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Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations
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exclusion; ii identify all of those expenses the SEF excluded or prorated in its projected operating cost calculations and explain the basis for excluding or prorating any expenses;
iii include documentation related to any committed line of credit or similar facility used to meet the liquidity requirement; 121 and iv identify estimates of all of the costs and the projected amount of time required for any wind down of operations, including the basis for those estimates.
The proposed requirement would create regulatory certainty by codifying the no-action relief, permitting SEFs to maintain their existing practices and avoid legal exposure arising out of a SEFs inability to comply with regulations.122 The proposed requirements would ensure that a SEF
can establish that it has sufficient financial resources, particularly in light of the discretion provided to SEFs to compute projected operating costs and wind-down costs. The Commission noted its belief that maintaining the general obligation for each SEF to identify all of its expenses in its financial report, including those corresponding to activities not needed for compliance or otherwise are excluded or prorated from projected operating costs, is appropriate on an ongoing basis.123
The Commission further stated proposed 37.1306c2i through iv would address the current lack of adequate documentation or insufficient identification of excluded or prorated expenses by some SEFs in submitting their projected operating costs based on Commission staff guidance.124 The Commission predicted that adding greater specificity to the existing requirement would mitigate the time and resources required to determine a SEFs compliance with the financial resources requirements.125
121 The Commission also proposed to eliminate the language in existing 37.1306c3 regarding copies of insurance coverage or other arrangements evidencing or otherwise supporting the SEFs conclusions. The Commission noted that proposed 37.1306c requires a SEF to provide sufficient documentation explaining the methodology used to compute its financial resource requirements.
Therefore, if insurance coverage or other arrangements are necessary to explain a SEFs methodology, then the SEF must submit such documentation. The Commission noted, however, that such documentation may not be required in all cases; proposed 37.1306c2 provides minimum requirements.
122 See CFTC Staff Letter No. 1725 at 4.
123 83 FR 62030.
124 Id.
125 Id.

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ii. Summary of Comments The Commission did not receive any comments on the proposed amendments to 37.1306c.
iii. Final Rules The Commission is adopting the amendments to 37.1306c as proposed. The enhanced specificity in documentation requirements will save time and effort for both Commission and SEF personnel by reducing the need for multiple iterations of communications and submissions in order to assess a SEFs compliance with the financial resources requirements. The requirement to provide documentation of projected wind-down costs corresponds to the incorporation under the revised rules of wind-down costs into a SEFs liquidity requirement and the requirement to compute such costs in addition to operating costs.
3. 37.1306d Existing 37.1306d requires a SEF to file its financial report no later than 40
calendar days after the end of each of the SEFs first three fiscal quarters, and no later than 60 calendar days after the end of the SEFs fourth fiscal quarter, or at such later time as the Commission may permit.126 Multiple SEFs noted difficulties in meeting the 60-day deadline for the fourth-quarter report, explaining: at year end, finance departments are required to prepare annual and quarterly reports for all entities within a particular group. This requires information gathering from numerous sources, preparation of a consolidated audit, complying with various statutory reporting requirements, as well as budgeting and forecasting for the pending year. 127
Noting the difficulties SEFs face in meeting their obligation to submit an annual compliance report concurrently with the fourth-quarter financial report, Commission staff provided no-action relief allowing 30 additional days for submission of a SEFs fourth-quarter financial report and its annual compliance report.128
i. Proposed Rules The Commission proposed to extend the due date for SEFs fourth-quarter report from 60 to 90 days following the end of the quarter. The revised due date would conform to the proposed
revisions to the due date for the SEF
annual compliance report under proposed 37.1501e2, discussed below. The Commission recognized that preparing multiple year-end reports for concurrent submission, including a fourth-quarter financial report and an annual compliance report, imposes resource constraints on SEFs.129 The Commission stated such potential constraints justify an additional 30 days to prepare and concurrently file the SEFs fourth-quarter financial report along with its annual compliance report.130
ii. Summary of Comments The Commission did not receive any comments on the proposed extension of the deadline for submission of the fourth-quarter financial report.
iii. Final Rules The extended deadline for fourthquarter financial reports is being adopted as proposed. The Commission continues to believe the resource constraints facing SEFs at year-end justify an additional 30 days to prepare the fourth-quarter financial report. The Commission has not experienced difficulties in monitoring SEFs financial condition as a result of the 30day extension currently available under Commission staff no-action relief.
4. 37.1306e i. Proposed Rules The Commission proposed to add a new 37.1306e requiring each SEF to provide notice to the Commission of its noncompliance with the financial resource requirements no later than 48
hours after the SEF knows or reasonably should know of its noncompliance.131
The Commission noted that in some instances, the Commission has not been informed of a SEFs noncompliance with the financial resource requirements until the filing of a quarterly financial report. Prompt notification of noncompliance is necessary for the Commission to conduct proper market oversight and ensure market stability on an ongoing basis.132 The proposed requirement would ensure the necessary prompt notification.
129 83

126 17

CFR 37.1306d.
127 CFTC Staff Letter No. 1761 Nov. 20, 2017
quoting no-action relief request letter from 360
Trading Networks, Inc.; Cboe SEF, LLC f/d/b/a Bats Hotspot SEF, LLC; Chicago Mercantile Exchange, Inc.; GTX SEF, LLC; LatAm SEF, LLC; LedgerX LLC;
Tradition SEF, Inc.; and trueEX LLC.
128 Id.

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FR 62030.

130 Id.
131 For example, if a SEF knows or reasonably should know that its assets will no longer cover its projected operating costs for the next twelve months, as calculated on a rolling basis, the SEF
would be required to notify the Commission within 48 hours.
132 83 FR 62030.

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