[Federal Register Volume 89, Number 85 (Wednesday, May 1, 2024)]
[Rules and Regulations]
[Pages 34991-35004]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-09368]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 23 and 37

RIN 3038-AF34


Swap Confirmation Requirements for Swap Execution Facilities

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) 
is amending its swap execution facility (SEF) regulations related to 
uncleared swap confirmations, and making associated technical and 
conforming changes.

DATES: This rule is effective May 31, 2024.

FOR FURTHER INFORMATION CONTACT: Roger Smith, Associate Chief Counsel, 
(202) 418-5344, [email protected], Division of Market Oversight, 
Commodity Futures Trading Commission, 77 West Jackson Blvd., Suite 800, 
Chicago, Illinois 60604.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
    A. Regulatory History: The Part 37 Rules
    B. Summary of Amendments to Sec.  37.6
    C. Consultation With Other U.S. Financial Regulators
II. Final Regulations
    A. Sec.  37.6--Enforceability
    1. Regulation Sec.  37.6(b)(1)--Uncleared Swap Confirmations: 
Incorporation by Reference of Underlying Previously Negotiated 
Agreements
    2. Amendment to Sec.  37.6(b)--Timing of Swap Transaction 
Confirmation
    3. Amendment to Sec.  37.6(b)--Conflicting Terms
    4. Clarification of Sec.  37.6(b)
    5. Clarification of Sec.  37.6(a)
    B. Amendments to Sec.  23.501(a)(4)(i)
III. Effective Date
IV. Related Matters
    A. Regulatory Flexibility Act
    B. Paperwork Reduction Act
    C. Cost-Benefit Considerations
    D. Antitrust Considerations

[[Page 34992]]

I. Background

A. Regulatory History: The Part 37 Rules

    The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act) amended the Commodity Exchange Act (CEA or Act) by 
adding section 5h, which establishes registration requirements and core 
principles for SEFs.\1\ The Commission implemented CEA section 5h by 
adopting part 37 of its regulations, which, among other things, sets 
forth operational requirements for SEFs and establishes various 
requirements for the trading of swaps on SEFs.\2\ As part of the 
implementing SEF regulations, the Commission adopted Sec.  37.6(b), 
which requires a SEF to provide each counterparty to a swap transaction 
that is entered into on or pursuant to the rules of the SEF--whether 
cleared or uncleared--with a written record of all of the terms of the 
transaction, ``which shall legally supersede any previous agreement and 
serve as a confirmation of the transaction.'' \3\ Pursuant to Sec.  
37.6(b), the confirmation of all terms of the transaction must take 
place at the same time as execution, subject to a limited exception for 
certain information related to accounts included in bunched orders.\4\
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    \1\ 7 U.S.C. 7b-3.
    \2\ Core Principles and Other Requirements for Swap Execution 
Facilities, 78 FR 33476 (June 4, 2013) (SEF Core Principles Final 
Rule). The SEF Core Principles Final Rule also articulates, where 
appropriate, guidance and acceptable practices for complying with 
the SEF core principles set forth in CEA section 5h.
    \3\ 17 CFR 37.6(b).
    \4\ 17 CFR 37.6(b). Specific customer identifiers for accounts 
included in bunched orders involving swaps need not be included in 
confirmations provided by a SEF if the applicable requirements of 17 
CFR 1.35(b)(5) are met.
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    In November 2018, the Commission issued a comprehensive proposal to 
amend the SEF regulatory framework.\5\ In the 2018 SEF Proposal, the 
Commission proposed to amend Sec.  37.6(b) to establish separate swap 
transaction documentation requirements for cleared and uncleared 
swaps.\6\ For uncleared swap transactions, the Commission proposed to 
amend Sec.  37.6(b) to require a SEF to provide the counterparties to 
the transaction with a ``trade evidence record'' that would memorialize 
the terms of the transaction agreed upon between the counterparties on 
the SEF.\7\ Under the 2018 SEF Proposal, a ``trade evidence record'' 
was defined as a legally binding written documentation (electronic or 
otherwise) that memorializes the terms of a swap transaction agreed 
upon by the counterparties and legally supersedes any conflicting term 
in any previous agreement (electronic or otherwise) that relates to the 
swap transaction between the counterparties.\8\ In 2021, the Commission 
withdrew the unadopted portions of the 2018 SEF Proposal,\9\ including 
the proposed amendments to Sec.  37.6, from further consideration.\10\
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    \5\ Swap Execution Facilities and Trade Execution Requirement, 
83 FR 61946 (Nov. 30, 2018) (2018 SEF Proposal).
    \6\ Id.
    \7\ Id. at 62096.
    \8\ Id. at 61973; 62067.
    \9\ The following final rulemakings of the Commission adopted 
certain portions of the 2018 SEF Proposal: (i) Exemptions From Swap 
Trade Execution Requirement, 86 FR 8993 (Feb. 11, 2021); and (ii) 
Swap Execution Facilities, 86 FR 9224 (Feb. 11, 2021).
    \10\ See Swap Execution Facilities and Trade Execution 
Requirement, 86 FR 9304 (Feb. 12, 2021).
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    Pursuant to section 731 of the Dodd-Frank Act, which added section 
4s(i) to the CEA,\11\ the Commission has adopted regulations to 
prescribe documentation standards for swap dealers (SDs) and major swap 
participants (MSPs) related to the timely and accurate confirmation, 
processing, netting, documentation, and valuation of swaps. The 
Commission adopted Sec.  23.501 to specifically address swap 
confirmation requirements for SDs and MSPs, including for those swaps 
executed on a SEF or designated contract market (DCM).\12\ Among other 
things, Sec.  23.501 provides that any swap transaction executed on a 
SEF or DCM shall be deemed to satisfy the swap confirmation 
requirements set forth in Sec.  23.501, provided that the rules of the 
SEF or DCM establish that confirmation of all terms of the transaction 
shall take place at the same time as execution.\13\
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    \11\ 7 U.S.C. 6s(i).
    \12\ 17 CFR 23.501(a)(4)(i).
    \13\ Id.
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B. Summary of Amendments to Sec.  37.6

    During the implementation of part 37, SEFs informed the Commission 
that the confirmation requirement for uncleared swaps under Sec.  
37.6(b) was operationally and technologically difficult and impractical 
to implement. As discussed more fully below, Commission staff from the 
Division of Market Oversight (DMO) acknowledged these technological and 
operational challenges and provided no-action positions for SEFs with 
respect to certain provisions of the Commission's regulations related 
to uncleared swap confirmations.\14\ In particular, DMO most recently 
issued CFTC No-Action Letter No. 17-17 (NAL No. 17-17), which provides 
a no-action position with respect to the obligation to obtain copies of 
underlying, previously negotiated agreements between the 
counterparties, as discussed in greater detail below, for a SEF that 
seeks for uncleared swaps to satisfy the confirmation requirement in 
Sec.  37.6(b) by incorporating by reference terms of such underlying 
agreements.\15\
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    \14\ NAL No. 17-17, Re: Extension of No-Action Relief for Swap 
Execution Facility Confirmation and Recordkeeping Requirements under 
Commodity Futures Trading Commission Regulations 37.6(b), 37.1000, 
37.1001, 45.2, and 45.3(a) (Mar. 24, 2017). NAL No. 17-17 extended 
the no-action position previously provided by Commission staff. See 
CFTC Letter No. 16-25, Re: Extension of No-Action Relief for Swap 
Execution Facility Confirmation and Recordkeeping Requirements under 
Commodity Futures Trading Commission Regulations 37.6(b), 37.1000, 
37.1001, 45.2, and 45.3(a) (Mar. 14, 2016) (NAL No. 16-25); CFTC 
Letter 15-25, Re: Extension of No-Action Relief for SEF Confirmation 
and Recordkeeping Requirements under Commission Regulations 37.6(b), 
37.1000, 37.1001, and 45.2, and Additional Relief for Confirmation 
Data Reporting Requirements under Commission Regulation 45.3(a) 
(Apr. 22, 2015) (NAL No. 15-25); and CFTC Letter No. 14-108, Staff 
No-Action Position Regarding SEF Confirmations and Recordkeeping 
Requirements under Certain Provisions Included in Regulations 
37.6(b) and 45.2 (Aug. 18, 2014) (NAL No. 14-108). See also CFTC 
Letter No. 13-58, Time-Limited No-Action Relief to Temporarily 
Registered Swap Execution Facilities from Commission Regulation 
37.6(b) for Non-Cleared Swaps in All Asset Classes (Sept. 30, 2013) 
(NAL No. 13-58).
    \15\ See NAL No. 17-17. Upon the effective date of the 
amendments set forth herein, NAL No. 17-17 will expire pursuant its 
terms. In particular, NAL No. 17-17 states that the no-action 
position ``shall expire on the effective date of any changes [to 
Sec.  37.6(b)].'' See Id. at 5.
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    On August 25, 2023, the Commission released a proposal \16\ to 
amend its SEF regulations related to uncleared swap confirmations to 
address issues which have been addressed in staff no-action letters, 
including most recently NAL No. 17-17. In particular, the Commission 
proposed to amend Sec.  37.6(b) to enable SEFs to incorporate terms of 
underlying, previously negotiated agreements between the counterparties 
by reference in an uncleared swap confirmation without being required 
to obtain such underlying, previously negotiated agreements. Further, 
the Commission proposed to amend Sec.  37.6(b), which currently 
requires confirmation of all terms of a swap transaction to ``take 
place at the same time as execution,'' to require such confirmation to 
take place ``as soon as technologically practicable'' after the 
execution of the swap transaction on the SEF for both cleared and 
uncleared swap transactions. The Commission also proposed to amend 
Sec.  37.6(b) to make clear that the SEF-provided confirmation under 
Sec.  37.6(b) shall legally supersede any conflicting terms in a 
previous agreement, rather than the entire agreement. In addition, the 
Commission proposed to make conforming amendments to

[[Page 34993]]

Sec.  23.501(a)(4)(i) to correspond with the proposed amendments to 
Sec.  37.6(b). Finally, the Commission proposed to make certain non-
substantive amendments to Sec.  37.6(a) and (b) to enhance clarity.
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    \16\ Swap Confirmation Requirements for Swap Execution 
Facilities, 88 FR 58145 (Aug. 25, 2023) (the Proposal).
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    The Commission received four relevant comment letters regarding the 
Proposal.\17\ After considering the comments, the Commission is 
adopting the rule amendments described herein as proposed. The 
Commission believes the amendments will reduce administrative burdens 
for SEFs and market participants, address technological and operational 
challenges, reduce the cost of SEFs' compliance with the confirmation 
requirement in Sec.  37.6(b), and lead to a more effective regulatory 
framework for SEF swap confirmations.
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    \17\ The following entities submitted relevant comment letters: 
Bloomberg SEF LLC (BSEF); Cboe SEF, LLC (Cboe SEF); the 
International Swaps and Derivatives Association (ISDA); and the 
Wholesale Markets Brokers' Association, America (WMBAA).
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C. Consultation With Other U.S. Financial Regulators

    In developing these rule amendments, the Commission has consulted 
with the Securities and Exchange Commission (SEC), pursuant to section 
712(a)(1) of the Dodd-Frank Act.\18\
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    \18\ Dodd-Frank Act, Public Law 111-203, tit. VII, section 
712(a)(1), 124 Stat. 1376 (2010). On November 2, 2023, the SEC 
adopted final rules for security-based swap execution facilities (SB 
SEFs). See Security-Based Swap Execution and Registration and 
Regulation of Security-Based Swap Execution Facilities, 88 FR 87156 
(December 15, 2023) (SEC SB SEF Final Rules). As part of the SEC SB 
SEF Final Rules, the SEC adopted SEC rule 242.812 (SB SEF Rule 812), 
which was modelled after existing Sec.  37.6 with some 
modifications. In particular, SB SEF Rule 812 will require an SB SEF 
to as soon as technologically practicable after the time of 
execution of a transaction entered into on or pursuant to the rules 
of the facility, provide a written record to each counterparty of 
all of the terms of the transaction that were agreed to on the 
facility, which shall legally supersede any previous agreement 
regarding such terms. Id. at 87294. WMBAA in its comment letter on 
the Proposal encouraged the SEC to adopt the changes the Commission 
had proposed in the Proposal. WMBAA at 3. The Commission notes that 
the SEC SB SEF rules are outside of the scope of this rulemaking. As 
such, WMBAA's comment is not addressed further in this rulemaking.
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II. Amended Regulations

A. Sec.  37.6--Enforceability

1. Sec.  37.6(b)(1)--Uncleared Swap Confirmations: Incorporation by 
Reference of Underlying Previously Negotiated Agreements
a. Proposed Regulations
    Section 37.6(b) requires a SEF to provide each counterparty to a 
swap transaction that is entered into on or pursuant to the rules of 
the SEF, whether cleared or uncleared, with a ``confirmation''--a 
written record that contains all of the terms of the transaction--at 
the time of execution.\19\ The terms of a swap transaction include 
economic terms that are specific to the transaction, e.g., swap 
product, price, and notional amount, and can also include non-specific 
``relationship terms'' that generally govern all transactions between 
two counterparties--including, for example, relationship-level default, 
margin, or governing law provisions.
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    \19\ 17 CFR 37.6(b). See also 17 CFR 23.500(c) (providing a 
similar definition of ``confirmation'' that is applicable to SDs and 
MSPs).
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    For uncleared swap transactions,\20\ the Commission is aware that 
many relationship terms that may govern certain aspects of the 
transaction are often negotiated and agreed upon in written 
documentation between the counterparties prior to execution.\21\ The 
Commission previously stated that, for purposes of satisfying the 
requirements of Sec.  37.6(b), a SEF's confirmation terms for uncleared 
swap transactions may incorporate by reference relevant terms set forth 
in such underlying agreements, as long as those agreements have been 
submitted to the SEF prior to execution.\22\ As applied, Sec.  37.6(b) 
requires that the SEF incorporate this documentation by reference into 
the issued confirmation, which is intended in part to provide SEF 
participants with legal certainty with respect to the terms of 
uncleared swap transactions.\23\
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    \20\ The Commission notes that swap trading relationship 
documentation is not required for swaps cleared by a derivatives 
clearing organization. See 17 CFR 23.504(a)(1).
    \21\ SEF Core Principles Final Rule at 33491, n.195. See 
Confirmation, Portfolio Reconciliation, Portfolio Compression, and 
Swap Trading Relationship Documentation Requirements for Swap 
Dealers and Major Swap Participants, 77 FR 55904, 55906 (Sept. 11, 
2012) (noting that swap counterparties have typically relied on the 
use of industry-standard legal documentation to document their swap 
trading relationships. This documentation, such as the ISDA Master 
Agreement and related Schedule and Credit Support Annex (ISDA 
Agreement), as well as related documentation specific to particular 
asset classes, offers a framework for documenting uncleared swap 
transactions between counterparties); see also 17 CFR 23.504(b) (for 
uncleared swap transactions, Sec.  23.504(b) requires written swap 
trading relationship documentation that includes all terms governing 
the trading relationship between an SD or MSP and its counterparty).
    \22\ SEF Core Principles Final Rule at 33491, n.195. While the 
Commission's statement specifically referenced the incorporation by 
reference of previously negotiated terms from ``a freestanding 
master agreement,'' the Commission recognizes that other previously 
negotiated freestanding agreements similarly may contain terms that 
are relevant to an uncleared swap confirmation. Id.
    \23\ To ensure that the SEF confirmation provides legal 
certainty, the Commission has stated that counterparties choosing to 
execute a swap transaction on or pursuant to the rules of a SEF must 
have all terms, including possible long-term credit support 
arrangements, agreed to no later than execution, such that the SEF 
can provide a written confirmation inclusive of those terms. See SEF 
Core Principles Final Rule at 33491.
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    The requirement that the underlying agreements be submitted to the 
SEF prior to execution has, however, created impractical burdens for 
SEFs. Based upon feedback from SEFs, the Commission understands that 
SEFs have encountered many issues in trying to comply with the 
requirement, including high financial, administrative, and logistical 
burdens in order to collect and maintain bilateral transaction 
agreements from many individual counterparties. SEFs have stated that 
they are unable to develop a cost-effective method to request, accept, 
and maintain a library of every relevant previous agreement between 
counterparties.\24\ SEFs have also noted that the potential number of 
previous agreements is considerable, given that SEF counterparties 
often enter into agreements with many other parties and may have 
multiple agreements for different asset classes.\25\
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    \24\ Many of these agreements are maintained in paper form or as 
scanned PDF files that are difficult to quickly digitize in a cost-
effective manner. See WMBAA, Request for Extended Relief from 
Certain Requirements under Parts 37 and 45 Related to Confirmations 
and Recordkeeping for Swaps Not Required or Intended to be Cleared 
at 3 (Mar. 1, 2016). Further, some SEFs have cited the considerable 
resource cost of obtaining the number of different agreements that 
exist to accommodate different types of counterparties and asset 
classes. Id.
    \25\ Id.
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    Commission staff from DMO has acknowledged these technological and 
operational challenges and has accordingly granted no-action positions, 
most recently in NAL No. 17-17.\26\ Based on these no-action positions, 
many SEFs have incorporated by reference applicable relationship terms 
from previously negotiated underlying agreements between counterparties 
in confirmations for uncleared swaps, without obtaining copies of these 
agreements prior to the execution of a swap and without maintaining 
copies of such underlying agreements on an ongoing basis.\27\
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    \26\ See supra note 14.
    \27\ Id. As a condition of staff's no-action positions, a SEF 
has been required to have a rule in its rulebook that requires its 
participants to provide copies of the underlying agreements to the 
SEF on request, as well as a rule in its rulebook that requires the 
SEF to (i) request from a participant an underlying agreement upon 
request from the Commission, and (ii) to furnish such agreement to 
the Commission as soon as it is available.
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    Based on its experience with the part 37 implementation, in the 
Proposal the Commission acknowledged that cleared and uncleared swap 
transactions raise different issues with respect to

[[Page 34994]]

confirmation requirements \28\ and that the current Sec.  37.6(b) 
requirements create difficulties for the latter type of swap 
transaction. As such, the Commission proposed to amend Sec.  37.6(b) by 
adding Sec.  37.6(b)(1) to permit SEFs to incorporate relevant terms 
from underlying, previously negotiated agreements by reference in a 
confirmation for an uncleared swap transaction without obtaining such 
incorporated agreements.\29\
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    \28\ See supra note 20.
    \29\ In addition to stating that DMO will not recommend 
enforcement action if a SEF incorporates by reference relevant terms 
from underlying, previously negotiated agreements in confirmations 
for uncleared swap transactions, without obtaining copies of such 
agreements, which the Commission codifies in this release, NAL No. 
17-17 also provides no-action positions with respect to the 
requirement to maintain copies of such agreements in order to comply 
with SEF recordkeeping obligations under Sec. Sec.  37.1000, 
37.1001, and 45.2. Among other things, these requirements obligate a 
SEF to maintain ``records of all activities relating to the business 
of'' the SEF. The Commission believes that allowing a SEF to 
incorporate by reference relevant terms from the underlying, 
previously negotiated agreements without obtaining such agreements 
will rectify the compliance issues posed with respect to Sec. Sec.  
37.1000, 37.1001, and 45.2. As a SEF would no longer be required to 
obtain the underlying, previously negotiated agreements, the 
Commission believes that these agreements would not, as a general 
category, constitute records relating to the SEF's business for 
purposes of Sec. Sec.  37.1000, 37.1001, and 45.2. The Commission 
notes, however, that if a SEF did obtain such an underlying, 
previously negotiated agreement, including at the request of the 
Commission or its staff or in connection with the fulfillment of the 
SEF's regulatory obligations, the SEF would, with respect to such 
agreement, need to comply with its recordkeeping obligations under 
Sec. Sec.  37.1000, 37.1001, and 45.2. NAL No. 17-17 also provides a 
no-action position with respect to the swap data reporting 
requirements that apply to a SEF under Sec.  45.3(a). In November 
2020, the Commission amended its swap data reporting regulations, 
which amendments included the removal of the terms ``primary 
economic terms'' and ``confirmation data'' from Sec.  45.3(a). See 
Swap Data Recordkeeping and Reporting Requirements, 85 FR 75503 
(Nov. 25, 2020) (Amended Part 45 Rules). Currently, SEFs are 
required to report as specified in the technical specification 
published on the Commission's website, available at https://www.cftc.gov/LawRegulation/DoddFrankAct/Rulemakings/DF_18_RealTimeReporting/index.htm. As relevant in this context, the 
technical specification sets out the required validations and 
message types, including when, for swap data reporting purposes, 
specific data fields are mandatory, conditional, or optional. For 
example, the technical specification distinguishes between 
transaction, collateral, and valuation reporting. In general, SEFs 
will report transaction message types and not valuation and 
collateral message types. Those data elements in the technical 
specification relevant to on-SEF transactions that are contained in 
the transaction message type are readily available for a SEF to 
fulfil its reporting obligations under Commission regulations in 
part 45. As further evidence of this, the defined term 
``confirmation data'' no longer exists in Sec.  45.3(a). Therefore, 
the no-action position stated in NAL No. 17-17 that ``the Division 
will not recommend that the Commission take enforcement action 
against a SEF for failure to report certain confirmation data 
pursuant to Commission Regulation 45.3(a) . . .'', see NAL No. 17-17 
at 3-4, has not been in effect since the implementation of the 
Commission's Amended Part 45 Rules. Commission staff have not 
received a related, updated request for a no-action position with 
respect to SEF reporting requirements. The Commission believes the 
Amended Part 45 Rules and the associated technical specification 
requirements eliminate the need for the no-action position related 
to Sec.  45.3(a) in NAL No. 17-17. Finally, in the Proposal the 
Commission did not propose to codify certain conditions from NAL No. 
17-17, including conditions that require a SEF to have rules in its 
rulebook that (i) require a SEF confirmation to state, where 
applicable, that it incorporates by reference the terms of the 
underlying previously negotiated freestanding agreements between the 
counterparties, and (ii) state that in the event of any 
inconsistency between a SEF confirmation and the underlying 
previously negotiated freestanding agreements, the terms of the SEF 
confirmation legally supersede any contradictory terms and that 
require the SEF's confirmations to state the same. The Commission 
believes that the amendments adopted herein clarify the requirements 
for uncleared swap confirmations issued by SEFs in a manner that 
obviates the need to codify these conditions. See also the 
discussion, infra, of those conditions in NAL No. 17-17 that address 
the SEF's ability to obtain, upon request, copies of the underlying 
previously negotiated freestanding agreements that have been 
incorporated by reference into an uncleared swap confirmation.
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b. Public Comments
    All of the relevant comments the Commission received supported the 
proposal to permit SEFs to incorporate relevant terms from underlying, 
previously negotiated agreements by reference in a confirmation for an 
uncleared swap transaction without obtaining such incorporated 
agreements.\30\
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    \30\ BSEF at 1, Cboe SEF at 1, ISDA at 1, and WMBAA at 2, 4.
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    WMBAA commended the Commission for ``recognizing the practical 
complexities faced by market participants with respect to complying 
with'' the requirement that the underlying agreements be submitted to 
the SEF prior to execution.\31\ WMBAA stated that it believes that 
codifying the relevant no-action position in NAL No. 17-17 ``into the 
regulatory framework through the [Proposal] is a prudent and necessary 
step forward.'' \32\ Further, WMBAA stated that the Proposal ``will not 
only provide legal clarity but also maintain the integrity and 
efficiency of the uncleared swap market.'' \33\ WMBAA also stated that 
``codifying the no-action relief will align the regulatory framework 
with the industry's current practices, promoting consistency and 
reducing compliance burdens.'' \34\
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    \31\ WMBAA at 2.
    \32\ Id.
    \33\ Id.
    \34\ Id.
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    ISDA stated that it ``strongly support[s] the Commission's proposal 
to codify its current no-action position that relieves [SEFs] of the 
obligation to obtain copies of underlying, previously negotiated 
agreements between trade counterparties, and that enables SEFs to 
incorporate such terms by reference when issuing swap confirmations.'' 
\35\
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    \35\ ISDA at 1.
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    In support of the Proposal, Cboe SEF noted that ``[c]ollecting 
underlying, previously negotiated agreements is operationally and 
technologically difficult and impractical--nor is there any benefit to 
doing so when a SEF and the Commission may request those documents from 
SEF participants at any time.'' \36\
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    \36\ Cboe SEF at 1.
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    WMBAA specifically expressed support for not incorporating certain 
conditions of NAL No. 17-17 into Sec.  37.6(b), in particular the 
conditions requiring ``(1) participants to provide copies of the 
underlying previously negotiated freestanding agreements to the SEF on 
request; and (2) the SEF to request from participants the underlying 
previously negotiated freestanding agreements on request from the CFTC 
and requiring the SEF to furnish such documents to the CFTC as soon as 
they are available.'' \37\
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    \37\ WMBAA at 2-3.
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    Question 1 of the Proposal asked whether the Commission should 
``allow a SEF to issue a confirmation for an uncleared swap transaction 
that does not . . . include all the terms of the transaction, for 
example by only including in the confirmation the terms agreed to on 
the SEF?'' \38\ In response to this question, Cboe SEF stated its 
belief ``that the Commission's current practice (as codified in the 
Proposal) is the best manner for providing confirmations for an 
uncleared swap transaction.'' \39\ In particular, Cboe SEF explained 
that it lists foreign-exchange non-deliverable forwards \40\ and that 
``[g]iven the over-the-counter nature of the FX NDF market, it is 
critical to be able to incorporate by reference such industry 
definitions, templates, etc. as well as the

[[Page 34995]]

counterparties' separately negotiated underlying agreements.'' \41\ 
Therefore, Cboe SEF stated its belief that ``it is best for the 
Commission to not permit uncleared swap confirmations to exclude terms 
from underlying, previously-negotiated freestanding agreements.'' \42\
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    \38\ The Proposal at 58149.
    \39\ Cboe SEF at 1.
    \40\ Cboe SEF explained that it issues confirmations that 
``incorporate by reference the terms of the underlying previously-
negotiated freestanding agreements (including, without limitation, 
master agreement, master confirmation agreement and incorporated 
industry definitions) between the parties governing the Transaction 
(Master Agreement).'' Further, Cboe SEF explained that the 
confirmations it issues ``incorporate by reference the terms set 
forth on the Template Terms for Non-Deliverable FX Transactions in 
respect of the relevant CCY Pair as recommended by the Emerging 
Markets Traders Association and in effect as of the Trade Date of 
the Transaction (NDF Template Terms).'' Finally, Cboe SE noted that 
its rulebook ``provides that in the event of any inconsistency 
between the NDF Template Terms and the terms of the Master 
Agreement, the terms of the Master Agreement will prevail.'' Cboe 
SEF at 1-2.
    \41\ Id. at 2.
    \42\ Id.
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c. Commission Determination
    The Commission is adopting, as proposed and as supported by 
commenters, new Sec.  37.6(b)(1) to permit SEFs to incorporate relevant 
terms from underlying, previously negotiated agreements by reference in 
a confirmation for an uncleared swap transaction without obtaining such 
incorporated agreements.\43\ The Commission believes, following staff's 
observation of SEFs and market participants operating under the 
existing no-action position in NAL No. 17-17 and precursor no-action 
letters, that new Sec.  37.6(b)(1) would not compromise the legal 
certainty of confirmations issued by SEFs for uncleared swap 
transactions, as the previously negotiated agreements that are referred 
to in the confirmation are in effect at the time of the trade. 
Therefore, Sec.  37.6(b)(1) is an appropriate alternative for SEFs to 
comply with the confirmation requirement under Sec.  37.6(b), as it 
applies to uncleared swaps.
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    \43\ BSEF at 1, Cboe SEF at 1, ISDA at 1, and WMBAA at 2, 4.
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    The Commission believes that Sec.  37.6(b)(1) will address 
technological and operational challenges that have prevented SEFs from 
fully complying with Sec.  37.6(b), as it will permit SEFs to 
incorporate relevant terms from underlying, previously negotiated 
agreements by reference in a confirmation for an uncleared swap 
transaction without obtaining such incorporated agreements before 
execution. The Commission believes that Sec.  37.6(b)(1) will reduce 
logistical, administrative, and financial burdens for SEFs, who will 
not be required to obtain and maintain a library of every relevant 
previously negotiated agreement between counterparties, and will also 
reduce such burdens for market participants themselves, who will not be 
required to submit to a SEF all of their relevant underlying 
documentation with other potential counterparties on the SEF.
    The Commission agrees with WMBAA that adopting Sec.  37.6(b)(1), 
which codifies the existing no-action position in NAL No. 17-17, will 
align the regulatory framework for swap confirmations with the market's 
current practices, promoting consistency and reducing compliance 
burdens.\44\ As more fully discussed below, the Commission expects that 
Sec.  37.6(b)(1) will reduce the cost of SEFs' compliance with the 
confirmation requirement in Sec.  37.6(b).
---------------------------------------------------------------------------

    \44\ WMBAA at 2.
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    The Commission agrees with Cboe SEF that uncleared swap 
confirmations should not exclude terms from underlying, previously-
negotiated agreements.\45\ As such, the Commission is not changing the 
existing standard in Sec.  37.6(b) that the confirmation include all of 
the terms of the transaction, including the terms from underlying, 
previously-negotiated agreements that are incorporated by reference 
into the confirmation.
---------------------------------------------------------------------------

    \45\ Cboe SEF at 2.
---------------------------------------------------------------------------

    In order to avail themselves of the no-action position under NAL 
No. 17-17, SEFs must have rules in their rulebooks that, among other 
things, require: \46\ (1) participants to provide copies of the 
underlying previously negotiated freestanding agreements to the SEF on 
request; and (2) the SEF to request from participants the underlying 
previously negotiated freestanding agreements on request from the 
Commission and the SEF to furnish such documents to the Commission as 
soon as they are available.\47\ The Commission believes that the 
existing requirements for SEFs under the CEA and the Commission's part 
37 regulations sufficiently account for these conditions of NAL No. 17-
17, such that these conditions do not need to be incorporated as 
specific conditions of new Sec.  37.6(b)(1).
---------------------------------------------------------------------------

    \46\ See also note 29, supra.
    \47\ See NAL No. 17-17 at 4.
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    In particular, SEF Core Principle 5 and the implementing part 37 
regulations require, among other things, that a SEF establish and 
enforce rules that will allow the SEF to obtain any necessary 
information to perform any of the functions described in section 5h of 
the Act; establish and enforce rules that will allow the SEF to have 
the ability and authority to obtain sufficient information to allow it 
to fully perform its operational, risk management, governance, and 
regulatory functions and any requirements under part 37; have rules 
that allow for its examination of books and records kept by the market 
participants on its facility; and provide information to the Commission 
on request.\48\ The Commission believes that, pursuant to these 
requirements and as necessary to carry out its statutory and regulatory 
functions, a SEF has the ability and authority to request copies of the 
underlying agreements that are incorporated by reference into a 
confirmation for an uncleared swap transaction and to provide such 
agreements to the Commission upon request.\49\ The Commission notes 
that this position is supported by public comment.\50\
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    \48\ 7 U.S.C. 7b-3(f)(5); 17 CFR 37.500-503.
    \49\ Further the Commission also has the ability to request 
information from the SEF under 17 CFR 37.5(a), which requires a SEF 
to file with the Commission information related to its business as a 
SEF upon the Commission's request. See 17 CFR 37.5.
    \50\ See WMBAA at 2-3 and Cboe SEF at 1. For example, Cboe SEF 
notes that ``[c]ollecting underlying, previously negotiated 
agreements is operationally and technologically difficult and 
impractical--nor is there any benefit to doing so when a SEF and the 
Commission may request those documents from SEF participants at any 
time.''
---------------------------------------------------------------------------

    Therefore, for the reasons stated above, the Commission is adopting 
as proposed new Sec.  37.6(b)(1) to permit SEFs to incorporate 
underlying, previously negotiated agreements between counterparties by 
reference in a confirmation for an uncleared swap transaction without 
obtaining such incorporated agreements.\51\
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    \51\ As noted above, upon the effective date of the rules 
contained herein, NAL No. 17-17 will expire per its terms. See supra 
note 15.
---------------------------------------------------------------------------

2. Amendment to Sec.  37.6(b)--Timing of Swap Transaction Confirmation
a. Proposed Regulations
    Section 37.6(b) requires that confirmation of all the terms of a 
swap transaction entered into on or pursuant to the rules of a SEF must 
take place at the same time as execution, except for a limited 
exception for certain information related to accounts included in 
bunched orders.\52\ The Commission proposed to amend this timing 
requirement and instead require confirmation of all the terms of a swap 
transaction ``as soon as technologically practicable'' after the 
execution of the swap transaction on the SEF.
---------------------------------------------------------------------------

    \52\ 17 CFR 37.6(b). Specific customer identifiers for accounts 
included in bunched orders involving swaps need not be included in 
confirmations provided by a SEF if the applicable requirements of 
Sec.  1.35(b)(5) are met. See 17 CFR 1.35(b)(5), which provides that 
specific customer identifiers for accounts included in bunched 
orders executed on DCMs or SEFs need not be recorded at time of 
order placement or upon report of execution if the requirements set 
forth in Sec.  1.35(b)(5)(i)-(v) are met.
---------------------------------------------------------------------------

b. Public Comments
    Commenters supported amending Sec.  37.6(b) to require confirmation 
of all the terms of a swap a transaction ``as soon as technologically 
practicable'' after the execution of the swap transaction on the 
SEF.\53\ WMBAA

[[Page 34996]]

stated that it believed that this amendment ``acknowledges the need for 
flexibility in the uncleared swap confirmation process, while 
accommodating technological constraints.'' \54\
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    \53\ ISDA at 2 and WMBAA at 2.
    \54\ WMBAA at 2.
---------------------------------------------------------------------------

    Similarly, ISDA noted that this amendment, as ``correctly pointed 
out by the Commission,'' is ``necessary to account for block trades 
that are executed outside of the SEF's trading system or platform, but 
pursuant to the rules of the SEF--and the SEF is therefore unaware of 
the execution until the counterparties report the trade of the SEF.'' 
\55\
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    \55\ ISDA at 2.
---------------------------------------------------------------------------

    BSEF stated that it supports the Commission clarifying the timing 
for confirmations of block trades.\56\
---------------------------------------------------------------------------

    \56\ BSEF at 1.
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c. Commission Determination
    The Commission agrees with commenters and, as proposed, is amending 
Sec.  37.6(b) to require confirmation of all the terms of a swap 
transaction ``as soon as technologically practicable'' after the 
execution of the swap transaction on the SEF.\57\ The Commission 
believes that the amended standard--``as soon as technologically 
practicable'' after execution--will continue to promote the 
Commission's goals of providing swap counterparties with legal 
certainty in a prompt manner, while also being consistent with other 
Commission requirements related to swap confirmations.\58\
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    \57\ The Commission notes that in the context of real-time 
public reporting, it has defined ``as soon as technologically 
practicable'' to mean as soon as possible, taking into consideration 
the prevalence, implementation, and use of technology by comparable 
market participants (emphasis added). 17 CFR 43.2. The meaning of 
this term, in amended Sec.  37.6(b), would be consistent with this 
definition, except applying to comparable SEFs. For example, for 
purposes of taking into consideration the prevalence, implementation 
and use of technology by comparable SEFs, the Commission would 
expect that fully electronic SEFs would be comparable to one 
another, while SEFs that utilize more manual processes, such as 
voice processes, would be comparable to each other.
    \58\ For example, Sec.  23.501(a)(1) and (2) require that an SD 
or MSP issue a confirmation or acknowledgement for a swap 
transaction (as applicable) to its counterparty ``as soon as 
technologically practicable. . . .'' See 17 CFR 23.501(a)(1)-(2). 
Further, the Commission notes that the amended standard is 
consistent with the SEC's standard for SB SEFs in SB SEF Rule 812. 
See SEC SB SEF Final Rules at 87294.
---------------------------------------------------------------------------

    For a block trade that is executed ``away from'' a SEF,--i.e., 
outside of the SEF's trading system or platform, but still ``pursuant 
to the rules'' of the SEF for purposes of the Sec.  37.6(b) 
confirmation requirement--a SEF would be unaware of the execution of 
the trade until the counterparties report the trade details to the SEF. 
From a temporal perspective, the SEF would consequently be unable to 
confirm all terms of the block trade at the same time as execution. The 
Commission agrees with ISDA that amending the timing standard in Sec.  
37.6(b) will account for block trades that are executed outside of the 
SEF's trading system or platform, but pursuant to the rules of the 
SEF.\59\
---------------------------------------------------------------------------

    \59\ ISDA at 2.
---------------------------------------------------------------------------

    The Commission believes that the amended standard reflects existing 
SEF capabilities while maintaining the Commission's goal of providing 
swap counterparties with legal certainty for transactions. Given the 
Commission's understanding that SEFs are complying with the ``at the 
same time as execution'' timing standard in existing Sec.  37.6(b) for 
non-block swap transactions or block transactions executed on the SEF, 
the Commission expects that the impact of the ``as soon as 
technologically practicable'' timing standard for confirmations for 
such swap transactions will not be substantive.\60\ Rather, the 
amendment will take into account practical realities for confirming 
block trades executed away from the SEF but pursuant to the rules of 
the SEF, while ensuring that confirmation for all SEF-executed trades 
takes place in as prompt a manner as possible.
---------------------------------------------------------------------------

    \60\ See supra note 57.
---------------------------------------------------------------------------

    Therefore, the Commission is adopting, as proposed, amendments to 
the timing standard in Sec.  37.6 to require a SEF to confirm the terms 
of a swap transaction ``as soon as technologically practicable'' after 
the execution of the swap transaction on the SEF.
3. Proposed Amendment to Sec.  37.6(b)--Conflicting Terms
a. Proposed Regulations
    The Commission proposed to amend Sec.  37.6(b) to make clear that 
the terms of a swap confirmation issued by a SEF shall legally 
supersede any conflicting terms of a previous agreement (emphasis 
added).\61\
---------------------------------------------------------------------------

    \61\ While this amendment will apply with respect to both 
cleared and uncleared swap transactions executed on or pursuant to 
the rules of the SEF, the Commission notes that swap trading 
relationship documentation is not required for swaps cleared by a 
derivatives clearing organization. See 17 CFR 23.504(a)(1).
---------------------------------------------------------------------------

b. Public Comments
    Commenters generally supported amending Sec.  37.6(b) to make clear 
that the terms of a swap confirmation issued by a SEF shall legally 
supersede any conflicting terms of a previous agreement (emphasis 
added).\62\
---------------------------------------------------------------------------

    \62\ BSEF at 1-2, Cboe SEF at 1, ISDA at 2, WMBAA at 2.
---------------------------------------------------------------------------

    ISDA was ``supportive of the Commission's proposal to make clear 
that SEF-provided confirmations shall legally supersede any conflicting 
terms in a previous agreement, rather than the entire agreement.'' \63\ 
ISDA stated that it believes that ``[s]uch an approach strikes the 
right balance between ensuring that the terms agreed to on the SEF are 
enforceable, while at the same time, also acknowledging the various 
documentation and agreements that underlie swap agreements.'' \64\
---------------------------------------------------------------------------

    \63\ ISDA at 2.
    \64\ Id.
---------------------------------------------------------------------------

    WMBAA stated that it ``supports the amendment to regulation 37.6(b) 
to clarify that the SEF-provided confirmation shall legally supersede 
any conflicting terms in a previous agreement. This clarification 
appears essential in maintaining certainty in swap transactions, 
reducing legal uncertainties, and streamlining the confirmation 
process.'' \65\
---------------------------------------------------------------------------

    \65\ WMBAA at 2.
---------------------------------------------------------------------------

    While BSEF stated that it believes that ``[t]he proposed amendment 
to 37.6(b) is sufficiently clear that the terms of a swap confirmation 
issued by a SEF shall legally supersede any conflicting terms of a 
previous agreement,'' BSEF stated that ``the Commission should also 
clarify that the rules of the SEF shall also legally supersede, with 
respect to the transaction, any conflicting terms of a previous 
agreement, whether or not specifically addressed in the confirmation.'' 
\66\
---------------------------------------------------------------------------

    \66\ BSEF at 2. BSEF's comment was specifically in response to 
Question 8 of the Proposal which asked, ``(1) Does the proposed 
amendment provide sufficient legal certainty with respect to any 
contradictory terms that may be contained within previous agreements 
that are incorporated into an uncleared swap confirmation by 
reference?''
---------------------------------------------------------------------------

    Specifically, BSEF stated that ``to the extent there is anything in 
the rules of the SEF that conflicts with the terms of any previous 
agreement, the SEF rulebook would govern the transaction and supersede 
the previous agreement.'' \67\ BSEF stated that it believes that such 
an approach ``provides additional clarity that both the rules of the 
SEF and the specific terms stated in the swap confirmation issued by a 
SEF govern the terms of the trade and supersede any conflicting terms 
of a previous agreement.'' \68\
---------------------------------------------------------------------------

    \67\ Id.
    \68\ Id.
---------------------------------------------------------------------------

    Finally, in response to Question 9 in the Proposal,\69\ BSEF stated 
its belief

[[Page 34997]]

``that the Commission should require that a SEF's confirmation 
specifically state that the terms of the confirmation legally supersede 
any conflicting terms in underlying previously negotiated agreements 
that have been incorporated by reference.'' \70\ BSEF pointed out that 
a condition of relying on the no-action position in NAL No. 17-17 is 
that a SEF must have rules that require its confirmations to state 
that, in the event of any inconsistency between a SEF confirmation and 
the underlying previously-negotiated freestanding agreements, the terms 
of the SEF confirmation legally supersede any contradictory terms.\71\ 
BSEFs stated that the Commission should require the specified statement 
in the SEF's confirmation.\72\
---------------------------------------------------------------------------

    \69\ Question 9 of the Proposal asked whether, ``[f]or uncleared 
swaps, to avoid any conflict between the terms of the swap and the 
SEF's confirmation, . . . the Commission [should] require that the 
SEF's confirmation specifically state that the terms of the 
confirmation legally supersede any conflicting terms in underlying 
previously negotiated agreements that have been incorporated by 
reference''.
    \70\ BSEF at 2.
    \71\ Id.
    \72\ Id.
---------------------------------------------------------------------------

c. Commission Determination
    The Commission is adopting, as proposed, amendments to Sec.  
37.6(b), making it clear that the terms of a swap confirmation issued 
by a SEF shall legally supersede any conflicting terms of a previous 
agreement (emphasis added).
    Under the rules adopted in this final rulemaking, SEFs will be able 
to incorporate underlying, previously negotiated agreements by 
reference into confirmations for uncleared swap transactions. This 
amendment will help ensure legal certainty with respect to the terms of 
such transactions, and will also clarify the continuing applicability 
of those terms in the underlying agreements that do not conflict with 
the confirmation and that may, for example, govern the counterparties' 
non-SEF transactions.\73\ Taking into account comments received on the 
Proposal, the Commission agrees with ISDA that this approach strikes 
the right balance between ensuring that the terms agreed to on the SEF 
are enforceable, while at the same time, acknowledging the various 
documentation and agreements that underlie swap transactions.\74\
---------------------------------------------------------------------------

    \73\ In the SEF Core Principles Final Rule, the Commission noted 
that the counterparties to the uncleared swap transaction would need 
to ensure that nothing in the confirmation terms contradicted the 
standardized terms intended to be incorporated from the underlying 
agreement. SEF Core Principles Final Rule at 33491, n.195.
    \74\ ISDA at 2.
---------------------------------------------------------------------------

    As a condition of relying on the no-action position in NAL No. 17-
17, SEFs must have rules which require its confirmations to state that, 
in the event of any inconsistency between a SEF confirmation and the 
underlying previously negotiated freestanding agreements, the terms of 
the SEF confirmation legally supersede any contradictory terms.\75\ The 
amendment to Sec.  37.6(b) reflects the substance of this condition, 
providing the benefit of continuing to allow SEFs that relied on NAL 
No. 17-17 to maintain market practices previously established under the 
no-action position in complying with amended Sec.  37.6(b).\76\ To this 
end, BSEF recommended that the Commission codify the condition of NAL 
No. 17-17.\77\ The Commission notes that SEFs have reasonable 
discretion, subject to their obligations under the Act and Commission 
regulations, to establish rules and procedures for their markets. The 
Commission believes, and BSEF concedes, that the amendment to Sec.  
37.6(b) makes clear that in the event of any inconsistency between a 
SEF confirmation and underlying previously negotiated agreements, the 
terms of the SEF confirmation legally supersede any contradictory 
terms. Accordingly, the Commission does not believe that it needs to 
require the SEF's confirmation to state as such; however, the 
Commission believes that there is nothing that would preclude a SEF 
from having rules or procedures that include such a statement in the 
confirmations it issues.
---------------------------------------------------------------------------

    \75\ See NAL No. 17-17 at 4. Further, as a condition of relying 
on NAL No. 17-17 the SEF must also have a rule that requires the 
SEF's confirmations to state ``that in the event of any 
inconsistency between a SEF confirmation and the underlying 
previously-negotiated freestanding agreements, the terms of the SEF 
confirmation legally supersede any contradictory terms''.
    \76\ As noted above, upon the effective date of the rules 
contained herein, NAL No. 17-17 will expire per its terms. See supra 
note 15.
    \77\ BSEF at 2.
---------------------------------------------------------------------------

    The Commission acknowledges BSEF's comment recommending that the 
Commission also clarify that, to the extent that rules of the SEF 
conflict with the terms of a previous agreement, the rules of the SEF 
would govern the swap transaction and supersede the terms of the 
previous agreement.\78\ This comment addresses matters that were not 
addressed in the Proposal. Therefore, the Commission declines to 
address BSEF's comment in the context of this rulemaking at this time.
---------------------------------------------------------------------------

    \78\ Id.
---------------------------------------------------------------------------

    For the reasons stated above, the Commission is adopting, as 
proposed, amendments to Sec.  37.6(b), making it clear that the terms 
of a swap confirmation issued by a SEF shall legally supersede any 
conflicting terms of a previous agreement (emphasis added).
4. Clarification of Sec.  37.6(b)
a. Proposed Regulations
    Section 37.6(b) provides that a SEF shall provide each counterparty 
to a transaction that is entered into on or pursuant to the rules of 
the SEF with a written record of all of the terms of the transaction.
    The Commission proposed a non-substantive amendment to Sec.  
37.6(b) to change the phrase ``entered into'' to ``executed'' in order 
to provide greater consistency within Sec.  37.6(b). Existing Sec.  
37.6(b) uses ``entered into'' and ``executed'' interchangeably.
b. Public Comments
    The Commission received no comments regarding the proposed non-
substantive amendment to Sec.  37.6(b) to change the phrase ``entered 
into'' to ``executed''.
c. Commission Determination
    The Commission received no comments regarding the proposed non-
substantive amendment to change the phrase ``entered into'' to 
``executed,'' and is adopting this amendment to Sec.  37.6(b) as 
proposed. This non-substantive amendment will, in conjunction with the 
non-substantive amendment to Sec.  37.6(a) discussed below, ensure 
consistent use of ``executed'' throughout Sec.  37.6.
5. Clarification of Sec.  37.6(a)
a. Proposed Regulations
    Section 37.6(a) is intended to provide market participants with 
legal certainty with respect to swap transactions on a SEF and 
generally clarifies that a swap transaction entered into on or pursuant 
to the rules of the SEF cannot be void, voidable, subject to 
rescission, otherwise invalidated, or rendered unenforceable due to a 
violation by the SEF of section 5h of the Act or part 37 of the 
Commission's regulations or any proceeding that alters or supplements a 
rule, term or condition that governs such swap or swap transaction.\79\
---------------------------------------------------------------------------

    \79\ 17 CFR 37.6(a).
---------------------------------------------------------------------------

    The Commission proposed a non-substantive amendment to Sec.  
37.6(a) to change the phrase ``entered into'' to ``executed'' in order 
to provide greater consistency within Sec.  37.6. Currently Sec.  37.6 
uses ``entered into'' and ``executed'' interchangeably.
b. Public Comments
    The Commission received no comments regarding the proposed non-

[[Page 34998]]

substantive amendment to Sec.  37.6(a) to change the phrase ``entered 
into'' to ``executed''.
c. Commission Determination
    The Commission received no comments regarding the proposed non-
substantive amendment to change the phrase ``entered into'' to 
``executed,'' and is adopting this amendment to Sec.  37.6(a) as 
proposed. This non-substantive amendment will, in conjunction with the 
proposed non-substantive amendment to Sec.  37.6(b) discussed above, 
ensure consistent use of ``executed'' throughout Sec.  37.6.

B. Amendments to Sec.  23.501(a)(4)(i)

a. Proposed Regulations
    The Commission proposed two amendments to Sec.  23.501(a)(4)(i) to 
conform to the proposed amendments to Sec.  37.6(b). Section 
23.501(a)(4)(i) provides that a swap transaction executed on a SEF or 
DCM will be deemed to satisfy the swap confirmation requirements set 
forth for SDs and MSPs in Sec.  23.501(a), provided that the rules of 
the SEF or DCM establish that confirmation of all terms of the 
transaction shall take place at the same time as execution. The 
Commission proposed to clarify that the safe harbor for SDs and MSPs in 
Sec.  23.501(a)(4)(i) also applies to swap transactions executed 
``pursuant to the rules'' of a SEF or DCM, i.e., block trades executed 
away from the SEF's or DCM's trading system or platform, but pursuant 
to the SEF's or DCM's rules. This clarification is consistent with the 
definition of ``block trade'' under Sec.  43.2.\80\ To further conform 
to the proposed amendments to Sec.  37.6(b), the Commission also 
proposed to amend Sec.  23.501(a)(4)(i) to require confirmation of all 
terms of a swap transaction as soon as technologically practicable 
following execution.\81\
---------------------------------------------------------------------------

    \80\ Sec.  43.2 defines a block trade as the following: Block 
trade means a publicly reportable swap transaction that: (1) 
Involves a swap that is listed on a swap execution facility or 
designated contract market; (2) Is executed on a swap execution 
facility's trading system or platform that is not an order book as 
defined in Sec.  37.3(a)(3) of this chapter, or occurs away from the 
swap execution facility's or designated contract market's trading 
system or platform and is executed pursuant to the swap execution 
facility's or designated contract market's rules and procedures; (3) 
Has a notional or principal amount at or above the appropriate 
minimum block size applicable to such swap; and (4) Is reported 
subject to the rules and procedures of the swap execution facility 
or designated contract market and the rules described in this part, 
including the appropriate time delay requirements set forth in Sec.  
43.5. 17 CFR 43.2.
    \81\ The Commission notes that while DCMs may provide 
confirmations for swap block trades executed away from but pursuant 
to the rules of the DCM, DCMs do not have a regulatory obligation 
analogous to the current regulatory obligation under Sec.  37.6(b) 
for SEFs to provide confirmations.
---------------------------------------------------------------------------

b. Public Comments
    The Commission received no comments regarding the two proposed 
amendments to Sec.  23.501(a)(4)(i).
c. Commission Determination
    The Commission received no comments regarding the two proposed 
amendments to Sec.  23.501(a)(4)(i) to conform to Sec.  37.6(b). 
Therefore, the Commission is adopting these amendments to Sec.  
23.501(a)(4)(i) as proposed.

III. Effective Date

    The Commission proposed as an effective date, for the rule 
amendments in the Proposal, the date that is 30 days after publication 
of final regulations in the Federal Register. The Commission received 
no comments regarding the proposed effective date. Therefore, the 
Commission is adopting an effective date for these rule amendments that 
is 30 days after publication of final regulations in the Federal 
Register. The Commission believes that such an effective date will 
allow SEFs and market participants sufficient time to adapt to the 
amended confirmation rules in an efficient and orderly manner.\82\
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    \82\ As noted above, upon the effective date of the rules 
contained herein, NAL No. 17-17 will expire per its terms. See supra 
note 15.
---------------------------------------------------------------------------

IV. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires Federal agencies to 
consider whether the regulations they promulgate will have a 
significant economic impact on a substantial number of small entities 
and, if so, to provide a regulatory flexibility analysis with respect 
to such impact.\83\ The regulations finalized herein will affect SEFs 
and their market participants. The Commission has previously 
established certain definitions of ``small entities'' to be used by the 
Commission in evaluating the impact of its regulations on small 
entities in accordance with the RFA.\84\ The Commission previously 
concluded that SEFs are not small entities for the purpose of the 
RFA.\85\ The Commission has also previously stated its belief in the 
context of relevant rulemakings that SEFs' market participants, which 
are all required to be eligible contract participants (ECPs) \86\ as 
defined in section 1a(18) of the CEA,\87\ are not small entities for 
purposes of the RFA.\88\ Therefore, the Chairman, on behalf of the 
Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that these 
final regulations will not have a significant economic impact on a 
substantial number of small entities.
---------------------------------------------------------------------------

    \83\ 5 U.S.C. 601 et seq.
    \84\ 47 FR at 18618-21 (Apr. 30, 1982).
    \85\ SEF Core Principles Final Rule at 33548 (citing, among 
others, 47 FR 18618, 18621) (Apr. 30, 1982) (discussing DCMs).
    \86\ 17 CFR 37.703.
    \87\ 7 U.S.C. 1(a)(18).
    \88\ 66 FR 20740, 20743 (Apr. 25, 2001) (stating that ECPs by 
the nature of their definition in the CEA should not be considered 
small entities).
---------------------------------------------------------------------------

B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995, 44 U.S.C. 3501 et seq. (PRA), 
imposes certain requirements on Federal agencies (including the 
Commission) in connection with conducting or sponsoring any 
``collection of information,'' \89\ as defined by the PRA. Under the 
PRA, an agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a 
currently valid control number from the Office of Management and Budget 
(OMB). The PRA is intended, in part, to minimize the paperwork burden 
created for individuals, businesses, and other persons as a result of 
the collection of information by federal agencies, and to ensure the 
greatest possible benefit and utility of information created, 
collected, maintained, used, shared, and disseminated by or for the 
federal government. The PRA applies to all information, ``regardless of 
form or format,'' whenever the government is ``obtaining, causing to be 
obtained, [or] soliciting'' information, and includes required 
``disclosure to third parties or the public, of facts or opinions,'' 
when the information collection calls for ``answers to identical 
questions posed to, or identical reporting or recordkeeping 
requirements imposed on, ten or more persons.'' \90\
---------------------------------------------------------------------------

    \89\ See 44 U.S.C. 3502(3)(A).
    \90\ See 44 U.S.C. 3502(3).
---------------------------------------------------------------------------

    This final rulemaking affects regulations that contain collections 
of information for which the Commission has previously received control 
numbers from OMB. The titles for these collections of information are 
``Swap Documentation, OMB control number 3038-0088'' and ``Core 
Principles and Other Requirements for Swap Execution Facilities, OMB 
control number 3038-0074.'' This final rulemaking will modify the 
information collection requirements associated with OMB control number 
3038-0074, as discussed below. The Commission therefore is submitting 
this final rulemaking to OMB for its review in accordance with the

[[Page 34999]]

PRA.\91\ The Commission did not receive any comments regarding the PRA 
burden analysis contained in the Proposal.
---------------------------------------------------------------------------

    \91\ See 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

1. OMB Collection 3038-0088--Swap Documentation
    The Commission is adopting two amendments to Sec.  23.501(a)(4)(i) 
to conform to Sec.  37.6(b), as amended. Section 23.501(a)(4)(i) 
provides that a swap transaction executed on a SEF or DCM will be 
deemed to satisfy the swap confirmation requirements set forth for SDs 
and MSPs in Sec.  23.501(a), provided that the rules of the SEF or DCM 
establish that confirmation of all terms of the transaction shall take 
place at the same time as execution. The Commission is amending Sec.  
23.501(a)(4)(i) to clarify that the safe harbor for SDs and MSPs in 
that provision also applies to swap transactions executed ``pursuant to 
the rules'' of a SEF or DCM, i.e., block trades executed away from the 
SEF's or DCM's trading system or platform, but pursuant to the SEF's or 
DCM's rules. The Commission also is amending Sec.  23.501(a)(4)(i) to 
conform to the amendments to Sec.  37.6(b), which will require 
confirmation of all terms of a swap transaction as soon as 
technologically practicable following execution.
    As explained in the Proposal, the Commission does not believe that 
these amendments will substantively or materially modify any existing 
information collection burdens. Accordingly, the Commission is 
retaining its existing estimates for the burden associated with the 
information collections under OMB Collection 3038-0088.\92\
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    \92\ For the previously approved estimates, see ICR Reference 
No: 202204-3038-005, available at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202210-3038-007.
---------------------------------------------------------------------------

2. OMB Collection 3038-0074--Core Principles and Other Requirements for 
Swap Execution Facilities
    Under existing Sec.  37.6(b), a SEF is required to provide each 
counterparty to a swap transaction, whether cleared or uncleared, that 
is entered into on or pursuant to the rules of the SEF, with a written 
confirmation that contains all of the terms of the transaction. With 
respect to an uncleared swap transaction, a SEF may comply with the 
requirement to include in the confirmation all of the terms of the 
transaction, by incorporating by reference relevant terms set forth in 
underlying, previously negotiated agreements between the 
counterparties, as long as the SEF has obtained these agreements prior 
to execution of the transaction.\93\
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    \93\ SEF Core Principles Final Rule at 33491, n.195.
---------------------------------------------------------------------------

    This final rulemaking adds new Sec.  37.6(b)(1), which will permit 
SEFs to incorporate by reference in a confirmation relevant terms set 
forth in underlying, previously negotiated agreements without being 
required to obtain these agreements.
    The Commission believes that the final rulemaking will reduce 
administrative burdens for SEFs, who will not be required to request, 
accept, and maintain a library of every relevant previously negotiated 
agreement between counterparties.
    As a result, the Commission believes that the final rulemaking will 
reduce a SEF's annual recurring information collection burden for 
uncleared swap transactions. In the Proposal, the Commission estimated 
that Sec.  37.6(b)(1) would reduce annual recurring information 
collection burdens by one-third from 563 hours per SEF to 375 hours per 
SEF.\94\ The Commission received no comments related to the PRA 
analysis or this determination.
---------------------------------------------------------------------------

    \94\ The Commission previously estimated that the information 
collections related to Sec.  37.6 would take SEFs approximately 1.5 
hours per SEF participant and that on average, a SEF has about 375 
participants. For purposes of estimating the number of burden hours 
that the final regulations would eliminate, however, the Commission 
is revising its previous estimate and will assume the relevant 
process would take SEFs approximately 1.0 hours per SEF participant. 
Accordingly, 375 participants x 1.0 hour per participant = 375 
estimated burden hours. For information about the Commission's 
previous estimate, see ICR Reference No. 202104-3038-001, available 
at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202104-3038-001.
---------------------------------------------------------------------------

    The aggregate annual estimates for the reporting burden associated 
with Sec.  37.6(b), as amended, is as follows:
    Estimated number of respondents: 21.
    Estimated average burden hours per respondent: 375 hours.
    Estimated total annual burden on Respondents: 7,875 hours.
    Frequency of collection: On occasion.
    There are no capital costs or operating and maintenance costs 
associated with this collection.

C. Cost-Benefit Considerations

1. Background
    Section 15(a) of the CEA \95\ requires the Commission to ``consider 
the costs and benefits'' of its actions before promulgating a 
regulation under the CEA or issuing certain orders. CEA section 15(a) 
further specifies that the costs and benefits shall be evaluated in 
light of five broad areas of market and public concern: (1) protection 
of market participants and the public; (2) efficiency, competitiveness, 
and financial integrity of futures markets; (3) price discovery; (4) 
sound risk management practices; and (5) other public interest 
considerations. The Commission considers the costs and benefits 
resulting from its discretionary determinations with respect to the CEA 
section 15(a) factors.
---------------------------------------------------------------------------

    \95\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------

    The Commission is amending certain rules in parts 23 and 37 of its 
regulations relating to the confirmation by CFTC-regulated exchanges, 
in particular SEFs, of the terms of swap transactions.
    The baseline against which the Commission considers the costs and 
benefits of these rule amendments is the statutory and regulatory 
requirements of the CEA and Commission regulations now in effect, in 
particular CEA section 5h and certain rules in parts 23 and 37 of the 
Commission's regulations. The Commission, however, notes that as a 
practical matter many SEFs and market participants have adopted some 
current practices based upon a no-action position provided by 
Commission staff that the rule amendments generally will codify. As 
such, to the extent that SEFs and market participants have relied on 
this no-action position, the actual costs and benefits of the rule 
amendments as realized in the market may not be as significant.
    In some instances, it is not reasonably feasible to quantify the 
costs and benefits to SEFs and certain market participants with respect 
to certain factors, for example, market integrity. Notwithstanding 
these types of limitations, however, the Commission otherwise 
identifies and considers the costs and benefits of these rule 
amendments in qualitative terms. The Commission did not receive any 
comments from commenters which quantified or attempted to quantify the 
costs and benefits of the Proposal.
    In the following consideration of costs and benefits, the 
Commission first identifies and discusses the benefits and costs 
attributable to the rule amendments. The Commission, where applicable, 
then considers the costs and benefits of the rule amendments in light 
of the five public interest considerations set out in section 15(a) of 
the CEA.
    The Commission notes that this consideration of costs and benefits 
is based on its understanding that the swaps market functions 
internationally with: (1) transactions that involve U.S. entities 
occurring across different international jurisdictions; (2) some 
entities organized outside of the United States that are registered 
with the Commission; and (3) some entities that

[[Page 35000]]

typically operate both within and outside the United States and that 
follow substantially similar business practices wherever located. Where 
the Commission does not specifically refer to matters of location, the 
discussion of costs and benefits below refers to the effects of the 
rule amendments on all relevant swaps activity, whether based on its 
actual occurrence in the United States or on its connection with 
activities in, or effect on, U.S. commerce.\96\
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    \96\ See, e.g., 7 U.S.C. 2(i).
---------------------------------------------------------------------------

2. Amendments to Sec.  37.6(b)
a. Benefits
    Under existing Sec.  37.6(b), a SEF is required to provide each 
counterparty to a swap transaction that is entered into on or pursuant 
to the rules of the SEF, with a written confirmation at the time of 
execution that contains all of the terms of the transaction. SEFs may 
satisfy the requirements under existing Sec.  37.6(b) for uncleared 
swap transaction confirmations by incorporating by reference, in the 
confirmation, relevant terms set forth in underlying, previously 
negotiated agreements between the counterparties, as long as such 
agreements have been submitted to the SEF prior to execution.
    Absent adoption of new Sec.  37.6(b)(1), which will allow SEFs to 
incorporate relevant terms set forth in such underlying agreements 
without being required to obtain the agreements, SEFs would need to 
comply with the existing requirements under Sec.  37.6(b) for uncleared 
swap confirmations, notwithstanding the significant burdens of doing 
so. The Commission understands that the financial, administrative, and 
logistical burdens to collect and maintain bilateral transaction 
agreements from individual counterparties would be high. SEFs have 
stated that they are unable to develop a cost-effective method to 
request, accept and maintain a library of every relevant previous 
agreement between counterparties.\97\ SEFs have also noted that the 
potential number of previous agreements is considerable, given that SEF 
counterparties often enter into agreements with many other parties and 
may have multiple agreements for different asset classes.\98\
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    \97\ See WMBAA, Request for Extended Relief from Certain 
Requirements under Parts 37 and 45 Related to Confirmations and 
Recordkeeping for Swaps Not Required or Intended to be Cleared, at 3 
(Mar. 1, 2016).
    \98\ Id.
---------------------------------------------------------------------------

    The Commission believes that the addition of Sec.  37.6(b)(1) 
should benefit both SEFs and market participants by decreasing the 
financial, administrative, and logistical burdens to execute an 
uncleared swap on a SEF. Not only would a SEF not be required to expend 
time and resources to gather and maintain all of the underlying 
relationship documentation between all possible counterparties on the 
SEF, but market participants would also not be required to expend time 
and resources in gathering and submitting this documentation to the 
SEF, including any amendments or updates to that documentation.
    The Commission notes that these benefits are currently available to 
SEFs and market participants through the existing no-action position 
provided by Commission staff in NAL No. 17-17. As such, to the extent 
that SEFs, and by extension market participants, have relied on the 
existing no-action position to avoid the above-described financial, 
operational and logistical burdens, they have been availing themselves 
of the benefits of these reduced burdens.
    The Commission also recognizes that many SEFs have already expended 
resources to implement technological and operational changes needed to 
avail themselves of the no-action position under NAL No. 17-17. These 
rule amendments would preclude the need to expend additional resources 
to negate those changes.
    Further, the rule amendments do not change the existing requirement 
for a SEF to issue a confirmation of all terms of an uncleared swap 
transaction that is executed on or pursuant to the rules of the SEF. If 
a SEF was not required to issue a confirmation that includes or 
incorporates by reference all of the terms of such a transaction, the 
counterparties to the swap might be subject to other Commission 
regulations that impose such obligations, and therefore, increased 
costs. For example, where one of the counterparties to an uncleared 
swap transaction is an SD or MSP, Sec.  23.501 requires that the SD or 
MSP issue a confirmation for the transaction as soon as technologically 
practicable.\99\
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    \99\ See 17 CFR 23.501(a). As discussed above, subject to 
specified conditions, Sec.  23.501(a)(4)(i) provides a safe harbor 
from this requirement when a SEF issues a confirmation for the 
transaction.
---------------------------------------------------------------------------

    SEFs should also benefit from the requirement to confirm 
transaction terms ``as soon as technologically'' practicable after 
execution, rather than at the same time as execution. As noted above, 
the Commission believes that this amendment to the timing standard in 
Sec.  37.6(b) reflects existing SEF capabilities while continuing to 
promote the Commission's goals of providing swap counterparties with 
legal certainty in a prompt manner.
b. Costs
    With respect to uncleared swaps, the addition of Sec.  37.6(b)(1) 
could reduce the financial integrity of transactions on SEFs compared 
to the current rule. There could be a greater risk of misunderstanding 
between the counterparties to a swap transaction if SEFs do not provide 
all the terms of the transaction at the time of execution, instead 
incorporating certain terms by reference. Even when underlying 
agreements are incorporated by reference, confusion could arise from 
issues such as multiple versions of an agreement with the same 
labeling, or missing sections. However, the Commission does not expect 
that this risk will materially reduce the integrity of the swaps 
market. The Commission notes that the relevant underlying agreements 
usually establish relationship terms between counterparties that govern 
all trading between them in uncleared swaps, and do not generally 
concern the terms of specific transactions.
    To the extent that SEFs are relying on the existing no-action 
position provided by Commission staff in NAL No. 17-17, they could 
continue to implement existing industry practice related to 
confirmations for uncleared swap transactions which should not impose 
costs on the SEFs. But to the extent that SEFs need to modify their 
rules or procedures in light of the rule amendments, such as by 
removing the SEF rules required as conditions under NAL No. 17-17, they 
may incur modest costs.
c. Consideration of Alternatives
    The relevant no-action position set forth in NAL No. 17-17, upon 
which the rule amendments are based, is subject to withdrawal by 
Commission staff. In addressing alternatives to adopting the amendments 
to Sec.  37.6(b), the Commission considered the costs and benefits 
associated with enforcing the requirements of existing Sec.  37.6(b). 
The Commission believes that adopting the amendments to Sec.  37.6(b), 
and the conforming amendments set forth in these final rules, would 
help to maintain the benefits previously articulated in the SEF Core 
Principles Final Rule, but also reduce related costs for SEFs with 
respect to confirmation requirements.\100\
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    \100\ The Commission recognized the important benefits provided 
by the Sec.  37.6(b) confirmation requirements in the cost-benefit 
considerations to the SEF Core Principles Final Rule. With respect 
to those benefits, the Commission stated that the requirements 
would, among other things, (i) provide legal certainty to market 
participants; (ii) promote accuracy for counterparties regarding 
exposure levels with other counterparties; and (iii) reduce costs 
and risks involved with resolving error trade disputes between 
counterparties. See SEF Core Principles Final Rule at 33570.

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[[Page 35001]]

d. Section 15(a) Factors
(1) Protection of Market Participants and the Public
    The rule amendments should continue to promote the legal certainty 
of swap transactions executed on SEFs. The amendments to Sec.  37.6 for 
uncleared swaps, and the conforming amendments set forth in these final 
rules, will clarify compliance requirements, consistent with the 
position taken by Commission staff in NAL No. 17-17, while helping to 
maintain the protection of market participants and the public.
(2) Efficiency, Competitiveness, and Financial Integrity of Markets
    The amendments to Sec.  37.6 for uncleared swaps, and the 
conforming amendments set forth in these final rules, will ease 
compliance for SEFs and market participants on a longer-term basis, 
i.e., by providing a regulatory solution beyond the corresponding no-
action position provided by Commission staff in NAL No. 17-17. This may 
improve the efficiency of the swap markets with respect to issuing and 
transmitting swap confirmations to counterparties. In particular, SEFs 
would attain greater operational efficiency because they would not be 
required to develop an infrastructure for collecting and maintaining 
all relevant underlying, previously negotiated agreements between 
counterparties transacting on the SEF.
    As noted above, with respect to uncleared swaps, the addition of 
Sec.  37.6(b)(1) could reduce the financial integrity of transactions 
on SEFs compared to the current rule. There could be a greater risk of 
misunderstanding between the counterparties to a swap transaction if 
SEFs do not provide all the terms of the transaction at the time of 
execution, instead incorporating certain terms by reference. Even when 
underlying agreements are incorporated by reference, confusion could 
arise from issues such as multiple versions of an agreement with the 
same labeling, or missing sections. However, the Commission does not 
expect that this risk will materially reduce the integrity of the swaps 
market. As noted above, the Commission notes that the relevant 
underlying agreements usually establish relationship terms between 
counterparties that govern all trading between them in uncleared swaps, 
and do not generally concern the terms of specific transactions. 
Moreover, the rule amendments could encourage financial integrity of 
the swap markets by, among other things, providing clarity that the 
terms of an uncleared swap confirmation issued by a SEF supersedes any 
conflicting terms in underlying agreements between the counterparties.
(3) Price Discovery
    The Commission is not aware of significant effects on the price 
discovery process from the amendments to Sec.  37.6, and the conforming 
amendments set forth in these final rules, regarding confirmations.
(4) Sound Risk Management Practices
    The amendments to the confirmation requirements in Sec.  37.6(b), 
and the conforming amendments set forth in these final rules, will 
maintain the promotion of sound risk management practices with respect 
to the requirement for SEFs to issue transaction confirmations, i.e., 
by providing market participants with the certainty that transactions 
executed on or pursuant to the rules of a SEF will be legally 
enforceable with respect to all counterparties to the transaction.\101\
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    \101\ See supra note 100.
---------------------------------------------------------------------------

(5) Other Public Interest Considerations
    The Commission is identifying a public interest benefit in 
codifying the no-action position in NAL No. 17-17, where the efficacy 
of that position has been demonstrated. In such a situation, the 
Commission believes it serves the public interest to engage in notice-
and-comment rulemaking, where it seeks and considers the views of the 
public in amending its regulations, rather than leaving SEFs to 
continue to rely on a staff-provided no-action position that does not 
bind the Commission, provides less long-term certainty, and offers a 
more limited opportunity for public input.

D. Antitrust Considerations

    Section 15(b) of the CEA requires the Commission to take into 
consideration the public interest to be protected by the antitrust laws 
and endeavor to take the least anti-competitive means of achieving the 
objectives of the CEA, in issuing any order or adopting any Commission 
rule or regulation.\102\ The Commission does not anticipate that the 
amendments to parts 23 and 37 of its regulations would promote or 
result in anti-competitive consequences or behavior. The Commission did 
not receive any comments on any anti-competitive consequences or 
behavior.
---------------------------------------------------------------------------

    \102\ 7 U.S.C. 19(b).
---------------------------------------------------------------------------

List of Subjects

17 CFR Part 23

    Confirmations, Swaps.

17 CFR Part 37

    Swaps, Swap confirmations, Uncleared swap confirmations, Swap 
execution facilities.

    For the reasons stated in the preamble, the Commodity Futures 
Trading Commission amends 17 CFR parts 23 and 37 to read as follows:

PART 23--SWAP DEALERS AND MAJOR SWAP PARTICIPANTS

0
1. The authority citation for part 23 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b-1, 6c, 6p, 6r, 6s, 6t, 
9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21. Section 23.160 also 
issued under 7 U.S.C. 2(i); Sec. 721(b), Pub. L. 111-203, 124 Stat. 
1641 (2010).


0
2. In Sec.  23.501, revise paragraph (a)(4)(i) to read as follows:


Sec.  23.501  Swap confirmation.

    (a) * * *
    (4) * * *
    (i) Any swap transaction executed on or pursuant to the rules of a 
swap execution facility or designated contract market shall be deemed 
to satisfy the requirements of this section, provided that the rules of 
the swap execution facility or designated contract market establish 
that confirmation of all terms of the transaction shall take place as 
soon as technologically practicable after execution.
* * * * *

PART 37--SWAP EXECUTION FACILITIES

0
3. The authority citation for part 37 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a-2, 7b-3, and 12a, as 
amended by Titles VII and VIII of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376.


0
4. Revise Sec.  37.6 to read as follows:


Sec.  37.6  Enforceability.

    (a) A transaction executed on or pursuant to the rules of a swap 
execution facility shall not be void, voidable, subject to rescission, 
otherwise invalidated, or rendered unenforceable as a result of:
    (1) A violation by the swap execution facility of the provisions of 
section 5h of the Act or this part;

[[Page 35002]]

    (2) Any Commission proceeding to alter or supplement a rule, term, 
or condition under section 8a(7) of the Act or to declare an emergency 
under section 8a(9) of the Act; or
    (3) Any other proceeding the effect of which is to:
    (i) Alter or supplement a specific term or condition or trading 
rule or procedure; or
    (ii) Require a swap execution facility to adopt a specific term or 
condition, trading rule or procedure, or to take or refrain from taking 
a specific action.
    (b) A swap execution facility shall provide each counterparty to a 
transaction that is executed on or pursuant to the rules of the swap 
execution facility with a written record of all of the terms of the 
transaction which shall legally supersede any conflicting terms of a 
previous agreement and serve as a confirmation of the transaction. The 
confirmation of all terms of the transaction shall take place as soon 
as technologically practicable after execution; provided that specific 
customer identifiers for accounts included in bunched orders involving 
swaps need not be included in confirmations provided by a swap 
execution facility if the applicable requirements of Sec.  1.35(b)(5) 
of this chapter are met.
    (1) For a confirmation of an uncleared swap transaction, the swap 
execution facility may satisfy the requirements of this paragraph (b) 
by incorporating by reference terms from underlying, previously 
negotiated agreements governing such transaction between the 
counterparties, without obtaining such incorporated agreements except 
as otherwise necessary to fully perform its operational, risk 
management, governance, or regulatory functions, or any requirements 
under this part.
    (2) [Reserved]

    Issued in Washington, DC, on April 25, 2024, by the Commission.
Robert Sidman,
Deputy Secretary of the Commission.

    Note: The following appendices will not appear in the Code of 
Federal Regulations.

Appendices to Swap Confirmation Requirements for Swap Execution 
Facilities--Voting Summary and Chairman's and Commissioners' Statements

Appendix 1--Voting Summary

    On this matter, Chairman Behnam and Commissioners Johnson, 
Goldsmith Romero, Mersinger, and Pham voted in the affirmative. No 
Commissioner voted in the negative.

Appendix 2--Statement of Chairman Rostin Behnam

    I am very pleased that the Commission voted to finalize 
necessary amendments to the Commission's regulations addressing 
longstanding issues with the uncleared swap confirmation 
requirements under Rule 37.6(b). During the initial implementation 
of part 37, SEFs informed the CFTC that the confirmation requirement 
for uncleared swaps was operationally and technologically difficult 
and impractical to implement. In light of these challenges, the 
Division of Market Oversight provided targeted no-action positions 
for SEFs with respect to certain provisions of Commission 
regulations throughout the last decade.\1\
---------------------------------------------------------------------------

    \1\ See CFTC Letter No. 13-58, Time Limited No-Action Relief to 
Temporarily Registered Swap Execution Facilities from Commission 
Regulation 37.6(b) for non-Cleared Swaps in All Asset Classes (Sept. 
30, 2013), https://www.cftc.gov/csl/13-58/download; CFTC Letter No. 
14-108, Staff No-Action Position Regarding SEF Confirmations and 
Recordkeeping Requirements under Certain Provisions Included in 
Regulations 37.6(b) and 45.2 (Aug. 18, 2014), https://www.cftc.gov/csl/14-108/download; CFTC Letter No. 15-25, Extension of No-Action 
Relief for SEF Confirmation and Recordkeeping Requirements under 
Commission Regulations 37.6(b), 37.1000, 37.1001, and 45.2, and 
Additional Relief for Confirmation Data Reporting Requirements under 
Commission Regulation 45.3(a) (Apr. 22, 2015), https://www.cftc.gov/csl/15-25/download; CFTC Letter No. 16-25, Extension of No-Action 
Relief for Swap Execution Facility Confirmation and Recordkeeping 
Requirements under Commodity Futures Trading Commission Regulations 
37.6(b), 37.1000, 37.1001, 45.2, and 45.3(a) (Mar. 14, 2016), 
https://www.cftc.gov/csl/16-25/download; and CFTC Letter no. 17-17, 
Extension of No-Action Relief for Swap Execution Facility 
Confirmation and Recordkeeping Requirements under Commodity Futures 
Trading Commission Regulations 37.6(b), 37.1000, 37.1001, 45.2, and 
45.3(a) (Mar. 24, 2017), https://www.cftc.gov/csl/17-17/download.
---------------------------------------------------------------------------

    As there was no workable solution that could effectuate the 
original language of the relevant rule, the Commission is has voted 
to amend Rule 37.6(b) to codify the longstanding staff no-action 
position. The amendment enables SEFs to incorporate terms by 
reference in an uncleared swap confirmation without being required 
to obtain the underlying, previously negotiated agreements between 
the counterparties. An amendment to Rule 23.501 will clarify the 
consistent treatment of trades executed away from a SEF or 
designated contract market (DCM) and permit confirmation of all 
terms of a swap transaction as soon as technologically practicable 
following execution, as opposed to requiring confirmation ``at the 
same time as execution.'' \2\
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    \2\ Commission Rule 23.501(a)(4)(i), 17 CFR 23.501(a)(4)(i).
---------------------------------------------------------------------------

    This final rule is an example of my continuing focus on 
providing market participants with clarity and certainty by, where 
possible, codifying existing staff no-action positions.
    I would like to thank Roger Smith in our Division of Market 
Oversight for his work on this important final rule.

Appendix 3--Statement of Commissioner Kristin N. Johnson

    An essential component of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act) is its framework for the 
regulation of swaps, including central clearing and trade execution 
requirements, registration and comprehensive regulation of swap 
dealers, and recordkeeping and reporting requirements.
    I vote to approve today's final rule on Swap Confirmation 
Requirements for Swap Execution Facilities (Final Rule), which 
facilitates predictability and consistency in swaps markets by 
codifying long-standing no-action relief into regulation, while 
maintaining a robust regulatory regime for swaps and swap execution 
facilities (SEFs).
    The Dodd-Frank Act amended the Commodity Exchange Act (CEA) by 
adding Section 5h, which provides that a person may not operate ``a 
facility for the trading or processing of swaps unless the facility 
is registered as a [SEF] or as a designated contract market.'' \1\ A 
SEF allows multiple participants to execute or trade swaps. As such, 
SEFs facilitate swap transactions in our markets by facilitating the 
execution of swaps between market participants. Additionally, SEFs 
play a critical role in price discovery and transparency and 
policing and reporting swap transactions in an effort to monitor 
systemic risk.
---------------------------------------------------------------------------

    \1\ 7 U.S.C. 7b-3(a).
---------------------------------------------------------------------------

    In 2013, the Commission adopted new rules and principles for 
SEFs. Under CFTC Regulation 37.6(b), a SEF must provide each 
counterparty to cleared and uncleared swaps with ``a written record 
of all of the terms of the transaction which shall legally supersede 
any previous agreement and serve as a confirmation of the 
transaction.'' \2\ This confirmation is required to ``take place at 
the same time as execution,'' subject to certain exceptions related 
to bunched orders involving swaps.\3\
---------------------------------------------------------------------------

    \2\ 17 CFR 37.6(b).
    \3\ Id.
---------------------------------------------------------------------------

    In the adopting release, the Commission noted that a SEF may 
comply with the swap confirmation requirement for uncleared swaps by 
incorporating terms set forth in master agreements previously 
negotiated by counterparties, if such agreements had been submitted 
to the SEF prior to execution and the counterparties ensure that 
nothing in the confirmation terms contradict the terms incorporated 
from the master agreement.\4\ SEFs and market participants voiced 
concerns that it was operationally and technologically difficult and 
impracticable to obtain and store the underlying, bespoke, highly-
negotiated swap agreements of SEF members for purposes of satisfying 
the swap confirmation requirement.
---------------------------------------------------------------------------

    \4\ See Core Principles and Other Requirements for Swap 
Execution Facilities, 78 FR 33,476, 33,491 n.195 (June 4, 2013).
---------------------------------------------------------------------------

    Pursuant to a no-action letter issued in March 2017, which was 
the last extension of a no-action letter originally issued in August 
2014,\5\ SEFs were permitted to incorporate by

[[Page 35003]]

reference the terms of previously-negotiated agreements and were 
relieved of the obligation to: (1) obtain documents incorporated by 
reference in a swap confirmation and (2) report confirmation data 
contained in such agreements. SEFs were required to comply with 
certain additional conditions, including that their rulebooks 
require participants to provide copies of the underlying agreements 
to the SEF upon request.
---------------------------------------------------------------------------

    \5\ CFTC No-Action Letter 17-17 (Extension of No-Action Relief 
for Swap Execution Facility Confirmation and Recordkeeping 
Requirements under Commodity Futures Trading Commission Regulations 
37.6(b), 37.1000, 37.1001, 45.2, and 45.3(a)) (Mar. 24, 2017), 
https://www.cftc.gov/csl/17-17/download; CFTC No-Action Letter 14-
108 (Staff No-Action Position Regarding SEF Confirmations and 
Recordkeeping Requirements under Certain Provisions Included in 
Regulations 37.6(b) and 45.2) (Aug. 18, 2014), https://www.cftc.gov/csl/14-108/download.
---------------------------------------------------------------------------

    On August 25, 2023, the Commission released a Notice of Proposed 
Rulemaking to codify this no-action relief (Proposed Rule) for 
uncleared swaps. The Commission did not incorporate the conditions 
in No-Action Letter 17-17 into new CFTC Regulation 37.6(b)(1). The 
Commission takes the view that, as noted below, the existing 
requirements for SEFs under the CEA, particularly Core Principle 5, 
and the Commission's Part 37 regulations sufficiently account for 
and obviate the need for these conditions.\6\
---------------------------------------------------------------------------

    \6\ Final Rule, Swap Confirmation Requirements for Swap 
Execution Facilities, at 14.
---------------------------------------------------------------------------

    As I noted at that time, the Commission ``issued guidance and 
exemptive relief based on concerns that SEFs had been unable to 
develop a practicable and cost-effective method to request, accept, 
and maintain a library of the underlying previously-negotiated 
freestanding agreements between counterparties.'' \7\
---------------------------------------------------------------------------

    \7\ Kristin N. Johnson, Commissioner, CFTC, Statement in Support 
of the Notice of Proposed Rulemaking on Swap Confirmation 
Requirements for Swap Execution Facilities (July 26, 2023), https://www.cftc.gov/PressRoom/SpeechesTestimony/johnsonstatement072623c.
---------------------------------------------------------------------------

    The Final Rule approved today fully adopts the Proposed Rule. In 
addition to permitting SEFs to incorporate by reference terms of 
previously negotiated agreements between counterparties, without 
having to obtain a copy of such agreements, the Final Rule will 
amend CFTC Regulation 37.6(b) to permit confirmation of all terms of 
a swap transaction to take place ``as soon as technologically 
practicable'' after the execution of the swap transaction. 
Additionally, the Final Rule amends CFTC Regulation 37.6(b) to make 
clear that the confirmation a SEF provides under CFTC Regulation 
37.6(b) legally supersedes only conflicting terms in a previous 
agreement.
    Importantly, as noted above, both SEFs and the Commission will 
retain the ability to obtain essential information, including copies 
of the underlying agreements for uncleared swaps. Under SEF Core 
Principle 5, a SEF must ``[e]stablish and enforce rules that will 
allow the facility to obtain any necessary information to perform 
any of the functions described in section 5h of the [CEA].'' \8\ The 
SEF must also ``[p]rovide [this] information to the Commission on 
request.'' \9\ A SEF must also have ``the authority to examine books 
and records kept by [its] members and by persons under 
investigation.'' \10\ As the Final Rule notes, given these 
requirements, a SEF should have ``the ability and authority to 
request copies of the underlying agreements that are incorporated by 
reference into a confirmation for an uncleared swap transaction and 
to provide such agreements to the Commission upon request.'' \11\
---------------------------------------------------------------------------

    \8\ 17 CFR 37.500.
    \9\ Id.
    \10\ 17 CFR 37.203(b).
    \11\ Final Rule, Swap Confirmation Requirements for Swap 
Execution Facilities, at 14-15.
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    I support this Final Rule, which provides a practical approach 
to implementing our regulatory requirements, while maintaining 
robust oversight of SEFs and our markets.
    Thank you to the staff of the Division of Market Oversight and 
Roger Smith as well as the Office of the General Counsel, the Market 
Participants Division, and the Office of the Chief Economist, for 
their hard work on this Final Rule.

Appendix 4--Statement of Commissioner Summer K. Mersinger

    Workable rules are essential to maintain the confidence of the 
American public in the integrity of our derivatives markets. So, 
when we become aware that our rules are not as workable as we 
thought, or impose substantial operational burdens with little 
corresponding regulatory benefit, we should address these 
shortcomings promptly. Unfortunately, though, the Commission 
sometimes chooses to ``kick the can down the road'' by relying on 
staff no-action letters instead--often for many years--without 
tackling the root cause of the problem in the rule itself.
    I have not been shy about expressing my feelings related to no-
action letters during my tenure as a Commissioner. Yes, there are 
appropriate reasons for staff to issue no-action letters, and I do 
see their utility in providing flexibility when needed. However, I 
believe there has at times been an over-reliance on this practice at 
the agency, and we must move forward in a manner that respects the 
role of the Commissioners in agency policy-making.
    My point is perfectly illustrated by Commission Rule 37.6(b) 
regarding confirmations for swaps executed on or pursuant to the 
rules of a swap execution facility (``SEF''). The rule requires that 
a SEF provide each counterparty to a transaction with a written 
record of all the terms of the transaction.\1\ But things get 
complicated with respect to uncleared swaps, since the terms of such 
swaps also may include previously-negotiated agreements between the 
counterparties (such as an ISDA Master Agreement, and related 
Schedule and Credit Support Annex).
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    \1\ Commission Rule 37.6(b), 17 CFR 37.6(b).
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    Accordingly, when the Commission adopted Rule 37.6(b) in 2013, 
it stated that a SEF's written confirmation of an uncleared swap can 
incorporate the terms of such agreements by reference, but with a 
catch--namely, that such agreements must be submitted to the SEF 
prior to execution.\2\ This approach imposed on each SEF the 
virtually impossible (and, frankly, needless) task of building and 
maintaining a library of every previous bilateral agreement from 
counterparties to uncleared swap transactions on its platform.
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    \2\ See Core Principles and Other Requirements for Swap 
Execution Facilities, 78 FR 33476, 33491 n.195 (June 4, 2013).
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    Recognizing the enormous operational problems posed by the 
Commission's approach to SEF swap confirmations for uncleared swaps, 
as well as the limited value of that approach, Commission staff 
issued four successive no-action letters beginning in 2014.\3\ 
Although it has taken a full decade, I am pleased that the 
Commission is finally adopting a permanent and practicable SEF 
confirmation solution. These rule amendments, among other things, 
will codify the existing staff no-action position that permits SEFs, 
in an uncleared swap confirmation, to incorporate by reference the 
terms of previously-negotiated counterparty agreements without 
obtaining the underlying agreements themselves.
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    \3\ See (i) CFTC Letter No. 14-108 (Division of Market Oversight 
(``DMO'') August 18, 2014); (ii) CFTC Letter No. 15-25 (DMO April 
22, 2015); (iii) CFTC Letter No. 16-25 (DMO March 14, 2016); and 
(iv) CFTC Letter No. 17-17 (DMO March 24, 2017). These no-action 
letters are available at https://www.cftc.gov/LawRegulation/CFTCStaffLetters/letters.htm?field_csl_letter_types_target_id%5B%5D=636.
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    But there remains more work to be done in this regard. I will 
continue to push the agency to act through notice-and-comment 
rulemaking, rather than relying on perpetual staff no-action relief, 
with respect to other rules that are not workable for those who must 
comply with them--especially where, as here, their asserted benefits 
are largely illusory.

Appendix 5--Statement of Commissioner Caroline D. Pham

    I support the Final Rule on Swap Confirmation Requirements for 
Swap Execution Facilities (SEF Confirmation Final Rule) because it 
resolves the temporal impossibility of requiring SEF confirmations 
at the time of execution for block trades, which are in fact 
executed away from the SEF and then submitted to the SEF afterwards. 
I would like to thank Roger Smith, Nora Flood, and Vince McGonagle 
in the Division of Market Oversight for their work on the SEF 
Confirmation Final Rule.
    Conflicting or impossible regulatory requirements can make 
compliance with our rules nonsensical.\1\ That is clear from the 
years of CFTC staff no-action relief that led to the rule amendments 
codified today in the SEF Confirmation Final Rule.\2\ I am pleased

[[Page 35004]]

that the Commission has decided to fix an unworkable aspect of our 
existing rules, and encourage the Commission to continue to do so 
promptly when market participants identify these problems in the 
future. Continuous improvement of our regulatory frameworks, as 
appropriate, serves the public interest of well-functioning markets 
that are efficient and effective in providing risk management and 
price discovery.
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    \1\ See Statement of Commissioner Caroline D. Pham In Support of 
Swap Confirmation Requirements for Swap Execution Facilities 
Proposal (July 26, 2023), https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement072623c.
    \2\ See, e.g., CFTC Staff Letter No. 17-17, Re: Extension of No-
Action Relief for Swap Execution Facility Confirmation and 
Recordkeeping Requirements under Commodity Futures Trading 
Commission Regulations 37.6(b), 37.1000, 37.1001, 45.2, and 45.3(a) 
(Mar. 24, 2017).

[FR Doc. 2024-09368 Filed 4-30-24; 8:45 am]
BILLING CODE 6351-01-P