1214 Federal Register / Vol. 76, No. 5 / Friday, January 7, 2011 / Proposed Rules 

1 5 U.S.C. 552. 

2 17 CFR 145.9. 

3See Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Pub. L. 111–203, 124 

Stat. 1376 (2010). The text of the Dodd-Frank Act 

may be accessed at http://www.cftc.gov./ 

LawRegulation/OTCDERIVATIVES/index.htm. 

4Pursuant to Section 701 of the Dodd-Frank Act, 

Title VII may be cited as the ‘‘Wall Street 

Transparency and Accountability Act of 2010.’’ 

5 7 U.S.C. 1 et seq. 

6This new regulatory framework includes: (i) 

Registration, operation and compliance 

requirements for SEFs and (ii) fifteen core 

principles. Applicants and registered SEFs are 

required to comply with the core principles as a 

condition of obtaining and maintaining their 

registration as a SEF. The definition of swap 

execution facility is added in Section 721 of the 

Dodd-Frank Act, amending Section 1a of the CEA. 

7 U.S.C. 1a(50). 

7See Section 723 of the Dodd-Frank Act. 

8See Section 754 of the Dodd-Frank Act. 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 37 

RIN Number 3038–AD18 

Core Principles and Other 

Requirements for Swap Execution 

Facilities 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of Proposed Rulemaking. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’ or 

‘‘CFTC’’) is proposing new rules, and 

guidance and acceptable practices to 

implement the new statutory provisions 

enacted by Title VII of the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act. The proposed rules, 

guidance, and acceptable practices, 

which apply to the registration and 

operation of a new type of regulated 

entity named a swap execution facility, 

implement the new statutory framework 

that, among other things, adds a new 

Section 5h to the Commodity Exchange 

Act (‘‘CEA’’) concerning the registration 

and operation of swap execution 

facilities, and new Section 2(h)(8) to the 

CEA concerning the listing, trading and 

execution of swaps on swap execution 

facilities. The Commission requests 

comment on all aspects of the proposed 

rules, guidance and acceptable 

practices. 

DATES: Comments must be received on 

or before March 8, 2011. 

ADDRESSES: You may submit comments, 

identified by RIN number 3038–AD18, 

by any of the following methods: 

• Agency Web site, via its Comments 

Online process: http:// 

comments.cftc.gov. Follow the 

instructions for submitting comments 

through the Web site. 

• Mail: David A. Stawick, Secretary of 

the Commission, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street, NW., 

Washington, DC 20581. 

• Hand Delivery/Courier: Same as 

mail above. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

Please submit your comments using 

only one method. 

All comments must be submitted in 

English, or if not, accompanied by an 

English translation. Comments will be 

posted as received to http:// 

www.cftc.gov. You should submit only 

information that you wish to make 

available publicly. If you wish the 

Commission to consider information 

that may be exempt from disclosure 

under the Freedom of Information Act 

(‘‘FOIA’’),1 a petition for confidential 

treatment of the exempt information 

may be submitted according to the 

established procedures in § 145.9.2

The Commission reserves the right, 

but shall have no obligation, to review, 

prescreen filter, redact, refuse, or 

remove any or all of your submission 

from http://www.cftc.gov that it may 

deem to be inappropriate for 

publication, such as obscene language. 

All submissions that have been redacted 

or removed that contain comments on 

the merits of the rulemaking will be 

retained in the public comment file and 

will be considered as required under the 

Administrative Procedure Act and other 

applicable laws, and may be accessible 

under FOIA. 

FOR FURTHER INFORMATION CONTACT: Riva 

Spear Adriance, Associate Director, 

202–418–5494, radriance@cftc.gov, or 

Mauricio Melara, Attorney-Advisor, 

202–418–5719, mmelara@cftc.gov, 

Division of Market Oversight, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. Overview 

B. The Dodd-Frank Act 

II. The Proposed Regulations, Guidance and 

Acceptable Practices 

A. Adoption of New Regulations, Guidance 

and Acceptable Practices 

B. Proposed General Regulations Under 

Part 37 

C. Proposed Regulations, Guidance and 

Acceptable Practices for Compliance 

With the Core Principles 

III. Effective Date and Transition Period 

IV. Related Matters 

A. Regulatory Flexibility Act 

B. Paperwork Reduction Act 

C. Cost-Benefit Analysis 

V. Text of the Proposed Regulations, 

Guidance and Acceptable Practices 

I. Background 

A. Overview 

On July 21, 2010, President Obama 

signed the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(‘‘Dodd-Frank Act’’).3 Title VII of the 

Dodd-Frank Act 4 amended the CEA 5 to 

establish a comprehensive new 

regulatory framework for swaps and 

security-based swaps. The legislation 

was enacted to reduce risk, increase 

transparency, and promote market 

integrity within the financial system by, 

among other things: (1) Providing for the 

registration and comprehensive 

regulation of swap dealers and major 

swap participants; (2) imposing clearing 

and trade execution requirements on 

standardized derivatives products; (3) 

creating robust recordkeeping and realtime reporting regimes; and (4) 

enhancing the Commission’s 

rulemaking and enforcement authorities 

with respect to, among others, all 

registered entities and intermediaries 

subject to the Commission’s oversight. 

The Dodd-Frank Act creates a new 

type of regulated marketplace: ‘‘Swap 

execution facilities’’ (‘‘SEFs’’),6 for which 

the Dodd-Frank Act establishes a 

comprehensive regulatory framework, 

including by: Section 733 (adding new 

Section 5h to the CEA to provide a 

regulatory framework of Commission 

oversight), Section 723(a)(3) (adding 

new Section 2(h)(8) to the CEA, to 

require, among other things, that swaps 

subject to the clearing requirement of 

Section 2(h)(1) of the CEA be executed 

either on a designated contract market 

(‘‘DCM’’) or on a SEF, unless no DCM or 

SEF made the swap ‘‘available for 

trading’’),7 and Section 733 of the DoddFrank Act (adding Section 5h(a)(1), 

requiring that no person may operate a 

facility for the trading or processing of 

swaps unless the facility is registered as 

a SEF or as a DCM). 

In enacting the Dodd-Frank Act, 

Congress directed that rules and 

regulations required by the provisions of 

Title VII be promulgated by the later of 

either 360 days of its enactment or, to 

the extent that a rulemaking is required 

by Dodd-Frank, not less than 60 days 

after the publication of that final rule.8

Consistent with Congress’ directive, this 

release proposes amendments to Part 37 

of the Commission’s regulations to 


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9See Section 754 of the Dodd-Frank Act. Please 

also note that Section 734 of the Dodd-Frank Act 

deletes the provision of the CEA that provided for 

Derivatives Transaction Execution Facilities 

(‘‘DTEFs’’), which previously were regulated under 

Part 37, replacing those provisions with regulations 

establishing the regulatory requirements for SEFs. 

10See Section 2(h)(8) of the CEA, as enacted by 

Section 723(a)(3) of the Dodd-Frank Act. The DoddFrank Act also eliminates the swaps exemption 

under former Section 2(g) of the CEA, supporting 

the requirement that trading and processing of 

cleared swaps must occur on a DCM or a SEF as 

well as expanding the types of products that can be 

listed and traded on a DCM to include swaps. The 

Commission is proposing provisions for the trading 

of swaps on a DCM in a separate rulemaking. See 

also Notice of Proposed Rulemaking Relating to 

Core Principles and Other Requirements for 

Designated Contract Markets approved for 

publication by the Commission at an open meeting 

on Dec. 1, 2010 and expected to be published 

shortly in the Federal Register (to be codified at 17 

CFR part 38) (the ‘‘DCM NPRM’’). This Notice is 

available at http://www.cftc.gov/ucm/groups/ 

public/@newsroom/documents/file/ 

federalregister120110b.pdf (last visited on Dec. 8, 

2010). 

11See Section 2(h)(8)(B) of the CEA, as enacted 

by Section 723(a)(3) of the Dodd-Frank Act. Newly 

amended Section 2(h)(7) of the CEA provides for 

exceptions to the clearing requirement when one of 

the counterparties to a swap (i) is not a financial 

entity, (ii) is using the swap to hedge or mitigate 

commercial risk, and (iii) notifies the Commission 

how it meets its financial obligations associated 

with entering into a non-cleared swap. 

12These sections apply both to applicants for 

registration and registered SEFs, clarify which 

provisions are applicable to trading on SEFs, 

provide for SEF registration processes (including 

processes for the vacation, reinstatement, and 

transfer of a SEF registration), and provide general 

requirements regarding: (i) The listing and trading 

of swaps; (ii) the responsibility, upon request of the 

Commission, to respond to requests for information 

and demonstrations of compliance with core 

principles, and to provide information and 

certifications upon transfers of equity interest; (iii) 

the enforceability of a SEF’s swap transactions 

under certain conditions, (iv) limitations on the use 

of data collected for regulatory purposes, (v) the 

need for a board of trade that operates a trading 

facility that has been designated as a DCM by the 

Commission and also intends to operate a SEF to 

separately register the entity that will operate as a 

SEF, (vi) the appropriate execution of swaps based 

on the type of transaction and order interaction, and 

(vii) the periodic assessment of the method by 

which swaps are made available for trading. 

13 75 FR 63732 (October 18, 2010). 

14Each subpart begins with a regulation 

containing the language of the core principle. 

15The Commission notes that because some of the 

proposed rulemakings are either ongoing or 

forthcoming, this proposed list of applicable 

sections under proposed § 37.2 may be subject to 

further revisions pending the final rules for each 

respective rulemaking. 

16This amendment also would ensure 

consistency with the process used for filing rule 

and product submissions under Parts 38, 39 and 40 

of the Commission’s regulations. See 17 CFR Parts 

38, 39 and 40. 

17The Commission also is requiring tailored 

application forms for the designation of DCMs and 

the registration of Designated Clearing 

Organizations and Swap Data Repositories. 

implement Sections 723(a)(3) and 733 of 

the Dodd-Frank Act.9

B. The Dodd-Frank Act 

Section 723(a)(3) of the Dodd-Frank 

Act amends Section 2(h) of the CEA, 

providing that, with respect to 

transactions involving a swap subject to 

the clearing requirement of paragraph 

2(h)(1), counterparties must execute the 

transaction on a DCM or a SEF.10 This 

‘‘exchange trading’’ requirement does 

not apply if no DCM or SEF ‘‘makes the 

swap available to trade’’ or if the 

exceptions to the clearing requirement 

apply.11

Section 733 of the Dodd-Frank Act 

adopts new Section 5h of the CEA, 

providing that: (i) No person may 

operate a facility for the trading or 

processing of swaps, unless the facility 

is registered as a SEF or as a DCM; (ii) 

to be registered and maintain 

registration, a SEF must comply with 

fifteen enumerated core principles and 

any requirement that the Commission 

may impose by rule or regulation; and 

(iii) the Commission has the authority to 

prescribe rules governing the regulation 

of SEFs. 

The proposed regulations, guidance 

and acceptable practices will implement 

the regulatory obligations that each SEF 

must meet in order to comply with 

Section 5h of the CEA both initially 

upon registration and on an ongoing 

basis. The Commission requests 

comments on all aspects of its proposal. 

II. The Proposed Regulations, Guidance 

and Acceptable Practices 

A. Adoption of New Regulations, 

Guidance and Acceptable Practices 

The Dodd-Frank Act amended the 

CEA to provide that, under new Section 

5h, the Commission may in its 

discretion determine by rule or 

regulation the manner in which DCMs 

and SEFs comply with the core 

principles. In consideration of the novel 

nature of SEFs and also based on its 

experience in overseeing DCMs’ 

compliance with core principles, the 

Commission carefully assessed which 

SEF core principles would benefit from 

regulations, providing legal certainty 

and clarity to the marketplace, and 

which core principles would benefit 

from guidance or acceptable practices, 

where flexibility is more appropriate. 

Based on that evaluation, the 

Commission is proposing a combination 

of regulations, guidance and acceptable 

practices for the oversight and 

regulation of SEFs. 

B. Proposed General Regulations Under 

Part 37 

The Commission is proposing to 

organize Part 37 to include new 

subparts A through P. Proposed Subpart 

A would include general § 37.1 through 

37.11.12 While in this rulemaking, the 

Commission is proposing §§ 37.1 

through 37.11, it notes that § 37.19, 

addressing conflicts of interest, was 

proposed in a separate rulemaking.13

Subparts B through P would establish 

relevant regulations applicable to each 

of the 15 core principles.14

1. Subpart A—General Provisions 

a. Scope—Proposed § 37.1 

Proposed § 37.1 provides that Part 37 

will apply to entities that are registered 

SEFs or that are submitting an 

application for SEF registration under 

Section 5h of the CEA, and clarifies that 

Part 37 does not restrict the eligibility of 

SEFs to operate under the provisions of 

Parts 38 or 49 of this Chapter. 

b. Applicable Provisions—Proposed 

§ 37.2 

Proposed § 37.2 lists those 

Commission regulations that are 

applicable to SEFs, and provides that 

SEFs must comply with, in addition to 

the requirements in Part 37, the 

proposed Part 43 requirements 

regarding the real time reporting of 

swaps and the determination of 

appropriate block size for swaps, the 

proposed Part 45 requirements for data 

elements, recordkeeping and reporting 

of swap information to swap data 

repositories (‘‘SDRs’’), the proposed Part 

46 requirements for business continuity 

and disaster recovery, the proposed Part 

49 requirements regarding SDRs, and 

the proposed Part 151 position limits 

requirements.15

c. Requirements for Registration— 

Proposed § 37.3 

i. Application Procedures—Proposed 

§ 37.3(a) 

Proposed § 37.3 sets forth the 

application and approval procedures for 

registration of new SEFs. The provision 

would require that all SEF applications, 

reinstatements of registrations, requests 

for transfer of registrations, requests for 

withdrawal of application for 

registration, and vacation of 

registrations must be filed electronically 

with the Secretary of the Commission, 

in the form and manner as provided by 

the Commission.16

To assist prospective applicants, the 

Commission proposes to include an 

application form under Appendix A to 

Part 37 (‘‘Form SEF’’); the proposed form 

would also be used for any updates or 

amendments for registration that are not 

required to be submitted under Part 40 

of this Chapter.17 Each applicant will be 

required to provide the Commission 

with documents and descriptions 

pertaining to its: (i) Business 


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18See 75 FR. 67282, 67292 (November 2, 2010). 

19This requirement stems from the Commission’s 

authority, under Section 728 of the Dodd-Frank Act, 

to establish standards and requirements related to 

reporting and recordkeeping for swaps. In 

particular, the Commission is required to adopt 

consistent data element standards for ‘‘registered 

entities,’’ which include SEFs. Proposed Part 45 will 

set forth the recordkeeping and reporting 

requirements of each SEF with respect to swap 

transactions on or through its facility. Proposed 

§ 37.3 codifies the obligation of SEFs to comply 

with the provisions of proposed Part 45. See 75 FR 

76574 (December 8, 2010). 

20The Commission notes that although the public 

estimate regarding the expected number of 

applications ranges from 30 to 40, certain market 

participants have noted that the number of SEFs 

could exceed 100. 

21See Section 754 of the Dodd-Frank Act. 

22See Orders Regarding the Treatment of 

Petitions Seeking Grandfather Relief for Exempt 

Commercial Markets and Exempt Boards of Trade 

(‘‘ECM and EBOT grandfather relief’’). 75 FR 56513 

(September 10, 2010). The Commission’s Orders set 

forth various conditions for such grandfather relief, 

including the filing of a relief petition and a SEF 

or DCM application with the Commission. 

23See CEA Sections 2(d), 2(e), 2(g) and 2(h)(1)– 

(2). 

24As noted above, the determination of when a 

submission on Form SEF is complete is at the sole 

discretion of the Commission. 

organization, (ii) financial resources, 

(iii) compliance program and (iv) 

technological capabilities. 

Other than the specific requirements 

necessitated by the core principles, the 

majority of information required under 

the Form SEF consists of information 

that Commission staff has historically 

found necessary considering DCM 

applications. The Commission expects 

that similar information will be 

necessary to assess applications for SEF 

registration. Proposed § 37.3(a)(1) 

requires that, at a minimum, all 

applicants must complete the 

application form and provide the 

necessary information and 

documentation in order to initiate the 

SEF registration review process. The 

determination when a submission is 

complete will be at the sole discretion 

of the Commission. The Commission 

will review Form SEF and, at the 

conclusion of its review, by order either: 

(i) Grant registration; (ii) deny the 

application for registration; or (iii) grant 

registration subject to Commissionestablished conditions. 

SEF applicants will be required to 

provide various documents describing 

the applicant’s legal and financial 

status. SEF applicants must also submit 

copies of any applicable rules and 

regulations (as defined in § 40.1),18

disclose any affiliates and a brief 

description of the nature of the 

affiliation, and submit copies of any 

agreements between the SEF and third 

parties that would assist the applicant 

in complying with its duties under the 

CEA. 

Applicants will be required to 

demonstrate operational capability 

through documentation, including 

technical manuals and third party 

service provider agreements. Proposed 

§ 37.3 also requires that each applicant 

request and obtain from the Commission 

a unique, extensible, alphanumeric code 

for the purpose of identifying the SEF 

pursuant to the swap recordkeeping and 

reporting requirements under proposed 

Part 45.19

ii. Procedures for Temporary 

Grandfather Relief—Proposed § 37.3(b) 

Section 754 of the Dodd-Frank Act 

provides that: ‘‘[u]nless otherwise 

provided in this title, the provisions of 

this subtitle [Subtitle A—Regulation of 

Over-the-Counter Swaps Markets] shall 

take effect on the later of 360 days after 

the date of enactment of this subtitle 

[i.e., July 15, 2011], or, to the extent a 

provision of this subtitle requires a 

rulemaking, not less than 60 days after 

publication of the final rule or 

regulation implementing such provision 

of this subtitle.’’ 

The Commission anticipates that, 

upon the effective date of this Part 37, 

it may receive a large number 20 of 

applications for SEF registration from 

entities that currently provide a 

marketplace for the listing and trading 

of swaps. The Commission notes that it 

would be difficult to carry out and 

complete an appropriate and 

comprehensive review of all such 

applications during the period between 

publication of the final rulemaking and 

the effective date of this Part 37. Any 

consequent delay in the processing of 

these SEF applications could adversely 

impact SEF applicants, undermine the 

efficient implementation of the DoddFrank Act, create legal uncertainty for 

market participants and adversely affect 

the swaps market. 

Therefore, proposed § 37.3(b) permits 

the Commission, upon the request of an 

applicant, to grant temporary 

grandfather relief to qualifying entities 

that, due to their operations, will be 

required to register as a SEF in order to 

continue operating as of the effective 

date of the regulations. The proposed 

temporary grandfather relief would be 

optional and would enable a qualifying 

entity to operate without SEF 

registration on a short-term basis during 

the pendency of the application review 

process on the condition that it 

otherwise operate in conformance with 

all SEF requirements under the DoddFrank Act. This approach is intended to 

avoid undue market disruption as well 

as to ensure continuity of the business 

operations of an existing entity that, at 

the time that Part 37 becomes 

effective,21 is providing a marketplace 

for the trading of swaps. The temporary 

relief would also allow the Commission 

to implement registration requirements 

of the Dodd-Frank Act for SEFs while 

providing the Commission sufficient 

time to fully review the application of 

a SEF. Each SEF that qualifies for 

temporary relief would be subject to 

Section 5h of the CEA and related 

regulations during the period in which 

the Commission is reviewing the SEF’s 

application of registration. 

The Commission notes that it 

previously issued orders providing 

grandfather relief to exempt commercial 

markets (‘‘ECMs’’) and exempt boards of 

trade (‘‘EBOTs’’), allowing them to 

continue to operate as EBOTs and ECMs 

after the effective date of the DoddFrank Act (July 15, 2011) (‘‘ECM and 

EBOT grandfather relief orders’’).22 The 

relief under proposed § 37.3(b) would be 

consistent with the ECM and EBOT 

grandfather relief orders. In addition, 

the Commission notes that the 

grandfather relief under proposed 

§ 37.3(b) would also be available for 

entities that are currently operating 

pursuant to another exemption or 

exclusion provided under the CEA 

(prior to its amendment by the DoddFrank Act) as of the effective date of this 

Part 37.23

As a condition for receiving 

temporary grandfather relief, the 

applicant must: (1) File a complete 

application, as required under proposed 

§ 37.3(a),24 on the proposed application 

form, Form SEF, under Appendix A to 

Part 37; (2) notify the Commission, at 

the time of its submission of the 

application, of its interest in operating 

under the temporary relief; (3) provide 

transaction data that substantiates that 

the execution or trading of swaps has 

occurred and continues to occur on the 

applicant’s trading system or platform at 

the time the applicant submits the 

request; and (4) provide a certification 

that the applicant believes that its 

operation on a temporary basis will 

meet the requirements of Part 37 of the 

CEA, as adopted by the Commission. 

Since the purpose of the temporary 

relief is to provide an appropriate 

process to ensure continuity of the 

business operations during the 

pendency of the review of an 

application, the temporary grandfather 

relief would expire on the earlier of: (i) 

The date that the Commission grants or 

denies registration of the SEF, or (ii) the 


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25The proposed rule would require that where a 

SEF does not know or could not have reasonably 

known three months prior to the anticipated 

change, it shall be required to file the request as 

soon as it knows of the change. 

26Proposed § 40.3 is amended to require 

additional information to be provided by registered 

entities that submit new products for the 

Commission’s review and approval. Proposed 

§ 40.5(b) codifies a new standard for the review of 

new rules or rule amendments as established under 

the Dodd-Frank Act. 

27 75 FR 67282 (November 2, 2010). 

28 In this regard, for example, the Commission 

may request SEFs to provide information relating to 

their operations or their practices in connection 

with its general oversight responsibilities under the 

CEA, in connection with the Commission’s 

formulation of statements of acceptable practice, or 

in connection with a particular SEF’s compliance 

with particular core principles or other conditions 

of its registration. 

29 ‘‘Business day’’ is defined in Commission 

§ 40.1. 

30The Commission is proposing a 10 percent 

threshold because it believes that a change in 

ownership of such magnitude may have an impact 

on the operations of the swap execution facility. 

The Commission believes that such impact may be 

present even if the change in ownership does not 

constitute a change in control. For example, if one 

entity holds a minority 10 percent equity share in 

the SEF, it may have a more significant voice in the 

operation of the SEF than five entities each with a 

minority 2 percent equity share. Given the potential 

impact that a change in ownership might have on 

the operations of a SEF, the Commission believes 

that it is appropriate to require such SEF to certify 

after such change that it continues to comply with 

all obligations under the CEA and Commission 

regulations. 

31The Commission’s regulations consistently 

identify a financial or ownership interest of ten 

percent or more as material and indicative of the 

ability to influence the activities of an entity or 

trading in an account. See, e.g., Core Principle 5, 

Acceptable Practices, and Core Principle 14, 

Application Guidance, in Appendix B to Part 38 of 

the Commission’s regulations. 17 CFR part 38, 

Appendix B. 

32See, supra note 10, DCM NPRM; also the 

Notice of Proposed Rulemaking Relating to Swap 

Data Repositories, approved for publication by the 

Commission at an open meeting on November 19, 

2010 and expected to be published shortly in the 

Federal Register (to be codified at 17 CFR part 49). 

This Notice is available at http://www.cftc.gov/ 

stellent/groups/public/@otherif/documents/ifdocs/ 

federalregister112210d.pdf (last visited on Dec. 8, 

2010); and other appropriate future rulemakings. 

date that the Commission rescinds the 

temporary relief. Additionally, the 

temporary relief would not be a 

permanent provision of Part 37. 

Proposed § 37.3(b) provides for a 

‘‘sunset’’ provision so that temporary 

grandfather relief would terminate 365 

days from the effective date of proposed 

§ 37.3(b). 

iii. Procedures for Transfer of 

Registration—Proposed § 37.3(d) 

The Commission is proposing 

§ 37.3(d) to formalize the procedures 

that a SEF must follow when requesting 

the transfer of its registration, in 

anticipation of a corporate event (e.g., a 

merger, corporate reorganization, or 

change in corporate domicile) which 

results in the transfer of all or 

substantially all of the SEF’s assets to 

another legal entity. Under proposed 

§ 37.3(d), the SEF would submit to the 

Commission a request for transfer no 

later than three months prior to the 

anticipated corporate change, with a 

limited exception.25

Proposed § 37.3(d) also would require, 

as a condition of approval, that the SEF 

submit a representation that it is in 

compliance with the CEA, including the 

SEF core principles, and the 

Commission’s regulations. In addition, 

the SEF would have to submit various 

representations by the transferee 

regarding its duties and obligations. 

Proposed § 37.3(d) also provides that 

the Commission will review any 

requests for transfer of registration as 

soon as practicable, and such request 

will be approved or denied pursuant to 

a Commission order. 

d. Procedures for Listing Products and 

Implementing Rules—Proposed § 37.4 

Proposed § 37.4 conforms to the 

proposed changes to existing §§ 40.3 

(Voluntary submission of new products 

for Commission review and approval) 

and 40.5(b) (Voluntary submission of 

rules for Commission review and 

approval),26 in the Commission’s 

separate rule proposal pertaining to 

‘‘Provisions Common to Registered 

Entities.’’ 27

e. Information Relating to Swap 

Execution Facility Compliance— 

Proposed § 37.5 

Under proposed § 37.5(a), upon 

request by the Commission, a SEF must 

file with the Commission certain 

information related to its business as a 

SEF, in the form and manner as 

specified by the Commission. Under 

proposed § 37.5(b), the Commission may 

demand that a SEF file a written 

demonstration regarding its compliance 

with any specified core principles. The 

information requested under proposed 

§ 37.5(a) and (b) provides for 

information requests to entities 

regarding compliance with the 

conditions for registration made for any 

oversight purpose.28

The Commission believes that on 

occasion, SEFs will enter into equity 

interest transfers that result in a change 

in ownership. In those situations, 

Commission staff must determine 

whether the change in ownership will 

impact adversely the operations of the 

SEF or the SEF’s ability to comply with 

the core principles and the 

Commission’s regulations. The 

Commission is proposing § 37.5 to 

ensure that SEFs remain mindful of 

their self-regulatory responsibilities 

when negotiating the terms of 

significant equity interest transfers, and 

to improve the Commission staff’s 

ability to undertake a timely and 

effective due diligence review of the 

impact, if any, of such transfers. 

Proposed § 37.5(c) would require 

SEFs to file with the Commission a 

notice of the equity interest transfer of 

ten percent or more, with certain 

documents providing information on 

the transfer, no later than the business 

day 29 following the date on which the 

SEF enters into a firm obligation to 

transfer the equity interest.30 The 

proposed regulation requires that the 

SEF keep the Commission apprised of 

the projected date that the transaction 

resulting in the equity interest transfer 

will be consummated, and must provide 

to the Commission any new agreements 

or modifications to the original 

agreement(s) filed pursuant to proposed 

§ 37.5(c). The SEF must notify the 

Commission of the consummation of the 

transaction on the day on which it 

occurs. The proposed regulation will 

enable staff to consider whether any 

conditions contained in an equity 

transfer agreement(s) are inconsistent 

with the self-regulatory responsibilities 

of a SEF or with any of the core 

principles. 

The Commission believes when there 

is a 10% or greater change in 

ownership, the SEF itself is the more 

appropriate entity to provide a 

certification of its continued compliance 

with all regulatory obligations. 

Accordingly, proposed § 37.5(c)(3) 

would require that if there is a change 

in ownership,31 the SEF must certify, no 

later than two business days following 

the date on which the change in 

ownership occurs, that the SEF meets 

all of the requirements of Section 5h of 

the CEA and the provisions of Part 37 

of the Commission’s regulations. 

Request for Comment: 

The Commission notes that there are 

differences in the proposed notification 

requirements for changes in the 

ownership of SEFs, derivative clearing 

organizations (‘‘DCOs’’), DCMs, and 

SDRs.32 The Commission requests 

comment on the proposed notification 

requirements under 37.5(c) and, more 

specifically, the extent to which there 

should be uniformity or differentiation 

in procedures applied to different types 

of registrants. 


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33See 75 FR 76140 (December 7, 2010); and 75 

FR 76574 (December 8, 2010). 

34The Commission notes that, in the recent notice 

of proposed rulemaking for Business Affiliate 

Marketing and Disposal of Consumer Information 

Rules, it proposed rules prohibiting futures 

commission merchants (‘‘FCMs’’) (and other 

intermediaries) from using certain consumer 

information received from an affiliate to make a 

solicitation for marketing purposes. In addition, 

rules were proposed requiring FCMs to develop a 

written disposal program to the extent that such 

FCMs possess consumer information. The 

underlying policy for these rules is to protect the 

privacy of customer information. Similarly, 

Proposed § 37.7 is intended to protect market 

participants’ information provided to a SEF for 

regulatory purposes from its use to advance the 

commercial interests of the SEF. 

35Section 5h(c) of the CEA provides: 

IDENTIFICATION OF FACILITY USED TO 

TRADE SWAPS BY CONTRACT MARKETS.—A 

board of trade that operates a contract market shall, 

to the extent that the board of trade also operates 

a swap execution facility and uses the same 

electronic trade execution system for listing and 

executing trades of swaps on or through the 

contract market and the swap execution facility, 

identify whether the electronic trading of such 

swaps is taking place on or through the contract 

market or the swap execution facility. 

36CEA Section 1a(50). 

37As proposed, a block trade is a swap of a large 

notional or principal amount that is transacted offexchange, pursuant to the rules of a SEF or DCM, 

and that is greater than the minimum block trade 

size set by the SEF or DCM. As proposed, a SEF 

or DCM must set the minimum block size for a 

particular swap contract at an amount greater than 

the appropriate minimum block size for the 

appropriate category of swap instrument in which 

such swap contract is categorized. See 75 FR 76140 

(December 7, 2010). 

38See CEA Section 1a(51). In this context, a 

trading facility requires ‘‘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.’’ 

f. Enforceability of Executed Swaps— 

Proposed § 37.6 

Proposed § 37.6 is intended to provide 

legal certainty to market participants 

transacting in swaps. Under § 37.6(a), a 

transaction entered into on or pursuant 

to the rules of a registered SEF will not 

be void, voidable, subject to rescission 

or otherwise invalidated or rendered 

unenforceable as a result of: (1) A 

violation by the registered SEF of the 

provisions of Section 5h of the CEA or 

Part 37; or (2) any Commission 

proceeding to alter or supplement a 

rule, term or condition under Section 

8a(7) of the CEA, to declare an 

emergency under Section 8a(9) of the 

CEA, or any other proceeding the effect 

of which is to alter, supplement, or 

require a registered SEF to adopt a 

specific term or condition, trading rule 

or procedure, or to take or refrain from 

taking a specific action. 

In other rules proposed by the 

Commission, a swap confirmation is 

defined as the consummation 

(electronically or otherwise) of legally 

binding documentation (electronic or 

otherwise) that memorializes the 

agreement of the counterparties to all of 

the terms of a swap.33 Proposed 

§ 37.6(b) provides that a confirmation 

must be in writing (whether electronic 

or otherwise) and must legally 

supersede any previous agreement 

(electronically or otherwise). For swaps 

executed on a SEF, the SEF will provide 

the counterparties with a definitive 

written record of the terms of their 

agreement, which will serve as a 

confirmation of the swap. The proposed 

regulation on swap confirmations would 

require that parties have full written 

agreement on all terms of a swap at the 

same time as execution. 

g. Prohibited Use of Data Collected for 

Regulatory Purposes—Proposed § 37.7 

In fulfilling their regulatory and 

compliance obligations, the Commission 

expects that SEFs will often require 

market participants to provide 

proprietary data or personal 

information. Proposed § 37.7 prohibits a 

SEF from using information generated 

by market participants for purposes of 

meeting regulatory and compliance 

obligations for marketing products or for 

other commercial purposes.34 The 

Commission notes that nothing in this 

regulation prohibits a SEF from sharing 

such information with another SEF or 

DCM offering swaps for trading for 

regulatory purposes. 

h. Boards of Trade Operating Both a 

Designated Contract Market and a Swap 

Execution Facility—Proposed § 37.8 

Proposed § 37.8 implements CEA 

Section 5h(c) by requiring that a board 

of trade that operates a trading facility 

that has been designated as a DCM by 

the Commission and also intends to 

operate an entity for the execution or 

trading of swaps: (1) Must separately 

register such entity as a SEF under Part 

37; and (2) may use the same electronic 

trade execution system for executing 

swaps that it uses for its DCM 

operations, provided that, the entity 

clearly identifies to market participants 

whether the execution or trading of a 

swaps is taking place on the DCM or the 

SEF.35

i. Permitted Execution Methods—§ 37.9 

This rule proposal will provide 

market participants with the choice of a 

number of means to access the market 

and execute trades therein. This 

flexibility would allow market 

participants to use requests for quotes, 

indications of interest, or executable 

quotes to consummate a trade. It would 

allow SEFs to use a variety of different 

trading systems or platforms as long as 

market participants have the ability to 

access the market and execute trades as 

discussed below. 

i. SEF Definition 

The term ‘swap execution facility’ 

means a trading system or platform in 

which multiple participants have the 

ability to execute or trade swaps by 

accepting bids and offers made by 

multiple participants in the facility or 

system, through any means of interstate 

commerce, including any trading 

facility, that—(A) Facilitates the 

execution of swaps between persons; 

and (B) is not a designated contract 

market.36

Market participants currently use a 

number of different methods for 

transacting swaps, including: brokers 

who facilitate trades over the telephone 

(commonly referred to as ‘‘voice 

brokers’’); hybrid voice and electronic 

trading systems; fully electronic interdealer brokerage systems; single-dealer 

trading platforms; various versions of 

‘‘request for quote’’ platforms (including 

platforms that allow more than one 

customer to submit requests for quotes 

to, and receive responses from, multiple 

dealers); and order books. The 

Commission does not believe that all of 

these methods comply with the 

statutory definition of a SEF, especially 

the ‘‘multiple participant to multiple 

participant’’ requirement thereunder. 

Specifically, as discussed below, the 

Commission notes that entities offering 

the following services do not comply 

with the statutory definition of a SEF: 

one-to-one voice services for the 

execution or trading of swaps (other 

than for the execution of block trades),37

single-dealer platforms, and services 

that solely provide for the processing of 

swaps. 

The SEF definition requires at a 

minimum the existence of a ‘‘trading 

system or platform.’’ The Commission 

notes that the terms ‘‘trading system’’ 

and ‘‘platform’’ are not defined under 

the Dodd-Frank Act or anywhere in the 

CEA. Based on the SEF definition under 

the Dodd-Frank Act, the Commission 

interprets trading system and platform 

to include, but not be limited to, the 

term ‘‘trading facility’’ as defined in CEA 

Section 1a(51).38 In addition, as 

discussed in detail below, the 

Commission believes that any other 

method that allows multiple market 

participants to have the ability to 

execute or trade swaps by accepting 


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39See infra, Section II.C.2.i.v for further 

discussion of ‘‘request for quote’’ systems. 

40See e.g., Sections 5h(f)(2)(A)(ii) and (2)(B)(i) 

(Core Principle 2, requiring the provision of 

impartial access). See also infra, Section II.C.2.a. 

(discussing the provision of impartial access under 

to Core Principle 2). 

41See CEA Section 5h(e) (Stating twin goals 

regarding the promotion of ‘‘the trading of swaps on 

swap execution facilities’’ and ‘‘pre-trade price 

transparency in the swaps market’’). 

bids and offers made by other multiple 

participants in the facility or system, 

through any means of interstate 

commerce, may qualify as an acceptable 

trade execution method for an entity 

that wishes to register as a SEF. 

In order for an entity to meet the 

definition of a SEF and satisfy the SEF 

registration requirements, multiple 

parties must have the ‘‘ability to execute 

or trade swaps by accepting bids and 

offers made by multiple participants’’ 

and such participants must be provided 

impartial access to the market. The 

Commission believes that an acceptable 

SEF platform or system must provide at 

least a basic functionality to allow 

market participants the ability to make 

executable bids or offers and indicative 

quotes, and to display them to multiple 

parties, including all other parties 

participating in the SEF, if the market 

participants wish to do so. As set forth 

in proposed § 37.9(b) and discussed 

below, the Commission proposes that a 

SEF also must provide market 

participants with the ability to make a 

bid, make an offer, hit a bid, or lift an 

offer, and may provide the ability to 

request a bid and request an offer. 

Accordingly, market participants would 

not have to receive a ‘‘request for 

quote’’ 39 from another market 

participant in order to make a bid or 

offer or to execute a trade with other 

market participants. In addition to this 

basic functionality whereby market 

participants would have the ability to 

access all other market participants, a 

SEF could also provide a multiple-tomultiple request for quote trading 

system for those market participants 

that do not wish to display their bids, 

offers, or requests to all other market 

participants. A SEF’s chosen 

approach(es) would be described in its 

registration application, to be evaluated 

by the Commission during the 

application process. Once operational, 

the Commission would be able to 

empirically evaluate the SEF’s treatment 

of executable bids and offers as 

compared to responses to requests for 

quotes to ensure ongoing compliance 

with the definition of a SEF, the SEF 

registration requirements, and the core 

principles. 

ii. One-to-One Voice and Single-Dealer 

Platforms 

The Commission notes that one-toone voice services and single-dealer 

platforms do not satisfy the statutory 

requirement under CEA Section 1a(50) 

that ‘‘multiple participants have the 

ability to execute or trade swaps by 

accepting bids and offers made by 

multiple participants in the facility or 

system’’. The nature of these types of 

trading systems or platforms, where 

transactions are negotiated or 

consummated via a one-to-one or oneto-many basis, do not provide the ability 

for participants to conduct multiple-tomultiple execution or trading. The 

Commission also notes that CEA 

Sections 5h(f)(2)(A)(ii) and (2)(B)(i) 

require that SEFs provide market 

participants with impartial access to 

their markets, and that SEFs must adopt 

rules with respect to any limitations 

they place on access. Entities operating 

either one-to-one voice services or 

single-dealer platforms, by definition, 

limit the provision of liquidity to single 

dealers or liquidity providers, thus 

excluding other participants from filling 

those roles, in non-compliance with the 

impartial market access requirements 

applicable to SEFs under the CEA. 

iii. Processing of Swaps 

In regard to entities that offer, with 

respect to swaps transactions, 

processing services exclusively, the 

Commission notes that Section 5h(a)(1) 

of the CEA states ‘‘[n]o person may 

operate a facility for the trading or 

processing of swaps, unless the facility 

is registered as a [SEF] or as a [DCM] 

under this section.’’ In addition, Section 

5h(b) states that a registered SEF may 

‘‘(A) make available for trading any 

swap, and (B) facilitate trade processing 

of any swap.’’ Although these provisions 

could be read to require the registration 

of entities that engage in trade 

processing (but not trade execution) as 

SEFs, the Commission believes that 

entities that operate exclusively as swap 

processors do not meet the SEF 

definition (and should not be required 

to register as SEFs) because: (1) They do 

not provide (as required by the 

definition) the ability to ‘‘execute or 

trade’’ a swap; and (2) the definition 

does not include the term ‘‘process.’’ 

iv. Trading Systems or Platforms 

When determining what types of 

trading systems qualify to register as a 

SEF, the Commission takes into 

account, in addition to consideration of 

the SEF definition as discussed above, 

the core principles applicable to SEFs 40

as well as the goals provided in Section 

733 of the Dodd-Frank Act: (1) Bringing 

greater pre-trade price transparency to 

swap transactions; and (2) bringing 

more swaps trading onto regulated 

trading systems or platforms.41

Therefore, the Commission interprets 

the SEF registration requirements to 

necessitate that the trading system or 

platform: (a) Provide multiple 

participants with the ability to make 

bids and offers to other multiple 

participants or to accept bids or offers 

made by other multiple participants; (b) 

promote pre-trade price transparency; 

(c) ensure that the trading of swaps on 

the trading system or platform is in 

accordance with the SEF core 

principles, the registration requirements 

and the Commission’s regulations; and 

(d) provide all market participants with 

impartial access to the SEF’s market. 

The Commission believes that, to 

register as a SEF or to maintain 

registration, an applicant or SEF must 

provide market participants with the 

ability to make executable quotes on 

either side of a swap transaction and to 

take the opposite side of a trade from 

participants who seek to enter into 

transactions on such contract. The 

‘‘multiple participant to multiple 

participant’’ requirement, when read in 

conjunction with the impartial access 

requirement (i.e., the Core Principle 2 

requirement that the SEF must ‘‘provide 

market participants with impartial 

access to the market’’) requires that each 

SEF provide any market participant 

with the ability to make any bid or offer 

transparent to all other market 

participants of the SEF. In addition, the 

‘‘ability to execute or trade’’ statutory 

provision means that the SEF must 

provide market participants with the 

ability to post both firm and indicative 

quotes on a centralized screen such that 

they can be executed or traded against 

by other multiple market participants. 

Under the proposal, it is a market 

participant’s prerogative to make a bid 

or offer available to all other market 

participants in the trading system or 

platform without an invitation to join an 

auction process. Willing counterparties 

should have the ability to execute swap 

trades by accepting such bids or offers. 

The Commission believes there could be 

a number of ways for a SEF to provide 

this functionality, including but not 

limited to having an order book. 

Additionally, SEFs must make 

indicative quote functionalities 

available, such that market participants 

could provide non-executable quotes or 

indicative quotes through the SEF that 

are visible and accessible to all other 

market participants. Such 

functionalities could include electronic, 


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42As previously noted, one-to-one voice systems 

and single-dealer platforms do not satisfy the listed 

factors. 

43See also, proposed § 37.205(b)(1). 

44See CEA Section 5h(e). 

45While currently such systems are often used by 

traders in order to account for counterparty risk, it 

is important to note that there is no counterparty 

risk for swaps that are cleared. 

46The proposal also provides that request for 

quote systems include trading systems or platforms 

in which multiple market participants view realtime electronic streaming quotes, both firm and 

indicative, from multiple potential counterparties 

on a centralized electronic screen, and have the 

ability to accept a firm streaming quote and 

complete the transaction or based on an indicative 

streaming quote, issue a request for quote to no less 

than five market participants and upon receipt of 

a responsive quote, have the option to complete the 

transaction. See proposed § 37.9(a)(1)(v). 

streaming indicative quotes, or other 

methods for providing market 

participants with indicative quotes. 

Indicative quotes provide additional 

information about pricing and help 

inform market participants as they 

consider hedging and investment 

strategies, as well as when considering 

whether and how to execute a trade 

(either through a request for quote or 

through an existing executable quote). 

The Commission believes that 

indicative quotes are consistent with the 

statute’s goal of achieving pre-trade 

price transparency. 

The Commission believes that SEFs 

can utilize various trading systems and 

platforms that provide market 

participants with the ability to post 

executable bids or offers for display to 

multiple potential counterparties. A 

trading system or platform that provides 

this minimum multiple-to-multiple 

functionality, as described above, also 

may include other functionalities that 

provide multiple participants with the 

ability to access multiple market 

participants, but not necessarily the 

entire market if the participant so 

chooses. These may include certain 

request for quote systems, as described 

below, or other systems that meet the 

SEF definition and comply with the 

core principles.42 Hence, although at 

times a market participant may desire to 

interact with a limited number of 

market participants (i.e., fewer than the 

entire market) and are permitted to do 

so under the proposal, market 

participants that desire to access the 

entire market must be provided with the 

ability to do so as well. 

v. Execution Methods 

Proposed § 37.9 will allow market 

participants to have the choice of a 

number of means to access and execute 

within a SEF’s marketplace. There 

would not be any requirements for pretrade transparency for: (1) Blocks; (2) 

trades subject to the end user 

exceptions; or (3) contracts which are 

not ‘‘made available for trading.’’ Thus 

the requirements for pre-trade 

transparency (e.g., posting both firm and 

indicative quotes on a centralized 

electronic screen accessible to all 

market participants) 43 for trades 

executed on a SEF would only relate in 

the context of transactions in swaps 

which are: (1) Subject to the mandatory 

clearing requirement; (2) ‘‘made 

available for trading’’ on a SEF; and (3) 

too small to be a block trade under part 

45. For these three types of transactions, 

SEFs could permit their market 

participants to trade via requests for 

quotes, indications of interest, or 

executable quotes. 

As stated in the preceding section, 

Section 5h(e) of the CEA sets forth 

Congress’ goals with respect to SEFs: 

The promotion of ‘‘the trading of swaps 

on swap execution facilities’’ and ‘‘pretrade price transparency in the swaps 

market.’’ 44 The Commission believes 

that these goals can be achieved for 

swap transactions that are subject to the 

CEA execution requirements, are made 

available for trading, and are not block 

trades by providing for the execution of 

such swap transactions on trading 

systems or platforms that give market 

participants the option to post both firm 

and indicative quotes or accept bids and 

offers that are transparent to the entire 

market.45

Under proposed § 37.9, applicants 

and registered SEFs must offer trading 

services to facilitate the ability of market 

participants to make executable bids or 

offers and to display them to multiple 

parties. Transactions may be executed 

by providing market participants with a 

number of execution methods from 

which to choose, including: (1) ‘‘Request 

for quote’’ systems that provide market 

participants the ability to interact with 

multiple participants but less than the 

entire market, as described below; (2) 

systems that allow market participants 

to display executable bids and offers on 

a centralized, electronic screen to the 

entire market; or (3) other systems that 

comply with the core principles. 

Additionally, under the proposal, 

SEFs must provide a general timing 

requirement applicable to traders such 

as brokers who have the ability to 

execute against a customer’s trade or are 

entering a trade for two customers on 

opposite sides of the transaction. Under 

the proposal, a broker would have to 

provide a minimum pause before 

entering the second side (whether for its 

own account or for a second customer), 

thus ‘‘showing’’ other market 

participants the terms of a request for 

quote from its customer, and providing 

other market participants the 

opportunity to join in the trade. The 

Commission proposes to require a 

minimum pause of 15 seconds between 

entry of two potentially matching 

customer-broker swap orders or two 

potentially matching customer-customer 

swap orders on SEFs. 

(A) Request for Quote Systems 

As proposed by the Commission, the 

steps taken by market participants in 

order to complete a transaction using an 

acceptable request for quote system are 

similar to the steps taken in the 

marketplace today (i.e., a market 

participant transmits a request to 

counterparties for bids or offers and 

chooses to transact with one of the 

respondents to the request). However, to 

ensure that multiple participants have 

the ability to reach multiple 

counterparties, the Commission 

proposes to require SEFs to provide that 

market participants transmit a request 

for quote to at least five potential 

counterparties in the trading system or 

platform. The Commission notes that, 

under the proposal, acceptable request 

for quote systems offered by SEFs could 

be designed such that requests for 

quotes are visible to all market 

participants with access to the trading 

system or platform, but should permit 

requesters the option of making a 

request for quote visible to the entire 

market. Additionally, the proposal 

provides that an acceptable request for 

quote system may allow for a 

transaction to be consummated if the 

original request to five potential 

counterparties receives fewer than five 

responses.46

Under the proposal, SEFs that utilize 

request for quote systems must also 

furnish liquidity providers with the 

ability to post both executable bids or 

offers and indicative quotes. The terms 

of any such ‘‘resting’’ executable bids or 

offers would be displayed to the 

requester along with any other specific 

bids or offers included in the responses 

to its request for quote. Upon receipt of 

the responses and the appropriate 

resting bids or offers, the original 

requester would have the option to 

execute the transaction. The 

Commission believes that SEFs that 

utilize request for quote systems must 

ensure that any competitive resting bids 

or offers be taken into account and 

communicated to the requester along 

with any bids or offers included with 

responses to requests for quotes. While 

the Commission does not believe it 

appropriate to prescribe a method of 

integration as part of this rulemaking, 


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the Commission would expect each SEF 

to describe its chosen integration 

mechanism as part of its application. 

The Commission believes its 

proposed approach to the use of request 

for quote systems by SEFs is consistent 

with the statute and promotes: (a) The 

ability of multiple participants to make 

bids and offers to other multiple 

participants or to accept bids or offers 

made by other multiple participants; (b) 

pre-trade price transparency; (c) the 

trading of swaps on a regulated trading 

system or platform in accordance with 

the registration requirements and the 

Commission’s regulations; and (d) the 

ability for all market participants to 

receive impartial access to all other 

market participants. The Commission 

further believes that this feature would 

help encourage price competition 

within the market. 

(B) ‘‘By Any Means of Interstate 

Commerce’’ 

For block trades, swaps not subject to 

clearing, and bespoke or illiquid swaps, 

the Commission interprets the statute’s 

language ‘‘by any means of interstate 

commerce’’ to allow execution methods 

that may include voice. This method of 

execution is consistent with the use of 

voice in the futures markets for 

executing block trades, where in light of 

the size of the trades, pre-trade 

transparency is not required. It is also 

possible that a SEF might choose to offer 

to facilitate bilateral trading for those 

transactions not bound by the CEA’s 

execution requirements and, therefore, 

the use of voice may be acceptable. The 

Commission notes that with respect to 

these types of transactions, market 

participants may have an interest in 

choosing their counterparty in light of 

the credit risk involved. Voice 

transactions must be entered into some 

form of electronic affirmation system 

immediately upon execution. 

With regard to swaps available for 

trading that are not blocks, trading 

systems or platforms facilitating the 

execution of such swaps via voice 

exclusively are not multiple participant 

to multiple participant and do not 

provide for pre-trade transparency. 

While not acceptable as the sole method 

of execution of swaps required to be 

traded on a SEF or DCM, the 

Commission believes voice would be 

appropriate for a market participant to 

communicate a message to an employee 

of the SEF, whether requests for quotes, 

indications of interest, or firm quotes. 

For instance, voice-based 

communications in the proposed SEF 

context may occur in certain 

circumstances, such as when an agent: 

(1) Assists in executing a trade for a 

client, immediately entering the terms 

of the trade into the SEF’s electronic 

system; or (2) enters a bid, offer or 

request for quote immediately into a 

SEF’s electronic multiple-to-multiple 

trading system or platform. In all cases, 

the employee of the SEF must promptly 

provide transparency and comply with 

audit trail requirements, including by 

the immediately entering into the 

trading system or platform any orders or 

requests for quote that are immediately 

executable, or, if not, immediately 

creating an electronic record with the 

order or request for quote entered into 

the trading system or platform as soon 

as practicable. The core principles and 

these rules would fully apply to such 

communications including but not 

limited to the transparency, audit trail, 

impartial access and standards for 

requests for quotes. 

Request for Comment: 

The Commission seeks public 

comment regarding the trading systems 

or platforms described in this section. In 

addition, the Commission asks the 

public to respond to the specific 

questions below. 

• Does the proposal appropriately 

implement the statutory directive that a 

SEF provide multiple participants with 

the ability to execute or trade swaps by 

accepting bids and offers made by 

multiple participants in the facility or 

system? If not, how should the 

Commission best carry out the intent of 

Congress in the registration and 

oversight of SEFs? 

• The Commission interprets the 

‘‘multiple participant to multiple 

participant’’ requirement (in conjunction 

with the impartial access requirement) 

as requiring that the facility provide the 

ability for any market participant to 

make any bid or offer transparent to the 

entire market, if the market participant 

chooses to do so. Should the 

Commission be explicit as to the means 

or methods which can be used to fulfill 

this functionality? If so, in addition to 

an order book, what other means or 

models should be included in the final 

regulations? 

• In light of the ‘‘multiple participant 

to multiple participant’’ requirement, 

the Commission has proposed that 

requests for quotes be requested of at 

least five possible respondents. Is this 

the appropriate minimum number of 

respondents that the Commission 

should require to potentially interact 

with a request for quote? If not, what is 

an appropriate minimum number? Some 

pre-proposal commenters have 

suggested that market participants 

should transmit a request for quote to 

‘‘more than one’’ market participant. The 

Commission is interested in receiving 

public comment on this matter. 

• Should the Commission determine 

that other models of execution satisfy 

the statutory ‘‘multiple participant to 

multiple participant’’ requirement as 

well as the pre-trade price transparency 

and open access policy objectives under 

the Dodd-Frank Act? 

• Does the proposal properly 

implement the provision in the SEF 

definition regarding having the ability to 

execute or trade swaps ‘‘through any 

means of interstate commerce’’? 

• In general, does the proposal 

properly implement the CEA’s goal to 

promote both the trading of swaps on 

SEFs and pre-trade price transparency? 

Should there be other characteristics the 

Commission should consider? If so, 

what are they? 

• What level of pre-trade 

transparency should be required to 

promote price discovery, competition 

and the trading of swaps on SEFs? 

Should the Commission consider 

requiring a request for quote method 

that provides for transparency in the 

request for quote process in addition to 

the posting of any resting bids/offers on 

its trading system or platform? Should 

all orders and quotes be displayed to all 

participants or should alternative 

engagement rules apply on a pre-trade 

basis? 

• Should SEFs be required to 

communicate executable bids/offers to 

issuers of requests for quotes? Also, 

should any such executable bids/offers 

be provided any priority during the 

request for quote process? Should 

market participants have an obligation 

to consider and/or execute against an 

executable bid/offer if it is competitive? 

• Should SEFs be required to make 

responses to requests for quotes 

transparent to all market participants? If 

so, when should this information be 

provided to the market? Prior to 

execution? At the time of execution? 

Subsequent to execution? 

• Would the SEF provisions in the 

Dodd-Frank Act support a requirement 

that swaps that meet a certain level of 

trading activity be limited to trading 

through order books? If so, what level of 

trading activity would be the 

appropriate level at which to mandate 

trading exclusively on an order book? 

Should any such analysis be done on a 

product or asset-class basis? 

• Should swap processors be subject 

to the registration requirements for 

SEFs? 

j. Swaps Made Available for Trading— 

Proposed § 37.10 

The Dodd-Frank Act requires that 

transactions involving swaps subject to 


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47CEA Section 2(h)(8). 

48CEA Section 2(h)(1). 

49CEA Section 2(h)(8). 

50CEA Section 5h(f)(1)(A). 

51CEA Section 5h(f)(2)(A). 

52CEA Section 5h(f)(2)(C) requires SEFs to 

establish rules specifying trading procedures to be 

used in entering and executing orders traded or 

posted on the trading platform, including block 

trades. The sentence annotated by this footnote also 

captures 2(B). 

53The Commission notes that examples of 

independent software vendors include: Smart order 

routers, trading software companies that develop 

front-end trading applications, and aggregators of 

transaction data. Smart order routing generally 

involves scanning of the market for the bestdisplayed price and then routing orders to that 

market for execution. Software that serves as a 

front-end trading application is typically used by 

traders to input orders, monitor quotations and 

view a record of the transactions completed during 

a trading session. Aggregators of transaction data 

provide access to news, analytics and execution 

services. The Commission believes that 

transparency and trading efficiency would be 

enhanced as a result of innovations in this field for 

market services. For instance, certain providers of 

market services with access to multiple trading 

systems or platforms could provide consolidated 

transaction data from such trading systems or 

platforms to market participants. 

54CEA Section 5h(f)(2)(B). 

55CEA Section 2(h)(8) requires counterparties 

transacting in swaps that are subject to the clearing 

requirement of Section 2(h) to execute the 

transaction on a DCM or a SEF, unless no DCM or 

SEF ‘‘makes the swap available to trade’’ or the swap 

transaction is subject to the clearing exception 

under Section 2(h)(7). The sentence annotated by 

this footnote captures both 2(C) and 2(D). 

56CEA Section 5h(f)(2)(A)(i). 

the clearing requirement be executed on 

a SEF or DCM.47 This trade execution 

requirement will not apply if (i) the 

Commission has not made a 

determination regarding the clearing 

requirement with respect to the swap,48

(ii) an eligible counterparty availed 

itself of an exception to the clearing 

requirement and does not wish to 

transact the swap on a SEF or DCM, or 

(iii) no DCM or SEF ‘‘makes the swap 

available to trade.’’ 49

The Commission proposes to require 

SEFs to make periodic assessments to 

determine whether a swap has been 

made available for trading. To that end, 

proposed § 37.10 requires each SEF to 

annually conduct an assessment and 

provide a report to the Commission 

regarding the determination that the 

swaps it offers are made available for 

trading thereunder. With respect to the 

determination that swaps are made 

available to trade, the SEF may consider 

frequency of transactions and open 

interest, and any additional factors 

requested by the Commission. 

Request for Comment: 

The Commission seeks general public 

comment regarding the meaning of 

‘‘made available for trading.’’ In 

addition, the Commission asks the 

public to respond to the specific 

questions below. 

• In addition to the frequency of 

transactions and open interest, should 

the Commission request that SEFs 

consider the number of market 

participants trading a particular swap? If 

so, should a minimum number of 

participants be required, for example, 

should the swap be traded by more than 

two participants? More than three? 

• Should the Commission request 

that SEFs consider any other factors or 

processes to make the determination 

that swaps are made available for 

trading? 

k. Identification of Non-Cleared Swaps 

or Swaps Not Made Available To 

Trade—Proposed § 37.11 

The Commission acknowledges that 

certain market participants may desire 

to avail themselves of the benefits of 

trading on SEFs (e.g., automated 

confirmation of trades, straight-through 

processing) with respect to trades that 

are not otherwise required to be 

executed on a SEF or DCM. In 

particular, market participants might 

want to effect swap transactions on 

SEFs or DCMs regarding swaps that 

have not been determined to come 

under the clearing mandate of Section 

2(h) of the CEA, transactions that are 

excepted from the clearing requirements 

as provided under Section 2(h)(7) of the 

CEA, and transactions regarding swaps 

determined to not be available for 

trading pursuant to Commission § 37.10. 

Proposed § 37.11 requires that if a SEF 

determines to provide for trading of 

swaps that are excepted from the 

clearing requirements, the SEF must 

clearly identify to market participants 

that the particular swap is to be 

transacted pursuant to one of the 

applicable exemptions from execution 

and clearing. 

C. Proposed Regulations, Guidance and 

Acceptable Practices for Compliance 

With the Core Principles 

As noted above, this rulemaking 

establishes the relevant regulations, 

guidance and acceptable practices 

applicable to the 15 core principles. As 

proposed, the regulations applicable to 

the 15 core principles are set out in 

separate subparts to Part 37, Subparts B 

through P, which includes a 

codification within each subpart of the 

statutory language of the respective core 

principle. The guidance and acceptable 

practices are set out in Appendix B. 

1. Subpart B—Core Principle 1 

(Compliance With Core Principles) 

Under Core Principle 1, compliance 

with the core principles, and any other 

rule or regulation that the Commission 

may impose under Section 8a(5) of the 

CEA, is a condition of obtaining and 

maintaining registration as a SEF.50 The 

Commission proposes to codify the 

statutory text of Core Principle 1 in 

proposed § 37.100. SEFs will have 

reasonable discretion in establishing the 

manner in which they comply with the 

core principles. 

2. Subpart C—Core Principle 2 

(Compliance With Rules) 

a. Background 

Core Principle 2 requires a SEF to 

establish and enforce compliance with 

its rules,51 including by: (1) Establishing 

various rules to deter abuses; and (2) 

having the capacity to detect, 

investigate, and enforce such rules.52

Similarly, under Core Principle 2, a SEF 

must establish and enforce rules to 

provide any eligible contract participant 

(‘‘ECP’’) and any independent software 

vendor (‘‘ISV’’) 53 with impartial access 

to the market and to capture information 

that the SEF may use in establishing 

whether rule violations have occurred.54

Additionally, SEF Core Principle 2 

requires a SEF to establish rules 

governing the operations of the trading 

platform and provide rules relating to 

the mandatory clearing requirement 

under Section 2(h)(8).55The 

Commission proposes to implement 

these requirements through §§ 37.200– 

37.207. 

Although SEFs are a new type of 

regulated exchange, the Commission 

notes that the statutory text for SEF Core 

Principle 2 is largely a compilation of 

established regulatory principles 

applicable to DCMs. As a result, 

proposed §§ 37.200–37.207, 

implementing SEF Core Principle 2, set 

forth requirements for establishing and 

enforcing rules, providing access, 

conducting trade practice surveillance, 

and implementing audit trail 

requirements and disciplinary rules, 

that are analogous to those found in the 

proposed regulations for DCM Core 

Principles 2, 10, and 13. In addition, 

proposed §§ 37.200–37.207 also address 

elements of Core Principle 2 that are not 

implicated by these DCM core 

principles. 

b. Operation of a Swap Execution 

Facility and Compliance With Rules— 

Proposed § 37.201 

Proposed § 37.201 addresses the 

requirement to establish and enforce 

rules. More specifically, the core 

principle requires that a SEF establish 

and enforce compliance with its 

rules.56A SEF is also required to 


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57CEA Section 5h(f)(2)(C). 

58CEA Section 5h(f)(2)(A)(ii) and (2)(B)(i). 

59Consent may be obtained in the form of a 

written agreement at the time that a member or 

market participant is granted access to the SEF. 60CEA Section 5h(f)(2)(B). 

61The prohibited practices include: trading ahead 

of customer orders, trading against customer orders, 

accommodation trading, and improper crosstrading. Specific trading practice violations that 

must be prohibited by all SEFs include: Frontrunning, wash trading, pre-arranged trading, 

fraudulent trading, money passes, and any other 

trading practices that the SEF deems to be abusive. 

These practices are a compilation of abusive trading 

practices that DCMs already prohibit, and include 

trading practices that Congress expressly prohibited 

in Section 747 of the Dodd-Frank Act. Section 747 

of the Dodd-Frank Act amends section 4c(a) of the 

CEA by adding three disruptive practices, which 

make it: 

Unlawful for any person to engage in any trading, 

practice, or conduct on or subject to the rules of a 

registered entity that— 

(A) Violates bids or offers; 

(B) Demonstrates intentional or reckless disregard 

for the orderly execution of transactions during the 

closing period; or 

(C) Is of the character of, or is commonly known 

to the trade as, ‘‘spoofing’’ (bidding or offering with 

the intent to cancel the bid or offer before 

execution). 

62 In making this determination, the proposed 

regulation requires that a SEF take into account 

specific facts and circumstances (e.g., volume of 

trading, the number of swaps listed, number of 

traders, etc.), as well as any other factors suggesting 

the need for increased resources. A factor that may 

suggest the need for increased compliance resources 

is a prolonged surge in trading volume or a 

prolonged period of price volatility. 

establish rules governing the operation 

of the trading platform.57

Proposed § 37.201 addresses these 

elements by requiring SEFs to establish 

rules governing the members’ and 

market participants’ use of their 

markets, including rules specifying 

trading procedures for entering and 

executing orders traded or posted on the 

trading platform, including block trades. 

Proposed § 37.201(b) further requires 

SEFs to establish and impartially 

enforce compliance with the rules of the 

SEF, including, but not limited to: (1) 

The terms and conditions of any swaps 

traded or processed on or through the 

SEF; (2) access rules for the SEF; (3) 

trade practice rules; (4) audit trail 

requirements; (5) disciplinary rules; and 

(6) mandatory trading requirements. 

c. Access Requirements—Proposed 

§ 37.202 

Proposed § 37.202 addresses Core 

Principle 2’s requirement that SEFs 

provide any ECP and any ISV with 

impartial access to the market, and that 

they adopt rules with respect to any 

limitations they place on access.58 In 

that regard, proposed § 37.202(a) 

requires a SEF to provide any ECP and 

any ISV with impartial access to its 

market(s) and market services 

(including any indicative quote screens 

or any similar pricing data displays), 

which includes establishing criteria that 

are impartial, transparent, and applied 

in a fair and nondiscriminatory manner 

and levying equal fees for participants 

receiving comparable access to, or 

services from, the SEF. The purpose of 

the proposed impartial access 

requirements is to prevent a SEF’s 

owners or operators from using 

discriminatory access requirements as a 

competitive tool against certain 

participants. Access to a SEF should be 

determined, for example, on the SEF’s 

impartial evaluation of an applicant’s 

disciplinary history and financial and 

operational soundness against objective, 

pre-established criteria. Any participant 

should be able to demonstrate financial 

soundness either by showing that it is 

a clearing member of a DCO that clears 

products traded on that SEF or by 

showing that it has clearing 

arrangements in place with such a 

clearing member. 

Proposed § 37.202(b) requires that, 

prior to granting a participant access to 

its markets, a SEF must require each 

member or market participant to 

consent to its jurisdiction.59 Finally, 

proposed § 37.202(c) requires a SEF to 

establish and impartially enforce its 

rules governing any decision to deny, 

suspend, or permanently bar 

participants’ access to the SEF, 

including when such decisions are part 

of a disciplinary or emergency action 

taken by the SEF. 

Request for Comment: 

The Commission solicits specific 

public comments regarding the 

sufficiency of proposed § 37.202. 

• In particular, the Commission is 

interested to know whether additional 

regulations are necessary to ensure that 

a SEF can assert jurisdiction over any 

person or entity executing swaps on the 

SEF, either for their own account or on 

behalf of another’s account. 

• The Commission also requests 

public comments on proposed 

§§ 37.202(a) and 37.202(c), which are 

intended to ensure that similarly 

situated persons and entities receive 

equal access to a SEF’s trading platform 

and services, and that similar access and 

services be charged a similar fee. 

• In addition, the Commission wants 

to know whether the proposed 

regulations seeking to prohibit a SEF 

from abusing its authority to deny or 

suspend access via disciplinary or 

emergency procedures are sufficient to 

prohibit discrimination by a SEF against 

competitors or for inappropriate 

business reasons. 

d. Rule Enforcement Program— 

Proposed § 37.203 

Proposed § 37.203 addresses SEF Core 

Principle 2’s requirement that SEFs 

establish and enforce trading and trade 

processing rules that will deter abuses 

and have the capacity to investigate and 

enforce those rules.60

Proposed regulation 37.203(a) 

addresses abusive trading practices by 

requiring SEFs to prohibit specific 

practices in connection with 

intermediated and non-intermediated 

trading activities,61 as well as any other 

manipulative or disruptive trading 

practices prohibited by the CEA or by 

the Commission pursuant to 

Commission regulation. 

Subsection (b) of the proposed 

regulation requires that a SEF have 

arrangements and resources for effective 

rule enforcement, including the 

authority to collect information and 

examine books and records of members 

and market participants. The 

Commission believes that SEFs must 

have appropriate resources to enforce all 

of its rules, including the ability to 

perform effective trade practice 

surveillance. Furthermore, a SEF must 

have the authority to examine books and 

records for all market participants. The 

Commission believes that a SEF can best 

administer its compliance and rule 

enforcement obligations by having the 

ability to reach the books and records of 

all market participants. 

Next, subsection (c) of proposed 

§ 37.203 requires that a SEF maintain 

sufficient compliance resources to 

conduct effective and timely audit trail 

reviews, trade practice surveillance, 

market surveillance, and real-time 

monitoring. A SEF must also monitor its 

staff size annually to ensure that it is 

appropriate to effectively perform those 

functions. A SEF’s staff size also must 

be sufficient to address unusual or 

unanticipated market or trading events 

while continuing to effectively conduct 

routine self-regulatory duties. Proposed 

§ 37.203 reflects the Commission’s belief 

that sufficient compliance staff are 

essential to the effectiveness of a SEF’s 

self-regulatory program. 

While requiring sufficient staff, 

proposed § 37.203(c) does not require 

that staff size be determined based on a 

specific formula. Rather, it permits the 

individual SEF to determine what size 

staff it needs to effectively perform its 

self-regulatory responsibilities.62

Proposed § 37.203(d) requires SEFs to 

maintain an automated trade 

surveillance system capable of detecting 


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63These systems typically differ from those 

systems used for real-time market monitoring. The 

requirements for real-time market monitoring can 

be found in proposed Commission § 37.203(e). 

64Mitigating circumstances may include: the 

complexity of the investigation, the number of firms 

or individuals involved as potential wrongdoers, 

the number of potential violations to be 

investigated, and the volume of documents and data 

to be examined and analyzed by compliance staff. 

65As noted below in the discussion of proposed 

§ 37.206(n), a SEF’s disciplinary committee should 

review a member’s complete disciplinary history 

when determining appropriate sanctions and 

impose meaningful sanctions on members who 

repeatedly violate the same or similar rules to 

discourage recidivist activity. 

66For purposes of this regulation, the 

Commission does not consider a ‘‘reminder letter’’ 

or such other similar letter to be any different than 

a warning letter. While a warning letter may be 

appropriate for a first-time violation, the 

Commission does not believe that more than one 

warning letter in a rolling 12-month period, 

whether for the same or similar violations is ever 

appropriate. A policy of issuing repeated warning 

letters to members and market participants who 

violate the same or similar rules, rather than issuing 

meaningful sanctions, reduces the effectiveness of 

a SEF’s rule enforcement program. 

67Self-regulatory functions include, for example, 

trade practice surveillance; market surveillance; 

real-time market monitoring; investigations of 

possible rule violations; and disciplinary actions. 

68Such decisions include, but are not limited to, 

those involving the cancellation of trades, the 

issuance of disciplinary charges against members or 

market participants, denials of access to the trading 

platform, and any decision to open an investigation 

into a possible rule violation. 

and investigating potential trade 

practice violations. At a minimum, a 

SEF’s systems must be capable of 

generating alerts on at least a trade date 

plus one day (T+1) basis to help staff 

focus on potential violations and 

anomalies found in trade data.63 They 

must also provide compliance staff the 

ability to sort, query and analyze 

voluminous amounts of data. In order to 

detect and prosecute the abusive trading 

practices enumerated in proposed 

§ 37.203(a), a SEF’s automated 

surveillance system must maintain all 

trade and order data, including order 

modifications and cancellations. In 

addition, a SEF’s automated trade 

surveillance system must provide users 

with the ability to compute retain, and 

compare trading statistics; compute 

profit and loss; and reconstruct the 

sequence of trading activity. The 

proposed regulation reflects the 

Commission’s belief that a SEF must 

have automated surveillance systems 

that are equivalent to those of a DCM in 

order to fulfill its trade practice 

surveillance requirements. 

Subsection (e) of proposed § 37.203 

requires SEFs to conduct real-time 

market monitoring of all trading activity 

on its trading platform, in order to 

ensure orderly trading and to identify 

and correct any market or system 

anomalies. The Commission’s proposed 

regulation requires that any price 

adjustments or trade cancellations be 

transparent to the market and subject to 

clear and fair publicly available 

standards. 

Next, proposed § 37.203(f) requires 

SEFs to establish procedures for 

conducting investigations and the 

requirements for an investigation report. 

Subsection (f)(1) requires that a SEF 

have procedures to conduct 

investigations of possible rule violations 

and subsection (f)(2) requires that an 

investigation be completed within a 

timely manner (generally defined as 12 

months after an investigation is opened, 

absent mitigating circumstances).64

Subsections (f)(3) and (f)(4) of 

proposed § 37.203 set forth what must 

be included in an investigation report. 

Subsection (f)(3) requires that when 

compliance staff believes there is a 

reasonable basis for finding a violation, 

the investigation report must include 

the potential wrongdoer’s disciplinary 

history. Similarly, subsection (f)(4) 

requires that an investigation report 

include the potential wrongdoer’s 

disciplinary history when compliance 

staff recommends that a warning letter 

be issued. The Commission believes that 

prior disciplinary history is critical 

information that a disciplinary 

committee should consider when either 

issuing a warning letter or assessing an 

appropriate penalty as part of any 

settlement decision or hearing.65

Subsection (f)(5) of proposed § 37.203 

provides that a SEF may authorize its 

compliance staff to issue a warning 

letter or to recommend that a 

disciplinary committee issue a warning 

letter. However, the proposed regulation 

prohibits SEFs from issuing more than 

one warning letter, in lieu of stronger 

disciplinary action, for the same 

violation during a rolling 12-month 

period.66

Finally, proposed § 37.203(g) requires 

a SEF to adopt and enforce any 

additional rules that it believes are 

necessary to comply with the 

requirements of proposed § 37.203. 

Request for Comment: 

The Commission requests public 

comment on proposed § 37.203. 

• In particular, the Commission 

requests public comment on the abusive 

trading practices enumerated in 

subsection 37.203(a). These practices 

are identical to the abusive trading 

practices prohibited in DCM trading. 

• The Commission also solicits 

comments regarding the types of 

abusive trading practices that should be 

prohibited on a SEF’s trading platform, 

particularly whether SEFs and DCMs 

are likely to face similar types of trading 

abuses by market participants, whether 

additional or different trading practices 

should be prohibited on a SEF, and 

whether SEFs should be required to 

have the same types of trade practice 

surveillance and real-time market 

monitoring programs as DCMs. 

• Finally, the Commission requests 

comments on whether the investigatory 

reports prepared by DCM compliance 

staff as a prelude to formal disciplinary 

proceedings, and included in these 

proposed regulations, are needed within 

SEFs. 

e. Regulatory Services Provided by a 

Third Party—Proposed § 37.204 

Proposed § 37.204 permits a SEF to 

utilize the services of a registered 

futures association or another registered 

entity for assistance in performing 

certain self-regulatory functions.67

However, SEFs remain responsible for 

the execution of these functions and for 

compliance with their associated core 

principles. In this regard, the 

Commission notes that the Dodd-Frank 

Act does not confer on SEFs the same 

right to delegate certain core principle 

compliance functions as that conferred 

to DCMs, pursuant to Section 5c(b) of 

the CEA. 

The proposed regulation requires that 

any SEF that contracts with a thirdparty regulatory service provider ensure 

that the provider has sufficient capacity 

and resources to render timely and 

effective regulatory services. The SEF 

must also oversee the quality of 

regulatory services provided on its 

behalf, and must retain exclusive 

authority with respect to all substantive 

decisions made by its regulatory service 

provider.68 The proposed regulation 

also specifies that any instances where 

a SEF’s actions differ from those 

recommended by its regulatory provider 

must be documented and explained in 

writing. 

Request for Comment: 

The Commission requests public 

comment on proposed § 37.204. 

• In particular, the Commission 

requests comments on the supervisory 

and decision-making relationship that 

should exist between a SEF and a thirdparty regulatory service provider. 

• The Commission also seeks public 

comment on the types of information 

that SEFs and their regulatory service 

providers should be required to share 

with other SEFs and regulatory service 

providers, in order to conduct effective 

surveillance of fungible swap products 

trading on multiple SEFs. 


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69CEA Section 5h(f)(2)(B)(ii). 

70For further explanation of the elements of an 

effective audit trail, see supra note 10, DCM NPRM. 

71Subsection (a) of the proposed regulation 

establishes the overarching requirements for SEFs’ 

audit trail programs, while Subsection (b) 

prescribes the four elements of an acceptable audit 

trail program and Subsection (c) prescribes the 

elements of an effective audit trail enforcement 

program. 

72For example, mandatory information includes 

a history of all orders and trades; all data input in 

the trade matching system for purposes of clearing; 

the categories of participant for which each trade 

is executed (i.e., the customer type indicator or 

‘‘CTI’’ codes); timing and sequencing data sufficient 

to reconstruct trading; and identification of each 

account to which fills are allocated. 

73See CEA Section 5h(f)(2)(B). In general, the 

proposed regulations addressing disciplinary 

procedures for SEFs parallel the disciplinary 

procedure regulations for DCMs. The proposed 

regulations pursuant to DCM Core Principle 13 are 

also similar to the text of the disciplinary 

procedures in part 8, which the Commission found 

to be the model for many DCMs’ disciplinary 

programs. 17 CFR 8.01 et seq. DCMs were exempt 

from Part 8 pursuant to § 38.2; however, the 

predecessor DCM Core Principle 13 offered the 

disciplinary procedures in Part 8 as an example of 

appropriate disciplinary procedures. 

74 Disciplinary panels must also adhere to the 

composition requirement of § 40.9(c)(3)(ii), as 

proposed, which provides that ‘‘Each Disciplinary 

Panel shall include at least one person who would 

not be disqualified from serving as a Public Director 

by § 1.3(ccc)(1)(i)–(vi) and (2) of this chapter (a 

‘‘Public Participant’’). Such Public Participant shall 

chair each Disciplinary Panel. In addition, any 

registered entity specified in paragraph (c)(3)(i) of 

this section shall adopt rules that would, at a 

minimum: (A) Further preclude any group or class 

of participants from dominating or exercising 

disproportionate influence on a Disciplinary Panel 

and (B) Prohibit any member of a Disciplinary Panel 

from participating in deliberations or voting on any 

matter in which the member has a financial 

interest.’’ See 75 FR 63752 (October 18, 2010). 

75The Commission notes that, while proposed 

§ 37.206(b) requires SEFs to empanel distinct bodies 

to issue charges and to adjudicate charges in a 

particular matter, SEFs may determine for 

themselves whether their Review and Hearing 

Panels are separate standing panels or ad hoc 

bodies whose members are chosen from a larger 

‘‘disciplinary committee’’ to serve in one capacity or 

Continued 

• Finally, because SEFs are not 

permitted to delegate core principle 

compliance functions, as are DCMs, are 

there any additional conditions that the 

Commission should impose on SEFs’ 

use of third-party regulatory service 

providers? 

f. Audit Trail Requirements—Proposed 

§ 37.205 

Proposed § 37.205 addresses SEF Core 

Principle 2’s requirements that a SEF be 

able to capture information that may be 

used to determine whether rule 

violations have occurred.69 Proposed 

§ 37.205 requirements are akin to the 

DCM regulations addressing audit trail 

requirements.70

Proposed § 37.205 requires that a SEF 

establish an audit trail, and sets forth 

the elements of an effective audit trail 

and the requirements for effective audit 

trail enforcement.71 The Commission 

believes that these requirements will 

help to ensure that SEFs can 

appropriately monitor and investigate 

any potential customer and market 

abuse. Additionally, the audit trail data 

captured by SEFs must be sufficient to 

reconstruct all transactions promptly, 

and to provide evidence of any rule 

violations that may have occurred. 

Subsection (b)(1) of the proposed 

regulation requires that a SEF’s audit 

trail include original source documents, 

defined to include unalterable, 

sequentially-identified records on 

which trade execution information is 

originally recorded, whether manually 

or electronically. It also requires that 

customer order records demonstrate the 

terms of the order, the unique account 

identifier that relates to the account 

owner, and the time of the order entry. 

Subsection (b)(2) of the proposed 

regulation requires that a SEF’s audit 

trail program include a transaction 

history database to facilitate rapid 

access and analysis of all original source 

documents. Subsection (b)(2) also 

specifies the trade information that must 

be included in a transaction history 

database.72 Subsection (b)(3) of the 

proposed regulation requires that a 

SEF’s audit trail program have 

electronic analysis capability for all data 

in its transaction history database and 

enable the SEF to reconstruct trades in 

order to identify possible rule 

violations. Subsection (b)(4) requires 

that a SEF’s audit trail program include 

the ability to safely store all audit trail 

data, and to retain it in accordance with 

the recordkeeping requirements of SEF 

Core Principle 10 and its associated 

regulations. Safe storage capability also 

requires a SEF to protect its audit trail 

data from unauthorized alteration, 

accidental erasure or other loss. 

Subsection (c) of proposed § 37.205 is 

organized in two parts. First, subsection 

(c)(1) requires that a SEF develop an 

effective audit trail enforcement 

program, which must, at a minimum, 

review all members and market 

participants annually to verify their 

compliance with all applicable audit 

trail requirements. Subsection (c)(1) also 

sets forth minimum review criteria for 

an electronic trading audit trail that 

must be carried out by each SEF. 

Finally, subsection (c)(2) requires that 

SEFs develop programs to ensure 

effective enforcement of their audit trail 

and recordkeeping requirements, 

including a requirement that SEFs levy 

meaningful sanctions when deficiencies 

are found. Sanctions may not include 

more than one warning letter or other 

non-financial penalty, in lieu of stronger 

disciplinary action, for the same 

violation within a rolling twelve-month 

period. 

Request for Comment: 

The Commission seeks public 

comment on the proposed audit trail 

and audit trail enforcement 

requirements for SEFs. 

• The Commission seeks specific 

public comment on whether such 

requirements should be similar for both 

SEFs and DCMs. 

• Should SEFs be subject to 

additional requirements beyond the 

proposed regulations? Are there 

elements of the proposed regulations 

that are inappropriate for SEFs? 

• For example, is the CTI code system 

used by DCMs to denote different types 

of futures participants also necessary for 

swap transactions on SEFs? 

• What specific data points should a 

SEF’s audit trail enforcement program 

seek to verify? 

g. Disciplinary Procedures and 

Sanctions—Proposed § 37.206 

Proposed § 37.206 addresses SEF Core 

Principle 2’s requirement that SEFs 

establish and enforce participation rules 

to deter abuse, and have the capacity to 

investigate and enforce such abuses.73

Subsection (a) of the proposed 

regulation requires that a SEF establish 

and maintain sufficient enforcement 

staff and resources to effectively and 

promptly prosecute possible rule 

violations within the jurisdiction of the 

SEF. Subsection (a) also provides that a 

SEF’s enforcement staff may not include 

members of the SEF or persons whose 

interests conflict with their enforcement 

duties. Moreover, a member of the 

enforcement staff may not operate under 

the direction or control of any person or 

persons with trading privileges at the 

SEF. These provisions seek to ensure 

the independence of enforcement staff, 

and help promote disciplinary 

procedures that are free of potential 

conflicts of interest. 

Subsection (b) requires SEFs to 

establish one or more Review Panels 

and one or more Hearing Panels 

(together, ‘‘disciplinary panels’’). Neither 

panel may include members of the 

SEF’s compliance staff or any person 

involved in adjudicating any other stage 

of the same proceeding.74 The proposed 

regulation provides that a Review Panel 

must be responsible for determining 

whether a reasonable basis exists for 

finding a violation of SEF rules, and for 

authorizing the issuance of a notice of 

charges, while a separate Hearing Panel 

must be responsible for adjudicating the 

matter and issuing sanctions.75


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the other for a particular disciplinary matter. The 

purposes of separate Review and Hearing Panels is 

to help ensure adjudication of disciplinary matters 

by separating a decision to issue charges from a 

hearing on the merits of a matter. 

76The proposed regulations permit a SEF to adopt 

rules providing that the failure to request a hearing 

within the time prescribed in the notice, except for 

good cause, must be deemed a waiver of the right 

to a hearing and that the failure to answer or deny 

expressly a charge must be deemed to be an 

admission of such charge. 

77Subsection (f) also permits a SEF, through its 

rules, to require that: (1) The answer must be in 

writing and include a statement that the respondent 

admits, denies or does not have and is unable to 

obtain sufficient information to admit or deny each 

allegation; (2) failure to file an answer on a timely 

basis shall be deemed an admission of all 

allegations in the notice of charges; and (3) failure 

in an answer to deny expressly a charge shall be 

deemed to be an admission of such charge. 

78 In addition, if a SEF adopts a rule concerning 

the admission or failure to deny charges pursuant 

to Proposed § 37.206(f), then Subsections (g)(1) 

through (g)(3) of the proposed regulation provide 

that: (1) The Hearing Panel must impose a sanction 

for each violation found to have been committed; 

(2) the SEF must promptly notify the respondent in 

writing of any sanction to be imposed and advise 

the respondent that they may request a hearing on 

such sanction within the period of time stated in 

the notice; and (3) the rules of the SEF may provide 

that if the respondent fails to request a hearing 

within the period of time stated in the notice, then 

the respondent will be deemed to have accepted the 

sanction. 

79Subsection (i) allows a respondent to withdraw 

his or her offer of settlement at any time before final 

acceptance by a disciplinary panel. If an offer is 

withdrawn after submission, or is rejected by a 

disciplinary panel, the respondent must not be 

deemed to have made any admissions by reason of 

the offer of settlement and must not be otherwise 

prejudiced by having submitted the offer of 

settlement. 

80For SEFs that permit appeals, the language in 

subsections (l)(1) through (l)(4) of proposed § 37.206 

generally require the SEF to: (1) Establish an 

appellate panel that is authorized to hear appeals; 

(2) ensure that the appellate panel composition is 

consistent with § 40.9(c)(3)(iii) and not include any 

members of the SEF’s compliance staff, or any 

person involved in adjudicating any other stage of 

the same proceeding; (3) except for good cause 

shown, the appeal or review must be conducted 

solely on the record before the Hearing Panel, the 

written exceptions field by the parties, and the oral 

or written arguments of the parties; and (4) 

promptly following the appeal or review 

proceeding, the board of appeals must issue a 

written decision and provide a copy to the 

respondent. The Commission notes that a 

respondent has certain rights of appeal to the 

Commission under Part 9 of the Commission’s 

regulations. 

Subsection (c) of the proposed 

regulation requires a Review Panel to 

promptly review an investigation report 

received pursuant to proposed 

§ 37.203(f)(3), and to take action within 

30 days of receipt. The Commission 

believes that prompt disciplinary action 

provides the best opportunity for 

witnesses to recall conversations, facts, 

and other information relevant to the 

matter, and transmits a clear signal to 

the market and to market participants 

that violations of exchange rules will 

not be tolerated. Subsection (c) also 

specifies the range of actions which a 

Review Panel may take upon receiving 

a completed investigation report. 

Subsection (d) describes the minimally 

acceptable contents of any notice of 

charges (‘‘notice’’) issued by a Review 

Panel. The notice must adequately state 

the acts, conduct, or practices in which 

the respondent is alleged to have 

engaged; state the rule(s) alleged to have 

been violated; and prescribe the period 

within which a hearing may be 

requested. Further, the notice must 

advise the respondent charged that he or 

she is entitled, upon request, to a 

hearing on the charges.76 Subsection (e), 

in turn, specifies a respondent’s right to 

be represented by any counsel or 

representative of his choosing upon 

receiving a notice of charges and in all 

succeeding stages of the disciplinary 

process. Subsection (f) requires that a 

respondent must be given a reasonable 

period of time to file an answer to a 

charges.77 Subsection (g) provides that, 

if a respondent admits or fails to deny 

any of the alleged violations a Hearing 

Panel may find that the violations 

admitted or not denied have been 

committed.78 Subsection (h) requires 

that in every instance where a 

respondent has requested a hearing on 

a charge that he or she denies, or on a 

sanction set by the Hearing Panel 

pursuant to proposed § 37.206(g), the 

respondent must be given the 

opportunity for a hearing in accordance 

with the requirements of proposed 

§ 37.206(j). 

Subsection (i) provides the 

procedures a SEF must follow when it 

settles a disciplinary case. The 

provision states that the rules of a SEF 

may permit a respondent to submit a 

written offer of settlement any time after 

an investigation report is completed. 

The disciplinary panel presiding over 

the matter may accept the offer of 

settlement, but may not alter the terms 

of the offer unless the respondent 

agrees. Subsection (i) requires a 

disciplinary panel that accepts a 

settlement offer to issue a written 

decision specifying the rule violations it 

has reason to believe were committed, 

and any sanction imposed, including 

any order of restitution where customer 

harm has been demonstrated. 

Significantly, proposed § 37.206(i)(3) 

also provides that if an offer of 

settlement is accepted without the 

agreement of a SEF’s enforcement staff, 

the decision must carefully explain the 

panel’s acceptance of the settlement.79

Subsection (j) requires a SEF to adopt 

rules that provide certain minimum 

requirements for any hearing conducted 

pursuant to a notice of charges. In 

general, Subsections (j)(1)(i) through 

(j)(1)(vi) require that the SEF: (1) 

Provide a fair hearing; (2) permit 

respondents to examine evidence relied 

on by enforcement staff in presenting 

the notice of charges; (3) require 

enforcement and compliance staffs to be 

parties to the hearing and enforcement 

staff to present their case on those 

charges and sanctions that are the 

subject of the hearing; (4) permit 

respondents to appear personally at the 

hearing, to cross-examine and call 

witnesses and to present evidence; (5) 

require that persons within its 

jurisdiction who are called as witnesses 

participate in the hearing and produce 

evidence; and (6) transcribe and retain 

a copy of the hearing. Additionally, 

subsection (j)(2) specifies that the rules 

of the SEF may provide that a sanction 

be summarily imposed upon any person 

within its jurisdiction whose actions 

impede the progress of a hearing. 

Subsection (k) details the procedures 

that a Hearing Panel must follow in 

rendering disciplinary decisions. The 

provision requires that all decisions 

include: (1) A notice of charges or a 

summary of the charges; (2) an answer, 

if any, or a summary of the answer; (3) 

a summary of the evidence produced at 

the hearing or, where appropriate 

incorporation by reference in the 

investigation report; (4) a statement of 

findings and conclusions with respect to 

each charge, and a careful explanation 

of the evidentiary and other bases for 

such findings and conclusions with 

respect to each charge; (5) an indication 

of each specific rule which the 

respondent was found to have violated; 

and (6) a declaration of any penalty 

imposed against the respondent, 

including the basis for such sanctions 

and the effective date of such sanctions. 

Subsection Proposed § 37.206(l) 

provides the procedures that a SEF must 

follow in the event that the SEF’s rules 

authorize an appeal of adverse decisions 

in all or in certain classes of cases.80

Notably, the proposed § requires a SEF 

that permits appeals by disciplinary 

respondents to also permit appeals by 

its enforcement staff. This provision 

reflects the Commission’s belief that 

SEF enforcement staff must have the 

discretion to appeal disciplinary panel 

decisions that, for example, do not 

adequately sanction a respondent’s 

violative conduct. Subsection (m) 

requires that each SEF establish rules 

setting forth when a decision rendered 

under this subsection C will become the 

final decision of the SEF. 

Subsection (n) requires that every 

disciplinary sanction imposed by a SEF 

must be commensurate with the 


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81Proposed § 37.203(f)(3) also requires that a 

copy of a member or market participant’s 

disciplinary history be included in the compliance 

staff’s investigation report. 82See, supra note 10, DCM NPRM. 

violations committed and must be 

clearly sufficient to deter recidivism or 

similar violations by other market 

participants. Additionally, the proposed 

regulation requires that, in the event of 

demonstrated customer harm, any 

disciplinary sanction must include full 

customer restitution. In evaluating 

appropriate sanctions, the proposed 

regulation requires the SEF to take into 

account a respondent’s disciplinary 

history.81

Subsection (o) permits a SEF to adopt 

a summary fine schedule for violations 

of rules relating to timely submission of 

accurate records required for clearing or 

verifying each day’s transactions. The 

proposed regulation makes clear that a 

SEF should issue no more than one 

warning letter in a rolling 12-month 

period for the same violation before 

sanctions are imposed. Additionally, the 

proposed regulation specifies that a 

summary fine schedule must provide for 

progressively larger fines for recurring 

violations. The Commission believes 

that these provisions will serve to 

discourage recidivist behavior. 

Finally, subsection (p) provides that a 

SEF may impose an immediate sanction 

upon a reasonable belief that such 

action is necessary to protect the best 

interest of the marketplace. The 

proposed regulation also provides that 

any emergency action taken by the SEF 

must be performed in accordance with 

certain procedural safeguards. 

Request for Comment: 

The Commission seeks public 

comment on proposed § 37.206. 

• In particular, comments should 

address whether SEFs should be subject 

to the detailed disciplinary procedures 

proposed herein. The proposed 

disciplinary procedures emphasize 

procedural safeguards for respondents, 

including a clear separation between 

SEF personnel recommending the 

issuance of charges, review panels 

determining whether charges should be 

issued, and hearing panels adjudicating 

cases on the merits. Are these 

disciplinary procedures sufficient for 

SEFs? Or, should SEFs instead utilize a 

more streamlined disciplinary process 

that features, for example, a robust staff 

summary fine program rather than 

formal disciplinary hearings. 

• Finally, given the significant 

financial resources of the ECPs 

conducting swap transactions on SEFs, 

should Commission regulations provide 

more detailed guidelines on the 

appropriate size of any financial 

penalties levied by SEFs for violative 

conduct? Should any such guidelines 

take cognizance of the financial 

resources of potential respondents? 

h. Swaps Subject to Mandatory 

Clearing—Proposed § 37.207 

Proposed § 37.207 mandates that SEFs 

provide rules that require swap dealers 

or major swap participants, who trade a 

swap subject to the mandatory clearing 

requirement under Section 2(h)(1), to 

execute the transaction on either a DCM 

or a SEF. However, swap dealers or 

major swap participants are not required 

to execute such transactions if no DCM 

or SEF makes the swap available to 

trade. 

3. Subpart D—Core Principle 3 (Swaps 

Not Readily Susceptible to 

Manipulation) 

Under Core Principle 3, Congress 

required that SEFs offer for trading 

swaps that are not readily susceptible to 

manipulation. The Commission notes 

that the statutory language of Core 

Principle 3 is substantively identical to 

the counterpart core principle under 

Section 5(d)(3) of the CEA as applicable 

to DCMs. Historically, DCMs complied 

with the requirements of Section 5(d)(3) 

by using as guidance the provisions of 

Guideline No. 1, contained in Appendix 

A to Part 40. In a separate release, the 

Commission proposes certain revisions 

to the former Guideline No. 1, 

including: (i) Amending the provisions 

to include swap transactions, (ii) retitling the guidance as ‘‘Demonstration 

of compliance that a contract is not 

readily susceptible to manipulation,’’ 

and (iii) re-designating the guidance to 

be included under Appendix C to Part 

38.82

Accordingly, proposed § 37.301 

requires that, applicants and SEFs must 

provide to the Commission the 

information required under Appendix C 

to Part 38 for purposes of demonstrating 

to the Commission that their swap 

contracts are not readily susceptible to 

manipulation. 

Under Appendix B to Part 37, the 

guidance for compliance with Core 

Principle 3 focuses on the selection and 

construction of the price index on 

which the swaps’ cash flows are based. 

If obtained from a private third-party, 

the company should be independent 

and reputable. Moreover, the third party 

should use a sound, well-documented 

methodology that protects the index 

from manipulation. If the SEF itself 

determines the price index, then it 

should take precautions to safeguard 

against attempts to artificially influence 

the index. In this regard, if the price 

index is based on a survey of cash 

market sources, then the SEF should 

maintain a list of such entities which all 

should be reputable sources with 

knowledge of the cash market. In 

addition, the sample of sources polled 

should be representative of the cash 

market, and the poll should be 

conducted at a time when trading in the 

cash market is active. The cashsettlement survey should include a 

minimum of four independent entities if 

such sources do not take positions in 

the commodity (e.g., if the survey list is 

comprised exclusively of brokers) or at 

least eight independent entities if such 

sources trade for their own accounts 

(e.g., if the survey list is comprised of 

dealers or commercial users). 

4. Subpart E—Core Principle 4 

(Monitoring of Trading and Trade 

Processing) 

Under Core Principle 4, Congress 

required that SEFs must take an active 

role in preventing manipulation, price 

distortion and disruptions of the 

delivery or cash settlement process. 

Accordingly, the proposed regulations 

under Subpart E of Part 37 clarify the 

related responsibilities for applicants 

and SEFs to monitor trading activities 

and prevent market disruptions. 

a. General Requirements—Proposed 

§ 37.401 

Proposed § 37.401 requires that 

applicants and SEFs must collect, 

monitor and evaluate data to detect and 

prevent manipulative activity. Proposed 

§ 37.401 also requires that applicants 

and SEFs have the ability to conduct 

real-time monitoring of trading and 

comprehensive and accurate trade 

reconstructions. 

As noted above in its discussion of 

the need for automated tools in 

connection with Core Principle 2 

requirements, the Commission believes 

that it would be difficult, if not 

impossible, to monitor for market 

disruptions in markets with high 

transaction volume and a large number 

of trades unless the SEF has installed 

automated trading alerts to detect many 

types of potential violations of exchange 

or Commission rules. Accordingly, the 

Commission proposes in § 37.401 to 

require that, where the SEF cannot 

reasonably demonstrate that its manual 

processes are effective in detecting and 

preventing abuses, the SEF must 

implement automated trading alerts to 

detect potential problems. 


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83Price bands would prevent clearly erroneous 

orders from entering the trading system, including 

‘‘fat finger’’ errors, by automatically rejecting orders 

priced outside of a range of reasonability. 

84Maximum order size limitations would prevent 

entry into the trading system of an order that 

exceeds a maximum quantity established by the 

SEF. 

85Stop loss orders would be triggered if the 

market declines to a level pre-selected by the 

person entering the order. This mechanism would 

provide that when the market declines to the 

trader’s pre-selected stop level for such an order, 

the order would become a limit order executable 

only down to a price within the range of 

reasonability permitted by the system, instead of 

becoming a market order. 

86 Kill buttons would give clearinghouses 

associated with a SEF the ability to delete open 

orders and quotes and reject entry of new orders or 

quotes in instances where a trader breaches its 

obligations with the clearinghouse. See FIA Market 

Access Risk Management Recommendations, p. 10 

(April 2010). 

Request for Comment: 

The Commission seeks public 

comment on whether in any rule the 

Commission may adopt in this matter, 

SEFs should be required to monitor the 

extent of high frequency trading, and 

whether automated trading systems 

should include the ability to detect and 

flag high frequency trading anomalies. 

b. Additional Requirements for 

Physical-Delivery Swaps—Proposed 

§ 37.402 

For physical delivery swaps, 

proposed § 37.402 requires that SEFs 

monitor each swap’s terms and 

conditions as well as take meaningful 

corrective action to allow market 

participants to continue to use the 

market to make sound hedging 

decisions and for price discovery. 

c. Additional Requirements for CashSettled Swaps—Proposed § 37.403 

Over the past several years, there has 

been a growth in markets that are 

linked, for example, where the 

settlement price of one market is linked 

to the prices established in another 

market. As a result, traders may have 

incentives to disrupt or manipulate 

prices in the reference market in order 

to influence the prices in the linked 

market. The Commission believes that 

in such situations SEFs must monitor 

trading in the market to which its swap 

is linked. Accordingly, proposed 

§ 37.403 requires that, where a swap is 

settled by reference to the price of an 

instrument traded in another venue the 

SEF must either have an information 

sharing agreement with the other venue 

or be able to independently determine 

that positions or trading in the reference 

instrument are not being manipulated to 

affect positions or trading in its swap. 

d. Ability To Obtain Information— 

Proposed § 37.404 

To ensure that SEFs have the ability 

to properly assess the potential for price 

manipulation, price distortions, and the 

disruption of the delivery or cashsettlement process, proposed § 37.404 

provides that SEFs require that traders 

in their market keep and make available 

records of their activity in underlying 

commodities and related derivatives 

markets and swaps. 

e. Risk Controls for Trading—Proposed 

§ 37.405 

Proposed § 37.405 requires that a SEF 

have effective risk controls to reduce the 

potential risk of market disruptions and 

ensure orderly market conditions. In the 

current futures markets, DCMs have 

implemented a variety of risk controls to 

avoid market disruptions through 

restrictions on order entry, including 

daily price limits, price/quantity bands, 

and trading pauses. In order to prevent 

market disruptions due to sudden 

volatile price movements, proposed 

§ 37.405 requires SEFs to have in place 

effective risk controls, including but not 

limited to pauses and/or halts to trading 

in the event of extraordinary price 

movements that may result in distorted 

prices or trigger market disruptions. 

Such risk controls can, among other 

things, allow time for participants to 

analyze the market impact of new 

information that may have caused a 

sudden market move, allow new orders 

to come into a market that has moved 

dramatically, and allow traders to assess 

and secure their capital needs in the 

face of potential margin calls. Moreover, 

where a swap is linked to, or a 

substitute for, other swaps on the SEF 

or other trading venues, including 

where a swap is based on the level of 

an equity index, risk controls should be 

coordinated with those on the similar 

markets or trading venues, to the extent 

possible. 

The desirability of coordination of 

various risk controls, for example, 

‘‘circuit breakers’’ in equities and their 

various derivatives including futures 

and options, recently has been the 

subject of discussions by regulators and 

the industry. The Commission believes 

that pauses and halts are effective risk 

management tools and must be 

implemented by SEFs to facilitate 

orderly markets. These basic risk 

controls also have proven to be effective 

and necessary in preventing market 

disruptions. The Commission 

recognizes that pauses and halts are 

only one category of risk controls and 

that additional controls may be 

necessary to further reduce the potential 

for market disruptions. Such controls 

may include price collars or bands,83

maximum order size limits,84 stop loss 

order protections,85 kill buttons,86 and 

others. 

Request for Comment: 

The Commission is considering 

mandating in this rulemaking risk 

controls that are appropriate and/or 

necessary. Accordingly, the Commission 

invites comments on the 

appropriateness of these and other 

controls that could supplement trading 

halts or pauses. The Commission also 

invites comments on the following 

additional questions: 

• Which risk controls should be 

mandated and how? 

• What types of pauses and halts are 

necessary and appropriate for particular 

market conditions? 

• What other risk controls are 

appropriate or necessary to reduce the 

risk of market disruptions? 

f. Trade Reconstruction—Proposed 

§ 37.406 

Under Core Principle 4, Congress 

required that SEFs have the ability to 

comprehensively and accurately 

reconstruct all trading on its facility. 

Proposed § 37.406 sets forth this 

requirement, including the requirement 

that audit-trail data and reconstructions 

be made available to the Commission 

upon request. 

g. Additional Rules Required—Proposed 

§ 37.407 

Proposed § 37.407 requires SEFs to 

adopt and enforce any additional rules 

that it believes are necessary to comply 

with the requirements of Subpart E. 

5. Subpart F—Core Principle 5 (Ability 

To Obtain Information) 

The proposed regulations under 

Subpart F require an applicant and a 

SEF to have the ability and authority, 

necessary Core Principle 5, to obtain 

necessary information to perform its 

obligations. 

6. Subpart G—Core Principle 6 (Position 

Limits or Accountability) 

Under Core Principle 6, Congress 

required that SEFs adopt for each swap, 

as is necessary and appropriate, position 

limits or position accountability. In 

addition, Congress required that, for any 

contract that is subject to a Federal 

position limit under CEA Section 4a(a), 

the SEF shall set its position limits at a 

level no higher than the position 

limitation established by the 

Commission in its Part 151 regulations. 

Proposed § 37.601 requires that each 

SEF must comply with the requirements 

of Part 151 in order to be in compliance 

with Core Principle 6. 


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87The Commission interprets the mandatory 

clearing requirement in Section 723(a)(3) of the 

Dodd-Frank Act to mean that a DCO must clear a 

swap for any DCM or SEF that requests such 

clearing services, so long as the DCO offers the 

swap. In addition, a DCO that is clearing particular 

swaps must also clear the same swaps when listed 

on DCMs or SEFs, whether affiliated or unaffiliated, 

on a nondiscriminatory basis. 

88Separately, if the SEF determines to allow swap 

transactions that are not cleared, the SEF must have 

provisions to determine that the swap meets the 

exemption to the clearing requirement provided 

under section 2(h)(7) of the CEA, as amended by the 

Dodd-Frank Act. 

89 In situations where a swap is traded on more 

than one platform, emergency action to liquidate or 

transfer open interest must be directed, or agreed 

to, by the Commission or Commission staff. 

90See, supra note 10, DCM NPRM; 75 FR 76140 

(December 7, 2010); and 75 FR 76574 (December 8, 

2010). 

91CEA Section 5h(f)(10)(A) requires all SEFs to: 

Maintain records of all activities relating to the 

business of each SEF, including a complete audit 

trail, for a period of at least five years; report to the 

Commission, in a form and manner acceptable to 

the Commission, such information as the 

Commission determines to be necessary or 

appropriate; and keep records relating to swaps 

defined in CEA Section 1a(47)(A)(v) open to 

inspection and examination by the Securities and 

Exchange Commission. CEA Section 5h(f)(10)(B) 

requires the Commission to ‘‘adopt data collection 

and reporting requirements for swap execution 

facilities that are comparable to corresponding 

requirements for derivatives clearing organizations 

and swap data repositories.’’ The Commission’s data 

standards are included in proposed rules in Part 45 

of the Commission’s regulations. 

92The Commission notes that it has always 

considered audit trails and investigatory and 

disciplinary files as a part of the records which a 

DCM is required to maintain and which the 

Commission is permitted to request and to examine. 

In this respect, the proposed regulation merely 

codifies existing Commission practice. 

7. Subpart H—Core Principle 7 

(Financial Integrity of Transactions) 

Proposed § 37.700 sets out the 

financial integrity requirements for 

transactions on a SEF, as required under 

Core Principle 7. Under such core 

principle, a SEF must establish and 

enforce rules to ensure the financial 

integrity of swaps entered on or through 

the facilities of the SEF, including the 

clearing and settlement of the swaps. 

The requirements of proposed § 37.700 

depend, in part, on whether the swap is 

cleared.87

Under proposed § 37.702(a), a SEF 

must ensure that all its members meet 

the definition of ‘‘eligible contract 

participant’’ under CEA Section 1(a)(18). 

Under proposed § 37.702(b), for swaps 

cleared by a DCO, a SEF must ensure 

that it has the capacity to route 

transactions to the DCO. With respect to 

swaps that are not required to be 

cleared, a SEF must impose additional 

requirements to ensure the financial 

integrity of the transaction,88 including 

requiring the transacting member to 

have entered into a credit arrangement 

for the transaction, demonstrate an 

ability to exchange collateral, and have 

appropriate credit filters in place. The 

Commission believes that these 

additional requirements are necessary in 

light of the fact that uncleared swaps 

will not have the risk management 

protections of a DCO. 

The Commission requests comment 

on whether these standards are 

appropriate financial integrity 

safeguards for SEFs. Specifically, the 

Commission solicits comment regarding 

how SEF members would demonstrate 

sufficient credit documentation and 

ability to exchange collateral. 

Request for Comment: 

The Commission seeks public 

comment on the proposed rule, and 

specifically on the following questions: 

• Whether SEFs should provide 

additional controls to permit FCMs to 

manage their risks? If so, what specific 

direct access controls and procedures 

should SEFs implement? 

• Should such controls be 

mandatory? 

8. Subpart I—Core Principle 8 

(Emergency Authority) 

Under Core Principle 8, a SEF must 

provide for emergency situations. Based 

upon its experience with DCMs, and in 

recognition of the fact that individual 

SEFs may have different approaches to 

handling emergency action, proposed 

§ 37.801 refers to the guidance in 

Appendix B to Part 37 to demonstrate 

compliance with Core Principle 8. 

The guidance reflects the 

Commission’s belief that there should 

be an increased emphasis on crossmarket coordination of emergency 

actions and SEFs should have alternate 

lines of communication and approval 

procedures in order to address 

emergencies in real time. 

The Commission’s experience has 

demonstrated that there are some 

specific requirements that at a minimum 

should be followed and these 

requirements are incorporated under the 

proposed guidance. Specifically, the 

SEF should have procedures and 

guidelines for decision-making and 

implementation of emergency 

intervention in the market. The SEF 

should have the authority to perform 

various actions, including without 

limitation: Liquidating or transferring 

open positions in the market,89

suspending or curtailing trading in any 

swap, and taking such market actions as 

the Commission may direct. In addition, 

the guidance notes that SEFs must 

provide prompt notification and 

explanation to the Commission of the 

exercise of emergency authority, and 

that information on all regulatory 

actions carried out pursuant to a SEF’s 

emergency authority should be included 

in a timely submission of a certified 

rule. 

9. Subpart J—Core Principle 9 (Timely 

Publication of Trading Information) 

Under Core Principle 9, Congress 

required that SEFs make available to the 

public timely information on price, 

trading volume, and other trading data 

on swaps to the extent prescribed by the 

Commission. Congress also required a 

SEF to have the capability of 

electronically capturing trade 

information for those transactions that 

occur on the trading system or platform. 

These matters are addressed in separate 

releases.90 Proposed § 37.901 requires 

that SEFs comply with the real-time 

swap reporting and swap reporting and 

recordkeeping requirements being 

separately proposed by the Commission. 

Request for Comment: 

In order to address all relevant 

considerations with respect to the 

reporting requirements of Core Principle 

9, the Commission seeks general 

comments and asks the public to 

respond to the specific questions below. 

• For interest rate swaps, because the 

term life on an interest rate swap can be 

one of a large number of possible 

periods along a yield curve, what would 

be an appropriate manner to display 

prices? 

• Would prices for interest rate swaps 

be meaningful or misleading and why? 

• If the prices are misleading, what 

useful information should be displayed 

at the end of the trading day? 

• Please identify any other swap 

products that have similar price 

reporting issues and address how the 

prices for that product should be 

reported to provide a summary of the 

trading for that day. 

10. Subpart K—Core Principle 10 

(Recordkeeping and Reporting) 

Core Principle 10 establishes a threepart recordkeeping and reporting 

requirement applicable to all SEFs, 

which the Commission proposes to 

implement through proposed 

§§ 37.1001–37.1003.91

Proposed § 37.1001 largely codifies 

the statutory language of Core Principle 

10. In addition, it clarifies that 

investigatory and disciplinary files are 

included in the records that a SEF must 

maintain, and requires that a SEF 

comply with the recordkeeping 

requirements of § 1.31.92

By incorporating § 1.31, proposed 

§ 37.1001 effectively requires that SEF 

books and records be readily accessible 

for the first 2 years of the minimum 5- 


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93Proposed § 37.1001 also effectively 

incorporates § 1.31(b)’s description of the 

permissible methods of storing books and records. 

Consequently, a SEF may store its books and 

records as prescribed by § 1.31(b)(1)(ii). Among 

other criteria, § 1.31(b)(1)(ii) defines electronic 

storage media as ‘‘any digital storage medium or 

system that preserves the records exclusively in a 

non-rewritable, non-erasable format [and] verifies 

automatically the quality and accuracy of the 

storage media recording process * * *.’’ SEFs must, 

at all times, have the facilities to immediately 

produce and be prepared to present legible hardcopy images of such records. Additionally, SEF’s 

must keep only Commission-required records on 

the media, store a duplicate of the record at a 

separate location, and organize and maintain an 

accurate index of all information maintained on 

both the original and duplicate storage media. SEFs 

that use electronic storage media are also required 

to develop and maintain an audit system to track 

the initial entry of original or duplicate records and 

any subsequent changes made thereafter. Proposed 

§ 37.1001 also incorporates §§ 1.31(c) and 1.31(d), 

which expand upon the requirements established 

by proposed § 37.1001. Section 1.31(c) requires that 

record-keepers who employ an electronic storage 

system certify with Commission that the system 

meets the requirements of an electronic storage 

media as defined in § 1.31(b)(1)(ii). Section 1.31(d) 

states that trading cards, documents on which trade 

information is originally recorded in writing, 

certain written orders, and paper copies of certain 

electronically filed forms and reports with original 

signatures must be retained in hard-copy for the 

requisite time period. Finally, proposed § 37.1001 

also requires that SEFs comply with the 

recordkeeping requirements applicable to swaps in 

proposed Part 45. 

94The Commission anticipates that the records it 

will routinely request will include, for example, 

daily trading records, board of directors’ meeting 

minutes, investigatory and disciplinary files, 

information regarding resources allocated to 

compliance functions, and other records used in the 

Commission’s trade practice surveillance program 

and rule enforcement review program. 

95CEA Section 5h(f)(10)(A)(iii). 

96Part 38 contains guidance governing 

compliance with former Core Principle 18. 17 CFR 

part 38, App. B. 

97Prior to the Dodd-Frank Act, the DCM core 

principle on antitrust considerations was numbered 

as DCM Core Principle 18. 

98 DCM Core Principle 16 and DCO Core Principle 

P, both as amended by the Dodd-Frank Act. 

99 75 FR 63732 (October 18, 2010). 

100Some foreign regulatory authorities already 

have similar requirements for the equivalent 

entities they regulate. For example, the UK 

Financial Services Authority’s (‘‘FSA’’) recognition 

requirements for UK recognized investment 

exchanges and UK recognized clearing houses 

(collectively, ‘‘UK recognized bodies’’) include the 

maintenance of financial resources sufficient to 

ensure that the UK recognized body would be able 

to complete an orderly closure or transfer of its 

business without being prevented from doing so by 

insolvency or lack of available funds. Section 2.3.7 

of the FSA Recognition Requirements calls for a UK 

recognized body to have at all times liquid financial 

assets amounting to at least six months’ operating 

costs and net capital of at least that amount. 

101See American Institute of Certified Public 

Accountants Auditing Standards Board Statement 

of Auditing Standards No. 59, The Auditor’s 

Consideration of an Entity’s Ability to Continue as 

a Going Concern, as amended. 

year statutory period and be open to 

inspection by any representatives of the 

Commission or the United States 

Department of Justice.93 The SEF, at its 

own expense, must promptly provide 

either a copy or the original books or 

records upon request. 

The statutory regime for SEFs 

established by the Dodd-Frank Act 

envisions ongoing Commission 

oversight of SEFs and their trading 

activity. Such oversight will resemble, 

in concept, the oversight already 

conducted by the Commission with 

respect to DCMs. Accordingly, proposed 

§ 37.1002 requires that SEFs report to 

the Commission any information 

necessary or appropriate for the 

Commission to perform its oversight 

duties. The proposed regulation does 

not articulate specific information that 

must be provided to the Commission; 

instead, it establishes the general 

requirement that SEFs must provide any 

relevant data requested by the 

Commission in a form and manner 

acceptable to the Commission.94

Proposed § 37.1003 codifies Core 

Principle 10’s statutory requirement that 

a SEF keep any records relating to 

security-based swap agreements defined 

in Section 1a(47)(A)(v) of the CEA open 

to inspection and examination by the 

Securities and Exchange Commission 

(‘‘SEC’’).95

11. Subpart L—Core Principle 11 

(Antitrust Considerations) 

Core Principle 11 governs the 

antitrust obligations of SEFs.96 This SEF 

core principle is substantially similar to 

DCM Core Principle 19.97 The 

Commission believes that the existing 

guidance applicable to DCM Core 

Principle 19 remains appropriate. 

Accordingly, the Commission proposes 

to codify the statutory text of Core 

Principle 11 into proposed § 37.1100. 

Additionally, proposed § 37.1101 refers 

applicants and SEFs to the guidance in 

Appendix B to Part 37 for purposes of 

demonstrating compliance with 

proposed § 37.1100. 

12. Subpart M—Core Principle 12 

(Conflicts of Interest) 

Core Principle 12 governs conflicts of 

interest. Like Core Principle 11, Core 

Principle 12 is substantially similar to 

both the DCM and the DCO conflicts of 

interest core principles, as amended by 

the Dodd-Frank Act.98 As a result, the 

Commission proposes to handle Core 

Principle 12 consistent with its 

handling of those DCM and DCO core 

principles. This release proposes to 

codify the statutory text of the core 

principle in proposed § 37.1200. The 

applicable regulations implementing 

this core principle were proposed in a 

separate release titled ‘‘Requirements for 

Derivatives Clearing Organizations, 

Designated Contract Markets, and Swap 

Execution Facilities Regarding the 

Mitigation of Conflicts of Interest.’’ 99

13. Subpart N—Core Principle 13 

(Financial Resources) 

Core Principle 13 requires that a SEF 

have adequate financial resources to 

discharge its responsibilities. In 

particular, SEFs must maintain financial 

resources sufficient to cover operating 

costs for a period of at least one year, 

calculated on a rolling basis. 

a. General Rule 

Under proposed § 37.1301(b), SEFs 

that also operate as DCOs are also 

subject to the financial resource 

requirements for DCOs in proposed 

§ 39.11. Proposed § 37.1301(c) would 

require that SEFs maintain sufficient 

financial resources to cover operating 

costs for at least one year, calculated on 

a rolling basis—i.e., at all times. The one 

year period is required under the CEA. 

The Commission believes that a oneyear timeframe would allow a SEF’s 

business to wind down in an orderly 

fashion and should generally enhance 

the financial integrity of the markets.100

The one-year period also is consistent 

with established accounting standards, 

under which an entity’s ability to 

continue as a going concern comes into 

question if there is evidence that the 

entity may be unable to continue to 

meet its obligations in the next 12 

months without substantial disposition 

of assets outside the ordinary course of 

business, restructuring of debt, 

externally forced revisions of its 

operations, or similar actions.101

b. Types of Financial Resources 

Under proposed § 37.1302, financial 

resources available to SEFs to satisfy the 

applicable financial requirements would 

include the SEF’s own capital (assets in 

excess of liabilities) and any other 

financial resource deemed acceptable by 

the Commission. A SEF would be able 

to request an informal interpretation 

from CFTC staff on whether or not a 

particular financial resource would be 

acceptable. 

Request for Comment: 

The Commission invites commenters 

to recommend particular financial 

resources for inclusion in the final 

regulation. 

c. Computation of Financial Resource 

Requirement 

Proposed § 37.1303 would require 

that a SEF, at the end of each fiscal 

quarter, make a reasonable calculation 

of the financial resources it needs to 

meet the requirements of proposed 


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102The Commission would permit each SEF to 

exercise its discretion in determining the applicable 

haircuts. However, such haircuts are subject to 

Commission review and must be acceptable to the 

Commission. 

§ 37.1301. In the first instance, the SEF 

would have reasonable discretion in 

determining how to make this 

calculation, the Commission may 

require changes as appropriate. 

d. Valuation of Financial Resources 

Proposed § 37.1304 would require 

that SEFs, no less frequently than 

quarterly, calculate the current market 

value of each financial resource used to 

meet their obligations under these 

proposed regulations. Additionally, 

SEFs would have to perform the 

valuation at other times as appropriate. 

This provision is designed to address 

the need to update valuations in 

circumstances where there may have 

been material fluctuations in market 

value that could impact a SEF’s ability 

to meet its obligations under proposed 

§ 37.1301. When valuing a financial 

resource, a SEF would be required to 

reduce the value, as appropriate, to 

reflect any market or credit risk specific 

to that particular resource, i.e., apply a 

haircut.102

e. Liquidity of Financial Resources 

Proposed § 37.1305 would require 

that SEFs maintain unencumbered 

liquid financial assets, such as cash or 

highly liquid securities, equal to at least 

six months’ operating costs. The 

Commission believes that having six 

months’ worth of unencumbered liquid 

financial assets would give a SEF time 

to liquidate the remaining financial 

assets it would need to continue 

operating for the last six months of the 

required one-year period. If a SEF does 

not have six months’ worth of 

unencumbered liquid financial assets, it 

would be allowed to use a committed 

line of credit or similar facility to satisfy 

this requirement. 

The Commission notes that a 

committed line of credit or similar 

facility is not listed in proposed 

§ 37.1302 as a financial resource 

available to a SEF to satisfy the 

requirements of proposed § 37.1301. A 

SEF may only use such resources to 

meet the liquidity requirements of 

proposed § 37.1305. 

f. Reporting Requirements 

Under proposed § 37.1306, at the end 

of each fiscal quarter, or at any time 

upon Commission request, SEFs would 

be required to report to the Commission: 

(i) The amount of financial resources 

necessary to meet the requirements set 

forth in the regulation; and (ii) the value 

of each financial resource available to 

meet those requirements. A SEF would 

also have to provide the Commission 

with a financial statement, including the 

balance sheet, income statement, and 

statement of cash flows, of the SEF or 

of its parent company, as appropriate. 

14. Subpart O—Core Principle 14 

(System Safeguards) 

Core Principle 14 requires that SEFs: 

(1) Establish and maintain a program of 

risk oversight to identify and minimize 

sources of operational risk through the 

development of appropriate controls 

and procedures and the development of 

automated systems that are reliable, 

secure, and have adequate scalable 

capacity; (2) establish and maintain 

emergency procedures, backup 

facilities, and a plan for disaster 

recovery that allow for the timely 

recovery and resumption of operations; 

and (3) periodically conduct tests to 

verify that backup resources are 

sufficient to ensure continued order 

processing and trade matching, price 

reporting, market surveillance, and 

maintenance of a comprehensive and 

accurate audit trail. Proposed § 37.1401 

would establish system safeguards 

requirements for all SEFs, pursuant to 

Core Principle 14. 

The proposed rule would require that 

a SEF’s program of risk analysis and 

oversight address six categories of risk 

analysis and oversight, including: 

Information security; business 

continuity-disaster recovery (‘‘BC–DR’’) 

planning and resources, capacity and 

performance planning; systems 

operations; systems development and 

quality assurance; and physical security 

and environmental controls. 

Because automated systems play a 

central and critical role in today’s 

electronic financial market 

environment, oversight of core principle 

compliance by SEFs with respect to 

automated systems is an essential part 

of effective oversight of the trading of 

swaps. Sophisticated computer systems 

will be crucial to a SEF’s ability to meet 

its obligations and responsibilities. SEF 

compliance with generally accepted 

standards and best practices with 

respect to the development, operation, 

reliability, security and capacity of 

automated systems can reduce the 

frequency and severity of automated 

system security breaches or functional 

failures, thereby augmenting efforts to 

mitigate systemic risk. 

15. Subpart P—Core Principle 15 

(Designation of Chief Compliance 

Officer) 

Section 5h(f)(15) of the CEA, as added 

by Section 733 of the Dodd-Frank Act, 

creates an internal regulatory framework 

for all SEFs, with the position of chief 

compliance officer (‘‘CCO’’) serving as a 

focal point for compliance with the CEA 

and applicable Commission regulations. 

The four-part structure of Section 

5h(f)(15) requires, first, that every SEF 

designate an individual to serve as CCO. 

Second, it enumerates specific duties for 

CCOs and establishes their 

responsibilities within a SEF. Third, it 

requires CCOs to design the procedures 

establishing the handling, management 

response, remediation, retesting, and 

closing of noncompliance issues. 

Fourth, it outlines the requirements of a 

mandatory annual report from SEFs to 

the Commission, which must be 

prepared and signed by a SEF’s CCO. 

The Commission proposes to implement 

Section 5h(f)(15) of the CEA through 

proposed § 37.1501, which further 

develops the already robust CCO 

requirements enacted by the DoddFrank Act. Section 5h(f)(15) of the CEA 

and proposed § 37.1501 are summarized 

below. 

The first provision of Section 

5h(f)(15)–5h(f)(15)(A)—provides only 

for the self-explanatory requirement that 

each SEF designate an individual to 

serve as its CCO. The second provision 

of Section 5h(f)(15) offers a detailed 

description of a CCO’s role within a 

SEF. Specifically, Section 5h(f)(15)(B) 

includes six enumerated duties 

incumbent upon all CCOs, and thereby 

outlines the internal regulatory structure 

of a SEF as contemplated by the DoddFrank Act. The enumerated duties of 

CCOs include: (1) Reporting directly to 

the SEF’s board of directors or to its 

senior officer; (2) reviewing an SEF’s 

compliance with the requirements and 

core principles described in Section 5h; 

(3) resolving any conflicts of interest 

that may arise, in consultation with the 

board of directors or the senior officer 

of the SEF; (4) establishing and 

administering any policy or procedure 

that is required to be established by a 

SEF pursuant to Section 5h; (5) ensuring 

compliance with the CEA, including 

rules prescribed by the Commission 

pursuant to Section 5h; and (6) 

establishing procedures for the 

remediation of noncompliance issues 

identified by the CCO. The third 

provision of Section 5h(f)(15) provides 

that the CCO in establishing and 

following appropriate procedures shall 

design such procedures for the 

handling, management response, 

remediation, retesting, and closing of 

noncompliance issues. 

Finally, the fourth provision of 

Section 5h(f)(15)–5h(f)(15)(D)—requires 

CCOs to prepare and sign annual 

compliance reports on behalf of their 


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103As conceived by the Commission, SEF CCOs 

have overall responsibility for SEFs’ compliance 

programs. CCOs must be neutral fact-finders, and 

must be able to act in the interest of effective 

compliance regardless of the persons, entities, or 

conduct that may be the subject of investigation. In 

contrast, an entity’s general counsel serves as the 

legal counsel and defender of a company and seeks 

to avoid or negate related legal risks. A second basis 

for the separation of the general counsel and CCO 

roles is the Commission’s determination that an 

individual acting as CCO should not be in a 

position to assert attorney-client privilege against 

the Commission. If a SEF’s CCO were also its 

general counsel, much of the information about its 

compliance program could potentially be protected 

from third-party review, including the 

Commission’s, under the shroud of attorney-client 

privilege. While there may be circumstances where 

the attorney-client privilege could be asserted by a 

SEF, the Commission believes that such 

circumstances do not include the areas of 

responsibility assigned to CCOs by the CEA or 

Commission regulations. 

104Proposed § 37.1501(a) defines board of 

directors for purposes of subpart P as follows: ‘‘the 

board of directors or board of governors of a swap 

execution facility, or equivalent governing body of 

a swap execution facility or of an entity operating 

a swap execution facility.’’ The proposed definition 

reflects the various forms of business associations 

which a SEF could take, including forms which do 

not include a corporate board of directors. With 

respect to boards of directors and ROCs, the 

Commission notes that in a separately proposed 

series of regulations governing conflicts of interest 

within SEFs, DCMs, and DCOs, the Commission 

proposes a number of governance measures that 

impact the proposed regulations for CCOs. First, 

proposed § 40.9(b)(1)(i) requires a SEF’s board of 

directors to be composed of at least 35%, but no 

less than two, public directors. Second, proposed 

§ 40.9(b)(2) prohibits a SEF from ‘‘permit[ing] itself 

SEFs. The annual compliance reports 

must describe a SEF’s compliance with 

the CEA and Commission regulations. 

They must also describe the policies 

and procedures of the SEF, including 

the code of ethics and conflict of 

interest policies. In addition, the annual 

compliance reports must include ‘‘a 

certification that, under penalty of law, 

the report is accurate and complete.’’ 

The annual compliance report must be 

furnished to the Commission as it may 

prescribe. 

Proposed subpart P develops each of 

these statutory provisions in greater 

detail and grants CCOs the regulatory 

authority necessary to fulfill 

responsibilities in each regard. 

a. Definition of Board of Directors— 

Proposed § 37.1501(a) 

Proposed § 37.1501(a) defines ‘‘board 

of directors’’ as ‘‘the board of directors of 

a swap execution facility or for those 

swap execution facilities whose 

organizational structure does not 

include a board of directors, a body 

performing a function similar to a board 

of directors.’’ The proposed definition 

reflects the various forms of business 

associations which a SEF could 

conceivably take, including forms 

which do not include a corporate board 

of directors. It also reflects the flexibility 

in Section 733 of the Dodd-Frank Act, 

which refers, for example, to ‘‘a body 

performing a function similar to a 

board’’ in discussing the duties of a CCO 

pursuant to Section 5h(f)(15)(B)(iii) of 

the CEA. 

Request for Comment: 

The Commission requests comment 

on the following: 

• Should the Commission develop 

additional rules around the types of 

bodies which may perform board-like 

functions at a SEF, depending on their 

business form? 

• Should the proposed definition of 

board of directors appropriately address 

issues related to parent companies, 

subsidiaries, affiliates, and SEFs located 

in foreign jurisdictions? Does the 

proposed rule allow for sufficient 

flexibility with regard to a SEF’s 

business structure? 

b. Designation and Qualifications of 

Chief Compliance Officer—Proposed 

§ 37.1501(b) 

Proposed § 37.1501(b)(1) requires a 

SEF to establish the position of CCO, 

designate an individual to serve in that 

capacity and provide that individual 

with the authority and resources to 

develop and enforce policies and 

procedures necessary to fulfill the 

duties set forth for CCOs in the DoddFrank Act and Commission regulations. 

In addition, proposed § 37.1501(b)(1) 

provides that CCOs must have 

supervisory authority over all staff 

acting in furtherance of the CCO’s 

statutory and regulatory obligations. In 

short, proposed § 37.1501(b)(1) 

establishes CCOs as the focal point of a 

SEF’s regulatory compliance functions. 

Proposed § 37.1501(b)(2) details 

minimum competency standards for 

CCOs. It requires that CCOs have the 

background and skills necessary to 

fulfill the responsibilities of the 

position, and prohibits anyone who 

would be disqualified from registration 

under Sections 8a(2) or 8a(3) of the CEA 

from serving as a CCO. Although the 

CCO would not be required to register 

with the Commission, as the primary 

individual with responsibility for 

ensuring a SEF’s legal compliance, the 

Commission believes that CCOs should 

meet the same standard as those 

individuals who are required to register, 

as set forth in the list of statutory 

disqualifications under Sections 8a(2) 

and (3) of the CEA. These standards 

largely consist of a high degree of 

responsibility and requirements relating 

to integrity and honesty in financial and 

business dealings. Section 37.1501(b)(2) 

also requires that a CCO not serve as 

general counsel of a SEF. This 

prohibition reflects the Commission’s 

belief that granting these dual roles to a 

single individual is incompatible with 

effective regulation and selfregulation.103

Request for Comment: 

The Commission is seeking comment 

on whether additional limitations 

should be placed on persons who may 

be designated as a CCO. 

• The Commission requests comment 

on whether the provisions of proposed 

§ 37.1501(b) are sufficient to ensure that 

a CCO has the authority and resources 

necessary to fulfill his or her statutory 

and regulatory obligations. 

• The Commission also requests 

comment regarding the qualifications 

that should be required of a CCO, and 

whether the requirements expressed in 

proposed § 37.1501(b) are sufficient. 

• Should there be additional 

restrictions placed on who is qualified 

to be designated as a CCO? The 

Commission requests comment on 

whether restricting a CCO from serving 

as the General Counsel or other attorney 

within the legal department of a SEF 

would sufficiently address conflict of 

interest concerns? 

c. Appointment, Supervision, and 

Removal of Chief Compliance Officer— 

Proposed § 37.1501(c) 

Taken together, proposed 

§§ 37.1501(c)(1), 37.1501(c)(2), and 

37.1501(c)(3) provide the supervisory 

regime applicable to CCOs. Proposed 

§ 37.1501(c) requires that a CCO be 

appointed by a majority of the SEF’s 

board of directors or senior officer, and 

that a majority of the board or senior 

officer be responsible for approving the 

CCO’s compensation. A SEF must notify 

the Commission within two business 

days of appointing a new CCO. The 

proposed regulation also requires the 

CCO to meet at least annually with the 

board of directors to discuss the 

effectiveness of the CCO’s 

administration of the compliance 

policies adopted by the registrant. The 

meeting or meetings would create an 

opportunity for a CCO and the directors 

to speak freely about any sensitive 

issues of concern to any of them, 

including any reservations about the 

cooperativeness or compliance practices 

of the registrant’s management. The 

Commission’s governance proposals 

require that each SEF’s board of 

directors include a board-level 

regulatory oversight committee (‘‘ROC’’) 

consisting exclusively of public 

directors.104 The Commission believes 


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to be operated by any entity’’ that does not adhere 

to the board composition requirements of 

40.9(b)(1)(i). Third, proposed § 37.19(b)(3) requires 

a SEF to have a board-level ROC consisting 

exclusively of public directors. 

105See proposed § 37.19(b)(1) for a description of 

a ROC’s role in overseeing the performance of a 

CCO and effectiveness, efficiency, and 

independence of a SEF’s regulatory and selfregulatory programs. 

106Upon the departure of a CCO, proposed 

§ 37.1501(c)(3) requires a SEF to appoint an interim 

CCO immediately and a permanent replacement as 

soon as practicable. 

107By ‘‘compliance manual,’’ the Commission 

means a detailed internal handbook explaining to 

SEF staff the resources and procedures that they are 

to use in monitoring trading, conducting 

investigations, documenting their work, and making 

findings and recommendations to supervisory staff 

regarding trading in any swap or other conduct by 

SEF members and market participants that is 

subject to SEF rules. The Commission believes that 

such written documentation will serve as a useful 

guide for the SEF’s management and staff. It will 

also help the Commission evaluate the SEF’s 

compliance and adherence to its own internal 

standards. 

that ROCs will help to mitigate potential 

conflicts of interest within a SEF by 

introducing an independent perspective 

to board deliberations.105 The 

Commission also believes that both 

CCOs and ROCs will be strengthened in 

their regulatory work and independence 

through close cooperation and 

coordination. Although a CCO is not 

required to report to his or her ROC, 

proposed § 37.1501(c)(1) provides that a 

CCO must meet with the ROC quarterly 

to discuss matters of mutual concern 

and share information. These meetings 

will create an opportunity for a CCO 

and the ROC to speak freely about 

potentially sensitive issues, including 

any reservations by the CCO regarding 

the SEF’s management. They will also 

facilitate the ROC’s oversight 

responsibilities, and allow the CCO to 

seek assistance and institutional support 

from the ROC as necessary. 

Finally, proposed § 37.1501(c)(1) also 

provides that the senior officer of a SEF 

may assume responsibility for 

appointing the CCO and approving his 

or her compensation. 

Proposed § 37.1501(c)(2) addresses 

routine oversight of a SEF’s CCO. It 

allows a SEF with a board of directors 

to grant oversight authority to either its 

board or to its senior officer. The 

proposed regulation is modeled on the 

terms of Section 5h(f)(15)(B)(i) of the 

CEA, which requires a CCO to ‘‘report 

directly to the board or to the senior 

officer of the facility.’’ 

Request for Comment: 

The Commission requests comment 

regarding the appropriate reporting 

relationship for the CCO of a SEF that 

has both a senior officer and a board of 

directors. 

• In such cases, should a CCO report 

to the SEF’s board rather than to its 

senior officer? 

• What potential conflicts of interest 

might arise if a CCO reports to the 

senior officer rather than to the board, 

and how might those conflicts be 

mitigated? 

• In addition, the Commission 

requests comment regarding whether 

‘‘senior officer’’ of a SEF should be a 

defined term, and if so, how the term 

should be defined. 

d. Removal of CCO—Proposed 

§ 37.1501(c)(3) 

Proposed § 37.1501(c)(3) requires 

approval of a majority of an SDR’s board 

of directors to remove a CCO. The 

Commission believes that these removal 

provisions will help insulate CCOs and 

their decision-making from day-to-day 

commercial pressures that they may 

otherwise experience. If a SEF does not 

have a board, the proposed regulation 

provides that the CCO may be removed 

by its senior officer. Proposed 

§ 37.1501(c)(3) also requires an SDR to 

notify the Commission in writing within 

two business days of the removal or 

voluntary departure of its CCO by 

providing a statement describing the 

circumstances surrounding his or her 

departure.106 The Commission believes 

that this provision will help protect 

CCOs from undue influence or 

retaliatory termination by the board or 

the senior officer of the SEF. 

Proposed §§ 37.1501(c)(1) and 

37.1501(c)(3) seek to provide a SEF’s 

CCO with a measure of independence 

from management in the performance of 

his or her duties, and to ensure that 

such duties are executed in the most 

effective and impartial manner possible. 

Request for Comment: 

The Commission requests comment 

on any additional measures that should 

be required to adequately protect CCOs 

from undue influence in the 

performance of their duties. The 

Commission is particularly interested in 

how it might offer such protection to a 

CCO who reports to his or her senior 

officer, either at the SEF’s choosing or 

because the SEF does not have a board 

of directors. In addition, the 

Commission also requests comment on 

whether the provision that would 

require a majority of a board of directors 

to remove the CCO is sufficiently 

specific. 

e. Duties of the Chief Compliance 

Officer—Proposed § 37.1501(d) 

Proposed § 37.1501(d) details the 

duties of a CCO, as well as his or her 

authority within a SEF. The proposed 

regulation codifies and expands upon 

the CCO duties already set forth in 

Section 5h(f)(15)(B) of the CEA. These 

duties include overseeing and reviewing 

compliance with the CEA and 

Commission regulations, as well as 

resolving, in consultation with the 

board of directors or the senior officer, 

any conflicts of interest that may arise. 

The proposed regulation also lists a 

number of potential conflicts that may 

confront a CCO. The list of conflicts of 

interest indicates the types of conflicts 

that the Commission believes a SEF’s 

CCOs should be aware of, but it is not 

exhaustive. 

Proposed § 37.1501(d) also requires 

that the CCO establish and administer a 

written code of ethics and policies and 

procedures designed to prevent 

violations of the CEA and Commission 

regulations. Section 37.1501(d) also 

requires that a CCO establish and 

administer written policies and 

procedures, including a ‘‘compliance 

manual,’’ designed to prevent violations 

of the CEA and Commission 

regulations.107

The Commission believes that such 

written documentation will serve as a 

useful guide for the SEF’s management 

and staff, as well as for swap 

participants who will be trading on the 

SEF. It will also help the Commission to 

evaluate the SEF’s compliance and 

adherence to its own internal standards. 

Finally, proposed § 37.1501(d) requires 

that a CCO establish and follow 

procedures for the remediation and 

closing of any noncompliance issues 

that are identified. To assist the CCO in 

meeting this responsibility, proposed 

§ 37.1501(b)(1), summarized above, 

grants a CCO oversight authority over all 

compliance functions and staff acting in 

furtherance of those compliance 

functions. The CCO’s authority would 

also extend to any activities performed 

by the SEF to verify that other entities 

are in compliance with applicable laws 

and regulations, such as the verification 

of the timeliness of reporting certain 

swap data, pursuant to proposed 

§ 37.901. The Commission recognizes 

that the staff that assists a CCO may not 

be dedicated to the CCO full-time; 

however, the proposed regulation would 

ensure that a CCO has authority over 

any staff and resources while they are 

acting in furtherance of compliance 

functions. 

Section 37.1501(d), for example, 

reflects the statutory text of the DoddFrank Act by requiring that a CCO 

review and ensure a SEF’s compliance 


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108See proposed § 37.204 (governing a SEF’s use 

of third-party regulatory service providers and its 

duty to supervise such providers and any services 

received). 

with the CEA and Commission 

regulations. It also reflects a CCO’s 

responsibilities with respect to the 

regulation of members and market 

participants utilizing a SEF’s trading 

platform. In this regard, Section 

37.1501(d)(8) requires that a CCO 

supervise a SEF’s self-regulatory 

program with respect to trade practice 

surveillance; market surveillance; realtime market monitoring; compliance 

with audit trail requirements; 

enforcement and disciplinary 

proceedings; and audits, examinations, 

and other regulatory responsibilities 

with respect to members and market 

participants. Similarly, Section 

37.1501(d)(9) requires that a CCO 

supervise the effectiveness and 

sufficiency of any regulatory services 

provided to the SEF by a registered 

futures association or other registered 

entity in accordance with § 37.204.108

Request for Comment: 

The Commission requests comment 

regarding proposed § 37.1501(d). 

Comments should address any 

additional CCO duties which the 

Commission should include in the 

proposed regulation. In addition, they 

should specifically address a CCO’s role 

in managing conflicts of interest within 

a SEF, the types of conflicts which 

commenters believe might arise within 

a SEF, and how and by whom those 

conflicts should be resolved. 

f. Preparation and Submission of 

Annual Compliance Report—Proposed 

§§ 37.1501(e) and 37.1501(f) 

Section 5h(f)(15)(D) of the CEA 

requires a CCO to prepare an annual 

compliance report. As discussed above, 

the Commission believes that this 

annual compliance report should give 

the Commission a complete and 

accurate picture of a SEF’s compliance 

program. Proposed § 37.1501(e) details 

the information that must be included 

in the annual compliance report. The 

report must include: (i) A description of 

the SEF’s written policies and 

procedures, code of ethics and conflicts 

of interest policies; (ii) a detailed review 

of the SEF compliance with Section 5h 

of the CEA, including an assessment by 

the CCO of the effectiveness of the SEF’s 

policies and procedures in ensuring 

compliance with Section 5h of the CEA 

and a discussion of areas for 

improvement; (iii) a description of any 

material changes to the policies and 

procedures that were made to these 

since the last annual compliance report; 

(iv) a description of the financial, 

managerial, operational, and staffing 

resources set aside for the SEF’s 

compliance program, including a 

description of the SEF’s compliance 

program, describing resources set aside 

for the SEF’s self-regulatory 

responsibilities. An annual compliance 

report must also provide: a detailed 

description and review of the SEF’s selfregulatory program, which includes a 

description of staff associated with selfregulation, a catalogue of investigations 

and disciplinary actions taken, and a 

review of the performance of 

disciplinary committees and panels; (v) 

a description of any material 

compliance matters, including instances 

of noncompliance, that were identified 

in the year prior to the filing of the 

report; and (vi) any objections to the 

annual compliance report by the board 

or senior officer of the SEF. In addition 

to the above information, proposed 

§ 37.1501(e) also requires the annual 

report to include a certification by the 

CCO that, under penalty of law, the 

compliance report is accurate and 

complete. 

Proposed § 37.1501(f)(1) sets forth the 

procedures for the review of the annual 

compliance report by the board of 

directors of the SEF or senior officer, 

prior to submission to the Commission. 

While the board or senior officer has a 

chance to review the annual compliance 

report before submission, the report is 

not subject to their approval. Proposed 

§ 37.1501(f)(1) explicitly prohibits the 

board or senior officer from forcing the 

CCO to make any material changes to 

the report. The purpose of this review 

is to permit the members of the board 

or the senior officer to provide the 

Commission with any objections they 

might have to the report. The 

Commission believes that the 

prohibition against the board and senior 

officer making changes to the annual 

compliance report will allow the CCO to 

make a complete and accurate 

assessment of the SEF’s compliance 

program. 

Proposed § 37.1501(f)(2) describes the 

process for submission of the report to 

the Commission. The proposed 

regulation requires that the annual 

compliance report be electronically 

provided to the Commission not more 

than 60 days after the end of the 

calendar year. If a CCO determines that 

an annual compliance report filed with 

the Commission has a material error or 

if material non-compliance is identified 

after filing, proposed § 37.1501(f)(3) 

would require a SEF to promptly file an 

amended report. This amended report 

must also include the certification by 

the CCO as to the accuracy and 

completeness made in the initial 

submission of the report. If a CCO is 

unable to file an annual compliance 

report within 60 days of the end of the 

calendar year, proposed § 37.1501(f)(4) 

would permit a CCO to request the 

Commission to grant an extension of 

time to file its compliance report based 

on substantial undue hardship. 

Extensions for the filing deadline would 

be granted at the discretion of the 

Commission. Additionally, to protect 

the trade secrets of the SEF and the 

security of the data held by the SEF, the 

proposed regulation requires that 

annual compliance reports filed 

pursuant to § 37.1501 be treated as 

exempt from mandatory public 

disclosure for purposes of FOIA and the 

Sunshine Act and parts 145 and 147 of 

Commission regulations. 

Request for Comment: 

The Commission requests comment 

on its proposed regulations regarding 

the preparation and submission of a 

SEF’s annual compliance report. 

• Should the annual compliance 

report contain additional content 

beyond what is proposed in 

§ 37.1501(e)? Are additional provisions 

necessary to ensure that a SEF’s board 

of directors cannot adversely influence 

the content of an annual compliance 

report as drafted by the CCO? 

• In the alternative, are additional 

provisions necessary to ensure that 

individual directors or other SEF 

employees have an adequate 

opportunity to register any concerns or 

objections they might have to the 

contents of an annual compliance 

report? 

The Commission also requests 

comment relating to insulating a SEF’s 

CCO from undue influence or coercion. 

• Should the Commission adopt a 

regulation that prohibits an officer, 

director or employee of the SEF or 

related person to coerce, manipulate, 

mislead, or fraudulently influence the 

CCO in performing his or her duties? 

• Is it necessary to adopt regulations 

to address potential conflicts between 

and among a SEF’s compliance, 

commercial, and ownership interests? 

• If so, what should such regulations 

entail, and what specific conflicts of 

interest should they address? 

g. Recordkeeping—Proposed 

§ 37.1501(g) 

Proposed § 37.1501(g) details SEFs’ 

recordkeeping requirements for records 

relating to a CCO’s areas of 

responsibility. This proposed regulation 

requires a SEF to maintain: (i) A copy 

of its written policies and procedures, 


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109 5 U.S.C. 601 et seq. 

110 47 FR 18618–21 (Apr. 30, 1982). 

111 47 FR 18618, 18619 (April 30, 1982) 

discussing contract markets; 66 FR 42256, 42268 

(August 10, 2001) discussing derivatives transaction 

execution facilities, exempt commercial markets 

and exempt boards of trade; and 66 FR 45604, 

45609 (August 29, 2001) discussing DCOs. 

112 Dodd Frank Wall Street Reform and Consumer 

Protection Act, Pub. L. 111–203, 124 Stat. 1376 

(2010). 

113 75 FR 63745–46 (October 18, 2010). 

114See CEA Section 1a(50). The Commission 

anticipates proposing regulations that would further 

specify those entities that must register as a SEF. 

The Commission does not believe that such 

proposals would alter its determination that a SEF 

is not a ‘‘small entity’’ for purposes of the RFA. 115 44 U.S.C. 3501 et seq. 

including its code of ethics and conflicts 

of interest policies; (ii) copies of all 

materials created in furtherance of the 

chief compliance officer’s selfregulatory duties, including records of 

any investigations or disciplinary 

actions taken by the SEF; (iii) copies of 

all materials, including written reports 

provided to the board of directors in 

connection with review of the annual 

report, as well as the board minutes or 

other similar written records, that 

record the submission of the annual 

compliance report to an SEF’s board of 

directors or its senior officer; and (iv) 

any other records relevant to an SEF’s 

annual report. The records required to 

be maintained pursuant to this section 

are designed to provide Commission 

staff with a basis to determine whether 

a SEF has complied with the CEA and 

applicable Commission regulations. The 

Commission also wants to preserve its 

ability to reconstruct why certain 

information was included or excluded 

in an annual report, in the event that 

such reconstruction becomes necessary 

under a future audit or investigation. 

The SEF would be required to 

maintain these records in accordance 

with § 1.31 of the Commission’s 

regulations. Following § 1.31, all records 

must be kept for a period of five years. 

Request for Comment: 

The Commission requests comment 

regarding whether the requirements of 

proposed § 37.1501(g) are sufficient to 

create a complete and easily auditable 

record of a board of directors’ or senior 

officer’s review of an annual compliance 

report to ensure that the report, as 

drafted by the CCO, was not altered. 

III. Effective Date and Transition Period 

The statutory deadline for final 

regulations is July 15, 2011. Final 

regulations may become effective sixty 

(60) days after their publication in the 

Federal Register, but no earlier than 

July 15, 2011. The Commission is 

proposing that the effective date for the 

proposed regulations be 90 days after 

publication of final regulations in the 

Federal Register. The Commission 

believes that the effective date would be 

appropriate to allow potential SEFs and 

market participants time to adapt to the 

new regulatory regime for the trading of 

swaps in an efficient and orderly 

manner. In addition, the Commission 

believes that this would give any 

entities then operating a marketplace for 

the execution or trading of swaps 

adequate time to submit a SEF 

application and meet the conditions to 

receive relief under the grandfather 

provisions. 

Request for Comment: 

The Commission requests comment 

on whether the proposed effective date 

is appropriate and, if not, the 

Commission further requests comment 

on possible alternative effective dates 

and the basis for any such alternative 

dates. 

IV. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) 109 requires Federal agencies, in 

promulgating regulations, to consider 

the impact of those regulations on small 

businesses. The regulations adopted 

herein will affect SEFs. 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.110 In its previous determinations, 

the Commission has concluded that 

DCMs, derivatives transaction execution 

facilities (‘‘DTEFs’’), ECMs, EBOTs and 

DCOs are not small entities for the 

purpose of the RFA.111

While SEFs are new entities to be 

regulated by the Commission pursuant 

to the Dodd-Frank Act,112 in a recent 

rulemaking proposal,113 the 

Commission proposed that SEFs should 

not be considered as small entities for 

the purpose of the RFA. The DoddFrank Act defines a SEF to mean ‘‘a 

trading system or platform in which 

multiple participants have the ability to 

execute or trade swaps by accepting 

bids and offers made by multiple 

participants in the facility or system, 

through any means of interstate 

commerce, including any trading 

facility, that—(A) facilitates the 

execution of swaps between persons; 

and (B) is not a designated contract 

market.’’ 114 In its recent rulemaking, the 

Commission proposed that SEFs not be 

considered to be ‘‘small entities’’ for 

essentially the same reasons that DCMs 

and DCOs have previously been 

determined not to be small entities. 

These reasons include the fact that the 

Commission designates a DCM or 

registers a DCO only when it meets 

specific criteria including expenditure 

of sufficient resources to establish and 

maintain adequate self-regulatory 

programs. Likewise, the Commission 

will register an entity as a SEF only after 

it has met specific criteria including the 

expenditure of sufficient resources to 

establish and maintain an adequate selfregulatory program. In addition, once 

registered, a SEF will be required to 

comply with the additional 

requirements set forth in the final form 

of this proposed Part 37 rulemaking. In 

addition, the Commission proposes that 

SEFs should not be considered small 

entities based on, among other things, 

the central role SEFs will play in the 

national regulatory scheme overseeing 

the trading of swaps. Not only will SEFs 

play a vital role in the national 

economy, but they will be subject to 

Commission oversight with statutory 

duties to enforce the regulations 

adopted by their own governing bodies. 

Accordingly, the Commission does 

not expect the regulations, as proposed 

herein, to have a significant economic 

impact on a substantial number of small 

entities. Therefore, the Chairman, on 

behalf of the Commission, hereby 

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

that the proposed regulations will not 

have a significant economic impact on 

a substantial number of small entities. 

The Commission invites the public to 

comment on whether SEFs covered by 

these rules should be considered small 

entities for purposes of the RFA. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act 

(‘‘PRA’’) 115 imposes certain 

requirements on Federal agencies in 

connection with their conducting or 

sponsoring any collection of 

information as defined by the PRA. An 

agency may not conduct or sponsor, and 

a person is not required to respond to, 

a collection of information unless it 

displays a currently valid control 

number. This proposed rulemaking will 

result in new collection of information 

requirements within the meaning of the 

PRA. The Commission therefore is 

submitting this proposal to the Office of 

Management and Budget (OMB) for 

review in accordance with 44 U.S.C. 

3507(d) and 5 CFR 1320.11. The title for 

this collection of information is ‘‘Part 

37—Swap Execution Facilities’’ (OMB 

control number 3038–NEW). If adopted, 

responses to this collection of 

information would be mandatory. The 

Commission will protect proprietary 


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116 7 U.S.C. 12(a)(1). 

117 5 U.S.C. 552a. 

118Appendix E of Public Law 106–554, 114 Stat. 

2763 (2000). 

119 66 FR 38992 (June 22, 2000). 

120 71 FR 38748 (July 7, 2006). 

121See, supra note 10, DCM NPRM. 

122 65 FR 38993 (June 22, 2000). 

123 73 FR 75901 (December 12, 2008). 

124ECMs with SPDCs are subject to 9 core 

principles, DTEFs are subject to 9 core principles, 

DCMs are currently subject to 18 core principles, 

(but will be subject to 23 core principles upon 

finalization of the Part 38 regulations implementing 

the Dodd-Frank Act). SEFs will be subject to 15 core 

principles upon finalization of the regulations to 

implement the Dodd-Frank Act. 

125For hourly reporting requirements, an average 

of 35 SEFs was used for calculation purposes. 126 7 U.S.C. 19(a). 

information according to the Freedom of 

Information Act and 17 CFR part 145, 

‘‘Commission Records and Information.’’ 

In addition, section 8(a)(1) of the CEA 

strictly prohibits the Commission, 

unless specifically authorized by the 

CEA, from making public ‘‘data and 

information that would separately 

disclose the business transactions or 

market positions of any person and 

trade secrets or names of customers.’’ 116

The Commission is also required to 

protect certain information contained in 

a government system of records 

according to the Privacy Act of 1974.117

1. Collection of Information— 

Regulations Relating to Part 37, Swap 

Execution Facilities 

The proposed regulations require each 

respondent to file information with the 

Commission. For instance, SEFs must 

file applications with the Commission 

for registration pursuant to § 37.3. SEFs 

must either request approval with, or 

certify to, the Commission rules and 

products, pursuant to § 37.4. SEFs must 

disclose information related to prices, 

trading volume, and other trading data 

on swaps pursuant to Core Principle 9 

(Timely Publication of Trading 

Information). 

Commission staff has previously 

estimated hourly burdens for DCMs and 

DTEFs pursuant to the Commodity 

Futures Modernization Act of 2000 

(‘‘CFMA’’).118 More recently, 

Commission staff estimated hourly 

burdens for ECMs with significant price 

discovery contracts (‘‘SPDCs’’). While 

the Commission has no way of knowing 

the exact hourly burden upon a 

registered entity prior to 

implementation of the regulations 

governing that registered entity, staff 

believes the estimated burden for a SEF 

would be within the range of previously 

estimated hours of burden for the above 

registered entities. Those hourly 

burdens are noted below: 

Initial estimate of DCM’s annual 

burden 119: 300 hours per DCM. 

Estimate of DCM’s annual burden as 

of 2006 120: 370 hours per DCM. 

Current estimate of DCM’s annual 

burden 121: 440 hours per DCM. 

Initial estimate of DTEF’s annual 

burden 122: 200 hours per DTEF. 

Initial estimate of ECM’s with SPDCs 

annual burden 123: 233 hours per ECM. 

Based on the proposed regulations, 

Commission staff believes that a SEF 

will have more reporting 

responsibilities than an ECM with a 

SPDC and a DTEF, but fewer reporting 

hours than a DCM (as most recently 

calculated).124 Based on its experience 

with administering registered entities’ 

submission requirements since 

implementation of the CFMA, 

Commission staff estimates an annual 

reporting burden for SEFs to be an 

average of the above noted estimates for 

DCMs, DTEFs and ECMs with SPDCs. 

Staff estimates that each respondent 

would, on average, have an annual 

burden of 308 hours of reporting time. 

Staff estimates that 30–40 SEFs will 

register with the Commission as a result 

of the Dodd-Frank Act.125 Accordingly, 

the burden in terms of hours would in 

the aggregate be 308 hours annually per 

respondent and 10,780 hours annually 

for all respondents. 

Commission staff estimates that 

respondents could expend up to 

$16,016 annually based on an hourly 

rate of $52 to comply with the proposed 

regulations. This would result in an 

aggregated cost of $560,560 per annum 

(35 respondents × $16,016). 

Estimated Number of respondents: 35. 

Annual Responses by each 

respondent: 1. 

Total annual responses: 35. 

Quarterly responses by each 

respondent: 4. 

Total quarterly responses: 140. 

Estimated average hours per response: 

308. 

Aggregate annual reporting burden: 

10,780. 

2. Information Collection Comments 

Copies of the supporting statements 

for the collections of information from 

the Commission to OMB are available 

by visiting RegInfo.gov. Pursuant to 44 

U.S.C. 3506(c)(2)(B), the Commission 

will consider public comments on the 

proposed information requirements in 

order to: 

(1) Evaluate whether the proposed 

collections of information are necessary for 

the proper performance of the functions of 

the Commission, including whether the 

information will have a practical use; 

(2) Evaluate the accuracy of the estimated 

burden of the proposed information 

collection requirements, including the degree 

to which the methodology and the 

assumptions that the Commission employed 

were valid; 

(3) Enhance the quality, utility, and clarity 

of the information proposed to be collected; 

and 

(4) Minimize the burden of the proposed 

information collection requirements on 

DCOs, DCMs, and SEFs, including through 

the use of appropriate automated, electronic, 

mechanical, or other technological 

information collection techniques, e.g., 

permitting electronic submission of 

responses. 

Organizations and individuals 

desiring to submit comments on the 

proposed information collection 

requirements should contact the Office 

of Information and Regulatory Affairs, 

Office of Management and Budget by fax 

at (202) 395–6566 or by e-mail at 

OIRAsubmission@omb.eop.gov. Please 

provide the Commission with a copy of 

submitted comments so that they may 

be summarized and address in the final 

rulemaking. Refer to the ADDRESSES

section of this notice of proposed 

rulemaking for comment submission 

instructions to the Commission. 

OMB is required to make a decision 

concerning the proposed information 

collection requirements between 30 and 

60 days after publication of this Release 

in the Federal Register. Therefore, a 

comment to OMB is best assured of 

receiving full consideration if OMB 

receives it within 30 days of publication 

of this Release. Nothing in the foregoing 

affects the deadline enumerated above 

for public comment to the Commission 

on the proposed regulations. 

C. Cost-Benefit Analysis 

Section 15(a) of the CEA 126 requires 

that the Commission consider the costs 

and benefits of its actions before issuing 

a regulation under the CEA. By its 

terms, Section 15(a) does not require the 

Commission to quantify the costs and 

benefits of a new rule or determine 

whether the benefits of the rulemaking 

outweigh its costs; rather, Section 15(a) 

requires the Commission to ‘‘consider’’ 

the costs and benefits of its actions. 

Section 15(a) further specifies that 

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. 

Accordingly, the Commission could, in 

its discretion, give greater weight to any 

one of the five considerations and 

could, in its discretion, determine that, 


kgrant on DSKGBLS3C1PROD with BILLS
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notwithstanding its costs, a particular 

rule was necessary or appropriate to 

protect the public interest or to 

effectuate any of the provisions or to 

accomplish any of the purposes of the 

CEA. 

Summary of Proposed Requirements 

The proposed rulemaking would 

provide, pursuant to the Dodd-Frank 

Act, for the trading or processing of 

swaps on a registered SEF subject to 15 

core principles. This rulemaking will 

implement, in Part 37 of the 

Commission’s regulations, these 

provisions of the CEA. The proposal 

includes regulations as well as guidance 

and acceptable practices to implement 

these core principles. In general, the 

proposed regulations implementing core 

principles for SEFs are consistent with 

the existing or proposed regulations for 

similar or identical core principles 

applicable to DCMs. 

Costs 

As highlighted by recent events in the 

global credit markets, transacting of 

swaps in unregulated, over-the-counter 

markets does not contribute to the goal 

of stability in the broader financial 

markets. The public would continue to 

be at risk to such financial instability if 

certain derivatives were allowed to 

trade over the counter rather than on 

regulated exchanges. SEFs that 

determine to register with the 

Commission in order to provide for the 

transacting of swaps will be subject to 

core principles for transacting of swaps. 

If swaps were allowed to continue to be 

transacted bilaterally, rather than on the 

regulated market of a SEF, price 

discovery and transparency in the 

swaps markets would continue to be 

inhibited. These procedures are 

mandatory pursuant to the Dodd-Frank 

Act and any additional costs associated 

with these procedures are required by 

the implementation of the Dodd-Frank 

Act. 

Benefits 

The Commission believes that the 

benefits of the rulemaking are 

significant. The proposed regulations 

provide for the transacting of swaps on 

SEFs. SEFs will compete with DCMs 

that make certain swaps available for 

trading, while certain swaps will 

continue to transact bilaterally. This 

competition will benefit the 

marketplace. Providing market 

participants with the ability to trade 

certain swaps openly and competitively 

on a SEF complying with all of the SEF 

core principles as well as on DCMs 

complying with DCM core principles 

will provide market participants with 

additional choices and will enhance 

price transparency resulting in 

protection of market participants and 

the public. The proposed regulations 

will necessitate that SEFs that 

determine to make certain swaps 

available for trading will have to 

coordinate with DCOs in order to effect 

clearing and thus be subject to the 

DCO’s risk management and margining 

procedures. 

Request for Comment: 

The Commission invites public 

comment on its cost-benefit 

considerations. Commenters are also 

invited to submit any data or other 

information that they may have 

quantifying or qualifying the costs and 

benefits of the proposal with their 

comment letters. 

V. Text of the Proposed Regulations, 

Guidance and Acceptable Practices 

List of Subjects in 17 CFR Part 37 

Swaps, Swap execution facilities, 

Registration application, Registered 

entities, Reporting and recordkeeping 

requirements. 

In light of the foregoing, and pursuant 

to authority in the CEA, and, in 

particular, Sections 3, 5, 5c(c), 8a(5) and 

21 of the CEA, the Commission hereby 

proposes to revise part 37 of Title 17 of 

the Code of Federal Regulations to read 

as follows: 

PART 37—SWAP EXECUTION 

FACILITIES 

Subpart A—General Provisions 

Sec. 

37.1 Scope. 

37.2 Applicable provisions. 

37.3 Requirements for registration. 

37.4 Procedures for listing products and 

implementing rules. 

37.5 Information relating to swap execution 

facility compliance. 

37.6 Enforceability. 

37.7 Prohibited use of data collected for 

regulatory purposes. 

37.8 Boards of trade operating both a 

designated contract market and a swap 

execution facility. 

37.9 Permitted execution methods. 

37.10 Assessments regarding transactional 

tiers or platform and swaps made 

available for trading. 

37.11 Identification of non-cleared swaps or 

swaps not made available to trade. 

Subpart B—Compliance with Core 

Principles 

Sec. 

37.100 Core Principle 1—Compliance with 

core principles. 

Subpart C—Compliance with Rules 

Sec. 

37.200 Core Principle 2—Compliance with 

rules. 

37.201 Operation of swap execution facility 

and compliance with rules. 

37.202 Access requirements. 

37.203 Rule enforcement program. 

37.204 Regulatory services provided by a 

third party. 

37.205 Audit trail requirements. 

37.206 Disciplinary procedures and 

sanctions. 

37.207 Swaps subject to mandatory 

clearing. 

Subpart D—Swaps Not Readily Susceptible 

to Manipulation 

Sec. 

37.300 Core Principle 3—Swaps not readily 

susceptible to manipulation. 

37.301 General requirement. 

Subpart E—Monitoring of Trading and 

Trade Processing 

Sec. 

37.400 Core Principle 4—Monitoring of 

trading and trade processing. 

37.401 General requirements. 

37.402 Additional requirements for 

physical-delivery swaps. 

37.403 Additional requirements for cashsettled swaps. 

37.404 Ability to obtain information. 

37.405 Risk controls for trading. 

37.406 Trade reconstruction. 

37.407 Additional rules required. 

Subpart F—Ability to Obtain Information 

Sec. 

37.500 Core Principle 5—Ability to obtain 

information. 

37.501 Establish and enforce rules. 

37.502 Collection of information. 

37.503 Provide information to the 

commission. 

37.504 Information-sharing agreements. 

Subpart G—Position Limits or 

Accountability 

Sec. 

37.600 Core Principle 6—Position limits or 

accountability. 

37.601 Position limits or accountability. 

Subpart H—Financial Integrity of 

Transactions 

Sec. 

37.700 Core Principle 7—Financial integrity 

of transactions. 

37.701 Mandatory clearing. 

37.702 General financial integrity. 

37.703 Monitoring for financial soundness. 

Subpart I—Emergency Authority 

Sec. 

37.800 Core Principle 8—Emergency 

authority. 

37.801 Additional sources for compliance. 

Subpart J—Timely Publication of Trading 

Information 

Sec. 

37.900 Core Principle 9—Timely 

publication of trading information. 

37.901 General requirement. 

37.902 Capacity of swap execution facility. 

Subpart K—Recordkeeping and Reporting 

Sec. 

37.1000 Core Principle 10—Recordkeeping 

and reporting. 


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37.1001 Recordkeeping required. 

37.1002 Reporting to the commission 

required. 

37.1003 Inspection and examination by the 

Securities and Exchange Commission. 

Subpart L—Antitrust Considerations 

Sec. 

37.1100 Core Principle 11—Antitrust 

considerations. 

37.1101 Additional sources for compliance. 

Subpart M—Conflicts of Interest 

Sec. 

37.1200 Core Principle 12—Conflicts of 

interest. 

Subpart N—Financial Resources 

Sec. 

37.1300 Core Principle 13—Financial 

resources. 

37.1301 General requirements. 

37.1302 Types of financial resources. 

37.1303 Computation of financial resource 

requirement. 

37.1304 Valuation of financial resources. 

37.1305 Liquidity of financial resources. 

37.1306 Reporting requirements. 

Subpart O—System Safeguards 

Sec. 

37.1400 Core Principle 14—System 

safeguards. 

37.1401 Requirements. 

Subpart P—Designation of Chief 

Compliance Officer 

Sec. 

37.1500 Core Principle 15—Designation of 

Chief Compliance Officer. 

37.1501 Chief Compliance Officer. 

Appendix A to Part 37—Form SEF 

Appendix B to Part 37—Guidance on, and 

Acceptable Practices in, Compliance 

with Core Principles 

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 (2010). 

Subpart A—General Provisions 

§ 37.1 Scope. 

The provisions of this part 37 shall 

apply to every swap execution facility 

that is registered, has been registered or 

is applying to become registered as a 

swap execution facility under Section 

5h of the Act. Provided, however, 

nothing in this provision affects the 

eligibility of swap execution facilities to 

operate under the provisions of Parts 38 

or 49 of this Chapter. 

§ 37.2 Applicable provisions. 

A swap execution facility, the swap 

execution facility’s operator and 

transactions traded on or through a 

swap execution facility under Section 

5h of the Act shall comply with the 

requirements of this part 37, and §§ 1.3, 

1.12(e), 1.31, 1.37(c)–(d), 1.52, 1.59(d), 

1.60, 1.63(c), 1.67, 33.10, part 9, parts 15 

through 21, part 40, part 41, part 43, 

part 45, part 46, part 49, part 151, and 

part 190 of this chapter, including any 

related definitions and cross-referenced 

sections. 

§ 37.3 Requirements for registration. 

(a) Application procedures. (1) An 

applicant seeking registration as a swap 

execution facility must file 

electronically an application for 

registration with the Secretary of the 

Commission, in the form and manner as 

provided by the Commission. The 

Commission shall approve or deny the 

application or, if deemed appropriate, 

register the applicant as a swap 

execution facility subject to conditions. 

(2) The application must include 

information sufficient to demonstrate 

compliance with the core principles 

specified in Section 5h of the Act. The 

Application Form SEF consists of 

instructions, general questions and a list 

of Exhibits (documents, information and 

evidence) the Commission requires in 

order to be able to determine whether an 

applicant is able to comply with the 

core principles. An application will not 

be considered to be materially complete 

unless the applicant has submitted, at a 

minimum, the Exhibits as required in 

Application Form SEF. If the 

application is not materially complete, 

the Commission shall notify the 

applicant that the application will not 

be deemed to have been submitted for 

purposes of the Commission’s review. 

(3) An applicant seeking registration 

must request from the Commission a 

unique, extensible, alphanumeric code 

for the purpose of identifying the swap 

execution facility pursuant to Part 45 of 

this chapter. 

(4) An applicant seeking registration 

must identify with particularity any 

information in the application that will 

be subject to a request for confidential 

treatment pursuant to § 145.9 of this 

Chapter. 

(5) Section 40.8 of this Chapter sets 

forth those sections of the application 

that will be made publicly available, 

notwithstanding a request for 

confidential treatment pursuant to 

§ 145.9 of this Chapter. 

(6) If any information contained in the 

application or any Exhibit is or becomes 

inaccurate for any reason, an 

amendment to the application or a 

submission filed under Part 40 of this 

Chapter must be filed promptly 

correcting such information. 

(7) The Commission hereby delegates, 

until it orders otherwise, to the Director 

of the Division of Market Oversight or 

such other employee or employees as 

the Director may designate from time to 

time, upon consultation with the 

General Counsel or the General 

Counsel’s delegate, authority to notify 

the applicant seeking registration that 

the application is materially incomplete 

and the review is stayed. The Director 

may submit to the Commission for its 

consideration any matter that has been 

delegated in this paragraph. Nothing in 

this paragraph prohibits the 

Commission, at its election, from 

exercising the authority delegated in 

this paragraph. 

(b) Temporary Grandfather Relief 

from Registration. Concurrent with the 

completion of the application 

procedures under paragraph (a) of this 

section, an applicant may submit a 

notice requesting that the Commission 

grant the applicant temporary 

grandfather relief from the registration 

requirement, allowing it to continue 

operating during the pendency of the 

application process. 

(1) The Commission may grant such 

request for temporary grandfather relief 

from the registration requirement if the 

applicant has: 

(i) Satisfied all the requirements 

under paragraph (a) of this section, 

(ii) Provided transaction data that 

substantiates that the execution or 

trading of swaps has occurred and 

continues to occur on the applicant’s 

trading system or platform at the time 

the applicant submits the request, and 

(iii) Provided a certification that the 

applicant believes that when it operates 

under temporary grandfather relief it 

will meet the requirements of this Part 

37. 

(2) The temporary grandfather relief 

for a swap execution facility shall expire 

on the earlier of: 

(i) The date that the Commission 

grants or denies registration of the swap 

execution facility; or 

(ii) The date that the Commission 

rescinds the temporary grandfather 

relief provided to the swap execution 

facility. 

(3) The grant of temporary grandfather 

relief from the registration requirement 

by the Commission does not affect the 

right of the Commission to grant or deny 

permanent registration as provided 

under paragraph (a)(1) of this section. 

This paragraph shall terminate 365 days 

from the effectiveness of this regulation. 

(c) Reinstatement of dormant 

registration. Before making any swaps 

available for trading, a dormant swap 

execution facility as defined in § 40.1 of 

this Chapter must reinstate its 

registration under the procedures of 

paragraph (a) of this section; provided, 

however, that an application for 

reinstatement may rely upon previously 

submitted materials that still pertain to, 


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and accurately describe, current 

conditions. 

(d) Request for transfer of registration. 

(1) Request for transfer of registration. A 

swap execution facility that wants to 

request the transfer of its registration 

from its current legal entity to a new 

legal entity, as a result of a corporate 

reorganization or otherwise, must file a 

request with the Commission for 

approval to transfer the registration. 

Such request must be filed 

electronically with the Secretary of the 

Commission at its Washington, DC 

headquarters at submissions@cftc.gov 

and the Division of Market Oversight at 

DMOSubmissions@cftc.gov. 

(2) Timing of submission. The request 

must be filed no later than three months 

prior to the anticipated corporate 

change; provided that the swap 

execution facility may file a request 

with the Commission later than three 

months prior to the anticipated change 

if the swap execution facility does not 

know and reasonably could not have 

known of the anticipated change three 

months prior to the anticipated change. 

In such event, the swap execution 

facility shall be required to immediately 

file the request with the Commission as 

soon as it knows of such change with an 

explanation as to the timing of the 

request. 

(3) Required information. The request 

shall include the following: 

(i) The underlying agreement that 

governs the corporate change; 

(ii) A narrative description of the 

corporate change, including the reason 

for the change and its impact on the 

swap execution facility, including its 

governance, and operations, and its 

impact on the rights and obligations of 

market participants; 

(iii) A discussion of the transferee’s 

ability to comply with the Act, 

including the core principles applicable 

to swap execution facilities, and the 

Commission’s regulations thereunder; 

(iv) The governing documents of the 

transferee, including but not limited to 

articles of incorporation and bylaws; 

(v) The transferee’s rules marked to 

show changes from the current rules of 

the swap execution facility; 

(vi) A representation by the transferee 

that it: 

(A) Will be the surviving corporation 

and successor-in-interest to the 

transferor swap execution facility and 

will retain and assume, without 

limitation, all the assets and liabilities 

of the transferor; 

(B) Will assume responsibility for 

complying with all applicable 

provisions of the Act and the 

Commission’s regulations promulgated 

thereunder, including Part 37 and 

Appendices thereto; 

(C) Will assume, maintain and enforce 

all rules implementing and complying 

with these core principles, including the 

adoption of the transferor’s rulebook, as 

amended in the request, and that any 

such amendments will be submitted to 

the Commission pursuant to Section 

5c(c) of the Act and Part 40 of the 

Commission’s regulations; and 

(D) Will comply with all selfregulatory responsibilities except if 

otherwise indicated in the request, and 

will maintain and enforce all selfregulatory programs. 

(vii) A representation by the 

transferee that upon the transfer: 

(A) It will assume responsibility for 

and maintain compliance with product 

core principles for all swaps previously 

made available for trading through the 

transferor, whether by certification or 

approval; and 

(B) That none of the proposed rule 

changes will affect the rights and 

obligations of any participant. 

(viii) A representation by the 

transferee that market participants will 

be notified of all changes to the 

transferor’s rulebook prior to the 

transfer and will be further notified of 

the concurrent transfer of the 

registration to the transferee upon 

Commission approval and issuance of 

an order permitting this transfer. 

(4) Commission determination. The 

Commission will review a request as 

soon as practicable and such request 

will be approved or denied pursuant to 

a Commission order and based on the 

Commission’s determination as to the 

transferee’s ability to continue to 

operate the swap execution facility in 

compliance with the Act and the 

Commission’s regulations thereunder. 

(e) Request for withdrawal of 

application for registration. An 

applicant for registration may withdraw 

its application submitted pursuant to 

paragraph (a) of this section by filing 

such a request with the Commission at 

its Washington, DC headquarters. 

Withdrawal of an application for 

registration shall not affect any action 

taken or to be taken by the Commission 

based upon actions, activities or events 

occurring during the time that the 

application for registration was pending 

with the Commission. 

(f) Request for vacation of registration. 

A swap execution facility may vacate its 

registration under Section 7 of the Act 

by filing electronically such a request 

with the Commission at its Washington, 

DC headquarters. Vacation of 

registration shall not affect any action 

taken or to be taken by the Commission 

based upon actions, activities or events 

occurring during the time that the swap 

execution facility was registered by the 

Commission. 

§ 37.4 Procedures for Listing Products and 

Implementing Rules. 

(a) Request for Commission approval 

of rules and products. (1) An applicant 

for designation, or a swap execution 

facility, may request that the 

Commission approve under Section 

5c(c) of the Act, any or all of its rules 

and contract terms and conditions, and 

subsequent amendments thereto, prior 

to their implementation or, 

notwithstanding the provisions of 

Section 5c(c)(2) of the Act, at anytime 

thereafter, under the procedures of 

§§ 40.3 or 40.5 of this chapter, as 

applicable. A swap execution facility 

should label a swap in its rules as 

‘‘Listed for trading pursuant to 

Commission approval,’’ if the swap and 

its terms or conditions have been 

submitted to the Commission for 

approval, and it may label as ‘‘Approved 

by the Commission’’ only those rules 

that have been so approved. 

(2) Notwithstanding the timeline 

under §§ 40.3(b) and 40.5(b) of this 

Chapter, the operating rules and terms 

and conditions of swaps submitted for 

Commission approval that have been 

submitted at the same time as an 

application for swap execution facility 

registration or an application under 

§ 37.3(c) to reinstate the registration of 

a dormant swap execution facility as 

defined in § 40.1 of this Chapter, or 

while one of the foregoing is pending, 

will be deemed approved by the 

Commission no earlier than when the 

swap execution facility is deemed to be 

registered or reinstated. 

(b) Self-certification of rules and 

products. Rules of a swap execution 

facility and subsequent amendments 

thereto, including both the operational 

rules and the terms or conditions of 

swaps listed for trading on the facility, 

not voluntarily submitted for prior 

Commission approval pursuant to 

paragraph (a) of this regulation, must be 

submitted to the Commission with a 

certification that the rule or rule 

amendment of the swap complies with 

the Act or rules thereunder pursuant to 

the procedures of § 40.2 or § 40.6 of this 

Chapter, as applicable. 

(c) Section 15 consideration. An 

applicant for registration, or a registered 

swap execution facility, may request 

that the Commission consider under the 

provisions of Section 15(b) of the Act 

any of the swap execution facility’s 

rules or policies, including both the 

operational rules and the terms or 

conditions of swaps listed for trading. 


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§ 37.5 Information Relating to Swap 

Execution Facility Compliance. 

(a) Requests for information. Upon 

request by the Commission, a swap 

execution facility must file with the 

Commission such information related to 

its business as a swap execution facility, 

including information relating to data 

entry and trade details, in the form and 

manner and within the time as specified 

by the Commission in its request. 

(b) Demonstration of compliance. 

Upon request by the Commission, a 

swap execution facility must file with 

the Commission a written 

demonstration, containing such 

supporting data, information and 

documents, in the form and manner and 

within such time as the Commission 

may specify, that the swap execution 

facility is in compliance with one or 

more core principles as specified in the 

request, or that is requested by the 

Commission to satisfy its obligations 

under the Act. 

(c) Equity interest transfers. (1) Equity 

transfer notification. Upon entering into 

any agreement(s) that could result in an 

equity interest transfer of ten percent or 

more in the swap execution facility, the 

swap execution facility must file a 

notification of the equity interest 

transfer with the Secretary of the 

Commission at its Washington, DC 

headquarters at submissions@cftc.gov 

and the Division of Market Oversight at 

DMOSubmissions@cftc.gov, no later 

than the business day, as defined in 

§ 40.1 of this Chapter, following the date 

on which the swap execution facility 

enters into a firm obligation to transfer 

the equity interest. 

(2) Required information. The 

notification must include and be 

accompanied by: Any relevant 

agreement(s), including any preliminary 

agreements; any associated changes to 

relevant corporate documents; a chart 

outlining any new ownership or 

corporate or organizational structure; a 

brief description of the purpose and any 

impact of the equity interest transfer; 

and a representation from the swap 

execution facility that it meets all of the 

requirements of Section 5h of the Act 

and Commission regulations adopted 

thereunder. The swap execution facility 

must keep the Commission apprised of 

the projected date that the transaction 

resulting in the equity interest transfer 

will be consummated, and must provide 

to the Commission any new agreements 

or modifications to the original 

agreement(s) filed pursuant to this 

section. The swap execution facility 

must notify the Commission of the 

consummation of the transaction on the 

day on which it occurs. 

(3) Certification. (i) Upon a transfer of 

an equity interest of ten percent or more 

in a swap execution facility, the swap 

execution facility must file with the 

Secretary of the Commission at its 

Washington, DC headquarters, at 

submissions@cftc.gov, and the Division 

of Market Oversight, at 

DMOSubmissions@cftc.gov, a 

certification that the swap execution 

facility meets all of the requirements of 

Section 5h of the Act and Commission 

regulations adopted thereunder, no later 

than two business days, as defined in 

§ 40.1 of this Chapter, following the date 

on which the equity interest of ten 

percent or more was acquired. Such 

certification must state whether changes 

to any aspects of the swap execution 

facility’s operations were made as a 

result of such change in ownership, and 

include a description of any such 

change(s). 

(ii) The certification required under 

paragraph (c)(3) of this section may rely 

on and be supported by reference to an 

application for registration or prior 

filings made pursuant to a product or 

rule submission requirement, along with 

any necessary new filings, including 

new filings that provide any and all 

material updates of prior submissions. 

(d) Delegation of authority. The 

Commission hereby delegates, until it 

orders otherwise, the authority set forth 

in paragraph (b) of this regulation to the 

Director of the Division of Market 

Oversight or such other employee or 

employees as the Director may designate 

from time to time. The Director may 

submit to the Commission for its 

consideration any matter that has been 

delegated in this paragraph. Nothing in 

this paragraph prohibits the 

Commission, at its election, from 

exercising the authority delegated in 

this paragraph. 

§ 37.6 Enforceability. 

(a) A transaction entered into on or 

pursuant to the rules of a registered 

swap execution facility shall not be 

void, voidable, subject to rescission or 

otherwise invalidated or rendered 

unenforceable as a result of: 

(1) A violation by the registered swap 

execution facility of the provisions of 

Section 5h of the Act or this part 37; or 

(2) Any Commission proceeding to 

alter or supplement a rule, term or 

condition under Section 8a(7) of the 

Act, to declare an emergency under 

Section 8a(9) of the Act, or any other 

proceeding the effect of which is to 

alter, supplement, or require a registered 

swap execution facility to adopt a 

specific term or condition, trading rule 

or procedure or to take or refrain from 

taking a specific action. 

(b) A transaction entered into on or 

pursuant to the rules of a registered 

swap execution facility shall include 

written documentation that 

memorializes all of the terms of the 

transaction and legally supersedes any 

previous agreement. The confirmation 

of all terms of the transaction shall take 

place at the same time as execution. 

§ 37.7 Prohibited use of data collected for 

regulatory purposes. 

A swap execution facility may not use 

for business or marketing purposes any 

proprietary data or personal information 

it collects or receives, from or on behalf 

of any person, for the purpose of 

fulfilling its regulatory obligations; 

provided, however, that a swap 

execution facility, where necessary, may 

share such information with one or 

more swap execution facilities, or 

designated contract markets registered 

with the Commission, for regulatory 

purposes. 

§ 37.8 Boards of trade operating both a 

designated contract market and a swap 

execution facility. 

(a) A board of trade that operates a 

designated contract market and intends 

to also operate a swap execution facility 

must separately register the swap 

execution facility, pursuant to the swap 

execution facility registration 

requirements set forth in this Part 37, 

and on an ongoing basis, comply with 

the core principles under Section 5h of 

the Act, and the regulations under this 

part 37. 

(b) A board of trade that operates both 

a designated contract market and a swap 

execution facility, and that uses the 

same electronic trade execution system 

for executing and trading swaps that it 

uses for executing and trading swaps on 

the designated contract market must 

clearly identify to market participants 

for each swap whether the execution or 

trading of such swaps is taking place on 

the designated contract market or on the 

swap execution facility. 

§ 37.9 Permitted execution methods. 

(a) Definitions. (1) As used in this part 

37: 

(i) Order Book means: 

(A) An electronic trading facility, as 

that term is defined in section 1a(16) of 

the Act; 

(B) A trading facility, as that term is 

defined in section 1a(51) of the Act; 

(C) A trading system or platform in 

which all market participants in the 

trading system or platform can enter 

multiple bids and offers, observe bids 

and offers entered by other market 

participants, and choose to transact on 

such bids and offers; or 


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(D) Any such other trading system or 

platform as may be determined by the 

Commission. 

(ii) Request for Quote System means: 

(A) A trading system or platform in 

which a market participant must 

transmit a request for a quote to buy or 

sell a specific instrument to no less than 

five market participants in the trading 

system or platform, to which all such 

market participants may respond. Any 

bids or offers resting on the trading 

system or platform pertaining to the 

same instrument must be taken into 

account and communicated to the 

requester along with the responsive 

quotes; or 

(B) A trading system or platform in 

which multiple market participants can 

both: 

(1) View real-time electronic 

streaming quotes, both firm and 

indicative, from multiple potential 

counterparties on a centralized 

electronic screen; and 

(2) Have the option to complete a 

transaction by: 

(i) Accepting a firm streaming quote, 

or 

(ii) Transmitting a request for quote to 

no less than five market participants, 

based upon an indicative streaming 

quote, taking into account any resting 

bids or offers that have been 

communicated to the requester along 

with any responsive quotes; or 

(C) Any such other trading system or 

platform as may be determined by the 

Commission. 

(iii) Voice-Based System means a 

trading system or platform in which a 

market participant executes or trades a 

Permitted Transaction using a 

telephonic line or other voice-based 

service. 

(iv) Required Transactions means 

transactions that are subject to the 

execution requirements under this Act 

and are made available for trading 

pursuant to § 37.10, and are not block 

trades. 

(v) Permitted Transactions means 

transactions that meet any of these 

requirements: 

(A) Are block trades; 

(B) Are not swaps subject to the Act’s 

clearing and execution requirements, or 

(C) Are illiquid or bespoke swaps. 

(b) Required Transactions. (1) 

Required Transactions may be executed 

on an Order Book or a Request for Quote 

System. 

(2) An applicant seeking registration 

as a swap execution facility must, at a 

minimum, offer trading services to 

facilitate Required Transactions by 

providing market participants with the 

ability to post both firm and indicative 

quotes on a centralized electronic screen 

accessible to all market participants 

who have access to the swap execution 

facility. 

(3) Swap execution facilities must 

require that traders who have the ability 

to execute against a customer’s order or 

to execute two customers against each 

other be subject to a 15 second timing 

delay between the entry of those two 

orders, such that one side of the 

potential transaction is disclosed and 

made available to other market 

participants before the second side of 

the potential transaction (whether for 

the trader’s own account or for a second 

customer), is submitted for execution. 

(4) The Commission may, in its 

discretion, determine to require the 

swap execution facility to provide its 

participants a different trading method 

for a particular swap. 

(c) Permitted Transactions. (1) 

Permitted Transactions may be executed 

by an Order Book, Request for Quote 

System, a Voice-Based System, or any 

such other system for trading as may be 

permitted by the Commission. 

(2) A registered swap execution 

facility may submit a request to the 

Commission to offer trading services to 

facilitate Permitted Transactions. When 

submitting such request, the swap 

execution facility must certify its 

compliance with § 37.11. 

§ 37.10 Swaps made available for trading. 

(a) A swap execution facility must 

conduct an annual review (or at the 

Commission’s request) of whether the 

swap execution facility has made a 

swap available for trading. 

(b) When conducting reviews and 

assessments regarding whether the swap 

execution facility has made a swap 

available for trading, a swap execution 

facility may consider: 

(1) The frequency of transactions in 

this or similar swaps; 

(2) The open interest in this or similar 

swaps; and 

(3) Any other factor requested by the 

Commission. 

(c)(1) If at least one swap execution 

facility has made the same or an 

economically equivalent swap available 

for trading, all swap execution facilities 

are required to treat the swap as made 

available for trading. 

(2) After conducting its review and 

assessment of whether a swap is made 

available for trading, the swap execution 

facility must provide electronically to 

the Commission a report of its 

assessment not more than 30 days after 

completion of the assessment. 

§ 37.11 Identification of non-cleared swaps 

or swaps not made available to trade. 

(a) A swap execution facility may 

allow: 

(1) The execution and trading of 

swaps that have not been determined to 

be subject to the clearing mandate under 

Section 2(h) of the Act; 

(2) Transactions subject to an 

exception from the clearing mandate 

provided under Section 2(h)(7) of the 

Act; or 

(3) The execution and trading of 

swaps that have not been made 

available for trading pursuant to § 37.10. 

(b) A swap execution facility that 

chooses to offer to facilitate bilateral 

trading for swaps detailed in paragraph 

(a) of this section must clearly identify 

to market participants that the particular 

swap is to be executed bilaterally 

between the parties pursuant to one of 

the applicable exemption from 

execution and clearing. 

Subpart B—Compliance With Core 

Principles 

§ 37.100 Core Principle 1—Compliance 

with Core Principles. 

(a) In general. To be registered, and 

maintain registration, as a swap 

execution facility, the swap execution 

facility shall comply with— 

(1) All core principles described in 

Section 5h of the Act; and 

(2) Any requirement that the 

Commission may impose by rule or 

regulation pursuant to Section 8a(5) of 

the Act. 

(b) Reasonable Discretion of a Swap 

Execution Facility. Unless otherwise 

determined by the Commission by rule 

or regulation, a swap execution facility 

described in paragraph (a) of this 

section shall have reasonable discretion 

in establishing the manner in which the 

swap execution facility complies with 

the core principles described in Section 

5h of the Act. 

Subpart C—Compliance With Rules 

§ 37.200 Core Principle 2—Compliance 

with rules. 

A swap execution facility shall: 

(a) Establish and enforce compliance 

with any rule of the swap execution 

facility, including the terms and 

conditions of the swaps traded or 

processed on or through the swap 

execution facility and any limitation on 

access to the swap execution facility; 

(b) Establish and enforce trading, 

trade processing, and participation rules 

that will deter abuses and have the 

capacity to detect, investigate, and 

enforce those rules, including means to 

provide market participants with 

impartial access to the market and to 

capture information that may be used in 

establishing whether rule violations 

have occurred; 


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(c) Establish rules governing the 

operation of the facility, including rules 

specifying trading procedures to be used 

in entering and executing orders traded 

or posted on the facility, including 

block trades; and 

(d) Provide by its rules that, when a 

swap dealer or major swap participant 

enters into or facilitates a swap that is 

subject to the mandatory clearing 

requirement of Section 2(h), the swap 

dealer or major swap participant shall 

be responsible for compliance with the 

mandatory trading requirement under 

Section 2(h)(8) of the Act. 

§ 37.201 Operation of swap execution 

facility and compliance with rules. 

(a) A swap execution facility must 

establish rules governing the operation 

of the swap execution facility, 

including, but not limited to, rules 

specifying trading procedures to be 

followed by members and market 

participants when entering and 

executing orders traded or posted on the 

swap execution facility, including block 

trades, as defined in part 45 of this 

chapter, if offered. 

(b) A swap execution facility must 

establish and impartially enforce 

compliance with the rules of the swap 

execution facility, including, but not 

limited to— 

(1) The terms and conditions of any 

swaps traded or processed on or through 

the swap execution facility; 

(2) Access to the swap execution 

facility; 

(3) Trade practice rules; 

(4) Audit trail requirements; 

(5) Disciplinary rules; and 

(6) Mandatory clearing requirements. 

§ 37.202 Access requirements. 

(a) Impartial access by members and 

market participants. A swap execution 

facility shall provide any eligible 

contract participant and any 

independent software vendor with 

impartial access to its market(s) and 

market services (including any 

indicative quote screens or any similar 

pricing data displays), providing— 

(1) Criteria that are impartial, 

transparent, and applied in a fair and 

nondiscriminatory manner; 

(2) A process by which participants 

provide the swap execution facility with 

written or electronic confirmation of 

their status as eligible contract 

participants, as defined by the Act and 

Commission regulations, prior to being 

granted access to the swap execution 

facility; and 

(3) Comparable fees for participants 

receiving comparable access to, or 

services from, a swap execution facility. 

(b) Jurisdiction. Prior to granting any 

eligible contract participant access to its 

facilities, a swap execution facility must 

require that the eligible contract 

participant consents to its jurisdiction. 

(c) Limitations on access. A swap 

execution facility must establish and 

impartially enforce rules governing any 

decision to allow, deny, suspend, or 

permanently bar participants’ access to 

the swap execution facility, including 

such decisions when made as part of a 

disciplinary or emergency action taken 

by the swap execution facility. 

§ 37.203 Rule enforcement program. 

A swap execution facility must 

establish and enforce trading, trade 

processing, and participation rules that 

will deter abuses and it must have the 

capacity to detect, investigate and 

enforce those rules. 

(a) Abusive Trading Practices 

Prohibited. A swap execution facility 

must prohibit abusive trading practices 

on its markets by members and market 

participants. Specific trading practices 

that must be prohibited by all swap 

execution facilities include frontrunning, wash trading, pre-arranged 

trading, fraudulent trading, money 

passes and any other trading practices 

that a swap execution facility deems to 

be abusive. In addition, a swap 

execution facility also must prohibit any 

other manipulative or disruptive trading 

practices prohibited by the Act or by the 

Commission pursuant to Commission 

regulation. Swap execution facilities 

that permit intermediation must 

prohibit customer-related abuses 

including, but not limited to, trading 

ahead of customer orders, trading 

against customer orders, 

accommodation trading, and improper 

cross trading. 

(b) Capacity to Detect and Investigate 

Rule Violations. A swap execution 

facility must have arrangements and 

resources for effective enforcement of its 

rules. Such arrangements must include 

the authority to collect information and 

documents on both a routine and nonroutine basis, including the authority to 

examine books and records kept by the 

swap execution facility’s members and 

by market participants. A swap 

execution facility’s arrangements and 

resources must also facilitate the direct 

supervision of the market and the 

analysis of data collected to determine 

whether a rule violation has occurred. 

(c) Compliance Staff and Resources. 

(1) Sufficient compliance staff. A swap 

execution facility must establish and 

maintain sufficient compliance 

department resources and staff to ensure 

that it can conduct effective audit trail 

reviews, trade practice surveillance, 

market surveillance and real-time 

market monitoring. The swap execution 

facility’s compliance staff must also be 

sufficient to address unusual market or 

trading events as they arise, and to 

conduct and complete investigations in 

a timely manner, as set forth in 

§ 37.203(f). 

(2) Ongoing monitoring of compliance 

staff resources. A swap execution 

facility must monitor the size and 

workload of its compliance staff on a 

continuous basis and, on at least an 

annual basis, formally evaluate the need 

to increase its compliance resources and 

staff. In determining the appropriate 

level of compliance resources and staff, 

the swap execution facility should 

consider trading volume increases, the 

number of new products or swaps listed 

for trading, any new responsibilities 

assigned to compliance staff, the results 

of any internal review demonstrating 

that work is not completed in an 

effective or timely manner, the 

recommendation of any Commission 

rule enforcement review or evaluation 

of the swap execution facility and any 

other factors suggesting the need for 

increased resources and staff. 

(d) Automated Trade Surveillance 

System. A swap execution facility must 

maintain an automated trade 

surveillance system capable of detecting 

and investigating potential trade 

practice violations. Such system must 

maintain all data reflecting the details of 

each order entered into the trading 

system or platform, including all order 

modifications and cancellations, and 

maintain all data reflecting transactions 

executed on the swap execution facility. 

The automated system must load and 

process daily orders and trades no later 

than 24 hours after the completion of 

the trading day. In addition, the 

automated trade surveillance system 

must have the capability to detect and 

flag specific trade execution patterns 

and trade anomalies; compute, retain, 

and compare trading statistics; compute 

trade gains, losses, and futuresequivalent positions; reconstruct the 

sequence of market activity; perform 

market analyses; and enable system 

users to perform in-depth analyses and 

ad hoc queries of trade-related data. 

(e) Real-time Market Monitoring. A 

swap execution facility must conduct 

real-time market monitoring of all 

trading activity on its electronic trading 

platform(s) to ensure orderly trading 

and identify any market or system 

anomalies. A swap execution facility 

must have the authority to adjust trade 

prices or cancel trades when necessary 

to mitigate market disrupting events 

caused by malfunctions in its electronic 

trading platform(s) or errors in orders 

submitted by members and market 

participants. Any trade price 


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adjustments or trade cancellations must 

be transparent to the market and subject 

to standards that are clear, fair, and 

publicly available. 

(f) Investigations and Investigation 

Reports. (1) Procedures. A swap 

execution facility must establish and 

maintain procedures that require its 

compliance staff to conduct 

investigations of possible rule 

violations. An investigation must be 

commenced upon the receipt of a 

request from Commission staff or upon 

the discovery or receipt of information 

(such as data produced by automated 

surveillance systems) by the swap 

execution facility that, in the judgment 

of its compliance staff, indicates a 

possible basis for finding that a 

violation has occurred or will occur. 

(2) Timeliness. Each compliance staff 

investigation must be completed in a 

timely manner. Absent mitigating 

factors, a timely manner is no later than 

12 months after the date that an 

investigation is opened. Mitigating 

factors that may reasonably justify an 

investigation taking longer than 12 

months to complete include the 

complexity of the investigation, the 

number of firms or individuals involved 

as potential wrongdoers, the number of 

potential violations to be investigated, 

and the volume of documents and data 

to be examined and analyzed by 

compliance staff. 

(3) Investigation reports when a 

reasonable basis exists for finding a 

violation. Compliance staff must submit 

a written investigation report for 

disciplinary action in every instance in 

which compliance staff determines from 

surveillance or from an investigation 

that a reasonable basis exists for finding 

a rule violation. The investigation report 

must include the reason the 

investigation was initiated; a summary 

of the complaint, if any; the relevant 

facts; compliance staff’s analysis and 

conclusions; and a recommendation as 

to whether disciplinary action should be 

pursued. The report must also include 

the member or market participant’s 

disciplinary history at the swap 

execution facility, including copies of 

warning letters. 

(4) Investigation reports when no 

reasonable basis exists for finding a 

violation. If after conducting an 

investigation compliance staff 

determines that no reasonable basis 

exists for finding a violation, it must 

prepare a written report including the 

reason the investigation was initiated; a 

summary of the complaint, if any; the 

relevant facts; compliance staff’s 

analysis and conclusions; and if 

applicable, any recommendation that a 

disciplinary committee issue a warning 

letter in accordance with § 37.203(f)(5). 

If compliance staff recommends that a 

warning letter be issued to a member or 

market participant pursuant to 

§ 37.203(f)(5), the investigation report 

must include a copy of the letter as well 

as the member or market participant’s 

disciplinary history at the swap 

execution facility, including copies of 

warning letters. 

(5) Warning letters. In addition to the 

action required to be taken under 

§§ 37.203(f)(3) and 37.203(f)(4), the rules 

of a swap execution facility may 

authorize compliance staff to issue a 

warning letter to a person or entity 

under investigation or to recommend 

that a disciplinary committee take such 

an action. A warning letter issued in 

accordance with this section is not a 

penalty or an indication that a finding 

of a violation has been made. A copy of 

a warning letter issued by compliance 

staff must be included in the 

investigation report required by 

§§ 37.203(f)(3) and 37.203(f)(4). No more 

than one warning letter for the same 

potential violation may be issued to the 

same person or entity during a rolling 

12-month period. 

(g) Additional Rules Required. A swap 

execution facility must adopt and 

enforce any additional rules that it 

believes are necessary to comply with 

the requirements of § 37.203. 

§ 37.204 Regulatory services provided by 

a third party. 

(a) Use of third-party provider 

permitted. A swap execution facility 

may choose to contract with a registered 

futures association or another registered 

entity, as such terms are defined under 

the Act, (collectively, ‘‘regulatory service 

provider’’), for the provision of services 

to assist in complying with the core 

principles, as approved by the 

Commission. Any swap execution 

facility that chooses to contract with a 

regulatory service provider must ensure 

that its regulatory service provider has 

the capacity and resources necessary to 

provide timely and effective regulatory 

services, including adequate staff and 

automated surveillance systems. A swap 

execution facility will at all times 

remain responsible for the performance 

of any regulatory services received, for 

compliance with the swap execution 

facility’s obligations under the Act and 

Commission regulations, and for the 

regulatory service provider’s 

performance on its behalf. 

(b) Duty to supervise third party. A 

swap execution facility that elects to use 

the service of a regulatory service 

provider must retain sufficient 

compliance staff to supervise the quality 

and effectiveness of the regulatory 

services provided on its behalf. 

Compliance staff of the swap execution 

facility must hold regular meetings with 

the regulatory service provider to 

discuss ongoing investigations, trading 

patterns, market participants, and any 

other matters of regulatory concern. A 

swap execution facility must also 

conduct periodic reviews of the 

adequacy and effectiveness of services 

provided on its behalf. Such reviews 

must be documented carefully and 

made available to the Commission upon 

request. 

(c) Regulatory decisions required from 

the swap execution facility. A swap 

execution facility that elects to use the 

service of a regulatory service provider 

must retain exclusive authority in all 

substantive decisions made by its 

regulatory service provider, including 

but not limited to decisions involving 

the cancellation of trades, the issuance 

of disciplinary charges against members 

or market participants, denials of access 

to the trading platform for disciplinary 

reasons, and any decision to open an 

investigation into a possible rule 

violation. A swap execution facility 

must document any instances where its 

actions differ from those recommended 

by its regulatory service provider. 

§ 37.205 Audit trail. 

A swap execution facility must 

establish procedures to capture and 

retain information that may be used in 

establishing whether rule violations 

have occurred. 

(a) Audit Trail Required. A swap 

execution facility must capture and 

retain all audit trail data necessary to 

detect, investigate and prevent customer 

and market abuses. Such data must be 

sufficient to reconstruct all transactions 

within a reasonable period of time and 

to provide evidence of any violations of 

the rules of the swap execution facility. 

An acceptable audit trail must also 

permit the swap execution facility to 

track a customer order from the time of 

receipt through fill, allocation, or other 

disposition, and must include both 

order and trade data. 

(b) Elements of an Acceptable Audit 

Trail Program. (1) Original source 

documents. A swap execution facility’s 

audit trail must include original source 

documents. Original source documents 

include unalterable, sequentiallyidentified records on which trade 

execution information is originally 

recorded, whether recorded manually or 

electronically. Records for customer 

orders (whether filled, unfilled or 

cancelled, each of which shall be 

retained or electronically captured) 

must reflect the terms of the order, a 

unique account identifier that relates 


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back to the account(s) owner(s) and the 

time of order entry. Swap execution 

facilities that permit intermediation 

must require that all orders or requests 

for quotes received by phone that are 

executable be immediately entered into 

the trading system or platform. If an 

order or request for quote cannot be 

immediately entered into the trading 

system or platform, an electronic record 

that includes the account identifier that 

relates to the account owner, time of 

receipt, and terms of the order or 

request for quote must immediately be 

created, and the order or request for 

quote must be entered into the trading 

system or platform as soon as 

practicable. 

(2) Transaction history database. A 

swap execution facility’s audit trail 

program must include an electronic 

transaction history database. An 

adequate transaction history database 

includes a history of all orders and 

trades, and also includes: 

(i) All data that are input into the 

trade entry or matching system for the 

transaction to match and clear; 

(ii) The categories of participant for 

which each trade is executed, including 

whether the person executing a trade 

was executing it for his/her own 

account or an account for which he/she 

has discretion, his/her clearing 

member’s house account, the account of 

another member or the account of any 

other customer; 

(iii) Timing and sequencing data 

adequate to reconstruct trading; and 

(iv) Identification of each account to 

which fills are allocated. 

(3) Electronic analysis capability. A 

swap execution facility’s audit trail 

program must include electronic 

analysis capability with respect to all 

audit trail data in the transaction history 

database. An adequate electronic 

analysis capability must permit the 

sorting and presentation of data in the 

transaction history database so as to 

reconstruct trading and identify possible 

trading violations with respect to both 

customer and market abuse. 

(4) Safe storage capability. A swap 

execution facility’s audit trail program 

must include the capability to safely 

store all audit trail data retained in its 

transaction history database. Such safe 

storage capability must include the 

capability to store all data in the 

database in a manner that protects it 

from unauthorized alteration, as well as 

from accidental erasure or other loss. 

Data must be retained in accordance 

with the recordkeeping requirements of 

Core Principle 10 for swap execution 

facilities and the associated regulations 

in subpart K of this part 37. 

(c) Enforcement of Audit Trail 

Requirements. (1) Annual audit trail 

and recordkeeping reviews. A swap 

execution facility must enforce its audit 

trail and recordkeeping requirements 

through at least annual reviews of all 

members and market participants to 

verify their compliance with the swap 

execution facility’s audit trail and 

recordkeeping requirements. Such 

reviews must include, but are not 

limited to, reviews of randomly selected 

samples of front-end audit trail data for 

order routing systems; a review of the 

process by which user identifications 

are assigned and user identification 

records are maintained; a review of 

usage patterns associated with user 

identifications to monitor for violations 

of user identification rules; and reviews 

of account numbers and customer type 

indicator codes in trade records to test 

for accuracy and improper use. 

(2) Enforcement program required. A 

swap execution facility must establish a 

program for effective enforcement of its 

audit trail and recordkeeping 

requirements. An effective program 

must identify members and market 

participants that have failed to maintain 

high levels of compliance with such 

requirements, and levy meaningful 

sanctions when deficiencies are found. 

Sanctions must be sufficient to deter 

recidivist behavior, and may not include 

more than one warning letter for the 

same violation within a rolling twelve 

month period. 

§ 37.206 Disciplinary procedures and 

sanctions. 

A swap execution facility must 

establish trading, trade processing, and 

participation rules that will deter abuses 

and have the capacity to enforce such 

rules through prompt and effective 

disciplinary action. 

(a) Enforcement staff. A swap 

execution facility must establish and 

maintain sufficient enforcement staff 

and resources to effectively and 

promptly prosecute possible rule 

violations within the disciplinary 

jurisdiction of the swap execution 

facility. A swap execution facility must 

also monitor the size and workload of 

its enforcement staff annually, and 

increase its enforcement resources and 

staff as appropriate. The enforcement 

staff may not include either members of 

the swap execution facility or persons 

whose interests conflict with their 

enforcement duties. A member of the 

enforcement staff may not operate under 

the direction or control of any person or 

persons with trading privileges at the 

swap execution facility. A swap 

execution facility’s enforcement staff 

may operate as part of the swap 

execution facility’s compliance 

department. 

(b) Disciplinary panels. (1) 

Disciplinary panels required. A swap 

execution facility must establish one or 

more Review Panels and one or more 

Hearing Panels (collectively, 

‘‘disciplinary panels’’) that are 

authorized to fulfill their obligations 

under the rules of this Subpart. 

Disciplinary panels must meet the 

composition requirements of 

§ 40.9(c)(3)(ii), and must not include 

any members of the swap execution 

facility’s compliance staff, or any person 

involved in adjudicating any other stage 

of the same proceeding. 

(2) Review panels. A swap execution 

facility’s Review Panel(s) must be 

responsible for determining whether a 

reasonable basis exists for finding a 

violation of swap execution facility 

rules, and for authorizing the issuance 

of notices of charges against persons 

alleged to have committed violations if 

the Review Panel believes that the 

matter should be adjudicated. 

(3) Hearing Panels. A swap execution 

facility’s Hearing Panel(s) must be 

responsible for adjudicating disciplinary 

cases pursuant to a notice of charges 

authorized by a Review Panel, and must 

also be responsible for such other duties 

as are specified in this Subpart. 

(c) Review of investigation report. 

Promptly after receiving a completed 

investigation report pursuant to 

§ 37.203(f)(3), a Review Panel must 

promptly review the report and, within 

30 days of such receipt, must take one 

of the following actions: 

(1) If the Review Panel determines 

that additional investigation or evidence 

is needed, it must promptly direct the 

compliance staff to conduct further 

investigation. 

(2) If the Review Panel determines 

that no reasonable basis exists for 

finding a violation or that prosecution is 

otherwise unwarranted, it may direct 

that no further action be taken. Such 

determination must be in writing, and 

must include a written statement setting 

forth the facts and analysis supporting 

the decision. 

(3) If the Review Panel determines 

that a reasonable basis exists for finding 

a violation and adjudication is 

warranted, it must direct that the person 

or entity alleged to have committed the 

violation be served with a notice of 

charges and must proceed in accordance 

with the rules of this section. 

(d) Notice of charges. A notice of 

charges must adequately state the acts, 

conduct, or practices in which the 

respondent is alleged to have engaged; 

state the rule, or rules, alleged to have 

been violated (or about to be violated); 


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and prescribe the period within which 

a hearing on the charges may be 

requested. The notice must also advise 

the respondent charged that he is 

entitled, upon request, to a hearing on 

the charges; and if the rules of the swap 

execution facility so provide: 

(1) The failure to request a hearing 

within the period prescribed in the 

notice, except for good cause, may be 

deemed a waiver of the right to a 

hearing; and 

(2) The failure to answer or to deny 

expressly a charge may be deemed to be 

an admission of such charge. 

(e) Right to representation. Upon 

being served with a notice of charges, a 

respondent must have the right to be 

represented by legal counsel or any 

other representative of its choosing in 

all succeeding stages of the disciplinary 

process. 

(f) Answer to charges. A respondent 

must be given a reasonable period of 

time to file an answer to a notice of 

charges. The rules of a swap execution 

facility may require that: 

(1) The answer must be in writing and 

include a statement that the respondent 

admits, denies, or does not have and is 

unable to obtain sufficient information 

to admit or deny each allegation. A 

statement of a lack of sufficient 

information shall have the effect of a 

denial of an allegation; 

(2) Failure to file an answer on a 

timely basis shall be deemed an 

admission of all allegations contained in 

the notice of charges; and 

(3) Failure in an answer to deny 

expressly a charge shall be deemed to be 

an admission of such charge. 

(g) Admission or failure to deny 

charges. The rules of a swap execution 

facility may provide that if a respondent 

admits or fails to deny any of the 

charges, a Hearing Panel may find that 

the violations alleged in the notice of 

charges for which the respondent 

admitted or failed to deny any of the 

charges have been committed. If the 

swap execution facility’s rules so 

provide, then: 

(1) The Hearing Panel must impose a 

sanction for each violation found to 

have been committed; 

(2) The Hearing Panel must promptly 

notify the respondent in writing of any 

sanction to be imposed pursuant to 

§ 37.206(g)(1) and advise the respondent 

that it may request a hearing on such 

sanction within a specified period of 

time; 

(3) The rules of a swap execution 

facility may provide that if a respondent 

fails to request a hearing within the 

period of time specified in the notice, 

the respondent will be deemed to have 

accepted the sanction. 

(h) Denial of charges and right to 

hearing. In every instance where a 

respondent has requested a hearing on 

a charge that is denied, or on a sanction 

set by the Hearing Panel pursuant to 

Section 37.206(g), the respondent must 

be given an opportunity for a hearing in 

accordance with the requirements of 

§ 37.206(j). The swap execution 

facility’s rules may provide that, except 

for good cause, the hearing must be 

concerned only with those charges 

denied and/or sanctions set by the 

Hearing Panel under § 37.206(g) for 

which a hearing has been requested. 

(i) Settlement offers. (1) The rules of 

a swap execution facility may permit a 

respondent to submit a written offer of 

settlement at any time after the 

investigation report is completed. The 

disciplinary panel presiding over the 

matter may accept the offer of 

settlement, but may not alter the terms 

of a settlement offer unless the 

respondent agrees. 

(2) The rules of a swap execution 

facility may provide that, in its 

discretion, a disciplinary panel may 

permit the respondent to accept a 

sanction without either admitting or 

denying the rule violations upon which 

the sanction is based. 

(3) If an offer of settlement is 

accepted, the panel accepting the offer 

must issue a written decision specifying 

the rule violations it has reason to 

believe were committed, including the 

basis or reasons for the panel’s 

conclusions, and any sanction to be 

imposed, which must include full 

customer restitution where customer 

harm is demonstrated. If an offer of 

settlement is accepted without the 

agreement of the enforcement staff, the 

decision must adequately support the 

Hearing Panel’s acceptance of the 

settlement. Where applicable, the 

decision must also include a statement 

that the respondent has accepted the 

sanctions imposed without either 

admitting or denying the rule violations. 

(4) The respondent may withdraw his 

or her offer of settlement at any time 

before final acceptance by a panel. If an 

offer is withdrawn after submission, or 

is rejected by a disciplinary panel, the 

respondent must not be deemed to have 

made any admissions by reason of the 

offer of settlement and must not be 

otherwise prejudiced by having 

submitted the offer of settlement. 

(j) Hearings. (1) A swap execution 

facility must adopt rules that provide for 

the following minimum requirements 

for any hearing conducted pursuant to 

a notice of charges: 

(i) The hearing must be fair, must be 

conducted before members of the 

Hearing Panel, and must be promptly 

convened after reasonable notice to the 

respondent. The formal rules of 

evidence need not apply; nevertheless, 

the procedures for the hearing may not 

be so informal as to deny a fair hearing. 

No member of the Hearing Panel for the 

matter may have a financial, personal, 

or other direct interest in the matter 

under consideration. 

(ii) In advance of the hearing, the 

respondent must be entitled to examine 

all books, documents, or other evidence 

in the possession or under the control 

of the swap execution facility that are to 

be relied upon by the enforcement staff 

in presenting the charges contained in 

the notice of charges or that are relevant 

to those charges. 

(iii) The swap execution facility’s 

enforcement and compliance staffs must 

be parties to the hearing, and the 

enforcement staff must present their 

case on those charges and sanctions that 

are the subject of the hearing. 

(iv) The respondent must be entitled 

to appear personally at the hearing, 

must be entitled to cross-examine any 

persons appearing as witnesses at the 

hearing, and must be entitled to call 

witnesses and to present such evidence 

as may be relevant to the charges. 

(v) The swap execution facility must 

require that persons within its 

jurisdiction who are called as witnesses 

participate in the hearing and produce 

evidence. It must make reasonable 

efforts to secure the presence of all other 

persons called as witnesses whose 

testimony would be relevant. 

(vi) If the respondent has requested a 

hearing, a copy of the hearing must be 

made and must become a part of the 

record of the proceeding. The record 

must be one that is capable of being 

accurately transcribed; however, it need 

not be transcribed unless the transcript 

is requested by Commission staff or the 

respondent, the decision is appealed 

pursuant to § 37.206(l), or is reviewed 

by the Commission pursuant to Section 

8c of the Act or part 9 of this chapter. 

In all other instances, a summary record 

of a hearing is permitted. 

(vii) The rules of a swap execution 

facility may provide that the cost of 

transcribing the record of the hearing 

must be borne by a respondent who 

requests the transcript, appeals the 

decision pursuant to § 37.206(l), or 

whose application for Commission 

review of the disciplinary action has 

been granted. In all other instances, the 

cost of transcribing the record must be 

borne by the swap execution facility. 

(2) The rules of a swap execution 

facility may provide that a sanction may 

be summarily imposed upon any person 

within its jurisdiction whose actions 

impede the progress of a hearing. 


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(k) Decisions. Promptly following a 

hearing conducted in accordance with 

§ 37.206(j), the Hearing Panel must 

render a written decision based upon 

the weight of the evidence contained in 

the record of the proceeding and must 

provide a copy to the respondent. The 

decision must include: 

(1) The notice of charges or a 

summary of the charges; 

(2) The answer, if any, or a summary 

of the answer; 

(3) A summary of the evidence 

produced at the hearing or, where 

appropriate, incorporation by reference 

of the investigation report; 

(4) A statement of findings and 

conclusions with respect to each charge, 

and a complete explanation of the 

evidentiary and other basis for such 

findings and conclusions with respect to 

each charge; 

(5) An indication of each specific rule 

that the respondent was found to have 

violated; 

(6) A declaration of all sanctions 

imposed against the respondent, 

including the basis for such sanctions 

and the effective date of such sanctions. 

(l) Right to appeal. The rules of a 

swap execution facility may permit the 

parties to a proceeding to appeal 

promptly an adverse decision of the 

Hearing Panel in all or in certain classes 

of cases. Such rules may require a 

party’s notice of appeal to be in writing 

and to specify the findings, conclusions, 

or sanctions to which objection are 

taken. If the rules of a swap execution 

facility permit appeals, then both the 

respondent and the enforcement staff 

must have the opportunity to appeal 

and the swap execution facility must 

provide for the following: 

(1) The swap execution facility must 

establish an appellate panel that must 

be authorized to hear appeals of 

respondents. In addition, the rules of a 

swap execution facility may provide 

that the appellate panel may, on its own 

initiative, order review of a decision by 

the Hearing Panel within a reasonable 

period of time after the decision has 

been rendered. 

(2) The composition of the appellate 

panel must be consistent with 

§ 40.9(c)(iv), and must not include any 

members of the swap execution 

facility’s compliance staff, or any person 

involved in adjudicating any other stage 

of the same proceeding. The rules of a 

swap execution facility must provide for 

the appeal proceeding to be conducted 

before all of the members of the board 

of appeals or a panel thereof. 

(3) Except for good cause shown, the 

appeal or review must be conducted 

solely on the record before the Hearing 

Panel, the written exceptions filed by 

the parties, and the oral or written 

arguments of the parties. 

(4) Promptly following the appeal or 

review proceeding, the board of appeals 

must issue a written decision and must 

provide a copy to the respondent. The 

decision issued by the board of appeals 

must adhere to all the requirement of 

§ 37.206(k), to the extent that a different 

conclusion is reached from that issued 

by the Hearing Panel. 

(m) Final decisions. Each swap 

execution facility must establish rules 

setting forth when a decision rendered 

pursuant to this section will become the 

final decision of such swap execution 

facility. 

(n) Disciplinary sanctions. All 

disciplinary sanctions imposed by a 

swap execution facility or its 

disciplinary panels must be 

commensurate with the violations 

committed and must be clearly 

sufficient to deter recidivism or similar 

violations by other market participants. 

All disciplinary sanctions must take 

into account the respondent’s 

disciplinary history. In the event of 

demonstrated customer harm, any 

disciplinary sanction must also include 

full customer restitution. 

(o) Summary fines for violations of 

rules regarding timely submission of 

records. A swap execution facility may 

adopt a summary fine schedule for 

violations of rules relating to the timely 

submission of accurate records required 

for clearing or verifying each day’s 

transactions. A swap execution facility 

may permit its compliance staff, or a 

designated panel of swap execution 

facility officials, to summarily impose 

minor sanctions against persons within 

the swap execution facility’s 

jurisdiction for violating such rules. A 

swap execution facility’s summary fine 

schedule may allow for warning letters 

to be issued for first-time violations or 

violators, provided that no more than 

one warning letter may be issued per 

rolling 12-month period for the same 

violation. If adopted, a summary fine 

schedule must provide for progressively 

larger fines for recurring violations. 

(p) Emergency disciplinary actions. 

(1) A swap execution facility may 

impose a sanction, including 

suspension, or take other summary 

action against a person or entity subject 

to its jurisdiction upon a reasonable 

belief that such immediate action is 

necessary to protect the best interest of 

the marketplace. 

(2) Any emergency disciplinary action 

must be taken in accordance with a 

swap execution facility’s procedures 

that provide for the following: 

(i) If practicable, a respondent must be 

served with a notice before the action is 

taken, or otherwise at the earliest 

possible opportunity. The notice must 

state the action, briefly state the reasons 

for the action, and state the effective 

time and date, and the duration of the 

action. 

(ii) The respondent must have the 

right to be represented by legal counsel 

or any other representative of its 

choosing in all proceedings subsequent 

to the emergency action taken. The 

respondent must be given the 

opportunity for a hearing as soon as 

reasonably practicable and the hearing 

must be conducted before the Hearing 

Panel pursuant to the requirements of 

§ 37.206(j). 

(iii) Promptly following the hearing 

provided for in this rule, the swap 

execution facility must render a written 

decision based upon the weight of the 

evidence contained in the record of the 

proceeding and must provide a copy to 

the respondent. The decision must 

include a description of the summary 

action taken; the reasons for the 

summary action; a summary of the 

evidence produced at the hearing; a 

statement of findings and conclusions; a 

determination that the summary action 

should be affirmed, modified, or 

reversed; and a declaration of any action 

to be taken pursuant to the 

determination, and the effective date 

and duration of such action. 

§ 37.207 Swaps subject to mandatory 

clearing. 

A swap execution facility shall 

provide by its rules that when a swap 

dealer or major swap participant enters 

into or facilitates a swap transaction that 

is subject to the mandatory clearing 

requirement of Section 2(h) of the Act, 

the swap dealer or major swap 

participant shall be responsible for 

compliance with the mandatory trading 

requirement under Section 2(h)(8). 

Subpart D—Swaps Not Readily 

Susceptible to Manipulation 

§ 37.300 Core Principle 3—Swaps not 

readily susceptible to manipulation. 

The swap execution facility shall 

permit trading only in swaps that are 

not readily susceptible to manipulation. 

§ 37.301 General requirement. 

(a) To demonstrate to the Commission 

compliance with the requirements of 

§ 37.300, a swap execution facility must 

submit new swap contracts in advance 

to the Commission pursuant to part 40 

of this chapter, either by: 

(1) Requesting prior approval from the 

Commission; or 

(2) Self-certification for new product 

submissions. 


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(b) Furthermore, the swap execution 

facility must provide evidence that the 

swap complies with Core Principle 3 by 

providing the applicable information as 

set forth in appendix C to part 38— 

Demonstration of Compliance that a 

contract is not readily susceptible to 

manipulation. 

Subpart E—Monitoring of Trading and 

Trade Processing 

§ 37.400 Core Principle 4—Monitoring of 

trading and trade processing. 

The swap execution facility shall: 

(a) Establish and enforce rules or 

terms and conditions defining, or 

specifications detailing: 

(1) Trading procedures to be used in 

entering and executing orders traded on 

or through the facilities of the swap 

execution facility; and 

(2) Procedures for trade processing of 

swaps on or through the facilities of the 

swap execution facility; and 

(b) Monitor trading in swaps to 

prevent manipulation, price distortion, 

and disruptions of the delivery or cash 

settlement process through surveillance, 

compliance, and disciplinary practices 

and procedures, including methods for 

conducting real-time monitoring of 

trading and comprehensive and accurate 

trade reconstructions. 

§ 37.401 General requirements. 

A swap execution facility must: 

(a) Collect and evaluate data on 

individual traders’ market activity on an 

ongoing basis in order to detect and 

prevent manipulation, price distortions 

and, where possible, disruptions of the 

delivery or cash-settlement process; 

(b) Monitor and evaluate general 

market data in order to detect and 

prevent manipulative activity that 

would result in the failure of the market 

price to reflect the normal forces of 

supply and demand; 

(c) Have the capacity to conduct realtime monitoring of trading and 

comprehensive and accurate trade 

reconstruction. The monitoring of 

intraday trading must include the 

capacity to detect abnormal price 

movements, unusual trading volumes, 

impairments to market liquidity, and 

position-limit violations; and 

(d) Have either manual processes or 

automated alerts that are effective in 

detecting and preventing trading abuses. 

§ 37.402 Additional requirements for 

physical-delivery swaps. 

(a) For physical-delivery swaps, the 

swap execution facility must: 

(1) Monitor a swap’s terms and 

conditions; 

(2) Monitor that the deliverable 

supply is adequate so that the swap will 

not be conducive to price manipulation 

or distortion; 

(3) Assess whether the deliverable 

commodity reasonably can be expected 

to be available to traders responsible for 

making the delivery and salable or 

usable by traders receiving delivery at 

its market value in normal cash 

marketing channels; and 

(4) When available, monitor data 

related to the size and ownership of 

deliverable supplies. 

(b) The swap execution facility must 

continually monitor the appropriateness 

of the swap’s terms and conditions, 

including the delivery instrument, the 

delivery locations and location 

differentials, and the commodity 

characteristics and related differentials. 

The swap execution facility must act 

promptly to address the conditions that 

are causing price distortions or market 

disruptions, including, when 

appropriate, changes to contract terms. 

§ 37.403 Additional requirements for cashsettled swaps. 

(a) For cash-settled swaps, the swap 

execution facility must monitor: 

(1) The availability and pricing of the 

commodity making up the index to 

which the swap will be settled; and 

(2) The continued appropriateness of 

the methodology for deriving the index. 

For those swap execution facilities that 

compute their own indices, they must 

promptly amend any methodologies that 

result, or are likely to result, in 

manipulation, price distortions, or 

market disruptions, or must impose new 

methodologies to resolve the threat of 

disruptions or distortions. 

(b) If a swap listed on a swap 

execution facility is settled by reference 

to the price of a swap traded in another 

venue, including a price or index 

derived from prices on another swap 

execution facility, the swap execution 

facility must have an information 

sharing agreement with the other venue 

or swap execution facility. In lieu of an 

information sharing agreement, the 

swap execution facility must have the 

capacity to assess whether positions or 

trading in the swap or commodity to 

which its swap is cash-settled are being 

manipulated in order to affect prices on 

its market. 

§ 37.404 Ability to obtain information. 

(a) The swap execution facility must 

have rules that require traders in its 

swaps to keep records of their trading, 

including records of their activity in the 

underlying commodity and related 

derivatives markets and make such 

records available, upon request, to the 

swap execution facility and the 

Commission. 

(b) A swap execution facility with 

customers trading through 

intermediaries must either use a 

comprehensive large-trader reporting 

system (LTRS) or be able to demonstrate 

that it can obtain position data from 

other sources in order to conduct an 

effective surveillance program. 

§ 37.405 Risk controls for trading. 

The swap execution facility must 

establish and maintain risk control 

mechanisms to reduce the potential risk 

of market disruptions, including but not 

limited to market restrictions that pause 

or halt trading in market conditions 

prescribed by the swap execution 

facility. If a swap is linked to, or a 

substitute for, other swaps on the swap 

execution facility or on other trading 

venues, such risk controls must, to the 

extent practicable, be coordinated with 

any similar controls placed on those 

other swaps. If a swap is based on the 

level of an equity index, such risk 

controls must, to the extent practicable, 

be coordinated with any similar controls 

placed on national security exchanges. 

§ 37.406 Trade reconstruction. 

The swap execution facility must 

have the ability to comprehensively and 

accurately reconstruct all trading on its 

trading facility. All audit-trail data and 

reconstructions must be made available 

to the Commission in a form, manner, 

and time as determined by the 

Commission. 

§ 37.407 Additional rules required. 

A swap execution facility must adopt 

and enforce any additional rules that it 

believes are necessary to comply with 

the requirements of subpart E of this 

part. 

Subpart F—Ability To Obtain 

Information 

§ 37.500 Core Principle 5—Ability To 

Obtain Information. 

The swap execution facility shall: 

(a) Establish and enforce rules that 

will allow the facility to obtain any 

necessary information to perform any of 

the functions described in this section; 

(b) Provide the information to the 

Commission on request; and 

(c) Have the capacity to carry out such 

international information-sharing 

agreements as the Commission may 

require. 

§ 37.501 Establish and enforce rules. 

A swap execution facility must 

establish and enforce rules that will 

allow the swap execution facility to 

have the ability and authority to obtain 

sufficient information to allow it to fully 

perform its operational, risk 


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management, governance, and 

regulatory functions and any 

requirements under this part 37, 

including the capacity to carry out 

international information-sharing 

agreements as the Commission may 

require. 

§ 37.502 Collection of information. 

A swap execution facility must have 

rules that allow it to collect information 

on a routine basis, allow for the 

collection of non-routine data from its 

participants, and allow for its 

examination of books and records kept 

by the traders on its facility. 

§ 37.503 Provide information to the 

Commission. 

A swap execution facility shall 

provide information in its possession to 

the Commission upon request, in a form 

and manner that the Commission 

approves. 

§ 37.504 Information-sharing agreements. 

A swap execution facility shall share 

information with other regulatory 

organizations, data repositories, and 

reporting services as required by the 

Commission or as otherwise necessary 

and appropriate to fulfill its selfregulatory and reporting 

responsibilities. Appropriate 

information-sharing agreements can be 

established with such entities or the 

Commission can act in conjunction with 

the swap execution facility to carry out 

such Information Sharing. 

Subpart G—Position Limits or 

Accountability 

§ 37.600 Core Principle 6—Position limits 

or accountability. 

(a) In general. To reduce the potential 

threat of market manipulation or 

congestion, especially during trading in 

the delivery month, a swap execution 

facility that is a trading facility shall 

adopt for each of the contracts of the 

facility, as is necessary and appropriate, 

position limitations or position 

accountability for speculators. 

(b) Position limits. For any contract 

that is subject to a position limitation 

established by the Commission pursuant 

to Section 4a(a) of the Act, the swap 

execution facility shall: 

(1) Set its position limitation at a level 

no higher than the Commission 

limitation; and 

(2) Monitor positions established on 

or through the swap execution facility 

for compliance with the limit set by the 

Commission and the limit, if any, set by 

the swap execution facility. 

§ 37.601 Position limits or accountability. 

(a) To reduce the potential threat of 

market manipulation or congestion, 

especially during trading in the delivery 

month, a swap execution facility that is 

a trading facility shall adopt for each of 

the contracts on the facility, as is 

necessary and appropriate, position 

limitations or position accountability for 

speculators. 

(b) For any contract that is subject to 

a position limitation established by the 

Commission pursuant to Section 4a(a), 

the swap execution facility shall: 

(1) Set its position limitation at a level 

no higher than the Commission 

limitation; 

(2) Monitor positions established on 

or through the swap execution facility 

for compliance with the limit set by the 

Commission and the limit, if any, set by 

the swap execution facility. 

(c) The swap execution facility must 

establish the position limits in 

accordance with the requirements set 

forth in part 151. 

Subpart H—Financial Integrity of 

Transactions 

§ 37.700 Core Principle 7—Financial 

integrity of transactions. 

The swap execution facility shall 

establish and enforce rules and 

procedures for ensuring the financial 

integrity of swaps entered on or through 

the facilities of the swap execution 

facility, including the clearance and 

settlement of the swaps pursuant to 

Section 2(h)(1) of the Act. 

§ 37.701 Mandatory clearing. 

Transactions executed on or through 

the swap execution facility must be 

cleared through a Commissionregistered derivatives clearing 

organization unless: 

(a) The transaction is exempted from 

clearing under Section 2(h)(7) of the 

Act; or 

(b) The Commission has not 

determined that the clearing 

requirement under Section 2(h)(1) is 

applicable. 

§ 37.702 General financial integrity. 

A swap execution facility must 

provide for the financial integrity of its 

transactions: 

(a) By establishing minimum financial 

standards for its members, which shall, 

at a minimum, require that members 

qualify as an eligible contract 

participant as defined in Section 1a (18) 

of the Act; 

(b) For transactions cleared by a 

derivatives clearing organization, by 

ensuring that the swap execution 

facility has the capacity to route 

transactions to the derivative clearing 

organization in a manner acceptable to 

the derivatives clearing organization for 

purposes of ongoing risk management; 

(c) For transactions not cleared by a 

derivatives clearing organization, by 

requiring members to demonstrate that 

they: 

(1) Have entered into credit 

arrangement documentation for the 

transaction; 

(2) Have the ability to exchange 

collateral; and 

(3) Meet any credit filters that may be 

adopted by the swap execution facility; 

and 

(d) By implementing any additional 

safeguards as may be required by 

Commission regulations. 

§ 37.703 Monitoring for financial 

soundness. 

A swap execution facility must 

monitor members’ compliance with the 

swap execution facility’s minimum 

financial standards and, therefore, must 

routinely receive and promptly review 

financial and related information from 

its members. 

Subpart I—Emergency Authority 

§ 37.800 Core Principle 8—Emergency 

authority. 

The swap execution facility shall 

adopt rules to provide for the exercise 

of emergency authority, in consultation 

or cooperation with the Commission, as 

is necessary and appropriate, including 

the authority to liquidate or transfer 

open positions in any swap or to 

suspend or curtail trading in a swap. 

§ 37.801 Additional sources for 

compliance. 

Applicants and swap execution 

facilities may refer to the guidance and/ 

or acceptable practices in appendix B to 

part 37 to demonstrate to the 

Commission compliance with the 

requirements of § 37.800. 

Subpart J—Timely Publication of 

Trading Information 

§ 37.900 Core Principle 9—Timely 

publication of trading information. 

(a) In general. The swap execution 

facility shall make public timely 

information on price, trading volume, 

and other trading data on swaps to the 

extent prescribed by the Commission. 

(b) Capacity of swap execution 

facility. The swap execution facility 

shall be required to have the capacity to 

electronically capture and transmit 

trade information with respect to 

transactions executed on the facility. 


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§ 37.901 General requirement. 

With respect to swaps traded on or 

through a swap execution facility, each 

swap execution facility must: 

(a) Report specified swap data as 

provided under part 43 and part 45 of 

this Chapter; and 

(b) Meet the requirements of part 16 

of this chapter. 

§ 37.902 Capacity of swap execution 

facility. 

The swap execution facility must 

have the capacity to electronically 

capture trade information with respect 

to transactions executed on the facility. 

Subpart K—Recordkeeping and 

Reporting 

§ 37.1000 Core Principle 10— 

Recordkeeping and reporting. 

(a) In general. A swap execution 

facility shall: 

(1) Maintain records of all activities 

relating to the business of the facility, 

including a complete audit trail, in a 

form and manner acceptable to the 

Commission for a period of 5 years; 

(2) Report to the Commission, in a 

form and manner acceptable to the 

Commission, such information as the 

Commission determines to be necessary 

or appropriate for the Commission to 

perform the duties of the Commission 

under the Act; and 

(3) Keep any such records relating to 

swaps defined in Section 1a(47)(A)(v) of 

the Act open to inspection and 

examination by the Securities and 

Exchange Commission. 

(b) Requirements. The Commission 

shall adopt data collection and reporting 

requirements for swap execution 

facilities that are comparable to 

corresponding requirements for 

derivatives clearing organizations and 

swap data repositories. 

§ 37.1001 Recordkeeping required. 

A swap execution facility must 

maintain records of all activities relating 

to the business of the facility, in a form 

and manner acceptable to the 

Commission, for a period of at least 5 

years. A swap execution facility must 

maintain such records, including a 

complete audit trail for all swaps 

executed on or subject to the rules of the 

swap execution facility, investigatory 

files, and disciplinary files, in 

accordance with the requirements of 

§ 1.31 and part 45 of this chapter. 

§ 37.1002 Reporting to the commission 

required. 

A swap execution facility must report 

to the Commission, in a form and 

manner acceptable to the Commission, 

such information as the Commission 

determines to be necessary or 

appropriate for the Commission to 

perform its duties under the Act. 

§ 37.1003 Inspection and examination by 

the Securities and Exchange Commission. 

A swap execution facility must keep 

any such records relating to swaps 

defined in Section 1a(47)(A)(v) of the 

Act open to inspection and examination 

by the Securities and Exchange 

Commission. 

Subpart L—Antitrust Considerations 

§ 37.1100 Core Principle 11—Antitrust 

considerations. 

Unless necessary or appropriate to 

achieve the purposes of this Act, the 

swap execution facility shall not: 

(a) Adopt any rules or take any 

actions that result in any unreasonable 

restraint of trade; or 

(b) Impose any material 

anticompetitive burden on trading or 

clearing. 

§ 37.1101 Additional sources for 

compliance. 

Applicants and swap execution 

facilities may refer to the guidance and/ 

or acceptable practices in appendix B to 

part 37 to demonstrate to the 

Commission compliance with the 

requirements of § 37.1100. 

Subpart M—Conflicts of Interest 

§ 37.1200 Core Principle 12—Conflicts of 

interest. 

The swap execution facility shall: 

(a) Establish and enforce rules to 

minimize conflicts of interest in its 

decision-making process; and 

(b) Establish a process for resolving 

the conflicts of interest. 

Subpart N—Financial Resources 

§ 37.1300 Core Principle 13—Financial 

resources. 

(a) In general. The swap execution 

facility shall have adequate financial, 

operational, and managerial resources to 

discharge each responsibility of the 

swap execution facility. 

(b) Determination of resource 

adequacy. The financial resources of a 

swap execution facility shall be 

considered to be adequate if the value 

of the financial resources exceeds the 

total amount that would enable the 

swap execution facility to cover the 

operating costs of the swap execution 

facility for a one-year period, as 

calculated on a rolling basis. 

§ 37.1301 General requirements. 

(a) A swap execution facility shall 

maintain financial resources sufficient 

to enable it to perform its functions in 

compliance with the core principles set 

forth in Section 5h of the Act. 

(b) An entity that operates as both a 

swap execution facility and a 

derivatives clearing organization also 

shall comply with the financial resource 

requirements of § 39.11. 

(c) Financial resources shall be 

considered sufficient if their value is at 

least equal to a total amount that would 

enable the swap execution facility, or 

applicant for designation as such, to 

cover its operating costs for a period of 

at least one year, calculated on a rolling 

basis. 

§ 37.1302 Types of financial resources. 

Financial resources available to 

satisfy the requirements of § 37.1301 

may include: 

(a) The swap execution facility’s own 

capital; and 

(b) Any other financial resource 

deemed acceptable by the Commission. 

§ 37.1303 Computation of financial 

resource requirement. 

A swap execution facility shall, on a 

quarterly basis, based upon its fiscal 

year, make a reasonable calculation of 

its projected operating costs over a 

twelve-month period in order to 

determine the amount needed to meet 

the requirements of § 37.1301. The swap 

execution facility shall have reasonable 

discretion in determining the 

methodology used to compute such 

projected operating costs. The 

Commission may review the 

methodology and require changes as 

appropriate. 

§ 37.1304 Valuation of financial resources. 

At appropriate intervals, but not less 

than quarterly, a swap execution facility 

shall compute the current market value 

of each financial resource used to meet 

its obligations under § 37.701. 

Reductions in value to reflect market 

and credit risk (haircuts) shall be 

applied as appropriate. 

§ 37.1305 Liquidity of financial resources. 

The financial resources allocated by 

the swap execution facility to meet the 

requirements of § 37.1301 must include 

unencumbered, liquid financial assets 

(i.e., cash and/or highly liquid 

securities) equal to at least six months’ 

operating costs. If any portion of such 

financial resources is not sufficiently 

liquid, the swap execution facility may 

take into account a committed line of 

credit or similar facility for the purpose 

of meeting this requirement. 

§ 37.1306 Reporting requirements. 

(a) Each fiscal quarter, or at any time 

upon Commission request, a swap 

execution facility shall: 


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(1) Report to the Commission: 

(i) The amount of financial resources 

necessary to meet the requirements of 

§ 37.1301; and 

(ii) The value of each financial 

resource available, computed in 

accordance with the requirements of 

§ 37.1304; 

(2) Provide the Commission with a 

financial statement, including the 

balance sheet, income statement, and 

statement of cash flows of the swap 

execution facility or of its parent 

company; 

(b) The calculations required by this 

§ 37.1306 shall be made as of the last 

business day of the swap execution 

facility’s fiscal quarter. 

(c) The swap execution facility shall 

provide the Commission with: 

(1) Sufficient documentation 

explaining the methodology used to 

compute its financial requirements 

under § 37.1301; 

(2) Sufficient documentation 

explaining the basis for its 

determinations regarding the valuation 

and liquidity requirements set forth in 

§§ 37.1304 and 37.1305; and 

(3) Copies of any agreements 

establishing or amending a credit 

facility, insurance coverage, or other 

arrangement evidencing or otherwise 

supporting the swap execution facility’s 

conclusions. 

(d) The report required by this 

§ 37.1306 shall be filed not later than 17 

business days after the end of the swap 

execution facility’s fiscal quarter, or at 

such later time as the Commission may 

permit, in its discretion, upon request 

by the swap execution facility. 

Subpart O—System Safeguards 

§ 37.1400 Core Principle 14—System 

safeguards. 

The swap execution facility shall: 

(a) Establish and maintain a program 

of risk analysis and oversight to identify 

and minimize sources of operational 

risk, through the development of 

appropriate controls and procedures, 

and automated systems, that: 

(1) Are reliable and secure; and 

(2) Have adequate scalable capacity; 

(b) Establish and maintain emergency 

procedures, backup facilities, and a plan 

for disaster recovery that allow for: 

(1) The timely recovery and 

resumption of operations; and 

(2) The fulfillment of the 

responsibilities and obligations of the 

swap execution facility; and 

(c) Periodically conduct tests to verify 

that the backup resources of the swap 

execution facility are sufficient to 

ensure continued: 

(1) Order processing and trade 

matching; 

(2) Price reporting; 

(3) Market surveillance; and 

(4) Maintenance of a comprehensive 

and accurate audit trail. 

§ 37.1401 Requirements. 

(a) Each swap execution facility shall: 

(1) Establish and maintain a program 

of risk analysis and oversight to identify 

and minimize sources of operational 

risk through the development of 

appropriate controls and procedures 

and the development of automated 

systems that are reliable, secure, and 

have adequate scalable capacity; 

(2) Establish and maintain emergency 

procedures, backup facilities, and a plan 

for disaster recovery that allow for the 

timely recovery and resumption of 

operations and the fulfillment of the 

responsibilities and obligations of the 

swap execution facility; and 

(3) Periodically conduct tests to verify 

that backup resources are sufficient to 

ensure continued order processing and 

trade matching, transmission of 

matched orders to a designated clearing 

organization for clearing, price 

reporting, market surveillance, and 

maintenance of a comprehensive and 

accurate audit trail. 

(b) A swap execution facility’s 

program of risk analysis and oversight 

with respect to its operations and 

automated systems must address each of 

the following categories of risk analysis 

and oversight: 

(1) Information security; 

(2) Business continuity-disaster 

recovery (‘‘BC–DR’’) planning and 

resources; 

(3) Capacity and performance 

planning; 

(4) Systems operations; 

(5) Systems development and quality 

assurance; and 

(6) Physical security and 

environmental controls. 

(c) In addressing the categories of risk 

analysis and oversight required under 

paragraph (b) of this section, a swap 

execution facility should follow 

generally accepted standards and best 

practices with respect to the 

development, operation, reliability, 

security, and capacity of automated 

systems. 

(d) A swap execution facility must 

maintain a BC–DR plan and BC–DR 

resources, emergency procedures, and 

backup facilities sufficient to enable 

timely recovery and resumption of its 

operations and resumption of its 

ongoing fulfillment of its 

responsibilities and obligations as a 

swap execution facility following any 

disruption of its operations. Such 

responsibilities and obligations include, 

without limitation, order processing and 

trade matching; transmission of 

matched orders to a designated clearing 

organization for clearing, where 

appropriate; price reporting; market 

surveillance; and maintenance of a 

comprehensive audit trail. The swap 

execution facility’s BC–DR plan and 

resources generally should enable 

resumption of trading and clearing of 

swaps executed on the swap execution 

facility during the next business day 

following the disruption. Swap 

execution facilities determined by the 

Commission to be critical financial 

markets are subject to more stringent 

requirements in this regard, set forth in 

Section 40.9 of the Commission’s 

regulations. 

(e) A swap execution facility that is 

not determined by the Commission to be 

a critical financial market satisfies the 

requirement to be able to resume trading 

and clearing during the next business 

day following a disruption by 

maintaining either: 

(1) Infrastructure and personnel 

resources of its own that are sufficient 

to ensure timely recovery and 

resumption of its operations and 

resumption of its ongoing fulfillment of 

its responsibilities and obligations as a 

swap execution facility following any 

disruption of its operations; or 

(2) Contractual arrangements with 

other swap execution facilities or 

disaster recovery service providers, as 

appropriate, that are sufficient to ensure 

continued trading and clearing of swaps 

executed on the swap execution facility, 

and ongoing fulfillment of all of the 

swap execution facility’s 

responsibilities and obligations with 

respect to such swaps, in the event that 

a disruption renders the swap execution 

facility temporarily or permanently 

unable to satisfy this requirement on its 

own behalf. 

(f) A swap execution facility must 

notify Commission staff promptly of all: 

(1) Electronic trading halts and 

systems malfunctions; 

(2) Cyber security incidents or 

targeted threats that actually or 

potentially jeopardize automated system 

operation, reliability, security, or 

capacity; and 

(3) Any activation of the swap 

execution facility’s BC–DR plan. 

(g) A swap execution facility must 

give Commission staff timely advance 

notice of all: 

(1) Planned changes to automated 

systems that may impact the reliability, 

security, or adequate scalable capacity 

of such systems; and 

(2) Planned changes to the swap 

execution facility’s program of risk 

analysis and oversight. 


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(h) A swap execution facility must 

provide to the Commission upon 

request current copies of its BC–DR plan 

and other emergency procedures, its 

assessments of its operational risks, and 

other documents requested by 

Commission staff for the purpose of 

maintaining a current profile of the 

swap execution facility’s automated 

systems. 

(i) A swap execution facility must 

conduct regular, periodic, objective 

testing and review of its automated 

systems to ensure that they are reliable, 

secure, and have adequate scalable 

capacity. It must also conduct regular, 

periodic testing and review of its BC–DR 

capabilities. Both types of testing should 

be conducted by qualified, independent 

professionals. Such qualified 

independent professionals may be 

independent contractors or employees 

of the swap execution facility, but 

should not be persons responsible for 

development or operation of the systems 

or capabilities being tested. Pursuant to 

Core Principle 10 under Section 5h of 

the Act (Recordkeeping and Reporting), 

and §§ 37.1000 through 37.1003, the 

swap execution facility must keep 

records of all such tests, and make all 

test results available to the Commission 

upon request. 

(j) To the extent practicable, a swap 

execution facility should: 

(1) Coordinate its BC–DR plan with 

those of the market participants upon 

whom it depends to provide liquidity, 

in a manner adequate to enable effective 

resumption of activity in its markets 

following a disruption causing 

activation of the swap execution 

facility’s BC–DR plan; 

(2) Initiate and coordinate periodic, 

synchronized testing of its BC–DR plan 

and the BC–DR plans of the market 

participants upon whom it depends to 

provide liquidity; and 

(3) Ensure that its BC–DR plan takes 

into account the BC–DR plans of its 

telecommunications, power, water, and 

other essential service providers. 

(k) Part 46 of this chapter governs the 

obligations of those registered entities 

that the Commission has determined to 

be critical financial markets, with 

respect to maintenance and geographic 

dispersal of disaster recovery resources 

sufficient to meet a same-day recovery 

time objective in the event of a widescale disruption. Section 40.9 

establishes the requirements for core 

principle compliance in that respect. 

Subpart P—Designation of Chief 

Compliance Officer 

§ 37.1500 Core Principle 15—Designation 

of Chief Compliance Officer. 

(a) In general. Each swap execution 

facility shall designate an individual to 

serve as a chief compliance officer. 

(b) Duties. The chief compliance 

officer shall: 

(1) Report directly to the board or to 

the senior officer of the facility; 

(2) Review compliance with the core 

principles in this subsection; 

(3) In consultation with the board of 

the facility, a body performing a 

function similar to that of a board, or the 

senior officer of the facility, resolve any 

conflicts of interest that may arise; 

(4) Be responsible for establishing and 

administering the policies and 

procedures required to be established 

pursuant to this section; 

(5) Ensure compliance with the Act 

and the rules and regulations issued 

under the Act, including rules 

prescribed by the Commission pursuant 

to this section; and 

(6) Establish procedures for the 

remediation of noncompliance issues 

found during compliance office reviews, 

look backs, internal or external audit 

findings, self-reported errors, or through 

validated complaints. 

(c) Requirements for procedures. In 

establishing procedures under 

paragraph (b)(6) of this section, the chief 

compliance officer shall design the 

procedures to establish the handling, 

management response, remediation, 

retesting, and closing of noncompliance 

issues. 

(d) Annual reports. (1) In general. In 

accordance with rules prescribed by the 

Commission, the chief compliance 

officer shall annually prepare and sign 

a report that contains a description of: 

(i) The compliance of the swap 

execution facility with the Act; and 

(ii) The policies and procedures, 

including the code of ethics and conflict 

of interest policies, of the swap 

execution facility. 

(2) Requirements. The chief 

compliance officer shall: 

(i) Submit each report described in 

clause (1) with the appropriate financial 

report of the swap execution facility that 

is required to be submitted to the 

Commission pursuant to this section; 

and 

(ii) Include in the report a 

certification that, under penalty of law, 

the report is accurate and complete. 

§ 37.1501 Chief Compliance Officer. 

(a) Definition of Board of Directors. 

For purposes of this part 37, the term 

‘‘board of directors’’ means the board of 

directors of a registered swap execution 

facility, or for those swap execution 

facilities whose organizational structure 

does not include a board of directors, a 

body performing a function similar to a 

board of directors. 

(b) Designation and qualifications of 

chief compliance officer. 

(1) Chief Compliance Officer 

Required. Each registered swap 

execution facility shall establish the 

position of chief compliance officer, and 

designate an individual to serve in that 

capacity. 

(i) The position of chief compliance 

officer shall carry with it the authority 

and resources to develop and enforce 

policies and procedures necessary to 

fulfill the duties set forth for chief 

compliance officers in the Act and 

Commission regulations. 

(ii) The chief compliance officer shall 

have supervisory authority over all staff 

acting in furtherance of the chief 

compliance officer’s statutory, 

regulatory, and self-regulatory 

obligations. 

(2) Qualifications of Chief 

Compliance Officer. The individual 

designated to serve as chief compliance 

officer shall have the background and 

skills appropriate for fulfilling the 

responsibilities of the position. 

(i) No individual disqualified from 

registration pursuant to Sections 8a(2) 

or 8a(3) of the Act may serve as a chief 

compliance officer. 

(ii) The chief compliance officer may 

not be a member of the swap execution 

facility’s legal department and may not 

serve as its general counsel. 

(c) Appointment, Supervision, and 

Removal of Chief Compliance Officer. 

(1) Appointment and Compensation of 

Chief Compliance Officer Determined by 

Board of Directors. A registered swap 

execution facility’s chief compliance 

officer shall be appointed by its board 

of directors. The board of directors must 

also approve the compensation of the 

chief compliance officer and shall meet 

with the chief compliance officer at 

least annually. The chief compliance 

officer shall also meet with the 

regulatory oversight committee, as 

defined in § 37.19(b), at least quarterly. 

The chief compliance officer shall 

provide any information regarding the 

swap execution facility’s regulatory 

program that is requested by the board 

of directors or the regulatory oversight 

committee. The appointment of the 

chief compliance officer and approval of 

the chief compliance officer’s 

compensation shall require the approval 

of a majority of the board of directors. 

The senior officer of the swap execution 

facility may fulfill these responsibilities. 

A swap execution facility shall notify 


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the Commission of the appointment of 

a new chief compliance officer within 

two business days of such appointment. 

(2) Supervision of Chief Compliance 

Officer. A swap execution facility’s 

chief compliance officer shall report 

directly to the board of directors or to 

the senior officer of the swap execution 

facility, at the swap execution facility’s 

discretion. 

(3) Removal of Chief Compliance 

Officer by Board of Directors. Removal 

of a registered swap execution facility’s 

chief compliance officer shall require 

the approval of a majority of the swap 

execution facility’s board of directors. If 

the swap execution facility does not 

have a board of directors, then the chief 

compliance officer may be removed by 

the senior officer of the swap execution 

facility. The swap execution facility 

shall notify the Commission and explain 

the reasons for the departure within two 

business days. The swap execution 

facility shall immediately appoint an 

interim chief compliance officer, and 

shall appoint a permanent chief 

compliance officer as soon as reasonably 

practicable. The swap execution facility 

shall notify the Commission within two 

business days of appointing any new 

chief compliance officer, whether 

interim or permanent. 

(d) Duties of Chief Compliance 

Officer. The chief compliance officer’s 

duties shall include, but are not limited 

to, the following: 

(1) Overseeing and reviewing the 

swap execution facility’s compliance 

with Section 5h of the Act and any 

related rules adopted by the 

Commission; 

(2) In consultation with the board of 

directors, a body performing a function 

similar to the board, or the senior officer 

of the swap execution facility, resolving 

any conflicts of interest that may arise: 

(i) Conflicts between business 

considerations and compliance 

requirements; 

(ii) Conflicts between business 

considerations and the requirement that 

the registered swap execution facility 

provide fair, open, and impartial access 

as set forth in § 37.202 of this part; and; 

(iii) Conflicts between a registered 

swap execution facility’s management 

and members of the board of directors; 

(3) Establishing and administering 

written policies and procedures 

reasonably designed to prevent violation 

of the Act and any rules adopted by the 

Commission; 

(4) Ensuring compliance with the Act 

and Commission regulations relating to 

agreements, contracts, or transactions, 

and with Commission regulations under 

Section 5h of the Act; 

(5) Establishing procedures for the 

remediation of noncompliance issues 

identified by the chief compliance 

officer through a compliance office 

review, look-back, internal or external 

audit finding, self-reported error, or 

validated complaint; 

(6) Establishing and following 

appropriate procedures for the handling, 

management response, remediation, 

retesting, and closing of noncompliance 

issues; 

(7) Establishing a compliance manual 

designed to promote compliance with 

the applicable laws, rules, and 

regulations and administering a written 

code of ethics designed to prevent 

ethical violations and to promote 

honesty and ethical conduct; 

(8) Supervising the swap execution 

facility’s self-regulatory program with 

respect to trade practice surveillance; 

market surveillance; real-time market 

monitoring; compliance with audit trail 

requirements; enforcement and 

disciplinary proceedings; audits, 

examinations, and other regulatory 

responsibilities with respect to members 

and market participants (including 

ensuring compliance with, if applicable, 

financial integrity, financial reporting, 

sales practice, recordkeeping, and other 

requirements); and 

(9) Supervising the effectiveness and 

sufficiency of any regulatory services 

provided to the swap execution facility 

by a registered futures association or 

other registered entity in accordance 

with § 37.204. 

(e) Annual Compliance Report 

Prepared by Chief Compliance Officer. 

The chief compliance officer shall, not 

less than annually, prepare an annual 

compliance report, that at a minimum, 

contains the following information 

covering the time period since the date 

on which the swap execution facility 

became registered with the Commission 

or since the end of the period covered 

by a previously filed annual compliance 

report, as applicable: 

(1) A description of the registered 

swap execution facility’s written 

policies and procedures, including the 

code of ethics and conflict of interest 

policies; 

(2) A review of applicable 

Commission regulations and each 

subsection and core principle of Section 

5h of the Act, that, with respect to each: 

(i) Identifies the policies and 

procedures that ensure compliance with 

each subsection and the core principle, 

including each duty specified in Section 

5h(f)(15)(B); 

(ii) Provides a self-assessment as to 

the effectiveness of these policies and 

procedures; and 

(iii) Discusses areas for improvement, 

and recommends potential or 

prospective changes or improvements to 

its compliance program and resources; 

(3) A list of any material changes to 

compliance policies and procedures 

since the last annual compliance report; 

(4) A description of the financial, 

managerial, and operational resources 

set aside for compliance with respect to 

the Act and Commission regulations, 

including a description of the registered 

swap execution facility’s self-regulatory 

program’s staffing and structure, a 

catalogue of investigations and 

disciplinary actions taken since the last 

annual compliance report, and a review 

of the performance of disciplinary 

committees and panels; 

(5) A description of any material 

compliance matters, including 

noncompliance issues identified 

through a compliance office review, 

look-back, internal or external audit 

finding, self-reported error, or validated 

complaint, and explains how they were 

resolved; 

(6) Any objections to the annual 

compliance report by those persons who 

have oversight responsibility for the 

chief compliance officer; and 

(7) A certification by the chief 

compliance officer that, to the best of 

his or her knowledge and reasonable 

belief, and under penalty of law, the 

annual compliance report is accurate 

and complete. 

(f) Submission of Annual Compliance 

Report by Chief Compliance Officer to 

the Commission. 

(1) Prior to submission of the annual 

compliance report to the Commission, 

the chief compliance officer shall 

provide the annual compliance report to 

the board of the registered swap 

execution facility for its review. If the 

swap execution facility does not have a 

board, then the annual compliance 

report shall be provided to the senior 

officer for their review. Members of the 

board and the senior officer may not 

require the chief compliance officer to 

make any changes to the report. 

Submission of the report to the board or 

the senior officer, and any subsequent 

discussion of the report, shall be 

recorded in board minutes or similar 

written record, as evidence of 

compliance with this requirement. 

(2) The annual compliance report 

shall be provided electronically to the 

Commission not more than 60 days after 

the end of the registered swap execution 

facility’s fiscal year. 

(3) Promptly upon discovery of any 

material error or omission made in a 

previously filed compliance report, the 

chief compliance officer shall file an 

amendment with the Commission to 


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correct any material error or omission. 

An amendment shall contain the oath or 

certification required under paragraph 

(e)(7) of this section. 

(4) A registered swap execution 

facility may request the Commission for 

an extension of time to file its 

compliance report based on substantial, 

undue hardship. Extensions for the 

filing deadline may be granted at the 

discretion of the Commission. 

(5) Annual compliance reports filed 

pursuant to this section will be treated 

as exempt from mandatory public 

disclosure for purposes of the Freedom 

of Information Act and the Government 

in the Sunshine Act and parts 145 and 

147 of this chapter, but will be available 

for official use by any official or 

employee of the United States and any 

State, by any self-regulatory 

organization of which the person filing 

the report is a member, and by any other 

person to whom the Commission 

believes disclosure is in the public 

interest. 

(g) Recordkeeping. (1) The registered 

swap execution facility must maintain: 

(i) A copy of the written policies and 

procedures, including the code of ethics 

and conflicts of interest policies 

adopted in furtherance of compliance 

with the Act and Commission 

regulations; 

(ii) Copies of all materials created in 

furtherance of the chief compliance 

officer’s duties listed in paragraphs 

(d)(6) and (d)(7) of this section, 

including records of any investigations 

or disciplinary actions taken by the 

swap execution facility; 

(iii) Copies of all materials, including 

written reports provided to the board of 

directors or senior officer in connection 

with the review of the annual 

compliance report under paragraph 

(f)(1) of this section and the board 

minutes or similar written record of 

such review, that record the submission 

of the annual compliance report to the 

board of directors or senior officer; and 

(iv) Any records relevant to the 

registered swap execution facility’s 

annual compliance report, including, 

but not limited to, work papers and 

other documents that form the basis of 

the report, and memoranda, 

correspondence, other documents, and 

records that are (A) created, sent or 

received in connection with the annual 

compliance report and (B) contain 

conclusions, opinions, analyses, or 

financial data related to the annual 

compliance report. 

(2) The registered swap execution 

facility shall maintain records in 

accordance with § 1.31 and part 45 of 

this chapter. 

Appendix A to Part 37—Form SEF 

COMMODITY FUTURES TRADING 

COMMISSION 

FORM SEF 

SWAP EXECUTION FACILITY 

APPLICATION OR AMENDMENT TO 

APPLICATION FOR REGISTRATION 

REGISTRATION INSTRUCTIONS 

Intentional misstatements or 

omissions of material fact may 

constitute federal criminal violations 

(7 U.S.C. § 13 and 18 U.S.C. § 1001) or 

grounds for disqualification from 

registration. 

DEFINITIONS 

Unless the context requires otherwise, 

all terms used in the Form SEF have the 

same meaning as in the Commodity 

Exchange Act, as amended (‘‘Act’’), and 

in the General Rules and Regulations of 

the Commodity Futures Trading 

Commission (‘‘Commission’’) 

thereunder. 

GENERAL INSTRUCTIONS 

1. Form SEF and Exhibits thereto are 

to be filed with the Commission by 

applicants for registration as a swap 

execution facility, or by a swap 

execution facility amending such 

registration, pursuant to Section 5h of 

the Act and the Commission’s 

regulations thereunder. Applicants may 

prepare their own Form SEF but must 

follow the format prescribed herein. 

Upon the filing of an application for 

registration in accordance with the 

instructions provided herein, the 

Commission will publish notice of the 

filing and afford interested persons an 

opportunity to submit written data, 

views and arguments concerning such 

application. No application for 

registration shall be effective unless the 

Commission, by order, grants such 

registration. 

2. For the purposes of this Form, the 

term ‘‘Applicant’’ shall include any 

applicant for registration as a swap 

execution facility or any registered swap 

execution facility that is seeking an 

amendment to its order of registration. 

3. Individuals’ names, except the 

executing signature in Item 11, shall be 

given in full (Last Name, First Name, 

Middle Name). 

4. Signatures on all copies of the Form 

SEF filed with the Commission can be 

executed electronically. If the Form SEF 

is filed by a limited liability company, 

it must be signed in the name of the 

limited liability company by a member 

duly authorized to sign on the limited 

liability company’s behalf; if filed by a 

partnership, it shall be signed in the 

name of the partnership by a general 

partner duly authorized; if filed by an 

unincorporated organization or 

association which is not a partnership, 

it shall be signed in the name of such 

organization or association by the 

managing agent—i.e., a duly authorized 

person who directs or manages or who 

participates in the directing or managing 

of its affairs; if filed by a corporation, it 

shall be signed in the name of the 

corporation by a principal officer duly 

authorized. 

5. If Form SEF is being filed as an 

application for registration, all 

applicable items must be answered in 

full. If any item is not applicable, 

indicate by ‘‘none,’’ ‘‘not applicable,’’ or 

‘‘N/A’’ as appropriate. 

6. For the purposes of this Form SEF, 

the term ‘‘Applicant’’ shall include any 

applicant for registration as a swap 

execution facility or any swap execution 

facility that is amending Form SEF. 

7. Under Section 5h of the Act and the 

Commission’s regulations thereunder, 

the Commission is authorized to solicit 

the information required to be supplied 

by this Form SEF from any Applicant 

seeking registration as a swap execution 

facility and from any registered swap 

execution facility. Disclosure of the 

information specified on this Form SEF 

is mandatory prior to the start of the 

processing of an application for 

registration as a swap execution facility. 

The information provided with this 

Form SEF will be used for the principal 

purpose of determining whether the 

Commission should grant or deny 

registration to an Applicant. The 

Commission further may determine that 

other and additional information is 

required from the Applicant in order to 

process its application. Except in cases 

where confidential treatment is 

requested by the Applicant and granted 

by the Commission, pursuant to the 

Freedom of Information Act and the 

rules of the Commission thereunder, 

information supplied on this Form SEF 

will be included routinely in the public 

files of the Commission and will be 

available for inspection by any 

interested person. A Form SEF which is 

not prepared and executed in 

compliance with applicable 

requirements and instructions may be 

returned as not acceptable for filing. 

Acceptance of this Form SEF, however, 

shall not constitute a finding that the 

Form SEF has been filed as required or 

that the information submitted is true, 

current or complete. 

UPDATING INFORMATION ON THE 

FORM SEF 

1. Part 37 of the Commission’s 

regulations requires that if any 


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information contained in this 

application, or any supplement or 

amendment thereto, is or becomes 

inaccurate for any reason, an 

amendment to Form SEF, or a 

submission under Part 40, in either case 

correcting such information must be 

filed promptly with the Commission. 

2. Swap execution facilities filing 

Form SEF as an amendment need file 

only the facing page, the signature page 

(Item 10), and any pages on which an 

answer is being amended, together with 

any exhibits that are being amended. 

The submission of an amendment 

represents that the remaining items and 

exhibits remain true, current and 

complete as previously filed. 

WHERE TO FILE 

The Application Form SEF and 

appropriate exhibits must be filed 

electronically with the Secretary of the 

Commission in the form and manner as 

provided by the Commission. 

COMMODITY FUTURES TRADING 

COMMISSION 

FORM SEF 

SWAP EXECUTION FACILITY 

APPLICATION OR AMENDMENT TO 

APPLICATION FOR REGISTRATION 

lllllllllllllllllll

Exact name of Applicant as specified in 

charter 

lllllllllllllllllll

Address of principal executive offices 

b If this is an APPLICATION for 

registration, complete in full and check 

here 

b If this is an AMENDMENT to an 

application, or to an existing 

registration, list all items that are 

amended and check here 

lllllllllllllllllll

lllllllllllllllllll

lllllllllllllllllll

lllllllllllllllllll

lllllllllllllllllll

lllllllllllllllllll

GENERAL INFORMATION 

1. Name under which business of the 

swap execution facility will be 

conducted, if different than name 

specified on facing sheet: 

lllllllllllllllllll

2. If name of swap execution facility 

is hereby amended, state previous swap 

execution facility name: 

lllllllllllllllllll

3. Mailing address, if different than 

address specified on facing sheet: 

lllllllllllllllllll

Number and Street 

lllllllllllllllllll

City, State, Zip Code 

3(a). Additional contact information: 

lllllllllllllllllll

Fax 

lllllllllllllllllll

Phone 

lllllllllllllllllll

Website 

4. List of principal office(s) and 

address(es) where swap execution 

facility activities are/will be conducted: 

Office 

Address 

lllllllllllllllllll

lllllllllllllllllll

BUSINESS ORGANIZATION 

5. Applicant is a: 

b Corporation 

b Partnership 

b Limited Liability Company 

b Other form of organization 

(specify) 

6. If Applicant is a corporation: 

a. Date of incorporation: 

lllllllllllllllllll

b. State of incorporation: 

lllllllllllllllllll

7. If Applicant is a partnership: 

a. Date of filing of partnership articles: 

lllllllllllllllllll

b. State in which filed: 

lllllllllllllllllll

8. If Applicant is a limited liability 

company: 

a. Date of filing of Articles of 

Organization/Certificate of Formation: 

lllllllllllllllllll

b. State in which filed: 

lllllllllllllllllll

9. Applicant agrees and consents that 

the notice of any proceeding before the 

Commission in connection with its 

application for registration as a swap 

execution facility may be given by 

sending such notice by certified mail or 

confirmed telegram to the officer 

specified or person named below at the 

address given. 

lllllllllllllllllll

Name of person (if Applicant is a 

corporation, limited liability company 

or partnership, title of officer) 

lllllllllllllllllll

Name of Applicant 

lllllllllllllllllll

Number and Street 

lllllllllllllllllll

City State Zip Code 

SIGNATURES 

10. The Applicant has duly caused 

this application or amendment to be 

signed on its behalf by the undersigned, 

hereunto duly authorized, this ll day 

of llllllll, 20ll. The 

Applicant and the undersigned 

represent hereby that all information 

contained herein is true, current and 

complete. It is understood that all 

required items and Exhibits are 

considered integral parts of this Form 

SEF and that the submission of any 

amendment represents that all 

unamended items and Exhibits remain 

true, current, and complete as 

previously filed. 

lllllllllllllllllll

Name of Applicant 

lllllllllllllllllll

Manual signature of Member, 

General Partner, Managing Agent, or 

Principal Agent 

lllllllllllllllllll

Title 

EXHIBITS INSTRUCTIONS 

The following exhibits must be filed 

with the Commission by Applicants 

seeking registration as a swap execution 

facility, or by a registered swap 

execution facility amending its 

registration, pursuant to Section 5h of 

the Act and the Commission’s 

regulations thereunder. The exhibits 

should be labeled according to the items 

specified in this Form SEF. If any 

exhibit is not applicable, please specify 

the exhibit letter and indicate by ‘‘none,’’ 

‘‘not applicable,’’ or ‘‘N/A’’ as 

appropriate. 

If the applicant is a newly formed 

enterprise and does not have the 

financial statements required pursuant 

to Items 9 and 10 (Exhibits I and J) of 

this form, the applicant should provide 

pro forma financial statements for the 

most recent six months or since 

inception, whichever is less. 

EXHIBITS—BUSINESS 

ORGANIZATION 

1. Attach as Exhibit A, the name of 

any person(s) who own(s) ten percent 

(10%) or more of the Applicant’s stock 

or who, either directly or indirectly, 

through agreement or otherwise, in any 

other manner, may control or direct the 

management or policies of Applicant. 

Provide as part of Exhibit A the full 

name and address of each such person 

and attach a copy of the agreement or, 

if there is none written, describe the 

agreement or basis upon which such 

person exercises or may exercise such 

control or direction. 

2. Attach as Exhibit B, a list of the 

present officers, directors, governors 

(and, in the case of an Applicant that is 

not a corporation, the members of all 

standing committees grouped by 

committee), or persons performing 

functions similar to any of the foregoing, 

of the swap execution facility or of any 

entity that performs the regulatory 

activities of the Applicant, indicating 

for each: 

a. Name 

b. Title 


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c. Dates of commencement and 

termination of present term of office or 

position 

d. Length of time each present officer, 

director, or governor has held the same 

office or position 

e. Brief account of the business 

experience of each officer and director 

over the last five (5) years 

f. Any other business affiliations in 

the derivatives and securities industry 

g. For directors, list any committees 

on which they serve and any 

compensation received by virtue of their 

directorship 

h. A description of: 

(1) Any order of the Commission with 

respect to such person pursuant to 

Section 5e of the Act; 

(2) Any conviction or injunction 

against such person within the past ten 

(10) years; 

(3) Any disciplinary action with 

respect to such person within the last 

five (5) years; 

(4) Any disqualification under 

Sections 8b and 8d of the Act; 

(5) Any disciplinary action under 

Section 8c of the Act; and 

(6) Any violation pursuant to Section 

9 of the Act. 

3. Attach as Exhibit C, a narrative that 

sets forth the fitness standards for the 

Board of Directors and its composition 

including the number or percentage of 

public directors. 

4. Attach as Exhibit D, a narrative or 

graphic description of the organizational 

structure of the Applicant. Include a list 

of all affiliates of the Applicant and 

indicate the general nature of the 

affiliation. Note: If the swap execution 

facility activities of the Applicant are or 

will be conducted primarily by a 

division, subdivision, or other separate 

entity within the Applicant, corporation 

or organization, describe the 

relationship of such entity within the 

overall organizational structure and 

attach as Exhibit D a description only as 

it applies to the division, subdivision or 

separate entity, as applicable. 

Additionally, provide any relevant 

jurisdictional information, including 

any and all jurisdictions in which you 

or any affiliated entity are doing 

business, and registration status, 

including pending applications (e.g., 

country, regulator, registration category, 

date of registration). Provide the address 

for legal service of process for each 

jurisdiction, which cannot be a post 

office box. 

5. Attach as Exhibit E, a description 

of the personnel qualifications for each 

category of professional employees 

employed by the Applicant or the 

division, subdivision, or other separate 

entity within the Applicant as described 

in item 4. 

6. Attach as Exhibit F, an analysis of 

staffing requirements necessary to carry 

out operations of the Applicant as a 

swap execution facility and the name 

and qualifications of each key staff 

person. 

7. Attach as Exhibit G, a copy of the 

constitution, articles of incorporation, 

formation or association with all 

amendments thereto, partnership or 

limited liability agreements, and 

existing by-laws, operating agreement, 

rules or instruments corresponding 

thereto, of the Applicant. Include any 

additional governance fitness 

information not included in Exhibit C. 

Provide a certificate of good standing 

dated within one week of the date of the 

Form SEF. 

8. Attach as Exhibit H, a brief 

description of any material pending 

legal proceeding(s), other than ordinary 

and routine litigation incidental to the 

business, to which the Applicant or any 

of its affiliates is a party or to which any 

of its or their property is the subject. 

Include the name of the court or agency 

where the proceeding(s) are pending, 

the date(s) instituted, and the principal 

parties involved, a description of the 

factual basis alleged to underlie the 

proceeding(s), and the relief sought. 

Include similar information as to any 

proceeding(s) known to be 

contemplated by the governmental 

agencies. 

EXHIBITS—FINANCIAL 

INFORMATION 

9. Attach as Exhibit I: 

a. (i) Balance sheet, (ii) Statement of 

income and expenses, (iii) Statement of 

cash flows, and (iv) Statement of 

sources and application of revenues and 

all notes or schedules thereto, as of the 

most recent fiscal year of the applicant, 

or of its parent company, if applicable. 

If a balance sheet and any statements 

certified by an independent public 

accountant are available, that balance 

sheet and statement should be 

submitted as Exhibit I. 

b. Provide a narrative of how the 

value of the financial resources of the 

applicant is at least equal to a total 

amount that would enable the applicant 

to cover its operating costs for a period 

of at least one year, calculated on a 

rolling basis, and whether such 

financial resources include 

unencumbered, liquid financial assets 

(i.e. cash and/or highly liquid securities) 

equal to at least six months’ operating 

costs. 

c. Attach copies of any agreements 

establishing or amending a credit 

facility, insurance coverage, or other 

arrangement evidencing or otherwise 

supporting the applicant’s conclusions 

regarding the liquidity of its financial 

assets. 

d. Representations regarding sources 

and estimates for future ongoing 

operational resources. 

10. Attach as Exhibit J, a balance 

sheet and an income and expense 

statement for each affiliate of the swap 

execution facility that also engages in 

swap execution facility activities as of 

the end of the most recent fiscal year of 

each such affiliate, and each affiliate of 

the swap execution facility that engages 

in designated contract market activities. 

11. Attach as Exhibit K, the following: 

a. A complete list of all dues, fees and 

other charges imposed, or to be 

imposed, by or on behalf of Applicant 

for its swap execution facility services 

that are provided on an exclusive basis 

and identify the service or services 

provided for each such due, fee, or other 

charge. 

b. A description of the basis and 

methods used in determining the level 

and structure of the dues, fees and other 

charges listed in paragraph (a) of this 

item. 

c. If the Applicant differentiates, or 

proposes to differentiate, among its 

customers, or classes of customers in the 

amount of any dues, fees, or other 

charges imposed for the same or similar 

exclusive services, so state and indicate 

the amount of each differential. In 

addition, identify and describe any 

differences in the cost of providing such 

services, and any other factors, that 

account for such differentiations. 

EXHIBITS—COMPLIANCE 

12. Attach as Exhibit L, a narrative 

and supporting documents that may be 

provided under other Exhibits herein, 

that describe the manner in which the 

Applicant is able to comply with each 

core principle. The Applicant should 

include an explanation, and any other 

forms of documentation the Applicant 

thinks will be helpful to its explanation, 

demonstrating how the swap execution 

facility will be able to comply with each 

core principle. To the extent that the 

application raises issues that are novel, 

or for which compliance with a core 

principle is not self-evident, include an 

explanation of how that item and the 

application satisfy the core principles. 

13. Attach as Exhibit M, a copy of the 

Applicant’s rules (as defined in § 40.1 of 

the Commission’s regulations) and any 

technical manuals, other guides or 

instructions for users of, or participants 

in, the market, including minimum 

financial standards for members or 

market participants. Include rules citing 

applicable federal position limits and 


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aggregation standards in Part 151 of the 

Commission’s regulations and any 

facility set position limit rules. Include 

rules on publication of daily trading 

information with regards to the 

requirements of Part 16 of the 

Commission’s regulations. The 

Applicant should include an 

explanation, and any other forms of 

documentation the Applicant thinks 

will be helpful to its explanation, 

demonstrating how the swap execution 

facility will be able to comply with each 

core principle and how its rules, 

technical manuals, other guides or 

instructions for users of, or participants 

in, the market, or minimum financial 

standards for members or market 

participants provided in this Exhibit M 

help support the swap execution 

facility’s compliance with the core 

principles. 

14. Attach as Exhibit N, executed or 

executable copies of any agreements or 

contracts entered into or to be entered 

into by the Applicant, including third 

party regulatory service provider or 

member or user agreements that enable 

or empower the Applicant to comply 

with applicable core principles. Identify 

(1) the services that will be provided; 

and (2) the core principles addressed by 

such agreement. 

15. Attach as Exhibit O, a copy of a 

compliance manual, and any other 

documents, that describe with 

specificity, the manner in which the 

Applicant will conduct trade practice, 

market and financial surveillance. 

16. Attach as Exhibit P, a description 

of the Applicant’s disciplinary and 

enforcement protocols, tools, and 

procedures and the arrangements for 

alternative dispute resolution. 

17. Attach as Exhibit Q, as applicable, 

an explanation regarding: 

a. For trading systems or platforms 

that enable market participants to 

engage in transactions through an order 

book: 

(1) How the trading system or 

platform provides all orders and trades 

in an electronic form, and the timeliness 

in which the trading system or platform 

does so; 

(2) How all market participants have 

the ability to immediately see and have 

the ability to transact on all bids and 

offers through the applicant’s electronic 

automated trade-matching system or 

platform; and 

(3) The trade matching algorithm and 

examples of how that algorithm works 

in various trading scenarios involving 

various types of orders. 

b. For trading systems or platforms 

that enable market participants to 

engage in transactions on request for 

quote systems: 

(1) How a market participant 

transmits a request for a quote to buy or 

sell a specific instrument to no less than 

five market participants in the trading 

system or platform, to which all such 

market participants may respond. 

(2) How resting bids or offers may be 

taken into account. 

c. For trading systems or platforms 

that enable market participants to 

engage in transactions via voice: 

(1) How the terms of voice-based 

transactions are entered into the 

electronic trading system or platform. 

d. How the timing delay described 

under § 37.9 is incorporated into the 

trading system or platform. 

18. Attach as Exhibit R, a list of rules 

prohibiting specific trade practice 

violations. 

19. Attach as Exhibit S, a discussion 

of how trading data will be maintained 

by the swap execution facility. 

20. Attach as Exhibit T, a list of the 

name of the clearing organization(s) that 

will be clearing the Applicant’s trades, 

and a representation that clearing 

members of that organization will be 

guaranteeing such trades. 

21. Attach as Exhibit U, any 

information (described with 

particularity) included in the 

application that will be subject to a 

request for confidential treatment 

pursuant to § 145.9 of the Commission’s 

regulations. 

EXHIBITS—OPERATIONAL 

CAPABILITY 

22. Attach as Exhibit V, information 

responsive to the Technology 

Questionnaire (link). The Technology 

Questionnaire focuses on information 

pertaining to the Applicant’s program of 

risk analysis and oversight. Main topic 

areas include: information security; 

business continuity-disaster recovery 

planning and resources; capacity and 

performance planning; systems 

operations; systems development and 

quality assurance; and physical security 

and environmental controls. 

Appendix B to Part 37—Guidance on, 

and Acceptable Practices in, 

Compliance With Core Principles 

1. This appendix provides guidance on 

complying with core principles, both initially 

and on an ongoing basis, to maintain 

registration under Section 5h of the Act and 

this Part 37. Where provided, guidance is set 

forth in paragraph (a) following the relevant 

heading and can be used to demonstrate to 

the Commission compliance with the 

selected requirements of a core principle, 

under §§ 37.3 and 37.5 of this Part 37. The 

guidance for the core principle is illustrative 

only of the types of matters a swap execution 

facility may address, as applicable, and is not 

intended to be used as a mandatory checklist. 

Addressing the issues set forth in this 

appendix would help the Commission in its 

consideration of whether the swap execution 

facility is in compliance with the selected 

requirements of a core principle; provided 

however, that the guidance is not intended to 

diminish or replace, in any event, the 

obligations and requirements of applicants 

and swap execution facilities to comply with 

the regulations provided under this Part 37. 

2. Where provided, acceptable practices 

meeting selected requirements of core 

principles are set forth in paragraph (b) 

following the guidance. Swap execution 

facilities that follow specific practices 

outlined in the acceptable practices for a core 

principle in this appendix will meet the 

selected requirements of the applicable core 

principle; provided however, that the 

acceptable practice is not intended to 

diminish or replace, in any event, the 

obligations and requirements of applicants 

and swap execution facilities to comply with 

the regulations provided under this Part 37. 

The acceptable practices are for illustrative 

purposes only and do not state the exclusive 

means for satisfying a core principle. 

Core Principle 1 of Section 5h of the Act— 

Compliance With Core Principles 

(A) In general. To be registered, and 

maintain registration, as a swap execution 

facility, the swap execution facility shall 

comply with—(i) all core principles 

described in Section 5h of the Act; and (ii) 

any requirement that the Commission may 

impose by rule or regulation pursuant to 

Section 8a(5) of the Act. 

(B) Reasonable Discretion of Swap 

Execution Facility. Unless otherwise 

determined by the Commission by rule or 

regulation, a swap execution facility 

described in paragraph (a) shall have 

reasonable discretion in establishing the 

manner in which the swap execution facility 

complies with the core principles described 

in Section 5h of the Act. 

(a) Guidance. [Reserved] 

(b) Acceptable Practices. [Reserved] 

Core Principle 2 of Section 5h of the Act— 

Compliance With Rules 

A swap execution facility shall: 

(A) Establish and enforce compliance with 

any rule of the swap execution facility, 

including the terms and conditions of the 

swaps traded or processed on or through the 

swap execution facility and any limitation on 

access to the swap execution facility; 

(B) Establish and enforce trading, trade 

processing, and participation rules that will 

deter abuses and have the capacity to detect, 

investigate, and enforce those rules, 

including means to provide market 

participants with impartial access to the 

market and to capture information that may 

be used in establishing whether rule 

violations have occurred; 

(C) Establish rules governing the operation 

of the facility, including rules specifying 

trading procedures to be used in entering and 

executing orders traded or posted on the 

facility, including block trades; and 

(D) Provide by its rules that, when a swap 

dealer or major swap participant enters into 

or facilitates a swap that is subject to the 


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mandatory clearing requirement of Section 

2(h), the swap dealer or major swap 

participant shall be responsible for 

compliance with the mandatory trading 

requirement under Section 2(h)(8) of the Act. 

(a) Guidance. [Reserved] 

(b) Acceptable Practices. [Reserved] 

Core Principle 3 of Section 5h of the Act— 

Swaps Not Readily Susceptible to 

Manipulation 

The swap execution facility shall permit 

trading only in swaps that are not readily 

susceptible to manipulation. 

(a) Guidance. 

(1) In general, a swap contract is an 

agreement to exchange a series of cash flows 

over a period of time based on some 

reference price, which could be a single 

price, such as an absolute level or a 

differential, or a price index calculated based 

on multiple observations. Moreover, such a 

reference price may be reported by the swap 

execution facility itself or by an independent 

third party. When listing a swap for trading, 

a swap execution facility must ensure a 

swap’s compliance with Core Principle 3, 

paying special attention to the reference price 

used to determine the cash flow exchanges. 

Specifically, Core Principle 3 requires that 

the reference price used by a swap not be 

readily susceptible to manipulation. As a 

result, when identifying a reference price, a 

swap execution facility should either: (i) 

Calculate its own reference price using 

suitable and well-established acceptable 

methods or (ii) carefully select a reliable 

third-party index. 

(2) The importance of the reference price’s 

suitability for a given swap is similar to that 

of the final settlement price for a cash-settled 

futures. If the final settlement price is 

manipulated, then the swap contract does not 

serve its intended price discovery and risk 

management functions. Similarly, 

inappropriate reference prices cause the cash 

flows between the buyer and seller to differ 

from the proper amounts, thus benefitting 

one party and disadvantaging the other. 

Thus, careful consideration should be given 

to the potential for manipulation or 

distortion of the reference price. 

(3) For swaps that are settled by physical 

delivery or by cash settlement refer to 

guidance in Appendix C to Part 38— 

Demonstration of Compliance that a contract 

is not readily susceptible to manipulation, 

Section b(2) and Section c(5), respectively. 

(b) Acceptable Practices. [Reserved] 

Core Principle 4 of Section 5h of the Act— 

Monitoring of Trading and Trade Processing 

The swap execution facility shall: 

(A) Establish and enforce rules or terms 

and conditions defining, or specifications 

detailing: 

(1) Trading procedures to be used in 

entering and executing orders traded on or 

through the facilities of the swap execution 

facility; and 

(2) Procedures for trade processing of 

swaps on or through the facilities of the swap 

execution facility; and 

(B) Monitor trading in swaps to prevent 

manipulation, price distortion, and 

disruptions of the delivery or cash settlement 

process through surveillance, compliance, 

and disciplinary practices and procedures, 

including methods for conducting real-time 

monitoring of trading and comprehensive 

and accurate trade reconstructions. 

(a) Guidance. [Reserved] 

(b) Acceptable Practices. [Reserved] 

Core Principle 5 of Section 5h of the Act— 

Ability To Obtain Information 

The swap execution facility shall: 

(A) Establish and enforce rules that will 

allow the facility to obtain any necessary 

information to perform any of the functions 

described in this section; 

(B) Provide the information to the 

Commission on request; and 

(C) Have the capacity to carry out such 

international information-sharing agreements 

as the Commission may require. 

(a) Guidance. [Reserved] 

(b) Acceptable Practices. [Reserved] 

Core Principle 6 of Section 5h of the Act— 

Position Limits or Accountability 

(A) In general. To reduce the potential 

threat of market manipulation or congestion, 

especially during trading in the delivery 

month, a swap execution facility that is a 

trading facility shall adopt for each of the 

contracts of the facility, as is necessary and 

appropriate, position limitations or position 

accountability for speculators. 

(B) Position limits. For any contract that is 

subject to a position limitation established by 

the Commission pursuant to Section 4a(a) of 

the Act, the swap execution facility shall: 

(1) Set its position limitation at a level no 

higher than the Commission limitation; and 

(2) Monitor positions established on or 

through the swap execution facility for 

compliance with the limit set by the 

Commission and the limit, if any, set by the 

swap execution facility. 

(a) Guidance. [Reserved] 

(b) Acceptable Practices. [Reserved] 

Core Principle 7 of Section 5h of the Act— 

Financial Integrity of Transactions 

The swap execution facility shall establish 

and enforce rules and procedures for 

ensuring the financial integrity of swaps 

entered on or through the facilities of the 

swap execution facility, including the 

clearance and settlement of the swaps 

pursuant to Section 2(h)(1) of the Act. 

(a) Guidance. [Reserved] 

(b) Acceptable Practices. [Reserved] 

Core Principle 8 of Section 5h of the Act— 

Emergency Authority 

The swap execution facility shall adopt 

rules to provide for the exercise of emergency 

authority, in consultation or cooperation 

with the Commission, as is necessary and 

appropriate, including the authority to 

liquidate or transfer open positions in any 

swap or to suspend or curtail trading in a 

swap. 

(a) Guidance. In consultation and 

cooperation with the Commission, a swap 

execution facility should have the authority 

to intervene as necessary to maintain markets 

with fair and orderly trading and to prevent 

or address manipulation or disruptive trading 

practices, whether the need for intervention 

arises exclusively from the swap execution 

facility’s market or as part of a coordinated, 

cross-market intervention. Swap execution 

facility rules should include procedures and 

guidelines for decision making and 

implementation of emergency intervention 

that avoid conflicts of interest in accordance 

with the provisions of 17 CFR 40.11, and 

include alternate lines of communication and 

approval procedures to address emergencies 

associated with real time events. To address 

perceived market threats, the swap execution 

facility should have rules that allow it to take 

emergency actions, including imposing or 

modifying position limits, imposing or 

modifying price limits, imposing or 

modifying intraday market restrictions, 

imposing special margin requirements, 

ordering the liquidation or transfer of open 

positions in any contract, ordering the fixing 

of a settlement price, extending or shortening 

the expiration date or the trading hours, 

suspending or curtailing trading in any 

contract, transferring customer contracts and 

the margin, or altering any contract’s 

settlement terms or conditions, or, if 

applicable, providing for the carrying out of 

such actions through its agreements with its 

third-party provider of clearing or regulatory 

services. In situations where a swap is traded 

on more than one platform, emergency action 

to liquidate or transfer open interest must be 

as directed, or agreed to, by the Commission 

or the Commission’s staff. The swap 

execution facility should also have rules that 

allow it to take market actions as may be 

directed by the Commission. The 

Commission should be notified promptly of 

the swap execution facility’s exercise of 

emergency action, explaining its decisionmaking process, the reasons for using its 

emergency authority, and how conflicts of 

interest were minimized, including the 

extent to which the swap execution facility 

considered the effect of its emergency action 

on the underlying markets and on markets 

that are linked or referenced to the contracts 

traded on its facility, including similar 

markets on other trading venues. Information 

on all regulatory actions carried out pursuant 

to a swap execution facility’s emergency 

authority should be included in a timely 

submission of a certified rule pursuant to 

Part 40 of this Chapter. 

(b) Acceptable Practices. [Reserved] 

Core Principle 9 of Section 5h of the Act— 

Timely Publication of Trading Information 

(A) In general. The swap execution facility 

shall make public timely information on 

price, trading volume, and other trading data 

on swaps to the extent prescribed by the 

Commission. 

(B) Capacity of swap execution facility. 

The swap execution facility shall be required 

to have the capacity to electronically capture 

and transmit trade information with respect 

to transactions executed on the facility. 

(a) Guidance. [Reserved] 

(b) Acceptable Practices. [Reserved] 

Core Principle 10 of Section 5h of the Act— 

Recordkeeping and Reporting 

(A) In general. A swap execution facility 

shall: 

(1) Maintain records of all activities 

relating to the business of the facility, 


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including a complete audit trail, in a form 

and manner acceptable to the Commission 

for a period of 5 years; 

(2) Report to the Commission, in a form 

and manner acceptable to the Commission, 

such information as the Commission 

determines to be necessary or appropriate for 

the Commission to perform the duties of the 

Commission under the Act; and 

(3) Keep any such records relating to swaps 

defined in Section 1a(47)(A)(v) of the Act 

open to inspection and examination by the 

Securities and Exchange Commission. 

(B) Requirements. The Commission shall 

adopt data collection and reporting 

requirements for swap execution facilities 

that are comparable to corresponding 

requirements for derivatives clearing 

organizations and swap data repositories. 

(a) Guidance. [Reserved] 

(b) Acceptable Practices. [Reserved] 

Core Principle 11 of Section 5h of the Act— 

Antitrust Considerations 

Unless necessary or appropriate to achieve 

the purposes of this Act, the swap execution 

facility shall not: 

(A) Adopt any rules or take any actions 

that result in any unreasonable restraint of 

trade; or 

(B) Impose any material anticompetitive 

burden on trading or clearing. 

(a) Guidance. An entity seeking registration 

as a swap execution facility may request that 

the Commission consider under the 

provisions of Section 15(b) of the Act, any of 

the entity’s rules, including trading protocols 

or policies, and including both operational 

rules and the terms or conditions of products 

listed for trading, at the time of registration 

or thereafter. The Commission intends to 

apply Section 15(b) of the Act to its 

consideration of issues under this core 

principle in a manner consistent with that 

previously applied to contract markets. 

(b) Acceptable Practices. [Reserved] 

Core Principle 12 of Section 5h of the Act— 

Conflicts of Interest 

The swap execution facility shall: 

(A) Establish and enforce rules to minimize 

conflicts of interest in its decision-making 

process; and 

(B) Establish a process for resolving the 

conflicts of interest. 

(a) Guidance. [Reserved] 

(b) Acceptable Practices. [Reserved] 

Core Principle 13 of Section 5h of the Act— 

Financial Resources 

(A) In general. The swap execution facility 

shall have adequate financial, operational, 

and managerial resources to discharge each 

responsibility of the swap execution facility. 

(B) Determination of resource adequacy. 

The financial resources of a swap execution 

facility shall be considered to be adequate if 

the value of the financial resources exceeds 

the total amount that would enable the swap 

execution facility to cover the operating costs 

of the swap execution facility for a one-year 

period, as calculated on a rolling basis. 

(a) Guidance. [Reserved] 

(b) Acceptable Practices. [Reserved] 

Core Principle 14 of Section 5h of the Act— 

System Safeguards 

The swap execution facility shall: 

(A) Establish and maintain a program of 

risk analysis and oversight to identify and 

minimize sources of operational risk, through 

the development of appropriate controls and 

procedures, and automated systems, that: 

(1) Are reliable and secure; and 

(2) Have adequate scalable capacity; 

(B) Establish and maintain emergency 

procedures, backup facilities, and a plan for 

disaster recovery that allow for: 

(1) The timely recovery and resumption of 

operations; and 

(2) The fulfillment of the responsibilities 

and obligations of the swap execution 

facility; and 

(C) Periodically conduct tests to verify that 

the backup resources of the swap execution 

facility are sufficient to ensure continued: 

(1) Order processing and trade matching; 

(2) Price reporting; 

(3) Market surveillance; and 

(4) Maintenance of a comprehensive and 

accurate audit trail. 

(a) Guidance. [Reserved] 

(b) Acceptable Practices. [Reserved] 

Core Principle 15 of Section 5h of the Act— 

Designation of Chief Compliance Officer 

(A) In general. Each swap execution 

facility shall designate an individual to serve 

as a chief compliance officer. 

(B) Duties. The chief compliance officer 

shall: 

(1) Report directly to the board or to the 

senior officer of the facility; 

(2) Review compliance with the core 

principles in this subsection; 

(3) In consultation with the board of the 

facility, a body performing a function similar 

to that of a board, or the senior officer of the 

facility, resolve any conflicts of interest that 

may arise; 

(4) Be responsible for establishing and 

administering the policies and procedures 

required to be established pursuant to this 

section; 

(5) Ensure compliance with the Act and the 

rules and regulations issued under the Act, 

including rules prescribed by the 

Commission pursuant to this section; and 

(6) Establish procedures for the 

remediation of noncompliance issues found 

during compliance office reviews, look backs, 

internal or external audit findings, selfreported errors, or through validated 

complaints. 

(C) Requirements for procedures. In 

establishing procedures under paragraph 

(b)(6), the chief compliance officer shall 

design the procedures to establish the 

handling, management response, 

remediation, retesting, and closing of 

noncompliance issues. 

(D) Annual reports. 

(1) In general. In accordance with rules 

prescribed by the Commission, the chief 

compliance officer shall annually prepare 

and sign a report that contains a description 

of: 

(i) The compliance of the swap execution 

facility with the Act; and 

(ii) The policies and procedures, including 

the code of ethics and conflict of interest 

policies, of the swap execution facility. 

(2) Requirements. The chief compliance 

officer shall: 

(i) Submit each report described in clause 

(1) with the appropriate financial report of 

the swap execution facility that is required to 

be submitted to the Commission pursuant to 

this section; and 

(ii) Include in the report a certification 

that, under penalty of law, the report is 

accurate and complete. 

(a) Guidance. [Reserved] 

(b) Acceptable Practices. [Reserved] 

Dated: December 16, 2010. 

By the Commission. 

David A. Stawick, 

Secretary. 

Appendices to Core Principles and 

Other Requirements for Swap 

Execution Facilities—Commission 

Voting Summary and Statements of 

Commissioners 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Gensler and 

Commissioners Dunn, Chilton and O’Malia 

voted in the affirmative; Commissioner 

Sommers voted in the negative. 

Appendix 2—Statement of Chairman 

Gary Gensler 

I support the proposed rulemaking to fulfill 

Congress’s mandate to have rules and core 

principles requirements for swap execution 

facilities (SEFs). The proposed rule also 

fulfills Congress’s mandate to promote 

transparency through the trading of swaps on 

SEFS. 

The proposed rule will provide for all 

market participants an ability to execute or 

trade with other market participants. It will 

afford market participants with the ability to 

make firm bids or offers to all other market 

participants. It also will allow them to make 

indications of interest—or what is often 

referred to as ‘‘indicative quotes’’—to other 

participants. Furthermore, it will allow 

participants to request quotes from other 

market participants. These methods will 

provide hedgers, investors and Main Street 

businesses both the flexibility to execute and 

trade by a number of methods, but also the 

benefits of transparency and more market 

competition. I believe that transparency and 

competition in markets is consistent with 

Congress mandated in the definition of a 

swap execution facility, whereby all market 

participants can communicate with all 

market participants such that everybody gets 

the benefit of a competitive and transparent 

price discovery process. 

The proposal does allow participants, 

though, to do request for quotes, whereby 

they would reach out to a minimum number 

of other market participants for quotes. It also 

allows that, for block transactions, swap 

transactions involving non-financial endusers, swaps that are not ‘‘made available for 

trading’’ and bilateral transactions, market 


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participants can get the benefits of the swap 

execution facilities’ greater transparency or, 

if they wish, would still be allowed to 

execute by voice or other means of trading. 

To fulfill Congress’s mandate that, the rule 

requires SEFs to provide impartial access to 

market participants for trading on the 

platform or system. 

The proposed rule also would require SEFs 

to—on a yearly basis—state which contracts 

are deemed ‘‘available for trading,’’ based on 

factors including trading activity and open 

interest. The rule, if finalized, goes into effect 

in January 2012. This will give the markets 

time to adapt, allow SEFs to tell the market 

what contracts are available for trading. 

Appendix 3—Statement of 

Commissioner Sommers 

I disagree with several aspects of the Swap 

Execution Facility (SEF) proposal the 

Commission is issuing today and seek public 

comment on alternative language for Section 

37.9, Permitted Execution Methods. 

Dodd-Frank defines a SEF as a ‘‘trading 

system or platform in which multiple 

participants have the ability to execute or 

trade swaps by accepting bids and offers 

made by multiple participants in the facility 

or system, through any means of interstate 

commerce, including any trading facility.’’ As 

I have pointed out in my public speaking 

engagements over the past few months, the 

term ‘‘trading facility’’ is defined in the 

Commodity Exchange Act (Act), but the 

terms ‘‘trading system’’ and ‘‘platform’’ are 

not. By introducing these new, undefined 

terms into the Act, and by specifying that 

SEFs should facilitate the trading of swaps 

through any means of interstate commerce, I 

believe Congress intended a broad model for 

executing swaps on SEFs, both cleared, 

uncleared, liquid or bespoke. The goals 

identified by Dodd-Frank for registering SEFs 

are ‘‘to promote the trading of swaps on swap 

execution facilities and to promote pre-trade 

price transparency in the swaps market.’’ In 

my view, the best way to achieve these twin 

goals is to adopt a model that provides the 

maximum amount of flexibility as to the 

method of trading. Unfortunately, this 

proposal does not do that. 

Section 37.9, which governs the types of 

execution methods that SEFs may offer, is a 

key provision of this proposed regulation. 

While it permits alternative methods of 

execution, such as the trading facility model 

and the request for quote model, it also 

requires that to be registered as a SEF an 

applicant must, at a minimum, provide 

market participants ‘‘with the ability to post 

both firm and indicative quotes on a 

centralized electronic screen accessible to all 

market participants who have access to the 

swap execution facility.’’ In my view this 

provision is not mandated by Dodd-Frank 

and may limit competition by shutting out 

applicants who wish to offer request for 

quote services without this functionality. I 

believe this interpretation of the statute, and 

other requirements within this section, are 

far too restrictive. 

As a result of my concerns, we worked 

throughout the past week to include 

alternative language for Section 37.9 in the 

proposal. I believe this alternative language 

complies with Dodd-Frank and would 

promote both pre-trade price transparency 

and the trading of swaps on SEFs. Including 

the alternative would have given the public 

an opportunity to comment, in accordance 

with the Administrative Procedure Act, on 

both the alternative language and the 

language contained in the proposed rule. I 

am deeply disappointed that despite a 

commitment to a transparent process in 

promulgating the Dodd-Frank rules, the 

alternative language is not in the proposal 

today and we are not giving the public the 

opportunity to comment on it. That 

alternative language is set forth below. 

§ 37.9 Permitted Execution Methods. 

(a) Definitions. 

(1) As used in this Part 37: 

(i) Order Book System means: 

(A) An electronic trading facility, as 

that term is defined in section 1a(16) of 

the Act; 

(B) A trading facility, as that term is 

defined in section 1a(51) of the Act; 

(C) A trading system or platform in 

which all market participants in the 

trading system or platform can enter 

multiple bids and offers, observe bids 

and offers entered by other market 

participants, and choose to transact on 

such bids and offers; or 

(D) Any such other trading system or 

platform as may be determined by the 

Commission. 

(ii) Request for Quote System means: 

(A) A trading system or platform in 

which a market participant transmits a 

request for a quote to buy or sell a 

specific instrument to all other market 

participants in the trading system or 

platform to which all market 

participants may respond; 

(B) A trading system or platform in 

which a market participant transmits a 

request for a quote to buy or sell a 

specific instrument to more than one 

potential counterparty. Upon receipt of 

responsive quotes from any of the 

potential counterparties, the original 

requester may accept a responsive quote 

and complete a transaction with any one 

of the responsive counterparties; 

(C) A trading system or platform in 

which multiple market participants can 

both (i) view real-time electronic 

streaming quotes, both firm or 

indicative, from multiple potential 

counterparties on a centralized screen; 

and (ii) have the option to complete a 

transaction by (A) accepting a firm 

streaming quote, or (B) transmitting a 

request for a quote to more than one 

market participant, based upon an 

indicative streaming quote, taking into 

account any resting bids or offers that 

have been communicated to the 

requester along with any responsive 

quotes; or 

(D) Any such other trading system or 

platform as may be determined by the 

Commission. 

(iii) Voice-Based System means: 

(A) A trading system or platform in 

which a market participant executes or 

trades a swap using a telephonic line or 

other voice-based service. 

(2) Swaps subject the clearing 

requirements under the Act that are 

made available for trading pursuant to 

§ 37.10 may be executed or traded on an 

Order Book System, a Request for Quote 

System, or any such other trading 

system or platform as may be 

determined by the Commission. 

(3) Swaps not subject to the clearing 

requirements under the Act may be 

executed or traded on an Order Book 

System, a Request for Quote System, a 

Voice-Based System, or any such other 

trading system or platform as may be 

determined by the Commission. 

(4) A swap execution facility can be 

an Order Book System, a Request for 

Quote System, or any such other trading 

system or platform as may be 

determined by the Commission, or any 

combination of the aforementioned 

systems. 

[FR Doc. 2010–32358 Filed 1–6–11; 8:45 am] 

BILLING CODE 6351–01–P 


kgrant on DSKGBLS3C1PROD with BILLS