I will vote in favor of withdrawing the unadopted provisions from the Commission’s 2018 proposal comprehensively to amend the regulations applicable to swap execution facilities (SEFs)[1], but only because the Commission has already adopted many of these proposals, including in the areas of SEF financial resources, audit trail data, and exceptions to the trade execution requirement, so that the SEF ruleset becomes more practical for market participants.  I note that many of the finalized provisions are based on longstanding no-action relief that has taken over eight years and a Republican administration to rationalize the inadequate ruleset left by the Commission’s prior leadership. 

I regret significantly, however, that certain aspects of the 2018 proposal have not been acted upon or debated as a Commission since.  In particular, the CEA as amended by Dodd Frank, legally allows SEFs greater flexibility –specifically through “any means of interstate commerce”[2] — in which methods of execution they may offer for swaps subject to the trade execution requirement, than the overly prescriptive and government-knows-best requirement that a SEF may only provide either a RFQ-to-3 or a Central Limit Order Book (CLOB) trading mechanism, as dictated by an existing CFTC rule.[3]  Indeed, such flexibility was recently requested by a wide range of market participants during the period of COVID-inspired market volatility and thin liquidity.[4]  If such trade execution flexibility is necessary to support liquidity in a stressed environment, why would it not benefit the markets more generally in normal environments? Additionally, such flexibility is absolutely consistent with the definition of a SEF set forth in the CEA, that establishes a SEF as a multiple-to-multiple trading system.”[5]
 

[1] SEFs and Trade Execution Requirement, 83 Fed. Reg. 61,946 (Nov. 30, 2018).

[2] Definition of SEF, sec. 1a(50) of the CEA.

[3] CFTC reg. 37.9(a).

[4] Comment letter from ISDA, dated May 22, 2020, in response to the Commission’s February 2020 proposal on SEF and Real-Time Reporting requirements (85 Fed. Reg. 9,407 (Feb. 19, 2020)).

[5] Definition of SEF, sec. 1a(50) of the CEA.