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Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations
2h8 and certain rules in part 37 of the Commissions regulations. The Commission, however, notes that as a practical matter, SEFs have adopted some current practices included in the Final Rules based upon no-action relief and guidance provided by Commission staff that is time-limited in nature.229 As such, to the extent that SEFs and market participants have relied on relevant Commission staff no-action relief or Commission staff guidance, the actual costs and benefits of the Final Rules may not be as significant.
In some instances, it is not reasonably feasible to quantify the costs and benefits with respect to certain factors, for example, price discovery or market integrity. Notwithstanding these limitations, however, the Commission otherwise identifies and considers the costs and benefits of these rules in qualitative terms. The Commission did not receive any comments from commenters which quantified or attempted to quantify the costs and benefits of these rules.
The following consideration of costs and benefits is organized according to the rules and rule amendments finalized in this rulemaking. For each rule, the Commission summarizes the Final Rules, and identifies and discusses the costs and benefits attributable to each rule. The Commission, where applicable, then considers the costs and benefits of the Final Rules in light of the five public interest considerations set out in section 15a of the CEA.
The Commission notes that this consideration of costs and benefits is based on the understanding that the swaps market functions internationally, with many transactions involving U.S.
firms taking place across international boundaries, with some Commission registrants being organized outside of the U.S., with leading industry members typically conducting operations both within and outside the U.S., and with industry members commonly following substantially similar business practices wherever located. Where the Commission does not specifically refer to matters of location, the discussion of costs and benefits below refers to the effects of the Final Rules on all swaps activity subject to the final new and amended regulations, whether by virtue of the activitys physical location in the U.S. or by virtue of the activitys connection with activities in, or effect 229 CFTC Staff Letter No. 1754 post-execution allocation data; CFTC Staff Letter No. 1761
timing of the ACR submission.

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on, U.S. commerce under CEA section 2i.230
3. Audit Trail i. Overview Existing 37.205a requires a SEF to capture and retain all audit trail data necessary to detect, investigate and prevent customer and market abuses.231
This audit trail data must permit a SEF
to track a customer order from the time of receipt through fill, allocation, or other disposition.232 Existing 37.205b2iv requires a SEFs audit trail program to include an electronic transaction history database that identifies, among other things, each account to which order fills are allocated.233
Recognizing the practical difficulties that SEFs face in obtaining information regarding allocations that occur away from the SEF after a trade has been executed, the Commission is eliminating the requirements in 37.205a and b2iv that a SEF
capture post-execution allocation information in its audit trail.234 Instead, the Final Rules require a SEF to capture in its audit trail information only through execution on the SEF.235 The Commission has noted that this change would be consistent with current swap market practice.236
ii. Benefits Post-execution allocations are made away from SEFs and typically occur between the clearing firm or the customer and the DCO, or at the middleware provider.237 In general, SEFs do not have access to postexecution allocation information and are unable to obtain such data from third parties, such as DCOs and swap 230 Section 2i1 applies the swaps provisions of both the Dodd-Frank Act and Commission regulations promulgated under those provisions to activities outside the United States that have a direct and significant connection with activities in, or effect on, commerce of the United States. 7
U.S.C. 2i. Section 2i2 makes them applicable to activities outside the United States that contravene Commission rules promulgated to prevent evasion of the Dodd-Frank Act.
231 17 CFR 37.205a. Such audit trail data must be sufficient to reconstruct all indications of interest, RFQs, orders, and trades.
232 Id.
233 17 CFR 37.205b2iv.
234 83 FR at 62005.
235 Id.
236 Id.
237 CFTC Staff Letter No. 1754. SEFs have noted that even if they could obtain the information from DCOs, swap data repositories, or middleware providers, or alternatively, from the counterparties to the swap, the infrastructure necessary to securely transmit the post-execution allocation information, such as an application-programming interface or secure file transfer protocol site, is currently not in place.

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data repositories, due to confidentiality concerns. Commission staff has issued no-action relief from this requirement.238 This rulemaking creates regulatory certainty by codifying the noaction relief, which will permit SEFs to maintain their existing practice and avoid any legal exposure due to a SEFs inability to comply with regulations.
iii. Costs The changes to the existing audit trail requirements may reduce the scope of information captured in a SEFs audit trail, but the Commission believes that these changes are not likely to affect materially the protection of market participants and the public. The Commission notes that post-execution allocation information has generally not been captured because SEFs have operated under no-action relief, which was provided by Commission staff due to the general inability of SEFs to access this information. Thus, although the elimination of the requirement to capture and retain post-execution allocation information is a regulatory change, it should not have a material effect on the status quo.
iv. Section 15a Factors 1 Protection of Market Participants and the Public The Commission believes the revised audit trail requirements provide a nearly identical level of protection to market participants and the public as provided under the existing rules. As noted above, SEFs generally do not capture post-execution allocation information in their audit trail because SEFs have operated under no-action relief, which was provided by Commission staff due to the general inability of SEFs to access this information. Moreover, the Commission is able to obtain postexecution allocation information from other registered entities and is not aware that SEFs reliance on the relief from collecting post-execution allocation information has raised any regulatory concerns. Thus, elimination of the requirement that SEFs capture and retain post-execution allocation information should not have a material effect on the level of protection for market participants and the public relative to the status quo, although it is a regulatory change.
2 Efficiency, Competitiveness, and Financial Integrity of the Markets The Commission believes that there will be no substantive change to the efficiency, competitiveness, and financial integrity of markets because 238 Id.

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