Swap Execution Facility Order Book Requirement for Permitted Transactions (SIFMA AMG)
Summary
SIFMA AMG 1 provided comments to the Commodity Futures Trading Commission (CFTC) on the notice of proposed rulemaking on the Swap Execution Facility Order Book Requirement for Permitted Transactions (the “Proposal”). 2
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, on the basis that a prescribed execution method that is not mandated by statute and that it imposes real costs without delivering meaningful pre-trade price transparency’).
Executive Summary:
- SIFMA AMG Supports Removing the Order Book Requirement for Permitted Transactions.
- SIFMA AMG Supports Retaining the RFQ-3 Requirement.
Discussion:
I. SIFMA AMG Supports Removing the Order Book Requirement for Permitted Transactions.
SIFMA AMG agrees with the Commission’s proposal to eliminate the order book requirement for Permitted Transactions. Our members recognize that the requirement actually provides little to no pre-trade transparency as many products have little or no order book liquidity. Instead of requiring specific tools for products lacking sufficient liquidity, the SEFs should be able to allocate resources toward execution functionality for which there is market demand.
While the order book may have appeared to be the ideal approach when the SEF rules were written, by eliminating this requirement, SEFs will have more flexibility to assess the right approach for the relevant product (which may include an order book). Such flexibility will encourage SEF innovation to craft frameworks best attuned to the product and most attractive to market participants.
II. SIFMA AMG Supports Retaining the RFQ-3 Requirement.
SIFMA AMG recognizes that the RFQ-3 requirement for non-block trades presents both benefits and complications. For smaller, highly liquid trades, the RFQ-3 mandate communicates to the market that every quote is in competition and thereby encourages dealers to provide the tightest pricing.
For large, less liquid trades, RFQ-3 presents each quoting dealer with the potential for the “winner’s curse” where the dealers with the losing quotes can trade in anticipation of the winning dealer’s need to hedge the trade – thereby making the hedges more expensive. In light of this risk, dealers are less incentivized to provide tight quotes as they can expect increased hedging costs. Information leakage is also a risk when information about less liquid trades is shared with multiple dealers raising the possibility of reverse-engineering a market participant’s overall book of business or investment aims.
- SIFMA AMG brings the asset management community together to provide views on U.S. and global policy and to create industry best practices. SIFMA AMG’s members represent U.S. and global asset management firms whose combined assets under management exceed $45 trillion. The clients of SIFMA AMG member firms include, among others, tens of millions of individual investors, registered investment companies, endowments, public and private pension funds, UCITS and private funds such as hedge funds and private equity funds.
- CFTC Request for Comment on Swap Execution Facility Order Book Requirement for Permitted Transactions (RIN 3038-AF79), 91 Fed. Reg. 55030 (Augst 26, 2026).