More than two years ago, in November 2018, the Commission voted to propose a comprehensive overhaul of the existing framework for swap execution facilities (SEFs).[1]  Today, the Commission issues two rules finalizing aspects of the SEF Proposal and a withdrawal of the SEF Proposal’s unadopted provisions.  This is the final step in a long road.  Last month, the Commission finalized rules emanating from the SEF Proposal regarding codification of existing no-action letters regarding, among other things, package transactions.[2]  Today’s final rules and withdrawal complete the Commission’s consideration of the SEF Proposal.

Back in November 2018, I expressed concern that finalization of the SEF Proposal would reduce transparency, increase limitations on access to SEFs, and add significant costs for market participants.[3]  I also noted that, while the existing SEF framework could benefit from targeted changes, particularly the codification of existing no-action relief, the SEF framework has in many ways been a success.  I pointed out that the Commission’s work to promote swaps trading on SEFs has resulted in increased liquidity, while adding pre-trade price transparency and competition.  Nonetheless, I voted to put the SEF Proposal out for public comment, anticipating that the notice and comment process would guide the Commission in identifying a narrower set of changes that would improve the current SEF framework and better align it with the statutory mandate and the underling policy objectives shaped after the 2008 financial crisis.[4]  More than two years and many comment letters later, that is exactly what has happened.  The Commission has been precise and targeted in its finalization of specific provisions from the SEF Proposal that provide needed clarity to market participants and promote consistency, competitiveness, and appropriate operational flexibility consistent with the core principles. 

In addition to expressing substantive concerns about the overbreadth of the SEF Proposal, I also voiced concerns that we were rushing by having a comparatively short 75-day comment period.[5]  In the end, the comment period was rightly extended, and the Commission has taken the time necessary to carefully evaluate the appropriateness of the SEF Proposal in consideration of its regulatory and oversight responsibilities and the comments received.  I think that the consideration of the SEF Proposal is an example of how the process is supposed to work.  When we move too quickly toward the finish line and without due consideration of the surrounding environment, we risk making a mistake that will impact our markets and market participants. 

Finally, I would like to address the Commission’s separate vote to withdraw the unadopted provisions of the SEF Proposal.  In the past, I have expressed concern with such withdrawals by an agency that has historically prided itself on collegiality and working in a bipartisan fashion.[6]  In the case of today’s withdrawal, the Commission has voted on all appropriate aspects of the SEF Proposal through three rules finalized during the past month.  The Commission has voted unanimously on all of these rules, including today’s decision to withdraw the remainder from further consideration.  While normally a single proposal results in a single final rule, in this instance, multiple final rules have been finalized emanating from the SEF Proposal.  This could lead to confusion regarding the Commission’s intentions regarding the many unadopted provisions of the SEF Proposal.  Under such circumstances, I think it is appropriate to provide market participants with clarity regarding the SEF Proposal.  Accordingly, I will support today’s withdrawal of the SEF Proposal.  But rather than viewing it as a withdrawal of the SEF Proposal, I see it as an affirmation of the success of the existing SEF framework and the careful process to markedly improve the SEF framework in a measured and thoughtful way. 

[1] Swap Execution Facilities and Trade Execution Requirement, 83 FR 61946 (Nov. 30, 2018) (the SEF Proposal).

[2] Swap Execution Facility Requirements (Nov. 18, 2020),
 https://www.cftc.gov/PressRoom/PressReleases/8313-20.

[3] Statement of Concurrence of Commissioner Rostin Behnam Regarding Swap Execution Facilities and Trade Execution Requirement, 
https://www.cftc.gov/PressRoom/SpeechesTestimony/behnamstatement110518a.

[4] Id.

[5] Id.

[6] Rostin Behnam, Commissioner, CFTC, Dissenting Statement of Commissioner Rostin Behnam Regarding Electronic Trading Risk Principles (June 25, 2020), 
https://www.cftc.gov/PressRoom/SpeechesTestimony/behnamstatement062520b