CFTC Issues Guidance for SEFs on Calculation of Projected Operating Costs (CFTC Letter 15-26)

The CFTC Division of Market Oversight issued guidance for swap execution facilities ("SEFs") on the calculation of projected operating costs. The purpose of the guidance is to help SEFs bring these calculations into compliance with the financial resource requirements under SEF Core Principle 13 and CFTC Rule 37.1303.

The guidance follows two recent no-action letters, 15-24 and 15-25, which provide relief involving erroneous swap trades and swap trade confirmations.

The guidance notes that one of the costs incurred by voice-based SEFs - the variable commissions that such SEFs might pay their employee-brokers, calculated as a percentage of transaction revenue generated by the voice-based SEF - is, unlike fixed salaries or compensation, an expense that remains payable unless and until revenue is collected by the SEF. The guidance provides that these variable commissions do not have to be included in an SEF's calculation of projected operating costs.

In contrast to variable commissions, any fixed salaries or compensation that are payable to employee-brokers of the SEF must be included in the calculation of projected operating expenses.

In response to the guidance, Commissioner Mark Wetjen issued a statement of support, explaining that he believes the CFTC "should take more steps to fulfill Congress' instruction to promote the trading of swaps on SEFs." Some of the changes he suggested in order to promote the trading of swaps on SEFs included (i) revising the conditions for the floor-trader exemption, (ii) providing relief from the "embargo rule for work-up sessions," and (iii) "ending the practice of name give-up for required transactions executed on an anonymous order book."

He also said that the CFTC should "provide clarity and reduce uncertainties" in some of its rules by considering whether (i) to formalize the no-action relief that staff has granted for error trades, confirmations, package transactions and block trades and (ii) to revise the "made-available-to-trade" process.

See: CFTC Letter 15-26; CFTC Press Release.See also: Commissioner Wetjen's Statement.Related news: CFTC Issues No-Action Relief Regarding Trade Confirmation Requirements, Reporting and Erroneous Swap Trades (CFTC Letters 15-24 and 15-25) (April 22, 2015).