ 37.9(e)(2)(i) requires that a SEF must 

maintain rules and procedures that are 

fair, transparent, consistent, and allow 

for timely resolution of an ‘‘error trade,’’ 

as defined under § 37.9(e)(1)(ii).102 The 

error trade rules in § 37.9(e) would 

apply to any error trade that occurs on 

a SEF, regardless of whether the swap 

is submitted for clearing or not. 

As adopted, final § 37.9(e) would 

require a SEF to adopt rules to resolve 

error trades that involve swaps 

submitted for clearing. For an error 

trade rejected from clearing and 

therefore deemed void ab initio, final 

§ 37.9(e)(2)(i)(A) would require a SEF to 

permit the counterparties to 

subsequently execute a correcting trade, 

as defined in § 37.9(e)(1)(i), through any 

method of execution offered by the SEF. 

For an error trade that has been 

accepted for clearing, § 37.9(e)(2)(i)(B) 

would require a SEF to permit the 

counterparties to subsequently execute 

both an offsetting trade, as defined in 

§ 37.9(e)(1)(iii), and a correcting trade 

through any method of execution 

offered by the SEF. The Commission 

intends for its principles-based 

approach to provide SEFs with the 

flexibility to implement its error trade 

policy in a manner that is best suited to 

its trading and trade processing 

operations. 

Under the principles-based approach 

adopted in this release, the Commission 

notes that a SEF would not be 

prohibited from incorporating the 

conditions contained within NAL No. 

17–27, or implementing rules that allow 

market participants, sua sponte, to 

correct error trades that have been 

accepted for clearing with an ex post 

facto review by the SEF of the error 

trade, offsetting trade, and correcting 

trade on a T+1 basis as is contemplated 

by NAL No. 20–01. Further, these final 

rules would not preclude SEFs from 

deploying error trade rules and 

procedures which consider whether a 

transaction cancellation or price 

adjustment will adversely impact 

market integrity, facilitate market 

manipulation or other illegitimate 

activity, or otherwise violate the CEA, 

Commission regulations, or the SEF’s 

rules. However, regardless of the error 

trade rules and procedures that a SEF 

may adopt, the Commission notes that 

pursuant to this adopting release such 

rules must be fair, transparent, and 

consistent.103

Further, these final rules provide 

flexibility in the execution methods that 

a SEF may offer to counterparties to 

execute offsetting and correcting trades 

that involve swaps that are Required 

Transactions.104 The Commission agrees 

with commenters that this flexibility 

would promote SEF operational 

efficiency by allowing SEFs to offer 

error trade protocols that are tailored to 

their markets and to allow identification 

and resolution of operational and 

clerical errors in a timely manner.105

Without such flexibility, market 

participants with an error in Required 

Transactions would otherwise be 

prohibited from determining to resolve 

the error between themselves by 

entering into an offsetting trade or a new 

trade with the correct terms due to the 

execution method requirements under 

§ 37.9(a)(2), which require that all 

Required Transactions be traded via 

either an Order Book or RFQ System. 

The Commission also believes that the 

final error trade rules further the SEF 

statutory goals of promoting trading on 

SEFs and pre-trade price transparency 

in the swaps market.106 These final 

rules provide flexibility to depart from 

required execution methods that are 

otherwise intended to advance those 

statutory goals; allowing counterparties 

to correctly and efficiently execute 

swaps with the intended terms and 

conditions, however, enhances market 

integrity on SEFs, which promotes SEF 

participation. Additionally, the 

Commission believes these final rules 

would also help to ensure that trade 

data, which market participants rely 

upon to inform their swaps trading 

decisions, accurately reflects prevailing 

market pricing at any given time. 

The Commission agrees with Citadel 

that properly reporting error trade 

cancellations and correcting trades 

pursuant to parts 43 and 45 is 


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107 Id. at 3. 

108See IHS Markit at 8. 

109See id. 

110To the extent a SEF implements error trade 

rules and procedures that allow market participants 

to correct error trades sua sponte with an ex post 

facto review by the SEF, that SEF must require that 

market participants notify it of the subsequent 

correcting and offsetting trades. Conversely, a SEF 

that adopts error trade rules and procedures in 

which the SEF is responsible for correcting the error 

trade, that SEF would not be required to have 

market participants notify it of the subsequent 

correcting and offsetting trades. Regardless of the 

type of error trade rules and procedures a SEF 

adopts, it is required to adopt rules and procedures 

which require its market participants to provide 

prompt notice to it of an error trade that has 

occurred on its trading system(s) or platform(s). 

111See 17 CFR 37.203(b); 17 CFR 37.203(e). 

112See IECA at 5. 

113See 17 CFR 37.203(a). 

114The Commission notes that upon the effective 

date of these rules, the adoption of § 37.9(e) will 

negate the need for the relief provided in NAL No. 

17–27 and NAL No. 20–01. 

115 5 U.S.C. 601 et seq. 

116 47 FR 18618–18621 (Apr. 30, 1982). 

117SEF Core Principles Final Rule, 78 FR 33476, 

33548 (June 4, 2013) (citing 47 FR 18618, 18621 

(Apr. 30, 1982) (discussing DCMs); 66 FR 42256, 

42268 (Aug. 10, 2001) (discussing derivatives 

transaction execution facilities, exempt commercial 

markets, and exempt boards of trade); and 66 FR 

45604, 45609 (Aug. 29, 2001) (discussing registered 

DCOs)). 

118 17 CFR 37.703. 

important.107 The Commission notes 

that the reporting requirements for error 

trade cancellations, correcting trades, 

and offsetting trades will depend upon 

the error trade rules that SEFs adopt 

under this principles-based approach. 

However, regardless of the error trade 

rules that are adopted by a SEF, the 

Commission wants to make clear that 

SEFs and market participants are 

responsible for ensuring that they 

comply with their respective reporting 

requirements in parts 43 and 45 of the 

Commission’s regulations. 

The final rules adopted in 

§ 37.9(e)(2)(i) specify timeframes for 

executing and submitting correcting and 

offsetting trades for clearing. In 

particular, as noted above, for correcting 

trades associated with an error trade 

that has been rejected from clearing, 

§ 37.9(e)(2)(i)(A) would require the SEF 

to submit the correcting trade for 

clearing to the registered DCO or exempt 

DCO as soon as technologically 

practicable, but no later than one hour 

after notice of the rejection to the 

relevant clearing members. For an 

offsetting trade and a correcting trade 

associated with an error trade that 

already has been accepted for clearing, 

final § 37.9(e)(2)(i)(B) requires the SEF 

to submit both types of trades to the 

registered DCO or exempt DCO as soon 

as technologically practicable, but no 

later than three days after the registered 

DCO or exempt DCO accepted the error 

trade for clearing. 

IHS Markit recommended that 

correcting trades have up to five days to 

be submitted to clearing.108 IHS Markit 

thought a five-day submission period 

was particularly important during times 

of market stress.109 The Commission 

notes that IHS Markit does not provide 

or offer any support or background on 

why a five-day submission period is 

more appropriate then the timeframes 

proposed by the Commission in the 

Proposal. The Commission believes that 

the timeframes adopted in this release 

are consistent with the goal of 

promoting straight-through processing. 

The timing requirements are intended to 

provide a SEF and the counterparties to 

an error trade with an appropriate 

amount of time to identify and resolve 

error trades, while also minimizing 

delays to achieving prompt and efficient 

clearing of transactions. Therefore, the 

Commission declines to adopt IHS 

Markit’s recommendation that 

correcting trades have up to five days to 

be submitted to clearing. 

Further, final § 37.9(e)(2)(i) would 

require SEFs to have error trade rules 

and procedures that require market 

participants to provide prompt notice to 

the SEF of an error trade and, as 

applicable, the corresponding correcting 

trade and offsetting trade.110 Such 

notice need not be separate from the 

error trade correction process. 

The Commission agrees with the TP 

ICAP SEFs that SEFs should have error 

trade rules and procedures that require 

market participants to provide prompt 

notice to the SEF of an error trade and, 

as applicable, the corresponding 

correcting trade and offsetting trade. 

The Commission believes that such a 

requirement is important to facilitate 

SEFs’ fulfillment of their self-regulatory 

obligations. In particular, the 

Commission believes that providing a 

SEF prompt notice that an error trade 

has occurred on its trading system(s) or 

platform(s) will further enable it to 

facilitate direct supervision of its 

markets in order to determine whether 

a rule violation has occurred as required 

under § 37.203(b), as well as enhance its 

ability to carry out real-time market 

monitoring of all trading activity on its 

system(s) or platform(s) to identify 

disorderly trading and any market or 

system anomalies pursuant to 

§ 37.203(e).111

Final § 37.9(e)(2)(ii) would prohibit 

counterparties from executing a second 

correcting trade to fix an error trade if 

the initial correcting trade is rejected 

from clearing. The Commission believes 

that limiting the number of instances in 

which counterparties may attempt to 

correct an error trade will help to 

facilitate prompt and efficient clearing 

by incentivizing the counterparties to 

accurately execute their correcting trade 

as quickly as possible. 

IECA requests that the Commission 

clarify that application of the prearranged trading prohibition under 

Commission regulation 37.203(a).112

The Commission notes that the existing 

prohibition already provides an 

exception to that prohibition by 

allowing a SEF to adopt trading 

practices that are certified or approved 

by the Commission pursuant to part 40 

of the Commission’s regulations.113

Accordingly, the Commission 

anticipates that a SEF would implement 

final § 37.9(e) by self-certifying or 

adopting rules subject to Commission 

review under part 40 that specify the 

manner in which counterparties may 

execute offsetting and correcting trades. 

Therefore, for the reasons stated 

above, the Commission is adopting 

§ 37.9(e) as proposed.114

III. Effective Date 

The Commission proposed an 

effective date for the Proposal to be 60 

days after publication of final 

regulations in the Federal Register. The 

Commission received no comments 

regarding the effective date. Therefore, 

the Commission is adopting an effective 

date for these rules for 60 days after 

publication of final regulations in the 

Federal Register. The Commission 

believes that such an effective date 

allows SEFs and market participants 

sufficient time to adapt to the amended 

and additional rules in an efficient and 

orderly manner. 

IV. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) 115 requires Federal agencies, in 

promulgating regulations, to consider 

the impact of those regulations on small 

businesses. The regulations adopted 

herein will affect SEFs and their market 

participants. The Commission has 

previously established certain 

definitions of ‘‘small entities’’ to be used 

by the Commission in evaluating the 

impact of its regulations on small 

entities in accordance with the RFA.116

The Commission previously concluded 

that SEFs are not small entities for the 

purpose of the RFA.117 The Commission 

has also previously stated its belief in 

the context of relevant rulemakings that 

SEFs’ market participants, which are all 

required to be ECPs 118 as defined in 


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119 7 U.S.C. 1(a)(18). 

120 66 FR 20740, 20743 (Apr. 25, 2001) (stating 

that ECPs by the nature of their definition in the 

CEA should not be considered small entities). 

121See 44 U.S.C. 3502(3)(A). 

122See 44 U.S.C. 3501. 

123See 44 U.S.C. 3502(3). 

124See 5 CFR 1320.3(c)(1). 

125 7 U.S.C. 19(a). 

126 In its discussion of cost-benefit considerations, 

the Commission believes it is also relevant to 

consider the costs and benefits of the final 

regulations in comparison to circumstances in 

which such no-action relief has expired and is no 

longer available. The Commission further notes that 

in connection with NAL No. 16–58 and its 

extension NAL No. 17–27 (relief related to clerical 

or operational error trade resolution), market 

participants specifically requested that the 

Commission undertake rulemakings to establish a 

permanent solution for addressing these clerical 

and operational errors, rather than merely 

extending the previous NAL relief. See NAL No. 

16–58 and NAL No 17–27. In contrast, previous 

requests for no-action relief from market 

participants for the NALs which preceded NAL 

No.16–58 and NAL No. 17–27 were merely for 

temporary relief. 

127Section 2(i)(1) applies the swaps provisions of 

both the Dodd-Frank Act and Commission 

regulations promulgated under those provisions to 

activities outside the United States that have a 

direct and significant connection with activities in, 

or effect on, commerce of the United States. 7 

U.S.C. 2(i)(1). Section 2(i)(2) makes them applicable 

to activities outside the United States that 

contravene Commission rules promulgated to 

prevent evasion of Dodd-Frank. 

section 1a(18) of the CEA,119 are not 

small entities for purposes of the 

RFA.120 The Commission received no 

comment on whether SEFs and SEF 

market participants covered by these 

final rules should be considered small 

entities for the purpose of the RFA. 

Therefore, the Chairman, on behalf of 

the Commission, hereby certifies, 

pursuant to 5 U.S.C. 605(b), that the 

regulations will not have a significant 

economic impact on a substantial 

number of small entities. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act of 

1995, 44 U.S.C. 3501 et seq. (‘‘PRA’’) 

imposes certain requirements on 

Federal agencies (including the 

Commission) in connection with 

conducting or sponsoring any 

‘‘collection of information,’’ 121 as 

defined by the PRA. Among its 

purposes, the PRA is intended to 

minimize the paperwork burden to the 

private sector, to ensure that any 

collection of information by a 

government agency is put to the greatest 

possible use, and to minimize 

duplicative information collections 

across the government.122

The PRA applies to all information, 

regardless of form or format, whenever 

the government is obtaining, causing to 

be obtained, or soliciting information, 

and includes required disclosure to 

third parties or the public, of facts or 

opinions, when the information 

collection calls for answers to identical 

questions posed to, or identical 

reporting or recordkeeping requirements 

imposed on, ten or more persons.123 The 

PRA requirements have been 

determined to include not only 

mandatory, but also voluntary 

information collections, and include 

both written and oral 

communications.124 The Commission 

may not conduct or sponsor, and a 

person is not required to respond to, a 

collection of information unless it 

displays a currently valid Office of 

Management and Budget (‘‘OMB’’) 

control number. 

This final rulemaking contains 

collections of information for which the 

Commission has previously received 

control numbers from OMB. The titles 

for these collections of information are 

‘‘Core Principles and Other 

Requirements for Swap Execution 

Facilities, OMB control number 3038– 

0074’’ and ‘‘Part 40, Provisions Common 

to Registered Entities, OMB control 

number 3038–0093.’’ This final 

rulemaking would not impose any new 

information collection requirements 

from any persons or entities that require 

approval of OMB under the PRA. 

C. Cost-Benefit Considerations 

Section 15(a) of the CEA 125 requires 

the Commission to consider the costs 

and benefits of its actions before 

promulgating a regulation under the 

CEA or issuing certain orders. Section 

15(a) further specifies that the costs and 

benefits shall be evaluated in light of 

five broad areas of market and public 

concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness, and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

Commission considers the costs and 

benefits resulting from its discretionary 

determinations with respect to the 

section 15(a) factors. 

1. Background 

The Commission is amending certain 

rules in parts 36 and 37 of its 

regulations relating to the execution of 

the swap components of certain package 

transactions on SEFs and the resolution 

of error trades on SEFs. 

The baseline against which the 

Commission considers the costs and 

benefits of these final rules is the 

statutory and regulatory requirements of 

the CEA and Commission regulations 

now in effect, in particular CEA section 

5h and certain rules in part 37 of the 

Commission’s regulations. The 

Commission, however, notes that as a 

practical matter SEFs and market 

participants have adopted some current 

practices based upon no-action relief 

provided by Commission staff that is 

time-limited in nature.126 As such, to 

the extent that SEFs and market 

participants have relied on relevant staff 

no-action letters, the actual costs and 

benefits of the final rules as realized in 

the market may not be as significant. 

In some instances, it is not reasonably 

feasible to quantify the costs and 

benefits to SEFs and certain market 

participants with respect to certain 

factors, for example, market integrity. 

Notwithstanding these types of 

limitations, however, the Commission 

otherwise identifies and considers the 

costs and benefits of these rules in 

qualitative terms. The Commission did 

not receive any comments from 

commenters which quantified or 

attempted to quantify the costs and 

benefits of the Proposal. 

The following consideration of costs 

and benefits is organized according to 

the rules and rule amendments 

proposed in this release. For each rule, 

the Commission summarizes the 

amendments, identifies and discusses 

the costs and benefits attributable to 

such rule, and identifies and discusses 

alternatives that the Commission 

considered. The Commission, where 

applicable, then considers the costs and 

benefits of the final rules in light of the 

five public interest considerations set 

out in section 15(a) of the CEA. 

The Commission notes that this 

consideration of costs and benefits is 

based on the understanding that the 

swaps market functions internationally, 

with many transactions involving U.S. 

firms taking place across international 

boundaries, with some Commission 

registrants being organized outside of 

the United States, with leading industry 

members typically conducting 

operations both within and outside the 

United States, and with industry 

members commonly following 

substantially similar business practices 

wherever located. Where the 

Commission does not specifically refer 

to matters of location, the discussion of 

costs and benefits below refers to the 

effects of the final rules on all swaps 

activity subject to the amended 

regulations, whether by virtue of the 

activity’s physical location in the 

United States or by virtue of the 

activity’s connection with activities in, 

or effect on, U.S. commerce under CEA 

section 2(i).127


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128Note prong (i) of the package transaction 

definition in § 37.9(d)(1) states ‘‘at least one 

component transaction is a Required Transaction’’ 

which is substantively the same as prong (i) of the 

definition used above. 

129Under final § 37.9(d)(3), consistent with the 

no-action relief, this category specifically excludes 

U.S. Dollar Spreadover package transactions; MAT/ 

Futures package transactions, MAT/Agency MBS 

package transactions; and New Issuance Bond 

package transactions. 130See supra note 51. 

131For example, the swap component may be a 

forwarding-starting swap whose start date 

corresponds to the issuance date of the bond. 

Forward starting swaps are not currently subject to 

the trade execution requirement. 

2. Package Transactions 

The Commission is adding § 37.9(d) 

and amending § 37.9(a)(2) to permit the 

swap components of certain package 

transactions to be executed via flexible 

methods of execution pursuant to 

§ 37.9(c)(2). The final rules define a 

‘‘package transaction’’ as a transaction 

consisting of two or more component 

transactions executed between two or 

more counterparties where (i) at least 

one component transaction is subject to 

the trade execution requirement in 

section 2(h)(8) of the Act; 128 (ii) 

execution of each component 

transaction is contingent upon the 

execution of all other component 

transactions; and (iii) the component 

transactions are priced or quoted 

together as one economic transaction 

with simultaneous or near-simultaneous 

execution of all components. Based on 

this definition and consistent with 

existing no-action relief, the final rule 

allows the swap component of the 

following three categories of package 

transactions to be executed via flexible 

means of execution pursuant to 

§ 37.9(c)(2): (1) MAT/Non-MAT 

Uncleared package transactions; (2) 

MAT/Non-Swap Instrument package 

transactions; 129 and (3) MAT/NonExclusive CFTC Swap package 

transactions. 

In addition, the Commission is 

relieving the swap components of these 

three types of package transactions from 

the requirement in § 37.3 that the SEF 

offer an Order Book for every swap 

listed for trading on the SEF, while 

continuing to require that SEFs offer an 

Order Book for outright transactions in 

every swap listed for trading on the SEF. 

Finally, the Commission is using its 

exemptive authority pursuant to CEA 

section 4(c) to exempt swap transactions 

that are executed as a component of a 

package transaction that includes a 

component that is a new issuance bond 

from the trade execution requirement 

under section 2(h)(8) of the Act. 

Benefits: The final rule will allow 

market participants to choose the most 

suitable execution method for each 

package transaction and will allow SEFs 

to continue to offer flexible execution 

methods for these package transactions 

rather than only offer the required 

methods of execution for swaps subject 

to the trade execution requirement. The 

Commission expects this will reduce 

execution risks, improve efficiency, and 

decrease transaction costs as market 

participants will be able to avoid legging 

into transactions, that is, entering into 

each part of the package separately. The 

Commission notes that these benefits 

are currently available to market 

participants through existing no-action 

relief. The Commission further believes 

that the final rule will provide the 

liquidity and transparency benefits of 

increased trading of component swaps 

on SEFs, as without this flexibility, 

market participants would be unable or 

unwilling to trade such swap 

components through SEFs’ required 

methods of execution.130

The Commission believes that not 

requiring SEFs to offer an Order Book 

for the swap components of the three 

types of relevant package transactions 

will benefit SEFs by helping them to 

reduce operating costs, as they will no 

longer be required to operate and 

maintain an Order Book for trading 

those swaps that are components of 

those package transactions. However, 

SEFs will need to retain the availability 

of Order Books for those swaps executed 

as outright transactions. 

Further, as discussed above, given the 

illiquid and bespoke nature of various 

components within the relevant package 

transactions, the Commission 

acknowledges that the Order Book is not 

the ideal method of execution for many 

of such transactions. Therefore, the 

Commission anticipates that if SEFs are 

not required to provide an Order Book 

for the swap components of the relevant 

package transactions that are not 

suitable for Order Book trading, SEFs 

will be able to more effectively employ 

their resources, and no longer face the 

prospect of being required to provide 

Order Books that will not be utilized 

given the complex, illiquid, and 

bespoke nature of various components 

of the relevant package transactions. 

The Commission believes that 

exempting swap transactions that are 

executed as a component of a package 

transaction that includes a component 

that is a new issuance bond from the 

trade execution requirement will ensure 

that market participants such as bond 

underwriters and issuers can continue 

to execute these packages (where the 

new-issuance bond is hedged by an 

interest rate swap with tenor and 

payment terms that typically match the 

terms of the bond issuance) off-SEF. As 

discussed above, this exemption may 

facilitate new bond issuances, which 

may benefit capital formation by 

helping market participants to raise 

capital and fund origination loans for 

businesses and homeowners. Moreover, 

in light of the involvement of the bond 

issuer and the underwriter in arranging 

and executing a package transaction in 

conjunction with a new issuance bond 

and the unique negotiation and fit-forpurpose nature of these package 

transactions, the Commission 

understands that it remains difficult or 

impossible to trade these package 

transactions on a SEF. SEFs have not 

been able to design an execution 

method suitable for this particular type 

of package, rendering it impracticable to 

execute these packages on-SEF. While 

the swap components of many swap/ 

new-issuance bond packages executed 

today are not currently subject to the 

trade execution requirement,131 the final 

rule will ensure that those transactions 

would remain exempt in the event the 

trade execution requirement is 

expanded to include more types of 

swaps. 

Costs: The amendments to allow 

flexible execution methods for certain 

package transactions and the exemption 

for package transactions that include a 

new issuance bond should not impose 

costs on market participants since they 

only provide flexibility to market 

participants and do not require them to 

change their current trade practices. 

Moreover, to the extent that market 

participants are relying on existing noaction relief, they can continue to 

implement existing industry practice. 

The Commission believes that current 

SEF rules typically allow participants to 

utilize flexible execution methods 

pursuant to the existing no-action relief, 

but to the extent that SEFs need to 

modify their rules to incorporate the 

amendments, they may incur modest 

costs. 

As noted, not requiring SEFs to offer 

an Order Book for the swap components 

of the relevant package transactions may 

enable SEFs to reduce operating costs. 

Since any existing Order Books for swap 

components of the relevant package 

transactions are not actively used and 

are not practicable for market 

participants to use, removing these 

Order Books (and not requiring SEFs to 

create such Order Books) should not 

impose significant costs on market 

participants. 


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82326 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 

Section 15(a) Factors 

a. Protection of Market Participants and 

the Public 

The Commission believes that the 

amendments and exemption will protect 

market participants from the risks 

associated with legging into the relevant 

packages by enabling market 

participants to enter into package 

transactions using appropriate 

execution methods. Permitting SEFs to 

eliminate the Order Book for use when 

swaps are components of the relevant 

package transactions should not impact 

protection of market participants. While 

protecting market participants also 

benefits the public, the Commission has 

not identified any further effect of the 

final rules on protection of the public. 

b. Efficiency, Competitiveness, and 

Financial Integrity of the Markets 

The amendments will enhance 

efficiency by enabling market 

participants to continue to execute the 

swap components of the relevant 

packages in a single transaction with an 

appropriate execution method, rather 

than via the inefficient process of 

legging into the package one component 

at a time. The amendments will also 

enhance financial integrity by enabling 

market participants to continue to avoid 

the execution risk associated with 

potential adverse price movements 

while attempting to leg into a 

transaction. The Commission has not 

identified any likely effects of the final 

rule amendments on competition in the 

swap markets. The Commission expects 

that, since there are few, if any, active 

Order Books for swaps as components of 

the relevant package transactions, SEFs 

will not use final § 37.3(a)(4) to remove 

active Order Books that are providing 

competitive markets. 

c. Price Discovery 

Package transactions are typically 

executed at a single price for the entire 

package, rather than at the prices of the 

individual components. The 

amendments will continue to allow the 

relevant package transactions to be 

executed using the execution methods 

that are designed to facilitate price 

discovery in these packages. For 

packages that include new issuance 

bonds, the exemption will permit price 

discovery to occur at the appropriate 

venue. The Commission believes that 

§ 37.3(a)(4), which exempts swaps that 

are part of the relevant package 

transactions from the Order Book 

requirement, will not materially inhibit 

price discovery since the Commission 

anticipates that SEFs would retain 

Order Books where price discovery is 

occurring and that currently price 

discovery is not occurring in Order 

Books for swap components of the 

package transactions addressed within 

this final rule. 

d. Sound Risk Management Practices 

The Commission believes that the 

final rules will continue to promote 

sound risk management by facilitating 

the execution of package transactions as 

market participants consider package 

transactions to often be useful and 

appropriate instruments for 

management and transfer of risk and to 

avoid the execution risks associated 

with legging of transactions. 

e. Other Public Interest Considerations 

The exemption from the trade 

execution requirement for the swap 

components of packages involving new 

issuance bonds may help promote 

capital formation by facilitating the 

issuance of bonds to raise capital. The 

Commission has not identified any 

other effect of the final rules and 

exemption regarding package 

transactions on other public interest 

considerations. 

3. Error Trades 

The Commission is adding subsection 

(e) to § 37.9 to establish a flexible SEF 

error trade policy standard that, among 

other things, incorporates the intent of 

the existing no-action relief in NAL No. 

17–27 for resolving errors in Required 

Transactions. Final § 37.9(e)(2)(i) 

specifies that a SEF must maintain rules 

and procedures that are ‘‘fair, 

transparent, consistent’’ and ‘‘allow for 

timely resolution’’ of an ‘‘error trade,’’ 

as defined under final § 37.9(e)(1)(ii). 

This standard applies to any error trade 

that occurs on a SEF, regardless of 

whether or not the swap is submitted for 

clearing. Further, under final 

§ 37.9(e)(2)(i), SEFs must have error 

trade rules and procedures that require 

that market participants provide prompt 

notice to the SEF of an error trade and, 

as applicable, correcting and offsetting 

trades. 

Final § 37.9(e) also requires a SEF to 

adopt rules to resolve error trades that 

involve swaps submitted for clearing. 

For an error trade rejected from clearing 

and therefore deemed void ab initio, 

final § 37.9(e)(2)(i)(A) requires a SEF to 

permit the counterparties to 

subsequently execute a correcting trade, 

as defined in § 37.9(e)(1)(i), through any 

method of execution offered by the SEF. 

For an error trade that has been 

accepted for clearing, final 

§ 37.9(e)(2)(i)(B) requires a SEF to 

permit the counterparties to 

subsequently execute both an offsetting 

trade, as defined in final § 37.9(e)(1)(iii), 

and a correcting trade through any 

method of execution offered by the SEF. 

The final rule includes some 

limitations that are similar to the 

existing no-action relief, including 

specified timeframes for executing and 

submitting these trades for clearing. For 

correcting trades associated with an 

error trade that has been rejected from 

clearing, final § 37.9(e)(2)(i)(A) requires 

the SEF to submit the correcting trade 

for clearing to the registered DCO or 

exempt DCO as soon as technologically 

practicable, but no later than one hour 

after notice of the rejection to the 

relevant clearing members. For an 

offsetting trade and a correcting trade 

associated with an error trade that 

already has been accepted for clearing, 

final § 37.9(e)(2)(i)(B) requires the SEF 

to submit both types of trades to the 

registered DCO or exempt DCO as soon 

as technologically practicable, but no 

later than three days after the registered 

DCO or exempt DCO accepted the error 

trade for clearing. In addition to these 

timeframes, final § 37.9(e)(2)(ii) 

prohibits counterparties from executing 

a second correcting trade to fix an error 

trade if the initial correcting trade is 

rejected from clearing. 

However, the final rule does not 

include certain additional conditions 

applicable to SEFs and counterparties 

that are contained in the no-action relief 

under NAL No. 17–27 or NAL No. 20– 

01. For example, the no-action relief in 

NAL No. 17–27 requires that a SEF must 

make an affirmative finding that an 

alleged error trade has occurred and 

must have rules setting forth the 

procedures for making such a finding. 

Benefits: Absent the adoption of these 

rules, both SEFs and market participants 

would need to comply with the existing 

Commission regulations, 

notwithstanding the significant 

procedural and logistical difficulties of 

doing so. In particular, market 

participants would have to resolve error 

trades in Required Transactions using 

the Order Book or RFQ System, which 

would likely make it impossible to 

recreate the trade as originally intended. 

These difficulties could dissuade SEFs 

from being actively involved in the error 

trade resolution process and market 

participants from executing swaps on a 

SEF. The Commission believes that the 

final rule will avoid these potential 

difficulties. 

The Commission believes that, given 

that the amendments are largely 

consistent with current industry 

practice, SEFs and market participants 

may likely have already realized much 

of the benefit of final § 37.9(e). The 

Commission believes, however, that the 


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132The Commission notes that a robust error 

trade resolution policy is also consistent with an 

effective compliance and oversight program because 

the ability to resolve error trades (i) helps protect 

market integrity by unwinding certain error trades 

that otherwise would have an adverse effect on the 

market and (ii) promotes legal certainty by ensuring 

that market participants obtain the economic 

position in the transaction that they intended. 

133 In light of the flexibility of the final rules, 

SEFs can continue to require such an affirmative 

declaration if they determine that such requirement 

provides benefits to market participants or the SEF. 

final rules additionally will provide a 

tangible benefit to market participants 

on a longer-term basis by allowing 

market participants to continue utilizing 

policies and protocols which the 

Commission understands most SEFs 

adopted in reliance upon the relief 

provided in existing no-action letters to 

resolve error trades. 

The requirement under § 37.9(e)(2)(i) 

that market participants provide prompt 

notice to a SEF of an error trade and, as 

applicable, the corresponding correcting 

trade and offsetting trade will benefit 

SEFs in carrying out their self-regulatory 

obligations. In particular, the 

Commission believes that providing 

SEFs prompt notice that an error trade 

has occurred on their trading system(s) 

or platform(s) will enhance their ability 

to carry out real-time market monitoring 

of all trading activity on their system(s) 

or platform(s) to identify disorderly 

trading and any market or system 

anomalies or violations of SEF rules. 

The Commission also believes that the 

amendments will facilitate the goal of 

promoting consistency in the swaps 

market with respect to how errors are 

evaluated and resolved. First, the 

amendments will require all SEFs to 

adopt such policies. To the extent SEFs 

have not yet implemented such policies, 

the amendments will benefit market 

participants who will now be able to 

correct error trades and avoid related 

economic losses. Further, market 

participants can obtain the benefit of 

executing a swap transaction that 

corrects an error trade with the terms 

originally intended. 

Finally, some SEFs have already 

implemented robust error trade 

resolution policies pursuant to existing 

no-action relief, while other SEFs have 

not implemented robust error trade 

policies. This inconsistency among 

SEFs could otherwise cause a ‘‘race to 

the bottom’’ for SEFs’ compliance and 

market oversight, as certain market 

participants may prefer SEFs with less 

stringent error trade policies. As a 

result, SEFs that have implemented 

robust error trade policies—and the 

swaps market in general—will benefit 

by eliminating this potential ‘‘race to the 

bottom,’’ and the Commission will 

underscore the importance of SEF 

market oversight by adopting such 

requirements in Commission 

regulations.132

Costs: Similar to the conditions 

established by Commission staff in timelimited no-action relief, the 

amendments would require SEFs to 

establish rules implementing various 

policies and procedures for resolving 

error trades. Under the final rules, SEFs 

must submit new rules to the 

Commission pursuant to part 40 of the 

Commission’s regulations. However, the 

Commission understands that pursuant 

to the existing no-action relief, most 

SEFs currently have rules that otherwise 

comply with the adopted regulations. 

SEFs may choose to adjust their rules in 

light of the absence in the final rules of 

the requirement in the no-action relief 

that SEFs affirmatively determine that 

an error trade has occurred.133 To the 

extent that SEFs must draft and submit 

new rules to the Commission, the 

Commission estimates that the costs 

will be modest. 

The Commission believes that the 

amendments will not impose significant 

additional costs on market participants 

and intermediaries, because resolving 

error trades is inherently costly 

regardless of regulations imposed by the 

Commission, and market participants 

and intermediaries are currently subject 

to SEF policies and procedures. The 

requirement that market participants 

provide prompt notice to a SEF of an 

error trade and, as applicable, the 

correcting trade and offsetting trade will 

impose modest costs on market 

participants. In practice, though, market 

participants have likely needed to report 

error trades to SEFs in order to facilitate 

SEF determinations that an error trade 

has occurred pursuant to NAL No. 17– 

27, and would have had to report the 

correcting trade and offsetting trade in 

order to facilitate the SEF’s ex post facto 

review pursuant to NAL No. 20–01. Not 

requiring that a SEF find that an error 

trade has occurred either before it has 

been resolved or via an ex post facto 

review should impose only minor costs 

on market participants associated with 

changes in procedures to no longer 

request that a SEF make such a 

determination. 

The Commission notes that NAL No. 

17–27 and NAL No. 20–01 apply to both 

SEFs and DCMs, but the final rule 

applies only to SEFs. Therefore, the 

Commission believes that the final rule 

will impose no costs on DCMs, and 

notes that no DCM is currently availing 

itself of the no-action relief. 

Section 15(a) Factors 

a. Protection of Market Participants and 

the Public 

The addition of § 37.9(e) regarding 

error trades will protect market 

participants and the public by providing 

SEFs with greater authority under 

Commission regulations to resolve error 

trades. Further, by providing SEFs with 

the authority to permit counterparties to 

execute correcting trades and offsetting 

trades, the final rule amendments will 

protect market stability and 

transparency by preventing potential 

losses to market participants in 

connection with error trades and 

reducing instances in which market 

participants rely on inaccurate pricing 

information to inform their trading 

decisions. The addition of § 37.9(e) will 

also promote greater transparency of the 

error trade resolution process to SEFs’ 

market participants as SEFs will be 

required to establish policies and 

procedures for reviewing and 

determining how to resolve alleged error 

trades. The adopted requirement under 

§ 37.9(e)(2)(i) that market participants 

provide prompt notice to a SEF of an 

error trade and, as applicable, the 

correcting trade and offsetting trade will 

promote protection of market 

participants and the public by 

enhancing a SEF’s ability to carry out its 

market oversight and monitoring 

responsibilities. The Commission 

believes that the absence of a 

requirement in the final rule that SEFs 

must affirmatively determine, or 

determine after an ex post facto review, 

that an error trade has occurred (which 

are conditions in the existing no-action 

relief under NAL No. 17–27 and NAL 

No. 20–01) will not materially impact 

the protection of market participants 

and the public. 

b. Efficiency, Competitiveness, and 

Financial Integrity of the Markets 

The addition of § 37.9(e) may improve 

the efficiency and financial integrity of 

markets by enabling counterparties to 

correct operational or clerical errors in 

a swap transaction. In particular, the 

final rules will help promote greater 

trading accuracy in the market by 

allowing counterparties to ultimately 

carry out transactions as originally 

intended, and would avoid unexpected 

trading losses caused by error trades. 

The requirement under § 37.9(e)(2)(i) 

that market participants provide prompt 

notice to a SEF of an error trade and, as 

applicable, the correcting trade and 

offsetting trade would enhance a SEF’s 

ability to carry out its market oversight 

and monitoring responsibilities, which 

helps promote the financial integrity of 


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82328 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 

134As discussed above, commenters did 

recommend several other potential Commission 

actions that are outside the scope of this rulemaking 

and are therefore not addressed in this 

consideration of costs and benefits. Further, 

commenters did not specifically comment on the 

Commission’s consideration of costs and benefits in 

the Proposal. To the extent that comments 

addressed issues bearing on the Commission’s 

consideration of costs and benefits, they are 

discussed above in section II; the cost-benefit 

considerations discussion incorporates previous 

discussion of comments relevant to costs and 

benefits by reference. 

135 IHS Markit at 8. 

its markets. The Commission believes 

that the absence of the no-action 

provision that SEFs must affirmatively 

determine that an error trade has 

occurred could enhance the efficiency 

of the error trade resolution process and 

would not materially impact the 

competitiveness or financial integrity of 

the swap market on SEFs. 

Absent these final rules, 

counterparties would be required in 

certain circumstances to correct or reexecute swap transactions in a less 

efficient and effective manner on a SEF, 

such as through the required methods of 

execution under § 37.9(a). The final 

rules, which also require SEFs to adopt 

certain policies and procedures for 

addressing error trades, should further 

promote efficiency in the resolution 

process by providing market 

participants that transact on multiple 

SEFs with a more consistent approach 

across different platforms for correcting 

error trades. 

c. Price Discovery 

The addition of § 37.9(e) regarding 

error trades will enable SEFs to correct 

error trades containing a clerical or 

operational error while maintaining the 

price discovery benefits associated with 

the pre-trade transparency requirements 

of § 37.9. In particular, the final rules 

will help promote price discovery by 

allowing counterparties, whose original 

trade has been cancelled upon rejection 

from clearing due to a clerical or 

operational error, to re-execute the trade 

with the terms as originally intended. 

For error trades that have been accepted 

by a registered DCO or exempt DCO for 

clearing, the final rules promote greater 

accuracy in the price discovery process 

by allowing the counterparties to correct 

the error trade by executing an offsetting 

swap transaction and a correcting swap 

transaction with the terms as originally 

intended. 

d. Sound Risk Management Practices 

The addition of § 37.9(e) regarding 

error trades may promote sound risk 

management practices by providing 

SEFs with greater authority under 

Commission regulations to facilitate 

error trade resolution. The final rules 

will help to mitigate potential losses to 

market participants arising out of trade 

cancellations, where the error trade is 

rejected from clearing, or arising from 

maintaining the position of an 

unintended error trade. 

e. Other Public Interest Considerations 

The Commission has not identified 

any effect of § 37.9(e) on other public 

interest considerations. 

Consideration of Alternatives. 

Commenters were generally supportive 

of the proposed rules and recommended 

only one viable alternative.134 IHS 

Markit recommended with respect to 

the error trade rules that, especially 

during periods of market stress, the 

‘‘appropriate timeline for submitting 

correcting trades [should] be five (5) 

business days.’’ 135 As discussed above, 

under final § 37.9(e)(2)(i), a SEF must 

submit a correcting trade for clearing to 

the registered DCO or exempt DCO as 

soon as technologically practicable, but 

no later than one hour (if rejected for 

clearing) or three days (if accepted for 

clearing) after notice of the error trade. 

The Commission notes that the final 

rule is the same as the requirements of 

the no-action relief and that SEFs have 

successfully implemented error trade 

procedures consistent with the noaction relief and, thus, the final rule. 

SEFs have not indicated to the 

Commission that the deadlines are 

overly costly or burdensome. Moreover, 

during the recent period of market stress 

associated with the COVID–19 

pandemic, no SEF requested relief from 

the error trade requirements. The 

Commission has therefore determined 

not to adopt the alternative 

recommended by IHS Markit. 

The Commission considered adopting 

new rules identical to the no-action 

relief but determined, based on SEFs’ 

and the Commission’s experience with 

the no-action relief, to adopt changes 

where appropriate relative to the noaction relief. In particular, the final rule 

does not contain the requirement that a 

SEF affirmatively determine that an 

error trade has occurred, either before 

resolution or via an ex post facto 

review. The Commission believes that 

such a requirement would impose 

unnecessary costs on SEFs and market 

participants, and potentially impair the 

efficiency of the error trade resolution 

process. To the extent that SEFs and 

market participants are currently 

availing themselves of current no-action 

relief, they therefore may realize 

reduced costs under the final rule. 

D. Antitrust Considerations 

Section 15(b) of the CEA requires the 

Commission to take into consideration 

the public interest to be protected by the 

antitrust laws and endeavor to take the 

least anticompetitive means of 

achieving the objectives of the CEA, in 

issuing any order or adopting any 

Commission rule or regulation. The 

Commission does not anticipate that the 

amendments to parts 36 and 37 will 

promote or result in anti-competitive 

consequences or behavior. 

List of Subjects 

17 CFR Part 36 

Package transactions, Trade execution 

requirement. 

17 CFR Part 37 

Error trades, Package transactions, 

Required methods of execution, Swap 

execution facilities, Swaps, Trade 

execution requirement. 

For the reasons stated in the 

preamble, the Commodity Futures 

Trading Commission amends 17 CFR 

chapter I as follows: 

■ 1. Revise part 36 to read as follows: 

PART 36—TRADE EXECUTION 

REQUIREMENT 

Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a– 

2, and 7b–3, as amended by Titles VII and 

VIII of the Dodd-Frank Wall Street Reform 

and Consumer Protection Act, Pub. L. 111– 

203, 124 Stat. 1376 (2010). 

§ 36.1 Exemptions to trade execution 

requirement. 

(a) A swap transaction that is 

executed as a component of a package 

transaction that also includes a 

component transaction that is the 

issuance of a bond in a primary market 

is exempt from the trade execution 

requirement in section 2(h)(8) of the 

Act. 

(1) For purposes of paragraph (a) of 

this section, a package transaction 

consists of two or more component 

transactions executed between two or 

more counterparties where: 

(i) At least one component transaction 

is subject to the trade execution 

requirement in section 2(h)(8) of the 

Act; 

(ii) Execution of each component 

transaction is contingent upon the 

execution of all other component 

transactions; and 

(iii) The component transactions are 

priced or quoted together as one 

economic transaction with simultaneous 

or near-simultaneous execution of all 

components. 

(2) [Reserved] 


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(b) [Reserved] 

PART 37—SWAP EXECUTION 

FACILITIES 

■ 2. The authority citation for part 37 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a– 

2, 7b–3, and 12a, as amended by Titles VII 

and VIII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, Pub. L. 

111–203, 124 Stat. 1376. 

■ 3. In § 37.3, add paragraph (a)(4) to 

read as follows: 

§ 37.3 Requirements and procedures for 

registration. 

(a) * * * 

(4) A swap execution facility is not 

required to provide an order book under 

this section for transactions defined in 

§ 37.9(d)(2), (3), and (4), except that a 

swap execution facility must provide an 

order book under this section for 

Required Transactions that are 

components of transactions defined in 

§ 37.9(d)(2), (3), and (4) of this part 

when such Required Transactions are 

not executed as components of 

transactions defined in § 37.9(d)(2), (3), 

and (4). 

* * * * * 

■ 4. Amend § 37.9 by: 

■ a. Revising introductory text of 

paragraph (a)(2)(i); 

■ b. Redesignating paragraph (d) as 

paragraph (f); 

■ c. Adding new paragraphs (d) and (e); 

and 

■ c. Revising newly redesignated 

paragraph (f). 

The additions and revisions read as 

follows: 

§ 37.9 Methods of execution for required 

and permitted transactions. 

(a) * * * 

(2) * * * 

(i) Each Required Transaction that is 

not a block trade as defined in § 43.2 of 

this chapter shall be executed on a swap 

execution facility in accordance with 

one of the following methods of 

execution except as provided in 

paragraph (d) or (e) of this section: 

* * * * * 

(d) Exceptions to required methods of 

execution for package transactions. (1) 

For purposes of this paragraph, a 

package transaction consists of two or 

more component transactions executed 

between two or more counterparties 

where: 

(i) At least one component transaction 

is a Required Transaction; 

(ii) Execution of each component 

transaction is contingent upon the 

execution of all other component 

transactions; and 

(iii) The component transactions are 

priced or quoted together as one 

economic transaction with simultaneous 

or near-simultaneous execution of all 

components. 

(2) A Required Transaction that is 

executed as a component of a package 

transaction that includes a component 

swap that is subject exclusively to the 

Commission’s jurisdiction, but is not 

subject to the clearing requirement 

under section 2(h)(1)(A) of the Act, may 

be executed on a swap execution facility 

in accordance with paragraph (c)(2) of 

this section as if it were a Permitted 

Transaction; 

(3) A Required Transaction that is 

executed as a component of a package 

transaction that includes a component 

that is not a swap, as defined under 

section 1a(47) of the Act, may be 

executed on a swap execution facility in 

accordance with paragraph (c)(2) of this 

section as if it were a Permitted 

Transaction. This provision shall not 

apply to: 

(i) A Required Transaction that is 

executed as a component of a package 

transaction in which all other non-swap 

components are U.S. Treasury 

securities; 

(ii) A Required Transaction that is 

executed as a component of a package 

transaction in which all other non-swap 

components are contracts for the 

purchase or sale of a commodity for 

future delivery; 

(iii) A Required Transaction that is 

executed as a component of a package 

transaction in which all other non-swap 

components are agency mortgagebacked securities; and 

(iv) A Required Transaction that is 

executed as a component of a package 

transaction that includes a component 

transaction that is the issuance of a 

bond in a primary market. 

(4) A Required Transaction that is 

executed as a component of a package 

transaction that includes a component 

swap that is not exclusively subject to 

the Commission’s jurisdiction may be 

executed on a swap execution facility in 

accordance with paragraph (c)(2) of this 

section as if it were a Permitted 

Transaction. 

(e) Resolution of operational and 

clerical error trades. (1) As used in this 

paragraph: 

(i) Correcting trade means a trade 

executed and submitted for clearing to 

a registered derivatives clearing 

organization, or a derivatives clearing 

organization that the Commission has 

determined is exempt from registration, 

with the same terms and conditions as 

an error trade other than any corrections 

to any operational or clerical error and 

the time of execution. 

(ii) Error trade means any trade 

executed on or subject to the rules of a 

swap execution facility that contains an 

operational or clerical error. 

(iii) Offsetting trade means a trade 

executed and submitted for clearing to 

a registered derivatives clearing 

organization, or a derivatives clearing 

organization that the Commission has 

determined is exempt from registration, 

with terms and conditions that 

economically reverse an error trade that 

was accepted for clearing. 

(2) Execution of correcting trades and 

offsetting trades. (i) A swap execution 

facility shall maintain rules and 

procedures that facilitate the resolution 

of error trades. Such rules shall be fair, 

transparent, and consistent; allow for 

timely resolution; require market 

participants to provide prompt notice of 

an error trade—and, as applicable, 

offsetting and correcting trades—to the 

swap execution facility; and permit 

market participants to: 

(A) Execute a correcting trade, in 

accordance with paragraph (c)(2) of this 

section, regardless of whether it is a 

Required or Permitted Transaction, for 

an error trade that has been rejected 

from clearing as soon as technologically 

practicable, but no later than one hour 

after a registered derivatives clearing 

organization, or a derivatives clearing 

organization that the Commission has 

determined is exempt from registration, 

provides notice of the rejection; or 

(B) Execute an offsetting trade and a 

correcting trade, in accordance with 

paragraph (c)(2) of this section, 

regardless of whether it is a Required or 

Permitted Transaction, for an error trade 

that was accepted for clearing as soon as 

technologically practicable, but no later 

than three days after the error trade was 

accepted for clearing at a derivatives 

clearing organization or a derivatives 

clearing organization that the 

Commission has determined is exempt 

from registration. 

(ii) If a correcting trade is rejected 

from clearing, then a swap execution 

facility shall not allow the 

counterparties to execute another 

correcting trade. 

(f) Counterparty anonymity. (1) 

Except as otherwise required under the 

Act or the Commission’s regulations, a 

swap execution facility shall not 

directly or indirectly, including through 

a third-party service provider, disclose 

the identity of a counterparty to a swap 

that is executed anonymously and 

intended to be cleared. 

(2) A swap execution facility shall 

establish and enforce rules that prohibit 

any person from directly or indirectly, 

including through a third-party service 

provider, disclosing the identity of a 


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82330 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 

1See Committee on Capital Markets Regulation, 

The Global Financial Crisis: A Plan for Regulatory 

Reform 55 (May 2009) (With the real-time 

availability of both pre-trade quotes and post-trade 

contract prices, an exchange would thus provide an 

important source of price discovery that would 

complement the OTC market and enhance its 

liquidity.); Federal Reserve Bank of Chicago, 

Derivatives Overview in Understanding Derivatives: 

Markets and Infrastructure 9–11 (2013) (OTC 

markets also exhibit low levels of transparency 

compared with futures markets . . . . Further, OTC 

markets provide limited price discovery; indeed, 

OTC trading relies heavily on price information 

generated by exchange-traded markets.). 

2E.g., J. Christopher Giancarlo, Commissioner, 

CFTC, Pro-Reform Reconsideration of the CFTC 

Swaps Trading Rules: Return to Dodd-Frank (2015). 

CLOBs are the modern computerized exchanges 

that have replaced the open-outcry trading pits of 

yesteryear. 

3Specifically, swaps that are required to be 

centrally cleared must be traded on-SEF unless no 

SEF makes that swap available to trade. Commodity 

Exchange Act (CEA) section 2(h)(8), 7 U.S.C. 

2(h)(8). The swaps that are required to be cleared 

are generally the most standardized and liquid 

classes of swaps. 

4 17 CFR 37.9(a). 

5 Id. section 37.9(c). 

6See, e.g., Lynn Riggs, et al., CFTC, Swap Trading 

after Dodd-Frank: Evidence from Index CDS, at 6, 

52 (Aug. 17, 2019) (finding that SEF-traded index 

credit default swap markets are working relatively 

well following the Dodd-Frank swap trading 

reforms, though there is always room for 

improvement); Evangelos Benos, Richard Payne & 

Michalis Vasios, Centralized Trading, 

Transparency, and Interest Rate Swap Market 

Liquidity: Evidence from the Implementation of the 

Dodd-Frank Act, Bank of England Staff Working 

Paper No. 580, at 31 (May 2018) (finding liquidity 

improvement for swaps subject to the SEF trading 

mandate). 

7CFTC staff has allowed the relief for certain 

package transactions to expire as swaps markets 

and market infrastructure have progressed such that 

the swap component of these package transactions 

counterparty to a swap that is executed 

anonymously and intended to be 

cleared. 

(3) For purposes of paragraphs (f)(1) 

and (2) of this section, ‘‘executed 

anonymously’’ shall include a swap that 

is pre-arranged or pre-negotiated 

anonymously, including by a 

participant of the swap execution 

facility. 

(4) For a package transaction that 

includes a component transaction that is 

not a swap intended to be cleared, 

disclosing the identity of a counterparty 

shall not violate paragraph (f)(1) or (2) 

of this section. For purposes of this 

paragraph, a ‘‘package transaction’’ 

consists of two or more component 

transactions executed between two or 

more counterparties where: 

(i) Execution of each component 

transaction is contingent upon the 

execution of all other component 

transactions; and 

(ii) The component transactions are 

priced or quoted together as one 

economic transaction with simultaneous 

or near-simultaneous execution of all 

components. 

Issued in Washington, DC, on November 

27, 2020, by the Commission. 

Robert Sidman, 

Deputy Secretary of the Commission. 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendices to Swap Execution Facility 

Requirements—Voting Summary and 

Chairman’s and Commissioners’ 

Statements 

Appendix 1—Voting Summary 

On this matter, Chairman Tarbert and 

Commissioners Quintenz, Behnam, Stump, 

and Berkovitz voted in the affirmative. No 

Commissioner voted in the negative. 

Appendix 2—Supporting Statement of 

Chairman Heath P. Tarbert 

I am pleased to support today’s final rule 

amending Part 36 and Part 37 of the CFTC’s 

regulations relating to swaps. These 

amendments codify staff no-action letters in 

two areas: (1) Package transactions and (2) 

error trades. 

Before the 2008 financial crisis, swaps 

were executed bilaterally ‘‘over the counter,’’ 

rather than on a centralized exchange. When 

crafting the Dodd-Frank Act in 2010, 

Congress faced a key decision: Should it 

require swaps to trade like futures, via a 

centralized exchange order book visible to 

the entire market of potential buyers and 

sellers? Or should it retain the old bilateral, 

off-exchange trading practices? 

This was a difficult decision. After all, the 

crisis highlighted the need for more effective 

price discovery in our swaps markets.1 For 

more than a century, centralized exchanges 

have supported price discovery in futures 

products by providing a liquid, transparent 

market for buyers (longs) and sellers (shorts) 

to come together and transact. On the other 

hand, swaps are not futures. Many swaps 

products are executed only episodically 

through the negotiation of bespoke terms. In 

the 1990s and 2000s, this was done primarily 

through brokers and dealers providing quotes 

to one another on the telephone or over 

email. Hence, anonymous electronic trading 

via a central limit order book (CLOB) has not 

been viable for much of the swaps market.2

Even relatively standardized swaps are not 

typically as liquid as futures contracts and 

historically did not trade via the CLOB as 

futures do. 

The Creation of SEFs 

Ultimately, Congress sought a golden mean 

that would balance these competing 

concerns. The Dodd-Frank Act gave birth to 

the concept of swap execution facilities 

(SEFs). SEFs are platforms on which certain 

standardized swaps are required to trade.3

They resemble centralized exchanges, but 

have more flexibility in execution methods to 

accommodate the unique trading 

characteristics of swaps. In this regard, 

Congress took an evolutionary rather than a 

revolutionary approach, recognizing that 

mandating too much change too quickly 

could diminish rather than foster liquidity. 

In implementing this portion of the DoddFrank Act, the CFTC required swaps that 

must be executed on a SEF (on-SEF) to trade 

via the CLOB or a request for quote to at least 

three SEF participants (Required Execution 

Methods or Required Methods).4 By contrast, 

swaps voluntarily traded on-SEF may be 

executed by any method the parties choose.5

The SEF regulatory regime has generally 

worked well.6 But rarely is statutory 

implementation perfect on the first attempt. 

Some requirements are suitable for the swaps 

market as a whole but are not a good fit for 

particular types of transactions. CFTC staff 

has addressed such issues through a series of 

no-action letters, many of which have been 

in place for over six years. With the benefit 

of this experience, now is the time to begin 

codifying these no-action letters, with tweaks 

and refinements where needed. 

Through today’s action, we continue to 

strive for the golden mean that strikes the 

optimal balance between the features of the 

old bilateral swaps world and those of the 

anonymous, exchange-traded futures model. 

In short, we aim to facilitate a natural 

progression toward more standardized and 

liquid products with tighter spreads. At the 

same time, we recognize that certain 

products that benefit the market do not lend 

themselves to the Required Execution 

Methods. 

Package Transactions 

A ‘‘package transaction’’ typically involves 

multiple component financial instruments, to 

be executed simultaneously (or nearly so), 

with each component transaction contingent 

on the others. Pricing for certain components 

of the package is often based on the prices 

of other components. Some components may 

hedge other components. Executing these 

instruments in package form can improve 

execution pricing and efficiency, reduce 

execution costs, and mitigate execution risk, 

as compared with executing each instrument 

separately (known as ‘‘legging’’ into the 

transaction). 

In layman’s terms, a package transaction is 

conceptually similar to booking a flight and 

hotel for an overnight trip. Each booking’s 

utility is contingent on the other—making 

concurrent booking desirable—and there are 

often opportunities to improve cost and 

efficiency by bundling the bookings through 

a travel broker. As a practical matter, the 

derivatives market is no different. 

The final rule approved by the Commission 

today address package transactions that 

include both (1) one or more swaps that are 

required to trade on-SEF pursuant to the 

Required Execution Methods, and (2) one or 

more instruments that are not. The Required 

Execution Methods are suitable for swaps 

required to trade on-SEF, when such swaps 

are executed as standalone transactions. But 

when these swaps are executed as part of a 

package, they often take on the trading 

characteristics of the less-liquid instruments 

in the package, thereby making it unfeasible 

to execute these swaps via the Required 

Methods. 

This is a part of the market that is itself 

evolving.7 However, several types of package 


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can be executed through the required methods of 

execution. See, e.g., CFTC No Action Letter (NAL) 

No. 14–12; NAL No. 14–62; NAL No. 14–121; NAL 

No. 14–137; NAL No. 15–55; NAL No. 16–76; NAL 

No. 17–55. 

8The final rules would also allow any swap that 

is part of a package that also includes a new bond 

issuance to trade off-SEF. 

9E.g., Remarks of CFTC Chairman Heath P. 

Tarbert at the 2019 Annual Robert Glauber Lecture 

at Harvard University’s Institute of Politics (Oct. 24, 

2019). 

10CEA section 5b(f), 7 U.S.C. 7b–3(f) (setting forth 

core principles for SEFs and providing that a SEF 

‘‘shall have reasonable discretion in establishing the 

manner in which [it] complies with the core 

principles’’). 

11Tarbert, supra note 10; Heath P. Tarbert, 

Fintech Regulation Needs More Principles, Not 

More Rules, Fortune (Nov. 19, 2019), https://

fortune.com/2019/11/19/bitcoin-blockchainfintech-regulation-ctfc/. 

12The final rules reiterate that any SEF offering 

trading in swaps subject to the post-trade name 

give-up prohibition must ensure its rules and 

procedures for error trades allow for error trade 

remediation without disclosure of the identities of 

counterparties to one another. See Post-Trade Name 

Give-Up on Swap Execution Facilities, 85 FR 

44693, 44701 (July 24, 2020). 

13See Directive of Chairman Heath P. Tarbert on 

the Use of Staff Letters and Guidance (Oct. 27, 

2020), https://www.cftc.gov/PressRoom/ 

SpeechesTestimony/tarbetstatement102720. 

1These amendments address the relief currently 

provided by CFTC No-Action Letter 17–55 (Oct. 31, 

2017). 

2These amendments address the relief currently 

provided by CFTC No-Action Letters 17–27 (May 

30, 2017) and 20–01 (Jan. 8, 2020). 

3 Definition of SEF in sec. 1a(50) of the 

Commodity Exchange Act. 

4Reg. 37.9(a). 

5Supporting Statement of Commissioner Brian 

Quintenz Regarding Final Rules Amending the 

Real-Time Reporting Requirements, available at: 

https://www.cftc.gov/PressRoom/ 

SpeechesTestimony/quintenzstatement091720b 

transactions would include swaps that must 

trade via the Required Methods under CFTC 

rules, but currently cannot do so as part of 

a package. And it is not clear that they will 

be able to do so in the foreseeable future. 

Accordingly, today’s final rule codifies the 

no-action relief allowing swap components of 

those packages to trade through any 

execution method, provided that the trade 

occurs on-SEF.8 I support this approach 

because it recognizes the progress made 

toward centralized exchange-type trading for 

swaps without forcing the market too far 

ahead of its natural evolutionary process. In 

addition, we must work to ensure our rules 

reflect actual market practice and 

functioning. 

Error Trades 

The CFTC, in accordance with the 

Commodity Exchange Act, has long taken a 

principles-based regulatory approach to the 

futures markets.9 In granting the CFTC 

jurisdiction over swaps, the Dodd-Frank Act 

did not repudiate this principles-based 

tradition, but instead reinforced it. Section 

733 of the Act sets forth core principles for 

SEFs and expressly affords SEFs ‘‘reasonable 

discretion’’ in determining how to comply.10

In this spirit, the amendments set out a 

principles-based approach to addressing 

error trades. They give SEFs the flexibility to 

determine the most suitable error trade rules 

for their markets and participants. At the 

same time, as I have said repeatedly, 

principles-based regulation is not a 

euphemism for ‘‘deregulation’’ or a ‘‘lighttouch’’ approach.11 Accordingly, under our 

amendments a SEF must require its 

participants to inform it of error trades and 

correcting trades, so the SEF can maintain 

orderly markets and guard against false error 

claims.12

Conclusion 

Today’s action is in keeping with my 

recent directive on the use of staff letters and 

guidance, in which I noted that they should 

supplement rulemakings, rather than 

themselves function as rules.13 CFTC staff 

has provided important relief over the last six 

years, but we cannot rely on staff no-action 

relief to bridge the gaps forever. I expect 

these amendments will provide certainty and 

clarity to SEFs and their participants, thereby 

advancing our strategic objective of 

enhancing the regulatory experience for 

market participants at home and abroad. 

Furthermore, I remain open to dialogue on 

further fine-tuning of our SEF rules, 

consistent with Congress’s mandate as well 

as the CFTC’s priorities and resources. I 

therefore will support finalizing additional 

rules in the near term that have the backing 

of a broad-based consensus of market 

participants and stakeholders. Swaps markets 

will benefit most from evolution, not 

revolution. 

Appendix 3—Supporting Statement of 

Commissioner Brian Quintenz 

I support today’s final rule that codifies 

through rulemaking two issues concerning 

swap execution facilities (SEFs) currently 

addressed in staff no-action letters. I am 

pleased that this final rule will provide 

market participants with much needed 

regulatory certainty in the areas of ‘‘package 

transactions’’ (a series of related transactions 

sometimes including non-swap components) 

and the correction of erroneous trades. With 

the benefit of six-plus years of 

implementation experience, and multiple 

extensions of each of these no-action letters, 

it is long overdue for the Commission to 

codify and clarify its policy on each of these 

important issues. 

With regard to package transactions, the 

amendments recognize the need to provide 

flexible means of execution for swaps that are 

negotiated and executed concurrently with 

other components of a larger, integrated 

transaction. This flexibility has proved 

workable since 2014.1 In codifying current 

permissible practices with regard to the 

resolution of erroneous trades,2 the final rule 

similarly permits SEFs to allow market 

participants to execute offsetting or 

correcting trades through any method of 

execution offered by the SEF. These 

amendments will facilitate the prompt 

identification and correction of error trades, 

thereby minimizing market participants’ 

exposure to market, credit, and operational 

risks. 

I have long disagreed with the overly 

restrictive mandate on permissible SEF 

methods of execution. While Dodd Frank’s 

amendments to the Commodity Exchange Act 

define a SEF as a trading system facilitating 

multiple-to-multiple trading activity 

‘‘through any means of interstate 

commerce,’’ 3 the CFTC saw fit to only allow 

for two methods (RFQ and CLOB) to be used 

in connection with a swap subject to the 

trade execution requirement (‘‘Required 

Transactions’’).4 By dictating how Required 

Transactions are executed, the current regime 

forecloses any number of alternatives that 

could create liquidity on SEFs and better 

address the highly variable, bespoke nature 

of many swaps. I believe the Commission 

should follow the law and further expand the 

allowed methods of execution for Required 

Transactions to any form that is truly 

multiple-to-multiple, which would allow 

SEFs to experiment with new means of 

execution tailored to the bespoke liquidity of 

a wide variety of critical risk management 

products. Similarly, in the area of block 

trades, I recently expressed concern when the 

Commission raised the block size threshold, 

thereby reducing the population of swaps 

that can be negotiated through alternative 

means.5

Lastly, I hope the Commission promptly 

finalizes additional provisions of the SEF 

ruleset that the Commission has proposed 

revising. These areas include making more 

practical the SEF financial resources 

requirement and codifying an exemption 

from the trade execution requirement for 

swaps between affiliated counterparties. 

Resolving these issues through final rules 

will promote the liquidity and transparency 

of SEFs. 

Appendix 4—Statement of 

Commissioner Dan M. Berkovitz 

I support today’s final rule to amend parts 

36 and 37 of the Commission’s regulations 

relating to the execution of package 

transactions and correction of error trades on 

swap execution facilities (‘‘SEFs’’). The final 

rule will further, in a flexible and costeffective manner, the Congressional goal of 

promoting the trading of swaps on SEFs. 

Beginning in 2014, the Commission issued 

a series of no-action letters specifying 

permissible methods of execution for certain 

package transactions, which enabled the 

agency to phase-in the application of the 

trade execution mandate for these 

transactions. As market infrastructure has 

evolved, the Commission has allowed 

portions of the relief for some package 

transactions to expire, leaving a narrow set of 

these transactions that still may be 

implemented through flexible methods of 

execution. Based on experience, the 

Commission has determined that flexible 

methods of execution are currently more 

appropriate for packages in which at least 

one of the components is (1) a swap not 

subject to the clearing requirement; (2) not a 

swap; or (3) a swap for which the CFTC does 

not have exclusive jurisdiction. Requiring 

that the swap components of these 

transactions be traded through the required 


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82332 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 

methods of execution (i.e., Order Book or 

Request-for-Quote to a minimum of 3 

counterparties) could force market 

participants to break up the package into 

their individual components, which would 

increase transaction costs and risks, and 

thereby defeat the economic purpose and 

efficiency of the package transaction. 

Commenters supported the rule as proposed. 

It is therefore appropriate for the Commission 

to codify that flexible methods of execution 

may be used for the swap components of this 

limited set of package transactions. 

The final rule also exempts from the trade 

execution requirement swap transactions that 

are components of ‘‘new issuance bond’’ 

package transactions, and amends part 37 to 

provide flexibility in the execution methods 

a SEF may offer counterparties to correct 

clerical or operational errors. While 

providing additional flexibility for resolving 

error trades, the rule limits the number of 

instances in which such errors may be 

corrected, and preserves important 

protections to guard against abuse. Notably, 

the Commission requires market participants 

to provide prompt notice to a SEF of an error 

trade, enabling the SEF to conduct real-time 

market monitoring and fulfill other selfregulatory obligations. In addition, the rule 

makes clear that a SEF must maintain rules 

and procedures that are fair, transparent, 

incentivize timely resolution of an error 

trade, and allow for such resolution without 

disclosing the identity of counterparties to 

one another where the swaps trading is 

subject to the post-trade name give up 

prohibition. 

Given the tailored nature of these 

amendments and the appropriate safeguards, 

I support this final rule. I thank the staff of 

the Division of Market Oversight for their 

work on this rule and their helpful 

engagement with my office. 

[FR Doc. 2020–26555 Filed 12–17–20; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Food and Drug Administration 

21 CFR Parts 101 and 102 

[Docket No. FDA–2019–D–0892] 

The Use of an Alternate Name for 

Potassium Chloride in Food Labeling; 

Guidance for Industry; Availability 

AGENCY: Food and Drug Administration, 

HHS. 

ACTION: Notification of availability. 

SUMMARY: The Food and Drug 

Administration (FDA or we) is 

announcing the availability of a final 

guidance for industry entitled ‘‘The Use 

of an Alternate Name for Potassium 

Chloride in Food Labeling.’’ This 

guidance explains our intent to exercise 

enforcement discretion for the 

declaration of the name ‘‘potassium 

salt,’’ as an alternative to ‘‘potassium 

chloride,’’ in the ingredient statement 

on the labels of foods that contain 

potassium chloride as an ingredient. 

DATES: The announcement of the 

guidance is published in the Federal 

Register on December 18, 2020. 

ADDRESSES: You may submit either 

electronic or written comments on FDA 

guidances at any time as follows: 

Electronic Submissions 

Submit electronic comments in the 

following way: 

• Federal eRulemaking Portal: 

https://www.regulations.gov. Follow the 

instructions for submitting comments. 

Comments submitted electronically, 

including attachments, to https://

www.regulations.gov will be posted to 

the docket unchanged. Because your 

comment will be made public, you are 

solely responsible for ensuring that your 

comment does not include any 

confidential information that you or a 

third party may not wish to be posted, 

such as medical information, your or 

anyone else’s Social Security number, or 

confidential business information, such 

as a manufacturing process. Please note 

that if you include your name, contact 

information, or other information that 

identifies you in the body of your 

comments, that information will be 

posted on https://www.regulations.gov. 

• If you want to submit a comment 

with confidential information that you 

do not wish to be made available to the 

public, submit the comment as a 

written/paper submission and in the 

manner detailed (see ‘‘Written/Paper 

Submissions’’ and ‘‘Instructions’’). 

Written/Paper Submissions 

Submit written/paper submissions as 

follows: 

• Mail/Hand Delivery/Courier (for 

written/paper submissions): Dockets 

Management Staff (HFA–305), Food and 

Drug Administration, 5630 Fishers 

Lane, Rm. 1061, Rockville, MD 20852. 

• For written/paper comments 

submitted to the Dockets Management 

Staff, FDA will post your comment, as 

well as any attachments, except for 

information submitted, marked and 

identified, as confidential, if submitted 

as detailed in ‘‘Instructions.’’ 

Instructions: All submissions received 

must include the Docket No. FDA– 

2019–D–0892 for ‘‘The Use of an 

Alternate Name for Potassium Chloride 

in Food Labeling.’’ Received comments 

will be placed in the docket and, except 

for those submitted as ‘‘Confidential 

Submissions,’’ publicly viewable at 

https://www.regulations.gov or at the 

Dockets Management Staff between 9 

a.m. and 4 p.m., Monday through 

Friday, 240–402–7500. 

• Confidential Submissions—To 

submit a comment with confidential 

information that you do not wish to be 

made publicly available, submit your 

comments only as a written/paper 

submission. You should submit two 

copies total. One copy will include the 

information you claim to be confidential 

with a heading or cover note that states 

‘‘THIS DOCUMENT CONTAINS 

CONFIDENTIAL INFORMATION.’’ We 

will review this copy, including the 

claimed confidential information, in our 

consideration of comments. The second 

copy, which will have the claimed 

confidential information redacted/ 

blacked out, will be available for public 

viewing and posted on https://

www.regulations.gov. Submit both 

copies to the Dockets Management Staff. 

If you do not wish your name and 

contact information to be made publicly 

available, you can provide this 

information on the cover sheet and not 

in the body of your comments and you 

must identify this information as 

‘‘confidential.’’ Any information marked 

as ‘‘confidential’’ will not be disclosed 

except in accordance with 21 CFR 10.20 

and other applicable disclosure law. For 

more information about FDA’s posting 

of comments to public dockets, see 80 

FR 56469, September 18, 2015, or access 

the information at: https://

www.govinfo.gov/content/pkg/FR-2015- 

09-18/pdf/2015-23389.pdf. 

Docket: For access to the docket to 

read background documents or the 

electronic and written/paper comments 

received, go to https://

www.regulations.gov and insert the 

docket number, found in brackets in the 

heading of this document, into the 

‘‘Search’’ box and follow the prompts 

and/or go to the Dockets Management 

Staff, 5630 Fishers Lane, Rm. 1061, 

Rockville, MD 20852, 240–402–7500. 

You may submit comments on any 

guidance at any time (see 21 CFR 

10.115(g)(5)). 

Submit written requests for single 

copies of the draft guidance to the Office 

of Nutrition and Food Labeling, Center 

for Food Safety and Applied Nutrition, 

Food and Drug Administration, 5001 

Campus Dr., College Park, MD 20740. 

Send two self-addressed adhesive labels 

to assist that office in processing your 

request. See the SUPPLEMENTARY

INFORMATION section for electronic 

access to the draft guidance. 

FOR FURTHER INFORMATION CONTACT: 

Andrea Krause, Center for Food Safety 

and Applied Nutrition, Food and Drug 

Administration, 5001 Campus Dr., 

College Park, MD 20740, 240–402–2371. 


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