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pdfFederal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Proposed Rules
ddrumheller on DSK120RN23PROD with PROPOSALS1
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Longitude
¥120.02641
¥120.02955
¥120.03246
¥120.03569
¥120.03855
¥120.04137
¥120.04394
¥120.04667
¥120.04870
¥120.05096
¥120.05323
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¥120.05733
¥120.05961
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¥120.10255
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¥120.10941
¥120.11288
¥120.11729
¥120.11919
¥120.12107
¥120.12292
¥120.12474
¥120.12733
¥120.13068
¥120.13314
¥120.13678
¥120.14015
¥120.14124
¥120.14365
¥120.14631
¥120.14922
¥120.15216
¥120.15458
¥120.15725
¥120.16108
¥120.16493
¥120.16857
¥120.17221
¥120.17583
¥120.17943
¥120.18173
¥120.18378
¥120.18583
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¥120.19038
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¥120.19763
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¥120.20468
¥120.21923
¥120.22203
¥120.22509
¥120.22818
¥120.23141
¥120.23501
¥120.23821
¥120.24012
¥120.24279
¥120.24551
17:46 Aug 24, 2023
Latitude
34.40752
34.40774
34.40806
34.40855
34.40907
34.40971
34.41040
34.41126
34.41100
34.41077
34.41062
34.41054
34.41052
34.41056
34.41068
34.41084
34.41046
34.41021
34.41004
34.40997
34.40990
34.41002
34.40991
34.40992
34.41011
34.41051
34.41088
34.41138
34.41203
34.41251
34.41331
34.41453
34.41509
34.41571
34.41639
34.41711
34.41802
34.41937
34.42030
34.42183
34.42266
34.42285
34.42227
34.42173
34.42126
34.42091
34.42039
34.41992
34.41942
34.41913
34.41904
34.41913
34.41941
34.41986
34.41968
34.41957
34.41952
34.41952
34.41961
34.41978
34.42001
34.42034
34.42014
34.42010
34.42062
34.41994
34.41933
34.41885
34.41849
34.41819
34.41806
34.41788
34.41768
34.41758
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Longitude
¥120.24801
¥120.25140
¥120.26775
¥120.32691
¥120.37560
¥120.41671
¥120.53987
¥120.60041
¥120.64208
¥120.73023
¥120.85081
¥120.90550
¥121.21320
¥121.34958
¥121.40902
¥121.40925
¥121.49111
¥121.49220
¥121.49681
¥121.50604
¥121.51066
¥121.51681
¥121.52704
¥121.56178
¥121.57941
¥121.59010
¥121.62378
¥121.63763
¥121.65637
¥121.66652
¥121.68042
¥121.69538
¥121.70340
¥121.70500
¥121.69966
¥121.58778
¥121.57744
¥121.57606
¥121.58377
¥121.59758
¥121.61148
¥121.61469
¥121.65301
¥121.65744
¥121.66492
¥121.67721
¥121.70874
¥121.81352
¥121.81352
Latitude
34.41758
34.41735
34.38689
34.33744
34.30480
34.27979
34.20486
34.18182
34.10208
34.07464
33.87643
33.82377
33.83184
33.85137
33.91005
34.08467
34.16932
34.21050
34.26897
34.32128
34.37975
34.41821
34.45284
34.54049
34.57950
34.59446
34.64285
34.65978
34.67837
34.69012
34.70722
34.72486
34.74143
34.76227
34.78952
35.00443
35.02331
35.03601
35.06135
35.10429
35.13903
35.14972
35.23983
35.24965
35.25607
35.26729
35.28974
35.35424
35.39844
Note 1 to appendix A: The coordinates in
the table marked with an asterisk (*) are not
a part of the sanctuary boundary. These
coordinates are landward reference points
used to draw a line segment that intersects
with the shoreline.
Appendix B to Subpart V of Part 922—
Coordinates for Rodriguez Seamount
Management Zone Within the
Sanctuary
Coordinates listed in this table are
unprojected (Geographic) and based on the
North American Datum of 1983.
Point ID
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Latitude
34.02873
33.87643
33.82377
33.83184
33.83812
34.13926
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Longitude
¥120.75892
¥120.75816
58145
Latitude
34.14264
34.02873
[FR Doc. 2023–18271 Filed 8–24–23; 8:45 am]
BILLING CODE 3510–NK–P
COMMODITY FUTURES TRADING
COMMISSION
17 CFR Parts 23 and 37
RIN 3038–AF34
Swap Confirmation 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 amendments to its
swap execution facility (SEF)
regulations related to uncleared swap
confirmations, as well as associated
technical and conforming changes.
DATES: Comments must be received on
or before October 24, 2023.
ADDRESSES: You may submit comments,
identified by ‘‘Swap Confirmation
Requirements for Swap Execution
Facilities’’ and RIN number 3038–AF34,
by any of the following methods:
• CFTC Comments Portal: https://
comments.cftc.gov. Select the ‘‘Submit
Comments’’ link for this rulemaking and
follow the instructions on the Public
Comment Form.
• Mail: Send to Christopher
Kirkpatrick, Secretary of the
Commission, Commodity Futures
Trading Commission, Three Lafayette
Centre, 1155 21st Street NW,
Washington, DC 20581.
• Hand Delivery/Courier: Follow the
same instructions as for Mail, above.
Please submit your comments using
only one of these methods. Submissions
through the CFTC Comments Portal are
encouraged.
All comments must be submitted in
English, or if not, accompanied by an
English translation. Comments will be
posted as received to https://
comments.cftc.gov. You should submit
only information that you wish to make
available publicly. If you wish the
Commission to consider information
that you believe is exempt from
disclosure under the Freedom of
Information Act (FOIA), a petition for
confidential treatment of the exempt
information may be submitted according
to the procedures established under
SUMMARY:
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Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Proposed Rules
§ 145.9 of the Commission’s
regulations.1
The Commission reserves the right,
but shall have no obligation, to review,
pre-screen, filter, redact, refuse or
remove any or all of your submission
from https://comments.cftc.gov that it
may deem to be inappropriate for
publication, such as obscene language.
All submissions that have been redacted
or removed that contain comments on
the merits of the rulemaking will be
retained in the public comment file and
will be considered as required under the
Administrative Procedure Act and other
applicable laws, and may be accessible
under FOIA.
FOR FURTHER INFORMATION CONTACT:
Roger Smith, Associate Chief Counsel,
(202) 418–5344, [email protected],
Division of Market Oversight,
Commodity Futures Trading
Commission, 77 West Jackson Blvd.,
Suite 800, Chicago, Illinois 60604;
Stephen Kane, Research Economist,
(202) 418–5911, [email protected], or
Madison Lau, Research Economist, (202)
418–5276, [email protected], Office of the
Chief Economist, Commodity Futures
Trading Commission, Three Lafayette
Centre, 1155 21st Street NW,
Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
ddrumheller on DSK120RN23PROD with PROPOSALS1
Table of Contents
I. Background
A. Regulatory History: The Part 37 Rules
B. Summary of Proposed Changes to § 37.6
C. Consultation With Other U.S. Financial
Regulators
II. Proposed Regulations
A. § 37.6—Enforceability
1. Proposed Regulation § 37.6(b)(1)—
Uncleared Swap Confirmations:
Incorporation by Reference of
Underlying Previously Negotiated
Agreements
2. Proposed Amendment to § 37.6(b)—
Timing of Swap Transaction
Confirmation
3. Proposed Amendment to § 37.6(b)—
Conflicting Terms
4. Proposed Clarification of § 37.6(b)
5. Proposed Clarification of § 37.6(a)
B. Proposed Amendments to
§ 23.501(a)(4)(i)
III. Effective Date and Transition Period
IV. Related Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Cost-Benefit Considerations
D. Antitrust Considerations
1 17 CFR 145.9. The Commission’s regulations
referred to in this release are found at 17 CFR
Chapter I (2022), available on the Commission’s
website at https://www.cftc.gov/LawRegulation/
CommodityExchangeAct/index.htm.
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17:46 Aug 24, 2023
Jkt 259001
I. Background
A. Regulatory History: The Part 37 Rules
The Dodd-Frank Wall Street Reform
and Consumer Protection Act (DoddFrank Act) amended the Commodity
Exchange Act (CEA or Act) by adding
section 5h, which establishes
registration requirements and core
principles for SEFs.2 The Commission
implemented CEA section 5h by
adopting part 37 of its regulations,
which, among other things, sets forth
operational requirements for SEFs and
establishes various requirements for the
trading of swaps on SEFs.3 As part of
the implementing SEF regulations, the
Commission adopted § 37.6(b), which
requires a SEF to provide each
counterparty to a swap transaction that
is entered into on or pursuant to the
rules of the SEF—whether cleared or
uncleared—with a written record of all
of the terms of the transaction, which
shall legally supersede any previous
agreement and serve as a confirmation
of the transaction.4 Pursuant to
§ 37.6(b), the confirmation of all terms
of the transaction must take place at the
same time as execution, subject to a
limited exception for certain
information related to accounts
included in bunched orders.5
In November 2018, the Commission
issued a comprehensive proposal to
amend the SEF regulatory framework.6
In the 2018 SEF Proposal, the
Commission proposed to amend
§ 37.6(b) to establish separate swap
transaction documentation requirements
for cleared and uncleared swaps.7 For
uncleared swap transactions, the
Commission proposed to amend
§ 37.6(b) to require a SEF to provide the
counterparties to the transaction with a
‘‘trade evidence record’’ that would
memorialize the terms of the transaction
agreed upon between the counterparties
on the SEF.8 Under the 2018 SEF
Proposal, a ‘‘trade evidence record’’ was
defined as a legally binding written
documentation (electronic or otherwise)
27
U.S.C. 7b–3.
Principles and Other Requirements for
Swap Execution Facilities, 78 FR 33476 (June 4,
2013) (SEF Core Principles Final Rule). The SEF
Core Principles Final Rule also articulates, where
appropriate, guidance and acceptable practices for
complying with the SEF core principles set forth in
CEA section 5h.
4 17 CFR 37.6(b).
5 17 CFR 37.6(b). Specific customer identifiers for
accounts included in bunched orders involving
swaps need not be included in confirmations
provided by a SEF if the applicable requirements
of 17 CFR 1.35(b)(5) are met.
6 Swap Execution Facilities and Trade Execution
Requirement, 83 FR 61946 (Nov. 30, 2018) (2018
SEF Proposal).
7 Id.
8 Id. at 62096.
3 Core
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that memorializes the terms of a swap
transaction agreed upon by the
counterparties and legally supersedes
any conflicting term in any previous
agreement (electronic or otherwise) that
relates to the swap transaction between
the counterparties.9 In 2021, the
Commission withdrew the unadopted
portions of the 2018 SEF Proposal,10
including the proposed amendments to
§ 37.6, from further consideration.11
Pursuant to section 731 of the DoddFrank Act, which added section 4s(i) to
the CEA,12 the Commission has adopted
regulations to prescribe documentation
standards for swap dealers (SDs) and
major swap participants (MSPs) related
to the timely and accurate confirmation,
processing, netting, documentation, and
valuation of swaps. The Commission
adopted § 23.501 to specifically address
swap confirmation requirements for SDs
and MSPs, including for those swaps
executed on a SEF or designated
contract market (DCM).13 Among other
things, § 23.501 provides that any swap
transaction executed on a SEF or DCM
shall be deemed to satisfy the swap
confirmation requirements set forth in
§ 23.501, provided that the rules of the
SEF or DCM establish that confirmation
of all terms of the transaction shall take
place at the same time as execution.14
B. Summary of Proposed Changes to
§ 37.6
During the implementation of part 37,
SEFs informed the Commission that the
confirmation requirement for uncleared
swaps under § 37.6(b) is operationally
and technologically difficult and
9 Id.
at 61973; 62067.
following final rulemakings of the
Commission adopted certain portions of the 2018
SEF Proposal: (i) Exemptions From Swap Trade
Execution Requirement, 86 FR 8993 (Feb. 11, 2021);
and (ii) Swap Execution Facilities, 86 FR 9224 (Feb.
11, 2021).
11 See Swap Execution Facilities and Trade
Execution Requirement, 86 FR 9304 (Feb. 12, 2021).
The Commission notes that because the 2018 SEF
Proposal was withdrawn, comments on the
proposed amendments to § 37.6(b) that were
included in the 2018 SEF Proposal will not be part
of the administrative record with respect to the
current proposal to amend § 37.6(b). Further, the
Commission notes that while certain proposals and
rationales contained herein are similar, or in some
cases identical, to proposals or rationales set forth
in the 2018 SEF Proposal, the Commission believes
that, overall, the context in which the current
discrete proposal to amend § 37.6(b) is being
adopted is very different from the comprehensive
foundational shift in the regulatory framework for
SEFs that was proposed in 2018. As such,
commenters should submit comments relevant to
this current proposal to amend § 37.6(b);
commenters who wish to reference prior comment
letters, including comment letters on the 2018 SEF
Proposal, should reference those prior comment
letters as specifically as possible.
12 7 U.S.C. 6s(i).
13 17 CFR 23.501(a)(4)(i).
14 Id.
10 The
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Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Proposed Rules
ddrumheller on DSK120RN23PROD with PROPOSALS1
impractical to implement. As discussed
more fully below, Commission staff
from the Division of Market Oversight
(DMO) acknowledged these
technological and operational
challenges and provided no-action
positions for SEFs with respect to
certain provisions of the Commission’s
regulations related to uncleared swap
confirmations.15 In particular, DMO
most recently issued CFTC No-Action
Letter No. 17–17 (NAL No. 17–17),
which provides a no-action position
with respect to the obligation to obtain
copies of underlying, previously
negotiated agreements between the
counterparties, as discussed in greater
detail below, for a SEF that seeks for
uncleared swaps to satisfy the
confirmation requirement in § 37.6(b) by
incorporating by reference terms of such
underlying agreements.16
The Commission proposes to amend
§ 37.6(b) to codify this no-action
position, which would enable SEFs to
incorporate such terms by reference in
an uncleared swap confirmation
without being required to obtain the
underlying, previously negotiated
agreements. Further, the Commission
proposes to amend § 37.6(b), which
currently requires confirmation of all
terms of a swap transaction to take place
at the same time as execution, to require
such confirmation to take place ‘‘as soon
as technologically practicable’’ after the
execution of the swap transaction on the
SEF for both cleared and uncleared
swap transactions. The Commission also
proposes to amend § 37.6(b) to make
clear that the SEF-provided
confirmation under § 37.6(b) shall
legally supersede any conflicting terms
15 NAL No. 17–17, Re: Extension of No-Action
Relief for Swap Execution Facility Confirmation
and Recordkeeping Requirements under
Commodity Futures Trading Commission
Regulations 37.6(b), 37.1000, 37.1001, 45.2, and
45.3(a) (Mar. 24, 2017). NAL No. 17–17 extended
the no-action position previously provided by
Commission staff. See CFTC Letter No. 16–25, Re:
Extension of No-Action Relief for Swap Execution
Facility Confirmation and Recordkeeping
Requirements under Commodity Futures Trading
Commission Regulations 37.6(b), 37.1000, 37.1001,
45.2, and 45.3(a) (Mar. 14, 2016) (NAL No. 16–25);
CFTC Letter 15–25, Re: Extension of No-Action
Relief for SEF Confirmation and Recordkeeping
Requirements under Commission Regulations
37.6(b), 37.1000, 37.1001, and 45.2, and Additional
Relief for Confirmation Data Reporting
Requirements under Commission Regulation 45.3(a)
(Apr. 22, 2015) (NAL No. 15–25); and CFTC Letter
No. 14–108, Staff No-Action Position Regarding SEF
Confirmations and Recordkeeping Requirements
under Certain Provisions Included in Regulations
37.6(b) and 45.2 (Aug. 18, 2014) (NAL No. 14–108).
See also CFTC Letter No. 13–58, Time-Limited NoAction Relief to Temporarily Registered Swap
Execution Facilities from Commission Regulation
37.6(b) for Non-Cleared Swaps in All Asset Classes
(Sept. 30, 2013) (NAL No. 13–58).
16 See NAL No. 17–17.
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17:46 Aug 24, 2023
Jkt 259001
in a previous agreement, rather than the
entire agreement. In addition, the
Commission proposes to make
conforming amendments to
§ 23.501(a)(4)(i) to correspond with the
proposed amendments to § 37.6(b).
Finally, the Commission proposes to
make certain non-substantive
amendments to §§ 37.6(a)–(b) to
enhance clarity.
C. Consultation With Other U.S.
Financial Regulators
In developing these rules, the
Commission has consulted with the
Securities and Exchange Commission
(SEC), pursuant to section 712(a)(1) of
the Dodd-Frank Act.17
II. Proposed Regulations
A. § 37.6—Enforceability
1. Proposed § 37.6(b)(1)—Uncleared
Swap Confirmations: Incorporation by
Reference of Underlying Previously
Negotiated Agreements
Commission Regulation 37.6(b)
requires a SEF to provide each
counterparty to a swap transaction that
is entered into on or pursuant to the
rules of the SEF, whether cleared or
uncleared, with a ‘‘confirmation’’—a
written record that contains all of the
terms of the transaction—at the time of
execution.18 The terms of a swap
transaction include economic terms that
are specific to the transaction, e.g., swap
product, price, and notional amount,
and can also include non-specific
‘‘relationship terms’’ that generally
govern all transactions between two
counterparties—including, for example,
relationship-level default, margin, or
governing law provisions.
For uncleared swap transactions,19
the Commission is aware that many
17 Dodd-Frank Act, Public Law 111–203, tit. VII,
§ 712(a)(1), 124 Stat. 1376 (2010). On May 11, 2022,
the SEC adopted proposed rules for security-based
swap execution facilities (SB SEFs). See Rules
Relating to Security-Based Swap Execution and
Registration and Regulation of Security-Based Swap
Execution Facilities, 87 FR 28872 (May 11, 2022)
(SEC SB SEF Proposal). As part of the SEC SB SEF
Proposal, the SEC proposed SEC rule 242.812 (SEC
Proposed Rule 812), which was modelled after
existing § 37.6 with some modifications. In
particular, SEC Proposed Rule 812 would require an
SB SEF to as soon as technologically practicable
after the time of execution of a transaction entered
into on or pursuant to the rules of the facility,
provide a written record to each counterparty of all
of the terms of the transaction that were agreed to
on the facility, which shall legally supersede any
previous agreement regarding such terms. Id. at
28893. To date, the SEC has not adopted the SEC
SB SEF Proposal or SEC Proposed Rule 812.
18 17 CFR 37.6(b). See also 17 CFR 23.500(c)
(providing a similar definition of ‘‘confirmation’’
that is applicable to SDs and MSPs).
19 The Commission notes that swap trading
relationship documentation is not required for
swaps cleared by a derivatives clearing
organization. See 17 CFR 23.504(a)(1).
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58147
relationship terms that may govern
certain aspects of the transaction are
often negotiated and agreed upon in
written documentation between the
counterparties prior to execution.20 The
Commission previously stated that, for
purposes of satisfying the requirements
of § 37.6(b), a SEF’s confirmation terms
for uncleared swap transactions may
incorporate by reference relevant terms
set forth in such underlying agreements,
as long as those agreements have been
submitted to the SEF prior to
execution.21 As applied, § 37.6(b)
requires that the SEF incorporate this
documentation by reference into the
issued confirmation, which is intended
in part to provide SEF participants with
legal certainty with respect to the terms
of uncleared swap transactions.22
The requirement that the underlying
agreements be submitted to the SEF
prior to execution has, however, created
impractical burdens for SEFs. Based
upon feedback from SEFs, the
Commission understands that SEFs
have encountered many issues in trying
to comply with the requirement,
including high financial, administrative,
and logistical burdens in order to collect
and maintain bilateral transaction
agreements from many individual
counterparties. SEFs have stated that
they are unable to develop a costeffective method to request, accept, and
maintain a library of every relevant
previous agreement between
20 SEF Core Principles Final Rule at 33491 n.195.
See Confirmation, Portfolio Reconciliation,
Portfolio Compression, and Swap Trading
Relationship Documentation Requirements for
Swap Dealers and Major Swap Participants, 77 FR
55904, 55906 (Sept. 11, 2012) (noting that swap
counterparties have typically relied on the use of
industry-standard legal documentation to document
their swap trading relationships. This
documentation, such as the ISDA Master Agreement
and related Schedule and Credit Support Annex
(ISDA Agreements), as well as related
documentation specific to particular asset classes,
offers a framework for documenting uncleared swap
transactions between counterparties.); see also 17
CFR 23.504(b) (noting that for uncleared swap
transactions, § 23.504(b) requires written swap
trading relationship documentation that includes
all terms governing the trading relationship
between an SD or MSP and its counterparty).
21 SEF Core Principles Final Rule at 33491 n.195.
While the Commission’s statement specifically
referenced the incorporation by reference of
previously negotiated terms from ‘‘a freestanding
master agreement,’’ the Commission recognizes that
other previously negotiated freestanding agreements
similarly may contain terms that are relevant to an
uncleared swap confirmation.
22 To ensure that the SEF confirmation provides
legal certainty, the Commission has stated that
counterparties choosing to execute a swap
transaction on or pursuant to the rules of a SEF
must have all terms, including possible long-term
credit support arrangements, agreed to no later than
execution, such that the SEF can provide a written
confirmation inclusive of those terms. SEF Core
Principles Final Rule at 33491.
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counterparties.23 SEFs have also noted
that the potential number of previous
agreements is considerable, given that
SEF counterparties often enter into
agreements with many other parties and
may have multiple agreements for
different asset classes.24
Commission staff from DMO has
acknowledged these technological and
operational challenges and has
accordingly granted no-action positions,
most recently in NAL No. 17–17.25
Based on these no-action positions,
many SEFs have incorporated by
reference applicable relationship terms
from previously negotiated underlying
agreements between counterparties in
confirmations for uncleared swaps,
without obtaining copies of these
agreements prior to the execution of a
swap and without maintaining copies of
such underlying agreements on an
ongoing basis.26
Based on its experience with the part
37 implementation, the Commission
acknowledges that cleared and
uncleared swap transactions raise
different issues with respect to
confirmation requirements 27 and that
the current § 37.6(b) requirements create
difficulties for the latter type of swap
transaction. As such, the Commission
proposes to amend § 37.6(b) by adding
§ 37.6(b)(1) to permit SEFs to
incorporate relevant terms from
underlying, previously negotiated
agreements by reference in a
confirmation for an uncleared swap
transaction without obtaining such
incorporated agreements.28
23 Many of these agreements are maintained in
paper form or as scanned PDF files that are difficult
to quickly digitize in a cost-effective manner. See
WMBAA, Request for Extended Relief from Certain
Requirements under Parts 37 and 45 Related to
Confirmations and Recordkeeping for Swaps Not
Required or Intended to be Cleared at 3 (Mar. 1,
2016). Further, some SEFs have cited the
considerable resource cost of obtaining the number
of different agreements that exist to accommodate
different types of counterparties and asset classes.
Id.
24 Id.
25 See supra note 15.
26 Id. As a condition of staff’s no-action positions,
a SEF has been required to have a rule in its
rulebook that requires its participants to provide
copies of the underlying agreements to the SEF on
request, as well as a rule in its rulebook that
requires the SEF to (i) request from a participant an
underlying agreement upon request from the
Commission, and (ii) to furnish such agreement to
the Commission as soon as it is available.
27 See supra note 19.
28 In addition to stating that DMO will not
recommend enforcement action if a SEF
incorporates by reference relevant terms from
underlying, previously negotiated agreements in
confirmations for uncleared swap transactions,
without obtaining copies of such agreements, which
the Commission proposes to codify in this release,
NAL No. 17–17 also provides no-action positions
with respect to the requirement to maintain copies
of such agreements in order to comply with SEF
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recordkeeping obligations under §§ 37.1000,
37.1001, and 45.2. Among other things, these
requirements obligate a SEF to maintain records of
all activities relating to the business of the SEF. The
Commission preliminary believes that allowing a
SEF to incorporate by reference relevant terms from
the underlying, previously negotiated agreements
without obtaining such agreements will rectify the
compliance issues posed with respect to §§ 37.1000,
37.1001, and 45.2. As a SEF would no longer be
required to obtain the underlying, previously
negotiated agreements, the Commission
preliminarily believes that these agreements would
not, as a general category, constitute records
relating to the SEF’s business for purposes of
§§ 37.1000, 37.1001, and 45.2. The Commission
notes, however, that if a SEF did obtain such an
underlying, previously negotiated agreement,
including at the request of the Commission or its
staff or in connection with the fulfillment of the
SEF’s regulatory obligations, the SEF would, with
respect to such agreement, need to comply with its
recordkeeping obligations under §§ 37.1000,
37.1001, and 45.2. NAL No. 17–17 also provides a
no-action position with respect to the swap data
reporting requirements that apply to a SEF under
§ 45.3(a). In November 2020, the Commission
amended its swap data reporting regulations, which
amendments included the removal of the term
‘‘primary economic terms’’ and ‘‘confirmation data’’
from § 45.3(a). See Swap Data Recordkeeping and
Reporting Requirements, 85 FR 75503 (Nov. 25,
2020) (Amended Part 45 Rules). Currently, SEFs are
required to report as specified in the technical
specification published on the Commission’s
website, available at https://www.cftc.gov/
LawRegulation/DoddFrankAct/Rulemakings/DF_
18_RealTimeReporting/index.htm. As relevant in
this context, the technical specification sets out the
required validations and message types, including
when, for swap data reporting purposes, specific
data fields are mandatory, conditional, or optional.
For example, the technical specification
distinguishes between transaction, collateral, and
valuation reporting. In general, SEFs will report
transaction message types and not valuation and
collateral message types. Those data elements in the
technical specification relevant to on-SEF
transactions that are contained in the transaction
message type are readily available for a SEF to fulfil
its reporting obligations under Commission
regulations in part 45. As further evidence of this,
the defined term ‘‘confirmation data’’ no longer
exists in § 45.3(a). Therefore, the no-action position
stated in Staff Letter 17–17 that ‘‘the Division will
not recommend that the Commission take
enforcement action against a SEF for failure to
report certain confirmation data pursuant to
Commission Regulation 45.3(a) . . .’’ (See NAL No.
17–17 at 3–4) has not been in effect since the
implementation of the Commission’s Amended Part
45 Rules. Staff have not received a related, updated
request for no-action position with respect to SEF
reporting requirements. The Commission
preliminarily believes the Amended Part 45 Rules
and the associated technical specification
requirements eliminate the need for the no-action
position related to § 45.3(a) in NAL No. 17–17.
Finally, the Commission is not proposing to codify
certain conditions from NAL No. 17–17, including
conditions that require a SEF to have rules in its
rulebook that (i) require a SEF confirmation to state,
where applicable, that it incorporates by reference
the terms of the underlying previously negotiated
freestanding agreements between the
counterparties, and (ii) state that in the event of any
inconsistency between a SEF confirmation and the
underlying previously negotiated freestanding
agreements, the terms of the SEF confirmation
legally supersede any contradictory terms and that
require the SEF’s confirmations to state the same.
The Commission preliminarily believes that the
proposed amendments herein, if adopted, would
clarify the requirements for uncleared swap
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The Commission preliminarily
believes, following staff’s observation of
SEFs and market participants operating
under the existing no-action position in
NAL No. 17–17 and precursor no-action
letters, that proposed § 37.6(b)(1) would
not compromise the legal certainty of
confirmations issued by SEFs for
uncleared swap transactions, and that
proposed § 37.6(b)(1) is a financially
and logistically appropriate alternative
for SEFs to comply with the
confirmation requirement under
§ 37.6(b) as it applies to uncleared
swaps.29 The approach set forth in
proposed § 37.6(b)(1) should address the
technological and operational
challenges that have prevented SEFs
from fully complying with § 37.6(b), by
reducing the administrative burdens for
SEFs, who would not be required to
obtain and maintain a library of every
relevant previously negotiated
agreement between counterparties, and
for market participants themselves, who
would not be required to submit to the
SEF all of their relevant underlying
documentation with other potential
counterparties on the SEF.
As more fully discussed below, the
Commission expects that proposed
§ 37.6(b)(1) will reduce the cost of SEFs’
compliance with the confirmation
requirement in § 37.6(b).
Therefore, the Commission proposes
to amend § 37.6(b) by adding § 37.6(b)(1)
to permit SEFs to incorporate
underlying, previously negotiated
agreements by reference in a
confirmation for an uncleared swap
transaction without obtaining such
incorporated agreements.
In order to avail themselves of the noaction position under NAL No. 17–17,
SEFs must have rules in their rulebooks
that, among other things; 30 (1) require
‘‘participants to provide copies of the
underlying previously negotiated
freestanding agreements to the SEF on
request;’’ and (2) require ‘‘the SEF to
request from participants the underlying
previously negotiated freestanding
agreements on request from the
Commission and [require] the SEF to
furnish such documents to the
Commission as soon as they are
available.’’ 31 The Commission
confirmations issued by SEFs in a manner that
obviates the need to codify these conditions. See
also the discussion, infra, of those conditions in
NAL No. 17–17 that address the SEF’s ability to
obtain, upon request, copies of the underlying
previously negotiated freestanding agreements that
have been incorporated by reference into an
uncleared swap confirmation.
29 The proposed amendment would also preserve
the legal certainty of the terms of swap transactions
for market participants.
30 See also note 28, supra.
31 See NAL No. 17–17 at 4.
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preliminarily believes that the existing
requirements for SEFs under the CEA
and the Commission’s part 37
regulations sufficiently account for
these conditions of NAL No. 17–17,
such that these conditions do not need
to be incorporated as specific conditions
of proposed new § 37.6(b)(1).
In particular, SEF Core Principle 5
and the implementing part 37
regulations require, among other things,
that a SEF establish and enforce rules
that will allow the SEF to obtain any
necessary information to perform any of
the functions described in section 5h of
the Act; establish and enforce rules that
will allow the SEF to have the ability
and authority to obtain sufficient
information to allow it to fully perform
its operational, risk management,
governance, and regulatory functions
and any requirements under part 37;
have rules that allow for its examination
of books and records kept by the market
participants on its facility; and provide
information to the Commission on
request.32 The Commission believes
that, pursuant to these requirements and
as necessary to carry out its statutory
and regulatory functions, a SEF has the
ability and authority to request copies of
the underlying agreements that are
incorporated by reference into a
confirmation for an uncleared swap
transaction and to provide such
agreements to the Commission upon
request.33
Request for Comment
The Commission requests comments
on all aspects of proposed § 37.6(b)(1).
In particular, the Commission requests
comment on the following questions:
(1) Should the Commission allow a
SEF to issue a confirmation for an
uncleared swap transaction that does
not, as currently contemplated under
§ 37.6(b), include all the terms of the
transaction, for example by only
including in the confirmation the terms
agreed to on the SEF? If so, should the
Commission amend § 23.501
accordingly?
(2) Should the Commission require a
SEF to establish and enforce exchange
rules that specifically require
participants to maintain copies of all
agreements incorporated by reference
into an uncleared swap confirmation?
(3) Taking into account a SEF’s
obligations under SEF Core Principle 5
and the associated part 37 regulations,
32 7
U.S.C. 7b–3(f)(5); 17 CFR 37.500–503.
the Commission also has the ability to
request information from the SEF under 17 CFR
37.5(a), which requires a SEF to file with the
Commission information related to its business as
a SEF upon the Commission’s request. See 17 CFR
37.5.
33 Further
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should the Commission require a SEF to
establish and enforce exchange rules
specifically requiring market
participants to provide the SEF upon
request with a copy of any document or
agreement incorporated by reference
into an uncleared swap confirmation?
(4) Taking into account the
Commission’s authorities under § 37.5
and § 37.1000, should the Commission
adopt an express requirement for a SEF
to furnish to the Commission upon
request a copy of any document or
agreement incorporated by reference
into an uncleared swap confirmation?
(5) Is the term ‘‘agreement’’ within
proposed § 37.6(b)(1) broad enough to
capture the types of documentation
governing swap trading relationships
that may need to be incorporated by
reference into an uncleared swap
confirmation?
2. Proposed Amendment to § 37.6(b)—
Timing of Swap Transaction
Confirmation
Section 37.6(b) requires that
confirmation of all the terms of a swap
transaction entered into on or pursuant
to the rules of a SEF must take place at
the same time as execution, except for
a limited exception for certain
information related to accounts
included in bunched orders.34 The
Commission proposes to amend this
timing requirement and instead require
a confirmation of all the terms of a swap
a transaction as soon as technologically
practicable after the execution of a swap
transaction on the SEF.35
The Commission believes that the
proposed standard—as soon as
technologically practicable after
execution—would continue to promote
the Commission’s goals of providing
swap counterparties with legal certainty
in a prompt manner, while also being
34 17
CFR 37.6(b). Specific customer identifiers
for accounts included in bunched orders involving
swaps need not be included in confirmations
provided by a SEF if the applicable requirements
of § 1.35(b)(5) are met. See 17 CFR 1.35(b)(5), which
provides that specific customer account identifiers
for accounts included in bunched orders executed
on DCMs or SEFs need not be recorded at time of
order placement or upon report of execution if the
requirements set forth in § 1.35(b)(5)(i)–(v) are met.
35 The Commission notes that in the context of
real-time public reporting, it has defined as soon as
technologically practicable to mean as soon as
possible, taking into consideration the prevalence,
implementation, and use of technology by
comparable market participants. 17 CFR 43.2. The
meaning of this term, as proposed in § 37.6(b)
herein, would be consistent with this definition,
except applying to comparable SEFs. For example,
for purposes of taking into consideration the
prevalence, implementation and use of technology
by comparable SEFs, the Commission would expect
that fully electronic SEFs would be comparable to
one another, while SEFs that utilize more manual
processes, such as voice, would be comparable to
each other.
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58149
consistent with other Commission
requirements related to swap
confirmations.36
In addition, for a block trade that is
executed ‘‘away from’’ a SEF,—i.e.,
outside of the SEF’s trading system or
platform, but still ‘‘pursuant to the
rules’’ of the SEF for purposes of the
§ 37.6(b) confirmation requirement—a
SEF would be unaware of the execution
of the trade until the counterparties
report the trade details to the SEF. From
a temporal perspective, the SEF would
consequently be unable to confirm all
terms of the block trade at the same time
as execution.
The Commission believes that the
proposed standard reflects existing SEF
capabilities while maintaining the
Commission’s goal of providing swap
counterparties with legal certainty for
transactions. Given the Commission’s
understanding that SEFs are complying
with the at the same time as execution
timing standard in existing § 37.6(b) for
non-block swap transactions or block
transactions executed on the SEF, the
Commission expects that the impact of
the proposed as soon as technologically
practicable timing standard for
confirmations for such swap
transactions would not be substantive.37
Rather, the proposal would take into
account practical realities for
confirming block trades executed away
from the SEF but pursuant to the rules
of the SEF, while ensuring that
confirmation for all SEF-executed trades
takes place in as prompt a manner as
possible.
Therefore, the Commission proposes
to require a SEF to confirm the terms of
a swap transaction ‘‘as soon as
technologically practicable’’ after the
execution of the swap transaction on the
SEF.
Request for Comment
The Commission requests comments
on all aspects of the as soon as
technologically practicable after
execution standard proposed for
confirmations pursuant to § 37.6(b). In
particular, the Commission requests
comment on the following questions:
(6) Is the Commission’s proposal to
require a SEF to confirm the terms of a
swap transaction ‘‘as soon as
technologically practicable’’ after the
execution of the transaction on the SEF
36 For example, §§ 23.501(a)(1) and 23.501(a)(2)
require that an SD or MSP issue a confirmation or
acknowledgement for a swap transaction (as
applicable) to its counterparty ‘‘as soon as
technologically practicable . . .’’ See 17 CFR
23.501(a)(1)–(2). Further, the Commission notes that
the proposed standard is consistent with the SEC’s
proposed standard for SB SEFs in SEC Proposed
Rule 812. See SEC SB SEF Proposal at 28893.
37 See supra note 35.
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an appropriate time frame? Should the
Commission require that the SEF issue
the confirmation by no later than a
specified time for swap block trades that
are executed away from the SEF but
pursuant to the SEF’s rules, such as
within 10 minutes of execution as this
is consistent with various SEF rulebooks
that require swap block trades executed
away from the SEF to be reported to the
SEF within 10 minutes of execution?
(7) Should as soon as technologically
practicable mean something different for
purposes of § 37.6(b) than the definition
of as soon as technologically practicable
set forth at § 43.2? If so, what should the
definition be?
3. Proposed Amendment to § 37.6(b)—
Conflicting Terms
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The Commission proposes to amend
§ 37.6(b) to make clear that the terms of
a swap confirmation issued by a SEF
shall legally supersede any conflicting
terms of a previous agreement
(emphasis added).38 As SEFs will now
be able to incorporate underlying,
previously negotiated agreements by
reference into confirmations for
uncleared swap transactions, this
proposed amendment will help ensure
legal certainty with respect to the terms
of such transactions, and will also
clarify the continuing applicability of
those terms in the underlying
agreements that do not conflict with the
confirmation and that may, for example,
govern the counterparties’ non-SEF
transactions.39
As a condition of relying on the noaction position in NAL No. 17–17, SEFs
must have rules which state that ‘‘in the
event of any inconsistency between a
SEF confirmation and the underlying
previously negotiated freestanding
agreements, the terms of the SEF
confirmation legally supersede any
contradictory terms.’’ 40 As such, this
proposed amendment would also
provide the benefits of continuing to
allow SEFs that rely on NAL No. 17–17
to maintain market practices established
under NAL No. 17–17 and precursor noaction letters.
38 While this amendment would apply with
respect to both cleared and uncleared swap
transactions executed on or pursuant to the rules of
the SEF, the Commission notes that swap trading
relationship documentation is not required for
swaps cleared by a derivatives clearing
organization. See 17 CFR 23.504(a)(1).
39 In the SEF Core Principles Final Rule, the
Commission noted that the counterparties to the
uncleared swap transaction would need to ensure
that nothing in the confirmation terms contradicted
the standardized terms intended to be incorporated
from the underlying agreement. SEF Core Principles
Final Rule at 33491, n.195.
40 See NAL No. 17–17 at 4.
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Request for Comment
The Commission requests comments
on all aspects of the proposal to amend
§ 37.6(b) to make clear that the terms of
a swap confirmation issued by a SEF
‘‘shall legally supersede any conflicting
terms of a previous agreement.’’ In
particular, the Commission requests
comment on the following questions:
(8) Does the proposed amendment
provide sufficient legal certainty with
respect to any contradictory terms that
may be contained within previous
agreements that are incorporated into an
uncleared swap confirmation by
reference?
(9) For uncleared swaps, to avoid any
conflict between the terms of the swap
and the SEF’s confirmation, should the
Commission require that the SEF’s
confirmation specifically state that the
terms of the confirmation legally
supersede any conflicting terms in
underlying previously negotiated
agreements that have been incorporated
by reference?
(10) Should the Commission maintain
the current requirement that the
confirmation legally supersede any
previous agreement? Why or why not?
4. Proposed Clarification of § 37.6(b)
Section 37.6(b) provides that a SEF
shall provide each counterparty to a
transaction that is entered into on or
pursuant to the rules of the SEF with a
written record of all of the terms of the
transaction.
The Commission proposes a nonsubstantive amendment to § 37.6(b) to
change the phrase ‘‘entered into’’ to
‘‘executed’’ in order to provide greater
consistency within § 37.6(b). Currently
§ 37.6(b) uses ‘‘entered into’’ and
‘‘executed’’ interchangeably. This nonsubstantive amendment would, in
conjunction with the proposed nonsubstantive amendment to § 37.6(a)
discussed below, ensure consistent use
of ‘‘executed’’ throughout § 37.6.
5. Proposed Clarification of § 37.6(a)
Section 37.6(a) is intended to provide
market participants with legal certainty
with respect to swap transactions on a
SEF and generally clarifies that a swap
transaction entered into on or pursuant
to the rules of a SEF cannot be void,
voidable, subject to rescission,
otherwise invalidated, or rendered
unenforceable due to a violation by the
SEF of section 5h of the Act or part 37
of the Commission’s regulations or any
proceeding that alters or supplements a
rule, term or condition that governs
such swap or swap transaction.41
41 17
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The Commission proposes a nonsubstantive amendment to § 37.6(a) to
change the phrase ‘‘entered into’’ to
‘‘executed’’ in order to provide greater
consistency within § 37.6. Currently
§ 37.6 uses ‘‘entered into’’ and
‘‘executed’’ interchangeably. This nonsubstantive amendment would amend
§ 37.6(a) to use ‘‘executed’’ and, in
conjunction with the proposed nonsubstantive amendment to § 37.6(b)
discussed above, would ensure
consistent use of ‘‘executed’’ throughout
§ 37.6.
B. Proposed Amendments to
§ 23.501(a)(4)(i)
The Commission proposes two
amendments to § 23.501(a)(4)(i) to
conform to the proposed amendments to
§ 37.6(b). Section 23.501(a)(4)(i)
provides that a swap transaction
executed on a SEF or DCM will be
deemed to satisfy the swap confirmation
requirements set forth for SDs and MSPs
in § 23.501(a), provided that the rules of
the SEF or DCM establish that
confirmation of all terms of the
transaction shall take place at the same
time as execution. First, the
Commission proposes to clarify that the
safe harbor for SDs and MSPs in
§ 23.501(a)(4)(i) also applies to swap
transactions executed pursuant to the
rules of a SEF or DCM, i.e., block trades
executed away from the SEF’s or DCM’s
trading system or platform. This
clarification is consistent with the
definition of ‘‘block trade’’ under § 43.2.
Second, the Commission proposes to
amend § 23.501(a)(4)(i) to conform to
the proposed amendments to § 37.6(b),
which would permit confirmation of all
terms of a swap transaction as soon as
technologically practicable following
execution.42
Request for Comment
The Commission requests comments
on the proposed conforming changes to
§ 23.501(a)(4)(i).
III. Effective Date and Transition Period
The Commission proposes that the
effective date for the final regulations be
30 days after publication of final
regulations in the Federal Register. The
Commission preliminarily believes that
such an effective date would allow SEFs
and market participants sufficient time
to adapt to the amended confirmation
rules in an efficient and orderly manner.
42 The Commission notes that while DCMs may
provide confirmations for swap block trades
executed away from but pursuant to the rules of the
DCM, DCMs do not have a regulatory obligation
analogous to the current regulatory obligation under
§ 37.6(b) for SEFs to provide such confirmations.
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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)
requires Federal agencies, in
promulgating regulations, to consider
whether the regulations they propose
will have a significant economic impact
on a substantial number of small entities
and, if so, provide a regulatory
flexibility analysis with respect to such
impact.43 The regulations proposed
herein will affect SEFs and their market
participants. The Commission has
previously established certain
definitions of ‘‘small entities’’ to be used
by the Commission in evaluating the
impact of its regulations on small
entities in accordance with the RFA.44
The Commission previously concluded
that SEFs are not small entities for the
purpose of the RFA.45 The Commission
has also previously stated its belief in
the context of relevant rulemakings that
SEFs’ market participants, which are all
required to be eligible contract
participants (ECPs) 46 as defined in
section 1a(18) of the CEA,47 are not
small entities for purposes of the RFA.48
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.
B. Paperwork Reduction Act
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The Paperwork Reduction Act of
1995, 44 U.S.C. 3501 et seq. (PRA),
imposes certain requirements on
Federal agencies (including the
Commission) in connection with
conducting or sponsoring any
‘‘collection of information,’’ 49 as
defined by the PRA. Among its
purposes, the PRA is intended to
minimize the paperwork burden to the
private sector, to ensure that any
collection of information by a
43 5
U.S.C. 601 et seq.
FR at 18618–21 (Apr. 30, 1982).
45 SEF Core Principles Final Rule at 33548 (citing,
among others, 47 FR 18618, 18621 (Apr. 30, 1982)
(discussing DCMs).
46 17 CFR 37.703.
47 7 U.S.C. 1(a)(18).
48 66 FR 20740, 20743 (Apr. 25, 2001) (stating that
ECPs by the nature of their definition in the CEA
should not be considered small entities).
49 See 44 U.S.C. 3502(3)(A).
44 47
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government agency is put to the greatest
possible uses, and to minimize
duplicative information collections
across the government.50
The PRA applies to all information,
regardless of form or format, whenever
the government is obtaining, causing to
be obtained, or soliciting information,
and includes required disclosure to
third parties or the public, of facts or
opinions, when the information
collection calls for answers to identical
questions posed to, or identical
reporting or recordkeeping requirements
imposed on, ten or more persons.51 The
PRA requirements have been
determined to include not only
mandatory, but also voluntary
information collections, and include
both written and oral
communications.52 The Commission
may not conduct or sponsor, and a
person is not required to respond to, a
collection of information unless it
displays a currently valid Office of
Management and Budget (OMB) control
number.
This proposed rulemaking affects
regulations that contain collections of
information for which the Commission
has previously received control
numbers from OMB. The titles for these
collections of information are ‘‘Swap
Documentation, OMB control number
3038–0088’’ and ‘‘Core Principles and
Other Requirements for Swap Execution
Facilities, OMB control number 3038–
0074.’’ This proposal, if adopted, would
modify the information collection
requirements associated with OMB
control number 3038–0074, as discussed
below. The Commission therefore is
submitting this proposal to the OMB for
its review in accordance with the
PRA.53
1. OMB Collection 3038–0088—Swap
Documentation
The Commission proposes two
amendments to § 23.501(a)(4)(i) to
conform to the proposed amendments to
§ 37.6(b). Section 23.501(a)(4)(i)
provides that a swap transaction
executed on a SEF or DCM will be
deemed to satisfy the swap confirmation
requirements set forth for SDs and MSPs
in § 23.501(a), provided that the rules of
the SEF or DCM establish that
confirmation of all terms of the
transaction shall take place at the same
time as execution. First, the
Commission proposes to clarify that the
safe harbor for SDs and MSPs in
§ 23.501(a)(4)(i) also applies to swap
50 See
44 U.S.C. 3501.
44 U.S.C. 3502(3).
52 See 5 CFR 1320.3(c)(1).
53 See 44 U.S.C. 3507(d) and 5 CFR 1320.11.
51 See
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58151
transactions executed pursuant to the
rules of a SEF or DCM, i.e., block trades
executed away from the SEF’s or DCM’s
trading system or platform. Second, the
Commission proposes to amend
§ 23.501(a)(4)(i) to conform to the
proposed amendments to § 37.6(b),
which would permit confirmation of all
terms of a swap transaction as soon as
technologically practicable following
execution.
The Commission does not believe that
these proposed amendments would
substantively or materially modify any
existing information collection burdens.
Accordingly, the Commission is
retaining its existing estimates for the
burden associated with the information
collections under OMB Collection
3038–0088.54
2. OMB Collection 3038–0074—Core
Principles and Other Requirements for
Swap Execution Facilities
Under existing § 37.6(b), a SEF is
required to provide each counterparty to
a swap transaction, whether cleared or
uncleared, that is entered into on or
pursuant to the rules of the SEF, with
a written ‘‘confirmation’’ that contains
all of the terms of the transaction. With
respect to an uncleared swap
transaction, a SEF may comply with the
requirement to include in the
confirmation all of the terms of the
transaction, by incorporating by
reference relevant terms set forth in
underlying, previously negotiated
agreements between the counterparties,
as long as the SEF has obtained these
agreements prior to execution of the
transaction.55
The proposed rulemaking would add
new § 37.6(b)(1), which would permit
SEFs to incorporate by reference in a
confirmation relevant terms set forth in
underlying, previously negotiated
agreements without being required to
obtain these agreements.
The Commission preliminarily
believes that this proposed approach
would address technological and
operational challenges that have
prevented SEFs from fully complying
with § 37.6(b), by reducing the
administrative burdens for SEFs, who
would not be required to request,
accept, and maintain a library of every
relevant previously negotiated
agreement between counterparties.
As a result, the Commission believes
that the proposed rulemaking would
54 See Amended Supporting Statement for
Currently Approved Information Collection, Swap
Documentation, OMB Control Number 3038–0088
(Oct. 24, 2022), available at https://
www.reginfo.gov/public/do/PRAViewICR?ref_
nbr=202210-3038-007.
55 SEF Core Principles Final Rule at 33491 n.195.
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reduce a SEF’s annual recurring
information collection burden for
uncleared swap transactions. The
Commission estimates that proposed
§ 37.6(b)(1) would reduce annual
recurring information collection
burdens by one-third from 563 hours
per SEF to 375 hours per SEF.56
The aggregate annual estimates for the
reporting burden associated with
§ 37.6(b), as proposed to be amended,
would be as follows:
Estimated Number of Respondents:
23.
Estimated Average Burden Hours per
Respondent: 375 hours.
Estimated Total Annual Burden on
Respondents: 8,625 hours.
Frequency of Collection: On occasion.
There are no capital costs or operating
and maintenance costs associated with
this collection.
3. Information Collection Comments
ddrumheller on DSK120RN23PROD with PROPOSALS1
The Commission invites the public
and other Federal agencies to comment
on any aspect of the proposed
information collection requirements
discussed above. The Commission will
consider public comments on this
proposed collection of information in:
(1) Evaluating whether the proposed
collection of information is necessary
for the proper performance of the
functions of the Commission, including
whether the information will have a
practical use;
(2) Evaluating the accuracy of the
estimated burden of the proposed
collection of information, including the
degree to which the methodology and
the assumptions that the Commission
employed were valid;
(3) Enhancing the quality, utility, and
clarity of the information proposed to be
collected; and
(4) Minimizing the burden of the
proposed information collection
requirements on those who are to
respond, including through the use of
appropriate automated, electronic,
mechanical, or other technological
56 The Commission previously estimated that the
information collections related to § 37.6 would take
SEFs approximately 1.5 hours per SEF participant
and that on average, a SEF has about 375
participants. For purposes of estimating the number
of burden hours that the proposed regulations
would eliminate, however, the Commission is
revising its previous estimate and will assume the
relevant process would take SEFs approximately 1.0
hours per SEF participant. Accordingly, 375
participants × 1.0 hour per participant = 375
estimated burden hours. For information about the
Commission’s previous estimate. See Supporting
Statement for New and Revised Information
Collections, Core Principles and Other
Requirements for Swap Execution Facilities, OMB
Control Number 3038–0074, note 12 (Apr. 15,
2021), available at https://www.reginfo.gov/public/
do/PRAViewDocument?ref_nbr=202104-3038-001.
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information collection techniques, e.g.,
permitting electronic submission of
responses.
Copies of the submission from the
Commission to OMB are available from
the CFTC Clearance Officer, 1155 21st
Street NW, Washington, DC 20581, (202)
418–5714 or from https://RegInfo.gov.
Organizations and individuals desiring
to submit comments on the proposed
information collection requirements
should send those comments to:
• The Office of Information and
Regulatory Affairs, Office of
Management and Budget, Room 10235,
New Executive Office Building,
Washington, DC 20503, Attn: Desk
Officer of the Commodity Futures
Trading Commission;
• (202) 395–6566 (fax); or
• [email protected]
(email).
Please provide the Commission with
a copy of submitted comments so that
comments can be summarized and
addressed in the final rulemaking, and
please refer to the ADDRESSES section of
this rulemaking for instructions on
submitting comments 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 calendar days of publication of this
release. Nothing in the foregoing affects
the deadline enumerated above for
public comment to the Commission on
the proposed rules.
C. Cost-Benefit Considerations
1. Background
Section 15(a) of the CEA 57 requires
the Commission to ‘‘consider the costs
and benefits’’ of its actions before
promulgating a regulation under the
CEA or issuing certain orders. CEA
section 15(a) further specifies that the
costs and benefits shall be evaluated in
light of five broad areas of market and
public concern: (1) protection of market
participants and the public; (2)
efficiency, competitiveness, and
financial integrity of futures markets; (3)
price discovery; (4) sound risk
management practices; and (5) other
public interest considerations. The
Commission considers the costs and
benefits resulting from its discretionary
determinations with respect to the CEA
section 15(a) factors.
The Commission is proposing to
amend certain rules in parts 23 and 37
57 7
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of its regulations relating to the
confirmation by CFTC-regulated
exchanges, in particular SEFs, of the
terms of swap transactions.
The baseline against which the
Commission considers the costs and
benefits of these proposed rule
amendments is the statutory and
regulatory requirements of the CEA and
Commission regulations now in effect,
in particular CEA section 5h and certain
rules in parts 23 and 37 of the
Commission’s regulations. The
Commission, however, notes that as a
practical matter many SEFs and market
participants have adopted some current
practices based upon a no-action
position provided by Commission staff
that the proposed rule amendments
generally would codify. As such, to the
extent that SEFs and market participants
have relied on this no-action position,
the actual costs and benefits of the
proposed rule amendments as realized
in the market may not be as significant.
In some instances, it is not reasonably
feasible to quantify the costs and
benefits to SEFs and certain market
participants with respect to certain
factors, for example, market integrity.
Notwithstanding these types of
limitations, however, the Commission
otherwise identifies and considers the
costs and benefits of these proposed rule
amendments in qualitative terms.
In the following consideration of costs
and benefits, the Commission first
identifies and discusses the benefits and
costs attributable to the proposed rule
amendments. The Commission, where
applicable, then considers the costs and
benefits of the proposed rule
amendments in light of the five public
interest considerations set out in § 15(a)
of the CEA.
The Commission notes that this
consideration of costs and benefits is
based on its understanding that the
swaps market functions internationally
with: (1) transactions that involve U.S.
entities occurring across different
international jurisdictions; (2) some
entities organized outside of the United
States that are registered with the
Commission; and (3) some entities that
typically operate both within and
outside the United States and that
follow substantially similar business
practices wherever located. Where the
Commission does not specifically refer
to matters of location, the discussion of
costs and benefits below refers to the
effects of the proposed rule amendments
on all relevant swaps activity, whether
based on its actual occurrence in the
United States or on its connection with
or effect on U.S. commerce.58
58 See,
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e.g., 7 U.S.C. 2(i).
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The Commission generally requests
comment on all aspects of its costbenefit considerations, including the
identification and assessment of any
costs or benefits not discussed herein;
the potential costs and benefits of the
alternatives that the Commission
discussed in this release; data and any
other information to assist or otherwise
inform the Commission’s ability to
quantify or qualitatively describe the
costs and benefits of the proposed rule
amendments; and substantiating data,
statistics, and any other information to
support positions posited by
commenters with respect to the
Commission’s discussion. Commenters
may also suggest other alternatives to
the proposed approach where the
commenters believe that the alternatives
would be appropriate under the CEA
and would provide a more appropriate
cost-benefit profile.
ddrumheller on DSK120RN23PROD with PROPOSALS1
2. Proposed Amendments to 37.6(b)
a. Benefits
Under existing § 37.6(b), a SEF is
required to provide each counterparty to
a swap transaction that is entered into
on or pursuant to the rules of the SEF,
with a written ‘‘confirmation’’ at the
time of execution that contains all of the
terms of the transaction. SEFs may
satisfy the requirements under existing
§ 37.6(b) for uncleared swap transaction
confirmations by incorporating by
reference, in the confirmation, the
relevant terms set forth in underlying,
previously negotiated agreements
between the counterparties, as long as
such agreements have been submitted to
the SEF prior to execution.
Absent an adoption of proposed new
§ 37.6(b)(1), which would allow SEFs to
incorporate relevant terms set forth in
such underlying agreements without
being required to obtain the agreements,
SEFs would need to comply with the
existing requirements under § 37.6(b) for
uncleared swap confirmations,
notwithstanding the significant burdens
of doing so. The Commission
understands that the financial,
administrative, and logistical burdens to
collect and maintain bilateral
transaction agreements from any
individual counterparties would be
high. SEFs have stated that they are
unable to develop a cost-effective
method to request, accept and maintain
a library of every relevant previous
agreement between counterparties.59
SEFs have also noted that the potential
59 See WMBAA, Request for Extended Relief from
Certain Requirements under Parts 37 and 45 Related
to Confirmations and Recordkeeping for Swaps Not
Required or Intended to be Cleared at 3 (Mar. 1,
2016).
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number of previous agreements is
considerable, given that SEF
counterparties often enter into
agreements with many other parties and
may have multiple agreements for
different asset classes.60
The Commission preliminarily
believes that the proposed addition of
§ 37.6(b)(1) should benefit both SEFs
and market participants by decreasing
the financial, administrative, and
logistical burdens to execute an
uncleared swap on a SEF. Not only
would a SEF not be required to expend
time and resources to gather and
maintain all of the underlying
relationship documentation between all
possible counterparties on the SEF, but
market participants would also not be
required to expend time and resources
in gathering and submitting this
documentation to the SEF, including
any amendments or updates to that
documentation. Moreover, the
Commission preliminarily believes that
not requiring SEFs to obtain the
underlying relationship documentation
would eliminate associated financial,
logistical and administrative burdens.
The Commission notes that these
benefits are currently available to
market participants through the existing
no-action position provided by
Commission staff in NAL No. 17–17. As
such, to the extent that SEFs, and by
extension market participants, have
relied on the existing no-action position
to avoid the above described financial,
operational and logistical burdens,
through the incorporation by reference
of relevant terms set forth in underlying
relationship documentation, they have
been availing themselves of the benefits
from these reduced burdens.
The Commission also recognizes that
many SEFs have already expended
resources to implement technological
and operational changes needed to avail
themselves of the no-action position
under NAL No. 17–17. The proposed
amendments would preclude the need
to expend additional resources to negate
those changes.
Further, the proposed rule
amendments do not propose to change
the existing requirement for a SEF to
issue a confirmation for all terms of a
swap transaction for uncleared swaps.
To the extent that a SEF were to not
issue a confirmation that includes or
incorporates by reference all of the
terms of an uncleared swap transaction,
the counterparties to the swap may be
subject to other Commission regulations
that impose those obligations, and
therefore, increased costs. For example,
where one of the counterparties to an
60 Id.
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uncleared swap transaction is an SD or
MSP, § 23.501 requires that the SD or
MSP issue a confirmation for the
transaction as soon as technologically
practicable.61
SEFs should also benefit from the
proposed requirement to confirm
transaction terms ‘‘as soon as
technologically’’ practicable after
execution, rather than at the same time
as execution. As noted above, the
Commission preliminarily believes that
this proposal would continue to
promote the Commission’s goals of
providing the swap counterparties with
legal certainty in a prompt manner.
b. Costs
With respect to uncleared swaps, the
proposed addition of § 37.6(b)(1) could
reduce the financial integrity of
transactions on SEFs compared to the
current rule. There could be a greater
risk of misunderstanding between the
counterparties to a swap transaction if
SEFs do not provide all the terms of a
transaction at the time of execution.
Even when underlying agreements are
incorporated by reference, confusion
could arise from issues such as multiple
versions of an agreement with the same
labeling, or missing sections. However,
the Commission does not expect that
this risk will materially reduce the
integrity of the swaps market. The
Commission notes that the relevant
underlying agreements usually establish
relationship terms between
counterparties that govern all trading
between them in uncleared swaps, and
do not generally concern the terms of
specific transactions.
To the extent that SEFs are relying on
the existing no-action position provided
by Commission staff in NAL No. 17–17,
they could continue to implement
existing industry practice related to
confirmations for uncleared swap
transactions which should not impose
costs on SEFs. But to the extent that
SEFs need to modify their rules or
procedures in light of the proposed
amendments, such as removing the SEF
rules required as conditions under NAL
No. 17–17, they may incur modest costs.
c. Consideration of Alternatives
The relevant no-action position set
forth in NAL No. 17–17, upon which the
proposal is based, is subject to
withdrawal by Commission staff. In
addressing alternatives to adopting the
proposed amendments to § 37.6(b), the
Commission considered the costs and
benefits associated with withdrawal of
the no-action position in NAL No. 17–
17, which would obligate SEFs and
61 See
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market participants to satisfy the
requirements of existing § 37.6(b). The
Commission preliminarily believes that
adopting the proposed amendments to
§ 37.6(b), and the conforming
amendments set forth in this proposal,
would help to maintain the benefits
previously articulated in the SEF Core
Principles Final Rule, but also reduce
related costs for SEFs with respect to
confirmation requirements.62
d. Section 15(a) Factors
(1) Protection of Market Participants and
the Public
The proposed rule amendments
should continue to promote the legal
certainty of swap transactions executed
on SEFs. The proposed amendments to
§ 37.6 for uncleared swaps, and the
conforming amendments set forth in
this proposal, would clarify compliance
requirements, consistent with the
position taken by Commission staff in
NAL No. 17–17, while helping to
maintain the protection of market
participants and the public.
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(2) Efficiency, Competitiveness, and
Financial Integrity of Markets
The proposed amendments to § 37.6
for uncleared swaps, and the
conforming amendments set forth in
this proposal, would ease compliance
for SEFs and market participants on a
longer-term basis, i.e., by providing a
regulatory solution beyond the
corresponding no-action position
provided by Commission staff in NAL
No. 17–17. This may improve the
efficiency of the swap markets with
respect to issuing and transmitting swap
confirmations to counterparties. In
particular, SEFs would attain greater
operational efficiency because they
would not be required to develop an
infrastructure for collecting and
maintaining all relevant underlying,
previously negotiated agreements.
As noted above, with respect to
uncleared swaps, the proposed addition
of § 37.6(b)(1) could reduce the financial
integrity of transactions on SEFs
compared to the current rule. There
could be a greater risk of
misunderstanding between the
counterparties to a swap transaction if
SEFs do not provide all the terms of a
62 The
Commission recognized the important
benefits provided by the § 37.6(b) confirmation
requirements in the cost-benefit considerations to
the SEF Core Principles Final Rule. Among those
benefits, the Commission stated that the
requirements would (i) provide legal certainty to
market participants; (ii) promote accuracy for
counterparties regarding exposure levels with other
counterparties; and (iii) reduce costs and risks
involved with resolving error trade disputes
between counterparties. SEF Core Principles Final
Rule at 33570.
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transaction at the time of execution.
Even when underlying agreements are
incorporated by reference, confusion
could arise from issues such as multiple
versions of an agreement with the same
labeling, or missing sections. However,
the Commission does not expect that
this risk will materially reduce the
integrity of the swaps market. As noted
above, the Commission notes that the
relevant underlying agreements usually
establish relationship terms between
counterparties that govern all trading
between them in uncleared swaps, and
do not generally concern the terms of
specific transactions. Moreover, the
proposed rule amendments could
encourage financial integrity of the
swap markets by, among other things,
providing clarity that the terms of an
uncleared swap confirmation issued by
a SEF supersedes any conflicting terms
in underlying agreements between the
counterparties that have been
incorporated by reference into the
confirmation.
(3) Price Discovery
The Commission is not aware of
significant effects on the price discovery
process from the proposed amendments
to § 37.6, and the conforming
amendments set forth in this proposal,
regarding confirmations.
(4) Sound Risk Management Practices
The proposed amendments to the
confirmation requirements within
§ 37.6(b), and the conforming
amendments set forth in this proposal,
would maintain the promotion of sound
risk management practices with respect
to the requirement for SEFs to issue
transaction confirmations, i.e., by
providing market participants with the
certainty that transactions executed on
or pursuant to the rules of a SEF will be
legally enforceable with respect to all
counterparties to the transaction.63
(5) Other Public Interest Considerations
The Commission is identifying a
public interest benefit in codifying the
no-action position in NAL 17–17, where
the efficacy of that position has been
demonstrated. In such a situation, the
Commission believes it serves the
public interest to engage in notice-andcomment rulemaking, where it seeks
and considers the views of the public in
amending its regulations, rather than for
SEFs to continue to rely on a staff
provided no-action position that does
not bind the Commission, provides less
long-term certainty, and offers a more
limited opportunity for public input.
63 Id.
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Request for Comment
The Commission invites public
comment on all aspects of its cost
benefit considerations, including the
discussion of the section 15(a) factors.
Commenters are requested to provide
data and any other information or
statistics to support their position. To
the extent commenters believe that the
costs or benefits of any aspect of the
proposed rules are reasonably
quantifiable, the Commission requests
that they provide data and any other
information or statistics to assist the
Commission in quantification.
(11) The Commission preliminarily
believes that SEFs are relying on the no
action position in NAL 17–17 and are
not currently obtaining and maintaining
previously negotiated underlying
agreements that are incorporated by
reference in uncleared swap transaction
confirmations. Is the Commission’s
understanding correct or are there SEFs
that have found practical ways to obtain
and maintain such underlying
agreements?
(12) If a SEF were required to comply
with existing § 37.6(b) and obtain
previously negotiated underlying
agreements prior to incorporating by
reference terms from such agreements in
uncleared swap transaction
confirmations, what costs and expenses
would the SEF incur?
D. Antitrust Considerations
Section 15(b) of the CEA requires the
Commission to take into consideration
the public interest to be protected by the
antitrust laws and endeavor to take the
least anti-competitive means of
achieving the objectives of the CEA, in
issuing any order or adopting any
Commission rule or regulation.64 The
Commission does not anticipate that the
proposed amendments to parts 23 and
37 would promote or result in anticompetitive consequences or behavior.
However, the Commission encourages
comments from the public with respect
to any aspect of the proposal that may
be perceived as potentially inconsistent
with the antitrust laws or anticompetitive in nature.
List of Subjects
17 CFR Part 23
Confirmations, Swaps.
17 CFR Part 37
Swaps, Swap confirmations,
Uncleared Swap Confirmations, Swap
execution facilities.
For the reasons stated in the
preamble, the Commodity Futures
64 7
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Trading Commission proposes to amend
17 CFR parts 23 and 37 to read as
follows:
PART 23—SWAP DEALERS AND
MAJOR SWAP PARTICIPANTS
1. The authority citation for Part 23
continues to read as follows:
■
Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b–1,
6c, 6p, 6r, 6s, 6t, 9, 9a, 12, 12a, 13b, 13c, 16a,
18, 19, 21.
Section 23.160 also issued under 7 U.S.C.
2(i); Sec. 721(b), Pub. L. 111–203, 124 Sta.
1641 (2010).
2. Revise § 23.501(a)(4)(i) to read as
follows:
■
§ 23.501
Swap confirmation.
(a) * * *
(4) * * *
(i) Any swap transaction executed on
or pursuant to the rules of a swap
execution facility or designated contract
market shall be deemed to satisfy the
requirements of this section, provided
that the rules of the swap execution
facility or designated contract market
establish that confirmation of all terms
of the transaction shall take place as
soon as technologically practicable after
execution.
*
*
*
*
*
PART 37—SWAP EXECUTION
FACILITIES
Issued in Washington, DC, on August 14,
2023, by the Commission.
Robert Sidman,
Deputy Secretary of the Commission.
3. The authority citation for Part 37
continues to read as follows:
■
Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a–
2, 7b–3, and 12a, as amended by Titles VII
and VIII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act, Pub. L.
111–203, 124 Stat. 1376.
■
4. Revise § 37.6 to read as follows:
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§ 37.6
Enforceability.
(a) A transaction executed on or
pursuant to the rules of a swap
execution facility shall not be void,
voidable, subject to rescission,
otherwise invalidated, or rendered
unenforceable as a result of:
(1) A violation by the swap execution
facility of the provisions of section 5h
of the Act or this part;
(2) Any Commission proceeding to
alter or supplement a rule, term, or
condition under section 8a(7) of the Act
or to declare an emergency under
section 8a(9) of the Act; or
(3) Any other proceeding the effect of
which is to:
(i) Alter or supplement a specific term
or condition or trading rule or
procedure; or
(ii) Require a 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 swap execution facility shall
provide each counterparty to a
transaction that is executed on or
pursuant to the rules of the swap
execution facility with a written record
of all of the terms of the transaction
which shall legally supersede any
conflicting terms of a previous
agreement and serve as a confirmation
of the transaction. The confirmation of
all terms of the transaction shall take
place as soon as technologically
practicable after execution; provided
that specific customer identifiers for
accounts included in bunched orders
involving swaps need not be included
in confirmations provided by a swap
execution facility if the applicable
requirements of § 1.35(b)(5) of this
chapter are met.
(1) For a confirmation of an uncleared
swap transaction, the swap execution
facility may satisfy the requirements of
this paragraph (b) by incorporating by
reference terms from underlying,
previously negotiated agreements
governing such transaction between the
counterparties, without obtaining such
incorporated agreements except as
otherwise necessary to fully perform its
operational, risk management,
governance, or regulatory functions, or
any requirements under this part.
(2) [Reserved]
Note: The following appendices will not
appear in the Code of Federal Regulations.
Appendices to Swap Confirmation
Requirements for Swap Execution
Facilities—Voting Summary and
Chairman’s and Commissioners’
Statements
Appendix 1—Voting Summary
On this matter, Chairman Behnam and
Commissioners Johnson, Goldsmith Romero,
Mersinger, and Pham voted in the
affirmative. No Commissioner voted in the
negative.
Appendix 2—Statement of Chairman Rostin
Behnam
Today the Commission votes to propose
amendments to Parts 23 and 37 of the
Commission regulations to address
longstanding issues with the uncleared swap
confirmation requirements under Rule
37.6(b). During the initial implementation of
Part 37, SEFs informed the CFTC that the
confirmation requirement for uncleared
swaps was operationally and technologically
difficult and impractical to implement. The
Division of Market Oversight (DMO)
investigated and acknowledged these
challenges and provided targeted no-action
positions for SEFs with respect to certain
provisions of Commission regulations
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throughout the last decade.1 I support this
proposal which represents sound judgment
and clear consideration of the issues.
As there remains no workable solution that
could effectuate the original language of the
relevant rule, and the currently applicable
staff letter has no explicitly set expiration
date, the Commission is proposing to amend
Rule 37.6(b) to codify the staff no-action
position. The proposed amendment would
enable SEFs to incorporate terms by reference
in an uncleared swap confirmation without
being required to obtain the underlying,
previously negotiated agreements between
the counterparties. A proposed clarification
and conforming amendment to Rule 23.501
will clarify the consistent treatment of trades
executed away from a SEF or DCM and
permit confirmation of all terms of a swap
transaction as soon as technologically
practicable following execution, as opposed
to requiring confirmation ‘‘at the same time
as execution.’’ 2 The simplicity of these latter
proposed amendments should not
overshadow their practical impact.
Appendix 3—Statement of Commissioner
Kristin N. Johnson
In the aftermath of the 2008 global
financial crisis, the G20 leaders met in
Pittsburgh, Pennsylvania.1 This meeting
resulted in an agreement among the G20
leaders to bring transparency and oversight to
the then-unregulated swaps market.2
Emerging in the 1980s, the swaps market
remained unregulated for decades, operating
with little to no transparency and causing
significant integrity concerns for the global
financial market.
In 2010, the Dodd-Frank Wall Street
Reform and Consumer Protection Act (Dodd1 See CFTC Letter No. 13–58, Time Limited NoAction Relief to Temporarily Registered Swap
Execution Facilities from Commission Regulation
37.6(b) for non-Cleared Swaps in All Asset Classes
(Sept. 30, 2013), https://www.cftc.gov/csl/13-58/
download; CFTC Letter No. 14–108, Staff No-Action
Position Regarding SEF Confirmations and
Recordkeeping Requirements under Certain
Provisions Included in Regulations 37.6(b) and 45.2
(Aug. 18, 2014), https://www.cftc.gov/csl/14-108/
download; CFTC Letter No. 15–25, Extension of NoAction Relief for SEF Confirmation and
Recordkeeping Requirements under Commission
Regulations 37.6(b), 37.1000, 37.1001, and 45.2, and
Additional Relief for Confirmation Data Reporting
Requirements under Commission Regulation 45.3(a)
(Apr. 22, 2015), https://www.cftc.gov/csl/15-25/
download; CFTC Letter No. 16–25, Extension of NoAction Relief for Swap Execution Facility
Confirmation and Recordkeeping Requirements
under Commodity Futures Trading Commission
Regulations 37.6(b), 37.1000, 37.1001, 45.2, and
45.3(a) (Mar. 14, 2016), https://www.cftc.gov/csl/1625/download; and CFTC Letter No. 17–17,
Extension of No-Action Relief for Swap Execution
Facility Confirmation and Recordkeeping
Requirements under Commodity Futures Trading
Commission Regulations 37.6(b), 37.1000, 37.1001,
45.2, and 45.3(a) (Mar. 24, 2017), https://
www.cftc.gov/csl/17-17/download.
2 Commission Rule 23.501(a)(4)(i), 17 CFR
23.501(a)(4)(i).
1 Looking back at OTC derivative reforms—
objectives, progress and gaps, European Central
Bank (Dec. 21, 2016), https://www.ecb.europa.eu/
pub/pdf/other/eb201608_article02.en.pdf.
2 Id.
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Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Proposed Rules
ddrumheller on DSK120RN23PROD with PROPOSALS1
Frank Act) 3 amended the Commodity
Exchange Act (CEA) and introduced a
framework for the regulation of swaps that
imposed central clearing and trade execution
requirements, registration and
comprehensive regulation of swap dealers,
and recordkeeping and real-time reporting
requirements.4 Under the Dodd-Frank Act,
standardized swap transactions that are
subject to the clearing mandate and
designated made-available-to-trade must be
executed on a registered or exempt
designated contract market (DCM) or swap
execution facility (SEF).5
Section 5h of the CEA prohibits a person
from operating ‘‘a facility for the trading or
processing of swaps unless the facility is
registered as a [SEF] or as a [DCM] under this
section.’’ 6 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, actively
facilitates swap transactions in our markets
by facilitating the execution of swaps
between persons. Additionally, as registered
platforms, SEFs play an active role in price
discovery and transparency and policing and
reporting swap transactions in an effort to
monitor systemic risk.
Implementing the statutory mandate of the
CEA, the Commission adopted new rules and
principles for SEFs in 2013.7 In the adopting
release, the Commission noted several of the
key goals of the Dodd-Frank Act, including
greater pre- and post-trade transparency,
which results in lower costs for investors,
businesses, and consumers; lower risk to the
swap market and economy; and enhanced
market integrity to protect market
participants and the greater public.8 With
these goals in mind, the Commission adopted
the Part 37 regulations including Regulation
37.6.
Part 37 sets forth the operational
requirements for SEFs and trading swaps on
SEFs. The Commission adopted Regulation
37.6 and, in the adopting release, explained
that this regulation was ‘‘intended to provide
market participants who execute swap
transactions on or pursuant to the rules of a
SEF with legal certainty with respect to such
transactions.’’ 9
Specifically, CFTC Regulation 37.6(b)
‘‘requires, for uncleared transactions
executed on or pursuant to the rules of a SEF,
that the SEF ‘must have all terms . . . agreed
3 Dodd-Frank Wall Street Reform and Consumer
Protection Act, Public Law 111–203, 124 Stat. 1376
(2010).
4 Ilya Beylin, Designing Regulation for Mobile
Financial Markets, 10 U. Cal. Irvine L. Rev. 497, 511
(2020).
5 Process for a Designated Contract Market or
Swap Execution Facility to Make a Swap Available
to Trade, Swap Transaction Compliance and
Implementation Schedule, and Trade Execution
Requirement Under the Commodity Exchange Act,
78 FR 33,606, 33,606 (June 4, 2013) (codified at 17
CFR parts 37, 38).
6 7 U.S.C. 7b–3(a).
7 Core Principles and Other Requirements for
Swap Execution Facilities, 78 FR 33,475 (Jun. 4,
2013) (codified in 17 CFR 37) (hereinafter ‘‘2013
SEF Core Principles Release’’).
8 2013 SEF Core Principles Release at 33,477.
9 2013 SEF Core Principles Release at 33,490.
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to no later than execution, such that the SEF
can provide a written confirmation inclusive
of those terms at the time of execution and
report complete, non-duplicative, and noncontradictory data to an SDR as soon as
technologically practicable after
execution.’ ’’ 10 Further, CFTC Regulation
37.6 explicitly stated that a ‘‘‘swap execution
facility shall provide each counterparty with
written documentation of all terms of the
transaction to serve as confirmation of such
transaction.’ ’’ 11
Since the adoption of Regulation 37.6(b),
some have expressed concerns regarding the
feasibility of complying with the
regulation.12 In 2014,13 2015,14 2016,15 and
2017,16 the Division of Market Oversight
issued no-action letters offering guidance and
exempted relief.
In March of 2017, the Commission
provided relief for SEFs with respect to the
following requirements: (1) SEFs’ obligation
to obtain documents incorporated by
reference in a swap confirmation issued
under Regulation 37.6(b) prior to issuing the
confirmation; (2) SEFs’ obligation maintain
such documents as records; and (3) SEFs’
obligation to report terms contained in such
documents that are confirmation data.17 The
Commission issued guidance and exemptive
relief based on concerns that SEFs had been
unable to develop a practicable and costeffective method to request, accept, and
maintain a library of the underlying
previously-negotiated freestanding
agreements between counterparties.
The proposal before us today seeks to
codify the no-action relief provided in NAL
17–17 and address a decade of concerns
voiced by SEFs. I support the proposal and
look forward to carefully considering the
comments we receive to determine the best
path forward to protect our markets through
the stability of SEFs while balancing
practical approaches to implementing our
regulatory requirements. I am hopeful the
comments submitted in response to the
proposal will answer some of the explicit
questions set out in the release text as well
as support the drafting of final rules that
create clarity for SEFs and our markets.
I want to thank the staff of the Division of
Market Oversight and in the Office of General
Counsel—Roger Smith, Nora Flood, Jake
Chachkin, Dina Moussa, Carlene Kim, Laura
Badian, Paul Schlichting, Kenny Wright,
Stephen Kane, and Madison Lau—for their
diligent and thoughtful work on these
proposed amendments.
10 CFTC No-Action Letter 14–108 (Aug. 8, 2014)
(quoting 2013 SEF Core Principles Release at
33,491), https://www.cftc.gov/csl/14-108/download.
11 2013 SEF Core Principles Release at 33,491.
12 Id.
13 CFTC No-Action Letter 14–108.
14 CFTC No-Action Letter 15–25 (Apr. 22, 2015),
https://www.cftc.gov/csl/15-25/download.
15 CFTC No-Action Letter 16–25 (Mar. 14, 2016),
https://www.cftc.gov/csl/16-25/download.
16 CFTC No-Action Letter 17–17 (Mar. 24, 2017),
https://www.cftc.gov/csl/17-17/download.
17 CFTC No-Action Letter 17–17 (Mar. 24, 2017),
https://www.cftc.gov/csl/17-17/download.
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Appendix 4—Statement of Commissioner
Christy Goldsmith Romero
The regulation of swap markets, as
mandated by Dodd-Frank Act reforms, is
predicated on transparency, reporting, and
recordkeeping. Swap execution facilities
(SEF) registered with the CFTC are required
under core principle 10 to maintain records
of all activities, including a complete audit
trail. Commission regulations require a SEF
to provide a confirmation of transactions to
counterparties, including a written record of
all of the terms of the transaction, and to
obtain copies of underlying, previously
negotiated agreements between the
counterparties.
From time to time, the Commission learns
that its regulations are technologically
difficult to implement. In those situations, it
is prudent for the CFTC to revisit its
regulations in order to keep pace with
technology. Revisiting our regulations
provides a permanent fix, rather than
temporary no action relief that is extended
over and over again, as the Commission staff
have done with SEF confirmation
requirements for uncleared swaps. This relief
previously relieved SEFs of the requirement
to obtain copies of the underlying, previously
negotiated agreements between the
counterparties.
As a general rule, I believe we need to be
careful about proposing new rules that only
codify no action relief from our regulation,
particularly no action relief that has been
extended for years. Instead, we should
determine what we were trying to
accomplish with the regulation, if we still
want to accomplish that, and if there is
another way to achieve that.
As the sponsor of the Technology Advisory
Committee, I believe that we should be
forward looking in considering technological
innovations to bring the right fix when it
comes to areas where there have been
technological obstacles to compliance with
CFTC regulations. Today, I support this rule
because I support the idea that we need to
fix what has become a technological obstacle.
I look forward to public comment about
whether this proposed fix is the right
permanent fix from a technological
standpoint. I look forward to public comment
on whether this fix locks in a system that
may limit incentives for SEFs and other
market participants to innovate using new
technology that could provide copies of the
underlying, previously negotiated agreements
in compliance with the rule. In our riskbased regulatory system, counterparties
should know who they are dealing with, and
doing so requires swaps participants to
proactively revisit existing documents. I am
interested in public comment on whether the
proposed fix would disincentivize SEFs from
digitizing legacy documents and agreements,
and requiring their market participants to do
so as well. I am also interested in public
comment about whether these digitized
documents could be machine readable.
Digitized and/or machine-readable data
could lower compliance costs, and increase
transparency. In the Financial Data
Transparency Act of 2022, which does not
apply to the CFTC, other federal financial
regulatory agencies will be required to
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Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Proposed Rules
develop data collection protocols and
standards for machine readability. Other
federal financial regulators will push this
requirement to its registrants and supervised
entities to collect, maintain, and submit data
pursuant to these data transparency protocols
and standards. This will impact registrants in
our space that are dual registered with those
financial regulators, and who will need to
comply with those protocols and standards.
I look forward to hearing from members of
industry, investor and consumer advocates,
academics, and other stakeholders on these
questions. I thank the staff for their work on
this issue.
Appendix 5—Statement of Commissioner
Caroline D. Pham
I support the Notice of Proposed
Rulemaking on Swap Confirmation
Requirements for Swap Execution Facilities
(SEF Confirmation Proposal) because the
Commission is finally fixing unworkable
rules that have defied the reality of market
structure, legal documentation, and
operational processes since they were first
issued in 2013. I would like to thank Roger
Smith, Nora Flood, and Vince McGonagle in
the Division of Market Oversight for their
work on the SEF Confirmation Proposal.
As I previously stated, the Commission
must take action to fix unworkable rules by
codifying ‘‘perpetual’’ no-action relief
through notice-and-comment rulemaking as
required by the Administrative Procedure
Act.1 I am pleased that we are doing so today.
The Dodd-Frank Act amended the
Commodity Exchange Act (CEA) to establish
the SEF regulatory framework in order to
reduce risk, promote transparency, and
enhance market integrity for over-the-counter
(OTC) derivatives.2 Following that mandate,
the CFTC implemented Part 37, which
requires, among other things, that SEFs
provide written final confirmation for
uncleared swaps at the time of execution.3
Moreover, Rule 37.6(b) requires that SEFs
provide each counterparty ‘‘a written record
of all of the terms of the transaction which
shall legally supersede any previous
agreement and serve as a confirmation of the
transaction.’’ Contrary to its intent, this
requirement actually undermines legal
certainty by potentially voiding carefully
negotiated and highly technical and complex
legal agreements.4 These provisions, while
well-intentioned, have proven impracticable
(if not impossible) for both SEFs and market
participants. In fact, the requirement to
provide SEF confirmation at the time of
execution is temporally impossible for block
trades, which are executed away from the
SEF and then submitted to the SEF
afterwards.
After hearing from the public, CFTC staff
provided no-action relief in 2014 that has
been extended repeatedly in order to provide
a practical solution that could be
implemented and would still support the
CFTC’s public and regulatory transparency
requirements. For example, the no-action
relief provided that SEFs could incorporate
prior agreements to a transaction by
reference, instead of receiving hundreds of
thousands of pages of legal agreements, such
as bilateral counterparty swap trading
relationship documentation, and then
attaching hundreds of pages to SEF
confirmations.5 This requirement was
unworkable in light of Part 23 rules for swap
dealers, and for a SEF to collect such legal
documentation from swap counterparties and
then to maintain it continuously on an
ongoing basis (since these bilateral
agreements are occasionally revised), turns
SEFs into giant legal document repositories
of questionable benefit.
Once CFTC staff realized the unrealistic
nature of these SEF confirmation
requirements, I believe the staff very
prudently issued no-action relief. And I
believe that this was an appropriate exercise
of no-action relief because in the rush to
implement the Dodd-Frank Act, the
Commission did not always get it right.
When we don’t get it right, it is incumbent
upon the Commission to acknowledge
technical and operational issues and fix
them. I look forward to public comment,
particularly whether this proposal
sufficiently fixes the unworkable aspects of
our existing rules. Thank you.
[FR Doc. 2023–17747 Filed 8–24–23; 8:45 am]
BILLING CODE 6351–01–P
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Food and Drug Administration
21 CFR Part 161
[Docket No. FDA–2016–P–0147]
RIN 0910–AI74
Fish and Shellfish; Canned Tuna
Standard of Identity and Standard of
Fill of Container
AGENCY:
Food and Drug Administration,
HHS.
ACTION:
Proposed rule.
ddrumheller on DSK120RN23PROD with PROPOSALS1
of Commissioner Caroline D. Pham
on Conditional Order of SEF Registration, U.S.
Commodity Futures Trading Commission (July 20,
2022), https://www.cftc.gov/PressRoom/
SpeechesTestimony/phamstatement072022.
2 Core Principles and Other Requirements for
Swap Execution Facilities, 76 FR 1213, 1214 (Jan.
7, 2011) (codified at 17 CFR part 37).
3 See 17 CFR 37.6(b) (‘‘The confirmation of all
terms of the transaction shall take place at the same
time as execution.’’).
4 Id.
VerDate Sep<11>2014
17:46 Aug 24, 2023
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5 See, e.g., NAL No. 17–17, Re: Extension of NoAction Relief for Swap Execution Facility
Confirmation and Recordkeeping Requirements
under Commodity Futures Trading Commission
Regulations 37.6(b), 37.1000, 37.1001, 45.2, and
45.3(a) (Mar. 24, 2017).
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responds to a citizen petition submitted
by Bumble Bee Foods, LLC, StarKist Co.,
and Tri Union Seafoods, LLC (doing
business as Chicken of the Sea
International). We tentatively conclude
that this action, if finalized, will
promote honesty and fair dealing in the
interest of consumers.
DATES: Either electronic or written
comments on the proposed rule must be
submitted by November 24, 2023.
ADDRESSES: You may submit comments
as follows. Please note that late,
untimely filed comments will not be
considered. The https://
www.regulations.gov electronic filing
system will accept comments until
11:59 p.m. Eastern Time at the end of
November 24, 2023. Comments received
by mail/hand delivery/courier (for
written/paper submissions) will be
considered timely if they are received
on or before that date.
Electronic Submissions
Submit electronic comments in the
following way:
• Federal eRulemaking Portal:
https://www.regulations.gov. Follow the
instructions for submitting comments.
Comments submitted electronically,
including attachments, to https://
www.regulations.gov will be posted to
the docket unchanged. Because your
comment will be made public, you are
solely responsible for ensuring that your
comment does not include any
confidential information that you or a
third party may not wish to be posted,
such as medical information, your or
anyone else’s Social Security number, or
confidential business information, such
as a manufacturing process. Please note
that if you include your name, contact
information, or other information that
identifies you in the body of your
comments, that information will be
posted on https://www.regulations.gov.
• If you want to submit a comment
with confidential information that you
do not wish to be made available to the
public, submit the comment as a
written/paper submission and in the
manner detailed (see ‘‘Written/Paper
Submissions’’ and ‘‘Instructions’’).
Written/Paper Submissions
The Food and Drug
Administration (FDA or we) is
proposing to amend the standard of
identity and standard of fill of container
for canned tuna. This action partially
SUMMARY:
1 Statement
58157
Submit written/paper submissions as
follows:
• Mail/Hand Delivery/Courier (for
written/paper submissions): Dockets
Management Staff (HFA–305), Food and
Drug Administration, 5630 Fishers
Lane, Rm. 1061, Rockville, MD 20852.
• For written/paper comments
submitted to the Dockets Management
Staff, we will post your comment, as
well as any attachments, except for
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| File Modified | 2023-08-25 |
| File Created | 2023-08-25 |