On November 15, the Commodity Futures Trading Commission’s Division of Market Oversight (DMO) issued guidance (Guidance) to swap execution facilities (SEFs) and SEF applicants concerning several CFTC regulations relating to SEF registration requirements, consent to SEF jurisdiction, use of proprietary data, member guarantees, emergency action requirements and SEF reporting obligations.
CFTC Regulation 37.3 requires any person operating a facility that offers a trading system or platform on which multiple market participants have the ability to execute or trade swaps with each other to register as a SEF or designated contract market (DCM). The Guidance notes that this includes foreign facilities involved in activities outside the United States when those facilities provide US persons or persons located in the US, including for this purpose personnel and agents of non-U.S. persons that are located in the US, with the ability to trade or execute swaps, either directly or through an intermediary. The Guidance indicates that any such trading platform needs to register as a SEF or DCM, and that DMO is prepared to work with foreign-based platforms and their home country regulators to determine whether alternative compliance arrangements are appropriate.
The Guidance separately addresses the apparent refusal of certain clearing members to consent to the jurisdiction of a SEF. Citing CFTC Regulation 37.700, the Guidance reflects DMO’s expectation that a clearing member that guarantees swaps that are intended to be cleared will consent to the jurisdiction of the SEFs on which those swaps have been traded.
The Guidance also addresses SEF participation agreements and rulebooks that require eligible contract participants (ECPs) to consent to the SEF’s use for marketing and business purposes of market, proprietary or personal data it has collected from the ECP. The Guidance states that such provisions are inconsistent with CFTC Regulation 37.7 and that SEFs may not condition access based upon an ECP’s consent to use data or information.
In answering questions regarding whether a SEF may require a member of the SEF to guarantee trades executed by the member for its own account or the account of other market participants, the Guidance states that a guarantee from a clearing member is required to satisfy CFTC Regulation 37.700, but that no additional guarantee is required.
CFTC Regulation 37.800 requires a SEF to adopt rules that may be exercised in an “emergency,” as defined in CFTC Regulation 40.1(h). The Guidance provides that the definition of “emergency” in a SEF rulebook must be consistent with, and not broader than, the CFTC’s definition.
Finally, the Guidance addresses SEF reporting obligations. Specifically, the Guidance indicates that a SEF must include the legal entity identifier of the SEF in the required “execution venue” field when the SEF files reports with a swap data repository pursuant to Parts 43 and 45 of the CFTC’s Regulations.
The division’s guidance is available here.