1

6351-01-P

COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 9, 36, 37, 38, 39, and 43

RIN 3038–AE25

Swap Execution Facilities and Trade Execution Requirement

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rule; withdrawal.

SUMMARY: On November 30, 2018, the Commodity Futures Trading Commission 

(“CFTC” or the “Commission”) published a “Swap Execution Facilities and Trade 

Execution Requirement” notice of proposed rulemaking (“NPRM”) in the Federal 

Register. While the Commission has adopted certain proposals from the NPRM, in light 

of feedback the Commission received in response to the remaining proposals in the 

NPRM, the Commission has determined to not proceed with those unadopted proposals

relating to the regulation of swap execution facilities (“SEFs”) and the trade execution 

requirement (“Determination”). In separate final rules, the Commission adopted the 

following portions of the NPRM: two exemptions, pursuant to Commodity Exchange Act 

(“CEA”) section 4(c), from the trade execution requirement in CEA section 2(h)(8); and 

(2) final rules related to audit trail requirements for post-trade allocations, SEF financial 

resource requirements, and SEF chief compliance officer requirements (collectively, the 

“Final Rules”). As such, this withdrawal does not impact or alter any of those sections of 

the NPRM that are being adopted in the Final Rules, as described further in footnote 1 

below. In light of the Determination, the Commission has decided to withdraw the 

unadopted portions of the NPRM.
2

DATES: The Commission is withdrawing proposed rules published in the Federal 

Register on November 30, 2018 (83 FR 61946) as of [INSERT DATE OF 

PUBLICATION IN THE FEDERAL REGISTER].

ADDRESSES: Comments previously submitted in response to the NPRM remain on file 

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

NW, Washington, DC 20581 and may also be accessed via the CFTC Comments Portal: 

https://comments.cftc.gov.

FOR FURTHER INFORMATION CONTACT: Roger Smith, Associate Chief 

Counsel, Division of Market Oversight, (202) 418–5344, rsmith@cftc.gov, Commodity 

Futures Trading Commission, 525 West Monroe Street, Suite 1100, Chicago, IL 60661;

or David E. Aron, Acting Associate Director, Division of Data, (202) 418-6621, 

daron@cftc.gov, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 

21st Street, NW, Washington, DC 20581.

SUPPLEMENTARY INFORMATION: On November 30, 2018, the Commission

published the NPRM, which proposed a comprehensive foundational shift in the 

regulatory framework for SEFs.

1

In particular, if adopted, the NPRM would have, among 

other things, (i) required that certain swaps broking entities, including interdealer brokers, 

and aggregators of single-dealer platforms register as SEFs pursuant to the registration 

requirement under CEA section 5h(a)(1);2(ii) broadened the scope of the trade execution 

requirement, but provided certain exemptions; (iii) allowed a SEF to offer flexible 

execution methods for swaps subject to the trade execution requirement; and (iv) 

 

1See the NPRM, 83 FR 61946 (Nov. 30, 2018), available at: https://www.cftc.gov/sites/default/files/2018-

11/2018-24642a.pdf.

2 7 U.S.C. 7b-3(a)(1).
3

established disclosure-based trading and execution rules applicable to any SEF execution 

method. In conjunction with flexible execution methods, the Commission also proposed 

limits on the scope of trading-related communications (“pre-execution communications”) 

that SEF participants may conduct away from a SEF’s trading system or platform, as well 

as proficiency requirements for certain SEF employees who facilitate trading. 

Additionally, the Commission proposed amendments to impartial access rules that would 

provide a SEF with greater flexibility to structure its access requirements, and to tailor its 

rule enforcement program and disciplinary procedures and sanctions, to its trading 

operations and market. The proposed rules also would have made non-substantive

amendments and various conforming changes to other Commission regulations.

In response to the NPRM, the Commission received fifty-six comment letters 

from SEFs, market participants, industry trade associations, public interest organizations, 

and other interested parties. The NPRM comprehensively sought to amend the SEF 

regulatory framework. For example, one commenter characterized the NPRM as a 

“fundamental reconstruction of the ‘SEF ecosystem,’” and “[the NPRM would] change 

many of the ways in which market participants interact with, and trade on, SEFs. This 

reconstruction of the existing ecosystem would present tall operational challenges and 

impose substantial costs on all market participants....”3 Several commenters expressed 

concern over the magnitude of changes behind the NPRM. Therefore, to avoid potential 

and unintended adverse market impacts caused by comprehensive and far-reaching 

changes, several commenters preferred that the Commission adopt a more “targeted” 

approach.

 

3 Futures Industry Association (“FIA”) Letter at 7.
4

The Commission, at the time, proposed the NPRM based on particular views 

regarding the need for a comprehensive revamping of the regulatory framework for SEFs. 

In light of feedback the Commission received in response to the NPRM, and upon further

consideration, the Commission believes that rather than comprehensively amending the 

fundamentals underpinning the SEF regime, the Commission should instead work to 

improve the SEF framework through targeted rulemakings that address distinct issues. 

The Commission agrees with commenters that this approach will help the Commission 

avoid unintended adverse market impacts caused by the comprehensive and far-reaching 

changes of the NPRM.

Therefore, the Commission has determined to withdraw the unadopted portions of 

the pending NPRM in order to allow the Commission to propose and adopt targeted 

rulemakings to address specific SEF issues or requirements.

4

Issued in Washington, DC, on December 23, 2020, by the Commission.

Christopher Kirkpatrick,

Secretary of the Commission.

NOTE: The following appendices will not appear in the Code of Federal Regulations.

 

4 Concurrently with this withdrawal, the Commission is adopting the Final Rules to implement various 

proposals from the NPRM. One of the Final Rules adopted two CEA section 4(c) exemptions from the 

trade execution requirement. Specifically, this final rulemaking adopted proposed § 36.1(c) and § 36.1(e), 

which were respectively re-numbered as § 36.1(b) and § 36.1(c) in the adopting release. See Exemption 

from Swap Execution Requirement, published in yesterday’s issue of the Federal Register. The other 

adopted various proposals related to audit trail requirements for post-trade allocations, SEF financial 

resource requirements, and SEF chief compliance officer requirements. In particular, these final rules 

addressed the proposals for §§ 37.205(a) and (b)(2); 37.1301; 37.1302; 37.1303; 37.1304; 37.1305; 

37.1306; 37.1307; and 37.1501. See Swap Execution Facilities, published in yesterday’s issue of the 

Federal Register. This withdrawal does not impact or alter any of the Final Rules.
5

Appendices to Swap Execution Facilities and Trade Execution Requirement –

Commission Voting Summary, Chairman’s Statement, 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 Chairman Heath P. Tarbert

Nearly two thousand years ago, the Stoic philosopher and statesman Seneca the 

Younger observed that “every new beginning comes from some other beginning’s end.” 

This remains as true today as it was then, and as it was in the 1990s when the band 

Semisonic built a song around it.

I vote today in support of withdrawing the remaining unadopted portions of the 

November 2018 Swap Execution Facilities (“SEF”) and Trade Execution Requirement 

proposal (“SEF Proposal”). With the beginning of a new SEF landscape based on other 

rules we are announcing today, it is appropriate to bring that proposal—which was itself 

a beginning of sorts—to an end.

The SEF Proposal, which was championed by my predecessor Chairman Chris 

Giancarlo, was comprehensive in that it sought to codify staff no-action relief and 

otherwise resolve operational concerns of SEFs and market participants. It also set forth 

structural reforms to the SEF regime beyond these operational fixes. The SEF Proposal 

reflected a great deal of time, effort, and thought, and resulted in several rules ultimately 

adopted by the Commission. I am grateful indeed for Chairman Giancarlo’s thought 

leadership and the path that the SEF Proposal set our agency upon.
6

In particular, our Commission yesterday adopted from the SEF Proposal: (1) two 

exemptions, pursuant to Commodity Exchange Act (“CEA”) section 4(c), from the trade 

execution requirement in CEA section 2(h)(8); and (2) final rules related to audit trail 

requirements for post-trade allocations, SEF financial resource requirements, and SEF 

chief compliance officer requirements. With respect to the unadopted portions of the 

SEF Proposal, the feedback received from market participants and the public made clear 

that moving forward would require significantly more work and a re-proposal of the 

rules. Therefore, I believe it is appropriate to withdraw those unadopted elements. 

Doing so is also consistent with our Commission’s reasoning for withdrawing Regulation 

AT a few months ago—we can start a new beginning only once we have ended the prior 

beginning.

Appendix 3 – Statement of Support of Commissioner Brian D. Quintenz

I will vote in favor of withdrawing the unadopted provisions from the 

Commission’s 2018 proposal comprehensively to amend the regulations applicable to 

swap execution facilities (SEFs)1, but only because the Commission has already adopted 

many of these proposals, including in the areas of SEF financial resources, audit trail 

data, and exceptions to the trade execution requirement, so that the SEF ruleset becomes 

more practical for market participants. I note that many of the finalized provisions are 

based on longstanding no-action relief that has taken over eight years and a Republican 

administration to rationalize the inadequate ruleset left by the Commission’s prior 

leadership.

 

1 SEFs and Trade Execution Requirement, 83 FR 61946 (Nov. 30, 2018).
7

I regret significantly, however, that certain aspects of the 2018 proposal have not 

been acted upon or debated as a Commission since. In particular, the CEA as amended by 

Dodd Frank, legally allows SEFs greater flexibility – specifically through “any means of 

interstate commerce”2 – in which methods of execution they may offer for swaps subject 

to the trade execution requirement, than the overly prescriptive and government-knowsbest requirement that a SEF may only provide either a RFQ-to-3 or a Central Limit Order 

Book (CLOB) trading mechanism, as dictated by an existing CFTC rule.3Indeed, such 

flexibility was recently requested by a wide range of market participants during the 

period of COVID-inspired market volatility and thin liquidity.4If such trade execution 

flexibility is necessary to support liquidity in a stressed environment, why would it not 

benefit the markets more generally in normal environments? Additionally, such 

flexibility is absolutely consistent with the definition of a SEF set forth in the CEA, that 

establishes a SEF as a multiple-to-multiple trading system.”5

Appendix 4 – Statement of Concurrence of Commissioner Rostin Behnam

More than two years ago, in November 2018, the Commission voted to propose a 

comprehensive overhaul of the existing framework for swap execution facilities (SEFs).1 

Today, the Commission issues two rules finalizing aspects of the SEF Proposal and a 

withdrawal of the SEF Proposal’s unadopted provisions. This is the final step in a long 

 

2 Definition of SEF, sec. 1a(50) of the CEA.

3 CFTC reg. 37.9(a).

4 Comment letter from ISDA, dated May 22, 2020, in response to the Commission’s February 2020 

proposal on SEF and Real-Time Reporting requirements (85 FR 9407 (Feb. 19, 2020)).

5 Definition of SEF, sec. 1a(50) of the CEA.

1 Swap Execution Facilities and Trade Execution Requirement, 83 FR 61946 (Nov. 30, 2018) (the “SEF 

Proposal”).
8

road. Last month, the Commission finalized rules emanating from the SEF Proposal

regarding codification of existing no-action letters regarding, among other things, 

package transactions.2 Today’s final rules and withdrawal complete the Commission’s 

consideration of the SEF Proposal.

Back in November 2018, I expressed concern that finalization of the SEF 

Proposal would reduce transparency, increase limitations on access to SEFs, and add 

significant costs for market participants.3 I also noted that, while the existing SEF 

framework could benefit from targeted changes, particularly the codification of existing 

no-action relief, the SEF framework has in many ways been a success. I pointed out that 

the Commission’s work to promote swaps trading on SEFs has resulted in increased 

liquidity, while adding pre-trade price transparency and competition. Nonetheless, I 

voted to put the SEF Proposal out for public comment, anticipating that the notice and 

comment process would guide the Commission in identifying a narrower set of changes 

that would improve the current SEF framework and better align it with the statutory 

mandate and the underling policy objectives shaped after the 2008 financial crisis.4 More 

than two years and many comment letters later, that is exactly what has happened. The 

Commission has been precise and targeted in its finalization of specific provisions from 

the SEF Proposal that provide needed clarity to market participants and promote 

 

2 Swap Execution Facility Requirements (Nov. 18, 2020), 

https://www.cftc.gov/PressRoom/PressReleases/8313-20.

3 Statement of Concurrence of Commissioner Rostin Behnam Regarding Swap Execution Facilities and 

Trade Execution Requirement, 

https://www.cftc.gov/PressRoom/SpeechesTestimony/behnamstatement110518a.

4

Id.
9

consistency, competitiveness, and appropriate operational flexibility consistent with the 

core principles.

In addition to expressing substantive concerns about the overbreadth of the SEF 

Proposal, I also voiced concerns that we were rushing by having a comparatively short 

75-day comment period.5 In the end, the comment period was rightly extended, and the 

Commission has taken the time necessary to carefully evaluate the appropriateness of the 

SEF Proposal in consideration of its regulatory and oversight responsibilities and the 

comments received. I think that the consideration of the SEF Proposal is an example of 

how the process is supposed to work. When we move too quickly toward the finish line 

and without due consideration of the surrounding environment, we risk making a mistake 

that will impact our markets and market participants.

Finally, I would like to address the Commission’s separate vote to withdraw the 

unadopted provisions of the SEF Proposal. In the past, I have expressed concern with 

such withdrawals by an agency that has historically prided itself on collegiality and 

working in a bipartisan fashion.6 In the case of today’s withdrawal, the Commission has 

voted on all appropriate aspects of the SEF Proposal through three rules finalized during 

the past month. The Commission has voted unanimously on all of these rules, including 

today’s decision to withdraw the remainder from further consideration. While normally a 

single proposal results in a single final rule, in this instance, multiple final rules have 

been finalized emanating from the SEF Proposal. This could lead to confusion regarding 

 

5

Id.

6 Rostin Behnam, Commissioner, CFTC, Dissenting Statement of Commissioner Rostin Behnam Regarding 

Electronic Trading Risk Principles (June 25, 2020), 

https://www.cftc.gov/PressRoom/SpeechesTestimony/behnamstatement062520b.
10

the Commission’s intentions regarding the many unadopted provisions of the SEF 

Proposal. Under such circumstances, I think it is appropriate to provide market 

participants with clarity regarding the SEF Proposal. Accordingly, I will support today’s 

withdrawal of the SEF Proposal. But rather than viewing it as a withdrawal of the SEF 

Proposal, I see it as an affirmation of the success of the existing SEF framework and the 

careful process to markedly improve the SEF framework in a measured and thoughtful

way.

Appendix 5 – Statement of Commissioner Dan M. Berkovitz

I support the Commission’s decision to withdraw its 2018 proposal to overhaul 

the regulation of swap execution facilities (“SEFs”)1(“2018 SEF NPRM”) and proceed 

instead with targeted adjustments to our SEF rules (“Final Rules”). The two Final Rules 

approved today will make minor changes to SEF requirements while retaining the 

progress we have made in moving standardized swaps onto electronic trading platforms, 

which has enhanced the stability, transparency, and competitiveness of our swaps 

markets.2

When the Commission issued the 2018 SEF NPRM, I proposed that we enhance 

the existing swaps trading system instead of dismantling it. For example, I urged the 

Commission to clarify the floor trader exception to the swap dealer registration 

requirement and abolish the practice of post-trade name give-up for cleared swaps. I am 

 

1 Swap Execution Facilities and Trade Execution Requirement, 83 FR 61946 (Nov. 30, 2018).

2 Dissenting Statement of Commissioner Dan M. Berkovitz Regarding Proposed Rulemaking on Swap 

Execution Facilities and Trade Execution Requirement (Nov, 5, 2018), available at 

https://www.cftc.gov/PressRoom/SpeechesTestimony/berkovitzstatement110518a.
11

pleased that the Commission already has acted favorably on both of those matters. 

Today’s rulemaking represents a further positive step in this targeted approach.

Many commenters to the 2018 SEF NPRM supported this incremental approach, 

advocating discrete amendments rather than wholesale changes. Today, the Commission 

is adopting two Final Rules that codify tailored amendments that received general support 

from commenters. The first rule—Swap Execution Facilities—amends part 37 to address 

certain operational challenges that SEFs face in complying with current requirements, 

some of which are currently the subject of no-action relief or other Commission 

guidance. The second rule—Exemptions from Swap Trade Execution Requirement—

exempts two categories of swaps from the trade execution requirement, both of which are 

linked to exceptions to or exemptions from the swap clearing requirement.

Swap Execution Facilities: Audit Trail Data, Financial Resources and Reporting, 

and Requirements for Chief Compliance Officers

Commission regulations require a SEF to capture and retain all audit trail data 

necessary to detect, investigate, and prevent customer and market abuses, which currently 

includes identification of each account to which fills are ultimately allocated.3 Following 

the adoption of these regulations, SEFs represented that they are unable to capture postexecution allocation data because the allocations occur away from the SEF, prompting 

CFTC staff to issue no-action relief. Other parties, including DCOs and account 

managers, must capture and retain post-execution allocation information and produce it to 

the CFTC upon request, and SEFs are required to establish rules that allow them obtain 

this allocation information from market participants as necessary to fulfill their self-

 

3 17 CFR 37.205(a), b(2)(iv).
12

regulatory responsibilities. Given that staff is not aware of any regulatory gaps that have 

resulted from SEFs’ reliance on the no-action letter, codifying this alternative compliance 

framework is appropriate.

This Swap Execution Facility final rule also will amend part 37 to tie a SEF’s 

financial resource requirements more closely to the cost of its operations, whether in 

complying with core principles and Commission regulations or winding down its 

operations. Based on its experience implementing the SEF regulatory regime, the 

Commission believes that these amended resource requirements—some of which simply 

reflect current practice—will be sufficient to ensure that a SEF is financially stable while 

avoiding the imposition of unnecessary costs. Additional amendments to part 37, 

including requirements that a SEF must prepare its financial statements in accordance 

with U.S. GAAP standards, identify costs that it has excluded in determining its projected 

operated costs, and notify the Commission within 48 hours if it is unable to comply with 

its financial resource requirements, will further enhance the Commission’s ability to 

exercise it oversight responsibilities.

Finally, this rule makes limited changes to the Chief Compliance Officer (“CCO”) 

requirements. As a general matter, I agree that the Commission should clarify certain 

CCO duties and streamline CCO reporting requirements where information is duplicative 

or not useful to the Commission. Although the CCO requirements diverge somewhat 

from those for futures commission merchants and swap dealers, the role of SEFs is 

different and therefore, standardization is not always necessary or appropriate. I expect 

that the staff will continue to monitor the effects of all of the changes adopted today and 

inform the Commission if it believes further changes to our rules are needed.
13

Exemptions from Swap Trade Execution Requirement

Commodity Exchange Act (“CEA”) section 2(h)(8) specifies that a swap that is 

excepted from the clearing requirement pursuant to CEA section 2(h)(7) is not subject to 

the requirement to trade the swap on a SEF. Accordingly, swaps that fall into the 

statutory swap clearing exceptions (e.g., commercial end-users and small banks) are also 

excepted from the trading mandate. However, the Commission has also exempted from 

mandatory clearing swaps entered into by certain entities (e.g., cooperatives, central 

banks, and swaps between affiliates) using different exemptive authorities from section 

2(h)(7).

The Exemptions from Swap Trade Execution Requirement final rule affirms the 

link between the clearing mandate and the trading mandate for swaps that are exempted 

from the clearing mandate under authorities other than CEA section 2(h)(7). The 

additional clearing exemptions are typically provided by the Commission to limited types 

of market participants, such as cooperatives or central banks that use swaps for 

commercial hedging or have financial structures or purposes that greatly reduce the need 

for mandatory clearing and SEF trading. In addition, limited data provided in the release 

indicates that, at least up to this point in time, these exempted swaps represent a small 

percentage of the notional amount of swaps traded.

This final rule also exempts inter-affiliate swaps from the trade execution 

requirement. These swaps are exempted from the clearing requirement primarily because 

the risks on both sides of the swap are, at least in some respects, held within the same 

corporate enterprise. As described in the final rule release, these swaps may not be 

traded at arms-length and serve primarily to move risk from one affiliate to another 
14

within the same enterprise. Neither market transparency nor price discovery would be 

enhanced by including these transactions within the trade execution mandate. For these 

reasons, I am approving the Exemptions from Swap Trade Execution Requirement final 

rule as a sensible exemption consistent with the relevant sections of the CEA.

Conclusion

These two Final Rules provide targeted changes to the SEF regulations based on 

experience from several years of implementing them. These limited changes, together 

with the withdrawal of the remainder of the 2018 SEF NPRM, effectively leave in place 

the basic framework of the SEF rules as originally adopted by the Commission. This 

framework has enhanced market transparency, improved competition, lowered 

transaction costs, and resulted in better swap prices for end users. While it may be 

appropriate to make other incremental changes going forward, it is important that we 

affirm the established regulatory program for SEFs to maintain these benefits and 

facilitate further expansion of this framework.

I thank the staff of the Division of Market Oversight for their work on these two 

rules and their helpful engagement with my office.