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Proposed Rules
Federal Register Vol. 86, No. 28
Friday, February 12, 2021

This section of the FEDERAL REGISTER
contains notices to the public of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule making prior to the adoption of the final rules.

COMMODITY FUTURES TRADING
COMMISSION
17 CFR Parts 9, 36, 37, 38, 39, and 43
RIN 3038AE25

Swap Execution Facilities and Trade Execution Requirement Commodity Futures Trading Commission.
ACTION: Proposed rule; partial withdrawal.
AGENCY:

On November 30, 2018, the Commodity Futures Trading Commission CFTC or the Commission published a Swap Execution Facilities and Trade Execution Requirement notice of proposed rulemaking NPRM in the Federal Register. While the Commission has adopted certain proposals from the NPRM, in light of feedback the Commission received in response to the remaining proposals in the NPRM, the Commission has determined to not proceed with those unadopted proposals relating to the regulation of swap execution facilities SEFs and the trade execution requirement Determination. In separate final rules, the Commission adopted the following portions of the NPRM: Two exemptions, pursuant to Commodity Exchange Act CEA section 4c, from the trade execution requirement in CEA
section 2h8; and final rules related to audit trail requirements for post-trade allocations, SEF financial resource requirements, and SEF chief compliance officer requirements collectively, the Final Rules. As such, this withdrawal does not impact or alter any of those sections of the NPRM that are being adopted in the Final Rules. In light of the Determination, the Commission has decided to withdraw the unadopted portions of the NPRM.
DATES: The Commission is withdrawing unadopted portions of the proposed rule published in the Federal Register on November 30, 2018 at 83 FR 61946 as of February 12, 2021. The affected SUMMARY:

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portions of the proposed rule are described in SUPPLEMENTARY
INFORMATION.
ADDRESSES: Comments previously submitted in response to the NPRM
remain on file at the Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581 and may also be accessed via the CFTC Comments Portal: https comments.cftc.gov.
FOR FURTHER INFORMATION CONTACT:
Roger Smith, Associate Chief Counsel, Division of Market Oversight, 202 418
5344, rsmith@cftc.gov, Commodity Futures Trading Commission, 525 West Monroe Street, Suite 1100, Chicago, IL
60661; or David E. Aron, Acting Associate Director, Division of Data, 202 4186621, daron@cftc.gov, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC
20581.
SUPPLEMENTARY INFORMATION: On November 30, 2018, the Commission published the NPRM, which proposed a comprehensive foundational shift in the regulatory framework for SEFs.1 In particular, if adopted, the NPRM would have, among other things, i required that certain swaps broking entities, including interdealer brokers, and aggregators of single-dealer platforms register as SEFs pursuant to the registration requirement under CEA
section 5ha1; 2 ii broadened the scope of the trade execution requirement, but provided certain exemptions; iii allowed a SEF to offer flexible execution methods for swaps subject to the trade execution requirement; and iv established disclosure-based trading and execution rules applicable to any SEF execution method. In conjunction with flexible execution methods, the Commission also proposed limits on the scope of trading-related communications preexecution communications that SEF
participants may conduct away from a SEFs trading system or platform, as well as proficiency requirements for certain SEF employees who facilitate trading. Additionally, the Commission proposed amendments to impartial access rules that would provide a SEF
1 See the NPRM, 83 FR 61946 Nov. 30, 2018, available at: https www.cftc.gov/sites/default/
files/2018-11/2018-24642a.pdf.
2 7 U.S.C. 7b3a1.

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with greater flexibility to structure its access requirements, and to tailor its rule enforcement program and disciplinary procedures and sanctions, to its trading operations and market.
The proposed rules also would have made non-substantive amendments and various conforming changes to other Commission regulations.
In response to the NPRM, the Commission received fifty-six comment letters from SEFs, market participants, industry trade associations, public interest organizations, and other interested parties. The NPRM
comprehensively sought to amend the SEF regulatory framework. For example, one commenter characterized the NPRM
as a fundamental reconstruction of the SEF ecosystem, and the NPRM
would change many of the ways in which market participants interact with, and trade on, SEFs. This reconstruction of the existing ecosystem would present tall operational challenges and impose substantial costs on all market participants. . . . 3 Several commenters expressed concern over the magnitude of changes behind the NPRM. Therefore, to avoid potential and unintended adverse market impacts caused by comprehensive and farreaching changes, several commenters preferred that the Commission adopt a more targeted approach.
The Commission, at the time, proposed the NPRM based on particular views regarding the need for a comprehensive revamping of the regulatory framework for SEFs. In light of feedback the Commission received in response to the NPRM, and upon further consideration, the Commission believes that rather than comprehensively amending the fundamentals underpinning the SEF regime, the Commission should instead work to improve the SEF framework through targeted rulemakings that address distinct issues. The Commission agrees with commenters that this approach will help the Commission avoid unintended adverse market impacts caused by the comprehensive and farreaching changes of the NPRM.
Therefore, the Commission has determined to withdraw the unadopted portions of the pending NPRM in order to allow the Commission to propose and 3 Futures
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Industry Association FIA Letter at 7.

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