Market Participants Express Concerns with CFTC SEF Rule Proposals

Market participants and industry associations raised a number of concerns on the CFTC proposals to amend swaps trading rules.

Three aspects of the CFTC swap execution facility ("SEF") proposal came up repeatedly in comment letters:

• Ban on Pre-Trade Communications. Many commenters urged the CFTC not to adopt a proposed ban on pre-execution communications. Trade groups ISDA, SIFMA, the Managed Funds Association ("MFA") and SIFMA AMG, as well as SEF operators Bloomberg and Tradeweb, among others, urged the CFTC not to adopt this aspect of the proposal.

• Made-Available-to-Trade Process. Commenters generally raised concerns with the proposed approach to making swaps "available to trade," urging a process more controlled by the CFTC and responsive to market participants and market practice.

• Block Trades. Numerous commenters urged the CFTC to leave the current approach to block transactions in place, and not to require such transactions to be executed on SEF rather than to be "pre-arranged."

Other concerns raised by commenters included:

• Straight-through Processing. ISDA, the MFA and SIFMA AMG, among others, generally urged the CFTC to codify existing guidance on straight-through processing, rather than to make changes to the existing process that would, among other things, remove the timing requirement before trades must be submitted for clearing.

• IB-Related Issues. NFA's comment letter largely focused on the interplay between the definitions of "introducing broker" (or "IB") and "SEF" (as interpreted under the proposal). NFA noted, among other things, that IBs are currently registered with the NFA, and argued that it would be inappropriate to distinguish the swap-related activities of these entities from their futures-related activities. SIFMA also requested that the CFTC clarify IB registration matters in light of the SEF proposal.

• Cross-Border Matters. SIFMA and ISDA, among others, urged the CFTC to provide further detail on the approach to cross-border matters with respect to swaps trading.

Fewer comments were submitted as to the CFTC's request for comments on the practice of post-trade name give-up than compared to the SEF proposal. However, buy-side trade groups, including the Investment Company Institute, SIFMA AMG and the MFA, all strongly supported the CFTC taking action to ban the practice as to swaps executed anonymously and cleared.