Swap Execution Facilities Regulation - Registration and Regulation of Security-based SEFs - Comment Letters

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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 consists of letters submitted by the public to the SEC on a proposed rule on the registration and regulation of security-based swap execution facilities.

For letters concerning the proposed rule on the core principles and other requirements for swap execution facilities, click HERE.

For letters concerning a rule proposal on the process for a designated contract market or swap execution facility to make a swap available to trade, click HERE.

MarketAxess - April 4, 2011

Registration and Regulation of Security-Based Swap Execution Facilities
April 4, 2011

From the comment letter:

  • "Our primary concern is that some aspects of the SEC's proposals may inadvertently undercut the viability of the SB SEF business model."
  • "The SEC's proposals place SB SEFs near the exchange markets on the spectrum of regulated trading platforms. By imposing on SB SEFs rigid, exchange-like self regulatory obligations for infrastructure and discipline, among other requirements, the SEC would erect unwarranted and formidable barriers to entry for SB SEFs."
  • "Our customers believe there is real value in the flexible "one to one" RFQ format, and their needs should be paramount. Each customer should be allowed to choose, through the RFQ selection of one or more potential counterparties, how much "pre-trade price transparency" the customer wants."
  • "...we believe very strongly that the SEC, not individual SB SEFs, should set the minimum size for SB swap blocks for both interim and final rules (with that latter based on actual trading experience on SB SEFs). Allowing SB SEFs to set block sizes in the interim could encourage SB SEFs to set the mininlum block size at a lower threshold than their competitors to attract more business by permitting participants to avoid Dodd-Frank's real-time reporting requirements."
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Chicago Board Options Exchange (CBOE) - April 4, 2011

Registration and Regulation of Security-Based Swap Execution Facilities
April 4, 2011 Recommendations from the comment letter:

  • The same or equivalent requirements should apply to SB SEFs and exchanges.
  • Exchanges should be permitted to offer trading in SB swaps in the same manner that SB SEFs may do so.
  • The SEC should have the same or equivalent requirements for SB SEFs as the CFTC will have under its jurisdiction for SEFs.
  • SB SEFs and exchanges should be subject to the same rule filing process for SB swaps and SB swap rules.
  • The standard for when an SB swap is considered "made available for trading" should not be based on the amount of trading in that SB swap on exchanges and SB SEFs.
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Barclays Capital - February 11, 2011

Registration and Regulation of Security-Based Swap Execution Facilities
February 11, 2011

From the comment letter:

"Barclays agrees that a flexible approach will help preserve liquidity, and also promote the natural transition of less liquid markets to more competitive trading protocols, such as a central order book. We likewise believe that overly prescriptive protocols could adversely impact less liquid markets and stifle their progression."

"With respect to Regulation SB SEF, Barclays seeks clarification on two points regarding the composite indicative quote:

  1. Barclays wishes to understand the process by which the responses to an RFQ would be incorporated into a composite indicative quote.
  2. Barclays wishes to understand whether all security-based swap instruments will be subject to the composite indicative quote requirement. In the case of highly standardized products, a composite indicative quote will provide the market useful information. However, in the case of customized or dynamic products that may be traded via an RFQ, the dissemination of a composite indicative quote may be irrelevant or misleading."
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Markit - April 4, 2011

Registration and Regulation of Security-Based Swap Execution Facilities
April 4, 2011

Executive Summary of the comment letter:

"Markit believes that:

  1. the determination that a SB swap is made 'available to trade' should be based on various price and nonprice factors, should be made individually not only for each product but also with respect to its different maturities, should be made frequently, and should be performed on an aggregate basis;
  2. the Commission should determine whether SB swaps are 'available to trade' by following a process similar to that established under the DFA for Commission determination of what SB swaps should be required to be cleared;
  3. swap review committees should be required to determine which SB swaps should be traded on the security-based swap execution facility (SB SEF) at least quarterly and should revisit those determinations ad hoc during periods of market volatility;
  4. SB SEFs should not be permitted to disseminate any data element of SB swap transactions before it is disseminated by a security-based swap data repository (SB SDR); and
  5. when SB SEFs make SB swap transaction data available to parties other than the original counterparties of the transaction, they should be required to make such data available to all market participants on fair and reasonable terms."
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CalPERS - April 4, 2011

Registration and Regulation of Security-Based Swap Execution Facilities
April 4, 2011

From the comment letter:

"Fair and impartial access to SB SEFs for qualified market participants will be essential if the Dodd-Frank Act's goals are to be met. Unwarranted denial of access to membership in SB SEFs to otherwise qualified SB swap market participants would be detrimental not only to their ability to transact in SB swaps but also to market liquidity and price competition."

"As the Commission's SB SEF Proposing Release notes, trading of S8 swaps in many over-the-counter markets today can be dominated by a small number of large S8 swap dealers, which raises legitimate concerns over whether there is fair access to and competition in SB swaps markets. CalPERS endorses the Commission's proposed rules to the extent they are designed to eliminate the potential for SB SEFs to be dominated by a small group of dealers."

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Managed Funds Association - March 24, 2011

Registration and Regulation of Security-Based Swap Execution Facilities
March 24, 2011

The comment letter suggests that the reform process "runs the risk of stalling because many of the proposed regulations are too focused on achieving 100% reform, and because there is no clear blueprint of interim milestones for industry participants to meet the key reform objectives." The MFa believes that the first two priorities should be:

  • expanding the use of central clearing for liquid (“clearable”) contracts; and
  • having trade repositories receive data on both cleared and bilateral swaps.

The letter included two additional documents:

  • the “Framework for the Open Items List from Buy-Side Participants of Actions Required for Buy-Side Access to Clearing;” and
  • a summary of MFA’s recommended timeline for adoption and implementation of all rules related to OTC derivatives reform.
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ISDA/SIFMA - April 4, 2011

Registration and Regulation of Security-Based Swap Execution Facilities
April 4, 2011 From the comment letter:

  • "We are concerned about the proposal to require that SB SEFs disseminate composite indicative quotes and, if composite indicative quotes are required, they should not include responses to RFQs."
  • "The Commission should provide that RFQ requesters may choose freely among existing firm interest and RFQ responses."
  • "SB SEFs should not be required to provide a mechanism to disseminate firm quotes from participants."
  • "The Commission should exempt block trades from SB SEF requirements."
  • "We strongly agree with the Commission's view that "available to trade" requires more than mere listing or trading on a SB SEF and we ask that "available to trade" be defined to reflect minimum liquidity levels."
  • "Combination/package trades and inter-affiliate SB swaps should be excluded from mandatory execution on a SB SEF."
  • "The Commission should indicate what treatment will be given to foreign SB SEFs."
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Securities Industry and Financial Markets Association (SIFMA) - April 4, 2011

Registration and Regulation of Security-Based Swap Execution Facilities
April 4, 2011

The comment letter highlights eight aspects of the SEC proposal that should be modified:

  1. Responses to a request for quote (“RFQ”) should not be included in an SB SEF’s composite indicative quote stream.
  2. Block trades should be given a broad exemption from minimum pre-trade price transparency and interaction requirements, and should be flexible and vary by asset class.
  3. Specific objective criteria should be used by swap review committees to determine which and when SB swaps have been made available to trade.
  4. An SB SEF’s authority to collect information regarding participants should be limited.
  5. SB SEFs should not be permitted to exclude non-registered eligible contract participants from becoming participants in a discriminatory manner or impose heightened capital requirements for participants in excess of those imposed on such participants by the SEC.
  6. SB SEF rules should not be self-certified, but instead should be subject to public comment.
  7. The SEC should exempt certain packaged SB swap transactions from mandatory execution.
  8. The Commissions should harmonize their final rulemakings with respect to SEFs and SB SEFs."
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Wholesale Markets Brokers' Association (WMBAA) - April 4

Registration and Regulation of Security-Based Swap Execution Facilities
April 4, 2011 Summary of the WMBAA’s comments:

  • Support for the Commission’s flexible approach to evaluating applicant SB SEFs;
  • Support for the Commission’s interpretation of the SB SEF definition as it applies to trade execution through any means of interstate commerce, including request for quote (“RFQ”) systems, order books, auction platforms, or voice brokerage trading;
  • Explanation of the unique characteristics of OTC markets, particularly wholesale markets, and the unique regulatory framework that permits the many modes of swaps trade execution currently deployed by wholesale brokers;
  • Request that final rules allow ample time to allow platforms to transition to the new regime, in order to avoid market disruptions;
  • Support for a common regulatory organization (CRO) for SB SEFs to implement and facilitate compliance with the Commission’s rules; and
  • A reminder that the rules governing the core principles and other requirements for SEFs, in conjunction with the real-time public reporting of swap transaction data, must work collectively to ensure these markets retain their vibrancy in the future.
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