Swap Confirmation Requirements for Swap Execution Facilities, 58145-58157 [2023-17747]

Agencies

• Commodity Futures Trading Commission

[Federal Register Volume 88, Number 164 (Friday, August 25, 2023)]
[Proposed Rules]
[Pages 58145-58157]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17747]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 23 and 37

RIN 3038-AF34


Swap Confirmation Requirements for Swap Execution Facilities

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) 
is proposing amendments to its swap execution facility (SEF) 
regulations related to uncleared swap confirmations, as well as 
associated technical and conforming changes.

DATES: Comments must be received on or before October 24, 2023.

ADDRESSES: You may submit comments, identified by ``Swap Confirmation 
Requirements for Swap Execution Facilities'' and RIN number 3038-AF34, 
by any of the following methods:
     CFTC Comments Portal: https://comments.cftc.gov. Select 
the ``Submit Comments'' link for this rulemaking and follow the 
instructions on the Public Comment Form.
     Mail: Send to Christopher Kirkpatrick, Secretary of the 
Commission, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street NW, Washington, DC 20581.
     Hand Delivery/Courier: Follow the same instructions as for 
Mail, above.
    Please submit your comments using only one of these methods. 
Submissions through the CFTC Comments Portal are encouraged.
    All comments must be submitted in English, or if not, accompanied 
by an English translation. Comments will be posted as received to 
https://comments.cftc.gov. You should submit only information that you 
wish to make available publicly. If you wish the Commission to consider 
information that you believe is exempt from disclosure under the 
Freedom of Information Act (FOIA), a petition for confidential 
treatment of the exempt information may be submitted according to the 
procedures established under

[[Page 58146]]

Sec.  145.9 of the Commission's regulations.\1\
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    \1\ 17 CFR 145.9. The Commission's regulations referred to in 
this release are found at 17 CFR Chapter I (2022), available on the 
Commission's website at https://www.cftc.gov/LawRegulation/CommodityExchangeAct/index.htm.
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    The Commission reserves the right, but shall have no obligation, to 
review, pre-screen, filter, redact, refuse or remove any or all of your 
submission from https://comments.cftc.gov that it may deem to be 
inappropriate for publication, such as obscene language. All 
submissions that have been redacted or removed that contain comments on 
the merits of the rulemaking will be retained in the public comment 
file and will be considered as required under the Administrative 
Procedure Act and other applicable laws, and may be accessible under 
FOIA.

FOR FURTHER INFORMATION CONTACT: Roger Smith, Associate Chief Counsel, 
(202) 418-5344, [email protected], Division of Market Oversight, 
Commodity Futures Trading Commission, 77 West Jackson Blvd., Suite 800, 
Chicago, Illinois 60604; Stephen Kane, Research Economist, (202) 418-
5911, [email protected], or Madison Lau, Research Economist, (202) 418-
5276, [email protected], Office of the Chief Economist, Commodity Futures 
Trading Commission, Three Lafayette Centre, 1155 21st Street NW, 
Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
    A. Regulatory History: The Part 37 Rules
    B. Summary of Proposed Changes to Sec.  37.6
    C. Consultation With Other U.S. Financial Regulators
II. Proposed Regulations
    A. Sec.  37.6--Enforceability
    1. Proposed Regulation Sec.  37.6(b)(1)--Uncleared Swap 
Confirmations: Incorporation by Reference of Underlying Previously 
Negotiated Agreements
    2. Proposed Amendment to Sec.  37.6(b)--Timing of Swap 
Transaction Confirmation
    3. Proposed Amendment to Sec.  37.6(b)--Conflicting Terms
    4. Proposed Clarification of Sec.  37.6(b)
    5. Proposed Clarification of Sec.  37.6(a)
    B. Proposed Amendments to Sec.  23.501(a)(4)(i)
III. Effective Date and Transition Period
IV. Related Matters
    A. Regulatory Flexibility Act
    B. Paperwork Reduction Act
    C. Cost-Benefit Considerations
    D. Antitrust Considerations

I. Background

A. Regulatory History: The Part 37 Rules

    The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act) amended the Commodity Exchange Act (CEA or Act) by 
adding section 5h, which establishes registration requirements and core 
principles for SEFs.\2\ The Commission implemented CEA section 5h by 
adopting part 37 of its regulations, which, among other things, sets 
forth operational requirements for SEFs and establishes various 
requirements for the trading of swaps on SEFs.\3\ As part of the 
implementing SEF regulations, the Commission adopted Sec.  37.6(b), 
which requires a SEF to provide each counterparty to a swap transaction 
that is entered into on or pursuant to the rules of the SEF--whether 
cleared or uncleared--with a written record of all of the terms of the 
transaction, which shall legally supersede any previous agreement and 
serve as a confirmation of the transaction.\4\ Pursuant to Sec.  
37.6(b), the confirmation of all terms of the transaction must take 
place at the same time as execution, subject to a limited exception for 
certain information related to accounts included in bunched orders.\5\
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    \2\ 7 U.S.C. 7b-3.
    \3\ Core Principles and Other Requirements for Swap Execution 
Facilities, 78 FR 33476 (June 4, 2013) (SEF Core Principles Final 
Rule). The SEF Core Principles Final Rule also articulates, where 
appropriate, guidance and acceptable practices for complying with 
the SEF core principles set forth in CEA section 5h.
    \4\ 17 CFR 37.6(b).
    \5\ 17 CFR 37.6(b). Specific customer identifiers for accounts 
included in bunched orders involving swaps need not be included in 
confirmations provided by a SEF if the applicable requirements of 17 
CFR 1.35(b)(5) are met.
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    In November 2018, the Commission issued a comprehensive proposal to 
amend the SEF regulatory framework.\6\ In the 2018 SEF Proposal, the 
Commission proposed to amend Sec.  37.6(b) to establish separate swap 
transaction documentation requirements for cleared and uncleared 
swaps.\7\ For uncleared swap transactions, the Commission proposed to 
amend Sec.  37.6(b) to require a SEF to provide the counterparties to 
the transaction with a ``trade evidence record'' that would memorialize 
the terms of the transaction agreed upon between the counterparties on 
the SEF.\8\ Under the 2018 SEF Proposal, a ``trade evidence record'' 
was defined as a legally binding written documentation (electronic or 
otherwise) that memorializes the terms of a swap transaction agreed 
upon by the counterparties and legally supersedes any conflicting term 
in any previous agreement (electronic or otherwise) that relates to the 
swap transaction between the counterparties.\9\ In 2021, the Commission 
withdrew the unadopted portions of the 2018 SEF Proposal,\10\ including 
the proposed amendments to Sec.  37.6, from further consideration.\11\
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    \6\ Swap Execution Facilities and Trade Execution Requirement, 
83 FR 61946 (Nov. 30, 2018) (2018 SEF Proposal).
    \7\ Id.
    \8\ Id. at 62096.
    \9\ Id. at 61973; 62067.
    \10\ The following final rulemakings of the Commission adopted 
certain portions of the 2018 SEF Proposal: (i) Exemptions From Swap 
Trade Execution Requirement, 86 FR 8993 (Feb. 11, 2021); and (ii) 
Swap Execution Facilities, 86 FR 9224 (Feb. 11, 2021).
    \11\ See Swap Execution Facilities and Trade Execution 
Requirement, 86 FR 9304 (Feb. 12, 2021). The Commission notes that 
because the 2018 SEF Proposal was withdrawn, comments on the 
proposed amendments to Sec.  37.6(b) that were included in the 2018 
SEF Proposal will not be part of the administrative record with 
respect to the current proposal to amend Sec.  37.6(b). Further, the 
Commission notes that while certain proposals and rationales 
contained herein are similar, or in some cases identical, to 
proposals or rationales set forth in the 2018 SEF Proposal, the 
Commission believes that, overall, the context in which the current 
discrete proposal to amend Sec.  37.6(b) is being adopted is very 
different from the comprehensive foundational shift in the 
regulatory framework for SEFs that was proposed in 2018. As such, 
commenters should submit comments relevant to this current proposal 
to amend Sec.  37.6(b); commenters who wish to reference prior 
comment letters, including comment letters on the 2018 SEF Proposal, 
should reference those prior comment letters as specifically as 
possible.
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    Pursuant to section 731 of the Dodd-Frank Act, which added section 
4s(i) to the CEA,\12\ the Commission has adopted regulations to 
prescribe documentation standards for swap dealers (SDs) and major swap 
participants (MSPs) related to the timely and accurate confirmation, 
processing, netting, documentation, and valuation of swaps. The 
Commission adopted Sec.  23.501 to specifically address swap 
confirmation requirements for SDs and MSPs, including for those swaps 
executed on a SEF or designated contract market (DCM).\13\ Among other 
things, Sec.  23.501 provides that any swap transaction executed on a 
SEF or DCM shall be deemed to satisfy the swap confirmation 
requirements set forth in Sec.  23.501, provided that the rules of the 
SEF or DCM establish that confirmation of all terms of the transaction 
shall take place at the same time as execution.\14\
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    \12\ 7 U.S.C. 6s(i).
    \13\ 17 CFR 23.501(a)(4)(i).
    \14\ Id.
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B. Summary of Proposed Changes to Sec.  37.6

    During the implementation of part 37, SEFs informed the Commission 
that the confirmation requirement for uncleared swaps under Sec.  
37.6(b) is operationally and technologically difficult and

[[Page 58147]]

impractical to implement. As discussed more fully below, Commission 
staff from the Division of Market Oversight (DMO) acknowledged these 
technological and operational challenges and provided no-action 
positions for SEFs with respect to certain provisions of the 
Commission's regulations related to uncleared swap confirmations.\15\ 
In particular, DMO most recently issued CFTC No-Action Letter No. 17-17 
(NAL No. 17-17), which provides a no-action position with respect to 
the obligation to obtain copies of underlying, previously negotiated 
agreements between the counterparties, as discussed in greater detail 
below, for a SEF that seeks for uncleared swaps to satisfy the 
confirmation requirement in Sec.  37.6(b) by incorporating by reference 
terms of such underlying agreements.\16\
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    \15\ NAL No. 17-17, Re: Extension of No-Action Relief for Swap 
Execution Facility Confirmation and Recordkeeping Requirements under 
Commodity Futures Trading Commission Regulations 37.6(b), 37.1000, 
37.1001, 45.2, and 45.3(a) (Mar. 24, 2017). NAL No. 17-17 extended 
the no-action position previously provided by Commission staff. See 
CFTC Letter No. 16-25, Re: Extension of No-Action Relief for Swap 
Execution Facility Confirmation and Recordkeeping Requirements under 
Commodity Futures Trading Commission Regulations 37.6(b), 37.1000, 
37.1001, 45.2, and 45.3(a) (Mar. 14, 2016) (NAL No. 16-25); CFTC 
Letter 15-25, Re: Extension of No-Action Relief for SEF Confirmation 
and Recordkeeping Requirements under Commission Regulations 37.6(b), 
37.1000, 37.1001, and 45.2, and Additional Relief for Confirmation 
Data Reporting Requirements under Commission Regulation 45.3(a) 
(Apr. 22, 2015) (NAL No. 15-25); and CFTC Letter No. 14-108, Staff 
No-Action Position Regarding SEF Confirmations and Recordkeeping 
Requirements under Certain Provisions Included in Regulations 
37.6(b) and 45.2 (Aug. 18, 2014) (NAL No. 14-108). See also CFTC 
Letter No. 13-58, Time-Limited No-Action Relief to Temporarily 
Registered Swap Execution Facilities from Commission Regulation 
37.6(b) for Non-Cleared Swaps in All Asset Classes (Sept. 30, 2013) 
(NAL No. 13-58).
    \16\ See NAL No. 17-17.
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    The Commission proposes to amend Sec.  37.6(b) to codify this no-
action position, which would enable SEFs to incorporate such terms by 
reference in an uncleared swap confirmation without being required to 
obtain the underlying, previously negotiated agreements. Further, the 
Commission proposes to amend Sec.  37.6(b), which currently requires 
confirmation of all terms of a swap transaction to take place at the 
same time as execution, to require such confirmation to take place ``as 
soon as technologically practicable'' after the execution of the swap 
transaction on the SEF for both cleared and uncleared swap 
transactions. The Commission also proposes to amend Sec.  37.6(b) to 
make clear that the SEF-provided confirmation under Sec.  37.6(b) shall 
legally supersede any conflicting terms in a previous agreement, rather 
than the entire agreement. In addition, the Commission proposes to make 
conforming amendments to Sec.  23.501(a)(4)(i) to correspond with the 
proposed amendments to Sec.  37.6(b).
    Finally, the Commission proposes to make certain non-substantive 
amendments to Sec. Sec.  37.6(a)-(b) to enhance clarity.

C. Consultation With Other U.S. Financial Regulators

    In developing these rules, the Commission has consulted with the 
Securities and Exchange Commission (SEC), pursuant to section 712(a)(1) 
of the Dodd-Frank Act.\17\
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    \17\ Dodd-Frank Act, Public Law 111-203, tit. VII, Sec.  
712(a)(1), 124 Stat. 1376 (2010). On May 11, 2022, the SEC adopted 
proposed rules for security-based swap execution facilities (SB 
SEFs). See Rules Relating to Security-Based Swap Execution and 
Registration and Regulation of Security-Based Swap Execution 
Facilities, 87 FR 28872 (May 11, 2022) (SEC SB SEF Proposal). As 
part of the SEC SB SEF Proposal, the SEC proposed SEC rule 242.812 
(SEC Proposed Rule 812), which was modelled after existing Sec.  
37.6 with some modifications. In particular, SEC Proposed Rule 812 
would require an SB SEF to as soon as technologically practicable 
after the time of execution of a transaction entered into on or 
pursuant to the rules of the facility, provide a written record to 
each counterparty of all of the terms of the transaction that were 
agreed to on the facility, which shall legally supersede any 
previous agreement regarding such terms. Id. at 28893. To date, the 
SEC has not adopted the SEC SB SEF Proposal or SEC Proposed Rule 
812.
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II. Proposed Regulations

A. Sec.  37.6--Enforceability

1. Proposed Sec.  37.6(b)(1)--Uncleared Swap Confirmations: 
Incorporation by Reference of Underlying Previously Negotiated 
Agreements
    Commission Regulation 37.6(b) requires a SEF to provide each 
counterparty to a swap transaction that is entered into on or pursuant 
to the rules of the SEF, whether cleared or uncleared, with a 
``confirmation''--a written record that contains all of the terms of 
the transaction--at the time of execution.\18\ The terms of a swap 
transaction include economic terms that are specific to the 
transaction, e.g., swap product, price, and notional amount, and can 
also include non-specific ``relationship terms'' that generally govern 
all transactions between two counterparties--including, for example, 
relationship-level default, margin, or governing law provisions.
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    \18\ 17 CFR 37.6(b). See also 17 CFR 23.500(c) (providing a 
similar definition of ``confirmation'' that is applicable to SDs and 
MSPs).
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    For uncleared swap transactions,\19\ the Commission is aware that 
many relationship terms that may govern certain aspects of the 
transaction are often negotiated and agreed upon in written 
documentation between the counterparties prior to execution.\20\ The 
Commission previously stated that, for purposes of satisfying the 
requirements of Sec.  37.6(b), a SEF's confirmation terms for uncleared 
swap transactions may incorporate by reference relevant terms set forth 
in such underlying agreements, as long as those agreements have been 
submitted to the SEF prior to execution.\21\ As applied, Sec.  37.6(b) 
requires that the SEF incorporate this documentation by reference into 
the issued confirmation, which is intended in part to provide SEF 
participants with legal certainty with respect to the terms of 
uncleared swap transactions.\22\
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    \19\ The Commission notes that swap trading relationship 
documentation is not required for swaps cleared by a derivatives 
clearing organization. See 17 CFR 23.504(a)(1).
    \20\ SEF Core Principles Final Rule at 33491 n.195. See 
Confirmation, Portfolio Reconciliation, Portfolio Compression, and 
Swap Trading Relationship Documentation Requirements for Swap 
Dealers and Major Swap Participants, 77 FR 55904, 55906 (Sept. 11, 
2012) (noting that swap counterparties have typically relied on the 
use of industry-standard legal documentation to document their swap 
trading relationships. This documentation, such as the ISDA Master 
Agreement and related Schedule and Credit Support Annex (ISDA 
Agreements), as well as related documentation specific to particular 
asset classes, offers a framework for documenting uncleared swap 
transactions between counterparties.); see also 17 CFR 23.504(b) 
(noting that for uncleared swap transactions, Sec.  23.504(b) 
requires written swap trading relationship documentation that 
includes all terms governing the trading relationship between an SD 
or MSP and its counterparty).
    \21\ SEF Core Principles Final Rule at 33491 n.195. While the 
Commission's statement specifically referenced the incorporation by 
reference of previously negotiated terms from ``a freestanding 
master agreement,'' the Commission recognizes that other previously 
negotiated freestanding agreements similarly may contain terms that 
are relevant to an uncleared swap confirmation.
    \22\ To ensure that the SEF confirmation provides legal 
certainty, the Commission has stated that counterparties choosing to 
execute a swap transaction on or pursuant to the rules of a SEF must 
have all terms, including possible long-term credit support 
arrangements, agreed to no later than execution, such that the SEF 
can provide a written confirmation inclusive of those terms. SEF 
Core Principles Final Rule at 33491.
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    The requirement that the underlying agreements be submitted to the 
SEF prior to execution has, however, created impractical burdens for 
SEFs. Based upon feedback from SEFs, the Commission understands that 
SEFs have encountered many issues in trying to comply with the 
requirement, including high financial, administrative, and logistical 
burdens in order to collect and maintain bilateral transaction 
agreements from many individual counterparties. SEFs have stated that 
they are unable to develop a cost-effective method to request, accept, 
and maintain a library of every relevant previous agreement between

[[Page 58148]]

counterparties.\23\ SEFs have also noted that the potential number of 
previous agreements is considerable, given that SEF counterparties 
often enter into agreements with many other parties and may have 
multiple agreements for different asset classes.\24\
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    \23\ Many of these agreements are maintained in paper form or as 
scanned PDF files that are difficult to quickly digitize in a cost-
effective manner. See WMBAA, Request for Extended Relief from 
Certain Requirements under Parts 37 and 45 Related to Confirmations 
and Recordkeeping for Swaps Not Required or Intended to be Cleared 
at 3 (Mar. 1, 2016). Further, some SEFs have cited the considerable 
resource cost of obtaining the number of different agreements that 
exist to accommodate different types of counterparties and asset 
classes. Id.
    \24\ Id.
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    Commission staff from DMO has acknowledged these technological and 
operational challenges and has accordingly granted no-action positions, 
most recently in NAL No. 17-17.\25\ Based on these no-action positions, 
many SEFs have incorporated by reference applicable relationship terms 
from previously negotiated underlying agreements between counterparties 
in confirmations for uncleared swaps, without obtaining copies of these 
agreements prior to the execution of a swap and without maintaining 
copies of such underlying agreements on an ongoing basis.\26\
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    \25\ See supra note 15.
    \26\ Id. As a condition of staff's no-action positions, a SEF 
has been required to have a rule in its rulebook that requires its 
participants to provide copies of the underlying agreements to the 
SEF on request, as well as a rule in its rulebook that requires the 
SEF to (i) request from a participant an underlying agreement upon 
request from the Commission, and (ii) to furnish such agreement to 
the Commission as soon as it is available.
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    Based on its experience with the part 37 implementation, the 
Commission acknowledges that cleared and uncleared swap transactions 
raise different issues with respect to confirmation requirements \27\ 
and that the current Sec.  37.6(b) requirements create difficulties for 
the latter type of swap transaction. As such, the Commission proposes 
to amend Sec.  37.6(b) by adding Sec.  37.6(b)(1) to permit SEFs to 
incorporate relevant terms from underlying, previously negotiated 
agreements by reference in a confirmation for an uncleared swap 
transaction without obtaining such incorporated agreements.\28\
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    \27\ See supra note 19.
    \28\ In addition to stating that DMO will not recommend 
enforcement action if a SEF incorporates by reference relevant terms 
from underlying, previously negotiated agreements in confirmations 
for uncleared swap transactions, without obtaining copies of such 
agreements, which the Commission proposes to codify in this release, 
NAL No. 17-17 also provides no-action positions with respect to the 
requirement to maintain copies of such agreements in order to comply 
with SEF recordkeeping obligations under Sec. Sec.  37.1000, 
37.1001, and 45.2. Among other things, these requirements obligate a 
SEF to maintain records of all activities relating to the business 
of the SEF. The Commission preliminary believes that allowing a SEF 
to incorporate by reference relevant terms from the underlying, 
previously negotiated agreements without obtaining such agreements 
will rectify the compliance issues posed with respect to Sec. Sec.  
37.1000, 37.1001, and 45.2. As a SEF would no longer be required to 
obtain the underlying, previously negotiated agreements, the 
Commission preliminarily believes that these agreements would not, 
as a general category, constitute records relating to the SEF's 
business for purposes of Sec. Sec.  37.1000, 37.1001, and 45.2. The 
Commission notes, however, that if a SEF did obtain such an 
underlying, previously negotiated agreement, including at the 
request of the Commission or its staff or in connection with the 
fulfillment of the SEF's regulatory obligations, the SEF would, with 
respect to such agreement, need to comply with its recordkeeping 
obligations under Sec. Sec.  37.1000, 37.1001, and 45.2. NAL No. 17-
17 also provides a no-action position with respect to the swap data 
reporting requirements that apply to a SEF under Sec.  45.3(a). In 
November 2020, the Commission amended its swap data reporting 
regulations, which amendments included the removal of the term 
``primary economic terms'' and ``confirmation data'' from Sec.  
45.3(a). See Swap Data Recordkeeping and Reporting Requirements, 85 
FR 75503 (Nov. 25, 2020) (Amended Part 45 Rules). Currently, SEFs 
are required to report as specified in the technical specification 
published on the Commission's website, available at https://www.cftc.gov/LawRegulation/DoddFrankAct/Rulemakings/DF_18_RealTimeReporting/index.htm. As relevant in this context, the 
technical specification sets out the required validations and 
message types, including when, for swap data reporting purposes, 
specific data fields are mandatory, conditional, or optional. For 
example, the technical specification distinguishes between 
transaction, collateral, and valuation reporting. In general, SEFs 
will report transaction message types and not valuation and 
collateral message types. Those data elements in the technical 
specification relevant to on-SEF transactions that are contained in 
the transaction message type are readily available for a SEF to 
fulfil its reporting obligations under Commission regulations in 
part 45. As further evidence of this, the defined term 
``confirmation data'' no longer exists in Sec.  45.3(a). Therefore, 
the no-action position stated in Staff Letter 17-17 that ``the 
Division will not recommend that the Commission take enforcement 
action against a SEF for failure to report certain confirmation data 
pursuant to Commission Regulation 45.3(a) . . .'' (See NAL No. 17-17 
at 3-4) has not been in effect since the implementation of the 
Commission's Amended Part 45 Rules. Staff have not received a 
related, updated request for no-action position with respect to SEF 
reporting requirements. The Commission preliminarily believes the 
Amended Part 45 Rules and the associated technical specification 
requirements eliminate the need for the no-action position related 
to Sec.  45.3(a) in NAL No. 17-17. Finally, the Commission is not 
proposing to codify certain conditions from NAL No. 17-17, including 
conditions that require a SEF to have rules in its rulebook that (i) 
require a SEF confirmation to state, where applicable, that it 
incorporates by reference the terms of the underlying previously 
negotiated freestanding agreements between the counterparties, and 
(ii) state that in the event of any inconsistency between a SEF 
confirmation and the underlying previously negotiated freestanding 
agreements, the terms of the SEF confirmation legally supersede any 
contradictory terms and that require the SEF's confirmations to 
state the same. The Commission preliminarily believes that the 
proposed amendments herein, if adopted, would clarify the 
requirements for uncleared swap confirmations issued by SEFs in a 
manner that obviates the need to codify these conditions. See also 
the discussion, infra, of those conditions in NAL No. 17-17 that 
address the SEF's ability to obtain, upon request, copies of the 
underlying previously negotiated freestanding agreements that have 
been incorporated by reference into an uncleared swap confirmation.
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    The Commission preliminarily believes, following staff's 
observation of SEFs and market participants operating under the 
existing no-action position in NAL No. 17-17 and precursor no-action 
letters, that proposed Sec.  37.6(b)(1) would not compromise the legal 
certainty of confirmations issued by SEFs for uncleared swap 
transactions, and that proposed Sec.  37.6(b)(1) is a financially and 
logistically appropriate alternative for SEFs to comply with the 
confirmation requirement under Sec.  37.6(b) as it applies to uncleared 
swaps.\29\ The approach set forth in proposed Sec.  37.6(b)(1) should 
address the technological and operational challenges that have 
prevented SEFs from fully complying with Sec.  37.6(b), by reducing the 
administrative burdens for SEFs, who would not be required to obtain 
and maintain a library of every relevant previously negotiated 
agreement between counterparties, and for market participants 
themselves, who would not be required to submit to the SEF all of their 
relevant underlying documentation with other potential counterparties 
on the SEF.
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    \29\ The proposed amendment would also preserve the legal 
certainty of the terms of swap transactions for market participants.
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    As more fully discussed below, the Commission expects that proposed 
Sec.  37.6(b)(1) will reduce the cost of SEFs' compliance with the 
confirmation requirement in Sec.  37.6(b).
    Therefore, the Commission proposes to amend Sec.  37.6(b) by adding 
Sec.  37.6(b)(1) to permit SEFs to incorporate underlying, previously 
negotiated agreements by reference in a confirmation for an uncleared 
swap transaction without obtaining such incorporated agreements.
    In order to avail themselves of the no-action position under NAL 
No. 17-17, SEFs must have rules in their rulebooks that, among other 
things; \30\ (1) require ``participants to provide copies of the 
underlying previously negotiated freestanding agreements to the SEF on 
request;'' and (2) require ``the SEF to request from participants the 
underlying previously negotiated freestanding agreements on request 
from the Commission and [require] the SEF to furnish such documents to 
the Commission as soon as they are available.'' \31\ The Commission

[[Page 58149]]

preliminarily believes that the existing requirements for SEFs under 
the CEA and the Commission's part 37 regulations sufficiently account 
for these conditions of NAL No. 17-17, such that these conditions do 
not need to be incorporated as specific conditions of proposed new 
Sec.  37.6(b)(1).
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    \30\ See also note 28, supra.
    \31\ See NAL No. 17-17 at 4.
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    In particular, SEF Core Principle 5 and the implementing part 37 
regulations require, among other things, that a SEF establish and 
enforce rules that will allow the SEF to obtain any necessary 
information to perform any of the functions described in section 5h of 
the Act; establish and enforce rules that will allow the SEF to have 
the ability and authority to obtain sufficient information to allow it 
to fully perform its operational, risk management, governance, and 
regulatory functions and any requirements under part 37; have rules 
that allow for its examination of books and records kept by the market 
participants on its facility; and provide information to the Commission 
on request.\32\ The Commission believes that, pursuant to these 
requirements and as necessary to carry out its statutory and regulatory 
functions, a SEF has the ability and authority to request copies of the 
underlying agreements that are incorporated by reference into a 
confirmation for an uncleared swap transaction and to provide such 
agreements to the Commission upon request.\33\
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    \32\ 7 U.S.C. 7b-3(f)(5); 17 CFR 37.500-503.
    \33\ Further the Commission also has the ability to request 
information from the SEF under 17 CFR 37.5(a), which requires a SEF 
to file with the Commission information related to its business as a 
SEF upon the Commission's request. See 17 CFR 37.5.
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Request for Comment
    The Commission requests comments on all aspects of proposed Sec.  
37.6(b)(1). In particular, the Commission requests comment on the 
following questions:
    (1) Should the Commission allow a SEF to issue a confirmation for 
an uncleared swap transaction that does not, as currently contemplated 
under Sec.  37.6(b), include all the terms of the transaction, for 
example by only including in the confirmation the terms agreed to on 
the SEF? If so, should the Commission amend Sec.  23.501 accordingly?
    (2) Should the Commission require a SEF to establish and enforce 
exchange rules that specifically require participants to maintain 
copies of all agreements incorporated by reference into an uncleared 
swap confirmation?
    (3) Taking into account a SEF's obligations under SEF Core 
Principle 5 and the associated part 37 regulations, should the 
Commission require a SEF to establish and enforce exchange rules 
specifically requiring market participants to provide the SEF upon 
request with a copy of any document or agreement incorporated by 
reference into an uncleared swap confirmation?
    (4) Taking into account the Commission's authorities under Sec.  
37.5 and Sec.  37.1000, should the Commission adopt an express 
requirement for a SEF to furnish to the Commission upon request a copy 
of any document or agreement incorporated by reference into an 
uncleared swap confirmation?
    (5) Is the term ``agreement'' within proposed Sec.  37.6(b)(1) 
broad enough to capture the types of documentation governing swap 
trading relationships that may need to be incorporated by reference 
into an uncleared swap confirmation?
2. Proposed Amendment to Sec.  37.6(b)--Timing of Swap Transaction 
Confirmation
    Section 37.6(b) requires that confirmation of all the terms of a 
swap transaction entered into on or pursuant to the rules of a SEF must 
take place at the same time as execution, except for a limited 
exception for certain information related to accounts included in 
bunched orders.\34\ The Commission proposes to amend this timing 
requirement and instead require a confirmation of all the terms of a 
swap a transaction as soon as technologically practicable after the 
execution of a swap transaction on the SEF.\35\
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    \34\ 17 CFR 37.6(b). Specific customer identifiers for accounts 
included in bunched orders involving swaps need not be included in 
confirmations provided by a SEF if the applicable requirements of 
Sec.  1.35(b)(5) are met. See 17 CFR 1.35(b)(5), which provides that 
specific customer account identifiers for accounts included in 
bunched orders executed on DCMs or SEFs need not be recorded at time 
of order placement or upon report of execution if the requirements 
set forth in Sec.  1.35(b)(5)(i)-(v) are met.
    \35\ The Commission notes that in the context of real-time 
public reporting, it has defined as soon as technologically 
practicable to mean as soon as possible, taking into consideration 
the prevalence, implementation, and use of technology by comparable 
market participants. 17 CFR 43.2. The meaning of this term, as 
proposed in Sec.  37.6(b) herein, would be consistent with this 
definition, except applying to comparable SEFs. For example, for 
purposes of taking into consideration the prevalence, implementation 
and use of technology by comparable SEFs, the Commission would 
expect that fully electronic SEFs would be comparable to one 
another, while SEFs that utilize more manual processes, such as 
voice, would be comparable to each other.
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    The Commission believes that the proposed standard--as soon as 
technologically practicable after execution--would continue to promote 
the Commission's goals of providing swap counterparties with legal 
certainty in a prompt manner, while also being consistent with other 
Commission requirements related to swap confirmations.\36\
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    \36\ For example, Sec. Sec.  23.501(a)(1) and 23.501(a)(2) 
require that an SD or MSP issue a confirmation or acknowledgement 
for a swap transaction (as applicable) to its counterparty ``as soon 
as technologically practicable . . .'' See 17 CFR 23.501(a)(1)-(2). 
Further, the Commission notes that the proposed standard is 
consistent with the SEC's proposed standard for SB SEFs in SEC 
Proposed Rule 812. See SEC SB SEF Proposal at 28893.
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    In addition, for a block trade that is executed ``away from'' a 
SEF,--i.e., outside of the SEF's trading system or platform, but still 
``pursuant to the rules'' of the SEF for purposes of the Sec.  37.6(b) 
confirmation requirement--a SEF would be unaware of the execution of 
the trade until the counterparties report the trade details to the SEF. 
From a temporal perspective, the SEF would consequently be unable to 
confirm all terms of the block trade at the same time as execution.
    The Commission believes that the proposed standard reflects 
existing SEF capabilities while maintaining the Commission's goal of 
providing swap counterparties with legal certainty for transactions. 
Given the Commission's understanding that SEFs are complying with the 
at the same time as execution timing standard in existing Sec.  37.6(b) 
for non-block swap transactions or block transactions executed on the 
SEF, the Commission expects that the impact of the proposed as soon as 
technologically practicable timing standard for confirmations for such 
swap transactions would not be substantive.\37\ Rather, the proposal 
would take into account practical realities for confirming block trades 
executed away from the SEF but pursuant to the rules of the SEF, while 
ensuring that confirmation for all SEF-executed trades takes place in 
as prompt a manner as possible.
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    \37\ See supra note 35.
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    Therefore, the Commission proposes to require a SEF to confirm the 
terms of a swap transaction ``as soon as technologically practicable'' 
after the execution of the swap transaction on the SEF.
Request for Comment
    The Commission requests comments on all aspects of the as soon as 
technologically practicable after execution standard proposed for 
confirmations pursuant to Sec.  37.6(b). In particular, the Commission 
requests comment on the following questions:
    (6) Is the Commission's proposal to require a SEF to confirm the 
terms of a swap transaction ``as soon as technologically practicable'' 
after the execution of the transaction on the SEF

[[Page 58150]]

an appropriate time frame? Should the Commission require that the SEF 
issue the confirmation by no later than a specified time for swap block 
trades that are executed away from the SEF but pursuant to the SEF's 
rules, such as within 10 minutes of execution as this is consistent 
with various SEF rulebooks that require swap block trades executed away 
from the SEF to be reported to the SEF within 10 minutes of execution?
    (7) Should as soon as technologically practicable mean something 
different for purposes of Sec.  37.6(b) than the definition of as soon 
as technologically practicable set forth at Sec.  43.2? If so, what 
should the definition be?
3. Proposed Amendment to Sec.  37.6(b)--Conflicting Terms
    The Commission proposes to amend Sec.  37.6(b) to make clear that 
the terms of a swap confirmation issued by a SEF shall legally 
supersede any conflicting terms of a previous agreement (emphasis 
added).\38\ As SEFs will now be able to incorporate underlying, 
previously negotiated agreements by reference into confirmations for 
uncleared swap transactions, this proposed amendment will help ensure 
legal certainty with respect to the terms of such transactions, and 
will also clarify the continuing applicability of those terms in the 
underlying agreements that do not conflict with the confirmation and 
that may, for example, govern the counterparties' non-SEF 
transactions.\39\
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    \38\ While this amendment would apply with respect to both 
cleared and uncleared swap transactions executed on or pursuant to 
the rules of the SEF, the Commission notes that swap trading 
relationship documentation is not required for swaps cleared by a 
derivatives clearing organization. See 17 CFR 23.504(a)(1).
    \39\ In the SEF Core Principles Final Rule, the Commission noted 
that the counterparties to the uncleared swap transaction would need 
to ensure that nothing in the confirmation terms contradicted the 
standardized terms intended to be incorporated from the underlying 
agreement. SEF Core Principles Final Rule at 33491, n.195.
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    As a condition of relying on the no-action position in NAL No. 17-
17, SEFs must have rules which state that ``in the event of any 
inconsistency between a SEF confirmation and the underlying previously 
negotiated freestanding agreements, the terms of the SEF confirmation 
legally supersede any contradictory terms.'' \40\ As such, this 
proposed amendment would also provide the benefits of continuing to 
allow SEFs that rely on NAL No. 17-17 to maintain market practices 
established under NAL No. 17-17 and precursor no-action letters.
---------------------------------------------------------------------------

    \40\ See NAL No. 17-17 at 4.
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Request for Comment
    The Commission requests comments on all aspects of the proposal to 
amend Sec.  37.6(b) to make clear that the terms of a swap confirmation 
issued by a SEF ``shall legally supersede any conflicting terms of a 
previous agreement.'' In particular, the Commission requests comment on 
the following questions:
    (8) Does the proposed amendment provide sufficient legal certainty 
with respect to any contradictory terms that may be contained within 
previous agreements that are incorporated into an uncleared swap 
confirmation by reference?
    (9) For uncleared swaps, to avoid any conflict between the terms of 
the swap and the SEF's confirmation, should the Commission require that 
the SEF's confirmation specifically state that the terms of the 
confirmation legally supersede any conflicting terms in underlying 
previously negotiated agreements that have been incorporated by 
reference?
    (10) Should the Commission maintain the current requirement that 
the confirmation legally supersede any previous agreement? Why or why 
not?
4. Proposed Clarification of Sec.  37.6(b)
    Section 37.6(b) provides that a SEF shall provide each counterparty 
to a transaction that is entered into on or pursuant to the rules of 
the SEF with a written record of all of the terms of the transaction.
    The Commission proposes a non-substantive amendment to Sec.  
37.6(b) to change the phrase ``entered into'' to ``executed'' in order 
to provide greater consistency within Sec.  37.6(b). Currently Sec.  
37.6(b) uses ``entered into'' and ``executed'' interchangeably. This 
non-substantive amendment would, in conjunction with the proposed non-
substantive amendment to Sec.  37.6(a) discussed below, ensure 
consistent use of ``executed'' throughout Sec.  37.6.
5. Proposed Clarification of Sec.  37.6(a)
    Section 37.6(a) is intended to provide market participants with 
legal certainty with respect to swap transactions on a SEF and 
generally clarifies that a swap transaction entered into on or pursuant 
to the rules of a SEF cannot be void, voidable, subject to rescission, 
otherwise invalidated, or rendered unenforceable due to a violation by 
the SEF of section 5h of the Act or part 37 of the Commission's 
regulations or any proceeding that alters or supplements a rule, term 
or condition that governs such swap or swap transaction.\41\
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    \41\ 17 CFR 37.6(a).
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    The Commission proposes a non-substantive amendment to Sec.  
37.6(a) to change the phrase ``entered into'' to ``executed'' in order 
to provide greater consistency within Sec.  37.6. Currently Sec.  37.6 
uses ``entered into'' and ``executed'' interchangeably. This non-
substantive amendment would amend Sec.  37.6(a) to use ``executed'' 
and, in conjunction with the proposed non-substantive amendment to 
Sec.  37.6(b) discussed above, would ensure consistent use of 
``executed'' throughout Sec.  37.6.

B. Proposed Amendments to Sec.  23.501(a)(4)(i)

    The Commission proposes two amendments to Sec.  23.501(a)(4)(i) to 
conform to the proposed amendments to Sec.  37.6(b). Section 
23.501(a)(4)(i) provides that a swap transaction executed on a SEF or 
DCM will be deemed to satisfy the swap confirmation requirements set 
forth for SDs and MSPs in Sec.  23.501(a), provided that the rules of 
the SEF or DCM establish that confirmation of all terms of the 
transaction shall take place at the same time as execution. First, the 
Commission proposes to clarify that the safe harbor for SDs and MSPs in 
Sec.  23.501(a)(4)(i) also applies to swap transactions executed 
pursuant to the rules of a SEF or DCM, i.e., block trades executed away 
from the SEF's or DCM's trading system or platform. This clarification 
is consistent with the definition of ``block trade'' under Sec.  43.2. 
Second, the Commission proposes to amend Sec.  23.501(a)(4)(i) to 
conform to the proposed amendments to Sec.  37.6(b), which would permit 
confirmation of all terms of a swap transaction as soon as 
technologically practicable following execution.\42\
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    \42\ The Commission notes that while DCMs may provide 
confirmations for swap block trades executed away from but pursuant 
to the rules of the DCM, DCMs do not have a regulatory obligation 
analogous to the current regulatory obligation under Sec.  37.6(b) 
for SEFs to provide such confirmations.
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Request for Comment
    The Commission requests comments on the proposed conforming changes 
to Sec.  23.501(a)(4)(i).

III. Effective Date and Transition Period

    The Commission proposes that the effective date for the final 
regulations be 30 days after publication of final regulations in the 
Federal Register. The Commission preliminarily believes that such an 
effective date would allow SEFs and market participants sufficient time 
to adapt to the amended confirmation rules in an efficient and orderly 
manner.

[[Page 58151]]

Request for Comment

    The Commission requests comment on whether the proposed effective 
date is appropriate and, if not, the Commission further requests 
comment on possible alternative effective dates and the basis for any 
such alternative dates.

IV. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires Federal agencies, in 
promulgating regulations, to consider whether the regulations they 
propose will have a significant economic impact on a substantial number 
of small entities and, if so, provide a regulatory flexibility analysis 
with respect to such impact.\43\ The regulations proposed herein will 
affect SEFs and their market participants. The Commission has 
previously established certain definitions of ``small entities'' to be 
used by the Commission in evaluating the impact of its regulations on 
small entities in accordance with the RFA.\44\ The Commission 
previously concluded that SEFs are not small entities for the purpose 
of the RFA.\45\ The Commission has also previously stated its belief in 
the context of relevant rulemakings that SEFs' market participants, 
which are all required to be eligible contract participants (ECPs) \46\ 
as defined in section 1a(18) of the CEA,\47\ are not small entities for 
purposes of the RFA.\48\ Therefore, the Chairman, on behalf of the 
Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the 
proposed regulations will not have a significant economic impact on a 
substantial number of small entities.
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    \43\ 5 U.S.C. 601 et seq.
    \44\ 47 FR at 18618-21 (Apr. 30, 1982).
    \45\ SEF Core Principles Final Rule at 33548 (citing, among 
others, 47 FR 18618, 18621 (Apr. 30, 1982) (discussing DCMs).
    \46\ 17 CFR 37.703.
    \47\ 7 U.S.C. 1(a)(18).
    \48\ 66 FR 20740, 20743 (Apr. 25, 2001) (stating that ECPs by 
the nature of their definition in the CEA should not be considered 
small entities).
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B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995, 44 U.S.C. 3501 et seq. (PRA), 
imposes certain requirements on Federal agencies (including the 
Commission) in connection with conducting or sponsoring any 
``collection of information,'' \49\ as defined by the PRA. Among its 
purposes, the PRA is intended to minimize the paperwork burden to the 
private sector, to ensure that any collection of information by a 
government agency is put to the greatest possible uses, and to minimize 
duplicative information collections across the government.\50\
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    \49\ See 44 U.S.C. 3502(3)(A).
    \50\ See 44 U.S.C. 3501.
---------------------------------------------------------------------------

    The PRA applies to all information, regardless of form or format, 
whenever the government is obtaining, causing to be obtained, or 
soliciting information, and includes required disclosure to third 
parties or the public, of facts or opinions, when the information 
collection calls for answers to identical questions posed to, or 
identical reporting or recordkeeping requirements imposed on, ten or 
more persons.\51\ The PRA requirements have been determined to include 
not only mandatory, but also voluntary information collections, and 
include both written and oral communications.\52\ The Commission may 
not conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a currently valid Office 
of Management and Budget (OMB) control number.
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    \51\ See 44 U.S.C. 3502(3).
    \52\ See 5 CFR 1320.3(c)(1).
---------------------------------------------------------------------------

    This proposed rulemaking affects regulations that contain 
collections of information for which the Commission has previously 
received control numbers from OMB. The titles for these collections of 
information are ``Swap Documentation, OMB control number 3038-0088'' 
and ``Core Principles and Other Requirements for Swap Execution 
Facilities, OMB control number 3038-0074.'' This proposal, if adopted, 
would modify the information collection requirements associated with 
OMB control number 3038-0074, as discussed below. The Commission 
therefore is submitting this proposal to the OMB for its review in 
accordance with the PRA.\53\
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    \53\ See 44 U.S.C. 3507(d) and 5 CFR 1320.11.
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1. OMB Collection 3038-0088--Swap Documentation
    The Commission proposes two amendments to Sec.  23.501(a)(4)(i) to 
conform to the proposed amendments to Sec.  37.6(b). Section 
23.501(a)(4)(i) provides that a swap transaction executed on a SEF or 
DCM will be deemed to satisfy the swap confirmation requirements set 
forth for SDs and MSPs in Sec.  23.501(a), provided that the rules of 
the SEF or DCM establish that confirmation of all terms of the 
transaction shall take place at the same time as execution. First, the 
Commission proposes to clarify that the safe harbor for SDs and MSPs in 
Sec.  23.501(a)(4)(i) also applies to swap transactions executed 
pursuant to the rules of a SEF or DCM, i.e., block trades executed away 
from the SEF's or DCM's trading system or platform. Second, the 
Commission proposes to amend Sec.  23.501(a)(4)(i) to conform to the 
proposed amendments to Sec.  37.6(b), which would permit confirmation 
of all terms of a swap transaction as soon as technologically 
practicable following execution.
    The Commission does not believe that these proposed amendments 
would substantively or materially modify any existing information 
collection burdens. Accordingly, the Commission is retaining its 
existing estimates for the burden associated with the information 
collections under OMB Collection 3038-0088.\54\
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    \54\ See Amended Supporting Statement for Currently Approved 
Information Collection, Swap Documentation, OMB Control Number 3038-
0088 (Oct. 24, 2022), available at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202210-3038-007.
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2. OMB Collection 3038-0074--Core Principles and Other Requirements for 
Swap Execution Facilities
    Under existing Sec.  37.6(b), a SEF is required to provide each 
counterparty to a swap transaction, whether cleared or uncleared, that 
is entered into on or pursuant to the rules of the SEF, with a written 
``confirmation'' that contains all of the terms of the transaction. 
With respect to an uncleared swap transaction, a SEF may comply with 
the requirement to include in the confirmation all of the terms of the 
transaction, by incorporating by reference relevant terms set forth in 
underlying, previously negotiated agreements between the 
counterparties, as long as the SEF has obtained these agreements prior 
to execution of the transaction.\55\
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    \55\ SEF Core Principles Final Rule at 33491 n.195.
---------------------------------------------------------------------------

    The proposed rulemaking would add new Sec.  37.6(b)(1), which would 
permit SEFs to incorporate by reference in a confirmation relevant 
terms set forth in underlying, previously negotiated agreements without 
being required to obtain these agreements.
    The Commission preliminarily believes that this proposed approach 
would address technological and operational challenges that have 
prevented SEFs from fully complying with Sec.  37.6(b), by reducing the 
administrative burdens for SEFs, who would not be required to request, 
accept, and maintain a library of every relevant previously negotiated 
agreement between counterparties.
    As a result, the Commission believes that the proposed rulemaking 
would

[[Page 58152]]

reduce a SEF's annual recurring information collection burden for 
uncleared swap transactions. The Commission estimates that proposed 
Sec.  37.6(b)(1) would reduce annual recurring information collection 
burdens by one-third from 563 hours per SEF to 375 hours per SEF.\56\
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    \56\ The Commission previously estimated that the information 
collections related to Sec.  37.6 would take SEFs approximately 1.5 
hours per SEF participant and that on average, a SEF has about 375 
participants. For purposes of estimating the number of burden hours 
that the proposed regulations would eliminate, however, the 
Commission is revising its previous estimate and will assume the 
relevant process would take SEFs approximately 1.0 hours per SEF 
participant. Accordingly, 375 participants x 1.0 hour per 
participant = 375 estimated burden hours. For information about the 
Commission's previous estimate. See Supporting Statement for New and 
Revised Information Collections, Core Principles and Other 
Requirements for Swap Execution Facilities, OMB Control Number 3038-
0074, note 12 (Apr. 15, 2021), available at https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=202104-3038-001.
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    The aggregate annual estimates for the reporting burden associated 
with Sec.  37.6(b), as proposed to be amended, would be as follows:
    Estimated Number of Respondents: 23.
    Estimated Average Burden Hours per Respondent: 375 hours.
    Estimated Total Annual Burden on Respondents: 8,625 hours.
    Frequency of Collection: On occasion.
    There are no capital costs or operating and maintenance costs 
associated with this collection.
3. Information Collection Comments
    The Commission invites the public and other Federal agencies to 
comment on any aspect of the proposed information collection 
requirements discussed above. The Commission will consider public 
comments on this proposed collection of information in:
    (1) Evaluating whether the proposed collection of information is 
necessary for the proper performance of the functions of the 
Commission, including whether the information will have a practical 
use;
    (2) Evaluating the accuracy of the estimated burden of the proposed 
collection of information, including the degree to which the 
methodology and the assumptions that the Commission employed were 
valid;
    (3) Enhancing the quality, utility, and clarity of the information 
proposed to be collected; and
    (4) Minimizing the burden of the proposed information collection 
requirements on those who are to respond, including through the use of 
appropriate automated, electronic, mechanical, or other technological 
information collection techniques, e.g., permitting electronic 
submission of responses.
    Copies of the submission from the Commission to OMB are available 
from the CFTC Clearance Officer, 1155 21st Street NW, Washington, DC 
20581, (202) 418-5714 or from https://RegInfo.gov. Organizations and 
individuals desiring to submit comments on the proposed information 
collection requirements should send those comments to:
     The Office of Information and Regulatory Affairs, Office 
of Management and Budget, Room 10235, New Executive Office Building, 
Washington, DC 20503, Attn: Desk Officer of the Commodity Futures 
Trading Commission;
     (202) 395-6566 (fax); or
     [email protected] (email).
    Please provide the Commission with a copy of submitted comments so 
that comments can be summarized and addressed in the final rulemaking, 
and please refer to the ADDRESSES section of this rulemaking for 
instructions on submitting comments to the Commission. OMB is required 
to make a decision concerning the proposed information collection 
requirements between 30 and 60 days after publication of this release 
in the Federal Register. Therefore, a comment to OMB is best assured of 
receiving full consideration if OMB receives it within 30 calendar days 
of publication of this release. Nothing in the foregoing affects the 
deadline enumerated above for public comment to the Commission on the 
proposed rules.

C. Cost-Benefit Considerations

1. Background
    Section 15(a) of the CEA \57\ requires the Commission to ``consider 
the costs and benefits'' of its actions before promulgating a 
regulation under the CEA or issuing certain orders. CEA section 15(a) 
further specifies that the costs and benefits shall be evaluated in 
light of five broad areas of market and public concern: (1) protection 
of market participants and the public; (2) efficiency, competitiveness, 
and financial integrity of futures markets; (3) price discovery; (4) 
sound risk management practices; and (5) other public interest 
considerations. The Commission considers the costs and benefits 
resulting from its discretionary determinations with respect to the CEA 
section 15(a) factors.
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    \57\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------

    The Commission is proposing to amend certain rules in parts 23 and 
37 of its regulations relating to the confirmation by CFTC-regulated 
exchanges, in particular SEFs, of the terms of swap transactions.
    The baseline against which the Commission considers the costs and 
benefits of these proposed rule amendments is the statutory and 
regulatory requirements of the CEA and Commission regulations now in 
effect, in particular CEA section 5h and certain rules in parts 23 and 
37 of the Commission's regulations. The Commission, however, notes that 
as a practical matter many SEFs and market participants have adopted 
some current practices based upon a no-action position provided by 
Commission staff that the proposed rule amendments generally would 
codify. As such, to the extent that SEFs and market participants have 
relied on this no-action position, the actual costs and benefits of the 
proposed rule amendments as realized in the market may not be as 
significant.
    In some instances, it is not reasonably feasible to quantify the 
costs and benefits to SEFs and certain market participants with respect 
to certain factors, for example, market integrity. Notwithstanding 
these types of limitations, however, the Commission otherwise 
identifies and considers the costs and benefits of these proposed rule 
amendments in qualitative terms.
    In the following consideration of costs and benefits, the 
Commission first identifies and discusses the benefits and costs 
attributable to the proposed rule amendments. The Commission, where 
applicable, then considers the costs and benefits of the proposed rule 
amendments in light of the five public interest considerations set out 
in Sec.  15(a) of the CEA.
    The Commission notes that this consideration of costs and benefits 
is based on its understanding that the swaps market functions 
internationally with: (1) transactions that involve U.S. entities 
occurring across different international jurisdictions; (2) some 
entities organized outside of the United States that are registered 
with the Commission; and (3) some entities that typically operate both 
within and outside the United States and that follow substantially 
similar business practices wherever located. Where the Commission does 
not specifically refer to matters of location, the discussion of costs 
and benefits below refers to the effects of the proposed rule 
amendments on all relevant swaps activity, whether based on its actual 
occurrence in the United States or on its connection with or effect on 
U.S. commerce.\58\
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    \58\ See, e.g., 7 U.S.C. 2(i).

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[[Page 58153]]

    The Commission generally requests comment on all aspects of its 
cost-benefit considerations, including the identification and 
assessment of any costs or benefits not discussed herein; the potential 
costs and benefits of the alternatives that the Commission discussed in 
this release; data and any other information to assist or otherwise 
inform the Commission's ability to quantify or qualitatively describe 
the costs and benefits of the proposed rule amendments; and 
substantiating data, statistics, and any other information to support 
positions posited by commenters with respect to the Commission's 
discussion. Commenters may also suggest other alternatives to the 
proposed approach where the commenters believe that the alternatives 
would be appropriate under the CEA and would provide a more appropriate 
cost-benefit profile.
2. Proposed Amendments to 37.6(b)
a. Benefits
    Under existing Sec.  37.6(b), a SEF is required to provide each 
counterparty to a swap transaction that is entered into on or pursuant 
to the rules of the SEF, with a written ``confirmation'' at the time of 
execution that contains all of the terms of the transaction. SEFs may 
satisfy the requirements under existing Sec.  37.6(b) for uncleared 
swap transaction confirmations by incorporating by reference, in the 
confirmation, the relevant terms set forth in underlying, previously 
negotiated agreements between the counterparties, as long as such 
agreements have been submitted to the SEF prior to execution.
    Absent an adoption of proposed new Sec.  37.6(b)(1), which would 
allow SEFs to incorporate relevant terms set forth in such underlying 
agreements without being required to obtain the agreements, SEFs would 
need to comply with the existing requirements under Sec.  37.6(b) for 
uncleared swap confirmations, notwithstanding the significant burdens 
of doing so. The Commission understands that the financial, 
administrative, and logistical burdens to collect and maintain 
bilateral transaction agreements from any individual counterparties 
would be high. SEFs have stated that they are unable to develop a cost-
effective method to request, accept and maintain a library of every 
relevant previous agreement between counterparties.\59\ SEFs have also 
noted that the potential number of previous agreements is considerable, 
given that SEF counterparties often enter into agreements with many 
other parties and may have multiple agreements for different asset 
classes.\60\
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    \59\ See WMBAA, Request for Extended Relief from Certain 
Requirements under Parts 37 and 45 Related to Confirmations and 
Recordkeeping for Swaps Not Required or Intended to be Cleared at 3 
(Mar. 1, 2016).
    \60\ Id.
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    The Commission preliminarily believes that the proposed addition of 
Sec.  37.6(b)(1) should benefit both SEFs and market participants by 
decreasing the financial, administrative, and logistical burdens to 
execute an uncleared swap on a SEF. Not only would a SEF not be 
required to expend time and resources to gather and maintain all of the 
underlying relationship documentation between all possible 
counterparties on the SEF, but market participants would also not be 
required to expend time and resources in gathering and submitting this 
documentation to the SEF, including any amendments or updates to that 
documentation. Moreover, the Commission preliminarily believes that not 
requiring SEFs to obtain the underlying relationship documentation 
would eliminate associated financial, logistical and administrative 
burdens.
    The Commission notes that these benefits are currently available to 
market participants through the existing no-action position provided by 
Commission staff in NAL No. 17-17. As such, to the extent that SEFs, 
and by extension market participants, have relied on the existing no-
action position to avoid the above described financial, operational and 
logistical burdens, through the incorporation by reference of relevant 
terms set forth in underlying relationship documentation, they have 
been availing themselves of the benefits from these reduced burdens.
    The Commission also recognizes that many SEFs have already expended 
resources to implement technological and operational changes needed to 
avail themselves of the no-action position under NAL No. 17-17. The 
proposed amendments would preclude the need to expend additional 
resources to negate those changes.
    Further, the proposed rule amendments do not propose to change the 
existing requirement for a SEF to issue a confirmation for all terms of 
a swap transaction for uncleared swaps. To the extent that a SEF were 
to not issue a confirmation that includes or incorporates by reference 
all of the terms of an uncleared swap transaction, the counterparties 
to the swap may be subject to other Commission regulations that impose 
those obligations, and therefore, increased costs. For example, where 
one of the counterparties to an uncleared swap transaction is an SD or 
MSP, Sec.  23.501 requires that the SD or MSP issue a confirmation for 
the transaction as soon as technologically practicable.\61\
---------------------------------------------------------------------------

    \61\ See 17 CFR 23.501(a).
---------------------------------------------------------------------------

    SEFs should also benefit from the proposed requirement to confirm 
transaction terms ``as soon as technologically'' practicable after 
execution, rather than at the same time as execution. As noted above, 
the Commission preliminarily believes that this proposal would continue 
to promote the Commission's goals of providing the swap counterparties 
with legal certainty in a prompt manner.
b. Costs
    With respect to uncleared swaps, the proposed addition of Sec.  
37.6(b)(1) could reduce the financial integrity of transactions on SEFs 
compared to the current rule. There could be a greater risk of 
misunderstanding between the counterparties to a swap transaction if 
SEFs do not provide all the terms of a transaction at the time of 
execution. Even when underlying agreements are incorporated by 
reference, confusion could arise from issues such as multiple versions 
of an agreement with the same labeling, or missing sections. However, 
the Commission does not expect that this risk will materially reduce 
the integrity of the swaps market. The Commission notes that the 
relevant underlying agreements usually establish relationship terms 
between counterparties that govern all trading between them in 
uncleared swaps, and do not generally concern the terms of specific 
transactions.
    To the extent that SEFs are relying on the existing no-action 
position provided by Commission staff in NAL No. 17-17, they could 
continue to implement existing industry practice related to 
confirmations for uncleared swap transactions which should not impose 
costs on SEFs. But to the extent that SEFs need to modify their rules 
or procedures in light of the proposed amendments, such as removing the 
SEF rules required as conditions under NAL No. 17-17, they may incur 
modest costs.
c. Consideration of Alternatives
    The relevant no-action position set forth in NAL No. 17-17, upon 
which the proposal is based, is subject to withdrawal by Commission 
staff. In addressing alternatives to adopting the proposed amendments 
to Sec.  37.6(b), the Commission considered the costs and benefits 
associated with withdrawal of the no-action position in NAL No. 17-17, 
which would obligate SEFs and

[[Page 58154]]

market participants to satisfy the requirements of existing Sec.  
37.6(b). The Commission preliminarily believes that adopting the 
proposed amendments to Sec.  37.6(b), and the conforming amendments set 
forth in this proposal, would help to maintain the benefits previously 
articulated in the SEF Core Principles Final Rule, but also reduce 
related costs for SEFs with respect to confirmation requirements.\62\
---------------------------------------------------------------------------

    \62\ The Commission recognized the important benefits provided 
by the Sec.  37.6(b) confirmation requirements in the cost-benefit 
considerations to the SEF Core Principles Final Rule. Among those 
benefits, the Commission stated that the requirements would (i) 
provide legal certainty to market participants; (ii) promote 
accuracy for counterparties regarding exposure levels with other 
counterparties; and (iii) reduce costs and risks involved with 
resolving error trade disputes between counterparties. SEF Core 
Principles Final Rule at 33570.
---------------------------------------------------------------------------

d. Section 15(a) Factors
(1) Protection of Market Participants and the Public
    The proposed rule amendments should continue to promote the legal 
certainty of swap transactions executed on SEFs. The proposed 
amendments to Sec.  37.6 for uncleared swaps, and the conforming 
amendments set forth in this proposal, would clarify compliance 
requirements, consistent with the position taken by Commission staff in 
NAL No. 17-17, while helping to maintain the protection of market 
participants and the public.
(2) Efficiency, Competitiveness, and Financial Integrity of Markets
    The proposed amendments to Sec.  37.6 for uncleared swaps, and the 
conforming amendments set forth in this proposal, would ease compliance 
for SEFs and market participants on a longer-term basis, i.e., by 
providing a regulatory solution beyond the corresponding no-action 
position provided by Commission staff in NAL No. 17-17. This may 
improve the efficiency of the swap markets with respect to issuing and 
transmitting swap confirmations to counterparties. In particular, SEFs 
would attain greater operational efficiency because they would not be 
required to develop an infrastructure for collecting and maintaining 
all relevant underlying, previously negotiated agreements.
    As noted above, with respect to uncleared swaps, the proposed 
addition of Sec.  37.6(b)(1) could reduce the financial integrity of 
transactions on SEFs compared to the current rule. There could be a 
greater risk of misunderstanding between the counterparties to a swap 
transaction if SEFs do not provide all the terms of a transaction at 
the time of execution. Even when underlying agreements are incorporated 
by reference, confusion could arise from issues such as multiple 
versions of an agreement with the same labeling, or missing sections. 
However, the Commission does not expect that this risk will materially 
reduce the integrity of the swaps market. As noted above, the 
Commission notes that the relevant underlying agreements usually 
establish relationship terms between counterparties that govern all 
trading between them in uncleared swaps, and do not generally concern 
the terms of specific transactions. Moreover, the proposed rule 
amendments could encourage financial integrity of the swap markets by, 
among other things, providing clarity that the terms of an uncleared 
swap confirmation issued by a SEF supersedes any conflicting terms in 
underlying agreements between the counterparties that have been 
incorporated by reference into the confirmation.
(3) Price Discovery
    The Commission is not aware of significant effects on the price 
discovery process from the proposed amendments to Sec.  37.6, and the 
conforming amendments set forth in this proposal, regarding 
confirmations.
(4) Sound Risk Management Practices
    The proposed amendments to the confirmation requirements within 
Sec.  37.6(b), and the conforming amendments set forth in this 
proposal, would maintain the promotion of sound risk management 
practices with respect to the requirement for SEFs to issue transaction 
confirmations, i.e., by providing market participants with the 
certainty that transactions executed on or pursuant to the rules of a 
SEF will be legally enforceable with respect to all counterparties to 
the transaction.\63\
---------------------------------------------------------------------------

    \63\ Id.
---------------------------------------------------------------------------

(5) Other Public Interest Considerations
    The Commission is identifying a public interest benefit in 
codifying the no-action position in NAL 17-17, where the efficacy of 
that position has been demonstrated. In such a situation, the 
Commission believes it serves the public interest to engage in notice-
and-comment rulemaking, where it seeks and considers the views of the 
public in amending its regulations, rather than for SEFs to continue to 
rely on a staff provided no-action position that does not bind the 
Commission, provides less long-term certainty, and offers a more 
limited opportunity for public input.
Request for Comment
    The Commission invites public comment on all aspects of its cost 
benefit considerations, including the discussion of the section 15(a) 
factors. Commenters are requested to provide data and any other 
information or statistics to support their position. To the extent 
commenters believe that the costs or benefits of any aspect of the 
proposed rules are reasonably quantifiable, the Commission requests 
that they provide data and any other information or statistics to 
assist the Commission in quantification.
    (11) The Commission preliminarily believes that SEFs are relying on 
the no action position in NAL 17-17 and are not currently obtaining and 
maintaining previously negotiated underlying agreements that are 
incorporated by reference in uncleared swap transaction confirmations. 
Is the Commission's understanding correct or are there SEFs that have 
found practical ways to obtain and maintain such underlying agreements?
    (12) If a SEF were required to comply with existing Sec.  37.6(b) 
and obtain previously negotiated underlying agreements prior to 
incorporating by reference terms from such agreements in uncleared swap 
transaction confirmations, what costs and expenses would the SEF incur?

D. Antitrust Considerations

    Section 15(b) of the CEA requires the Commission to take into 
consideration the public interest to be protected by the antitrust laws 
and endeavor to take the least anti-competitive means of achieving the 
objectives of the CEA, in issuing any order or adopting any Commission 
rule or regulation.\64\ The Commission does not anticipate that the 
proposed amendments to parts 23 and 37 would promote or result in anti-
competitive consequences or behavior. However, the Commission 
encourages comments from the public with respect to any aspect of the 
proposal that may be perceived as potentially inconsistent with the 
antitrust laws or anti-competitive in nature.
---------------------------------------------------------------------------

    \64\ 7 U.S.C. 19(b).
---------------------------------------------------------------------------

List of Subjects

17 CFR Part 23

    Confirmations, Swaps.

17 CFR Part 37

    Swaps, Swap confirmations, Uncleared Swap Confirmations, Swap 
execution facilities.

    For the reasons stated in the preamble, the Commodity Futures

[[Page 58155]]

Trading Commission proposes to amend 17 CFR parts 23 and 37 to read as 
follows:

PART 23--SWAP DEALERS AND MAJOR SWAP PARTICIPANTS

0
1. The authority citation for Part 23 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b-1, 6c, 6p, 6r, 6s, 6t, 
9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21.
    Section 23.160 also issued under 7 U.S.C. 2(i); Sec. 721(b), 
Pub. L. 111-203, 124 Sta. 1641 (2010).

0
2. Revise Sec.  23.501(a)(4)(i) to read as follows:


Sec.  23.501  Swap confirmation.

    (a) * * *
    (4) * * *
    (i) Any swap transaction executed on or pursuant to the rules of a 
swap execution facility or designated contract market shall be deemed 
to satisfy the requirements of this section, provided that the rules of 
the swap execution facility or designated contract market establish 
that confirmation of all terms of the transaction shall take place as 
soon as technologically practicable after execution.
* * * * *

PART 37--SWAP EXECUTION FACILITIES

0
3. The authority citation for Part 37 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a-2, 7b-3, and 12a, as 
amended by Titles VII and VIII of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376.

0
4. Revise Sec.  37.6 to read as follows:


Sec.  37.6  Enforceability.

    (a) A transaction executed on or pursuant to the rules of a swap 
execution facility shall not be void, voidable, subject to rescission, 
otherwise invalidated, or rendered unenforceable as a result of:
    (1) A violation by the swap execution facility of the provisions of 
section 5h of the Act or this part;
    (2) Any Commission proceeding to alter or supplement a rule, term, 
or condition under section 8a(7) of the Act or to declare an emergency 
under section 8a(9) of the Act; or
    (3) Any other proceeding the effect of which is to:
    (i) Alter or supplement a specific term or condition or trading 
rule or procedure; or
    (ii) Require a swap execution facility to adopt a specific term or 
condition, trading rule or procedure, or to take or refrain from taking 
a specific action.
    (b) A swap execution facility shall provide each counterparty to a 
transaction that is executed on or pursuant to the rules of the swap 
execution facility with a written record of all of the terms of the 
transaction which shall legally supersede any conflicting terms of a 
previous agreement and serve as a confirmation of the transaction. The 
confirmation of all terms of the transaction shall take place as soon 
as technologically practicable after execution; provided that specific 
customer identifiers for accounts included in bunched orders involving 
swaps need not be included in confirmations provided by a swap 
execution facility if the applicable requirements of Sec.  1.35(b)(5) 
of this chapter are met.
    (1) For a confirmation of an uncleared swap transaction, the swap 
execution facility may satisfy the requirements of this paragraph (b) 
by incorporating by reference terms from underlying, previously 
negotiated agreements governing such transaction between the 
counterparties, without obtaining such incorporated agreements except 
as otherwise necessary to fully perform its operational, risk 
management, governance, or regulatory functions, or any requirements 
under this part.
    (2) [Reserved]

    Issued in Washington, DC, on August 14, 2023, 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 Swap Confirmation Requirements for Swap Execution 
Facilities--Voting Summary and Chairman's and Commissioners' Statements

Appendix 1--Voting Summary

    On this matter, Chairman Behnam and Commissioners Johnson, 
Goldsmith Romero, Mersinger, and Pham voted in the affirmative. No 
Commissioner voted in the negative.

Appendix 2--Statement of Chairman Rostin Behnam

    Today the Commission votes to propose amendments to Parts 23 and 
37 of the Commission regulations to address longstanding issues with 
the uncleared swap confirmation requirements under Rule 37.6(b). 
During the initial implementation of Part 37, SEFs informed the CFTC 
that the confirmation requirement for uncleared swaps was 
operationally and technologically difficult and impractical to 
implement. The Division of Market Oversight (DMO) investigated and 
acknowledged these challenges and provided targeted no-action 
positions for SEFs with respect to certain provisions of Commission 
regulations throughout the last decade.\1\ I support this proposal 
which represents sound judgment and clear consideration of the 
issues.
---------------------------------------------------------------------------

    \1\ See CFTC Letter No. 13-58, Time Limited No-Action Relief to 
Temporarily Registered Swap Execution Facilities from Commission 
Regulation 37.6(b) for non-Cleared Swaps in All Asset Classes (Sept. 
30, 2013), https://www.cftc.gov/csl/13-58/download; CFTC Letter No. 
14-108, Staff No-Action Position Regarding SEF Confirmations and 
Recordkeeping Requirements under Certain Provisions Included in 
Regulations 37.6(b) and 45.2 (Aug. 18, 2014), https://www.cftc.gov/csl/14-108/download; CFTC Letter No. 15-25, Extension of No-Action 
Relief for SEF Confirmation and Recordkeeping Requirements under 
Commission Regulations 37.6(b), 37.1000, 37.1001, and 45.2, and 
Additional Relief for Confirmation Data Reporting Requirements under 
Commission Regulation 45.3(a) (Apr. 22, 2015), https://www.cftc.gov/csl/15-25/download; CFTC Letter No. 16-25, Extension of No-Action 
Relief for Swap Execution Facility Confirmation and Recordkeeping 
Requirements under Commodity Futures Trading Commission Regulations 
37.6(b), 37.1000, 37.1001, 45.2, and 45.3(a) (Mar. 14, 2016), 
https://www.cftc.gov/csl/16-25/download; and CFTC Letter No. 17-17, 
Extension of No-Action Relief for Swap Execution Facility 
Confirmation and Recordkeeping Requirements under Commodity Futures 
Trading Commission Regulations 37.6(b), 37.1000, 37.1001, 45.2, and 
45.3(a) (Mar. 24, 2017), https://www.cftc.gov/csl/17-17/download.
---------------------------------------------------------------------------

    As there remains no workable solution that could effectuate the 
original language of the relevant rule, and the currently applicable 
staff letter has no explicitly set expiration date, the Commission 
is proposing to amend Rule 37.6(b) to codify the staff no-action 
position. The proposed amendment would enable SEFs to incorporate 
terms by reference in an uncleared swap confirmation without being 
required to obtain the underlying, previously negotiated agreements 
between the counterparties. A proposed clarification and conforming 
amendment to Rule 23.501 will clarify the consistent treatment of 
trades executed away from a SEF or DCM and permit confirmation of 
all terms of a swap transaction as soon as technologically 
practicable following execution, as opposed to requiring 
confirmation ``at the same time as execution.'' \2\ The simplicity 
of these latter proposed amendments should not overshadow their 
practical impact.
---------------------------------------------------------------------------

    \2\ Commission Rule 23.501(a)(4)(i), 17 CFR 23.501(a)(4)(i).
---------------------------------------------------------------------------

Appendix 3--Statement of Commissioner Kristin N. Johnson

    In the aftermath of the 2008 global financial crisis, the G20 
leaders met in Pittsburgh, Pennsylvania.\1\ This meeting resulted in 
an agreement among the G20 leaders to bring transparency and 
oversight to the then-unregulated swaps market.\2\ Emerging in the 
1980s, the swaps market remained unregulated for decades, operating 
with little to no transparency and causing significant integrity 
concerns for the global financial market.
---------------------------------------------------------------------------

    \1\ Looking back at OTC derivative reforms--objectives, progress 
and gaps, European Central Bank (Dec. 21, 2016), https://www.ecb.europa.eu/pub/pdf/other/eb201608_article02.en.pdf.
    \2\ Id.
---------------------------------------------------------------------------

    In 2010, the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-

[[Page 58156]]

Frank Act) \3\ amended the Commodity Exchange Act (CEA) and 
introduced a framework for the regulation of swaps that imposed 
central clearing and trade execution requirements, registration and 
comprehensive regulation of swap dealers, and recordkeeping and 
real-time reporting requirements.\4\ Under the Dodd-Frank Act, 
standardized swap transactions that are subject to the clearing 
mandate and designated made-available-to-trade must be executed on a 
registered or exempt designated contract market (DCM) or swap 
execution facility (SEF).\5\
---------------------------------------------------------------------------

    \3\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 1376 (2010).
    \4\ Ilya Beylin, Designing Regulation for Mobile Financial 
Markets, 10 U. Cal. Irvine L. Rev. 497, 511 (2020).
    \5\ Process for a Designated Contract Market or Swap Execution 
Facility to Make a Swap Available to Trade, Swap Transaction 
Compliance and Implementation Schedule, and Trade Execution 
Requirement Under the Commodity Exchange Act, 78 FR 33,606, 33,606 
(June 4, 2013) (codified at 17 CFR parts 37, 38).
---------------------------------------------------------------------------

    Section 5h of the CEA prohibits a person from operating ``a 
facility for the trading or processing of swaps unless the facility 
is registered as a [SEF] or as a [DCM] under this section.'' \6\ A 
SEF, as a trading system or platform in which multiple participants 
have the ability to execute or trade swaps by accepting bids and 
offers made by multiple participants in the facility or system, 
actively facilitates swap transactions in our markets by 
facilitating the execution of swaps between persons. Additionally, 
as registered platforms, SEFs play an active role in price discovery 
and transparency and policing and reporting swap transactions in an 
effort to monitor systemic risk.
---------------------------------------------------------------------------

    \6\ 7 U.S.C. 7b-3(a).
---------------------------------------------------------------------------

    Implementing the statutory mandate of the CEA, the Commission 
adopted new rules and principles for SEFs in 2013.\7\ In the 
adopting release, the Commission noted several of the key goals of 
the Dodd-Frank Act, including greater pre- and post-trade 
transparency, which results in lower costs for investors, 
businesses, and consumers; lower risk to the swap market and 
economy; and enhanced market integrity to protect market 
participants and the greater public.\8\ With these goals in mind, 
the Commission adopted the Part 37 regulations including Regulation 
37.6.
---------------------------------------------------------------------------

    \7\ Core Principles and Other Requirements for Swap Execution 
Facilities, 78 FR 33,475 (Jun. 4, 2013) (codified in 17 CFR 37) 
(hereinafter ``2013 SEF Core Principles Release'').
    \8\ 2013 SEF Core Principles Release at 33,477.
---------------------------------------------------------------------------

    Part 37 sets forth the operational requirements for SEFs and 
trading swaps on SEFs. The Commission adopted Regulation 37.6 and, 
in the adopting release, explained that this regulation was 
``intended to provide market participants who execute swap 
transactions on or pursuant to the rules of a SEF with legal 
certainty with respect to such transactions.'' \9\
---------------------------------------------------------------------------

    \9\ 2013 SEF Core Principles Release at 33,490.
---------------------------------------------------------------------------

    Specifically, CFTC Regulation 37.6(b) ``requires, for uncleared 
transactions executed on or pursuant to the rules of a SEF, that the 
SEF `must have all terms . . . agreed to no later than execution, 
such that the SEF can provide a written confirmation inclusive of 
those terms at the time of execution and report complete, non-
duplicative, and non-contradictory data to an SDR as soon as 
technologically practicable after execution.' '' \10\ Further, CFTC 
Regulation 37.6 explicitly stated that a ```swap execution facility 
shall provide each counterparty with written documentation of all 
terms of the transaction to serve as confirmation of such 
transaction.' '' \11\
---------------------------------------------------------------------------

    \10\ CFTC No-Action Letter 14-108 (Aug. 8, 2014) (quoting 2013 
SEF Core Principles Release at 33,491), https://www.cftc.gov/csl/14-108/download.
    \11\ 2013 SEF Core Principles Release at 33,491.
---------------------------------------------------------------------------

    Since the adoption of Regulation 37.6(b), some have expressed 
concerns regarding the feasibility of complying with the 
regulation.\12\ In 2014,\13\ 2015,\14\ 2016,\15\ and 2017,\16\ the 
Division of Market Oversight issued no-action letters offering 
guidance and exempted relief.
---------------------------------------------------------------------------

    \12\ Id.
    \13\ CFTC No-Action Letter 14-108.
    \14\ CFTC No-Action Letter 15-25 (Apr. 22, 2015), https://www.cftc.gov/csl/15-25/download.
    \15\ CFTC No-Action Letter 16-25 (Mar. 14, 2016), https://www.cftc.gov/csl/16-25/download.
    \16\ CFTC No-Action Letter 17-17 (Mar. 24, 2017), https://www.cftc.gov/csl/17-17/download.
---------------------------------------------------------------------------

    In March of 2017, the Commission provided relief for SEFs with 
respect to the following requirements: (1) SEFs' obligation to 
obtain documents incorporated by reference in a swap confirmation 
issued under Regulation 37.6(b) prior to issuing the confirmation; 
(2) SEFs' obligation maintain such documents as records; and (3) 
SEFs' obligation to report terms contained in such documents that 
are confirmation data.\17\ The Commission issued guidance and 
exemptive relief based on concerns that SEFs had been unable to 
develop a practicable and cost-effective method to request, accept, 
and maintain a library of the underlying previously-negotiated 
freestanding agreements between counterparties.
---------------------------------------------------------------------------

    \17\ CFTC No-Action Letter 17-17 (Mar. 24, 2017), https://www.cftc.gov/csl/17-17/download.
---------------------------------------------------------------------------

    The proposal before us today seeks to codify the no-action 
relief provided in NAL 17-17 and address a decade of concerns voiced 
by SEFs. I support the proposal and look forward to carefully 
considering the comments we receive to determine the best path 
forward to protect our markets through the stability of SEFs while 
balancing practical approaches to implementing our regulatory 
requirements. I am hopeful the comments submitted in response to the 
proposal will answer some of the explicit questions set out in the 
release text as well as support the drafting of final rules that 
create clarity for SEFs and our markets.
    I want to thank the staff of the Division of Market Oversight 
and in the Office of General Counsel--Roger Smith, Nora Flood, Jake 
Chachkin, Dina Moussa, Carlene Kim, Laura Badian, Paul Schlichting, 
Kenny Wright, Stephen Kane, and Madison Lau--for their diligent and 
thoughtful work on these proposed amendments.

Appendix 4--Statement of Commissioner Christy Goldsmith Romero

    The regulation of swap markets, as mandated by Dodd-Frank Act 
reforms, is predicated on transparency, reporting, and 
recordkeeping. Swap execution facilities (SEF) registered with the 
CFTC are required under core principle 10 to maintain records of all 
activities, including a complete audit trail. Commission regulations 
require a SEF to provide a confirmation of transactions to 
counterparties, including a written record of all of the terms of 
the transaction, and to obtain copies of underlying, previously 
negotiated agreements between the counterparties.
    From time to time, the Commission learns that its regulations 
are technologically difficult to implement. In those situations, it 
is prudent for the CFTC to revisit its regulations in order to keep 
pace with technology. Revisiting our regulations provides a 
permanent fix, rather than temporary no action relief that is 
extended over and over again, as the Commission staff have done with 
SEF confirmation requirements for uncleared swaps. This relief 
previously relieved SEFs of the requirement to obtain copies of the 
underlying, previously negotiated agreements between the 
counterparties.
    As a general rule, I believe we need to be careful about 
proposing new rules that only codify no action relief from our 
regulation, particularly no action relief that has been extended for 
years. Instead, we should determine what we were trying to 
accomplish with the regulation, if we still want to accomplish that, 
and if there is another way to achieve that.
    As the sponsor of the Technology Advisory Committee, I believe 
that we should be forward looking in considering technological 
innovations to bring the right fix when it comes to areas where 
there have been technological obstacles to compliance with CFTC 
regulations. Today, I support this rule because I support the idea 
that we need to fix what has become a technological obstacle.
    I look forward to public comment about whether this proposed fix 
is the right permanent fix from a technological standpoint. I look 
forward to public comment on whether this fix locks in a system that 
may limit incentives for SEFs and other market participants to 
innovate using new technology that could provide copies of the 
underlying, previously negotiated agreements in compliance with the 
rule. In our risk-based regulatory system, counterparties should 
know who they are dealing with, and doing so requires swaps 
participants to proactively revisit existing documents. I am 
interested in public comment on whether the proposed fix would 
disincentivize SEFs from digitizing legacy documents and agreements, 
and requiring their market participants to do so as well. I am also 
interested in public comment about whether these digitized documents 
could be machine readable.
    Digitized and/or machine-readable data could lower compliance 
costs, and increase transparency. In the Financial Data Transparency 
Act of 2022, which does not apply to the CFTC, other federal 
financial regulatory agencies will be required to

[[Page 58157]]

develop data collection protocols and standards for machine 
readability. Other federal financial regulators will push this 
requirement to its registrants and supervised entities to collect, 
maintain, and submit data pursuant to these data transparency 
protocols and standards. This will impact registrants in our space 
that are dual registered with those financial regulators, and who 
will need to comply with those protocols and standards.
    I look forward to hearing from members of industry, investor and 
consumer advocates, academics, and other stakeholders on these 
questions. I thank the staff for their work on this issue.

Appendix 5--Statement of Commissioner Caroline D. Pham

    I support the Notice of Proposed Rulemaking on Swap Confirmation 
Requirements for Swap Execution Facilities (SEF Confirmation 
Proposal) because the Commission is finally fixing unworkable rules 
that have defied the reality of market structure, legal 
documentation, and operational processes since they were first 
issued in 2013. I would like to thank Roger Smith, Nora Flood, and 
Vince McGonagle in the Division of Market Oversight for their work 
on the SEF Confirmation Proposal.
    As I previously stated, the Commission must take action to fix 
unworkable rules by codifying ``perpetual'' no-action relief through 
notice-and-comment rulemaking as required by the Administrative 
Procedure Act.\1\ I am pleased that we are doing so today.
---------------------------------------------------------------------------

    \1\ Statement of Commissioner Caroline D. Pham on Conditional 
Order of SEF Registration, U.S. Commodity Futures Trading Commission 
(July 20, 2022), https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement072022.
---------------------------------------------------------------------------

    The Dodd-Frank Act amended the Commodity Exchange Act (CEA) to 
establish the SEF regulatory framework in order to reduce risk, 
promote transparency, and enhance market integrity for over-the-
counter (OTC) derivatives.\2\ Following that mandate, the CFTC 
implemented Part 37, which requires, among other things, that SEFs 
provide written final confirmation for uncleared swaps at the time 
of execution.\3\ Moreover, Rule 37.6(b) requires that SEFs provide 
each counterparty ``a written record of all of the terms of the 
transaction which shall legally supersede any previous agreement and 
serve as a confirmation of the transaction.'' Contrary to its 
intent, this requirement actually undermines legal certainty by 
potentially voiding carefully negotiated and highly technical and 
complex legal agreements.\4\ These provisions, while well-
intentioned, have proven impracticable (if not impossible) for both 
SEFs and market participants. In fact, the requirement to provide 
SEF confirmation at the time of execution is temporally impossible 
for block trades, which are executed away from the SEF and then 
submitted to the SEF afterwards.
---------------------------------------------------------------------------

    \2\ Core Principles and Other Requirements for Swap Execution 
Facilities, 76 FR 1213, 1214 (Jan. 7, 2011) (codified at 17 CFR part 
37).
    \3\ See 17 CFR 37.6(b) (``The confirmation of all terms of the 
transaction shall take place at the same time as execution.'').
    \4\ Id.
---------------------------------------------------------------------------

    After hearing from the public, CFTC staff provided no-action 
relief in 2014 that has been extended repeatedly in order to provide 
a practical solution that could be implemented and would still 
support the CFTC's public and regulatory transparency requirements. 
For example, the no-action relief provided that SEFs could 
incorporate prior agreements to a transaction by reference, instead 
of receiving hundreds of thousands of pages of legal agreements, 
such as bilateral counterparty swap trading relationship 
documentation, and then attaching hundreds of pages to SEF 
confirmations.\5\ This requirement was unworkable in light of Part 
23 rules for swap dealers, and for a SEF to collect such legal 
documentation from swap counterparties and then to maintain it 
continuously on an ongoing basis (since these bilateral agreements 
are occasionally revised), turns SEFs into giant legal document 
repositories of questionable benefit.
---------------------------------------------------------------------------

    \5\ See, e.g., NAL No. 17-17, Re: Extension of No-Action Relief 
for Swap Execution Facility Confirmation and Recordkeeping 
Requirements under Commodity Futures Trading Commission Regulations 
37.6(b), 37.1000, 37.1001, 45.2, and 45.3(a) (Mar. 24, 2017).
---------------------------------------------------------------------------

    Once CFTC staff realized the unrealistic nature of these SEF 
confirmation requirements, I believe the staff very prudently issued 
no-action relief. And I believe that this was an appropriate 
exercise of no-action relief because in the rush to implement the 
Dodd-Frank Act, the Commission did not always get it right.
    When we don't get it right, it is incumbent upon the Commission 
to acknowledge technical and operational issues and fix them. I look 
forward to public comment, particularly whether this proposal 
sufficiently fixes the unworkable aspects of our existing rules. 
Thank you.

[FR Doc. 2023-17747 Filed 8-24-23; 8:45 am]
BILLING CODE 6351-01-P