LatAm SEF, LLC | Exhibit L-1 of CFTC SEF Registration, Revised February 23, 2016 Page 1 of 25

LatAm SEF, LLC

CORE PRINCIPLES COMPLIANCE CHART

EXHIBIT L-1

SEF CORE PRINCIPLES APPLICANT NARRATIVE RELATED RULES/DOCUMENTS

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) The 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.

a) LatAm SEF, LLC (“the SEF”) believes that all materials 

submitted with this application for designation as a swap 

execution facility (“SEF”) on Form SEF and the Exhibits 

thereto (the “Application”), including but not limited to the 

SEF Rulebook (the “Rules”) provided in Exhibit M-1 to the 

Application, demonstrate compliance with Core Principle 1.

Capitalized terms that are used in this Exhibit L-1 without 

definition have the meaning ascribed to those terms in the 

Rules.

b) Although the SEF will comply with all the requirements in 

the Core Principles necessary for it to qualify as a SEF, the 

business of the SEF currently consists exclusively of 

Permitted Transactions relating to the following products:

Interest Rate Swaps (IRS)

Argentina

 Fixed Argentine CER vs. Floating USD 6-Month Libor 

Interest Rate Swap

 Fixed Argentine ARS vs. Floating USD 6-Month Libor 

Cross-Currency Interest Rate Swap

Brazil

 Fixed Brazilian CDI vs. Floating Brazilian CDI Interest 

Rate Swap

Chile

 Fixed Chilean CLF vs. Floating Camara Cross-Currency 

Overnight Index Swap

 Floating USD 6-Month Libor vs. Floating Chilean 

Camara Basis Swap

 Fixed Chilean CLP vs. Floating Camara Overnight Index 

This Application.

Exhibit M (SEF Rulebook)
LatAm SEF LLC

EXHIBIT L-1 - COMPLIANCE WITH SEF CORE PRINCIPLES

LatAm SEF, LLC | Exhibit L-1 of CFTC SEF Registration, Revised February 23, 2016 Page 2 of 25

SEF CORE PRINCIPLES APPLICANT NARRATIVE RELATED RULES/DOCUMENTS

Swap

Colombia

 Fixed Colombian UVR vs. Floating USD 6-Month Libor 

Interest Rate Swap

 Fixed Colombian IBR vs. Floating Colombian IBR 

Interest Rate Swap

 Fixed Colombian COP vs. Floating USD 6-Month Libor 

Cross-Currency Interest Rate Swap

 Floating USD 3-Month Libor vs. Floating Colombian IBR 

Cross-Currency Basis Swap

Mexico

 Fixed Mexican TIIE vs. Floating Mexican TIIE Interest 

Rate Swap

 Floating Mexican TIIE vs. Floating USD 1-Month Libor 

Interest Rate Swap

 Fixed Mexican UDI vs. Floating Mexican TIIE Interest 

Rate Swap

 Floating Mexican UDI vs. Floating USD 6-Month Libor 

Basis Swap

Peru

 Fixed Peruvian VAC vs. Floating USD 6-Month Libor 

Interest Rate Swap

 Fixed Peruvian PEN vs. Floating USD 6-Month Libor 

Cross-Currency Interest Rate Swap

 Fixed Peruvian PEN vs. Floating Peruvian TIS Interest 

Rate Swap

Foreign Exchange (FX)
LatAm SEF LLC

EXHIBIT L-1 - COMPLIANCE WITH SEF CORE PRINCIPLES

LatAm SEF, LLC | Exhibit L-1 of CFTC SEF Registration, Revised February 23, 2016 Page 3 of 25

SEF CORE PRINCIPLES APPLICANT NARRATIVE RELATED RULES/DOCUMENTS

NDFs

 Non-Deliverable Forwards Argentinian Peso (ARS)

 Non-Deliverable Forward Brazilian Real (BRL)

 Non-Deliverable Forward Chilean Peso (CLP)

 Non-Deliverable Forward Colombian Peso (COP)

 Non-Deliverable Forward Peruvian Nuevo Sol (PEN)

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;

(c) Establish rules governing the 

Operation of the SEF and Compliance with Rules

The SEF has established Rules governing the operation of its 

SEF including rules regarding the operation of its trading 

systems (the “Trading System”). Chapter 5 of the Rules sets

out the framework for operation of the Trading System, which 

can currently be used only for Permitted Transactions. 

Although this means that the Trading System will not be used 

for Required Transactions, the Trading System nevertheless 

has the functionality to process Orders through a Central Limit 

Order Book See Rule 512.

Pursuant to Rule 505, all Orders must be submitted to the 

Trading System using the relevant Trader ID and must include 

the required information set out in that Rule, including price, 

quantity, product, expiration date and CTI code. Orders may 

be submitted electronically. Under Rule 315 (currently 

inactive), directions to effect a Transaction may be given to a 

Voice Specialist who is an employee of the SEF. An Order 

may be modified or cancelled unless and until such Order is 

executed or has otherwise expired. See Rule 514. 

The SEF has also adopted Rules regarding access to the 

Trading System for Trading Privilege Holders and Authorized 

Persons (Chapter 3 of the Rules), business conduct (Chapter 

7 of the Rules), disciplinary matters (Chapter 8 of the Rules) 

and mandatory trading requirements). The SEF’s audit trail 

requirements are set out in Rule 901.

Rules: Rules 311 and 315.
LatAm SEF LLC

EXHIBIT L-1 - COMPLIANCE WITH SEF CORE PRINCIPLES

LatAm SEF, LLC | Exhibit L-1 of CFTC SEF Registration, Revised February 23, 2016 Page 4 of 25

SEF CORE PRINCIPLES APPLICANT NARRATIVE RELATED RULES/DOCUMENTS

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) 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) 

of the Act.

The SEF will enforce its Rules impartially. In addition, the 

SEF will publish a notice to its Trading Privilege Holders with 

respect to each new Rule and Rule amendment submitted to 

the Commodity Futures Trading Commission (“CFTC” or 

“Commission”) pursuant to the Commission’s Part 40 

Regulations. See Rule 311.

Access Requirements

Participants have the right to access the Trading System for 

their own accounts and, if properly registered, on behalf of 

Customers, and must designate at least one of their 

employees as an Authorized Person. See Rules 303 and 306. 

Trading Privilege Holders must be an “eligible contract 

participant” as defined in the Commodity Exchange Act 

(“CEA”) and CFTC Regulations. See Rule 304(1)(a). Rule 

303 sets forth the qualification standards for Participants. See 

also Core Principle 7 (Financial Integrity of Transactions). 

Rule 307 sets out the requirements for a Trading Privilege

Holders the right to access the SEF. Trading Privilege

Holders are required to designate at least one person as 

Authorized Person pursuant to Rule 305. Independent 

Software Vendors are permitted to access the Trading System

provided they satisfy the SEF’s technological integrity 

requirements as set out in Rule 309. Pursuant to Rule 314, 

the SEF shall charge comparable fees for all Participants that 

receive comparable access to the Trading System. Any 

person that initiates or executes a transaction pursuant to the 

Rules, directly or indirectly, is subject to the SEF’s jurisdiction. 

See Rule 301. Each Authorized Person, and each automated 

trading system, of a Trading Privilege Holders must have a 

unique Trader ID, and each Participant is responsible for 

controlling and monitoring the use of the Trader IDs assigned 

to its Authorized Persons. See Rule 408(2).

The SEF will apply these access criteria in an impartial 

manner through the application process described in Rule 305

and the Participation Committee review process described in 

Rules: 204, 301, 303, 304, 305, 307, 

308, 309, 314, 316, 408, 410, 811 

and 805.
LatAm SEF LLC

EXHIBIT L-1 - COMPLIANCE WITH SEF CORE PRINCIPLES

LatAm SEF, LLC | Exhibit L-1 of CFTC SEF Registration, Revised February 23, 2016 Page 5 of 25

SEF CORE PRINCIPLES APPLICANT NARRATIVE RELATED RULES/DOCUMENTS

Rule 204. Failure of an applicant to demonstrate a capacity to 

comply with the requirements of the Rules or of Applicable 

Law may lead to a denial of the application under Rule 305(3). 

Applicants have the right to appeal a denial or conditional 

grant of their Participant application under Rule 305(4). Other 

provisions in the Rulebook set out the authority of the SEF to 

revoke, suspend or limit a Trading Privilege Holder’s or

Authorized Person’s access to the Trading System. The SEF 

also reserves the right to summarily terminate the Trading 

Privileges of a Participant or any of its Trading Privilege

Holders or its Authorized Persons under Rules 410 and 818. 

Any denial of access, or suspension, expulsion or other 

restriction imposed pursuant to disciplinary procedures will 

similarly restrict access to the Trading System pursuant to 

Rule 814.

The SEF may grant a Trading Privilege Holder’s request to 

withdraw if the requirements of Rule 316 are met.

Rule Enforcement Program

The SEF will monitor and enforce compliance with its Rules,

including the Rules prohibiting abusive trade practices. Rule 

401 sets out duties and responsibilities of Trading Privilege

Holders, including the requirement to utilize the SEF’s 

services in a responsible manner, comply with all Rules of the 

SEF, cooperate with SEF investigations, inquiries, audits, 

examinations and proceedings, and observe high standards of 

integrity, market conduct, commercial honor, fair dealing and 

equitable principles of trade. Under Rule 402, Trading 

Privilege Holders are also required to maintain books and 

records as required under the CEA and CFTC Regulations.

Chapter 5 of the Rules contains the SEF’s trading practice 

rules and Rule 707 identifies numerous forms of conduct and 

trade practices including: fraudulent, fictitious or 

noncompetitive transactions, fraudulent or misleading 

communications, market disruption, market manipulation,

disruptive trading practices, misstatements, withholding of 

Rules: 308, 401, 402 and 801.
LatAm SEF LLC

EXHIBIT L-1 - COMPLIANCE WITH SEF CORE PRINCIPLES

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SEF CORE PRINCIPLES APPLICANT NARRATIVE RELATED RULES/DOCUMENTS

customer orders, front-running, wash sales, pre-negotiated 

and noncompetitive trades, including money passes and 

trading against customer orders. The Rules also require 

compliance with the Rules (Rule 401). In addition, Rule 308

prohibits a Participant from accepting an Order from another 

person unless such Participant is properly registered with the 

CFTC as a futures commission merchant or an introducing 

broker, as applicable.

Chapter 7 also includes prohibitions against acts detrimental 

to the SEF (Rule 707), conduct inconsistent with just and 

equitable principles of trade (Rule 704) and misuse of the 

Trading System (Rule 705). It also includes requirements for 

supervision of personnel (Rule 703). In addition, no Trading 

Privilege Holder may disclose an Order other than to a 

designated SEF Employee, to the CFTC or as necessary to 

execute the Order. See Rule 707.

The SEF has made appropriate arrangements to ensure that it 

has sufficient resources to enforce its Rules. he SEF’s Chief

Compliance Officer (the “CCO”) and Regulatory Oversight 

Committee (the “ROC”) monitor the compliance resources of 

the SEF and will engage additional personnel as deemed 

necessary on a temporary or permanent basis. The SEF’s 

ability to detect, investigate and take action with respect to 

violations of its rules will be provided by the ROC and the

CCO. Pursuant to Rule 402, the SEF has the right to require 

a Trading Privilege Holder `to furnish information regarding the 

Trading Privilege Holder’s business that is subject to the 

Rules. In addition, Rule 801 requires Trading Privilege

Holders and Authorized Persons to produce books and 

records related to a Rule, inquiry or investigation as requested 

by the Compliance Department. As described in further detail 

below, the Compliance Department is primarily responsible for 

financial surveillance, daily market surveillance, daily trade 

practice surveillance and inquiries and investigations. The 

Compliance Department is primarily responsible for real-time 

market monitoring. The Compliance Department also 
LatAm SEF LLC

EXHIBIT L-1 - COMPLIANCE WITH SEF CORE PRINCIPLES

LatAm SEF, LLC | Exhibit L-1 of CFTC SEF Registration, Revised February 23, 2016 Page 7 of 25

SEF CORE PRINCIPLES APPLICANT NARRATIVE RELATED RULES/DOCUMENTS

performs real-time market monitoring and provides services 

related to disciplinary proceedings. 

The ROC is responsible for monitoring the sufficiency, 

independence and effectiveness of the SEF’s regulatory 

program. . See also Core Principle 4 (Monitoring of Trading 

and Trade Processing).

Regulatory Services Provider

Rule 212 permits the SEF to enter into an agreement with a 

regulatory services provider to provide certain regulatory 

services to the SEF, but the SEF has not entered into such an 

agreement.

The Compliance Department has primary responsibility for the 

SEF’s real-time market monitoring. The Compliance 

Department reviews trading activity on the Trading System.. 

The Compliance Department will receive and review reports of 

any unusual trading activities on the Trading System. The 

Compliance Department also performs real-time market 

monitoring of trading activity on the Trading System using a 

view-only market monitor screen through which it can track the 

activity of specific traders, monitor price and volume 

information and is alerted to any market messages. See also

Core Principle 4 (Monitoring of Trading and Trade 

Processing).

Pursuant to Rules 513 and 514, the SEF may cancel or adjust 

trades if the SEF determines that allowing the trade to stand 

could have a material, adverse effect on the integrity of the 

market or due to disruptions caused by the improper or 

erroneous use of the Trading System or by system defects or 

malfunctions. Decisions will be made as soon as practicable 

after the SEF becomes aware of an anomaly, error or other 

event and the SEF will notify Trading Privilege Holders and 

the Swap Data Repository pursuant to Rule 513 and 514. 

Audit Trail

Rules: 212 and 514
LatAm SEF LLC

EXHIBIT L-1 - COMPLIANCE WITH SEF CORE PRINCIPLES

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SEF CORE PRINCIPLES APPLICANT NARRATIVE RELATED RULES/DOCUMENTS

The SEF’s audit trail arrangements, which are designed to 

capture all relevant trading information to facilitate the SEF’s 

trade practice and market surveillance activities described 

above. The audit trail program is based on original source 

documents that are unalterable, sequentially identified 

records. The records reflect the terms of the order entered, 

the time of the order, a unique Trader ID for the user entering 

the order and an account identifier. The system further 

reflects information regarding orders which are filled, unfilled 

or cancelled.

The audit trail also includes an electronic transaction history 

database that contains a history of all Orders as well as the 

following: (i) all data entered into the Trading System to allow 

the Order to match; (ii) the categories of market participant for 

which each Order is executed, including the specific account; 

and (iii) timing and sequencing data enabling each Order to be

reconstructed. All audit trail data contained in the transaction 

database is organized in a manner that allows the Compliance 

Department to search, sort and present the information in 

order to reconstruct trading and identify potential violations.

All data gathered as part of the audit trail is maintained in 

accordance with the CFTC’s recordkeeping requirements and 

is kept in a manner that does not allow for unauthorized 

alteration, erasure or other potential loss.

The Compliance Department will conduct reviews of all 

Trading Privilege Holders and Authorized Persons to verify 

their compliance with the SEF’s audit trail and recordkeeping 

requirements. Upon completion of such review, the 

Compliance Department will identify, if any, the foregoing has 

demonstrated deficiencies in complying with the SEF’s audit 

trail requirements, which may lead to the imposition of 

sanctions for purposes of deterring additional violations.

Disciplinary Procedures

Chapter 8 of the Rules sets forth the SEF’s disciplinary and 

Rules: 901.
LatAm SEF LLC

EXHIBIT L-1 - COMPLIANCE WITH SEF CORE PRINCIPLES

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SEF CORE PRINCIPLES APPLICANT NARRATIVE RELATED RULES/DOCUMENTS

enforcement process and demonstrates the SEF’s capacity to 

detect and investigate rule violations. The Compliance 

Department, in accordance with Rule 802, has the authority to 

initiate and conduct inquiries and investigations, prepare 

investigative reports, make disciplinary recommendations and 

prosecute violations. Rule 802 also provides the Compliance 

Department with the authority to collect information and 

documents and examine Participants’ books and records 

during an investigation. 

Pursuant to Rule 802, the Compliance Department will 

commence an investigation upon the receipt of a request from 

Commission staff or upon the discovery or receipt of 

information that indicates a reasonable basis for a finding that 

a violation has occurred or will occur. Absent mitigating 

circumstances, Rule 803 provides that all investigations must 

be completed within twelve months after the date the 

investigation is opened. No person with a conflict of interest 

will be permitted to participate in any SEF enforcement action 

or Disciplinary Panel. See Rule 208.

Investigations may be resolved through a warning letter 

provided that no more than one warning letter for the same 

potential violation may be issued to the same potential 

respondent during a rolling 12-month period. See Rule 803.

Chapter 8 of the Rules provides detailed procedures for the 

SEF’s disciplinary proceedings, including the establishment of 

an optional Review Panel to review an investigation report 

(Rule 804), the preparation of a notice of charges (Rule 805), 

the answer to a notice of charges by a Respondent (Rule 

806), service of a notice of charges (Rule 807), settlements 

(Rule 808), the establishment and operation of the Disciplinary 

Panel (Rule 809), convening hearings of the Disciplinary 

Panel (Rule 810), the Respondent’s right to review evidence 

(Rule 811), conducting hearings of the Disciplinary Panel 

(Rule 812), Disciplinary Panel decisions (Rule 813), and the 

imposition of sanctions (Rule 814). Rule 816 sets out the 

Rules: 208.
LatAm SEF LLC

EXHIBIT L-1 - COMPLIANCE WITH SEF CORE PRINCIPLES

LatAm SEF, LLC | Exhibit L-1 of CFTC SEF Registration, Revised February 23, 2016 Page 10 of 25

SEF CORE PRINCIPLES APPLICANT NARRATIVE RELATED RULES/DOCUMENTS

procedures for filing appeals, including the creation of an 

Appeal Panel.

The SEF may impose summary fines relating to submission of 

records pursuant to Rule 817. The SEF also reserves the 

right to impose summary suspensions in accordance with Rule 

818. The rights and responsibilities of a Person after 

suspension or termination are governed by Rule 819. The 

SEF will provide written notice of disciplinary proceedings to 

the parties and to the Commission in accordance with Rule 

820.

Each Disciplinary Panel and Appeal Panel must be constituted 

in accordance with the composition requirements set out in 

Commission Regulations.

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.

The SEF lists Latin American Interest Rate Swaps and 

Foreign Exchange Non-Deliverable Forwards, none of which

are currently subject to mandatory clearing at a Derivatives 

Clearing Organization. The SEF has certified swap terms and 

conditions pursuant to CFTC Regulations 37.4 and 40.6.

Swaps traded on the SEF involve periodic fixed and floating 

payments by the parties to the Swaps. The settlement 

amount on any payment date is based on the net amount due

between the swap counterparties. The amount owed by each 

party is calculated on the basis of a reference rate applied 

over a period of time to a notional amount, where the 

referenced rates, period of time and notional amount are 

terms of the relevant Swap. Each reference rate may be 

constant or may be determined on the basis of interest rates 

applicable to the swap.

The terms of each Swap traded on the Trading System will be 

set by the parties to the Swap within parameters established 

for each type of Swap offered. The rates used to calculate 

payments due are typically rates determined by market-driven 

process in large markets so such rates are generally not 

susceptible to manipulation. To the extent that recent 

Rules: 504.
LatAm SEF LLC

EXHIBIT L-1 - COMPLIANCE WITH SEF CORE PRINCIPLES

LatAm SEF, LLC | Exhibit L-1 of CFTC SEF Registration, Revised February 23, 2016 Page 11 of 25

SEF CORE PRINCIPLES APPLICANT NARRATIVE RELATED RULES/DOCUMENTS

enforcement actions by regulators have alleged manipulation 

of certain interest rates, the SEF believes that the increased 

scrutiny given to market practice as a result of such 

proceedings has reduced the risk of future rate manipulation.

The SEF offers the following types of Swaps:

1. Fixed /Float Interest Rate Swaps (“IRS”)

IRS transactions are transactions in which two parties agree to 

exchange or swap cash flows in the future. For example, two 

parties may enter into an IRS to exchange a fixed interest 

payment for a floating interest payment based on a reference 

rate or to exchange payments based on two different floating 

reference rates. In a single-currency IRS, periodic payments 

between the counterparties are calculated based on the 

difference between the agreed rates multiplied by the notional 

amount.

2. Zero Coupon Swaps

Zero coupon (single-period) swaps are interest rate swaps in 

which the floating rate payments are made periodically while 

the fixed rate payments are paid in a single lump sum 

payment, which is typically made when the Swap matures. 

Zero coupon swaps can be structured so that both floating and 

fixed rate payments are paid as a lump sum.

4. Cross-Currency Basis Swaps 

A cross-currency basis swap is an agreement between two 

parties to exchange a floating interest payment based on a 

reference rate for a floating interest payment based on a 

another reference rate in a different currency. For example, 

parties may exchange a floating interest payment based on 

the one-month U.S. Dollar LIBOR for a floating interest 

payment based on the one-month Great Britain Pound LIBOR 

to gain exposure to currency fluctuations.

5. Overnight Index Swaps (“OIS”)
LatAm SEF LLC

EXHIBIT L-1 - COMPLIANCE WITH SEF CORE PRINCIPLES

LatAm SEF, LLC | Exhibit L-1 of CFTC SEF Registration, Revised February 23, 2016 Page 12 of 25

SEF CORE PRINCIPLES APPLICANT NARRATIVE RELATED RULES/DOCUMENTS

An OIS is an agreement between two parties to exchange a 

fixed interest payment for a floating interest payment based on 

the geometric average of an overnight index over every day of 

the payment period. An OIS is generally a short-term or 

medium-term instrument with duration as short as a few 

weeks, but in some cases as long as three or four years.

7. Non-Deliverable Forward - NDF

A cash-settled, short-term forward contract on a thinly traded 

or non-convertible foreign currency, where the profit or loss at 

the time at the settlement date is calculated by taking the 

difference between the agreed upon exchange rate and the 

spot rate at the time of settlement, for an agreed upon notional 

amount of funds.

Finally, the Rules restrict trading on the basis of non-public 

information. In particular, Rule 901 prohibits SEF officials 

from trading in Swaps or related Swaps absent prior written 

consent from the SEF.

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 

Pursuant to Rule 205, the ROC oversees the SEF’s regulatory 

program and has the authority to monitor the sufficiency, 

effectiveness and independence of the SEF’s regulatory 

program. The ROC is required to: (1) oversee the SEF’s 

regulatory program on behalf of the Board; (2) monitor the 

SEF’s regulatory program for sufficiency, effectiveness and 

independence; (3) review all regulatory proposals, actions or 

changes prior to implementation; (4) review the size and 

allocation of the regulatory budget and resources, and review 

the number, hiring and termination, and compensation of 

regulatory personnel; (5) review the performance of the CCO 

and make recommendations to the Board accordingly; and (6) 

recommend changes that would ensure fair, vigorous and 

effective regulation. See also Section 18.2 of the Manual.

Chapter 7 of the Rules sets forth certain prohibited trading 

practices and specifically proscribes manipulation, price 

distortion and disruptive trading practices. Chapter 8 of the 

Rules: 205, 303 and 402.
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SEF CORE PRINCIPLES APPLICANT NARRATIVE RELATED RULES/DOCUMENTS

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.

Rules describes the SEF’s disciplinary and enforcement 

procedures, which include inquiries, investigations and 

disciplinary proceedings. See also Core Principle 2 

(Compliance with Rules).

The CCO and the Compliance Department implement the 

SEF’s monitoring, surveillance and other enforcement 

functions, and the ROC will oversee this activity. The Rules

provide the framework for the SEF’s enforcement activities. , 

The Compliance Department uses automated trade 

surveillance systems that capture all trade and order data, 

including modifications and cancellations. The Compliance 

Department uses that data to perform trade practice and 

market surveillance services and conducts market monitoring 

on a trade day plus one (“T+1”) basis. The Compliance 

Department is also responsible for reviewing the SEF’s trades 

on a routine basis to determine whether suspicious activity 

relating to applicable trading standards exists. The CCO 

oversees the Compliance Department’s performance.

The audit trail requirements described in Core Principle 2 

(Compliance with the Rules) above ensure the SEF’s ability to 

comprehensively and accurately reconstruct all trading on the 

Trading System.

The SEF monitors the pricing of the index against which the 

Swap settles as well as the appropriateness of the 

methodology for deriving the index and has the ability to 

address circumstances that may threaten market disruption, 

manipulation and/or distortion. 

Pursuant to Rule 402, all Trading Privilege Holders must 

maintain all records required by the Rules including all records 

of trading, activity in the underlying commodity and activity in 

related markets. All such books and records shall be made 

available for inspection by, and copies thereof shall be 

delivered to, the SEF and its authorized representatives upon 

request.
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EXHIBIT L-1 - COMPLIANCE WITH SEF CORE PRINCIPLES

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SEF CORE PRINCIPLES APPLICANT NARRATIVE RELATED RULES/DOCUMENTS

In addition, under Rule 303, in order to be eligible for 

admission as a Trading Privilege Holder and to maintain 

continued access to the SEF, the applicant must be in 

compliance with all recordkeeping requirements set forth in 

the Rules.

As described above, the SEF maintains comprehensive audit 

trail data to accurately reconstruct all trading on the Trading 

System. Pursuant to Rule 402, each Trading Privilege Holder 

is required to furnish the SEF, upon request, with information 

regarding such Trading Privilege Holder’s trading in related 

derivatives markets as well as in the products underlying the 

Swaps listed for trading on the SEF. 

The SEF will implement trading risk controls, including a 

maximum quantity limit for any single order, a maximum 

notional value limit and a price variance warning. These risk 

controls are designed to avoid market disruptions and 

interference with the SEF’s price discovery function. To the 

extent practicable, the SEF will coordinate its trading controls 

with other designated contract markets and with swap 

execution facilities and national securities exchanges.

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 

section 5h of the Act;

(b) Provide the information to the 

Commission on request; and

Pursuant to Rule 301, 303, Rule 307 and Rule 401, Trading 

Privilege Holders and Authorized Persons must agree to abide 

by the Rules and consent to the SEF’s jurisdiction when 

accessing the SEF. Trading Privilege Holders and ISVs are 

required to provide notice to the SEF upon the occurrence of 

any of the events set out in Rule 403. Rule 402 requires each 

Trading Privilege Holder to provide the SEF or the Compliance 

Department information related to its business that is subject 

to the Rules, including relating to Swaps executed on or 

processed through the Trading System or in related markets. 

Pursuant to Rule 301, each Trading Privilege Holder, 

Authorized Person and ISV is required to cooperate with a 

SEF investigation by making an appearance and making its 

books and records available to the SEF.

Rules: 211, 301, 303, 307, 401, 402 

and 403. 
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(c) Have the capacity to carry out such 

international information-sharing 

agreements as the Commission 

may require.

In addition, Rule 402 obliges the SEF to keep, or cause to be 

kept, all books and records required to be maintained 

pursuant to the CEA and CFTC Regulations and to make such 

books and records readily accessible for inspection, in each 

case in the form and manner required under the CEA and 

CFTC Regulations.

Under Rule 211, the SEF may enter into agreements or other 

arrangements or procedures to coordinate surveillance with 

domestic or foreign regulators, self-regulatory organizations, 

clearing organizations, exchanges, markets or other execution 

facilities to share information and provide other forms of 

mutual assistance for market surveillance, audits, 

investigations, enforcement actions and other regulatory 

purposes the SEF deems necessary or appropriate for the 

SEF or required by Applicable Law.

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 

Rule 708 sets forth the SEF’s position limit and position 

accountability rules. Pursuant to Rule 708, the SEF may 

adopt position limits for Swaps and grant exemptions from 

position limits, as it may determine to be necessary and 

appropriate, in accordance with CFTC Regulations. The SEF 

may not set its position limit for any Swap that is subject to a 

position limit set by the CFTC at a level higher than the 

CFTC’s limit. Persons with positions in excess of position 

accountability levels established by the SEF will be required to

provide, upon request by the SEF, information about their 

positions in excess of the relevant position accountability 

threshold and consent to halt any further increases in those

positions.

Procedures regarding the establishment or position limits and 

position accountability thresholds, as well as the availability of 

bona fide hedging exemptions and rules relating to 

aggregation.

Pursuant to Rule 209, the SEF may impose or modify trading 

limits or position limits or order the reduction of positions in the 

Rules: 209 and 708.
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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.

event of an Emergency. See also Core Principle 8

(Emergency Authority).

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.

The SEF ensures the financial integrity of Swaps through the 

financial oversight of its Trading Privilege Holders. Rule 308

prohibits a Trading Privilege Holder from accepting an Order 

from another person unless such Trading Privilege Holder is 

properly registered with the CFTC as a futures commission 

merchant or an introducing broker, as applicable. Rule 405

requires Trading Privilege Holder that are registered with a 

Regulatory Authority to comply with the minimum financial and 

financial reporting requirements of the Regulatory Authority. A

Trading Privilege Holder that is not registered with the CFTC

must provide the financial information required by the SEF 

from time to time. In addition, Trading Privilege Holder 

handling customer Orders are subject to specific requirements 

in connection with such Orders that are set out in the Rules, 

including specific Rules prohibiting certain trade practices as 

described in Core Principle 2 (Compliance with Rules).

Rules: 308, 405.

.

Core Principle 8. Emergency 

authority. 

The swap execution facility shall 

adopt rules to provide for the exercise 

The SEF has adopted procedures and guidelines for 

implementing an emergency intervention in the market. 

Pursuant to Rule 209, the Board may implement temporary 

emergency procedures and rules (“Emergency Rules’) subject 

to applicable provisions of the CEA and CFTC Regulations. 

Rules: 208 and 209.
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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.

The Emergency Rules may require or authorize the SEF, the 

Board, any committee of the Board, the Chief Executive

Officer or any other Officer to take actions necessary or 

appropriate to respond to the Emergency, including , but not 

limited to , the following actions (i) suspending or curtailing 

trading or limited trading to liquidation only (in whole or in 

part); (ii) extending, limiting or changing Trading Hours for one

or more Swaps: (iii) ordering the liquidation of Swaps or the 

reduction of positions: (iv) temporarily modifying or 

suspending any provision of the Rules; (v) imposing or 

modifying trading limits, price limits, or position limits; (vi) 

requiring additional margin to be collected from customers; 

(vii) any other action as directed by the CFTC.

Under Rule 209(2), if the Chief Executive Officer (or in his or 

her absence., the Chief Operating Officer) determines that 

Emergency Rules must be implemented before a meeting of 

the Board can reasonably be convened, the Chief Executive

(or Chief Operating Officer) shall have the authority, without 

Board Action, to implement any Emergency Rules that he or 

she deemed necessary or appropriate to respond to such an 

Emergency. Specific procedures relating to Emergencies 

arising from suspicious activities detected on the Trading 

System are provided as needed.

The SEF will promptly notify its Trading Privilege Holders 

whenever the SEF takes actions necessary or appropriate to 

respond to an Emergency. If the Emergency is related to a 

swap that is fungible with financial products traded on another 

platform, the SEF will attempt to coordinate its response with 

any directions received from CFTC or the CFTC staff.

The SEF will use reasonable efforts to notify the CFTC prior to 

implementing, modifying or terminating an Emergency Rule. If 

such prior notification is not possible or practicable, the SEF 

will notify the Commission as soon as reasonably practicable, 

but in all circumstances within 24 hours of the implementation, 

modification or termination of such Emergency Rule.
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Any action take in respect of an Emergency remains subject to 

the conflict of interest requirements set out in Rule 208.

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.

The SEF will publish on its website each day information 

regarding volume, price ranges, open interest and settlement 

prices provided that such prices reflect market conditions 

accurately. The SEF shall also publish on its website on a 

daily basis the total quantity of Block Trades that are included 

in the total volume of trading.

In addition, Rule 903 requires the SEF to transmit Required 

Swap Reporting Data for each Swap executed pursuant to the 

Rules to the appropriate Swap Data Repository in the form 

and manner, and within the timeframe, required by the CEA 

and CFTC Regulations. Rule 513 obliges a Trading Privilege

Holder that becomes aware of an error in any Required Swap 

Creation Data to promptly submit corrected data to the SEF 

and, in the case of a Block Trade, to the counterparty to the 

Block Trade. The SEF may provide such Required Swap 

Reporting Data to Trading Privilege Holders and Authorized 

Persons no earlier than the time it transmits such information 

to a Swap Data Repository and in a form that does not 

disclose the identities, or otherwise facilitate identification, of 

the parties to the Swap.

The SEF provides each counterparty to a Swap with a written 

record of all the terms of the Swap pursuant to Rule 515. The 

SEF also makes information regarding Orders and trades 

available to Trading Privilege Holders as it deems necessary 

or advisable from time to time. See Rule 412.

Rules: 412, 515 and 903.

Core Principle 10. Recordkeeping 

and reporting. 

(a) In general. A swap execution 

facility shall: 

Rule 210 requires the SEF to: (i) keep, or cause to be kept, 

complete and accurate books and records of all activities 

relating to the business of the SEF, including all books and 

records required to be maintained pursuant to the CEA and 

CFTC Regulations, and (ii) retain all such books and records 

for at least five years, making such books and records readily 

accessible for inspection by the Commission and the U.S. 

Rules: 205, 210, 313 and 901.
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(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 five 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 Company 

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.

Department of Justice during the first two years of such fiveyear period. 

Under Rule 313, the SEF may record conversations and retain 

copies of electronic communications between SEF officials 

and Trading Privilege Holders or Authorized Persons. Any 

such copies of electronic communications will be retained by 

the SEF in such manner and for such periods of time as the 

SEF may deem necessary or appropriate. The SEF will retain 

such records in compliance with CFTC regulations.

The SEF also maintains pursuant to Rule 901 full, complete, 

and systematic records, together with all pertinent data and 

memoranda, of all of the SEF’s activities with respect to 

Swaps, including the real-time swap data reporting 

requirements set out in Part 43 of CFTC Regulations as well 

as the swap creation data reporting requirements in Part 45 of 

the CFTC Regulations. 

Under Rule 205, the ROC will oversee all facets of the 

regulatory program, including compliance with recordkeeping 

requirements.

Exhibit S describes the procedures for maintaining trade data 

for transactions on the SEF. In addition, the SEF maintains 

records of Board meetings in accordance with the Limited 

Liability Company Agreement.

Core Principle 11. Antitrust The SEF’s Rules and policies have been designed to avoid 

unreasonable restraints of trade or the imposition of any 
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SEF CORE PRINCIPLES APPLICANT NARRATIVE RELATED RULES/DOCUMENTS

considerations. 

Unless necessary or appropriate to 

achieve the purposes of the 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.

material anticompetitive burden on the SEF. The SEF has not 

adopted any rule or taken any action with the intent or result of 

restraining trade. The SEF will not require Trading Privilege 

Holders to acquire an equity interest in the SEF and access 

will be available to a broad number of Trading Privilege 

Holders.

As set forth in Core Principle 2 (Compliance with Rules), the 

SEF will not restrict access or impose burdens on access in a 

discriminatory manner within each category or class of 

Trading Privilege Holders or between similarly situated 

categories or classes of Trading Privilege Holders. Moreover, 

the SEF will make public daily information related to Swaps 

traded on or processed through the SEF. See Core Principle 

9 (Timely Publication of Trading Information).

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.

Rule 208 provides the SEF’s rules for minimizing and 

resolving conflicts of interest. Under Rule 208(1), no member 

of the Board or any Disciplinary, Review and or Appeal Panel 

will participant in such body’s deliberations on any significant 

action if such member: (i) is named party in interest; (ii) is an 

employer, employee or fellow employee of a named part in 

interest; (iii) has any other significant , ongoing business 

relationship with named party in interest; (iv) has a family 

relationship with a named ;0party in interest; or (v) has a direst 

and substantial financial interest in the result of the vote.

See also Core Principal 2 (Compliance with Rules).

Rule: 208.

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 

The SEF has adequate financial, operational, and managerial 

resources to discharge each of its responsibilities. As 

required by the CFTC Regulations, the SEF will calculate its 

financial resources to ensure that the amount of such 

resources are sufficient (and sufficiently liquid) to cover its 

operations costs for a one-year period, as calculated on a 

rolling basis.

In preparing these financial resources calculations, the SEF 

.
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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.

applies “haircuts: to the market value of certain resources

where appropriate reflect market and credit risk and the ROC 

may require that the value of financial resources be calculated

more often than monthly if the ROC determines that doing so 

is necessary or advisable. The SEF will submit monthly 

reports of it financial resources and calculations to the CFTC.

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 

The SEF has developed 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.

The SEF’s emergency plan and includes a description of the 

back-up systems and emergency procedures that include 

recovery time objectives. Under the emergency plan, the SEF 

has procedures to conduct failover tests twice a year to 

ensure 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.

Rule 408 requires each Trading Privilege Holder to identify an 

employee or agent as its “Responsible Person” for purposes 

of serving as administrator in respect of such Trading Privilege

Holder use of the SEF. In particular, a Responsible Person 

must be able to access and, if required, modify or cancel, any 

and all Orders placed by the relevant Participant or any of its 

Trading Privilege Holders.

In addition, Rule 209 authorizes the SEF to adopt and 

Rules: 209 and 408.
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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.

implement Emergency Rules. See also Core Principle 8 

(Emergency Authority).

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 

The SEF has appointed a CCO and has conferred on the 

CCO all of the obligations and powers specified by the CEA 

and the CFTC Regulations. The authority and resources of 

the CCO to enforce the SEF’s policies and procedures 

designed to achieve compliance with the CEA and CFTC 

Regulations.. In addition, the CCO is responsible for 

supervision of key aspects of the SEF’s self-regulatory 

program. Rule 207 obliges the Board to appoint the CCO, 

who in turn reports to and is supervised by the ROC as 

provided in Rule 205. The CCO’s compensation is set by a 

Rules: 205 and 207.
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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 

section 5h of the Act; and 

(6) Establish procedures for the 

remediation of noncompliance 

issues found during 

compliance office reviews, look 

backs, internal or external 

majority of the Board and the CCO shall meet annually with 

the Board and quarterly with the ROC to provide an overview 

of the compliance and market surveillance programs of the 

SEF.

The CCO is required to:

(i) oversee and review the SEF’s compliance with the 

Core Principles for SEFs set forth in the CEA and Part 37 of 

the CFTC Regulations;

(ii) resolve, in consultation with the Board, the ROC, or 

the CEO (as appropriate), any conflicts of interest that may 

arise, including: 

a. conflicts between business considerations and 

compliance requirements;

b. conflicts between business considerations and the 

requirement that the SEF provide fair, open, and impartial 

access; or

c. conflicts between the SEF’s management and 

members of the Board;

(iv) establish and administer written policies and 

procedures reasonably designed to prevent violations of the 

CEA and CFTC Regulations, including without limitation Part 

37 of such Regulations;

(v) take reasonable steps to ensure compliance with the 

CEA and CFTC Regulations; 

(vi) establish and follow appropriate procedures for the 

handling, management response, remediation, retesting, and 

closing of noncompliance issues identified through compliance 

office reviews, look-backs, internal or external audit findings, 

self-reported errors or validated complaints; 

(vii) supervise the SEF’s self-regulatory program 

administered by the Compliance Department with respect to 

trade practice surveillance, market surveillance, real-time 
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audit findings, self-reported 

errors, or through validated 

complaints.

(c) Requirements for procedures. 

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 

market monitoring, compliance with audit trail requirements, 

enforcement and disciplinary proceedings, audits, 

examinations, and other regulatory responsibilities with 

respect to members and market participants in accordance 

with CFTC Regulations; and

(ix) prepare the SEF’s Annual Compliance Report.

The annual report must contain: (i) a summary description of 

the SEF’s written policies and procedures, including the SEF’s 

Code of Business Conduct and Ethics and conflict of interest 

policies; (ii) a list of any material changes to the SEF’s 

compliance policies and procedures; (iii) a compliance chart 

containing a description of the SEF’s compliance policies and 

procedures, an assessment of the effectiveness of these 

policies and procedures and a summary of areas for 

improvement; (iv) a description of the SEF’s compliance 

resources; and (v) a discussion of material non-compliance 

matters arising in the previous year. The CCO must certify 

that, to the best of his or her knowledge and reasonable belief, 

and under penalty of perjury, the report is accurate and 

complete.

The CCO’s annual compliance report will be provided to the 

Board prior to submission to the CFTC. The Board does not 

have the authority to compel the CCO to make any changes to 

the contents of the Report. The compliance report must be 

submitted to the CFTC not later than 60 days after the end of 

the SEF’s fiscal year. The CCO must file an amendment to 

correct any material error or omission.
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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.