1

6351-01-P

COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 36, 37, and 43

RIN 3038-AE94

Swap Execution Facility Requirements and Real-Time Reporting Requirements

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

SUMMARY: The Commodity Futures Trading Commission (“Commission” or 

“CFTC”) proposes to amend certain parts of its regulations relating to the execution of 

package transactions on swap execution facilities (“SEFs”); the execution of block trades 

on SEFs; and the resolution of error trades on SEFs. These matters are currently the 

subject of relief in certain no-action letters from Commission staff.

DATES: Comments must be received on or before [INSERT DATE 60 DAYS AFTER 

DATE OF PUBLICATION IN THE FEDERAL REGISTER].

ADDRESSES: You may submit comments, identified by RIN 3038-AE94, by any of the 

following methods:

 CFTC Comments Portal: https://comments.cftc.gov. Select the “Submit 

Comments” link for this rulemaking and follow the instructions on the Public Comment 

Form.

 Mail: Send to Christopher Kirkpatrick, Secretary of the Commission, 

Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW, 

Washington, DC 20581.

 Hand Delivery/Courier: Follow the same instructions as for Mail, above.
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Please submit your comments using only one of these methods. Submissions through the 

CFTC Comments Portal are encouraged.

All comments must be submitted in English, or if not, accompanied by an English 

translation. Comments will be posted as received to https://www.cftc.gov. You should 

submit only information that you wish to make available publicly. If you wish the 

Commission to consider information that you believe is exempt from disclosure under the 

Freedom of Information Act (“FOIA”),1a petition for confidential treatment of the 

exempt information may be submitted according to the procedures established in § 145.9 

of the Commission’s regulations, 17 CFR 145.9.

The Commission reserves the right, but shall have no obligation, to review, prescreen, filter, redact, refuse, or remove any or all of your submission from 

https://www.cftc.gov that it may deem to be inappropriate for publication, such as 

obscene language. All submissions that have been redacted or removed that contain 

comments on the merits of the rulemaking will be retained in the public comment file and 

will be considered as required under the Administrative Procedure Act and other 

applicable laws, and may be accessible under FOIA.

FOR FURTHER INFORMATION CONTACT: Roger Smith, Special Counsel, (202) 

418-5344, rsmith@cftc.gov, Division of Market Oversight, Commodity Futures Trading 

Commission, 525 West Monroe Street, Suite 1100, Chicago, Illinois 60661, or Michael 

Penick, Senior Economist, (202) 418-5279, mpenick@cftc.gov, Office of the Chief 

Economist, Commodity Futures Trading Commission, Three Lafayette Centre, 1151 21st 

Street, NW, Washington, DC 20581.

 

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5 U.S.C. 552.
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SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background

A. Parts 37 and 43 of the Commission’s Regulations

B. Summary of Proposed Changes to Parts 36, 37, and 43

C. Consultation with Other U.S. Financial Regulators

II. The Proposed Regulations

A. Execution of Package Transactions

1. Background

2. Proposed Addition of § 37.9(d) and Amendment of § 37.9(a)(2)

3. Request for Comment

4. Existing § 37.3(a)

5. Proposed Addition of § 37.3(a)(4)

6. Request for Comment

7. Exemption of New Issuance Bond Package Transaction from the Trade 

Execution Requirement

8. Discussion of CEA Section 4(c) Enumerated Factors

9. Request for Comment

B. Error Trades: Execution of Trades to Correct Operational and Clerical Errors on 

Swap Execution Facilities

1. Background

2. Proposed § 37.9(e)

3. Request for Comment

C. Real-Time Public Reporting: Block Trade Definition

1. Existing § 43.2

2. Proposed Amendment to § 43.2

3. Request for Comment

III. Effective Date and Transition Period

IV. Related Matters

A. Regulatory Flexibility Act

B. Paperwork Reduction Act

C. Cost-Benefit Considerations

D. Antitrust Considerations

I. Background

A. Parts 37 and 43 of the Commission’s Regulations

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank 

Act”) amended the Commodity Exchange Act (“CEA” or “Act”) by adding section 5h, 

which establishes registration requirements and core principles for swap execution 
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facilities (“SEFs”).2The Commission implemented section 5h by adopting regulations 

that establish various trading requirements for swaps traded on SEFs3and articulating, 

where appropriate, guidance and acceptable practices. In particular, the Commission 

promulgated part 37 of its regulations to implement section 5h of the CEA and set forth 

the registration and operational requirements for SEFs.4 Among those are requirements

in part 37 specifying minimum trading functionality that a SEF must offer to participants 

for all listed swaps, i.e., an “order book,” as defined in § 37.3 (“Order Book”);

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specifying the types of systems or platforms that a SEF must offer for swaps trading, 

including swaps subject to the trade execution requirement under CEA section 2(h)(8);6

and setting forth other relevant regulations applicable to the fifteen core principles with 

which a SEF must comply to obtain and maintain registration with the Commission.

Commission regulation 37.9 prescribes the methods of execution that a SEF must 

offer to market participants to execute swap transactions on the SEF. In particular, § 37.9 

defines “Required Transactions” as swaps subject to the trade execution requirement. 

 

2

7 U.S.C. 7b-3.

3 The Dodd-Frank Act also added to the CEA certain provisions related to the trading of swaps on 

designated contract markets (“DCMs”). Given that almost all platform trading of swaps in the U.S. occurs 

on SEFs, the Commission is not at this time proposing to amend any regulatory requirements pertaining to 

DCMs within part 38 of the Commission’s regulations.

4 Core Principles and Other Requirements for Swap Execution Facilities, 78 FR 33476 (June 4, 2013) 

(hereinafter “SEF Core Principles Final Rule”).

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17 CFR 37.3(a)(2). An Order Book is defined as (i) an “electronic trading facility,” as that term is defined 

in CEA section 1a(16); (ii) a “trading facility,” as that term is defined in CEA section 1a(51); or (iii) a 

trading system or platform in which all market participants have the ability to enter multiple bids and 

offers, observe or receive bids and offers entered by other market participants, and transact on such bids 

and offers. See 17 CFR 37.3(a)(3).

6 CEA section 2(h)(8) requires that transactions involving swaps subject to the CEA section 2(h)(1) 

clearing requirement be executed on or pursuant to the rules of a DCM or SEF, or a SEF that is exempt 

from registration, unless no DCM or SEF makes such swaps available to trade (“MAT”) or such swaps 

qualify for the clearing exception under CEA section 2(h)(7) (the “trade execution requirement”). See 7 

U.S.C. 2(h)(8).
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Section 37.9 also requires a SEF to offer, as required methods of execution, either (i) an 

Order Book or (ii) a request-for-quote system that sends a request-for-quote to no less 

than three unaffiliated market participants and operates in conjunction with an Order 

Book (“RFQ System”) for the execution of these transactions.7Swaps that are not 

subject to the trade execution requirement are defined as “Permitted Transactions,” for 

which a SEF may offer any execution method and for which market participants may 

voluntarily trade on a SEF.8The Commission’s regulations specify additional 

requirements that correspond to the use of an Order Book or RFQ System to execute 

Required Transactions.9

Pursuant to section 727 of the Dodd-Frank Act, the Commission also established 

a regulatory framework for the real-time public reporting of swap transaction and pricing 

data, including swap block trades within CEA section 2(a)(13).10 Part 43 of the 

Commission’s regulations implements section 727 of the Dodd-Frank Act by, among 

other things, defining the requisite criteria for when a publicly reportable swap 

transaction will be classified as a block trade, including the requirement that the swap 

transaction “occur[] away” from a SEF’s trading system or platform, but pursuant to the 

 

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17 CFR 37.9(a). With the exception of block trades, as defined in § 43.2 of the Commission’s 

regulations, Required Transactions must be executed on a SEF’s Order Book or RFQ System. See 17 CFR 

37.9(a)(2)(i).

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17 CFR 37.9(c).

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For example, under § 37.9(b), the Commission implemented a fifteen-second time-delay requirement for 

Required Transactions that are pre-arranged or pre-negotiated by a broker and submitted as cross trades for 

execution through the SEF’s Order Book. This requirement allows a broker or dealer to execute a Required 

Transaction by trading against a customer’s order, or executing two customers’ orders against each other,

through pre-negotiation or pre-arrangement, provided that one side of the transaction is exposed to the 

Order Book for fifteen seconds before the other side of the transaction is submitted for execution. See 17 

CFR 37.9(b).

10 7 U.S.C. 2(a)(13).
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SEF’s rules and procedures.11 Part 43 also sets forth the procedures for calculating 

appropriate minimum block sizes for each swap asset class12 and specifying the public 

reporting delays available for such trades.13

B. Summary of Proposed Changes to Parts 36, 37, and 43

During the implementation of parts 37 and 43, market participants and SEFs

identified certain operational and compliance burdens related to various requirements.

To mitigate these burdens, Commission staff issued to SEFs and market participants

time-limited no-action relief from certain provisions of the CEA and the Commission’s 

regulations.

14 Based on this implementation experience, the Commission believes it may 

be appropriate to amend the current SEF regulatory framework to address the following

issues, which have been identified in staff no-action letters:

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11 17 CFR 43.2.

12 17 CFR 43.6.

13 17 CFR 43.5(d).

14 As defined in § 140.99(a)(2) of the Commission’s regulations, a no-action letter is a written statement 

issued by a Division stating that it will not recommend enforcement action to the Commission for failure to 

comply with a specific provision of the Act or a Commission rule, regulation, or order. A no-action letter 

represents only the issuing Division’s position and binds only that Division. 17 CFR 140.99(a)(2).

15 In November 2018, the Commission issued a comprehensive proposal to amend the SEF regulatory 

framework. See generally Swap Execution Facilities and Trade Execution Requirement, 83 FR 61946 

(Nov. 30, 2018) (“2018 SEF Proposal”). Among other things, the 2018 SEF Proposal addresses existing 

relief under various no-action letters as part of the proposal’s holistic approach to amending the SEF 

regulatory framework. Given the complex, expansive, and comprehensive nature of the 2018 SEF 

Proposal, however, the Commission continues to evaluate it. Therefore, the Commission is proposing rules 

herein independent of that proposal. To be clear, this rule proposal does not supersede the 2018 SEF 

Proposal in any way.

Further, while the proposals and rationales contained herein are, in some cases, identical or similar to the 

proposals and rationales used in the 2018 SEF Proposal, the Commission believes the context surrounding 

these two proposals distinguishes them in application and scope. While the Commission received 

comments on the 2018 SEF Proposal, the Commission believes that it is important for the public to be able 

to provide comments focused on the facts and circumstances of the proposal at hand. Therefore, comments 

made on the 2018 SEF Proposal relevant to this rulemaking should be resubmitted as comments to this rule 

proposal in order to be considered.
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 The Commission proposes to amend part 37 to allow the swap components of 

certain categories of “package transactions”

16 to be executed on-SEF through flexible 

means of execution pursuant to § 37.9(c)(2), rather than through the required methods of 

execution under § 37.9 for “Required Transactions.” In addition, the Commission is 

proposing to amend part 36 to include an exemption from the trade execution 

requirement for swap transactions that are executed as a component of a package 

transaction that also includes a component that is a new issuance bond (“New Issuance 

Bond package transactions”). CFTC No-Action Letter No. 17-55 (“NAL No. 17-55”)17

 

16 As used herein a package transaction consists of two or more component transactions executed between 

two or more counterparties where: (i) at least one component transaction is a Required Transaction; (ii) 

execution of each component transaction is contingent upon the execution of all other component 

transactions; and (iii) the component transactions are priced or quoted together as one economic transaction 

with simultaneous or near-simultaneous execution of all components.

17 NAL No. 17-55, Re: Extension of No-Action Relief from Sections 2(h)(8) and 5(d)(9) of the Commodity 

Exchange Act and from Commission Regulations 37.3(a)(2) and 37.9 for Swaps Executed as Part of 

Certain Package Transactions (Oct. 31, 2017). NAL No. 17-55 extended no-action relief and related 

conditions previously granted by Commission staff. See CFTC Letter No. 14-12, No-Action Relief from 

the Commodity Exchange Act Sections 2(h)(8) and 5(d)(9) and from Commission Regulation § 37.9 for 

Swaps Executed as Part of a Package Transaction (Feb. 10, 2014) (“NAL No. 14-12”); CFTC Letter No. 

14-62, No-Action Relief from the Commodity Exchange Act Sections 2(h)(8) and 5(d)(9) and from 

Commission Regulation § 37.9 for Swaps Executed as Part of Certain Package Transactions and No-Action 

Relief for Swap Execution Facilities from Compliance with Certain Requirements of Commission 

Regulations § 37.9(a)(2), § 37.203(a) and § 38.152 for Package Transactions (May 1, 2014) (“NAL No. 14-

62”); CFTC Letter No. 14-121, Extension of No-Action Relief for Swap Execution Facilities and 

Designated Contract Markets from Compliance with Certain Requirements of Commission Regulations § 

37.9(a)(2), § 37.203(a) and § 38.152 for Package Transactions (Sept. 30, 2014) (“NAL No. 14-121”); 

CFTC Letter No. 14-137, Extension of No-Action Relief from the Commodity Exchange Act Sections 

2(h)(8) and 5(d)(9) and from Commission Regulation § 37.9 and Additional No-Action Relief for Swap 

Execution Facilities from Commission Regulation § 37.3(a)(2) for Swaps Executed as Part of Certain 

Package Transactions (Nov. 10, 2014) (“NAL No. 14-137”); CFTC Letter No. 15-55, Extension of NoAction Relief from the Commodity Exchange Act Sections 2(h)(8) and 5(d)(9) and from Commission 

Regulation § 37.9 and No-Action Relief for Swap Execution Facilities from Commission Regulation § 

37.3(a)(2) for Swaps Executed as Part of Certain Package Transactions (Oct. 15, 2015) (“NAL No. 15-

55”); and CFTC Letter No. 16-76, Re: Extension of No-Action Relief from the Commodity Exchange Act 

Sections 2(h)(8) and 5(d)(9) and from Commission Regulation § 37.9 and No-Action Relief for Swap 

Execution Facilities from Commission Regulation § 37.3(a)(2) for Swaps Executed as Part of Certain 

Package Transactions (Nov. 1, 2016) (“NAL No. 16-76”). NAL No. 17-55 also provided relief for package 

transactions where at least one individual swap component is subject to the trade execution requirement and 

all other components are futures contracts (“MAT/Futures package transactions”). The Commission 

continues to evaluate MAT/Futures package transactions and their regulatory treatment. Therefore, this 

rulemaking does not encompass MAT/Futures package transactions.

Further, NAL No. 17-55 also applies to package transactions occurring on a DCM. See supra note 3.
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currently provides no-action relief for the swap components of certain categories of 

package transactions from the required methods of execution, and in some instances, 

from the trade execution requirement.

 The Commission proposes to amend part 37 to establish a principles-based 

approach for SEF error trade policies that incorporates relief from the required methods 

of execution under § 37.9 for Required Transactions for trades intended to resolve error 

trades.

18 The amendment would enable SEFs to permit market participants to execute 

swaps transactions to correct operational or clerical errors using execution methods other 

than those required under § 37.9 for Required Transactions. This proposal does not seek 

to codify the specific conditions contained in CFTC No-Action Letter No. 17-27 (“NAL 

No. 17-27”).

19 Rather, this proposal is intended to capture the intent of NAL No. 17-27

to permit market participants to correct error trades in Required Transactions through 

non-required methods of execution while ensuring flexibility for SEFs to determine the 

most suitable error trade rules for their markets and participants.

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18 The Commission notes that in addition to relief from the required methods of execution, staff has also 

provided relief from § 37.203(a) of the Commission’s regulations, which prohibits “pre-arranged trading,” 

for offsetting trades and correcting trades. See NAL No. 17-27, Re: No-Action Relief for Swap Execution 

Facilities and Designated Contract Markets in Connection with Swaps with Operational or Clerical Errors 

Executed on a Swap Execution Facility or Designated Contract Market (May 30, 2017). As discussed 

further below, the Commission does not, however, view a regulatory amendment corresponding to that 

relief as necessary. See infra note 70.

19 This proposal also does not codify the supplemental conditions to NAL No. 17-27 contained in CFTC

No-Action Letter No. 20-01, Re: Supplemental No-Action Relief for Swap Execution Facilities and 

Designated Contract Markets in Connection with Swaps with Operational or Clerical Errors Executed on a 

Swap Execution Facility or Designated Contract Market (Jan. 8, 2020) (“NAL No. 20-01”), conditions that 

allow market participants to correct error trades that have been accepted for clearing with an ex post facto

review by the SEF. As discussed below, nothing in this proposal would prohibit SEFs from incorporating 

such conditions within their error trade rules. See infra note 74.

20 NAL No. 17-27, Re: No-Action Relief for Swap Execution Facilities and Designated Contract Markets in 

Connection with Swaps with Operational or Clerical Errors Executed on a Swap Execution Facility or 

Designated Contract Market (May 30, 2017). NAL No. 17-27 extended no-action relief and related 

conditions previously granted by Commission staff. See CFTC Letter No. 16-58, Re: No-Action Relief for 

Swap Execution Facilities and Designated Contract Markets in Connection with Swaps with Operational or 
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 The Commission proposes to amend the definition of “block trade” in § 43.2, 

which requires the execution of block trades pursuant to the rules of a SEF to “occur[] 

away” from the SEF, i.e., to be executed outside of any of the SEF’s trading systems or 

platforms. The amendment would enable SEFs to offer non-Order Book methods of 

execution for market participants to execute swap block trades on the SEF. The proposal 

codifies CFTC No-Action Letter No. 17-60 (“NAL No. 17-60”) while also allowing 

block trades for swaps that are not intended to be cleared (“ITBC”) to be executed on 

SEF via non-Order Book methods of execution.

21

The Commission believes that the above-described amendments would continue 

to effectuate the statutory SEF provisions and better promote the statutory SEF goals, as 

discussed below.

 

Clerical Errors Executed on a Swap Execution Facility or Designated Contract Market (June 10, 2016) 

(“NAL No. 16-58”); CFTC Letter 15-24, Re: No-Action Relief for Swap Execution Facilities and 

Designated Contract Markets in Connection with Swaps with Operational or Clerical Errors Executed on a 

Swap Execution Facility or Designated Contract Market (Apr. 22, 2015) (“NAL No. 15-24”); and CFTC 

Letter No. 13-66, Time-Limited No-Action Relief for Swap Execution Facilities from Compliance with 

Certain Requirements of Commission Regulation 37.9(a)(2) and 37.203(a) (Oct. 25, 2013) (initial relief 

provided by Commission staff with respect to error trades that are rejected from clearing)(“NAL No. 13-

66”). NAL No. 17-27 also applies to swap transactions occurring on a DCM. See supra note 3. In 

addition, DMO recently released NAL No. 20-01, which supplements the conditions in NAL No. 17-27 to 

allow market participants, sua sponte, to correct error trades that have been accepted to clearing with an ex 

post facto review by the SEF.

21 NAL No. 17-60, Re: Extension of No-Action Relief for Swap Execution Facilities from Certain “Block

Trade” Requirements in Commission Regulation 43.2 (Nov. 14, 2017). NAL No. 17-60 extended no-action 

relief and related conditions previously granted by Commission staff. See CFTC Letter No. 16-74, Re: 

Extension of No-Action Relief for Swap Execution Facilities from Certain “Block Trade” Requirements in 

Commission Regulation 43.2 (Oct. 7, 2016) (“NAL No. 16-74”); CFTC Letter No. 15-60, Re: Extension of

No-Action Relief for Swap Execution Facilities from Certain “Block Trade” Requirements in Commission 

Regulation 43.2 (Nov. 2, 2015) (“NAL No. 15-60”); and CFTC Letter No. 14-118, No-Action Relief for 

Swap Execution Facilities from Certain “Block Trade” Requirements in Commission Regulation 43.2 

(Sept. 19, 2015) (“NAL No. 14-118”). NAL No. 17-60 only provides relief for swap block trades that are 

ITBC.
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C. Consultation with Other U.S. Financial Regulators

In developing these rules, the Commission has consulted with the Securities and 

Exchange Commission, pursuant to section 712(a)(1) of the Dodd-Frank Act.22

II. The Proposed Regulations

A. Execution of Package Transactions

1. Background

Package transactions generally involve the execution of multiple component 

transactions together that market participants consider to represent one economic 

transaction.23 The types of transactions that constitute a package transaction are wideranging and diverse. In particular, there are package transactions that consist solely of 

swaps subject to the trade execution requirement; those that include a mix of swaps 

subject to the trade execution requirement and swaps that are not; those made up of 

swaps and non-swaps; and those comprised of both swaps that are and swaps that are not 

exclusively subject to the Commission’s jurisdiction.24 These components range from 

being very liquid and standardized to being illiquid and bespoke.25 The variety of 

package transactions derives, in part, from the fact that the different types of package 

 

22 Dodd-Frank Act, Pub. L. No. 111-203, title VII, sec. 712(a)(1), 124 Stat. 1376 (2010).

23 See supra note 16. The Commission notes that there are transactions that otherwise meet the package 

transaction definition but do not involve a swap subject to the trade execution requirement. While these 

transactions may colloquially be referred to as package transactions, the Commission notes that such 

transactions are not the subject of this proposal.

24 See infra note 36 for a more precise description of various package transactions.

To the extent that counterparties may be facilitating package transactions that involve a “security,” as 

defined in section 2(a)(1) of the Securities Act of 1933 or section 3(a)(10) of the Securities Exchange Act 

of 1934, or any component agreement, contract, or transaction over which the Commission does not have 

exclusive jurisdiction, the Commission does not opine on whether such activity complies with other 

applicable law and regulations.

25 Some non-swap components may be subject to different regulatory requirements than the swap 

components in the package transactions.
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transactions are fit for distinct purposes. The Commission understands that certain 

package transactions are utilized as tools within market participants’ portfolio 

management and hedging programs, while other types of package transactions are used to 

allow market participants to express views of the market—for example, by allowing 

participants to trade the spread between certain products or different maturities in the 

same product.

Given the diverse characteristics of the component transactions that may be 

involved, the Commission understands that package transactions often pose unique 

pricing and execution characteristics. The Commission understands that the negotiation 

or arrangement of each of these components generally occurs concurrently or on a 

singular basis; in particular, negotiations for the pricing of such package transactions may 

be based primarily on the components that are not subject to the trade execution

requirement. Further, given the individual liquidity and trading characteristics of each 

component, certain package transactions will have to trade through methods of execution 

that are suitable for an illiquid and bespoke component, which in many cases are not the 

required methods of execution.26

Notwithstanding the complexity of their pricing and execution, the Commission is 

aware of their benefits of such package transactions. By executing multiple components 

together as part of a package transaction, market participants can improve transaction 

pricing and cost, increase execution efficiency, and decrease execution risk beyond what

 

26 For example, while a swap that is subject to the trade execution requirement is suitable to be executed 

through the required methods of execution as an outright transaction, when that same swap is bundled 

together with an illiquid and bespoke component in a package transaction, the package transaction takes on 

the liquidity and trading profile of the illiquid and bespoke component.
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would have been possible if the market participant had executed each component 

individually, i.e., “legged” or “legging” into the transaction.27

During the implementation of the trade execution requirement for certain interest 

rate swaps and credit default swaps, SEFs and market participants informed the

Commission that requiring swaps that are otherwise Required Transactions—but are

components of a package transaction28—to be executed through the required methods of 

execution29 under § 37.9 was in many cases impracticable and increased execution risks 

and operational challenges. Market participants and SEFs informed the Commission that 

these risks and challenges generally reflect (i) an initial lack of market infrastructure 

available to trade and clear certain package transactions;30 and (ii) the complex, bespoke, 

and idiosyncratic nature of several categories of package transactions that precluded them 

from being suitable for execution through required methods of execution.31

In response to concerns from market participants, Commission staff in the 

Division of Market Oversight (“DMO”) provided a series of time-limited no-action relief

 

27 For example, a market participant seeking to execute two component transactions independent of one 

another, instead of executing the two components together in a package transaction, would be forced to pay 

the bid/offer spread on each leg, which in many cases is more costly and less efficient than paying the 

single bid/offer spread for a package transaction composed of the same two components.

28 See supra note 16. Consistent with the proposed definition of package transaction under § 37.9(d) the 

Commission notes that, unless otherwise stated, the term “swap component(s)” as used herein refers to a 

swap component that is subject to the trade execution requirement under CEA section 2h(8), and therefore 

a Required Transaction.

29 As noted above, pursuant to § 37.9, SEFs must provide as the required methods of execution for 

Required Transactions either an Order Book or an RFQ System.

30 See, e.g., NAL No. 14-12 at 2-3 n.10 (describing the inability of a DCO to simultaneously screen and 

accept all components of a package transaction for clearing).

31 See, e.g., CFTC Public Roundtable: Trade Execution Requirements and Package Transactions, 72, 84-85 

(Feb. 12, 2014), available at

https://www.cftc.gov/sites/default/files/idc/groups/public/@newsroom/documents/file/transcript021214.pdf

(commenting on the challenges of applying required methods of execution to package transactions with 

complex component swaps).
13

in order to allow the swap components of certain package transactions to be executed 

through flexible methods of execution on a SEF, and in some cases completely away 

from a SEF. Over time, the initial dearth of available market infrastructure to trade and 

clear certain package transactions has diminished, especially for package transactions 

composed of liquid and standardized components. As a result, Commission staff has 

allowed the relief for certain package transactions to expire as the capabilities and 

functionalities of market participants and SEFs have progressed to the point of permitting 

the swap component of various package transactions to be executed through the required 

methods of execution.32 The Commission notes that the expiration of relief has been 

successful for many types of package transactions given (i) market participants now 

actively trade the swap component of several types of package transactions through the 

required methods of execution, and (ii) the trading of such package transactions 

constitutes a significant portion of swaps trading.

33

Despite the progress, however, Commission staff has continued to provide relief 

for the swap components of certain package transactions where relief is necessary for 

market participants to be able to effectively execute the package transaction due to 

specific attributes of such transactions.

 

32 See infra note 36 for an overview and description of the evolution of the relief for package transactions.

33 For example, according to publicly available data from ClarusFT, nearly seventy percent of U.S. Dollar 

interest rate swaps trading in the inter-dealer swap market were carried out as part of just a single type of 

package transaction: U.S. Dollar Spreadover package transactions, as defined in note 35. See Chris 

Barnes, USD Spreadovers and SEF Market Share, Clarus Financial Technology Blog (August 14, 2018),

available at https://www.clarusft.com/usd-spreadovers-and-sef-market-share/. Further, package 

transactions involving spreads and butterflies of interest rate swaps make up a material amount of trading in 

the swaps markets.
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2. Proposed Addition of § 37.9(d) and Amendment of § 37.9(a)(2)

In light of the complex nature of these package transactions, the Commission 

recognizes that the required methods of execution under § 37.9 may inhibit market 

participants from tailoring the execution of the swap component of the relevant package 

transactions. This may force market participants to effect such transactions on a leg-byleg basis—leading to increased execution and operational risk—or prevent them from 

engaging in the relevant package transactions altogether, precluding effective hedging 

strategies and decreasing market liquidity. Since DMO’s issuance of this no-action relief,

the Commission has gained considerable knowledge and experience with the dynamics of 

the trading of package transactions, particularly with respect to the existing no-action 

relief from the required methods of execution. Based on this knowledge and experience, 

the Commission believes that certain aspects of the current requirements for the required 

methods of execution under § 37.9 should be enhanced to better account for the complex 

nature of the relevant package transactions.

Therefore, the Commission proposes to add § 37.9(d) and amend § 37.9(a)(2) to

permit the swap components of certain package transactions to be executed via flexible 

methods of execution pursuant to § 37.9(c)(2). The Commission proposes to define a 

“package transaction” as a transaction consisting of two or more component transactions 

executed between two or more counterparties where: (i) at least one component 

transaction is a Required Transaction; (ii) execution of each component transaction is 

contingent upon the execution of all other component transactions; and (iii) the 

component transactions are priced or quoted together as one economic transaction with 
15

simultaneous or near-simultaneous execution of all components.34 Based on this 

proposed definition and consistent with existing no-action relief, the Commission 

proposes to allow the Required Transaction swap component of the following three 

categories of package transactions to be executed via flexible means of execution 

pursuant to § 37.9(c)(2):

(1) A package transaction where at least one of the components is a swap 

exclusively within the Commission’s jurisdiction that is not subject to the clearing 

requirement (“MAT/Non-MAT Uncleared”);

(2) A package transaction where at least one of the components is not a swap 

(excluding certain package transaction categories as discussed below) (“MAT/Non-Swap 

Instrument”);

35 and

(3) A package transaction where at least one of the components is a swap for 

which the CFTC does not have exclusive jurisdiction, e.g., a mixed swap (“MAT/NonExclusive CFTC Swap”).

36

 

34 See proposed § 37.9(d)(1). The Commission notes that there are transactions which otherwise meet the 

package transaction definition but do not involve a swap that is subject to the trade execution requirement. 

While these transactions may colloquially be referred to as package transactions, the Commission notes that 

such transactions are not the subject of this proposal. See supra note 16.

35 Under proposed §37.9(d)(3), consistent with the no-action relief, this category specifically excludes 

package transactions in which all non-swap components are U.S. Treasury securities (“U.S. Dollar 

Spreadover package transactions”); MAT/Futures package transactions; package transactions in which all 

other non-swap components are agency mortgage-backed securities (“MAT/Agency MBS package 

transactions”); and New Issuance Bond package transactions. See also Section II.A.7 - Exemption of New 

Issuance Bond Package Transactions from the Trade Execution Requirement.

To the extent that counterparties may be facilitating package transactions that involve a “security,” as 

defined in section 2(a)(1) of the Securities Act of 1933 or section 3(a)(10) of the Securities Exchange Act 

of 1934, or any component agreement, contract, or transaction over which the Commission does not have 

exclusive jurisdiction, the Commission does not opine on whether such activity complies with other 

applicable law and regulations.

36 The Commission notes that the swap components of different categories of package transactions have 

been subject to time-limited no-action relief provided by Commission staff from the trade execution 

requirement and required methods of execution. These categories of package transactions include those 

where: (i) each of the components is a swap subject to the trade execution requirement (“MAT/MAT 
16

While, as noted above, the swap components of several types of package 

transactions have been successfully transitioned to SEF and are executed via the required 

methods of execution, the Commission believes that the types of package transactions 

covered by this proposal may not be suitable to be traded through the required methods of 

execution due to their specific characteristics. In particular, the Commission recognizes

that these package transactions contain components that are illiquid and bespoke, such as 

swaptions, or contain components that are subject to regulatory requirements other than 

or in addition to the CEA and the Commission’s regulations issued thereunder.

37

 

package transactions”); (ii) at least one of the components is subject to the trade execution requirement and 

each of the other components is subject to the clearing requirement (“MAT/Non-MAT (Cleared)”); (iii) 

U.S. Dollar Spreadover package transactions; (iv) MAT/Agency MBS package transactions; (v) New 

Issuance Bond package transactions; (vi) MAT/Futures package transactions; (vii) MAT/Non-MAT 

(Uncleared); (viii) excluding aforementioned categories, MAT/Non-Swap Instruments; and (ix) MAT/NonExclusive CFTC Swap. See NAL No. 14-12; NAL No. 14-62; NAL No. 14-121; NAL No. 14-137; NAL 

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

Over time, the swap components of the following categories of package transactions were no longer 

provided relief: MAT/MAT package transactions, MAT/Non-MAT (Cleared) package transactions, U.S. 

Dollar Spreadover package transactions, and MAT/Agency MBS package transactions. As a result, the 

swap components of these package transactions must be executed through the required methods of

execution under § 37.9(a).

Currently, the swap components of the following categories of package transactions receive no-action relief 

from the required methods of execution under § 37.9 under NAL No. 17-55: (i) MAT/Non-MAT 

(Uncleared) package transactions; (ii) MAT/Non-Swap Instruments package transactions (subject to the 

exclusions previously discussed); and (iii) MAT/Non-Exclusive CFTC Swap package transactions. The 

proposed addition of § 37.9(d) is consistent with the relief from the required methods of execution under 

NAL No. 17-55. Within this section, the term “relevant package transactions,” unless context requires 

otherwise, refers to these three categories of package transactions.

In addition to the relief from the required methods of execution in § 37.9, NAL No. 17-55 also provides 

relief from the trade execution for the swap components of MAT/Futures package transactions and New 

Issuance Bond Package transactions. As discussed above, the Commission is still evaluating MAT/Futures 

package transactions. See supra note 17.

Further, as discussed in more detail below, the Commission is proposing to exempt the swap components 

of New Issuance Bond package transactions from the trade execution requirement. This is consistent with 

the relief currently provided to New Issuance Bond package transactions under NAL No. 17-55. To the 

extent that counterparties may be facilitating package transactions that involve a “security,” as defined in 

section 2(a)(1) of the Securities Act of 1933 or section 3(a)(10) of the Securities Exchange Act of 1934, or 

any component agreement, contract, or transaction over which the Commission does not have exclusive 

jurisdiction, the Commission does not opine on whether such activity complies with other applicable law 

and regulations.

37 The Commission will continue to evaluate these categories of package transactions for new 

developments in execution methods on SEFs and may in the future revise the categories of package 

transactions in which the swap component is eligible to be executed through flexible means of execution. 
17

The Commission believes that if market participants are unable to utilize flexible 

methods of execution for the swap components of these package transactions, they would 

potentially be forced to break the package transaction into its individual components, 

otherwise known as “legging” into the transaction. The Commission understands from 

market participants that legging into a package transaction is inefficient and increases 

transaction costs and execution risks. Given that components of package transactions are 

each priced or quoted together as part of one economic transaction, the Commission 

recognizes the impracticality of breaking the package transaction into individual legs or 

components in order to trade the swap components via the required methods of execution 

under § 37.9.

Based on its experience with the existing no-action relief, the Commission 

believes that the proposed addition of § 37.9(d) and amendment of § 37.9(a) will allow 

market participants to choose the most suitable execution method for their package 

transactions, which will decrease execution risks, improve efficiency, and decrease 

transaction costs because market participants will no longer be forced to leg into 

transactions. Given the inherent complexity of the relevant package transactions, the 

Commission believes that this proposal ensures that market participants are able to trade 

these package transactions in the most effective, efficient, transparent, and economical 

manner. SEFs would be able to offer, and market participants would be able to utilize,

methods of execution that best suit the characteristics of the relevant package transaction 

 

For example, the Commission notes that Tradeweb Markets Inc. recently released an electronic trading 

method for package transactions involving swaps and bonds. Such transactions – provided they are not 

U.S. Dollar Spreadover package transactions – would fall under the MAT/Non-Swap Instruments category 

of package transactions. Therefore, the Commission asks in this proposal whether the proposed package 

transaction categories are appropriate.
18

being traded. The Commission believes this would preserve the benefits and purpose of 

executing such package transactions.

In addition to causing inefficient execution and increasing risks and cost, forcing 

the swap components of the relevant package transactions through required methods of 

execution may also limit the commercial utility of such transactions or entirely frustrate 

the purposes of entering in such package transactions in the first place. For example, the 

Commission understands that in some of the relevant package transactions, (i) the swap 

component serves as the hedging instrument to other instruments in the package 

transaction, or (ii) the package transaction as a whole may be utilized as part of a market 

participant’s portfolio management program. If the swap component of such package 

transactions were impractical or unable to be executed due to the required methods of 

execution, market participants would be prevented from entering or effectively entering 

into the package transaction, nullifying the package transaction’s purpose and benefits as 

a hedging and portfolio management tool. Based on its experience with the existing noaction relief, the Commission believes that this proposal would allow market participants 

to utilize flexible methods of execution for the swap component of the relevant package 

transaction, thereby ensuring that market participants are able to continue to utilize these 

effective hedging tools.

Finally, the Commission believes that its proposed approach would advance the 

SEF statutory goal of promoting trading on SEFs.38 The proposed rule provides relief 

from execution method requirements that are generally intended to help promote trading 

on SEFs. However, the relevant package transactions are not suitable for trading via such

 

38 See 7 U.S.C. 7b-3(e).
19

required methods of execution, as discussed above. Accordingly, the Commission 

believes that in this case flexibility with respect to execution methods will better promote 

trading of such component swaps on SEFs, consistent with the statutory SEF goals.

3. Request for Comment

The Commission requests comment on all aspects of proposed § 37.9(d) and the 

proposed amendment of § 37.9(a)(2). The Commission also invites specific comments 

on the following:

(1) Is the proposed definition of “package transaction” in proposed § 37.9(d)(1) 

appropriate? Please explain why or why not.

(2) Is the proposed definition’s condition that the “execution of each component 

transaction is contingent upon the execution of all other component transactions” clear in 

its meaning? If not, please explain how the Commission should clarify this provision.

(3) Similarly, is the proposed definition’s condition that “[t]he component 

transactions are priced or quoted together as one economic transaction” clear in its 

meaning? If not, please explain how the Commission should clarify this provision.

(4) Is it clear what is meant within the proposed definition’s statement that 

execution of all component transactions is to be “simultaneous or near-simultaneous”? If 

not, please explain how the Commission should clarify this provision.

(5) Is the proposed addition of § 37.9(d)(2) for MAT/Non-MAT (Uncleared) 

package transactions appropriate? Please explain why or why not.

(6) Is the proposed addition of § 37.9(d)(3) for MAT/Non-Swap package 

transactions appropriate? Please explain why or why not.
20

(7) Are the categories of package transactions that are excluded from § 37.9(d)(3) 

appropriate? Please explain why or why not.

(8) Are there additional package transactions that should be excluded from §

37.9(d)(3)?

(9) Is the proposed addition of § 37.9(d)(4) for MAT/Non-Exclusive CFTC Swap 

package transactions appropriate? Please explain why or why not.

(10) Are there additional types or categories of package transactions not covered in 

this proposal for which the Commission should allow the swap component to be executed 

through the flexible means of execution in § 37.9(c)(2)? Please explain in detail why or 

why not.

(11) Should the Commission allow swap components to be executed via flexible 

methods of execution where a package transaction contains more than four components 

or legs, regardless of the types of components?

(12) In addition to U.S. Dollar Spreadover package transactions, are there 

additional package transactions with sovereign debt components for which the 

Commission should exclude the swap component from flexible methods of execution?

Please explain why or why not.

(13) Should the Commission allow all swap components of a package transaction 

to be executed via flexible means of execution where a single swap component subject to 

the trade execution requirement is above the applicable block size? Please explain why 

or why not.

(14) Should the Commission allow a package transaction composed of a Credit 

Default Swap (“CDS”) index swap subject to the trade execution requirement and a CDS 
21

index swap that is several series off-the-run to be executed through flexible means of 

execution? Please explain why or why not.

4. Existing § 37.3(a)

An Order Book is one of the two required methods of execution under § 37.9(a). 

The Commission designated an Order Book as the “minimum trading functionality” each 

SEF must maintain and offer for each swap that it lists for trading. An Order Book is 

defined under § 37.3(a)(3) as (i) an electronic trading facility;39 (ii) a trading facility;40 or 

(iii) a trading system or platform in which all market participants in the trading system or 

platform have the ability to enter multiple bids and offers, observe or receive bids and 

offers entered by other market participants, and transact on such bids and offers.”41

Generally speaking, it may be complex to apply the existing Order Book 

requirement in § 37.3(a)(2) to the swap components of the package transactions covered 

by this proposed amendment. In some situations, § 37.3(a)(2) may require that a SEF 

maintain separate Order Books for the same type of swap: one Order Book for when the 

swap is executed as a single transaction (referred to as an “outright transaction”), and a 

separate Order Book for when the swap is executed as part of a package transaction. In 

fact, multiple Order Books could be required for the same type of swap if it were 

included as part of multiple types of package transactions. The Commission understands 

 

39 CEA section 1a(16) defines “electronic trading facility” as a trading facility that (i) operates by means of 

an electronic or telecommunications network; and (ii) maintains an automated audit trail of bids, offers, and 

the matching of orders or the execution of transactions on the facility. 7 U.S.C. 1a(16).

40 CEA section 1a(51) defines “trading facility” as a person or group of persons that constitutes, maintains, 

or provides a physical or electronic facility or system in which multiple participants have the ability to 

execute or trade agreements, contracts, or transactions by accepting bids or offers made by other 

participants that are open to multiple participants in the facility or system; or through the interaction of 

multiple bids or multiple offers within a system with a pre-determined non-discretionary automated trade 

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

41 17 CFR 37.3(a)(3).
22

that, in part because of the availability of relief under the staff letters described above, 

SEFs have put in place relatively few Order Books for swaps to be executed as part of the 

package transactions covered by this proposed amendment, and any such Order Books in 

place are not actively used.

5. Proposed Addition of § 37.3(a)(4)

The Commission proposes to add § 37.3(a)(4), which would allow SEFs not to 

offer an Order Book for the swap components of the package transactions covered by this 

proposed amendment: (i) MAT/Non-MAT Uncleared package transactions; (ii) 

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

Swap package transactions. However, this proposal would not alter any requirement 

applicable to such swap components to the extent they are executed in transactions that 

are not package transactions covered by this proposed amendment. The text of proposed 

§ 37.3(a)(4) makes clear that § 37.3(a)(2) of the Commission’s regulations would 

continue to apply to such swap components and SEFs would be required to offer Order 

Books for these Required Transactions as outright transactions.

As noted above,

42 executing Required Transaction swap components of certain 

package transactions through the required methods of execution is operationally complex,

and in many instances, impracticable. Given that the Commission has preliminarily

determined that it is infeasible or inefficient to facilitate swap components of these 

package transactions through the required methods of execution, which includes an Order 

 

42 See section II.A.1 - Background and section II.A.2 - Proposed Addition of § 37.9(d) and Amendment of 

§ 37.9(a)(2).
23

Book under § 37.3(a), it logically follows that requiring SEFs to offer an Order Book for 

the swap components of package transactions would be superfluous.

Finally, the Commission believes that not requiring SEFs to offer an Order Book 

for the swap components of the relevant package transactions would help reduce 

operating costs for SEFs, as they would no longer be required to operate and maintain 

order book systems that are not suitable for trading the swap components of the relevant

package transactions. Instead of employing resources to build (or attempt to build) and 

support an unused or underutilized Order Book for the swap components of certain 

package transactions, the proposal would instead provide a SEF with the flexibility to 

determine how to allocate its resources, particularly as it relates to developing methods of 

execution that are better suited to trading the relevant package transactions.

43

6. Request for Comment

The Commission requests comment on all aspects of proposed § 37.3(a)(4). The 

Commission also invites comments specifically on the following:

(15) Is the addition of § 37.3(a)(4) appropriate?

(16) Should the Commission still require SEFs to offer an Order Book for

MAT/Non-MAT (Uncleared) package transactions as defined in § 37.9(d)(2)?

(17) Should the Commission still require SEFs to offer an Order Book for the swap 

components of MAT/Non-Swap package transactions as defined in § 37.9(d)(3)?

(18) Should the Commission still require SEFs to offer an Order Book for

MAT/Non-Exclusive CFTC Swap package transactions as defined in § 37.9(d)(4)?

 

43 The Commission notes that nothing in this proposal would preclude a SEF from offering an Order Book 

if it is able to develop an Order Book solution that is effective in trading the swap component of certain 

package transactions.
24

(19) Are there additional types of package transactions that the Commission should 

consider allowing SEFs to not offer Order Books for?

(20) Should the Commission allow SEFs not to offer an Order Book for swaps that 

are not subject to the trade execution requirement but are components of any package 

transaction? Would this lead to additional types of package transactions being listed and 

traded on SEFs?

7. Exemption of New Issuance Bond Package Transactions from the Trade 

Execution Requirement

The Commission proposes to establish an exemption to the trade execution 

requirement for swap transactions that are components of a “New Issuance Bond” 

package transaction.44 The Commission believes that exempting these types of 

transactions from the trade execution requirement is authorized by, and would be 

consistent with the objectives of, CEA section 4(c).45 This proposed approach is 

 

44 The Commission notes that both this proposal and the 2018 SEF Proposal propose to exempt New 

Issuance Bond package transactions from the trade execution requirement under section 2(h)(8) of the 

CEA. See 2018 SEF Proposal at 62039. However, while these proposals and the supporting rationales are 

nearly identical, these two proposals are dissimilar in practical effect and scope. Under the 2018 SEF 

Proposal, the Commission proposed to apply the trade execution requirement to all swaps that are subject to 

the clearing requirement in section 2(h)(1) of the CEA and are listed on a SEF or a DCM. The 2018 SEF 

Proposal thus would have significantly expanded the scope of swaps that are subject to the trade execution 

requirement, including materially expanding the requirement to numerous forward starting interest rate 

swaps which are used as the swap components for New Issuance Bond package transactions. 

Contrastingly, this proposal would not alter the scope of swaps that are currently subject to the trade 

execution requirement, the majority of which are not swaps that are used as a component in New Issuance 

Bond package transactions. This means that the proposal to exempt New Issuance Bond package 

transaction under the 2018 SEF Proposal would have a significantly broader impact on the market than the 

proposed exemption within this proposal.

45 7 U.S.C. 6(c).
25

consistent with the time-limited no-action relief provided by Commission staff for this 

category of package transactions.46

New Issuance Bond package transactions include at least one individual swap 

component that is subject to the trade execution requirement and at least one individual 

component that is a bond47 issued and sold in the primary market.48 An underwriter (on 

behalf of an issuer) arranges the issuance of a bond packaged with a fixed-to-floating 

interest rate swap (“IRS”) that features the issuer as a counterparty. The terms of the 

IRS, which include tenor and payment terms, typically match the terms of the bond 

issuance. By issuing a bond with a fixed-to-floating IRS, issuers are able to effectively 

turn fixed-rate liabilities into variable-rate liabilities, or vice versa.49 To match the terms 

between these two components and facilitate the bond issuance in an efficient and costeffective manner, the IRS component is customized and negotiated in a manner that 

closely corresponds to the bond issuance process.

 

46 See supra note 36 (describing the no-action relief from the trade execution requirement provided by 

Commission staff for categories of package transactions).

47 The Commission notes that this proposed exemption would not apply to swap components of package 

transactions that include sovereign debt, such as U.S. Treasury bonds, notes, and bills.

48 The Commission understands that a bond issued and sold in the primary market that may constitute part 

of a package transaction is a “security,” as defined in section 2(a)(1) of the Securities Act of 1933 or 

section 3(a)(10) of the Securities Exchange Act of 1934. To the extent that counterparties may be 

facilitating package transactions that involve a security, or any component agreement, contract, or 

transaction over which the Commission does not have exclusive jurisdiction, the Commission does not 

opine on whether such activity complies with other applicable law and regulations.

49 For example, a bond issuer seeks to pay variable rates on its bonds, but prospective investors may seek a 

fixed rate of return. By arranging a New Issuance Bond package transaction, the bond issuer can issue a 

fixed-rate bond and simultaneously enter into an offsetting IRS. The IRS enables the issuer to receive a 

fixed rate that matches the fixed rate on its bond to be issued, while paying the variable rate that it 

originally sought. Ultimately, this arrangement may allow the bond issuer to issue the fixed-rate bond at a 

lower cost.
26

Given the process under which the swap is negotiated,50 this type of package 

transaction has not been conducive to execution on a SEF trading system or platform.

The Commission notes that the no-action relief that has been provided by Commission 

staff for these swaps components reflects the ongoing lack of an available execution 

method on an appropriate trading venue.51 Based on the integral role of the bond 

issuance in facilitating the component swap execution, the Commission believes that the 

IRS component is not suitable for execution on a SEF, even if a SEF were able to offer 

flexible means of execution, as the Commission is proposing for swap components of 

other package transactions within this proposal.

52

Therefore, consistent with current no-action relief provided by Commission staff, 

the Commission proposes to exempt swap components of a New Issuance Bond package 

transaction from the trade execution requirement. The proposed exemption would 

establish that a “package transaction” consists of two or more component transactions 

executed between two or more counterparties, where (i) at least one component 

transaction is subject to the trade execution requirement in section 2(h)(8) of the Act; (ii)

execution of each component transaction is contingent upon the execution of all other 

component transactions; and (iii) the component transactions are priced or quoted 

together as one economic transaction with simultaneous or near-simultaneous execution 

 

50 The Commission notes that these types of package transactions differ from other package transactions 

that involve the purchase or sale of a security in the secondary market, given that they involve the issuance 

of a new security.

51 See NAL No. 17-55 at 2-3.

52 See Section II.A.2.
27

of all components.53 The Commission recognizes the inherent challenges in trading or 

executing these swap components on a SEF or DCM and, therefore, recognizes the 

benefits of continuing to allow market participants to maintain established market 

practices with respect to this type of package transaction.

8. Discussion of CEA Section 4(c) Enumerated Factors

Section 4(c) of the CEA grants the Commission the authority to exempt any 

transaction or class of transactions, including swaps, from certain provisions of the CEA, 

including the Commission’s clearing requirement, in order to “promote responsible 

economic or financial innovation and fair competition.”54 Section 4(c)(2) of the CEA 

further provides that the Commission may not grant exemptive relief unless it determines 

that: (i) the exemption is appropriate for the transaction and consistent with the public 

interest; (ii) the exemption is consistent with the purposes of the CEA; (iii) the 

transaction will be entered into solely between “appropriate persons;” and (iv) the 

exemption will not have a material adverse effect on the ability of the Commission or any 

contract market to discharge its regulatory or self-regulatory responsibilities under the 

CEA. In enacting section 4(c), Congress noted that the purpose of the provision is to give 

the Commission a means of providing certainty and stability to existing and emerging 

markets so that financial innovation and market development can proceed in an effective 

and competitive manner.55

 

53 The Commission notes that this definition is consistent with the proposed definition for package 

transaction in § 37.9(d)(1).

54 7 U.S.C 6(c).

55 House Conf. Report No. 102-978, 1992 U.S.C.C.A.N. 3179, 3213.
28

The Commission believes that exempting swap components of New Issuance 

Bond package transactions from the trade execution requirement would be consistent 

with the objectives of CEA section 4(c).

The Commission recognizes the importance of new bond issuances in helping 

market participants to raise capital and fund origination loans for businesses and 

homeowners. The Commission recognizes that allowing the swap components of New 

Issuance Bond package transactions to be executed away from a SEF or DCM—

consistent with current market practice—is integral to facilitating the bond issuance.

Further, the Commission recognizes that the proposed exemption is limited in nature, i.e.,

the swap transaction remains subject to all other applicable Commission rules and 

regulations.

Therefore, the Commission preliminarily believes that the proposed exemption 

from the trade execution requirement for swap components of New Issuance Bond 

package transactions is appropriate and would be consistent with the public interest and 

purposes of the CEA.

The Commission further believes that the proposed regulation would not have a 

material adverse effect on the ability of the Commission or any SEF or DCM to discharge 

its regulatory or self-regulatory duties under the CEA. The Commission notes that the 

exemption is limited in scope and the swap components subject to this exemption are still 

required to be reported to a swap data repository pursuant to parts 43 and 45 of the 

Commission’s regulations. Further, the Commission retains its special call, anti-fraud, 

and anti-evasion authorities, which will enable it to adequately discharge its regulatory 

responsibilities under the CEA.
29

The Commission notes that under the proposed exemption, swap transactions 

would still be entered into solely between eligible contract participants (“ECPs”), whom

the Commission believes, for purposes of this proposal, to be appropriate persons.

Previously, the Commission determined that ECPs are appropriate persons within the 

scope of section 4(c)(3)(K) of the CEA.56 The Commission noted that the elements of the 

ECP definition (as set forth in section 1a(18)(A) of the CEA and Commission regulation 

1.3) generally are more restrictive than the comparable elements of the enumerated 

“appropriate person” definition.57 Given that only ECPs are permitted to enter into swaps

off of a DCM, there is no risk that a non-ECP or a person who does not satisfy the 

requirements for an “appropriate person” could enter into a New Issuance Bond package 

transaction using this proposed exemption. Therefore, the Commission believes that the 

class of persons eligible to rely on the exemption for New Bond Issuance package 

transactions will be limited to “appropriate persons” within the scope of section 4(c)(3) of 

the CEA.

9. Request for Comment

The Commission requests comment on all aspects of the proposed exemption of 

swap components of New Issuance Bond package transactions from the trade execution 

requirement under proposed § 36.1(a), including whether the proposed exemptive relief is 

consistent with the public interest and the other requirements of CEA section 4(c). As 

noted above, the 2018 SEF Proposal contained a nearly identical provision. Comments 

made on the 2018 SEF Proposal that are relevant to this rulemaking must be resubmitted 

 

56 Clearing Exemption for Swaps Between Certain Affiliated Entities, 78 FR 21750, 21754 (Apr. 11, 2013).

57 Id.
30

to be considered. The Commission specifically requests comment on the following 

questions:

(21) Pursuant to its authority in CEA section 4(c), should the Commission exempt 

the swap components of a New Issuance Bond package transaction from the trade 

execution requirement?

(22) Is the proposed definition of “package transaction” in proposed § 36.1(a)(1) 

appropriate?

(23) Is it clear what is meant within the proposed definition when it states that the 

“execution of each component transaction is contingent upon the execution of all other 

component transactions”? If not, please explain how the Commission should clarify this 

provision.

(24) Is it clear what is meant within the proposed definition when it states that 

“[t]he component transactions are priced or quoted together as one economic 

transaction”? If not, please explain how the Commission should clarify this provision.

(25) Is it clear what is meant within the proposed definition when it states that all 

component transactions are to be executed on a “simultaneous or near-simultaneous”

basis? If not, please explain how the Commission should clarify this provision.

(26) Are there additional swap components of different types or categories of

package transactions that should be exempt from the trade execution requirement? If so, 

then please describe in detail why such swap components of these types or categories of 

package transactions should be exempt from the trade execution requirement.
31

B. Error Trades: Execution of Trades to Correct Operational and Clerical Errors 

on Swap Execution Facilities

1. Background

The Commission notes that SEFs have adopted policies to identify and resolve 

error trades as part of the rules and procedures that govern their respective trading and 

trade processing operations. Errors in SEF transactions, as observed by the Commission, 

may be operational or clerical in nature and attributable to either the SEF, the 

counterparties to the transaction, the counterparties’ intermediaries, or the clearing 

members involved. Clerical errors, in particular, may occur in the process of entering 

trade details into a SEF’s trading system and may relate to the swap’s terms and 

conditions, such as price, size, or direction, as well as counterparty or clearing member 

identities. The adoption of error trade policies by SEFs reflects the importance of 

addressing errors to ensure that counterparties are able to execute swap transactions as 

intended on a SEF, which promotes a fair and orderly trading market for SEF market 

participants.58

Under the current SEF regulatory framework, however, resolving error trades for 

swaps subject to the Commission’s required methods of execution and straight-through 

processing requirements has occurred pursuant to no-action relief provided by 

Commission staff on an ongoing basis. Since 2013, the Division of Clearing and Risk 

(“DCR”) and DMO (together, the “Divisions”) have issued time-limited no-action relief

to allow counterparties to correct swap “error trades”—transactions containing an 

 

58 The Commission notes that the guidance to Core Principle 4 in Appendix B cites “clear error-trade and 

order-cancellation” policies as a type of trading risk control that could be part of an acceptable program for 

preventing market disruptions. 17 CFR part 37 app. B (guidance to Core Principle 4—paragraph (a)(5)—

“Risk controls for trading”).
32

“operational or clerical error”59—involving swaps designated as Required Transactions, 

which are subject both to the clearing requirement and the trade execution requirement.

60

This relief, as described further below, has facilitated corrections where the error trade 

has either been (i) rejected by a DCO from clearing due to the error; or (ii) accepted for 

clearing, and therefore requires correction through an offsetting trade. Pursuant to the 

relief, SEFs may provide counterparties with a bilateral, “corrective” execution process 

for Required Transactions that does not satisfy the required methods of execution under § 

37.9(a)(2) for swaps subject to the trade execution requirement.

For error trades rejected from clearing by a DCO, the no-action relief has 

provided operational flexibility from the required methods of execution that otherwise 

apply in conjunction with the Commission’s “straight-through processing” requirements 

for swaps submitted to a DCO for clearing.61 To promote the “near[-]instantaneous 

 

59 The Divisions previously defined “operational or clerical error” as any type of error other than a rejection 

from clearing due to credit reasons. See NAL No. 17-27 at 1 n.2.

60 See NAL No. 13-66. In April 2015, staff issued additional no-action relief, which not only reinstated the 

previous time-limited no-action relief from NAL No. 13-66 for SEFs from the requirements of § 37.9(a)(2) 

and § 37.203(a) for error trades rejected from clearing, but also provided relief for error trades accepted for 

clearing in NAL No. 15-24. Commission staff subsequently extended the relief provided in NAL No. 15-

24 in June 2016 with NAL No. 16-58. This relief was most recently extended in May 2017 by NAL No. 

17-27 and would expire on the effective date of any applicable changes in the Commission’s regulations. 

Commission staff in DMO recently issued NAL No. 20-01, which supplements NAL No. 17-27 to allow 

market participants, sua sponte, to correct error trades that have been accepted for clearing. In instances 

where market participants correct an error trade sua sponte, NAL No. 20-01 requires an ex post facto

review by the SEF of the error trade, offsetting trade, and correcting trade on a T+1 basis. Such review 

must consider whether a transaction cancellation or price adjustment will adversely impact market 

integrity, facilitate market manipulation or other illegitimate activity, or otherwise violate the CEA, 

Commission regulations, or the SEF’s rules.

61 The Commission’s “straight-through processing” requirements address the process of routing 

transactions from execution through clearing. See Customer Clearing Documentation, Timing of 

Acceptance for Clearing, and Clearing Member Risk Management, 77 FR 21278, 21283 (Apr. 9, 2012) 

(“Timing of Acceptance for Clearing Final Rule”). The Commission has previously stated that the 

“acceptance or rejection for clearing in close to real time is crucial for both effective risk management and 

for the efficient operation of trading venues.” Id. at 21285.
33

acceptance or rejection of each trade [for clearing],”62 the Divisions issued a 2013 staff 

guidance expressing the view that SEFs should have rules stating that trades that are 

rejected from clearing are “void ab initio.”63 Accordingly, executed swaps that a DCO

rejects from clearing would be deemed void, including swaps that are rejected due to an 

operational or clerical error by the SEF or the counterparties. Where the counterparties 

still seek to execute the transaction as intended, void ab initio compels the counterparties 

to execute a new transaction between one another with the corrected terms. Where the 

counterparties seek to execute a correcting swap that is a Required Transaction, the noaction relief allows SEFs to accept bilaterally-arranged swaps from the counterparties for 

execution and submission for clearing, rather than requiring them to execute the

correcting swap through an Order Book or RFQ System.

For error trades accepted for clearing by a DCO in spite of an operational or 

clerical error in the swap, the no-action relief has provided similar operational flexibility 

from the prescribed execution methods under § 37.9(a)(2).64 Accordingly, the relief 

allows SEFs to accept a bilaterally arranged swap from the counterparties for execution 

and submission for clearing that (i) economically offsets the initial error trade that was 

 

62 Staff Guidance on Swaps Straight-Through Processing at 2 (Sept. 26, 2013)(“2013 Staff STP 

Guidance”).

63 2013 Staff STP Guidance at 5. The 2013 Staff STP Guidance also addresses other elements of “straightthrough processing” for swap transactions, including void ab initio. See 2018 SEF Proposal at 61999 -

62002, 62019 - 62024. The Commission notes that it proposed to address certain provisions from the 2013 

Staff STP Guidance in the 2018 SEF Proposal, including a clarification that mandatory application of void

ab initio would be limited to swap transactions that are rejected from clearing for credit-related reasons; for 

rejections arising from clerical or operational errors, the proposed clarifications would allow a SEF to adopt 

other corrective approaches that may not involve execution of a offsetting trade or a correcting trade. Id. at 

62000 - 62001. As noted above, this proposal is independent of the 2018 SEF Proposal.

64 See NAL No. 17-27 at 5.
34

accepted from clearing; and (ii) corrects the initial error trade with corrected terms as 

originally intended by the counterparties.

The Divisions also attached certain conditions to this no-action relief that, among 

other things, specified timing requirements for submitting these transactions to a SEF for 

execution and to a DCO for clearing. For transactions correcting error trades that a DCO

has rejected from clearing, the Divisions specified that the counterparties must execute 

the transaction on a SEF, and the SEF must submit the transaction for clearing, as quickly 

as technologically practicable after receipt of notice of the rejection by the DCO to the 

clearing members, but no later than one hour from the notice.65 For offsetting and 

correcting transactions to error trades that a DCO has accepted for clearing, the Divisions 

specified that such execution and submission to clearing of those transactions must occur 

no later than three days after the error trade was executed.66

2. Proposed § 37.9(e)

The Commission proposes to amend the SEF regulatory framework by adding 

subsection (e) to § 37.9 to establish a flexible SEF error trade policy standard that would, 

among other things, incorporate the intent of the existing no-action relief in NAL No. 17-

27 for resolving errors in Required Transactions. Proposed § 37.9(e)(2)(i) would specify

that a SEF must maintain rules and procedures that are fair, transparent, consistent, and 

allow for timely resolution of an “error trade,” as defined under proposed 

 

65 Id. at 6.

66 Id. In addition, for error trades that are accepted for clearing, DMO issued NAL No. 20-01, which 

supplements NAL No. 17-27 to allow market participants, sua sponte, to correct error trades that have been 

accepted for clearing with an ex post facto review by the SEF. For error trades accepted for clearing and 

corrected under the relief in NAL No. 20-01, DMO specified that such error trades would need to be 

corrected no later than 24 hours after the error trade was executed. See NAL No. 20-01 at 4.
35

§ 37.9(e)(1)(ii).67 This proposed standard would apply to any error trade that occurs on a 

SEF, regardless of whether the swap is submitted for clearing or not. The Commission 

believes that the proposed standard is a flexible approach that also clarifies the key 

principles that any SEF’s error trade policy should address.

Further, under proposed § 37.9(e)(2)(i) SEFs must have error trade rules and 

procedures that require market participants to provide prompt notice to the SEF of an 

error trade and, as applicable, the corresponding correcting trade and offsetting trade.

68

This notice need not be separate from the error trade correction process.

The Commission believes that such a requirement is important to facilitate SEFs’

fulfillment of their self-regulatory obligations. In particular, the Commission believes 

that providing a SEF prompt notice that an error trade has occurred on its trading 

system(s) or platform(s) will further enable it to facilitate direct supervision of it markets

in order to determine whether a rule violation has occurred as required under § 37.203(b)

as well as enhance its ability to carry out real-time market monitoring of all trading 

 

67 As proposed, an “error trade” would be defined as any trade executed on or subject to the rules of a swap 

execution facility that contains an operational or clerical error. With respect to “package transactions,” as 

defined under proposed § 37.9(d)(1), the Commission deems the submission of the component transactions 

in a sequence that causes a rejection from clearing of an individual component to constitute an operational 

error that could be resolved through a correcting trade under proposed § 37.9(e)(2)(i)(A). Market 

participants had previously informed the Commission that an individual component transaction may be 

rejected from clearing if prematurely submitted because the risk of that component, in isolation, could 

cause a trader to exceed its credit limit. Under a different submission sequence of component transactions 

to the DCO, however, the net risk of all of those transactions may not have exceeded the credit limit, 

thereby avoiding the rejection. The Commission emphasizes, however, the use of a corrective trade may 

only apply to the rejected component and otherwise would not apply to the other legs of the package 

transaction that have been accepted for clearing.

68 To the extent a SEF implements error trade rules and procedures that allow market participants to correct 

error trades sua sponte with an ex post facto review by the SEF, that the SEF must require that market 

participants notify it of the subsequent correcting and offsetting trades. Conversely, a SEF that adopts error 

trades rules and procedures in which the SEF is responsible for correcting the error trade, that SEF would 

not be required to have market participants notify it of the subsequent correcting and offsetting trades. 

Regardless of the type of error trade rules and procedures a SEF adopts, it is required to adopt rules and 

procedures which require its market participants to provide prompt notice to it of an error trade that has 

occurred on its trading system(s) or platform(s).
36

activity on its system(s) or platform(s) to identify disorderly trading and any market or 

system anomalies pursuant to § 37.203(e).

69

Proposed § 37.9(e) would also require a SEF to adopt rules to resolve error trades 

that involve swaps submitted for clearing. For an error trade rejected from clearing and 

therefore deemed void ab initio, proposed § 37.9(e)(2)(i)(A) would require a SEF to 

permit the counterparties to subsequently execute a correcting trade, as defined in 

proposed § 37.9(e)(1)(i), through any method of execution offered by the SEF. For an 

error trade that has been accepted for clearing, proposed § 37.9(e)(2)(i)(B) would require 

a SEF to permit the counterparties to subsequently execute both an offsetting trade, as 

defined in proposed § 37.9(e)(1)(iii), and a correcting trade through any method of 

execution offered by the SEF.

70

Consistent with the existing no-action relief, this approach would continue to 

provide flexibility in the execution methods that a SEF may offer to counterparties to 

execute offsetting and correcting trades that involve swaps that are Required 

Transactions.71 Based on its experience with the existing no-action relief, the 

Commission believes that this flexibility would continue to promote SEF operational 

efficiency by allowing SEFs to offer error trade protocols that are tailored to their 

 

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

70 NAL No. 17-27 also provided relief from § 37.203(a), which prohibits pre-arranged trading, for 

offsetting trades and correcting trades. The Commission, however, does not view a regulatory amendment 

corresponding to that relief as necessary. The existing prohibition already provides an exception to that 

prohibition by allowing a SEF to adopt trading practices that are certified or approved by the Commission 

pursuant to part 40 of the Commission’s regulations. See 17 CFR 37.203(a). Accordingly, the 

Commission anticipates that a SEF would implement proposed § 37.9(e) by self-certifying or adopting

rules subject to Commission review under part 40 that specify the manner in which counterparties may 

execute offsetting and correcting trades.

71 The Commission notes that swaps that are Permitted Transactions, including those that are submitted to a 

DCO for clearing, may already be executed through any method of execution offered by a SEF pursuant to 

§ 37.9(c)(2).
37

markets and to allow identification and resolution of operational and clerical errors in a 

timely manner. Without such flexibility, market participants with an error in Required 

Transactions would otherwise be prohibited from determining how to resolve the error 

between themselves by entering into an offsetting trade or a new trade with the correct 

terms due to the execution method requirements under § 37.9(a)(2), which require that all 

Required Transactions be traded via either an Order Book or RFQ System.

The Commission also believes that the proposed approach would further the SEF 

statutory goals of promoting trading on SEFs and pre-trade price transparency in the 

swaps market.72 The proposed rules provide flexibility to depart from required execution 

methods that are otherwise intended to advance those statutory goals; allowing 

counterparties to correctly and efficiently execute swaps with the intended terms and 

conditions, however, enhances market integrity on SEFs, which promotes SEF 

participation. Additionally, the proposed rules would also help to ensure that trade data, 

which market participants rely upon to inform their swaps trading decisions, accurately 

reflects prevailing market pricing at any given time.

The Commission notes that the existing no-action relief is currently subject to 

several conditions applicable to SEFs and counterparties—for example, SEFs must 

affirmatively determine, or determine after an ex post facto review, that an error trade has 

occurred.

73 Except as incorporated in the proposed rules herein, the Commission intends 

for the proposed approach to otherwise provide SEFs with the flexibility to address such 

 

72 See 7 U.S.C. 7b-3(e).

73 See NAL No. 17-27 at 5-7 and NAL No. 20-01 at 4-5.
38

aspects of its error trade policy in a manner that is best suited to its trading and trade 

processing operations.74

The proposed rules, however, would also adopt some limitations that are similar 

to the existing no-action relief, including specified timeframes for executing and 

submitting these trades for clearing. For correcting trades associated with an error trade 

that has been rejected from clearing, proposed § 37.9(e)(2)(i)(A) would require the SEF 

to submit the correcting trade for clearing to the registered DCO or exempt DCO as soon 

as technologically practicable, but no later than one hour after notice of the rejection to 

the relevant clearing members. For an offsetting trade and a correcting trade associated 

with an error trade that already has been accepted for clearing, proposed 

§ 37.9(e)(2)(i)(B) would require the SEF to submit both types of trades to the registered 

DCO or exempt DCO as soon as technologically practicable, but no later than three days 

after the registered DCO or exempt DCO accepted the error trade for clearing.75 In 

 

74 Under the proposal’s principles-based approach, the Commission notes that a SEF would not be 

prohibited from incorporating the conditions contained within NAL No. 17-27, or implementing rules that 

allow market participants, sua sponte, to correct error trades that have been accepted for clearing with an ex 

post facto review by the SEF of the error trade, offsetting trade, and correcting trade on a T+1 basis as is 

contemplated by NAL No. 20-01. Further, this proposal would not preclude SEFs from deploying error 

trade rules and procedures which consider whether a transaction cancellation or price adjustment will 

adversely impact market integrity, facilitate market manipulation or other illegitimate activity, or otherwise 

violate the CEA, Commission regulations, or the SEF’s rules. However, regardless of the error trade rules 

and procedures that a SEF may adopt, the Commission notes that pursuant to this proposal such rules must 

be fair, transparent, and consistent. For example, in a scenario where a SEF is unsure as to how to address 

an error, the SEF may have rules which make it clear that the SEF will seek guidance and consent from 

both counterparties to the error trade before correcting the error trade. The Commission believes that such 

rule would be fair as it considers the positions of both counterparties and is transparent as it makes clear 

what the SEF will do in a specific scenario.

75 The Commission notes that the supplemental conditions contained in NAL No. 20-01 require error trades 

that have been accepted to clearing to be corrected as soon as technologically practicable but no later than 

24 hours after the error trade was executed. See NAL No. 20-01 at 4. However, as noted above, the 

Commission intends for this proposal to provide a SEF with the flexibility to address such aspects of its 

error trade policy in a manner that is best suited to its trading and trade processing operations. As such, 

SEFs may continue to have error trade rules and procedures that are contemplated in both NAL No. 17-27 

and NAL No. 20-01 for error trades that have been accepted for clearing. Therefore, the Commission is 

proposing that an error trade that has already been accepted for clearing would be required to be corrected 
39

addition to these proposed timeframes, proposed § 37.9(e)(2)(ii) would prohibit 

counterparties from executing a second correcting trade to fix an error trade if the initial 

correcting trade is rejected from clearing.

The Commission believes that these proposed limitations are consistent with the 

goal of promoting straight-through processing. The proposed timing requirements, in 

particular, are intended to provide a SEF and the counterparties to an error trade with an 

appropriate amount of time to identify and resolve error trades, while also minimizing 

delays to achieving prompt and efficient clearing of transactions. Similarly, limiting the 

number of instances in which counterparties may attempt to correct an error trade would 

also help to facilitate prompt and efficient clearing by incentivizing the counterparties to 

accurately execute their correcting trade as quickly as possible. The Commission, 

however, seeks additional public comment regarding this proposed limitation, as well as 

the appropriateness of the proposed timeframes.

3. Request for Comment

The Commission requests comment on all aspects of proposed § 37.9(e). As 

noted above, the 2018 SEF Proposal also discussed this topic. Comments made on the 

2018 SEF Proposal that are relevant to this rulemaking must be resubmitted to be 

considered. The Commission also invites comments specifically on the following:

 

as soon as technologically practicable, but no later than three days after the registered DCO or exempt 

DCO accepted the error trade for clearing, as this is the longest timeframe for correcting such error trades 

as contemplated in both NAL No. 17-27 and NAL No. 20-01. Nonetheless, the Commission is seeking 

comment on whether three days is an appropriate timeframe for error trades that have been accepted for 

clearing to be corrected. Further, despite the proposed outer limit of three days for correcting error trades 

that have been accepted for clearing, the Commission notes that SEFs and market participants are expected 

to correct such error trades as soon as technologically practicable as is proposed under § 37.9(e)(2)(i)(B).
40

(27) The Commission notes that § 37.203(e) already specifies that a SEF may 

resolve errors by adjusting trade prices or canceling trades to mitigate “market disrupting 

events;” such action by a SEF must be “transparent to the market and subject to standards 

that are clear, fair, and publicly available.” Should the Commission adopt a single rule

for all error trades under proposed § 37.9(e) that is similar to this standard, or is the 

proposed standard, i.e., “fair, transparent, consistent, [and] allow for timely resolution”

more appropriate? If the Commission should maintain separate standards, please explain 

why.

(28) Is the proposed timeframe adequate for the submission of a correcting trade to 

resolve an error trade rejected from clearing for non-credit reasons? If not, please 

provide an alternative timeframe and explain why such an alternative would be more 

appropriate.

(29) Is the proposed timeframe adequate for submitting an offsetting trade and 

correcting trade to resolve an error trade accepted for clearing? If not, please provide an 

alternative timeframe and explain why such an alternative would be more appropriate.

(30) Under proposed § 37.9(e)(2)(i), SEFs must have rules which require market 

participants to provide prompt notice to the SEF that an error trade has occurred. Is it 

clear what is meant by “prompt notice” in § 37.9(e)(2)(i)? If not, please explain how the 

Commission should clarify this provision.

(31) Should the Commission require that notification to a SEF of an error trade 

occur within a specified timeframe? If so, what is the appropriate time frame for that 

notification to occur?
41

(32) If a SEF adopts error trade rules and procedures that allow market participants 

to sua sponte correct an error trade with an ex post facto review by the SEF, should the 

Commission allow the SEF to have rules permitting market participants to withhold 

notice of the error trade until the market participant notifies the SEF of the correcting 

trade and, as applicable, the offsetting trade?

(33) Should the Commission require SEFs to affirmatively determine, or determine 

after an ex post facto review, that an error trade has occurred? Why or why not?

(34) If a SEF should affirmatively determine that an error trade had occurred, what 

is the appropriate time frame for that declaration to occur?

(35) If a SEF should determine that an error trade has occurred after an ex post 

facto review, what is the appropriate time frame for that review and determination to 

occur?

(36) If a SEF should affirmatively determine that an error trade had occurred, 

should the SEF’s review consider whether a transaction cancellation or price adjustment 

will adversely impact market integrity, facilitate market manipulation or other 

illegitimate activity, or otherwise violate the CEA, Commission regulations, or the SEF’s 

rules?

(37) If a SEF should determine that an error trade has occurred after an ex post 

facto review, should the SEF’s review consider whether a transaction cancellation or 

price adjustment will adversely impact market integrity, facilitate market manipulation or 

other illegitimate activity, or otherwise violate the CEA, Commission regulations, or the 

SEF’s rules?
42

(38) Does § 37.9(e) sufficiently address potential situations in which a component 

of a package transaction is rejected from clearing by the relevant registered DCO or 

exempt DCO because of the sequencing of the components of the package transaction 

submitted for clearing at the registered DCO or exempt DCO? With respect to proposed 

§ 37.9(e), are there any other issues that should be addressed regarding package 

transactions?

(39) Should the same error trade policy also be available to correct any errors 

contained in a correcting trade or an offsetting trade, or should the number of corrections 

be limited? If an initial correcting trade or offsetting trade that is executed to correct an 

error trade contains an operational or clerical error, should the counterparties be allowed 

to submit another correcting trade or offsetting trade?

(40) Should the Commission require SEFs to notify its market when it receives 

notice from a market participant that an error trade has occurred?

(41) Should the Commission prescribe different error trade rules and procedures 

depending on the status (i.e., Required Transactions or Permitted Transactions) of the 

original swap transaction? Please explain why or why not.

(42) Are there any conditions in NAL No. 17-27 or supplemental NAL No. 20-01 

not contained within this proposal that the Commission should require SEFs to adopt in 

their error trade rules and procedures? If so, please explain in detail why such conditions 

are necessary and appropriate to be required in SEF error trade rules and procedures.
43

C. Real-Time Public Reporting: Block Trade Definition

1. Existing § 43.2

Section 43.2 defines a swap “block trade” as a publicly reportable swap 

transaction that (i) involves a swap that is listed on a SEF or DCM; (ii) occurs away from 

the SEF’s or DCM’s trading system or platform and is executed pursuant to the SEF’s or 

DCM’s rules and procedures; (iii) has a notional or principal amount at or above the 

appropriate minimum block trade size applicable to such swap; and (iv) is reported 

subject to the rules or procedures of the SEF or DCM and the rules set forth under part 

43, including the appropriate time delay requirements set forth under § 43.5.

76 In 

specifying these elements, the Commission considered the treatment of block trades in 

various swap and non-swap markets.77 In particular, the Commission looked to the 

futures markets, where futures block trades are permissible, privately-negotiated 

transactions that equal or exceed a DCM’s specified minimum quantity of futures or 

options contracts and is executed away from the DCM’s centralized market but pursuant 

to its rules.78 Accordingly, the Commission’s regulatory definition of a “block trade” for 

swaps closely tracks this futures market concept of a block trade.

Similar to futures block trades, the Commission requires that swap block trades 

“occur away” from a SEF’s or a DCM’s trading system or platform, but pursuant to the 

SEF’s or a DCM’s rules and procedures.79 The Commission clarified the “block trade” 

definition by stating that “[a]ny swap that is executed on a SEF or a DCM’s trading 

 

76 17 CFR 43.2.

77 Real-Time Public Reporting of Swap Transaction Data, 75 FR 76140, 76159 (proposed Dec. 7, 2010) 

(discussion of block trades with respect to futures).

78 Id.

79 17 CFR 43.2.
44

system or platform, regardless of whether it is for a size at or above the appropriate 

minimum block size for such swap, is not a block trade under this definition....”80

Accordingly, to receive the fifteen-minute public reporting delay that block trades are 

entitled to under § 43.5(d), the swap transaction not only must have a notional amount at 

or above the appropriate minimum block size, but must also “occur away” from the 

SEF’s or the DCM’s trading system or platform.81

2. Proposed Amendment to § 43.2

During the part 37 implementation process, SEFs and market participants 

informed the Commission that for swap transactions that are intended to be cleared, 

requiring that such swaps “occur away” from a SEF’s trading system or platform creates 

an issue with carrying out pre-execution credit screening.82 These market participants 

noted that, in many cases, clearing FCMs are unable to conduct pre-execution credit 

screening for such block trades because they are unaware that a block trade has occurred 

away from a SEF until after it has been executed and reported to the SEF.83 Accordingly,

SEFs were unable to facilitate pre-execution credit checks for block trades.

 

80 Procedures To Establish Appropriate Minimum Block Sizes for Large Notional Off-Facility Swaps and 

Block Trades, 78 FR 32866, 32904 n.425 (May 31, 2013).

81 CEA section 2(a)(13) requires the Commission to establish rules that govern the real-time reporting of 

swap transaction and pricing data to the public, but also directs the Commission, among other things, to 

prescribe rules that specify the appropriate reporting time delay for block trades, including the criteria for 

determining what constitutes a block trade. 7 U.S.C. 2(a)(13).

82 For the avoidance of doubt, the Commission believes that if the parties purport to execute a block trade 

away from the SEF without first obtaining a credit check, an FCM clearing member that clears such trade 

and does not have knowledge of such purported execution is not in violation of the pre-execution credit 

check requirement under Commission regulation 1.73. NAL No. 17-60 n.9. The Commission understands 

that currently no mechanism exists to enable a pre-execution credit check where blocks are executed away 

from a SEF; however, this proposal does not preclude participants from developing and using such a 

mechanism in the future.

83 NAL No. 17-60 at 2.
45

DMO acknowledged this operational challenge and accordingly has granted 

ongoing no-action relief from the requirement that swap block trades “occur away” from 

a SEF.84 Based on Commission staff no-action relief provided in NAL No. 17-60, a SEF 

may allow market participants to execute swap block trades that are ITBC85 on a SEF’s 

non-Order Book trading system or platform.86 As a result, FCMs and SEFs have been 

able to comply with their respective pre-execution credit screening obligations.

The Commission proposes to revise the “block trade” definition under § 43.2 in 

order to allow market participants to utilize a SEF’s non-Order Book trading system or 

platform while still allowing swap block trades to “occur away” from a SEF.

87 The 

proposed revision to the “block trade” definition not only allows swap block trades that 

are ITBC to be executed on a SEF’s non-Order Book trading system or platform – as is 

currently provided for in NAL No. 17-60 – but the proposed definition would also permit 

swap block trades that are not ITBC to be executed on SEF.88 The Commission believes 

that having a single set of block trade rules for both ITBC and non-ITBC swap block 

trades will help to reduce operational complexity for both SEFs and market participants.

Further, the Commission believes that permitting execution of block trades on a SEF’s 

non-Order Book trading systems or platforms furthers the statutory SEF goal of 

 

84 NAL No. 17-60; NAL No. 16-74; NAL No. 15-60; NAL No. 14-118.

85 As used herein, swaps that are ITBC are swaps (i) of a type accepted for clearing by a DCO, and (ii) 

intended to be submitted for clearing contemporaneously with execution. NAL No. 17-60 n.2.

86 NAL No. 17-60 at 2-3.

87 The Commission notes that it has proposed to address the issue of block trades on SEFs in the 2018 SEF 

Proposal. As noted above, this proposal is independent of the 2018 SEF Proposal.

88 The Commission notes that in the 2018 SEF Proposal, it proposed for all SEF swap block trades to be 

executed on the SEF. The Commission continues to evaluate this proposal. See supra note 15.
46

promoting the trading of swaps on SEFs.89 Moreover, for swap block trades that are 

ITBC and executed on a SEF’s non-Order Book trading system or platform, the 

Commission believes that the proposed revised definition would (i) allow FCMs to 

conduct pre-execution credit screenings in accordance with § 1.73; and (ii) allow SEFs to 

facilitate those screenings in accordance with the Commission’s proposed requirement 

under § 37.702(b).90

Further, the Commission notes that this revised block trade definition is consistent 

with the provisions of the Dodd-Frank Act. CEA section 2(a)(13), as amended by the 

Dodd-Frank Act, directs the Commission to prescribe criteria for determining what 

constitutes a block trade and to establish appropriate post-trade reporting time delays.

The provision, however, does not set forth any pre-trade requirements, such as a 

requirement that the transaction be executed away from a SEF. In addition, the 

Commission believes that allowing participants to use a SEF’s non-Order Book 

functionalities to execute swap block trades is consistent with the Commission’s 

regulatory approach to mitigate risks of information leakage (i.e., a “winner’s curse”) as 

market participants can use the functionality of the SEF to execute a block trade in a 

manner that will not disclose the order to the entire market.91 SEFs currently provide 

various modes of execution to enable market participants to execute a block trade on the 

 

89 See 7 U.S.C. 7b-3(e).

90 The Commission notes that proposed § 37.702(b) applies to SEFs that list (i) swaps that are subject to the 

clearing requirement; and/or (ii) swaps that are not subject to the clearing requirement, but for which the 

SEF facilitates processing and routing to a DCO for clearing.

91 SEF Core Principles Final Rule, 78 FR 33498, 33562, and 33563.
47

SEF without providing disclosure of the block trade to the market or to multiple market 

participants.92

Finally, the Commission believes that permitting swap block trades to be executed 

on a SEF’s non-Order Book trading platforms while also allowing them to “occur away”

from a SEF provides SEFs increased flexibility. In particular, SEFs will be able to 

provide execution methods for swap block trades that are most suitable, efficient, and 

cost-effective for the product being traded, the SEF’s market, and its market participants.

3. Request for Comment

The Commission requests comment on all aspects of the proposed revision to the 

definition of “block trade” in § 43.2. The 2018 SEF Proposal also proposed revisions to 

this definition. Comments made on the 2018 SEF Proposal that are relevant to this 

rulemaking must be resubmitted to be considered. The Commission also invites 

comments specifically on the following:

(43) Is the Commission’s proposed revision to the definition of “block trade” 

appropriate? If not, how should the Commission amend the proposed definition?

(44) Should the Commission continue to permit market participants to execute 

ITBC swap block trades away from but pursuant to the rules of a SEF? Please explain 

why or why not.

(45) Should the Commission continue to permit market participants to execute 

non-ITBC swap block trades away from but pursuant to the rules of a SEF? Please 

explain why or why not.

 

92 For example, the Commission has observed that some SEFs offer a “RFQ-to-one” functionality that 

allows counterparties to bilaterally negotiate a block trade between two potential counterparties, without 

requiring disclosure of the potential trade to other market participants on a pre-trade basis.
48

(46) Should the Commission prohibit swap block trades that are subject to the trade 

execution requirement from “occurring away” from a SEF but pursuant to its rules?

(47) Should the Commission further limit or prohibit the execution of swap block 

trades through an RFQ system, as defined in § 37.9(a)(3)? For example, should the 

Commission limit the number of market participants that may receive a RFQ for a swap 

block trade that is intended to be executed on the SEF? Please explain why or why not.

(48) Should the Commission allow swap block trades to be executed through an 

Order Book, as defined in § 37.3(a)(3)? Please explain why or why not.

III. Effective Date and Transition Period

The Commission proposes that the effective date for the proposed regulations be 

60 days after publication of final regulations in the Federal Register. The Commission 

preliminarily believes that such an effective date would allow SEFs and market 

participants sufficient time to adapt to the amended and additional rules in an efficient 

and orderly manner.

Request for Comment:

The Commission requests comment on whether the proposed effective date is 

appropriate and, if not, the Commission further requests comment on possible alternative 

effective dates and the basis for any such alternative dates.

IV. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (“RFA”)93 requires Federal agencies, in 

promulgating regulations, to consider the impact of those regulations on small businesses.

 

93 5 U.S.C. 601 et seq.
49

The regulations adopted herein will affect SEFs and their market participants. The 

Commission has previously established certain definitions of “small entities” to be used 

by the Commission in evaluating the impact of its regulations on small entities in 

accordance with the RFA.94 The Commission previously concluded that SEFs are not 

small entities for the purpose of the RFA.95 The Commission has also previously stated 

its belief in the context of relevant rulemakings that SEFs’ market participants, which are 

all required to be eligible contract participants (“ECPs”)96 as defined in section 1a(18) of 

the CEA,97 are not small entities for purposes of the RFA.98 Therefore, the Chairman, on 

behalf of the Commission, hereby preliminarily certifies, pursuant to 5 U.S.C. 605(b), 

that the regulations will not have a significant economic impact on a substantial number 

of small entities. The Commission invites the public to comment on whether SEFs and 

SEF market participants covered by these proposed rules should be considered small 

entities for the purpose of the RFA.

B. Paperwork Reduction Act

The Paperwork Reduction Act of 1995, 44 U.S.C. 3501 et seq. (“PRA”) imposes 

certain requirements on Federal agencies (including the Commission) in connection with 

conducting or sponsoring any “collection of information,”99 as defined by the PRA.

 

94 47 FR 18618 – 18621 (Apr. 30, 1982).

95 SEF Core Principles Final Rule, 78 FR 33476, 33548 (June 4, 2013) (citing 47 FR 18618, 18621 (Apr. 

30, 1982) (discussing DCMs); 66 FR 42256, 42268 (Aug. 10, 2001) (discussing DTFs, ECMs, and 

EBOTs); and 66 FR 45604, 45609 (Aug. 29, 2001) (discussing registered DCOs)).

96 17 CFR 37.703.

97 7 U.S.C. 1(a)(18).

98 66 FR 20740, 20743 (Apr. 25, 2001) (stating that ECPs by the nature of their definition in the CEA 

should not be considered small entities).

99 See 44 U.S.C. 3502(3)(A).
50

Among its purposes, the PRA is intended to minimize the paperwork burden to the 

private sector, to ensure that any collection of information by a government agency is put 

to the greatest possible uses, and to minimize duplicative information collections across 

the government.100

The PRA applies to all information, regardless of form or format, whenever the 

government is obtaining, causing to be obtained, or soliciting information, and includes 

required disclosure to third parties or the public, of facts or opinions, when the 

information collection calls for answers to identical questions posed to, or identical 

reporting or recordkeeping requirements imposed on, ten or more persons.101 The PRA 

requirements have been determined to include not only mandatory, but also voluntary 

information collections, and include both written and oral communications.102 The 

Commission may not conduct or sponsor, and a person is not required to respond to, a 

collection of information unless it displays a currently valid Office of Management and 

Budget (“OMB”) control number.

This proposed rulemaking contains collections of information for which the 

Commission has previously received control numbers from OMB. The titles for these 

collections of information are “Real-Time Public Reporting and Block Trades, OMB

control number 3038-0070” and “Core Principles and Other Requirements for Swap 

Execution Facilities, OMB control number 3038-0074.” This proposed rulemaking 

would not impose any new information collection requirements from any persons or 

entities that require approval of OMB under the PRA.

 

100 See 44 U.S.C. 3501.

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

102 See 5 CFR 1320.3(c)(1).
51

C. Cost-Benefit Considerations

Section 15(a) of the CEA103 requires the Commission to consider the costs and 

benefits of its actions before promulgating a regulation under the CEA or issuing certain 

orders. Section 15(a) further specifies that the costs and benefits shall be evaluated in 

light of five broad areas of market and public concern: (1) protection of market 

participants and the public; (2) efficiency, competitiveness, and financial integrity of 

futures markets; (3) price discovery; (4) sound risk management practices; and (5) other 

public interest considerations. The Commission considers the costs and benefits resulting 

from its discretionary determinations with respect to the section 15(a) factors.

1. Background

The Commission is proposing to amend certain rules in parts 36, 37, and 43 of its 

regulations relating to the execution of certain package transactions on SEFs; the 

resolution of error trades on SEFs; and the execution of block trades on SEFs.

The baseline against which the Commission considers the costs and benefits of 

these proposed rules is the statutory and regulatory requirements of the CEA and 

Commission regulations now in effect, in particular CEA section 5h and certain rules in 

parts 37 and 43 of the Commission’s regulations. The Commission, however, notes that 

as a practical matter SEFs and market participants have adopted some current practices 

based upon no-action relief provided by Commission staff that is time-limited in 

nature.104 As such, to the extent that SEFs and market participants have relied on 

 

103 7 U.S.C. 19(a).

104 In its discussion of alternatives, the Commission believes it is also relevant to consider the costs and 

benefits of the proposed regulations in comparison to circumstances in which such no-action relief has 

expired and is no longer available. The Commission further notes that in connection with NAL No. 16-58 

and its extension NAL No. 17-27 (relief related to clerical or operational error trade resolution), market 
52

relevant staff no-action letters, the actual costs and benefits of the proposed rules as 

realized in the market may not be as significant.

In some instances, it is not reasonably feasible to quantify the costs and benefits 

to SEFs and certain market participants with respect to certain factors, for example, 

market integrity. Notwithstanding these types of limitations, however, the Commission 

otherwise identifies and considers the costs and benefits of these rules in qualitative 

terms.

The following consideration of costs and benefits is organized according to the 

rules and rule amendments proposed in this release. For each rule, the Commission 

summarizes the proposed amendments and identifies and discusses the costs and benefits 

attributable to such rule. The Commission, where applicable, then considers the costs 

and benefits of the proposed rules in light of the five public interest considerations set out 

in section 15(a) of the CEA.

The Commission notes that this consideration of costs and benefits is based on the 

understanding that the swaps market functions internationally, with many transactions 

involving U.S. firms taking place across international boundaries, with some Commission 

registrants being organized outside of the United States, with leading industry members 

typically conducting operations both within and outside the United States, and with 

industry members commonly following substantially similar business practices wherever 

located. Where the Commission does not specifically refer to matters of location, the 

 

participants specifically requested that the Commission undertake rulemakings to establish a permanent 

solution for addressing these clerical and operational errors, rather than merely extending the previous NAL 

relief. See NAL No. 16-58 and NAL No 17-27. In contrast, previous requests for no-action relief from 

market participants for the NALs which preceded NAL No.16-58 and NAL No. 17-27 were merely for 

temporary relief.
53

discussion of costs and benefits below refers to the effects of the proposed rules on all

swaps activity subject to the proposed and amended regulations, whether by virtue of the

activity’s physical location in the United States or by virtue of the activity’s connection 

with or effect on U.S. commerce under CEA section 2(i).105

2. Package Transactions

The Commission proposes to add § 37.9(d) and amend § 37.9(a)(2) to permit the 

swap components of certain package transactions to be executed via flexible methods of 

execution pursuant to § 37.9(c)(2). The Commission proposes to define a “package 

transaction” for the purpose of the proposed rule as a transaction consisting of two or 

more component transactions executed between two or more counterparties where (i) at 

least one component transaction is subject to the trade execution requirement in section 

2(h)(8) of the Act; (ii) execution of each component transaction is contingent upon the 

execution of all other component transactions; and (iii) the component transactions are 

priced or quoted together as one economic transaction with simultaneous or nearsimultaneous execution of all components. Based on this proposed definition and 

consistent with existing no-action relief, the Commission proposes to allow the swap 

component of the following three categories of package transactions to be executed via 

flexible means of execution pursuant to § 37.9(c)(2): (1) MAT/Non-MAT Uncleared 

 

105 Section 2(i)(1) applies the swaps provisions of both the Dodd-Frank Act and Commission regulations 

promulgated under those provisions to activities outside the United States that “have a direct and significant 

connection with activities in, or effect on, commerce of the United States[.]” 7 U.S.C. 2(i). Section 2(i)(2) 

makes them applicable to activities outside the United States that contravene Commission rules 

promulgated to prevent evasion of Dodd-Frank.
54

package transactions; (2) MAT/Non-Swap Instrument package transactions;106 and (3) 

MAT/Non-Exclusive CFTC Swap package transactions.

In addition, the Commission is proposing to exempt the swap components of 

these three types of package transactions from the requirement in § 37.3 that the SEF 

offer an Order Book for every swap listed for trading on the SEF, while continuing to 

require that SEFs offer an Order Book for outright transactions in every swap listed for 

trading on the SEF. Finally, the Commission is proposing to use its exemptive authority 

pursuant to CEA section 4(c) to exempt swap transactions that are executed as a 

component of a package transaction that includes a component that is a new issuance 

bond from the trade execution requirement under section 2(h)(8) of the Act.

Benefits: The proposed rule would allow market participants to choose the most 

suitable execution method for each package transaction and will allow SEFs to continue 

to offer flexible execution methods for these package transactions rather than only offer

the required methods of execution for swaps subject to the trade execution requirement.

The Commission expects this would reduce execution risks, improve efficiency, and 

decrease transaction costs as market participants would be able to avoid legging into 

transactions, that is, entering into each part of the package separately. The Commission 

notes that these benefits are currently available to market participants through existing 

no-action relief. The Commission further believes that the proposed rule would provide 

the liquidity and transparency benefits of increased trading of component swaps on SEFs, 

 

106 Under proposed § 37.9(d)(3), consistent with the no-action relief, this category specifically excludes 

U.S. Dollar Spreadover package transactions; MAT/Futures package transactions, MAT/Agency MBS 

package transactions; and New Issuance Bond package transactions.
55

as without the proposed flexibility market participants would be unable or unwilling to 

trade such swap components through SEFs’ required methods of execution.107

The Commission believes that not requiring SEFs to offer an Order Book for the 

swap components of the three types of relevant package transactions would benefit SEFs 

by helping them to reduce operating costs, as they would no longer be required to operate 

and maintain an Order Book for trading those swaps that are components of those 

package transactions. However, SEFs would need to retain the availability of Order 

Books for those swaps executed as outright transactions.

Further, as discussed above, given the illiquid and bespoke nature of various 

components within the relevant package transactions, the Commission acknowledges that 

the Order Book is not the ideal method of execution for many such transactions.

Therefore, the Commission anticipates that if SEFs are not required to provide an Order 

Book for relevant package transactions that are not suitable for Order Book trading, SEFs 

will be able to more effectively employ their resources, and no longer face the prospect of 

being required to provide Order Books that will not be utilized given the complex, 

illiquid, and bespoke nature of various components of the relevant package transactions.

 

107 Further, while the proposed rules also provide flexibility from the required methods of execution that are 

otherwise intended to help promote pre-trade transparency on SEFs, the Commission notes that permitting 

market participants to use flexible methods of execution is consistent with how package transactions are 

treated within other jurisdictions. For example, in the European Union (“EU”) certain package transactions 

(including package transactions for which the Commission currently requires the swap component to be 

executed through the required methods of execution, such as U.S. Dollar Spreadover package transactions) 

are eligible to be waived from the EU’s transparency regime. The Commission believes that this proposal 

strikes an appropriate balance between promoting pre-trade transparency and ensuring that U.S. markets 

and their participants are not unnecessarily burdened. See Regulation (EU) 2016/1033 of the European 

Parliament and of the Council of 23 June 2016 amending Regulation (EU) No 600/2014 on markets in 

financial instruments, Regulation (EU) No 596/2014 on market abuse and Regulation (EU) No 909/2014 on 

improving securities settlement in the European Union and on central securities depositories.
56

The Commission believes that the proposal to exempt swap transactions that are 

executed as a component of a package transaction that includes a component that is a new

issuance bond from the trade execution requirement will ensure that market participants 

such as bond underwriters and issuers can continue to execute these packages (where the 

new-issuance bond is hedged by an interest rate swap with tenor and payment terms that 

typically match the terms of the bond issuance) off-SEF. As discussed above, this 

proposed exemption may facilitate new bond issuances, which may benefit capital 

formation by helping market participants to raise capital and fund origination loans for 

businesses and homeowners. Moreover, in light of the involvement of the bond issuer 

and the underwriter in arranging and executing a package transaction in conjunction with 

a new issuance bond and the unique negotiation and fit-for-purpose nature of these 

package transactions, the Commission understands that it remains difficult or impossible 

to trade these package transactions on a SEF. SEFs have not been able to design an 

execution method suitable for this particular type of package, rendering it impracticable 

to execute these packages on-SEF. While the swap components of many swap/newissuance bond packages executed today are not currently subject to the trade execution 

requirement,108 the proposed rule would ensure that those transactions would remain 

exempt in the event the trade execution requirement is expanded to include more types of 

swaps.

Costs: The proposed amendments to allow flexible execution methods for certain 

package transactions and the proposed exemption for package transactions that include a 

 

108 For example, the swap component may be a forwarding-starting swap whose start date corresponds to 

the issuance date of the bond. Forward starting swaps are not currently subject to the trade execution 

requirement.
57

new issuance bond should not impose costs on market participants since they only 

provide flexibility to market participants and do not require them to change their current 

trade practices. Moreover, to the extent that market participants are relying on existing 

no-action relief, they could continue to implement existing industry practice. The 

Commission believes that current SEF rules typically allow participants to utilize flexible 

execution methods pursuant to the existing no-action relief, but to the extent that SEFs 

need to modify their rules to incorporate the proposed amendments, they may incur 

modest costs.

As noted, not requiring SEFs to offer an Order Book for the swap components of 

the relevant package transactions may enable SEFs to reduce operating costs. Since any 

existing Order Books for swap components of the relevant package transactions are not 

actively used and are not practicable for market participants to use, removing these Order 

Books (and not requiring SEFs to create such Order Books) should not impose significant 

costs on market participants.

Section 15(a) Factors

a. Protection of Market Participants and the Public

The Commission believes that the proposed amendments and exemption will 

protect market participants from the risks associated with legging into the relevant 

packages by enabling market participants to enter into package transactions using 

appropriate execution methods. Permitting SEFs to eliminate the Order Book for use 

when swaps are components of package transactions should not impact protection of 

market participants. While protecting market participants also benefits the public, the 
58

Commission has not identified any further effect of the proposal on protection of the 

public.

b. Efficiency, Competitiveness, and Financial Integrity of the Markets

The proposed amendments would enhance efficiency by enabling market 

participants to continue to execute the relevant packages in a single transaction with an 

appropriate execution method, rather than via the inefficient process of legging into the 

package one component at a time. The proposed amendments would also enhance 

financial integrity by enabling market participants to continue to avoid the execution risk 

associated with potential adverse price movements while attempting to leg a transaction.

The Commission has not identified any likely effects of the proposed amendments on 

competition in the swap markets. The Commission expects that, since there are few, if 

any, active Order Books for swaps as components of the relevant package transactions,

SEFs will not use proposed § 37.3(a)(4) to remove active Order Books that are providing 

competitive markets.

c. Price Discovery

Package transactions are typically executed at a single price for the entire 

package, rather than at the prices of the individual components. The proposed 

amendments would continue to allow the relevant package transactions to be executed 

using the execution methods that are designed to facilitate price discovery in these 

packages. For packages that include new issuance bonds, the proposed exemption will 

permit price discovery to occur at the appropriate venue. The Commission believes that 

the proposed § 37.3(a)(4), which would exempt swaps that are part of the relevant 

package transactions from the Order Book requirement, would not materially inhibit price 
59

discovery since the Commission anticipates that SEFs would retain Order Books where 

price discovery is occurring and that currently price discovery is not occurring in Order 

Books for swap components of the package transactions addressed within this proposal.

d. Sound Risk Management Practices

The Commission believes that the proposal will continue to promote sound risk 

management by facilitating the execution of package transactions as market participants 

consider package transactions to often be useful and appropriate instruments for 

management and transfer of risk and to avoid the execution risks associated with legging 

of transactions.

e. Other Public Interest Considerations

The proposed exemption from the trade execution requirement for the swap 

components of packages involving new issuance bonds may help promote capital 

formation by facilitating the issuance of bonds to raise capital. The Commission has not 

identified any other effect of the proposed rules and proposed exemption regarding 

package transactions on other public interest considerations.

Request for Comment

The Commission requests comment on the costs and benefits of all aspects of the 

proposed amendments related to certain package transactions, including the discussion of 

the section 15(a) factors. Comments made on the 2018 SEF Proposal that are relevant to 

this rulemaking should be resubmitted to be considered. The Commission requests 

comment on the alternatives discussed above as well as any other alternatives that 

commenters believe present a superior cost-benefit profile to the proposed amendments.

Commenters are requested to provide data and any other information or statistics to
60

support their position. In particular, to the extent commenters believe that the costs or 

benefits of any aspect of the proposed rules are reasonably quantifiable, the Commission 

requests that they provide data and any other information or statistics to assist the 

Commission in quantification.

3. Error Trades

The Commission proposes to add subsection (e) to § 37.9 to establish a flexible 

SEF error trade policy standard that would, among other things, incorporate the intent of

the existing no-action relief in NAL No. 17-27 for resolving errors in Required 

Transactions. Proposed § 37.9(e)(2)(i) would specify that a SEF must maintain rules and 

procedures that are “fair, transparent, consistent” and “allow for timely resolution” of an 

“error trade,” as defined under proposed § 37.9(e)(1)(ii). This proposed standard would 

apply to any error trade that occurs on a SEF, regardless of whether or not the swap is 

submitted for clearing. Further, under proposed § 37.9(e)(2)(i), SEFs must have error 

trade rules and procedures that require that market participants provide prompt notice to 

the SEF of an error trade and, as applicable, correcting and offsetting trades.

Proposed § 37.9(e) would also require a SEF to adopt rules to resolve error trades 

that involve swaps submitted for clearing. For an error trade rejected from clearing and

therefore deemed void ab initio, proposed § 37.9(e)(2)(i)(A) would require a SEF to 

permit the counterparties to subsequently execute a correcting trade, as defined in 

proposed § 37.9(e)(1)(i), through any method of execution offered by the SEF. For an 

error trade that has been accepted for clearing, proposed § 37.9(e)(2)(i)(B) would require 

a SEF to permit the counterparties to subsequently execute both an offsetting trade, as 
61

defined in proposed § 37.9(e)(1)(iii), and a correcting trade through any method of 

execution offered by the SEF.

The proposed rule includes some limitations that are similar to the existing noaction relief, including specified timeframes for executing and submitting these trades for 

clearing. For correcting trades associated with an error trade that has been rejected from 

clearing, proposed § 37.9(e)(2)(i)(A) would require the SEF to submit the correcting 

trade for clearing to the registered DCO or exempt DCO as soon as technologically 

practicable, but no later than one hour after notice of the rejection to the relevant clearing 

members. For an offsetting trade and a correcting trade associated with an error trade 

that already has been accepted for clearing, proposed § 37.9(e)(2)(i)(B) would require the 

SEF to submit both types of trades to the registered DCO or exempt DCO as soon as 

technologically practicable, but no later than three days after the registered DCO or 

exempt DCO accepted the error trade for clearing. In addition to these proposed 

timeframes, proposed § 37.9(e)(2)(ii) would prohibit counterparties from executing a 

second correcting trade to fix an error trade if the initial correcting trade is rejected from 

clearing.

However, the proposed rule does not include certain additional conditions 

applicable to SEFs and counterparties that are contained in the no-action relief under 

NAL No. 17-27 or NAL No. 20-01. For example, the no-action relief in NAL No. 17-27

requires that a SEF must make an affirmative finding that an alleged error trade has 

occurred and must have rules setting forth the procedures for making such a finding.

Benefits: Absent an adoption of these proposed rules, both SEFs and market 

participants would need to comply with the existing Commission regulations, 
62

notwithstanding the significant procedural and logistical difficulties of doing so. In 

particular, market participants would have to resolve error trades in Required 

Transactions using the Order Book or RFQ System, which would likely make it 

impossible to recreate the trade as originally intended. These difficulties could dissuade 

SEFs from being actively involved in the error trade resolution process and market 

participants from executing swaps on a SEF. The Commission believes that the proposal 

would avoid these potential difficulties.

The Commission preliminarily believes that, given that the proposed amendments 

are largely consistent with current industry practice, SEFs and market participants may 

likely have already realized much of the benefit of proposed § 37.9(e). The Commission 

preliminarily believes, however, that the proposed rules additionally would provide a 

tangible benefit to market participants on a longer-term basis by allowing market 

participants to continue utilizing policies and protocols which the Commission 

understands most SEFs adopted in reliance upon the relief provided in existing no-action 

letters to resolve error trades.

The proposed rule does not require that a SEF affirmatively determine that an 

error trade has occurred, either before resolution or via an ex post facto review. The 

Commission preliminarily believes that such a requirement, which is in the existing noaction relief, would impose unnecessary costs on SEFs and market participants, and 

potentially impair the efficiency of the error trade resolution process. To the extent that 

SEFs and market participants are currently availing themselves of current no-action 

relief, they may realize reduced costs under the proposed rule.
63

The proposed requirement under § 37.9(e)(2)(i) that market participants provide 

prompt notice to a SEF of an error trade and, as applicable, the corresponding correcting 

trade and offsetting trade would benefit SEFs in carrying out their self-regulatory 

obligations. In particular, the Commission believes that providing SEFs prompt notice 

that an error trade has occurred on their trading system(s) or platform(s) would enhance 

their ability to carry real-time market monitoring of all trading activity on their system(s) 

or platform(s) to identify disorderly trading and any market or system anomalies or 

violations of SEF rules.

The Commission also believes that the proposed amendments will facilitate the 

goal of promoting consistency in the swaps market with respect to how errors are 

evaluated and resolved. First, the proposed amendments would require all SEFs to adopt 

such policies. To the extent SEFs have not yet implemented such policies, the proposed 

amendments will benefit market participants who will now be able to correct error trades 

and avoid related economic losses. Further, market participants can obtain the benefit of 

executing a swap transaction that corrects an error trade with the terms originally 

intended.

Finally, some SEFs have already implemented robust error trade resolution 

policies pursuant to existing no-action relief, while other SEFs have not implemented 

robust error trade policies. This inconsistency among SEFs otherwise causes a “race to 

the bottom” for SEFs’ compliance and market oversight, as certain market participants 

may prefer SEFs with less stringent error trade policies. As a result, SEFs that have 

implemented robust error trade policies—and the swaps market in general—will benefit 

by eliminating this potential “race to the bottom,” and the Commission will underscore 
64

the importance of SEF market oversight by adopting such requirements in Commission 

regulations.109

Costs: Similar to the conditions established by Commission staff in time-limited 

no-action relief, the proposed amendments would require SEFs to establish rules 

implementing various policies and procedures for resolving error trades. Under the 

proposal, SEFs would have to submit new rules to the Commission pursuant to part 40 of 

the Commission’s regulations. However, the Commission understands that pursuant to 

the existing no-action relief, most SEFs currently have rules that otherwise would comply 

with the proposed regulations. SEFs may choose to adjust their rules in light of the 

absence in the proposed rules of the requirement in the no-action relief that SEFs 

affirmatively determine that an error trade has occurred.110 To the extent that SEFs must 

draft and submit new rules to the Commission, the Commission estimates that the costs 

will be modest.

The Commission preliminarily believes that the proposed amendments would not 

impose significant additional costs on market participants and intermediaries, because 

resolving error trades is inherently costly regardless of regulations imposed by the 

Commission, and market participants and intermediaries are currently subject to SEF 

policies and procedures. The proposed requirement that market participants provide 

prompt notice to a SEF of an error trade and, as applicable, the correcting trade and 

 

109 The Commission notes that a robust error trade resolution policy is also consistent with an effective 

compliance and oversight program because the ability to resolve error trades (i) helps protect market 

integrity by unwinding certain error trades that otherwise would have an adverse effect on the market and 

(ii) promotes legal certainty by ensuring that market participants obtain the economic position in the 

transaction that they intended.

110 In light of the flexibility of the proposed rule, SEFs can continue to require such an affirmative 

declaration if the determine that such requirement provides benefits to market participants or the SEF.
65

offsetting trade would impose modest costs on market participants, but, in practice, 

market participants have likely needed to report error trades to SEFs in order to facilitate 

SEF determinations that an error trade has occurred pursuant to NAL No. 17-27, and 

would have had to report the correcting trade and offsetting trade in order to facilitate the 

SEF’s ex post facto review pursuant to NAL No. 20-01. Not requiring that a SEF find 

that an error trade has occurred either before it has been resolved or via an ex post facto

review should impose only minor costs on market participants associated with changes in 

procedures to no longer request that a SEF make such a determination.

The Commission notes that NAL No. 17-27 and NAL No. 20-01 apply to both 

SEFs and DCMs, but the proposed rule would apply only to SEFs. Therefore, the 

Commission believes that the proposed rule would impose no costs on DCMs, and notes 

that no DCM is currently availing itself of the no-action relief.

Section 15(a) Factors

a. Protection of Market Participants and the Public

The proposed addition of § 37.9(e) regarding error trades will protect market 

participants and the public by providing SEFs with greater authority under Commission 

regulations to resolve error trades. Further, by providing SEFs with the authority to 

permit counterparties to execute correcting trades and offsetting trades, the proposed 

amendments would protect market stability and transparency by preventing potential

losses to market participants in connection with error trades and reducing instances in 

which market participants rely on inaccurate pricing information to inform their trading 

decisions. The proposed addition of § 37.9(e) would also promote greater transparency 

of the error trade resolution process to SEFs’ market participants as SEFs would be 
66

required to establish policies and procedures for reviewing and determining how to 

resolve alleged error trades. The proposed requirement under § 37.9(e)(2)(i) that market 

participants provide prompt notice to a SEF of an error trade and, as applicable, the 

correcting trade and offsetting trade would promote protection of market participants and 

the public by enhancing a SEF’s ability to carry out its market oversight and monitoring 

responsibilities. The Commission believes that the absence of a requirement in the 

proposed rule that SEFs must affirmatively determine, or determine after an ex post facto

review, that an error trade has occurred (which are conditions in the existing no-action 

relief under NAL No. 17-27 and NAL No. 20-01) would not materially impact the 

protection of market participants and the public.

b. Efficiency, Competitiveness, and Financial Integrity of the Markets

The proposed addition of § 37.9(e) may improve the efficiency and financial 

integrity of markets by enabling counterparties to correct operational or clerical errors in 

a swap transaction. In particular, the proposed rules would help promote greater trading 

accuracy in the market by allowing counterparties to ultimately carry out transactions as 

originally intended, and would avoid unexpected trading losses caused by error trades.

The proposed requirement under § 37.9(e)(2)(i) that market participants provide prompt 

notice to a SEF of an error trade and, as applicable, the correcting trade and offsetting 

trade would enhance a SEF’s ability to carry out its market oversight and monitoring 

responsibilities which helps promote the financial integrity of its markets. The 

Commission believes that the absence of the no-action provision that SEFs must 

affirmatively determine that an error trade has occurred could enhance the efficiency of 
67

the error trade resolution process and would not materially impact the competitiveness or 

financial integrity of the swap market on SEFs.

Absent these proposed rules, counterparties would be required in certain 

circumstances to correct or re-execute swap transactions in a less efficient and effective 

manner on a SEF, such as through the required methods of execution under § 37.9(a).

The proposed rules, which also require SEFs to adopt certain policies and procedures for 

addressing error trades, should further promote efficiency in the resolution process by 

providing market participants that transact on multiple SEFs with a more consistent 

approach across different platforms for correcting error trades.

c. Price Discovery

The proposed addition of § 37.9(e) regarding error trades would enable SEFs to 

correct error trades containing a clerical or operational error while maintaining the price 

discovery benefits associated with the pre-trade transparency requirements of § 37.9. In 

particular, the proposed rules would help promote price discovery by allowing 

counterparties, whose original trade has been cancelled upon rejection from clearing due 

to a clerical or operational error, to re-execute the trade with the terms as originally 

intended. For error trades that have been accepted by a registered DCO or exempt DCO 

for clearing, the proposed rules promote greater accuracy in the price discovery process 

by allowing the counterparties to correct the error trade by executing an offsetting swap 

transaction and a subsequent swap transaction with the terms as originally intended.

d. Sound Risk Management Practices

The proposed addition of § 37.9(e) regarding error trades may promote sound risk 

management practices by providing SEFs with greater authority under Commission 
68

regulations to facilitate error trade resolution. The proposed rules will help to mitigate 

potential losses to market participants arising out of trade cancellations, where the error 

trade is rejected from clearing, or arising from maintaining the position of an unintended 

error trade.

e. Other Public Interest Considerations

The Commission has not identified any effect of proposed § 37.9(e) on other 

public interest considerations.

Request for Comment

The Commission invites public comment on all aspects of its cost benefit 

considerations related to the proposed amendments regarding SEFs’ error trade policies, 

including the discussion of the section 15(a) factors. Comments made on the 2018 SEF 

Proposal that are relevant to this rulemaking should be resubmitted to be considered.

Commenters are requested to provide data and any other information or statistics to 

support their position. In particular, to the extent commenters believe that the costs or 

benefits of any aspect of the proposed rules are reasonably quantifiable, the Commission 

requests that they provide data and any other information or statistics to assist the 

Commission in quantification.

The Commission requests comment on the impact of the proposed rule on market 

participants who may need to adjust their error trade rules and policies to comply with 

SEFs’ error trade rules implemented to comply with proposed § 37.9(e). The 

Commission also requests comment on any alternatives that commenters believe present 

a superior cost-benefit profile to the proposed amendments.
69

4. Block Trades

The Commission proposes amendments to the definition of block trade, set forth 

in § 43.2, to allow SEFs to permit market participants to execute swap block trades using 

a SEF’s trading system or platform, with the exception of the Order Book.111 Market 

participants could continue to execute a block trade away from the SEF’s trading system 

or platform, but pursuant to the SEF’s rules.112 This rule is similar to existing relief set 

out in NAL No. 17-60, but the proposed rule would apply to uncleared swaps as well 

ITBC swaps, while the existing no-action relief only applies to ITBC swaps.

Benefits: The Commission believes that permitting swap block trades to be 

executed on SEFs pursuant to Commission regulation would provide tangible benefits to 

market participants by allowing them to further utilize a SEF’s trading systems and 

platforms with the exception of the Order Book. To the extent that a SEF provides the 

most operationally- and cost-efficient method of executing swap block trades, the 

proposed amendment would help market participants to continue realizing such benefits.

Additionally, allowing market participants to execute swap block trades on a SEF helps 

to facilitate the pre-execution screening of transactions against risk-based limits in an 

efficient manner through SEF-based mechanisms. The Commission also recognizes that 

 

111 The Commission notes that a swap transaction with a notional size above the appropriate minimum 

block trade size could still be executed on an Order Book, but would not qualify as a block trade, and 

therefore, would not receive a time delay from public dissemination requirements set forth in § 43.5(d).

112 The Commission notes that § 43.6(g)(1)—required notification of block trade election—would still 

apply to block trade transactions executed on the SEF via the SEF’s non-Order Book trading systems and 

platforms. For example, pursuant to § 43.6(g)(1)(i), SEFs would need to implement a mechanism by which 

the counterparties notify the SEF of the counterparties’ intention to have an on-SEF executed block trade 

treated as a block trade for reporting purposes. Additionally, pursuant to § 43.6(i)(2), a person transacting a 

cleared swap block trade on behalf of a customer would still need to receive prior written instruction or 

consent from the customer to transact the trade as a cleared swap block trade on the SEF. See 17 CFR 

43.6(i)(2).
70

many SEFs and market participants have already expended resources to implement 

technological and operational changes needed to avail themselves of the no-action relief 

under NAL No. 17-60. The proposed amendments would preclude the need to expend 

additional resources to negate those changes. Further, incorporating the current no-action 

relief in the Commission’s regulations would promote the statutory goal in CEA section 

5h(e) of promoting swaps trading on SEFs. Finally, the proposed amendment would 

permit SEFs to extend the benefits of executed swap block trades on-SEF to uncleared 

swaps as well as ITBC swaps.

Costs: The Commission notes that the majority of SEFs have implemented the 

existing no-action relief. To the extent that SEFs have implemented such relief, they may 

incur modest costs in adjusting their rulebooks to, for example, include uncleared swaps 

in their block trading provisions. Any SEF that has not implemented the existing noaction relief but wishes to implement block trading rules consistent with the proposed 

amendment will incur somewhat higher, but still modest costs.

Section 15(a) Factors

a. Protection of Market Participants and the Public

The proposed amendment to the definition of a swap block trade in § 43.2, which 

would allow for both ITBC and non-ITBC swap block trades to be executed on a SEF’s 

non-Order Book trading system or platform will provide more options to market 

participants for executing swap block trades without impeding the protection of market 

participants and the public provided under existing Commission regulations.
71

b. Efficiency, Competitiveness, and Financial Integrity of the Markets

The proposed amendment to the definition of block trade under § 43.2 to allow 

cleared and uncleared swap block trades to be executed on a SEF’s non-Order Book 

trading system or platform may improve the efficiency and financial integrity of the 

swaps markets. The proposed amendments would provide market participants with the 

ability to execute block trades either on a SEF or away from, but pursuant to the rules of, 

a SEF. From an efficiency perspective, such choice should allow participants to choose 

the most operationally efficient and cost-efficient method of executing block trades.

With respect to the financial integrity of the swaps market, this proposed amendment 

would also facilitate the use of pre-trade credit screening functionalities or protocols 

offered by the SEF to fulfill its obligations under SEF Core Principle 7—Financial 

Integrity of Transactions.113

c. Price Discovery

The Commission is not aware of significant effects on the price discovery process 

of the proposed amendment to the definition of block trade under § 43.2 to allow block 

trades to be executed on a SEF’s non-Order Book trading system or platform. The 

Commission notes that block trades are currently not subject to the execution methods for 

required transactions under § 37.9, which are intended to promote pre-trade price 

transparency pursuant to section 5h of the CEA.114 Based on the previous recognition 

that market participants are likely to execute large-sized trades, i.e., block trades, in a 

 

113 17 CFR 37.700.

114 The Commission stated its belief in the part 37 final rule release that an order book, as defined in 

§ 37.3(a)(3), and the RFQ System, as defined in § 37.9(a)(3), are intended to promote the goals articulated 

in section 733 of the Dodd-Frank Act, which include promoting pre-trade price transparency. 78 FR 

33484, 33497.
72

manner that would mitigate pre-trade information leakage concerns, the Commission 

does not anticipate that the proposed amendment would diminish the price discovery 

process for block trades executed on a SEF.

d. Sound Risk Management Practices

The proposed amendment to allow block trades to occur on the SEF (but not on 

the SEF’s order book) may promote sound risk management practices by providing more 

options for the execution of block trades. In this regard, the Commission notes that block 

trading can facilitate risk management by providing a means for commercial firms to 

transact large orders without the need for significant price concessions and resulting price 

uncertainty for parties to the transaction that would occur if transacted on the centralized 

market.

e. Other Public Interest Considerations

The proposed amendments should help promote SEF trading and pre-trade price 

transparency, i.e., the statutory goals set forth under section 5h(f)(2) of the CEA with 

respect to SEFs.115

Request for Comment

The Commission requests comment on the costs and benefits of all aspects of the 

proposed amendments to permit block trades to be executed on a SEF, including the 

discussion of the section 15(a) factors. Comments made on the 2018 SEF Proposal that 

are relevant to this rulemaking should be resubmitted to be considered. The Commission 

requests comment on the alternatives discussed above as well as any other alternatives 

that commenters believe present a superior cost-benefit profile to the proposed 

 

115 7 U.S.C. 7b-3(e).
73

amendments. Commenters are requested to provide data and any other information or 

statistics to support their position. In particular, to the extent commenters believe that the 

costs or benefits of any aspect of the proposed rules are reasonably quantifiable, the 

Commission requests that they provide data and any other information or statistics to 

assist the Commission in quantification.

D. Antitrust Considerations

Section 15(b) of the CEA requires the Commission to take into consideration the 

public interest to be protected by the antitrust laws and endeavor to take the least 

anticompetitive means of achieving the objectives of the CEA, in issuing any order or 

adopting any Commission rule or regulation. The Commission does not anticipate that 

the proposed amendments to parts 36, 37, and 43 would promote or result in anticompetitive consequences or behavior. However, the Commission encourages comments 

from the public with respect to any aspect of the proposal that maybe perceived as 

potentially inconsistent with the antitrust laws or anti-competitive in nature.

List of Subjects

17 CFR Part 36

Package transactions, Trade execution requirement.

17 CFR Part 37

Block trades, Error trades, Package transactions, Required methods of execution,

Swap execution facilities, Swaps, Trade execution requirement.

17 CFR Part 43

Block trades, Large notional off-facility swaps, Real-time public reporting,

Reporting and recordkeeping requirements.
74

For the reasons stated in the preamble, the Commodity Futures Trading 

Commission proposes to amend 17 CFR chapter I as follows:

1. Revise part 36 to read as follows:

PART 36 – TRADE EXECUTION REQUIREMENT

Sec.

36.1 Exemptions to trade execution requirement.

Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a-2, 7b-3, 2a2, and 21, as amended by 

Titles VII and VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 

Pub. L. 111-203, 124 Stat. 1376 (2010).

§ 36.1 Exemptions to trade execution requirement.

(a) A swap transaction that is executed as a component of a package transaction 

that also includes a component transaction that is the issuance of a bond in a primary 

market is exempt from the trade execution requirement in section 2(h)(8) of the Act.

(1) For purposes of paragraph (a) of this section, a package transaction consists of 

two or more component transactions executed between two or more counterparties 

where:

(i) At least one component transaction is subject to the trade execution 

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

(ii) Execution of each component transaction is contingent upon the execution of 

all other component transactions; and

(iii) The component transactions are priced or quoted together as one economic 

transaction with simultaneous or near-simultaneous execution of all components.

(2) [Reserved]

(b) [Reserved]
75

PART 37 – SWAP EXECUTION FACILITIES

2. The authority citation for part 37 continues to read as follows:

Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a-2, 7b-3, and 12a, as amended by Titles 

VII and VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. 

L. 111-203, 124 Stat. 1376.

3. In § 37.3, add paragraph (a)(4) to read as follows:

§ 37.3 Requirements and procedures for registration.

(a) * * *

(4) A swap execution facility is not required to provide an order book under this 

section for transactions defined in § 37.9(d)(2), (3), and (4), except that a swap execution 

facility must provide an order book under this section for Required Transactions that are 

components of transactions defined in § 37.9(d)(2), (3), and (4) when such Required 

Transactions are not executed as components of transactions defined in § 37.9(d)(2), (3), 

and (4).

* * * * *

4. In § 37.9, revise paragraph (a)(2)(i) introductory text and add paragraphs (d) 

and (e) to read as follows:

§ 37.9 Methods of execution for required and permitted transactions.

(a) * * *

(2) * * *

(i) Each Required Transaction that is not a block trade as defined in § 43.2 of this 

chapter shall be executed on a swap execution facility in accordance with one of the 

following methods of execution except as provided in paragraph (d) or (e) of this section:

* * * * *
76

(d) Exceptions to required methods of execution for package transactions. (1) For 

purposes of this paragraph, a package transaction consists of two or more component 

transactions executed between two or more counterparties where:

(i) At least one component transaction is a Required Transaction;

(ii) Execution of each component transaction is contingent upon the execution of 

all other component transactions; and

(iii) The component transactions are priced or quoted together as one economic 

transaction with simultaneous or near-simultaneous execution of all components.

(2) A Required Transaction that is executed as a component of a package 

transaction that includes a component swap that is subject exclusively to the 

Commission’s jurisdiction, but is not subject to the clearing requirement under section 

2(h)(1)(A) of the Act, may be executed on a swap execution facility in accordance with 

paragraph (c)(2) of this section as if it were a Permitted Transaction;

(3) A Required Transaction that is executed as a component of a package 

transaction that includes a component that is not a swap, as defined under section 1a(47) 

of the Act, may be executed on a swap execution facility in accordance with paragraph 

(c)(2) of this section as if it were a Permitted Transaction. This provision shall not apply 

to:

(i) A Required Transaction that is executed as a component of a package 

transaction in which all other non-swap components are U.S. Treasury securities;

(ii) A Required Transaction that is executed as a component of a package 

transaction in which all other non-swap components are contracts for the purchase or sale 

of a commodity for future delivery;
77

(iii) A Required Transaction that is executed as a component of a package 

transaction in which all other non-swap components are agency mortgage-backed 

securities; and

(iv) A Required Transaction that is executed as a component of a package 

transaction that includes a component transaction that is the issuance of a bond in a 

primary market.

(4) A Required Transaction that is executed as a component of a package 

transaction that includes a component swap that is not exclusively subject to the 

Commission’s jurisdiction may be executed on a swap execution facility in accordance 

with paragraph (c)(2) of this section as if it were a Permitted Transaction.

(e) Resolution of operational and clerical error trades. (1) As used in this 

paragraph:

(i) Correcting trade means a trade executed and submitted for clearing to a 

registered derivatives clearing organization, or a derivatives clearing organization that the 

Commission has determined is exempt from registration, with the same terms and 

conditions as an error trade other than any corrections to any operational or clerical error

and the time of execution.

(ii) Error trade means any trade executed on or subject to the rules of a swap 

execution facility that contains an operational or clerical error.

(iii) Offsetting trade means a trade executed and submitted for clearing to a 

registered derivatives clearing organization, or a derivatives clearing organization that the 

Commission has determined is exempt from registration, with terms and conditions that 

economically reverse an error trade that was accepted for clearing.
78

(2) Execution of correcting trades and offsetting trades. (i) A swap execution 

facility shall maintain rules and procedures that facilitate the resolution of error trades.

Such rules shall be fair, transparent, and consistent; allow for timely resolution; require 

market participants to provide prompt notice of an error trade—and, as applicable, 

offsetting and correcting trades—to the swap execution facility; and permit market 

participants to:

(A) Execute a correcting trade, in accordance with paragraph (c)(2) of this 

section, regardless of whether it is a Required or Permitted Transaction, for an error trade 

that has been rejected from clearing as soon as technologically practicable, but no later 

than one hour after a registered derivatives clearing organization, or a derivatives clearing 

organization that the Commission has determined is exempt from registration, provides 

notice of the rejection; or

(B) Execute an offsetting trade and a correcting trade, in accordance with 

paragraph (c)(2) of this section, regardless of whether it is a Required or Permitted 

Transaction, for an error trade that was accepted for clearing as soon as technologically 

practicable, but no later than three days after the error trade was accepted for clearing at a 

derivatives clearing organization or a derivatives clearing organization that the 

Commission has determined is exempt from registration.

(ii) If a correcting trade is rejected from clearing, then a swap execution facility 

shall not allow the counterparties to execute another correcting trade.

PART 43 – REAL-TIME PUBLIC REPORTING

5. The authority citation for part 43 continues to read as follows:

Authority: 7 U.S.C. 2(a), 12a(5) and 24a, as amended by Pub. L. 111-203, 124 

Stat. 1376 (2010).
79

6. Revise § 43.2 to read as follows:

§ 43.2 Definitions.

As used in this part:

Act means the Commodity Exchange Act, as amended, 7 U.S.C. 1 et seq.

Affirmation means the process by which parties to a swap verify (orally, in 

writing, electronically or otherwise) that they agree on the primary economic terms of a 

swap (but not necessarily all terms of the swap). Affirmation may constitute “execution” 

of the swap or may provide evidence of execution of the swap, but does not constitute 

confirmation (or confirmation by affirmation) of the swap.

Appropriate minimum block size means the minimum notional or principal 

amount for a category of swaps that qualifies a swap within such category as a block 

trade or large notional off-facility swap.

As soon as technologically practicable means as soon as possible, taking into 

consideration the prevalence, implementation and use of technology by comparable 

market participants.

Asset class means a broad category of commodities including, without limitation, 

any “excluded commodity” as defined in section 1a(19) of the Act, with common 

characteristics underlying a swap. The asset classes include interest rate, foreign 

exchange, credit, equity, other commodity and such other asset classes as may be 

determined by the Commission.

Block trade means a publicly reportable swap transaction that:

(1) Involves a swap that is listed on a registered swap execution facility or 

designated contract market;
80

(2) Is executed on a trading system or platform of a registered swap execution 

facility that is not an order book as defined in § 37.3(a)(3) of this chapter, or occurs away 

from a registered swap execution facility’s or designated contract market’s trading 

system or platform and is executed pursuant to the registered swap execution facility’s or 

designated contract market’s rules and procedures;

(3) Has a notional or principal amount at or above the appropriate minimum block 

size applicable to such swap; and

(4) Is reported subject to the rules and procedures of the registered swap 

execution facility or designated contract market and the rules described in this part, 

including the appropriate time delay requirements set forth in § 43.5.

Business day means the twenty-four hour day, on all days except Saturdays, 

Sundays and legal holidays, in the location of the reporting party or registered entity 

reporting data for the swap.

Business hours means the consecutive hours of one or more consecutive business 

days.

Cap size means, for each swap category, the maximum notional or principal 

amount of a publicly reportable swap transaction that is publicly disseminated.

Confirmation means the consummation (electronic or otherwise) of legally 

binding documentation (electronic or otherwise) that memorializes the agreement of the 

parties to all terms of a swap. A confirmation shall be in writing (electronic or otherwise) 

and shall legally supersede any previous agreement (electronic or otherwise) relating to 

the swap.
81

Confirmation by affirmation means the process by which one party to a swap 

acknowledges its assent to the complete swap terms submitted by the other party to the 

swap. If the parties to a swap are using a confirmation service vendor, complete swap 

terms may be submitted electronically by a party to such vendor’s platform and the other 

party may affirm such terms on such platform.

Economically related means a direct or indirect reference to the same commodity 

at the same delivery location or locations, or with the same or a substantially similar cash 

market price series.

Embedded option means any right, but not an obligation, provided to one party of 

a swap by the other party to the swap that provides the party holding the option with the 

ability to change any one or more of the economic terms of the swap as those terms 

previously were established at confirmation (or were in effect on the start date).

Executed means the completion of the execution process.

Execution means an agreement by the parties (whether orally, in writing, 

electronically, or otherwise) to the terms of a swap that legally binds the parties to such 

swap terms under applicable law. Execution occurs simultaneous with or immediately 

following the affirmation of the swap.

Futures-related swap means a swap (as defined in section 1a(47) of the Act and 

as further defined by the Commission in implementing regulations) that is economically 

related to a futures contract.

Large notional off-facility swap means an off-facility swap that has a notional or 

principal amount at or above the appropriate minimum block size applicable to such 

publicly reportable swap transaction and is not a block trade as defined in this section.
82

Major currencies means the currencies, and the cross-rates between the 

currencies, of Australia, Canada, Denmark, New Zealand, Norway, South Africa, South 

Korea, Sweden, and Switzerland.

Non-major currencies means all other currencies that are not super-major 

currencies or major currencies.

Novation means the process by which a party to a swap transfers all of its rights, 

liabilities, duties and obligations under the swap to a new legal party other than the 

counterparty to the swap. The transferee accepts all of the transferor's rights, liabilities, 

duties and obligations under the swap. A novation is valid as long as the transferor and 

the remaining party to the swap are given notice, and the transferor, transferee and 

remaining party to the swap consent to the transfer.

Off-facility swap means any publicly reportable swap transaction that is not 

executed on or pursuant to the rules of a registered swap execution facility or designated 

contract market.

Other commodity means any commodity that is not categorized in the other asset 

classes as may be determined by the Commission.

Physical commodity swap means a swap in the other commodity asset class that is 

based on a tangible commodity.

Public dissemination and publicly disseminate means to publish and make 

available swap transaction and pricing data in a non-discriminatory manner, through the 

Internet or other electronic data feed that is widely published and in machine-readable 

electronic format.

Publicly reportable swap transaction means:
83

(1) Unless otherwise provided in this part—

(i) Any executed swap that is an arm’s-length transaction between two parties that 

results in a corresponding change in the market risk position between the two parties; or

(ii) Any termination, assignment, novation, exchange, transfer, amendment, 

conveyance, or extinguishing of rights or obligations of a swap that changes the pricing 

of the swap.

(2) Examples of executed swaps that do not fall within the definition of publicly 

reportable swap may include:

(i) Internal swaps between one-hundred percent owned subsidiaries of the same 

parent entity; and

(ii) Portfolio compression exercises.

(3) These examples represent swaps that are not at arm’s length and thus are not 

publicly reportable swap transactions, notwithstanding that they do result in a 

corresponding change in the market risk position between two parties.

Real-time public reporting means the reporting of data relating to a swap 

transaction, including price and volume, as soon as technologically practicable after the 

time at which the swap transaction has been executed.

Reference price means a floating price series (including derivatives contract 

prices and cash market prices or price indices) used by the parties to a swap or swaption 

to determine payments made, exchanged or accrued under the terms of a swap contract.

Remaining party means a party to a swap that consents to a transferor’s transfer 

by novation of all of the transferor’s rights, liabilities, duties and obligations under such 

swap to a transferee.
84

Reporting party means the party to a swap with the duty to report a publicly 

reportable swap transaction in accordance with this part and section 2(a)(13)(F) of the 

Act.

Super-major currencies means the currencies of the European Monetary Union,

Japan, the United Kingdom, and United States.

Swaps with composite reference prices means swaps based on reference prices 

that are composed of more than one reference price from more than one swap category.

Transferee means a party to a swap that accepts, by way of novation, all of a 

transferor’s rights, liabilities, duties and obligations under such swap with respect to a 

remaining party.

Transferor means a party to a swap that transfers, by way of novation, all of its 

rights, liabilities, duties and obligations under such swap, with respect to a remaining 

party, to a transferee.

Trimmed data set means a data set that has had extraordinarily large notional 

transactions removed by transforming the data into a logarithm with a base of 10, 

computing the mean, and excluding transactions that are beyond four standard deviations 

above the mean.

Unique product identifier means a unique identification of a particular level of the 

taxonomy of the product in an asset class or sub-asset class in question, as further 

described in § 43.4(f) and appendix A to this part. Such unique product identifier may 

combine the information from one or more of the data fields described in appendix A.

Widely published means to publish and make available through electronic means 

in a manner that is freely available and readily accessible to the public.
85

Issued in Washington, DC, on February 6, 2020, by the Commission.

Christopher Kirkpatrick,

Secretary of the Commission.

NOTE: The following appendices will not appear in the Code of Federal Regulations.

Appendices to Swap Execution Facility Requirements and Real-Time Reporting 

Requirements – Commission Voting Summary and Commissioners’ Statements

Appendix 1 – Commission Voting Summary

On this matter, Chairman Tarbert and Commissioners Quintenz, Behnam, Stump, 

and Berkovitz voted in the affirmative. No Commissioner voted in the negative.

Appendix 2 – Statement of Support of Commissioner Brian D. Quintenz

I support today’s proposal that seeks to resolve through rulemaking three issues 

currently addressed in staff no-action letters. I believe this proposal is an important first 

step to provide market participants with much needed regulatory certainty while also 

promoting swap execution facility (SEF) participation, though regulatory certainty over 

additional current market practices is necessary as well.

Staff initially granted these requests for relief in 2013 and 2014, as SEFs were 

first coming into compliance with the Commission’s then-new SEF regulatory 

framework. With the benefit of six-plus years of implementation experience, and 

multiple extensions of each of these no-action letters, it is long overdue for the 

Commission to codify and clarify its policy on each of these important issues.

First, the proposal would amend part 37 regulations to permit the swap 

components of certain categories of package transactions to be executed on-SEF through 
86

flexible means of execution, rather than via the required methods of execution under Rule 

37.9.1 In addition, the proposal would also include an exemption from the trade 

execution requirement for swap transactions that are executed as a component of a new 

issuance bond package transaction. These amendments recognize the need to provide 

flexible means of execution for swaps that are negotiated and executed concurrently with 

other components of a larger, integrated transaction.

Second, the proposal adopts a principles-based approach regarding SEF policies 

to correct operational or clerical errors.2 The proposal directs SEFs to adopt fair, 

transparent, and consistent policies and procedures that allow for the timely resolution of 

error trades. SEFs would be permitted to allow market participants to execute offsetting 

or correcting trades through any method of execution offered by the SEF. I believe these 

amendments will facilitate the prompt identification and correction of error trades, 

thereby minimizing market participants’ exposure to market, credit, and operational risks.

Thirdly, the proposal recognizes the difficulties associated with performing a pretrade execution credit check on block trades occurring away from a SEF’s trading system 

or platforms.3 Accordingly, it would permit block trades to be executed on a trading 

system of the SEF that is not an order book, thereby allowing FCMs to conduct preexecution credit screenings. The proposal also continues to allow block trades to be 

executed away from the SEF.

 

1 These amendments address the relief currently provided by CFTC No-Action Letter 17-55 (Oct. 31, 

2017).

2 These amendments address the relief currently provided by CFTC No-Action Letters 17-27 (May 30, 

2017) and 20-01 (Jan. 8, 2020).

3 These amendments address the relief currently provided by CFTC No-Action Letter 17-60 (Nov. 14, 

2017).
87

This proposal should in no way preclude the Commission from considering 

additional SEF no-action letters and policy issues through rulemaking. For example, 

codifying the current no-action letter providing relief from the trade execution 

requirement for inter-affiliate swaps, or providing greater clarity about permissible 

methods of execution and minimum SEF trading functionality are prime examples. In 

order to truly foster and promote market liquidity, transparency, innovation, and 

competition in the SEF marketplace, I believe these outstanding issues should be 

addressed. I will support today’s proposal but remain hopeful that these and other 

important areas can be addressed through rulemaking in the near future.

Appendix 3 – Statement of Concurrence of Commissioner Rostin Behnam

I respectfully concur in the Commission’s proposal to amend certain swap 

execution facility (SEF) requirements and real-time reporting requirements. A little more 

than a year ago, the Commission issued a proposal that would have constituted a 

complete overhaul of the existing regulatory framework for SEFs.1 As I stated in my 

concurrence to the 2018 SEF proposal, I do not believe that such an overhaul is 

necessary.

2

 However, despite my opposition to the overhaul, I supported issuing the SEF 

proposal for public comment because it contained several policy changes which 

separately warranted further consideration. Market participants have spent a great deal of 

resources to build systems and businesses that comply with our existing SEF rules. 

Fundamental changes amounting to an overhaul of the entire system should only be done 

 

1

Swap Execution Facilities and Trade Execution Requirement, 83 FR 61946 (proposed Nov. 30, 2018).

2 Rostin Behnam, Statement of Concurrence of Commissioner Rostin Behnam Regarding Swap Execution 

Facilities and Trade Execution Requirement (Nov. 5, 2018), 

https://www.cftc.gov/PressRoom/SpeechesTestimony/behnamstatement110518a.
88

in circumstances where there is a regulatory concern that necessitates action.3 

Accordingly, in the past I have suggested we should focus on targeted reforms, such as 

codifying existing no-action relief for SEFs.4 I warned that we should not allow issues 

with the broader vision of the 2018 SEF proposal to distract us from making targeted 

changes.5

Today, the Commission proposes to limit changes to our existing SEF rules, 

specifically focusing on the codification of long-standing no-action relief regarding 

package transactions, error trades, and block trades. While I support today’s proposal, I 

do have some concerns where I think we deviate from the path of targeted codification. 

The provisions in today’s proposal regarding package transactions and block trades 

basically mirror the existing no-action relief.6 However, the proposal regarding error 

trades does not.7

DMO currently provides no-action relief from the required methods of execution 

under § 37.9 for trades intended to resolve error trades.8 The existing relief provides a 

 

3 Rostin Behnam, Sowing the Seeds of Success in 2020, Remarks of CFTC Commissioner Rostin Behnam 

at the 2019 ISDA Annual General Meeting, Grand Hyatt Hong Kong, Hong Kong (Apr. 9, 2019), 

https://www.cftc.gov/PressRoom/SpeechesTestimony/opabehnam13.

4

Id.

5

Id.

6

See CFTC No-Action Letter No. 17-55, Re: Extension of No-Action Relief from Sections 2(h)(8) and 

5(d)(9) of the Commodity Exchange Act and from Commission Regulations 37.3(a)(2) and 37.9 for Swaps 

Executed as Part of Certain Package Transactions (Oct. 31, 2017); CFTC No-Action Letter No. 17-60, Re: 

Extension of No-Action Relief for Swap Execution Facilities from Certain “Block Trade” Requirements in 

Commission Regulation 43.2 (Nov. 14, 2017).

7

See CFTC No-Action Letter No. 17-27, Re: No-Action Relief for Swap Execution Facilities and 

Designated Contract Markets in Connection with Swaps with Operational or Clerical Errors Executed on a 

Swap Execution Facility or Designated Contract Market (May 30, 2017); CFTC No-Action Letter No. 20-

01 (“NAL No. 20-01”), Re: Supplemental No-Action Relief for Swap Execution Facilities and Designated 

Contract Markets in Connection with Swaps with Operational or Clerical Errors Executed on a Swap 

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

8 NAL 17-27.
89

number of conditions, including a requirement that a SEF determine (either prior to 

execution or within 24 hours after) that an error has occurred. Among other things, the 

no-action relief requires that a SEF have error trade rules that account for whether a 

transaction cancellation or price adjustment will adversely impact market integrity or 

facilitate market manipulation or other illegitimate activity.9 None of these conditions 

appear in the error trade rules proposed today, and under the proposal SEFs will no 

longer have any obligation to determine whether a trade is an error trade – the 

determination can instead be left entirely to the parties to the trade. I look forward to 

comments regarding whether this “principles-based” approach goes too far and fails to 

give market participants sufficient clarity regarding error trades.

I support targeted, thoughtful reform of our SEF regulations, and I particularly 

applaud staff’s efforts to provide market participants with greater legal certainty through 

the codification of our existing no-action relief. I look forward to the comments.

 

9

Id.
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Appendix 4 – Statement of Commissioner Dan M. Berkovitz

I am voting in favor of today’s proposed rule that would amend certain 

Commission rules in parts 36, 37, and 43 relating to package transactions, block trades, 

and error transactions on swap execution facilities (“SEFs”) (“Proposal”). Today’s 

amendments largely codify longstanding no-action letters for limited categories of swaps 

transactions regarding the required methods of execution. Generally, I support the 

codification of no-action letters where, based on experience, doing so is consistent with 

our statutory mandate, protects customers, provides market participants with a greater 

level of certainty, and promotes market integrity.

Package Transactions

This Proposal would amend part 37 to allow the swap components of certain 

package transactions—including those that are illiquid and bespoke and therefore not 

suitable for trading on-SEF—to be executed on-SEF but through flexible methods of 

execution. In addition, the Proposal amends part 36 to exempt from the trade execution 

requirement a swap in a package transaction involving a bond sold in the primary market 

(“new issuance bond transaction”), which also is not conducive to trading on-SEF.

Beginning in 2014, the Commission issued a series of no-action letters specifying 

permissible methods of execution for certain package transactions, which have enabled 

market participants and the agency to apply the trading mandate to these transactions in a 

phased manner. As the market infrastructure for the trading and clearing of swaps has 

improved, the trading mandate has been applied to the packages involving more liquid 
91

and standardized swap components.1 The remaining package transactions that would be 

covered by today’s Proposal represent a small percentage of swaps trading on the most 

active SEFs.

I encourage the industry to continue to develop systems that allow for increased 

execution of package trade swap components on-SEF. I also appreciate the Staff’s 

commitment, if this rule is finalized, to continue to evaluate the categories of package 

transactions subject to the rule and revise the rule as necessary in the future to reflect 

developments in trading methodologies.

Error Trades

The Proposal also would amend part 37 to enable SEFs to permit market 

participants to use flexible methods of execution to correct error trades, and would 

require a SEF to establish error trade policies that largely track the conditions set forth in 

prior no-action letters. Notably, the Proposal would require market participants to 

provide prompt notice of an error trade to the SEF, enabling the SEF to fulfill its selfregulatory obligations. It would not alter the requirement that SEFs must adopt rules 

declaring that trades rejected from clearing are deemed void ab initio. The Proposal also 

includes the requirement under CFTC No-Action Letter No. 17-27 that after submitting 

one error trade, market participants will not be able to submit a second new trade with the 

original terms. These conditions facilitate a SEF’s direct supervision of its markets, 

protect against abuse, and promote fair competition.

 

1

For example, U.S. Dollar Spreadover package transactions account for nearly seventy percent of interest 

rate swaps trading in the inter-dealer swap market. No-action letters for these package transactions have 

expired and market participants now actively trade the swap component of these packages through required 

methods of trading. See Proposed Rule, Sect. II.A.1 and n.33.
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Block Trades

The Proposal would revise the definition of “block trade” in Commission 

Regulation 43.2 to permit SEFs to offer non-Order Book methods of execution for market 

participants to execute swap block trades on-SEF. Like package transactions, block 

trades encompassed within the Proposal are a small percentage of the number of swaps 

traded. A significant benefit of this Proposal is that it would facilitate pre-trade credit 

checks by SEFs for block trades, in accordance with the SEF core principles.

It is my preliminary view that this Proposal would provide certainty to market 

participants and increase trading efficiencies, while not compromising the Congressional 

goal of moving standardized OTC derivative contracts to exchanges or electronic trading 

platforms. I look forward to public comments on the anticipated effects of these 

amendments, and I thank the staff of the Division of Market Oversight for their work on 

this Proposal.