SEF Order Book Requirement for Permitted Transactions NPR
Summary
SIFMA 1 and ISDA 2 provided comments to the U.S. Commodity Futures Trading Commission (CFTC) on its notice of proposed rulemaking on the Swap Execution Facility Order Book Requirement for Permitted Transactions. 3
Excerpt
The Proposal would amend Commission Regulation 37.3(a)(2) to eliminate the requirement that a swap execution facility (“SEF”) maintain an order book for Permitted Transactions 4 on the basis that the requirement is not mandated by statute and it imposes real costs without delivering meaningful pre-trade price transparency.
The Associations support the Proposal and urge the Commission to adopt the amendment as proposed. In addition, we ask the Commission to revisit the prescribed methods of execution under Commission Regulation 37.9(a)(2), 5 and, in particular, the requirement that a request for quote be transmitted to no fewer than three unaffiliated market participants (the “RFQ-to-3 requirement”). The RFQ-to-3 requirement should be revisited for the very same reasons the Proposal offers for eliminating the requirement that SEFs maintain an order book for Permitted Transactions: the RFQ-to-3 requirement is not mandated by statute and it imposes real costs on market participants without delivering meaningful price transparency benefits. Moreover, the requirement cuts against the very transparency it is meant to serve: requiring a market participant to show three dealers what it intends to trade, in which direction, and in what size invites the information leakage that moves the market against the participant before the trade is executed.
Importantly, our request is directed at a single element of Commission Regulation 37.9(a)(2). We do not ask the Commission to alter the requirement to execute made-available-to-trade (“MAT”) swaps on a SEF, to eliminate the request for quote system, or to change any reporting obligations under Part 43 or Part 45 of the Commission’s regulations. 6 We ask only that the Commission remove the prescribed minimum number of counterparties to which a request for quote must be transmitted, and leave that determination to the sophisticated market participants who bear the execution risk.
Separately, and for similar reasons, we ask the Commission to confirm that a SEF is not required to maintain an order book for transactions resulting from post-trade risk reduction services. Each of these requests is discussed, in turn, below.
- SIFMA is the leading trade association for broker-dealers, investment banks, and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly one million employees, we advocate for legislation, regulation, and business policy affecting retail and institutional investors, equity and fixed income markets, and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. With offices in New York and Washington, D.C., SIFMA is the U.S. regional member of the Global Financial Markets Association (GFMA).
- Since 1985, ISDA has worked to make the global derivatives markets safer and more efficient. Today, ISDA has over 1,000 member institutions from 79 countries. These members comprise a broad range of derivatives market participants, including corporations, investment managers, government and supranational entities, insurance companies, energy and commodities firms, and international and regional banks. In addition to market participants, members also include key components of the derivatives market infrastructure, such as exchanges, intermediaries, clearing houses and repositories, as well as law firms, accounting firms and other service providers. Information about ISDA and its activities is available on the Association’s website: www.isda.org.
- Swap Execution Facility Order Book Requirement for Permitted Transactions, 91 Fed. Reg. 55,030 (Aug. 26, 2026).
- Capitalized terms used but not defined in this letter have the meanings assigned to them in the Proposal.
- The Associations are accordingly encouraged by Request for Comment #3, which seeks feedback on whether corresponding adjustments should be made for Required Transactions.
- As part of the CFTC-SEC harmonization initiative, the Associations have submitted extensive comments on the reporting framework applicable to swaps and security-based swaps, which in our view would significantly improve that framework and enhance meaningful price transparency. Our point here is simply that the relief requested in this letter neither depends on nor seeks particular changes to Parts 43 or 45.