From: Berger, Stephen 

Sent: Wed, 16 Sep 2020 16:06:30 +DODO 

To: Thornton, Charlie 

Cc: Brown, Karen 

Subject: [EXTERNAL] RE: Conversation w/ Citadel Regarding US Treasury/ Treasury 

Futures Market Activity & Functioning in March 2020 

Thank you. We can absolutely keep it to 30 minutes. 

Stephen Berger 

Mobile: (203) 807-6249 

E-mail: stephen.berger@citadel.com 

From: Thornton, Charlie <cthornton@CFTC.gov> 

Sent: Wednesday, September 16, 2020 12:05 PM 

To: Berger, Stephen <Stephen.Berger@citadel.com> 

Cc: Brown, Karen <KBrown@CFTC.gov> 

Subject: [EXTERNAL] Re: Conversation w/ Citadel Regarding US Treasury /Treasury Futures Market 

Activity & Functioning in March 2020 

CAUTION: This email is from an external sender. 

Copying Karen to find some time next \Veek. Do you think 30 minutes is possible? He has a 

very packed schedule. If not, we can try an hour, possibly. 

On: 16 September 2020 10:59, 

"Berger, Stephen" <Stcpl1cn.fkrgcn_11;citadcl.c01n> \\Tote: 

Charlie, 

Conditions in the US Treasury & Treasury futures markets, particularly in March of this year, has been 

the subject of considerable discussion over the past 6 months. We would be interested in sharing our 

analysis of and perspectives on market activity, both in March of this year and beyond, with the 

Chairman. 

I would be joined by my colleague Edwin Lin, Citadel's Head of Global Fixed Income 

{ https://www.citadel.com/leadership/edwin-li n/). 

I appreciate it's a busy week, but perhaps we could find some time to connect on this front next week? 

Kind regards, 

Stephen Berger 
Managing Director, Global Head of Government & Regulatory Policy 

Citadel LLC 

Office: (646) 403-8235 

Mobile: (203) 807-6249 

stephen. berger@citadel.com 
From: Berger, Stephen 

Sent: Mon, 28 Sep 2020 17:07:17 +ODDO 

To: Brown, Karen 

Cc: Lin, Edwin 

Subject: [EXTERNAL] RE: RE: RE: RE: RE: RE: Conversation w/ Citadel Regarding US 

Treasury/ Treasury Futures Market Activity & Functioning in March 2020 

Attachments: US Treasury Markets in March 2020 v2.pdf 

Hi Karen, 

We are looking forward to our discussion w/ Chairman Tarbert today at 1:45pm. 

To facilitate the discussion, we have prepared the attached presentation. Could you help us get these 

materials to the Chairman before the call? 

We also kindly ask that this presentation be treated as confidential and otherwise not be redistributed. 

Kind regards, 

Stephen Berger 

Mobile: (203) 807-6249 

E-mail: stephen.berger@citadel.com 

From: Brown, Karen <KBrown@CFTC.gov> 

Sent: Tuesday, September 22, 2020 12:29 PM 

To: Berger, Stephen <Stephen.Berger@citadel.com> 

Subject: [EXTERNAL] RE: RE: RE: RE: RE: RE: Conversation w/ Citadel Regarding US Treasury/ Treasury 

Futures Market Activity & Functioning in March 2020 

CAUTION: This email is from an external sender. 

Thank yon so mnch! 

Karen 

From: Berger, Stephen [mailto:Stephen.Berqer@citadel.com] 

Sent: Tuesday, September 22, 2020 12:28 PM 

To: Brown, Karen 

Subject: [EXTERNAL] RE: RE: RE: RE: RE: Conversation w/ Citadel Regarding US Treasury/ Treasury 

Futures Market Activity & Functioning in March 2020 

Thanks, 1:45pm it is. Updated dial-in info is: 

rb)(7)(E) 
(b)(7)(E) 

Stephen Berger 

Mobile: (203) 807-6249 

E-mail: stephen.berger@citadel.com 

From: Brown, Karen <KBrown@CFTC.gov> 

Sent: Tuesday, September 22, 2020 12:10 PM 

To: Berger, Stephen <Stephen.Berger@citadel.com> 

Subject: [EXTERNAL] RE: RE: RE: RE: RE: Conversation w/ Citadel Regarding US Treasury/ Treasury 

Futures Market Activity & Functioning in March 2020 

CAUTION: This email is from an external sender. 

Dear Stephen, 

Please tweak the time to 1:45 p.m. and confinn if using same dial-in. 
Thank you so much. 

Karen 

Karen Brown 

Executive Assistant, Office of Chairman Tarbert 

Commodity Futures Trading Commission * * * * * * * * .1111 

CFTC

202-418-5880 

kbrown@cftc.gov 

oooo 

From: Brown, Karen 

Sent: Tuesday, September 22, 2020 11:08 AM 

To: 'Berger, Stephen' 

Cc: Thornton, Charlie 

Subject: RE: [EXTERNAL] RE: RE: RE: RE: Conversation w/ Citadel Regarding US Treasury/ Treasury 

Futures Market Activity & Functioning in March 2020 

Dear Stephen, 

This is great news! Should I use the same dial-in? 

Kindest regards, 

Karen 

Karen Brown 

Executive Assistant, Office of Chairman Tarbert 

Commodity Futures Trading Commission * * * * * * * * .1111 

CFTC

202-418-5880 

kbrown@cftc.gov 

0000 
From: Berger, Stephen [mailto:Stephen.Berqer(CUcitadel.com] 

Sent: Tuesday, September 22, 2020 11:07 AM 

To: Brown, Karen 

Cc: Thornton, Charlie 

Subject: [EXTERNAL] RE: RE: RE: RE: Conversation w/ Citadel Regarding US Treasury/ Treasury 

Futures Market Activity & Functioning in March 2020 

Hi Karen, 

Let's do Monday at 1:30pm. Thanks again! 

Stephen Berger 

Mobile: (203) 807-6249 

E-mail: stephen.berger@cit;:idel.com 

From: Brown, Karen <KBrown@CFTC.gov> 

Sent: Tuesday, September 22, 2020 9:43 AM 

To: Berger, Stephen <Stephen.Berger@citadel.com> 

Cc: Thornton, Charlie <cthornton@CFTC.gov> 

Subject: [EXTERNAL] RE: RE: RE: RE: Conversation w/ Citadel Regarding US Treasury/ Treasury Futures 

Market Activity & Functioning in March 2020 

CAUTION: This email is from an external sender. 

Dear Stephen, 

Chairman's schednlc is extremely bnsy this week. Would next Monday, 

September 28 at 1:30 p.m., 7:30 p.m., 8:00 p.m. or 8:30 p.m. ET be available for 

this call0 

I look forward to your reply. 

Kindest regards, 

Karen 
Karen Brown 

Executive Assistant, Office of Chairman Tarbert 

Commodity Futures Trading Commission * * * * 

* 

* * * .1111 

CFTC

202-418-5880 

kbrown@cftc.gov 

oooo 

From: Brown, Karen 

Sent: Tuesday, September 22, 2020 8:22 AM 

To: 'Berger, Stephen' 

Cc: Thornton, Charlie 

Subject: RE: [EXTERNAL] RE: RE: RE: Conversation w/ Citadel Regarding US Treasury/ Treasury 

Futures Market Activity & Functioning in March 2020 

Dear Stephen, 

We need to postpone the 10:00 a.m. call today. I'll be back asap with other 

availability for this week. 

Many thanks, 

Karen 

From: Berger, Stephen [mailto:Stephen.Berger@citadel.com] 

Sent: Friday, September 18, 2020 3:38 PM 

To: Brown, Karen 

Subject: [EXTERNAL] RE: RE: RE: Conversation w/ Citadel Regarding US Treasury/ Treasury Futures 

Market Activity & Functioning in March 2020 

Here is the dial-in information (and note that meeting Password will need to be entered separately after 

the meeting ID} 

(b)(7)(E) 
b)(7)(E) 

From: Brown, Karen <KBrown@CFTC.gov> 

Sent: Friday, September 18, 2020 4:51 AM 

To: Berger, Stephen <Stephen.Berger@citadel.com> 

Subject: [EXTERNAL] RE: RE: RE: Conversation w/ Citadel Regarding US Treasury/ Treasury Futures 

Market Activity & Functioning in March 2020 

CAUTION: This email is from an external sender. 

Excellent. Please provide a dial-in number. 

Kindest regards, 

Karen 

Karen Brown 

Executive Assistant, Office of Chairman Tarbert 

Commodity Futures Trading Commission * * * * * * * * .1111 

CFTC

202-418-5880 

kbrown@cftc.gov 

oooo 
From: Berger, Stephen [mailto:Stephen.Berqer@citadel.com] 

Sent: Thursday, September 17, 2020 5:23 PM 

To: Brown, Karen; Thornton, Charlie 

Subject: [EXTERNAL] RE: RE: Conversation w/ Citadel Regarding US Treasury/ Treasury Futures Market 

Activity & Functioning in March 2020 

Karen, 

Thank you, yes, Tuesday, September 22@ 10:15am Eastern would work well for us. 

Kind regards, 

Stephen Berger 

Mobile: (203) 807-6249 

E-mail: stephen.berger@citadel.com 

From: Brown, Karen <KBrown@CFTC.gov> 

Sent: Wednesday, September 16, 2020 12:44 PM 

To: Berger, Stephen <Stephen.Berger@citadel.com>; Thornton, Charlie <cthornton@CFTC.gov> 

Subject: [EXTERNAL] RE: RE: Conversation w/ Citadel Regarding US Treasury/ Treasury Futures Market 

Activity & Functioning in March 2020 

CAUTION: This email is from an external sender. 

Dear Mr. Berger, 

Chairman Tarbert is enrrently open during the following: 

Monday, September 21 @ 4:30 p.m. ET 

Tuesday, September 22@ 10:15 a.m. ET 

Would either work for this call0 If yes, please provide a dial-in number and I'll 

add it to the calendar. 

Kindest regards, 

Karen 
Karen Brown Office of Cha1rm . an Tarbert 

Executive Assistant,Trading Commission 

Commo d·ty • Futures 

202-418-5880 .1111 kbrown@cftc.gov 

CFTC 0000 

Duplicate 
From: Berger, Stephen 

Sent: Wed, 19 Feb 2020 03:10:20 +DODO 

To: Tarbert, Heath (Chairman);Thornton, Charlie 

Cc: Platt, Jonah 

Subject: [EXTERNAL] Dissemination Delays for Block Trades 

Attachments: TRACE Pilot Proposal Feedback.pdf, MiFID II Review - Fixing the Non-Equities 

Post-Trade Transparency Regime.pdf 

Dear Chairman Tarbert, 

We understand that, in connection with the proposed amendments to real-time public reporting 

requirements to be considered this week, the Commission may be considering extending the 

dissemination delay for block trades from 15 minutes to 48 hours. 

We therefore would like to share with you, first, a summary of our concerns with extending the 

dissemination delay for block trades, and second, an analysis of the shortcomings of the current 

European public reporting regime (which we understand may be cited as a justification for weakening 

the strong existing US regime that is in place today) . 

1. Concerns with extending the dissemination delay for block trades 

We wanted to be sure you were aware of a similar proposal put forward by FINRA last year as a pilot 

program for corporate bond block trades. This proposal to extend the dissemination delay from 15 

minutes to 48 hours was overwhelmingly opposed by a diverse set of market participants, prompting 

FINRA to reportedly abandon the proposal. For further color, please see: 

• The attached slides summarizing the comment letters submitted; 

• Bloomberg article "Delayed Disclosure of Biggest Corporate Bond Trades Stalls" 

(https://www.bloombergquint.com/politics/a-48-hour-delay-for-bond-trades-stalls-after-wallstreet-balks); and 

• Bloomberg article "Wall Street's Bond Transparency Letters Are Revealing" 

(https://www.bloomberg.com/opinion/articles/2020-01-22/wall-street-s-bond-transparency-lettersare-revea I ing). 

This opposition was largely due to a general recognition among all different types of investors that 

meaningful post-trade transparency improves liquidity conditions and reduces transaction costs. In 

contrast, allowing a 48-hour delay for a significant percentage of overall trading activity would create 

new information asymmetries that reduce price competition and largely benefit the dealer community. 

We agree with this point of view and believe it equally applies to the swaps market. Research has 

shown that: 

• The introduction of real-time public reporting in the swaps market has led to meaningful benefits for 

investors, facilitating more accurate assessments of execution quality while addressing information 
leakage concerns by capping reported notionals 

(http :I/pa pers.ss rn .com/so 13/papers .cfm ?abstract id=2443654); and 

• Swap block trades account for more than 40% of total trading activity 

(https:1/www .clarusft.com/bl ocktra d ing/?utm source=rss&utm medium=rss&utm campaign=block-trading) 

Delaying critical pricing data regarding such an important segment of the market would severely 

undermine the Commission's post-trade transparency regime. In our view, extending the current lS 

minute delay is particularly inappropriate for cleared swaps given their liquidity characteristics. 

2. Shortcomings in current European public reporting regime (and accompanying recommendations) 

Please see the attached note, which illustrates, among others, that very few swaps transactions in 

Europe are currently subject to public reporting requirements, and of those that are, only a small 

minority are actually reported in real-time. The European public reporting regime should therefore not 

be cited as a justification for weakening the strong existing US regime that is in place today. 

We would welcome the opportunity to discuss our perspectives further or answer any questions you 

may have. 

Kind regards, 

Stephen John Berger 

Managing Director, Global Head of Government & Regulatory Policy 

Citadel LLC 

Office: (646) 403-8235 

Mobile: (203) 807-6249 

stephen. berger@citadel.com 
Market Feedback 

• In the US, FINRA recently consulted on a proposal to delay the public reporting of block trades in the 

corporate market by 48 hours (vs, 15 minutes currently), 

• A broad and diverse coalition opposed this proposed reduction in market transparency - validating 

the fact that post-trade transparency benefits a wide array of market participants, 

-

Academics 

Asset Managers 

Dealer B1:1nks 

Fintech 

Municlpalltles / 

Pensions 

Electronic Trading 

Firms/ Non-Bank 

Market Makers 

Trade Associations 

Trading Venues 

OppaN(ZS) 

• Haoxiang Zhu (MIT) 

• Lirry Harris (USC) 

• Jim Ant(el (Georgetown) 

• AQR 

• Citadel 

• Dimensional Fund Advisors 

• BondWave 

• lily Of Ontario 

• San Bernardino County 

Government 

• Descartes Trading 

• L-1rw ~lrPPI 

• SumRidge Partners 

• Bond OP.Jl<"rs of AmPrira 

• CFA Institute 

• FIA Principal Traders Group 

• Chester Spatt and llurton I lollifield 

(Carnegie Mellon) and Artem 

Neklyudov (University ot 

Lausanne) 

• Federated Investors 

• T.RowePrice 

• Vanguard 

• BondCliQ 

• The Pension Boards United Church 

Df rluisl 

• Millennium Advisors 

• Flow Tr .adPrs 

• HPalthy Markpt,; A,,oriatior1 

• Managed Funds Association 

• Support but recommend significant revisions to pilot design 

Consultation and comments available at: https://www.finra.org/rules-quidance/notices/19-12 

!:!!:! CllAUEL 

s .. par1:(&) 

• BlackRock' 

• PIMCO 

• Wellington 

• frPdit Suisse• 

<;IFMA~ • 

• MarkPtAxp,;,;• 
Market Feedback 

THE WALL STREET JOURNAL. 

Bond Fight Pits Main Street Against Wall Street - c-t ,t -:1· :1 ·1 -1 :- - • .:.r :I ,:1.1· .:.r '. .- ·:_1 

I -I '-I 11 

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County Government 

Th• P•nsion Citadel Federated Boards United 

Churcho"Chriot Investors •I I I S48'i t,I 1cn 

,,..,,,". Group 

':,107t,lcn 

~ Vanguard Group 

~S 2 tr, ICI" \ ,,1~ 

5575 b 11,vn 

CityolOntario 

Governm,nt Descartes AOR Capital Jane :tree! Capital 

SurnR1dge 

Partner: 

Trading Management 

" 

From hllp< I /www ws1 corn/ ar l1cles/bor1J-f1ghl-p1ts-ma1 n-< treet-agai nsl -wall-street -1156 1633200 

!:!!:! CllAUEL 
FIXING THE MIFID II POST-TRADE TRANSPARENCY REGIME FOR NON-EQUITIES 

Issue Summary 

• MiFID II was specifically intended to bring much needed post-trade transparency to the nonequities markets, including OTC derivatives. Post-trade transparency improves investor 

confidence by facilitating accurate assessments of execution quality and best execution and 

strengthens EU financial markets (consistent with CMU) by reducing fragmentation. 

• However, the Mi Fl D 11 post-trade transparency framework is not functioning as intended and has 

yet to deliver any concrete benefits to market participants. Indeed, one NCA has already 

concluded that MiFID II has actually reduced transparency for non-equity instruments. 1 

• The inadequacy of the current post-trade transparency framework is due to three key reasons: 

1. Very few off-venue transactions {such as those executed by Systematic Internalisers) are 

subject to post-trade transparency requirements. This is because post-trade transparency 

only applies to OTC derivatives that are considered to be "traded on a trading venue" (To TV) 

and ESMA has interpreted this phrase in an extremely granular manner. 2 

o Only ~2% of the ISINs created for OTC derivatives transactions have been reported to 

the ESMA FIRDS Transparency System. 3 

o A separate analysis found that only ~s% of off-venue trading activity in OTC derivatives 

is currently subject to post-trade transparency requirements. 4 

2. Almost all on-venue transactions are being granted four-week deferrals from post-trade 

transparency requirements. This is primarily due to (a) inaccurate liquidity assessments by 

ESMA and (b) extremely low thresholds for large trade deferrals. 

o Analysis has found that ~go% of on-venue trading activity in OTC derivatives is being 

granted a four-week deferral. 4 

3. Trading venues and APAs are not publishing post-trade transparency data free of charge 

after 1S minutes, as is required. ESMA has issued guidance to further clarify the requirement 

for transparency data to be published in machine-readable format free of charge, but trading 

venues and APAs continue not to comply with this requirement. 

Minimal OTC Derivatives Data Is Available Under MiFID II 

Not Reported 4-week delayed 

¥" 1~,s%) ¥' 1~,0%) 

¥"' Real-time (~10%) t' Reported (~5%) 

1 See "New rules led to reduced transparency on the Swedish bond markets" Finansinspektionen, available at: 

https:((www.fi.se/en/published/reports/supervision-reports/2019/fi-supervision-15-decreased-transparency-in-bondtrading/. 

2 https://www.esma.europa.eu/sites/default/files/library/esma 70-156-117 mi fir opinion on totv .pdf. 3 htt ps ://www .an na-d sb.com/2018/05 /04/fi rds-d ata -a n a lys is-for -a p ri I-2018/. 4 h tt ps ://www. cl a rusft. com/what-we-need-to-do-to-fix -m ifi d-i i-d ata/. 

Page 1 of 2 
FIXING THE MIFID II POST-TRADE TRANSPARENCY REGIME FOR NON-EQUITIES 

Recommended Level 1 Revisions 

1. Remove the ToTV concept for post-trade regulatory and public reporting. 

• This will ensure all OTC derivatives transactions are subject to post-trade transaction 

reporting requirements, providing regulators and market participants with a comprehensive 

view into overall trading activity. 

• Making this legislative change is consistent with the US regulatory framework, where all OTC 

derivatives are subject to post-trade regulatory and public reporting. 

2. More appropriately calibrate the deferrals from post-trade transparency requirements. 

• Reduce the length of the deferral period. The maximum deferral period should be shortened 

from 4 weeks. 

• Reduce the number of deferrals. The transparency regime should be streamlined by 

establishing one clear size-based deferral from post-trade transparency requirements, 

instead of the multiple deferrals that currently exist. 

• Add qualitative criteria. OTC derivatives that are determined to be sufficiently liquid for the 

EMIR clearing obligation should always be considered liquid for post-trade transparency. 

• Cap the reported notional of large-size trades. In connection with reducing the length of the 

deferral, large trades should be reported at the relevant size threshold instead of reporting 

the actual trade size. This will help prevent information leakage. 

• Recalibrate liquidity thresholds. The current liquidity criteria, including average daily notional 

amount and average daily trade thresholds, should be recalibrated using current market data 

and tailored to reflect differences in trading volumes across asset classes. In addition, any 

changes in overall trading activity due to Brexit should be reflected. 

• Making these legislative changes is consistent with the US regulatory framework, where one 

standard deferral period of 15 minutes applies to a small number of transactions. 

3. Eliminate the ability of trading venues and APAs to charge for regulatory-required post-trade 

transparency data. 

• The current ability to charge for real-time data incentivizes trading venues and APAs to 

decrease the quality of the free delayed data in order to compel market participants to 

subscribe to expensive real-time data packages. 

• Trading venues and APAs would still be permitted to charge for supplementary data and 

analytics that are not required to be provided to market participants pursuant to the 

regulatory framework. 

• This change is necessary in order to facilitate the development of a consolidated tape for nonequities in the EU, which will reduce fragmentation and strengthen EU financial markets. 

Making this legislative change is also consistent with the US regulatory framework, where 

real-time post-trade OTC derivatives data is required to be published free of charge. 

Page 2 of 2 
From: Berger, Stephen 

Sent: Tue, 21 Apr 2020 21:14:30 +DODO 

To: Tarbert, Heath (Chairman) 

Cc: Klima, Jaime;Thornton, Charlie;Platt, Jonah 

Subject: [EXTERNAL] Second Citadel Comment Letter on Post-Trade Name Give Up 

Attachments: Citadel Response Letter on Post-Trade Name Give-up.pdf 

Dear Chairman Tarbert, 

I hope you are well. 

Please find attached a second comment letter from Citadel in support of the Commission's post-trade 

name give up proposal. 

We believe that the incumbent dealer banks have advanced a range of spurious arguments in the 

comment file, and submit this letter to rebut them in detail and set the record straight. Swap market 

customers have uniformly supported the elimination of name give-up for anonymously-executed 

cleared swaps, and we urge the Commission to move forward with a final rule. 

As always, we would welcome the opportunity to discuss this proposal further and answer any questions 

you may have. 

Thank you for your leadership. 

Kind regards, 

Stephen Berger 

Managing Director, Global Head of Government & Regulatory Policy 

Citadel LLC 

Office: (646) 403-8235 

Mobile: (203) 807-6249 

stephen.berger@citadel.com 
= CIT1\DEL 

April 21, 2020 

Mr. Christopher J. Kirkpatrick 

Secretary 

Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 21st Street NW 

Washington, DC 20581 

Re: Post-Trade Name Give-Up on Swap Execution Facilities (RIN 3038-AE79) 

We appreciate the opportunity to respond to certain comment letters (the '·Bank Letters") 1 

submitted to the Commodity Futures Trading Commission (the '·Commission") opposing the 

proposal to prohibit post-trade name give-up ("name give-up") for swaps that are executed 

anonymously on swap execution facilities ("SEFs") and intended to be cleared (the "Proposal"). 2 

These letters are submitted by, or on behalf of, the incumbent dealer banks and advance a 

number of spurious arguments that are designed to obscure two key realities: ( l) there is enormous 

support among market participants (other than the incumbent dealer banks) for eliminating name 

give-up for anonymously-executed cleared swaps, and (2) the incumbent dealer banks 

commercially benefit from preserving the status quo, since name give-up serves to limit access to 

the interdealer broker SEFs ("IDB SEFs") to only s\vap dealers. 

Below, we detail why the arguments advanced in the Bank Letters lack merit. 

Letters from the Financial Services Forum ("FSF"), J.P. Morgan ("JPM"), Citibank. NA ("Citi"), ICAP Global 

Derivatives Limited and tpSEF. Inc. ("TP ICAP''), the Securities Industry and Financial Markets Association 

("SJFMA"), the Hank Policy Institute ("HPI"), and the American Hanker~ Association (""AHA"). available at: 

https :/ /commcn ts .cftc. gov /Pub 1 i cC ommcn ts/C ommcn tLi ~ t. as px? id= 1066 . 

! 84 FR 72262 (Dec. 31, 20 19), available at: http~://www.cftc.gov/sitesidefault/files/20 19/12/20 l 9-27895a.pdf. 

1 
= CIT1\DEL 

Table or Contents 

I. Statutory Basis for Commission Action ............................................................................... 3 

A. Impartial Access ............................................................................................................... 3 

B. Name Give-up Is Not a Trading Protocol ........................................................................ 4 

C. Prohibiting Name Give-up Is Consistent With Various CEA Provisions ........................ 5 

II. Market Participant Interest in the Prohibition ........................................................................ 6 

A. Bank Argument #1: The Status Quo is Sufficient ........................................................... 6 

B. Bank Argument #2: Available Fully Anonymous Order Books Are Not Being Used .... 7 

C. Bank Argument #3: IDB SEFs Are Not Attractive to Non-Swap Dealers ...................... 8 

D. Bank Argument #4: New Liquidity Providers Should Not Be Expected ...................... I 0 

III. Potential Harm to the Swaps Market ................................................................................... I 0 

A Bank Argument# 1: Dealer Hedging Costs Will Increase ............................................. 11 

B. Bank Argument #2: The Work-Up Trading Protocol Will Be Negatively Impacted .... 11 

C. Bank Argument #3: Dealers Will Exit the Market ........................................................ 12 

IV. Cross-Border Impact ............................................................................................................ 13 

V. LIBOR Transition ................................................................................................................ 13 

VI. Cost-Benefit Analysis .......................................................................................................... 14 

VIL Alternatives .......................................................................................................................... 15 

VIII. Other Considerations ........................................................................................................... 16 

A Exceptions to the Name Give-up Prohibition ................................................................ 16 

B. Potential for Evasion ...................................................................................................... 17 

2 
= CIT1\DEL 

I. Statutory Basis for Commission Action 

A. Impartial Access 

The Bank Letters argue that prohibiting name give-up for anonymously-executed cleared 

swaps is not consistent with the impaitial access requirements in the Commodity Exchange Act 

('"CEA"). This is incorrect. 

The CEA requires SEFs to "provide market participants with impartial access to the rnarket.'' 3 

The Commission has interpreted this statutory requirement to mean that SEFs are not pennitted to 

limit membership to only swap dealers. 4 Enforcing this interpretation has required the 

Commission to take further action to expressly prohibit discriminatory membership criteria and 

trading practices that have the effect of limiting SEF membership to swap dealers. Examples 

include prohibiting: 

• SEF membership criteria that limit access to self-clearing members (which are only 

swap dealers); 5 

• SEF membership criteria that establish minimum Tier 1 capital requirements (that only 

bank swap dealers can satisfy):6 

• SEF membership criteria that establish minimum trading volume requirements (that 

only swap dealers can satisfy); and7 

• SEF trading practices that allow members to "turn-off' or disable trading with certain 

other members for cleared swaps (which can be used to exclude non-swap dealers). 8 

All of these Commission actions derive directly from the statutory requirement for SEFs to 

provide market participants with impartial access. which means dismantling barriers that serve to 

limit access to only swap dealers. 

The Proposal to prohibit name give-up for anonymously-executed cleared swaps is entirely 

consistent with the Commission's interpretation of the statutory requirement. As with the 

membership criteria and trading practices detailed above, name give-up has the effect of limiting 

.i CEA Section 5h(t)(2)(B)(i). 

4 See 78 FR 33476 (Jun.: 4.2013) at 33508. availabk: al: 

ht tps :/ /w w w. c fie. 20 v / ~i l.::s/dc !"au 1 Ii !"i k:~/idc/ »:roup ~/pub 1 ici (ii) ld(:dcral tT l':i~ tcr/ docu rncnb/ !"i k:/20 1 3 122 4 2a. pd f 

("Current SEF Rules''). 

'Id. 

0 Staff Guidanc.:: on Swap Ex.::cution Facilities hnpartial Acc.::ss (Kovcmbcr 14, 2013), availabk al 

http://www.cftc. 2:ov/idc/2:roupsipublic/@ncw~room/docum.::nl ~/fikidmmtaffo:uidancc 11 1413.pdL 

Id. 

3 
= CIT1\DEL 

SEF membership to only swap dealers. 9 Therefore, the trading practice contravenes the statutory 

impartial access requirement and should be prohibited by the Commission. 

Notably, the incumbent dealer banks have strenuously opposed the Commission's 

interpretation of the statutory impartial access requirement for nearly 10 years now, commonly 

claiming the "potential for significant disruption to the market" if IDB SEFs are not able to exclude 

non-swap dealers. 10 It is therefore unsurprising that similar arguments are being advanced in 

response to this Proposal even though it is entirely consistent with the CEA. 

B. Name Give-up Is Not a Trading Protocol 

JPM and FSF argue that name give-up is a trading protocol and therefore cannot be prohibited 

for transactions that are not required to be executed on a SEF. This is incorrect. 

Name give-up is a post-trade market practice that is entirely separate from the specific trading 

protocol employed to execute a transaction. For exactly this reason, an executive of an IDB SEF 

stated: "Should we be told not to by the regulators, we will flick a switch and the world will go on. 

It will not be a profound change and it's not going to require re-engineering the system." 11 

Consider fmther: 

• The main middleware provider has already made available to SEFs a post-trade 

operational workflow that does not employ name give-up and does not require altering 

specific trading protocols: 12 and 

• Name give-up is not listed as a trading protocol in any SEF rulebook (in fact, the posttrade practice does not appear to even be consistently disclosed in SEF rulebooks). 13 

9 See. e.g., Letter~ from SIFMA AMG. ICI, MFA. AIMA, Vanguard. and the FHLBs. available at: 

https: / /comments .c ftc. o. o v /Puh I i cCo mme nts/Co m me nt I ,i ~ t. as px ·

1 id= 3066 . 

111 Lctt.::r from JPM on the Propos.::d Ruic on Cor.:: Principle~ and Other Requirements for Swap Ex.::cution Facilities 

at page 11, availabk al: 

lmps:iicomments.cftc.l?.oviPublicComments/ViewComment.aspx'.'id=3 l l 98&SearchText=barnum ("JPM 2011 SEF 

Letter"). See ulso letter from Cleary Gottlieb Steen & Hamilton LLP on behalf of Bank of America Merrill Lynch: 

Barclays Capital: BNP Paribas; Citi; Credit Agricole Corporate and Investment Bank: Credit Suisse Securities 

(USA); Deutsche Bank AG: HSBC; Morgan Stanley; ::-,./omura Securities International. Inc.: Societe Generale: UBS 

Securities LLC; and Wells Fargo & Company at page 3, available at: 

lmps: //comments .cftc. gov /Pub 1 icC omment s/V ie wCo mme nt. asp x '.'id= 3 5440& Search Tex t=c leary ("Cleary 2011 

SEF Letter"). 

11 Peter Madigan. "CFTC to Test Ruic of Anonymity in SEF Order Book Flop." Risk (Nov.21.2014). available al 

ht tps :/ /w w w. ri ~k. nct/ d.::ri vat iv c~/2:\ 82 4 97 /c !k-te~ t -ro k-anon y mil y- ~cf-order -book-!lop. 

12 See Letter~ from IHS Markit at http~://conrn1<ent~.cftc.gov/PuhlicConrn1<ent~/Conrn1<entList.a~px'1id=3066. 

1

' For .::xampk, see http://www.bgc~cf.com/wp-cont.::nt/uploadsi20 I 7/01/BGC Rulebook 12-13-16.pdf which lists 

th.: following 13 trading protocols: Order Book, Fully Electronic Work-Up. Volum.:: Match Trading. Volume :\latch 

Plus, Customer Match Trading. Regular Voice Trading, Voice Work-up, Hybrid Voice. RFQ Voice Trading 

Facility. Technology-Assisted Voice Trading Facility, Customer Match Voice Trading Facility. Volume Match Plus 

Voice Trading Facility. and Volume Match Voice Trading Facility. 

4 
= CIT1\DEL 

If name give-up is prohibited, SEF trading protocols can continue to function exactly as they 

do today. Instead of restricting available trading protocols, as argued by JPM and FSF, prohibiting 

name give-up will ensure that all the trading protocols offered by SEFs today. such as anonymous 

order books, auctions, and work-ups are actually available to all types of market participants, 

including buy-side finns. 

C. Prohibiting Name Give-up Is Consistent With Various CEA Provisions 

The Bank Letters argue that prohibiting name give-up is not supported by the CEA. In addition 

to the statutory impartial access requirement discussed above, the following CEA provisions also 

support the Proposal: 

• Promoting SEF trading (CEA section Sh(e)). Contrary to suggestions in the Bank 

Letters that, at best, prohibiting name give-up will just "shift" trading volume from one 

type of SEF to another, data shows that overall SEF volumes have significantly 

increased over time compared to off-SEF volumes, reflecting the greater competition 

and pre-trade transparency available on SEFs. 14 The Proposal will allow buy-side firms 

to access IDB SEFs, increasing competition and pre-trade transparency on those SEFs, 

supporting continued growth in overall SEF trading. 

• Promoting pre-trade transparency (CEA section Sh(e)). As highlighted above, the 

Proposal will allow buy-side firms to access IDB SEFs. As more participants join these 

SEFs and participate in the available trading protocols, liquidity and associated pretrade price transparency should be expected to increase. 

• Promoting fair competition (CEA section 3(b)). The Proposal clearly promotes fair 

competition among market participants, as name give-up effectively prevents buy-side 

firms from accessing IDB SEFs. JPM seeks to advance a novel argument that the 

Proposal actually impairs competition since the incumbent dealer banks benefit from 

the cmTent status quo, 15 but that is quite clearly the incorrect standard. Promoting fair 

competition means ensuring a level playing field among market participants and 

dismantling artificial barriers that prevent free market competition. 

• Supporting information privacy requirements (CEA section 21(c)(6)). 

Commission regulation §49.17([)(2) implements the CEA 's information privacy 

requirements, and specifically prohibits a counterparty from accessing the identity of 

the other counterparty if the swap was anonymously-executed on a SEF and cleared. 16 

In doing so, the Commission stated its expectation that "the counterparties to the swap 

14 Sec dala from ISDA Swapsln!"o, available at: hllp:/ ~wap~info.orn:/dcri,ati,cs-

~c!J?datc ranl';c=~ax&datc ~tarl=2014-01-0 I &dale cnd=2020-0:\- l 3&t vpc=&~ubmil=Updalc+ Data. 

·' See JPM Letter on the Proposal at page 10. 

11' We note that this prohibition does not apply to swaps executed via a disclosed RFQ trading protocol. as that does 

not constitute anonymous execution (in contrast to arguments made in the FSF Letter on the Proposal at page 10). 

5 

1 
= CIT1\DEL 

would not otherwise be known to one another" if the swap is submitted to clearing via 

straight-through processing. 17 

Name give-up undermines these requirements, as it allows counterparties to 

nonetheless access the identity of the other counterparty for anonymously-executed 

cleared swaps. Therefore, the Proposal supports the statutory requirements and policy 

objectives underlying Commission regulation S49.17(t)(2). 

II. Market Participant Interest in the Prohibition 

Many of the Bank Letters argue that non-swap dealers have limited interest in accessing IDB 

SEFs and. therefore. the Proposal will deliver minimal benefits. 18 We address these various 

arguments below. 

A. Bank Argument #1: The Status Quo is Sufficient 

The Bank Letters argue that the swap market is functioning well, with "tight pricing and stable 

liquidity," so there is no need to change the status quo. We agree that the market's transition to 

SEF trading has meaningfully improved pricing and liquidity in the market, and it is refreshing to 

see the bank dealer community acknowledge the positive impacts of the Commission's SEF 

framework. after advancing contrary assertions for so many years. Examples include: 

• '·Imposing an arbitrary requirement as to the number of market participants that must 

be contacted for quotes will impair market liquidity by restricting the ability of 

customers to make informed choices and increasing trading costs associated with 

dealing on the SEF." (JPM in 2011) 19 

• "Swap volumes have declined; liquidity has decreased [ as a result of regulatory 

reforms]" (Citi in 2016)20 

• "The current SEF rules [ ... ] impede a SEF's ability to foster liquidity and provide 

competitive pricing" (ISDA in 2019)21 

However, the presence of good liquidity and pricing on SEFs does not mean that further 

improvements cannot be made, particularly when such improvements give effect to specific 

statutory requirements. Buy-side finns have provided loud and clear feedback that there is 

significant interest in accessing and contributing to liquidity available on IDB SEFs, but that they 

17 79 FR 16672 (March 26. 2014) at 16673, availabk al: hllp~://www.1>:ovin!t,.1>:ov/conlcnl/ph:/FR 2014 OJ 

26/pd['2014 06574.p<lL 

~ See. e.g., JPM Letter on the Propo~al at page 2. 

I'! JPM 2011 SEF Lcucr at pag.:: 3. 

211 Citi Letter on the l\otice Seeking Public Comment on the Evolution of the U.S. Trea~ury Market Structure at page 

9. available at: http~://www.r<egulation~.o.m•/document'.'D=TREAS-D0-2015-0013-0037. 

!i ISDA Letter on the Proposed Rule on Swap Execution Facilities and Trade Execution Requirement at page 12. 

available at: http~:// comn ient~. c ttc. gov /Pub I icC on 1 men tsiV iewCo mment .a~p x '.' id=6 2054&Search Tex t=isda. 

6 

1 
= CIT1\DEL 

are currently prevented from doing so. 22 As detailed above, the Proposal is designed to promote 

SEF trading and competition, and therefore should be expected to further improve liquidity and 

pricing on SEFs. 

B. Bank Argument #2: Available Fully Anonymous Order Books Are Not Being Used 

The Bank Letters argue that the limited use of fully anonymous order books available today 

(for example, on Bloomberg SEF) demonstrates that non-swap dealers have minimal interest in 

accessing IDB SEFs. First, it should be noted that this line of argument suggests the Commission 

should ignore the consistent feedback from buy-side finns and trade associations regarding the 

Proposal and instead rely on the incumbent dealer banks to accurately convey the views of buyside firms. Second. to explain why this argument is fundamentally incoJTect, consider the available 

options for a buy-side firm trading on SEF today: 

1) Disclosed RFQ; 

2) IDB SEF with name give-up (which makes trading on this SEF untenable, as detailed 

in the comment file): 

3) Anonymous order book on a non-IDB SEF. which has minimal liquidity since swap 

dealer liquidity providers refuse to stream prices to these SEFs (for example, compare 

(a) the number of swap dealers streaming prices on the Bloomberg SEF fully 

anonymous order book with (b) the number of swap dealers typically streaming prices 

on the Bloomberg SEF disclosed request-for-steam trading protocol or on IDB SEF 

order books with name give-up (such as Tradition SEF or BGC Derivative Markets)). 

With only these available options, it should be clear why buy-side firms continue to transact 

almost exclusively via the disclosed RFQ trading protocol. Supporters of the Proposal have not 

claimed that the RFQ-to-3 trading protocol is problematic or that buy-side firms do not need access 

to swap dealer liquidity or would prefer trading on SEFs without swap dealer participation. In 

fact, the exact opposite is true, which is why the Proposal is so critical. Without prohibiting name 

give-up, buy-side finns will continue to be unable to access pre-trade anonymous trading protocols 

on SEFs where there is meaningful swap dealer liquidity. and instead will be confined to using 

disclosed trading protocols. 

The discussion above also explains why it is misleading to argue that name give-up is a practice 

that has developed "organically," as claimed in the Bank Letters. While name give-up was 

designed for uncleared swaps that are executed anonymously, where trading counterparties need 

to know who they have been matched with in order to manage the ongoing credit, operational, and 

legal exposures associated with a bilateral uncleared swap, its continued use for cleared swaps 

reflects the desire of the incumbent dealer banks to preserve dealer-only liquidity pools, and the 

rest of the market has little recourse to effect change without regulatory intervention. 

!:! See. e.g., Letters from SIE\1A AMG. !Cl, :'vIFA. AIMA, Vanguard. and the FHLBs, available at: 

lmps: /comments .cftc. ~o v /Pub 1 icC omme nts/C omn ient Li~ t .asp x? id= 3066. 

7 
= CIT1\DEL 

C. Bank Argument #3: IDB SEFs Are Not Attractive to Non-Swap Dealers 

The Bank Letters advance various arguments designed to minimize the attractiveness of IDB 

SEFs for buy-side firms. including: 

• The vast majority of trading activity occurs away from IDB SEFs. FSF provides data 

purporting to show that over 70% of SEF activity is transacted on RFQ SEFs. 2~ while 

Citi suggests '·around 90% of SEF trading in IRS and credit default swaps on CDX 

indices, however measured, occurs on D2C SEFs." In response, we note that: 

o Focusing solely on volume data ignores that buy-side firms are interested m 

participating in the price discovery process and trading protocols on the IDB SEFs 

in addition to conducting their risk transfer and hedging transactions there: 

o The data shows that, over time, volumes on SEFs used by buy-side market 

participants have grown more rapidly than volumes on IDB SEFs. This should be 

expected as overall market volumes have grown, given the number of buy-side 

firms transacting on SEFs and their current inability to access IDB SEFs; 

o The FSF data appears to include block transactions that are arranged bilaterally and 

then executed on-SEF. Our review of Clarus data for the first quarter of 2020 shows 

that for non-block transactions in vanilla USD interest rate swaps, the ratio is closer 

to 60/40 in notional terms; and 

o If we examine all SEF activity in the USD interest rate derivatives market in the 

first quarter of 2020. the ratio is flipped and IDB SEFs account for 76% of all SEF 

activity in notional terms according to our review of Clarus data. While this drops 

to 44% ifFRAs are excluded, these figures nevertheless illustrate the important role 

that IDB SEFs occupy in the rates market. 

• Pricin!! is worse on IDB SEFs. The banks assert that transaction pricing is worse on the 

IDB SEFs compared to RFQ SEFs and therefore would be unattractive to buy-side 

firms. In response, we note that: 

o This argument appears to conflate firm displayed quotes on IDB SEF order books 

with indicative quotes streamed to RFQ SEFs; 

o Many trades on IDB SEFs are executed inside the displayed quoted spread on the 

order book, so for the purposes of any comparison, it is important to take into 

account pricing available through all the various trading protocols offered by the 

IDB SEFs, including order books, work-ups, voice, and auctions; 24 

21 FSF Letter on the Propo~al, Appendix A at page 20. 

! As an example. see the various trading protocols offered by BOC Derivative Markers at 

http: /www.bgc~et.com,..wp-cuntentiuploads/2017/01/BGC Rulebook I 2-13- 16.pdf. 

8 
= CIT1\DEL 

o Any comparison of prices across SEFs will depend on additional factors, including 

the size of the trade; and 

o Finally, contrary to the incumbent dealer bank arguments, one study found that, 

with respect to benchmark USO IRS, "in 92% of the scenarios" a better price could 

have been obtained in the order book than was achieved via RFQ." 25 However, 

even if pricing was similar. a client may prefer to execute certain transactions using 

an anonymous trading protocol in order to prevent the information leakage that 

occurs when sending a disclosed RFQ containing trading intentions. 

• Swap dealers do not provide liquidity on IDB SEFs. JPM asserts that swap dealers 

'·mostly take liquidity" on IDB SEFs instead of providing liquidity. 26 In response, we 

note the obvious fact that in order for a transaction to take place, there must be a 

liquidity provider and a liquidity taker. With only swap dealers on the IDB SEFs, it is 

absurd to state that swap dealers do not provide liquidity on IDB SEFs. 

• IDB SEFs predominantly execute package transactions. FSF provides data purporting 

to show that approximately 70% of DVO 1 executed on IDB SEFs was executed as a 

spreadover package transaction, and asserts that therefore '•it is unclear there would be 

material buy-side demand."27 In response, we note: 

o JPM has previously acknowledged that "[a]s is the case in futures markets, there 

are many circumstances under which customers wish to transact a package of 

financial instruments."28 In particular, buy-side market participants and RFQ SEFs 

played a central role in facilitating a smooth and efficient transition to trading 

certain liquid and standardized package transactions, including spreadovers, on 

SEFs which clearly illustrates material buy-side demand to trade such package 

transactions; 29 and 

o An array of liquid and standardized package transactions, including curves, 

butterflies, and spreadovers, are listed and traded on the two leading RFQ SEFs, 

2

·' Quantifying lntere~t-Rate Swap Order Book Liquidity, Greenwich A~sociate~ (March 9.2016) at page 5. available 

at httpd/www.grccnwich.com/fixcd income fx cmd~/quantifying interest rate ~wap order hook liquiditv. 

!<, JPM Leller on the Proposal at page 8. 

n FSF Letter on the Propo~al, Appendix A at page 21. 

!~ JPM 2011 SEF Letter m page 10. 

29 The Commission no-action relief that pha~ed-in SEF trading for certain package transactions. including for 

spreadovers on June 15, 2014. was provided in rcspomc to reque~l~ from bolh a buy-side trade association and a 

leading RFQ SEF. among others (~cc Leiter 14-62 al 

ht tps :/ /w w w. c fie. 20 v / ~i tes/dc !"au 1 ti !"i k~/idc/ »:roup ~/pub 1 ici (ii) lrkllcr»:cncral/ doc umcnts/kt tcr/ 14-62. pd O. The 

Commission "Roundtabk on Trade Execution Requirements and Package Transactions", held on February 12. 2014, 

featured reprcsenlalives from the buy-side as well as from a number of RFQ SEFs. Finally. an array of buy-side 

trade associations and individual buy-~idc firms discu~~cd the importance of package tramactions. including 

spreadovers, in comment letters that were submitted in response to various SEF "made available to trade 

detenninations" in the fall of2013 (sec q;., 

Imps: '/cumments.cftc. ~oviPublicCumments/CummentLi~t.aspx"?id= 1409 ). 

9 
= CIT1\DEL 

with multiple liquidity providers actively quoting two-way markets for these 

packages for an array of tenors. 

More fundamentally, in response to all of the arguments above, it should be up to each 

individual market participant as to whether or not they wish to trade on a particular SEF. With 

access to both disclosed and truly anonymous trading protocols. a buy-side firm can make an 

informed decision regarding how to efficiently execute a cleared swap. Seeking to justify the 

current exclusion of buy-side firms by arguing that they wouldn't want to transact on IDB SEFs 

anyway actually undercuts many of the incumbent dealer bank arguments. If IDB SEFs are truly 

not attractive to buy-side firms, then the Proposal should have an extremely limited impact on the 

current status quo. 

D. Bank Argument #4: New Liquidity Providers Should Not Be Expected 

The Bank Letters assert that name give-up is not a deteITent to new liquidity providers, and 

therefore the Proposal should not be expected to attract new entrants. In response, we note the 

experience of Citadel Securities entering the swaps market as a new liquidity provider, where we 

witnessed how ce11ain other swap dealers can use name give-up for purposes that are inconsistent 

with the Commission's impartial access requirements. Immediately following our entry as a new 

liquidity provider. this included certain incumbent swap dealers asking IDB SEFs to cancel 

executed trades upon learning through name give-up that their counterpa11y was Citadel Securities. 

In addition, we note the feedback provided to the Commission indicating that additional 

liquidity providers remain interested in entering the market and support finalizing the Proposal. 30 

III. Potential Harm to the Swaps Market 

Many of the Bank Letters argue that the Proposal will significantly harm the swaps market, 

using hyperbole such as "drastically alter,"-' 1 "irreparable harm," 32 "significantly diminishing 

market liquidity,"33 and "potentially lead[ing l to an exodus of dealer participation."34 

In response, we first note that these arguments are entirely inconsistent with the bank 

arguments discussed in the prior section regarding a purported lack of interest by other market 

participants in joining IDB SEFs. To the extent IDB SEFs are truly unattractive to buy-side firms 

and new liquidity providers, then the Proposal should have an extremely limited impact on the 

current status quo. This lack of intellectual consistency in the Bank Letters suggests that 

unsubstantiated claims of market harm should be viewed critically. Below, we address three 

specific claimed harms. 

-'

11 See, ex. Lctt.::rs from FIA PTG and CTC. availabk: al: 

ht tps :/ /co mmcnls .c !k. l':OV /Pub 1 icC o mmcnls/C o mmcnl Li~ l. aspx? id-3066 . 

11 FSF Letter on the Propo~al at page 7. 

-' 2 ABA Leller on the Proposal al page 1. 

-'-' JPM Letter on the Propo~al at page I. 

_l-l FSF Letter on the Proposal at page 7. 

10 
= CIT1\DEL 

A. Bank Argument #1: Dealer Hedging Costs Will Increase 

The Bank Letters assert that the Proposal will increase hedging costs for swap dealers due to 

other market participants joining IDB SEFs. thereby negatively impacting all dealer clients. 

including commercial end-users. However, not one letter provided any data to support these 

claims, including data showing dealer hedging costs increasing in other asset classes where name 

give-up is not employed. This should not be surprising. as it is difficult to see how increasing the 

number of participants and overall competition on a venue would reduce liquidity and negatively 

impact pricing. 

Instead. we agree with the Commission that increasing competition should lower transaction 

costs, thereby facilitating dealer hedging. ~

5 The incumbent dealer banks are now acknowledging 

that this is exactly what happened as a result of the Commission's SEF framework, which increased 

market competition (see Section ILA above). In addition, the Proposal cites to several empirical 

event studies which focus specifically on the effects of post-trade anonymity on market liquidity. 

with most finding that overall liquidity improves as a result.~6 The Commission's experience in 

regulating the swaps market and the documented academic research strongly suppott the 

conclusion that the Proposal will lower overall transaction costs, and the Bank Letters are unable 

to cite to any data or academic research in rebuttal. 

B. Bank Argument #2: The Work-Up Trading Protocol Will Be Negatively Impacted 

The Bank Letters asse11 that the Proposal will negatively impact work-ups, which are used on 

IDB SEFs to facilitate the execution of larger transactions. However, these claims are easily 

disproven by looking at the US Treasury market. where work-ups are commonly employed on 

interdealer platforms even though name give-up is not used. 

A work-up '"is a protocol that automatically opens after the execution of each market order. 

During the workup window, any interested market participants can transact additional volume at 

the same price established by the initial execution, as long as counter trading interest exists."37 

Interested market participants send in orders anonymously, and there is nothing unique about 

transactions executed via a work-up compared to other anonymously-executed cleared swaps that 

would require the disclosure of counterparty identities post-trade. In the fully anonymous US 

Treasury market, work-ups account for a significant percentage of overall trading activity. 38 

·'·' Proposal at 72269 . 

.ir, Id. 

17 "Order Flow Segmentation and the Role of Dark Pool Trading in the Price Discovery of U.S. Treasury Securities," 

Michael Fleming and Giang Nguyen (Augu~t 2013) at page I. available at: http~:i/editorialexpress.com/cgihin/cont',;,rencddown load.co.i'.'paper id=3 78&dh nam<e=Ai-;A20 15. 

-'~ See "The Evolution of Workup~ in the L:.S. Tr.::asury Securili.::s Market," Michad J. Fleming. Ernst Schaumburg, 

and Ron Yang, Liberty Street Economics Blog (Aug. 20, 2015). available at: 

lmps: /iii bertvstreetecuno n l ics. newyorkfed. org/20 I 5/08/the -evo 1 ut ion-of-work up~ -in -the-us -treas urv-securi tie~­

market. htn 1 l#. V r4 fl31U\Vpo. 

11 
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C. Bank Argument #3: Dealers Will Exit the Market 

JPM and FSF argue that the Proposal could result in "an exodus of dealer participation,"39 

referencing the success of principal trading firms in the US Treasury market as an example. These 

arguments are highly misleading. First, as noted above, these bank letters concurrently argue that 

the Proposal should not be expected to attract new liquidity providers. Second, as acknowledged 

by the incumbent dealer banks when convenient to do so, the swaps market is very different from 

the US Treasury market. With most s\vaps trading "fewer than 20 times per day," 40 the size, 

volume, and frequency of trades in the swaps market is not conducive to high frequency trading 

strategies. Third, dealers still dominate liquidity provision to customers in the US Treasury 

market, with the top 10 dealers controlling approximately 75% of the market. 41 There is absolutely 

no evidence to suggest that incumbent dealer banks will exit the swaps market or curtail liquidity 

provision as a result of the Proposal. In contrast, as a top liquidity provider across many asset 

classes, including in both swaps and US Treasuries, Citadel Securities sees no basis for this 

argument and strongly believes that a prohibition on name give-up will in fact enhance liquidity 

provision overall. 

We note that several of the Bank Letters take the opportunity to cast aspersions on the quality 

of liquidity provided by non-bank liquidity providers, including during times of market volatility.42 

These claims are not supported when subjected to robust analysis. For example, during the "flash 

rally" volatility event in the US Treasury market on October 15, 2014, which is one of the most 

comprehensively reviewed recent events of market volatility, it was determined that "bank dealers 

tended to widen their bid-ask spreads, and for a period of time provided no, or very few, offers in 

the order book in the cash Treasury market. "43 A meaningful withdrawal of liquidity by bank swap 

dealers has been observed on IDB SEFs during the recent market volatility, as '"dealers have fled 

the [bank-only] Clobs."44 In our view, recent events reaffirm the impmtance of ensuring that all 

market participants are able to access and contribute to all available sources of liquidity and trading 

protocols . 

.\'J FSF Letter on the Proposal at page 7. 

-1o Cleary 2011 SEF Letter at page 4. 

-ii "A Preliminary Look at Dealer-to-Customer Markets on October 15, 2014'' at slide 6, available at: 

lmps: / /www. newyor k fed .on,i n ied i al i bran·/ med iainew~e vents/ event~/ market s/20 1 5 /October - I 5-Dealer -to-Customer -

Analy~i~.pdf. 

-12 See, e.~., JPM Letter on the Propo~al at page 9. 

-1, Joint Staff Report: The U.S. Trea~ury Market on October 15, 2014 (July 13, 2015), available at: 

https:iihome.trea~ury.gov/sy~tem/file~/276/joi nt-staff-report-the-u~-trea~ury-market-on- I 0- 15-20 14.pdf. We note 

that data shows that bank liquidity provider~ aho failed to re~pond to a significant percentage of cu~tomer RFQ 

requests during the event. See "A Preliminary Look at Dealer-to-Customer Markets on October 15, 2014'' at slide 8, 

available at: http~://v.'V.'V.' .newyorkf<ed.orgimedial ihrarvimedia/new~<events/<event~/markets/20 15/October- 15-D<ealerto-Custo mer-Anal v~ i ~. pd f. 

-1--1 "Swaps benchmark vanishes as traders flee firm price venues,'' Risk.net (Mar. 20, 2020), available at: 

lmps: · /www. ri ~k. netideri vat iv e~/7 509006/ ~ waps -benchmark-van i ~he~-as -trader~-flee-firm- price- venues. 

12 
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IV. Cross-Border Impact 

TP ICAP suggests that the Proposal may result in swap dealers shifting liquidity from SEFs to 

non-U.S. venues that still permit name give-up.45 The main cross-border risk appears to be that 

the incumbent dealer banks shift interdealer activity in USD interest rate swaps to MTFs and OTFs. 

We would suggest that. were this to occur, it would constitute clear evidence of evasion of 

Commission rules. However. we also expect the EU to continue to maintain equivalent standards 

as the U.S. with respect to the implementation of impartial access. Similar to the impartial access 

requirement in the CEA, MiFID II requires MTFs and OTFs to establish non-discriminatory rules 

governing access. 46 Following the lead ofthe Commission. ESMA issued additional guidance that 

prohibits exactly the same access baITiers cuITently prohibited by the Commission relating to 

membership criteria and trading practices (as detailed in Section I.A above). 47 We understand that 

ESMA is currently considering the practice of name give-up for anonymously-executed cleared 

swaps on MTFs and OTFs and would expect equivalent standards to be maintained across both 

jurisdictions. 

We note that, when considering the magnitude of this threat by the incumbent dealer banks, it 

is important to note that the EUR and GBP interdealer interest rate swaps markets are already 

largely offshore as a result of actions taken by the incumbent dealer banks following the 

implementation of the Commission's SEF rules. Research has concluded that these actions were 

"consistent with (although not direct proof of) swap dealers strategically choosing the location of 

the desk executing a particular trade in order to avoid trading in a more transparent and competitive 

setting. "48 

V. LIBOR Transition 

The Bank Letters assert that the Proposal \Vill "drastically alter the s\vaps rnarket'' 49 and 

therefore should not be finalized while market participants are working to transition away from 

LIBOR to risk-free reference rates. In response, we note the following: 

• The potential hanns claimed by the incumbent dealer banks relating to the Proposal are 

completely unsubstantiated (as detailed in Section III above); 

• The operational changes resulting from the Proposal are minimal. As stated by an 

executive of an IDB SEF: '·Should we be told not to by the regulators, we will flick a 

switch and the world will go on. It will not be a profound change and it's not going to 

4

·' TP ICAP Letter on the Propo~al at page 4. 

-11, MiFID II Article 18(3). 

47 ESMA Q&A on :\1iFID II and MiFIR market structure topics, Section 5.1. Qu.::stion 3. availabk at: 

hllps://www . .::sma . .::uropa . .::u/sit.::siddault/rik~/library/c~ma70-87294290 I -38 qa~ mark.::t ~ structure~ issuc~.pdL 

.J~ Benos. E., Payne. R .. and Va~io~. M., Centralized trading. transparency and intere~t rate ~wap market liquidity: 

evidence from the implementation of the Dodd-Frank Act. Bank of England Staff Working Paper (May 2018) at 

page 30, available at: http~://www .hankofcngland.co.uki-im.::diaibocifi l.::~/working-papcr/2018/ccntrali,,.::d-tradingtransparency-and-in tercst -ratc-s wap-market-I i quid i tv -update. 

-1'1 FSF Letter on the Proposal at page 7. 

13 
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require re-engineering the system. "50 In addition, the main middleware provider has 

already made available to SEFs a post-trade operational workflow that does not employ 

name give-up and does not require altering specific trading protocols; 51 

• Interest rate swaps referencing SOFR are not currently subject to either mandatory 

clearing or SEF trading requirements, meaning that market participants have complete 

flexibility regarding where and how to trade these instruments, both on-SEF and offSEF: and 

• As discussed in Section III.A above, the Commission's experience in regulating the 

swaps market and the documented academic research strongly suppott the conclusion 

that the Proposal will increase competition and lower overall transaction costs, thereby 

facilitating dealer hedging across the entire interest rate swaps complex. Therefore, the 

Proposal may in fact support the market's transition away from LIBOR. 

VI. Cost-Benefit Analysis 

The Bank Letters argue that the Proposal's cost-benefit analysis is insufficient. We strongly 

disagree. 

First, it is important to note that the fundamental policy question is one that the Commission 

has already decided: Should swap dealer-only SEFs he permitted? The Commission carefully 

considered this question in the final SEF rules and concluded that SEFs are not pennitted to limit 

membership to only swap dealers. and that the resulting increase in market competition should 

lead to improved pricing and liquidity for market participants. 52 The Proposal is directly related 

to this prior Commission action, as name give-up has the effect of limiting SEF membership to 

only swap dealers. 53 Therefore, the Commission can rely on the cost-benefit analysis contained in 

the final SEF rules to support continuing to enforce the prohibition on swap dealer-only SEFs. 

Notably. even the incumbent dealer banks are now acknowledging in the Bank Letters that this 

prior cost-benefit analysis was generally correct, with greater competition on multilateral venues 

leading to better pricing for market participants (even without dismantling all of the access barriers 

on IDB SEFs). 

Second, the Commission has supplemented the prior cost-benefit analysis with (a) documented 

experience in other asset classes, including empirical event studies which focus specifically on the 

effects of post-trade anonymity on market liquidity. (b) discussion at a Market Risk Advisory 

Committee meeting, and (c) two rounds of written feedback from market participants (where a 

broad and diverse coalition of market participants agree with the Commission's cost-benefit 

analysis and only the incumbent dealer banks oppose). In aggregate, this provides the Commission 

' 11 Peter Madigan, "CFTC to Test Role of Anonymity in SEF Order Book Flop." Risk (Nov. 21, 2014), available at 

https: / /www. ri ~ k. net ideri v ati ve~/23 8 24 9 7 icftc -te~ t -ro 1 e-ano n v mi tv- ~ef-ord<e r -hook-flop. 

51 See Lcllcrs from 111S :\1arkit at hllp~://commcnb.cftc.2:ov/PublicCommcnl~iCommcntList.a~px'.'i<l=3066. 

'

2 See Current SEF Rule~ at 33560 and 33573. 

5

' See. e.g., Letters from SIF:\1A AMG. !Cl, MFA. AIMA. Vanguard, and the FHLBs. available at: 

lmps: · /cu mments .cftc. ~o v /Pub 1 icCu mments/Cu mment Li~ I. asp x? i<l = 3066 . 

14 
= CIT1\DEL 

with a solid basis to conclude that the benefits of prohibiting name give-up outweigh any potential 

costs. 

On the other hand, the incumbent dealer banks have a strong commercial interest in preserving 

the current status quo, which has resulted in promoting inaccurate cost-benefit analyses in the 

past. 54 In this instance, the incumbent dealer banks have failed to cite to any data or academic 

research showing negative impacts in other asset classes where name give-up is not employed. In 

fact, many of their unsubstantiated claims conflict with existing academic research, such as the 

claim that commercial end-users transacting swaps off-SEF may somehow be negatively impacted 

by Proposal. 55 Research instead suggests that commercial end-users may not be best-served by 

maintaining the current status quo. Examples include: 

• Discriminatory pricing of over-the-counter derivatives. 56 This research finds that less 

sophisticated clients pay higher transaction costs when using bilateral trading 

protocols, but that transactions on multilateral RFQ platforms exhibit competitive 

spreads regardless of client sophistication levels. 57 Specifically, "the use of multidealer RFQ platforms removes the market power of dealers and compresses average 

spreads."58 

• Over-the-Counter Markets. 59 This research finds that client transaction costs decrease 

to the extent a client can more easily find other liquidity providers. such as on a 

multilateral trading venue. 

VII. Alternatives 

The Bank Letters suggest a number of alternatives to the Proposal. However, each suffers 

from the same flaw - purposefully enabling the incumbent dealer banks to retain control over 

whether to continue to use name give-up or to support fully anonymous trading. Consider the 

following suggested alternatives: 

5--1 'The study indicates that the [electronic execution requirements]. in all likelihood. will bring little benefit to the 

market while adding significantly to the costs of using derivatives." ISDA Research Staff & NERA Economic 

Consulting. Costs and Benefits of Mandatory Electronic Execution Requirements for Interest Rate Products. ISDA 

Discussion Papers Series. !\"umber Two (::-,./ov. 2011). available at: 

lmps: //comments .cftc. ~o v /Pub 1 icCo mments/V ie wCo mme nt. asp x '.' id-5 7 344& Search Tex t-isda. 

s_s JPM Letter on the Propo~al at page 2. 

s1, Hau, H., Hoffmann, P., Langfield. S .. and Timmer, Y .. Di~criminatory pricing of over-the-counter derivative~, 

ESRB Working Paper, December 2017, available at: https://www.esrb.europa.eu/puh/pdt/wpie~rh.wp61.en.pdf. We 

note that, while the paper focuse~ on the FX derivative~ market. it~ conclu~ions regarding the impact of multi-dealer 

RFQ platforms are generally applicable acro~s OTC market~. 

5' Id. at pag.::s 22-23. 

'~ Id at page 23. 

5'

1 Duffie, D .. Gi\rleanu. N., and Pedersen, L.H .. Valuation in Over-the-Counter :'vtarkets (l\"ovember 2004) at page 2. 

available at: http~ :/iwe b. ~ tan ford. ed u/ -d uttieiOTCmarkets. pd f. 

15 
= CIT1\DEL 

• Requiring each SEF to offer a fully anonymous order book as an option. We would expect 

the incumbent dealer banks to elect not to provide meaningful liquidity to any anonymous 

order book as long as order books with name give-up remain. This is exactly what has 

transpired with the anonymous order books currently offered by SEFs. As a result, the 

anonymous order books would remain largely empty and buy-side firms would continue 

to lack access to the order books with swap dealer liquidity that use name give-up. 

• Allowing counterparties to opt-out of name give-up on a trade-by-trade basis. We would 

expect the incumbent dealer banks not to agree to opt-out of name give-up, meaning that 

very little would change on IDB SEFs. Requiring mutual agreement of the patties is not 

practical when the incumbent dealer banks are commercially incentivized to maintain the 

Sia/US quo. 

• A pilot where name give-up is prohibited for some instruments and not others. The 

suggestion of a pilot appears designed to slow down finalization of the Proposal. In 

addition, a short-term pilot would be easily susceptible to manipulation. Given their 

commercial interests in maintaining the status quo and privileged position as liquidity 

providers, the incumbent dealer banks could temporarily provide worse pricing for 

instruments covered by the name give-up prohibition in order to dictate the pilot results. 

Finally. we note the recent statement from the Financial Economists Roundtable 

highlighting the drawbacks of relying on pilot programs and affirming that '·[g]ood 

evidence-based regulation need not require undertaking a pilot study."60 

VIII. Other Considerations 

A. Exceptions to the Name Give-up Prohibition 

The Bank Letters argue that the scope of the Proposal should be limited in several ways. 

1. Swaps Not Subject to Mandatory Clearing 

TP ICAP suggests limiting the scope of the Proposal to swaps subject to mandatory clearing, 

but justifies this limitation by citing examples that do not involve swaps that are "intended to be 

cleared" in the first place. The phrase "intended to be cleared" should mean "intended to be 

submitted for clearing contemporaneously with execution," consistent with prior Commission 

action. 61 The rationale for prohibiting name give-up applies equally to all swaps that are intended 

to be cleared. not just swaps subject to the clearing obligation or trading obligation. 

We note that SEFs may offer pre-trade anonymous trading protocols for swaps that begin as 

uncleared and then are "backloaded" into clearing by the trading counterparties at a later time. 

w "Statement on Evidence-Ba~ed Regulation and the Limit~ of Pilot Studies:· Financial Economists Roundtable 

(Oct. 2019 ), available at: https:/ihu~ine~s.khigh.edu/~ite~/defaul t/file~/20 I 9-

l 2/Pinal%20FER %20Stat<ement'\,202019.pdf. 

i,1 See. e.g., Staff Guidance on Swap Execution Facilities Impaitial Access (::--lovember 14. 2013) at FN I. available 

at http:/ www.cttc.gov/idcigroupsipublici@new~rnom/documents/tileidmo~taffouidance 11 I 4 I 3.pdf. 

16 
= CIT1\DEL 

These would not be considered '•intended to be cleared," and therefore would not be subject to any 

prohibition on name give-up. given that they are not submitted for clearing contemporaneously 

with execution. 

2. Work-ups 

FSF suggests that the Proposal should exclude a SEF if a material portion of its trading volume 

is executed via a work-up. As detailed in Section 111.B above, work-ups can easily operate on a 

fully anonymous basis, as occurs in the US Treasury market. Therefore, there is absolutely no 

reason for this proposed limitation, and it represents nothing more than a transparent attempt to 

keep certain IDB SEFs as swap dealer-only venues. 

3. Error Trades 

Many of the Bank Letters suggest that name give-up is necessary to resolve operational or 

clerical errors. This is incorrect. In the event of an operational or clerical error involving an 

anonymously-executed swap, the SEF can facilitate the correction of the error without disclosing 

a counterparty's identity. 62 For transactions that are executed on a disclosed basis, the 

Commission has provided an alternative which allows the counterparties to execute a correcting 

trade subject to the ex post facto review by the SEF. 63 However, this relief was specifically granted 

to "improve efficiency of the error correction process for market participants on electronic 'dealerto-client' SEFs"64 and should not affect the error correction process on pre-trade anonymous IDB 

SEFs, where counterparty identities do not need to be disclosed. Therefore. this limitation is not 

appropriate. 

4. Packages 

Many of the Bank Letters suggest that the Proposal should exclude certain package 

transactions. However, as proposed, the prohibition on name give-up only applies to swaps that 

are executed anonymously and intended to be cleared. Therefore. for a package transaction 

containing both a cleared swap and an uncleared swap, name give-up could still be used for the 

uncleared swap leg. This is consistent with current market practice, where the cleared swap and 

uncleared swap will be subject to different post-trade operational workflows, and obviates the need 

for the Commission to provide any type of special exception for package transactions. 

B. Potential for Evasion 

As noted in our first letter, we are concerned that voice brokers, operating either within a SEF 

or through an affiliated introducing broker. may seek to evade any prohibition on name give-up by 

pre-negotiating or pre-arranging trades anonymously and then disclosing counterparty identities 

prior to fonnally executing the transaction on the SEF. We provided suggested language to address 

oc See CFTC Lcucr 17-27 (May 30, 2017). 

6

·' Cl-TC Letter 20-0 I (Jan. 8, 2020). 

i,-1 Id. 

17 
= CIT1\DEL 

this concern, consistent with the overarching principle that if a cleared swap is traded anonymously 

(including through pre-negotiation or pre-arrangement). it should stay anonymous. 

TP ICAP's letter clearly shows that this concern was warranted and should be addressed by 

the Commission. In particular, TP ICAP asserts that the prohibition on name give-up would not 

apply to instances "(i): where an Introducing Broker pre-arranges trades between two parties. and 

gives up names in the mrnngement process before execution or clearing or (ii) where in-SEF broker 

personnel engaged in voice RFQ processes disclose the counterparties' identities before execution 

(i.e., during the liquidity formation process) or clearing. "6

~ If this interpretation is permitted, the 

Proposal could result in the incumbent dealer banks transitioning liquidity away from SEFs to 

introducing brokers in order to preserve swap dealer-only liquidity pools with name give-up. 

Therefore, we strongly urge the Commission to address this potential for evasion in the final rule. 

* * * * * * * * * * 

We strongly believe that the Proposal will make the swaps market more fair. open. competitive 

and transparent. We urge the Commission to dismiss the spurious arguments put forward by the 

incumbent dealer banks in their last ditch effort to forestall further positive market evolution. Swap 

market customers have uniformly supported the elimination of name give-up for anonymouslyexecuted cleared swaps. 

We thank the Commission for considering our further comments on the Proposal. Please feel 

free to call the undersigned at (646) 403-8200 with any questions regarding these comments. 

Respectfully. 

/s/ Stephen John Berger 

Managing Director 

Global Head of Government & Regulatory Policy 

i,, TP ICAP Letter on the Proposal at page 7. F::-,./ 19. 

18 
From: Griffin, Kenneth 

Sent: Thu, 19 Mar 2020 00:27:32 +DODO 

To: Tarbert, Heath P. 

Subject: [EXTERNAL] Thank you 

Chairman, 

Thank you very much for your time today. We appreciate your leadership in this uncertain and 

interesting time. Please feel free to reach out any time should you need anything. 

All the best, 

Ken 
From: Tarbert, Heath P. 

Sent: Thu, 19 Mar 2020 00:31:24 +DODO 

To: Griffin, Kenneth 

Subject: RE: [EXTERNAL] Thank you 

Ken, 

Thanks so much for taking the time. We here at the CFTC benefit from hearing 

from key market artici ants such as oursclliCitadcl. Should ou ever need to get 

5 a hold of me: (bl( I I will 

continue to wor 

Best, 

Heath 

Heath P. Tarbert 

Chairman & Chief Executive 

Commodity Futures Trading Commission 

202-418-5030  .1111 

CFTC chairman@cftc.gov 

0000 

Duplicate 
= CIT1\DEL 

December 3, 2019 

Mr. Joshua B. Sterling 

Director 

Division of Swap Dealer and Intermediary Oversight 

Ms. Dorothy DeWitt 

Director 

Division of Market Oversight 

Mr. M. Clark Hutchison III 

Director 

Division of Clearing and Risk 

Re: The Application of Uncleared Margin Requirements, Public Reporting, and 

Mandatory Clearing to OTC Derivatives Referencing SOFR 

We appreciate the opportunity to provide input to the Commodity Futures Trading 

Commission (the "Commission") as it continues to monitor the OTC derivative market"s transition 

from referencing LIBOR (and other interbank offered rates) to referencing SOFR (and other new 

risk free reference rates). While we strongly suppott efforts by regulators to streamline a marketled transition. we caution against exempting new OTC derivatives referencing SOFR (''SOFR 

derivatives") from key pillars of the post-crisis financial reforms, such as uncleared margin 

requirements, public repmting, and mandatory clearing. Rather, we believe that the market for 

SOFR derivatives should be built on the solid foundation of these critical refonns in order to further 

secure and advance the objectives of mitigating systemic risk and increasing market stability. 

integrity. and efficiency. It is particularly noteworthy that volumes in the closely related SOFR 

futures market have been successfully growing ivitlwut any regulatory exemptions with respect to 

margining, reporting, or clearing. 

I. New SOFR Derivatives Should Not Be Exempted from Uncleared Margin Requirements 

While we support ce11ain targeted and time-limited no-action relief, such as regulatory 

confinnation that amendments to legacy derivative contracts do not trigger the application of 

uncleared margin requirements if made solely to address interest rate benchmark reform. 1 we 

caution against providing a blanket exemption from uncleared initial margin requirements for new 

SOFR derivatives (even if it is time-limited) 2 for several reasons: 

1 See BCBS/IOSCO statement on the final implementation pha~e~ of the Margin requiremenb for non-centrally 

cleared derivative~ (March 5,2019), availahle at: http~:i/www.hi~.org/prc~sip I 90105a.htm. 

! See ''Treatment of Swaps Amended or Otherwise Transitioned from IBOR to Alternative Risk Free Rates under the 

Commodity Exchange Acf" (Nov. 5. 2019). available at: 

lmps://www.newyorkfed.urg/medialibrary/l\.1icrosites/arrc/tilesi20 I 9/ARRC CITC Relief Reque~t.pdf (''The 

ARRC reque~t~ that DSIO [ ... J grant no-action relief from the uncleared ~wap margin requirement~ for :-.Jew SOFR 

Swaps that are not ~ubject to mandatory clearing and that are executed before the date on which LIBOR will 

cease··). 
= CIT1\DEL 

• Compromises Systemic Risk Mitigation. The financial crisis exposed the OTC 

derivatives markets as significantly under-collateralized. As a result, margin 

requirements for uncleared OTC derivatives represent a central pillar of the post-crisis 

reforms. designed to prevent the accumulation of under-collateralized bilateral exposures 

that can serve as a source of contagion and transmit risk in the event of a significant 

counterpa11y default. Providing a blanket exemption from uncleared initial margin 

requirements for new SOFR derivatives would permit ce11ain OTC derivatives to once 

again be under-collateralized. As trading activity in SOFR derivatives increases. the size 

of these under-collateralized bilateral exposures may prove to be a source of systemic 

risk, undermining the post-crisis reform framework. 

• Disincentivizes Central Clearing. The post-crisis reforms to the OTC derivatives 

market also seek to transition all standardized OTC derivatives into central clearing.~ 

Uncleared margin requirements are important in this transition by establishing a level 

playing field between the cleared and uncleared markets with respect to collateralization 

practices. and thus removing a disincentive to centrally clear. 4 Providing a blanket 

exemption from uncleared initial margin requirements for new SOFR derivatives would 

disincentivize central clearing of these standardized derivatives. Data shows that 

bilateral trading is less costly than central clearing if there is an available exemption from 

the uncleared initial margin requirements. since initial margin would then only be 

required for cleared trades. 5 Among other anomalies, this would enable liquidity 

providers to quote better prices for uncleared SOFR derivatives than for cleared SOFR 

derivatives. 

• Bifurcates Liquidity. Efforts solely focused on increasing trading activity and liquidity 

in uncleared SOFR derivatives risk negatively impacting overall market conditions by 

bifurcating liquidity between the cleared and uncleared version of the instrument. Given 

the transition of most all standardized interest rate derivatives to central clearing, 6 there 

is a general aspiration that liquidity in SOFR derivatives will naturally coalesce around 

the cleared version of the instrument. 7 However. a blanket exemption from uncleared 

initial margin requirements for new SOFR derivatives would provide a significant 

incentive to trade uncleared SOFR derivatives, increasing the likelihood that overall 

·' See "G20 Lcm.krs Statement: The Pin~burgh Summit," Sept. 25, 2009, availabk al: 

ht lp :// \\'\\'\\'. g20. utoronlo. ca/2009 /2009commun iq uc09 2 5 .html. 

-1 See BCBS-lOSCO Margin requirement~ for non-centrally cleared derivatives (March 2015). available at: 

https://www. his.oro./hchs/puhl/d3 I 7 .pdf. 

5 See Incentives to centrally clear over-the-counter (OTC) derivatives: A post-implementation evaluation of the 

effects of the G20 financial regulatory reforms (l\"ov. 19, 2018) at pages 36-37, available at: http://www.tsb.org/wpcontentiuploacb/Rl 91118-1-1.pdf (the ,.DAT Report"). 

6 See '"Remarks of CFTC Chairman J. Christopher Giancarlo at the Future~ lndu~try A~~ociation Law & Compliance 

Divi~ion Conference" (:\fay JO. 2019), available at: 

https :/ /www. c ftc. gov /Pre~ ~Room/S pccc hes' I' c~ ti mon y iopag i an earl o 72. 

7 See. e.g., Transcript of the MRAC Meeting on July 12.2018 at pages 181-82, available at: 

https: '/www.cftc.gov/\it<e~/default/file~i20 I 8- 12/mrac 07121 8 tran~cript .pdf. 

2 
= CIT1\DEL 

market liquidity would be bifurcated between cleared and uncleared markets. to the 

detriment of participants in both markets. 

• Creates Additional Implementation Challenges. Providing a blanket exemption for 

new SOFR derivatives would further increase the complexity associated with the phasein of uncleared initial margin requirements. A multi-year phase-in of these requirements 

by participant type remains in progress, with an expected completion date of September 

202 I. Layering on additional phase-ins by product type would only increase the 

associated operational challenges for market participants. In addition, absent coordinated 

action from regulators in non-U.S. jurisdictions, a blanket exemption for new SOFR 

derivatives risks introducing additional cross-border complexity to the phase-in of 

uncleared initial margin requirements. 

Furthermore. providing an exemption from uncleared initial margin requirements for new 

SOFR derivatives may create challenges for market participants who nonetheless 

continue to post initial margin for these SOFR derivatives (despite the regulatory 

exemption) and wish to portfolio margin these positions with other interest rate 

derivatives that remain subject to the uncleared initial margin requirements. Further 

regulatory clarification would be needed to ensure that market patticipants could 

voluntarily include out-of-scope products for purposes of regulatory initial margm 

calculations. 

II. New SOFR Derivatives Should Not Be Exempted from Public Reporting Requirements 

We also caution against providing any exemption from public reporting requirements for new 

SOFR derivatives. Academic research has found that the introduction ofreal-time public reporting 

in the OTC derivatives market has led to meaningful benefits for end investors, removing 

information asymmetries and facilitating more accurate assessments of execution quality.~ By 

enabling investors to compare the prices they receive from liquidity providers with concurrent 

trading activity across the market, public reporting enhances investor confidence and incentivizes 

price competition as investors are able to demand more accountability from their liquidity 

providers. Furthermore, investors' understanding of, and confidence in, the emerging SOFR 

derivatives markets is predicated upon publicly available information about pricing and trading 

activity, as well as attendant research and analysis. 9 Ensuring that new SOFR derivatives benefit 

from the Commission's post-trade transparency framework will support the market's transition 

away from LIBOR, and help foster- not hinder- liquidity formation. 

8 See, e.g, Loon, Y. C., Zhong, Z. K., 2014. The impact of central clearing on counterparty ri~k, liquidity, and 

trading: Evidence from the credit default ~wap market. Journal of Financial Economics, availahle at: 

h1tps://papcrs.~~rn.com/sol1/papcrs.cfm•\1hs1ract_id=2l76561; Loon, Y. C., Zhong, Z. K., 2015. Does Dodd-Frank 

affect OTC transaction cost~ and liquidity? Evidence from real-time CDS trade reports, Journal of Financial 

Economics, a vai !ah le at: http ://papers. ~~rn .co mi so 11/papcrs .cfm ,, ahstract_i d = 244 :;654. 

9 See. e.g .. "SOFR Market Developments., from Clarus Financial Technology, available at 

https: · /www. c 1 aru ~ft. com/ ~ofr-market-developments/. 

3 
= CIT1\DEL 

III. A Forward-Looking Plan Should Be Developed to Bring SOFR Derivatives Under the 

Clearing Mandate 

As trading activity in cleared SOFR derivatives increases, we recommend that the Commission 

support this transition by developing and communicating a forward-looking plan to apply the 

clearing mandate to these instruments. Research has found that central clearing has a positive 

impact on market liquidity. 10 In addition, a clearing mandate has several important advantages 

compared to voluntary incentives, including (a) increasing the availability of client clearing 

offerings, 11 (b) consolidating liquidity (which may be bifurcated between the cleared and 

uncleared versions of the instrument), and (c) providing clients with confidence that there will be 

sufficient cleared liquidity to properly risk manage their positions. 

With more than $100 billion of SOFR derivatives already cleared. 12 we recommend that the 

Commission regularly re-assess market conditions pursuant to its existing framework for making 

clearing requirement determinations. 13 Ensuring that the SOFR derivatives market matures as a 

cleared market will mitigate systemic risk, increase market transparency, and improve liquidity 

conditions for all market participants. 

* * * * * * * * * * 

We appreciate the opportunity to provide comments on interest rate benchmark reform. Please 

feel free to call the undersigned at (646) 403-8200 with any questions regarding these comments. 

Respectfully, 

/s/ Stephen John Berger 

Managing Director 

Global Head of Government & Regulatory Policy 

CC: Dr. Heath P. Tarbert. Chairman 

Mr. Brian D. Quintenz, Commissioner 

Mr. Rostin Behnam, Commissioner 

Ms. Dawn DeBerry Stump, Commissioner 

Mr. Dan M. Berkovitz. Commissioner 

10 See Loon. Y. C.. Zhong, Z. K. 2015. Does Dodd-Frank affect OTC transaction co~t~ and liquidity? Evidence from 

real-time CDS trade reporb, Journal of Financial Economic~ at page 4, availahle at: 

http://papc::r~.ssrn.comisolJipapcrs.cfm•-,ahstract_id=244]654 ("'the reduced counterparty ri~k and increased posttrade transparency a~sociated with central clearing have beneficial effects on liquidity"). 

See DAT Report at page 23. 

12 "Libor leaders: LCII brings SOFR ~wap~ into the fold," Risk.net (June 19. 2019), available at: 

ht tps :/ /w w w. ri ~k. net/ dcri v ati vcs/6 7077 61 /] i hor-lcadcrs-lch- hri 11 l':S- ~o fr-~ w a p~-i nlo-thc-fo Id. 

11 77 Fed. Reg. 74284. 

4 

11 
Non Responsive Record 

From: Berger. Stephen [mailto:Stcphcn.BcrgcrG?citadcl.com] 

Sent: Thursday, December 12. 2019 6:07 PM 

To: Hutchison, Clark 

Cc: Platt, Jonah 

Subject: [EXTERNAL] RE: RE: FW: Letter from Citadel Regarding the Application of Certain OTC Derivative 

Market Reforms to SOFR Derivatives 

Clark. 

ll ViclS grecil tu rneel y'Ol, Ori TL,esrfav .. lhcink vuu cigciIr1 for tck1rig the lw1e lo specik w1lh US, 

1\s v,'0 d1su,ssr•d, through pcisl guIccinrr', tr'r· Cornrriss1on 0slcihl1sh0c straight thrnugr prnc0ssIng (STPi 

slciridcirds lo er-~L.re lhcil 

(1) SFh suhrn1t all (ll'drC'd S\NdpS lo cl CCP ro latl'r trcin 1() rnInutC'S afll'r C'XC'C1,tIor (thougr nolcihly, on the' 

lecidwg deciler-lo-cuslorr-er SEh, this nmv hcippens Ir' cl rnciller of ~ecunc~), cine 

(11) CCPs accC'pt or r0wct 1ranscictIons v,'1thn HJ sr•rnnds of rl'Cl'Ipt 

This STP guidance ras helped n·in1rn1ze delavs between trade execution anc clearing acceptarce whch, In 

tL.rr·, hcis pos1t1velv Ir1pcictec rnJrket structure evolution - JI lowing cliel'ts to Jccess J broJcer rJnge of 

trcicirig cuunlerpcirtIes while prorr-utwg rmce curnpeliliori cine l1qu1c1lv forrncil1or·. 

As sL.ci', we believe is worth cons1derir·g cociifyir·g tl·e Corn missions pcist S 11-' guiciJnce whicl·, for 

rl'fr'n'rcC', 1rrlucr•s: 

• Slciff Gu1dcince on Swcips Slrci1gl·l-H-ruugh-Prucess1rig (Sepler'1ber 2G, 2O13i 

l·:tpc, //1/·/'·.'/\-V cttc. "OV/', 1tc:s/ def,, J It /r CS/ dc/,c ·o J ps ipu bl ic/ 'ii:; 17 C\.\_."C,IT>O 11 ic OCll 11C 17:S /r c/stp,c J ic J 17 ,.c _ pdt 

• Stciff Letter No. b-6/ Re StrJight I hroL.gh f'rocessing cine AffirrnJt1on of SL~ Clecirec SwJps (Uecer1ber 

J'l, )()']_'i)· ·1t:p•, //w• . ..-..,··..v.citc 1:-.',(Jv/c.cl/l.'i h7/dcr• .. \·T CJ,-Jd 

We welcome the opportunitv to discuss this topic fLrther Jnc cinswer Jnv questions vou MJV hJve. 
Stephen 

From: Hutchison, Clark<~ 1L.ld· '_on,·iDCtTC.guv> 

Sent: Wednesday, December 04, 2019 5:16 PM 

To: Berger, Stephen <'.:itcp1e11.l3crcc1·(ilc_ :accl co,,> 

Cc: Platt, Jonah <ICJ"IC'"I::, c,ll(n1ut;,dcl,: oin> 

Subject: [EXT] RE: RE FW: Letter from Citadel Regarding the Application of Certain OTC Derivative Market 

Reforms to SOFR Derivatives 

330 un lhe 10:li 1~ grecill See you U·en 

From: Berger,Stephen[mailto:SteRhen.Berger@citadel com] 

Sent: Wednesday, December 4, 2019 2:32 PM 

To: Hutchison, Clark 

Cc: Platt, Jonah 

Subject: [EXTERNAL] RE: FW: Letter from Citadel Regarding the Application of Certain OTC Derivative Market 

Reforms to SOFR Derivatives 

Perfect, let's do 3 30pn· ther iftr'at still works on ym.r end I will be Joired by my colleague Jonah Platt as 

well See you next week. 

From: Hutchison, Clark <c. 1L,tcl· ',Cm'C)G I(_ "CW> 

Sent: Tuesday, December 03, 2019 4:20 PM 

To: Berger, Stephen <Step1e11.Berger(ii'c :acel.cor1> 

Subject: [EXT] RE: FW Letter from Citadel Regarding the Application of Certain OTC Derivative Market 

Reforms to SOFR Derivatives 

H1 I can meet 011 tre 10th betweer· 3 cwd:, let r1e kr·ow whcit works. 

From: Berger, Stephen [malllo:Slepl1en.Berger(ii)c1tadel com] 

Sent: Tuesday, December 3, 2019 3:41 PM 

To: Hutchison, Clark 

Subject: [EXTERNAL] FW: Letter from Citadel Regarding the Application of Certain OTC Derivative Market 

Reforms to SOFR Derivatives 

Also. I will be in UC next I uesdJy, lJecember 1011 · 'v\/ould ym. be JVJilJble to rreet tor 30 r11nutes? 

apprr'Clclll' then' rr;iy bear opl'n m00t111g that morning, so rwrhaps 1r thl' aftNrwor7 

Ir· Jddition to the below, I would be il'terested ir· discussing J few other topics JS well (e.g., LU clec1r1ng 

1mpll'r'wntat1or, cod1firat1on of STP g1,idanc0, cross bordN, 0tci. 

Regc1rds, 

Stephen 
From: Berger, Stephen 

Sent: Tuesday, December 03, 2019 3:36 PM 

To: 'C_hutchinson@cftc.gov' <C hulch1 1,or .. 'iicftc.guv> 

Subject: FW: Letter from Citadel Regarding the Application of Certain OTC Derivative Market Reforms to 

SOFR Derivatives 

Clark 

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Stephen 

From: Berger, Stephen 

Sent: Tuesday, December 03, 2019 2:32 PM 

To: 'jsterling@cftc.gov' <1stnl 1cGcttc.co\i>; 'ddewitt@cftc.gov' <dcc1".' ttrrildtc cov>; 

'chutchison@cftc.gov' <ch,Jl-: f,l\0·1tn1citc r-.;ov> 

Cc: Platt, Jonah <Ju 1c 1.=> all,'i-'1c1tad!:'l.crn11> 

Subject: Letter from Citadel Regarding the Application of Certain OTC Derivative Market Reforms to SOFR 

Derivatives 

Dear Josh, Dorothy and Clark, 

Please find attached a letter containing our recommendations regarding the application of certain OTC 

derivative market reforms to swaps referencing SOFR (and other new risk free reference rates). 

While we strongly support efforts by regulators to streamline a market-led transition from LIBOR to SOFR, 

we caution against exempting new OTC derivatives referencing SOFR from key pillars of the post-crisis 

financial reforms, such as uncleared margin requirements, public reporting, and mandatory clearing. 

Rather, we believe that the market for SOFR derivatives should be built on the solid foundation of these 

critical reforms in order to further secure and advance the objectives of mitigating systemic risk and 

increasing market stability, integrity, and efficiency. 

We would welcome the opportunity to discuss our recommendations further or answer any questions you 

may have. 

Kind regards, 

Stephen Berger 

Managing Director, Global Head of Government & Regulatory Policy 

Citadel LLC 

Office: (646) 403-8235 

Mobile: (203) 807-6249 

s:epher .berger(ii'c tacel.cor,