In a new CFTC advisory, the CFTC Division of Market Oversight ("DMO") clarified trading activities that could trigger compliance with swap execution facility ("SEF") registration requirements pursuant to Section 5h(a)(1) ("SEFs") of the CEA and CFTC Rule 37.3(a)(1) ("Requirements and procedures for registration").

CFTC Letter 21-19 outlines scenarios that would trigger the registration requirement:

  • Facilities offering one-to-many or bilateral communications. The DMO stated that it is the "ability to execute or trade swaps" with multiple participants that satisfies the multiple-to-multiple prong of the SEF definition and, therefore, requires registration. DMO staff described its review of facilities that initiate a bid or offer through one-on-one communication "chats," concluding that, because a participant could choose to send the communication to more than one participant, the platform enables bids and offers to be accepted from multiple participants. The staff distinguished "liquidity provider" platforms, where a single entity is the counterparty, from "request for quote" ("RFQ") systems where a requester can initiate transactions by submitting an RFQ to many participants.
  • Entities listing only swaps that are not subject to the trade execution requirement. The DMO explained that, even if a facility only deals in swaps that are not subject to the trade execution requirement under CEA Section 2(h)(8), that facility still may be required to register with the CFTC as a SEF if it meets the SEF definition under Section 1a(50).
  • Facilities offering non-electronic methods of trading. The DMO clarified that any means of execution, electronic or not, may trigger a SEF registration requirement, noting the CFTC's interpretation of the 2013 final rule, which lists "telephones, internet communications, and electronic transmissions" as potential means of execution.
  • Entities registered with the CFTC in some other capacity. The DMO reminded CFTC-registered entities, specifically registered commodity trading advisors and introducing brokers, that if such an entity operates a facility that meets the SEF definition, it may also be required to register as a SEF. Only registered designated contract markets are provided an exception to the registration requirement.

Primary Sources

  1. CFTC Letter 21-19: Staff Advisory on Swap Execution Facility Registration Requirement
  2. CFTC Press Release: CFTC Staff Issues Advisory to Clarify Activities That May Trigger the SEF Registration Requirement

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