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Federal Register / Vol. 76, No. 5 / Friday, January 7, 2011 / Proposed Rules

COMMODITY FUTURES TRADING
COMMISSION
17 CFR Part 37
RIN Number 3038–AD18

Core Principles and Other
Requirements for Swap Execution
Facilities
Commodity Futures Trading
Commission.
ACTION: Notice of Proposed Rulemaking.
AGENCY:

The Commodity Futures
Trading Commission (‘‘Commission’’ or
‘‘CFTC’’) is proposing new rules, and
guidance and acceptable practices to
implement the new statutory provisions
enacted by Title VII of the Dodd-Frank
Wall Street Reform and Consumer
Protection Act. The proposed rules,
guidance, and acceptable practices,
which apply to the registration and
operation of a new type of regulated
entity named a swap execution facility,
implement the new statutory framework
that, among other things, adds a new
Section 5h to the Commodity Exchange
Act (‘‘CEA’’) concerning the registration
and operation of swap execution
facilities, and new Section 2(h)(8) to the
CEA concerning the listing, trading and
execution of swaps on swap execution
facilities. The Commission requests
comment on all aspects of the proposed
rules, guidance and acceptable
practices.

SUMMARY:

Comments must be received on
or before March 8, 2011.
ADDRESSES: You may submit comments,
identified by RIN number 3038–AD18,
by any of the following methods:
• Agency Web site, via its Comments
Online process: http://
comments.cftc.gov. Follow the
instructions for submitting comments
through the Web site.
• Mail: David A. Stawick, Secretary of
the Commission, Commodity Futures
Trading Commission, Three Lafayette
Centre, 1155 21st Street, NW.,
Washington, DC 20581.
• Hand Delivery/Courier: Same as
mail above.
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
Please submit your comments using
only one method.
All comments must be submitted in
English, or if not, accompanied by an
English translation. Comments will be
posted as received to http://
www.cftc.gov. You should submit only
information that you wish to make
available publicly. If you wish the
Commission to consider information

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that may be exempt from disclosure
under the Freedom of Information Act
(‘‘FOIA’’),1 a petition for confidential
treatment of the exempt information
may be submitted according to the
established procedures in § 145.9.2
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 http://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.
Riva
Spear Adriance, Associate Director,
202–418–5494, [email protected], or
Mauricio Melara, Attorney-Advisor,
202–418–5719, [email protected],
Division of Market Oversight,
Commodity Futures Trading
Commission, Three Lafayette Centre,
1155 21st Street, NW., Washington, DC
20581.

FOR FURTHER INFORMATION CONTACT:

SUPPLEMENTARY INFORMATION:

Table of Contents
I. Background
A. Overview
B. The Dodd-Frank Act
II. The Proposed Regulations, Guidance and
Acceptable Practices
A. Adoption of New Regulations, Guidance
and Acceptable Practices
B. Proposed General Regulations Under
Part 37
C. Proposed Regulations, Guidance and
Acceptable Practices for Compliance
With the Core Principles
III. Effective Date and Transition Period
IV. Related Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Cost-Benefit Analysis
V. Text of the Proposed Regulations,
Guidance and Acceptable Practices

Dodd-Frank Act 4 amended the CEA 5 to
establish a comprehensive new
regulatory framework for swaps and
security-based swaps. The legislation
was enacted to reduce risk, increase
transparency, and promote market
integrity within the financial system by,
among other things: (1) Providing for the
registration and comprehensive
regulation of swap dealers and major
swap participants; (2) imposing clearing
and trade execution requirements on
standardized derivatives products; (3)
creating robust recordkeeping and realtime reporting regimes; and (4)
enhancing the Commission’s
rulemaking and enforcement authorities
with respect to, among others, all
registered entities and intermediaries
subject to the Commission’s oversight.
The Dodd-Frank Act creates a new
type of regulated marketplace: ‘‘Swap
execution facilities’’ (‘‘SEFs’’),6 for which
the Dodd-Frank Act establishes a
comprehensive regulatory framework,
including by: Section 733 (adding new
Section 5h to the CEA to provide a
regulatory framework of Commission
oversight), Section 723(a)(3) (adding
new Section 2(h)(8) to the CEA, to
require, among other things, that swaps
subject to the clearing requirement of
Section 2(h)(1) of the CEA be executed
either on a designated contract market
(‘‘DCM’’) or on a SEF, unless no DCM or
SEF made the swap ‘‘available for
trading’’),7 and Section 733 of the DoddFrank Act (adding Section 5h(a)(1),
requiring that no person may operate a
facility for the trading or processing of
swaps unless the facility is registered as
a SEF or as a DCM).
In enacting the Dodd-Frank Act,
Congress directed that rules and
regulations required by the provisions of
Title VII be promulgated by the later of
either 360 days of its enactment or, to
the extent that a rulemaking is required
by Dodd-Frank, not less than 60 days
after the publication of that final rule.8
Consistent with Congress’ directive, this
release proposes amendments to Part 37
of the Commission’s regulations to

I. Background
A. Overview
On July 21, 2010, President Obama
signed the Dodd-Frank Wall Street
Reform and Consumer Protection Act
(‘‘Dodd-Frank Act’’).3 Title VII of the
15

U.S.C. 552.
CFR 145.9.
3 See Dodd-Frank Wall Street Reform and
Consumer Protection Act, Pub. L. 111–203, 124
Stat. 1376 (2010). The text of the Dodd-Frank Act
may be accessed at http://www.cftc.gov./
LawRegulation/OTCDERIVATIVES/index.htm.
2 17

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4 Pursuant to Section 701 of the Dodd-Frank Act,
Title VII may be cited as the ‘‘Wall Street
Transparency and Accountability Act of 2010.’’
5 7 U.S.C. 1 et seq.
6 This new regulatory framework includes: (i)
Registration, operation and compliance
requirements for SEFs and (ii) fifteen core
principles. Applicants and registered SEFs are
required to comply with the core principles as a
condition of obtaining and maintaining their
registration as a SEF. The definition of swap
execution facility is added in Section 721 of the
Dodd-Frank Act, amending Section 1a of the CEA.
7 U.S.C. 1a(50).
7 See Section 723 of the Dodd-Frank Act.
8 See Section 754 of the Dodd-Frank Act.

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Federal Register / Vol. 76, No. 5 / Friday, January 7, 2011 / Proposed Rules
implement Sections 723(a)(3) and 733 of
the Dodd-Frank Act.9

II. The Proposed Regulations, Guidance
and Acceptable Practices

B. The Dodd-Frank Act
Section 723(a)(3) of the Dodd-Frank
Act amends Section 2(h) of the CEA,
providing that, with respect to
transactions involving a swap subject to
the clearing requirement of paragraph
2(h)(1), counterparties must execute the
transaction on a DCM or a SEF.10 This
‘‘exchange trading’’ requirement does
not apply if no DCM or SEF ‘‘makes the
swap available to trade’’ or if the
exceptions to the clearing requirement
apply.11
Section 733 of the Dodd-Frank Act
adopts new Section 5h of the CEA,
providing that: (i) No person may
operate a facility for the trading or
processing of swaps, unless the facility
is registered as a SEF or as a DCM; (ii)
to be registered and maintain
registration, a SEF must comply with
fifteen enumerated core principles and
any requirement that the Commission
may impose by rule or regulation; and
(iii) the Commission has the authority to
prescribe rules governing the regulation
of SEFs.
The proposed regulations, guidance
and acceptable practices will implement
the regulatory obligations that each SEF
must meet in order to comply with
Section 5h of the CEA both initially
upon registration and on an ongoing
basis. The Commission requests
comments on all aspects of its proposal.

A. Adoption of New Regulations,
Guidance and Acceptable Practices
The Dodd-Frank Act amended the
CEA to provide that, under new Section
5h, the Commission may in its
discretion determine by rule or
regulation the manner in which DCMs
and SEFs comply with the core
principles. In consideration of the novel
nature of SEFs and also based on its
experience in overseeing DCMs’
compliance with core principles, the
Commission carefully assessed which
SEF core principles would benefit from
regulations, providing legal certainty
and clarity to the marketplace, and
which core principles would benefit
from guidance or acceptable practices,
where flexibility is more appropriate.
Based on that evaluation, the
Commission is proposing a combination
of regulations, guidance and acceptable
practices for the oversight and
regulation of SEFs.

9 See Section 754 of the Dodd-Frank Act. Please
also note that Section 734 of the Dodd-Frank Act
deletes the provision of the CEA that provided for
Derivatives Transaction Execution Facilities
(‘‘DTEFs’’), which previously were regulated under
Part 37, replacing those provisions with regulations
establishing the regulatory requirements for SEFs.
10 See Section 2(h)(8) of the CEA, as enacted by
Section 723(a)(3) of the Dodd-Frank Act. The DoddFrank Act also eliminates the swaps exemption
under former Section 2(g) of the CEA, supporting
the requirement that trading and processing of
cleared swaps must occur on a DCM or a SEF as
well as expanding the types of products that can be
listed and traded on a DCM to include swaps. The
Commission is proposing provisions for the trading
of swaps on a DCM in a separate rulemaking. See
also Notice of Proposed Rulemaking Relating to
Core Principles and Other Requirements for
Designated Contract Markets approved for
publication by the Commission at an open meeting
on Dec. 1, 2010 and expected to be published
shortly in the Federal Register (to be codified at 17
CFR part 38) (the ‘‘DCM NPRM’’). This Notice is
available at http://www.cftc.gov/ucm/groups/
public/@newsroom/documents/file/
federalregister120110b.pdf (last visited on Dec. 8,
2010).
11 See Section 2(h)(8)(B) of the CEA, as enacted
by Section 723(a)(3) of the Dodd-Frank Act. Newly
amended Section 2(h)(7) of the CEA provides for
exceptions to the clearing requirement when one of
the counterparties to a swap (i) is not a financial
entity, (ii) is using the swap to hedge or mitigate
commercial risk, and (iii) notifies the Commission
how it meets its financial obligations associated
with entering into a non-cleared swap.

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B. Proposed General Regulations Under
Part 37
The Commission is proposing to
organize Part 37 to include new
subparts A through P. Proposed Subpart
A would include general § 37.1 through
37.11.12 While in this rulemaking, the
Commission is proposing §§ 37.1
through 37.11, it notes that § 37.19,
addressing conflicts of interest, was
proposed in a separate rulemaking.13
Subparts B through P would establish
relevant regulations applicable to each
of the 15 core principles.14
1. Subpart A—General Provisions
a. Scope—Proposed § 37.1
Proposed § 37.1 provides that Part 37
will apply to entities that are registered
12 These sections apply both to applicants for
registration and registered SEFs, clarify which
provisions are applicable to trading on SEFs,
provide for SEF registration processes (including
processes for the vacation, reinstatement, and
transfer of a SEF registration), and provide general
requirements regarding: (i) The listing and trading
of swaps; (ii) the responsibility, upon request of the
Commission, to respond to requests for information
and demonstrations of compliance with core
principles, and to provide information and
certifications upon transfers of equity interest; (iii)
the enforceability of a SEF’s swap transactions
under certain conditions, (iv) limitations on the use
of data collected for regulatory purposes, (v) the
need for a board of trade that operates a trading
facility that has been designated as a DCM by the
Commission and also intends to operate a SEF to
separately register the entity that will operate as a
SEF, (vi) the appropriate execution of swaps based
on the type of transaction and order interaction, and
(vii) the periodic assessment of the method by
which swaps are made available for trading.
13 75 FR 63732 (October 18, 2010).
14 Each subpart begins with a regulation
containing the language of the core principle.

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SEFs or that are submitting an
application for SEF registration under
Section 5h of the CEA, and clarifies that
Part 37 does not restrict the eligibility of
SEFs to operate under the provisions of
Parts 38 or 49 of this Chapter.
b. Applicable Provisions—Proposed
§ 37.2
Proposed § 37.2 lists those
Commission regulations that are
applicable to SEFs, and provides that
SEFs must comply with, in addition to
the requirements in Part 37, the
proposed Part 43 requirements
regarding the real time reporting of
swaps and the determination of
appropriate block size for swaps, the
proposed Part 45 requirements for data
elements, recordkeeping and reporting
of swap information to swap data
repositories (‘‘SDRs’’), the proposed Part
46 requirements for business continuity
and disaster recovery, the proposed Part
49 requirements regarding SDRs, and
the proposed Part 151 position limits
requirements.15
c. Requirements for Registration—
Proposed § 37.3
i. Application Procedures—Proposed
§ 37.3(a)
Proposed § 37.3 sets forth the
application and approval procedures for
registration of new SEFs. The provision
would require that all SEF applications,
reinstatements of registrations, requests
for transfer of registrations, requests for
withdrawal of application for
registration, and vacation of
registrations must be filed electronically
with the Secretary of the Commission,
in the form and manner as provided by
the Commission.16
To assist prospective applicants, the
Commission proposes to include an
application form under Appendix A to
Part 37 (‘‘Form SEF’’); the proposed form
would also be used for any updates or
amendments for registration that are not
required to be submitted under Part 40
of this Chapter.17 Each applicant will be
required to provide the Commission
with documents and descriptions
pertaining to its: (i) Business
15 The Commission notes that because some of the
proposed rulemakings are either ongoing or
forthcoming, this proposed list of applicable
sections under proposed § 37.2 may be subject to
further revisions pending the final rules for each
respective rulemaking.
16 This amendment also would ensure
consistency with the process used for filing rule
and product submissions under Parts 38, 39 and 40
of the Commission’s regulations. See 17 CFR Parts
38, 39 and 40.
17 The Commission also is requiring tailored
application forms for the designation of DCMs and
the registration of Designated Clearing
Organizations and Swap Data Repositories.

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organization, (ii) financial resources,
(iii) compliance program and (iv)
technological capabilities.
Other than the specific requirements
necessitated by the core principles, the
majority of information required under
the Form SEF consists of information
that Commission staff has historically
found necessary considering DCM
applications. The Commission expects
that similar information will be
necessary to assess applications for SEF
registration. Proposed § 37.3(a)(1)
requires that, at a minimum, all
applicants must complete the
application form and provide the
necessary information and
documentation in order to initiate the
SEF registration review process. The
determination when a submission is
complete will be at the sole discretion
of the Commission. The Commission
will review Form SEF and, at the
conclusion of its review, by order either:
(i) Grant registration; (ii) deny the
application for registration; or (iii) grant
registration subject to Commissionestablished conditions.
SEF applicants will be required to
provide various documents describing
the applicant’s legal and financial
status. SEF applicants must also submit
copies of any applicable rules and
regulations (as defined in § 40.1),18
disclose any affiliates and a brief
description of the nature of the
affiliation, and submit copies of any
agreements between the SEF and third
parties that would assist the applicant
in complying with its duties under the
CEA.
Applicants will be required to
demonstrate operational capability
through documentation, including
technical manuals and third party
service provider agreements. Proposed
§ 37.3 also requires that each applicant
request and obtain from the Commission
a unique, extensible, alphanumeric code
for the purpose of identifying the SEF
pursuant to the swap recordkeeping and
reporting requirements under proposed
Part 45.19
18 See

75 FR. 67282, 67292 (November 2, 2010).
requirement stems from the Commission’s
authority, under Section 728 of the Dodd-Frank Act,
to establish standards and requirements related to
reporting and recordkeeping for swaps. In
particular, the Commission is required to adopt
consistent data element standards for ‘‘registered
entities,’’ which include SEFs. Proposed Part 45 will
set forth the recordkeeping and reporting
requirements of each SEF with respect to swap
transactions on or through its facility. Proposed
§ 37.3 codifies the obligation of SEFs to comply
with the provisions of proposed Part 45. See 75 FR
76574 (December 8, 2010).

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ii. Procedures for Temporary
Grandfather Relief—Proposed § 37.3(b)
Section 754 of the Dodd-Frank Act
provides that: ‘‘[u]nless otherwise
provided in this title, the provisions of
this subtitle [Subtitle A—Regulation of
Over-the-Counter Swaps Markets] shall
take effect on the later of 360 days after
the date of enactment of this subtitle
[i.e., July 15, 2011], or, to the extent a
provision of this subtitle requires a
rulemaking, not less than 60 days after
publication of the final rule or
regulation implementing such provision
of this subtitle.’’
The Commission anticipates that,
upon the effective date of this Part 37,
it may receive a large number 20 of
applications for SEF registration from
entities that currently provide a
marketplace for the listing and trading
of swaps. The Commission notes that it
would be difficult to carry out and
complete an appropriate and
comprehensive review of all such
applications during the period between
publication of the final rulemaking and
the effective date of this Part 37. Any
consequent delay in the processing of
these SEF applications could adversely
impact SEF applicants, undermine the
efficient implementation of the DoddFrank Act, create legal uncertainty for
market participants and adversely affect
the swaps market.
Therefore, proposed § 37.3(b) permits
the Commission, upon the request of an
applicant, to grant temporary
grandfather relief to qualifying entities
that, due to their operations, will be
required to register as a SEF in order to
continue operating as of the effective
date of the regulations. The proposed
temporary grandfather relief would be
optional and would enable a qualifying
entity to operate without SEF
registration on a short-term basis during
the pendency of the application review
process on the condition that it
otherwise operate in conformance with
all SEF requirements under the DoddFrank Act. This approach is intended to
avoid undue market disruption as well
as to ensure continuity of the business
operations of an existing entity that, at
the time that Part 37 becomes
effective,21 is providing a marketplace
for the trading of swaps. The temporary
relief would also allow the Commission
to implement registration requirements
of the Dodd-Frank Act for SEFs while
providing the Commission sufficient
20 The Commission notes that although the public
estimate regarding the expected number of
applications ranges from 30 to 40, certain market
participants have noted that the number of SEFs
could exceed 100.
21 See Section 754 of the Dodd-Frank Act.

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time to fully review the application of
a SEF. Each SEF that qualifies for
temporary relief would be subject to
Section 5h of the CEA and related
regulations during the period in which
the Commission is reviewing the SEF’s
application of registration.
The Commission notes that it
previously issued orders providing
grandfather relief to exempt commercial
markets (‘‘ECMs’’) and exempt boards of
trade (‘‘EBOTs’’), allowing them to
continue to operate as EBOTs and ECMs
after the effective date of the DoddFrank Act (July 15, 2011) (‘‘ECM and
EBOT grandfather relief orders’’).22 The
relief under proposed § 37.3(b) would be
consistent with the ECM and EBOT
grandfather relief orders. In addition,
the Commission notes that the
grandfather relief under proposed
§ 37.3(b) would also be available for
entities that are currently operating
pursuant to another exemption or
exclusion provided under the CEA
(prior to its amendment by the DoddFrank Act) as of the effective date of this
Part 37.23
As a condition for receiving
temporary grandfather relief, the
applicant must: (1) File a complete
application, as required under proposed
§ 37.3(a),24 on the proposed application
form, Form SEF, under Appendix A to
Part 37; (2) notify the Commission, at
the time of its submission of the
application, of its interest in operating
under the temporary relief; (3) provide
transaction data that substantiates that
the execution or trading of swaps has
occurred and continues to occur on the
applicant’s trading system or platform at
the time the applicant submits the
request; and (4) provide a certification
that the applicant believes that its
operation on a temporary basis will
meet the requirements of Part 37 of the
CEA, as adopted by the Commission.
Since the purpose of the temporary
relief is to provide an appropriate
process to ensure continuity of the
business operations during the
pendency of the review of an
application, the temporary grandfather
relief would expire on the earlier of: (i)
The date that the Commission grants or
denies registration of the SEF, or (ii) the
22 See Orders Regarding the Treatment of
Petitions Seeking Grandfather Relief for Exempt
Commercial Markets and Exempt Boards of Trade
(‘‘ECM and EBOT grandfather relief’’). 75 FR 56513
(September 10, 2010). The Commission’s Orders set
forth various conditions for such grandfather relief,
including the filing of a relief petition and a SEF
or DCM application with the Commission.
23 See CEA Sections 2(d), 2(e), 2(g) and 2(h)(1)–
(2).
24 As noted above, the determination of when a
submission on Form SEF is complete is at the sole
discretion of the Commission.

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Federal Register / Vol. 76, No. 5 / Friday, January 7, 2011 / Proposed Rules
date that the Commission rescinds the
temporary relief. Additionally, the
temporary relief would not be a
permanent provision of Part 37.
Proposed § 37.3(b) provides for a
‘‘sunset’’ provision so that temporary
grandfather relief would terminate 365
days from the effective date of proposed
§ 37.3(b).
iii. Procedures for Transfer of
Registration—Proposed § 37.3(d)
The Commission is proposing
§ 37.3(d) to formalize the procedures
that a SEF must follow when requesting
the transfer of its registration, in
anticipation of a corporate event (e.g., a
merger, corporate reorganization, or
change in corporate domicile) which
results in the transfer of all or
substantially all of the SEF’s assets to
another legal entity. Under proposed
§ 37.3(d), the SEF would submit to the
Commission a request for transfer no
later than three months prior to the
anticipated corporate change, with a
limited exception.25
Proposed § 37.3(d) also would require,
as a condition of approval, that the SEF
submit a representation that it is in
compliance with the CEA, including the
SEF core principles, and the
Commission’s regulations. In addition,
the SEF would have to submit various
representations by the transferee
regarding its duties and obligations.
Proposed § 37.3(d) also provides that
the Commission will review any
requests for transfer of registration as
soon as practicable, and such request
will be approved or denied pursuant to
a Commission order.
d. Procedures for Listing Products and
Implementing Rules—Proposed § 37.4

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Proposed § 37.4 conforms to the
proposed changes to existing §§ 40.3
(Voluntary submission of new products
for Commission review and approval)
and 40.5(b) (Voluntary submission of
rules for Commission review and
approval),26 in the Commission’s
separate rule proposal pertaining to
‘‘Provisions Common to Registered
Entities.’’ 27
25 The proposed rule would require that where a
SEF does not know or could not have reasonably
known three months prior to the anticipated
change, it shall be required to file the request as
soon as it knows of the change.
26 Proposed § 40.3 is amended to require
additional information to be provided by registered
entities that submit new products for the
Commission’s review and approval. Proposed
§ 40.5(b) codifies a new standard for the review of
new rules or rule amendments as established under
the Dodd-Frank Act.
27 75 FR 67282 (November 2, 2010).

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e. Information Relating to Swap
Execution Facility Compliance—
Proposed § 37.5
Under proposed § 37.5(a), upon
request by the Commission, a SEF must
file with the Commission certain
information related to its business as a
SEF, in the form and manner as
specified by the Commission. Under
proposed § 37.5(b), the Commission may
demand that a SEF file a written
demonstration regarding its compliance
with any specified core principles. The
information requested under proposed
§ 37.5(a) and (b) provides for
information requests to entities
regarding compliance with the
conditions for registration made for any
oversight purpose.28
The Commission believes that on
occasion, SEFs will enter into equity
interest transfers that result in a change
in ownership. In those situations,
Commission staff must determine
whether the change in ownership will
impact adversely the operations of the
SEF or the SEF’s ability to comply with
the core principles and the
Commission’s regulations. The
Commission is proposing § 37.5 to
ensure that SEFs remain mindful of
their self-regulatory responsibilities
when negotiating the terms of
significant equity interest transfers, and
to improve the Commission staff’s
ability to undertake a timely and
effective due diligence review of the
impact, if any, of such transfers.
Proposed § 37.5(c) would require
SEFs to file with the Commission a
notice of the equity interest transfer of
ten percent or more, with certain
documents providing information on
the transfer, no later than the business
day 29 following the date on which the
SEF enters into a firm obligation to
transfer the equity interest.30 The
28 In this regard, for example, the Commission
may request SEFs to provide information relating to
their operations or their practices in connection
with its general oversight responsibilities under the
CEA, in connection with the Commission’s
formulation of statements of acceptable practice, or
in connection with a particular SEF’s compliance
with particular core principles or other conditions
of its registration.
29 ‘‘Business day’’ is defined in Commission
§ 40.1.
30 The Commission is proposing a 10 percent
threshold because it believes that a change in
ownership of such magnitude may have an impact
on the operations of the swap execution facility.
The Commission believes that such impact may be
present even if the change in ownership does not
constitute a change in control. For example, if one
entity holds a minority 10 percent equity share in
the SEF, it may have a more significant voice in the
operation of the SEF than five entities each with a
minority 2 percent equity share. Given the potential
impact that a change in ownership might have on
the operations of a SEF, the Commission believes
that it is appropriate to require such SEF to certify

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proposed regulation requires that the
SEF keep the Commission apprised of
the projected date that the transaction
resulting in the equity interest transfer
will be consummated, and must provide
to the Commission any new agreements
or modifications to the original
agreement(s) filed pursuant to proposed
§ 37.5(c). The SEF must notify the
Commission of the consummation of the
transaction on the day on which it
occurs. The proposed regulation will
enable staff to consider whether any
conditions contained in an equity
transfer agreement(s) are inconsistent
with the self-regulatory responsibilities
of a SEF or with any of the core
principles.
The Commission believes when there
is a 10% or greater change in
ownership, the SEF itself is the more
appropriate entity to provide a
certification of its continued compliance
with all regulatory obligations.
Accordingly, proposed § 37.5(c)(3)
would require that if there is a change
in ownership,31 the SEF must certify, no
later than two business days following
the date on which the change in
ownership occurs, that the SEF meets
all of the requirements of Section 5h of
the CEA and the provisions of Part 37
of the Commission’s regulations.
Request for Comment:
The Commission notes that there are
differences in the proposed notification
requirements for changes in the
ownership of SEFs, derivative clearing
organizations (‘‘DCOs’’), DCMs, and
SDRs.32 The Commission requests
comment on the proposed notification
requirements under 37.5(c) and, more
specifically, the extent to which there
should be uniformity or differentiation
in procedures applied to different types
of registrants.
after such change that it continues to comply with
all obligations under the CEA and Commission
regulations.
31 The Commission’s regulations consistently
identify a financial or ownership interest of ten
percent or more as material and indicative of the
ability to influence the activities of an entity or
trading in an account. See, e.g., Core Principle 5,
Acceptable Practices, and Core Principle 14,
Application Guidance, in Appendix B to Part 38 of
the Commission’s regulations. 17 CFR part 38,
Appendix B.
32 See, supra note 10, DCM NPRM; also the
Notice of Proposed Rulemaking Relating to Swap
Data Repositories, approved for publication by the
Commission at an open meeting on November 19,
2010 and expected to be published shortly in the
Federal Register (to be codified at 17 CFR part 49).
This Notice is available at http://www.cftc.gov/
stellent/groups/public/@otherif/documents/ifdocs/
federalregister112210d.pdf (last visited on Dec. 8,
2010); and other appropriate future rulemakings.

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f. Enforceability of Executed Swaps—
Proposed § 37.6
Proposed § 37.6 is intended to provide
legal certainty to market participants
transacting in swaps. Under § 37.6(a), a
transaction entered into on or pursuant
to the rules of a registered SEF will not
be void, voidable, subject to rescission
or otherwise invalidated or rendered
unenforceable as a result of: (1) A
violation by the registered SEF of the
provisions of Section 5h of the CEA or
Part 37; or (2) any Commission
proceeding to alter or supplement a
rule, term or condition under Section
8a(7) of the CEA, to declare an
emergency under Section 8a(9) of the
CEA, or any other proceeding the effect
of which is to alter, supplement, or
require a registered SEF to adopt a
specific term or condition, trading rule
or procedure, or to take or refrain from
taking a specific action.
In other rules proposed by the
Commission, a swap confirmation is
defined as the consummation
(electronically or otherwise) of legally
binding documentation (electronic or
otherwise) that memorializes the
agreement of the counterparties to all of
the terms of a swap.33 Proposed
§ 37.6(b) provides that a confirmation
must be in writing (whether electronic
or otherwise) and must legally
supersede any previous agreement
(electronically or otherwise). For swaps
executed on a SEF, the SEF will provide
the counterparties with a definitive
written record of the terms of their
agreement, which will serve as a
confirmation of the swap. The proposed
regulation on swap confirmations would
require that parties have full written
agreement on all terms of a swap at the
same time as execution.

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g. Prohibited Use of Data Collected for
Regulatory Purposes—Proposed § 37.7
In fulfilling their regulatory and
compliance obligations, the Commission
expects that SEFs will often require
market participants to provide
proprietary data or personal
information. Proposed § 37.7 prohibits a
SEF from using information generated
by market participants for purposes of
meeting regulatory and compliance
obligations for marketing products or for
other commercial purposes.34 The
33 See 75 FR 76140 (December 7, 2010); and 75
FR 76574 (December 8, 2010).
34 The Commission notes that, in the recent notice
of proposed rulemaking for Business Affiliate
Marketing and Disposal of Consumer Information
Rules, it proposed rules prohibiting futures
commission merchants (‘‘FCMs’’) (and other
intermediaries) from using certain consumer
information received from an affiliate to make a
solicitation for marketing purposes. In addition,

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Commission notes that nothing in this
regulation prohibits a SEF from sharing
such information with another SEF or
DCM offering swaps for trading for
regulatory purposes.
h. Boards of Trade Operating Both a
Designated Contract Market and a Swap
Execution Facility—Proposed § 37.8
Proposed § 37.8 implements CEA
Section 5h(c) by requiring that a board
of trade that operates a trading facility
that has been designated as a DCM by
the Commission and also intends to
operate an entity for the execution or
trading of swaps: (1) Must separately
register such entity as a SEF under Part
37; and (2) may use the same electronic
trade execution system for executing
swaps that it uses for its DCM
operations, provided that, the entity
clearly identifies to market participants
whether the execution or trading of a
swaps is taking place on the DCM or the
SEF.35
i. Permitted Execution Methods—§ 37.9
This rule proposal will provide
market participants with the choice of a
number of means to access the market
and execute trades therein. This
flexibility would allow market
participants to use requests for quotes,
indications of interest, or executable
quotes to consummate a trade. It would
allow SEFs to use a variety of different
trading systems or platforms as long as
market participants have the ability to
access the market and execute trades as
discussed below.
i. SEF Definition
The term ‘swap execution facility’
means a trading system or platform in
which multiple participants have the
ability to execute or trade swaps by
accepting bids and offers made by
multiple participants in the facility or
system, through any means of interstate
commerce, including any trading
facility, that—(A) Facilitates the

execution of swaps between persons;
and (B) is not a designated contract
market.36
Market participants currently use a
number of different methods for
transacting swaps, including: brokers
who facilitate trades over the telephone
(commonly referred to as ‘‘voice
brokers’’); hybrid voice and electronic
trading systems; fully electronic interdealer brokerage systems; single-dealer
trading platforms; various versions of
‘‘request for quote’’ platforms (including
platforms that allow more than one
customer to submit requests for quotes
to, and receive responses from, multiple
dealers); and order books. The
Commission does not believe that all of
these methods comply with the
statutory definition of a SEF, especially
the ‘‘multiple participant to multiple
participant’’ requirement thereunder.
Specifically, as discussed below, the
Commission notes that entities offering
the following services do not comply
with the statutory definition of a SEF:
one-to-one voice services for the
execution or trading of swaps (other
than for the execution of block trades),37
single-dealer platforms, and services
that solely provide for the processing of
swaps.
The SEF definition requires at a
minimum the existence of a ‘‘trading
system or platform.’’ The Commission
notes that the terms ‘‘trading system’’
and ‘‘platform’’ are not defined under
the Dodd-Frank Act or anywhere in the
CEA. Based on the SEF definition under
the Dodd-Frank Act, the Commission
interprets trading system and platform
to include, but not be limited to, the
term ‘‘trading facility’’ as defined in CEA
Section 1a(51).38 In addition, as
discussed in detail below, the
Commission believes that any other
method that allows multiple market
participants to have the ability to
execute or trade swaps by accepting
36 CEA

Section 1a(50).
proposed, a block trade is a swap of a large
notional or principal amount that is transacted offexchange, pursuant to the rules of a SEF or DCM,
and that is greater than the minimum block trade
size set by the SEF or DCM. As proposed, a SEF
or DCM must set the minimum block size for a
particular swap contract at an amount greater than
the appropriate minimum block size for the
appropriate category of swap instrument in which
such swap contract is categorized. See 75 FR 76140
(December 7, 2010).
38 See CEA Section 1a(51). In this context, a
trading facility requires ‘‘a physical or electronic
facility or system in which multiple participants
have the ability to execute or trade agreements,
contracts, or transactions (i) by accepting bids or
offers made by other participants that are open to
multiple participants in the facility or system; or (ii)
through the interaction of multiple bids or multiple
offers within a system with a pre-determined nondiscretionary automated trade matching and
execution algorithm.’’
37 As

rules were proposed requiring FCMs to develop a
written disposal program to the extent that such
FCMs possess consumer information. The
underlying policy for these rules is to protect the
privacy of customer information. Similarly,
Proposed § 37.7 is intended to protect market
participants’ information provided to a SEF for
regulatory purposes from its use to advance the
commercial interests of the SEF.
35 Section 5h(c) of the CEA provides:
IDENTIFICATION OF FACILITY USED TO
TRADE SWAPS BY CONTRACT MARKETS.—A
board of trade that operates a contract market shall,
to the extent that the board of trade also operates
a swap execution facility and uses the same
electronic trade execution system for listing and
executing trades of swaps on or through the
contract market and the swap execution facility,
identify whether the electronic trading of such
swaps is taking place on or through the contract
market or the swap execution facility.

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bids and offers made by other multiple
participants in the facility or system,
through any means of interstate
commerce, may qualify as an acceptable
trade execution method for an entity
that wishes to register as a SEF.
In order for an entity to meet the
definition of a SEF and satisfy the SEF
registration requirements, multiple
parties must have the ‘‘ability to execute
or trade swaps by accepting bids and
offers made by multiple participants’’
and such participants must be provided
impartial access to the market. The
Commission believes that an acceptable
SEF platform or system must provide at
least a basic functionality to allow
market participants the ability to make
executable bids or offers and indicative
quotes, and to display them to multiple
parties, including all other parties
participating in the SEF, if the market
participants wish to do so. As set forth
in proposed § 37.9(b) and discussed
below, the Commission proposes that a
SEF also must provide market
participants with the ability to make a
bid, make an offer, hit a bid, or lift an
offer, and may provide the ability to
request a bid and request an offer.
Accordingly, market participants would
not have to receive a ‘‘request for
quote’’ 39 from another market
participant in order to make a bid or
offer or to execute a trade with other
market participants. In addition to this
basic functionality whereby market
participants would have the ability to
access all other market participants, a
SEF could also provide a multiple-tomultiple request for quote trading
system for those market participants
that do not wish to display their bids,
offers, or requests to all other market
participants. A SEF’s chosen
approach(es) would be described in its
registration application, to be evaluated
by the Commission during the
application process. Once operational,
the Commission would be able to
empirically evaluate the SEF’s treatment
of executable bids and offers as
compared to responses to requests for
quotes to ensure ongoing compliance
with the definition of a SEF, the SEF
registration requirements, and the core
principles.
ii. One-to-One Voice and Single-Dealer
Platforms
The Commission notes that one-toone voice services and single-dealer
platforms do not satisfy the statutory
requirement under CEA Section 1a(50)
that ‘‘multiple participants have the
ability to execute or trade swaps by
39 See infra, Section II.C.2.i.v for further
discussion of ‘‘request for quote’’ systems.

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accepting bids and offers made by
multiple participants in the facility or
system’’. The nature of these types of
trading systems or platforms, where
transactions are negotiated or
consummated via a one-to-one or oneto-many basis, do not provide the ability
for participants to conduct multiple-tomultiple execution or trading. The
Commission also notes that CEA
Sections 5h(f)(2)(A)(ii) and (2)(B)(i)
require that SEFs provide market
participants with impartial access to
their markets, and that SEFs must adopt
rules with respect to any limitations
they place on access. Entities operating
either one-to-one voice services or
single-dealer platforms, by definition,
limit the provision of liquidity to single
dealers or liquidity providers, thus
excluding other participants from filling
those roles, in non-compliance with the
impartial market access requirements
applicable to SEFs under the CEA.
iii. Processing of Swaps
In regard to entities that offer, with
respect to swaps transactions,
processing services exclusively, the
Commission notes that Section 5h(a)(1)
of the CEA states ‘‘[n]o person may
operate a facility for the trading or
processing of swaps, unless the facility
is registered as a [SEF] or as a [DCM]
under this section.’’ In addition, Section
5h(b) states that a registered SEF may
‘‘(A) make available for trading any
swap, and (B) facilitate trade processing
of any swap.’’ Although these provisions
could be read to require the registration
of entities that engage in trade
processing (but not trade execution) as
SEFs, the Commission believes that
entities that operate exclusively as swap
processors do not meet the SEF
definition (and should not be required
to register as SEFs) because: (1) They do
not provide (as required by the
definition) the ability to ‘‘execute or
trade’’ a swap; and (2) the definition
does not include the term ‘‘process.’’
iv. Trading Systems or Platforms
When determining what types of
trading systems qualify to register as a
SEF, the Commission takes into
account, in addition to consideration of
the SEF definition as discussed above,
the core principles applicable to SEFs 40
as well as the goals provided in Section
733 of the Dodd-Frank Act: (1) Bringing
greater pre-trade price transparency to
swap transactions; and (2) bringing
more swaps trading onto regulated
40 See e.g., Sections 5h(f)(2)(A)(ii) and (2)(B)(i)
(Core Principle 2, requiring the provision of
impartial access). See also infra, Section II.C.2.a.
(discussing the provision of impartial access under
to Core Principle 2).

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trading systems or platforms.41
Therefore, the Commission interprets
the SEF registration requirements to
necessitate that the trading system or
platform: (a) Provide multiple
participants with the ability to make
bids and offers to other multiple
participants or to accept bids or offers
made by other multiple participants; (b)
promote pre-trade price transparency;
(c) ensure that the trading of swaps on
the trading system or platform is in
accordance with the SEF core
principles, the registration requirements
and the Commission’s regulations; and
(d) provide all market participants with
impartial access to the SEF’s market.
The Commission believes that, to
register as a SEF or to maintain
registration, an applicant or SEF must
provide market participants with the
ability to make executable quotes on
either side of a swap transaction and to
take the opposite side of a trade from
participants who seek to enter into
transactions on such contract. The
‘‘multiple participant to multiple
participant’’ requirement, when read in
conjunction with the impartial access
requirement (i.e., the Core Principle 2
requirement that the SEF must ‘‘provide
market participants with impartial
access to the market’’) requires that each
SEF provide any market participant
with the ability to make any bid or offer
transparent to all other market
participants of the SEF. In addition, the
‘‘ability to execute or trade’’ statutory
provision means that the SEF must
provide market participants with the
ability to post both firm and indicative
quotes on a centralized screen such that
they can be executed or traded against
by other multiple market participants.
Under the proposal, it is a market
participant’s prerogative to make a bid
or offer available to all other market
participants in the trading system or
platform without an invitation to join an
auction process. Willing counterparties
should have the ability to execute swap
trades by accepting such bids or offers.
The Commission believes there could be
a number of ways for a SEF to provide
this functionality, including but not
limited to having an order book.
Additionally, SEFs must make
indicative quote functionalities
available, such that market participants
could provide non-executable quotes or
indicative quotes through the SEF that
are visible and accessible to all other
market participants. Such
functionalities could include electronic,
41 See CEA Section 5h(e) (Stating twin goals
regarding the promotion of ‘‘the trading of swaps on
swap execution facilities’’ and ‘‘pre-trade price
transparency in the swaps market’’).

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streaming indicative quotes, or other
methods for providing market
participants with indicative quotes.
Indicative quotes provide additional
information about pricing and help
inform market participants as they
consider hedging and investment
strategies, as well as when considering
whether and how to execute a trade
(either through a request for quote or
through an existing executable quote).
The Commission believes that
indicative quotes are consistent with the
statute’s goal of achieving pre-trade
price transparency.
The Commission believes that SEFs
can utilize various trading systems and
platforms that provide market
participants with the ability to post
executable bids or offers for display to
multiple potential counterparties. A
trading system or platform that provides
this minimum multiple-to-multiple
functionality, as described above, also
may include other functionalities that
provide multiple participants with the
ability to access multiple market
participants, but not necessarily the
entire market if the participant so
chooses. These may include certain
request for quote systems, as described
below, or other systems that meet the
SEF definition and comply with the
core principles.42 Hence, although at
times a market participant may desire to
interact with a limited number of
market participants (i.e., fewer than the
entire market) and are permitted to do
so under the proposal, market
participants that desire to access the
entire market must be provided with the
ability to do so as well.
v. Execution Methods
Proposed § 37.9 will allow market
participants to have the choice of a
number of means to access and execute
within a SEF’s marketplace. There
would not be any requirements for pretrade transparency for: (1) Blocks; (2)
trades subject to the end user
exceptions; or (3) contracts which are
not ‘‘made available for trading.’’ Thus
the requirements for pre-trade
transparency (e.g., posting both firm and
indicative quotes on a centralized
electronic screen accessible to all
market participants) 43 for trades
executed on a SEF would only relate in
the context of transactions in swaps
which are: (1) Subject to the mandatory
clearing requirement; (2) ‘‘made
available for trading’’ on a SEF; and (3)
too small to be a block trade under part

45. For these three types of transactions,
SEFs could permit their market
participants to trade via requests for
quotes, indications of interest, or
executable quotes.
As stated in the preceding section,
Section 5h(e) of the CEA sets forth
Congress’ goals with respect to SEFs:
The promotion of ‘‘the trading of swaps
on swap execution facilities’’ and ‘‘pretrade price transparency in the swaps
market.’’ 44 The Commission believes
that these goals can be achieved for
swap transactions that are subject to the
CEA execution requirements, are made
available for trading, and are not block
trades by providing for the execution of
such swap transactions on trading
systems or platforms that give market
participants the option to post both firm
and indicative quotes or accept bids and
offers that are transparent to the entire
market.45
Under proposed § 37.9, applicants
and registered SEFs must offer trading
services to facilitate the ability of market
participants to make executable bids or
offers and to display them to multiple
parties. Transactions may be executed
by providing market participants with a
number of execution methods from
which to choose, including: (1) ‘‘Request
for quote’’ systems that provide market
participants the ability to interact with
multiple participants but less than the
entire market, as described below; (2)
systems that allow market participants
to display executable bids and offers on
a centralized, electronic screen to the
entire market; or (3) other systems that
comply with the core principles.
Additionally, under the proposal,
SEFs must provide a general timing
requirement applicable to traders such
as brokers who have the ability to
execute against a customer’s trade or are
entering a trade for two customers on
opposite sides of the transaction. Under
the proposal, a broker would have to
provide a minimum pause before
entering the second side (whether for its
own account or for a second customer),
thus ‘‘showing’’ other market
participants the terms of a request for
quote from its customer, and providing
other market participants the
opportunity to join in the trade. The
Commission proposes to require a
minimum pause of 15 seconds between
entry of two potentially matching
customer-broker swap orders or two
potentially matching customer-customer
swap orders on SEFs.
44 See

42 As

previously noted, one-to-one voice systems
and single-dealer platforms do not satisfy the listed
factors.
43 See also, proposed § 37.205(b)(1).

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CEA Section 5h(e).
currently such systems are often used by
traders in order to account for counterparty risk, it
is important to note that there is no counterparty
risk for swaps that are cleared.
45 While

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(A) Request for Quote Systems
As proposed by the Commission, the
steps taken by market participants in
order to complete a transaction using an
acceptable request for quote system are
similar to the steps taken in the
marketplace today (i.e., a market
participant transmits a request to
counterparties for bids or offers and
chooses to transact with one of the
respondents to the request). However, to
ensure that multiple participants have
the ability to reach multiple
counterparties, the Commission
proposes to require SEFs to provide that
market participants transmit a request
for quote to at least five potential
counterparties in the trading system or
platform. The Commission notes that,
under the proposal, acceptable request
for quote systems offered by SEFs could
be designed such that requests for
quotes are visible to all market
participants with access to the trading
system or platform, but should permit
requesters the option of making a
request for quote visible to the entire
market. Additionally, the proposal
provides that an acceptable request for
quote system may allow for a
transaction to be consummated if the
original request to five potential
counterparties receives fewer than five
responses.46
Under the proposal, SEFs that utilize
request for quote systems must also
furnish liquidity providers with the
ability to post both executable bids or
offers and indicative quotes. The terms
of any such ‘‘resting’’ executable bids or
offers would be displayed to the
requester along with any other specific
bids or offers included in the responses
to its request for quote. Upon receipt of
the responses and the appropriate
resting bids or offers, the original
requester would have the option to
execute the transaction. The
Commission believes that SEFs that
utilize request for quote systems must
ensure that any competitive resting bids
or offers be taken into account and
communicated to the requester along
with any bids or offers included with
responses to requests for quotes. While
the Commission does not believe it
appropriate to prescribe a method of
integration as part of this rulemaking,
46 The proposal also provides that request for
quote systems include trading systems or platforms
in which multiple market participants view realtime electronic streaming quotes, both firm and
indicative, from multiple potential counterparties
on a centralized electronic screen, and have the
ability to accept a firm streaming quote and
complete the transaction or based on an indicative
streaming quote, issue a request for quote to no less
than five market participants and upon receipt of
a responsive quote, have the option to complete the
transaction. See proposed § 37.9(a)(1)(v).

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the Commission would expect each SEF
to describe its chosen integration
mechanism as part of its application.
The Commission believes its
proposed approach to the use of request
for quote systems by SEFs is consistent
with the statute and promotes: (a) The
ability of multiple participants to make
bids and offers to other multiple
participants or to accept bids or offers
made by other multiple participants; (b)
pre-trade price transparency; (c) the
trading of swaps on a regulated trading
system or platform in accordance with
the registration requirements and the
Commission’s regulations; and (d) the
ability for all market participants to
receive impartial access to all other
market participants. The Commission
further believes that this feature would
help encourage price competition
within the market.
(B) ‘‘By Any Means of Interstate
Commerce’’
For block trades, swaps not subject to
clearing, and bespoke or illiquid swaps,
the Commission interprets the statute’s
language ‘‘by any means of interstate
commerce’’ to allow execution methods
that may include voice. This method of
execution is consistent with the use of
voice in the futures markets for
executing block trades, where in light of
the size of the trades, pre-trade
transparency is not required. It is also
possible that a SEF might choose to offer
to facilitate bilateral trading for those
transactions not bound by the CEA’s
execution requirements and, therefore,
the use of voice may be acceptable. The
Commission notes that with respect to
these types of transactions, market
participants may have an interest in
choosing their counterparty in light of
the credit risk involved. Voice
transactions must be entered into some
form of electronic affirmation system
immediately upon execution.
With regard to swaps available for
trading that are not blocks, trading
systems or platforms facilitating the
execution of such swaps via voice
exclusively are not multiple participant
to multiple participant and do not
provide for pre-trade transparency.
While not acceptable as the sole method
of execution of swaps required to be
traded on a SEF or DCM, the
Commission believes voice would be
appropriate for a market participant to
communicate a message to an employee
of the SEF, whether requests for quotes,
indications of interest, or firm quotes.
For instance, voice-based
communications in the proposed SEF
context may occur in certain
circumstances, such as when an agent:
(1) Assists in executing a trade for a

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Commission is interested in receiving
public comment on this matter.
• Should the Commission determine
that other models of execution satisfy
the statutory ‘‘multiple participant to
multiple participant’’ requirement as
well as the pre-trade price transparency
and open access policy objectives under
the Dodd-Frank Act?
• Does the proposal properly
implement the provision in the SEF
definition regarding having the ability to
execute or trade swaps ‘‘through any
means of interstate commerce’’?
• In general, does the proposal
properly implement the CEA’s goal to
promote both the trading of swaps on
SEFs and pre-trade price transparency?
Should there be other characteristics the
Commission should consider? If so,
what are they?
• What level of pre-trade
transparency should be required to
Request for Comment:
promote price discovery, competition
The Commission seeks public
and the trading of swaps on SEFs?
comment regarding the trading systems
Should the Commission consider
or platforms described in this section. In requiring a request for quote method
addition, the Commission asks the
that provides for transparency in the
public to respond to the specific
request for quote process in addition to
questions below.
the posting of any resting bids/offers on
• Does the proposal appropriately
its trading system or platform? Should
implement the statutory directive that a all orders and quotes be displayed to all
SEF provide multiple participants with
participants or should alternative
the ability to execute or trade swaps by
engagement rules apply on a pre-trade
accepting bids and offers made by
basis?
multiple participants in the facility or
• Should SEFs be required to
system? If not, how should the
communicate executable bids/offers to
Commission best carry out the intent of
issuers of requests for quotes? Also,
Congress in the registration and
should any such executable bids/offers
oversight of SEFs?
be provided any priority during the
• The Commission interprets the
request for quote process? Should
‘‘multiple participant to multiple
market participants have an obligation
participant’’ requirement (in conjunction to consider and/or execute against an
with the impartial access requirement)
executable bid/offer if it is competitive?
as requiring that the facility provide the
• Should SEFs be required to make
ability for any market participant to
responses to requests for quotes
make any bid or offer transparent to the
transparent to all market participants? If
entire market, if the market participant
so, when should this information be
chooses to do so. Should the
provided to the market? Prior to
Commission be explicit as to the means
execution? At the time of execution?
or methods which can be used to fulfill
Subsequent to execution?
this functionality? If so, in addition to
• Would the SEF provisions in the
an order book, what other means or
Dodd-Frank Act support a requirement
models should be included in the final
that swaps that meet a certain level of
regulations?
trading activity be limited to trading
• In light of the ‘‘multiple participant through order books? If so, what level of
to multiple participant’’ requirement,
trading activity would be the
the Commission has proposed that
appropriate level at which to mandate
requests for quotes be requested of at
trading exclusively on an order book?
least five possible respondents. Is this
Should any such analysis be done on a
the appropriate minimum number of
product or asset-class basis?
respondents that the Commission
• Should swap processors be subject
should require to potentially interact
to the registration requirements for
with a request for quote? If not, what is
SEFs?
an appropriate minimum number? Some
j. Swaps Made Available for Trading—
pre-proposal commenters have
Proposed § 37.10
suggested that market participants
The Dodd-Frank Act requires that
should transmit a request for quote to
‘‘more than one’’ market participant. The transactions involving swaps subject to
client, immediately entering the terms
of the trade into the SEF’s electronic
system; or (2) enters a bid, offer or
request for quote immediately into a
SEF’s electronic multiple-to-multiple
trading system or platform. In all cases,
the employee of the SEF must promptly
provide transparency and comply with
audit trail requirements, including by
the immediately entering into the
trading system or platform any orders or
requests for quote that are immediately
executable, or, if not, immediately
creating an electronic record with the
order or request for quote entered into
the trading system or platform as soon
as practicable. The core principles and
these rules would fully apply to such
communications including but not
limited to the transparency, audit trail,
impartial access and standards for
requests for quotes.

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the clearing requirement be executed on
a SEF or DCM.47 This trade execution
requirement will not apply if (i) the
Commission has not made a
determination regarding the clearing
requirement with respect to the swap,48
(ii) an eligible counterparty availed
itself of an exception to the clearing
requirement and does not wish to
transact the swap on a SEF or DCM, or
(iii) no DCM or SEF ‘‘makes the swap
available to trade.’’ 49
The Commission proposes to require
SEFs to make periodic assessments to
determine whether a swap has been
made available for trading. To that end,
proposed § 37.10 requires each SEF to
annually conduct an assessment and
provide a report to the Commission
regarding the determination that the
swaps it offers are made available for
trading thereunder. With respect to the
determination that swaps are made
available to trade, the SEF may consider
frequency of transactions and open
interest, and any additional factors
requested by the Commission.

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Request for Comment:
The Commission seeks general public
comment regarding the meaning of
‘‘made available for trading.’’ In
addition, the Commission asks the
public to respond to the specific
questions below.
• In addition to the frequency of
transactions and open interest, should
the Commission request that SEFs
consider the number of market
participants trading a particular swap? If
so, should a minimum number of
participants be required, for example,
should the swap be traded by more than
two participants? More than three?
• Should the Commission request
that SEFs consider any other factors or
processes to make the determination
that swaps are made available for
trading?
k. Identification of Non-Cleared Swaps
or Swaps Not Made Available To
Trade—Proposed § 37.11
The Commission acknowledges that
certain market participants may desire
to avail themselves of the benefits of
trading on SEFs (e.g., automated
confirmation of trades, straight-through
processing) with respect to trades that
are not otherwise required to be
executed on a SEF or DCM. In
particular, market participants might
want to effect swap transactions on
SEFs or DCMs regarding swaps that
have not been determined to come
47 CEA

Section 2(h)(8).
Section 2(h)(1).
49 CEA Section 2(h)(8).
48 CEA

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under the clearing mandate of Section
2(h) of the CEA, transactions that are
excepted from the clearing requirements
as provided under Section 2(h)(7) of the
CEA, and transactions regarding swaps
determined to not be available for
trading pursuant to Commission § 37.10.
Proposed § 37.11 requires that if a SEF
determines to provide for trading of
swaps that are excepted from the
clearing requirements, the SEF must
clearly identify to market participants
that the particular swap is to be
transacted pursuant to one of the
applicable exemptions from execution
and clearing.
C. Proposed Regulations, Guidance and
Acceptable Practices for Compliance
With the Core Principles
As noted above, this rulemaking
establishes the relevant regulations,
guidance and acceptable practices
applicable to the 15 core principles. As
proposed, the regulations applicable to
the 15 core principles are set out in
separate subparts to Part 37, Subparts B
through P, which includes a
codification within each subpart of the
statutory language of the respective core
principle. The guidance and acceptable
practices are set out in Appendix B.
1. Subpart B—Core Principle 1
(Compliance With Core Principles)
Under Core Principle 1, compliance
with the core principles, and any other
rule or regulation that the Commission
may impose under Section 8a(5) of the
CEA, is a condition of obtaining and
maintaining registration as a SEF.50 The
Commission proposes to codify the
statutory text of Core Principle 1 in
proposed § 37.100. SEFs will have
reasonable discretion in establishing the
manner in which they comply with the
core principles.
2. Subpart C—Core Principle 2
(Compliance With Rules)
a. Background
Core Principle 2 requires a SEF to
establish and enforce compliance with
its rules,51 including by: (1) Establishing
various rules to deter abuses; and (2)
having the capacity to detect,
investigate, and enforce such rules.52
Similarly, under Core Principle 2, a SEF
must establish and enforce rules to
provide any eligible contract participant
(‘‘ECP’’) and any independent software
50 CEA

Section 5h(f)(1)(A).
Section 5h(f)(2)(A).
52 CEA Section 5h(f)(2)(C) requires SEFs to
establish rules specifying trading procedures to be
used in entering and executing orders traded or
posted on the trading platform, including block
trades. The sentence annotated by this footnote also
captures 2(B).
51 CEA

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vendor (‘‘ISV’’) 53 with impartial access
to the market and to capture information
that the SEF may use in establishing
whether rule violations have occurred.54
Additionally, SEF Core Principle 2
requires a SEF to establish rules
governing the operations of the trading
platform and provide rules relating to
the mandatory clearing requirement
under Section 2(h)(8).55The
Commission proposes to implement
these requirements through §§ 37.200–
37.207.
Although SEFs are a new type of
regulated exchange, the Commission
notes that the statutory text for SEF Core
Principle 2 is largely a compilation of
established regulatory principles
applicable to DCMs. As a result,
proposed §§ 37.200–37.207,
implementing SEF Core Principle 2, set
forth requirements for establishing and
enforcing rules, providing access,
conducting trade practice surveillance,
and implementing audit trail
requirements and disciplinary rules,
that are analogous to those found in the
proposed regulations for DCM Core
Principles 2, 10, and 13. In addition,
proposed §§ 37.200–37.207 also address
elements of Core Principle 2 that are not
implicated by these DCM core
principles.
b. Operation of a Swap Execution
Facility and Compliance With Rules—
Proposed § 37.201
Proposed § 37.201 addresses the
requirement to establish and enforce
rules. More specifically, the core
principle requires that a SEF establish
and enforce compliance with its
rules.56A SEF is also required to
53 The Commission notes that examples of
independent software vendors include: Smart order
routers, trading software companies that develop
front-end trading applications, and aggregators of
transaction data. Smart order routing generally
involves scanning of the market for the bestdisplayed price and then routing orders to that
market for execution. Software that serves as a
front-end trading application is typically used by
traders to input orders, monitor quotations and
view a record of the transactions completed during
a trading session. Aggregators of transaction data
provide access to news, analytics and execution
services. The Commission believes that
transparency and trading efficiency would be
enhanced as a result of innovations in this field for
market services. For instance, certain providers of
market services with access to multiple trading
systems or platforms could provide consolidated
transaction data from such trading systems or
platforms to market participants.
54 CEA Section 5h(f)(2)(B).
55 CEA Section 2(h)(8) requires counterparties
transacting in swaps that are subject to the clearing
requirement of Section 2(h) to execute the
transaction on a DCM or a SEF, unless no DCM or
SEF ‘‘makes the swap available to trade’’ or the swap
transaction is subject to the clearing exception
under Section 2(h)(7). The sentence annotated by
this footnote captures both 2(C) and 2(D).
56 CEA Section 5h(f)(2)(A)(i).

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establish rules governing the operation
of the trading platform.57
Proposed § 37.201 addresses these
elements by requiring SEFs to establish
rules governing the members’ and
market participants’ use of their
markets, including rules specifying
trading procedures for entering and
executing orders traded or posted on the
trading platform, including block trades.
Proposed § 37.201(b) further requires
SEFs to establish and impartially
enforce compliance with the rules of the
SEF, including, but not limited to: (1)
The terms and conditions of any swaps
traded or processed on or through the
SEF; (2) access rules for the SEF; (3)
trade practice rules; (4) audit trail
requirements; (5) disciplinary rules; and
(6) mandatory trading requirements.

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c. Access Requirements—Proposed
§ 37.202
Proposed § 37.202 addresses Core
Principle 2’s requirement that SEFs
provide any ECP and any ISV with
impartial access to the market, and that
they adopt rules with respect to any
limitations they place on access.58 In
that regard, proposed § 37.202(a)
requires a SEF to provide any ECP and
any ISV with impartial access to its
market(s) and market services
(including any indicative quote screens
or any similar pricing data displays),
which includes establishing criteria that
are impartial, transparent, and applied
in a fair and nondiscriminatory manner
and levying equal fees for participants
receiving comparable access to, or
services from, the SEF. The purpose of
the proposed impartial access
requirements is to prevent a SEF’s
owners or operators from using
discriminatory access requirements as a
competitive tool against certain
participants. Access to a SEF should be
determined, for example, on the SEF’s
impartial evaluation of an applicant’s
disciplinary history and financial and
operational soundness against objective,
pre-established criteria. Any participant
should be able to demonstrate financial
soundness either by showing that it is
a clearing member of a DCO that clears
products traded on that SEF or by
showing that it has clearing
arrangements in place with such a
clearing member.
Proposed § 37.202(b) requires that,
prior to granting a participant access to
its markets, a SEF must require each
member or market participant to
57 CEA
58 CEA

Section 5h(f)(2)(C).
Section 5h(f)(2)(A)(ii) and (2)(B)(i).

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consent to its jurisdiction.59 Finally,
proposed § 37.202(c) requires a SEF to
establish and impartially enforce its
rules governing any decision to deny,
suspend, or permanently bar
participants’ access to the SEF,
including when such decisions are part
of a disciplinary or emergency action
taken by the SEF.
Request for Comment:
The Commission solicits specific
public comments regarding the
sufficiency of proposed § 37.202.
• In particular, the Commission is
interested to know whether additional
regulations are necessary to ensure that
a SEF can assert jurisdiction over any
person or entity executing swaps on the
SEF, either for their own account or on
behalf of another’s account.
• The Commission also requests
public comments on proposed
§§ 37.202(a) and 37.202(c), which are
intended to ensure that similarly
situated persons and entities receive
equal access to a SEF’s trading platform
and services, and that similar access and
services be charged a similar fee.
• In addition, the Commission wants
to know whether the proposed
regulations seeking to prohibit a SEF
from abusing its authority to deny or
suspend access via disciplinary or
emergency procedures are sufficient to
prohibit discrimination by a SEF against
competitors or for inappropriate
business reasons.
d. Rule Enforcement Program—
Proposed § 37.203
Proposed § 37.203 addresses SEF Core
Principle 2’s requirement that SEFs
establish and enforce trading and trade
processing rules that will deter abuses
and have the capacity to investigate and
enforce those rules.60
Proposed regulation 37.203(a)
addresses abusive trading practices by
requiring SEFs to prohibit specific
practices in connection with
intermediated and non-intermediated
trading activities,61 as well as any other
59 Consent

may be obtained in the form of a
written agreement at the time that a member or
market participant is granted access to the SEF.
60 CEA Section 5h(f)(2)(B).
61 The prohibited practices include: trading ahead
of customer orders, trading against customer orders,
accommodation trading, and improper crosstrading. Specific trading practice violations that
must be prohibited by all SEFs include: Frontrunning, wash trading, pre-arranged trading,
fraudulent trading, money passes, and any other
trading practices that the SEF deems to be abusive.
These practices are a compilation of abusive trading
practices that DCMs already prohibit, and include
trading practices that Congress expressly prohibited
in Section 747 of the Dodd-Frank Act. Section 747
of the Dodd-Frank Act amends section 4c(a) of the
CEA by adding three disruptive practices, which
make it:

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1223

manipulative or disruptive trading
practices prohibited by the CEA or by
the Commission pursuant to
Commission regulation.
Subsection (b) of the proposed
regulation requires that a SEF have
arrangements and resources for effective
rule enforcement, including the
authority to collect information and
examine books and records of members
and market participants. The
Commission believes that SEFs must
have appropriate resources to enforce all
of its rules, including the ability to
perform effective trade practice
surveillance. Furthermore, a SEF must
have the authority to examine books and
records for all market participants. The
Commission believes that a SEF can best
administer its compliance and rule
enforcement obligations by having the
ability to reach the books and records of
all market participants.
Next, subsection (c) of proposed
§ 37.203 requires that a SEF maintain
sufficient compliance resources to
conduct effective and timely audit trail
reviews, trade practice surveillance,
market surveillance, and real-time
monitoring. A SEF must also monitor its
staff size annually to ensure that it is
appropriate to effectively perform those
functions. A SEF’s staff size also must
be sufficient to address unusual or
unanticipated market or trading events
while continuing to effectively conduct
routine self-regulatory duties. Proposed
§ 37.203 reflects the Commission’s belief
that sufficient compliance staff are
essential to the effectiveness of a SEF’s
self-regulatory program.
While requiring sufficient staff,
proposed § 37.203(c) does not require
that staff size be determined based on a
specific formula. Rather, it permits the
individual SEF to determine what size
staff it needs to effectively perform its
self-regulatory responsibilities.62
Proposed § 37.203(d) requires SEFs to
maintain an automated trade
surveillance system capable of detecting
Unlawful for any person to engage in any trading,
practice, or conduct on or subject to the rules of a
registered entity that—
(A) Violates bids or offers;
(B) Demonstrates intentional or reckless disregard
for the orderly execution of transactions during the
closing period; or
(C) Is of the character of, or is commonly known
to the trade as, ‘‘spoofing’’ (bidding or offering with
the intent to cancel the bid or offer before
execution).
62 In making this determination, the proposed
regulation requires that a SEF take into account
specific facts and circumstances (e.g., volume of
trading, the number of swaps listed, number of
traders, etc.), as well as any other factors suggesting
the need for increased resources. A factor that may
suggest the need for increased compliance resources
is a prolonged surge in trading volume or a
prolonged period of price volatility.

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and investigating potential trade
practice violations. At a minimum, a
SEF’s systems must be capable of
generating alerts on at least a trade date
plus one day (T+1) basis to help staff
focus on potential violations and
anomalies found in trade data.63 They
must also provide compliance staff the
ability to sort, query and analyze
voluminous amounts of data. In order to
detect and prosecute the abusive trading
practices enumerated in proposed
§ 37.203(a), a SEF’s automated
surveillance system must maintain all
trade and order data, including order
modifications and cancellations. In
addition, a SEF’s automated trade
surveillance system must provide users
with the ability to compute retain, and
compare trading statistics; compute
profit and loss; and reconstruct the
sequence of trading activity. The
proposed regulation reflects the
Commission’s belief that a SEF must
have automated surveillance systems
that are equivalent to those of a DCM in
order to fulfill its trade practice
surveillance requirements.
Subsection (e) of proposed § 37.203
requires SEFs to conduct real-time
market monitoring of all trading activity
on its trading platform, in order to
ensure orderly trading and to identify
and correct any market or system
anomalies. The Commission’s proposed
regulation requires that any price
adjustments or trade cancellations be
transparent to the market and subject to
clear and fair publicly available
standards.
Next, proposed § 37.203(f) requires
SEFs to establish procedures for
conducting investigations and the
requirements for an investigation report.
Subsection (f)(1) requires that a SEF
have procedures to conduct
investigations of possible rule violations
and subsection (f)(2) requires that an
investigation be completed within a
timely manner (generally defined as 12
months after an investigation is opened,
absent mitigating circumstances).64
Subsections (f)(3) and (f)(4) of
proposed § 37.203 set forth what must
be included in an investigation report.
Subsection (f)(3) requires that when
compliance staff believes there is a
reasonable basis for finding a violation,
the investigation report must include
63 These systems typically differ from those
systems used for real-time market monitoring. The
requirements for real-time market monitoring can
be found in proposed Commission § 37.203(e).
64 Mitigating circumstances may include: the
complexity of the investigation, the number of firms
or individuals involved as potential wrongdoers,
the number of potential violations to be
investigated, and the volume of documents and data
to be examined and analyzed by compliance staff.

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the potential wrongdoer’s disciplinary
history. Similarly, subsection (f)(4)
requires that an investigation report
include the potential wrongdoer’s
disciplinary history when compliance
staff recommends that a warning letter
be issued. The Commission believes that
prior disciplinary history is critical
information that a disciplinary
committee should consider when either
issuing a warning letter or assessing an
appropriate penalty as part of any
settlement decision or hearing.65
Subsection (f)(5) of proposed § 37.203
provides that a SEF may authorize its
compliance staff to issue a warning
letter or to recommend that a
disciplinary committee issue a warning
letter. However, the proposed regulation
prohibits SEFs from issuing more than
one warning letter, in lieu of stronger
disciplinary action, for the same
violation during a rolling 12-month
period.66
Finally, proposed § 37.203(g) requires
a SEF to adopt and enforce any
additional rules that it believes are
necessary to comply with the
requirements of proposed § 37.203.
Request for Comment:
The Commission requests public
comment on proposed § 37.203.
• In particular, the Commission
requests public comment on the abusive
trading practices enumerated in
subsection 37.203(a). These practices
are identical to the abusive trading
practices prohibited in DCM trading.
• The Commission also solicits
comments regarding the types of
abusive trading practices that should be
prohibited on a SEF’s trading platform,
particularly whether SEFs and DCMs
are likely to face similar types of trading
abuses by market participants, whether
additional or different trading practices
should be prohibited on a SEF, and
whether SEFs should be required to
have the same types of trade practice
surveillance and real-time market
monitoring programs as DCMs.
65 As noted below in the discussion of proposed
§ 37.206(n), a SEF’s disciplinary committee should
review a member’s complete disciplinary history
when determining appropriate sanctions and
impose meaningful sanctions on members who
repeatedly violate the same or similar rules to
discourage recidivist activity.
66 For purposes of this regulation, the
Commission does not consider a ‘‘reminder letter’’
or such other similar letter to be any different than
a warning letter. While a warning letter may be
appropriate for a first-time violation, the
Commission does not believe that more than one
warning letter in a rolling 12-month period,
whether for the same or similar violations is ever
appropriate. A policy of issuing repeated warning
letters to members and market participants who
violate the same or similar rules, rather than issuing
meaningful sanctions, reduces the effectiveness of
a SEF’s rule enforcement program.

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• Finally, the Commission requests
comments on whether the investigatory
reports prepared by DCM compliance
staff as a prelude to formal disciplinary
proceedings, and included in these
proposed regulations, are needed within
SEFs.
e. Regulatory Services Provided by a
Third Party—Proposed § 37.204
Proposed § 37.204 permits a SEF to
utilize the services of a registered
futures association or another registered
entity for assistance in performing
certain self-regulatory functions.67
However, SEFs remain responsible for
the execution of these functions and for
compliance with their associated core
principles. In this regard, the
Commission notes that the Dodd-Frank
Act does not confer on SEFs the same
right to delegate certain core principle
compliance functions as that conferred
to DCMs, pursuant to Section 5c(b) of
the CEA.
The proposed regulation requires that
any SEF that contracts with a thirdparty regulatory service provider ensure
that the provider has sufficient capacity
and resources to render timely and
effective regulatory services. The SEF
must also oversee the quality of
regulatory services provided on its
behalf, and must retain exclusive
authority with respect to all substantive
decisions made by its regulatory service
provider.68 The proposed regulation
also specifies that any instances where
a SEF’s actions differ from those
recommended by its regulatory provider
must be documented and explained in
writing.
Request for Comment:
The Commission requests public
comment on proposed § 37.204.
• In particular, the Commission
requests comments on the supervisory
and decision-making relationship that
should exist between a SEF and a thirdparty regulatory service provider.
• The Commission also seeks public
comment on the types of information
that SEFs and their regulatory service
providers should be required to share
with other SEFs and regulatory service
providers, in order to conduct effective
surveillance of fungible swap products
trading on multiple SEFs.
67 Self-regulatory functions include, for example,
trade practice surveillance; market surveillance;
real-time market monitoring; investigations of
possible rule violations; and disciplinary actions.
68 Such decisions include, but are not limited to,
those involving the cancellation of trades, the
issuance of disciplinary charges against members or
market participants, denials of access to the trading
platform, and any decision to open an investigation
into a possible rule violation.

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• Finally, because SEFs are not
permitted to delegate core principle
compliance functions, as are DCMs, are
there any additional conditions that the
Commission should impose on SEFs’
use of third-party regulatory service
providers?
f. Audit Trail Requirements—Proposed
§ 37.205
Proposed § 37.205 addresses SEF Core
Principle 2’s requirements that a SEF be
able to capture information that may be
used to determine whether rule
violations have occurred.69 Proposed
§ 37.205 requirements are akin to the
DCM regulations addressing audit trail
requirements.70
Proposed § 37.205 requires that a SEF
establish an audit trail, and sets forth
the elements of an effective audit trail
and the requirements for effective audit
trail enforcement.71 The Commission
believes that these requirements will
help to ensure that SEFs can
appropriately monitor and investigate
any potential customer and market
abuse. Additionally, the audit trail data
captured by SEFs must be sufficient to
reconstruct all transactions promptly,
and to provide evidence of any rule
violations that may have occurred.
Subsection (b)(1) of the proposed
regulation requires that a SEF’s audit
trail include original source documents,
defined to include unalterable,
sequentially-identified records on
which trade execution information is
originally recorded, whether manually
or electronically. It also requires that
customer order records demonstrate the
terms of the order, the unique account
identifier that relates to the account
owner, and the time of the order entry.
Subsection (b)(2) of the proposed
regulation requires that a SEF’s audit
trail program include a transaction
history database to facilitate rapid
access and analysis of all original source
documents. Subsection (b)(2) also
specifies the trade information that must
be included in a transaction history
database.72 Subsection (b)(3) of the
69 CEA

Section 5h(f)(2)(B)(ii).
further explanation of the elements of an
effective audit trail, see supra note 10, DCM NPRM.
71 Subsection (a) of the proposed regulation
establishes the overarching requirements for SEFs’
audit trail programs, while Subsection (b)
prescribes the four elements of an acceptable audit
trail program and Subsection (c) prescribes the
elements of an effective audit trail enforcement
program.
72 For example, mandatory information includes
a history of all orders and trades; all data input in
the trade matching system for purposes of clearing;
the categories of participant for which each trade
is executed (i.e., the customer type indicator or
‘‘CTI’’ codes); timing and sequencing data sufficient
to reconstruct trading; and identification of each
account to which fills are allocated.

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proposed regulation requires that a
SEF’s audit trail program have
electronic analysis capability for all data
in its transaction history database and
enable the SEF to reconstruct trades in
order to identify possible rule
violations. Subsection (b)(4) requires
that a SEF’s audit trail program include
the ability to safely store all audit trail
data, and to retain it in accordance with
the recordkeeping requirements of SEF
Core Principle 10 and its associated
regulations. Safe storage capability also
requires a SEF to protect its audit trail
data from unauthorized alteration,
accidental erasure or other loss.
Subsection (c) of proposed § 37.205 is
organized in two parts. First, subsection
(c)(1) requires that a SEF develop an
effective audit trail enforcement
program, which must, at a minimum,
review all members and market
participants annually to verify their
compliance with all applicable audit
trail requirements. Subsection (c)(1) also
sets forth minimum review criteria for
an electronic trading audit trail that
must be carried out by each SEF.
Finally, subsection (c)(2) requires that
SEFs develop programs to ensure
effective enforcement of their audit trail
and recordkeeping requirements,
including a requirement that SEFs levy
meaningful sanctions when deficiencies
are found. Sanctions may not include
more than one warning letter or other
non-financial penalty, in lieu of stronger
disciplinary action, for the same
violation within a rolling twelve-month
period.
Request for Comment:
The Commission seeks public
comment on the proposed audit trail
and audit trail enforcement
requirements for SEFs.
• The Commission seeks specific
public comment on whether such
requirements should be similar for both
SEFs and DCMs.
• Should SEFs be subject to
additional requirements beyond the
proposed regulations? Are there
elements of the proposed regulations
that are inappropriate for SEFs?
• For example, is the CTI code system
used by DCMs to denote different types
of futures participants also necessary for
swap transactions on SEFs?
• What specific data points should a
SEF’s audit trail enforcement program
seek to verify?
g. Disciplinary Procedures and
Sanctions—Proposed § 37.206
Proposed § 37.206 addresses SEF Core
Principle 2’s requirement that SEFs
establish and enforce participation rules
to deter abuse, and have the capacity to

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1225

investigate and enforce such abuses.73
Subsection (a) of the proposed
regulation requires that a SEF establish
and maintain sufficient enforcement
staff and resources to effectively and
promptly prosecute possible rule
violations within the jurisdiction of the
SEF. Subsection (a) also provides that a
SEF’s enforcement staff may not include
members of the SEF or persons whose
interests conflict with their enforcement
duties. Moreover, a member of the
enforcement staff may not operate under
the direction or control of any person or
persons with trading privileges at the
SEF. These provisions seek to ensure
the independence of enforcement staff,
and help promote disciplinary
procedures that are free of potential
conflicts of interest.
Subsection (b) requires SEFs to
establish one or more Review Panels
and one or more Hearing Panels
(together, ‘‘disciplinary panels’’). Neither
panel may include members of the
SEF’s compliance staff or any person
involved in adjudicating any other stage
of the same proceeding.74 The proposed
regulation provides that a Review Panel
must be responsible for determining
whether a reasonable basis exists for
finding a violation of SEF rules, and for
authorizing the issuance of a notice of
charges, while a separate Hearing Panel
must be responsible for adjudicating the
matter and issuing sanctions.75
73 See CEA Section 5h(f)(2)(B). In general, the
proposed regulations addressing disciplinary
procedures for SEFs parallel the disciplinary
procedure regulations for DCMs. The proposed
regulations pursuant to DCM Core Principle 13 are
also similar to the text of the disciplinary
procedures in part 8, which the Commission found
to be the model for many DCMs’ disciplinary
programs. 17 CFR 8.01 et seq. DCMs were exempt
from Part 8 pursuant to § 38.2; however, the
predecessor DCM Core Principle 13 offered the
disciplinary procedures in Part 8 as an example of
appropriate disciplinary procedures.
74 Disciplinary panels must also adhere to the
composition requirement of § 40.9(c)(3)(ii), as
proposed, which provides that ‘‘Each Disciplinary
Panel shall include at least one person who would
not be disqualified from serving as a Public Director
by § 1.3(ccc)(1)(i)–(vi) and (2) of this chapter (a
‘‘Public Participant’’). Such Public Participant shall
chair each Disciplinary Panel. In addition, any
registered entity specified in paragraph (c)(3)(i) of
this section shall adopt rules that would, at a
minimum: (A) Further preclude any group or class
of participants from dominating or exercising
disproportionate influence on a Disciplinary Panel
and (B) Prohibit any member of a Disciplinary Panel
from participating in deliberations or voting on any
matter in which the member has a financial
interest.’’ See 75 FR 63752 (October 18, 2010).
75 The Commission notes that, while proposed
§ 37.206(b) requires SEFs to empanel distinct bodies
to issue charges and to adjudicate charges in a
particular matter, SEFs may determine for
themselves whether their Review and Hearing
Panels are separate standing panels or ad hoc
bodies whose members are chosen from a larger
‘‘disciplinary committee’’ to serve in one capacity or

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Subsection (c) of the proposed
regulation requires a Review Panel to
promptly review an investigation report
received pursuant to proposed
§ 37.203(f)(3), and to take action within
30 days of receipt. The Commission
believes that prompt disciplinary action
provides the best opportunity for
witnesses to recall conversations, facts,
and other information relevant to the
matter, and transmits a clear signal to
the market and to market participants
that violations of exchange rules will
not be tolerated. Subsection (c) also
specifies the range of actions which a
Review Panel may take upon receiving
a completed investigation report.
Subsection (d) describes the minimally
acceptable contents of any notice of
charges (‘‘notice’’) issued by a Review
Panel. The notice must adequately state
the acts, conduct, or practices in which
the respondent is alleged to have
engaged; state the rule(s) alleged to have
been violated; and prescribe the period
within which a hearing may be
requested. Further, the notice must
advise the respondent charged that he or
she is entitled, upon request, to a
hearing on the charges.76 Subsection (e),
in turn, specifies a respondent’s right to
be represented by any counsel or
representative of his choosing upon
receiving a notice of charges and in all
succeeding stages of the disciplinary
process. Subsection (f) requires that a
respondent must be given a reasonable
period of time to file an answer to a
charges.77 Subsection (g) provides that,
if a respondent admits or fails to deny
any of the alleged violations a Hearing
Panel may find that the violations
admitted or not denied have been
committed.78 Subsection (h) requires
the other for a particular disciplinary matter. The
purposes of separate Review and Hearing Panels is
to help ensure adjudication of disciplinary matters
by separating a decision to issue charges from a
hearing on the merits of a matter.
76 The proposed regulations permit a SEF to adopt
rules providing that the failure to request a hearing
within the time prescribed in the notice, except for
good cause, must be deemed a waiver of the right
to a hearing and that the failure to answer or deny
expressly a charge must be deemed to be an
admission of such charge.
77 Subsection (f) also permits a SEF, through its
rules, to require that: (1) The answer must be in
writing and include a statement that the respondent
admits, denies or does not have and is unable to
obtain sufficient information to admit or deny each
allegation; (2) failure to file an answer on a timely
basis shall be deemed an admission of all
allegations in the notice of charges; and (3) failure
in an answer to deny expressly a charge shall be
deemed to be an admission of such charge.
78 In addition, if a SEF adopts a rule concerning
the admission or failure to deny charges pursuant
to Proposed § 37.206(f), then Subsections (g)(1)
through (g)(3) of the proposed regulation provide
that: (1) The Hearing Panel must impose a sanction
for each violation found to have been committed;
(2) the SEF must promptly notify the respondent in

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that in every instance where a
respondent has requested a hearing on
a charge that he or she denies, or on a
sanction set by the Hearing Panel
pursuant to proposed § 37.206(g), the
respondent must be given the
opportunity for a hearing in accordance
with the requirements of proposed
§ 37.206(j).
Subsection (i) provides the
procedures a SEF must follow when it
settles a disciplinary case. The
provision states that the rules of a SEF
may permit a respondent to submit a
written offer of settlement any time after
an investigation report is completed.
The disciplinary panel presiding over
the matter may accept the offer of
settlement, but may not alter the terms
of the offer unless the respondent
agrees. Subsection (i) requires a
disciplinary panel that accepts a
settlement offer to issue a written
decision specifying the rule violations it
has reason to believe were committed,
and any sanction imposed, including
any order of restitution where customer
harm has been demonstrated.
Significantly, proposed § 37.206(i)(3)
also provides that if an offer of
settlement is accepted without the
agreement of a SEF’s enforcement staff,
the decision must carefully explain the
panel’s acceptance of the settlement.79
Subsection (j) requires a SEF to adopt
rules that provide certain minimum
requirements for any hearing conducted
pursuant to a notice of charges. In
general, Subsections (j)(1)(i) through
(j)(1)(vi) require that the SEF: (1)
Provide a fair hearing; (2) permit
respondents to examine evidence relied
on by enforcement staff in presenting
the notice of charges; (3) require
enforcement and compliance staffs to be
parties to the hearing and enforcement
staff to present their case on those
charges and sanctions that are the
subject of the hearing; (4) permit
respondents to appear personally at the
hearing, to cross-examine and call
witnesses and to present evidence; (5)
require that persons within its
jurisdiction who are called as witnesses
writing of any sanction to be imposed and advise
the respondent that they may request a hearing on
such sanction within the period of time stated in
the notice; and (3) the rules of the SEF may provide
that if the respondent fails to request a hearing
within the period of time stated in the notice, then
the respondent will be deemed to have accepted the
sanction.
79 Subsection (i) allows a respondent to withdraw
his or her offer of settlement at any time before final
acceptance by a disciplinary panel. If an offer is
withdrawn after submission, or is rejected by a
disciplinary panel, the respondent must not be
deemed to have made any admissions by reason of
the offer of settlement and must not be otherwise
prejudiced by having submitted the offer of
settlement.

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participate in the hearing and produce
evidence; and (6) transcribe and retain
a copy of the hearing. Additionally,
subsection (j)(2) specifies that the rules
of the SEF may provide that a sanction
be summarily imposed upon any person
within its jurisdiction whose actions
impede the progress of a hearing.
Subsection (k) details the procedures
that a Hearing Panel must follow in
rendering disciplinary decisions. The
provision requires that all decisions
include: (1) A notice of charges or a
summary of the charges; (2) an answer,
if any, or a summary of the answer; (3)
a summary of the evidence produced at
the hearing or, where appropriate
incorporation by reference in the
investigation report; (4) a statement of
findings and conclusions with respect to
each charge, and a careful explanation
of the evidentiary and other bases for
such findings and conclusions with
respect to each charge; (5) an indication
of each specific rule which the
respondent was found to have violated;
and (6) a declaration of any penalty
imposed against the respondent,
including the basis for such sanctions
and the effective date of such sanctions.
Subsection Proposed § 37.206(l)
provides the procedures that a SEF must
follow in the event that the SEF’s rules
authorize an appeal of adverse decisions
in all or in certain classes of cases.80
Notably, the proposed § requires a SEF
that permits appeals by disciplinary
respondents to also permit appeals by
its enforcement staff. This provision
reflects the Commission’s belief that
SEF enforcement staff must have the
discretion to appeal disciplinary panel
decisions that, for example, do not
adequately sanction a respondent’s
violative conduct. Subsection (m)
requires that each SEF establish rules
setting forth when a decision rendered
under this subsection C will become the
final decision of the SEF.
Subsection (n) requires that every
disciplinary sanction imposed by a SEF
must be commensurate with the
80 For SEFs that permit appeals, the language in
subsections (l)(1) through (l)(4) of proposed § 37.206
generally require the SEF to: (1) Establish an
appellate panel that is authorized to hear appeals;
(2) ensure that the appellate panel composition is
consistent with § 40.9(c)(3)(iii) and not include any
members of the SEF’s compliance staff, or any
person involved in adjudicating any other stage of
the same proceeding; (3) except for good cause
shown, the appeal or review must be conducted
solely on the record before the Hearing Panel, the
written exceptions field by the parties, and the oral
or written arguments of the parties; and (4)
promptly following the appeal or review
proceeding, the board of appeals must issue a
written decision and provide a copy to the
respondent. The Commission notes that a
respondent has certain rights of appeal to the
Commission under Part 9 of the Commission’s
regulations.

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Federal Register / Vol. 76, No. 5 / Friday, January 7, 2011 / Proposed Rules
violations committed and must be
clearly sufficient to deter recidivism or
similar violations by other market
participants. Additionally, the proposed
regulation requires that, in the event of
demonstrated customer harm, any
disciplinary sanction must include full
customer restitution. In evaluating
appropriate sanctions, the proposed
regulation requires the SEF to take into
account a respondent’s disciplinary
history.81
Subsection (o) permits a SEF to adopt
a summary fine schedule for violations
of rules relating to timely submission of
accurate records required for clearing or
verifying each day’s transactions. The
proposed regulation makes clear that a
SEF should issue no more than one
warning letter in a rolling 12-month
period for the same violation before
sanctions are imposed. Additionally, the
proposed regulation specifies that a
summary fine schedule must provide for
progressively larger fines for recurring
violations. The Commission believes
that these provisions will serve to
discourage recidivist behavior.
Finally, subsection (p) provides that a
SEF may impose an immediate sanction
upon a reasonable belief that such
action is necessary to protect the best
interest of the marketplace. The
proposed regulation also provides that
any emergency action taken by the SEF
must be performed in accordance with
certain procedural safeguards.

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Request for Comment:
The Commission seeks public
comment on proposed § 37.206.
• In particular, comments should
address whether SEFs should be subject
to the detailed disciplinary procedures
proposed herein. The proposed
disciplinary procedures emphasize
procedural safeguards for respondents,
including a clear separation between
SEF personnel recommending the
issuance of charges, review panels
determining whether charges should be
issued, and hearing panels adjudicating
cases on the merits. Are these
disciplinary procedures sufficient for
SEFs? Or, should SEFs instead utilize a
more streamlined disciplinary process
that features, for example, a robust staff
summary fine program rather than
formal disciplinary hearings.
• Finally, given the significant
financial resources of the ECPs
conducting swap transactions on SEFs,
should Commission regulations provide
more detailed guidelines on the
81 Proposed § 37.203(f)(3) also requires that a
copy of a member or market participant’s
disciplinary history be included in the compliance
staff’s investigation report.

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appropriate size of any financial
penalties levied by SEFs for violative
conduct? Should any such guidelines
take cognizance of the financial
resources of potential respondents?
h. Swaps Subject to Mandatory
Clearing—Proposed § 37.207
Proposed § 37.207 mandates that SEFs
provide rules that require swap dealers
or major swap participants, who trade a
swap subject to the mandatory clearing
requirement under Section 2(h)(1), to
execute the transaction on either a DCM
or a SEF. However, swap dealers or
major swap participants are not required
to execute such transactions if no DCM
or SEF makes the swap available to
trade.
3. Subpart D—Core Principle 3 (Swaps
Not Readily Susceptible to
Manipulation)
Under Core Principle 3, Congress
required that SEFs offer for trading
swaps that are not readily susceptible to
manipulation. The Commission notes
that the statutory language of Core
Principle 3 is substantively identical to
the counterpart core principle under
Section 5(d)(3) of the CEA as applicable
to DCMs. Historically, DCMs complied
with the requirements of Section 5(d)(3)
by using as guidance the provisions of
Guideline No. 1, contained in Appendix
A to Part 40. In a separate release, the
Commission proposes certain revisions
to the former Guideline No. 1,
including: (i) Amending the provisions
to include swap transactions, (ii) retitling the guidance as ‘‘Demonstration
of compliance that a contract is not
readily susceptible to manipulation,’’
and (iii) re-designating the guidance to
be included under Appendix C to Part
38.82
Accordingly, proposed § 37.301
requires that, applicants and SEFs must
provide to the Commission the
information required under Appendix C
to Part 38 for purposes of demonstrating
to the Commission that their swap
contracts are not readily susceptible to
manipulation.
Under Appendix B to Part 37, the
guidance for compliance with Core
Principle 3 focuses on the selection and
construction of the price index on
which the swaps’ cash flows are based.
If obtained from a private third-party,
the company should be independent
and reputable. Moreover, the third party
should use a sound, well-documented
methodology that protects the index
from manipulation. If the SEF itself
determines the price index, then it
should take precautions to safeguard
82 See,

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against attempts to artificially influence
the index. In this regard, if the price
index is based on a survey of cash
market sources, then the SEF should
maintain a list of such entities which all
should be reputable sources with
knowledge of the cash market. In
addition, the sample of sources polled
should be representative of the cash
market, and the poll should be
conducted at a time when trading in the
cash market is active. The cashsettlement survey should include a
minimum of four independent entities if
such sources do not take positions in
the commodity (e.g., if the survey list is
comprised exclusively of brokers) or at
least eight independent entities if such
sources trade for their own accounts
(e.g., if the survey list is comprised of
dealers or commercial users).
4. Subpart E—Core Principle 4
(Monitoring of Trading and Trade
Processing)
Under Core Principle 4, Congress
required that SEFs must take an active
role in preventing manipulation, price
distortion and disruptions of the
delivery or cash settlement process.
Accordingly, the proposed regulations
under Subpart E of Part 37 clarify the
related responsibilities for applicants
and SEFs to monitor trading activities
and prevent market disruptions.
a. General Requirements—Proposed
§ 37.401
Proposed § 37.401 requires that
applicants and SEFs must collect,
monitor and evaluate data to detect and
prevent manipulative activity. Proposed
§ 37.401 also requires that applicants
and SEFs have the ability to conduct
real-time monitoring of trading and
comprehensive and accurate trade
reconstructions.
As noted above in its discussion of
the need for automated tools in
connection with Core Principle 2
requirements, the Commission believes
that it would be difficult, if not
impossible, to monitor for market
disruptions in markets with high
transaction volume and a large number
of trades unless the SEF has installed
automated trading alerts to detect many
types of potential violations of exchange
or Commission rules. Accordingly, the
Commission proposes in § 37.401 to
require that, where the SEF cannot
reasonably demonstrate that its manual
processes are effective in detecting and
preventing abuses, the SEF must
implement automated trading alerts to
detect potential problems.

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Request for Comment:
The Commission seeks public
comment on whether in any rule the
Commission may adopt in this matter,
SEFs should be required to monitor the
extent of high frequency trading, and
whether automated trading systems
should include the ability to detect and
flag high frequency trading anomalies.
b. Additional Requirements for
Physical-Delivery Swaps—Proposed
§ 37.402
For physical delivery swaps,
proposed § 37.402 requires that SEFs
monitor each swap’s terms and
conditions as well as take meaningful
corrective action to allow market
participants to continue to use the
market to make sound hedging
decisions and for price discovery.
c. Additional Requirements for CashSettled Swaps—Proposed § 37.403
Over the past several years, there has
been a growth in markets that are
linked, for example, where the
settlement price of one market is linked
to the prices established in another
market. As a result, traders may have
incentives to disrupt or manipulate
prices in the reference market in order
to influence the prices in the linked
market. The Commission believes that
in such situations SEFs must monitor
trading in the market to which its swap
is linked. Accordingly, proposed
§ 37.403 requires that, where a swap is
settled by reference to the price of an
instrument traded in another venue the
SEF must either have an information
sharing agreement with the other venue
or be able to independently determine
that positions or trading in the reference
instrument are not being manipulated to
affect positions or trading in its swap.

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d. Ability To Obtain Information—
Proposed § 37.404
To ensure that SEFs have the ability
to properly assess the potential for price
manipulation, price distortions, and the
disruption of the delivery or cashsettlement process, proposed § 37.404
provides that SEFs require that traders
in their market keep and make available
records of their activity in underlying
commodities and related derivatives
markets and swaps.
e. Risk Controls for Trading—Proposed
§ 37.405
Proposed § 37.405 requires that a SEF
have effective risk controls to reduce the
potential risk of market disruptions and
ensure orderly market conditions. In the
current futures markets, DCMs have
implemented a variety of risk controls to
avoid market disruptions through

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restrictions on order entry, including
daily price limits, price/quantity bands,
and trading pauses. In order to prevent
market disruptions due to sudden
volatile price movements, proposed
§ 37.405 requires SEFs to have in place
effective risk controls, including but not
limited to pauses and/or halts to trading
in the event of extraordinary price
movements that may result in distorted
prices or trigger market disruptions.
Such risk controls can, among other
things, allow time for participants to
analyze the market impact of new
information that may have caused a
sudden market move, allow new orders
to come into a market that has moved
dramatically, and allow traders to assess
and secure their capital needs in the
face of potential margin calls. Moreover,
where a swap is linked to, or a
substitute for, other swaps on the SEF
or other trading venues, including
where a swap is based on the level of
an equity index, risk controls should be
coordinated with those on the similar
markets or trading venues, to the extent
possible.
The desirability of coordination of
various risk controls, for example,
‘‘circuit breakers’’ in equities and their
various derivatives including futures
and options, recently has been the
subject of discussions by regulators and
the industry. The Commission believes
that pauses and halts are effective risk
management tools and must be
implemented by SEFs to facilitate
orderly markets. These basic risk
controls also have proven to be effective
and necessary in preventing market
disruptions. The Commission
recognizes that pauses and halts are
only one category of risk controls and
that additional controls may be
necessary to further reduce the potential
for market disruptions. Such controls
may include price collars or bands,83
maximum order size limits,84 stop loss
order protections,85 kill buttons,86 and
others.
83 Price bands would prevent clearly erroneous
orders from entering the trading system, including
‘‘fat finger’’ errors, by automatically rejecting orders
priced outside of a range of reasonability.
84 Maximum order size limitations would prevent
entry into the trading system of an order that
exceeds a maximum quantity established by the
SEF.
85 Stop loss orders would be triggered if the
market declines to a level pre-selected by the
person entering the order. This mechanism would
provide that when the market declines to the
trader’s pre-selected stop level for such an order,
the order would become a limit order executable
only down to a price within the range of
reasonability permitted by the system, instead of
becoming a market order.
86 Kill buttons would give clearinghouses
associated with a SEF the ability to delete open
orders and quotes and reject entry of new orders or

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Request for Comment:
The Commission is considering
mandating in this rulemaking risk
controls that are appropriate and/or
necessary. Accordingly, the Commission
invites comments on the
appropriateness of these and other
controls that could supplement trading
halts or pauses. The Commission also
invites comments on the following
additional questions:
• Which risk controls should be
mandated and how?
• What types of pauses and halts are
necessary and appropriate for particular
market conditions?
• What other risk controls are
appropriate or necessary to reduce the
risk of market disruptions?
f. Trade Reconstruction—Proposed
§ 37.406
Under Core Principle 4, Congress
required that SEFs have the ability to
comprehensively and accurately
reconstruct all trading on its facility.
Proposed § 37.406 sets forth this
requirement, including the requirement
that audit-trail data and reconstructions
be made available to the Commission
upon request.
g. Additional Rules Required—Proposed
§ 37.407
Proposed § 37.407 requires SEFs to
adopt and enforce any additional rules
that it believes are necessary to comply
with the requirements of Subpart E.
5. Subpart F—Core Principle 5 (Ability
To Obtain Information)
The proposed regulations under
Subpart F require an applicant and a
SEF to have the ability and authority,
necessary Core Principle 5, to obtain
necessary information to perform its
obligations.
6. Subpart G—Core Principle 6 (Position
Limits or Accountability)
Under Core Principle 6, Congress
required that SEFs adopt for each swap,
as is necessary and appropriate, position
limits or position accountability. In
addition, Congress required that, for any
contract that is subject to a Federal
position limit under CEA Section 4a(a),
the SEF shall set its position limits at a
level no higher than the position
limitation established by the
Commission in its Part 151 regulations.
Proposed § 37.601 requires that each
SEF must comply with the requirements
of Part 151 in order to be in compliance
with Core Principle 6.
quotes in instances where a trader breaches its
obligations with the clearinghouse. See FIA Market
Access Risk Management Recommendations, p. 10
(April 2010).

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7. Subpart H—Core Principle 7
(Financial Integrity of Transactions)
Proposed § 37.700 sets out the
financial integrity requirements for
transactions on a SEF, as required under
Core Principle 7. Under such core
principle, a SEF must establish and
enforce rules to ensure the financial
integrity of swaps entered on or through
the facilities of the SEF, including the
clearing and settlement of the swaps.
The requirements of proposed § 37.700
depend, in part, on whether the swap is
cleared.87
Under proposed § 37.702(a), a SEF
must ensure that all its members meet
the definition of ‘‘eligible contract
participant’’ under CEA Section 1(a)(18).
Under proposed § 37.702(b), for swaps
cleared by a DCO, a SEF must ensure
that it has the capacity to route
transactions to the DCO. With respect to
swaps that are not required to be
cleared, a SEF must impose additional
requirements to ensure the financial
integrity of the transaction,88 including
requiring the transacting member to
have entered into a credit arrangement
for the transaction, demonstrate an
ability to exchange collateral, and have
appropriate credit filters in place. The
Commission believes that these
additional requirements are necessary in
light of the fact that uncleared swaps
will not have the risk management
protections of a DCO.
The Commission requests comment
on whether these standards are
appropriate financial integrity
safeguards for SEFs. Specifically, the
Commission solicits comment regarding
how SEF members would demonstrate
sufficient credit documentation and
ability to exchange collateral.

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Request for Comment:
The Commission seeks public
comment on the proposed rule, and
specifically on the following questions:
• Whether SEFs should provide
additional controls to permit FCMs to
manage their risks? If so, what specific
direct access controls and procedures
should SEFs implement?
• Should such controls be
mandatory?
87 The Commission interprets the mandatory
clearing requirement in Section 723(a)(3) of the
Dodd-Frank Act to mean that a DCO must clear a
swap for any DCM or SEF that requests such
clearing services, so long as the DCO offers the
swap. In addition, a DCO that is clearing particular
swaps must also clear the same swaps when listed
on DCMs or SEFs, whether affiliated or unaffiliated,
on a nondiscriminatory basis.
88 Separately, if the SEF determines to allow swap
transactions that are not cleared, the SEF must have
provisions to determine that the swap meets the
exemption to the clearing requirement provided
under section 2(h)(7) of the CEA, as amended by the
Dodd-Frank Act.

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8. Subpart I—Core Principle 8
(Emergency Authority)
Under Core Principle 8, a SEF must
provide for emergency situations. Based
upon its experience with DCMs, and in
recognition of the fact that individual
SEFs may have different approaches to
handling emergency action, proposed
§ 37.801 refers to the guidance in
Appendix B to Part 37 to demonstrate
compliance with Core Principle 8.
The guidance reflects the
Commission’s belief that there should
be an increased emphasis on crossmarket coordination of emergency
actions and SEFs should have alternate
lines of communication and approval
procedures in order to address
emergencies in real time.
The Commission’s experience has
demonstrated that there are some
specific requirements that at a minimum
should be followed and these
requirements are incorporated under the
proposed guidance. Specifically, the
SEF should have procedures and
guidelines for decision-making and
implementation of emergency
intervention in the market. The SEF
should have the authority to perform
various actions, including without
limitation: Liquidating or transferring
open positions in the market,89
suspending or curtailing trading in any
swap, and taking such market actions as
the Commission may direct. In addition,
the guidance notes that SEFs must
provide prompt notification and
explanation to the Commission of the
exercise of emergency authority, and
that information on all regulatory
actions carried out pursuant to a SEF’s
emergency authority should be included
in a timely submission of a certified
rule.
9. Subpart J—Core Principle 9 (Timely
Publication of Trading Information)
Under Core Principle 9, Congress
required that SEFs make available to the
public timely information on price,
trading volume, and other trading data
on swaps to the extent prescribed by the
Commission. Congress also required a
SEF to have the capability of
electronically capturing trade
information for those transactions that
occur on the trading system or platform.
These matters are addressed in separate
releases.90 Proposed § 37.901 requires
that SEFs comply with the real-time
swap reporting and swap reporting and
89 In situations where a swap is traded on more
than one platform, emergency action to liquidate or
transfer open interest must be directed, or agreed
to, by the Commission or Commission staff.
90 See, supra note 10, DCM NPRM; 75 FR 76140
(December 7, 2010); and 75 FR 76574 (December 8,
2010).

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recordkeeping requirements being
separately proposed by the Commission.
Request for Comment:
In order to address all relevant
considerations with respect to the
reporting requirements of Core Principle
9, the Commission seeks general
comments and asks the public to
respond to the specific questions below.
• For interest rate swaps, because the
term life on an interest rate swap can be
one of a large number of possible
periods along a yield curve, what would
be an appropriate manner to display
prices?
• Would prices for interest rate swaps
be meaningful or misleading and why?
• If the prices are misleading, what
useful information should be displayed
at the end of the trading day?
• Please identify any other swap
products that have similar price
reporting issues and address how the
prices for that product should be
reported to provide a summary of the
trading for that day.
10. Subpart K—Core Principle 10
(Recordkeeping and Reporting)
Core Principle 10 establishes a threepart recordkeeping and reporting
requirement applicable to all SEFs,
which the Commission proposes to
implement through proposed
§§ 37.1001–37.1003.91
Proposed § 37.1001 largely codifies
the statutory language of Core Principle
10. In addition, it clarifies that
investigatory and disciplinary files are
included in the records that a SEF must
maintain, and requires that a SEF
comply with the recordkeeping
requirements of § 1.31.92
By incorporating § 1.31, proposed
§ 37.1001 effectively requires that SEF
books and records be readily accessible
for the first 2 years of the minimum 591 CEA Section 5h(f)(10)(A) requires all SEFs to:
Maintain records of all activities relating to the
business of each SEF, including a complete audit
trail, for a period of at least five years; report to the
Commission, in a form and manner acceptable to
the Commission, such information as the
Commission determines to be necessary or
appropriate; and keep records relating to swaps
defined in CEA Section 1a(47)(A)(v) open to
inspection and examination by the Securities and
Exchange Commission. CEA Section 5h(f)(10)(B)
requires the Commission to ‘‘adopt data collection
and reporting requirements for swap execution
facilities that are comparable to corresponding
requirements for derivatives clearing organizations
and swap data repositories.’’ The Commission’s data
standards are included in proposed rules in Part 45
of the Commission’s regulations.
92 The Commission notes that it has always
considered audit trails and investigatory and
disciplinary files as a part of the records which a
DCM is required to maintain and which the
Commission is permitted to request and to examine.
In this respect, the proposed regulation merely
codifies existing Commission practice.

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year statutory period and be open to
inspection by any representatives of the
Commission or the United States
Department of Justice.93 The SEF, at its
own expense, must promptly provide
either a copy or the original books or
records upon request.
The statutory regime for SEFs
established by the Dodd-Frank Act
envisions ongoing Commission
oversight of SEFs and their trading
activity. Such oversight will resemble,
in concept, the oversight already
conducted by the Commission with
respect to DCMs. Accordingly, proposed
§ 37.1002 requires that SEFs report to
the Commission any information
necessary or appropriate for the
Commission to perform its oversight
duties. The proposed regulation does
not articulate specific information that
must be provided to the Commission;
instead, it establishes the general
requirement that SEFs must provide any
relevant data requested by the
Commission in a form and manner
acceptable to the Commission.94
Proposed § 37.1003 codifies Core
Principle 10’s statutory requirement that
a SEF keep any records relating to
93 Proposed § 37.1001 also effectively
incorporates § 1.31(b)’s description of the
permissible methods of storing books and records.
Consequently, a SEF may store its books and
records as prescribed by § 1.31(b)(1)(ii). Among
other criteria, § 1.31(b)(1)(ii) defines electronic
storage media as ‘‘any digital storage medium or
system that preserves the records exclusively in a
non-rewritable, non-erasable format [and] verifies
automatically the quality and accuracy of the
storage media recording process * * *.’’ SEFs must,
at all times, have the facilities to immediately
produce and be prepared to present legible hardcopy images of such records. Additionally, SEF’s
must keep only Commission-required records on
the media, store a duplicate of the record at a
separate location, and organize and maintain an
accurate index of all information maintained on
both the original and duplicate storage media. SEFs
that use electronic storage media are also required
to develop and maintain an audit system to track
the initial entry of original or duplicate records and
any subsequent changes made thereafter. Proposed
§ 37.1001 also incorporates §§ 1.31(c) and 1.31(d),
which expand upon the requirements established
by proposed § 37.1001. Section 1.31(c) requires that
record-keepers who employ an electronic storage
system certify with Commission that the system
meets the requirements of an electronic storage
media as defined in § 1.31(b)(1)(ii). Section 1.31(d)
states that trading cards, documents on which trade
information is originally recorded in writing,
certain written orders, and paper copies of certain
electronically filed forms and reports with original
signatures must be retained in hard-copy for the
requisite time period. Finally, proposed § 37.1001
also requires that SEFs comply with the
recordkeeping requirements applicable to swaps in
proposed Part 45.
94 The Commission anticipates that the records it
will routinely request will include, for example,
daily trading records, board of directors’ meeting
minutes, investigatory and disciplinary files,
information regarding resources allocated to
compliance functions, and other records used in the
Commission’s trade practice surveillance program
and rule enforcement review program.

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security-based swap agreements defined
in Section 1a(47)(A)(v) of the CEA open
to inspection and examination by the
Securities and Exchange Commission
(‘‘SEC’’).95
11. Subpart L—Core Principle 11
(Antitrust Considerations)
Core Principle 11 governs the
antitrust obligations of SEFs.96 This SEF
core principle is substantially similar to
DCM Core Principle 19.97 The
Commission believes that the existing
guidance applicable to DCM Core
Principle 19 remains appropriate.
Accordingly, the Commission proposes
to codify the statutory text of Core
Principle 11 into proposed § 37.1100.
Additionally, proposed § 37.1101 refers
applicants and SEFs to the guidance in
Appendix B to Part 37 for purposes of
demonstrating compliance with
proposed § 37.1100.
12. Subpart M—Core Principle 12
(Conflicts of Interest)
Core Principle 12 governs conflicts of
interest. Like Core Principle 11, Core
Principle 12 is substantially similar to
both the DCM and the DCO conflicts of
interest core principles, as amended by
the Dodd-Frank Act.98 As a result, the
Commission proposes to handle Core
Principle 12 consistent with its
handling of those DCM and DCO core
principles. This release proposes to
codify the statutory text of the core
principle in proposed § 37.1200. The
applicable regulations implementing
this core principle were proposed in a
separate release titled ‘‘Requirements for
Derivatives Clearing Organizations,
Designated Contract Markets, and Swap
Execution Facilities Regarding the
Mitigation of Conflicts of Interest.’’ 99
13. Subpart N—Core Principle 13
(Financial Resources)
Core Principle 13 requires that a SEF
have adequate financial resources to
discharge its responsibilities. In
particular, SEFs must maintain financial
resources sufficient to cover operating
costs for a period of at least one year,
calculated on a rolling basis.
a. General Rule
Under proposed § 37.1301(b), SEFs
that also operate as DCOs are also
subject to the financial resource
95 CEA

Section 5h(f)(10)(A)(iii).
38 contains guidance governing
compliance with former Core Principle 18. 17 CFR
part 38, App. B.
97 Prior to the Dodd-Frank Act, the DCM core
principle on antitrust considerations was numbered
as DCM Core Principle 18.
98 DCM Core Principle 16 and DCO Core Principle
P, both as amended by the Dodd-Frank Act.
99 75 FR 63732 (October 18, 2010).
96 Part

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requirements for DCOs in proposed
§ 39.11. Proposed § 37.1301(c) would
require that SEFs maintain sufficient
financial resources to cover operating
costs for at least one year, calculated on
a rolling basis—i.e., at all times. The one
year period is required under the CEA.
The Commission believes that a oneyear timeframe would allow a SEF’s
business to wind down in an orderly
fashion and should generally enhance
the financial integrity of the markets.100
The one-year period also is consistent
with established accounting standards,
under which an entity’s ability to
continue as a going concern comes into
question if there is evidence that the
entity may be unable to continue to
meet its obligations in the next 12
months without substantial disposition
of assets outside the ordinary course of
business, restructuring of debt,
externally forced revisions of its
operations, or similar actions.101
b. Types of Financial Resources
Under proposed § 37.1302, financial
resources available to SEFs to satisfy the
applicable financial requirements would
include the SEF’s own capital (assets in
excess of liabilities) and any other
financial resource deemed acceptable by
the Commission. A SEF would be able
to request an informal interpretation
from CFTC staff on whether or not a
particular financial resource would be
acceptable.
Request for Comment:
The Commission invites commenters
to recommend particular financial
resources for inclusion in the final
regulation.
c. Computation of Financial Resource
Requirement
Proposed § 37.1303 would require
that a SEF, at the end of each fiscal
quarter, make a reasonable calculation
of the financial resources it needs to
meet the requirements of proposed
100 Some foreign regulatory authorities already
have similar requirements for the equivalent
entities they regulate. For example, the UK
Financial Services Authority’s (‘‘FSA’’) recognition
requirements for UK recognized investment
exchanges and UK recognized clearing houses
(collectively, ‘‘UK recognized bodies’’) include the
maintenance of financial resources sufficient to
ensure that the UK recognized body would be able
to complete an orderly closure or transfer of its
business without being prevented from doing so by
insolvency or lack of available funds. Section 2.3.7
of the FSA Recognition Requirements calls for a UK
recognized body to have at all times liquid financial
assets amounting to at least six months’ operating
costs and net capital of at least that amount.
101 See American Institute of Certified Public
Accountants Auditing Standards Board Statement
of Auditing Standards No. 59, The Auditor’s
Consideration of an Entity’s Ability to Continue as
a Going Concern, as amended.

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§ 37.1301. In the first instance, the SEF
would have reasonable discretion in
determining how to make this
calculation, the Commission may
require changes as appropriate.
d. Valuation of Financial Resources
Proposed § 37.1304 would require
that SEFs, no less frequently than
quarterly, calculate the current market
value of each financial resource used to
meet their obligations under these
proposed regulations. Additionally,
SEFs would have to perform the
valuation at other times as appropriate.
This provision is designed to address
the need to update valuations in
circumstances where there may have
been material fluctuations in market
value that could impact a SEF’s ability
to meet its obligations under proposed
§ 37.1301. When valuing a financial
resource, a SEF would be required to
reduce the value, as appropriate, to
reflect any market or credit risk specific
to that particular resource, i.e., apply a
haircut.102

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e. Liquidity of Financial Resources
Proposed § 37.1305 would require
that SEFs maintain unencumbered
liquid financial assets, such as cash or
highly liquid securities, equal to at least
six months’ operating costs. The
Commission believes that having six
months’ worth of unencumbered liquid
financial assets would give a SEF time
to liquidate the remaining financial
assets it would need to continue
operating for the last six months of the
required one-year period. If a SEF does
not have six months’ worth of
unencumbered liquid financial assets, it
would be allowed to use a committed
line of credit or similar facility to satisfy
this requirement.
The Commission notes that a
committed line of credit or similar
facility is not listed in proposed
§ 37.1302 as a financial resource
available to a SEF to satisfy the
requirements of proposed § 37.1301. A
SEF may only use such resources to
meet the liquidity requirements of
proposed § 37.1305.
f. Reporting Requirements
Under proposed § 37.1306, at the end
of each fiscal quarter, or at any time
upon Commission request, SEFs would
be required to report to the Commission:
(i) The amount of financial resources
necessary to meet the requirements set
forth in the regulation; and (ii) the value
102 The

Commission would permit each SEF to
exercise its discretion in determining the applicable
haircuts. However, such haircuts are subject to
Commission review and must be acceptable to the
Commission.

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of each financial resource available to
meet those requirements. A SEF would
also have to provide the Commission
with a financial statement, including the
balance sheet, income statement, and
statement of cash flows, of the SEF or
of its parent company, as appropriate.
14. Subpart O—Core Principle 14
(System Safeguards)
Core Principle 14 requires that SEFs:
(1) Establish and maintain a program of
risk oversight to identify and minimize
sources of operational risk through the
development of appropriate controls
and procedures and the development of
automated systems that are reliable,
secure, and have adequate scalable
capacity; (2) establish and maintain
emergency procedures, backup
facilities, and a plan for disaster
recovery that allow for the timely
recovery and resumption of operations;
and (3) periodically conduct tests to
verify that backup resources are
sufficient to ensure continued order
processing and trade matching, price
reporting, market surveillance, and
maintenance of a comprehensive and
accurate audit trail. Proposed § 37.1401
would establish system safeguards
requirements for all SEFs, pursuant to
Core Principle 14.
The proposed rule would require that
a SEF’s program of risk analysis and
oversight address six categories of risk
analysis and oversight, including:
Information security; business
continuity-disaster recovery (‘‘BC–DR’’)
planning and resources, capacity and
performance planning; systems
operations; systems development and
quality assurance; and physical security
and environmental controls.
Because automated systems play a
central and critical role in today’s
electronic financial market
environment, oversight of core principle
compliance by SEFs with respect to
automated systems is an essential part
of effective oversight of the trading of
swaps. Sophisticated computer systems
will be crucial to a SEF’s ability to meet
its obligations and responsibilities. SEF
compliance with generally accepted
standards and best practices with
respect to the development, operation,
reliability, security and capacity of
automated systems can reduce the
frequency and severity of automated
system security breaches or functional
failures, thereby augmenting efforts to
mitigate systemic risk.
15. Subpart P—Core Principle 15
(Designation of Chief Compliance
Officer)
Section 5h(f)(15) of the CEA, as added
by Section 733 of the Dodd-Frank Act,

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creates an internal regulatory framework
for all SEFs, with the position of chief
compliance officer (‘‘CCO’’) serving as a
focal point for compliance with the CEA
and applicable Commission regulations.
The four-part structure of Section
5h(f)(15) requires, first, that every SEF
designate an individual to serve as CCO.
Second, it enumerates specific duties for
CCOs and establishes their
responsibilities within a SEF. Third, it
requires CCOs to design the procedures
establishing the handling, management
response, remediation, retesting, and
closing of noncompliance issues.
Fourth, it outlines the requirements of a
mandatory annual report from SEFs to
the Commission, which must be
prepared and signed by a SEF’s CCO.
The Commission proposes to implement
Section 5h(f)(15) of the CEA through
proposed § 37.1501, which further
develops the already robust CCO
requirements enacted by the DoddFrank Act. Section 5h(f)(15) of the CEA
and proposed § 37.1501 are summarized
below.
The first provision of Section
5h(f)(15)–5h(f)(15)(A)—provides only
for the self-explanatory requirement that
each SEF designate an individual to
serve as its CCO. The second provision
of Section 5h(f)(15) offers a detailed
description of a CCO’s role within a
SEF. Specifically, Section 5h(f)(15)(B)
includes six enumerated duties
incumbent upon all CCOs, and thereby
outlines the internal regulatory structure
of a SEF as contemplated by the DoddFrank Act. The enumerated duties of
CCOs include: (1) Reporting directly to
the SEF’s board of directors or to its
senior officer; (2) reviewing an SEF’s
compliance with the requirements and
core principles described in Section 5h;
(3) resolving any conflicts of interest
that may arise, in consultation with the
board of directors or the senior officer
of the SEF; (4) establishing and
administering any policy or procedure
that is required to be established by a
SEF pursuant to Section 5h; (5) ensuring
compliance with the CEA, including
rules prescribed by the Commission
pursuant to Section 5h; and (6)
establishing procedures for the
remediation of noncompliance issues
identified by the CCO. The third
provision of Section 5h(f)(15) provides
that the CCO in establishing and
following appropriate procedures shall
design such procedures for the
handling, management response,
remediation, retesting, and closing of
noncompliance issues.
Finally, the fourth provision of
Section 5h(f)(15)–5h(f)(15)(D)—requires
CCOs to prepare and sign annual
compliance reports on behalf of their

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SEFs. The annual compliance reports
must describe a SEF’s compliance with
the CEA and Commission regulations.
They must also describe the policies
and procedures of the SEF, including
the code of ethics and conflict of
interest policies. In addition, the annual
compliance reports must include ‘‘a
certification that, under penalty of law,
the report is accurate and complete.’’
The annual compliance report must be
furnished to the Commission as it may
prescribe.
Proposed subpart P develops each of
these statutory provisions in greater
detail and grants CCOs the regulatory
authority necessary to fulfill
responsibilities in each regard.
a. Definition of Board of Directors—
Proposed § 37.1501(a)
Proposed § 37.1501(a) defines ‘‘board
of directors’’ as ‘‘the board of directors of
a swap execution facility or for those
swap execution facilities whose
organizational structure does not
include a board of directors, a body
performing a function similar to a board
of directors.’’ The proposed definition
reflects the various forms of business
associations which a SEF could
conceivably take, including forms
which do not include a corporate board
of directors. It also reflects the flexibility
in Section 733 of the Dodd-Frank Act,
which refers, for example, to ‘‘a body
performing a function similar to a
board’’ in discussing the duties of a CCO
pursuant to Section 5h(f)(15)(B)(iii) of
the CEA.

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Request for Comment:
The Commission requests comment
on the following:
• Should the Commission develop
additional rules around the types of
bodies which may perform board-like
functions at a SEF, depending on their
business form?
• Should the proposed definition of
board of directors appropriately address
issues related to parent companies,
subsidiaries, affiliates, and SEFs located
in foreign jurisdictions? Does the
proposed rule allow for sufficient
flexibility with regard to a SEF’s
business structure?
b. Designation and Qualifications of
Chief Compliance Officer—Proposed
§ 37.1501(b)
Proposed § 37.1501(b)(1) requires a
SEF to establish the position of CCO,
designate an individual to serve in that
capacity and provide that individual
with the authority and resources to
develop and enforce policies and
procedures necessary to fulfill the
duties set forth for CCOs in the Dodd-

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Frank Act and Commission regulations.
In addition, proposed § 37.1501(b)(1)
provides that CCOs must have
supervisory authority over all staff
acting in furtherance of the CCO’s
statutory and regulatory obligations. In
short, proposed § 37.1501(b)(1)
establishes CCOs as the focal point of a
SEF’s regulatory compliance functions.
Proposed § 37.1501(b)(2) details
minimum competency standards for
CCOs. It requires that CCOs have the
background and skills necessary to
fulfill the responsibilities of the
position, and prohibits anyone who
would be disqualified from registration
under Sections 8a(2) or 8a(3) of the CEA
from serving as a CCO. Although the
CCO would not be required to register
with the Commission, as the primary
individual with responsibility for
ensuring a SEF’s legal compliance, the
Commission believes that CCOs should
meet the same standard as those
individuals who are required to register,
as set forth in the list of statutory
disqualifications under Sections 8a(2)
and (3) of the CEA. These standards
largely consist of a high degree of
responsibility and requirements relating
to integrity and honesty in financial and
business dealings. Section 37.1501(b)(2)
also requires that a CCO not serve as
general counsel of a SEF. This
prohibition reflects the Commission’s
belief that granting these dual roles to a
single individual is incompatible with
effective regulation and selfregulation.103
Request for Comment:
The Commission is seeking comment
on whether additional limitations
should be placed on persons who may
be designated as a CCO.
• The Commission requests comment
on whether the provisions of proposed
§ 37.1501(b) are sufficient to ensure that
103 As conceived by the Commission, SEF CCOs
have overall responsibility for SEFs’ compliance
programs. CCOs must be neutral fact-finders, and
must be able to act in the interest of effective
compliance regardless of the persons, entities, or
conduct that may be the subject of investigation. In
contrast, an entity’s general counsel serves as the
legal counsel and defender of a company and seeks
to avoid or negate related legal risks. A second basis
for the separation of the general counsel and CCO
roles is the Commission’s determination that an
individual acting as CCO should not be in a
position to assert attorney-client privilege against
the Commission. If a SEF’s CCO were also its
general counsel, much of the information about its
compliance program could potentially be protected
from third-party review, including the
Commission’s, under the shroud of attorney-client
privilege. While there may be circumstances where
the attorney-client privilege could be asserted by a
SEF, the Commission believes that such
circumstances do not include the areas of
responsibility assigned to CCOs by the CEA or
Commission regulations.

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a CCO has the authority and resources
necessary to fulfill his or her statutory
and regulatory obligations.
• The Commission also requests
comment regarding the qualifications
that should be required of a CCO, and
whether the requirements expressed in
proposed § 37.1501(b) are sufficient.
• Should there be additional
restrictions placed on who is qualified
to be designated as a CCO? The
Commission requests comment on
whether restricting a CCO from serving
as the General Counsel or other attorney
within the legal department of a SEF
would sufficiently address conflict of
interest concerns?
c. Appointment, Supervision, and
Removal of Chief Compliance Officer—
Proposed § 37.1501(c)
Taken together, proposed
§§ 37.1501(c)(1), 37.1501(c)(2), and
37.1501(c)(3) provide the supervisory
regime applicable to CCOs. Proposed
§ 37.1501(c) requires that a CCO be
appointed by a majority of the SEF’s
board of directors or senior officer, and
that a majority of the board or senior
officer be responsible for approving the
CCO’s compensation. A SEF must notify
the Commission within two business
days of appointing a new CCO. The
proposed regulation also requires the
CCO to meet at least annually with the
board of directors to discuss the
effectiveness of the CCO’s
administration of the compliance
policies adopted by the registrant. The
meeting or meetings would create an
opportunity for a CCO and the directors
to speak freely about any sensitive
issues of concern to any of them,
including any reservations about the
cooperativeness or compliance practices
of the registrant’s management. The
Commission’s governance proposals
require that each SEF’s board of
directors include a board-level
regulatory oversight committee (‘‘ROC’’)
consisting exclusively of public
directors.104 The Commission believes
104 Proposed § 37.1501(a) defines board of
directors for purposes of subpart P as follows: ‘‘the
board of directors or board of governors of a swap
execution facility, or equivalent governing body of
a swap execution facility or of an entity operating
a swap execution facility.’’ The proposed definition
reflects the various forms of business associations
which a SEF could take, including forms which do
not include a corporate board of directors. With
respect to boards of directors and ROCs, the
Commission notes that in a separately proposed
series of regulations governing conflicts of interest
within SEFs, DCMs, and DCOs, the Commission
proposes a number of governance measures that
impact the proposed regulations for CCOs. First,
proposed § 40.9(b)(1)(i) requires a SEF’s board of
directors to be composed of at least 35%, but no
less than two, public directors. Second, proposed
§ 40.9(b)(2) prohibits a SEF from ‘‘permit[ing] itself

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that ROCs will help to mitigate potential
conflicts of interest within a SEF by
introducing an independent perspective
to board deliberations.105 The
Commission also believes that both
CCOs and ROCs will be strengthened in
their regulatory work and independence
through close cooperation and
coordination. Although a CCO is not
required to report to his or her ROC,
proposed § 37.1501(c)(1) provides that a
CCO must meet with the ROC quarterly
to discuss matters of mutual concern
and share information. These meetings
will create an opportunity for a CCO
and the ROC to speak freely about
potentially sensitive issues, including
any reservations by the CCO regarding
the SEF’s management. They will also
facilitate the ROC’s oversight
responsibilities, and allow the CCO to
seek assistance and institutional support
from the ROC as necessary.
Finally, proposed § 37.1501(c)(1) also
provides that the senior officer of a SEF
may assume responsibility for
appointing the CCO and approving his
or her compensation.
Proposed § 37.1501(c)(2) addresses
routine oversight of a SEF’s CCO. It
allows a SEF with a board of directors
to grant oversight authority to either its
board or to its senior officer. The
proposed regulation is modeled on the
terms of Section 5h(f)(15)(B)(i) of the
CEA, which requires a CCO to ‘‘report
directly to the board or to the senior
officer of the facility.’’
Request for Comment:

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The Commission requests comment
regarding the appropriate reporting
relationship for the CCO of a SEF that
has both a senior officer and a board of
directors.
• In such cases, should a CCO report
to the SEF’s board rather than to its
senior officer?
• What potential conflicts of interest
might arise if a CCO reports to the
senior officer rather than to the board,
and how might those conflicts be
mitigated?
• In addition, the Commission
requests comment regarding whether
‘‘senior officer’’ of a SEF should be a
defined term, and if so, how the term
should be defined.
to be operated by any entity’’ that does not adhere
to the board composition requirements of
40.9(b)(1)(i). Third, proposed § 37.19(b)(3) requires
a SEF to have a board-level ROC consisting
exclusively of public directors.
105 See proposed § 37.19(b)(1) for a description of
a ROC’s role in overseeing the performance of a
CCO and effectiveness, efficiency, and
independence of a SEF’s regulatory and selfregulatory programs.

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d. Removal of CCO—Proposed
§ 37.1501(c)(3)
Proposed § 37.1501(c)(3) requires
approval of a majority of an SDR’s board
of directors to remove a CCO. The
Commission believes that these removal
provisions will help insulate CCOs and
their decision-making from day-to-day
commercial pressures that they may
otherwise experience. If a SEF does not
have a board, the proposed regulation
provides that the CCO may be removed
by its senior officer. Proposed
§ 37.1501(c)(3) also requires an SDR to
notify the Commission in writing within
two business days of the removal or
voluntary departure of its CCO by
providing a statement describing the
circumstances surrounding his or her
departure.106 The Commission believes
that this provision will help protect
CCOs from undue influence or
retaliatory termination by the board or
the senior officer of the SEF.
Proposed §§ 37.1501(c)(1) and
37.1501(c)(3) seek to provide a SEF’s
CCO with a measure of independence
from management in the performance of
his or her duties, and to ensure that
such duties are executed in the most
effective and impartial manner possible.
Request for Comment:
The Commission requests comment
on any additional measures that should
be required to adequately protect CCOs
from undue influence in the
performance of their duties. The
Commission is particularly interested in
how it might offer such protection to a
CCO who reports to his or her senior
officer, either at the SEF’s choosing or
because the SEF does not have a board
of directors. In addition, the
Commission also requests comment on
whether the provision that would
require a majority of a board of directors
to remove the CCO is sufficiently
specific.
e. Duties of the Chief Compliance
Officer—Proposed § 37.1501(d)
Proposed § 37.1501(d) details the
duties of a CCO, as well as his or her
authority within a SEF. The proposed
regulation codifies and expands upon
the CCO duties already set forth in
Section 5h(f)(15)(B) of the CEA. These
duties include overseeing and reviewing
compliance with the CEA and
Commission regulations, as well as
resolving, in consultation with the
board of directors or the senior officer,
any conflicts of interest that may arise.
106 Upon the departure of a CCO, proposed
§ 37.1501(c)(3) requires a SEF to appoint an interim
CCO immediately and a permanent replacement as
soon as practicable.

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The proposed regulation also lists a
number of potential conflicts that may
confront a CCO. The list of conflicts of
interest indicates the types of conflicts
that the Commission believes a SEF’s
CCOs should be aware of, but it is not
exhaustive.
Proposed § 37.1501(d) also requires
that the CCO establish and administer a
written code of ethics and policies and
procedures designed to prevent
violations of the CEA and Commission
regulations. Section 37.1501(d) also
requires that a CCO establish and
administer written policies and
procedures, including a ‘‘compliance
manual,’’ designed to prevent violations
of the CEA and Commission
regulations.107
The Commission believes that such
written documentation will serve as a
useful guide for the SEF’s management
and staff, as well as for swap
participants who will be trading on the
SEF. It will also help the Commission to
evaluate the SEF’s compliance and
adherence to its own internal standards.
Finally, proposed § 37.1501(d) requires
that a CCO establish and follow
procedures for the remediation and
closing of any noncompliance issues
that are identified. To assist the CCO in
meeting this responsibility, proposed
§ 37.1501(b)(1), summarized above,
grants a CCO oversight authority over all
compliance functions and staff acting in
furtherance of those compliance
functions. The CCO’s authority would
also extend to any activities performed
by the SEF to verify that other entities
are in compliance with applicable laws
and regulations, such as the verification
of the timeliness of reporting certain
swap data, pursuant to proposed
§ 37.901. The Commission recognizes
that the staff that assists a CCO may not
be dedicated to the CCO full-time;
however, the proposed regulation would
ensure that a CCO has authority over
any staff and resources while they are
acting in furtherance of compliance
functions.
Section 37.1501(d), for example,
reflects the statutory text of the DoddFrank Act by requiring that a CCO
review and ensure a SEF’s compliance
107 By ‘‘compliance manual,’’ the Commission
means a detailed internal handbook explaining to
SEF staff the resources and procedures that they are
to use in monitoring trading, conducting
investigations, documenting their work, and making
findings and recommendations to supervisory staff
regarding trading in any swap or other conduct by
SEF members and market participants that is
subject to SEF rules. The Commission believes that
such written documentation will serve as a useful
guide for the SEF’s management and staff. It will
also help the Commission evaluate the SEF’s
compliance and adherence to its own internal
standards.

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with the CEA and Commission
regulations. It also reflects a CCO’s
responsibilities with respect to the
regulation of members and market
participants utilizing a SEF’s trading
platform. In this regard, Section
37.1501(d)(8) requires that a CCO
supervise a SEF’s self-regulatory
program with respect to trade practice
surveillance; market surveillance; realtime market monitoring; compliance
with audit trail requirements;
enforcement and disciplinary
proceedings; and audits, examinations,
and other regulatory responsibilities
with respect to members and market
participants. Similarly, Section
37.1501(d)(9) requires that a CCO
supervise the effectiveness and
sufficiency of any regulatory services
provided to the SEF by a registered
futures association or other registered
entity in accordance with § 37.204.108
Request for Comment:
The Commission requests comment
regarding proposed § 37.1501(d).
Comments should address any
additional CCO duties which the
Commission should include in the
proposed regulation. In addition, they
should specifically address a CCO’s role
in managing conflicts of interest within
a SEF, the types of conflicts which
commenters believe might arise within
a SEF, and how and by whom those
conflicts should be resolved.

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f. Preparation and Submission of
Annual Compliance Report—Proposed
§§ 37.1501(e) and 37.1501(f)
Section 5h(f)(15)(D) of the CEA
requires a CCO to prepare an annual
compliance report. As discussed above,
the Commission believes that this
annual compliance report should give
the Commission a complete and
accurate picture of a SEF’s compliance
program. Proposed § 37.1501(e) details
the information that must be included
in the annual compliance report. The
report must include: (i) A description of
the SEF’s written policies and
procedures, code of ethics and conflicts
of interest policies; (ii) a detailed review
of the SEF compliance with Section 5h
of the CEA, including an assessment by
the CCO of the effectiveness of the SEF’s
policies and procedures in ensuring
compliance with Section 5h of the CEA
and a discussion of areas for
improvement; (iii) a description of any
material changes to the policies and
procedures that were made to these
108 See proposed § 37.204 (governing a SEF’s use
of third-party regulatory service providers and its
duty to supervise such providers and any services
received).

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since the last annual compliance report;
(iv) a description of the financial,
managerial, operational, and staffing
resources set aside for the SEF’s
compliance program, including a
description of the SEF’s compliance
program, describing resources set aside
for the SEF’s self-regulatory
responsibilities. An annual compliance
report must also provide: a detailed
description and review of the SEF’s selfregulatory program, which includes a
description of staff associated with selfregulation, a catalogue of investigations
and disciplinary actions taken, and a
review of the performance of
disciplinary committees and panels; (v)
a description of any material
compliance matters, including instances
of noncompliance, that were identified
in the year prior to the filing of the
report; and (vi) any objections to the
annual compliance report by the board
or senior officer of the SEF. In addition
to the above information, proposed
§ 37.1501(e) also requires the annual
report to include a certification by the
CCO that, under penalty of law, the
compliance report is accurate and
complete.
Proposed § 37.1501(f)(1) sets forth the
procedures for the review of the annual
compliance report by the board of
directors of the SEF or senior officer,
prior to submission to the Commission.
While the board or senior officer has a
chance to review the annual compliance
report before submission, the report is
not subject to their approval. Proposed
§ 37.1501(f)(1) explicitly prohibits the
board or senior officer from forcing the
CCO to make any material changes to
the report. The purpose of this review
is to permit the members of the board
or the senior officer to provide the
Commission with any objections they
might have to the report. The
Commission believes that the
prohibition against the board and senior
officer making changes to the annual
compliance report will allow the CCO to
make a complete and accurate
assessment of the SEF’s compliance
program.
Proposed § 37.1501(f)(2) describes the
process for submission of the report to
the Commission. The proposed
regulation requires that the annual
compliance report be electronically
provided to the Commission not more
than 60 days after the end of the
calendar year. If a CCO determines that
an annual compliance report filed with
the Commission has a material error or
if material non-compliance is identified
after filing, proposed § 37.1501(f)(3)
would require a SEF to promptly file an
amended report. This amended report
must also include the certification by

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the CCO as to the accuracy and
completeness made in the initial
submission of the report. If a CCO is
unable to file an annual compliance
report within 60 days of the end of the
calendar year, proposed § 37.1501(f)(4)
would permit a CCO to request the
Commission to grant an extension of
time to file its compliance report based
on substantial undue hardship.
Extensions for the filing deadline would
be granted at the discretion of the
Commission. Additionally, to protect
the trade secrets of the SEF and the
security of the data held by the SEF, the
proposed regulation requires that
annual compliance reports filed
pursuant to § 37.1501 be treated as
exempt from mandatory public
disclosure for purposes of FOIA and the
Sunshine Act and parts 145 and 147 of
Commission regulations.
Request for Comment:
The Commission requests comment
on its proposed regulations regarding
the preparation and submission of a
SEF’s annual compliance report.
• Should the annual compliance
report contain additional content
beyond what is proposed in
§ 37.1501(e)? Are additional provisions
necessary to ensure that a SEF’s board
of directors cannot adversely influence
the content of an annual compliance
report as drafted by the CCO?
• In the alternative, are additional
provisions necessary to ensure that
individual directors or other SEF
employees have an adequate
opportunity to register any concerns or
objections they might have to the
contents of an annual compliance
report?
The Commission also requests
comment relating to insulating a SEF’s
CCO from undue influence or coercion.
• Should the Commission adopt a
regulation that prohibits an officer,
director or employee of the SEF or
related person to coerce, manipulate,
mislead, or fraudulently influence the
CCO in performing his or her duties?
• Is it necessary to adopt regulations
to address potential conflicts between
and among a SEF’s compliance,
commercial, and ownership interests?
• If so, what should such regulations
entail, and what specific conflicts of
interest should they address?
g. Recordkeeping—Proposed
§ 37.1501(g)
Proposed § 37.1501(g) details SEFs’
recordkeeping requirements for records
relating to a CCO’s areas of
responsibility. This proposed regulation
requires a SEF to maintain: (i) A copy
of its written policies and procedures,

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including its code of ethics and conflicts
of interest policies; (ii) copies of all
materials created in furtherance of the
chief compliance officer’s selfregulatory duties, including records of
any investigations or disciplinary
actions taken by the SEF; (iii) copies of
all materials, including written reports
provided to the board of directors in
connection with review of the annual
report, as well as the board minutes or
other similar written records, that
record the submission of the annual
compliance report to an SEF’s board of
directors or its senior officer; and (iv)
any other records relevant to an SEF’s
annual report. The records required to
be maintained pursuant to this section
are designed to provide Commission
staff with a basis to determine whether
a SEF has complied with the CEA and
applicable Commission regulations. The
Commission also wants to preserve its
ability to reconstruct why certain
information was included or excluded
in an annual report, in the event that
such reconstruction becomes necessary
under a future audit or investigation.
The SEF would be required to
maintain these records in accordance
with § 1.31 of the Commission’s
regulations. Following § 1.31, all records
must be kept for a period of five years.
Request for Comment:
The Commission requests comment
regarding whether the requirements of
proposed § 37.1501(g) are sufficient to
create a complete and easily auditable
record of a board of directors’ or senior
officer’s review of an annual compliance
report to ensure that the report, as
drafted by the CCO, was not altered.

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III. Effective Date and Transition Period
The statutory deadline for final
regulations is July 15, 2011. Final
regulations may become effective sixty
(60) days after their publication in the
Federal Register, but no earlier than
July 15, 2011. The Commission is
proposing that the effective date for the
proposed regulations be 90 days after
publication of final regulations in the
Federal Register. The Commission
believes that the effective date would be
appropriate to allow potential SEFs and
market participants time to adapt to the
new regulatory regime for the trading of
swaps in an efficient and orderly
manner. In addition, the Commission
believes that this would give any
entities then operating a marketplace for
the execution or trading of swaps
adequate time to submit a SEF
application and meet the conditions to
receive relief under the grandfather
provisions.

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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’’) 109 requires Federal agencies, in
promulgating regulations, to consider
the impact of those regulations on small
businesses. The regulations adopted
herein will affect SEFs. 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.110 In its previous determinations,
the Commission has concluded that
DCMs, derivatives transaction execution
facilities (‘‘DTEFs’’), ECMs, EBOTs and
DCOs are not small entities for the
purpose of the RFA.111
While SEFs are new entities to be
regulated by the Commission pursuant
to the Dodd-Frank Act,112 in a recent
rulemaking proposal,113 the
Commission proposed that SEFs should
not be considered as small entities for
the purpose of the RFA. The DoddFrank Act defines a SEF to mean ‘‘a
trading system or platform in which
multiple participants have the ability to
execute or trade swaps by accepting
bids and offers made by multiple
participants in the facility or system,
through any means of interstate
commerce, including any trading
facility, that—(A) facilitates the
execution of swaps between persons;
and (B) is not a designated contract
market.’’ 114 In its recent rulemaking, the
Commission proposed that SEFs not be
considered to be ‘‘small entities’’ for
essentially the same reasons that DCMs
and DCOs have previously been
determined not to be small entities.
109 5

U.S.C. 601 et seq.
FR 18618–21 (Apr. 30, 1982).
111 47 FR 18618, 18619 (April 30, 1982)
discussing contract markets; 66 FR 42256, 42268
(August 10, 2001) discussing derivatives transaction
execution facilities, exempt commercial markets
and exempt boards of trade; and 66 FR 45604,
45609 (August 29, 2001) discussing DCOs.
112 Dodd Frank Wall Street Reform and Consumer
Protection Act, Pub. L. 111–203, 124 Stat. 1376
(2010).
113 75 FR 63745–46 (October 18, 2010).
114 See CEA Section 1a(50). The Commission
anticipates proposing regulations that would further
specify those entities that must register as a SEF.
The Commission does not believe that such
proposals would alter its determination that a SEF
is not a ‘‘small entity’’ for purposes of the RFA.
110 47

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These reasons include the fact that the
Commission designates a DCM or
registers a DCO only when it meets
specific criteria including expenditure
of sufficient resources to establish and
maintain adequate self-regulatory
programs. Likewise, the Commission
will register an entity as a SEF only after
it has met specific criteria including the
expenditure of sufficient resources to
establish and maintain an adequate selfregulatory program. In addition, once
registered, a SEF will be required to
comply with the additional
requirements set forth in the final form
of this proposed Part 37 rulemaking. In
addition, the Commission proposes that
SEFs should not be considered small
entities based on, among other things,
the central role SEFs will play in the
national regulatory scheme overseeing
the trading of swaps. Not only will SEFs
play a vital role in the national
economy, but they will be subject to
Commission oversight with statutory
duties to enforce the regulations
adopted by their own governing bodies.
Accordingly, the Commission does
not expect the regulations, as proposed
herein, to have a significant economic
impact on a substantial number of small
entities. Therefore, the Chairman, on
behalf of the Commission, hereby
certifies, pursuant to 5 U.S.C. 605(b),
that the proposed 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 covered by
these rules should be considered small
entities for purposes of the RFA.
B. Paperwork Reduction Act
The Paperwork Reduction Act
(‘‘PRA’’) 115 imposes certain
requirements on Federal agencies in
connection with their conducting or
sponsoring any collection of
information as defined by the PRA. An
agency may not conduct or sponsor, and
a person is not required to respond to,
a collection of information unless it
displays a currently valid control
number. This proposed rulemaking will
result in new collection of information
requirements within the meaning of the
PRA. The Commission therefore is
submitting this proposal to the Office of
Management and Budget (OMB) for
review in accordance with 44 U.S.C.
3507(d) and 5 CFR 1320.11. The title for
this collection of information is ‘‘Part
37—Swap Execution Facilities’’ (OMB
control number 3038–NEW). If adopted,
responses to this collection of
information would be mandatory. The
Commission will protect proprietary
115 44

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information according to the Freedom of
Information Act and 17 CFR part 145,
‘‘Commission Records and Information.’’
In addition, section 8(a)(1) of the CEA
strictly prohibits the Commission,
unless specifically authorized by the
CEA, from making public ‘‘data and
information that would separately
disclose the business transactions or
market positions of any person and
trade secrets or names of customers.’’ 116
The Commission is also required to
protect certain information contained in
a government system of records
according to the Privacy Act of 1974.117
1. Collection of Information—
Regulations Relating to Part 37, Swap
Execution Facilities
The proposed regulations require each
respondent to file information with the
Commission. For instance, SEFs must
file applications with the Commission
for registration pursuant to § 37.3. SEFs
must either request approval with, or
certify to, the Commission rules and
products, pursuant to § 37.4. SEFs must
disclose information related to prices,
trading volume, and other trading data
on swaps pursuant to Core Principle 9
(Timely Publication of Trading
Information).
Commission staff has previously
estimated hourly burdens for DCMs and
DTEFs pursuant to the Commodity
Futures Modernization Act of 2000
(‘‘CFMA’’).118 More recently,
Commission staff estimated hourly
burdens for ECMs with significant price
discovery contracts (‘‘SPDCs’’). While
the Commission has no way of knowing
the exact hourly burden upon a
registered entity prior to
implementation of the regulations
governing that registered entity, staff
believes the estimated burden for a SEF
would be within the range of previously
estimated hours of burden for the above
registered entities. Those hourly
burdens are noted below:
Initial estimate of DCM’s annual
burden 119: 300 hours per DCM.
Estimate of DCM’s annual burden as
of 2006 120: 370 hours per DCM.
Current estimate of DCM’s annual
burden 121: 440 hours per DCM.
Initial estimate of DTEF’s annual
burden 122: 200 hours per DTEF.
Initial estimate of ECM’s with SPDCs
annual burden 123: 233 hours per ECM.
116 7

U.S.C. 12(a)(1).
U.S.C. 552a.
118 Appendix E of Public Law 106–554, 114 Stat.
2763 (2000).
119 66 FR 38992 (June 22, 2000).
120 71 FR 38748 (July 7, 2006).
121 See, supra note 10, DCM NPRM.
122 65 FR 38993 (June 22, 2000).
123 73 FR 75901 (December 12, 2008).

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Based on the proposed regulations,
Commission staff believes that a SEF
will have more reporting
responsibilities than an ECM with a
SPDC and a DTEF, but fewer reporting
hours than a DCM (as most recently
calculated).124 Based on its experience
with administering registered entities’
submission requirements since
implementation of the CFMA,
Commission staff estimates an annual
reporting burden for SEFs to be an
average of the above noted estimates for
DCMs, DTEFs and ECMs with SPDCs.
Staff estimates that each respondent
would, on average, have an annual
burden of 308 hours of reporting time.
Staff estimates that 30–40 SEFs will
register with the Commission as a result
of the Dodd-Frank Act.125 Accordingly,
the burden in terms of hours would in
the aggregate be 308 hours annually per
respondent and 10,780 hours annually
for all respondents.
Commission staff estimates that
respondents could expend up to
$16,016 annually based on an hourly
rate of $52 to comply with the proposed
regulations. This would result in an
aggregated cost of $560,560 per annum
(35 respondents × $16,016).
Estimated Number of respondents: 35.
Annual Responses by each
respondent: 1.
Total annual responses: 35.
Quarterly responses by each
respondent: 4.
Total quarterly responses: 140.
Estimated average hours per response:
308.
Aggregate annual reporting burden:
10,780.
2. Information Collection Comments
Copies of the supporting statements
for the collections of information from
the Commission to OMB are available
by visiting RegInfo.gov. Pursuant to 44
U.S.C. 3506(c)(2)(B), the Commission
will consider public comments on the
proposed information requirements in
order to:
(1) Evaluate whether the proposed
collections of information are necessary for
the proper performance of the functions of
the Commission, including whether the
information will have a practical use;
(2) Evaluate the accuracy of the estimated
burden of the proposed information
collection requirements, including the degree
124 ECMs with SPDCs are subject to 9 core
principles, DTEFs are subject to 9 core principles,
DCMs are currently subject to 18 core principles,
(but will be subject to 23 core principles upon
finalization of the Part 38 regulations implementing
the Dodd-Frank Act). SEFs will be subject to 15 core
principles upon finalization of the regulations to
implement the Dodd-Frank Act.
125 For hourly reporting requirements, an average
of 35 SEFs was used for calculation purposes.

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to which the methodology and the
assumptions that the Commission employed
were valid;
(3) Enhance the quality, utility, and clarity
of the information proposed to be collected;
and
(4) Minimize the burden of the proposed
information collection requirements on
DCOs, DCMs, and SEFs, including through
the use of appropriate automated, electronic,
mechanical, or other technological
information collection techniques, e.g.,
permitting electronic submission of
responses.

Organizations and individuals
desiring to submit comments on the
proposed information collection
requirements should contact the Office
of Information and Regulatory Affairs,
Office of Management and Budget by fax
at (202) 395–6566 or by e-mail at
[email protected]. Please
provide the Commission with a copy of
submitted comments so that they may
be summarized and address in the final
rulemaking. Refer to the ADDRESSES
section of this notice of proposed
rulemaking for comment submission
instructions to the Commission.
OMB is required to make a decision
concerning the proposed information
collection requirements between 30 and
60 days after publication of this Release
in the Federal Register. Therefore, a
comment to OMB is best assured of
receiving full consideration if OMB
receives it within 30 days of publication
of this Release. Nothing in the foregoing
affects the deadline enumerated above
for public comment to the Commission
on the proposed regulations.
C. Cost-Benefit Analysis
Section 15(a) of the CEA 126 requires
that the Commission consider the costs
and benefits of its actions before issuing
a regulation under the CEA. By its
terms, Section 15(a) does not require the
Commission to quantify the costs and
benefits of a new rule or determine
whether the benefits of the rulemaking
outweigh its costs; rather, Section 15(a)
requires the Commission to ‘‘consider’’
the costs and benefits of its actions.
Section 15(a) further specifies that
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.
Accordingly, the Commission could, in
its discretion, give greater weight to any
one of the five considerations and
could, in its discretion, determine that,
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notwithstanding its costs, a particular
rule was necessary or appropriate to
protect the public interest or to
effectuate any of the provisions or to
accomplish any of the purposes of the
CEA.
Summary of Proposed Requirements
The proposed rulemaking would
provide, pursuant to the Dodd-Frank
Act, for the trading or processing of
swaps on a registered SEF subject to 15
core principles. This rulemaking will
implement, in Part 37 of the
Commission’s regulations, these
provisions of the CEA. The proposal
includes regulations as well as guidance
and acceptable practices to implement
these core principles. In general, the
proposed regulations implementing core
principles for SEFs are consistent with
the existing or proposed regulations for
similar or identical core principles
applicable to DCMs.

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Costs
As highlighted by recent events in the
global credit markets, transacting of
swaps in unregulated, over-the-counter
markets does not contribute to the goal
of stability in the broader financial
markets. The public would continue to
be at risk to such financial instability if
certain derivatives were allowed to
trade over the counter rather than on
regulated exchanges. SEFs that
determine to register with the
Commission in order to provide for the
transacting of swaps will be subject to
core principles for transacting of swaps.
If swaps were allowed to continue to be
transacted bilaterally, rather than on the
regulated market of a SEF, price
discovery and transparency in the
swaps markets would continue to be
inhibited. These procedures are
mandatory pursuant to the Dodd-Frank
Act and any additional costs associated
with these procedures are required by
the implementation of the Dodd-Frank
Act.
Benefits
The Commission believes that the
benefits of the rulemaking are
significant. The proposed regulations
provide for the transacting of swaps on
SEFs. SEFs will compete with DCMs
that make certain swaps available for
trading, while certain swaps will
continue to transact bilaterally. This
competition will benefit the
marketplace. Providing market
participants with the ability to trade
certain swaps openly and competitively
on a SEF complying with all of the SEF
core principles as well as on DCMs
complying with DCM core principles
will provide market participants with

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additional choices and will enhance
price transparency resulting in
protection of market participants and
the public. The proposed regulations
will necessitate that SEFs that
determine to make certain swaps
available for trading will have to
coordinate with DCOs in order to effect
clearing and thus be subject to the
DCO’s risk management and margining
procedures.
Request for Comment:
The Commission invites public
comment on its cost-benefit
considerations. Commenters are also
invited to submit any data or other
information that they may have
quantifying or qualifying the costs and
benefits of the proposal with their
comment letters.
V. Text of the Proposed Regulations,
Guidance and Acceptable Practices
List of Subjects in 17 CFR Part 37
Swaps, Swap execution facilities,
Registration application, Registered
entities, Reporting and recordkeeping
requirements.
In light of the foregoing, and pursuant
to authority in the CEA, and, in
particular, Sections 3, 5, 5c(c), 8a(5) and
21 of the CEA, the Commission hereby
proposes to revise part 37 of Title 17 of
the Code of Federal Regulations to read
as follows:
PART 37—SWAP EXECUTION
FACILITIES
Subpart A—General Provisions
Sec.
37.1 Scope.
37.2 Applicable provisions.
37.3 Requirements for registration.
37.4 Procedures for listing products and
implementing rules.
37.5 Information relating to swap execution
facility compliance.
37.6 Enforceability.
37.7 Prohibited use of data collected for
regulatory purposes.
37.8 Boards of trade operating both a
designated contract market and a swap
execution facility.
37.9 Permitted execution methods.
37.10 Assessments regarding transactional
tiers or platform and swaps made
available for trading.
37.11 Identification of non-cleared swaps or
swaps not made available to trade.

1237

37.201 Operation of swap execution facility
and compliance with rules.
37.202 Access requirements.
37.203 Rule enforcement program.
37.204 Regulatory services provided by a
third party.
37.205 Audit trail requirements.
37.206 Disciplinary procedures and
sanctions.
37.207 Swaps subject to mandatory
clearing.
Subpart D—Swaps Not Readily Susceptible
to Manipulation
Sec.
37.300 Core Principle 3—Swaps not readily
susceptible to manipulation.
37.301 General requirement.
Subpart E—Monitoring of Trading and
Trade Processing
Sec.
37.400 Core Principle 4—Monitoring of
trading and trade processing.
37.401 General requirements.
37.402 Additional requirements for
physical-delivery swaps.
37.403 Additional requirements for cashsettled swaps.
37.404 Ability to obtain information.
37.405 Risk controls for trading.
37.406 Trade reconstruction.
37.407 Additional rules required.
Subpart F—Ability to Obtain Information
Sec.
37.500 Core Principle 5—Ability to obtain
information.
37.501 Establish and enforce rules.
37.502 Collection of information.
37.503 Provide information to the
commission.
37.504 Information-sharing agreements.
Subpart G—Position Limits or
Accountability
Sec.
37.600 Core Principle 6—Position limits or
accountability.
37.601 Position limits or accountability.
Subpart H—Financial Integrity of
Transactions
Sec.
37.700 Core Principle 7—Financial integrity
of transactions.
37.701 Mandatory clearing.
37.702 General financial integrity.
37.703 Monitoring for financial soundness.
Subpart I—Emergency Authority
Sec.
37.800 Core Principle 8—Emergency
authority.
37.801 Additional sources for compliance.

Subpart B—Compliance with Core
Principles
Sec.
37.100 Core Principle 1—Compliance with
core principles.

Subpart J—Timely Publication of Trading
Information
Sec.
37.900 Core Principle 9—Timely
publication of trading information.
37.901 General requirement.
37.902 Capacity of swap execution facility.

Subpart C—Compliance with Rules
Sec.
37.200 Core Principle 2—Compliance with
rules.

Subpart K—Recordkeeping and Reporting
Sec.
37.1000 Core Principle 10—Recordkeeping
and reporting.

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37.1001 Recordkeeping required.
37.1002 Reporting to the commission
required.
37.1003 Inspection and examination by the
Securities and Exchange Commission.
Subpart L—Antitrust Considerations
Sec.
37.1100 Core Principle 11—Antitrust
considerations.
37.1101 Additional sources for compliance.
Subpart M—Conflicts of Interest
Sec.
37.1200 Core Principle 12—Conflicts of
interest.
Subpart N—Financial Resources
Sec.
37.1300 Core Principle 13—Financial
resources.
37.1301 General requirements.
37.1302 Types of financial resources.
37.1303 Computation of financial resource
requirement.
37.1304 Valuation of financial resources.
37.1305 Liquidity of financial resources.
37.1306 Reporting requirements.
Subpart O—System Safeguards
Sec.
37.1400 Core Principle 14—System
safeguards.
37.1401 Requirements.
Subpart P—Designation of Chief
Compliance Officer
Sec.
37.1500 Core Principle 15—Designation of
Chief Compliance Officer.
37.1501 Chief Compliance Officer.
Appendix A to Part 37—Form SEF
Appendix B to Part 37—Guidance on, and
Acceptable Practices in, Compliance
with Core Principles
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 (2010).

Subpart A—General Provisions
§ 37.1

Scope.

The provisions of this part 37 shall
apply to every swap execution facility
that is registered, has been registered or
is applying to become registered as a
swap execution facility under Section
5h of the Act. Provided, however,
nothing in this provision affects the
eligibility of swap execution facilities to
operate under the provisions of Parts 38
or 49 of this Chapter.

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§ 37.2

Applicable provisions.

A swap execution facility, the swap
execution facility’s operator and
transactions traded on or through a
swap execution facility under Section
5h of the Act shall comply with the
requirements of this part 37, and §§ 1.3,
1.12(e), 1.31, 1.37(c)–(d), 1.52, 1.59(d),
1.60, 1.63(c), 1.67, 33.10, part 9, parts 15

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through 21, part 40, part 41, part 43,
part 45, part 46, part 49, part 151, and
part 190 of this chapter, including any
related definitions and cross-referenced
sections.
§ 37.3

Requirements for registration.

(a) Application procedures. (1) An
applicant seeking registration as a swap
execution facility must file
electronically an application for
registration with the Secretary of the
Commission, in the form and manner as
provided by the Commission. The
Commission shall approve or deny the
application or, if deemed appropriate,
register the applicant as a swap
execution facility subject to conditions.
(2) The application must include
information sufficient to demonstrate
compliance with the core principles
specified in Section 5h of the Act. The
Application Form SEF consists of
instructions, general questions and a list
of Exhibits (documents, information and
evidence) the Commission requires in
order to be able to determine whether an
applicant is able to comply with the
core principles. An application will not
be considered to be materially complete
unless the applicant has submitted, at a
minimum, the Exhibits as required in
Application Form SEF. If the
application is not materially complete,
the Commission shall notify the
applicant that the application will not
be deemed to have been submitted for
purposes of the Commission’s review.
(3) An applicant seeking registration
must request from the Commission a
unique, extensible, alphanumeric code
for the purpose of identifying the swap
execution facility pursuant to Part 45 of
this chapter.
(4) An applicant seeking registration
must identify with particularity any
information in the application that will
be subject to a request for confidential
treatment pursuant to § 145.9 of this
Chapter.
(5) Section 40.8 of this Chapter sets
forth those sections of the application
that will be made publicly available,
notwithstanding a request for
confidential treatment pursuant to
§ 145.9 of this Chapter.
(6) If any information contained in the
application or any Exhibit is or becomes
inaccurate for any reason, an
amendment to the application or a
submission filed under Part 40 of this
Chapter must be filed promptly
correcting such information.
(7) The Commission hereby delegates,
until it orders otherwise, to the Director
of the Division of Market Oversight or
such other employee or employees as
the Director may designate from time to
time, upon consultation with the

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General Counsel or the General
Counsel’s delegate, authority to notify
the applicant seeking registration that
the application is materially incomplete
and the review is stayed. The Director
may submit to the Commission for its
consideration any matter that has been
delegated in this paragraph. Nothing in
this paragraph prohibits the
Commission, at its election, from
exercising the authority delegated in
this paragraph.
(b) Temporary Grandfather Relief
from Registration. Concurrent with the
completion of the application
procedures under paragraph (a) of this
section, an applicant may submit a
notice requesting that the Commission
grant the applicant temporary
grandfather relief from the registration
requirement, allowing it to continue
operating during the pendency of the
application process.
(1) The Commission may grant such
request for temporary grandfather relief
from the registration requirement if the
applicant has:
(i) Satisfied all the requirements
under paragraph (a) of this section,
(ii) Provided transaction data that
substantiates that the execution or
trading of swaps has occurred and
continues to occur on the applicant’s
trading system or platform at the time
the applicant submits the request, and
(iii) Provided a certification that the
applicant believes that when it operates
under temporary grandfather relief it
will meet the requirements of this Part
37.
(2) The temporary grandfather relief
for a swap execution facility shall expire
on the earlier of:
(i) The date that the Commission
grants or denies registration of the swap
execution facility; or
(ii) The date that the Commission
rescinds the temporary grandfather
relief provided to the swap execution
facility.
(3) The grant of temporary grandfather
relief from the registration requirement
by the Commission does not affect the
right of the Commission to grant or deny
permanent registration as provided
under paragraph (a)(1) of this section.
This paragraph shall terminate 365 days
from the effectiveness of this regulation.
(c) Reinstatement of dormant
registration. Before making any swaps
available for trading, a dormant swap
execution facility as defined in § 40.1 of
this Chapter must reinstate its
registration under the procedures of
paragraph (a) of this section; provided,
however, that an application for
reinstatement may rely upon previously
submitted materials that still pertain to,

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and accurately describe, current
conditions.
(d) Request for transfer of registration.
(1) Request for transfer of registration. A
swap execution facility that wants to
request the transfer of its registration
from its current legal entity to a new
legal entity, as a result of a corporate
reorganization or otherwise, must file a
request with the Commission for
approval to transfer the registration.
Such request must be filed
electronically with the Secretary of the
Commission at its Washington, DC
headquarters at [email protected]
and the Division of Market Oversight at
[email protected].
(2) Timing of submission. The request
must be filed no later than three months
prior to the anticipated corporate
change; provided that the swap
execution facility may file a request
with the Commission later than three
months prior to the anticipated change
if the swap execution facility does not
know and reasonably could not have
known of the anticipated change three
months prior to the anticipated change.
In such event, the swap execution
facility shall be required to immediately
file the request with the Commission as
soon as it knows of such change with an
explanation as to the timing of the
request.
(3) Required information. The request
shall include the following:
(i) The underlying agreement that
governs the corporate change;
(ii) A narrative description of the
corporate change, including the reason
for the change and its impact on the
swap execution facility, including its
governance, and operations, and its
impact on the rights and obligations of
market participants;
(iii) A discussion of the transferee’s
ability to comply with the Act,
including the core principles applicable
to swap execution facilities, and the
Commission’s regulations thereunder;
(iv) The governing documents of the
transferee, including but not limited to
articles of incorporation and bylaws;
(v) The transferee’s rules marked to
show changes from the current rules of
the swap execution facility;
(vi) A representation by the transferee
that it:
(A) Will be the surviving corporation
and successor-in-interest to the
transferor swap execution facility and
will retain and assume, without
limitation, all the assets and liabilities
of the transferor;
(B) Will assume responsibility for
complying with all applicable
provisions of the Act and the
Commission’s regulations promulgated

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thereunder, including Part 37 and
Appendices thereto;
(C) Will assume, maintain and enforce
all rules implementing and complying
with these core principles, including the
adoption of the transferor’s rulebook, as
amended in the request, and that any
such amendments will be submitted to
the Commission pursuant to Section
5c(c) of the Act and Part 40 of the
Commission’s regulations; and
(D) Will comply with all selfregulatory responsibilities except if
otherwise indicated in the request, and
will maintain and enforce all selfregulatory programs.
(vii) A representation by the
transferee that upon the transfer:
(A) It will assume responsibility for
and maintain compliance with product
core principles for all swaps previously
made available for trading through the
transferor, whether by certification or
approval; and
(B) That none of the proposed rule
changes will affect the rights and
obligations of any participant.
(viii) A representation by the
transferee that market participants will
be notified of all changes to the
transferor’s rulebook prior to the
transfer and will be further notified of
the concurrent transfer of the
registration to the transferee upon
Commission approval and issuance of
an order permitting this transfer.
(4) Commission determination. The
Commission will review a request as
soon as practicable and such request
will be approved or denied pursuant to
a Commission order and based on the
Commission’s determination as to the
transferee’s ability to continue to
operate the swap execution facility in
compliance with the Act and the
Commission’s regulations thereunder.
(e) Request for withdrawal of
application for registration. An
applicant for registration may withdraw
its application submitted pursuant to
paragraph (a) of this section by filing
such a request with the Commission at
its Washington, DC headquarters.
Withdrawal of an application for
registration shall not affect any action
taken or to be taken by the Commission
based upon actions, activities or events
occurring during the time that the
application for registration was pending
with the Commission.
(f) Request for vacation of registration.
A swap execution facility may vacate its
registration under Section 7 of the Act
by filing electronically such a request
with the Commission at its Washington,
DC headquarters. Vacation of
registration shall not affect any action
taken or to be taken by the Commission
based upon actions, activities or events

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1239

occurring during the time that the swap
execution facility was registered by the
Commission.
§ 37.4 Procedures for Listing Products and
Implementing Rules.

(a) Request for Commission approval
of rules and products. (1) An applicant
for designation, or a swap execution
facility, may request that the
Commission approve under Section
5c(c) of the Act, any or all of its rules
and contract terms and conditions, and
subsequent amendments thereto, prior
to their implementation or,
notwithstanding the provisions of
Section 5c(c)(2) of the Act, at anytime
thereafter, under the procedures of
§§ 40.3 or 40.5 of this chapter, as
applicable. A swap execution facility
should label a swap in its rules as
‘‘Listed for trading pursuant to
Commission approval,’’ if the swap and
its terms or conditions have been
submitted to the Commission for
approval, and it may label as ‘‘Approved
by the Commission’’ only those rules
that have been so approved.
(2) Notwithstanding the timeline
under §§ 40.3(b) and 40.5(b) of this
Chapter, the operating rules and terms
and conditions of swaps submitted for
Commission approval that have been
submitted at the same time as an
application for swap execution facility
registration or an application under
§ 37.3(c) to reinstate the registration of
a dormant swap execution facility as
defined in § 40.1 of this Chapter, or
while one of the foregoing is pending,
will be deemed approved by the
Commission no earlier than when the
swap execution facility is deemed to be
registered or reinstated.
(b) Self-certification of rules and
products. Rules of a swap execution
facility and subsequent amendments
thereto, including both the operational
rules and the terms or conditions of
swaps listed for trading on the facility,
not voluntarily submitted for prior
Commission approval pursuant to
paragraph (a) of this regulation, must be
submitted to the Commission with a
certification that the rule or rule
amendment of the swap complies with
the Act or rules thereunder pursuant to
the procedures of § 40.2 or § 40.6 of this
Chapter, as applicable.
(c) Section 15 consideration. An
applicant for registration, or a registered
swap execution facility, may request
that the Commission consider under the
provisions of Section 15(b) of the Act
any of the swap execution facility’s
rules or policies, including both the
operational rules and the terms or
conditions of swaps listed for trading.

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§ 37.5 Information Relating to Swap
Execution Facility Compliance.

(a) Requests for information. Upon
request by the Commission, a swap
execution facility must file with the
Commission such information related to
its business as a swap execution facility,
including information relating to data
entry and trade details, in the form and
manner and within the time as specified
by the Commission in its request.
(b) Demonstration of compliance.
Upon request by the Commission, a
swap execution facility must file with
the Commission a written
demonstration, containing such
supporting data, information and
documents, in the form and manner and
within such time as the Commission
may specify, that the swap execution
facility is in compliance with one or
more core principles as specified in the
request, or that is requested by the
Commission to satisfy its obligations
under the Act.
(c) Equity interest transfers. (1) Equity
transfer notification. Upon entering into
any agreement(s) that could result in an
equity interest transfer of ten percent or
more in the swap execution facility, the
swap execution facility must file a
notification of the equity interest
transfer with the Secretary of the
Commission at its Washington, DC
headquarters at [email protected]
and the Division of Market Oversight at
[email protected], no later
than the business day, as defined in
§ 40.1 of this Chapter, following the date
on which the swap execution facility
enters into a firm obligation to transfer
the equity interest.
(2) Required information. The
notification must include and be
accompanied by: Any relevant
agreement(s), including any preliminary
agreements; any associated changes to
relevant corporate documents; a chart
outlining any new ownership or
corporate or organizational structure; a
brief description of the purpose and any
impact of the equity interest transfer;
and a representation from the swap
execution facility that it meets all of the
requirements of Section 5h of the Act
and Commission regulations adopted
thereunder. The swap execution facility
must keep the Commission apprised of
the projected date that the transaction
resulting in the equity interest transfer
will be consummated, and must provide
to the Commission any new agreements
or modifications to the original
agreement(s) filed pursuant to this
section. The swap execution facility
must notify the Commission of the
consummation of the transaction on the
day on which it occurs.

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(3) Certification. (i) Upon a transfer of
an equity interest of ten percent or more
in a swap execution facility, the swap
execution facility must file with the
Secretary of the Commission at its
Washington, DC headquarters, at
[email protected], and the Division
of Market Oversight, at
[email protected], a
certification that the swap execution
facility meets all of the requirements of
Section 5h of the Act and Commission
regulations adopted thereunder, no later
than two business days, as defined in
§ 40.1 of this Chapter, following the date
on which the equity interest of ten
percent or more was acquired. Such
certification must state whether changes
to any aspects of the swap execution
facility’s operations were made as a
result of such change in ownership, and
include a description of any such
change(s).
(ii) The certification required under
paragraph (c)(3) of this section may rely
on and be supported by reference to an
application for registration or prior
filings made pursuant to a product or
rule submission requirement, along with
any necessary new filings, including
new filings that provide any and all
material updates of prior submissions.
(d) Delegation of authority. The
Commission hereby delegates, until it
orders otherwise, the authority set forth
in paragraph (b) of this regulation to the
Director of the Division of Market
Oversight or such other employee or
employees as the Director may designate
from time to time. The Director may
submit to the Commission for its
consideration any matter that has been
delegated in this paragraph. Nothing in
this paragraph prohibits the
Commission, at its election, from
exercising the authority delegated in
this paragraph.
§ 37.6

Enforceability.

(a) A transaction entered into on or
pursuant to the rules of a registered
swap execution facility shall not be
void, voidable, subject to rescission or
otherwise invalidated or rendered
unenforceable as a result of:
(1) A violation by the registered swap
execution facility of the provisions of
Section 5h of the Act or this part 37; or
(2) Any Commission proceeding to
alter or supplement a rule, term or
condition under Section 8a(7) of the
Act, to declare an emergency under
Section 8a(9) of the Act, or any other
proceeding the effect of which is to
alter, supplement, or require a registered
swap execution facility to adopt a
specific term or condition, trading rule
or procedure or to take or refrain from
taking a specific action.

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(b) A transaction entered into on or
pursuant to the rules of a registered
swap execution facility shall include
written documentation that
memorializes all of the terms of the
transaction and legally supersedes any
previous agreement. The confirmation
of all terms of the transaction shall take
place at the same time as execution.
§ 37.7 Prohibited use of data collected for
regulatory purposes.

A swap execution facility may not use
for business or marketing purposes any
proprietary data or personal information
it collects or receives, from or on behalf
of any person, for the purpose of
fulfilling its regulatory obligations;
provided, however, that a swap
execution facility, where necessary, may
share such information with one or
more swap execution facilities, or
designated contract markets registered
with the Commission, for regulatory
purposes.
§ 37.8 Boards of trade operating both a
designated contract market and a swap
execution facility.

(a) A board of trade that operates a
designated contract market and intends
to also operate a swap execution facility
must separately register the swap
execution facility, pursuant to the swap
execution facility registration
requirements set forth in this Part 37,
and on an ongoing basis, comply with
the core principles under Section 5h of
the Act, and the regulations under this
part 37.
(b) A board of trade that operates both
a designated contract market and a swap
execution facility, and that uses the
same electronic trade execution system
for executing and trading swaps that it
uses for executing and trading swaps on
the designated contract market must
clearly identify to market participants
for each swap whether the execution or
trading of such swaps is taking place on
the designated contract market or on the
swap execution facility.
§ 37.9

Permitted execution methods.

(a) Definitions. (1) As used in this part
37:
(i) Order Book means:
(A) An electronic trading facility, as
that term is defined in section 1a(16) of
the Act;
(B) A trading facility, as that term is
defined in section 1a(51) of the Act;
(C) A trading system or platform in
which all market participants in the
trading system or platform can enter
multiple bids and offers, observe bids
and offers entered by other market
participants, and choose to transact on
such bids and offers; or

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(D) Any such other trading system or
platform as may be determined by the
Commission.
(ii) Request for Quote System means:
(A) A trading system or platform in
which a market participant must
transmit a request for a quote to buy or
sell a specific instrument to no less than
five market participants in the trading
system or platform, to which all such
market participants may respond. Any
bids or offers resting on the trading
system or platform pertaining to the
same instrument must be taken into
account and communicated to the
requester along with the responsive
quotes; or
(B) A trading system or platform in
which multiple market participants can
both:
(1) View real-time electronic
streaming quotes, both firm and
indicative, from multiple potential
counterparties on a centralized
electronic screen; and
(2) Have the option to complete a
transaction by:
(i) Accepting a firm streaming quote,
or
(ii) Transmitting a request for quote to
no less than five market participants,
based upon an indicative streaming
quote, taking into account any resting
bids or offers that have been
communicated to the requester along
with any responsive quotes; or
(C) Any such other trading system or
platform as may be determined by the
Commission.
(iii) Voice-Based System means a
trading system or platform in which a
market participant executes or trades a
Permitted Transaction using a
telephonic line or other voice-based
service.
(iv) Required Transactions means
transactions that are subject to the
execution requirements under this Act
and are made available for trading
pursuant to § 37.10, and are not block
trades.
(v) Permitted Transactions means
transactions that meet any of these
requirements:
(A) Are block trades;
(B) Are not swaps subject to the Act’s
clearing and execution requirements, or
(C) Are illiquid or bespoke swaps.
(b) Required Transactions. (1)
Required Transactions may be executed
on an Order Book or a Request for Quote
System.
(2) An applicant seeking registration
as a swap execution facility must, at a
minimum, offer trading services to
facilitate Required Transactions by
providing market participants with the
ability to post both firm and indicative
quotes on a centralized electronic screen

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accessible to all market participants
who have access to the swap execution
facility.
(3) Swap execution facilities must
require that traders who have the ability
to execute against a customer’s order or
to execute two customers against each
other be subject to a 15 second timing
delay between the entry of those two
orders, such that one side of the
potential transaction is disclosed and
made available to other market
participants before the second side of
the potential transaction (whether for
the trader’s own account or for a second
customer), is submitted for execution.
(4) The Commission may, in its
discretion, determine to require the
swap execution facility to provide its
participants a different trading method
for a particular swap.
(c) Permitted Transactions. (1)
Permitted Transactions may be executed
by an Order Book, Request for Quote
System, a Voice-Based System, or any
such other system for trading as may be
permitted by the Commission.
(2) A registered swap execution
facility may submit a request to the
Commission to offer trading services to
facilitate Permitted Transactions. When
submitting such request, the swap
execution facility must certify its
compliance with § 37.11.
§ 37.10

Swaps made available for trading.

(a) A swap execution facility must
conduct an annual review (or at the
Commission’s request) of whether the
swap execution facility has made a
swap available for trading.
(b) When conducting reviews and
assessments regarding whether the swap
execution facility has made a swap
available for trading, a swap execution
facility may consider:
(1) The frequency of transactions in
this or similar swaps;
(2) The open interest in this or similar
swaps; and
(3) Any other factor requested by the
Commission.
(c)(1) If at least one swap execution
facility has made the same or an
economically equivalent swap available
for trading, all swap execution facilities
are required to treat the swap as made
available for trading.
(2) After conducting its review and
assessment of whether a swap is made
available for trading, the swap execution
facility must provide electronically to
the Commission a report of its
assessment not more than 30 days after
completion of the assessment.
§ 37.11 Identification of non-cleared swaps
or swaps not made available to trade.

(a) A swap execution facility may
allow:

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1241

(1) The execution and trading of
swaps that have not been determined to
be subject to the clearing mandate under
Section 2(h) of the Act;
(2) Transactions subject to an
exception from the clearing mandate
provided under Section 2(h)(7) of the
Act; or
(3) The execution and trading of
swaps that have not been made
available for trading pursuant to § 37.10.
(b) A swap execution facility that
chooses to offer to facilitate bilateral
trading for swaps detailed in paragraph
(a) of this section must clearly identify
to market participants that the particular
swap is to be executed bilaterally
between the parties pursuant to one of
the applicable exemption from
execution and clearing.
Subpart B—Compliance With Core
Principles
§ 37.100 Core Principle 1—Compliance
with Core Principles.

(a) In general. To be registered, and
maintain registration, as a swap
execution facility, the swap execution
facility shall comply with—
(1) All core principles described in
Section 5h of the Act; and
(2) Any requirement that the
Commission may impose by rule or
regulation pursuant to Section 8a(5) of
the Act.
(b) Reasonable Discretion of a Swap
Execution Facility. Unless otherwise
determined by the Commission by rule
or regulation, a swap execution facility
described in paragraph (a) of this
section shall have reasonable discretion
in establishing the manner in which the
swap execution facility complies with
the core principles described in Section
5h of the Act.
Subpart C—Compliance With Rules
§ 37.200 Core Principle 2—Compliance
with rules.

A swap execution facility shall:
(a) Establish and enforce compliance
with any rule of the swap execution
facility, including the terms and
conditions of the swaps traded or
processed on or through the swap
execution facility and any limitation on
access to the swap execution facility;
(b) Establish and enforce trading,
trade processing, and participation rules
that will deter abuses and have the
capacity to detect, investigate, and
enforce those rules, including means to
provide market participants with
impartial access to the market and to
capture information that may be used in
establishing whether rule violations
have occurred;

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(c) Establish rules governing the
operation of the facility, including rules
specifying trading procedures to be used
in entering and executing orders traded
or posted on the facility, including
block trades; and
(d) Provide by its rules that, when a
swap dealer or major swap participant
enters into or facilitates a swap that is
subject to the mandatory clearing
requirement of Section 2(h), the swap
dealer or major swap participant shall
be responsible for compliance with the
mandatory trading requirement under
Section 2(h)(8) of the Act.
§ 37.201 Operation of swap execution
facility and compliance with rules.

(a) A swap execution facility must
establish rules governing the operation
of the swap execution facility,
including, but not limited to, rules
specifying trading procedures to be
followed by members and market
participants when entering and
executing orders traded or posted on the
swap execution facility, including block
trades, as defined in part 45 of this
chapter, if offered.
(b) A swap execution facility must
establish and impartially enforce
compliance with the rules of the swap
execution facility, including, but not
limited to—
(1) The terms and conditions of any
swaps traded or processed on or through
the swap execution facility;
(2) Access to the swap execution
facility;
(3) Trade practice rules;
(4) Audit trail requirements;
(5) Disciplinary rules; and
(6) Mandatory clearing requirements.

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§ 37.202

Access requirements.

(a) Impartial access by members and
market participants. A swap execution
facility shall provide any eligible
contract participant and any
independent software vendor with
impartial access to its market(s) and
market services (including any
indicative quote screens or any similar
pricing data displays), providing—
(1) Criteria that are impartial,
transparent, and applied in a fair and
nondiscriminatory manner;
(2) A process by which participants
provide the swap execution facility with
written or electronic confirmation of
their status as eligible contract
participants, as defined by the Act and
Commission regulations, prior to being
granted access to the swap execution
facility; and
(3) Comparable fees for participants
receiving comparable access to, or
services from, a swap execution facility.
(b) Jurisdiction. Prior to granting any
eligible contract participant access to its

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facilities, a swap execution facility must
require that the eligible contract
participant consents to its jurisdiction.
(c) Limitations on access. A swap
execution facility must establish and
impartially enforce rules governing any
decision to allow, deny, suspend, or
permanently bar participants’ access to
the swap execution facility, including
such decisions when made as part of a
disciplinary or emergency action taken
by the swap execution facility.
§ 37.203

Rule enforcement program.

A swap execution facility must
establish and enforce trading, trade
processing, and participation rules that
will deter abuses and it must have the
capacity to detect, investigate and
enforce those rules.
(a) Abusive Trading Practices
Prohibited. A swap execution facility
must prohibit abusive trading practices
on its markets by members and market
participants. Specific trading practices
that must be prohibited by all swap
execution facilities include frontrunning, wash trading, pre-arranged
trading, fraudulent trading, money
passes and any other trading practices
that a swap execution facility deems to
be abusive. In addition, a swap
execution facility also must prohibit any
other manipulative or disruptive trading
practices prohibited by the Act or by the
Commission pursuant to Commission
regulation. Swap execution facilities
that permit intermediation must
prohibit customer-related abuses
including, but not limited to, trading
ahead of customer orders, trading
against customer orders,
accommodation trading, and improper
cross trading.
(b) Capacity to Detect and Investigate
Rule Violations. A swap execution
facility must have arrangements and
resources for effective enforcement of its
rules. Such arrangements must include
the authority to collect information and
documents on both a routine and nonroutine basis, including the authority to
examine books and records kept by the
swap execution facility’s members and
by market participants. A swap
execution facility’s arrangements and
resources must also facilitate the direct
supervision of the market and the
analysis of data collected to determine
whether a rule violation has occurred.
(c) Compliance Staff and Resources.
(1) Sufficient compliance staff. A swap
execution facility must establish and
maintain sufficient compliance
department resources and staff to ensure
that it can conduct effective audit trail
reviews, trade practice surveillance,
market surveillance and real-time
market monitoring. The swap execution

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facility’s compliance staff must also be
sufficient to address unusual market or
trading events as they arise, and to
conduct and complete investigations in
a timely manner, as set forth in
§ 37.203(f).
(2) Ongoing monitoring of compliance
staff resources. A swap execution
facility must monitor the size and
workload of its compliance staff on a
continuous basis and, on at least an
annual basis, formally evaluate the need
to increase its compliance resources and
staff. In determining the appropriate
level of compliance resources and staff,
the swap execution facility should
consider trading volume increases, the
number of new products or swaps listed
for trading, any new responsibilities
assigned to compliance staff, the results
of any internal review demonstrating
that work is not completed in an
effective or timely manner, the
recommendation of any Commission
rule enforcement review or evaluation
of the swap execution facility and any
other factors suggesting the need for
increased resources and staff.
(d) Automated Trade Surveillance
System. A swap execution facility must
maintain an automated trade
surveillance system capable of detecting
and investigating potential trade
practice violations. Such system must
maintain all data reflecting the details of
each order entered into the trading
system or platform, including all order
modifications and cancellations, and
maintain all data reflecting transactions
executed on the swap execution facility.
The automated system must load and
process daily orders and trades no later
than 24 hours after the completion of
the trading day. In addition, the
automated trade surveillance system
must have the capability to detect and
flag specific trade execution patterns
and trade anomalies; compute, retain,
and compare trading statistics; compute
trade gains, losses, and futuresequivalent positions; reconstruct the
sequence of market activity; perform
market analyses; and enable system
users to perform in-depth analyses and
ad hoc queries of trade-related data.
(e) Real-time Market Monitoring. A
swap execution facility must conduct
real-time market monitoring of all
trading activity on its electronic trading
platform(s) to ensure orderly trading
and identify any market or system
anomalies. A swap execution facility
must have the authority to adjust trade
prices or cancel trades when necessary
to mitigate market disrupting events
caused by malfunctions in its electronic
trading platform(s) or errors in orders
submitted by members and market
participants. Any trade price

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adjustments or trade cancellations must
be transparent to the market and subject
to standards that are clear, fair, and
publicly available.
(f) Investigations and Investigation
Reports. (1) Procedures. A swap
execution facility must establish and
maintain procedures that require its
compliance staff to conduct
investigations of possible rule
violations. An investigation must be
commenced upon the receipt of a
request from Commission staff or upon
the discovery or receipt of information
(such as data produced by automated
surveillance systems) by the swap
execution facility that, in the judgment
of its compliance staff, indicates a
possible basis for finding that a
violation has occurred or will occur.
(2) Timeliness. Each compliance staff
investigation must be completed in a
timely manner. Absent mitigating
factors, a timely manner is no later than
12 months after the date that an
investigation is opened. Mitigating
factors that may reasonably justify an
investigation taking longer than 12
months to complete include the
complexity of the investigation, the
number of firms or individuals involved
as potential wrongdoers, the number of
potential violations to be investigated,
and the volume of documents and data
to be examined and analyzed by
compliance staff.
(3) Investigation reports when a
reasonable basis exists for finding a
violation. Compliance staff must submit
a written investigation report for
disciplinary action in every instance in
which compliance staff determines from
surveillance or from an investigation
that a reasonable basis exists for finding
a rule violation. The investigation report
must include the reason the
investigation was initiated; a summary
of the complaint, if any; the relevant
facts; compliance staff’s analysis and
conclusions; and a recommendation as
to whether disciplinary action should be
pursued. The report must also include
the member or market participant’s
disciplinary history at the swap
execution facility, including copies of
warning letters.
(4) Investigation reports when no
reasonable basis exists for finding a
violation. If after conducting an
investigation compliance staff
determines that no reasonable basis
exists for finding a violation, it must
prepare a written report including the
reason the investigation was initiated; a
summary of the complaint, if any; the
relevant facts; compliance staff’s
analysis and conclusions; and if
applicable, any recommendation that a
disciplinary committee issue a warning

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letter in accordance with § 37.203(f)(5).
If compliance staff recommends that a
warning letter be issued to a member or
market participant pursuant to
§ 37.203(f)(5), the investigation report
must include a copy of the letter as well
as the member or market participant’s
disciplinary history at the swap
execution facility, including copies of
warning letters.
(5) Warning letters. In addition to the
action required to be taken under
§§ 37.203(f)(3) and 37.203(f)(4), the rules
of a swap execution facility may
authorize compliance staff to issue a
warning letter to a person or entity
under investigation or to recommend
that a disciplinary committee take such
an action. A warning letter issued in
accordance with this section is not a
penalty or an indication that a finding
of a violation has been made. A copy of
a warning letter issued by compliance
staff must be included in the
investigation report required by
§§ 37.203(f)(3) and 37.203(f)(4). No more
than one warning letter for the same
potential violation may be issued to the
same person or entity during a rolling
12-month period.
(g) Additional Rules Required. A swap
execution facility must adopt and
enforce any additional rules that it
believes are necessary to comply with
the requirements of § 37.203.

1243

services provided on its behalf.
Compliance staff of the swap execution
facility must hold regular meetings with
the regulatory service provider to
discuss ongoing investigations, trading
patterns, market participants, and any
other matters of regulatory concern. A
swap execution facility must also
conduct periodic reviews of the
adequacy and effectiveness of services
provided on its behalf. Such reviews
must be documented carefully and
made available to the Commission upon
request.
(c) Regulatory decisions required from
the swap execution facility. A swap
execution facility that elects to use the
service of a regulatory service provider
must retain exclusive authority in all
substantive decisions made by its
regulatory service provider, including
but not limited to decisions involving
the cancellation of trades, the issuance
of disciplinary charges against members
or market participants, denials of access
to the trading platform for disciplinary
reasons, and any decision to open an
investigation into a possible rule
violation. A swap execution facility
must document any instances where its
actions differ from those recommended
by its regulatory service provider.
§ 37.205

Audit trail.

A swap execution facility must
establish procedures to capture and
§ 37.204 Regulatory services provided by
retain information that may be used in
a third party.
establishing whether rule violations
(a) Use of third-party provider
have occurred.
(a) Audit Trail Required. A swap
permitted. A swap execution facility
may choose to contract with a registered execution facility must capture and
futures association or another registered retain all audit trail data necessary to
detect, investigate and prevent customer
entity, as such terms are defined under
the Act, (collectively, ‘‘regulatory service and market abuses. Such data must be
sufficient to reconstruct all transactions
provider’’), for the provision of services
within a reasonable period of time and
to assist in complying with the core
to provide evidence of any violations of
principles, as approved by the
the rules of the swap execution facility.
Commission. Any swap execution
An acceptable audit trail must also
facility that chooses to contract with a
regulatory service provider must ensure permit the swap execution facility to
track a customer order from the time of
that its regulatory service provider has
receipt through fill, allocation, or other
the capacity and resources necessary to
disposition, and must include both
provide timely and effective regulatory
order and trade data.
services, including adequate staff and
(b) Elements of an Acceptable Audit
automated surveillance systems. A swap
Trail Program. (1) Original source
execution facility will at all times
documents. A swap execution facility’s
remain responsible for the performance
audit trail must include original source
of any regulatory services received, for
documents. Original source documents
compliance with the swap execution
include unalterable, sequentiallyfacility’s obligations under the Act and
identified records on which trade
Commission regulations, and for the
execution information is originally
regulatory service provider’s
recorded, whether recorded manually or
performance on its behalf.
electronically. Records for customer
(b) Duty to supervise third party. A
swap execution facility that elects to use orders (whether filled, unfilled or
cancelled, each of which shall be
the service of a regulatory service
retained or electronically captured)
provider must retain sufficient
compliance staff to supervise the quality must reflect the terms of the order, a
unique account identifier that relates
and effectiveness of the regulatory

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back to the account(s) owner(s) and the
time of order entry. Swap execution
facilities that permit intermediation
must require that all orders or requests
for quotes received by phone that are
executable be immediately entered into
the trading system or platform. If an
order or request for quote cannot be
immediately entered into the trading
system or platform, an electronic record
that includes the account identifier that
relates to the account owner, time of
receipt, and terms of the order or
request for quote must immediately be
created, and the order or request for
quote must be entered into the trading
system or platform as soon as
practicable.
(2) Transaction history database. A
swap execution facility’s audit trail
program must include an electronic
transaction history database. An
adequate transaction history database
includes a history of all orders and
trades, and also includes:
(i) All data that are input into the
trade entry or matching system for the
transaction to match and clear;
(ii) The categories of participant for
which each trade is executed, including
whether the person executing a trade
was executing it for his/her own
account or an account for which he/she
has discretion, his/her clearing
member’s house account, the account of
another member or the account of any
other customer;
(iii) Timing and sequencing data
adequate to reconstruct trading; and
(iv) Identification of each account to
which fills are allocated.
(3) Electronic analysis capability. A
swap execution facility’s audit trail
program must include electronic
analysis capability with respect to all
audit trail data in the transaction history
database. An adequate electronic
analysis capability must permit the
sorting and presentation of data in the
transaction history database so as to
reconstruct trading and identify possible
trading violations with respect to both
customer and market abuse.
(4) Safe storage capability. A swap
execution facility’s audit trail program
must include the capability to safely
store all audit trail data retained in its
transaction history database. Such safe
storage capability must include the
capability to store all data in the
database in a manner that protects it
from unauthorized alteration, as well as
from accidental erasure or other loss.
Data must be retained in accordance
with the recordkeeping requirements of
Core Principle 10 for swap execution
facilities and the associated regulations
in subpart K of this part 37.

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(c) Enforcement of Audit Trail
Requirements. (1) Annual audit trail
and recordkeeping reviews. A swap
execution facility must enforce its audit
trail and recordkeeping requirements
through at least annual reviews of all
members and market participants to
verify their compliance with the swap
execution facility’s audit trail and
recordkeeping requirements. Such
reviews must include, but are not
limited to, reviews of randomly selected
samples of front-end audit trail data for
order routing systems; a review of the
process by which user identifications
are assigned and user identification
records are maintained; a review of
usage patterns associated with user
identifications to monitor for violations
of user identification rules; and reviews
of account numbers and customer type
indicator codes in trade records to test
for accuracy and improper use.
(2) Enforcement program required. A
swap execution facility must establish a
program for effective enforcement of its
audit trail and recordkeeping
requirements. An effective program
must identify members and market
participants that have failed to maintain
high levels of compliance with such
requirements, and levy meaningful
sanctions when deficiencies are found.
Sanctions must be sufficient to deter
recidivist behavior, and may not include
more than one warning letter for the
same violation within a rolling twelve
month period.
§ 37.206 Disciplinary procedures and
sanctions.

A swap execution facility must
establish trading, trade processing, and
participation rules that will deter abuses
and have the capacity to enforce such
rules through prompt and effective
disciplinary action.
(a) Enforcement staff. A swap
execution facility must establish and
maintain sufficient enforcement staff
and resources to effectively and
promptly prosecute possible rule
violations within the disciplinary
jurisdiction of the swap execution
facility. A swap execution facility must
also monitor the size and workload of
its enforcement staff annually, and
increase its enforcement resources and
staff as appropriate. The enforcement
staff may not include either members of
the swap execution facility or persons
whose interests conflict with their
enforcement duties. A member of the
enforcement staff may not operate under
the direction or control of any person or
persons with trading privileges at the
swap execution facility. A swap
execution facility’s enforcement staff
may operate as part of the swap

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execution facility’s compliance
department.
(b) Disciplinary panels. (1)
Disciplinary panels required. A swap
execution facility must establish one or
more Review Panels and one or more
Hearing Panels (collectively,
‘‘disciplinary panels’’) that are
authorized to fulfill their obligations
under the rules of this Subpart.
Disciplinary panels must meet the
composition requirements of
§ 40.9(c)(3)(ii), and must not include
any members of the swap execution
facility’s compliance staff, or any person
involved in adjudicating any other stage
of the same proceeding.
(2) Review panels. A swap execution
facility’s Review Panel(s) must be
responsible for determining whether a
reasonable basis exists for finding a
violation of swap execution facility
rules, and for authorizing the issuance
of notices of charges against persons
alleged to have committed violations if
the Review Panel believes that the
matter should be adjudicated.
(3) Hearing Panels. A swap execution
facility’s Hearing Panel(s) must be
responsible for adjudicating disciplinary
cases pursuant to a notice of charges
authorized by a Review Panel, and must
also be responsible for such other duties
as are specified in this Subpart.
(c) Review of investigation report.
Promptly after receiving a completed
investigation report pursuant to
§ 37.203(f)(3), a Review Panel must
promptly review the report and, within
30 days of such receipt, must take one
of the following actions:
(1) If the Review Panel determines
that additional investigation or evidence
is needed, it must promptly direct the
compliance staff to conduct further
investigation.
(2) If the Review Panel determines
that no reasonable basis exists for
finding a violation or that prosecution is
otherwise unwarranted, it may direct
that no further action be taken. Such
determination must be in writing, and
must include a written statement setting
forth the facts and analysis supporting
the decision.
(3) If the Review Panel determines
that a reasonable basis exists for finding
a violation and adjudication is
warranted, it must direct that the person
or entity alleged to have committed the
violation be served with a notice of
charges and must proceed in accordance
with the rules of this section.
(d) Notice of charges. A notice of
charges must adequately state the acts,
conduct, or practices in which the
respondent is alleged to have engaged;
state the rule, or rules, alleged to have
been violated (or about to be violated);

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and prescribe the period within which
a hearing on the charges may be
requested. The notice must also advise
the respondent charged that he is
entitled, upon request, to a hearing on
the charges; and if the rules of the swap
execution facility so provide:
(1) The failure to request a hearing
within the period prescribed in the
notice, except for good cause, may be
deemed a waiver of the right to a
hearing; and
(2) The failure to answer or to deny
expressly a charge may be deemed to be
an admission of such charge.
(e) Right to representation. Upon
being served with a notice of charges, a
respondent must have the right to be
represented by legal counsel or any
other representative of its choosing in
all succeeding stages of the disciplinary
process.
(f) Answer to charges. A respondent
must be given a reasonable period of
time to file an answer to a notice of
charges. The rules of a swap execution
facility may require that:
(1) The answer must be in writing and
include a statement that the respondent
admits, denies, or does not have and is
unable to obtain sufficient information
to admit or deny each allegation. A
statement of a lack of sufficient
information shall have the effect of a
denial of an allegation;
(2) Failure to file an answer on a
timely basis shall be deemed an
admission of all allegations contained in
the notice of charges; and
(3) Failure in an answer to deny
expressly a charge shall be deemed to be
an admission of such charge.
(g) Admission or failure to deny
charges. The rules of a swap execution
facility may provide that if a respondent
admits or fails to deny any of the
charges, a Hearing Panel may find that
the violations alleged in the notice of
charges for which the respondent
admitted or failed to deny any of the
charges have been committed. If the
swap execution facility’s rules so
provide, then:
(1) The Hearing Panel must impose a
sanction for each violation found to
have been committed;
(2) The Hearing Panel must promptly
notify the respondent in writing of any
sanction to be imposed pursuant to
§ 37.206(g)(1) and advise the respondent
that it may request a hearing on such
sanction within a specified period of
time;
(3) The rules of a swap execution
facility may provide that if a respondent
fails to request a hearing within the
period of time specified in the notice,
the respondent will be deemed to have
accepted the sanction.

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(h) Denial of charges and right to
hearing. In every instance where a
respondent has requested a hearing on
a charge that is denied, or on a sanction
set by the Hearing Panel pursuant to
Section 37.206(g), the respondent must
be given an opportunity for a hearing in
accordance with the requirements of
§ 37.206(j). The swap execution
facility’s rules may provide that, except
for good cause, the hearing must be
concerned only with those charges
denied and/or sanctions set by the
Hearing Panel under § 37.206(g) for
which a hearing has been requested.
(i) Settlement offers. (1) The rules of
a swap execution facility may permit a
respondent to submit a written offer of
settlement at any time after the
investigation report is completed. The
disciplinary panel presiding over the
matter may accept the offer of
settlement, but may not alter the terms
of a settlement offer unless the
respondent agrees.
(2) The rules of a swap execution
facility may provide that, in its
discretion, a disciplinary panel may
permit the respondent to accept a
sanction without either admitting or
denying the rule violations upon which
the sanction is based.
(3) If an offer of settlement is
accepted, the panel accepting the offer
must issue a written decision specifying
the rule violations it has reason to
believe were committed, including the
basis or reasons for the panel’s
conclusions, and any sanction to be
imposed, which must include full
customer restitution where customer
harm is demonstrated. If an offer of
settlement is accepted without the
agreement of the enforcement staff, the
decision must adequately support the
Hearing Panel’s acceptance of the
settlement. Where applicable, the
decision must also include a statement
that the respondent has accepted the
sanctions imposed without either
admitting or denying the rule violations.
(4) The respondent may withdraw his
or her offer of settlement at any time
before final acceptance by a panel. If an
offer is withdrawn after submission, or
is rejected by a disciplinary panel, the
respondent must not be deemed to have
made any admissions by reason of the
offer of settlement and must not be
otherwise prejudiced by having
submitted the offer of settlement.
(j) Hearings. (1) A swap execution
facility must adopt rules that provide for
the following minimum requirements
for any hearing conducted pursuant to
a notice of charges:
(i) The hearing must be fair, must be
conducted before members of the
Hearing Panel, and must be promptly

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convened after reasonable notice to the
respondent. The formal rules of
evidence need not apply; nevertheless,
the procedures for the hearing may not
be so informal as to deny a fair hearing.
No member of the Hearing Panel for the
matter may have a financial, personal,
or other direct interest in the matter
under consideration.
(ii) In advance of the hearing, the
respondent must be entitled to examine
all books, documents, or other evidence
in the possession or under the control
of the swap execution facility that are to
be relied upon by the enforcement staff
in presenting the charges contained in
the notice of charges or that are relevant
to those charges.
(iii) The swap execution facility’s
enforcement and compliance staffs must
be parties to the hearing, and the
enforcement staff must present their
case on those charges and sanctions that
are the subject of the hearing.
(iv) The respondent must be entitled
to appear personally at the hearing,
must be entitled to cross-examine any
persons appearing as witnesses at the
hearing, and must be entitled to call
witnesses and to present such evidence
as may be relevant to the charges.
(v) The swap execution facility must
require that persons within its
jurisdiction who are called as witnesses
participate in the hearing and produce
evidence. It must make reasonable
efforts to secure the presence of all other
persons called as witnesses whose
testimony would be relevant.
(vi) If the respondent has requested a
hearing, a copy of the hearing must be
made and must become a part of the
record of the proceeding. The record
must be one that is capable of being
accurately transcribed; however, it need
not be transcribed unless the transcript
is requested by Commission staff or the
respondent, the decision is appealed
pursuant to § 37.206(l), or is reviewed
by the Commission pursuant to Section
8c of the Act or part 9 of this chapter.
In all other instances, a summary record
of a hearing is permitted.
(vii) The rules of a swap execution
facility may provide that the cost of
transcribing the record of the hearing
must be borne by a respondent who
requests the transcript, appeals the
decision pursuant to § 37.206(l), or
whose application for Commission
review of the disciplinary action has
been granted. In all other instances, the
cost of transcribing the record must be
borne by the swap execution facility.
(2) The rules of a swap execution
facility may provide that a sanction may
be summarily imposed upon any person
within its jurisdiction whose actions
impede the progress of a hearing.

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(k) Decisions. Promptly following a
hearing conducted in accordance with
§ 37.206(j), the Hearing Panel must
render a written decision based upon
the weight of the evidence contained in
the record of the proceeding and must
provide a copy to the respondent. The
decision must include:
(1) The notice of charges or a
summary of the charges;
(2) The answer, if any, or a summary
of the answer;
(3) A summary of the evidence
produced at the hearing or, where
appropriate, incorporation by reference
of the investigation report;
(4) A statement of findings and
conclusions with respect to each charge,
and a complete explanation of the
evidentiary and other basis for such
findings and conclusions with respect to
each charge;
(5) An indication of each specific rule
that the respondent was found to have
violated;
(6) A declaration of all sanctions
imposed against the respondent,
including the basis for such sanctions
and the effective date of such sanctions.
(l) Right to appeal. The rules of a
swap execution facility may permit the
parties to a proceeding to appeal
promptly an adverse decision of the
Hearing Panel in all or in certain classes
of cases. Such rules may require a
party’s notice of appeal to be in writing
and to specify the findings, conclusions,
or sanctions to which objection are
taken. If the rules of a swap execution
facility permit appeals, then both the
respondent and the enforcement staff
must have the opportunity to appeal
and the swap execution facility must
provide for the following:
(1) The swap execution facility must
establish an appellate panel that must
be authorized to hear appeals of
respondents. In addition, the rules of a
swap execution facility may provide
that the appellate panel may, on its own
initiative, order review of a decision by
the Hearing Panel within a reasonable
period of time after the decision has
been rendered.
(2) The composition of the appellate
panel must be consistent with
§ 40.9(c)(iv), and must not include any
members of the swap execution
facility’s compliance staff, or any person
involved in adjudicating any other stage
of the same proceeding. The rules of a
swap execution facility must provide for
the appeal proceeding to be conducted
before all of the members of the board
of appeals or a panel thereof.
(3) Except for good cause shown, the
appeal or review must be conducted
solely on the record before the Hearing
Panel, the written exceptions filed by

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the parties, and the oral or written
arguments of the parties.
(4) Promptly following the appeal or
review proceeding, the board of appeals
must issue a written decision and must
provide a copy to the respondent. The
decision issued by the board of appeals
must adhere to all the requirement of
§ 37.206(k), to the extent that a different
conclusion is reached from that issued
by the Hearing Panel.
(m) Final decisions. Each swap
execution facility must establish rules
setting forth when a decision rendered
pursuant to this section will become the
final decision of such swap execution
facility.
(n) Disciplinary sanctions. All
disciplinary sanctions imposed by a
swap execution facility or its
disciplinary panels must be
commensurate with the violations
committed and must be clearly
sufficient to deter recidivism or similar
violations by other market participants.
All disciplinary sanctions must take
into account the respondent’s
disciplinary history. In the event of
demonstrated customer harm, any
disciplinary sanction must also include
full customer restitution.
(o) Summary fines for violations of
rules regarding timely submission of
records. A swap execution facility may
adopt a summary fine schedule for
violations of rules relating to the timely
submission of accurate records required
for clearing or verifying each day’s
transactions. A swap execution facility
may permit its compliance staff, or a
designated panel of swap execution
facility officials, to summarily impose
minor sanctions against persons within
the swap execution facility’s
jurisdiction for violating such rules. A
swap execution facility’s summary fine
schedule may allow for warning letters
to be issued for first-time violations or
violators, provided that no more than
one warning letter may be issued per
rolling 12-month period for the same
violation. If adopted, a summary fine
schedule must provide for progressively
larger fines for recurring violations.
(p) Emergency disciplinary actions.
(1) A swap execution facility may
impose a sanction, including
suspension, or take other summary
action against a person or entity subject
to its jurisdiction upon a reasonable
belief that such immediate action is
necessary to protect the best interest of
the marketplace.
(2) Any emergency disciplinary action
must be taken in accordance with a
swap execution facility’s procedures
that provide for the following:
(i) If practicable, a respondent must be
served with a notice before the action is

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taken, or otherwise at the earliest
possible opportunity. The notice must
state the action, briefly state the reasons
for the action, and state the effective
time and date, and the duration of the
action.
(ii) The respondent must have the
right to be represented by legal counsel
or any other representative of its
choosing in all proceedings subsequent
to the emergency action taken. The
respondent must be given the
opportunity for a hearing as soon as
reasonably practicable and the hearing
must be conducted before the Hearing
Panel pursuant to the requirements of
§ 37.206(j).
(iii) Promptly following the hearing
provided for in this rule, the swap
execution facility must render a written
decision based upon the weight of the
evidence contained in the record of the
proceeding and must provide a copy to
the respondent. The decision must
include a description of the summary
action taken; the reasons for the
summary action; a summary of the
evidence produced at the hearing; a
statement of findings and conclusions; a
determination that the summary action
should be affirmed, modified, or
reversed; and a declaration of any action
to be taken pursuant to the
determination, and the effective date
and duration of such action.
§ 37.207 Swaps subject to mandatory
clearing.

A swap execution facility shall
provide by its rules that when a swap
dealer or major swap participant enters
into or facilitates a swap transaction that
is subject to the mandatory clearing
requirement of Section 2(h) of the Act,
the swap dealer or major swap
participant shall be responsible for
compliance with the mandatory trading
requirement under Section 2(h)(8).
Subpart D—Swaps Not Readily
Susceptible to Manipulation
§ 37.300 Core Principle 3—Swaps not
readily susceptible to manipulation.

The swap execution facility shall
permit trading only in swaps that are
not readily susceptible to manipulation.
§ 37.301

General requirement.

(a) To demonstrate to the Commission
compliance with the requirements of
§ 37.300, a swap execution facility must
submit new swap contracts in advance
to the Commission pursuant to part 40
of this chapter, either by:
(1) Requesting prior approval from the
Commission; or
(2) Self-certification for new product
submissions.

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(b) Furthermore, the swap execution
facility must provide evidence that the
swap complies with Core Principle 3 by
providing the applicable information as
set forth in appendix C to part 38—
Demonstration of Compliance that a
contract is not readily susceptible to
manipulation.
Subpart E—Monitoring of Trading and
Trade Processing
§ 37.400 Core Principle 4—Monitoring of
trading and trade processing.

The swap execution facility shall:
(a) Establish and enforce rules or
terms and conditions defining, or
specifications detailing:
(1) Trading procedures to be used in
entering and executing orders traded on
or through the facilities of the swap
execution facility; and
(2) Procedures for trade processing of
swaps on or through the facilities of the
swap execution facility; and
(b) Monitor trading in swaps to
prevent manipulation, price distortion,
and disruptions of the delivery or cash
settlement process through surveillance,
compliance, and disciplinary practices
and procedures, including methods for
conducting real-time monitoring of
trading and comprehensive and accurate
trade reconstructions.
§ 37.401

General requirements.

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A swap execution facility must:
(a) Collect and evaluate data on
individual traders’ market activity on an
ongoing basis in order to detect and
prevent manipulation, price distortions
and, where possible, disruptions of the
delivery or cash-settlement process;
(b) Monitor and evaluate general
market data in order to detect and
prevent manipulative activity that
would result in the failure of the market
price to reflect the normal forces of
supply and demand;
(c) Have the capacity to conduct realtime monitoring of trading and
comprehensive and accurate trade
reconstruction. The monitoring of
intraday trading must include the
capacity to detect abnormal price
movements, unusual trading volumes,
impairments to market liquidity, and
position-limit violations; and
(d) Have either manual processes or
automated alerts that are effective in
detecting and preventing trading abuses.
§ 37.402 Additional requirements for
physical-delivery swaps.

(a) For physical-delivery swaps, the
swap execution facility must:
(1) Monitor a swap’s terms and
conditions;
(2) Monitor that the deliverable
supply is adequate so that the swap will

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not be conducive to price manipulation
or distortion;
(3) Assess whether the deliverable
commodity reasonably can be expected
to be available to traders responsible for
making the delivery and salable or
usable by traders receiving delivery at
its market value in normal cash
marketing channels; and
(4) When available, monitor data
related to the size and ownership of
deliverable supplies.
(b) The swap execution facility must
continually monitor the appropriateness
of the swap’s terms and conditions,
including the delivery instrument, the
delivery locations and location
differentials, and the commodity
characteristics and related differentials.
The swap execution facility must act
promptly to address the conditions that
are causing price distortions or market
disruptions, including, when
appropriate, changes to contract terms.
§ 37.403 Additional requirements for cashsettled swaps.

(a) For cash-settled swaps, the swap
execution facility must monitor:
(1) The availability and pricing of the
commodity making up the index to
which the swap will be settled; and
(2) The continued appropriateness of
the methodology for deriving the index.
For those swap execution facilities that
compute their own indices, they must
promptly amend any methodologies that
result, or are likely to result, in
manipulation, price distortions, or
market disruptions, or must impose new
methodologies to resolve the threat of
disruptions or distortions.
(b) If a swap listed on a swap
execution facility is settled by reference
to the price of a swap traded in another
venue, including a price or index
derived from prices on another swap
execution facility, the swap execution
facility must have an information
sharing agreement with the other venue
or swap execution facility. In lieu of an
information sharing agreement, the
swap execution facility must have the
capacity to assess whether positions or
trading in the swap or commodity to
which its swap is cash-settled are being
manipulated in order to affect prices on
its market.
§ 37.404

Ability to obtain information.

(a) The swap execution facility must
have rules that require traders in its
swaps to keep records of their trading,
including records of their activity in the
underlying commodity and related
derivatives markets and make such
records available, upon request, to the
swap execution facility and the
Commission.

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(b) A swap execution facility with
customers trading through
intermediaries must either use a
comprehensive large-trader reporting
system (LTRS) or be able to demonstrate
that it can obtain position data from
other sources in order to conduct an
effective surveillance program.
§ 37.405

Risk controls for trading.

The swap execution facility must
establish and maintain risk control
mechanisms to reduce the potential risk
of market disruptions, including but not
limited to market restrictions that pause
or halt trading in market conditions
prescribed by the swap execution
facility. If a swap is linked to, or a
substitute for, other swaps on the swap
execution facility or on other trading
venues, such risk controls must, to the
extent practicable, be coordinated with
any similar controls placed on those
other swaps. If a swap is based on the
level of an equity index, such risk
controls must, to the extent practicable,
be coordinated with any similar controls
placed on national security exchanges.
§ 37.406

Trade reconstruction.

The swap execution facility must
have the ability to comprehensively and
accurately reconstruct all trading on its
trading facility. All audit-trail data and
reconstructions must be made available
to the Commission in a form, manner,
and time as determined by the
Commission.
§ 37.407

Additional rules required.

A swap execution facility must adopt
and enforce any additional rules that it
believes are necessary to comply with
the requirements of subpart E of this
part.
Subpart F—Ability To Obtain
Information
§ 37.500 Core Principle 5—Ability To
Obtain Information.

The swap execution facility shall:
(a) Establish and enforce rules that
will allow the facility to obtain any
necessary information to perform any of
the functions described in this section;
(b) Provide the information to the
Commission on request; and
(c) Have the capacity to carry out such
international information-sharing
agreements as the Commission may
require.
§ 37.501

Establish and enforce rules.

A swap execution facility must
establish and enforce rules that will
allow the swap execution facility to
have the ability and authority to obtain
sufficient information to allow it to fully
perform its operational, risk

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§ 37.601

management, governance, and
regulatory functions and any
requirements under this part 37,
including the capacity to carry out
international information-sharing
agreements as the Commission may
require.
§ 37.502

Collection of information.

A swap execution facility must have
rules that allow it to collect information
on a routine basis, allow for the
collection of non-routine data from its
participants, and allow for its
examination of books and records kept
by the traders on its facility.
§ 37.503 Provide information to the
Commission.

A swap execution facility shall
provide information in its possession to
the Commission upon request, in a form
and manner that the Commission
approves.
§ 37.504

Information-sharing agreements.

A swap execution facility shall share
information with other regulatory
organizations, data repositories, and
reporting services as required by the
Commission or as otherwise necessary
and appropriate to fulfill its selfregulatory and reporting
responsibilities. Appropriate
information-sharing agreements can be
established with such entities or the
Commission can act in conjunction with
the swap execution facility to carry out
such Information Sharing.
Subpart G—Position Limits or
Accountability

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(a) In general. To reduce the potential
threat of market manipulation or
congestion, especially during trading in
the delivery month, a swap execution
facility that is a trading facility shall
adopt for each of the contracts of the
facility, as is necessary and appropriate,
position limitations or position
accountability for speculators.
(b) Position limits. For any contract
that is subject to a position limitation
established by the Commission pursuant
to Section 4a(a) of the Act, the swap
execution facility shall:
(1) Set its position limitation at a level
no higher than the Commission
limitation; and
(2) Monitor positions established on
or through the swap execution facility
for compliance with the limit set by the
Commission and the limit, if any, set by
the swap execution facility.

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Subpart H—Financial Integrity of
Transactions
§ 37.700 Core Principle 7—Financial
integrity of transactions.

The swap execution facility shall
establish and enforce rules and
procedures for ensuring the financial
integrity of swaps entered on or through
the facilities of the swap execution
facility, including the clearance and
settlement of the swaps pursuant to
Section 2(h)(1) of the Act.
§ 37.701

§ 37.600 Core Principle 6—Position limits
or accountability.

Position limits or accountability.

(a) To reduce the potential threat of
market manipulation or congestion,
especially during trading in the delivery
month, a swap execution facility that is
a trading facility shall adopt for each of
the contracts on the facility, as is
necessary and appropriate, position
limitations or position accountability for
speculators.
(b) For any contract that is subject to
a position limitation established by the
Commission pursuant to Section 4a(a),
the swap execution facility shall:
(1) Set its position limitation at a level
no higher than the Commission
limitation;
(2) Monitor positions established on
or through the swap execution facility
for compliance with the limit set by the
Commission and the limit, if any, set by
the swap execution facility.
(c) The swap execution facility must
establish the position limits in
accordance with the requirements set
forth in part 151.

Mandatory clearing.

Transactions executed on or through
the swap execution facility must be
cleared through a Commissionregistered derivatives clearing
organization unless:
(a) The transaction is exempted from
clearing under Section 2(h)(7) of the
Act; or
(b) The Commission has not
determined that the clearing
requirement under Section 2(h)(1) is
applicable.
§ 37.702

General financial integrity.

A swap execution facility must
provide for the financial integrity of its
transactions:
(a) By establishing minimum financial
standards for its members, which shall,
at a minimum, require that members
qualify as an eligible contract
participant as defined in Section 1a (18)
of the Act;
(b) For transactions cleared by a
derivatives clearing organization, by
ensuring that the swap execution
facility has the capacity to route

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transactions to the derivative clearing
organization in a manner acceptable to
the derivatives clearing organization for
purposes of ongoing risk management;
(c) For transactions not cleared by a
derivatives clearing organization, by
requiring members to demonstrate that
they:
(1) Have entered into credit
arrangement documentation for the
transaction;
(2) Have the ability to exchange
collateral; and
(3) Meet any credit filters that may be
adopted by the swap execution facility;
and
(d) By implementing any additional
safeguards as may be required by
Commission regulations.
§ 37.703 Monitoring for financial
soundness.

A swap execution facility must
monitor members’ compliance with the
swap execution facility’s minimum
financial standards and, therefore, must
routinely receive and promptly review
financial and related information from
its members.
Subpart I—Emergency Authority
§ 37.800 Core Principle 8—Emergency
authority.

The swap execution facility shall
adopt rules to provide for the exercise
of emergency authority, in consultation
or cooperation with the Commission, as
is necessary and appropriate, including
the authority to liquidate or transfer
open positions in any swap or to
suspend or curtail trading in a swap.
§ 37.801 Additional sources for
compliance.

Applicants and swap execution
facilities may refer to the guidance and/
or acceptable practices in appendix B to
part 37 to demonstrate to the
Commission compliance with the
requirements of § 37.800.
Subpart J—Timely Publication of
Trading Information
§ 37.900 Core Principle 9—Timely
publication of trading information.

(a) In general. The swap execution
facility shall make public timely
information on price, trading volume,
and other trading data on swaps to the
extent prescribed by the Commission.
(b) Capacity of swap execution
facility. The swap execution facility
shall be required to have the capacity to
electronically capture and transmit
trade information with respect to
transactions executed on the facility.

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§ 37.901

General requirement.

With respect to swaps traded on or
through a swap execution facility, each
swap execution facility must:
(a) Report specified swap data as
provided under part 43 and part 45 of
this Chapter; and
(b) Meet the requirements of part 16
of this chapter.
§ 37.902
facility.

Capacity of swap execution

The swap execution facility must
have the capacity to electronically
capture trade information with respect
to transactions executed on the facility.
Subpart K—Recordkeeping and
Reporting
§ 37.1000 Core Principle 10—
Recordkeeping and reporting.

(a) In general. A swap execution
facility shall:
(1) Maintain records of all activities
relating to the business of the facility,
including a complete audit trail, in a
form and manner acceptable to the
Commission for a period of 5 years;
(2) Report to the Commission, in a
form and manner acceptable to the
Commission, such information as the
Commission determines to be necessary
or appropriate for the Commission to
perform the duties of the Commission
under the Act; and
(3) Keep any such records relating to
swaps defined in Section 1a(47)(A)(v) of
the Act open to inspection and
examination by the Securities and
Exchange Commission.
(b) Requirements. The Commission
shall adopt data collection and reporting
requirements for swap execution
facilities that are comparable to
corresponding requirements for
derivatives clearing organizations and
swap data repositories.
§ 37.1001

Recordkeeping required.

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A swap execution facility must
maintain records of all activities relating
to the business of the facility, in a form
and manner acceptable to the
Commission, for a period of at least 5
years. A swap execution facility must
maintain such records, including a
complete audit trail for all swaps
executed on or subject to the rules of the
swap execution facility, investigatory
files, and disciplinary files, in
accordance with the requirements of
§ 1.31 and part 45 of this chapter.
§ 37.1002
required.

Reporting to the commission

A swap execution facility must report
to the Commission, in a form and
manner acceptable to the Commission,
such information as the Commission

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determines to be necessary or
appropriate for the Commission to
perform its duties under the Act.
§ 37.1003 Inspection and examination by
the Securities and Exchange Commission.

A swap execution facility must keep
any such records relating to swaps
defined in Section 1a(47)(A)(v) of the
Act open to inspection and examination
by the Securities and Exchange
Commission.
Subpart L—Antitrust Considerations
§ 37.1100 Core Principle 11—Antitrust
considerations.

Unless necessary or appropriate to
achieve the purposes of this Act, the
swap execution facility shall not:
(a) Adopt any rules or take any
actions that result in any unreasonable
restraint of trade; or
(b) Impose any material
anticompetitive burden on trading or
clearing.
§ 37.1101 Additional sources for
compliance.

Applicants and swap execution
facilities may refer to the guidance and/
or acceptable practices in appendix B to
part 37 to demonstrate to the
Commission compliance with the
requirements of § 37.1100.
Subpart M—Conflicts of Interest
§ 37.1200
interest.

Core Principle 12—Conflicts of

The swap execution facility shall:
(a) Establish and enforce rules to
minimize conflicts of interest in its
decision-making process; and
(b) Establish a process for resolving
the conflicts of interest.
Subpart N—Financial Resources
§ 37.1300 Core Principle 13—Financial
resources.

(a) In general. The swap execution
facility shall have adequate financial,
operational, and managerial resources to
discharge each responsibility of the
swap execution facility.
(b) Determination of resource
adequacy. The financial resources of a
swap execution facility shall be
considered to be adequate if the value
of the financial resources exceeds the
total amount that would enable the
swap execution facility to cover the
operating costs of the swap execution
facility for a one-year period, as
calculated on a rolling basis.
§ 37.1301

General requirements.

(a) A swap execution facility shall
maintain financial resources sufficient
to enable it to perform its functions in

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compliance with the core principles set
forth in Section 5h of the Act.
(b) An entity that operates as both a
swap execution facility and a
derivatives clearing organization also
shall comply with the financial resource
requirements of § 39.11.
(c) Financial resources shall be
considered sufficient if their value is at
least equal to a total amount that would
enable the swap execution facility, or
applicant for designation as such, to
cover its operating costs for a period of
at least one year, calculated on a rolling
basis.
§ 37.1302

Types of financial resources.

Financial resources available to
satisfy the requirements of § 37.1301
may include:
(a) The swap execution facility’s own
capital; and
(b) Any other financial resource
deemed acceptable by the Commission.
§ 37.1303 Computation of financial
resource requirement.

A swap execution facility shall, on a
quarterly basis, based upon its fiscal
year, make a reasonable calculation of
its projected operating costs over a
twelve-month period in order to
determine the amount needed to meet
the requirements of § 37.1301. The swap
execution facility shall have reasonable
discretion in determining the
methodology used to compute such
projected operating costs. The
Commission may review the
methodology and require changes as
appropriate.
§ 37.1304

Valuation of financial resources.

At appropriate intervals, but not less
than quarterly, a swap execution facility
shall compute the current market value
of each financial resource used to meet
its obligations under § 37.701.
Reductions in value to reflect market
and credit risk (haircuts) shall be
applied as appropriate.
§ 37.1305

Liquidity of financial resources.

The financial resources allocated by
the swap execution facility to meet the
requirements of § 37.1301 must include
unencumbered, liquid financial assets
(i.e., cash and/or highly liquid
securities) equal to at least six months’
operating costs. If any portion of such
financial resources is not sufficiently
liquid, the swap execution facility may
take into account a committed line of
credit or similar facility for the purpose
of meeting this requirement.
§ 37.1306

Reporting requirements.

(a) Each fiscal quarter, or at any time
upon Commission request, a swap
execution facility shall:

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(1) Report to the Commission:
(i) The amount of financial resources
necessary to meet the requirements of
§ 37.1301; and
(ii) The value of each financial
resource available, computed in
accordance with the requirements of
§ 37.1304;
(2) Provide the Commission with a
financial statement, including the
balance sheet, income statement, and
statement of cash flows of the swap
execution facility or of its parent
company;
(b) The calculations required by this
§ 37.1306 shall be made as of the last
business day of the swap execution
facility’s fiscal quarter.
(c) The swap execution facility shall
provide the Commission with:
(1) Sufficient documentation
explaining the methodology used to
compute its financial requirements
under § 37.1301;
(2) Sufficient documentation
explaining the basis for its
determinations regarding the valuation
and liquidity requirements set forth in
§§ 37.1304 and 37.1305; and
(3) Copies of any agreements
establishing or amending a credit
facility, insurance coverage, or other
arrangement evidencing or otherwise
supporting the swap execution facility’s
conclusions.
(d) The report required by this
§ 37.1306 shall be filed not later than 17
business days after the end of the swap
execution facility’s fiscal quarter, or at
such later time as the Commission may
permit, in its discretion, upon request
by the swap execution facility.
Subpart O—System Safeguards

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§ 37.1400 Core Principle 14—System
safeguards.

The swap execution facility shall:
(a) Establish and maintain a program
of risk analysis and oversight to identify
and minimize sources of operational
risk, through the development of
appropriate controls and procedures,
and automated systems, that:
(1) Are reliable and secure; and
(2) Have adequate scalable capacity;
(b) Establish and maintain emergency
procedures, backup facilities, and a plan
for disaster recovery that allow for:
(1) The timely recovery and
resumption of operations; and
(2) The fulfillment of the
responsibilities and obligations of the
swap execution facility; and
(c) Periodically conduct tests to verify
that the backup resources of the swap
execution facility are sufficient to
ensure continued:
(1) Order processing and trade
matching;

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(2) Price reporting;
(3) Market surveillance; and
(4) Maintenance of a comprehensive
and accurate audit trail.
§ 37.1401

Requirements.

(a) Each swap execution facility shall:
(1) Establish and maintain a program
of risk analysis and oversight to identify
and minimize sources of operational
risk through the development of
appropriate controls and procedures
and the development of automated
systems that are reliable, secure, and
have adequate scalable capacity;
(2) Establish and maintain emergency
procedures, backup facilities, and a plan
for disaster recovery that allow for the
timely recovery and resumption of
operations and the fulfillment of the
responsibilities and obligations of the
swap execution facility; and
(3) Periodically conduct tests to verify
that backup resources are sufficient to
ensure continued order processing and
trade matching, transmission of
matched orders to a designated clearing
organization for clearing, price
reporting, market surveillance, and
maintenance of a comprehensive and
accurate audit trail.
(b) A swap execution facility’s
program of risk analysis and oversight
with respect to its operations and
automated systems must address each of
the following categories of risk analysis
and oversight:
(1) Information security;
(2) Business continuity-disaster
recovery (‘‘BC–DR’’) planning and
resources;
(3) Capacity and performance
planning;
(4) Systems operations;
(5) Systems development and quality
assurance; and
(6) Physical security and
environmental controls.
(c) In addressing the categories of risk
analysis and oversight required under
paragraph (b) of this section, a swap
execution facility should follow
generally accepted standards and best
practices with respect to the
development, operation, reliability,
security, and capacity of automated
systems.
(d) A swap execution facility must
maintain a BC–DR plan and BC–DR
resources, emergency procedures, and
backup facilities sufficient to enable
timely recovery and resumption of its
operations and resumption of its
ongoing fulfillment of its
responsibilities and obligations as a
swap execution facility following any
disruption of its operations. Such
responsibilities and obligations include,
without limitation, order processing and

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trade matching; transmission of
matched orders to a designated clearing
organization for clearing, where
appropriate; price reporting; market
surveillance; and maintenance of a
comprehensive audit trail. The swap
execution facility’s BC–DR plan and
resources generally should enable
resumption of trading and clearing of
swaps executed on the swap execution
facility during the next business day
following the disruption. Swap
execution facilities determined by the
Commission to be critical financial
markets are subject to more stringent
requirements in this regard, set forth in
Section 40.9 of the Commission’s
regulations.
(e) A swap execution facility that is
not determined by the Commission to be
a critical financial market satisfies the
requirement to be able to resume trading
and clearing during the next business
day following a disruption by
maintaining either:
(1) Infrastructure and personnel
resources of its own that are sufficient
to ensure timely recovery and
resumption of its operations and
resumption of its ongoing fulfillment of
its responsibilities and obligations as a
swap execution facility following any
disruption of its operations; or
(2) Contractual arrangements with
other swap execution facilities or
disaster recovery service providers, as
appropriate, that are sufficient to ensure
continued trading and clearing of swaps
executed on the swap execution facility,
and ongoing fulfillment of all of the
swap execution facility’s
responsibilities and obligations with
respect to such swaps, in the event that
a disruption renders the swap execution
facility temporarily or permanently
unable to satisfy this requirement on its
own behalf.
(f) A swap execution facility must
notify Commission staff promptly of all:
(1) Electronic trading halts and
systems malfunctions;
(2) Cyber security incidents or
targeted threats that actually or
potentially jeopardize automated system
operation, reliability, security, or
capacity; and
(3) Any activation of the swap
execution facility’s BC–DR plan.
(g) A swap execution facility must
give Commission staff timely advance
notice of all:
(1) Planned changes to automated
systems that may impact the reliability,
security, or adequate scalable capacity
of such systems; and
(2) Planned changes to the swap
execution facility’s program of risk
analysis and oversight.

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(h) A swap execution facility must
provide to the Commission upon
request current copies of its BC–DR plan
and other emergency procedures, its
assessments of its operational risks, and
other documents requested by
Commission staff for the purpose of
maintaining a current profile of the
swap execution facility’s automated
systems.
(i) A swap execution facility must
conduct regular, periodic, objective
testing and review of its automated
systems to ensure that they are reliable,
secure, and have adequate scalable
capacity. It must also conduct regular,
periodic testing and review of its BC–DR
capabilities. Both types of testing should
be conducted by qualified, independent
professionals. Such qualified
independent professionals may be
independent contractors or employees
of the swap execution facility, but
should not be persons responsible for
development or operation of the systems
or capabilities being tested. Pursuant to
Core Principle 10 under Section 5h of
the Act (Recordkeeping and Reporting),
and §§ 37.1000 through 37.1003, the
swap execution facility must keep
records of all such tests, and make all
test results available to the Commission
upon request.
(j) To the extent practicable, a swap
execution facility should:
(1) Coordinate its BC–DR plan with
those of the market participants upon
whom it depends to provide liquidity,
in a manner adequate to enable effective
resumption of activity in its markets
following a disruption causing
activation of the swap execution
facility’s BC–DR plan;
(2) Initiate and coordinate periodic,
synchronized testing of its BC–DR plan
and the BC–DR plans of the market
participants upon whom it depends to
provide liquidity; and
(3) Ensure that its BC–DR plan takes
into account the BC–DR plans of its
telecommunications, power, water, and
other essential service providers.
(k) Part 46 of this chapter governs the
obligations of those registered entities
that the Commission has determined to
be critical financial markets, with
respect to maintenance and geographic
dispersal of disaster recovery resources
sufficient to meet a same-day recovery
time objective in the event of a widescale disruption. Section 40.9
establishes the requirements for core
principle compliance in that respect.

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Subpart P—Designation of Chief
Compliance Officer
§ 37.1500 Core Principle 15—Designation
of Chief Compliance Officer.

(a) In general. Each swap execution
facility shall designate an individual to
serve as a chief compliance officer.
(b) Duties. The chief compliance
officer shall:
(1) Report directly to the board or to
the senior officer of the facility;
(2) Review compliance with the core
principles in this subsection;
(3) In consultation with the board of
the facility, a body performing a
function similar to that of a board, or the
senior officer of the facility, resolve any
conflicts of interest that may arise;
(4) Be responsible for establishing and
administering the policies and
procedures required to be established
pursuant to this section;
(5) Ensure compliance with the Act
and the rules and regulations issued
under the Act, including rules
prescribed by the Commission pursuant
to this section; and
(6) Establish procedures for the
remediation of noncompliance issues
found during compliance office reviews,
look backs, internal or external audit
findings, self-reported errors, or through
validated complaints.
(c) Requirements for procedures. In
establishing procedures under
paragraph (b)(6) of this section, the chief
compliance officer shall design the
procedures to establish the handling,
management response, remediation,
retesting, and closing of noncompliance
issues.
(d) Annual reports. (1) In general. In
accordance with rules prescribed by the
Commission, the chief compliance
officer shall annually prepare and sign
a report that contains a description of:
(i) The compliance of the swap
execution facility with the Act; and
(ii) The policies and procedures,
including the code of ethics and conflict
of interest policies, of the swap
execution facility.
(2) Requirements. The chief
compliance officer shall:
(i) Submit each report described in
clause (1) with the appropriate financial
report of the swap execution facility that
is required to be submitted to the
Commission pursuant to this section;
and
(ii) Include in the report a
certification that, under penalty of law,
the report is accurate and complete.
§ 37.1501

Chief Compliance Officer.

(a) Definition of Board of Directors.
For purposes of this part 37, the term
‘‘board of directors’’ means the board of

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directors of a registered swap execution
facility, or for those swap execution
facilities whose organizational structure
does not include a board of directors, a
body performing a function similar to a
board of directors.
(b) Designation and qualifications of
chief compliance officer.
(1) Chief Compliance Officer
Required. Each registered swap
execution facility shall establish the
position of chief compliance officer, and
designate an individual to serve in that
capacity.
(i) The position of chief compliance
officer shall carry with it the authority
and resources to develop and enforce
policies and procedures necessary to
fulfill the duties set forth for chief
compliance officers in the Act and
Commission regulations.
(ii) The chief compliance officer shall
have supervisory authority over all staff
acting in furtherance of the chief
compliance officer’s statutory,
regulatory, and self-regulatory
obligations.
(2) Qualifications of Chief
Compliance Officer. The individual
designated to serve as chief compliance
officer shall have the background and
skills appropriate for fulfilling the
responsibilities of the position.
(i) No individual disqualified from
registration pursuant to Sections 8a(2)
or 8a(3) of the Act may serve as a chief
compliance officer.
(ii) The chief compliance officer may
not be a member of the swap execution
facility’s legal department and may not
serve as its general counsel.
(c) Appointment, Supervision, and
Removal of Chief Compliance Officer.
(1) Appointment and Compensation of
Chief Compliance Officer Determined by
Board of Directors. A registered swap
execution facility’s chief compliance
officer shall be appointed by its board
of directors. The board of directors must
also approve the compensation of the
chief compliance officer and shall meet
with the chief compliance officer at
least annually. The chief compliance
officer shall also meet with the
regulatory oversight committee, as
defined in § 37.19(b), at least quarterly.
The chief compliance officer shall
provide any information regarding the
swap execution facility’s regulatory
program that is requested by the board
of directors or the regulatory oversight
committee. The appointment of the
chief compliance officer and approval of
the chief compliance officer’s
compensation shall require the approval
of a majority of the board of directors.
The senior officer of the swap execution
facility may fulfill these responsibilities.
A swap execution facility shall notify

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the Commission of the appointment of
a new chief compliance officer within
two business days of such appointment.
(2) Supervision of Chief Compliance
Officer. A swap execution facility’s
chief compliance officer shall report
directly to the board of directors or to
the senior officer of the swap execution
facility, at the swap execution facility’s
discretion.
(3) Removal of Chief Compliance
Officer by Board of Directors. Removal
of a registered swap execution facility’s
chief compliance officer shall require
the approval of a majority of the swap
execution facility’s board of directors. If
the swap execution facility does not
have a board of directors, then the chief
compliance officer may be removed by
the senior officer of the swap execution
facility. The swap execution facility
shall notify the Commission and explain
the reasons for the departure within two
business days. The swap execution
facility shall immediately appoint an
interim chief compliance officer, and
shall appoint a permanent chief
compliance officer as soon as reasonably
practicable. The swap execution facility
shall notify the Commission within two
business days of appointing any new
chief compliance officer, whether
interim or permanent.
(d) Duties of Chief Compliance
Officer. The chief compliance officer’s
duties shall include, but are not limited
to, the following:
(1) Overseeing and reviewing the
swap execution facility’s compliance
with Section 5h of the Act and any
related rules adopted by the
Commission;
(2) In consultation with the board of
directors, a body performing a function
similar to the board, or the senior officer
of the swap execution facility, resolving
any conflicts of interest that may arise:
(i) Conflicts between business
considerations and compliance
requirements;
(ii) Conflicts between business
considerations and the requirement that
the registered swap execution facility
provide fair, open, and impartial access
as set forth in § 37.202 of this part; and;
(iii) Conflicts between a registered
swap execution facility’s management
and members of the board of directors;
(3) Establishing and administering
written policies and procedures
reasonably designed to prevent violation
of the Act and any rules adopted by the
Commission;
(4) Ensuring compliance with the Act
and Commission regulations relating to
agreements, contracts, or transactions,
and with Commission regulations under
Section 5h of the Act;

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(5) Establishing procedures for the
remediation of noncompliance issues
identified by the chief compliance
officer through a compliance office
review, look-back, internal or external
audit finding, self-reported error, or
validated complaint;
(6) Establishing and following
appropriate procedures for the handling,
management response, remediation,
retesting, and closing of noncompliance
issues;
(7) Establishing a compliance manual
designed to promote compliance with
the applicable laws, rules, and
regulations and administering a written
code of ethics designed to prevent
ethical violations and to promote
honesty and ethical conduct;
(8) Supervising the swap execution
facility’s self-regulatory program with
respect to trade practice surveillance;
market surveillance; real-time market
monitoring; compliance with audit trail
requirements; enforcement and
disciplinary proceedings; audits,
examinations, and other regulatory
responsibilities with respect to members
and market participants (including
ensuring compliance with, if applicable,
financial integrity, financial reporting,
sales practice, recordkeeping, and other
requirements); and
(9) Supervising the effectiveness and
sufficiency of any regulatory services
provided to the swap execution facility
by a registered futures association or
other registered entity in accordance
with § 37.204.
(e) Annual Compliance Report
Prepared by Chief Compliance Officer.
The chief compliance officer shall, not
less than annually, prepare an annual
compliance report, that at a minimum,
contains the following information
covering the time period since the date
on which the swap execution facility
became registered with the Commission
or since the end of the period covered
by a previously filed annual compliance
report, as applicable:
(1) A description of the registered
swap execution facility’s written
policies and procedures, including the
code of ethics and conflict of interest
policies;
(2) A review of applicable
Commission regulations and each
subsection and core principle of Section
5h of the Act, that, with respect to each:
(i) Identifies the policies and
procedures that ensure compliance with
each subsection and the core principle,
including each duty specified in Section
5h(f)(15)(B);
(ii) Provides a self-assessment as to
the effectiveness of these policies and
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(iii) Discusses areas for improvement,
and recommends potential or
prospective changes or improvements to
its compliance program and resources;
(3) A list of any material changes to
compliance policies and procedures
since the last annual compliance report;
(4) A description of the financial,
managerial, and operational resources
set aside for compliance with respect to
the Act and Commission regulations,
including a description of the registered
swap execution facility’s self-regulatory
program’s staffing and structure, a
catalogue of investigations and
disciplinary actions taken since the last
annual compliance report, and a review
of the performance of disciplinary
committees and panels;
(5) A description of any material
compliance matters, including
noncompliance issues identified
through a compliance office review,
look-back, internal or external audit
finding, self-reported error, or validated
complaint, and explains how they were
resolved;
(6) Any objections to the annual
compliance report by those persons who
have oversight responsibility for the
chief compliance officer; and
(7) A certification by the chief
compliance officer that, to the best of
his or her knowledge and reasonable
belief, and under penalty of law, the
annual compliance report is accurate
and complete.
(f) Submission of Annual Compliance
Report by Chief Compliance Officer to
the Commission.
(1) Prior to submission of the annual
compliance report to the Commission,
the chief compliance officer shall
provide the annual compliance report to
the board of the registered swap
execution facility for its review. If the
swap execution facility does not have a
board, then the annual compliance
report shall be provided to the senior
officer for their review. Members of the
board and the senior officer may not
require the chief compliance officer to
make any changes to the report.
Submission of the report to the board or
the senior officer, and any subsequent
discussion of the report, shall be
recorded in board minutes or similar
written record, as evidence of
compliance with this requirement.
(2) The annual compliance report
shall be provided electronically to the
Commission not more than 60 days after
the end of the registered swap execution
facility’s fiscal year.
(3) Promptly upon discovery of any
material error or omission made in a
previously filed compliance report, the
chief compliance officer shall file an
amendment with the Commission to

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correct any material error or omission.
An amendment shall contain the oath or
certification required under paragraph
(e)(7) of this section.
(4) A registered swap execution
facility may request the Commission for
an extension of time to file its
compliance report based on substantial,
undue hardship. Extensions for the
filing deadline may be granted at the
discretion of the Commission.
(5) Annual compliance reports filed
pursuant to this section will be treated
as exempt from mandatory public
disclosure for purposes of the Freedom
of Information Act and the Government
in the Sunshine Act and parts 145 and
147 of this chapter, but will be available
for official use by any official or
employee of the United States and any
State, by any self-regulatory
organization of which the person filing
the report is a member, and by any other
person to whom the Commission
believes disclosure is in the public
interest.
(g) Recordkeeping. (1) The registered
swap execution facility must maintain:
(i) A copy of the written policies and
procedures, including the code of ethics
and conflicts of interest policies
adopted in furtherance of compliance
with the Act and Commission
regulations;
(ii) Copies of all materials created in
furtherance of the chief compliance
officer’s duties listed in paragraphs
(d)(6) and (d)(7) of this section,
including records of any investigations
or disciplinary actions taken by the
swap execution facility;
(iii) Copies of all materials, including
written reports provided to the board of
directors or senior officer in connection
with the review of the annual
compliance report under paragraph
(f)(1) of this section and the board
minutes or similar written record of
such review, that record the submission
of the annual compliance report to the
board of directors or senior officer; and
(iv) Any records relevant to the
registered swap execution facility’s
annual compliance report, including,
but not limited to, work papers and
other documents that form the basis of
the report, and memoranda,
correspondence, other documents, and
records that are (A) created, sent or
received in connection with the annual
compliance report and (B) contain
conclusions, opinions, analyses, or
financial data related to the annual
compliance report.
(2) The registered swap execution
facility shall maintain records in
accordance with § 1.31 and part 45 of
this chapter.

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Appendix A to Part 37—Form SEF
COMMODITY FUTURES TRADING
COMMISSION
FORM SEF
SWAP EXECUTION FACILITY
APPLICATION OR AMENDMENT TO
APPLICATION FOR REGISTRATION
REGISTRATION INSTRUCTIONS
Intentional misstatements or
omissions of material fact may
constitute federal criminal violations
(7 U.S.C. § 13 and 18 U.S.C. § 1001) or
grounds for disqualification from
registration.
DEFINITIONS
Unless the context requires otherwise,
all terms used in the Form SEF have the
same meaning as in the Commodity
Exchange Act, as amended (‘‘Act’’), and
in the General Rules and Regulations of
the Commodity Futures Trading
Commission (‘‘Commission’’)
thereunder.
GENERAL INSTRUCTIONS
1. Form SEF and Exhibits thereto are
to be filed with the Commission by
applicants for registration as a swap
execution facility, or by a swap
execution facility amending such
registration, pursuant to Section 5h of
the Act and the Commission’s
regulations thereunder. Applicants may
prepare their own Form SEF but must
follow the format prescribed herein.
Upon the filing of an application for
registration in accordance with the
instructions provided herein, the
Commission will publish notice of the
filing and afford interested persons an
opportunity to submit written data,
views and arguments concerning such
application. No application for
registration shall be effective unless the
Commission, by order, grants such
registration.
2. For the purposes of this Form, the
term ‘‘Applicant’’ shall include any
applicant for registration as a swap
execution facility or any registered swap
execution facility that is seeking an
amendment to its order of registration.
3. Individuals’ names, except the
executing signature in Item 11, shall be
given in full (Last Name, First Name,
Middle Name).
4. Signatures on all copies of the Form
SEF filed with the Commission can be
executed electronically. If the Form SEF
is filed by a limited liability company,
it must be signed in the name of the
limited liability company by a member
duly authorized to sign on the limited
liability company’s behalf; if filed by a
partnership, it shall be signed in the

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name of the partnership by a general
partner duly authorized; if filed by an
unincorporated organization or
association which is not a partnership,
it shall be signed in the name of such
organization or association by the
managing agent—i.e., a duly authorized
person who directs or manages or who
participates in the directing or managing
of its affairs; if filed by a corporation, it
shall be signed in the name of the
corporation by a principal officer duly
authorized.
5. If Form SEF is being filed as an
application for registration, all
applicable items must be answered in
full. If any item is not applicable,
indicate by ‘‘none,’’ ‘‘not applicable,’’ or
‘‘N/A’’ as appropriate.
6. For the purposes of this Form SEF,
the term ‘‘Applicant’’ shall include any
applicant for registration as a swap
execution facility or any swap execution
facility that is amending Form SEF.
7. Under Section 5h of the Act and the
Commission’s regulations thereunder,
the Commission is authorized to solicit
the information required to be supplied
by this Form SEF from any Applicant
seeking registration as a swap execution
facility and from any registered swap
execution facility. Disclosure of the
information specified on this Form SEF
is mandatory prior to the start of the
processing of an application for
registration as a swap execution facility.
The information provided with this
Form SEF will be used for the principal
purpose of determining whether the
Commission should grant or deny
registration to an Applicant. The
Commission further may determine that
other and additional information is
required from the Applicant in order to
process its application. Except in cases
where confidential treatment is
requested by the Applicant and granted
by the Commission, pursuant to the
Freedom of Information Act and the
rules of the Commission thereunder,
information supplied on this Form SEF
will be included routinely in the public
files of the Commission and will be
available for inspection by any
interested person. A Form SEF which is
not prepared and executed in
compliance with applicable
requirements and instructions may be
returned as not acceptable for filing.
Acceptance of this Form SEF, however,
shall not constitute a finding that the
Form SEF has been filed as required or
that the information submitted is true,
current or complete.
UPDATING INFORMATION ON THE
FORM SEF
1. Part 37 of the Commission’s
regulations requires that if any

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information contained in this
application, or any supplement or
amendment thereto, is or becomes
inaccurate for any reason, an
amendment to Form SEF, or a
submission under Part 40, in either case
correcting such information must be
filed promptly with the Commission.
2. Swap execution facilities filing
Form SEF as an amendment need file
only the facing page, the signature page
(Item 10), and any pages on which an
answer is being amended, together with
any exhibits that are being amended.
The submission of an amendment
represents that the remaining items and
exhibits remain true, current and
complete as previously filed.
WHERE TO FILE
The Application Form SEF and
appropriate exhibits must be filed
electronically with the Secretary of the
Commission in the form and manner as
provided by the Commission.
COMMODITY FUTURES TRADING
COMMISSION
FORM SEF
SWAP EXECUTION FACILITY
APPLICATION OR AMENDMENT TO
APPLICATION FOR REGISTRATION
lllllllllllllllllll
Exact name of Applicant as specified in
charter
lllllllllllllllllll
Address of principal executive offices
b If this is an APPLICATION for
registration, complete in full and check
here
b If this is an AMENDMENT to an
application, or to an existing
registration, list all items that are
amended and check here
lllllllllllllllllll
lllllllllllllllllll
lllllllllllllllllll
lllllllllllllllllll
lllllllllllllllllll
lllllllllllllllllll

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GENERAL INFORMATION
1. Name under which business of the
swap execution facility will be
conducted, if different than name
specified on facing sheet:
lllllllllllllllllll
2. If name of swap execution facility
is hereby amended, state previous swap
execution facility name:
lllllllllllllllllll
3. Mailing address, if different than
address specified on facing sheet:
lllllllllllllllllll
Number and Street
lllllllllllllllllll
City, State, Zip Code

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3(a). Additional contact information:
lllllllllllllllllll
Fax
lllllllllllllllllll
Phone
lllllllllllllllllll
Website
4. List of principal office(s) and
address(es) where swap execution
facility activities are/will be conducted:
Office
Address
lllllllllllllllllll
lllllllllllllllllll
BUSINESS ORGANIZATION
5. Applicant is a:
b Corporation
b Partnership
b Limited Liability Company
b Other form of organization
(specify)
6. If Applicant is a corporation:
a. Date of incorporation:
lllllllllllllllllll
b. State of incorporation:
lllllllllllllllllll
7. If Applicant is a partnership:
a. Date of filing of partnership articles:
lllllllllllllllllll
b. State in which filed:
lllllllllllllllllll
8. If Applicant is a limited liability
company:
a. Date of filing of Articles of
Organization/Certificate of Formation:
lllllllllllllllllll
b. State in which filed:
lllllllllllllllllll
9. Applicant agrees and consents that
the notice of any proceeding before the
Commission in connection with its
application for registration as a swap
execution facility may be given by
sending such notice by certified mail or
confirmed telegram to the officer
specified or person named below at the
address given.
lllllllllllllllllll
Name of person (if Applicant is a
corporation, limited liability company
or partnership, title of officer)
lllllllllllllllllll
Name of Applicant
lllllllllllllllllll
Number and Street
lllllllllllllllllll
City State Zip Code
SIGNATURES
10. The Applicant has duly caused
this application or amendment to be
signed on its behalf by the undersigned,
hereunto duly authorized, this ll day
of llllllll, 20ll. The
Applicant and the undersigned
represent hereby that all information
contained herein is true, current and
complete. It is understood that all

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required items and Exhibits are
considered integral parts of this Form
SEF and that the submission of any
amendment represents that all
unamended items and Exhibits remain
true, current, and complete as
previously filed.
lllllllllllllllllll
Name of Applicant
lllllllllllllllllll
Manual signature of Member,
General Partner, Managing Agent, or
Principal Agent
lllllllllllllllllll
Title
EXHIBITS INSTRUCTIONS
The following exhibits must be filed
with the Commission by Applicants
seeking registration as a swap execution
facility, or by a registered swap
execution facility amending its
registration, pursuant to Section 5h of
the Act and the Commission’s
regulations thereunder. The exhibits
should be labeled according to the items
specified in this Form SEF. If any
exhibit is not applicable, please specify
the exhibit letter and indicate by ‘‘none,’’
‘‘not applicable,’’ or ‘‘N/A’’ as
appropriate.
If the applicant is a newly formed
enterprise and does not have the
financial statements required pursuant
to Items 9 and 10 (Exhibits I and J) of
this form, the applicant should provide
pro forma financial statements for the
most recent six months or since
inception, whichever is less.
EXHIBITS—BUSINESS
ORGANIZATION
1. Attach as Exhibit A, the name of
any person(s) who own(s) ten percent
(10%) or more of the Applicant’s stock
or who, either directly or indirectly,
through agreement or otherwise, in any
other manner, may control or direct the
management or policies of Applicant.
Provide as part of Exhibit A the full
name and address of each such person
and attach a copy of the agreement or,
if there is none written, describe the
agreement or basis upon which such
person exercises or may exercise such
control or direction.
2. Attach as Exhibit B, a list of the
present officers, directors, governors
(and, in the case of an Applicant that is
not a corporation, the members of all
standing committees grouped by
committee), or persons performing
functions similar to any of the foregoing,
of the swap execution facility or of any
entity that performs the regulatory
activities of the Applicant, indicating
for each:
a. Name
b. Title

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c. Dates of commencement and
termination of present term of office or
position
d. Length of time each present officer,
director, or governor has held the same
office or position
e. Brief account of the business
experience of each officer and director
over the last five (5) years
f. Any other business affiliations in
the derivatives and securities industry
g. For directors, list any committees
on which they serve and any
compensation received by virtue of their
directorship
h. A description of:
(1) Any order of the Commission with
respect to such person pursuant to
Section 5e of the Act;
(2) Any conviction or injunction
against such person within the past ten
(10) years;
(3) Any disciplinary action with
respect to such person within the last
five (5) years;
(4) Any disqualification under
Sections 8b and 8d of the Act;
(5) Any disciplinary action under
Section 8c of the Act; and
(6) Any violation pursuant to Section
9 of the Act.
3. Attach as Exhibit C, a narrative that
sets forth the fitness standards for the
Board of Directors and its composition
including the number or percentage of
public directors.
4. Attach as Exhibit D, a narrative or
graphic description of the organizational
structure of the Applicant. Include a list
of all affiliates of the Applicant and
indicate the general nature of the
affiliation. Note: If the swap execution
facility activities of the Applicant are or
will be conducted primarily by a
division, subdivision, or other separate
entity within the Applicant, corporation
or organization, describe the
relationship of such entity within the
overall organizational structure and
attach as Exhibit D a description only as
it applies to the division, subdivision or
separate entity, as applicable.
Additionally, provide any relevant
jurisdictional information, including
any and all jurisdictions in which you
or any affiliated entity are doing
business, and registration status,
including pending applications (e.g.,
country, regulator, registration category,
date of registration). Provide the address
for legal service of process for each
jurisdiction, which cannot be a post
office box.
5. Attach as Exhibit E, a description
of the personnel qualifications for each
category of professional employees
employed by the Applicant or the
division, subdivision, or other separate

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entity within the Applicant as described
in item 4.
6. Attach as Exhibit F, an analysis of
staffing requirements necessary to carry
out operations of the Applicant as a
swap execution facility and the name
and qualifications of each key staff
person.
7. Attach as Exhibit G, a copy of the
constitution, articles of incorporation,
formation or association with all
amendments thereto, partnership or
limited liability agreements, and
existing by-laws, operating agreement,
rules or instruments corresponding
thereto, of the Applicant. Include any
additional governance fitness
information not included in Exhibit C.
Provide a certificate of good standing
dated within one week of the date of the
Form SEF.
8. Attach as Exhibit H, a brief
description of any material pending
legal proceeding(s), other than ordinary
and routine litigation incidental to the
business, to which the Applicant or any
of its affiliates is a party or to which any
of its or their property is the subject.
Include the name of the court or agency
where the proceeding(s) are pending,
the date(s) instituted, and the principal
parties involved, a description of the
factual basis alleged to underlie the
proceeding(s), and the relief sought.
Include similar information as to any
proceeding(s) known to be
contemplated by the governmental
agencies.
EXHIBITS—FINANCIAL
INFORMATION
9. Attach as Exhibit I:
a. (i) Balance sheet, (ii) Statement of
income and expenses, (iii) Statement of
cash flows, and (iv) Statement of
sources and application of revenues and
all notes or schedules thereto, as of the
most recent fiscal year of the applicant,
or of its parent company, if applicable.
If a balance sheet and any statements
certified by an independent public
accountant are available, that balance
sheet and statement should be
submitted as Exhibit I.
b. Provide a narrative of how the
value of the financial resources of the
applicant is at least equal to a total
amount that would enable the applicant
to cover its operating costs for a period
of at least one year, calculated on a
rolling basis, and whether such
financial resources include
unencumbered, liquid financial assets
(i.e. cash and/or highly liquid securities)
equal to at least six months’ operating
costs.
c. Attach copies of any agreements
establishing or amending a credit
facility, insurance coverage, or other

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arrangement evidencing or otherwise
supporting the applicant’s conclusions
regarding the liquidity of its financial
assets.
d. Representations regarding sources
and estimates for future ongoing
operational resources.
10. Attach as Exhibit J, a balance
sheet and an income and expense
statement for each affiliate of the swap
execution facility that also engages in
swap execution facility activities as of
the end of the most recent fiscal year of
each such affiliate, and each affiliate of
the swap execution facility that engages
in designated contract market activities.
11. Attach as Exhibit K, the following:
a. A complete list of all dues, fees and
other charges imposed, or to be
imposed, by or on behalf of Applicant
for its swap execution facility services
that are provided on an exclusive basis
and identify the service or services
provided for each such due, fee, or other
charge.
b. A description of the basis and
methods used in determining the level
and structure of the dues, fees and other
charges listed in paragraph (a) of this
item.
c. If the Applicant differentiates, or
proposes to differentiate, among its
customers, or classes of customers in the
amount of any dues, fees, or other
charges imposed for the same or similar
exclusive services, so state and indicate
the amount of each differential. In
addition, identify and describe any
differences in the cost of providing such
services, and any other factors, that
account for such differentiations.
EXHIBITS—COMPLIANCE
12. Attach as Exhibit L, a narrative
and supporting documents that may be
provided under other Exhibits herein,
that describe the manner in which the
Applicant is able to comply with each
core principle. The Applicant should
include an explanation, and any other
forms of documentation the Applicant
thinks will be helpful to its explanation,
demonstrating how the swap execution
facility will be able to comply with each
core principle. To the extent that the
application raises issues that are novel,
or for which compliance with a core
principle is not self-evident, include an
explanation of how that item and the
application satisfy the core principles.
13. Attach as Exhibit M, a copy of the
Applicant’s rules (as defined in § 40.1 of
the Commission’s regulations) and any
technical manuals, other guides or
instructions for users of, or participants
in, the market, including minimum
financial standards for members or
market participants. Include rules citing
applicable federal position limits and

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aggregation standards in Part 151 of the
Commission’s regulations and any
facility set position limit rules. Include
rules on publication of daily trading
information with regards to the
requirements of Part 16 of the
Commission’s regulations. The
Applicant should include an
explanation, and any other forms of
documentation the Applicant thinks
will be helpful to its explanation,
demonstrating how the swap execution
facility will be able to comply with each
core principle and how its rules,
technical manuals, other guides or
instructions for users of, or participants
in, the market, or minimum financial
standards for members or market
participants provided in this Exhibit M
help support the swap execution
facility’s compliance with the core
principles.
14. Attach as Exhibit N, executed or
executable copies of any agreements or
contracts entered into or to be entered
into by the Applicant, including third
party regulatory service provider or
member or user agreements that enable
or empower the Applicant to comply
with applicable core principles. Identify
(1) the services that will be provided;
and (2) the core principles addressed by
such agreement.
15. Attach as Exhibit O, a copy of a
compliance manual, and any other
documents, that describe with
specificity, the manner in which the
Applicant will conduct trade practice,
market and financial surveillance.
16. Attach as Exhibit P, a description
of the Applicant’s disciplinary and
enforcement protocols, tools, and
procedures and the arrangements for
alternative dispute resolution.
17. Attach as Exhibit Q, as applicable,
an explanation regarding:
a. For trading systems or platforms
that enable market participants to
engage in transactions through an order
book:
(1) How the trading system or
platform provides all orders and trades
in an electronic form, and the timeliness
in which the trading system or platform
does so;
(2) How all market participants have
the ability to immediately see and have
the ability to transact on all bids and
offers through the applicant’s electronic
automated trade-matching system or
platform; and
(3) The trade matching algorithm and
examples of how that algorithm works
in various trading scenarios involving
various types of orders.
b. For trading systems or platforms
that enable market participants to
engage in transactions on request for
quote systems:

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(1) How a market participant
transmits a request for a quote to buy or
sell a specific instrument to no less than
five market participants in the trading
system or platform, to which all such
market participants may respond.
(2) How resting bids or offers may be
taken into account.
c. For trading systems or platforms
that enable market participants to
engage in transactions via voice:
(1) How the terms of voice-based
transactions are entered into the
electronic trading system or platform.
d. How the timing delay described
under § 37.9 is incorporated into the
trading system or platform.
18. Attach as Exhibit R, a list of rules
prohibiting specific trade practice
violations.
19. Attach as Exhibit S, a discussion
of how trading data will be maintained
by the swap execution facility.
20. Attach as Exhibit T, a list of the
name of the clearing organization(s) that
will be clearing the Applicant’s trades,
and a representation that clearing
members of that organization will be
guaranteeing such trades.
21. Attach as Exhibit U, any
information (described with
particularity) included in the
application that will be subject to a
request for confidential treatment
pursuant to § 145.9 of the Commission’s
regulations.
EXHIBITS—OPERATIONAL
CAPABILITY
22. Attach as Exhibit V, information
responsive to the Technology
Questionnaire (link). The Technology
Questionnaire focuses on information
pertaining to the Applicant’s program of
risk analysis and oversight. Main topic
areas include: information security;
business continuity-disaster recovery
planning and resources; capacity and
performance planning; systems
operations; systems development and
quality assurance; and physical security
and environmental controls.
Appendix B to Part 37—Guidance on,
and Acceptable Practices in,
Compliance With Core Principles
1. This appendix provides guidance on
complying with core principles, both initially
and on an ongoing basis, to maintain
registration under Section 5h of the Act and
this Part 37. Where provided, guidance is set
forth in paragraph (a) following the relevant
heading and can be used to demonstrate to
the Commission compliance with the
selected requirements of a core principle,
under §§ 37.3 and 37.5 of this Part 37. The
guidance for the core principle is illustrative
only of the types of matters a swap execution
facility may address, as applicable, and is not
intended to be used as a mandatory checklist.

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Addressing the issues set forth in this
appendix would help the Commission in its
consideration of whether the swap execution
facility is in compliance with the selected
requirements of a core principle; provided
however, that the guidance is not intended to
diminish or replace, in any event, the
obligations and requirements of applicants
and swap execution facilities to comply with
the regulations provided under this Part 37.
2. Where provided, acceptable practices
meeting selected requirements of core
principles are set forth in paragraph (b)
following the guidance. Swap execution
facilities that follow specific practices
outlined in the acceptable practices for a core
principle in this appendix will meet the
selected requirements of the applicable core
principle; provided however, that the
acceptable practice is not intended to
diminish or replace, in any event, the
obligations and requirements of applicants
and swap execution facilities to comply with
the regulations provided under this Part 37.
The acceptable practices are for illustrative
purposes only and do not state the exclusive
means for satisfying a core principle.
Core Principle 1 of Section 5h of the Act—
Compliance With Core Principles
(A) In general. To be registered, and
maintain registration, as a swap execution
facility, the swap execution facility shall
comply with—(i) all core principles
described in Section 5h of the Act; and (ii)
any requirement that the Commission may
impose by rule or regulation pursuant to
Section 8a(5) of the Act.
(B) Reasonable Discretion of Swap
Execution Facility. Unless otherwise
determined by the Commission by rule or
regulation, a swap execution facility
described in paragraph (a) shall have
reasonable discretion in establishing the
manner in which the swap execution facility
complies with the core principles described
in Section 5h of the Act.
(a) Guidance. [Reserved]
(b) Acceptable Practices. [Reserved]
Core Principle 2 of Section 5h of the Act—
Compliance With Rules
A swap execution facility shall:
(A) Establish and enforce compliance with
any rule of the swap execution facility,
including the terms and conditions of the
swaps traded or processed on or through the
swap execution facility and any limitation on
access to the swap execution facility;
(B) Establish and enforce trading, trade
processing, and participation rules that will
deter abuses and have the capacity to detect,
investigate, and enforce those rules,
including means to provide market
participants with impartial access to the
market and to capture information that may
be used in establishing whether rule
violations have occurred;
(C) Establish rules governing the operation
of the facility, including rules specifying
trading procedures to be used in entering and
executing orders traded or posted on the
facility, including block trades; and
(D) Provide by its rules that, when a swap
dealer or major swap participant enters into
or facilitates a swap that is subject to the

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mandatory clearing requirement of Section
2(h), the swap dealer or major swap
participant shall be responsible for
compliance with the mandatory trading
requirement under Section 2(h)(8) of the Act.
(a) Guidance. [Reserved]
(b) Acceptable Practices. [Reserved]

process through surveillance, compliance,
and disciplinary practices and procedures,
including methods for conducting real-time
monitoring of trading and comprehensive
and accurate trade reconstructions.
(a) Guidance. [Reserved]
(b) Acceptable Practices. [Reserved]

Core Principle 3 of Section 5h of the Act—
Swaps Not Readily Susceptible to
Manipulation
The swap execution facility shall permit
trading only in swaps that are not readily
susceptible to manipulation.
(a) Guidance.
(1) In general, a swap contract is an
agreement to exchange a series of cash flows
over a period of time based on some
reference price, which could be a single
price, such as an absolute level or a
differential, or a price index calculated based
on multiple observations. Moreover, such a
reference price may be reported by the swap
execution facility itself or by an independent
third party. When listing a swap for trading,
a swap execution facility must ensure a
swap’s compliance with Core Principle 3,
paying special attention to the reference price
used to determine the cash flow exchanges.
Specifically, Core Principle 3 requires that
the reference price used by a swap not be
readily susceptible to manipulation. As a
result, when identifying a reference price, a
swap execution facility should either: (i)
Calculate its own reference price using
suitable and well-established acceptable
methods or (ii) carefully select a reliable
third-party index.
(2) The importance of the reference price’s
suitability for a given swap is similar to that
of the final settlement price for a cash-settled
futures. If the final settlement price is
manipulated, then the swap contract does not
serve its intended price discovery and risk
management functions. Similarly,
inappropriate reference prices cause the cash
flows between the buyer and seller to differ
from the proper amounts, thus benefitting
one party and disadvantaging the other.
Thus, careful consideration should be given
to the potential for manipulation or
distortion of the reference price.
(3) For swaps that are settled by physical
delivery or by cash settlement refer to
guidance in Appendix C to Part 38—
Demonstration of Compliance that a contract
is not readily susceptible to manipulation,
Section b(2) and Section c(5), respectively.
(b) Acceptable Practices. [Reserved]

Core Principle 5 of Section 5h of the Act—
Ability To Obtain Information
The swap execution facility shall:
(A) Establish and enforce rules that will
allow the facility to obtain any necessary
information to perform any of the functions
described in this section;
(B) Provide the information to the
Commission on request; and
(C) Have the capacity to carry out such
international information-sharing agreements
as the Commission may require.
(a) Guidance. [Reserved]
(b) Acceptable Practices. [Reserved]

Core Principle 4 of Section 5h of the Act—
Monitoring of Trading and Trade Processing
The swap execution facility shall:
(A) Establish and enforce rules or terms
and conditions defining, or specifications
detailing:
(1) Trading procedures to be used in
entering and executing orders traded on or
through the facilities of the swap execution
facility; and
(2) Procedures for trade processing of
swaps on or through the facilities of the swap
execution facility; and
(B) Monitor trading in swaps to prevent
manipulation, price distortion, and
disruptions of the delivery or cash settlement

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Core Principle 6 of Section 5h of the Act—
Position Limits or Accountability
(A) In general. To reduce the potential
threat of market manipulation or congestion,
especially during trading in the delivery
month, a swap execution facility that is a
trading facility shall adopt for each of the
contracts of the facility, as is necessary and
appropriate, position limitations or position
accountability for speculators.
(B) Position limits. For any contract that is
subject to a position limitation established by
the Commission pursuant to Section 4a(a) of
the Act, the swap execution facility shall:
(1) Set its position limitation at a level no
higher than the Commission limitation; and
(2) Monitor positions established on or
through the swap execution facility for
compliance with the limit set by the
Commission and the limit, if any, set by the
swap execution facility.
(a) Guidance. [Reserved]
(b) Acceptable Practices. [Reserved]
Core Principle 7 of Section 5h of the Act—
Financial Integrity of Transactions
The swap execution facility shall establish
and enforce rules and procedures for
ensuring the financial integrity of swaps
entered on or through the facilities of the
swap execution facility, including the
clearance and settlement of the swaps
pursuant to Section 2(h)(1) of the Act.
(a) Guidance. [Reserved]
(b) Acceptable Practices. [Reserved]
Core Principle 8 of Section 5h of the Act—
Emergency Authority
The swap execution facility shall adopt
rules to provide for the exercise of emergency
authority, in consultation or cooperation
with the Commission, as is necessary and
appropriate, including the authority to
liquidate or transfer open positions in any
swap or to suspend or curtail trading in a
swap.
(a) Guidance. In consultation and
cooperation with the Commission, a swap
execution facility should have the authority
to intervene as necessary to maintain markets
with fair and orderly trading and to prevent
or address manipulation or disruptive trading
practices, whether the need for intervention
arises exclusively from the swap execution

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facility’s market or as part of a coordinated,
cross-market intervention. Swap execution
facility rules should include procedures and
guidelines for decision making and
implementation of emergency intervention
that avoid conflicts of interest in accordance
with the provisions of 17 CFR 40.11, and
include alternate lines of communication and
approval procedures to address emergencies
associated with real time events. To address
perceived market threats, the swap execution
facility should have rules that allow it to take
emergency actions, including imposing or
modifying position limits, imposing or
modifying price limits, imposing or
modifying intraday market restrictions,
imposing special margin requirements,
ordering the liquidation or transfer of open
positions in any contract, ordering the fixing
of a settlement price, extending or shortening
the expiration date or the trading hours,
suspending or curtailing trading in any
contract, transferring customer contracts and
the margin, or altering any contract’s
settlement terms or conditions, or, if
applicable, providing for the carrying out of
such actions through its agreements with its
third-party provider of clearing or regulatory
services. In situations where a swap is traded
on more than one platform, emergency action
to liquidate or transfer open interest must be
as directed, or agreed to, by the Commission
or the Commission’s staff. The swap
execution facility should also have rules that
allow it to take market actions as may be
directed by the Commission. The
Commission should be notified promptly of
the swap execution facility’s exercise of
emergency action, explaining its decisionmaking process, the reasons for using its
emergency authority, and how conflicts of
interest were minimized, including the
extent to which the swap execution facility
considered the effect of its emergency action
on the underlying markets and on markets
that are linked or referenced to the contracts
traded on its facility, including similar
markets on other trading venues. Information
on all regulatory actions carried out pursuant
to a swap execution facility’s emergency
authority should be included in a timely
submission of a certified rule pursuant to
Part 40 of this Chapter.
(b) Acceptable Practices. [Reserved]
Core Principle 9 of Section 5h of the Act—
Timely Publication of Trading Information
(A) In general. The swap execution facility
shall make public timely information on
price, trading volume, and other trading data
on swaps to the extent prescribed by the
Commission.
(B) Capacity of swap execution facility.
The swap execution facility shall be required
to have the capacity to electronically capture
and transmit trade information with respect
to transactions executed on the facility.
(a) Guidance. [Reserved]
(b) Acceptable Practices. [Reserved]
Core Principle 10 of Section 5h of the Act—
Recordkeeping and Reporting
(A) In general. A swap execution facility
shall:
(1) Maintain records of all activities
relating to the business of the facility,

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including a complete audit trail, in a form
and manner acceptable to the Commission
for a period of 5 years;
(2) Report to the Commission, in a form
and manner acceptable to the Commission,
such information as the Commission
determines to be necessary or appropriate for
the Commission to perform the duties of the
Commission under the Act; and
(3) Keep any such records relating to swaps
defined in Section 1a(47)(A)(v) of the Act
open to inspection and examination by the
Securities and Exchange Commission.
(B) Requirements. The Commission shall
adopt data collection and reporting
requirements for swap execution facilities
that are comparable to corresponding
requirements for derivatives clearing
organizations and swap data repositories.
(a) Guidance. [Reserved]
(b) Acceptable Practices. [Reserved]
Core Principle 11 of Section 5h of the Act—
Antitrust Considerations
Unless necessary or appropriate to achieve
the purposes of this Act, the swap execution
facility shall not:
(A) Adopt any rules or take any actions
that result in any unreasonable restraint of
trade; or
(B) Impose any material anticompetitive
burden on trading or clearing.
(a) Guidance. An entity seeking registration
as a swap execution facility may request that
the Commission consider under the
provisions of Section 15(b) of the Act, any of
the entity’s rules, including trading protocols
or policies, and including both operational
rules and the terms or conditions of products
listed for trading, at the time of registration
or thereafter. The Commission intends to
apply Section 15(b) of the Act to its
consideration of issues under this core
principle in a manner consistent with that
previously applied to contract markets.
(b) Acceptable Practices. [Reserved]
Core Principle 12 of Section 5h of the Act—
Conflicts of Interest
The swap execution facility shall:
(A) Establish and enforce rules to minimize
conflicts of interest in its decision-making
process; and
(B) Establish a process for resolving the
conflicts of interest.
(a) Guidance. [Reserved]
(b) Acceptable Practices. [Reserved]

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Core Principle 13 of Section 5h of the Act—
Financial Resources
(A) In general. The swap execution facility
shall have adequate financial, operational,
and managerial resources to discharge each
responsibility of the swap execution facility.
(B) Determination of resource adequacy.
The financial resources of a swap execution
facility shall be considered to be adequate if
the value of the financial resources exceeds
the total amount that would enable the swap
execution facility to cover the operating costs
of the swap execution facility for a one-year
period, as calculated on a rolling basis.
(a) Guidance. [Reserved]
(b) Acceptable Practices. [Reserved]

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Core Principle 14 of Section 5h of the Act—
System Safeguards
The swap execution facility shall:
(A) Establish and maintain a program of
risk analysis and oversight to identify and
minimize sources of operational risk, through
the development of appropriate controls and
procedures, and automated systems, that:
(1) Are reliable and secure; and
(2) Have adequate scalable capacity;
(B) Establish and maintain emergency
procedures, backup facilities, and a plan for
disaster recovery that allow for:
(1) The timely recovery and resumption of
operations; and
(2) The fulfillment of the responsibilities
and obligations of the swap execution
facility; and
(C) Periodically conduct tests to verify that
the backup resources of the swap execution
facility are sufficient to ensure continued:
(1) Order processing and trade matching;
(2) Price reporting;
(3) Market surveillance; and
(4) Maintenance of a comprehensive and
accurate audit trail.
(a) Guidance. [Reserved]
(b) Acceptable Practices. [Reserved]
Core Principle 15 of Section 5h of the Act—
Designation of Chief Compliance Officer
(A) In general. Each swap execution
facility shall designate an individual to serve
as a chief compliance officer.
(B) Duties. The chief compliance officer
shall:
(1) Report directly to the board or to the
senior officer of the facility;
(2) Review compliance with the core
principles in this subsection;
(3) In consultation with the board of the
facility, a body performing a function similar
to that of a board, or the senior officer of the
facility, resolve any conflicts of interest that
may arise;
(4) Be responsible for establishing and
administering the policies and procedures
required to be established pursuant to this
section;
(5) Ensure compliance with the Act and the
rules and regulations issued under the Act,
including rules prescribed by the
Commission pursuant to this section; and
(6) Establish procedures for the
remediation of noncompliance issues found
during compliance office reviews, look backs,
internal or external audit findings, selfreported errors, or through validated
complaints.
(C) Requirements for procedures. In
establishing procedures under paragraph
(b)(6), the chief compliance officer shall
design the procedures to establish the
handling, management response,
remediation, retesting, and closing of
noncompliance issues.
(D) Annual reports.
(1) In general. In accordance with rules
prescribed by the Commission, the chief
compliance officer shall annually prepare
and sign a report that contains a description
of:
(i) The compliance of the swap execution
facility with the Act; and
(ii) The policies and procedures, including
the code of ethics and conflict of interest
policies, of the swap execution facility.

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(2) Requirements. The chief compliance
officer shall:
(i) Submit each report described in clause
(1) with the appropriate financial report of
the swap execution facility that is required to
be submitted to the Commission pursuant to
this section; and
(ii) Include in the report a certification
that, under penalty of law, the report is
accurate and complete.
(a) Guidance. [Reserved]
(b) Acceptable Practices. [Reserved]
Dated: December 16, 2010.
By the Commission.
David A. Stawick,
Secretary.

Appendices to Core Principles and
Other Requirements for Swap
Execution Facilities—Commission
Voting Summary and Statements of
Commissioners
Note: The following appendices will not
appear in the Code of Federal Regulations.

Appendix 1—Commission Voting
Summary
On this matter, Chairman Gensler and
Commissioners Dunn, Chilton and O’Malia
voted in the affirmative; Commissioner
Sommers voted in the negative.

Appendix 2—Statement of Chairman
Gary Gensler
I support the proposed rulemaking to fulfill
Congress’s mandate to have rules and core
principles requirements for swap execution
facilities (SEFs). The proposed rule also
fulfills Congress’s mandate to promote
transparency through the trading of swaps on
SEFS.
The proposed rule will provide for all
market participants an ability to execute or
trade with other market participants. It will
afford market participants with the ability to
make firm bids or offers to all other market
participants. It also will allow them to make
indications of interest—or what is often
referred to as ‘‘indicative quotes’’—to other
participants. Furthermore, it will allow
participants to request quotes from other
market participants. These methods will
provide hedgers, investors and Main Street
businesses both the flexibility to execute and
trade by a number of methods, but also the
benefits of transparency and more market
competition. I believe that transparency and
competition in markets is consistent with
Congress mandated in the definition of a
swap execution facility, whereby all market
participants can communicate with all
market participants such that everybody gets
the benefit of a competitive and transparent
price discovery process.
The proposal does allow participants,
though, to do request for quotes, whereby
they would reach out to a minimum number
of other market participants for quotes. It also
allows that, for block transactions, swap
transactions involving non-financial endusers, swaps that are not ‘‘made available for
trading’’ and bilateral transactions, market

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participants can get the benefits of the swap
execution facilities’ greater transparency or,
if they wish, would still be allowed to
execute by voice or other means of trading.
To fulfill Congress’s mandate that, the rule
requires SEFs to provide impartial access to
market participants for trading on the
platform or system.
The proposed rule also would require SEFs
to—on a yearly basis—state which contracts
are deemed ‘‘available for trading,’’ based on
factors including trading activity and open
interest. The rule, if finalized, goes into effect
in January 2012. This will give the markets
time to adapt, allow SEFs to tell the market
what contracts are available for trading.

Appendix 3—Statement of
Commissioner Sommers

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I disagree with several aspects of the Swap
Execution Facility (SEF) proposal the
Commission is issuing today and seek public
comment on alternative language for Section
37.9, Permitted Execution Methods.
Dodd-Frank defines a SEF as a ‘‘trading
system or platform in which multiple
participants have the ability to execute or
trade swaps by accepting bids and offers
made by multiple participants in the facility
or system, through any means of interstate
commerce, including any trading facility.’’ As
I have pointed out in my public speaking
engagements over the past few months, the
term ‘‘trading facility’’ is defined in the
Commodity Exchange Act (Act), but the
terms ‘‘trading system’’ and ‘‘platform’’ are
not. By introducing these new, undefined
terms into the Act, and by specifying that
SEFs should facilitate the trading of swaps
through any means of interstate commerce, I
believe Congress intended a broad model for
executing swaps on SEFs, both cleared,
uncleared, liquid or bespoke. The goals
identified by Dodd-Frank for registering SEFs
are ‘‘to promote the trading of swaps on swap
execution facilities and to promote pre-trade
price transparency in the swaps market.’’ In
my view, the best way to achieve these twin
goals is to adopt a model that provides the
maximum amount of flexibility as to the
method of trading. Unfortunately, this
proposal does not do that.
Section 37.9, which governs the types of
execution methods that SEFs may offer, is a
key provision of this proposed regulation.
While it permits alternative methods of
execution, such as the trading facility model
and the request for quote model, it also
requires that to be registered as a SEF an
applicant must, at a minimum, provide
market participants ‘‘with the ability to post
both firm and indicative quotes on a

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centralized electronic screen accessible to all
market participants who have access to the
swap execution facility.’’ In my view this
provision is not mandated by Dodd-Frank
and may limit competition by shutting out
applicants who wish to offer request for
quote services without this functionality. I
believe this interpretation of the statute, and
other requirements within this section, are
far too restrictive.
As a result of my concerns, we worked
throughout the past week to include
alternative language for Section 37.9 in the
proposal. I believe this alternative language
complies with Dodd-Frank and would
promote both pre-trade price transparency
and the trading of swaps on SEFs. Including
the alternative would have given the public
an opportunity to comment, in accordance
with the Administrative Procedure Act, on
both the alternative language and the
language contained in the proposed rule. I
am deeply disappointed that despite a
commitment to a transparent process in
promulgating the Dodd-Frank rules, the
alternative language is not in the proposal
today and we are not giving the public the
opportunity to comment on it. That
alternative language is set forth below.
§ 37.9

Permitted Execution Methods.

(a) Definitions.
(1) As used in this Part 37:
(i) Order Book System means:
(A) An electronic trading facility, as
that term is defined in section 1a(16) of
the Act;
(B) A trading facility, as that term is
defined in section 1a(51) of the Act;
(C) A trading system or platform in
which all market participants in the
trading system or platform can enter
multiple bids and offers, observe bids
and offers entered by other market
participants, and choose to transact on
such bids and offers; or
(D) Any such other trading system or
platform as may be determined by the
Commission.
(ii) Request for Quote System means:
(A) A trading system or platform in
which a market participant transmits a
request for a quote to buy or sell a
specific instrument to all other market
participants in the trading system or
platform to which all market
participants may respond;
(B) A trading system or platform in
which a market participant transmits a
request for a quote to buy or sell a

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specific instrument to more than one
potential counterparty. Upon receipt of
responsive quotes from any of the
potential counterparties, the original
requester may accept a responsive quote
and complete a transaction with any one
of the responsive counterparties;
(C) A trading system or platform in
which multiple market participants can
both (i) view real-time electronic
streaming quotes, both firm or
indicative, from multiple potential
counterparties on a centralized screen;
and (ii) have the option to complete a
transaction by (A) accepting a firm
streaming quote, or (B) transmitting a
request for a quote to more than one
market participant, based upon an
indicative streaming quote, taking into
account any resting bids or offers that
have been communicated to the
requester along with any responsive
quotes; or
(D) Any such other trading system or
platform as may be determined by the
Commission.
(iii) Voice-Based System means:
(A) A trading system or platform in
which a market participant executes or
trades a swap using a telephonic line or
other voice-based service.
(2) Swaps subject the clearing
requirements under the Act that are
made available for trading pursuant to
§ 37.10 may be executed or traded on an
Order Book System, a Request for Quote
System, or any such other trading
system or platform as may be
determined by the Commission.
(3) Swaps not subject to the clearing
requirements under the Act may be
executed or traded on an Order Book
System, a Request for Quote System, a
Voice-Based System, or any such other
trading system or platform as may be
determined by the Commission.
(4) A swap execution facility can be
an Order Book System, a Request for
Quote System, or any such other trading
system or platform as may be
determined by the Commission, or any
combination of the aforementioned
systems.
[FR Doc. 2010–32358 Filed 1–6–11; 8:45 am]
BILLING CODE 6351–01–P

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