U.S. COMMODITY FUTURES TRADING COMMISSION 

Three Lafayette Centre 

Division of Market Oversight 

1155 21st Street, NW, Washington, DC 20581 

Telephone: (202) 418-5000 

Facsimile: (202) 418-5521 

www.cftc.gov 

November 15, 2013 

To: All CFTC Registered Swap Execution Facilities and Applicants for Registration as a Swap 

Execution Facility 

Division of Market Oversight Guidance on Application of Certain Commission Regulations 

to Swap Execution Facilities 

The Division of Market Oversight ("Division") of the Commodity Futures Trading 

Commission ("Commission") is issuing guidance ("Guidance") to swap execution facilities 

("SEFs") and applicants for registration as a SEF concerning cetiain Commission regulations. 1 

There are six areas addressed by this Guidance, which include: registration requirements under 

Commission regulation 37.3; consent to the jurisdiction of a SEF; a SEF's use of proprietary data 

or personal information collected by the SEF from its market participants;2 and member 

guarantees. 3 In addition, although the Division addressed the types of actions a SEF may take 

during an emergency in its September 30 Guidance, this Guidance once again reiterates the 

requirements for taking emergency actions.4 Finally, this Guidance clarifies cetiain SEF 

reporting obligations. 

1. Registration Requirement under Commission Regulation 3 7.3 

Section 5h(a)(l) of the Commodity Exchange Act ("CEA") provides that no person may 

operate a facility for the trading or processing of swaps unless the facility is registered as a SEF 

or designated contract market ("DCM").5 Commission regulation 37.3(a)(l) requires the 

registration as a SEF or DCM of any person operating a facility that offers a trading system or 

, platform on which more than one market patiicipant has the ability to execute or trade swaps 

1 See "Division of Market Oversight Guidance on Application of Cetiain Commission Regulations to Swap 

Execution Facilities" (Sep. 30, 2013) [hereinafter "September 30 Guidance"]. 2 Market pmiicipant means a person that directly or indirectly effects transactions on a SEF. This includes persons 

with trading privileges on the SEF and persons whose trades are intermediated. See "Core Principles and Other 

Requirements for Swap Execution Facilities," 78 Fed. Reg. 33,476 at 33,506 (June 4, 2013). 3 Member means an individual, association, partnership, corporation, or trust (i) owning or holding membership in, 

or admitted to membership representation on, a SEF; or (ii) having trading privileges on a SEF. See Commission 

regulation 1.3(q); 17 C.F.R. 1.3(q). 4 See September 30 Guidance at 3. 

5 A foreign board of trade ("FBOT") registered with the Commission pursuant to CEA Section 4(b )(1) and Part 48 

of the Commission's regulations satisfies this requirement. See, e.g., "Interpretive Guidance and Policy Statement 

Regarding Compliance with Certain Swap Regulations," 78 Fed. Reg. 45291,45352 (July 26, 2013) (noting that a 

"registered FBOT is analogous to a DCM and is subject to comprehensive supervision and regulation in its home 

country that is comparable to that exercised over a DCM by the Commission."). 
Division of Market Oversight Guidance 

Page 2 

with more than one other market participant on the system or platform (a "multilateral swaps 

trading platform").6 

In the context ofCEA Section 5h(a)(l) and Commission regulation 37.3(a)(l), the 

Division expects that a multilateral swaps trading platform that is itself a U.S. person or is 

located or operating in the United States will register as a SEF or DCM. The Division believes 

that, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the 

Commission has a strong supervisory interest in multilateral swaps trading activities that occur 

within the United States, regardless ofthe status of persons trading or executing swaps on the 

platform. 

CEA section 2(i) provides that the swap provisions of the CEA, including any rules or 

regulations thereto, shall not apply to activities outside the United States unless those activities 

"have a direct and significant connection with activities in, or effect on, commerce o(the United 

States."7 Accordingly, the SEF/DCM registration requirement of CEA section 5h( a)(l) and 

Commission regulation 37.3(a)(l) may apply to a multilateral swaps trading platform that is 

located outside the United States where the trading or executing of swaps on or through the 

platform creates a "direct and significant" connection to activities in, or effect on, commerce of 

the United States. 

The Division expects that a multilateral swaps trading platform located outside the United 

States that provides U.S. persons or persons located in the U.S. (including personnel and agents 

of non-U.S. persons located in the United States) ("U.S.-located persons") with the ability to 

trade or execute swaps on or pursuant to the rules of the platform, either directly or indirectly 

through an intermediary, will register as a SEF or DCM.8 The Division believes that U.S. 

persons and U.S.-located persons generally comprise those persons whose activities have the 

requisite "direct and significant" connection with activities in, or effect on, commerce of the 

United States within the meaning of CEA section 2(i). The Division further believes that a 

multilateral swaps trading platform's provision of the ability to trade or execute swaps on or 

through the platform to U.S. persons or U.S.-located persons may create the requisite, connection 

under CEA section 2(i) for purposes of the SEF/DCM registration requirement.9 

6 See Commission regulation 37.3(a)(l); 17 C.F.R. 37. 3(a)(l). 7 7 u.s.c. § 2(i) 8 In the Division's view, factors that would be relevant in evaluating the SEF/DCM registration requirement of CEA 

Section 5h(a)(1) and Commission regulation 37.3(a)(l) as they apply to multilateral swaps trading platforms located 

outside the United States, would generally include, but not be limited to: (1) whether a multilateral swaps trading 

platform directly solicits or markets its services to U.S. persons or U.S.-located persons; or (2) whether a significant 

portion of the market participants that a multilateral swaps trading platform permits to effect transactions are U.S. 

persons or U.S.-located persons. Market pmticipant means a person that directly or indirectly effects transactions on 

a SEF. This includes persons with trading privileges on the SEF and persons whose trades are intermediated. See 

"Core Principles and Other Requirements for Swap Execution Facilities," 78 Fed. Reg. 33476, 33506 (June 4, 

2013). 

9 See Note 8, supra. 
Division of Market Oversight Guidance 

Page 3 

The Division notes that foreign-based platforms already registered with their horne 

country may register as a SEF or DCM. The Division expects to work with such platforms that 

apply for registration and with horne country regulators to determine whether alternative 

compliance arrangements are appropriate, in recognition of comparable and comprehensive 

horne country regulation. 

The Division reminds swaps market pmiicipants, temporarily registered SEFs and SEF 

applicants of the CEA section 2(h)(8) trade execution requirement which requires a swap 

transaction subject to the clearing requirement to be executed 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 CEA section 2(h)(7) (the end-user exception). 10 

The Division urges SEF applicants, temporarily registered SEFs and other multilateral 

swaps trading platforms to closely assess their operations in light of the SEF/DCM registration 

requirements of Commission regulation 37.3(a)(l). The Division continues to assess the manner 

in which temporarily registered SEFs and other multilateral swaps platforms, whether associated 

with temporarily registered SEFs or not, offer trading or execution services to variously situated 

persons. 

2. Consent to SEF Jurisdiction 

The Division understands that cetiain clearing members are not consenting to the 

jurisdiction of the SEF. Commission regulation 37.700 requires that SEFs "establish and enforce 

rules and procedures for ensuring the financial integrity of swaps entered on or through the 

facilities of the [SEF], including the clearance and settlement of the swaps pursuant to section 

2(h)(l) of the Act." 11 To that end, the Division expects a clearing member that guarantees swaps 

intended to be cleared on a SEF to consent to the jurisdiction of the SEF. 

3. Conditioning Access on Consent to Use Proprietary Data or Personal Information 

The Division has learned that some SEF participation agreements or rulebooks contain a 

requirement that in order to access the SEF, an eligible contract patiicipant ("ECP") must 

consent to the SEF using data it collects from the ECP, including market data, propriety data, and 

personal data, for business or marketing purposes. These provisions are inconsistent with 

Commission regulation 37.7, which states that a SEF "shall not use for business or marketing 

purposes any proprietary data or personal information it collects or receives, from or on behalf of 

10 See also Division of Swap Dealer and Intermediary Oversight Advisory "Applicability of Transaction-Level 

Requirements to Activity in the United States," CFTC Letter No. 13-69 (Nov. 14, 2013) ("DSIO believes the 

Commission intended substituted compliance to be available, or Transaction-Level Requirements to not apply, 

where the activities of the non-U.S. SD take place outside the United States. In this regard, DSIO believes that, 

pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Commission has a strong 

supervisory interest in swap dealing activities that occur within the United States, regardless of the status of the 

counterparties. "). 11 Commission regulation 37.700; 17 C.F.R. 37.700 (emphasis added). 
Division of Market Oversight Guidance 

Page4 

any person, for the purpose of fulfilling its regulatory obligations" unless the SEF receives 

consent to use such data."12 Further, a "[SEF] shall not condition access to its market(s) or 

market services on a person's consent to the swap execution facility's use of proprietary data or 

personal information for business or marketing purposes." 13 These provisions inappropriately 

condition access to the SEF based upon consent to use data or information provided to the SEF. 

4. Member Guarantees 

The Division has received questions as to whether a SEF may require a member to 

guarantee trades executed by the member for its own account or for the account of other market 

participants. With respect to cleared trades, the Division notes that a guarantee from a clearing 

member is required to satisfy Commission regulation 37.700. An additional guarantee from a 

member is not required. 

5. Emergency Actions 

The Division notes that Commission regulation 37.800 requires a SEF to adopt rules that 

may be exercised in an emergency "in consultation or cooperation with the Commission, as is 

necessary and appropriate .... " 14 Emergency is defined in Commission regulation 40.l(h). 15 The 

Division notes that some SEFs are assuming greater discretion to take action by defining 

emergency situations more broadly. For example, some SEFs reserve the right to suspend 

trading privileges under their emergency authority if, in their sole discretion, such action is in 

the best interest of the SEF. As stated in the September 30 Guidance, 16 "such emergency action 

must be carried out pursuant to Core Principle 8 and pati 40 of the Commission's regulations."17 

Accordingly, the definition of"emergency" set fmih in a SEF's rulebook must be consistent 

with, and not broader than, the Commission's definition. 

6. SEF Reporting Obligations 

The Division emphasizes that SEFs have reporting obligations under Ratis 43 and 45 for 

all assets classes, subject to any tit~e-limited relief provided by the Division. 8 Further, when a 

SEF repmis swap data, it must report the legal entity identifier ("LEI") of the SEF in the required 

"execution venue" field. 

12 See Commission regulation 37.7; 17 C.F.R. 37.7. 13 Jd. 14 Commission regulation 37.800; 17 C.F.R. 37.800. 15 Commission regulation 40.1; 17 C.F.R. 40.1. 16 See September 30 Guidance at 2-3. 

17 Jd. at 3. 

18 See "Extension ofCetiain Time-Limited No-Action Relief Regarding Swap Execution Facilities Provided by 

CFTC No-Action Letter Nos. 13-55 (amended), 13-56 and 13-58 for Swaps in the Foreign Exchange Asset Class," 

CFTC Letter No. 13-68 (Nov. 1, 2013). 
Division of Market Oversight Guidance 

Page 5 

Finally, the Division reminds SEFs that they may make changes to their rulebooks at any 

time, pursuant to either the certification or approval procedures set forth in part 40 of the 

Commission's regulations, provided that such rule changes are not inconsistent with the Act or 

the Commission's regulations. 

This Guidance supersedes any previous guidance issued by the Division on these topics 

to the extent that it is inconsistent with such guidance. This Guidance, and the positions taken 

herein, represent the views of the Division only, and do not necessarily represent the views of the 

Commission or of any other office or division of the Commission. If you have any questions 

concerning this Guidance, please contact Nancy Markowitz, Deputy Director, Division of 

Market Oversight, at (202) 418-5453 or nrnarkowitz@cftc.gov, Jonathan Lave, Associate 

Director, Division of Market Oversight, at (202) 418-5983, ilave@cftc.gov, or Nhan Nguyen, 

Special Counsel, Division ofMarket Oversight, at (202) 418-5932 or nnguyen@cftc.gov. 

Sincerely, 

Director 

Division of Market Ove