Post-Trade Name Give-Up on Swap Execution Facilities, 44693-44708 [2020-14343]

Download as PDF Federal Register / Vol. 85, No. 143 / Friday, July 24, 2020 / Rules and Regulations FOR FURTHER INFORMATION CONTACT: Sheri Pippin, Air Transportation Division (AFS–200), Flight Standards Service, Federal Aviation Administration, 800 Independence Avenue SW, Washington, DC 20591; telephone: (202) 267–8166; email: sheri.pippin@faa.gov. SUPPLEMENTARY INFORMATION: Good Cause for Adoption Without Prior Notice Section 553(b)(3)(B) of the Administrative Procedure Act (APA) (5 U.S.C. 551 et seq.) authorizes agencies to dispense with notice and comment procedures for rules when the agency for ‘‘good cause’’ finds that those procedures are ‘‘impracticable, unnecessary, or contrary to the public interest.’’ Section 553(d)(3) of the APA requires that agencies publish a rule not less than 30 days before its effective date, except as otherwise provided by the agency for good cause found and published with the rule. Because this action merely makes a correction to the amendment number of a published final rule technical amendment, the FAA finds that notice and public comment under 5 U.S.C. 553(b) is unnecessary. For the same reason, the FAA finds that good cause exists under 5 U.S.C. 553(d) for making this rule effective in less than 30 days. Background On February 25, 2020, the FAA published the Pilot Professional Development final rule (85 FR 10896). After that rule was published, the FAA discovered two minor errors in §§ 121.409 and 121.424 of Title 14 of the Code of Federal Regulations that required correction. Those errors were corrected in a technical amendment published June 30, 2020 (85 FR 39069). In the technical amendment, the FAA listed the amendment number as 121– 282B. jbell on DSKJLSW7X2PROD with RULES Correction In the final rule, FR Doc. 2020–12170, published on June 30, 2020, at 85 FR 39069, make the following correction: 1. On page 39069 in the heading of the final rule, revise ‘‘Amdt. No. 121– 282B’’ to read ‘‘121–384’’. Issued under authority provided by 49 U.S.C. 106(f), 106(g), 44701(a), and Sec. 206 of Public Law 111–216, 124 Stat. 2348 (49 U.S.C. 44701 note) in Washington, DC, on July 9, 2020. Brandon Roberts, Executive Director, Office of Rulemaking. [FR Doc. 2020–15229 Filed 7–23–20; 8:45 am] BILLING CODE 4910–13–P VerDate Sep<11>2014 16:42 Jul 23, 2020 Jkt 250001 COMMODITY FUTURES TRADING COMMISSION 17 CFR Part 37 RIN Number 3038–AE79 Post-Trade Name Give-Up on Swap Execution Facilities Commodity Futures Trading Commission. ACTION: Final rule. AGENCY: The Commodity Futures Trading Commission (CFTC or Commission) is issuing a final rule to prohibit post-trade name give-up for swaps executed, pre-arranged, or prenegotiated anonymously on or pursuant to the rules of a swap execution facility (SEF) and intended to be cleared. The final rule provides an exception for package transactions that include a component transaction that is not a swap intended to be cleared, including but not limited to U.S. Treasury swap spreads. SUMMARY: The effective date for this final rule is September 22, 2020. The compliance date for swaps subject to the trade execution requirement under section 2(h)(8) of the Commodity Exchange Act (CEA or Act) is November 1, 2020. The compliance date for swaps not subject to the trade execution requirement under section 2(h)(8) of the CEA is July 5, 2021. FOR FURTHER INFORMATION CONTACT: Alexandros Stamoulis, Special Counsel, (646) 746–9792, astamoulis@cftc.gov, Division of Market Oversight, Commodity Futures Trading Commission, 140 Broadway, 19th Floor, New York, NY 10005; Roger Smith, Special Counsel, (202) 418–5344, rsmith@cftc.gov, Division of Market Oversight, Commodity Futures Trading Commission, 525 West Monroe Street, Suite 1100, Chicago, Illinois 60661; Israel Goodman, Special Counsel, (202) 418–6715, igoodman@cftc.gov, Division of Market Oversight; or Vincent McGonagle, Principal Deputy Director, (202) 418–5387, vmcgonagle@cftc.gov, Division of Enforcement, Commodity Futures Trading Commission, Three Lafayette Centre, 1151 21st Street NW, Washington, DC 20581. SUPPLEMENTARY INFORMATION: DATES: I. Background A. November 2018 Request for Comment On November 30, 2018, the Commission published in the Federal Register a request for comment regarding the practice of post-trade PO 00000 Frm 00009 Fmt 4700 Sfmt 4700 44693 name give-up on SEFs (2018 RFC).1 As described in the 2018 RFC, some SEFs facilitate post-trade name give-up by directly or indirectly disclosing the identities of swap counterparties to one another after a trade is matched anonymously. The 2018 RFC noted that a SEF may effectuate such disclosure through its own trade protocols or through a third-party service provider utilized to process and route transactions to a derivatives clearing organization (DCO) for clearing. In the 2018 RFC, the Commission questioned the necessity of the practice with respect to cleared swaps anonymously executed on a SEF. The Commission also summarized some of the general views on post-trade name give-up of various industry participants and requested public comments on the merits of the practice and whether the Commission should prohibit it. The Commission received 13 comment letters in response to the 2018 RFC. Most commenters opposed the practice of post-trade name give-up for anonymously-executed swaps submitted to clearing, and requested that the Commission adopt a regulatory prohibition. The Securities Industry and Financial Markets Association (SIFMA) expressed support for the practice and concern about the effects of a prohibition. The views raised in those comment letters were considered and discussed by the Commission in a proposed rule on post-trade name giveup issued in December 2019. B. December 2019 Proposed Rule After considering the comments received in response to the 2018 RFC, on December 31, 2019, the Commission published in the Federal Register a proposed rule to prohibit post-trade name give-up for anonymouslyexecuted and intended-to-be-cleared swaps (Proposal).2 The Proposal prohibits a SEF from directly or indirectly, including through a thirdparty service provider, disclosing the identity of a counterparty to a swap executed anonymously and intended to be cleared. The Proposal also requires SEFs to establish and enforce rules prohibiting any person from effectuating such a disclosure. In the Proposal, the Commission reasoned that a prohibition on posttrade name give-up may (1) advance the statutory objectives of promoting swaps 1 Post-Trade Name Give-up on Swap Execution Facilities, 83 FR 61571 (Nov. 30, 2018). ‘‘Post-trade name give-up’’ refers to the practice of disclosing the identity of each swap counterparty to the other after a trade has been matched anonymously. 2 Post-Trade Name Give-up on Swap Execution Facilities, 84 FR 72262 (Dec. 31, 2019). E:\FR\FM\24JYR1.SGM 24JYR1 44694 Federal Register / Vol. 85, No. 143 / Friday, July 24, 2020 / Rules and Regulations trading on SEFs and fair competition among market participants; (2) further the objectives underlying the prohibition against swap data repositories (SDRs) disclosing the identity of a counterparty to a swap that is anonymously executed and cleared in accordance with the Commission’s straight-through processing (STP) requirements; and (3) promote impartial access on SEFs.3 The Commission requested comments on all aspects of the Proposal, and also solicited comments through targeted questions relating to whether and how the proposed rule, if adopted, (1) would advance the statutory and regulatory goals described above; (2) might impact aspects of market quality and liquidity; and (3) should be tailored. Overall, the Commission received comment letters on the Proposal from 20 different respondents: 13 public interest and industry groups; two global banks with affiliated swap dealers; two global market makers; a global asset manager; a SEF operator; and a third-party provider of derivatives trade processing services.4 Additionally, Commission staff participated in several ex parte meetings concerning the proposal.5 The Commission also consulted with the U.S. Securities and Exchange Commission and foreign regulators on the proposed rule. II. Final Rule After considering the public comments on the Proposal, the Commission is adopting the proposed regulations, with certain modifications and clarifications discussed below. Specifically, the Commission is amending its part 37 regulations to 3 See Proposal at 72265–72267. letters were submitted by the following entities: Alternative Investment Management Association (AIMA) (Feb. 17, 2020); American Bankers Association (ABA) (Mar. 2, 2020); Americans for Financial Reform Education Fund (AFR) (Mar. 2, 2020); Bank Policy Institute (BPI) (Mar. 10, 2020); Better Markets, Inc. (Better Markets) (Mar. 2, 2020); Citadel and Citadel Securities (Citadel) (Letter 1: Mar. 2, 2020, and Letter 2: Apr. 21, 2020); Citibank, N.A. (Citi) (Mar. 2, 2020); Coalition for Derivatives End-Users (Mar. 2, 2020); CTC Trading Group, LLC (CTC) (Mar. 10, 2020); FIA Principal Traders Group (FIA PTG) (Mar. 2, 2020); Financial Services Forum (FSF) (Mar. 2, 2020); Healthy Markets Association (HMA) (Mar. 9, 2020); IHS Markit (Mar. 2, 2020); Investment Company Institute (ICI) (Mar. 2, 2020); JPMorgan Chase & Co. (JPMorgan) (Mar. 2, 2020); Managed Funds Association (MFA) (Mar. 2, 2020); SIFMA, on behalf of a majority of SIFMA’s swap dealer members who have expressed a view (Mar. 2, 2020); SIFMA’s Asset Management Group (SIFMA AMG) (Mar. 2, 2020); ICAP Global Derivatives Limited and tpSEF, Inc. (TP ICAP); and Vanguard (Mar. 2, 2020). 5 See Comments for Proposed Rule 84 FR 72262, available at https://comments.cftc.gov/ PublicComments/CommentList.aspx?id=3066 (last retrieved June 23, 2020). jbell on DSKJLSW7X2PROD with RULES 4 Comment VerDate Sep<11>2014 16:42 Jul 23, 2020 Jkt 250001 prohibit post-trade name give-up for swaps anonymously executed, prearranged, or pre-negotiated on or pursuant to the rules of a SEF and intended to be cleared. New § 37.9(d) prohibits a SEF from directly or indirectly disclosing the identity of a counterparty to any such swap, and requires a SEF to establish and enforce rules that prohibit any person from doing so.6 The final rule, however, contains an exception for package transactions that include a component transaction that is not a swap intended to be cleared. A. Statutory Authorities CEA section 8a(5) authorizes the Commission to make and promulgate such rules and regulations as, in the judgment of the Commission, are reasonably necessary to effectuate any of the provisions or to accomplish any of the purposes of the CEA.7 The Commission believes that prohibiting the practice of post-trade name give-up for intended-to-be-cleared swaps is reasonably necessary to promote trading of swaps on SEFs and fair competition among market participants. The Commission also believes that posttrade name give-up for intended-to-becleared swaps is inconsistent with the requirement that SEFs provide market participants with impartial access to trading on SEFs, as well as the objectives underlying the prohibition against SDRs disclosing the identities of counterparties to swaps anonymously executed on a SEF and cleared in accordance with STP requirements. 1. Promoting Trading on SEFs and Pretrade Price Transparency (CEA Section 5h(e)) CEA section 5h(e) establishes the statutory goal of the SEF regulatory regime to promote swaps trading on SEFs and promote pre-trade price transparency in the swaps market.8 In the Proposal, the Commission stated that despite available liquidity for cleared products on certain SEF platforms, the range and number of active participants may be limited due to market participants’ concerns about information leakage and anticompetitive behavior made possible by post-trade name give-up.9 The Commission also 6 The Commission notes that this rule does not prohibit a SEF from disclosing the identities of all of the participants on the SEF to all other participants. However, such disclosure in specific cases may be prohibited under other provisions of the CEA and Commission regulations. In addition, the Commission may consider this issue in a future rulemaking. 7 7 U.S.C. 12(a)(5). 8 7 U.S.C. 7b–3(e). 9 Proposal at 72265–72266. PO 00000 Frm 00010 Fmt 4700 Sfmt 4700 stated that fully-anonymous trading (i.e., without post-trade name give-up) would likely encourage more participants to trade on those platforms.10 The Proposal requested public comments on how a prohibition on post-trade name give-up would impact trading and pre-trade price transparency on affected SEFs. Several commenters on the Proposal stated that prohibiting post-trade name give-up would remove a significant barrier to increased participation on certain SEF platforms,11 and that prohibiting the practice would lead to an increase in the number of participants trading on affected SEFs.12 MFA, for example, stated that its members are ‘‘eager’’ to participate on affected SEFs and ‘‘to have the ability to transact cleared swaps anonymously; similar to how they currently trade in other asset classes (e.g., equities, futures, foreign exchange, and Treasuries, among others).’’ 13 JPMorgan, on the other hand, opined that ‘‘the more likely outcome of banning [post-trade name give-up] will be to reduce overall trading on SEFs, as dealers pull back from trading . . . .’’ 14 Other commenters similarly argued that incumbent swap dealers may exit the market or reduce their trading.15 ICI and MFA, however, characterized this outcome as ‘‘unlikely.’’ 16 MFA stated that competitive market forces would ensure that ‘‘in the unlikely event an individual dealer reduced its offering, other dealers would quickly step into its place.’’ 17 Asserting its experience as a ‘‘top liquidity provider’’ in SEF markets, Citadel stated that it does not expect a prohibition on post-trade name give-up to affect its liquidity provision on pretrade disclosed platforms or its use of pre-trade anonymous trading protocols.18 Citadel further asserted that ‘‘other swap dealers share our view, as UBS has supported the prohibition and SIFMA indicated that the views among swap dealers ‘are not uniform.’ ’’ 19 10 Id. at 72266. SIFMA AMG Letter, at 2; ICI Letter, at 3; MFA Letter, at 6 (‘‘While MFA speaks only on behalf of our members, we have heard broadly and uniformly from them that the practice of Name Give-Up is the most significant obstacle to their participation on IDB SEFs.’’); Citadel Letter 1, at 3– 4 (‘‘Name give-up is the most significant remaining such barrier preventing buy-side firms from trading on certain SEFs . . . .’’). 12 See AFR Letter, at 3; CTC Letter, at 1–2; FIA PTG Letter, at 2; MFA Letter, at 6. 13 MFA Letter, at 6. 14 JPMorgan Letter, at 10. 15 See ABA Letter, at 2; BPI Letter, at 1; FSF Letter, at 7–8; SIFMA Letter, at 4. 16 ICI Letter, at 5; MFA Letter, at 4. 17 MFA Letter, at 4. 18 Citadel Letter 1, at 6. 19 Citadel Letter 1, at 7. 11 See E:\FR\FM\24JYR1.SGM 24JYR1 jbell on DSKJLSW7X2PROD with RULES Federal Register / Vol. 85, No. 143 / Friday, July 24, 2020 / Rules and Regulations Commenters in favor of the Proposal also pointed to their experience in other asset classes where post-trade name give-up is not practiced, asserting that such markets demonstrate that the purported negative liquidity impacts raised by some incumbent swap dealers are unwarranted.20 Commenters opposed to the Proposal, however, asserted that the quality of liquidity in certain fully-anonymous markets has degraded, even as new types of market participants have entered the marketplace.21 Commenters also asserted that prohibiting post-trade name give-up would improve price transparency.22 Citadel noted that pre-trade anonymous execution methods, such as anonymous order books, will continue to function on a pre-trade basis as they do today, providing the same level of price transparency to market participants.23 Citadel and MFA opined, however, that eliminating post-trade name give-up should be expected to increase pre-trade transparency, as more market participants are able to participate in these trading protocols.24 MFA stated that post-trade name give-up has limited investor access to affected SEFs, thereby reducing pre-trade transparency regarding available bids and offers, limiting investor choice of trading protocols, and creating information asymmetries between market participants.25 MFA asserted that eliminating post-trade name give-up would facilitate investors selectively accessing additional liquidity pools and trading protocols, thereby improving price discovery and pre-trade transparency while reducing information asymmetries.26 The Commission believes that prohibiting post-trade name give-up is reasonably necessary to facilitate and promote trading on SEFs. The practice of post-trade name give-up has reportedly deterred a significant segment of market participants from making markets on or otherwise participating on affected SEFs. Such market participants have ascribed their lack of participation to several potential harms resulting from post-trade name give-up, a principal concern being the risk of information leakage allowing counterparties to glean a SEF participant’s trading positions and strategies.27 The Commission has heard repeatedly and consistently from market participants eager to trade fullyanonymously on SEFs.28 The Commission expects that many of these market participants will choose to participate on affected SEFs once the practice is prohibited, leading to increased trading. Furthermore, the Commission believes that prohibiting post-trade name give-up will promote pre-trade price transparency in the swaps market by encouraging a greater number, and a more diverse set, of market participants to anonymously post bids and offers on affected SEFs. With respect to claims made by some commenters that incumbent swap dealers may pull back from trading on SEFs if post-trade name give-up is prohibited, the Commission does not believe that this prospect justifies maintaining the practice. In the Commission’s view, there is not convincing evidence, such as research or data, supporting the proposition that participation and trading on SEFs will decrease as a result of prohibiting posttrade name give-up. Rather, the Commission believes that fullyanonymous trading has facilitated liquidity and diverse participation in markets for instruments such as futures, equities, and U.S. Treasury securities, and academic literature suggests that markets with pre- and post-trade anonymity generally feature greater liquidity than those without.29 The 20 See Citadel Letter 1, at 7; Citadel Letter 2, at 7, FIA PTG Letter, at 1–2, MFA Letter, at 4. 21 For example, FSF and JPMorgan assert that dealer-provided liquidity in some markets has increasingly been replaced by high-frequency trading firms that tend to retract liquidity sooner than other types of market participants during periods of high volatility. FSF Letter, at 9; JPMorgan Letter, at 6 and 9. See also Citi Letter, at 4 note 7 (‘‘[D]egradations in liquidity have occurred in other markets that have transitioned to fully anonymous trading.’’). By contrast, Citadel asserts that it is ‘‘bank dealers’’ that have withdrawn from SEFs and U.S. Treasury markets during certain periods of market volatility. Citadel Letter 2, at 12. 22 Citadel Letter 1, at 4–5; Citadel Letter 2, at 5; MFA Letter, at 4; SIFMA AMG Letter, at 2; Vanguard Letter, at 1. 23 Citadel Letter 1, at 4–5. 24 Id. at 5; Citadel Letter 2, at 5; MFA Letter, at 4. 25 MFA Letter, at 4. 26 Id. 27 See CFTC Market Risk Advisory Committee Meeting, Panel Discussion: Market’s Response to the Introduction of SEF’s, 133 et seq. (Apr. 2, 2015) (MRAC Meeting Transcript) at 142–144; Proposal at 72264; AIMA Letter, at 1; Citadel Letter 1, at 1, 3 and 10; ICI Letter, at 3; MFA Letter, at 3 and 7; SIFMA AMG Letter, at 1 and 2; Vanguard Letter, at 2. 28 See, e.g., supra notes 12–13 and accompanying text; Proposal at 72264, notes 31–32 and accompanying text; MRAC Meeting Transcript at 140. 29 See, e.g., S. Freiderich & R. Payne, Trading Anonymity and Order Anticipation, 21 Journal of Financial Markets 1–24 (2014) (finding that posttrade anonymity improved market liquidity, particularly for small stocks and stocks with concentrated trading, which may be more analogous to swaps); T.G. Meling, Anonymous Trading in Equities (2019 working paper) (also finding that post-trade anonymity improved market liquidity); P.J. Dennis & P. Sandas, Does Trading Anonymously Enhance Liquidity? Journal of VerDate Sep<11>2014 16:42 Jul 23, 2020 Jkt 250001 PO 00000 Frm 00011 Fmt 4700 Sfmt 4700 44695 Commission believes that increased anonymity is reasonably likely to similarly enhance trading on SEFs.30 The Commission intends to study the state of the swaps market in order to observe any changes to trading on SEFs following the implementation of this final rule.31 Moreover, the Commission finds the reasoning behind claims that incumbent swap dealers may reduce their trading if post-trade name give-up is prohibited to be at odds with the statutory requirements discussed in the following two sections: To promote fair competition among market participants and impartial access to the market. The reason proffered for a potential pullback in trading by incumbent swap dealers is that post-trade name give-up is important to ensure that swap dealers can hedge the risk of their client-facing trades.32 In this regard, some market participants argue that participation of buy-side clients and speculators on pretrade anonymous SEFs (and without the ability to identify them through posttrade name give-up) will harm the ability of dealers to hedge reliably.33 These arguments can be understood to imply that greater participation and competition from certain types of market participants (such as buy-side clients and speculators) on affected pretrade anonymous SEFs will harm overall market quality and welfare. The Commission finds this proposition to be at odds with the statutory requirements to promote fair competition among Financial and Quantitative Analysis 1–25 (2019) (same); A. Hachmeister & D. Schierek, Dancing in the Dark: Post-Trade Anonymity, Liquidity, and Informed Trading, 34 Review of Quantitative Finance and Accounting 145–177 (2010) (same); J. Linnainmaa & G. Saar, Lack of Anonymity and the Inference from Order Flow, 25 Review of Financial Studies 1,414–1,456 (2012) (same). See also Treasury Market Practices Group, White Paper on Clearing and Settlement in the Secondary Market for U.S. Treasury Securities (Jul. 11, 2019) (stating that the emergence of new types of market participants in the U.S. Treasury securities market has ‘‘likely improved overall liquidity through enhanced order flow and competition’’). 30 See, e.g., T. Lee & C. Wang, Why Trade Overthe-Counter? When Investors Want Price Discrimination, at 26–27 (2019 working paper) (predicting that eliminating name give-up in swaps markets would decrease spreads on SEFs and increase total market participant welfare). 31 In this respect, the Commission will endeavor to conduct a preliminary study on the state of the swaps markets by July 2021, and a further study by July 2023. 32 See ABA Letter, at 2; BPI Letter, at 1; Citi Letter, at 4; FSF Letter, at 3–6; JPMorgan Letter, at 4–5; SIFMA Letter, at 4–5; TP ICAP Letter, at 5. Commenters supporting the Proposal, however, asserted that the proposition that post-trade name give-up is necessary for dealer risk management is spurious. See, Better Markets Letter, at 8; Citadel Letter 1, at 2; Vanguard Letter, at 2. 33 See FSF Letter, at 4–6; Citi Letter, at 3; infra notes 53–57 and accompanying text. E:\FR\FM\24JYR1.SGM 24JYR1 44696 Federal Register / Vol. 85, No. 143 / Friday, July 24, 2020 / Rules and Regulations market participants and impartial access on SEFs. The Commission believes that maintaining post-trade anonymity, where it is reasonable to do so, will better align with the statutory framework discussed below and level the playing field for market participants of all types and sizes to trade and compete on affected SEFs without exposing sensitive swap transaction information. 2. Promoting Fair Competition Among Market Participants (CEA Section 3(b)) CEA Section 3(b) specifies that a purpose of the CEA is to promote fair competition among market participants.34 In the Proposal, the Commission noted commenters’ stated concerns about information leakage and anticompetitive behavior made possible by post-trade name give-up. The Commission reasoned that greater participation on SEFs resulting from a prohibition on post-trade name give-up would advance the goal of promoting competition on SEFs.35 The Commission stated that the proposed rule may also advance the CEA’s goal of fostering fair competition among market participations by reducing opportunities for information leakage associated with post-trade name give-up.36 In response to the Proposal, several commenters emphasized the view that post-trade name give-up is an anticompetitive practice and/or permits swap dealers to engage in certain anticompetitive behavior,37 and some commenters opined that prohibiting the practice may lead to greater competition among dealers and liquidity providers.38 Conversely, JPMorgan asserted that post-trade name give-up 34 7 U.S.C. 5(b). at 72266. 36 Id. 37 See AFR Letter, at 2–3; Better Markets Letter, at 11–12 (‘‘[T]he gleaning of trading interest and trade information and the apparent consequences of the practice of Post-Trade Name Give-Up—to permit dealers to exit order books with non-dealer participation and trade with informational advantages—conflict with the CEA’s overarching statutory objectives to ‘promote . . . fair competition among boards of trade, other markets and market participants’ . . . .’’); Citadel Letter 1, at 1; Citadel Letter 2, at 5 and 10; HMA Letter, at 2; MFA Letter, at 3; SIFMA AMG Letter, at 1. 38 See CTC Letter, at 1–2 (‘‘[W]e would expect abolishing name give-up to increase liquidity provision on SEFs given increased participation from buy-side firms, which should in turn drive enhanced participation from liquidity providers.’’); ICI Letter, at 5 (‘‘[P]rohibiting post-trade name giveup could encourage competition among dealers to the extent post-trade name give-up today gives a few dominant dealers in the market leverage over buy-side participants and other dealers.’’); MFA Letter, at 4 (‘‘[N]ew liquidity providers may be able to enter the market more easily, which will diversify sources of liquidity and increase competition.’’). jbell on DSKJLSW7X2PROD with RULES 35 Proposal VerDate Sep<11>2014 16:42 Jul 23, 2020 Jkt 250001 ‘‘promotes competition and attracts SEF trading by providing market participants multiple protocols from which to choose depending on their business models and preferences.’’ 39 By ‘‘limiting the methods through which SEFs can operate and compete with each other,’’ JPMorgan argued, banning post-trade name give-up ‘‘would clearly reduce innovation and reduce competition ‘among . . . markets,’ thus in fact contravening Section 3(b)’s mandate.’’ 40 The Commission is not persuaded by comments that prohibiting post-trade name give-up would itself impair competition or innovation. Post-trade name give-up is an ancillary post-trade protocol, and not a method of execution. The prohibition of post-trade name giveup, as proposed and adopted by the Commission, applies to all SEFs and all pre-trade anonymous execution methods. It does not proscribe SEFs from offering any existing execution method, nor does it prevent SEFs from developing new execution methods. Moreover, the Commission is concerned by other commenters’ assertions that post-trade name give-up enables anticompetitive behavior. Regardless of the prevalence or magnitude of such behavior, the Commission believes that prohibiting post-trade name give-up will reduce the opportunity for such behavior to occur, and is therefore reasonably necessary to promote fair competition among market participants on pre-trade anonymous SEF markets for cleared swaps. The Commission believes that prohibiting post-trade name give-up will address concerns about information leakage and discriminatory behavior that market participants claim have dissuaded them from accessing pre-trade anonymous liquidity pools to date, thereby removing barriers to greater participation and competition. 3. Providing Market Participants With Impartial Access to the Market (CEA Section 5h(f)(2)(B) and CFTC Regulation 37.202) CEA section 5h(f)(2)(B) requires a SEF to establish and enforce trading, trade processing, and participation rules that provide market participants with ‘‘impartial access’’ to the market.41 The Commission implemented this statutory requirement by adopting CFTC Letter, at 10. at 11. See also FSF Letter, at 10 (‘‘Contrary to what is argued in the [Proposal] and by commenters, banning name give-up would itself impair competition (certainly, innovation and competition among markets) . . . .’’). 41 7 U.S.C. 7b–3(f)(2)(B). PO 00000 39 JPMorgan 40 Id. Frm 00012 Fmt 4700 Sfmt 4700 regulation 37.202,42 which requires a SEF to provide market participants with impartial access to its market(s), including, among other things, criteria governing such access that are ‘‘impartial, transparent and applied in a fair and non-discriminatory manner.’’ 43 In this context, ‘‘impartial’’ means fair, unbiased, and unprejudiced.44 The impartial access requirement allows participants to compete on a level playing field, and additional liquidity providers to participate on SEFs.45 In the Proposal, the Commission stated that post-trade name give-up may result in a ‘‘discriminatory effect’’ against certain market participants, and that the Commission preliminarily believed post-trade name give-up undermines the policy goals of the impartial access requirement, namely, to: (1) Ensure that market participants can compete on a level playing field; and (2) allow additional liquidity providers to participate on SEFs.46 The Commission also stated its preliminary assessment that promoting a fullyanonymous trading environment without post-trade name give-up would better fulfill the goals of the impartial access requirement.47 The Proposal asked for public comments on whether post-trade name give-up undermines the stated goals of impartial access. Several commenters stated that posttrade name give-up creates an uneven or unfair playing field by conferring benefits to select market participants (large incumbent swap dealers) and permitting such market participants to engage in discriminatory trading practices.48 AFR stated that post-trade 42 17 CFR 37.202. CFR 37.202(a). 44 See Core Principles and Other Requirements for SEFs, 78 FR 33476, 33508 (June 4, 2013). 45 Id. 46 Proposal at 72267. 47 Id. 48 See AFR Letter, at 3 (‘‘Post-trade name give-up exposes liquidity providers to several risks, including the risk of retaliation from large competitors and the risk of revealing information relevant to trading strategies to competitors. Smaller liquidity providers and new entrants would tend to be more vulnerable to these dangers.’’); Better Markets Letter, at 9; Citadel Letter 1, at 3–4 and 6 (‘‘[S]wap dealers are able to use name give-up as a post-trade check to ensure that they are only transacting with other swap dealer counterparties on [interdealer broker] SEFs, thereby maintaining dealer-only liquidity pools in direct contradiction of statutory impartial access requirements.’’); Citadel Letter 2, at 10 (‘‘[W]e note the experience of Citadel Securities entering the swaps market as a new liquidity provider, where we witnessed how certain other swap dealers can use name give-up for purposes that are inconsistent with the Commission’s impartial access requirements. Immediately following our entry as a new liquidity provider, this included certain incumbent swap dealers asking [interdealer broker] SEFs to cancel executed trades upon learning through name give43 17 E:\FR\FM\24JYR1.SGM 24JYR1 Federal Register / Vol. 85, No. 143 / Friday, July 24, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES name give-up thereby ‘‘undermines impartial access and reduces the number of competitive liquidity providers on SEFs.’’ 49 Commenters also asserted that prohibiting post-trade name give-up would lead to additional, more diversified sources of liquidity on SEFs.50 JPMorgan, on the other hand, opined that although eliminating posttrade name give-up ‘‘might draw certain market participants to trade on . . . SEFs that are fully anonymous, it may drive others (e.g., dealers) away. Therefore, it is not clear that prohibiting [post-trade name give-up] would further the goal of impartial access . . . .’’ 51 JPMorgan also argued that the concept of ‘‘discriminatory effect’’ is ‘‘amorphous’’ and could be used to justify other market interventions simply because certain market participants prefer it.52 For commenters opposed to a prohibition on post-trade name give-up, the crux of their opposition is the notion that prohibiting the practice may impose ‘‘adverse selection’’ risk on incumbent swap dealers.53 FSF explained that ‘‘dealers prefer to match with the natural other side of a trade (e.g., another dealer generally seeking to maintain a risk-neutral position)’’ as opposed to other market participants, such as speculators, who may impose adverse selection costs.54 According to FSF, swap dealers use post-trade name give-up to ascertain ‘‘what types of market participants are generally trading’’ on pre-trade anonymous SEFs, and ‘‘maximize the chances of trading with the natural other side and thus up that their counterparty was Citadel Securities.’’); SIFMA AMG Letter, at 2. 49 AFR Letter, at 3. 50 CTC Letter, at 1–2; FIA PTG Letter, at 2; AFR Letter, at 3; MFA Letter, at 4; Better Markets Letter, at 5. 51 JPMorgan Letter, at 12. 52 Id. See also FSF Letter, at 11. But cf. Better Markets Letter, at 10 (‘‘[I]mpartial access would essentially become a fiction if certain classes of SEF participants could be targeted with trading practices, like Post-Trade Name Give-Up, that not only impose, but are meant to impose, disparate economic costs and trading limitations on competitors . . . .’’). 53 See ABA Letter, at 2; BPI Letter, at 1; FSF Letter, at 4–5; SIFMA Letter, at 3. FSF explained adverse selection in this context as follows. ‘‘[I]nstead of facing a speculator on the other side of a trade, who is more likely to trade in the same direction on other venues or trade in one direction in a small size on one venue in order to push the price in a certain direction so that it can trade in the opposite direction on a different venue at a better price, dealers prefer to match with the natural other side of a trade (e.g., another dealer generally seeking to maintain a risk-neutral position). Such ‘‘naturals’’ are more likely to be hedging all their residual accumulated risk, rather than trading in a manner that would move the price in an unfavorable direction.’’ FSF Letter, at 5. 54 FSF Letter, at 4–5. VerDate Sep<11>2014 16:42 Jul 23, 2020 Jkt 250001 manage adverse selection costs.’’ 55 Citi similarly commented that ‘‘[i]f new participants will be enticed to join [dealer-to-dealer] SEFs, some presumably may be participants that quote speculatively and intermittently, thereby diluting the reliable and consistent nature of quoting and trading that is the hallmark of [dealer-to-dealer] SEFs.’’ 56 In a related argument, FSF asserted that post-trade name give-up makes request-for-quote (RFQ) pricing ‘‘more tailored and efficient’’ by allowing dealers to ensure their RFQ clients are not trading on dealer-todealer order books, or if they are, quoting them wider spreads via RFQ to accommodate a greater anticipated risk of hedging the balance sheet capacity allocated to such clients.57 After considering all comments, the Commission believes that post-trade name give-up undermines the policy goals of the impartial access requirement, and that prohibiting the practice is reasonably necessary to effectuate the purposes of section 5h(f)(2)(B) of the Act. The Commission finds that the practice of post-trade name give-up effectively discriminates against certain market participants and has deterred participants from joining or trading in a meaningful way on SEFs that employ the practice. The use of post-trade name give-up to discriminate between certain types of market participants in order to maximize trading with one type of market participant and avoid trading with another—or to dissuade certain types of market participants from trading on a SEF—undermines the policy goals of the impartial access requirement to ensure that market participants can compete on a level playing field and to allow additional liquidity providers to participate on SEFs. Further, in implementing § 37.202(a), the Commission rejected the notion that a SEF could limit access to its trading systems to certain types of market 55 Id. Letter, at 3. FSF Letter, at 5 (‘‘Name give-up allows a dealer, over time (not just at the point of execution), to more accurately assess its risk of providing balance sheet capacity to a particular client and determine how it should quote to the client in order to achieve the same desired return on capital for trading with that client as with another, e.g., by quoting a tighter price to [an RFQ requester that does not trade in the dealer-to-dealer order book SEFs] than [an RFQ requester the dealer has seen trade frequently in order book SEFs].’’). FSF explained that the price that a dealer gives a client over RFQ depends on the costs of hedging the client-facing trade, and the dealer’s available liquidity for hedging depends in turn on whether the client will also be accessing that liquidity. Id. PO 00000 56 Citi 57 See Frm 00013 Fmt 4700 Sfmt 4700 44697 participants such as swap dealers.58 However, the practice of post-trade name give-up purportedly to avoid adverse selection risk, in the Commission’s view, leads to a similar result, and therefore conflicts with the purposes of the impartial access requirement imposed by CEA section 5h(f)(2)(B). Finally, the comment that a potential ‘‘discriminatory effect’’ could be used to justify market intervention simply because certain market participants prefer it misses the point. The Commission’s view here is based not upon the mere preference of certain market participants, but rather upon the entirety of facts and circumstances presented, the discriminatory manner in which post-trade name give-up is applied, and the realized effect of posttrade name give-up as a disincentive to access and participation by certain types of market participants and not others. 4. Information Privacy and Prohibition Against Post-Trade Name Give-up at an SDR (CEA Section 21(c)(6) and CFTC Regulation 49.17(f)(2)) CEA section 21(c)(6) requires an SDR to maintain the privacy of any and all swap transaction information that it receives from a swap dealer, counterparty, or any other registered entity.59 In implementing this statutory provision, the Commission promulgated regulation 49.17(f) to address the scope of access a market participant may have to swap data maintained by an SDR. For swaps executed anonymously on a SEF and cleared in accordance with the Commission’s STP requirements, § 49.17(f)(2) prohibits an SDR from providing a counterparty to a swap with access to the identity of the other counterparty or its clearing member.60 In adopting this provision, the Commission explained that this swap transaction information is subject to the statutory privacy protections because, in the Commission’s view, swap counterparties would not otherwise know one another’s identity if the swap were submitted to clearing via STP.61 In the Proposal, the Commission stated that post-trade name give-up undercuts the intent of § 49.17(f)(2) and the congressional objectives of CEA section 21(c)(6). Therefore, the Commission reasoned, prohibiting post-trade name give-up would help to advance the objectives underlying the statutory 58 See Core Principles and Other Requirements for Swap Execution Facilities, 78 FR 33476, 33507– 33508 (June 4, 2013). 59 7 U.S.C. 24a(c)(6). 60 17 CFR 49.17(f)(2). 61 Swap Data Repositories—Access to SDR Data by Market Participants, 79 FR 16673–16674 (Mar. 26, 2014). E:\FR\FM\24JYR1.SGM 24JYR1 44698 Federal Register / Vol. 85, No. 143 / Friday, July 24, 2020 / Rules and Regulations privacy protections in CEA section 21(c)(6) and the Commission’s regulations thereunder.62 Several commenters agreed with the Commission’s assessment in the Proposal that post-trade name give-up undercuts the intent of CEA section 21(c)(6) and § 49.17(f)(2).63 FSF, on the other hand, asserted that name give-up is not comparable to an SDR disclosing counterparty information since, in FSF’s view, market participants choose to have their names disclosed by trading on a SEF that practices post-trade name give-up.64 FSF also asserted that ‘‘[i]f Congress wanted to extend the privacy requirement to SEFs, it certainly would have done so.’’ 65 After considering commenters’ arguments, the Commission continues to believe that post-trade name give-up undermines the objectives underlying CEA section 21(c)(6) and § 49.17(f)(2) thereunder. In response to commenters who noted CEA section 21(c)(6) addresses SDRs and not SEFs, the Commission does not believe this reflects a Congressional intent to permit post-trade name give-up on SEFs. As the Commission noted in the Proposal, the Congressional intent to protect the privacy of trading information, including trader identities, is evident in other statutory provisions.66 While some market participants willingly participate on SEF platforms practicing post-trade name give-up, others are reportedly deterred from doing so due to concerns over the privacy of their swap transaction information.67 The Commission believes that prohibiting post-trade name give-up is consistent with Congressional intent and will further the objectives underlying CEA section 21(c)(6) and statutory provisions similarly aimed at protecting private information of market participants. B. Application of the Rule 1. Scope of Swaps Covered In the Proposal, the Commission stated its preliminary belief that, with respect to operational, credit and settlement, and legal issues in 62 Proposal at 72266. Better Markets Letter, at 11; Citadel Letter 1, at 4; FIA PTG Letter, at 2–3; ICI Letter, at 4. 64 See FSF Letter, at 10–11. 65 FSF Letter, at 11. See also SIFMA Letter, at 5; TP ICAP Letter, at 6. 66 Proposal at 72266, note 62. CEA Section 8(a), for example, prohibits the Commission from publication of data and information that would disclose the business transactions or market positions of any person and trade secrets or names of customers. 7 U.S.C. 12(a). 67 See, e.g., Proposal at 72263–72264 (discussing market participants’ concerns over ‘‘information leakage’’ that could expose a counterparty’s trading positions, strategies and/or objectives). jbell on DSKJLSW7X2PROD with RULES 63 See VerDate Sep<11>2014 16:42 Jul 23, 2020 Jkt 250001 particular, post-trade name give-up is generally unnecessary where a swap is executed on a SEF and submitted to a DCO for clearing.68 Accordingly, the Commission proposed in § 37.9(d) to prohibit disclosing the identity of a counterparty to a swap executed anonymously and ‘‘intended to be cleared.’’ The Commission specifically requested public comments on whether any operational, credit and settlement, legal, or similar issues exist that would still require post-trade name give-up for an intended-to-be-cleared swap. The Commission also requested public comments on whether it should narrow the scope of the proposed prohibition on post-trade name give-up to swaps required to be cleared under section 2(h)(1) of the Act or swaps subject to the trade execution requirement under section 2(h)(8) of the Act. The Commission received a number of comments opposing limiting the scope of the prohibition.69 MFA opposed narrowing the scope of the prohibition to swaps required to be cleared or subject to the trade execution requirements, asserting that doing so ‘‘would mute the overall effectiveness of the Proposed Rule . . . .’’ 70 Similarly, Citadel asserted that the rationale for prohibiting post-trade name give-up applies equally to all swaps intended to be cleared, not just swaps subject to the clearing requirement or trade execution requirement and, therefore, ‘‘there is no rational basis for drawing such a distinction.’’ 71 Citadel and FIA PTG, however, requested that the Commission clarify that ‘‘intended to be cleared’’ be interpreted to mean swaps that are intended to be submitted for clearing contemporaneously with execution, and not include swaps that begin as uncleared transactions and are later submitted to clearing.72 TP ICAP, on the other hand, asserted that any prohibition on post-trade name give-up should be limited to, at most, swaps 68 Proposal at 72267. The Commission also noted that STP requirements for transactions subject to clearing obviate the need for counterparty name disclosure. Id. 69 See AFR Letter, at 3; Citadel Letter 1, at 4; FIA PTG Letter, at 2; ICI Letter, at 5; MFA Letter, at 5–6. 70 MFA Letter, at 5. 71 Citadel Letter 1, at 4 (asserting that name giveup has no justification where: (1) the Commission’s STP requirements ensure that a swap is quickly submitted to, and accepted or rejected by, a DCO (and is considered void ab initio if rejected); and (2) the two trading counterparties do not have credit, operational, or legal exposure to each other at any stage). 72 See FIA PTG Letter, at 2; Citadel Letter 1, at 4; Citadel Letter 2, at 16. Citadel noted that ‘‘SEFs may offer pre-trade anonymous trading protocols for swaps that begin as uncleared and then are ‘backloaded’ into clearing by the trading counterparties at a later time.’’ Id. PO 00000 Frm 00014 Fmt 4700 Sfmt 4700 subject to the clearing requirement.73 TP ICAP reasoned that a SEF may not know whether parties to a voluntarily-cleared swap will in fact submit the swap to a DCO, as the parties may do so themselves post-execution.74 TP ICAP stated that ‘‘it would be difficult, if not impossible, to impose a restriction on [post-trade name give-up] postexecution when it is not known whether the transaction will be submitted for clearing.’’ 75 The Commission declines to narrow the prohibition as requested by TP ICAP and is adopting § 37.9(d), as proposed, to include swaps that are intended to be cleared. The Commission continues to believe that there is no need for posttrade name give-up if a swap is executed on a SEF and submitted to a DCO for clearing pursuant to STP requirements. Narrowing the prohibition to apply only to swaps required be cleared under section 2(h)(1) of the Act would unduly narrow its scope and hamper the statutory and regulatory objectives underlying the prohibition. Whether or not a swap is intended to be cleared is a material term that affects trade pricing and trade processing workflows, and it is something a SEF should be able to determine at the time of execution.76 However, to the extent a SEF’s current systems do not indicate whether a swap is intended to be cleared, the Commission notes that the SEF must make necessary adjustments to its systems and processes to ensure that it can determine whether a swap is intended to be cleared before permitting post-trade name give-up.77 The Commission recognizes that some SEFs may need time to make such adjustments, and the Commission is 73 TP ICAP Letter, at 2. 74 Id. 75 Id. TP ICAP also asserted that the Proposal ‘‘does not accommodate the necessity of Name Give-Up in transactions that are executed and cleared across time zones.’’ Id. TP ICAP stated that in such circumstances, transactions executed in one time zone may remain bilateral transactions until the relevant clearing house opens in another time zone, and post-trade name give-up would be necessary for the parties to manage counterparty credit risk until the trade can be submitted to the clearing house. 76 Furthermore, the Commission notes that a SEF’s knowledge of whether or not a swap is intended to be cleared is relevant to real-time reporting and STP requirements. See 17 CFR 43.3(b) and Appendix A to Part 43; 17 CFR 39.12(b)(7). 77 As discussed in the following section below, the prohibition on post-trade name give-up applies equally to swaps that are pre-arranged or prenegotiated by a broker on an anonymous basis. Therefore, a SEF must also ensure that its rules, systems, and processes require and enable brokers to engage in such pre-arrangement or prenegotiation without compromising counterparty anonymity, and to reliably determine whether a swap is intended to be cleared prior to engaging in name give-up. E:\FR\FM\24JYR1.SGM 24JYR1 Federal Register / Vol. 85, No. 143 / Friday, July 24, 2020 / Rules and Regulations therefore providing a later compliance date for voluntarily-cleared swaps, as further described below. Finally, in response to the comments from Citadel and FIA PTG, the Commission clarifies that ‘‘intended to be cleared’’ should be interpreted to mean swaps that are intended to be submitted for clearing contemporaneously with execution. Accordingly, if a swap begins as an uncleared transaction and then is voluntarily submitted for clearing by the counterparties at a later time, the swap would not be considered ‘‘intended to be cleared,’’ and therefore would not be subject to the prohibition on post-trade name give-up.78 jbell on DSKJLSW7X2PROD with RULES 2. Trades Pre-arranged or Pre-negotiated by a Broker A number of commenters recommended the Commission clarify that the prohibition on post-trade name give-up applies to a swap that is prearranged or pre-negotiated by a broker on an anonymous basis and thereafter submitted for execution on a SEF.79 Commenters stated that doing so would help ensure that market participants cannot evade the prohibition on posttrade name give-up.80 For example, Citadel stated that voice brokers, operating either within a SEF or through an affiliated introducing broker, may seek to evade a prohibition on posttrade name give-up by pre-negotiating or pre-arranging trades anonymously and then disclosing counterparty identities prior to formally executing the transaction on the SEF.81 To address this concern, the Commission is revising proposed 78 This includes swaps that are ‘‘backloaded’’ into clearing as described by Citadel. See supra note 72. The Commission notes that its STP regulations apply to all swaps cleared through a DCO, including voluntarily-cleared swaps. Those requirements are designed to (1) ensure that swaps are processed and accepted or rejected promptly from clearing, and (2) require swap dealers, SEFs and DCOs to coordinate with one another to ensure they have the capacity to accept or reject trades as quickly as technologically practicable if fully automated systems were used. 17 CFR 23.610, 37.702(b), 39.12(b)(7). 79 See AIMA Letter, at 2; Citadel Letter 1, at 11; Citadel Letter 2, at 17–18; FIA PTG Letter, at 2; MFA Letter, at 7. In a related comment, TP ICAP noted that the Commission should consider additional exceptions or guidance ‘‘where a swap is arranged off-SEF (e.g., by an Introducing Broker) [and] submitted for execution and clearing through a SEF to a [DCO]’’ where a prohibition on name give-up ‘‘would . . . be incongruous because the counterparties will already know one another’s identity at the point of execution.’’ TP ICAP Letter, at 7. 80 Citadel Letter 1, at 11; Citadel Letter 2, at 17– 18; CTC Letter, at 2; FIA PTG Letter, at 2; MFA Letter, at 7. The Commission notes that the ban on post-trade name give-up is subject to the Commission’s broad anti-evasion requirements. 81 Citadel Letter 1, at 2; Citadel Letter 2, at 17– 18. VerDate Sep<11>2014 16:42 Jul 23, 2020 Jkt 250001 § 37.9(d)(3) to state that the phrase ‘‘executed anonymously’’ for purposes of §§ 37.9(d)(1) and (2) includes a swap that is pre-arranged or pre-negotiated anonymously, including by a participant of the SEF. In addition, the Commission is deleting the original text of proposed § 37.9(d)(3), which the Commission believes is superfluous.82 3. Package Transactions In the Proposal, the Commission recognized that a limited exception to the post-trade name give-up prohibition may be necessary for cleared swaps that are components of package transactions that include uncleared swap components.83 Uncleared swap components create bilateral credit, operational, and/or legal exposures that the counterparties must manage on an ongoing basis. Therefore, the Commission requested public comments on the necessity and scope of an exception to the post-trade name giveup prohibition for package transactions. The Commission also requested comments on whether an exception should be provided for package transactions involving any non-swap instrument, including U.S. Treasury securities. Commenters agreed that a prohibition on post-trade name give-up should not apply to components of a package transaction that are uncleared swaps or non-swap instruments. Commenters differed on whether the Commission should provide an explicit exception in the regulation. FIA PTG, MFA and Citadel argued that while uncleared and non-swap components of package transactions should not be subject to a prohibition on post-trade name give-up, an explicit exclusion in the regulation is not necessary.84 These commenters reasoned that, by its very terms, the proposed prohibition applies to swaps intended to be cleared; thus, where a package transaction contains a cleared swap component and another uncleared swap or a non-swap component, the prohibition would not apply to the uncleared swap or non-swap component of the transaction.85 In contrast, 82 As proposed, § 37.9(d)(3) read as follows: The provisions in paragraphs (d)(1) and (d)(2) of this section shall not apply with respect to any method of execution whereby the identity of a counterparty is disclosed prior to execution of the swap. The Commission notes that the removal of this language from the final regulation is not intended to be a substantive revision or change the intended meaning or effect of the final rule. Notwithstanding this revision, the final rule does not apply to execution methods that are not pre-trade anonymous, such as name-disclosed RFQ. 83 Proposal at 72267. 84 See FIA PTG Letter, at 2; MFA Letter, at 5–6; Citadel Letter, at 9; Citadel Letter 2, at 17. 85 Citadel and FIA PTG also stated that each component of a package already faces distinct post- PO 00000 Frm 00015 Fmt 4700 Sfmt 4700 44699 JPMorgan and FSF stated that the Commission should provide an exception to the post-trade name giveup prohibition for package transactions that include an uncleared swap or security component.86 The Commission agrees with commenters that the post-trade name give-up prohibition should not apply to an uncleared swap or non-swap component of a package transaction. Uncleared swap and non-swap components of package transactions may create bilateral credit, operational, and/or legal exposures that require the counterparties to know each other’s identities. For uncleared components of a package transaction, post-trade name give-up enables market participants to perform credit checks on counterparties prior to finalizing the transaction. The practice also allows counterparties to manage credit exposure and payment obligations arising from the bilateral nature of such uncleared transactions. In the case of U.S. Treasury securities, post-trade name give-up may still be necessary to accommodate trading mechanisms and infrastructures currently used for U.S. Treasury swap spreads that do not allow for anonymous clearing and settlement of the Treasury component of such transactions.87 Therefore, the Commission believes that a limited exception to the prohibition is appropriate at this time for package transactions that include a component that is an uncleared swap or a nonswap.88 The Commission will continue trade operational workflows, so this treatment would be consistent with current market practice. FIA PTG Letter, at 2; Citadel Letter 1, at 9; Citadel Letter 2, at 17. 86 See FSF Letter, at 6 and 15; JPMorgan Letter, at 6 and 19. Similarly, SIFMA stated that any prohibition on post-trade name give-up should exempt package transactions that involve a nonswap component. Without such an exemption, SIFMA argued, SEFs will be required to change the operational flow of both the swap component and the non-swap/security component of the package transaction. SIFMA Letter, at 6. SIFMA raised concern that ‘‘the changes necessary for this infrastructure have not been considered in the cost/ benefit analysis, and have not been analyzed enough to consider unintended consequences.’’ Id. 87 To the extent that counterparties may be facilitating package transactions that involve a ‘‘security,’’ as defined in section 2(a)(1) of the Securities Act of 1933 or section 3(a)(10) of the Securities Exchange Act of 1934, or any component agreement, contract, or transaction over which the Commission does not have exclusive jurisdiction, the Commission does not opine on whether such activity complies with other applicable laws and regulations. 88 TP ICAP commented that the Commission should also consider an exception or additional guidance in cases where ‘‘a swap is a component of a package transaction involving another component that is not cleared at the same DCO.’’ TP ICAP Letter, at 7. The Commission believes that E:\FR\FM\24JYR1.SGM Continued 24JYR1 jbell on DSKJLSW7X2PROD with RULES 44700 Federal Register / Vol. 85, No. 143 / Friday, July 24, 2020 / Rules and Regulations to monitor the operational development of these markets, and encourages SEFs and market participants to address existing operational limitations so that any need for post-trade name give-up may be further diminished. Accordingly, the Commission is revising proposed § 37.9(d) by adding § 37.9(d)(4), which provides a limited exception to the post-trade name giveup prohibition for a swap that is intended to be cleared, when it is a component of a package transaction that includes a component transaction that is not an intended-to-be-cleared swap. The post-trade name give-up prohibition, as adopted in this release, prohibits SEFs from directly or indirectly disclosing the identity of a counterparty to a swap that is anonymously executed, pre-arranged or pre-negotiated on or pursuant to the rules of a SEF and intended to be cleared. Because the components of a package transaction are priced or quoted together as one economic transaction, the disclosure of the identity of a counterparty to any component of a package transaction effectively discloses the counterparty identity for all components of that package transaction. As such, if a SEF were to disclose the identity of a counterparty to the uncleared swap or non-swap component of a package transaction, the SEF would also be indirectly disclosing the identity of the counterparty to the intended-tobe-cleared swap component of the package transaction; and such indirect disclosure is otherwise prohibited under the regulation. Therefore, the Commission believes that a limited exception to the post-trade name giveup prohibition for package transactions with uncleared swap and non-swap components is necessary to provide clarity and regulatory certainty to SEFs and market participants. The exception will apply, for example, to U.S. Treasury swap spreads involving an intended-to-be-cleared swap and a U.S. Treasury security. However, the Commission emphasizes that the exception is limited in scope. Many package transactions are traded anonymously and involve only intended-to-be-cleared swaps, and the prohibition on post-trade name give-up will apply to these transactions in full.89 The Commission notes that this exception is intended to accommodate trading and settlement workflows for certain package transactions as they exist today. It is not an invitation to such an exception or guidance is not necessary at this time, and further submits that an explanation as to what the issue or underlying problem could be in such cases has not been provided. 89 For example, ‘‘curve’’ and ‘‘butterfly’’ trades involving only intended-to-be-cleared swaps. VerDate Sep<11>2014 16:42 Jul 23, 2020 Jkt 250001 structure package transactions to allow post-trade name give-up or to evade the prohibition on post-trade name give-up that the Commission is adopting in this final rule. In that regard, the final rule adopted herein is subject to the Commission’s broad anti-evasion requirements. The Commission emphasizes that this exception does not limit, prohibit, or otherwise restrain SEFs or market participants from developing and utilizing trading functionalities, operational workflows, or infrastructures for package trades that are fully anonymous, and do not utilize post-trade name give-up. The Commission encourages SEFs and market participants to continue to work to eliminate the technological and/or operational need for post-trade name give-up. The Commission will continue to monitor whether the exception in § 37.9(d)(4) can be refined as trading functionalities, operational workflows, and/or infrastructure continue to develop in the future. 4. Workups In the Proposal, the Commission requested public comments on how, if at all, a prohibition on post-trade name give-up would affect trading protocols such as auctions, portfolio compression, and/or workup sessions. JPMorgan and FSF asserted that post-trade name giveup is an integral part of workup protocols, and the Proposal will impair workup protocols and adversely affect dealers’ ability to hedge.90 These commenters asserted that a dealer’s willingness to offer greater size through a workup may depend on (1) who its counterparty is, in particular whether the counterparty is likely to be able to execute on the full size the dealer is willing to offer, 91 and (2), as FSF stated, whether the counterparty might impose adverse selection costs on the dealer upon knowing its trading interests.92 FSF suggested that if the Commission proceeds with a prohibition on posttrade name give-up, it should exclude from the prohibition any SEF that obtains a material portion of its trading volume, over a specified period, through workups.93 In contrast, Citadel and MFA asserted that post-trade name give-up is not necessary for workup sessions. Citadel asserted that if a trading protocol is pretrade anonymous, there is no need to disclose the trading counterparties in order to engage in a work-up session PO 00000 90 See FSF Letter, at 2; JPMorgan Letter, at 7. Letter, at 4; JPMorgan Letter, at 7. 92 FSF Letter, at 4. 93 FSF Letter, at 15. 91 FSF Frm 00016 Fmt 4700 Sfmt 4700 and, therefore, ‘‘work-up sessions on [interdealer broker] SEFs will function just as they do today in order to facilitate trading in size.’’ 94 Citadel also stated that claims to the contrary ‘‘are easily disproven by looking at the U.S. Treasury market, where work-ups are commonly employed on interdealer platforms even though name give-up is not used.’’ 95 MFA further argued that prohibiting post-trade name give-up would benefit trading protocols such as auctions, portfolio compression, and/or workup sessions by increasing buy-side access and participation.96 The Commission agrees that posttrade name give-up is not necessary for workup sessions. The reasons given by commenters for why they view posttrade name give-up as an important aspect of workup sessions are essentially the same reasons espoused for the purported benefits of post-trade name give-up generally, i.e., ensuring reliable hedging and avoiding adverse selection for incumbent swap dealers.97 The Commission does not find that workup sessions present a particular need for post-trade name give-up that is distinct from pre-trade anonymous order books. Accordingly, the Commission does not believe it is necessary or appropriate to include an exception for workups. 5. Error Trades Commenters also addressed the potential impact of a prohibition on post-trade name give-up on error trade corrections. TP ICAP asserted that a prohibition would prevent an efficient means for correcting trade errors, specifically, in cases ‘‘[w]here a party to a swap identifies an error that requires coordination with its counterparty.’’ 98 TP ICAP therefore identified error trade correction among issues ‘‘that require the Commission to consider exceptions and additional guidance.’’ 99 Similarly, FSF stated that post-trade name give-up 94 Citadel Letter 1, at 6. Citadel added that, similarly, a pre-trade anonymous auction or compression exercise should not require post-trade name give-up for intended-to-be-cleared swaps. Id. 95 Citadel Letter 2, at 11. Citadel further stated that ‘‘there is nothing unique about transactions executed via work-up compared to other anonymously-executed cleared swaps that would require the disclosure of counterparty identities post-trade. In the fully anonymous U.S. Treasury market, work-ups account for a significant percentage of overall trading activity.’’ Id. (citing to M.J. Fleming, E. Schaumburg & R. Yang, The Evolution of Workups in the U.S. Treasury Securities Market, Liberty Street Economics Blog (Aug. 20, 2015)). 96 MFA Letter, at 6. 97 See supra notes 32, 33, 53, 54, 55 and accompanying text. 98 TP ICAP Letter, at 7. 99 Id. E:\FR\FM\24JYR1.SGM 24JYR1 Federal Register / Vol. 85, No. 143 / Friday, July 24, 2020 / Rules and Regulations ‘‘will remain necessary for counterparties to correct operational or clerical errors resulting in a trade being rejected.’’ 100 Citadel disagreed with these commenters, stating that ‘‘[i]n the event of an operational or clerical error, the SEF can facilitate the correction of the error without disclosing a counterparty’s identity . . . .’’ 101 The Commission does not believe that post-trade name give-up is necessary or appropriate to resolve error trades for pre-trade anonymous and intended-tobe-cleared swaps. A SEF can intermediate communications if necessary, and otherwise facilitate error trade corrections, without disclosing counterparty identities.102 Accordingly, the Commission declines to adopt an exception to the prohibition on posttrade name give-up for error trade corrections. Therefore, any SEF offering trading in swaps subject to the prohibition must ensure its rules and procedures for error trades allow for error trade remediation without disclosure of the identities of counterparties to one another. C. Compliance Dates The Commission recognizes the final rule adopted herein may require SEFs to modify, in varying degrees, their rules and operations with respect to trading and trade processing systems, error trades, and compliance programs.103 The Commission also recognizes that the modifications required—and the time necessary to implement them— may vary for different swap products. The Commission anticipates that compliance with the final rule will be simpler to implement for required transactions due to the fact that the methods of execution for such transactions are limited.104 Permitted transactions may require more time to establish compliance, given that a SEF may offer any method of execution for such transactions.105 Furthermore, for swaps that are not subject to mandatory clearing, a SEF may need to make 100 FSF Letter, at 15. Letter 1, at 10. See also Citadel Letter jbell on DSKJLSW7X2PROD with RULES 101 Citadel 2, at 17. 102 The Commission’s view on this issue is consistent with its stated view in the Proposal. See Proposal at 72267, note 78. 103 This includes establishing rules to prohibit post-trade name give-up, as required under § 37.9(d)(2). 104 17 CFR 37.9(a) defines ‘‘required transaction’’ as a transaction involving a swap that is subject to the trade execution requirement in section 2(h)(8) of the Act, and provides that required transactions shall be executed on a SEF through an order book or RFQ to no less than three market participants. 105 17 CFR 37.9(c) (defining ‘‘permitted transaction’’ as any transaction not involving a swap that is subject to the trade execution requirement in section 2(h)(8) of the Act). VerDate Sep<11>2014 16:42 Jul 23, 2020 Jkt 250001 additional adjustments to its systems and processes to ensure that it can determine whether a swap is intended to be cleared, and therefore subject to the prohibition on post-trade name giveup. Accordingly, the Commission is adopting a phased compliance schedule. Specifically, for swaps subject to the trade execution requirement under CEA section 2(h)(8), SEFs must commence compliance with the requirements of § 37.9(d) no later than November 1, 2020. For swaps not subject to the trade execution requirement under CEA section 2(h)(8), SEFs must commence compliance with the requirements of § 37.9(d) no later than July 5, 2021. III. Related Matters A. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) 106 requires Federal agencies to consider whether the rules they propose will have a significant economic impact on a substantial number of small entities and, if so, to provide an analysis regarding the economic impact on those entities. The final rule adopted by the Commission will directly affect SEFs. The Commission has previously determined that SEFs are not ‘‘small entities’’ for the purpose of the RFA.107 Therefore, the Chairman, on behalf of the Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the rule adopted herein will not have a significant economic impact on a substantial number of small entities. B. Paperwork Reduction Act The Paperwork Reduction Act (PRA) 108 imposes certain requirements on Federal agencies, including the Commission, in connection with their conducting or sponsoring any collection of information, as defined by the PRA. 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. The Commission has previously received a control number from OMB that includes the collection of information associated with part 37 of the Commission’s regulations. The title for this collection of information is ‘‘Core Principles and Other Requirements for Swap Execution Facilities, OMB control number 3038– U.S.C. 601 et seq. Core Principles and Other Requirements for Swap Execution Facilities, 78 FR 33476, 33548 (June 4, 2013). 108 44 U.S.C. 3501 et seq. PO 00000 106 5 107 See Frm 00017 Fmt 4700 Sfmt 4700 44701 0074.’’ 109 Collection 3038–0074 is currently in force with its control number having been provided by OMB. However, the rule adopted herein does not impose any new recordkeeping or information collection requirements, and therefore contains no requirements subject to the PRA. C. Cost-Benefit Considerations Section 15(a) of the CEA requires the Commission to consider the costs and benefits of its actions before promulgating a regulation under the CEA.110 Section 15(a) further specifies that costs and benefits shall be evaluated in light of five broad areas of market and public concern: (1) Protection of market participants and the public; (2) efficiency, competitiveness, and financial integrity of futures markets; (3) price discovery; (4) sound risk management practices; and (5) other public interest considerations. The Commission considers the costs and benefits resulting from its discretionary determinations with respect to the Section 15(a) factors. The Commission is adopting amendments to part 37 of the Commission’s regulations to prohibit post-trade name give-up for swaps anonymously executed, pre-arranged, or pre-negotiated on or pursuant to the rules of a SEF and intended to be cleared. Section 37.9(d) of the Commission’s regulations adopted herein prohibits a SEF from directly or indirectly, including through a thirdparty service provider, disclosing the identity of a counterparty to any such swap. The regulation also requires SEFs to establish and enforce rules that prohibit any person from effectuating such a disclosure. The baseline for this consideration of costs and benefits with respect to the rule adopted herein is the status quo, which includes the existing practice of post-trade name give-up for cleared swaps on some SEFs, and the current regulatory requirements that do not explicitly prohibit post-trade name giveup for cleared swaps anonymously executed, pre-arranged, or prenegotiated on or pursuant to the rules of a SEF. The prohibition does not apply to uncleared swaps or SEF trading systems and platforms that are not pretrade anonymous; and the final rule includes an exception for package transactions that include components that are not intended-to-be-cleared 109 See OMB Control No. 3038–0074, available at https://www.reginfo.gov/public/do/ PRAOMBHistory?ombControlNumber=3038-0074 (last retrieved June 23, 2020). 110 7 U.S.C. 19(a). E:\FR\FM\24JYR1.SGM 24JYR1 44702 Federal Register / Vol. 85, No. 143 / Friday, July 24, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES swaps. Much of the swaps trading on SEFs today occurs on disclosed trading systems and platforms that display the identities of potential counterparties to one another before execution occurs. Such is the case, for example, with many RFQ systems offered by SEFs. The Commission notes that this consideration of costs and benefits is based on the understanding that the swaps market functions internationally, with many transactions involving U.S. firms taking place across international boundaries, with some Commission registrants being organized outside of the United States, with leading industry members typically conducting operations both within and outside the United States, and with industry members commonly following substantially similar business practices wherever located. Where the Commission does not specifically refer to matters of location, the below discussion of costs and benefits refers to the effects of the final rules on all swaps activity subject to the proposed and amended regulations, whether by virtue of the activity’s physical location in the United States or by virtue of the activity’s connection with or effect on U.S. commerce under CEA section 2(i).111 The Commission has endeavored to assess the expected costs and benefits of the final rulemaking in quantitative terms, where possible. In situations where the Commission is unable to quantify the costs and benefits, the Commission identifies and considers the costs and benefits of the adopted rule in qualitative terms. The lack of data and information to estimate those costs is attributable in part to the nature of the final rule and uncertainty about the potential responses of market participants to the implementation of the final rule. The Commission recognizes that potential indirect costs and benefits of the prohibition on posttrade name give-up adopted herein— i.e., those relating to effects on trading behavior, liquidity, and competition— may be impossible to accurately predict or quantify prior to implementation of the rule. The final rule differs from the proposed rule in several ways. Section 37.9(d)(3) of the final rule states that for purposes of the rule, the term ‘‘executed 111 7 U.S.C. 2(i). Section 2(i)(1) applies the swaps provisions of both the Dodd-Frank Act and Commission regulations promulgated under those provisions to activities outside the United States that have a direct and significant connection with activities in, or effect on, commerce of the United States. Section 2(i)(2) makes them applicable to activities outside the United States that contravene Commission rules promulgated to prevent evasion of Dodd-Frank. VerDate Sep<11>2014 16:42 Jul 23, 2020 Jkt 250001 anonymously’’ shall include a swap that is pre-arranged or pre-negotiated anonymously, including by a participant of the SEF. The proposed rule does not include this provision, which is intended to clarify that the prohibition on name disclosure also applies in cases where a broker prenegotiates or pre-arranges a trade anonymously. The final rule also includes an exception for package transactions that include a component transaction that is not an intended-tobe-cleared swap, and a staggered compliance schedule depending on whether a swap is subject to the trade execution requirement. 1. Costs The Commission recognizes that the final rule adopted herein may require SEFs to modify their rules and operations in varying degrees, including, potentially, with respect to trading and trade processing systems, error trades, and compliance programs; and that these modifications are likely to impose costs. For example, § 37.9(d)(2) requires SEFs to establish and enforce rules to prohibit any person from directly or indirectly, including through a third-party service provider, disclosing the identity of a counterparty to a swap that is executed anonymously and intended to be cleared. Complying with § 37.9(d)(2) will require a SEF to file such rules with the Commission in accordance with part 40 of the Commission’s regulations. The Commission estimates that filing such rules may take up to 50 hours, which is unlikely to be a major cost burden on SEFs. The Commission also recognizes that the modifications required—and the time necessary to implement them— may vary for different swap products. The Commission believes that these costs will be relatively small as compared to a SEF’s overall operating costs. In the Proposal, the Commission stated a preliminary assessment that the direct costs in implementing and complying with the proposed rule would not be material, and that the costs of adjusting affected SEF protocols in order to comply would be negligible.112 The Commission requested that SEFs provide estimates of any direct costs they would incur.113 The Commission received no such comments. The Commission anticipates that compliance with the final rule will be simpler and less costly to implement for swaps that are subject to the clearing requirement. The Commission recognizes that a SEF may incur PO 00000 112 Proposal at 72269. 113 Id. Frm 00018 Fmt 4700 Sfmt 4700 additional costs with respect to swaps that are not subject to mandatory clearing, insofar as its systems and processes must be adjusted to ensure that it is determined whether a swap is intended to be cleared prior to permitting post-trade name give-up to occur. The Commission is adopting a phased compliance schedule based on whether a swap is subject to the trade execution requirement. The extended compliance period for swaps not subject to the trade execution requirement will delay the benefits associated with the rule for certain swaps, but should also mitigate the costs to SEFs associated with compliance with the rule. The Commission anticipates the direct cost of complying with § 37.9(d) for market participants to be at or near zero and has received no comments to the contrary. With respect to potential indirect costs of the proposed rule, commenters opposing the Proposal argued that it will harm liquidity by causing incumbent swap dealers to exit the market or reduce their trading and the liquidity they provide.114 Several proponents of the Proposal disputed these assertions. ICI and MFA characterized this outcome as ‘‘unlikely.’’ 115 MFA stated that competitive market forces would ensure that ‘‘in the unlikely event an individual dealer reduced its offering, other dealers would quickly step into its place.’’ 116 Asserting its experience as a ‘‘top liquidity provider’’ in SEF markets, Citadel stated that it does not expect a prohibition on post-trade name give-up to affect its liquidity provision on RFQ platforms or its use of pre-trade anonymous trading protocols.117 Citadel further asserted that ‘‘other swap dealers share our view, as UBS has supported the prohibition and SIFMA indicated that the views among swap dealers ‘are not uniform.’ ’’ 118 Commenters also pointed to their experience in other asset classes where post-trade name give-up is not practiced, asserting that such markets demonstrate that the purported negative liquidity impacts raised by incumbent swap dealers are unwarranted.119 The Commission believes that incumbent swap dealers will continue to provide liquidity on the affected SEFs as long as it is in their business interest to do so and notes that the apparent desire of other entities to provide 114 See ABA Letter, at 2; BPI Letter, at 1; FSF Letter, at 7–8; SIFMA Letter, at 4. 115 ICI Letter, at 5; MFA Letter, at 4. 116 MFA Letter, at 4. 117 Citadel Letter 1, at 6. 118 Citadel Letter 1, at 7. 119 See Citadel Letter 1, at 7; Citadel Letter 2, at 7, FIA PTG Letter, at 1–2, MFA Letter, at 4. E:\FR\FM\24JYR1.SGM 24JYR1 Federal Register / Vol. 85, No. 143 / Friday, July 24, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES liquidity once post-trade name give-up is prohibited suggests that overall liquidity is not likely to decline. A number of commenters asserted that without post-trade name give-up on dealer-to-dealer SEFs, pricing and liquidity offered by dealers to clients via RFQ or over-the-counter (OTC) may suffer.120 Some of these commenters stated that post-trade name give-up helps dealers predict their hedging costs and tailor their pricing on RFQ SEFs.121 They argued that prohibiting the practice would likely result in inferior pricing for clients on RFQ SEFs.122 Similarly, commenters asserted that post-trade name give-up enables dealers to hedge the risk they accumulate by providing liquidity to clients off-SEF.123 FSF argued that if dealers widen spreads as a result of a prohibition on post-trade name give-up, commercial end users may be disproportionately harmed because they rely more exclusively on dealer pricing and generally do not trade in cleared swaps on SEFs.124 The Coalition for Derivatives End-Users (Coalition) stated that they ‘‘have heard from bank swap dealers that the Proposed Rule would result in less liquidity and worse pricing on SEFs, which in turn may increase costs for derivatives end users hedging transactions in the non-cleared OTC derivatives markets.’’ 125 The Coalition also stated that they ‘‘have heard from other market participants that, under the Proposed Rule, liquidity would increase and result in better pricing on SEFs, which in turn may drive down costs for derivatives end-users in the non-cleared OTC derivatives markets.’’ 126 The Coalition further stated that it ‘‘lacks the empirical data and institutional knowledge to reach a firm conclusion as to the effects of the Proposed Rule on the ability of end-users to access efficient and economical markets to hedge their commercial risks.’’ 127 SIFMA AMG and Citadel each generally disagreed with the notion that client pricing will be harmed by a prohibition on post-trade name giveup.128 Citadel asserted that, ‘‘if anything, pricing should become more competitive, as buy-side firms gain 120 See ABA Letter, at 2; Citi Letter, at 3–4; FSF Letter, at 2 and 5–6; JPMorgan Letter, at 5–6. 121 See JPMorgan Letter, at 5–6; FSF Letter, at 2; Citi Letter, at 3. 122 See Citi Letter, at 3–4; FSF Letter, at 5–6. 123 ABA Letter, at 3; FSF Letter, at 2 and 5; Citi Letter, at 3–4. 124 See FSF Letter, at 2 and 7. 125 Coalition Letter, at 1. 126 Id. 127 Id. at 2. 128 See Citadel Letter 1, at 7; Citadel Letter 2, at 11; SIFMA AMG Letter, at 2. VerDate Sep<11>2014 16:42 Jul 23, 2020 Jkt 250001 access to additional sources of liquidity and will have more pre-trade price information on which to transact’’; 129 and that ‘‘increasing competition should lower transaction costs, thereby facilitating dealer hedging.’’ 130 The Commission continues to believe that prohibiting post-trade name give-up is likely to increase competition on affected SEFs, which in turn should lead to lower overall transaction costs.131 The Commission is basing its belief on several studies described in the benefits section below, finding that post-trade anonymity tends to reduce trading costs and lead to better price quotes and lower realized spreads.132 Nevertheless, the Commission acknowledges that it is theoretically possible that the prohibition on posttrade name give-up could lead to increased trading costs associated with some OTC swaps, even if, as the Commission anticipates, it leads to improved liquidity and lower transaction costs for swaps traded on SEFs. One study reviewed by the Commission, as discussed below, describes a theoretical scenario, where post-trade anonymity in swaps and bond markets could lead to an increase in OTC spreads and a simultaneous decrease in spreads on exchanges that ultimately improves overall welfare of market participants.133 2. Benefits The Commission believes that implementing the rule may reduce information asymmetries and improve liquidity, particularly on affected SEFs, and may reduce transaction costs and bid-ask spreads. The practice of posttrade name give-up and the prospect of information leakage have reportedly deterred a significant segment of market participants from making markets on or otherwise participating on affected SEFs. The Commission expects that many of these market participants will choose to participate on these SEFs once the practice is prohibited, leading to increased liquidity. Increased liquidity may benefit market participants by making it easier to execute transactions, especially larger transactions, quickly and without undue price impact. Letter 1, at 7. Letter 2, at 11. 131 See Proposal at 72269. 132 The Commission does note that reductions in transaction costs may lead to a reduction in profits for incumbent liquidity providers and thus, these lower costs may be perceived as a cost for those liquidity providers, even as it is perceived as a benefit for other market participants. 133 T. Lee & C. Wang, Why Trade Over-theCounter? When Investors Want Price Discrimination (2019 working paper). PO 00000 129 Citadel 130 Citadel Frm 00019 Fmt 4700 Sfmt 4700 44703 In order to evaluate the expected benefits of implementing the rule, the Commission reviewed several empirical studies examining prior experiences with changes in post-trade anonymity. As detailed in the Proposal, the studies covered the experiences in U.S. securities markets and a wide range of foreign financial markets and, on balance, support the premise that posttrade anonymity promotes trading liquidity. Commenters in favor of the prohibition of name give-up cited other studies that further support the benefits of fully-anonymous trading. Commenters not in favor of prohibiting post-trade name give-up did not provide data, evidence, or studies regarding the impact of post-trade anonymity. Specifically, as discussed in more detail in the Proposal, the Commission reviewed six event studies focusing on post-trade anonymity in various equity exchanges around the world, most of which document an improvement in liquidity. The Commission acknowledges that none of these studies examine a change in post-trade anonymity for a swaps market, but the studies do provide real-world evidence on the effects on liquidity in a range of markets when the rules for post-trade anonymity are changed. Hence, they provide the most instructive empirical evidence available regarding a proposed change in such rules. Four of these studies, which focus on European equity markets, provide evidence of a liquidity improvement associated with post-trade anonymity,134 which could be attributed to a reduction of information leakage.135 A study on the 2003 introduction of post-trade anonymity on the NASDAQ platform found no evidence that best quotes were improved,136 while a study on the South Korea Exchange found that reducing post-trade anonymity led to lower realized spreads.137 The Commission 134 S. Freiderich & R. Payne, Trading Anonymity and Order Anticipation, 21 Journal of Financial Markets 1–24 (2014); T.G. Meling, Anonymous Trading in Equities (2019 working paper); P.J. Dennis & P. Sandas, Does Trading Anonymously Enhance Liquidity?, Journal of Financial and Quantitative Analysis 1–25 (2019); A. Hachmeister & D. Schierek, Dancing in the Dark: Post-Trade Anonymity, Liquidity, and Informed Trading, 34 Review of Quantitative Finance and Accounting 145–177 (2010). 135 S. Freiderich & R. Payne, Trading Anonymity and Order Anticipation, 21 Journal of Financial Markets 1–24 (2014); J. Linnainmaa & G. Saar, Lack of Anonymity and the Inference from Order Flow, 25 Review of Financial Studies 1,414–1,456 (2012). 136 K. Benhami, Liquidity providers’ valuation of anonymity: The NASDAQ Market Makers evidence (2006 working paper). 137 T.P. Pham, et al., Intra-day Revelation of Counterparty Identity in the World’s Best-Lit Market (2016 working paper). E:\FR\FM\24JYR1.SGM 24JYR1 44704 Federal Register / Vol. 85, No. 143 / Friday, July 24, 2020 / Rules and Regulations believes that on balance the empirical evidence presented in these academic studies supports the benefits of anonymous trading. As discussed in more detail in the Proposal, the Commission also reviewed several theoretical studies. The studies present models with various levels of post-trade disclosure in different settings, and the results offer insight into the trade-offs associated with changes in post-trade anonymity, notwithstanding the fact that the studies did not directly examine the case of bilateral disclosure of counterparty identities immediately after each trade. The Commission found that the results of these theoretical studies were mixed. One study, for example, focused on the post-trade public disclosure of the trades of insiders in equity markets, and the authors concluded that public disclosure of insider trades accelerates the price discovery process.138 Therefore, the results suggest that posttrade anonymity might strengthen asymmetric information problems in the market and lead to subsequently reduced liquidity by exacerbating the market maker’s adverse selection problem. Another study concluded that public disclosure can reduce the informational efficiency of prices and reduce market liquidity, because informed traders reduce trading in order to preserve their informational advantage.139 The Commission also examined one theoretical study that explicitly addresses the practice of post-trade name give-up. The study, considered in more detail in the Proposal, modeled the investor choice between OTC markets and electronic order books.140 The authors supported that the OTC market can detect and attract uninformed traders (i.e., hedgers who are demanding liquidity but do not possess market moving information) by offering them lower spreads, which results in an increase in spreads for informed traders (i.e., traders who demand liquidity in order to profit from the trade) in an electronic order book, as well as a decrease in average spreads and an increase in total volume. The authors concluded that a prohibition on post-trade name give-up would likely lead to an increase in overall welfare. They reasoned that, in the absence of post-trade name give-up, informed traders will continue to trade via RFQ in order to minimize exposure of their trading intentions, and that spreads in this venue will stay high to reflect this situation. On the other hand, uninformed traders will migrate to the order book and trade more, because spreads will decline due to the increased activity. They predicted that overall welfare would increase because the aggregate benefits of increased electronic trading at low spreads would more than offset the aggregate costs to informed traders who remain concerned about information leakage. The study is consistent with the Commission’s recognition of the trade-offs in prohibiting post-trade name give-up. Citadel cited two additional studies that the Commission did not consider in the Proposal, but which it has now reviewed.141 These studies examined the effect of various levels of intermediation (i.e., access to multiple market makers) on liquidity in OTC markets and may be closer to the setting of the swaps market. One study provided an empirical evaluation of the implications of the OTC market structure for non-financial firms in the foreign exchange derivatives market.142 The authors documented extensive discriminatory pricing by dealers, who appeared to favor sophisticated customers, defined as those customers transacting high volume with multiple counterparties. However, clients trading on RFQ platforms, where they can request quotes from multiple dealers simultaneously, appeared to receive competitive pricing irrespective of the level of their sophistication which leads the authors to conclude that discriminatory pricing could be potentially eliminated with the use of a centralized order book. Finally, the authors argued that the lack of centralized dissemination of transaction prices provides dealers with an information advantage compared to clients, which enables them to extract information rents.143 The Commission recognizes the empirical fact that trading costs appear to differ across different venues and for different traders, as this study emphasizes. Nonetheless, the Commission finds that the design of the study precludes strong jbell on DSKJLSW7X2PROD with RULES 141 See 138 S. Huddart, J.S., Hughes & C.B. Levine, Public Disclosure and Dissimulation of Insider Trades, Econometrica, Vol. 69, No. 3 (May 2001), 665–681. 139 A.M. Buffa, Insider Trade Disclosure, Market Efficiency, and Liquidity (2014 working paper). 140 T. Lee & C. Wang, Why Trade Over-theCounter? When Investors Want Price Discrimination (2019 working paper). VerDate Sep<11>2014 16:42 Jul 23, 2020 Jkt 250001 Citadel Letter 2, at 16. Hau, P. Hoffmann, S. Langfield, & Y. Timmer, Discriminatory pricing of over-the-counter derivatives (2017 working paper). We note that, while the paper focuses on the foreign exchange derivatives market, its conclusions regarding the impact of multi-dealer RFQ platforms are generally applicable across markets. 143 Id. PO 00000 142 H. Frm 00020 Fmt 4700 Sfmt 4700 causal statements regarding the causes and effects of the observed variation. The second study, which provides a theoretical model of a generic OTC market, concluded that sophisticated investors, who have access to multiple market makers or other investors, face lower transaction costs.144 The authors theorized that the availability of other trading counterparties (i.e., more competition) forces market makers to provide better pricing. The Commission agrees with the broad conclusion that more active, competitive markets are welfare enhancing. Several commenters addressed the Commission’s review of academic studies in the Proposal. FSF, SIFMA, JPMorgan and TP ICAP each asserted that the studies on equity markets cited in the Proposal’s Cost-Benefit Considerations (CBC) are not relevant because equity markets are not comparable to the swaps market.145 JP Morgan stated that ‘‘swap markets have many fewer participants, of which institutional participants constitute a far larger proportion, much lower trading frequency, far greater variation in tradeable products, and much larger typical trade sizes.’’ 146 The Coalition requested a quantitative analysis of the costs and benefits for commercial end users.147 BPI, FSF, Citi and JPMorgan further asserted that the CBC is not sufficient and that further study is necessary.148 Better Markets, Citadel and AFR each commented that the Proposal, including the consideration of costs and benefits therein, provides a sufficient basis with which to move forward with a final rule.149 Citadel also argued that the Proposal is consistent with the Commission’s previous decision in implementing part 37 not to limit SEF 144 D. Duffie, N. Ga ˆ rleanu, & L.G. Pedersen, Valuation in Over-the-Counter Markets, Review of Financial Studies, Vol. 20, No. 5 (2007). 145 See FSF Letter, at 9; SIFMA Letter, at 3; JPMorgan Letter, at 9; TP ICAP Letter, at 5. 146 JPMorgan Letter, at 9. See also FSF Letter, at 9 (‘‘The swap markets have many fewer participants, much lower trading volume, far greater variation in tradable products, and much larger typical trade sizes.’’). 147 Coalition Letter, at 2. The Commission notes that it is not possible to conduct a quantitative analysis of the costs and benefits to commercial end users of a prohibition on post-trade name give-up prior to finalizing the rule, because there is no data on the effects until after the rule is implemented. 148 See BPI Letter, at 2; FSF Letter, at 12; Citi Letter, at 3; JPMorgan Letter, at 13–14. See also ABA Letter, at 2 (‘‘[W]e see no relevant data cited in the Proposed Rule to support the contention that the prohibition would attract sufficient additional non-dealer market participants to CLOB SEFs to outweigh these negative consequences.’’). 149 See AFR Letter, at 1; Better Markets Letter, at 5; Citadel Letter 1, at 11; Citadel Letter 2, at 14– 15. E:\FR\FM\24JYR1.SGM 24JYR1 Federal Register / Vol. 85, No. 143 / Friday, July 24, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES access to just swap dealers, and therefore the Commission can rely on its cost-benefit considerations for that rulemaking to support a prohibition on post-trade name give-up.150 Citadel further argued that claims by some commenters that commercial end-users transacting swaps off-SEF might be negatively affected by the Proposal conflicts with academic research.151 The Commission notes that commenters who support prohibiting post-trade name give-up generally considered the academic studies discussed in the Proposal to be informative, while commenters who oppose the prohibition assert that the studies are not informative because swaps markets are different than equity markets. The Commission acknowledges that there are differences between the equity markets in most of these empirical studies and the U.S. swaps markets. Further, the Commission understands that the equity markets examined do not generally mirror the exact dealer-centric swaps markets under consideration. Nonetheless, the wide range of markets, time periods, and experiences considered in the empirical studies leads the Commission to conclude that the value of anonymous trading is well-established. Moreover, to the extent that liquidity provision in swaps markets is more concentrated than in the most active and liquid equity markets, the empirical studies that provide evidence on smaller equity markets, or on the less liquid stocks in a given market, might be most informative. Some of the equity markets studied may be deeper and more liquid than the U.S. swaps market. However, several of the markets studied are equity markets that are smaller than the U.S. equity market (e.g., Finland, Norway, and Sweden), and therefore potentially more comparable to the swaps markets in the U.S. For example, one of the early empirical studies on the implementation of post-trade anonymity on the London Stock Exchange in 2001 finds that liquidity improvements were more pronounced for small stocks and stocks with higher trading concentration, which were potentially subject to larger information asymmetries. The Commission notes that, with respect to the smaller universe of liquidity providers, markets for smaller stocks could be more Letter 2, at 14. Letter 2, at 15. Citadel cited two academic studies that it asserted ‘‘suggests that commercial end-users may not be best-served by maintaining the current status quo.’’ Id. These studies show that access to multiple market makers reduces trading costs. analogous to swaps markets than markets for larger and more liquid stocks with a broader array of market participants. Commenters who objected to the application of the studies did not provide evidence to support the argument that the differences between the anonymous order books in swaps and equity markets would prevent the liquidity improvement associated with greater post-trade anonymity, as suggested by the empirical studies in equity markets. Accordingly, the Commission agrees with those commenters who stated that the studies are instructive for U.S. swap markets, since they share the use of pre-trade anonymous order books and these studies appear to be of markets that are more analogous to swap markets than any other empirical study the Commission or commenters have identified.152 The Commission believes that prohibiting post-trade name give-up is reasonably likely to improve liquidity on SEFs, particularly on affected pretrade anonymous markets, as additional market participants choose to participate on these markets once posttrade name give-up is prohibited. The Commission has not found convincing evidence that a prohibition on posttrade name give-up will have net liquidity-reducing effects. Rather, the Commission notes that the evidence from the studies, as discussed above, suggests that markets with pre- and post-trade anonymity generally feature greater liquidity than those without. Moreover the Commission is concerned that the status quo may facilitate information asymmetries and hinder access and participation on affected SEFs for many market participants. The Commission believes that the rule as adopted may benefit market participants by reducing these information asymmetries and will increase participation on these SEF platforms. 3. Consideration of Alternatives TP ICAP suggested the alternative that any prohibition on post-trade name give-up should be limited to, at most, swaps subject to the clearing requirement rather than all swaps that are intended to be cleared, because a SEF may not know whether the parties to a voluntarily-cleared swap will submit the swap to a DCO, as the parties may do so themselves post-execution. 150 Citadel 151 Citadel VerDate Sep<11>2014 16:42 Jul 23, 2020 Jkt 250001 152 Citi did suggest that the Commission study the effects of post-trade anonymity on the emerging market bond market. Citi Letter, at 4. The Commission does not have jurisdiction over emerging market bonds and does not have access to the relevant data. PO 00000 Frm 00021 Fmt 4700 Sfmt 4700 44705 The Commission has determined not to adopt this alternative. The Commission notes that whether a swap is intended to be cleared is a material term that affects trade pricing and trade processing workflows, and it is something that SEF should be able to determine at the time of execution, including for voluntarily-cleared swaps. Thus, the Commission believes that the final rule, which applies the prohibition to voluntarily-cleared swaps, will enable a larger scope of swaps to receive the benefits associated with the regulation, including, potentially, greater participation and improved liquidity. However, to ensure that SEFs are provided with adequate time to make any necessary changes to their systems, the Commission is providing a phased compliance schedule, as discussed above. A number of commenters suggested that before implementing a full posttrade name give-up prohibition, the Commission should implement a timelimited pilot program that would prohibit post-trade name give-up for some, but not all, products.153 These commenters asserted that a pilot program would allow the Commission to assess the impact of a post-trade name give-up prohibition before requiring market-wide changes. The Commission has determined not to adopt this alternative. A temporary pilot program may provide market participants with different incentives than a permanent rule and thus may not be indicative of the efficacy of a permanent rule. As Citadel noted, ‘‘a short-term pilot would be easily susceptible to manipulation. Given their commercial interests in maintaining the status quo and privileged position as liquidity providers, the incumbent dealer banks could temporarily provide worse pricing for instruments covered by the name give-up prohibition in order to dictate the pilot results.’’ 154 The Commission agrees that a pilot program could create an incentive to engage in such conduct, but a permanent prohibition will not. FSF and JP Morgan suggested the alternative approach whereby the Commission would require every order book SEF that offers post-trade name give-up to design a method that would permit its participants to opt out of posttrade name give-up, which could be through a parallel, fully-anonymous order book, or by allowing participants to opt-out of post-trade name give-up on 153 See Citi Letter, at 5; JPMorgan Letter, at 14; FSF Letter, at 14. 154 Citadel Letter 2, at 16. E:\FR\FM\24JYR1.SGM 24JYR1 jbell on DSKJLSW7X2PROD with RULES 44706 Federal Register / Vol. 85, No. 143 / Friday, July 24, 2020 / Rules and Regulations an order-by-order basis.155 In the view of FSF, this approach would provide freedom for market participants to transact in the manner in which they wish to, while providing the option of fully-anonymous trading to buy-side clients concerned with undesirable information leakage.156 The Commission has determined not to adopt this alternative. The Commission believes that post-trade name give-up is likely to persist wherever it is permitted, and that this alternative would provide little or no benefit while still imposing costs on SEFs that are at least as high as those of a full prohibition (as SEFs would need to change their systems to allow opting out). The Commission agrees with Citadel’s statement that one ‘‘would expect incumbent dealer banks not to agree to opt-out of name give-up, meaning that very little would change on [interdealer broker] SEFs.’’ 157 FSF suggested an alternative whereby the Commission would exclude from the prohibition on post-trade name giveup any SEF that obtains a material portion of its trading volume, over a specified period, through workups. JPMorgan and FSF asserted that posttrade name give-up is an integral part of workup protocols, and the prohibition will impair workup protocols and adversely affect dealers’ ability to hedge via adverse selection. In contrast, Citadel and MFA assert that post-trade name give-up is not necessary for workup sessions. Citadel asserted that if a trading protocol is pre-trade anonymous, there is no need to disclose the trading counterparties in order to engage in a workup session and, therefore, workup sessions will function just as they do today. Citadel also stated that claims to the contrary ‘‘are easily disproven by looking at the U.S. Treasury market, where work-ups are commonly employed on interdealer platforms even though name give-up is not used.’’ 158 MFA further argued that prohibiting post-trade name give-up would benefit trading protocols such as auctions, portfolio compression, and/or workup sessions by increasing buy-side access and participation. The Commission has determined not to adopt this alternative. The Commission agrees with those comments asserting that post-trade name give-up is not necessary for workup sessions and that post-trade anonymity will not make workup sessions more difficult or costly and 155 FSF Letter, at 14, JPMorgan Letter, at 15. 156 FSF Letter, at 14. 157 See Citadel Letter 2, at 16. 158 Citadel Letter 2, at 11. VerDate Sep<11>2014 16:42 Jul 23, 2020 Jkt 250001 may provide the benefits associated with increased participation. The reasons given by JPMorgan and FSF relating to why they view post-trade name give-up to be an important aspect of workup sessions are essentially the same reasons espoused for the purported benefits of post-trade name give-up generally, i.e., avoiding adverse selection and ensuring reliable hedging for incumbent swap dealers. Some commenters proposed an alternative of not applying the prohibition on post-trade name give-up to error trade corrections. Commenters asserted that post-trade name give-up remains necessary for counterparties to correct operational or clerical errors resulting in a trade being rejected for clearing. Citadel disagreed with these commenters, noting that SEFs can facilitate the correction of errors without disclosing the identities of counterparties. The Commission has determined not to adopt this alternative. A SEF can intermediate communications, if necessary, and otherwise facilitate error trade corrections without disclosing counterparty identities. The Commission acknowledges that some SEFs may incur additional costs associated with ensuring that their rules and procedures for error trades allow for error trade remediation without disclosure of the identities of counterparties to one another. The Commission notes that designated contract markets resolve error trades without engaging in name give-up, and SEFs already intermediate the resolution of error trades to varying degrees. The Commission believes that the additional costs some SEFs may incur to employ anonymous error trade remediation are relatively modest. 4. Section 15(a) Factors a. Protection of Market Participants and the Public The final rule is intended to protect market participants and the public by advancing the statutory goals of: (1) Promoting swaps trading and pre-trade price transparency on SEFs; (2) fostering fair competition among market participants; (3) providing market participants with impartial access to SEFs; and (4) maintaining the privacy of swap transaction information. b. Efficiency, Competitiveness, and Financial Integrity of the Markets The final rule is intended to enhance competitiveness in the swap markets by removing an effective barrier to participation on SEFs for many market participants who are concerned with the PO 00000 Frm 00022 Fmt 4700 Sfmt 4700 prospect of information leakage. The Commission expects participation on SEFs to increase as a result, leading to greater competition. c. Price Discovery The Commission believes that by increasing participation and competition on SEFs, the final rule will decrease information asymmetries between market participants, allowing market participants to attain broader knowledge of pricing across more SEFs, thereby enhancing SEF trading as a mechanism for price discovery. d. Sound Risk Management Practices Similarly, increased participation and competition on SEFs and decreased information asymmetry among market participants is likely to enhance SEF trading as a mechanism for risk management. e. Other Public Interest Considerations Post-trade name give-up is inconsistent with provisions intended to protect the privacy of a swap counterparty’s trading information. Prohibiting post-trade name give-up will help to effectuate the statutory privacy protections under CEA section 21(c)(6) that apply to this information. Moreover, the Commission believes that the prohibition is reasonably likely to lead to enhanced liquidity and lower transaction costs. D. Antitrust Considerations Section 15(b) of the CEA requires the Commission to take into consideration the public interest to be protected by the antitrust laws and endeavor to take the least anticompetitive means of achieving the purposes of the CEA, in issuing any order or adopting any Commission rule or regulation.159 The Commission believes that the public interest to be protected by the antitrust laws is generally to protect competition. In the Proposal, the Commission requested comments on whether: (1) The proposed rulemaking implicates any other specific public interest to be protected by the antitrust laws; (2) the proposed rulemaking is anticompetitive, and if it is, what are anticompetitive effects; and (3) there are less anticompetitive means of achieving the relevant purposes of the CEA that would otherwise be served by adopting the proposed rules. The Commission does not anticipate that the amendments to part 37 that it is adopting today will result in anticompetitive behavior, but instead, believes that the amendments will 159 7 E:\FR\FM\24JYR1.SGM U.S.C. 19(b). 24JYR1 Federal Register / Vol. 85, No. 143 / Friday, July 24, 2020 / Rules and Regulations promote greater competition on, and among, SEFs. In the proposal, the Commission encouraged comments from the public on any aspect of the rulemaking that may have the potential to be inconsistent with the antitrust laws or be anticompetitive in nature. The Commission received two comments asserting that the proposed rule may be anticompetitive. JPMorgan commented that prohibiting post-trade name give-up ‘‘would itself impair competition and pose an unreasonable restraint on trade by forcing dealers to trade fully anonymously in order to access a [central-limit order-book], even though dealers prefer [post-trade name give-up] . . . .’’ 160 FSF similarly commented that ‘‘banning name give-up would itself impair competition (certainly, innovation and competition among markets) and unnecessarily push dealers to trade fully anonymously in order to access an Order Book SEF, despite their bona fide preference for name give-up.’’ 161 As stated above, the Commission disagrees with comments that prohibiting post-trade name give-up would impair competition. Post-trade name give-up is an ancillary post-trade protocol, and not a method of execution. It does not proscribe SEFs from offering any existing execution method, nor does it prevent SEFs from developing new execution methods. Moreover, the Commission is concerned by other commenters’ assertions that post-trade name give-up enables anticompetitive behavior,162 and the Commission believes that prohibiting post-trade name give-up will reduce the opportunity for such behavior to occur, and is therefore reasonably necessary to promote fair competition among market participants. The Commission has considered the rulemaking and related comments to determine whether it is anticompetitive and continues to believe that these amendments to part 37 will not result in anticompetitive behavior. List of Subjects in 17 CFR Part 37 Swaps, Swap execution facilities. For the reasons stated in the preamble, the Commodity Futures Trading Commission amends 17 CFR part 37 as follows: jbell on DSKJLSW7X2PROD with RULES PART 37—SWAP EXECUTION FACILITIES 1. 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. Appendices to Post-Trade Name GiveUp on Swap Execution Facilities— Commission Voting Summary, Chairman’s Statement, and Commissioners’ Statements 2. In § 37.9, add paragraph (d) to read as follows: Appendix 1—Commission Voting Summary ■ § 37.9 Methods of execution for required and permitted transactions. * * * * * (d) Counterparty anonymity. (1) Except as otherwise required under the Act or the Commission’s regulations, a swap execution facility shall not directly or indirectly, including through a third-party service provider, disclose the identity of a counterparty to a swap that is executed anonymously and intended to be cleared. (2) A swap execution facility shall establish and enforce rules that prohibit any person from directly or indirectly, including through a third-party service provider, disclosing the identity of a counterparty to a swap that is executed anonymously and intended to be cleared. (3) For purposes of paragraphs (d)(1) and (2) of this section, ‘‘executed anonymously’’ shall include a swap that is pre-arranged or pre-negotiated anonymously, including by a participant of the swap execution facility. (4) For a package transaction that includes a component transaction that is not a swap intended to be cleared, disclosing the identity of a counterparty shall not violate paragraph (d)(1) or (2) of this section. For purposes of this paragraph, a ‘‘package transaction’’ consists of two or more component transactions executed between two or more counterparties where: (i) Execution of each component transaction is contingent upon the execution of all other component transactions; and (ii) The component transactions are priced or quoted together as one economic transaction with simultaneous or near-simultaneous execution of all components. Issued in Washington, DC, on June 29, 2020, by the Commission. Robert Sidman, Deputy Secretary of the Commission. Note: The following appendices will not appear in the Code of Federal Regulations. 160 JPMorgan Letter, at 10. Letter, at 10. 162 See supra note 37 and accompanying text. 161 FSF VerDate Sep<11>2014 16:42 Jul 23, 2020 Jkt 250001 44707 PO 00000 Frm 00023 Fmt 4700 Sfmt 4700 On this matter, Chairman Tarbert and Commissioners Quintenz, Behnam, Stump, and Berkovitz voted in the affirmative. No Commissioner voted in the negative. Appendix 2—Joint Supporting Statement of Chairman Heath P. Tarbert, Commissioner Rostin Behnam, and Commissioner Dan M. Berkovitz As we have previously stated,1 it is a fundamental principle of exchange-style trading systems that the buyer and seller of a given financial instrument have no reason to know—and do not know—one another’s identity.2 This levels the playing field for counterparties of all sizes and types by allowing traders to enter and exit the market without exposing their trading positions and strategies.3 As a result, markets with pre- and post-trade anonymity are generally not only fairer, but also feature greater liquidity, a more diverse set of market participants, and greater competition.4 1 Joint Statement of Chairman Heath Tarbert, Commissioner Rostin Behnam, and Commissioner Dan Berkovitz in Support of Proposed Rule Restricting Post-Trade Name Give-Up (Dec. 18, 2019). 2 See, e.g., Peter A. McKay, CME and CBOT to Close Loophole, Wall St. J. (Apr. 15, 2006) (‘‘When stocks are traded on public exchanges, investors generally don’t know who they are buying from or selling to. On futures exchanges, most investors expect the same thing when trading electronically.’’). 3 See, e.g., Peter Madigan, CFTC to Test Role of Anonymity in SEF Order Book Flop, Risk (Nov. 21, 2014) (noting arguments that anonymity creates a more egalitarian market); Managed Funds Association (‘‘MFA’’), Position Paper: Why Eliminating Post-Trade Name Disclosure Will Improve the Swaps Market 8 (Mar. 31, 2015) (arguing that ‘‘markets should remain anonymous to create a level playing field for all participants’’); CFTC Market Risk Advisory Committee, Panel Discussion: Market’s Response to the Introduction of SEFs 139 (Apr. 2, 2015) (‘‘MRAC Meeting Transcript’’) (noting buy-side reticence to use SEF order books with name give-up because of potential uncontrolled information leakage). This can prevent price discrimination based on the identity of the counterparty. 4 See, e.g., MRAC Meeting Transcript, supra note 3, at 154 (explaining that anonymous order books have facilitated liquidity and diverse participation in markets for other instruments, such as equities and futures); S. Freiderich & R. Payne, Trading Anonymity and Order Anticipation, 21 Journal of Financial Markets 1–24 (2014) (finding that posttrade anonymity improved market liquidity, particularly for small stocks and stocks with concentrated trading, which may be more analogous to swaps); Treasury Market Practices Group, White Paper on Clearing and Settlement in the Secondary Market for U.S. Treasury Securities (Jul. 11, 2019) (stating that emergence of new types of market participants in the fully anonymous U.S. Treasury securities market has ‘‘likely improved overall liquidity through enhanced order flow and competition’’). E:\FR\FM\24JYR1.SGM 24JYR1 44708 Federal Register / Vol. 85, No. 143 / Friday, July 24, 2020 / Rules and Regulations In the swaps market, a number of swap execution facilities (‘‘SEFs’’) provide for posttrade disclosure of the name of the counterparty, a practice that is known as ‘‘name give-up.’’ This protocol is a vestige of the pre-Dodd-Frank era, when few swaps were centrally cleared and market participants needed to know their counterparty’s identity to manage the associated credit risk. Given the advent of central clearing, many have appropriately questioned the continuing need for post-trade name give-up for cleared swaps. Others have gone further, criticizing the practice as anticompetitive, an obstacle to broad and diverse participation on SEFs, and potentially inconsistent with numerous provisions of the Commodity Exchange Act (‘‘CEA’’) and Commission regulations. In 2019, after considering responses to a request for comment on the issue,5 the Commission issued a proposed rule (‘‘Proposal’’) to restrict name give-up such that trades that are executed anonymously on-SEF and cleared would remain anonymous after execution.6 Public comments on the Proposal reflected a variety of differing viewpoints and interests. The agency carefully considered all comments in crafting the final rule we voted to approve today. We believe the final rule reflects a balanced approach, is workable, and will improve overall market vibrancy. The rule prohibits name give-up for swaps that are executed anonymously and intended to be cleared. However, it does not apply to swaps that are not intended to be executed anonymously, such as trades done via a name-disclosed request for quote. The rule also includes a limited exception for package transactions 7 with at least one component that is an uncleared swap or a non-swap instrument. This exception reflects current technological and operational realities that require counterparty disclosure for the nonswap or non-cleared swap component of such trades.8 In addition, the rule includes a phased implementation schedule to allow SEFs and market participants time to adjust to the changes. We believe the rule’s fundamental objective—protecting trading anonymity jbell on DSKJLSW7X2PROD with RULES 5 CFTC Request for Comment on Post-Trade Name Give-Up on Swap Execution Facilities, 83 FR 61,571 (Nov. 30, 2018). 6 Post-Trade Name Give-Up on Swap Execution Facilities, 84 FR 72262 (Dec. 31, 2019). 7 The rule defines a ‘‘package transaction’’ as ‘‘consist[ing] of two or more component transactions executed between two or more counterparties where: (i) Execution of each component transaction is contingent upon the execution of all other component transactions; and (ii) the component transactions are priced or quoted together as one economic transaction with simultaneous or near-simultaneous execution of all components.’’ 8 As noted in the preamble to the final rule, we urge SEFs and their participants to work towards an infrastructure that ultimately does support anonymous post-trade processing for packages including certain cleared non-swap components (e.g., U.S. Treasuries). The preamble to the final rule also notes the Commission’s intention to monitor market developments and evaluate the continued need for the package transaction exception in the future. VerDate Sep<11>2014 16:42 Jul 23, 2020 Jkt 250001 where it is possible to do so—is key to two statutory goals for the SEF regime: (1) Promoting swaps trading on SEFs 9 and (2) promoting fair competition among market participants, including through impartial access to a SEF’s trading platform.10 Indeed, we hope the rule will help attract a diverse set of additional market participants who have been deterred from trading on these platforms by the practice of post-trade name give-up, but remain interested in bringing liquidity and competition to SEFs. The issue of name give-up can be a bit of a lightning rod, sometimes inciting passionate disagreements between stakeholders. We and CFTC staff stand ready to work with market participants and market operators to resolve any new issues that may arise as the rule is implemented. We hope that all parties to this debate can constructively move forward together toward the goals of sound derivatives regulation and robust financial markets. Appendix 3—Supporting Statement of Commissioner Brian Quintenz I will vote in favor of today’s final rule to prohibit post-trade name give-up practices for swaps executed, pre-arranged, or prenegotiated anonymously on or pursuant to the rules of a swap execution facility (SEF) and intended-to-be-cleared (Final Rule). As I have noted previously, I have concerns about the government banning an established trading practice that has evolved from natural market forces to support swaps liquidity provision. Client swap activity is inherently dealer and relationship-sourced. That is why the name-disclosed Request for Quote (RFQ) model has been highly favored over the anonymous Central Limit Order Book (CLOB) model in the client market. Although the Final Rule predicts that the ban on name give-up will result in increased participation and competition in the dealerto-dealer market, I remain concerned that banning post-trade name give-up will negatively impact dealers’ ability to hedge efficiently on existing inter-dealer platforms, which will ultimately lead to a degradation in the pricing and liquidity provision of swaps trading on dealer-to-client platforms. I am also doubtful that new entrants into the wholesale market will use the advantages of that participation to add any meaningful liquidity in the client market, making it even less certain that the benefits of enhanced competition hoped for in this Final Rule will be passed through to end-users. Despite my concerns, I am supporting the Final Rule because it adopts an important exception from the prohibition, as well as an incremental approach that will give the Commission and market participants time to transition into compliance, observe the 9 CEA section 5h(e), 7 U.S.C. 7b–3(e). In this regard, the CFTC intends to complete a preliminary study of the state of swaps markets one year after the initial phase of the rule takes effect, and to follow up with further study after the rule has been in effect for three years. 10 CEA section 3(b), 7 U.S.C. 5(b) (listing fair competition among market participants as a goal of the CEA); CEA section 5h(f)(2)(B)(i) (requiring a SEF to establish and enforce rules to provide participants impartial access to the market). PO 00000 Frm 00024 Fmt 4700 Sfmt 4700 impact of the Final Rule, and make adjustments in the future, if necessary. For example, the Final Rule includes a significant exception for package transactions that include a component transaction that is not a swap intended-to-be-cleared. The exception would include U.S. Treasury swap spread package trades involving an intendedto-be-cleared swap and a U.S. Treasury security component. These package transactions are rarely traded on dealer-toclient platforms, but make up a significant portion of volume on dealer-to-dealer platforms. Recognizing this important difference between markets is a small but necessary accommodation to ensure package trades can continue to be efficiently executed in light of this mandated change to market trading protocols. The Final Rule also adopts staggered compliance deadlines, with the most liquid swaps coming into compliance first, and less liquid swaps becoming subject to the ban in July 2021. In the interim, the Commission plans to conduct a preliminary study of the Final Rule’s impact on SEF trading by July 2021, with a further study to be conducted by July 2023. These studies will allow the Commission to assess if the ban on post-trade name give-up is, in fact, increasing competition and liquidity on SEFs, as the ban is intended to do. If a more fulsome analysis reveals that the ban has not yielded its expected benefits, or may not be appropriate for certain products given their liquidity profile, I expect further adjustments will be made to maintain a well-functioning swaps market. Lastly, I would like to thank staff of the Division of Market Oversight for working with my staff to incorporate many of my comments into the Final Rule. [FR Doc. 2020–14343 Filed 7–23–20; 8:45 am] BILLING CODE 6351–01–P DEPARTMENT OF HOMELAND SECURITY U.S. Customs and Border Protection 19 CFR Part 122 [CBP Dec. 20–10] Technical Amendment to List of User Fee Airports: Addition of Four Airports U.S. Customs and Border Protection; DHS. ACTION: Final rule; technical amendment. AGENCY: This document amends U.S. Customs and Border Protection (CBP) regulations by revising the list of user fee airports to reflect the designation of user fee status for four additional airports: New York Stewart International Airport in New Windsor, New York; Lakeland Linder International Airport in Lakeland, Florida; Boca Raton Airport in Boca Raton, Florida; and Ontario SUMMARY: E:\FR\FM\24JYR1.SGM 24JYR1

Agencies

[Federal Register Volume 85, Number 143 (Friday, July 24, 2020)]
[Rules and Regulations]
[Pages 44693-44708]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14343]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 37

RIN Number 3038-AE79


Post-Trade Name Give-Up on Swap Execution Facilities

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (CFTC or Commission) 
is issuing a final rule to prohibit post-trade name give-up for swaps 
executed, pre-arranged, or pre-negotiated anonymously on or pursuant to 
the rules of a swap execution facility (SEF) and intended to be 
cleared. The final rule provides an exception for package transactions 
that include a component transaction that is not a swap intended to be 
cleared, including but not limited to U.S. Treasury swap spreads.

DATES: The effective date for this final rule is September 22, 2020. 
The compliance date for swaps subject to the trade execution 
requirement under section 2(h)(8) of the Commodity Exchange Act (CEA or 
Act) is November 1, 2020. The compliance date for swaps not subject to 
the trade execution requirement under section 2(h)(8) of the CEA is 
July 5, 2021.

FOR FURTHER INFORMATION CONTACT: Alexandros Stamoulis, Special Counsel, 
(646) 746-9792, [email protected], Division of Market Oversight, 
Commodity Futures Trading Commission, 140 Broadway, 19th Floor, New 
York, NY 10005; Roger Smith, Special Counsel, (202) 418-5344, 
[email protected], Division of Market Oversight, Commodity Futures 
Trading Commission, 525 West Monroe Street, Suite 1100, Chicago, 
Illinois 60661; Israel Goodman, Special Counsel, (202) 418-6715, 
[email protected], Division of Market Oversight; or Vincent McGonagle, 
Principal Deputy Director, (202) 418-5387, [email protected], 
Division of Enforcement, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1151 21st Street NW, Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Background

A. November 2018 Request for Comment

    On November 30, 2018, the Commission published in the Federal 
Register a request for comment regarding the practice of post-trade 
name give-up on SEFs (2018 RFC).\1\ As described in the 2018 RFC, some 
SEFs facilitate post-trade name give-up by directly or indirectly 
disclosing the identities of swap counterparties to one another after a 
trade is matched anonymously. The 2018 RFC noted that a SEF may 
effectuate such disclosure through its own trade protocols or through a 
third-party service provider utilized to process and route transactions 
to a derivatives clearing organization (DCO) for clearing. In the 2018 
RFC, the Commission questioned the necessity of the practice with 
respect to cleared swaps anonymously executed on a SEF. The Commission 
also summarized some of the general views on post-trade name give-up of 
various industry participants and requested public comments on the 
merits of the practice and whether the Commission should prohibit it.
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    \1\ Post-Trade Name Give-up on Swap Execution Facilities, 83 FR 
61571 (Nov. 30, 2018). ``Post-trade name give-up'' refers to the 
practice of disclosing the identity of each swap counterparty to the 
other after a trade has been matched anonymously.
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    The Commission received 13 comment letters in response to the 2018 
RFC. Most commenters opposed the practice of post-trade name give-up 
for anonymously-executed swaps submitted to clearing, and requested 
that the Commission adopt a regulatory prohibition. The Securities 
Industry and Financial Markets Association (SIFMA) expressed support 
for the practice and concern about the effects of a prohibition. The 
views raised in those comment letters were considered and discussed by 
the Commission in a proposed rule on post-trade name give-up issued in 
December 2019.

B. December 2019 Proposed Rule

    After considering the comments received in response to the 2018 
RFC, on December 31, 2019, the Commission published in the Federal 
Register a proposed rule to prohibit post-trade name give-up for 
anonymously-executed and intended-to-be-cleared swaps (Proposal).\2\ 
The Proposal prohibits a SEF from directly or indirectly, including 
through a third-party service provider, disclosing the identity of a 
counterparty to a swap executed anonymously and intended to be cleared. 
The Proposal also requires SEFs to establish and enforce rules 
prohibiting any person from effectuating such a disclosure.
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    \2\ Post-Trade Name Give-up on Swap Execution Facilities, 84 FR 
72262 (Dec. 31, 2019).
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    In the Proposal, the Commission reasoned that a prohibition on 
post-trade name give-up may (1) advance the statutory objectives of 
promoting swaps

[[Page 44694]]

trading on SEFs and fair competition among market participants; (2) 
further the objectives underlying the prohibition against swap data 
repositories (SDRs) disclosing the identity of a counterparty to a swap 
that is anonymously executed and cleared in accordance with the 
Commission's straight-through processing (STP) requirements; and (3) 
promote impartial access on SEFs.\3\
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    \3\ See Proposal at 72265-72267.
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    The Commission requested comments on all aspects of the Proposal, 
and also solicited comments through targeted questions relating to 
whether and how the proposed rule, if adopted, (1) would advance the 
statutory and regulatory goals described above; (2) might impact 
aspects of market quality and liquidity; and (3) should be tailored. 
Overall, the Commission received comment letters on the Proposal from 
20 different respondents: 13 public interest and industry groups; two 
global banks with affiliated swap dealers; two global market makers; a 
global asset manager; a SEF operator; and a third-party provider of 
derivatives trade processing services.\4\ Additionally, Commission 
staff participated in several ex parte meetings concerning the 
proposal.\5\ The Commission also consulted with the U.S. Securities and 
Exchange Commission and foreign regulators on the proposed rule.
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    \4\ Comment letters were submitted by the following entities: 
Alternative Investment Management Association (AIMA) (Feb. 17, 
2020); American Bankers Association (ABA) (Mar. 2, 2020); Americans 
for Financial Reform Education Fund (AFR) (Mar. 2, 2020); Bank 
Policy Institute (BPI) (Mar. 10, 2020); Better Markets, Inc. (Better 
Markets) (Mar. 2, 2020); Citadel and Citadel Securities (Citadel) 
(Letter 1: Mar. 2, 2020, and Letter 2: Apr. 21, 2020); Citibank, 
N.A. (Citi) (Mar. 2, 2020); Coalition for Derivatives End-Users 
(Mar. 2, 2020); CTC Trading Group, LLC (CTC) (Mar. 10, 2020); FIA 
Principal Traders Group (FIA PTG) (Mar. 2, 2020); Financial Services 
Forum (FSF) (Mar. 2, 2020); Healthy Markets Association (HMA) (Mar. 
9, 2020); IHS Markit (Mar. 2, 2020); Investment Company Institute 
(ICI) (Mar. 2, 2020); JPMorgan Chase & Co. (JPMorgan) (Mar. 2, 
2020); Managed Funds Association (MFA) (Mar. 2, 2020); SIFMA, on 
behalf of a majority of SIFMA's swap dealer members who have 
expressed a view (Mar. 2, 2020); SIFMA's Asset Management Group 
(SIFMA AMG) (Mar. 2, 2020); ICAP Global Derivatives Limited and 
tpSEF, Inc. (TP ICAP); and Vanguard (Mar. 2, 2020).
    \5\ See Comments for Proposed Rule 84 FR 72262, available at 
https://comments.cftc.gov/PublicComments/CommentList.aspx?id=3066 
(last retrieved June 23, 2020).
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II. Final Rule

    After considering the public comments on the Proposal, the 
Commission is adopting the proposed regulations, with certain 
modifications and clarifications discussed below. Specifically, the 
Commission is amending its part 37 regulations to prohibit post-trade 
name give-up for swaps anonymously executed, pre-arranged, or pre-
negotiated on or pursuant to the rules of a SEF and intended to be 
cleared. New Sec.  37.9(d) prohibits a SEF from directly or indirectly 
disclosing the identity of a counterparty to any such swap, and 
requires a SEF to establish and enforce rules that prohibit any person 
from doing so.\6\ The final rule, however, contains an exception for 
package transactions that include a component transaction that is not a 
swap intended to be cleared.
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    \6\ The Commission notes that this rule does not prohibit a SEF 
from disclosing the identities of all of the participants on the SEF 
to all other participants. However, such disclosure in specific 
cases may be prohibited under other provisions of the CEA and 
Commission regulations. In addition, the Commission may consider 
this issue in a future rulemaking.
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A. Statutory Authorities
    CEA section 8a(5) authorizes the Commission to make and promulgate 
such rules and regulations as, in the judgment of the Commission, are 
reasonably necessary to effectuate any of the provisions or to 
accomplish any of the purposes of the CEA.\7\ The Commission believes 
that prohibiting the practice of post-trade name give-up for intended-
to-be-cleared swaps is reasonably necessary to promote trading of swaps 
on SEFs and fair competition among market participants. The Commission 
also believes that post-trade name give-up for intended-to-be-cleared 
swaps is inconsistent with the requirement that SEFs provide market 
participants with impartial access to trading on SEFs, as well as the 
objectives underlying the prohibition against SDRs disclosing the 
identities of counterparties to swaps anonymously executed on a SEF and 
cleared in accordance with STP requirements.
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    \7\ 7 U.S.C. 12(a)(5).
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1. Promoting Trading on SEFs and Pre-trade Price Transparency (CEA 
Section 5h(e))
    CEA section 5h(e) establishes the statutory goal of the SEF 
regulatory regime to promote swaps trading on SEFs and promote pre-
trade price transparency in the swaps market.\8\ In the Proposal, the 
Commission stated that despite available liquidity for cleared products 
on certain SEF platforms, the range and number of active participants 
may be limited due to market participants' concerns about information 
leakage and anticompetitive behavior made possible by post-trade name 
give-up.\9\ The Commission also stated that fully-anonymous trading 
(i.e., without post-trade name give-up) would likely encourage more 
participants to trade on those platforms.\10\ The Proposal requested 
public comments on how a prohibition on post-trade name give-up would 
impact trading and pre-trade price transparency on affected SEFs.
---------------------------------------------------------------------------

    \8\ 7 U.S.C. 7b-3(e).
    \9\ Proposal at 72265-72266.
    \10\ Id. at 72266.
---------------------------------------------------------------------------

    Several commenters on the Proposal stated that prohibiting post-
trade name give-up would remove a significant barrier to increased 
participation on certain SEF platforms,\11\ and that prohibiting the 
practice would lead to an increase in the number of participants 
trading on affected SEFs.\12\ MFA, for example, stated that its members 
are ``eager'' to participate on affected SEFs and ``to have the ability 
to transact cleared swaps anonymously; similar to how they currently 
trade in other asset classes (e.g., equities, futures, foreign 
exchange, and Treasuries, among others).'' \13\ JPMorgan, on the other 
hand, opined that ``the more likely outcome of banning [post-trade name 
give-up] will be to reduce overall trading on SEFs, as dealers pull 
back from trading . . . .'' \14\ Other commenters similarly argued that 
incumbent swap dealers may exit the market or reduce their trading.\15\ 
ICI and MFA, however, characterized this outcome as ``unlikely.'' \16\ 
MFA stated that competitive market forces would ensure that ``in the 
unlikely event an individual dealer reduced its offering, other dealers 
would quickly step into its place.'' \17\ Asserting its experience as a 
``top liquidity provider'' in SEF markets, Citadel stated that it does 
not expect a prohibition on post-trade name give-up to affect its 
liquidity provision on pre-trade disclosed platforms or its use of pre-
trade anonymous trading protocols.\18\ Citadel further asserted that 
``other swap dealers share our view, as UBS has supported the 
prohibition and SIFMA indicated that the views among swap dealers `are 
not uniform.' '' \19\

[[Page 44695]]

Commenters in favor of the Proposal also pointed to their experience in 
other asset classes where post-trade name give-up is not practiced, 
asserting that such markets demonstrate that the purported negative 
liquidity impacts raised by some incumbent swap dealers are 
unwarranted.\20\ Commenters opposed to the Proposal, however, asserted 
that the quality of liquidity in certain fully-anonymous markets has 
degraded, even as new types of market participants have entered the 
marketplace.\21\
---------------------------------------------------------------------------

    \11\ See SIFMA AMG Letter, at 2; ICI Letter, at 3; MFA Letter, 
at 6 (``While MFA speaks only on behalf of our members, we have 
heard broadly and uniformly from them that the practice of Name 
Give-Up is the most significant obstacle to their participation on 
IDB SEFs.''); Citadel Letter 1, at 3-4 (``Name give-up is the most 
significant remaining such barrier preventing buy-side firms from 
trading on certain SEFs . . . .'').
    \12\ See AFR Letter, at 3; CTC Letter, at 1-2; FIA PTG Letter, 
at 2; MFA Letter, at 6.
    \13\ MFA Letter, at 6.
    \14\ JPMorgan Letter, at 10.
    \15\ See ABA Letter, at 2; BPI Letter, at 1; FSF Letter, at 7-8; 
SIFMA Letter, at 4.
    \16\ ICI Letter, at 5; MFA Letter, at 4.
    \17\ MFA Letter, at 4.
    \18\ Citadel Letter 1, at 6.
    \19\ Citadel Letter 1, at 7.
    \20\ See Citadel Letter 1, at 7; Citadel Letter 2, at 7, FIA PTG 
Letter, at 1-2, MFA Letter, at 4.
    \21\ For example, FSF and JPMorgan assert that dealer-provided 
liquidity in some markets has increasingly been replaced by high-
frequency trading firms that tend to retract liquidity sooner than 
other types of market participants during periods of high 
volatility. FSF Letter, at 9; JPMorgan Letter, at 6 and 9. See also 
Citi Letter, at 4 note 7 (``[D]egradations in liquidity have 
occurred in other markets that have transitioned to fully anonymous 
trading.''). By contrast, Citadel asserts that it is ``bank 
dealers'' that have withdrawn from SEFs and U.S. Treasury markets 
during certain periods of market volatility. Citadel Letter 2, at 
12.
---------------------------------------------------------------------------

    Commenters also asserted that prohibiting post-trade name give-up 
would improve price transparency.\22\ Citadel noted that pre-trade 
anonymous execution methods, such as anonymous order books, will 
continue to function on a pre-trade basis as they do today, providing 
the same level of price transparency to market participants.\23\ 
Citadel and MFA opined, however, that eliminating post-trade name give-
up should be expected to increase pre-trade transparency, as more 
market participants are able to participate in these trading 
protocols.\24\ MFA stated that post-trade name give-up has limited 
investor access to affected SEFs, thereby reducing pre-trade 
transparency regarding available bids and offers, limiting investor 
choice of trading protocols, and creating information asymmetries 
between market participants.\25\ MFA asserted that eliminating post-
trade name give-up would facilitate investors selectively accessing 
additional liquidity pools and trading protocols, thereby improving 
price discovery and pre-trade transparency while reducing information 
asymmetries.\26\
---------------------------------------------------------------------------

    \22\ Citadel Letter 1, at 4-5; Citadel Letter 2, at 5; MFA 
Letter, at 4; SIFMA AMG Letter, at 2; Vanguard Letter, at 1.
    \23\ Citadel Letter 1, at 4-5.
    \24\ Id. at 5; Citadel Letter 2, at 5; MFA Letter, at 4.
    \25\ MFA Letter, at 4.
    \26\ Id.
---------------------------------------------------------------------------

    The Commission believes that prohibiting post-trade name give-up is 
reasonably necessary to facilitate and promote trading on SEFs. The 
practice of post-trade name give-up has reportedly deterred a 
significant segment of market participants from making markets on or 
otherwise participating on affected SEFs. Such market participants have 
ascribed their lack of participation to several potential harms 
resulting from post-trade name give-up, a principal concern being the 
risk of information leakage allowing counterparties to glean a SEF 
participant's trading positions and strategies.\27\ The Commission has 
heard repeatedly and consistently from market participants eager to 
trade fully-anonymously on SEFs.\28\ The Commission expects that many 
of these market participants will choose to participate on affected 
SEFs once the practice is prohibited, leading to increased trading. 
Furthermore, the Commission believes that prohibiting post-trade name 
give-up will promote pre-trade price transparency in the swaps market 
by encouraging a greater number, and a more diverse set, of market 
participants to anonymously post bids and offers on affected SEFs.
---------------------------------------------------------------------------

    \27\ See CFTC Market Risk Advisory Committee Meeting, Panel 
Discussion: Market's Response to the Introduction of SEF's, 133 et 
seq. (Apr. 2, 2015) (MRAC Meeting Transcript) at 142-144; Proposal 
at 72264; AIMA Letter, at 1; Citadel Letter 1, at 1, 3 and 10; ICI 
Letter, at 3; MFA Letter, at 3 and 7; SIFMA AMG Letter, at 1 and 2; 
Vanguard Letter, at 2.
    \28\ See, e.g., supra notes 12-13 and accompanying text; 
Proposal at 72264, notes 31-32 and accompanying text; MRAC Meeting 
Transcript at 140.
---------------------------------------------------------------------------

    With respect to claims made by some commenters that incumbent swap 
dealers may pull back from trading on SEFs if post-trade name give-up 
is prohibited, the Commission does not believe that this prospect 
justifies maintaining the practice. In the Commission's view, there is 
not convincing evidence, such as research or data, supporting the 
proposition that participation and trading on SEFs will decrease as a 
result of prohibiting post-trade name give-up. Rather, the Commission 
believes that fully-anonymous trading has facilitated liquidity and 
diverse participation in markets for instruments such as futures, 
equities, and U.S. Treasury securities, and academic literature 
suggests that markets with pre- and post-trade anonymity generally 
feature greater liquidity than those without.\29\ The Commission 
believes that increased anonymity is reasonably likely to similarly 
enhance trading on SEFs.\30\ The Commission intends to study the state 
of the swaps market in order to observe any changes to trading on SEFs 
following the implementation of this final rule.\31\
---------------------------------------------------------------------------

    \29\ See, e.g., S. Freiderich & R. Payne, Trading Anonymity and 
Order Anticipation, 21 Journal of Financial Markets 1-24 (2014) 
(finding that post-trade anonymity improved market liquidity, 
particularly for small stocks and stocks with concentrated trading, 
which may be more analogous to swaps); T.G. Meling, Anonymous 
Trading in Equities (2019 working paper) (also finding that post-
trade anonymity improved market liquidity); P.J. Dennis & P. Sandas, 
Does Trading Anonymously Enhance Liquidity? Journal of Financial and 
Quantitative Analysis 1-25 (2019) (same); A. Hachmeister & D. 
Schierek, Dancing in the Dark: Post-Trade Anonymity, Liquidity, and 
Informed Trading, 34 Review of Quantitative Finance and Accounting 
145-177 (2010) (same); J. Linnainmaa & G. Saar, Lack of Anonymity 
and the Inference from Order Flow, 25 Review of Financial Studies 
1,414-1,456 (2012) (same). See also Treasury Market Practices Group, 
White Paper on Clearing and Settlement in the Secondary Market for 
U.S. Treasury Securities (Jul. 11, 2019) (stating that the emergence 
of new types of market participants in the U.S. Treasury securities 
market has ``likely improved overall liquidity through enhanced 
order flow and competition'').
    \30\ See, e.g., T. Lee & C. Wang, Why Trade Over-the-Counter? 
When Investors Want Price Discrimination, at 26-27 (2019 working 
paper) (predicting that eliminating name give-up in swaps markets 
would decrease spreads on SEFs and increase total market participant 
welfare).
    \31\ In this respect, the Commission will endeavor to conduct a 
preliminary study on the state of the swaps markets by July 2021, 
and a further study by July 2023.
---------------------------------------------------------------------------

    Moreover, the Commission finds the reasoning behind claims that 
incumbent swap dealers may reduce their trading if post-trade name 
give-up is prohibited to be at odds with the statutory requirements 
discussed in the following two sections: To promote fair competition 
among market participants and impartial access to the market. The 
reason proffered for a potential pullback in trading by incumbent swap 
dealers is that post-trade name give-up is important to ensure that 
swap dealers can hedge the risk of their client-facing trades.\32\ In 
this regard, some market participants argue that participation of buy-
side clients and speculators on pre-trade anonymous SEFs (and without 
the ability to identify them through post-trade name give-up) will harm 
the ability of dealers to hedge reliably.\33\ These arguments can be 
understood to imply that greater participation and competition from 
certain types of market participants (such as buy-side clients and 
speculators) on affected pre-trade anonymous SEFs will harm overall 
market quality and welfare. The Commission finds this proposition to be 
at odds with the statutory requirements to promote fair competition 
among

[[Page 44696]]

market participants and impartial access on SEFs. The Commission 
believes that maintaining post-trade anonymity, where it is reasonable 
to do so, will better align with the statutory framework discussed 
below and level the playing field for market participants of all types 
and sizes to trade and compete on affected SEFs without exposing 
sensitive swap transaction information.
---------------------------------------------------------------------------

    \32\ See ABA Letter, at 2; BPI Letter, at 1; Citi Letter, at 4; 
FSF Letter, at 3-6; JPMorgan Letter, at 4-5; SIFMA Letter, at 4-5; 
TP ICAP Letter, at 5. Commenters supporting the Proposal, however, 
asserted that the proposition that post-trade name give-up is 
necessary for dealer risk management is spurious. See, Better 
Markets Letter, at 8; Citadel Letter 1, at 2; Vanguard Letter, at 2.
    \33\ See FSF Letter, at 4-6; Citi Letter, at 3; infra notes 53-
57 and accompanying text.
---------------------------------------------------------------------------

2. Promoting Fair Competition Among Market Participants (CEA Section 
3(b))
    CEA Section 3(b) specifies that a purpose of the CEA is to promote 
fair competition among market participants.\34\ In the Proposal, the 
Commission noted commenters' stated concerns about information leakage 
and anticompetitive behavior made possible by post-trade name give-up. 
The Commission reasoned that greater participation on SEFs resulting 
from a prohibition on post-trade name give-up would advance the goal of 
promoting competition on SEFs.\35\ The Commission stated that the 
proposed rule may also advance the CEA's goal of fostering fair 
competition among market participations by reducing opportunities for 
information leakage associated with post-trade name give-up.\36\
---------------------------------------------------------------------------

    \34\ 7 U.S.C. 5(b).
    \35\ Proposal at 72266.
    \36\ Id.
---------------------------------------------------------------------------

    In response to the Proposal, several commenters emphasized the view 
that post-trade name give-up is an anticompetitive practice and/or 
permits swap dealers to engage in certain anticompetitive behavior,\37\ 
and some commenters opined that prohibiting the practice may lead to 
greater competition among dealers and liquidity providers.\38\ 
Conversely, JPMorgan asserted that post-trade name give-up ``promotes 
competition and attracts SEF trading by providing market participants 
multiple protocols from which to choose depending on their business 
models and preferences.'' \39\ By ``limiting the methods through which 
SEFs can operate and compete with each other,'' JPMorgan argued, 
banning post-trade name give-up ``would clearly reduce innovation and 
reduce competition `among . . . markets,' thus in fact contravening 
Section 3(b)'s mandate.'' \40\
---------------------------------------------------------------------------

    \37\ See AFR Letter, at 2-3; Better Markets Letter, at 11-12 
(``[T]he gleaning of trading interest and trade information and the 
apparent consequences of the practice of Post-Trade Name Give-Up--to 
permit dealers to exit order books with non-dealer participation and 
trade with informational advantages--conflict with the CEA's 
overarching statutory objectives to `promote . . . fair competition 
among boards of trade, other markets and market participants' . . . 
.''); Citadel Letter 1, at 1; Citadel Letter 2, at 5 and 10; HMA 
Letter, at 2; MFA Letter, at 3; SIFMA AMG Letter, at 1.
    \38\ See CTC Letter, at 1-2 (``[W]e would expect abolishing name 
give-up to increase liquidity provision on SEFs given increased 
participation from buy-side firms, which should in turn drive 
enhanced participation from liquidity providers.''); ICI Letter, at 
5 (``[P]rohibiting post-trade name give-up could encourage 
competition among dealers to the extent post-trade name give-up 
today gives a few dominant dealers in the market leverage over buy-
side participants and other dealers.''); MFA Letter, at 4 (``[N]ew 
liquidity providers may be able to enter the market more easily, 
which will diversify sources of liquidity and increase 
competition.'').
    \39\ JPMorgan Letter, at 10.
    \40\ Id. at 11. See also FSF Letter, at 10 (``Contrary to what 
is argued in the [Proposal] and by commenters, banning name give-up 
would itself impair competition (certainly, innovation and 
competition among markets) . . . .'').
---------------------------------------------------------------------------

    The Commission is not persuaded by comments that prohibiting post-
trade name give-up would itself impair competition or innovation. Post-
trade name give-up is an ancillary post-trade protocol, and not a 
method of execution. The prohibition of post-trade name give-up, as 
proposed and adopted by the Commission, applies to all SEFs and all 
pre-trade anonymous execution methods. It does not proscribe SEFs from 
offering any existing execution method, nor does it prevent SEFs from 
developing new execution methods. Moreover, the Commission is concerned 
by other commenters' assertions that post-trade name give-up enables 
anticompetitive behavior. Regardless of the prevalence or magnitude of 
such behavior, the Commission believes that prohibiting post-trade name 
give-up will reduce the opportunity for such behavior to occur, and is 
therefore reasonably necessary to promote fair competition among market 
participants on pre-trade anonymous SEF markets for cleared swaps. The 
Commission believes that prohibiting post-trade name give-up will 
address concerns about information leakage and discriminatory behavior 
that market participants claim have dissuaded them from accessing pre-
trade anonymous liquidity pools to date, thereby removing barriers to 
greater participation and competition.
3. Providing Market Participants With Impartial Access to the Market 
(CEA Section 5h(f)(2)(B) and CFTC Regulation 37.202)
    CEA section 5h(f)(2)(B) requires a SEF to establish and enforce 
trading, trade processing, and participation rules that provide market 
participants with ``impartial access'' to the market.\41\ The 
Commission implemented this statutory requirement by adopting CFTC 
regulation 37.202,\42\ which requires a SEF to provide market 
participants with impartial access to its market(s), including, among 
other things, criteria governing such access that are ``impartial, 
transparent and applied in a fair and non-discriminatory manner.'' \43\ 
In this context, ``impartial'' means fair, unbiased, and 
unprejudiced.\44\ The impartial access requirement allows participants 
to compete on a level playing field, and additional liquidity providers 
to participate on SEFs.\45\
---------------------------------------------------------------------------

    \41\ 7 U.S.C. 7b-3(f)(2)(B).
    \42\ 17 CFR 37.202.
    \43\ 17 CFR 37.202(a).
    \44\ See Core Principles and Other Requirements for SEFs, 78 FR 
33476, 33508 (June 4, 2013).
    \45\ Id.
---------------------------------------------------------------------------

    In the Proposal, the Commission stated that post-trade name give-up 
may result in a ``discriminatory effect'' against certain market 
participants, and that the Commission preliminarily believed post-trade 
name give-up undermines the policy goals of the impartial access 
requirement, namely, to: (1) Ensure that market participants can 
compete on a level playing field; and (2) allow additional liquidity 
providers to participate on SEFs.\46\ The Commission also stated its 
preliminary assessment that promoting a fully-anonymous trading 
environment without post-trade name give-up would better fulfill the 
goals of the impartial access requirement.\47\ The Proposal asked for 
public comments on whether post-trade name give-up undermines the 
stated goals of impartial access.
---------------------------------------------------------------------------

    \46\ Proposal at 72267.
    \47\ Id.
---------------------------------------------------------------------------

    Several commenters stated that post-trade name give-up creates an 
uneven or unfair playing field by conferring benefits to select market 
participants (large incumbent swap dealers) and permitting such market 
participants to engage in discriminatory trading practices.\48\ AFR 
stated that post-trade

[[Page 44697]]

name give-up thereby ``undermines impartial access and reduces the 
number of competitive liquidity providers on SEFs.'' \49\ Commenters 
also asserted that prohibiting post-trade name give-up would lead to 
additional, more diversified sources of liquidity on SEFs.\50\ 
JPMorgan, on the other hand, opined that although eliminating post-
trade name give-up ``might draw certain market participants to trade on 
. . . SEFs that are fully anonymous, it may drive others (e.g., 
dealers) away. Therefore, it is not clear that prohibiting [post-trade 
name give-up] would further the goal of impartial access . . . .'' \51\ 
JPMorgan also argued that the concept of ``discriminatory effect'' is 
``amorphous'' and could be used to justify other market interventions 
simply because certain market participants prefer it.\52\
---------------------------------------------------------------------------

    \48\ See AFR Letter, at 3 (``Post-trade name give-up exposes 
liquidity providers to several risks, including the risk of 
retaliation from large competitors and the risk of revealing 
information relevant to trading strategies to competitors. Smaller 
liquidity providers and new entrants would tend to be more 
vulnerable to these dangers.''); Better Markets Letter, at 9; 
Citadel Letter 1, at 3-4 and 6 (``[S]wap dealers are able to use 
name give-up as a post-trade check to ensure that they are only 
transacting with other swap dealer counterparties on [interdealer 
broker] SEFs, thereby maintaining dealer-only liquidity pools in 
direct contradiction of statutory impartial access requirements.''); 
Citadel Letter 2, at 10 (``[W]e note the experience of Citadel 
Securities entering the swaps market as a new liquidity provider, 
where we witnessed how certain other swap dealers can use name give-
up for purposes that are inconsistent with the Commission's 
impartial access requirements. Immediately following our entry as a 
new liquidity provider, this included certain incumbent swap dealers 
asking [interdealer broker] SEFs to cancel executed trades upon 
learning through name give-up that their counterparty was Citadel 
Securities.''); SIFMA AMG Letter, at 2.
    \49\ AFR Letter, at 3.
    \50\ CTC Letter, at 1-2; FIA PTG Letter, at 2; AFR Letter, at 3; 
MFA Letter, at 4; Better Markets Letter, at 5.
    \51\ JPMorgan Letter, at 12.
    \52\ Id. See also FSF Letter, at 11. But cf. Better Markets 
Letter, at 10 (``[I]mpartial access would essentially become a 
fiction if certain classes of SEF participants could be targeted 
with trading practices, like Post-Trade Name Give-Up, that not only 
impose, but are meant to impose, disparate economic costs and 
trading limitations on competitors . . . .'').
---------------------------------------------------------------------------

    For commenters opposed to a prohibition on post-trade name give-up, 
the crux of their opposition is the notion that prohibiting the 
practice may impose ``adverse selection'' risk on incumbent swap 
dealers.\53\ FSF explained that ``dealers prefer to match with the 
natural other side of a trade (e.g., another dealer generally seeking 
to maintain a risk-neutral position)'' as opposed to other market 
participants, such as speculators, who may impose adverse selection 
costs.\54\ According to FSF, swap dealers use post-trade name give-up 
to ascertain ``what types of market participants are generally 
trading'' on pre-trade anonymous SEFs, and ``maximize the chances of 
trading with the natural other side and thus manage adverse selection 
costs.'' \55\ Citi similarly commented that ``[i]f new participants 
will be enticed to join [dealer-to-dealer] SEFs, some presumably may be 
participants that quote speculatively and intermittently, thereby 
diluting the reliable and consistent nature of quoting and trading that 
is the hallmark of [dealer-to-dealer] SEFs.'' \56\ In a related 
argument, FSF asserted that post-trade name give-up makes request-for-
quote (RFQ) pricing ``more tailored and efficient'' by allowing dealers 
to ensure their RFQ clients are not trading on dealer-to-dealer order 
books, or if they are, quoting them wider spreads via RFQ to 
accommodate a greater anticipated risk of hedging the balance sheet 
capacity allocated to such clients.\57\
---------------------------------------------------------------------------

    \53\ See ABA Letter, at 2; BPI Letter, at 1; FSF Letter, at 4-5; 
SIFMA Letter, at 3. FSF explained adverse selection in this context 
as follows. ``[I]nstead of facing a speculator on the other side of 
a trade, who is more likely to trade in the same direction on other 
venues or trade in one direction in a small size on one venue in 
order to push the price in a certain direction so that it can trade 
in the opposite direction on a different venue at a better price, 
dealers prefer to match with the natural other side of a trade 
(e.g., another dealer generally seeking to maintain a risk-neutral 
position). Such ``naturals'' are more likely to be hedging all their 
residual accumulated risk, rather than trading in a manner that 
would move the price in an unfavorable direction.'' FSF Letter, at 
5.
    \54\ FSF Letter, at 4-5.
    \55\ Id.
    \56\ Citi Letter, at 3.
    \57\ See FSF Letter, at 5 (``Name give-up allows a dealer, over 
time (not just at the point of execution), to more accurately assess 
its risk of providing balance sheet capacity to a particular client 
and determine how it should quote to the client in order to achieve 
the same desired return on capital for trading with that client as 
with another, e.g., by quoting a tighter price to [an RFQ requester 
that does not trade in the dealer-to-dealer order book SEFs] than 
[an RFQ requester the dealer has seen trade frequently in order book 
SEFs].''). FSF explained that the price that a dealer gives a client 
over RFQ depends on the costs of hedging the client-facing trade, 
and the dealer's available liquidity for hedging depends in turn on 
whether the client will also be accessing that liquidity. Id.
---------------------------------------------------------------------------

    After considering all comments, the Commission believes that post-
trade name give-up undermines the policy goals of the impartial access 
requirement, and that prohibiting the practice is reasonably necessary 
to effectuate the purposes of section 5h(f)(2)(B) of the Act. The 
Commission finds that the practice of post-trade name give-up 
effectively discriminates against certain market participants and has 
deterred participants from joining or trading in a meaningful way on 
SEFs that employ the practice. The use of post-trade name give-up to 
discriminate between certain types of market participants in order to 
maximize trading with one type of market participant and avoid trading 
with another--or to dissuade certain types of market participants from 
trading on a SEF--undermines the policy goals of the impartial access 
requirement to ensure that market participants can compete on a level 
playing field and to allow additional liquidity providers to 
participate on SEFs. Further, in implementing Sec.  37.202(a), the 
Commission rejected the notion that a SEF could limit access to its 
trading systems to certain types of market participants such as swap 
dealers.\58\ However, the practice of post-trade name give-up 
purportedly to avoid adverse selection risk, in the Commission's view, 
leads to a similar result, and therefore conflicts with the purposes of 
the impartial access requirement imposed by CEA section 5h(f)(2)(B). 
Finally, the comment that a potential ``discriminatory effect'' could 
be used to justify market intervention simply because certain market 
participants prefer it misses the point. The Commission's view here is 
based not upon the mere preference of certain market participants, but 
rather upon the entirety of facts and circumstances presented, the 
discriminatory manner in which post-trade name give-up is applied, and 
the realized effect of post-trade name give-up as a disincentive to 
access and participation by certain types of market participants and 
not others.
---------------------------------------------------------------------------

    \58\ See Core Principles and Other Requirements for Swap 
Execution Facilities, 78 FR 33476, 33507-33508 (June 4, 2013).
---------------------------------------------------------------------------

4. Information Privacy and Prohibition Against Post-Trade Name Give-up 
at an SDR (CEA Section 21(c)(6) and CFTC Regulation 49.17(f)(2))
    CEA section 21(c)(6) requires an SDR to maintain the privacy of any 
and all swap transaction information that it receives from a swap 
dealer, counterparty, or any other registered entity.\59\ In 
implementing this statutory provision, the Commission promulgated 
regulation 49.17(f) to address the scope of access a market participant 
may have to swap data maintained by an SDR. For swaps executed 
anonymously on a SEF and cleared in accordance with the Commission's 
STP requirements, Sec.  49.17(f)(2) prohibits an SDR from providing a 
counterparty to a swap with access to the identity of the other 
counterparty or its clearing member.\60\ In adopting this provision, 
the Commission explained that this swap transaction information is 
subject to the statutory privacy protections because, in the 
Commission's view, swap counterparties would not otherwise know one 
another's identity if the swap were submitted to clearing via STP.\61\ 
In the Proposal, the Commission stated that post-trade name give-up 
undercuts the intent of Sec.  49.17(f)(2) and the congressional 
objectives of CEA section 21(c)(6). Therefore, the Commission reasoned, 
prohibiting post-trade name give-up would help to advance the 
objectives underlying the statutory

[[Page 44698]]

privacy protections in CEA section 21(c)(6) and the Commission's 
regulations thereunder.\62\
---------------------------------------------------------------------------

    \59\ 7 U.S.C. 24a(c)(6).
    \60\ 17 CFR 49.17(f)(2).
    \61\ Swap Data Repositories--Access to SDR Data by Market 
Participants, 79 FR 16673-16674 (Mar. 26, 2014).
    \62\ Proposal at 72266.
---------------------------------------------------------------------------

    Several commenters agreed with the Commission's assessment in the 
Proposal that post-trade name give-up undercuts the intent of CEA 
section 21(c)(6) and Sec.  49.17(f)(2).\63\ FSF, on the other hand, 
asserted that name give-up is not comparable to an SDR disclosing 
counterparty information since, in FSF's view, market participants 
choose to have their names disclosed by trading on a SEF that practices 
post-trade name give-up.\64\ FSF also asserted that ``[i]f Congress 
wanted to extend the privacy requirement to SEFs, it certainly would 
have done so.'' \65\
---------------------------------------------------------------------------

    \63\ See Better Markets Letter, at 11; Citadel Letter 1, at 4; 
FIA PTG Letter, at 2-3; ICI Letter, at 4.
    \64\ See FSF Letter, at 10-11.
    \65\ FSF Letter, at 11. See also SIFMA Letter, at 5; TP ICAP 
Letter, at 6.
---------------------------------------------------------------------------

    After considering commenters' arguments, the Commission continues 
to believe that post-trade name give-up undermines the objectives 
underlying CEA section 21(c)(6) and Sec.  49.17(f)(2) thereunder. In 
response to commenters who noted CEA section 21(c)(6) addresses SDRs 
and not SEFs, the Commission does not believe this reflects a 
Congressional intent to permit post-trade name give-up on SEFs. As the 
Commission noted in the Proposal, the Congressional intent to protect 
the privacy of trading information, including trader identities, is 
evident in other statutory provisions.\66\ While some market 
participants willingly participate on SEF platforms practicing post-
trade name give-up, others are reportedly deterred from doing so due to 
concerns over the privacy of their swap transaction information.\67\ 
The Commission believes that prohibiting post-trade name give-up is 
consistent with Congressional intent and will further the objectives 
underlying CEA section 21(c)(6) and statutory provisions similarly 
aimed at protecting private information of market participants.
---------------------------------------------------------------------------

    \66\ Proposal at 72266, note 62. CEA Section 8(a), for example, 
prohibits the Commission from publication of data and information 
that would disclose the business transactions or market positions of 
any person and trade secrets or names of customers. 7 U.S.C. 12(a).
    \67\ See, e.g., Proposal at 72263-72264 (discussing market 
participants' concerns over ``information leakage'' that could 
expose a counterparty's trading positions, strategies and/or 
objectives).
---------------------------------------------------------------------------

B. Application of the Rule

1. Scope of Swaps Covered
    In the Proposal, the Commission stated its preliminary belief that, 
with respect to operational, credit and settlement, and legal issues in 
particular, post-trade name give-up is generally unnecessary where a 
swap is executed on a SEF and submitted to a DCO for clearing.\68\ 
Accordingly, the Commission proposed in Sec.  37.9(d) to prohibit 
disclosing the identity of a counterparty to a swap executed 
anonymously and ``intended to be cleared.'' The Commission specifically 
requested public comments on whether any operational, credit and 
settlement, legal, or similar issues exist that would still require 
post-trade name give-up for an intended-to-be-cleared swap. The 
Commission also requested public comments on whether it should narrow 
the scope of the proposed prohibition on post-trade name give-up to 
swaps required to be cleared under section 2(h)(1) of the Act or swaps 
subject to the trade execution requirement under section 2(h)(8) of the 
Act.
---------------------------------------------------------------------------

    \68\ Proposal at 72267. The Commission also noted that STP 
requirements for transactions subject to clearing obviate the need 
for counterparty name disclosure. Id.
---------------------------------------------------------------------------

    The Commission received a number of comments opposing limiting the 
scope of the prohibition.\69\ MFA opposed narrowing the scope of the 
prohibition to swaps required to be cleared or subject to the trade 
execution requirements, asserting that doing so ``would mute the 
overall effectiveness of the Proposed Rule . . . .'' \70\ Similarly, 
Citadel asserted that the rationale for prohibiting post-trade name 
give-up applies equally to all swaps intended to be cleared, not just 
swaps subject to the clearing requirement or trade execution 
requirement and, therefore, ``there is no rational basis for drawing 
such a distinction.'' \71\ Citadel and FIA PTG, however, requested that 
the Commission clarify that ``intended to be cleared'' be interpreted 
to mean swaps that are intended to be submitted for clearing 
contemporaneously with execution, and not include swaps that begin as 
uncleared transactions and are later submitted to clearing.\72\ TP 
ICAP, on the other hand, asserted that any prohibition on post-trade 
name give-up should be limited to, at most, swaps subject to the 
clearing requirement.\73\ TP ICAP reasoned that a SEF may not know 
whether parties to a voluntarily-cleared swap will in fact submit the 
swap to a DCO, as the parties may do so themselves post-execution.\74\ 
TP ICAP stated that ``it would be difficult, if not impossible, to 
impose a restriction on [post-trade name give-up] post-execution when 
it is not known whether the transaction will be submitted for 
clearing.'' \75\
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    \69\ See AFR Letter, at 3; Citadel Letter 1, at 4; FIA PTG 
Letter, at 2; ICI Letter, at 5; MFA Letter, at 5-6.
    \70\ MFA Letter, at 5.
    \71\ Citadel Letter 1, at 4 (asserting that name give-up has no 
justification where: (1) the Commission's STP requirements ensure 
that a swap is quickly submitted to, and accepted or rejected by, a 
DCO (and is considered void ab initio if rejected); and (2) the two 
trading counterparties do not have credit, operational, or legal 
exposure to each other at any stage).
    \72\ See FIA PTG Letter, at 2; Citadel Letter 1, at 4; Citadel 
Letter 2, at 16. Citadel noted that ``SEFs may offer pre-trade 
anonymous trading protocols for swaps that begin as uncleared and 
then are `backloaded' into clearing by the trading counterparties at 
a later time.'' Id.
    \73\ TP ICAP Letter, at 2.
    \74\ Id.
    \75\ Id. TP ICAP also asserted that the Proposal ``does not 
accommodate the necessity of Name Give-Up in transactions that are 
executed and cleared across time zones.'' Id. TP ICAP stated that in 
such circumstances, transactions executed in one time zone may 
remain bilateral transactions until the relevant clearing house 
opens in another time zone, and post-trade name give-up would be 
necessary for the parties to manage counterparty credit risk until 
the trade can be submitted to the clearing house.
---------------------------------------------------------------------------

    The Commission declines to narrow the prohibition as requested by 
TP ICAP and is adopting Sec.  37.9(d), as proposed, to include swaps 
that are intended to be cleared. The Commission continues to believe 
that there is no need for post-trade name give-up if a swap is executed 
on a SEF and submitted to a DCO for clearing pursuant to STP 
requirements. Narrowing the prohibition to apply only to swaps required 
be cleared under section 2(h)(1) of the Act would unduly narrow its 
scope and hamper the statutory and regulatory objectives underlying the 
prohibition. Whether or not a swap is intended to be cleared is a 
material term that affects trade pricing and trade processing 
workflows, and it is something a SEF should be able to determine at the 
time of execution.\76\ However, to the extent a SEF's current systems 
do not indicate whether a swap is intended to be cleared, the 
Commission notes that the SEF must make necessary adjustments to its 
systems and processes to ensure that it can determine whether a swap is 
intended to be cleared before permitting post-trade name give-up.\77\ 
The Commission recognizes that some SEFs may need time to make such 
adjustments, and the Commission is

[[Page 44699]]

therefore providing a later compliance date for voluntarily-cleared 
swaps, as further described below. Finally, in response to the comments 
from Citadel and FIA PTG, the Commission clarifies that ``intended to 
be cleared'' should be interpreted to mean swaps that are intended to 
be submitted for clearing contemporaneously with execution. 
Accordingly, if a swap begins as an uncleared transaction and then is 
voluntarily submitted for clearing by the counterparties at a later 
time, the swap would not be considered ``intended to be cleared,'' and 
therefore would not be subject to the prohibition on post-trade name 
give-up.\78\
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    \76\ Furthermore, the Commission notes that a SEF's knowledge of 
whether or not a swap is intended to be cleared is relevant to real-
time reporting and STP requirements. See 17 CFR 43.3(b) and Appendix 
A to Part 43; 17 CFR 39.12(b)(7).
    \77\ As discussed in the following section below, the 
prohibition on post-trade name give-up applies equally to swaps that 
are pre-arranged or pre-negotiated by a broker on an anonymous 
basis. Therefore, a SEF must also ensure that its rules, systems, 
and processes require and enable brokers to engage in such pre-
arrangement or pre-negotiation without compromising counterparty 
anonymity, and to reliably determine whether a swap is intended to 
be cleared prior to engaging in name give-up.
    \78\ This includes swaps that are ``backloaded'' into clearing 
as described by Citadel. See supra note 72. The Commission notes 
that its STP regulations apply to all swaps cleared through a DCO, 
including voluntarily-cleared swaps. Those requirements are designed 
to (1) ensure that swaps are processed and accepted or rejected 
promptly from clearing, and (2) require swap dealers, SEFs and DCOs 
to coordinate with one another to ensure they have the capacity to 
accept or reject trades as quickly as technologically practicable if 
fully automated systems were used. 17 CFR 23.610, 37.702(b), 
39.12(b)(7).
---------------------------------------------------------------------------

2. Trades Pre-arranged or Pre-negotiated by a Broker
    A number of commenters recommended the Commission clarify that the 
prohibition on post-trade name give-up applies to a swap that is pre-
arranged or pre-negotiated by a broker on an anonymous basis and 
thereafter submitted for execution on a SEF.\79\ Commenters stated that 
doing so would help ensure that market participants cannot evade the 
prohibition on post-trade name give-up.\80\ For example, Citadel stated 
that voice brokers, operating either within a SEF or through an 
affiliated introducing broker, may seek to evade a prohibition on post-
trade name give-up by pre-negotiating or pre-arranging trades 
anonymously and then disclosing counterparty identities prior to 
formally executing the transaction on the SEF.\81\
---------------------------------------------------------------------------

    \79\ See AIMA Letter, at 2; Citadel Letter 1, at 11; Citadel 
Letter 2, at 17-18; FIA PTG Letter, at 2; MFA Letter, at 7. In a 
related comment, TP ICAP noted that the Commission should consider 
additional exceptions or guidance ``where a swap is arranged off-SEF 
(e.g., by an Introducing Broker) [and] submitted for execution and 
clearing through a SEF to a [DCO]'' where a prohibition on name 
give-up ``would . . . be incongruous because the counterparties will 
already know one another's identity at the point of execution.'' TP 
ICAP Letter, at 7.
    \80\ Citadel Letter 1, at 11; Citadel Letter 2, at 17-18; CTC 
Letter, at 2; FIA PTG Letter, at 2; MFA Letter, at 7. The Commission 
notes that the ban on post-trade name give-up is subject to the 
Commission's broad anti-evasion requirements.
    \81\ Citadel Letter 1, at 2; Citadel Letter 2, at 17-18.
---------------------------------------------------------------------------

    To address this concern, the Commission is revising proposed Sec.  
37.9(d)(3) to state that the phrase ``executed anonymously'' for 
purposes of Sec. Sec.  37.9(d)(1) and (2) includes a swap that is pre-
arranged or pre-negotiated anonymously, including by a participant of 
the SEF. In addition, the Commission is deleting the original text of 
proposed Sec.  37.9(d)(3), which the Commission believes is 
superfluous.\82\
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    \82\ As proposed, Sec.  37.9(d)(3) read as follows: The 
provisions in paragraphs (d)(1) and (d)(2) of this section shall not 
apply with respect to any method of execution whereby the identity 
of a counterparty is disclosed prior to execution of the swap. The 
Commission notes that the removal of this language from the final 
regulation is not intended to be a substantive revision or change 
the intended meaning or effect of the final rule. Notwithstanding 
this revision, the final rule does not apply to execution methods 
that are not pre-trade anonymous, such as name-disclosed RFQ.
---------------------------------------------------------------------------

    3. Package Transactions
    In the Proposal, the Commission recognized that a limited exception 
to the post-trade name give-up prohibition may be necessary for cleared 
swaps that are components of package transactions that include 
uncleared swap components.\83\ Uncleared swap components create 
bilateral credit, operational, and/or legal exposures that the 
counterparties must manage on an ongoing basis. Therefore, the 
Commission requested public comments on the necessity and scope of an 
exception to the post-trade name give-up prohibition for package 
transactions. The Commission also requested comments on whether an 
exception should be provided for package transactions involving any 
non-swap instrument, including U.S. Treasury securities.
---------------------------------------------------------------------------

    \83\ Proposal at 72267.
---------------------------------------------------------------------------

    Commenters agreed that a prohibition on post-trade name give-up 
should not apply to components of a package transaction that are 
uncleared swaps or non-swap instruments. Commenters differed on whether 
the Commission should provide an explicit exception in the regulation. 
FIA PTG, MFA and Citadel argued that while uncleared and non-swap 
components of package transactions should not be subject to a 
prohibition on post-trade name give-up, an explicit exclusion in the 
regulation is not necessary.\84\ These commenters reasoned that, by its 
very terms, the proposed prohibition applies to swaps intended to be 
cleared; thus, where a package transaction contains a cleared swap 
component and another uncleared swap or a non-swap component, the 
prohibition would not apply to the uncleared swap or non-swap component 
of the transaction.\85\ In contrast, JPMorgan and FSF stated that the 
Commission should provide an exception to the post-trade name give-up 
prohibition for package transactions that include an uncleared swap or 
security component.\86\
---------------------------------------------------------------------------

    \84\ See FIA PTG Letter, at 2; MFA Letter, at 5-6; Citadel 
Letter, at 9; Citadel Letter 2, at 17.
    \85\ Citadel and FIA PTG also stated that each component of a 
package already faces distinct post-trade operational workflows, so 
this treatment would be consistent with current market practice. FIA 
PTG Letter, at 2; Citadel Letter 1, at 9; Citadel Letter 2, at 17.
    \86\ See FSF Letter, at 6 and 15; JPMorgan Letter, at 6 and 19. 
Similarly, SIFMA stated that any prohibition on post-trade name 
give-up should exempt package transactions that involve a non-swap 
component. Without such an exemption, SIFMA argued, SEFs will be 
required to change the operational flow of both the swap component 
and the non-swap/security component of the package transaction. 
SIFMA Letter, at 6. SIFMA raised concern that ``the changes 
necessary for this infrastructure have not been considered in the 
cost/benefit analysis, and have not been analyzed enough to consider 
unintended consequences.'' Id.
---------------------------------------------------------------------------

    The Commission agrees with commenters that the post-trade name 
give-up prohibition should not apply to an uncleared swap or non-swap 
component of a package transaction. Uncleared swap and non-swap 
components of package transactions may create bilateral credit, 
operational, and/or legal exposures that require the counterparties to 
know each other's identities. For uncleared components of a package 
transaction, post-trade name give-up enables market participants to 
perform credit checks on counterparties prior to finalizing the 
transaction. The practice also allows counterparties to manage credit 
exposure and payment obligations arising from the bilateral nature of 
such uncleared transactions. In the case of U.S. Treasury securities, 
post-trade name give-up may still be necessary to accommodate trading 
mechanisms and infrastructures currently used for U.S. Treasury swap 
spreads that do not allow for anonymous clearing and settlement of the 
Treasury component of such transactions.\87\ Therefore, the Commission 
believes that a limited exception to the prohibition is appropriate at 
this time for package transactions that include a component that is an 
uncleared swap or a non-swap.\88\ The Commission will continue

[[Page 44700]]

to monitor the operational development of these markets, and encourages 
SEFs and market participants to address existing operational 
limitations so that any need for post-trade name give-up may be further 
diminished.
---------------------------------------------------------------------------

    \87\ To the extent that counterparties may be facilitating 
package transactions that involve a ``security,'' as defined in 
section 2(a)(1) of the Securities Act of 1933 or section 3(a)(10) of 
the Securities Exchange Act of 1934, or any component agreement, 
contract, or transaction over which the Commission does not have 
exclusive jurisdiction, the Commission does not opine on whether 
such activity complies with other applicable laws and regulations.
    \88\ TP ICAP commented that the Commission should also consider 
an exception or additional guidance in cases where ``a swap is a 
component of a package transaction involving another component that 
is not cleared at the same DCO.'' TP ICAP Letter, at 7. The 
Commission believes that such an exception or guidance is not 
necessary at this time, and further submits that an explanation as 
to what the issue or underlying problem could be in such cases has 
not been provided.
---------------------------------------------------------------------------

    Accordingly, the Commission is revising proposed Sec.  37.9(d) by 
adding Sec.  37.9(d)(4), which provides a limited exception to the 
post-trade name give-up prohibition for a swap that is intended to be 
cleared, when it is a component of a package transaction that includes 
a component transaction that is not an intended-to-be-cleared swap. The 
post-trade name give-up prohibition, as adopted in this release, 
prohibits SEFs from directly or indirectly disclosing the identity of a 
counterparty to a swap that is anonymously executed, pre-arranged or 
pre-negotiated on or pursuant to the rules of a SEF and intended to be 
cleared. Because the components of a package transaction are priced or 
quoted together as one economic transaction, the disclosure of the 
identity of a counterparty to any component of a package transaction 
effectively discloses the counterparty identity for all components of 
that package transaction. As such, if a SEF were to disclose the 
identity of a counterparty to the uncleared swap or non-swap component 
of a package transaction, the SEF would also be indirectly disclosing 
the identity of the counterparty to the intended-to-be-cleared swap 
component of the package transaction; and such indirect disclosure is 
otherwise prohibited under the regulation. Therefore, the Commission 
believes that a limited exception to the post-trade name give-up 
prohibition for package transactions with uncleared swap and non-swap 
components is necessary to provide clarity and regulatory certainty to 
SEFs and market participants.
    The exception will apply, for example, to U.S. Treasury swap 
spreads involving an intended-to-be-cleared swap and a U.S. Treasury 
security. However, the Commission emphasizes that the exception is 
limited in scope. Many package transactions are traded anonymously and 
involve only intended-to-be-cleared swaps, and the prohibition on post-
trade name give-up will apply to these transactions in full.\89\ The 
Commission notes that this exception is intended to accommodate trading 
and settlement workflows for certain package transactions as they exist 
today. It is not an invitation to structure package transactions to 
allow post-trade name give-up or to evade the prohibition on post-trade 
name give-up that the Commission is adopting in this final rule. In 
that regard, the final rule adopted herein is subject to the 
Commission's broad anti-evasion requirements.
---------------------------------------------------------------------------

    \89\ For example, ``curve'' and ``butterfly'' trades involving 
only intended-to-be-cleared swaps.
---------------------------------------------------------------------------

    The Commission emphasizes that this exception does not limit, 
prohibit, or otherwise restrain SEFs or market participants from 
developing and utilizing trading functionalities, operational 
workflows, or infrastructures for package trades that are fully 
anonymous, and do not utilize post-trade name give-up. The Commission 
encourages SEFs and market participants to continue to work to 
eliminate the technological and/or operational need for post-trade name 
give-up. The Commission will continue to monitor whether the exception 
in Sec.  37.9(d)(4) can be refined as trading functionalities, 
operational workflows, and/or infrastructure continue to develop in the 
future.
4. Workups
    In the Proposal, the Commission requested public comments on how, 
if at all, a prohibition on post-trade name give-up would affect 
trading protocols such as auctions, portfolio compression, and/or 
workup sessions. JPMorgan and FSF asserted that post-trade name give-up 
is an integral part of workup protocols, and the Proposal will impair 
workup protocols and adversely affect dealers' ability to hedge.\90\ 
These commenters asserted that a dealer's willingness to offer greater 
size through a workup may depend on (1) who its counterparty is, in 
particular whether the counterparty is likely to be able to execute on 
the full size the dealer is willing to offer, \91\ and (2), as FSF 
stated, whether the counterparty might impose adverse selection costs 
on the dealer upon knowing its trading interests.\92\ FSF suggested 
that if the Commission proceeds with a prohibition on post-trade name 
give-up, it should exclude from the prohibition any SEF that obtains a 
material portion of its trading volume, over a specified period, 
through workups.\93\
---------------------------------------------------------------------------

    \90\ See FSF Letter, at 2; JPMorgan Letter, at 7.
    \91\ FSF Letter, at 4; JPMorgan Letter, at 7.
    \92\ FSF Letter, at 4.
    \93\ FSF Letter, at 15.
---------------------------------------------------------------------------

    In contrast, Citadel and MFA asserted that post-trade name give-up 
is not necessary for workup sessions. Citadel asserted that if a 
trading protocol is pre-trade anonymous, there is no need to disclose 
the trading counterparties in order to engage in a work-up session and, 
therefore, ``work-up sessions on [interdealer broker] SEFs will 
function just as they do today in order to facilitate trading in 
size.'' \94\ Citadel also stated that claims to the contrary ``are 
easily disproven by looking at the U.S. Treasury market, where work-ups 
are commonly employed on interdealer platforms even though name give-up 
is not used.'' \95\ MFA further argued that prohibiting post-trade name 
give-up would benefit trading protocols such as auctions, portfolio 
compression, and/or workup sessions by increasing buy-side access and 
participation.\96\
---------------------------------------------------------------------------

    \94\ Citadel Letter 1, at 6. Citadel added that, similarly, a 
pre-trade anonymous auction or compression exercise should not 
require post-trade name give-up for intended-to-be-cleared swaps. 
Id.
    \95\ Citadel Letter 2, at 11. Citadel further stated that 
``there is nothing unique about transactions executed via work-up 
compared to other anonymously-executed cleared swaps that would 
require the disclosure of counterparty identities post-trade. In the 
fully anonymous U.S. Treasury market, work-ups account for a 
significant percentage of overall trading activity.'' Id. (citing to 
M.J. Fleming, E. Schaumburg & R. Yang, The Evolution of Workups in 
the U.S. Treasury Securities Market, Liberty Street Economics Blog 
(Aug. 20, 2015)).
    \96\ MFA Letter, at 6.
---------------------------------------------------------------------------

    The Commission agrees that post-trade name give-up is not necessary 
for workup sessions. The reasons given by commenters for why they view 
post-trade name give-up as an important aspect of workup sessions are 
essentially the same reasons espoused for the purported benefits of 
post-trade name give-up generally, i.e., ensuring reliable hedging and 
avoiding adverse selection for incumbent swap dealers.\97\ The 
Commission does not find that workup sessions present a particular need 
for post-trade name give-up that is distinct from pre-trade anonymous 
order books. Accordingly, the Commission does not believe it is 
necessary or appropriate to include an exception for workups.
---------------------------------------------------------------------------

    \97\ See supra notes 32, 33, 53, 54, 55 and accompanying text.
---------------------------------------------------------------------------

5. Error Trades
    Commenters also addressed the potential impact of a prohibition on 
post-trade name give-up on error trade corrections. TP ICAP asserted 
that a prohibition would prevent an efficient means for correcting 
trade errors, specifically, in cases ``[w]here a party to a swap 
identifies an error that requires coordination with its counterparty.'' 
\98\ TP ICAP therefore identified error trade correction among issues 
``that require the Commission to consider exceptions and additional 
guidance.'' \99\ Similarly, FSF stated that post-trade name give-up

[[Page 44701]]

``will remain necessary for counterparties to correct operational or 
clerical errors resulting in a trade being rejected.'' \100\ Citadel 
disagreed with these commenters, stating that ``[i]n the event of an 
operational or clerical error, the SEF can facilitate the correction of 
the error without disclosing a counterparty's identity . . . .'' \101\
---------------------------------------------------------------------------

    \98\ TP ICAP Letter, at 7.
    \99\ Id.
    \100\ FSF Letter, at 15.
    \101\ Citadel Letter 1, at 10. See also Citadel Letter 2, at 17.
---------------------------------------------------------------------------

    The Commission does not believe that post-trade name give-up is 
necessary or appropriate to resolve error trades for pre-trade 
anonymous and intended-to-be-cleared swaps. A SEF can intermediate 
communications if necessary, and otherwise facilitate error trade 
corrections, without disclosing counterparty identities.\102\ 
Accordingly, the Commission declines to adopt an exception to the 
prohibition on post-trade name give-up for error trade corrections. 
Therefore, any SEF offering trading in swaps subject to the prohibition 
must ensure its rules and procedures for error trades allow for error 
trade remediation without disclosure of the identities of 
counterparties to one another.
---------------------------------------------------------------------------

    \102\ The Commission's view on this issue is consistent with its 
stated view in the Proposal. See Proposal at 72267, note 78.
---------------------------------------------------------------------------

C. Compliance Dates

    The Commission recognizes the final rule adopted herein may require 
SEFs to modify, in varying degrees, their rules and operations with 
respect to trading and trade processing systems, error trades, and 
compliance programs.\103\ The Commission also recognizes that the 
modifications required--and the time necessary to implement them--may 
vary for different swap products. The Commission anticipates that 
compliance with the final rule will be simpler to implement for 
required transactions due to the fact that the methods of execution for 
such transactions are limited.\104\ Permitted transactions may require 
more time to establish compliance, given that a SEF may offer any 
method of execution for such transactions.\105\ Furthermore, for swaps 
that are not subject to mandatory clearing, a SEF may need to make 
additional adjustments to its systems and processes to ensure that it 
can determine whether a swap is intended to be cleared, and therefore 
subject to the prohibition on post-trade name give-up.
---------------------------------------------------------------------------

    \103\ This includes establishing rules to prohibit post-trade 
name give-up, as required under Sec.  37.9(d)(2).
    \104\ 17 CFR 37.9(a) defines ``required transaction'' as a 
transaction involving a swap that is subject to the trade execution 
requirement in section 2(h)(8) of the Act, and provides that 
required transactions shall be executed on a SEF through an order 
book or RFQ to no less than three market participants.
    \105\ 17 CFR 37.9(c) (defining ``permitted transaction'' as any 
transaction not involving a swap that is subject to the trade 
execution requirement in section 2(h)(8) of the Act).
---------------------------------------------------------------------------

    Accordingly, the Commission is adopting a phased compliance 
schedule. Specifically, for swaps subject to the trade execution 
requirement under CEA section 2(h)(8), SEFs must commence compliance 
with the requirements of Sec.  37.9(d) no later than November 1, 2020. 
For swaps not subject to the trade execution requirement under CEA 
section 2(h)(8), SEFs must commence compliance with the requirements of 
Sec.  37.9(d) no later than July 5, 2021.

III. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \106\ requires Federal 
agencies to consider whether the rules they propose will have a 
significant economic impact on a substantial number of small entities 
and, if so, to provide an analysis regarding the economic impact on 
those entities. The final rule adopted by the Commission will directly 
affect SEFs. The Commission has previously determined that SEFs are not 
``small entities'' for the purpose of the RFA.\107\ Therefore, the 
Chairman, on behalf of the Commission, hereby certifies, pursuant to 5 
U.S.C. 605(b), that the rule adopted herein will not have a significant 
economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \106\ 5 U.S.C. 601 et seq.
    \107\ See Core Principles and Other Requirements for Swap 
Execution Facilities, 78 FR 33476, 33548 (June 4, 2013).
---------------------------------------------------------------------------

B. Paperwork Reduction Act

    The Paperwork Reduction Act (PRA) \108\ imposes certain 
requirements on Federal agencies, including the Commission, in 
connection with their conducting or sponsoring any collection of 
information, as defined by the PRA. 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. The Commission has previously received 
a control number from OMB that includes the collection of information 
associated with part 37 of the Commission's regulations. The title for 
this collection of information is ``Core Principles and Other 
Requirements for Swap Execution Facilities, OMB control number 3038-
0074.'' \109\ Collection 3038-0074 is currently in force with its 
control number having been provided by OMB. However, the rule adopted 
herein does not impose any new recordkeeping or information collection 
requirements, and therefore contains no requirements subject to the 
PRA.
---------------------------------------------------------------------------

    \108\ 44 U.S.C. 3501 et seq.
    \109\ See OMB Control No. 3038-0074, available at https://www.reginfo.gov/public/do/PRAOMBHistory?ombControlNumber=3038-0074 
(last retrieved June 23, 2020).
---------------------------------------------------------------------------

C. Cost-Benefit Considerations

    Section 15(a) of the CEA requires the Commission to consider the 
costs and benefits of its actions before promulgating a regulation 
under the CEA.\110\ Section 15(a) further specifies that costs and 
benefits shall be evaluated in light of five broad areas of market and 
public concern: (1) Protection of market participants and the public; 
(2) efficiency, competitiveness, and financial integrity of futures 
markets; (3) price discovery; (4) sound risk management practices; and 
(5) other public interest considerations. The Commission considers the 
costs and benefits resulting from its discretionary determinations with 
respect to the Section 15(a) factors.
---------------------------------------------------------------------------

    \110\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------

    The Commission is adopting amendments to part 37 of the 
Commission's regulations to prohibit post-trade name give-up for swaps 
anonymously executed, pre-arranged, or pre-negotiated on or pursuant to 
the rules of a SEF and intended to be cleared. Section 37.9(d) of the 
Commission's regulations adopted herein prohibits a SEF from directly 
or indirectly, including through a third-party service provider, 
disclosing the identity of a counterparty to any such swap. The 
regulation also requires SEFs to establish and enforce rules that 
prohibit any person from effectuating such a disclosure.
    The baseline for this consideration of costs and benefits with 
respect to the rule adopted herein is the status quo, which includes 
the existing practice of post-trade name give-up for cleared swaps on 
some SEFs, and the current regulatory requirements that do not 
explicitly prohibit post-trade name give-up for cleared swaps 
anonymously executed, pre-arranged, or pre-negotiated on or pursuant to 
the rules of a SEF. The prohibition does not apply to uncleared swaps 
or SEF trading systems and platforms that are not pre-trade anonymous; 
and the final rule includes an exception for package transactions that 
include components that are not intended-to-be-cleared

[[Page 44702]]

swaps. Much of the swaps trading on SEFs today occurs on disclosed 
trading systems and platforms that display the identities of potential 
counterparties to one another before execution occurs. Such is the 
case, for example, with many RFQ systems offered by SEFs.
    The Commission notes that this consideration of costs and benefits 
is based on the understanding that the swaps market functions 
internationally, with many transactions involving U.S. firms taking 
place across international boundaries, with some Commission registrants 
being organized outside of the United States, with leading industry 
members typically conducting operations both within and outside the 
United States, and with industry members commonly following 
substantially similar business practices wherever located. Where the 
Commission does not specifically refer to matters of location, the 
below discussion of costs and benefits refers to the effects of the 
final rules on all swaps activity subject to the proposed and amended 
regulations, whether by virtue of the activity's physical location in 
the United States or by virtue of the activity's connection with or 
effect on U.S. commerce under CEA section 2(i).\111\
---------------------------------------------------------------------------

    \111\ 7 U.S.C. 2(i). Section 2(i)(1) applies the swaps 
provisions of both the Dodd-Frank Act and Commission regulations 
promulgated under those provisions to activities outside the United 
States that have a direct and significant connection with activities 
in, or effect on, commerce of the United States. Section 2(i)(2) 
makes them applicable to activities outside the United States that 
contravene Commission rules promulgated to prevent evasion of Dodd-
Frank.
---------------------------------------------------------------------------

    The Commission has endeavored to assess the expected costs and 
benefits of the final rulemaking in quantitative terms, where possible. 
In situations where the Commission is unable to quantify the costs and 
benefits, the Commission identifies and considers the costs and 
benefits of the adopted rule in qualitative terms. The lack of data and 
information to estimate those costs is attributable in part to the 
nature of the final rule and uncertainty about the potential responses 
of market participants to the implementation of the final rule. The 
Commission recognizes that potential indirect costs and benefits of the 
prohibition on post-trade name give-up adopted herein--i.e., those 
relating to effects on trading behavior, liquidity, and competition--
may be impossible to accurately predict or quantify prior to 
implementation of the rule.
    The final rule differs from the proposed rule in several ways. 
Section 37.9(d)(3) of the final rule states that for purposes of the 
rule, the term ``executed anonymously'' shall include a swap that is 
pre-arranged or pre-negotiated anonymously, including by a participant 
of the SEF. The proposed rule does not include this provision, which is 
intended to clarify that the prohibition on name disclosure also 
applies in cases where a broker pre-negotiates or pre-arranges a trade 
anonymously. The final rule also includes an exception for package 
transactions that include a component transaction that is not an 
intended-to-be-cleared swap, and a staggered compliance schedule 
depending on whether a swap is subject to the trade execution 
requirement.
1. Costs
    The Commission recognizes that the final rule adopted herein may 
require SEFs to modify their rules and operations in varying degrees, 
including, potentially, with respect to trading and trade processing 
systems, error trades, and compliance programs; and that these 
modifications are likely to impose costs. For example, Sec.  37.9(d)(2) 
requires SEFs to establish and enforce rules to prohibit any person 
from directly or indirectly, including through a third-party service 
provider, disclosing the identity of a counterparty to a swap that is 
executed anonymously and intended to be cleared. Complying with Sec.  
37.9(d)(2) will require a SEF to file such rules with the Commission in 
accordance with part 40 of the Commission's regulations. The Commission 
estimates that filing such rules may take up to 50 hours, which is 
unlikely to be a major cost burden on SEFs. The Commission also 
recognizes that the modifications required--and the time necessary to 
implement them--may vary for different swap products.
    The Commission believes that these costs will be relatively small 
as compared to a SEF's overall operating costs. In the Proposal, the 
Commission stated a preliminary assessment that the direct costs in 
implementing and complying with the proposed rule would not be 
material, and that the costs of adjusting affected SEF protocols in 
order to comply would be negligible.\112\ The Commission requested that 
SEFs provide estimates of any direct costs they would incur.\113\ The 
Commission received no such comments. The Commission anticipates that 
compliance with the final rule will be simpler and less costly to 
implement for swaps that are subject to the clearing requirement. The 
Commission recognizes that a SEF may incur additional costs with 
respect to swaps that are not subject to mandatory clearing, insofar as 
its systems and processes must be adjusted to ensure that it is 
determined whether a swap is intended to be cleared prior to permitting 
post-trade name give-up to occur. The Commission is adopting a phased 
compliance schedule based on whether a swap is subject to the trade 
execution requirement. The extended compliance period for swaps not 
subject to the trade execution requirement will delay the benefits 
associated with the rule for certain swaps, but should also mitigate 
the costs to SEFs associated with compliance with the rule.
---------------------------------------------------------------------------

    \112\ Proposal at 72269.
    \113\ Id.
---------------------------------------------------------------------------

    The Commission anticipates the direct cost of complying with Sec.  
37.9(d) for market participants to be at or near zero and has received 
no comments to the contrary. With respect to potential indirect costs 
of the proposed rule, commenters opposing the Proposal argued that it 
will harm liquidity by causing incumbent swap dealers to exit the 
market or reduce their trading and the liquidity they provide.\114\ 
Several proponents of the Proposal disputed these assertions. ICI and 
MFA characterized this outcome as ``unlikely.'' \115\ MFA stated that 
competitive market forces would ensure that ``in the unlikely event an 
individual dealer reduced its offering, other dealers would quickly 
step into its place.'' \116\ Asserting its experience as a ``top 
liquidity provider'' in SEF markets, Citadel stated that it does not 
expect a prohibition on post-trade name give-up to affect its liquidity 
provision on RFQ platforms or its use of pre-trade anonymous trading 
protocols.\117\ Citadel further asserted that ``other swap dealers 
share our view, as UBS has supported the prohibition and SIFMA 
indicated that the views among swap dealers `are not uniform.' '' \118\ 
Commenters also pointed to their experience in other asset classes 
where post-trade name give-up is not practiced, asserting that such 
markets demonstrate that the purported negative liquidity impacts 
raised by incumbent swap dealers are unwarranted.\119\
---------------------------------------------------------------------------

    \114\ See ABA Letter, at 2; BPI Letter, at 1; FSF Letter, at 7-
8; SIFMA Letter, at 4.
    \115\ ICI Letter, at 5; MFA Letter, at 4.
    \116\ MFA Letter, at 4.
    \117\ Citadel Letter 1, at 6.
    \118\ Citadel Letter 1, at 7.
    \119\ See Citadel Letter 1, at 7; Citadel Letter 2, at 7, FIA 
PTG Letter, at 1-2, MFA Letter, at 4.
---------------------------------------------------------------------------

    The Commission believes that incumbent swap dealers will continue 
to provide liquidity on the affected SEFs as long as it is in their 
business interest to do so and notes that the apparent desire of other 
entities to provide

[[Page 44703]]

liquidity once post-trade name give-up is prohibited suggests that 
overall liquidity is not likely to decline.
    A number of commenters asserted that without post-trade name give-
up on dealer-to-dealer SEFs, pricing and liquidity offered by dealers 
to clients via RFQ or over-the-counter (OTC) may suffer.\120\ Some of 
these commenters stated that post-trade name give-up helps dealers 
predict their hedging costs and tailor their pricing on RFQ SEFs.\121\ 
They argued that prohibiting the practice would likely result in 
inferior pricing for clients on RFQ SEFs.\122\ Similarly, commenters 
asserted that post-trade name give-up enables dealers to hedge the risk 
they accumulate by providing liquidity to clients off-SEF.\123\ FSF 
argued that if dealers widen spreads as a result of a prohibition on 
post-trade name give-up, commercial end users may be disproportionately 
harmed because they rely more exclusively on dealer pricing and 
generally do not trade in cleared swaps on SEFs.\124\ The Coalition for 
Derivatives End-Users (Coalition) stated that they ``have heard from 
bank swap dealers that the Proposed Rule would result in less liquidity 
and worse pricing on SEFs, which in turn may increase costs for 
derivatives end users hedging transactions in the non-cleared OTC 
derivatives markets.'' \125\ The Coalition also stated that they ``have 
heard from other market participants that, under the Proposed Rule, 
liquidity would increase and result in better pricing on SEFs, which in 
turn may drive down costs for derivatives end-users in the non-cleared 
OTC derivatives markets.'' \126\ The Coalition further stated that it 
``lacks the empirical data and institutional knowledge to reach a firm 
conclusion as to the effects of the Proposed Rule on the ability of 
end-users to access efficient and economical markets to hedge their 
commercial risks.'' \127\
---------------------------------------------------------------------------

    \120\ See ABA Letter, at 2; Citi Letter, at 3-4; FSF Letter, at 
2 and 5-6; JPMorgan Letter, at 5-6.
    \121\ See JPMorgan Letter, at 5-6; FSF Letter, at 2; Citi 
Letter, at 3.
    \122\ See Citi Letter, at 3-4; FSF Letter, at 5-6.
    \123\ ABA Letter, at 3; FSF Letter, at 2 and 5; Citi Letter, at 
3-4.
    \124\ See FSF Letter, at 2 and 7.
    \125\ Coalition Letter, at 1.
    \126\ Id.
    \127\ Id. at 2.
---------------------------------------------------------------------------

    SIFMA AMG and Citadel each generally disagreed with the notion that 
client pricing will be harmed by a prohibition on post-trade name give-
up.\128\ Citadel asserted that, ``if anything, pricing should become 
more competitive, as buy-side firms gain access to additional sources 
of liquidity and will have more pre-trade price information on which to 
transact''; \129\ and that ``increasing competition should lower 
transaction costs, thereby facilitating dealer hedging.'' \130\
---------------------------------------------------------------------------

    \128\ See Citadel Letter 1, at 7; Citadel Letter 2, at 11; SIFMA 
AMG Letter, at 2.
    \129\ Citadel Letter 1, at 7.
    \130\ Citadel Letter 2, at 11.
---------------------------------------------------------------------------

    The Commission continues to believe that prohibiting post-trade 
name give-up is likely to increase competition on affected SEFs, which 
in turn should lead to lower overall transaction costs.\131\ The 
Commission is basing its belief on several studies described in the 
benefits section below, finding that post-trade anonymity tends to 
reduce trading costs and lead to better price quotes and lower realized 
spreads.\132\ Nevertheless, the Commission acknowledges that it is 
theoretically possible that the prohibition on post-trade name give-up 
could lead to increased trading costs associated with some OTC swaps, 
even if, as the Commission anticipates, it leads to improved liquidity 
and lower transaction costs for swaps traded on SEFs. One study 
reviewed by the Commission, as discussed below, describes a theoretical 
scenario, where post-trade anonymity in swaps and bond markets could 
lead to an increase in OTC spreads and a simultaneous decrease in 
spreads on exchanges that ultimately improves overall welfare of market 
participants.\133\
---------------------------------------------------------------------------

    \131\ See Proposal at 72269.
    \132\ The Commission does note that reductions in transaction 
costs may lead to a reduction in profits for incumbent liquidity 
providers and thus, these lower costs may be perceived as a cost for 
those liquidity providers, even as it is perceived as a benefit for 
other market participants.
    \133\ T. Lee & C. Wang, Why Trade Over-the-Counter? When 
Investors Want Price Discrimination (2019 working paper).
---------------------------------------------------------------------------

2. Benefits
    The Commission believes that implementing the rule may reduce 
information asymmetries and improve liquidity, particularly on affected 
SEFs, and may reduce transaction costs and bid-ask spreads. The 
practice of post-trade name give-up and the prospect of information 
leakage have reportedly deterred a significant segment of market 
participants from making markets on or otherwise participating on 
affected SEFs. The Commission expects that many of these market 
participants will choose to participate on these SEFs once the practice 
is prohibited, leading to increased liquidity. Increased liquidity may 
benefit market participants by making it easier to execute 
transactions, especially larger transactions, quickly and without undue 
price impact.
    In order to evaluate the expected benefits of implementing the 
rule, the Commission reviewed several empirical studies examining prior 
experiences with changes in post-trade anonymity. As detailed in the 
Proposal, the studies covered the experiences in U.S. securities 
markets and a wide range of foreign financial markets and, on balance, 
support the premise that post-trade anonymity promotes trading 
liquidity. Commenters in favor of the prohibition of name give-up cited 
other studies that further support the benefits of fully-anonymous 
trading. Commenters not in favor of prohibiting post-trade name give-up 
did not provide data, evidence, or studies regarding the impact of 
post-trade anonymity.
    Specifically, as discussed in more detail in the Proposal, the 
Commission reviewed six event studies focusing on post-trade anonymity 
in various equity exchanges around the world, most of which document an 
improvement in liquidity. The Commission acknowledges that none of 
these studies examine a change in post-trade anonymity for a swaps 
market, but the studies do provide real-world evidence on the effects 
on liquidity in a range of markets when the rules for post-trade 
anonymity are changed. Hence, they provide the most instructive 
empirical evidence available regarding a proposed change in such rules. 
Four of these studies, which focus on European equity markets, provide 
evidence of a liquidity improvement associated with post-trade 
anonymity,\134\ which could be attributed to a reduction of information 
leakage.\135\ A study on the 2003 introduction of post-trade anonymity 
on the NASDAQ platform found no evidence that best quotes were 
improved,\136\ while a study on the South Korea Exchange found that 
reducing post-trade anonymity led to lower realized spreads.\137\ The 
Commission

[[Page 44704]]

believes that on balance the empirical evidence presented in these 
academic studies supports the benefits of anonymous trading.
---------------------------------------------------------------------------

    \134\ S. Freiderich & R. Payne, Trading Anonymity and Order 
Anticipation, 21 Journal of Financial Markets 1-24 (2014); T.G. 
Meling, Anonymous Trading in Equities (2019 working paper); P.J. 
Dennis & P. Sandas, Does Trading Anonymously Enhance Liquidity?, 
Journal of Financial and Quantitative Analysis 1-25 (2019); A. 
Hachmeister & D. Schierek, Dancing in the Dark: Post-Trade 
Anonymity, Liquidity, and Informed Trading, 34 Review of 
Quantitative Finance and Accounting 145-177 (2010).
    \135\ S. Freiderich & R. Payne, Trading Anonymity and Order 
Anticipation, 21 Journal of Financial Markets 1-24 (2014); J. 
Linnainmaa & G. Saar, Lack of Anonymity and the Inference from Order 
Flow, 25 Review of Financial Studies 1,414-1,456 (2012).
    \136\ K. Benhami, Liquidity providers' valuation of anonymity: 
The NASDAQ Market Makers evidence (2006 working paper).
    \137\ T.P. Pham, et al., Intra-day Revelation of Counterparty 
Identity in the World's Best-Lit Market (2016 working paper).
---------------------------------------------------------------------------

    As discussed in more detail in the Proposal, the Commission also 
reviewed several theoretical studies. The studies present models with 
various levels of post-trade disclosure in different settings, and the 
results offer insight into the trade-offs associated with changes in 
post-trade anonymity, notwithstanding the fact that the studies did not 
directly examine the case of bilateral disclosure of counterparty 
identities immediately after each trade. The Commission found that the 
results of these theoretical studies were mixed. One study, for 
example, focused on the post-trade public disclosure of the trades of 
insiders in equity markets, and the authors concluded that public 
disclosure of insider trades accelerates the price discovery 
process.\138\ Therefore, the results suggest that post-trade anonymity 
might strengthen asymmetric information problems in the market and lead 
to subsequently reduced liquidity by exacerbating the market maker's 
adverse selection problem. Another study concluded that public 
disclosure can reduce the informational efficiency of prices and reduce 
market liquidity, because informed traders reduce trading in order to 
preserve their informational advantage.\139\
---------------------------------------------------------------------------

    \138\ S. Huddart, J.S., Hughes & C.B. Levine, Public Disclosure 
and Dissimulation of Insider Trades, Econometrica, Vol. 69, No. 3 
(May 2001), 665-681.
    \139\ A.M. Buffa, Insider Trade Disclosure, Market Efficiency, 
and Liquidity (2014 working paper).
---------------------------------------------------------------------------

    The Commission also examined one theoretical study that explicitly 
addresses the practice of post-trade name give-up. The study, 
considered in more detail in the Proposal, modeled the investor choice 
between OTC markets and electronic order books.\140\ The authors 
supported that the OTC market can detect and attract uninformed traders 
(i.e., hedgers who are demanding liquidity but do not possess market 
moving information) by offering them lower spreads, which results in an 
increase in spreads for informed traders (i.e., traders who demand 
liquidity in order to profit from the trade) in an electronic order 
book, as well as a decrease in average spreads and an increase in total 
volume. The authors concluded that a prohibition on post-trade name 
give-up would likely lead to an increase in overall welfare. They 
reasoned that, in the absence of post-trade name give-up, informed 
traders will continue to trade via RFQ in order to minimize exposure of 
their trading intentions, and that spreads in this venue will stay high 
to reflect this situation. On the other hand, uninformed traders will 
migrate to the order book and trade more, because spreads will decline 
due to the increased activity. They predicted that overall welfare 
would increase because the aggregate benefits of increased electronic 
trading at low spreads would more than offset the aggregate costs to 
informed traders who remain concerned about information leakage. The 
study is consistent with the Commission's recognition of the trade-offs 
in prohibiting post-trade name give-up.
---------------------------------------------------------------------------

    \140\ T. Lee & C. Wang, Why Trade Over-the-Counter? When 
Investors Want Price Discrimination (2019 working paper).
---------------------------------------------------------------------------

    Citadel cited two additional studies that the Commission did not 
consider in the Proposal, but which it has now reviewed.\141\ These 
studies examined the effect of various levels of intermediation (i.e., 
access to multiple market makers) on liquidity in OTC markets and may 
be closer to the setting of the swaps market. One study provided an 
empirical evaluation of the implications of the OTC market structure 
for non-financial firms in the foreign exchange derivatives 
market.\142\ The authors documented extensive discriminatory pricing by 
dealers, who appeared to favor sophisticated customers, defined as 
those customers transacting high volume with multiple counterparties. 
However, clients trading on RFQ platforms, where they can request 
quotes from multiple dealers simultaneously, appeared to receive 
competitive pricing irrespective of the level of their sophistication 
which leads the authors to conclude that discriminatory pricing could 
be potentially eliminated with the use of a centralized order book. 
Finally, the authors argued that the lack of centralized dissemination 
of transaction prices provides dealers with an information advantage 
compared to clients, which enables them to extract information 
rents.\143\ The Commission recognizes the empirical fact that trading 
costs appear to differ across different venues and for different 
traders, as this study emphasizes. Nonetheless, the Commission finds 
that the design of the study precludes strong causal statements 
regarding the causes and effects of the observed variation.
---------------------------------------------------------------------------

    \141\ See Citadel Letter 2, at 16.
    \142\ H. Hau, P. Hoffmann, S. Langfield, & Y. Timmer, 
Discriminatory pricing of over-the-counter derivatives (2017 working 
paper). We note that, while the paper focuses on the foreign 
exchange derivatives market, its conclusions regarding the impact of 
multi-dealer RFQ platforms are generally applicable across markets.
    \143\ Id.
---------------------------------------------------------------------------

    The second study, which provides a theoretical model of a generic 
OTC market, concluded that sophisticated investors, who have access to 
multiple market makers or other investors, face lower transaction 
costs.\144\ The authors theorized that the availability of other 
trading counterparties (i.e., more competition) forces market makers to 
provide better pricing. The Commission agrees with the broad conclusion 
that more active, competitive markets are welfare enhancing.
---------------------------------------------------------------------------

    \144\ D. Duffie, N. G[acirc]rleanu, & L.G. Pedersen, Valuation 
in Over-the-Counter Markets, Review of Financial Studies, Vol. 20, 
No. 5 (2007).
---------------------------------------------------------------------------

    Several commenters addressed the Commission's review of academic 
studies in the Proposal. FSF, SIFMA, JPMorgan and TP ICAP each asserted 
that the studies on equity markets cited in the Proposal's Cost-Benefit 
Considerations (CBC) are not relevant because equity markets are not 
comparable to the swaps market.\145\ JP Morgan stated that ``swap 
markets have many fewer participants, of which institutional 
participants constitute a far larger proportion, much lower trading 
frequency, far greater variation in tradeable products, and much larger 
typical trade sizes.'' \146\ The Coalition requested a quantitative 
analysis of the costs and benefits for commercial end users.\147\ BPI, 
FSF, Citi and JPMorgan further asserted that the CBC is not sufficient 
and that further study is necessary.\148\
---------------------------------------------------------------------------

    \145\ See FSF Letter, at 9; SIFMA Letter, at 3; JPMorgan Letter, 
at 9; TP ICAP Letter, at 5.
    \146\ JPMorgan Letter, at 9. See also FSF Letter, at 9 (``The 
swap markets have many fewer participants, much lower trading 
volume, far greater variation in tradable products, and much larger 
typical trade sizes.'').
    \147\ Coalition Letter, at 2. The Commission notes that it is 
not possible to conduct a quantitative analysis of the costs and 
benefits to commercial end users of a prohibition on post-trade name 
give-up prior to finalizing the rule, because there is no data on 
the effects until after the rule is implemented.
    \148\ See BPI Letter, at 2; FSF Letter, at 12; Citi Letter, at 
3; JPMorgan Letter, at 13-14. See also ABA Letter, at 2 (``[W]e see 
no relevant data cited in the Proposed Rule to support the 
contention that the prohibition would attract sufficient additional 
non-dealer market participants to CLOB SEFs to outweigh these 
negative consequences.'').
---------------------------------------------------------------------------

    Better Markets, Citadel and AFR each commented that the Proposal, 
including the consideration of costs and benefits therein, provides a 
sufficient basis with which to move forward with a final rule.\149\ 
Citadel also argued that the Proposal is consistent with the 
Commission's previous decision in implementing part 37 not to limit SEF

[[Page 44705]]

access to just swap dealers, and therefore the Commission can rely on 
its cost-benefit considerations for that rulemaking to support a 
prohibition on post-trade name give-up.\150\ Citadel further argued 
that claims by some commenters that commercial end-users transacting 
swaps off-SEF might be negatively affected by the Proposal conflicts 
with academic research.\151\
---------------------------------------------------------------------------

    \149\ See AFR Letter, at 1; Better Markets Letter, at 5; Citadel 
Letter 1, at 11; Citadel Letter 2, at 14-15.
    \150\ Citadel Letter 2, at 14.
    \151\ Citadel Letter 2, at 15. Citadel cited two academic 
studies that it asserted ``suggests that commercial end-users may 
not be best-served by maintaining the current status quo.'' Id. 
These studies show that access to multiple market makers reduces 
trading costs.
---------------------------------------------------------------------------

    The Commission notes that commenters who support prohibiting post-
trade name give-up generally considered the academic studies discussed 
in the Proposal to be informative, while commenters who oppose the 
prohibition assert that the studies are not informative because swaps 
markets are different than equity markets. The Commission acknowledges 
that there are differences between the equity markets in most of these 
empirical studies and the U.S. swaps markets. Further, the Commission 
understands that the equity markets examined do not generally mirror 
the exact dealer-centric swaps markets under consideration. 
Nonetheless, the wide range of markets, time periods, and experiences 
considered in the empirical studies leads the Commission to conclude 
that the value of anonymous trading is well-established. Moreover, to 
the extent that liquidity provision in swaps markets is more 
concentrated than in the most active and liquid equity markets, the 
empirical studies that provide evidence on smaller equity markets, or 
on the less liquid stocks in a given market, might be most informative.
    Some of the equity markets studied may be deeper and more liquid 
than the U.S. swaps market. However, several of the markets studied are 
equity markets that are smaller than the U.S. equity market (e.g., 
Finland, Norway, and Sweden), and therefore potentially more comparable 
to the swaps markets in the U.S. For example, one of the early 
empirical studies on the implementation of post-trade anonymity on the 
London Stock Exchange in 2001 finds that liquidity improvements were 
more pronounced for small stocks and stocks with higher trading 
concentration, which were potentially subject to larger information 
asymmetries. The Commission notes that, with respect to the smaller 
universe of liquidity providers, markets for smaller stocks could be 
more analogous to swaps markets than markets for larger and more liquid 
stocks with a broader array of market participants.
    Commenters who objected to the application of the studies did not 
provide evidence to support the argument that the differences between 
the anonymous order books in swaps and equity markets would prevent the 
liquidity improvement associated with greater post-trade anonymity, as 
suggested by the empirical studies in equity markets. Accordingly, the 
Commission agrees with those commenters who stated that the studies are 
instructive for U.S. swap markets, since they share the use of pre-
trade anonymous order books and these studies appear to be of markets 
that are more analogous to swap markets than any other empirical study 
the Commission or commenters have identified.\152\
---------------------------------------------------------------------------

    \152\ Citi did suggest that the Commission study the effects of 
post-trade anonymity on the emerging market bond market. Citi 
Letter, at 4. The Commission does not have jurisdiction over 
emerging market bonds and does not have access to the relevant data.
---------------------------------------------------------------------------

    The Commission believes that prohibiting post-trade name give-up is 
reasonably likely to improve liquidity on SEFs, particularly on 
affected pre-trade anonymous markets, as additional market participants 
choose to participate on these markets once post-trade name give-up is 
prohibited. The Commission has not found convincing evidence that a 
prohibition on post-trade name give-up will have net liquidity-reducing 
effects. Rather, the Commission notes that the evidence from the 
studies, as discussed above, suggests that markets with pre- and post-
trade anonymity generally feature greater liquidity than those without. 
Moreover the Commission is concerned that the status quo may facilitate 
information asymmetries and hinder access and participation on affected 
SEFs for many market participants. The Commission believes that the 
rule as adopted may benefit market participants by reducing these 
information asymmetries and will increase participation on these SEF 
platforms.
3. Consideration of Alternatives
    TP ICAP suggested the alternative that any prohibition on post-
trade name give-up should be limited to, at most, swaps subject to the 
clearing requirement rather than all swaps that are intended to be 
cleared, because a SEF may not know whether the parties to a 
voluntarily-cleared swap will submit the swap to a DCO, as the parties 
may do so themselves post-execution. The Commission has determined not 
to adopt this alternative. The Commission notes that whether a swap is 
intended to be cleared is a material term that affects trade pricing 
and trade processing workflows, and it is something that SEF should be 
able to determine at the time of execution, including for voluntarily-
cleared swaps. Thus, the Commission believes that the final rule, which 
applies the prohibition to voluntarily-cleared swaps, will enable a 
larger scope of swaps to receive the benefits associated with the 
regulation, including, potentially, greater participation and improved 
liquidity. However, to ensure that SEFs are provided with adequate time 
to make any necessary changes to their systems, the Commission is 
providing a phased compliance schedule, as discussed above.
    A number of commenters suggested that before implementing a full 
post-trade name give-up prohibition, the Commission should implement a 
time-limited pilot program that would prohibit post-trade name give-up 
for some, but not all, products.\153\ These commenters asserted that a 
pilot program would allow the Commission to assess the impact of a 
post-trade name give-up prohibition before requiring market-wide 
changes. The Commission has determined not to adopt this alternative. A 
temporary pilot program may provide market participants with different 
incentives than a permanent rule and thus may not be indicative of the 
efficacy of a permanent rule. As Citadel noted, ``a short-term pilot 
would be easily susceptible to manipulation. Given their commercial 
interests in maintaining the status quo and privileged position as 
liquidity providers, the incumbent dealer banks could temporarily 
provide worse pricing for instruments covered by the name give-up 
prohibition in order to dictate the pilot results.'' \154\ The 
Commission agrees that a pilot program could create an incentive to 
engage in such conduct, but a permanent prohibition will not.
---------------------------------------------------------------------------

    \153\ See Citi Letter, at 5; JPMorgan Letter, at 14; FSF Letter, 
at 14.
    \154\ Citadel Letter 2, at 16.
---------------------------------------------------------------------------

    FSF and JP Morgan suggested the alternative approach whereby the 
Commission would require every order book SEF that offers post-trade 
name give-up to design a method that would permit its participants to 
opt out of post-trade name give-up, which could be through a parallel, 
fully-anonymous order book, or by allowing participants to opt-out of 
post-trade name give-up on

[[Page 44706]]

an order-by-order basis.\155\ In the view of FSF, this approach would 
provide freedom for market participants to transact in the manner in 
which they wish to, while providing the option of fully-anonymous 
trading to buy-side clients concerned with undesirable information 
leakage.\156\ The Commission has determined not to adopt this 
alternative. The Commission believes that post-trade name give-up is 
likely to persist wherever it is permitted, and that this alternative 
would provide little or no benefit while still imposing costs on SEFs 
that are at least as high as those of a full prohibition (as SEFs would 
need to change their systems to allow opting out). The Commission 
agrees with Citadel's statement that one ``would expect incumbent 
dealer banks not to agree to opt-out of name give-up, meaning that very 
little would change on [interdealer broker] SEFs.'' \157\
---------------------------------------------------------------------------

    \155\ FSF Letter, at 14, JPMorgan Letter, at 15.
    \156\ FSF Letter, at 14.
    \157\ See Citadel Letter 2, at 16.
---------------------------------------------------------------------------

    FSF suggested an alternative whereby the Commission would exclude 
from the prohibition on post-trade name give-up any SEF that obtains a 
material portion of its trading volume, over a specified period, 
through workups. JPMorgan and FSF asserted that post-trade name give-up 
is an integral part of workup protocols, and the prohibition will 
impair workup protocols and adversely affect dealers' ability to hedge 
via adverse selection. In contrast, Citadel and MFA assert that post-
trade name give-up is not necessary for workup sessions. Citadel 
asserted that if a trading protocol is pre-trade anonymous, there is no 
need to disclose the trading counterparties in order to engage in a 
workup session and, therefore, workup sessions will function just as 
they do today. Citadel also stated that claims to the contrary ``are 
easily disproven by looking at the U.S. Treasury market, where work-ups 
are commonly employed on interdealer platforms even though name give-up 
is not used.'' \158\ MFA further argued that prohibiting post-trade 
name give-up would benefit trading protocols such as auctions, 
portfolio compression, and/or workup sessions by increasing buy-side 
access and participation.
---------------------------------------------------------------------------

    \158\ Citadel Letter 2, at 11.
---------------------------------------------------------------------------

    The Commission has determined not to adopt this alternative. The 
Commission agrees with those comments asserting that post-trade name 
give-up is not necessary for workup sessions and that post-trade 
anonymity will not make workup sessions more difficult or costly and 
may provide the benefits associated with increased participation. The 
reasons given by JPMorgan and FSF relating to why they view post-trade 
name give-up to be an important aspect of workup sessions are 
essentially the same reasons espoused for the purported benefits of 
post-trade name give-up generally, i.e., avoiding adverse selection and 
ensuring reliable hedging for incumbent swap dealers.
    Some commenters proposed an alternative of not applying the 
prohibition on post-trade name give-up to error trade corrections. 
Commenters asserted that post-trade name give-up remains necessary for 
counterparties to correct operational or clerical errors resulting in a 
trade being rejected for clearing. Citadel disagreed with these 
commenters, noting that SEFs can facilitate the correction of errors 
without disclosing the identities of counterparties. The Commission has 
determined not to adopt this alternative. A SEF can intermediate 
communications, if necessary, and otherwise facilitate error trade 
corrections without disclosing counterparty identities. The Commission 
acknowledges that some SEFs may incur additional costs associated with 
ensuring that their rules and procedures for error trades allow for 
error trade remediation without disclosure of the identities of 
counterparties to one another. The Commission notes that designated 
contract markets resolve error trades without engaging in name give-up, 
and SEFs already intermediate the resolution of error trades to varying 
degrees. The Commission believes that the additional costs some SEFs 
may incur to employ anonymous error trade remediation are relatively 
modest.
4. Section 15(a) Factors
a. Protection of Market Participants and the Public
    The final rule is intended to protect market participants and the 
public by advancing the statutory goals of: (1) Promoting swaps trading 
and pre-trade price transparency on SEFs; (2) fostering fair 
competition among market participants; (3) providing market 
participants with impartial access to SEFs; and (4) maintaining the 
privacy of swap transaction information.
b. Efficiency, Competitiveness, and Financial Integrity of the Markets
    The final rule is intended to enhance competitiveness in the swap 
markets by removing an effective barrier to participation on SEFs for 
many market participants who are concerned with the prospect of 
information leakage. The Commission expects participation on SEFs to 
increase as a result, leading to greater competition.
c. Price Discovery
    The Commission believes that by increasing participation and 
competition on SEFs, the final rule will decrease information 
asymmetries between market participants, allowing market participants 
to attain broader knowledge of pricing across more SEFs, thereby 
enhancing SEF trading as a mechanism for price discovery.
d. Sound Risk Management Practices
    Similarly, increased participation and competition on SEFs and 
decreased information asymmetry among market participants is likely to 
enhance SEF trading as a mechanism for risk management.
e. Other Public Interest Considerations
    Post-trade name give-up is inconsistent with provisions intended to 
protect the privacy of a swap counterparty's trading information. 
Prohibiting post-trade name give-up will help to effectuate the 
statutory privacy protections under CEA section 21(c)(6) that apply to 
this information. Moreover, the Commission believes that the 
prohibition is reasonably likely to lead to enhanced liquidity and 
lower transaction costs.

D. Antitrust Considerations

    Section 15(b) of the CEA requires the Commission to take into 
consideration the public interest to be protected by the antitrust laws 
and endeavor to take the least anticompetitive means of achieving the 
purposes of the CEA, in issuing any order or adopting any Commission 
rule or regulation.\159\ The Commission believes that the public 
interest to be protected by the antitrust laws is generally to protect 
competition. In the Proposal, the Commission requested comments on 
whether: (1) The proposed rulemaking implicates any other specific 
public interest to be protected by the antitrust laws; (2) the proposed 
rulemaking is anticompetitive, and if it is, what are anticompetitive 
effects; and (3) there are less anticompetitive means of achieving the 
relevant purposes of the CEA that would otherwise be served by adopting 
the proposed rules.
---------------------------------------------------------------------------

    \159\ 7 U.S.C. 19(b).
---------------------------------------------------------------------------

    The Commission does not anticipate that the amendments to part 37 
that it is adopting today will result in anticompetitive behavior, but 
instead, believes that the amendments will

[[Page 44707]]

promote greater competition on, and among, SEFs. In the proposal, the 
Commission encouraged comments from the public on any aspect of the 
rulemaking that may have the potential to be inconsistent with the 
antitrust laws or be anticompetitive in nature. The Commission received 
two comments asserting that the proposed rule may be anticompetitive. 
JPMorgan commented that prohibiting post-trade name give-up ``would 
itself impair competition and pose an unreasonable restraint on trade 
by forcing dealers to trade fully anonymously in order to access a 
[central-limit order-book], even though dealers prefer [post-trade name 
give-up] . . . .'' \160\ FSF similarly commented that ``banning name 
give-up would itself impair competition (certainly, innovation and 
competition among markets) and unnecessarily push dealers to trade 
fully anonymously in order to access an Order Book SEF, despite their 
bona fide preference for name give-up.'' \161\ As stated above, the 
Commission disagrees with comments that prohibiting post-trade name 
give-up would impair competition. Post-trade name give-up is an 
ancillary post-trade protocol, and not a method of execution. It does 
not proscribe SEFs from offering any existing execution method, nor 
does it prevent SEFs from developing new execution methods. Moreover, 
the Commission is concerned by other commenters' assertions that post-
trade name give-up enables anticompetitive behavior,\162\ and the 
Commission believes that prohibiting post-trade name give-up will 
reduce the opportunity for such behavior to occur, and is therefore 
reasonably necessary to promote fair competition among market 
participants. The Commission has considered the rulemaking and related 
comments to determine whether it is anticompetitive and continues to 
believe that these amendments to part 37 will not result in 
anticompetitive behavior.
---------------------------------------------------------------------------

    \160\ JPMorgan Letter, at 10.
    \161\ FSF Letter, at 10.
    \162\ See supra note 37 and accompanying text.
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List of Subjects in 17 CFR Part 37

    Swaps, Swap execution facilities.
    For the reasons stated in the preamble, the Commodity Futures 
Trading Commission amends 17 CFR part 37 as follows:

PART 37--SWAP EXECUTION FACILITIES

0
1. 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.


0
2. In Sec.  37.9, add paragraph (d) to read as follows:


Sec.  37.9   Methods of execution for required and permitted 
transactions.

* * * * *
    (d) Counterparty anonymity. (1) Except as otherwise required under 
the Act or the Commission's regulations, a swap execution facility 
shall not directly or indirectly, including through a third-party 
service provider, disclose the identity of a counterparty to a swap 
that is executed anonymously and intended to be cleared.
    (2) A swap execution facility shall establish and enforce rules 
that prohibit any person from directly or indirectly, including through 
a third-party service provider, disclosing the identity of a 
counterparty to a swap that is executed anonymously and intended to be 
cleared.
    (3) For purposes of paragraphs (d)(1) and (2) of this section, 
``executed anonymously'' shall include a swap that is pre-arranged or 
pre-negotiated anonymously, including by a participant of the swap 
execution facility.
    (4) For a package transaction that includes a component transaction 
that is not a swap intended to be cleared, disclosing the identity of a 
counterparty shall not violate paragraph (d)(1) or (2) of this section. 
For purposes of this paragraph, a ``package transaction'' consists of 
two or more component transactions executed between two or more 
counterparties where:
    (i) Execution of each component transaction is contingent upon the 
execution of all other component transactions; and
    (ii) The component transactions are priced or quoted together as 
one economic transaction with simultaneous or near-simultaneous 
execution of all components.

    Issued in Washington, DC, on June 29, 2020, by the Commission.
Robert Sidman,
Deputy Secretary of the Commission.

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

Appendices to Post-Trade Name Give-Up on Swap Execution Facilities--
Commission Voting Summary, Chairman's Statement, and Commissioners' 
Statements

Appendix 1--Commission Voting Summary

    On this matter, Chairman Tarbert and Commissioners Quintenz, 
Behnam, Stump, and Berkovitz voted in the affirmative. No 
Commissioner voted in the negative.

Appendix 2--Joint Supporting Statement of Chairman Heath P. Tarbert, 
Commissioner Rostin Behnam, and Commissioner Dan M. Berkovitz

    As we have previously stated,\1\ it is a fundamental principle 
of exchange-style trading systems that the buyer and seller of a 
given financial instrument have no reason to know--and do not know--
one another's identity.\2\ This levels the playing field for 
counterparties of all sizes and types by allowing traders to enter 
and exit the market without exposing their trading positions and 
strategies.\3\ As a result, markets with pre- and post-trade 
anonymity are generally not only fairer, but also feature greater 
liquidity, a more diverse set of market participants, and greater 
competition.\4\
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    \1\ Joint Statement of Chairman Heath Tarbert, Commissioner 
Rostin Behnam, and Commissioner Dan Berkovitz in Support of Proposed 
Rule Restricting Post-Trade Name Give-Up (Dec. 18, 2019).
    \2\ See, e.g., Peter A. McKay, CME and CBOT to Close Loophole, 
Wall St. J. (Apr. 15, 2006) (``When stocks are traded on public 
exchanges, investors generally don't know who they are buying from 
or selling to. On futures exchanges, most investors expect the same 
thing when trading electronically.'').
    \3\ See, e.g., Peter Madigan, CFTC to Test Role of Anonymity in 
SEF Order Book Flop, Risk (Nov. 21, 2014) (noting arguments that 
anonymity creates a more egalitarian market); Managed Funds 
Association (``MFA''), Position Paper: Why Eliminating Post-Trade 
Name Disclosure Will Improve the Swaps Market 8 (Mar. 31, 2015) 
(arguing that ``markets should remain anonymous to create a level 
playing field for all participants''); CFTC Market Risk Advisory 
Committee, Panel Discussion: Market's Response to the Introduction 
of SEFs 139 (Apr. 2, 2015) (``MRAC Meeting Transcript'') (noting 
buy-side reticence to use SEF order books with name give-up because 
of potential uncontrolled information leakage). This can prevent 
price discrimination based on the identity of the counterparty.
    \4\ See, e.g., MRAC Meeting Transcript, supra note 3, at 154 
(explaining that anonymous order books have facilitated liquidity 
and diverse participation in markets for other instruments, such as 
equities and futures); S. Freiderich & R. Payne, Trading Anonymity 
and Order Anticipation, 21 Journal of Financial Markets 1-24 (2014) 
(finding that post-trade anonymity improved market liquidity, 
particularly for small stocks and stocks with concentrated trading, 
which may be more analogous to swaps); Treasury Market Practices 
Group, White Paper on Clearing and Settlement in the Secondary 
Market for U.S. Treasury Securities (Jul. 11, 2019) (stating that 
emergence of new types of market participants in the fully anonymous 
U.S. Treasury securities market has ``likely improved overall 
liquidity through enhanced order flow and competition'').

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[[Page 44708]]

    In the swaps market, a number of swap execution facilities 
(``SEFs'') provide for post-trade disclosure of the name of the 
counterparty, a practice that is known as ``name give-up.'' This 
protocol is a vestige of the pre-Dodd-Frank era, when few swaps were 
centrally cleared and market participants needed to know their 
counterparty's identity to manage the associated credit risk. Given 
the advent of central clearing, many have appropriately questioned 
the continuing need for post-trade name give-up for cleared swaps. 
Others have gone further, criticizing the practice as 
anticompetitive, an obstacle to broad and diverse participation on 
SEFs, and potentially inconsistent with numerous provisions of the 
Commodity Exchange Act (``CEA'') and Commission regulations.
    In 2019, after considering responses to a request for comment on 
the issue,\5\ the Commission issued a proposed rule (``Proposal'') 
to restrict name give-up such that trades that are executed 
anonymously on-SEF and cleared would remain anonymous after 
execution.\6\ Public comments on the Proposal reflected a variety of 
differing viewpoints and interests. The agency carefully considered 
all comments in crafting the final rule we voted to approve today.
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    \5\ CFTC Request for Comment on Post-Trade Name Give-Up on Swap 
Execution Facilities, 83 FR 61,571 (Nov. 30, 2018).
    \6\ Post-Trade Name Give-Up on Swap Execution Facilities, 84 FR 
72262 (Dec. 31, 2019).
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    We believe the final rule reflects a balanced approach, is 
workable, and will improve overall market vibrancy. The rule 
prohibits name give-up for swaps that are executed anonymously and 
intended to be cleared. However, it does not apply to swaps that are 
not intended to be executed anonymously, such as trades done via a 
name-disclosed request for quote. The rule also includes a limited 
exception for package transactions \7\ with at least one component 
that is an uncleared swap or a non-swap instrument. This exception 
reflects current technological and operational realities that 
require counterparty disclosure for the non-swap or non-cleared swap 
component of such trades.\8\ In addition, the rule includes a phased 
implementation schedule to allow SEFs and market participants time 
to adjust to the changes.
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    \7\ The rule defines a ``package transaction'' as ``consist[ing] 
of two or more component transactions executed between two or more 
counterparties where: (i) Execution of each component transaction is 
contingent upon the execution of all other component transactions; 
and (ii) the component transactions are priced or quoted together as 
one economic transaction with simultaneous or near-simultaneous 
execution of all components.''
    \8\ As noted in the preamble to the final rule, we urge SEFs and 
their participants to work towards an infrastructure that ultimately 
does support anonymous post-trade processing for packages including 
certain cleared non-swap components (e.g., U.S. Treasuries). The 
preamble to the final rule also notes the Commission's intention to 
monitor market developments and evaluate the continued need for the 
package transaction exception in the future.
---------------------------------------------------------------------------

    We believe the rule's fundamental objective--protecting trading 
anonymity where it is possible to do so--is key to two statutory 
goals for the SEF regime: (1) Promoting swaps trading on SEFs \9\ 
and (2) promoting fair competition among market participants, 
including through impartial access to a SEF's trading platform.\10\ 
Indeed, we hope the rule will help attract a diverse set of 
additional market participants who have been deterred from trading 
on these platforms by the practice of post-trade name give-up, but 
remain interested in bringing liquidity and competition to SEFs.
---------------------------------------------------------------------------

    \9\ CEA section 5h(e), 7 U.S.C. 7b-3(e). In this regard, the 
CFTC intends to complete a preliminary study of the state of swaps 
markets one year after the initial phase of the rule takes effect, 
and to follow up with further study after the rule has been in 
effect for three years.
    \10\ CEA section 3(b), 7 U.S.C. 5(b) (listing fair competition 
among market participants as a goal of the CEA); CEA section 
5h(f)(2)(B)(i) (requiring a SEF to establish and enforce rules to 
provide participants impartial access to the market).
---------------------------------------------------------------------------

    The issue of name give-up can be a bit of a lightning rod, 
sometimes inciting passionate disagreements between stakeholders. We 
and CFTC staff stand ready to work with market participants and 
market operators to resolve any new issues that may arise as the 
rule is implemented. We hope that all parties to this debate can 
constructively move forward together toward the goals of sound 
derivatives regulation and robust financial markets.

Appendix 3--Supporting Statement of Commissioner Brian Quintenz

    I will vote in favor of today's final rule to prohibit post-
trade name give-up practices for swaps executed, pre-arranged, or 
pre-negotiated anonymously on or pursuant to the rules of a swap 
execution facility (SEF) and intended-to-be-cleared (Final Rule).
    As I have noted previously, I have concerns about the government 
banning an established trading practice that has evolved from 
natural market forces to support swaps liquidity provision. Client 
swap activity is inherently dealer and relationship-sourced. That is 
why the name-disclosed Request for Quote (RFQ) model has been highly 
favored over the anonymous Central Limit Order Book (CLOB) model in 
the client market. Although the Final Rule predicts that the ban on 
name give-up will result in increased participation and competition 
in the dealer-to-dealer market, I remain concerned that banning 
post-trade name give-up will negatively impact dealers' ability to 
hedge efficiently on existing inter-dealer platforms, which will 
ultimately lead to a degradation in the pricing and liquidity 
provision of swaps trading on dealer-to-client platforms. I am also 
doubtful that new entrants into the wholesale market will use the 
advantages of that participation to add any meaningful liquidity in 
the client market, making it even less certain that the benefits of 
enhanced competition hoped for in this Final Rule will be passed 
through to end-users.
    Despite my concerns, I am supporting the Final Rule because it 
adopts an important exception from the prohibition, as well as an 
incremental approach that will give the Commission and market 
participants time to transition into compliance, observe the impact 
of the Final Rule, and make adjustments in the future, if necessary.
    For example, the Final Rule includes a significant exception for 
package transactions that include a component transaction that is 
not a swap intended-to-be-cleared. The exception would include U.S. 
Treasury swap spread package trades involving an intended-to-be-
cleared swap and a U.S. Treasury security component. These package 
transactions are rarely traded on dealer-to-client platforms, but 
make up a significant portion of volume on dealer-to-dealer 
platforms. Recognizing this important difference between markets is 
a small but necessary accommodation to ensure package trades can 
continue to be efficiently executed in light of this mandated change 
to market trading protocols.
    The Final Rule also adopts staggered compliance deadlines, with 
the most liquid swaps coming into compliance first, and less liquid 
swaps becoming subject to the ban in July 2021. In the interim, the 
Commission plans to conduct a preliminary study of the Final Rule's 
impact on SEF trading by July 2021, with a further study to be 
conducted by July 2023. These studies will allow the Commission to 
assess if the ban on post-trade name give-up is, in fact, increasing 
competition and liquidity on SEFs, as the ban is intended to do. If 
a more fulsome analysis reveals that the ban has not yielded its 
expected benefits, or may not be appropriate for certain products 
given their liquidity profile, I expect further adjustments will be 
made to maintain a well-functioning swaps market.
    Lastly, I would like to thank staff of the Division of Market 
Oversight for working with my staff to incorporate many of my 
comments into the Final Rule.

[FR Doc. 2020-14343 Filed 7-23-20; 8:45 am]
BILLING CODE 6351-01-P