Swap Execution Facilities Regulation - Available to Trade Provision - Comment Letters

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Gavel.png FINAL RULE: This page refers to the proposed rulemaking on the "Made Available to Trade" provision. For a summary of the final rule, click here.
Dodd-Frank Timeline, Core Principles for SEFs, CFTC
Final Rule Issue Effective Date Compliance Date
June 4, 2013 August 5, 2013 October 2, 2013 (one-year phase-in of RFQ minimum); Also see No-action relief note
Dodd-Frank Timeline, DCO,DCM, SEF Governance Standards, Additional Requirements
Proposal Date Comment Deadline Final Rule Issue
January 6, 2011 June 3, 2011 TBA
Dodd-Frank Timeline, Registration and Regulation of Security-Based Swap Execution Facilities, SEC
Proposal Date Comment Deadline Reopened Comment Period Deadline
February 28, 2011 April 4, 2011 July 22, 2013
Timeline, Made Available to Trade Provisions
Final Rule Issue First MAT Determination First Compliance Date
June 4, 2013 January 16, 2014 February 15, 2014

This page contains letters submitted by the public to the CFTC regarding a rule proposal on the process for a designated contract market or swap execution facility to make a swap available to trade

For letters concerning the proposed rule on SEF core principles and other requirements, click HERE.

For letters to the SEC on the registration and regulation of security-based swap execution facilities (SB-SEFs), click HERE.

Wholesale Markets Brokers Association - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

From the comment letter:

“The WMBAA believes that the regime contemplated by the Proposed Rule is unnecessary and imposes a redundant layer of calculation and analysis on the Commission. The stated public policy goals of the Proposed Rule can be more easily achieved with reliance on the analysis done in connection with the CFTC’s process for review of swaps for mandatory clearing, and, for that reason, should be relied upon to make “available to trade” determinations. Further, as noted in its letter to the Commission dated March 8, 2011, the WMBAA believes that the statutory language in the CEA relied upon to authorize the Proposed Rule should be interpreted more literally and the mandatory trade execution requirement should apply to all swaps subject to the clearing requirement of Section 2(h)(1) of the CEA, unless no SEF makes the swap available to trade.”

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Markit - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

Markit outlines several concerns with the process set forth in the Proposed Rule:

  1. MAT Determinations should be contingent upon, but independent from, mandatory clearing determinations (as proposed) because they will have different effects on the market and will require different types of analysis;
  2. MAT Determinations should be based on all enumerated factors, instead of any one, and the Commission should establish objective, measurable standards for applying the facts to those factors;
  3. mandatory SEF or DCM execution should be phased-in by identifying an initial set of the most liquid swaps that should be considered MAT and holding any other MAT Determinations for 12 months while the market adjusts to the impact of mandatory on-facility trading;
  4. MAT Determinations should be subject to review by the Commission on a quarterly basis, and illiquid swaps should be de-classified as MAT;
  5. MAT Determinations should always be subject to public notice and comment; and
  6. the Commission, rather than SEFs or DCMs, should make the ultimate MAT Determinations, not only because it will have market-wide data, but also because individual SEFs and DCMs may have an economic interest in making a MAT Determination for each and every swap, regardless of its liquidity.
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Geneva Energy Markets - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

From the comment letter:

“GEM believes that voice broking in the oil markets plays a crucial role in facilitating liquidity and providing pre-trade price transparency to the market participants. Mandating certain contracts to trade on a Designated Contract Market or Swap Execution Facility, as this proposed rule requires, could materially disrupt this important component of liquidity and price discovery... We urge the CFTC to seriously consider the points made by active oil swaps dealers and participants such as ourselves, who have consistently warned of the impact on liquidity and transaction costs resulting from the elimination of voice broking. It is our recommendation that the CFTC proceed with extreme caution, avoiding any sudden and sweeping mandates across all swaps markets. Such mandates stand to harmfully disrupt today's orderly, efficient, and highly competitive oil swaps market, which has systematically chosen other means of execution.”

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TeraExchange - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

Spring Trading, Inc., is the owner and operator of a service called TeraExchange, which has filed notice with the CFTC as an exempt board of trade, and intends to apply as a SEF and/or DCM, and also plans to file with the SEC as a security-based swap execution facility. The firm submitted two comment letters on the "made available to trade" proposal in January and February 2012. The first letter offers general comments and answers to questions posed in the rule proposal. The second letter expands upon the concept of "economically equivalent swaps" and the factors relevant to considering economic equivalence.

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Asset Management Group of SIFMA - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

The Asset Management Group of SIFMA explains that the Commission:

  • should not equate a swap’s readiness for SEF or DCM trading with readiness for clearing;
  • should subject MAT determinations and trade execution requirements to a one-year pilot program and then repropose the procedures for MAT determinations;
  • should not have a separate “economically equivalent” determination that imposes trade execution requirements;
  • should require that a SEF or DCM list a swap for at least 90 days before determining that the swap is MAT in order to rectify any operational issues that may arise and ensure that the SEF or DCM is capable of supporting all market activity in that swap
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ISDA/FIA/SIFMA - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

In their comment letter, ISDA, FIA, and SIFMA express the following key points:

  • The Commission should make the determinations of which swaps are "available to trade". If swap execution facilities or designated contract markets (“DCMs”) make the initial determination, the process should include a six month period for Commission review before a submitted swap is made "available to trade" that will include an opportunity for public comment. A SEF/DCM should be required to list and support trading in a swap before the SEF/DCM may submit the swap as "available to trade".
  • Liquidity should be a prerequisite for a swap to be made "available to trade". The submitting SEF/DCM should provide detailed reasoning for its determination and specific supporting evidence of any valid factors considered.
  • Swaps that are "available to trade" should be reviewed more frequently than annually and SEF/DCM participants/members should be able to submit swaps for review as no longer "available to trade".
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Vanguard - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

From the comment letter:

For the reasons outlined below, Vanguard supports a more thoughtful, measured approach based on the following objectives:

  • Adhere to a phased implementation schedule for mandated swap reporting, clearing and trading over a 30 month period based on mandate and participant type.
  • Establish a “Pilot Program” whereby select swaps are identified for DCM and SEF trading mandates to facilitate infrastructure build-out.
  • Analyze data gathered by swap data repositories (“SDRs”) to formulate minimum liquidity thresholds to guide MAT determinations.
  • House the swap assessment for the MAT determination in the CFTC or, in the absence of adequate resources, in a balanced working group of expert market participants.
  • Refresh MAT determinations quarterly, allow adequate time for public comment and an extended time for implementation of each new MAT mandate to enable market connectivity and avoid disruptions in liquidity
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Bloomberg - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

In their comment letter, Bloomberg comments that “the Commission should play a greater role in determining when a swap should be made available to trade. Specifically, as with its role in determining whether a swap should be required to be cleared, the Commission should determine whether a swap should be made available to trade either on its own initiative or based on a submission from a SEF.” They also express their concerns about “potentially burdensome and duplicative requirements associated with MAT determinations and product approvals. Ideally, [they] would desire a process that maximizes efficiency in determining whether a particular product is subject to both mandatory clearing and the mandatory trade execution requirement.”

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Managed Funds Association - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

MFA respectfully suggests that the Proposed Rules would be strengthened and improved by:

  • Ensuring the MAT determination is distinct and supplemental to the review of swaps for mandatory clearing
  • Strengthening the review process of whether or not a swap should continue to be available to trade
  • Eliminating the provisions related to the definition of an “economically equivalent swap”
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FX Alliance Inc - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

FX Alliance believes that the Commission should “modify the MAT determination process in several ways in order to protect the liquidity of the swaps market. Specifically, [they] recommend that the Commission”:

  • only begin making or accepting MAT determinations after swap data repositories have collected at least 6-12 months of data regarding the entire market
  • require for the same 6-12 month period any swap subject to mandatory clearing to be traded on a registered SEF or DCM, but permit such swaps to be execute as “Permitted Transactions” under the SEF rule
  • permit the public to comment on MAT determinations for a reasonable period of time, at least 30 days, because these determinations will have a significant impact on the market and all market participants
  • continue to separate MAT determinations from mandatory clearing determinations because they require different types of analysis and, as history has shown, a contract may be listed for clearing by a DCO with little or no liquidity
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JP Morgan - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

In their comment letter, JP Morgan provides the following arguments with regard to the proposed rules:

  • The CFTC, not DCMs or SEFs, should make the MAT determination. The process should provide for public consultation and time for market participants to adapt to the new market structure
  • Only the CFTC or another regulatory or independent body, but not DCMs or SEFs, is suitable for making the economically equivalent determination. The determination of economic equivalence should be subject to public review
  • The timelines in the proposed rule do not provide for sufficient time for market participants to establish links into a DCM or SEF following the MAT determination
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Investment Company Institute - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

In their comment letter, the Investment Company Institute expresses their concerns with regard to the following topics:

  • The MAT determination process should be separate and distinct from the mandatory clearing determination process
  • Proposed factors for a MAT determination
  • Periodic review and determining a swap is no longer available to trade
  • Eliminate the concept of “Economically Equivalent Swap”
  • The Commission should provide adequate time before a MAT determination is effective
  • The Commission should provide for an effective means of notification regarding MAT determinations
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UBS Securities LLC - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

UBS Securities LLC explains the importance of “providing a meaningful public comment period in connection with an ‘Available to Trade’ determination” and that “an ‘Available to Trade’ determination should be made on a swap-by-swap basis and should not automatically include ‘economically equivalent’ swaps.” They further argue that the Commission “should consider increasing the time period between an ‘available to trade’ determination and the effective date of the trade execution requirement.”

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SunGard Kiodex, LLC - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

“Under the Proposed Rule, the Commission would implement an additional formal review process taking up to 90 days, which applies to swaps that have already been subjected to the review process for mandatory clearing. We believe this to be redundant and possibly counterproductive and suggest that the Commission replace that process in its final rule (or a re-proposed rule if warranted) with real time illiquidity tests which, if met, would qualify the market participant for the “not made available to trade” exception on a temporary basis, as outlined herein.”

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Commercial Energy Working Group - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

The Commercial Energy Working Group address the following topics in their comment letter:

  • The relationship to mandatory clearing determination
  • Market participants should be guaranteed notice and comment
  • Determination on a swap-by-swap basis
  • Commission approval of determination
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Federal Home Loan Banks - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

“The FHLBanks continue to believe that the CFTC should determine which swaps must be executed on a SEF or DCM, with input from SEFs and DCMs and the general public. The Proposed Rules’ process for determining whether a swap has been made available to trade could encourage determinations that are motivated by the financial interests of SEFs and DCMs and that fail to consider available market data.”

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Chatham Financial - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

From the comment letter:

“If not implemented carefully, the process for making a swap ‘available to trade’ could negatively impact end users by increasing hedging costs and administrative burdens. Additionally, even end users that are exempt from the mandatory clearing and trading requirements still may be impacted indirectly by the requirement for swaps to be executed on a SEF/DCM.” Furthermore, the eight criteria proposed by the Commission to ensure swaps are sufficiently liquid to be traded on a SEF/DCM could allow for “less liquid products to be made ‘available to trade’” because no single factor would be dispositive.

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Swaps & Derivatives Market Association - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

From the comment letter:

“The SDMA fundamentally believes that liquidity tests, already performed as part of the DFA’s five factor “Made Available for Clearing” (MAC) test at the DCO are more than sufficient for the trade execution requirement. That when MAC liquidity tests are considered in conjunction with the flexible SEF execution methods of CLOB and RFQ — that accommodate both liquid and non‐liquid swaps trading—SEF trading of cleared swaps will have their intended effect of increasing liquidity and lowering transaction costs as transparency and fair dealing encourages the influx of new market makers and end users. The SDMA urges the CFTC to streamline the SEF MAT procedure whereby 1) the SEF be required to notify the CFTC under part 40 of the swap class it will trade, 2) that the CFTC MAT review process be 10 days, but be based solely on swap class clearability, 3) that public notice by the SEF and CFTC be made, and 4) that SEF MAT annual certifications with the CFTC be based on solely continued swap class clearability.”

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Morgan Stanley - February 7, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 7, 2012

From the comment letter:

“Morgan Stanley believes it is critical to preserve liquidity in the swap markets. Our primary concern is that the Proposed Rules will make swap markets less liquid and more risky for our customers and ourselves. The Proposed Rules do not stand alone. They will interact with other rules that have yet to be finalized. We would be less concerned about the MAT determination if the Commission’s rules on permissible trading protocols and block sizes were liberal. Unfortunately, we believe the opposite is likely to be true. Restrictive trading protocols and large block sizes, in combination with the Proposed Rules, will be even more harmful to liquidity, in our view.”

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MarketAxess - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

Among the key points in the letter:

  • Congress did not authorize the CFTC to create a process to determine which swaps are "Available to Trade."
  • More swaps wold be subject to the trade execution mandate, furthering a key goal of Dodd-Frank, if no formal determination process is imposed.
  • The commission's clearing mandate determination should provide notice that a swap is also subject to the trading mandate, and should take into consideration the liquidity of the swap..
  • A "recognition and notification" process would use CFTC and SEF resources more efficiently than the proposed rules.
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Alternative Investment Management Association - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

From the comment letter:

"AIMA supports the broad outline of the process for making a swap available to trade; however, we urge caution on ensuring that only suitable contracts are subject to the mandatory trading requirement. The determination process should also be undertaken separately and only after the clearing determination process, as there are separate considerations for each. AIMA has concerns about the suitability of the section 40.6 rulemaking process, given incentives for DCMs/SEFs to maximise the number of swaps that are "made available to trade." We believe the section 40.5 rulemaking process is more appropriate, although we would ask that the Commission consult publicly before making its determinations.

"To provide certainty, all swaps that are subject to the mandatory trading requirements should be listed on a central register (with the use of anti-evasion provision, if necessary, in lieu of a provision extending the requirement to economically equivalent swaps). It is also particularly important that market participants are given sufficient time to prepare for mandatory DCM or SEF swaps trading once a determination has been made by the Commission."

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CME Group - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

Key points from the comment letter:

  • "While it may ultimately be necessary for the Commission to adopt a rulemaking to address a MAT determination, we believe that the Commission’s release is premature."
  • We fundamentally disagree with the Commission on the issue of who should make that determination. Specifically, we believe that the Commission – not any SEF or DCM – should make the determination as to whether a particular swap is required to be traded on a DCM or SEF. Having this determination made by the Commission will eliminate the motivation that might exist for a SEF to determine that it has made a swap available to trade and force the market to trade such swap on a SEF before it is appropriate in order to attempt to gain a first mover advantage."
  • "The Commission proposes to define “economically equivalent swap” as a “swap that a SEF or DCM determines to be economically equivalent with another swap after consideration of each swap’s material pricing terms.” (Release at 77732.) We believe that the Commission’s Release is premature with respect to this issue..."
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CBOE - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012 From the comment letter:

"CFE agrees with the CFTC's proposal that a DCM or SEF should be the party that initially determines that a swap is available to trade rather than the CFTC. A DCM or SEF will have undergone all of the preparations necessary to offer a swap for trading and will have prepared a product submission to the CFTC regarding the listing of the swap on the DCM or SEF pursuant to CFTC Regulation 40.2 or 40.3. Accordingly, the DCM or SEF will be the party that is in the best position to make the initial determination that a swap is available to trade given its familiarity with the information that is relevant to the determination and with the trading of the swap."

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Tradeweb - February 13, 2012[edit]

Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade
February 13, 2012

Summary of key points from the comment letter:

"Tradeweb believes that appropriate implementation of the available to trade determination...is crucial to achieving the objectives of Title VII of the Dodd-Frank Act, in particular promoting the trading of swaps on SEFs in a manner that is not disruptive to the marketplace or to market participants during the transition to the new regulatory regime. Consistent with that view, Tradeweb believes that there should be a one-year transition period during which a defined group of swaps are deemed 'available to trade.' This one-year transition period should be followed by a review by the commission with respect to future available to trade determinations."

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References[edit]

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