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2013-12250

  • Federal Register, Volume 78 Issue 107 (Tuesday, June 4, 2013)[Federal Register Volume 78, Number 107 (Tuesday, June 4, 2013)]

    [Rules and Regulations]

    [Pages 33605-33632]

    From the Federal Register Online via the Government Printing Office [www.gpo.gov]

    [FR Doc No: 2013-12250]

    [[Page 33605]]

    Vol. 78

    Tuesday,

    No. 107

    June 4, 2013

    Part III

    Commodity Futures Trading Commission

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    17 CFR Parts 37 and 38

    Process for a Designated Contract Market or Swap Execution Facility To

    Make a Swap Available to Trade, Swap Transaction Compliance and

    Implementation Schedule, and Trade Execution Requirement Under the

    Commodity Exchange Act; Final Rule

    Federal Register / Vol. 78 , No. 107 / Tuesday, June 4, 2013 / Rules

    and Regulations

    [[Page 33606]]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Parts 37 and 38

    RIN 3038-AD18

    Process for a Designated Contract Market or Swap Execution

    Facility To Make a Swap Available to Trade, Swap Transaction Compliance

    and Implementation Schedule, and Trade Execution Requirement Under the

    Commodity Exchange Act

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Final rule.

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    SUMMARY: The Commodity Futures Trading Commission (``Commission'') is

    adopting regulations that establish a process for a designated contract

    market (``DCM'') or swap execution facility (``SEF'') to make a swap

    subject to the trade execution requirement pursuant to the Commodity

    Exchange Act (``CEA''). The Commission is also adopting regulations to

    establish a schedule to phase in compliance with the trade execution

    requirement. The schedule will provide additional time for compliance

    with this requirement.

    DATES: The rules will become effective August 5, 2013.

    FOR FURTHER INFORMATION CONTACT: Nhan Nguyen, Special Counsel, Division

    of Market Oversight (``DMO'', 202-418-5932, nnguyen@cftc.gov; Roger

    Smith, Attorney Advisor, DMO, 202-418-5344, rsmith@cftc.gov; or David

    Van Wagner, Chief Counsel, DMO, 202-418-5119, dvanwagner@cftc.gov;

    Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st

    Street, NW., Washington, DC 20581.

    SUPPLEMENTARY INFORMATION:

    Table of Contents

    I. Background

    II. Sections 37.10 and 38.12 of the Commission's Regulations--Final

    Rules

    A. Sections 37.10(a) and 38.12(a)--Procedure To Make a Swap

    Available to Trade

    1. Sections 37.10(a)(1) and 38.12(a)(1)--Required Submission

    2. Sections 37.10(a)(2) and 38.12(a)(2)--Listing Requirement

    3. Submission of a Group, Category, Type or Class of Swaps

    4. Consideration of Swaps on Another SEF or DCM, or Bilateral

    Transactions

    B. Sections 37.10(b) and 38.12(b)--Factors to Consider To Make a

    Swap Available to Trade

    C. Sections 37.10(c) and 38.12(c)--Applicability

    D. Sections 37.10(d) and 38.12(d)--Removal

    E. Annual Review

    F. Notice to the Public of Available To Trade Determinations

    III. Sections 37.12 and 38.11 of the Commission's Regulations--Trade

    Execution Compliance Schedule

    IV. Related Matters

    A. Regulatory Flexibility Act

    B. Paperwork Reduction Act

    1. Proposed Information Provided by Reporting Entities/Persons

    2. Summary of Comments and Commission Response

    C. Cost-Benefit Considerations

    1. Available-to-Trade Rule

    a. Part 40 Process and Determination Factors

    b. Applicability

    c. Consideration of Section 15(a) Factors--Available-to-Trade

    Rule

    2. Trade Execution Compliance Schedule

    V. List of Commenters

    Text of the Regulations, Guidance and Acceptable Practices

    I. Background

    Section 723(a)(3) of the Dodd-Frank Act added section 2(h)(8) of

    the Commodity Exchange Act (``CEA'') to require that swap transactions

    subject to the clearing requirement must be traded on either a

    designated contract market (``DCM'') or swap execution facility

    (``SEF''), unless no DCM or SEF ``makes the swap available to trade''

    or the transaction is not subject to the clearing requirement under

    section 2(h)(7) (the ``trade execution requirement'').\1\

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    \1\ For example, section 2(h)(7) of the CEA, as amended by

    section 723 of the Dodd-Frank Act, provides an exception to the CEA

    section 2(h)(1) clearing requirement (``the end-user exception'') if

    one of the counterparties to a swap (i) is not a financial entity,

    (ii) is using swaps to hedge or mitigate commercial risk, and (iii)

    notifies the Commission how it generally meets its financial

    obligations associated with entering into non-cleared swaps. 7 U.S.C

    2(h)(7). Under the authority given by section 2(h)(7)(C)(ii) of the

    CEA, the Commission has also adopted regulations to exempt certain

    small banks, saving associations, farm credit system institutions,

    and credit unions from the definition of ``financial entity,'' thus

    potentially allowing the transactions of those entities to qualify

    for an exemption from the clearing requirement. 17 CFR 50.5(d). The

    Commission may determine that swap transactions exempted from the

    clearing requirement pursuant to other statutory authority would

    also not be subject to the section 2(h)(8) trade execution

    requirement. For example, on April 11, 2013, the Commission

    published final rules issued under section 4(c) of the CEA to exempt

    swaps between certain affiliated entities (``inter-affiliates'')

    within a corporate group from the clearing requirement. The

    Commission determines that such swaps would not be subject to the

    trade execution requirement.

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    On December 14, 2011, the Commodity Futures Trading Commission

    (``Commission'') proposed regulations to establish a process for a DCM

    or SEF to notify the Commission that a swap is ``available to trade''

    for purposes of the trade execution requirement (``Further Notice of

    Proposed Rulemaking'' or ``FNPRM'').\2\ The proposed regulations would

    be included in part 37 and part 38 of the Commission's regulations to

    implement the available-to-trade provision in section 2(h)(8) of the

    CEA. The comment period for the FNPRM ended on February 13, 2012. The

    Commission received 32 written comments from members of the public and

    hosted a public roundtable on this topic. Commission staff also

    participated in several meetings with market participants.\3\ As a

    result of the written comments received and dialogue with market

    participants, the Commission in this final rule has revised and/or

    eliminated certain provisions that were proposed in the FNPRM.

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    \2\ Process for a Designated Contract Market or Swap Execution

    Facility to Make a Swap Available to Trade, 76 FR 77728 (Dec. 14,

    2011). Sections 5(d)(1) and 5h(f)(1) of the CEA require DCMs and

    SEFs, respectively, to comply with any requirement that the

    Commission may impose by rule or regulation pursuant to section

    8a(5) of the CEA, 7 U.S.C. 12a(5), which authorizes the Commission

    to promulgate such regulations as, in the judgment of the

    Commission, that are reasonably necessary to effectuate any of the

    provisions or to accomplish any of the purposes of the CEA. In

    addition, section 721(b) of the Dodd-Frank Act provides the

    Commission with authority to adopt rules to define ``[any] term

    included in an amendment to the Commodity Exchange Act . . . made by

    [the Dodd-Frank Act].'' 15 U.S.C. 8321, as enacted by section 721 of

    the Dodd-Frank Act.

    \3\ Meeting summaries are available through the Commission's Web

    site at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1125.

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    On September 20, 2011, the Commission also proposed regulations to

    establish a schedule to implement the trade execution requirement.\4\

    The proposed regulations would be included in part 37 and part 38 of

    the Commission's regulations. The comment period for the proposed

    regulations ended on November 4, 2011. The Commission received 33

    written comments from members of the public, and after consideration of

    those comments, is adopting the final implementation schedule for the

    trade execution requirement as proposed, but with certain

    clarifications.

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    \4\ Swap Transaction Compliance and Implementation Schedule:

    Clearing and Trade Execution Requirements under Section 2(h) of the

    CEA, 76 FR 58186 (Sep. 20, 2011).

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    The final regulations adopted herein will become effective August

    5, 2013.

    II. Sections 37.10 and 38.12 of the Commission's Regulations--Final

    Rules

    As proposed in the FNPRM, Sec. Sec. 37.10 and 38.12 established a

    process for a SEF or a DCM, respectively, to make a swap available to

    trade under section 2(h)(8) of the CEA.

    Proposed Sec. Sec. 37.10(a) and 38.12(a) set forth the

    filing procedure that SEFs

    [[Page 33607]]

    and DCMs would utilize to demonstrate that a swap is available to

    trade. Under the proposal, a SEF or DCM would be required to submit an

    available-to-trade determination with the Commission under the rule

    approval and self-certification procedures in part 40 of the

    Commission's regulations.

    Proposed Sec. Sec. 37.10(b) and 38.12(b) set forth eight

    factors that a DCM or SEF may consider, as appropriate, to determine

    that a swap is available to trade.\5\

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    \5\ See infra note 90 and accompanying text.

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    Proposed Sec. Sec. 37.10(c) and 38.12(c) required that

    upon a determination that a swap is available to trade by a SEF or DCM,

    all other DCMs and SEFs listing or offering that swap or an

    economically equivalent swap for trading must also make those swaps

    available to trade.

    Proposed Sec. Sec. 37.10(d) and 38.12(d) required DCMs

    and SEFs to perform an annual review and assessment of their

    determinations.

    A. Sections 37.10(a) and 38.12(a)--Procedure To Make a Swap Available

    to Trade

    1. Sections 37.10(a)(1) and 38.12(a)(1)--Required Submission

    Under proposed Sec. Sec. 37.10(a) and 38.12(a), a SEF or DCM would

    initially determine that a swap is available to trade and submit that

    determination to the Commission, either for approval or self-

    certification, pursuant to the rule filing procedures of part 40 of the

    Commission's regulations.\6\

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    \6\ See Sections 40.5 and 40.6 and Provisions Common to

    Registered Entities, 76 FR 44776 (Jul. 27, 2011). The Commission

    views a DCM or SEF's determination that a swap is available to trade

    as a ``trading protocol'' that falls under the definition of a

    ``rule'' under Sec. 40.1 of the Commission's regulations. Section

    40.1(i) defines a rule as ``any constitutional provision, article of

    incorporation, bylaw, rule, regulation, resolution, interpretation,

    stated policy, advisory, terms and conditions, trading protocol,

    agreement or instrument corresponding thereto, including those that

    authorize a response or establish standards for responding to a

    specific emergency, and any amendment or addition thereto or repeal

    thereof, made or issued by a registered entity or by the governing

    board thereof or any committee thereof, in whatever form adopted.''

    Therefore, SEFs and DCMs would be required to submit a determination

    to the Commission for approval or self-certification under part 40

    of the Commission's regulations.

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    Under Sec. 40.5, a registered entity may request Commission

    approval of a new rule prior to its implementation.\7\ The Commission

    has a 45-day review period to review the request and may extend the

    review period for an additional 45 days in specified circumstances.\8\

    The Commission may also extend the review period beyond an additional

    45 days, based on a written agreement with the registered entity.\9\

    Under Sec. 40.6, a registered entity may submit a new rule to the

    Commission under self-certification procedures. The Commission has 10

    business days to review the rule before it is deemed certified and can

    be made effective. The Commission, however, may stay the certification

    for an additional 90 days, during which time it must provide a 30-day

    public comment period.\10\ Under either procedure, the registered

    entity must initially provide an explanation and analysis of the rule

    and its compliance with the applicable provisions of the CEA, including

    the core principles, and the Commission's regulations thereunder.\11\

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    \7\ 17 CFR 40.5(a).

    \8\ 17 CFR 40.5(c) and (d). In determining whether to extend the

    review period, the Commission will consider whether the proposed

    rule raises novel or complex issues, the submission is incomplete,

    or the requestor does not respond completely to Commission questions

    in a timely manner. 17 CFR 40.5(d)(1).

    \9\ 17 CFR 40.5(d)(2).

    \10\ 17 CFR 40.6(b) and (c). In determining whether to stay a

    self-certification, the Commission will consider whether the rule

    presents novel or complex issues; is accompanied by inadequate

    explanation; or is potentially inconsistent with the CEA. 17 CFR

    40.6(c)(1).

    \11\ See 17 CFR 40.5(a)(5), 40.6(a)(7)(v).

    ---------------------------------------------------------------------------

    In the case of an available-to-trade determination, the

    accompanying explanation and analysis in the submission would detail

    the manner in which the SEF or DCM considered the factors in proposed

    Sec. 37.10(b) or Sec. 38.12(b).\12\ At any time during its review

    under Sec. 40.5 or during the 90-day review period under Sec. 40.6,

    the Commission may notify the registered entity that it objects to the

    proposed certification because it is inconsistent or appears to be

    inconsistent with the CEA or the Commission's regulations.\13\

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    \12\ See infra note 90 and accompanying text for a list of the

    proposed determination factors in the FNPRM.

    \13\ See 17 CFR 40.5(e), 40.6(c)(3).

    ---------------------------------------------------------------------------

    Upon the Commission approving a SEF's or DCM's available-to-trade

    determination or permitting a SEF's or DCM's available-to-trade

    determination certification to become effective, the swap involved

    would be deemed available to trade. If that swap also is subject to the

    clearing requirement, then the swap must be executed on a SEF as a

    Required Transaction (as defined in part 37 of the Commission's

    regulations) or on a DCM in order to satisfy the trade execution

    requirement under section 2(h)(8) of the CEA. The Commission notes that

    the trade execution requirement does not apply to swaps that are not

    subject to the clearing requirement under section 2(h)(1) of the

    CEA.\14\

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    \14\ See supra note 1. The Commission addresses the methods by

    which swaps that are subject to the trade execution requirement must

    be executed on a SEF or DCM. Swaps that are subject to the trade

    execution requirement (and are not block trades as defined under

    Sec. 43.2 of the Commission's regulations) and that are traded on a

    SEF are defined as Required Transactions under part 37 of the

    Commission's regulations governing SEFs. Under Sec. 37.9(a)(2),

    Required Transactions must be executed by either (1) an Order Book,

    as defined in Sec. 37.3(a)(3); or (2) a Request for Quote System,

    as defined in Sec. 37.9(a)(3), that operates in conjunction with an

    Order Book. See Core Principles and Other Requirements for Swap

    Execution Facilities (May 17, 2013). Swaps that are subject to the

    trade execution requirement and traded on a DCM must be executed

    pursuant to subpart J of part 38 of the Commission's regulations,

    which implements revised DCM Core Principle 9 under section 5(d)(9)

    of the CEA, as amended by section 735(b) of the Dodd-Frank Act. 7

    U.S.C. 7(d)(9).

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    Summary of Comments

    With respect to the filing procedures set forth in proposed

    Sec. Sec. 37.10(a) and 38.12(a), several commenters opposed the

    procedures and recommended that all swaps subject to the clearing

    requirement under section 2(h)(1) of the CEA should be subject to the

    trade execution requirement because the Dodd-Frank Act does not specify

    a separate process to make a swap available to trade.\15\ In this

    regard, some commenters stated that under section 2(h)(8)(B) of the

    CEA, swaps subject to the clearing requirement are automatically

    subject to mandatory trade execution unless a SEF or DCM does not list

    the swap for trading.\16\ Some commenters viewed the proposed procedure

    as duplicative of the mandatory clearing determination process and

    accordingly stated that the Commission should rely on the clearing

    determination process to also determine whether a swap is available to

    trade.\17\ The commenters further stated that utilizing the clearing

    determination as the exclusive basis for finding that a swap is

    available to trade would subject more swaps to the trade execution

    [[Page 33608]]

    requirement and further the objectives of the Dodd-Frank Act.\18\

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    \15\ MarketAxess Comment Letter at 3; WMBAA Comment Letter at 3;

    AFR Comment Letter at 3; SDMA Comment Letter at 3; ODEX Comment

    Letter at 1.

    \16\ MarketAxess Comment Letter at 2; AFR Comment Letter at 4;

    ODEX Comment Letter at 1. Section 2(h)(8)(B) of the CEA states that

    mandatory trade execution does not apply ``if no [DCM or SEF] makes

    the swap available to trade'' (emphasis added). 7 U.S.C. 2(h)(8)(B).

    \17\ SDMA Comment Letter at 4-5; WMBAA Comment Letter at 3;

    MarketAxess Comment Letter at 3-5; AFR Comment Letter at 4. See

    infra note 90 and accompanying text for a description of the

    proposed determination factors. Under Sec. 39.5(a)(3)(ii)(A) of the

    Commission's regulations, a mandatory clearing submission must

    include information regarding the ``existence of significant

    outstanding notional exposures, trading liquidity, and adequate

    pricing data'' of a subject swap.

    \18\ WMBAA Comment Letter at 2; MarketAxess Comment Letter at 9.

    ---------------------------------------------------------------------------

    In contrast, some commenters stated that the process for

    determining whether a swap is available to trade is separate from the

    process for determining whether a swap is subject to the clearing

    requirement. Some of the commenters relied on the statutory language

    \19\ and legislative history \20\ of the Dodd-Frank Act to support this

    view, with some commenters arguing that ``available for trading''

    should mean more than mere listing.\21\ As statutory support, several

    commenters stated that section 2(h)(8) of the CEA specifies two

    distinct prerequisites for subjecting a swap to mandatory trade

    execution: (1) The swap must be subject to mandatory clearing and (2)

    the swap must be made available to trade.\22\ Markit also noted that

    the language of the clearing requirement under section 2(h)(1)-(2) of

    the CEA, as enacted by the Dodd-Frank Act, does not address making a

    swap available to trade.\23\ Further, AIMA noted that the clearing

    determination factors differ from the proposed factors in an available-

    to-trade determination.\24\

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    \19\ Markit Comment Letter at 2; ICI Comment Letter at 3-4;

    SIFMA AMG Comment Letter at 3; CEWG Comment Letter at 2; AIMA

    Comment Letter at 1.

    \20\ Some commenters cited the July 2010 Senate floor remarks of

    U.S. Senator Blanche Lincoln, in which she stated that determining

    whether a swap is available to trade should consist of more than

    conducting a listing inquiry. According to Senator Lincoln, ``[t]he

    [Commission] could consider, for example, whether there is a minimum

    amount of liquidity such that the swap can actually be traded on the

    facility. The mere `listing' of the swap by a [SEF], in and of

    itself . . . should not be sufficient to trigger the Trade Execution

    Requirement.'' Markit Comment Letter at 2 n.6; Chatham Comment

    Letter at 2-3; ICI Comment Letter at 3-4.

    \21\ Morgan Stanley Comment Letter at 3; Bloomberg Comment

    Letter at 4; Sunguard Kiodex Comment Letter at 2; Spring Trading

    Comment Letter at 3 (Jan. 12, 2012); ICI Comment Letter at 3-4.

    \22\ SIFMA AMG Comment Letter at 3; ICI Comment Letter at 3;

    CEWG Comment Letter at 2.

    \23\ Markit Comment Letter at 2.

    \24\ AIMA Comment Letter at 1.

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    Some commenters also asserted that the mandatory clearing

    determination and the proposed available-to-trade determination differ

    from one another in practical respects.\25\ For example, SIFMA AMG

    stated that whether a swap should be mandatorily cleared depends on

    whether the swap (1) can be priced for a derivatives clearing

    organization's (``DCO'') risk management purposes; and (2) is

    standardized; therefore, unlike the available-to-trade determination,

    liquidity is not a primary consideration.\26\ AIMA and Morgan Stanley

    similarly commented that stated liquidity is considered in a clearing

    determination to make certain that a DCO could adequately price the

    swap to calculate margin requirements and fulfill risk management

    requirements. They further stated that the minimum liquidity needed to

    clear a swap is lower than the minimum liquidity needed to support

    mandatory trade execution on a DCM or a SEF.\27\ Markit and FXall also

    stated that differing tenors of a given swap would be clearable if any

    tenor of that swap is cleared, but different tenors would have

    significantly different liquidity characteristics.\28\

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    \25\ MFA Comment Letter at 3; SIFMA AMG Comment Letter at 4;

    Morgan Stanley Comment Letter at 4; AIMA Comment Letter at 1-2; FHLB

    Comment Letter at 4 n.2; ICI Comment Letter at 3-4; Markit Comment

    Letter at 3; FXall Comment Letter at 5.

    \26\ SIFMA AMG Comment Letter at 4.

    \27\ AIMA Comment Letter at 1-2; Morgan Stanley Comment Letter

    at 4.

    \28\ Markit Comment Letter at 3; FXall Comment Letter at 5.

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    Therefore, commenters stated that only the more liquid swaps should

    be available to trade \29\ to avoid negatively affecting swap pricing

    and liquidity.\30\ Morgan Stanley and FXall stated that subjecting

    illiquid swaps to the trade execution requirement would further reduce

    liquidity in those swaps, as market participants would be reluctant to

    reveal their trading interest in low volume markets; such premature

    imposition of the trade execution requirement upon illiquid swaps would

    likely result in increasing bid-ask spreads and trading costs.\31\ ICI

    commented that the risks of low trading volume would drive market

    participants to other markets.\32\

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    \29\ MFA Comment Letter at 3; Markit Comment Letter at 2; FXall

    Comment Letter at 2-3, CEWG Comment Letter at 2; JPMorgan Comment

    Letter at 2; FHLB Comment Letter at 4 n.2; Morgan Stanley Comment

    Letter at 3; Vanguard Comment Letter at 4; ICI Comment Letter at 3-

    4; Chatham Comment Letter at 2.

    \30\ Vanguard Comment Letter at 4; FXall Comment Letter at 5;

    ICI Comment Letter at 4; Morgan Stanley Comment Letter at 3-4.

    \31\ Morgan Stanley Comment Letter at 3; FXall Comment Letter at

    5.

    \32\ ICI Comment Letter at 4.

    ---------------------------------------------------------------------------

    MFA also commented that separate processes, with adequate

    Commission oversight and public comment, would mitigate potential

    ``first-mover advantage'' issues.\33\

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    \33\ MFA Comment Letter at 2. See infra discussion at note 41.

    ---------------------------------------------------------------------------

    Of the commenters who supported separate processes, some commenters

    supported the proposed filing procedures.\34\ CBOE stated that

    Sec. Sec. 40.5 and 40.6 allow for timely Commission review and have

    been successfully utilized in other areas.\35\

    ---------------------------------------------------------------------------

    \34\ CBOE Comment Letter at 1-2; Spring Trading Comment Letter

    at 2 (Jan. 12, 2012); AIMA Comment Letter at 3 (supporting use of

    the Sec. 40.5 rule approval process only).

    \35\ CBOE Comment Letter at 1-2.

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    Other commenters, however, opposed the proposed filing

    procedures.\36\ ISDA stated that neither Sec. 40.5 nor Sec. 40.6

    should be used because an available-to-trade determination is neither a

    trading protocol nor a rule.\37\ Some opposing commenters stated that

    the Commission, not SEFs and DCMs, should determine whether a swap is

    available to trade.\38\ Some commenters asserted that the Commission is

    more qualified to make the determination based on its access to market

    data.\39\ Several commenters also stated that SEFs and DCMs should not

    make the determination because they may have a financial incentive-

    based conflict of interest to maximize the number of swaps subject to

    mandatory trade execution.\40\ Commenters expressed a related concern

    that a SEF's or DCM's determination would be influenced by a desire to

    gain a ``first-mover advantage,'' (i.e., acquiring market share in the

    trading of a particular swap before other venues can list and develop

    trading activity in that swap), which would lead to premature or ill-

    advised mandatory trading of illiquid swaps on a SEF or DCM.\41\

    Further, several commenters stated that neither Sec. 40.5 nor Sec.

    40.6 would provide the Commission with adequate time to review rule

    filings and to solicit public comment, which would allow SEFs and DCMs

    to acquire this advantage \42\ and

    [[Page 33609]]

    make it hard for the Commission to reject a determination.\43\

    ---------------------------------------------------------------------------

    \36\ Markit Comment Letter at 5; ISDA Comment Letter at 4-5;

    Bloomberg Comment Letter at 3; CEWG Comment Letter at 2-3; Morgan

    Stanley Comment Letter at 5-6; AIMA Comment Letter at 2-3 (opposing

    use of Sec. 40.6 certification process).

    \37\ ISDA Comment Letter at 6.

    \38\ Markit Comment Letter at 5-6; Vanguard Comment Letter at 5;

    Geneva Energy Markets Comment Letter at 2; JPMorgan Comment Letter

    at 1; CME Comment Letter at 4-5; FHLB Comment Letter at 3; FSR

    Comment Letter at 4; FXall Comment Letter at 5-6; Morgan Stanley

    Comment Letter at 5-6; CEWG Comment Letter at 6; ISDA Comment Letter

    at 3-4, 6; Tradeweb Comment Letter at 4-5.

    \39\ FHLB Comment Letter at 3-4; ISDA Comment Letter at 3;

    Markit Comment Letter at 5; FXall Comment Letter at 6.

    \40\ Bloomberg Comment Letter at 2; CME Comment Letter at 4-5;

    FHLB Comment Letter at 3; Markit Comment Letter at 5; CEWG Comment

    Letter at 2; ISDA Comment Letter at 3; Morgan Stanley Comment Letter

    at 5-6; AIMA Comment Letter at 2; Vanguard Comment Letter at 5;

    Geneva Energy Markets Comment Letter at 2; JPMorgan Comment Letter

    at 2.

    \41\ FXall Comment Letter at 6-7; Bloomberg Comment Letter at 2;

    Tradeweb Comment Letter at 2-3; FSR Comment Letter at 2; ISDA

    Comment Letter at 3; CME Comment Letter at 4; Morgan Stanley Comment

    Letter at 5-6.

    \42\ UBS Comment Letter at 1; Chatham Comment Letter at 3; AIMA

    Comment Letter at 2; ISDA Comment Letter at 3-5; CEWG Comment Letter

    at 3; Markit Comment Letter at 5-6; Morgan Stanley Comment Letter at

    5.

    \43\ Markit Comment Letter at 6; ISDA Comment Letter at 3; ICI

    Comment Letter at 5.

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    Several commenters offered alternative approaches to the proposed

    process. Bloomberg recommended a separate standalone rule.\44\ Several

    commenters, however, recommended that the Commission establish a

    ``pilot program'' to phase in the available-to-trade process by

    initially deeming certain highly liquid swaps as available to trade

    (and therefore making them subject to the trade execution requirement)

    for a fixed time period. Commenters stated that this approach would

    provide market participants and trading venues with time to adjust to

    the trade execution requirement \45\ and minimize market disruptions

    caused during implementation.\46\

    ---------------------------------------------------------------------------

    \44\ Bloomberg Comment Letter at 3 n.10.

    \45\ Vanguard Comment Letter at 4; FSR Comment Letter at 5;

    JPMorgan Comment Letter at 2.

    \46\ Markit Comment Letter at 3; Tradeweb Comment Letter at 3-4.

    ---------------------------------------------------------------------------

    MarketAxess and CME recommended that only swaps that have been

    determined to be subject to the clearing requirement should be subject

    to an available-to-trade determination.\47\ Both commenters argued that

    determining whether a swap is available to trade, for purposes of the

    trade execution requirement, would be legally insignificant unless a

    swap is required to be cleared first, and thus believe that the

    Commission should first determine which swaps will be subject to the

    clearing requirement.\48\

    ---------------------------------------------------------------------------

    \47\ CME Comment Letter at 3; MarketAxess Comment Letter at 7-8.

    \48\ Id.

    ---------------------------------------------------------------------------

    Bloomberg also noted that the Commission has the authority under

    Sec. 5c(c) of the CEA to deny an available-to-trade determination only

    if it is ``inconsistent with'' the CEA or the Commission's regulations

    and requested clarification on how the Commission would interpret this

    term in this context.\49\

    ---------------------------------------------------------------------------

    \49\ Bloomberg Comment Letter at 3 n.10.

    ---------------------------------------------------------------------------

    Commission Determination

    The Commission is adopting the proposed available-to-trade process,

    subject to modifications discussed herein. The Commission agrees with

    commenters who assert that the CEA's statutory language supports an

    available-to-trade determination that is separate from a mandatory

    clearing determination.\50\ In response to comments, the Commission has

    determined that at this time, it will only review available-to-trade

    submissions for swaps that it has first determined to be subject to the

    clearing requirement under Sec. 39.5 of the Commission's

    regulations.\51\ The Commission believes that adopting a sequenced

    approach in such a manner is consistent with the trade execution

    requirement under section 2(h)(8) of the CEA because the trade

    execution mandate only applies if a swap is (1) subject to mandatory

    clearing and (2) made available to trade by a SEF or DCM.\52\

    ---------------------------------------------------------------------------

    \50\ In response to comments that the Dodd-Frank Act does not

    condition mandatory trade execution of a swap on an affirmative

    Commission determination, the Commission further notes that section

    8a(5) of the CEA authorizes the Commission to promulgate such

    regulations as, in its judgment, are reasonably necessary to

    effectuate any of the provisions or to accomplish any of the

    purposes of the CEA. 7 U.S.C. 12a(8). Further, section 721(b) of the

    Dodd-Frank Act provides the Commission with authority to adopt rules

    to define ``[any] term included in an amendment to the Commodity

    Exchange Act . . . made by [the Dodd-Frank Act].'' 15 U.S.C. 8321,

    as enacted by section 721 of the Dodd-Frank Act. Additionally,

    sections 5(d)(1) and 5h(f)(1) of the CEA require DCMs and SEFs,

    respectively, to comply with any requirement that the Commission may

    impose by rule or regulation pursuant to section 8a(5) of the CEA.

    \51\ Section 39.5 of the Commission's regulations sets forth a

    process under which the Commission will review swaps to determine

    whether the swaps are required to be cleared.

    \52\ Section 50.25 of the Commission's regulations establishes a

    schedule to phase in compliance with the clearing requirement by

    category of market participant. Category 1 entities, which include a

    swap dealer, a security-based swap dealer, a major swap participant,

    a major security-based swap participant, or an active fund, have 90

    days to comply with the clearing requirement. Category 2 entities,

    which include a commodity pool, private fund, or person

    predominantly engaged in activities that are in the business of

    banking or that are financial in nature, have 180 days to comply

    with the clearing requirement. Certain third-party subaccounts and

    all other swap transactions receive 270 days to comply with the

    clearing requirement. See Swap Transaction Compliance and

    Implementation Schedule: Clearing Requirement under Section 2(h) of

    the CEA, 77 FR 44441 (July 20, 2012). The Commission notes that it

    will accept for review available-to-trade determinations for swaps

    determined to be subject to the clearing requirement, prior to the

    applicable date for compliance.

    ---------------------------------------------------------------------------

    The clearing determination process, which the Commission notes is

    not initiated by a SEF or DCM, primarily focuses on the ability to

    mitigate risk through clearing by a DCO and the five statutory factors

    under section 2(h)(2)(D) of the CEA.\53\ In particular with respect to

    risk management, the Commission considers whether imposing the clearing

    requirement would mitigate systemic risk through the collateralization

    of risk exposures, which includes counterparty credit risk that arises

    between two counterparties to an uncleared swap.\54\ In this regard,

    the Commission assesses whether a particular class of swaps has

    sufficient liquidity for risk management purposes, i.e., pricing and

    margining of the cleared swaps.\55\ The Commission has noted in the

    context of clearing for interest rate swaps, for example, that DCOs do

    not focus on the liquidity of specific individual swaps from a risk

    management perspective, but rather on a portfolio basis.\56\ In

    contrast, the available-to-trade determination process will be

    initiated by a SEF or DCM and may focus primarily on whether a swap has

    sufficient trading liquidity to be subject to mandatory trade

    execution.

    ---------------------------------------------------------------------------

    \53\ To make a clearing determination, the Commission must

    consider five factors: (1) The existence of significant outstanding

    notional exposures, trading liquidity, and adequate pricing data;

    (2) the availability of rule framework, capacity, operational

    expertise and resources, and credit support infrastructures to clear

    the contract on terms that are consistent with the material terms

    and trading conventions on which the contract is then traded; (3)

    the effect on the mitigation of systemic risk, taking into account

    the size of the market for such contract and the resources of the

    DCO available to clear the contract; (4) the effect on competition,

    including appropriate fees and charges applied to clearing; and (5)

    the existence of reasonable legal certainty in the event of the

    insolvency of the relevant derivatives clearing organization or one

    or more of its clearing members with regard to the treatment of

    customer and swap counterparty positions, funds, and property. 7

    U.S.C. 2(h)(2)(D)(ii)(I)-(IV), as enacted by section 723 of the

    Dodd-Frank Act.

    \54\ 77 FR 74285. In the Commission's clearing requirement final

    rule, certain classes of credit default swaps (CDS) and interest

    rate swaps (IRS) would become subject to the clearing requirement,

    i.e., cleared by a registered DCO. Per section 2(h)(2)(D)(ii) of the

    CEA, the Commission considered the effect of clearing those classes

    of swaps on mitigating systemic risk. With respect to the proposed

    CDS indices, the Commission believes that mandatory clearing would

    (1) mitigate counterparty credit risk by allowing a DCO to become

    the buyer to every seller of those indices, and vice versa; and (2)

    collateralize risk exposures by allowing a DCO to calculate and

    collect initial margin and guaranty fund contributions. 77 FR 74297-

    98. With respect to the IRS proposed to be cleared, the Commission

    believes that the three DCOs that have submitted clearing

    determinations--CME, LCH, and IDCH--would (1) mitigate counterparty

    credit risk by establishing themselves as a central counterparty to

    reduce the number of open bilateral contracts; and (2) facilitate

    collateral efficiency through a central counterparty clearing

    approach. 77 FR 74312.

    \55\ For example, the Commission has noted that higher trading

    liquidity in swaps would assist DCOs in end-of-day settlement

    procedures, as well as in managing the risk of CDS portfolios,

    particularly in mitigating the liquidity risk associated with

    unwinding a portfolio of a defaulting clearing member. 77 FR 47176.

    \56\ Specifically, liquidity is viewed by a DCO as a function of

    whether a portfolio of swaps has common specifications that are

    determinative of their economic characteristics, such that a DCO can

    price and risk manage the portfolio in a default situation. 77 FR

    74301.

    ---------------------------------------------------------------------------

    With respect to the proposed procedure to determine that a swap is

    available to trade, the Commission is adopting the rule as proposed and

    codifying the proposed rule text to Sec. Sec. 37.10(a)(1) and

    38.12(a)(1).\57\ The part

    [[Page 33610]]

    40 procedures provide a reasonable approach by allowing DCMs and SEFs--

    the entities responsible for listing or offering the swaps for trading

    and supporting related trading activity--to initially determine whether

    a swap is available to trade, and therefore, subject to the trade

    execution requirement. The Commission notes that although it will have

    access to market data, SEFs and DCMs will have sufficient expertise and

    experience with respect to swaps trading to make an initial

    determination and to submit that determination to the Commission under

    the part 40 procedures. Accordingly, the part 40 procedures provide

    SEFs and DCMs with the flexibility to make an initial available-to-

    trade determination while allowing for appropriate Commission review

    and regulatory oversight, as well as an opportunity for public comment.

    ---------------------------------------------------------------------------

    \57\ In response to ISDA's comment that neither 17 CFR 40.5 nor

    Sec. 40.6 should apply because an available-to-trade determination

    is neither a trading protocol nor a rule, the Commission notes that

    the definition of ``rule'' under 17 CFR 40.1(h) of the Commission's

    regulations would encompass an available-to-trade determination.

    Section 40.1(h) defines ``rule'' as ``any constitutional provision,

    article of incorporation, bylaw, rule, regulation, resolution,

    interpretation, stated policy, term and condition, trading protocol,

    agreement or instrument corresponding thereto, in whatever form

    adopted, and any amendment or addition thereto or repeal thereof,

    made or issued by a registered entity . . . .'' The Commission views

    an available-to-trade determination as a ``trading protocol.''

    ---------------------------------------------------------------------------

    The Commission also believes that the part 40 procedures should

    afford sufficient time for market participants to offer public comment

    on available-to-trade submissions and for the Commission to review such

    submissions and any related comments. In this regard, for swaps

    submitted by a SEF or DCM under the Sec. 40.5 rule approval process or

    the Sec. 40.6 rule certification process, initial available-to-trade

    determinations may present novel and complex issues that will warrant

    retention for an additional review.\58\ Under Sec. 40.6(c)(2) of the

    Commission's regulations, interested parties would have sufficient

    opportunity to comment on the certification during a 30-day mandatory

    public comment period. Therefore, swaps self-certified as available to

    trade may initially be subject to a review period of up to 100

    days.\59\ Similarly, for swaps submitted under the Sec. 40.5 rule

    approval process that present novel or complex issues, the review

    period for initial rule approval submissions may be extended for at

    least additional 45 days for the same reason.\60\ The Commission notes

    that it routinely solicits public comments for Sec. 40.5 rule approval

    submissions and anticipates that market participants would be similarly

    able to provide the Commission with comments on available-to-trade

    filings.

    ---------------------------------------------------------------------------

    \58\ Under Sec. Sec. 40.5(d)(1) and 40.6(c) of the Commission's

    regulations, the Commission may stay the certification of a new rule

    or rule amendment that, among other things, presents ``novel or

    complex issues that require additional time'' to review or analyze.

    \59\ Under 17 CFR 40.6(c)(3), a new rule subject to a stay would

    become effective, pursuant to its certification, at the expiration

    of the 90-day review period unless the Commission withdraws the stay

    prior to that time, or the Commission notifies the registered entity

    during the 90-day period that it objects to the proposed

    certification on the grounds that the proposed rule or rule

    amendment is inconsistent with the CEA or the Commission's

    regulations.

    \60\ As noted, under 17 CFR 40.5(d)(2), the Commission may

    extend the review period beyond an additional 45 days based on

    written agreement with the submitting SEF or DCM.

    ---------------------------------------------------------------------------

    The Commission expects that over time, available-to-trade filings

    should present fewer novel or complex issues, thereby not warranting

    extensions of the applicable review period; SEFs and DCMs would likely

    submit swap determinations that are similar to previous submissions and

    the Commission would become more experienced with the process. The

    Commission, however, will continue to consider whether to stay rule

    certifications or rule approval submissions on a case-by-case basis.

    In response to Bloomberg's request for clarification, the

    Commission notes that whether a SEF's or DCM's initial determination is

    ``inconsistent'' with the CEA and the Commission's rules and

    regulations would depend upon the SEF's or DCM's analysis and

    application of the determination factors to the swap submitted as

    available to trade, as discussed further below. The Commission also

    notes that a determination could also be deemed inconsistent if it does

    not consider one or more of the required factors, or the swap otherwise

    does not meet other prerequisites established in the submission

    process, discussed further below.

    2. Sections 37.10(a)(2) and 38.12(a)(2)--Listing Requirement

    The FNPRM requested comment on (1) whether the Commission should

    allow a SEF or DCM to submit an available-to-trade determination for a

    swap under proposed Sec. Sec. 37.10(a) and 38.12(a) if the SEF or DCM

    making the submission does not itself list that swap for trading; and

    (2) if so, whether the Commission would allow that SEF or DCM to

    consider the same swap or an economically equivalent swap that trades

    on another SEF, DCM, or primarily or solely in bilateral

    transactions.\61\

    ---------------------------------------------------------------------------

    \61\ 76 FR 77733.

    ---------------------------------------------------------------------------

    Summary of Comments

    Several commenters recommended that a SEF or DCM must list the swap

    that it submits for an available-to-trade determination.\62\ For

    example, Spring Trading and SIFMA AMG recommended that a SEF or DCM

    must list a swap for at least 90 days before submitting its

    determination.\63\ ISDA recommended that a SEF or DCM must list the

    swap during the 6-month period that it proposed for Commission review

    of the available-to-trade determination.\64\ ISDA noted that the lack

    of a listing requirement would incentivize SEFs and DCMs to try to

    submit as many determinations as possible merely to promote centralized

    trading.\65\ According to some commenters, the Commission or the

    trading facility could evaluate the data gathered \66\ and obtain

    experience \67\ during the listing period to determine whether the swap

    should be made available to trade. SDMA, however, recommended that a

    SEF or DCM should be allowed to submit a determination for a swap that

    it does not list.\68\

    ---------------------------------------------------------------------------

    \62\ Eaton Vance Management Comment Letter at 3; SIFMA AMG

    Comment Letter at 10; UBS Comment Letter at 2; Morgan Stanley

    Comment Letter at 6 n.6; ISDA Comment Letter at 7; Tradeweb Comment

    Letter at 5.

    \63\ SIFMA AMG Comment Letter at 10; Spring Trading Comment

    Letter at 3 (Jan. 12, 2012).

    \64\ ISDA Comment Letter at 7. ISDA proposed eliminating the

    proposed Sec. 40.6 certification process and stated that the

    Commission should establish a minimum 6-month review period for

    determinations submitted by a SEF or DCM.

    \65\ ISDA Comment Letter at 6.

    \66\ ISDA Comment Letter at 7; SIFMA AMG Comment Letter at 10;

    Spring Trading Comment Letter at 3.

    \67\ Tradeweb Comment Letter at 5; UBS Comment Letter at 2;

    Morgan Stanley Comment Letter at 6 n.6.

    \68\ SDMA Comment Letter at 9.

    ---------------------------------------------------------------------------

    Commission Determination

    The Commission agrees with commenters who support a listing

    requirement and is amending the proposed rule text to adopt new

    Sec. Sec. 37.10(a)(2) and 38.12(a)(2), which requires a SEF or DCM to

    certify that it is listing the swap for which it submits an available-

    to-trade determination.\69\ The Commission believes that an initial

    determination that a swap is available to trade should be made by a SEF

    or a DCM that offers the swap for trading.\70\

    [[Page 33611]]

    The Commission, however, is not adopting a minimum listing period so as

    to avoid delaying the determination process, and hence implementation

    of the trade execution requirement as discussed below. The Commission

    also notes, as discussed further below, that a SEF or DCM is allowed to

    consider activity in the same swap listed on another SEF or DCM as well

    as the amount of off-exchange activity in the same swap.

    ---------------------------------------------------------------------------

    \69\ The Commission notes that such swap would be certified or

    approved under Sec. 40.2 or Sec. 40.3 of the Commission's

    regulations prior to listing the swap for trading.

    \70\ Bloomberg requested that a SEF submitting an available-to-

    trade determination for a particular swap would be able to

    incorporate by reference, in its submission, information and

    analysis already completed by a DCO and the Commission as part of

    the mandatory clearing determination process with respect to that

    swap. Bloomberg Comment Letter at 4-5. In response to Bloomberg's

    request, the Commission views the part 40 process as flexible and

    would allow relevant information from a clearing determination to be

    referenced in an available-to-trade submission. The Commission,

    however, emphasizes that such information leading to an affirmative

    clearing determination would not automatically indicate that a swap

    is available to trade.

    ---------------------------------------------------------------------------

    3. Submission of a Group, Category, Type or Class of Swaps

    The FNPRM requested comment on (1) whether the Commission should

    allow a SEF or DCM to submit its available-to-trade determination for a

    ``group, category, type or class of swaps'' based on the factors

    proposed in Sec. Sec. 37.10(b) and 38.12(b) of the FNPRM; and (2) how

    ``group, category, type or class of swaps'' should be defined.\71\

    ---------------------------------------------------------------------------

    \71\ 76 FR 77733.

    ---------------------------------------------------------------------------

    Summary of Comments

    Some commenters stated that the Commission should allow SEFs and

    DCMs to submit determinations for a group, category, type, or class of

    swap.\72\ In defining ``group, category, type, or class'' of swap, AIMA

    stated that the Commission should take into account specific

    characteristics of certain swaps to avoid subjecting certain illiquid

    swaps to mandatory trade execution.\73\

    ---------------------------------------------------------------------------

    \72\ Spring Trading Comment Letter at 5 (Jan. 12, 2012); AIMA

    Comment Letter at 2; SDMA Comment Letter at 7; AFR Comment Letter at

    2 (inferring that mandatory trade execution should be determined for

    a ``class'' of swaps).

    \73\ AIMA Comment Letter at 2.

    ---------------------------------------------------------------------------

    Other commenters, however, expressed concern about making

    determinations based on group, category, type or class of swap.\74\

    SIFMA AMG and CEWG commented that swaps within a potential ``group''

    may feature different liquidity and trading patterns,\75\ while Markit

    and ISDA stated that liquidity may differ significantly even among

    different tenors of a given swap.\76\ ISDA and Morgan Stanley also

    highlighted the difficulty at the outset of defining ``group, category,

    type or class of swap.'' \77\ Markit stated that determinations should

    be allowed for individual swaps and then applied to ``buckets'' of

    maturities and tenors.\78\

    ---------------------------------------------------------------------------

    \74\ Markit Comment Letter at 2-3; SIFMA AMG Comment Letter at

    11; CEWG Comment Letter at 3-4; ISDA Comment Letter at 10; UBS

    Comment Letter at 2; Morgan Stanley Comment Letter at 9.

    \75\ SIFMA AMG Comment Letter at 11; CEWG Comment Letter at 4.

    With respect to energy commodities, CEWG provided Henry Financial

    LD1 Fixed Swap, Henry Financial LD4 Fixed Swap, and ICE's Physical

    Basis LD1, which differ in contract size and term, as examples of

    swaps within a potential group or class that each possess different

    liquidity characteristics, thereby warranting individual

    determinations. SIFMA AMG also noted that the liquidity of interest

    rate swaps differs significantly depending on time to maturity.

    \76\ Markit Comment letter at 2; ISDA Comment Letter at 11. ISDA

    offered the Federal Reserve Bank of New York's analysis of trade

    data as a demonstration of varying trading volumes for different

    tenors of credit default swaps.

    \77\ Morgan Stanley Comment Letter at 9.

    \78\ Markit Comment Letter at 2. Markit defines ``buckets'' as

    groups of maturities and tenors for a given swap that have similar

    liquidity measures.

    ---------------------------------------------------------------------------

    Commission Determination

    The Commission is allowing SEFs and DCMs to submit determinations

    for a group, category, type or class of swap to provide greater

    efficiency to the available-to-trade determination process. To address

    commenters' concerns that swaps within a group, category, type or class

    may have different liquidity and trading characteristics, a SEF or DCM

    must address, in its submission, the applicable determination factor or

    factors apply to all of the swaps within that group, category, type or

    class. Further, a SEF and DCM will be allowed to define the scope of

    the group, category, type or class of swap that it determines is

    available to trade.\79\ To the extent that a SEF or DCM possesses

    flexibility to define that scope, however, the Commission still may

    approve or deem only part or some of the swaps within that group,

    category, type or class as available to trade, based on its review.\80\

    ---------------------------------------------------------------------------

    \79\ The Commission notes that for clearing determinations under

    Sec. 39.5, it may define a particular group, category, type or

    class of swaps for purposes of a clearing determination based on

    several considerations. 76 FR 44468. To the extent that such a

    determination is informative as to whether a proposed group,

    category, type or class of swap that is defined by a SEF or DCM is

    available to trade, the Commission may take those considerations

    into account. For example, a SEF or a DCM could define a group,

    category, type or class of interest rate swaps based on

    characteristics that include the nature of the payments streams

    (e.g., fixed-to-floating, floating-to-floating, forward rate

    agreement (FRA), or overnight indexed swap (OIS)); currency (e.g.,

    U.S. dollar, euro, British pound, Japanese yen); floating rate index

    referenced (e.g., LIBOR, EURIBOR); and stated termination date

    (e.g., 1-year, 2-year, 5-year, 10-year).

    \80\ Where the Commission does not approve or deem all of the

    swaps within a group, category, type or class submitted by a SEF or

    DCM as available to trade, DMO would notify the SEF or DCM of such

    an action.

    ---------------------------------------------------------------------------

    4. Consideration of Swaps on Another SEF or DCM, or Bilateral

    Transactions

    The FNPRM requested comment on whether the Commission should allow

    a SEF or DCM, in evaluating the factors under proposed Sec. Sec.

    37.10(b) and 38.12(b), to consider (1) the same swap or an economically

    equivalent swap on another SEF or DCM; and (2) the amount of activity

    in the same swap or an economically equivalent swap available primarily

    or solely in bilateral transactions.\81\

    ---------------------------------------------------------------------------

    \81\ 76 FR 77733.

    ---------------------------------------------------------------------------

    Summary of Comments

    Several commenters stated that a SEF or DCM should be able to

    consider relevant swap activity on other SEFs and DCMs when making an

    available-to-trade determination.\82\ Vanguard commented that

    determining whether a ``meaningful'' portion of trading in the swap

    occurs on a SEF or DCM is important in determining that a swap is

    available to trade.\83\ SIFMA AMG stated that the existence of a liquid

    trading environment on SEFs and DCMs could indicate that a swap could

    be made available to trade without harm to liquidity.\84\ FXall stated

    that determinations should be based on a swap's marketwide trading

    patterns, so as to avoid unintended effects on liquidity.\85\

    ---------------------------------------------------------------------------

    \82\ MFA Comment Letter at 3; Spring Trading Comment Letter at 6

    (Jan. 12, 2012); Markit Comment Letter at 3 (discussing importance

    of marketwide data); Vanguard Comment Letter at 5; SIFMA AMG Comment

    Letter at 6; AIMA Comment Letter at 2; Morgan Stanley Comment Letter

    at 6 n.6; FXall Comment Letter at 6 n.18; CBOE Comment Letter at 3.

    \83\ Vanguard Comment Letter at 5.

    \84\ SIFMA AMG Comment Letter at 6.

    \85\ FXall Comment Letter at 6 n.18.

    ---------------------------------------------------------------------------

    Some commenters also stated that a SEF or DCM should be able to

    consider swaps executed on a bilateral basis.\86\ CBOE stated that

    considering a swap's trading activity only on a SEF or DCM would

    otherwise incentivize market participants to minimize centralized

    trading in order to limit the number of swaps made available to

    trade.\87\ SIFMA AMG stated that examining the bilateral market could

    reveal a liquid trading environment, but could then raise questions as

    to whether a swap should be made available to trade.\88\ MFA and

    Vanguard recommended that the Commission utilize data for on- and off-

    [[Page 33612]]

    exchange trading to make the available-to-trade process more

    objective.\89\

    ---------------------------------------------------------------------------

    \86\ MFA Comment Letter at 3; SIFMA AMG Comment Letter at 6;

    Markit Comment Letter at 3; FXall Comment Letter at 6; Vanguard

    Comment Letter at 5; Spring Trading Comment Letter (Jan. 12, 2012)

    at 6; CBOE Comment Letter at 3; AIMA Comment Letter at 2; Morgan

    Stanley Comment Letter at 6; SDMA Comment Letter at 7.

    \87\ CBOE Comment Letter at 3.

    \88\ SIFMA AMG Comment Letter at 6.

    \89\ MFA Comment Letter at 3; Vanguard Comment Letter at 5.

    ---------------------------------------------------------------------------

    Commission Determination

    The Commission will allow a SEF or DCM to consider activity in the

    same swap listed on another SEF or DCM and the amount of off-exchange

    activity in the same swap when determining whether a swap is available

    to trade. The Commission agrees with commenters that since the

    available-to-trade determination applies marketwide, a SEF or DCM

    should be able to consider activity on other SEFs and DCMs, as well as

    activity that takes place off-exchange, to the extent that such

    information becomes available. Information about trading activity in

    the entire swaps marketplace would better inform market participants

    about how the swap trades in the overall market and provide interested

    parties with additional information and analysis to comment upon. More

    comprehensive information would also better inform the Commission in

    its evaluation of the available-to-trade submission. The Commission

    also believes that consideration of off-exchange trading could provide

    additional data and insight about a swap's trading patterns, e.g.,

    trading volume or numbers and types of market participants, that would

    help a SEF or a DCM address one or more of the determination factors

    under Sec. Sec. 37.10(b) and 38.12(b).

    B. Sections 37.10(b) and 38.12(b)--Factors To Consider To Make a Swap

    Available To Trade

    Proposed Sec. Sec. 37.10(b) and 38.12(b) required a SEF or DCM to

    consider, as appropriate, the following factors with respect to a swap

    that it determines is available to trade: (1) Whether there are ready

    and willing buyers and sellers; (2) the frequency or size of

    transactions on SEFs, DCMs, or of bilateral transactions; (3) the

    trading volume on SEFs, DCMs, or of bilateral transactions; (4) the

    number and types of market participants; (5) the bid/ask spread; (6)

    the usual number of resting firm or indicative bids and offers; (7)

    whether a SEF's trading system or platform or a DCM's trading facility

    will support trading in the swap; or (8) any other factor that the SEF

    or DCM may consider relevant.\90\ Under the proposed rule, no single

    factor would be dispositive, as the DCM or SEF could consider any one

    factor or any combination of factors in its determination that a swap

    is available to trade.

    ---------------------------------------------------------------------------

    \90\ As noted above, the Commission believes that the mere

    listing or offering for trading of a swap on a DCM or SEF does not

    mean that the swap is available to trade.

    ---------------------------------------------------------------------------

    Summary of Comments

    Commenters expressed general support for the first seven proposed

    factors.\91\ Some commenters stated, however, that SEFs and DCMs should

    be required to consider specific factors.\92\ Some commenters also

    offered additional factors to consider, such as the ability to

    establish connectivity with new market participants without imposing

    undue burden; \93\ the level of pre-trade transparency in the existing

    market; \94\ and market depth and market breadth.\95\

    ---------------------------------------------------------------------------

    \91\ MFA Comment Letter at 2; Markit Comment Letter at 3;

    Tradeweb Comment Letter at 3 (proposing a pilot program based on the

    proposed factors); Bloomberg Comment Letter at 4; ICI Comment Letter

    at 4-5; Vanguard Comment Letter at 4; SIFMA AMG Comment Letter at 5;

    Geneva Energy Markets Comment Letter at 2; Spring Trading Comment

    Letter at 4 (Jan. 12, 2012); AIMA Comment Letter at 1; CME Comment

    Letter at 6; FHLB Comment Letter at 4.

    \92\ For example, ISDA recommended that whether a SEF lists and

    supports trading in a swap should be a prerequisite. ISDA Comment

    Letter at 8. FSR emphasized that broad market participation must be

    shown. FSR Comment Letter at 7. Some commenters requested that SEFs

    and DCMs be required to consider both the size and frequency of swap

    transactions on SEFs, DCMs, and in bilateral transactions. AIMA

    Comment Letter at 2; ICI Comment Letter at 5 n.13; SIFMA AMG Comment

    Letter at 6.

    \93\ FSR Comment Letter at 4.

    \94\ Geneva Energy Markets Comment Letter at 2.

    \95\ SDMA Comment Letter at 7. According to SDMA, a market depth

    test consists of calculating the sum of available bids and offers at

    or near the current price for a swap at a particular time, while a

    market breadth test consists of calculating the sum of market depth

    for a particular swap or class of swaps.

    ---------------------------------------------------------------------------

    Other commenters opposed the proposed factors.\96\ In particular,

    several commenters objected to the use of ``any other factor'' in a

    determination.\97\ Eaton Vance Management and ISDA, for example,

    considered ``any other factor'' to be too broad and subjective and

    thought that it would incentivize SEFs and DCMs to make illiquid swaps

    available to trade.\98\ ICI stated that the Commission would

    effectively delegate its authority to establish available-to-trade

    standards by allowing a SEF or DCM to use this factor alone.\99\ CEWG

    similarly stated that use of non-enumerated factors by a SEF or DCM

    would create ``uncertainty and variability'' in the process.\100\

    ---------------------------------------------------------------------------

    \96\ For example, SDMA considered the factors to be duplicative

    of the mandatory clearing determination factors set forth in section

    2(h)(2)(D) of the CEA, and therefore burdensome and costly. SDMA

    Comment Letter at 5.

    \97\ Eaton Vance Management Comment Letter at 2; ISDA Comment

    Letter at 8; ICI Comment Letter at 5; CEWG Comment Letter at 3.

    \98\ Eaton Vance Management Comment Letter at 2; ISDA Comment

    Letter at 8.

    \99\ ICI Comment Letter at 5.

    \100\ CEWG Comment Letter at 3.

    ---------------------------------------------------------------------------

    Some commenters also objected to allowing a SEF or DCM to make an

    available-to-trade determination based on any one proposed factor and

    some recommended that SEFs and DCMs be required to consider all of the

    factors.\101\ Vanguard and SIFMA AMG asserted that all of the factors

    are relevant \102\ and that consideration of all factors would be

    consistent with the mandatory clearing determination process.\103\

    CBOE, however, contended that required consideration of all the factors

    would frustrate Congress's intent for greater transparency,

    competition, and oversight of the swaps market.\104\

    ---------------------------------------------------------------------------

    \101\ FHLB Comment Letter at 3; CEWG Comment Letter at 3; Eaton

    Vance Management Comment Letter at 3 (adopting ICI's

    recommendation); ICI Comment Letter at 2, 5; Vanguard Comment Letter

    at 4; Bloomberg Comment Letter at 4; SIFMA AMG Comment Letter at 5;

    Chatham Comment Letter at 3; AIMA Comment Letter at 2. Markit stated

    that this approach would grant ``unfettered discretion'' to SEFs and

    DCMs to disregard a swap's actual liquidity, Markit Comment Letter

    at 3. MarketAxess stated that the Commission would lack any basis to

    reject a determination. MarketAxess Comment Letter at 8.

    \102\ Vanguard Comment Letter at 4; SIFMA AMG Comment Letter at

    5.

    \103\ SIFMA AMG Comment Letter at 5.

    \104\ CBOE Comment Letter at 2.

    ---------------------------------------------------------------------------

    Several commenters requested that the Commission set objective

    threshold criteria for the proposed factors.\105\ Commenters stated

    that without objective criteria, a SEF or DCM would otherwise have

    unlimited discretion \106\ to act in its financial self-interest \107\

    by determining that a swap is available to trade. Some commenters,

    however, acknowledged the difficulty of developing objective liquidity

    measurements.\108\

    ---------------------------------------------------------------------------

    \105\ Markit Comment Letter at 3; Spring Trading Comment Letter

    at 4; AIMA Comment Letter at 4; Bloomberg Comment Letter at 4; FXall

    Comment Letter at 6; Eaton Vance Management Comment Letter at 3; ICI

    Comment Letter at 5-6; FSR Comment Letter at 3, 6-7. Some commenters

    recommended that the swap must (1) trade a minimum number of times

    each day; (2) feature a minimum number of market participants

    trading it; and (3) meet an overall notional trading volume over a

    set period of time. Vanguard Comment Letter at 5; ISDA Comment

    Letter at 7; SIFMA AMG Comment Letter at 5, 7. Morgan Stanley

    recommended that the swap must (1) have resting bids and offers on

    the applicable SEF or DCM for at least half of the relevant trading

    hours for the 90-day period prior to a determination; and (2) have

    been traded an average of at least 5 times per day during the same

    period. Morgan Stanley Comment Letter at 4, 6. JPMorgan recommended

    that the swap must show an actual level of liquidity on the

    applicable DCM or SEF during a sample period of at least 180 days

    prior to the submission. JPMorgan Comment Letter at 1.

    \106\ Morgan Stanley Comment Letter at 4.

    \107\ FSR Comment Letter at 3; Morgan Stanley Comment Letter at

    5; ICI Comment Letter at 6.

    \108\ ICI Comment Letter at 6; Markit Comment Letter at 3; SIFMA

    AMG Comment Letter at 5-6.

    ---------------------------------------------------------------------------

    [[Page 33613]]

    Some commenters recommended imposing additional requirements on

    SEFs and DCMs with respect to considering the proposed factors. For

    example, SIFMA AMG recommended that a SEF or DCM must provide detailed

    reasoning and supporting evidence for the factors that it has

    considered.\109\ CEWG recommended that a SEF or DCM should provide an

    explanation to the Commission, subject to public comment, when it

    believes that certain factors do not apply.\110\

    ---------------------------------------------------------------------------

    \109\ SIFMA AMG Comment Letter at 2.

    \110\ CEWG Comment Letter at 3.

    ---------------------------------------------------------------------------

    Commission Determination

    The Commission is adopting the rule as proposed under final

    Sec. Sec. 37.10(b) and 38.12(b), subject to two modifications and

    minor technical corrections. The Commission acknowledges commenters'

    concerns regarding the consideration of ``any other factor'' and thus

    is removing that factor from the final rule. The Commission believes

    that removing this factor will provide market participants with a more

    precise set of factors from which a swap may be made available to

    trade, thereby improving clarity, lessening uncertainty regarding how a

    determination may be made, and promoting a more consistent

    determination process. Further, given the adoption of a listing

    requirement, the Commission is removing an additional factor--whether a

    SEF's or DCM's trading facility or platform will support trading in the

    swap. This factor contemplated, among other things, whether the SEF or

    DCM lists the swap for trading on its trading facility or platform.

    Therefore, in light of the listing requirement, this factor is

    redundant.

    As discussed above, the Commission has determined in this final

    rule that a SEF or DCM may consider activity in the same swap listed on

    another SEF or DCM and the amount of off-exchange activity in the same

    swap.\111\ Therefore, the Commission is amending the second and third

    determination factors in proposed Sec. Sec. 37.10(b)(2) and (3) and

    38.12(b)(2) and (3) to remove duplicative language related to this

    matter.

    ---------------------------------------------------------------------------

    \111\ See supra Section II.A.4--Consideration of Swaps on

    Another SEF or DCM, or Bilateral Transactions for the Commission's

    discussion.

    ---------------------------------------------------------------------------

    The Commission believes that the remaining enumerated factors

    provide a sufficient framework from which SEFs, DCMs, the Commission

    and market participants may evaluate whether a swap is subject to the

    trade execution requirement. While each of the enumerated factors is an

    indicator of trading activity and may be relevant in a determination,

    the Commission believes that no single factor must always be

    considered, nor must a SEF or DCM consider more than one factor in a

    determination. Therefore, the Commission believes that satisfying any

    one of the determination factors would sufficiently indicate that the

    contract is available to trade. By adopting a more flexible approach,

    SEFs and DCMs will be able to accommodate swaps with different trading

    characteristics that can be supported in a centralized trading

    environment. The Commission does not believe that it is necessary for a

    SEF or DCM to analyze and demonstrate compliance with every factor in a

    submission.

    In response to SIFMA AMG's recommendation that a SEF or DCM should

    be required to provide detailed reasoning and supporting evidence for

    the factors considered, the Commission notes that Sec. Sec. 40.5(a)(5)

    and 40.6(a)(7) each requires submissions to contain an explanation and

    analysis of the determination, including the factors considered and its

    compliance with the CEA and Commission regulations. The Commission

    expects such an explanation and analysis to be clear and informative as

    to how the factor or factors apply to the swap.

    The Commission declines to adopt additional factors in the final

    rule as suggested by several commenters. The Commission believes that

    the enumerated factors provide a sufficient framework to allow: (1) A

    SEF or DCM to consider whether a swap should be subject to the trade

    execution requirement; (2) market participants to evaluate a

    determination and provide public comment; and (3) the Commission to

    evaluate a SEF's or DCM's determination that a swap is available to

    trade. Further, the Commission believes that the enumerated factors are

    broad in nature and incorporate many of the concepts recommended by

    commenters.

    The Commission acknowledges commenters' request for establishing

    objective criteria associated with the factors and reiterates the view

    expressed in the FNPRM that as centralized trading develops and the

    Commission gains experience in oversight of swap markets, the

    Commission could then consider adopting objective criteria in a future

    rulemaking based upon an empirical analysis of swap trading data.

    C. Sections 37.10(c) and 38.12(c)--Applicability

    Proposed Sec. Sec. 37.10(c)(1) and 38.12(c)(1) required that upon

    the Commission deeming that a swap is available to trade based on a SEF

    or DCM submission, all other SEFs and DCMs listing or offering for

    trading such swap and/or any economically equivalent swap must make

    those swaps available to trade for purposes of the trade execution

    requirement under section 2(h)(8) of the CEA. The Commission defined

    ``economically equivalent swap'' under proposed Sec. Sec. 37.10(c)(2)

    and 38.12(c)(2) as a swap that the SEF or DCM determines to be

    economically equivalent with another swap after consideration of each

    swap's material pricing terms. The Commission also noted that if a DCM

    or SEF makes a swap available to trade, then the proposed rule would

    not require other DCMs and SEFs to list or offer that swap, or an

    economically equivalent swap, for trading.

    Summary of Comments

    Some commenters expressed general support for the economic

    equivalence requirement because it would enforce marketwide compliance

    with the trade execution requirement,\112\ increase liquidity, and

    promote a more efficient available-to-trade process by allowing SEFs

    and DCMs to rely on existing determinations.\113\ Many commenters,

    however, viewed the proposed definition of ``economically equivalent

    swap'' as excessively broad \114\ and vague.\115\ Some commenters

    stated that the proposed definition would create uncertainty about

    which swaps are available to trade.\116\ Other commenters stated that

    the vagueness of the proposed definition would allow SEFs and DCMs to

    subject more swaps to mandatory trade execution,\117\ thereby allowing

    illiquid swaps to be available to trade.\118\ In addition, MarketAxess

    and CEWG commented that the proposed requirement is not prescribed

    [[Page 33614]]

    by statute.\119\ Morgan Stanley and AIMA stated that the concept itself

    is inherently ``elusive and subjective.'' \120\ Other commenters

    thought that the process would create uncertainty as to which swaps are

    subject to mandatory trade execution.\121\ SIFMA AMG stated that swaps

    with slightly different characteristics, e.g., time to maturity, could

    differ in the requisite liquidity, yet both be determined to be

    available to trade based on economic equivalence.\122\

    ---------------------------------------------------------------------------

    \112\ Tradeweb Comment Letter at 5.

    \113\ SDMA Comment Letter at 7.

    \114\ Eaton Vance Management Comment Letter at 3; CEWG Comment

    Letter at 5; Chatham Comment Letter at 4.

    \115\ FXall Comment Letter at 7; ICI Comment Letter at 8; ISDA

    Comment Letter at 9; Morgan Stanley Comment Letter at 8-9; Spring

    Trading Comment Letter at 1 (Feb. 13, 2012); UBS Comment Letter at

    2; Chatham Comment Letter at 4-5.

    \116\ MFA Comment Letter at 5; ICI Comment Letter at 8; AIMA

    Comment Letter at 3.

    \117\ MFA Comment Letter at 5; FXall Comment Letter at 7; ICI

    Comment Letter at 8; FHLB Comment Letter at 3; Morgan Stanley

    Comment Letter at 8; CEWG Comment Letter at 5-6; SIFMA AMG Comment

    Letter at 9; ISDA Comment Letter at 9; AIMA Comment Letter at 4;

    MarketAxess Comment Letter at 8-9.

    \118\ CEWG Comment Letter at 5; FXall Comment Letter at 7;

    JPMorgan Comment Letter at 3; Chatham Comment Letter at 4.

    \119\ MarketAxess Comment Letter at 9; CEWG Comment Letter at 5.

    \120\ Morgan Stanley Comment Letter at 8; AIMA Comment Letter at

    3 (based on the multitude of factors that affect the economic terms

    of a swap).

    \121\ AIMA Comment Letter at 3; Morgan Stanley Comment Letter at

    8; ICI Comment Letter at 8; MFA Comment Letter at 5; SIFMA AMG

    Comment Letter at 10; ISDA Comment Letter at 9; Sunguard Kiodex

    Comment Letter at 2; FXall Comment Letter at 7.

    \122\ SIFMA AMG Comment Letter at 9. Several other commenters,

    though not all in support of eliminating the proposed requirement,

    also acknowledged that two otherwise identical swaps would also

    possess different liquidity characteristics if cleared at different

    clearinghouses. FSR Comment Letter at 3; Morgan Stanley Comment

    Letter at 9; Spring Trading Comment Letter at 2 (Feb. 13, 2012).

    ---------------------------------------------------------------------------

    To prevent evasion of the trade execution requirement through

    slight modification of a swap's terms, some commenters recommended that

    the Commission should rely on its anti-evasion authority under section

    6(e) of the CEA.\123\

    ---------------------------------------------------------------------------

    \123\ SIFMA AMG Comment Letter at 10; CEWG Comment Letter at 5;

    ISDA Comment Letter at 9; AIMA Comment Letter at 4; Morgan Stanley

    Comment Letter at 9.

    ---------------------------------------------------------------------------

    Commission Determination

    At this time, the Commission is adopting the rule as proposed with

    certain modifications under a new subsection titled, ``Applicability,''

    for SEFs or DCMs that list or offer the same swap for trading. The

    Commission, however, is not adopting the proposed definition of

    economically equivalent swaps. The Commission intended the economic

    equivalence requirement as a means to avoid knowing or reckless evasion

    of the trade execution requirement, which could potentially occur if a

    SEF or DCM, acting in concert with a market participant, lists and

    allows trading of swaps with slightly amended terms to a swap

    previously determined to be available to trade. Given that the factors

    that could be considered may vary across different asset classes and

    products, the Commission recognizes the complexity of determining

    economic equivalence between swaps. Further, based on the comments

    received, the Commission has determined that it is not feasible, for

    purposes of determining which swaps are available to trade, to define

    ``economic equivalent'' with sufficient precision and clarity.

    The Commission is also amending the rule text to clarify that once

    a swap is determined to be available to trade under part 40 of the

    Commission's regulations (i.e., the Commission approves a SEF's or

    DCM's available-to-trade submission under Sec. 40.5 or the submission

    is deemed as certified under Sec. 40.6), then all other SEFs and DCMs

    that choose to list or offer the swap for trading must do so in

    accordance with the trade execution requirement.\124\ Subsequent SEFs

    and DCMs will not be required to submit separate available-to-trade

    determinations to the Commission for a particular swap after it has

    been determined to be available to trade. Importantly, no SEF or DCM is

    required to list or offer a swap for trading even if another SEF or DCM

    has determined it is available to trade. Once a swap is available for

    trade for purposes of section 2(h)(8), however, that swap may only be

    executed on a SEF or DCM.

    ---------------------------------------------------------------------------

    \124\ See supra note 14 for a discussion of the methods by which

    swaps that are subject to the trade execution requirement must be

    executed on a SEF or DCM.

    ---------------------------------------------------------------------------

    In response to commenters who recommended that the Commission rely

    on its existing anti-evasion authority, the Commission notes that its

    anti-evasion authority as constituted under section 6(e) of the CEA

    would not apply to SEFs and DCMs.\125\ Section 6(e)(5), however, would

    apply to the actions of certain market participants--swap dealers and

    major swap participants in particular--that are carried out to evade

    the trade execution requirement.

    ---------------------------------------------------------------------------

    \125\ Section 6(e)(5) of the CEA, as amended by section

    741(b)(11) of the Dodd-Frank Act, prescribes that ``[a]ny swap

    dealer or major swap participant that knowing or recklessly evades

    or participates in or facilitates evasion of the requirements of

    section 2(h) [of the CEA] shall be liable . . .'' (emphasis added).

    7 U.S.C. 9a.

    ---------------------------------------------------------------------------

    D. Sections 37.10(d) and 38.12(d)--Removal

    The proposed rule requested comment on (1) whether the Commission

    should specify a process where a swap may be determined to be no longer

    available to trade; and (2) if so, whether the part 40 processes should

    be used for this process. The proposed rule also requested comment on

    whether such a determination should apply only to the SEF or DCM that

    seeks to make the swap no longer available to trade.\126\

    ---------------------------------------------------------------------------

    \126\ 76 FR 77734.

    ---------------------------------------------------------------------------

    Summary of Comments

    Several commenters responded to the Commission's request for

    comments related to whether the Commission should specify a process

    whereby a swap that has been determined to be available to trade may no

    longer be available to trade. Several commenters supported the

    development of a process under which a swap could be determined to be

    no longer available to trade for the purposes of the trade execution

    requirement. Commenters recommended that the Commission retain the

    authority to make such a determination \127\ based on the Commission's

    access to data demonstrating a swap's overall liquidity \128\ and the

    desire to prevent a SEF or DCM from making conflicting determinations

    with respect to the same swap.\129\ ISDA, however, recommended that

    market participants should be able to submit to the Commission that a

    swap is no longer available to trade because they would have experience

    and relevant knowledge of market trends and changes.\130\

    ---------------------------------------------------------------------------

    \127\ MFA Comment Letter at 4; FXall Comment Letter at 7-8; ICI

    Comment Letter at 7; SIFMA AMG Comment Letter at 11-12; Spring

    Trading Comment Letter at 7 (Jan. 12, 2012); ISDA Comment Letter at

    8-9; JPMorgan Comment Letter at 2.

    \128\ ISDA Comment Letter at 8-9; MFA Comment Letter at 4.

    \129\ FXall Comment Letter at 8; MFA Comment Letter at 4.

    \130\ ISDA Comment Letter at 8-9.

    ---------------------------------------------------------------------------

    Some commenters recommended use of the same factors as those used

    when making a determination that a swap is available to trade, albeit

    with objective thresholds.\131\ FXall asserted that using objective

    criteria would render the removal process ``transparent and

    impartial.'' \132\

    ---------------------------------------------------------------------------

    \131\ MFA Comment Letter at 4; ICI Comment Letter at 7-8; FXall

    Comment Letter at 7-8.

    \132\ FXall Comment Letter at 8.

    ---------------------------------------------------------------------------

    Some commenters recommended that a determination that a swap is no

    longer available to trade should be subject to public notice and

    comment.\133\ Accordingly, ICI recommended against using the procedures

    under Sec. Sec. 40.5 and 40.6 because they lack adequate opportunity

    for public comment.\134\ MFA also recommended that the Commission

    provide public notice after a swap is determined to be no longer

    available to trade.\135\

    ---------------------------------------------------------------------------

    \133\ FXall Comment Letter at 8; ICI Comment Letter at 7; Spring

    Trading Comment Letter at 7.

    \134\ ICI Comment Letter at 7.

    \135\ MFA Comment Letter at 5.

    ---------------------------------------------------------------------------

    Some commenters stated that a determination that a swap is no

    longer available to trade should only apply to the petitioning SEF or

    DCM.\136\ Spring Trading and SDMA stated that to apply the

    determination on a marketwide

    [[Page 33615]]

    basis would otherwise unfairly penalize other non-petitioning SEFs or

    DCMs.\137\ ICI and MFA, however, stated that the determination should

    apply to all SEFs and DCMs that list or offer the swap for

    trading.\138\ ICI stated that applying the determination to only one

    SEF or DCM would be inconsistent with the trade execution

    requirement.\139\

    ---------------------------------------------------------------------------

    \136\ Spring Trading Comment Letter at 7-8 (Jan. 12, 2012); SDMA

    Comment Letter at 10.

    \137\ Id.

    \138\ MFA Comment Letter at 4-5; ICI Comment Letter at 8.

    \139\ ICI Comment Letter at 8.

    ---------------------------------------------------------------------------

    Commission Determination

    The Commission is not adopting a separate process for a SEF or DCM

    to submit a determination that a swap is no longer available to trade.

    Rather, the Commission believes that where all SEFs and DCMs that had

    listed a swap for trading, including the SEF or DCM that submitted the

    initial available-to-trade determination under part 40, no longer list

    that swap for trading on their respective facility or platform, (i.e.,

    all such SEFs and DCMs have ``de-listed'' the swap),\140\ then the

    Commission would deem the swap to be no longer available to trade. In

    such a case, trading in the swap would no longer be subject to the

    trade execution requirement. The Commission believes that this approach

    is consistent with section 2(h)(8) of the CEA, which states a swap

    would otherwise not be subject to the trade execution requirement if,

    among other things, no SEF or DCM makes it available to trade.

    ---------------------------------------------------------------------------

    \140\ In some instances, a swap that is available to trade

    potentially should no longer be subject to the trade execution

    requirement, but not all SEFs and DCMs have de-listed the swap. In

    such a case, the Commission may choose to review the available-to-

    trade status of such a swap, under Sec. 40.2(b) or Sec.

    40.3(a)(10) of the Commission's regulations, which authorizes

    Commission staff to request, on an ongoing basis, additional

    information, evidence, or data that meets the requirements of the

    CEA or the Commission's regulations or policies thereunder. Further,

    market participants may request that the Commission, under section

    8a(7) of the CEA, designate a swap to be no longer available to

    trade. Under section 8a(7), the Commission could initiate a

    proceeding to amend a SEF or DCM's available-to-trade designation of

    a swap if such a change is necessary for . . . the protection of

    traders'' with respect to ``other trading requirements.'' First,

    however, the Commission must request in writing that the change be

    made and provide for appropriate notice and opportunity for hearing.

    The Commission, however, acknowledges that the section 8a(7) process

    is complex and emphasizes that the process should only be invoked

    where a swap clearly should not remain available to trade, but a SEF

    or DCM has declined a request to initiate a new assessment.

    ---------------------------------------------------------------------------

    Where all SEFs and DCMs no longer list that swap for trading--

    denoting that open interest in that swap does not exist on any facility

    or platform \141\--the Commission would deem the swap as no longer

    available to trade because that swap would no longer meet any of the

    determination factors. The Commission, which will maintain and update a

    list of the SEFs and DCMs that list those available-to-trade swaps,

    will have access to the information and the ability to make the

    determination, without requiring a separate process. In response to

    FXall, the Commission believes that this approach would be transparent

    and impartial. In response to MFA's recommendation, the Commission will

    inform the public that a swap is no longer available to trade via

    notice pursuant to new Sec. Sec. 37.10(d) and 38.12(d) (``Removal'').

    The Commission is also delegating authority to the Director of the

    Division of Market Oversight to issue notice in this instance.

    ---------------------------------------------------------------------------

    \141\ Under Sec. 40.6(a) of the Commission's regulations, the

    Commission would receive notice that a SEF or DCM has de-listed a

    swap through a submission, submitted in compliance with Sec. Sec.

    40.6(a)(1) and (2) and 40.6(a)(7).

    ---------------------------------------------------------------------------

    E. Annual Review

    Proposed Sec. Sec. 37.10(d) and 38.12(d) required that a SEF or

    DCM perform an annual review and assessment of each swap that it has

    made available to trade. The proposed rule envisioned that an annual

    review would ensure that SEFs and DCMs evaluate on a regular basis

    whether swaps previously determined to be available to trade should

    continue to be ``available to trade'' for the purposes of the trade

    execution requirement. In the annual review and assessment, SEFs and

    DCMs would be required to consider the proposed factors in Sec. Sec.

    37.10(b) and 38.12(b), respectively. Upon completion of the annual

    review, a SEF or DCM would be required to provide the Commission with

    an electronic report of the review and assessment, including any

    supporting information or data, no later than 30 days after its fiscal

    year end. The proposed rule requested comment on whether SEFs and DCMs

    should conduct the review and assessment.

    Summary of Comments

    Several commenters supported the proposed annual review

    requirement.\142\ Tradeweb, however, requested that the Commission

    clarify the effect of the proposed annual review process.\143\ Some

    commenters stated that additional reviews were necessary because swaps

    could become illiquid between scheduled annual reviews, yet still be

    subject to the trade execution requirement. Thus, they recommended more

    frequent reviews, such as on a quarterly basis.\144\ Several

    commenters, however, stated that the Commission, rather than SEFs,

    should conduct the review and assessment for similar reasons as those

    offered in support of allowing the Commission to exclusively determine

    whether a swap is available to trade.\145\ CME, for example,

    recommended that the Commission conduct the review by obtaining data

    from SDRs in order to minimize overall costs.\146\

    ---------------------------------------------------------------------------

    \142\ Tradeweb Comment Letter at 5; CME Comment Letter at 7;

    Spring Trading Comment Letter at 7 (Jan. 12, 2012).

    \143\ Tradeweb Comment Letter at 5.

    \144\ Morgan Stanley Comment Letter at 8; MFA Comment Letter at

    4-5; ISDA Comment Letter at 8; AIMA Comment Letter at 2-3; Eaton

    Vance Management Comment Letter at 4; ICI Comment Letter at 7;

    Markit Comment Letter at 4; Vanguard Comment Letter at 6; JPMorgan

    Comment Letter at 2; SIFMA AMG Comment Letter at 11; FSR Comment

    Letter at 3-4.

    \145\ Markit Comment Letter at 4; MFA Comment Letter at 4;

    Vanguard Comment Letter at 6; SIFMA AMG Comment Letter at 11. CME

    recommended that the Commission conduct the review of all existing

    available-to-trade determinations within 30 days of December 31 of

    each year to minimize costs and administrative burdens. For

    determinations submitted after June 30 of a given year, the annual

    review would occur within 30 days of December 31 of the following

    year. CME Comment Letter at 7.

    \146\ CME Comment Letter at 7.

    ---------------------------------------------------------------------------

    Some commenters further recommended that market participants have

    the opportunity to participate in the process. Tradeweb recommended

    that reviews and assessments be subject to public comment because of

    their market impact.\147\

    ---------------------------------------------------------------------------

    \147\ Tradeweb Comment Letter at 5.

    ---------------------------------------------------------------------------

    Other commenters opposed the proposed requirement. WMBAA stated

    that an annual review and assessment would be arbitrary, time-

    consuming, and offers insufficient regulatory value.\148\ Sunguard

    Kiodex asserted that periodic reviews would cause swaps' available-to-

    trade status to fluctuate, therefore negating the benefit of an initial

    determination.\149\ WMBAA and SDMA recommended that a SEF or DCM be

    able to rely solely on the clearing determination review instead and

    annually renew its self-certification without submitting a report.\150\

    ---------------------------------------------------------------------------

    \148\ WMBAA Comment Letter at 4.

    \149\ Sunguard Kiodex Comment Letter at 2.

    \150\ SDMA Comment Letter at 10; WMBAA Comment Letter at 4.

    ---------------------------------------------------------------------------

    With respect to the factors to be considered in an annual review,

    some commenters supported use of the proposed determination factors in

    Sec. Sec. 37.10(b) and 38.12(b).\151\ Eaton Vance Management

    recommended that a SEF or DCM must affirmatively report each factor

    that a swap meets to continue to

    [[Page 33616]]

    be available to trade.\152\ Other commenters stated that the Commission

    should establish objective review and assessment criteria.\153\

    ---------------------------------------------------------------------------

    \151\ Spring Trading Comment Letter at 7 (Jan. 12, 2012); Eaton

    Vance Management Comment Letter at 4; Tradeweb Comment Letter at 5;

    SIFMA AMG Comment Letter at 11; MFA Comment Letter at 4; Markit

    Comment Letter at 4.

    \152\ Eaton Vance Management Comment Letter at 4.

    \153\ SIFMA AMG Comment Letter at 11; MFA Comment Letter at 4;

    Markit Comment Letter at 4; AIMA Comment Letter at 3.

    ---------------------------------------------------------------------------

    ICI and Eaton Vance Management requested that the electronic

    reports to be submitted to the Commission also be made available to the

    public.\154\

    ---------------------------------------------------------------------------

    \154\ ICI Comment Letter at 7; Eaton Vance Management Comment

    Letter at 2.

    ---------------------------------------------------------------------------

    Commission Determination

    The Commission is not adopting the proposed annual review

    requirement. The Commission intended the requirement to ensure that a

    SEF or DCM would regularly evaluate trading for the swaps that it has

    determined to be available to trade for purposes of the trade execution

    requirement. Based on the approach adopted for determining that a swap

    is no longer available to trade, however, the Commission believes that

    requiring SEFs and DCMs to submit a review or assessment is not

    necessary. A SEF or DCM will likely review, on an ongoing basis,

    whether swaps listed or offered for trading on its system or platform

    should continue to be listed or offered for trading. Such a review

    would likely consider one or more factors that are similar to those

    that can be used to determine if a swap is available to trade. Further,

    if the Commission believes that a review of a swap's available-to-trade

    status is warranted, then it may request that SEFs and DCMs submit

    relevant information to conduct that review under Sec. Sec. 40.2(b)

    and 40.3(a)(10) of the Commission's regulations, respectively.\155\

    ---------------------------------------------------------------------------

    \155\ See supra note 140. Under 17 CFR 40.2(b) and 40.3(a)(10),

    when requested by Commission staff, a SEF or DCM is required to

    submit additional evidence, information, or data that demonstrates

    that a swap listed for trading meets the CEA's requirements or the

    Commission's regulations. Under Sec. Sec. 37.5 and 38.5 of the

    Commission's regulations, respectively, the Commission may also

    request a SEF or DCM to file information related to its business as

    a SEF or DCM, including trading information, in a particular form,

    manner, and time as specified.

    ---------------------------------------------------------------------------

    F. Notice to the Public of Available To Trade Determinations

    The Commission noted in the FNPRM that Sec. Sec. 40.5 and 40.6

    provide a process for notifying the public that a SEF or DCM has made

    an available-to-trade determination--SEFs and DCMs are required to post

    a notice and a copy of the rule submission on their respective Web

    sites concurrent with their filings at the Commission. The Commission

    stated that it would also post the filings on its Web site. The

    Commission also stated that it would assess the feasibility of posting

    notices of all swaps that are determined to be available to trade on an

    easily accessible page on its Web site. Commenters supported the

    proposal to provide notice to market participants through a central

    location on the Commission's Web site.\156\ SIFMA AMG stated that a

    list would help market participants comply with the rules.\157\

    ---------------------------------------------------------------------------

    \156\ ICI Comment Letter at 10; Bloomberg Comment Letter at 3

    n.9; SIFMA AMG Comment Letter at 12-13; AIMA Comment Letter at 4.

    SIFMA AMG and AIMA also recommended that such a centralized location

    could be operated by an independent third party.

    \157\ SIFMA AMG Comment Letter at 13. SIFMA AMG requested that

    the Commission establish the Web site location prior to designating

    any swaps as available to trade. Id. In response to SIFMA AMG's

    comment, the Commission anticipates that this Web page will be

    established as soon as technologically feasible, and may or may not

    occur prior to the effective date of this rule. CME also requested

    that the Commission publish a list, on its Web site and in the

    Federal Register, of all swaps under current assessment. CME Comment

    Letter at 7. The Commission notes that Sec. Sec. 40.5 and 40.6

    filings will already be posted on its Web site.

    ---------------------------------------------------------------------------

    The Commission agrees with commenters that a centralized list would

    help market participants, as well as SEFs and DCMs, comply with the

    Commission's rules and regulations related to the trade execution

    requirement. Therefore, the Commission will post such determinations on

    its Web site where market participants can readily ascertain which

    swaps have been determined to be available to trade, and therefore

    subject to the trade execution requirement, including the SEFs and DCMs

    that list or offer those swaps for trading.

    III. Sections 37.12 and 38.11 of the Commission's Regulations--Trade

    Execution Compliance Schedule

    Proposed Sec. Sec. 37.12(a) and 38.11(a) required market

    participants to comply with the trade execution requirement under

    section 2(h)(8) of the CEA upon the later of (1) the applicable

    deadline established under the compliance schedule for the clearing

    requirement for a swap,\158\ or (2) 30 days after the swap is first

    made available to trade on either a SEF or DCM.\159\ In the proposed

    rule, the Commission noted that while the available-to-trade

    determination could precede the clearing requirement and vice versa,

    the trade execution requirement would not be in effect until the

    clearing requirement takes effect.\160\ The Commission sought comment

    as to whether 30 days would be sufficient for necessary technological

    linkages to be established between (1) DCOs, DCMs, and SEFs; and (2)

    DCMs, SEFs, and market participants.\161\

    ---------------------------------------------------------------------------

    \158\ The Commission proposed to phase in compliance with the

    clearing requirement, and the trade execution requirement thereof,

    by category of market participant. As proposed, Category 1 entities,

    which included a swap dealer, a security-based swap dealer, a major

    swap participant, a major security-based swap participant, or an

    active fund, would have 90 days to comply with the clearing

    requirement. Category 2 entities, which include a commodity pool,

    private fund, employee benefit plan, or person predominantly engaged

    in activities that are in the business of banking or are financial

    in nature, would have 180 days to comply with the clearing

    requirement. Certain third-party subaccounts and all other swap

    transactions would receive 270 days to comply with the clearing

    requirement. With the exception of removing employee benefit plans

    from Category 2 and allowing such plans 270 days to comply with the

    clearing requirement, the Commission adopted this compliance

    schedule generally as proposed. See Swap Transaction Compliance and

    Implementation Schedule: Clearing Requirement under Section 2(h) of

    the CEA, 77 FR 44441 (July 20, 2012).

    \159\ See Swap Transaction Compliance and Implementation

    Schedule: Clearing and Trade Execution Requirements under Section

    2(h) of the CEA, 76 FR 58186 (Sep. 20, 2011). In this final rule,

    the Commission is finalizing the compliance and implementation

    schedule for the trade execution requirement, and therefore,

    addresses the relevant comments submitted in response to this

    proposed rule.

    \160\ 76 FR 77731 n.38.

    \161\ 76 FR 58192.

    ---------------------------------------------------------------------------

    Summary of Comments

    Some commenters generally supported the proposed compliance

    schedule for the trade execution requirement,\162\ but Tradeweb

    commented that a 30-day implementation period may not be sufficient for

    a class of swaps that is available to trade for the first time and

    recommended that the Commission maintain the authority to set an

    appropriate implementation period on a case-by-case basis for a class

    of swaps, with input from SEFs, DCMs, and market participants.\163\

    ---------------------------------------------------------------------------

    \162\ Chris Barnard Comment Letter at 2 (Sep. 23, 2011);

    Tradeweb Comment Letter at 2-4 (Nov. 4, 2011); Better Markets

    Comment Letter at 2 (Nov. 4, 2011).

    \163\ Tradeweb Comment Letter at 4.

    ---------------------------------------------------------------------------

    Several commenters recommended that the trade execution requirement

    should become effective only after the clearing requirement is fully

    implemented.\164\ MFA commented that allowing mandatory trade execution

    to become effective simultaneously with mandatory clearing would

    potentially dilute market participants' resources to comply with both

    requirements.\165\ MFA also recommended that all market participants be

    required to comply with

    [[Page 33617]]

    the trade execution requirement at the same time, rather than through a

    phased-in approach, to avoid fragmenting market liquidity.\166\

    ---------------------------------------------------------------------------

    \164\ AIMA Comment Letter at 3 (Nov. 3, 2011); MarkitSERV

    Comment Letter at 5 (Nov. 2011); Citadel Comment Letter at 5 (Nov.

    4, 2011); MFA Comment Letter at 7 (Nov. 4, 2011); Vanguard Comment

    Letter at 5 (Nov. 4, 2011) (recommending 180-day compliance period

    between the effective date of the clearing requirement and the trade

    execution requirement).

    \165\ MFA Comment Letter at 10-11.

    \166\ Id. at 12.

    ---------------------------------------------------------------------------

    Other commenters stated that the proposed schedule does not afford

    adequate time for market participants to comply with the trade

    execution requirement, particularly with regards to the proposed 30-day

    post-determination implementation period.\167\ JPMorgan and UBS stated

    that where a SEF or DCM submits a swap as available to trade using

    Sec. 40.6, market participants could be required to transfer their

    existing trading in that swap onto a SEF or DCM within only 40 days of

    the submission.\168\

    ---------------------------------------------------------------------------

    \167\ JPMorgan Comment Letter at 3-4; UBS Comment Letter at 2;

    ICI Comment Letter at 5 (Nov. 4, 2011); CME Comment Letter at 2

    (Nov. 4, 2011); Westpac Comment Letter at 3 (Nov. 4, 2011); Regional

    Banks Comment Letter at 7 (Nov. 4, 2011); FHLBanks Comment Letter at

    5 (Nov. 4, 2011); ICI Comment Letter at 9; ISDA Comment Letter at

    11; AIMA Comment Letter at 2-3; UBS Comment Letter at 2; ISDA

    Comment Letter at 11; ACLI Comment Letter at 2.

    \168\ JPMorgan Comment Letter at 3; UBS Comment Letter at 2.

    Based on proposed Sec. Sec. 37.12(a) and 38.11(a), commenters

    assumed that 30 days after the swap is made available to trade falls

    upon the later date than the applicable compliance date for the

    clearing requirement.

    ---------------------------------------------------------------------------

    Some commenters noted that implementing new infrastructure,

    standards, and procedures necessary to comply with the trade execution

    requirement would require a longer post-determination period.\169\ For

    example, FHLBanks commented that new infrastructure and procedures are

    necessary to ensure that swaps are properly submitted to a

    counterparty's FCM and to a DCO.\170\ Some commenters also cited the

    need for market participants to develop adequate connectivity \171\ and

    to obtain trading access \172\ to a SEF or DCM. CME commented that

    DCOs, DCMs, and SEFs would not likely be able to establish the

    requisite technological linkages within the proposed 30-day

    implementation period,\173\ while ICI commented that smaller market

    participants could need more than 30 days to connect to a SEF or DCM

    offering an actively traded swap.\174\ Other commenters noted that

    market participants would also need time to complete applicable

    documentation and agreements.\175\ Some commenters further stated that

    a longer implementation period would promote greater competition among

    trading venues and mitigate a SEF's or DCM's attempt to capture market

    share.\176\

    ---------------------------------------------------------------------------

    \169\ JPMorgan Comment Letter at 3-4; ISDA Comment Letter at 11;

    FHLBanks Comment Letter at 5 (Nov. 4, 2011); Westpac Comment Letter

    at 2-3 (Nov. 4, 2011).

    \170\ FHLBanks Comment Letter at 5 (Nov. 4, 2011).

    \171\ FSR Comment Letter at 4; Bloomberg Comment Letter at 5;

    ICI Comment Letter at 8; ISDA Comment Letter at 11; Eaton Vance

    Management Comment Letter at 3; Chatham Comment Letter at 4; SIFMA

    AMG Comment Letter at 9; CME Comment Letter at 6-7; Westpac Comment

    Letter at 3 (Nov. 21, 2011); ICI Comment Letter at 5 (Nov. 4, 2011).

    \172\ MFA Comment Letter at 4; Vanguard Comment Letter at 6;

    SIFMA AMG Comment Letter at 9; AIMA Comment Letter at 3; CME Comment

    Letter at 6-7.

    \173\ CME Comment Letter at 2 (Nov. 4, 2011).

    \174\ ICI Comment Letter at 5 (Nov. 4, 2011).

    \175\ SIFMA AMG Comment Letter at 9; ICI Comment Letter at 9;

    AIMA Comment Letter at 3; CME Comment Letter at 7; ISDA Comment

    Letter at 11; Westpac Comment Letter at 3; FIA/ISDA/SIFMA Comment

    Letter at 8 (Nov. 4, 2011).

    \176\ Chatham Comment Letter at 4; FXall Comment Letter at 7;

    ICI Comment Letter at 8; SIFMA AMG Comment Letter at 9.

    ---------------------------------------------------------------------------

    Commenters provided several suggestions for a longer post-

    determination period. Several commenters recommended a 90-day period

    after a swap is made available to trade,\177\ while Chatham and FSR

    recommended at least a 6-month period.\178\ SIFMA AMG recommended an

    implementation period of at least 90 days after the swap becomes

    subject to the trade execution requirement,\179\ while some commenters

    recommended a similar period of at least 6 months,\180\ particularly

    for market participants who are neither swap dealers or major swap

    participants.\181\ SIFMA AMG and Vanguard stated that the period could

    be shortened over time as market participants become more experienced

    with centralized trading.\182\

    ---------------------------------------------------------------------------

    \177\ FXall Comment Letter at 7; ICI Comment Letter at 9; CME

    Comment Letter at 6-7; Vanguard Comment Letter at 6; Bloomberg

    Comment Letter at 5; Westpac Comment Letter at 3 (Nov. 4, 2011).

    \178\ Chatham Comment Letter at 4; FSR Comment Letter at 4.

    \179\ SIFMA AMG Comment Letter at 9.

    \180\ Eaton Vance Management Comment Letter at 3; ISDA Comment

    Letter at 11.

    \181\ Westpac Comment Letter at 3 (Nov. 4, 2011); FHLBanks

    Comment Letter at 5 (Nov. 4, 2011).

    \182\ SIFMA AMG Comment Letter at 9; Vanguard Comment Letter at

    6.

    ---------------------------------------------------------------------------

    Commission Determination

    The Commission is adopting Sec. Sec. 37.12(a) and (b) and 38.11(a)

    and (b) as proposed with minor technical corrections, but is also

    amending the proposed rule text to clarify that market participants

    must comply with the trade execution requirement upon the later of (1)

    the applicable deadline established under the compliance schedule for

    the clearing requirement for a swap,\183\ or (2) 30 days after the

    available-to-trade determination for that swap is deemed approved under

    Sec. 40.5 or deemed certified under Sec. 40.6 by the Commission as

    available to trade. As noted earlier, the Commission anticipates that

    because of the novel nature of the available-to-trade determinations,

    the initial determinations would likely be subject to a stay under

    Sec. 40.6 for an additional 90-day review period or an extension of

    the 45-day review period under Sec. 40.5 for an additional 45 days.

    Accordingly, the Commission's part 40 rule review procedures should

    provide market participants with adequate advance notice of the

    possible application of the trade execution requirement to a particular

    swap. The Commission believes that this period, along with the

    subsequent 30-day post-determination implementation period, is a

    sufficient amount of time for SEFs, DCMs, and market participants to

    become familiar and comply with the trade execution requirement. Taken

    in concert with the implementation schedule adopted for swaps subject

    to clearing requirement, the Commission also believes that this time is

    sufficient with respect to mandatory trade execution for an individual

    swap or a group, type, category, or class of swaps.\184\

    ---------------------------------------------------------------------------

    \183\ See supra note 52.

    \184\ See id.

    ---------------------------------------------------------------------------

    To the extent that the phased-in compliance schedule for the

    clearing requirement previously adopted by the Commission may lead to

    phased-in compliance with the trade execution requirement, the

    Commission supports this approach. The Commission believes that the

    phased-in schedule for the former requirement--which accounts for a

    market participant's ability to comply based on risk profile,

    compliance burden, resources, and expertise--also applies with respect

    to compliance with the latter requirement. The Commission further notes

    that the concerns about fragmenting market liquidity caused by a

    phased-in approach are mitigated by (1) the phasing-in of similar

    entities, who transact similar volumes of swaps, under similar

    timelines and (2) the relatively compact timeframe in which market

    participants in all three clearing implementation and compliance

    categories must comply with the trade execution requirement.\185\

    ---------------------------------------------------------------------------

    \185\ See id.

    ---------------------------------------------------------------------------

    Finally, the Commission notes that a trading facility could still

    clear and list a swap for trading after it is determined to be subject

    to the trade execution requirement, but prior to the effective date.

    [[Page 33618]]

    IV. Related Matters

    A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') requires federal agencies,

    in promulgating regulations, to consider the impact of those

    regulations on small entities.\186\ 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.\187\ The Commission has previously

    determined that DCMs and SEFs are not ``small entities'' for purposes

    of the RFA.\188\ The subject of this rulemaking also provides a

    compliance schedule for a new statutory requirement, section 2(h)(8) of

    the CEA, and does not itself impose significant new regulatory

    requirements.\189\ Accordingly, the Commission received no comments on

    the Chairman's certification of the impact of the rules contained

    herein on small entities. Therefore, the Chairman, on behalf of the

    Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the rule

    will not have a significant economic impact on a substantial number of

    small entities.

    ---------------------------------------------------------------------------

    \186\ 5 U.S.C. 601 et seq.

    \187\ 47 FR 18681-31 (Apr. 30, 1982).

    \188\ See 47 FR 18618, 18619 (Apr. 30, 1982) discussing DCMs; 66

    FR 45604, 45609 (Aug. 29, 2001) discussing DTEFs; 76 FR 1214, 1235

    discussing SEFs.

    \189\ 76 FR 58193.

    ---------------------------------------------------------------------------

    B. Paperwork Reduction Act

    The Paperwork Reduction Act (``PRA'') \190\ imposes certain

    requirements on federal agencies in connection with their conducting or

    sponsoring any collection of information as defined by the PRA. An

    agency may not conduct or sponsor, and a registered entity is not

    required to respond to, a collection of information unless it displays

    a currently valid control number by the Office of Management and Budget

    (``OMB''). This final rule contains new collection of information

    requirements within the meaning of the PRA. Accordingly, in connection

    with the FNPRM, the Commission submitted an information collection

    requested, titled ``Parts 37 and 38--Process for a Swap Execution

    Facility or Designated Contract Market to Make a Swap Available to

    Trade'' and supporting documentation to OMB for its review and approval

    in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11, and requested

    that OMB approve and assign a new control number for the collections of

    information covered by the FNPRM. Additionally, pursuant to 44 U.S.C.

    3506(c)(2)(B), the Commission, in the FNPRM, requested comments from

    the public on the proposed information collection requirements in order

    to, among other items, evaluate the necessity of the proposed

    collections of information and minimize the burden of the information

    collection requirements on respondents. On September 12, 2012, OMB

    assigned control number 3038-0099 to this collection of information,

    but withheld final approval pending the Commission's resubmission of

    the information collection, which includes a description of the

    comments received on the collection and the Commission's responses

    thereto.

    ---------------------------------------------------------------------------

    \190\ 44 U.S.C. 3501 et seq.

    ---------------------------------------------------------------------------

    With respect to the adoption of Sec. Sec. 37.12(a) and 38.11(a)--

    the trade execution compliance schedule--as stated in the prior

    proposed rule, this requirement will not require a new collection of

    information from any persons or entities.\191\

    ---------------------------------------------------------------------------

    \191\ 76 FR 58193.

    ---------------------------------------------------------------------------

    The Commission protects proprietary information according to the

    Freedom of Information Act and 17 CFR part 145, ``Commission Records

    and Information.'' In addition, section 8(a)(1) of the CEA strictly

    prohibits the Commission, unless specifically authorized by the CEA,

    from making public ``data and information that would separately

    disclose the business transactions or market positions of any person

    and trade secrets or names of customers.'' \192\ The Commission is also

    required to protect certain information contained in a government

    system of records according to the Privacy Act of 1974.\193\

    ---------------------------------------------------------------------------

    \192\ 7 U.S.C. 12(a)(1).

    \193\ 5 U.S.C. 552a.

    ---------------------------------------------------------------------------

    1. Proposed Information Provided by Reporting Entities/Persons

    In the FNPRM, the Commission estimated that 50 registered entities

    will be required to file part 40 rule submissions and annual reports.

    Based on the previously estimated hours of burden under part 40 and

    the estimated additional time that a SEF or DCM would require to review

    applicable factors and data to make a determination, the Commission

    estimated that the hourly burden for a SEF or DCM under proposed

    Sec. Sec. 37.10(a) and 38.12(a) to submit an available-to-trade

    determination would be 8 hours per submission. The Commission, however,

    did not provide an average annual hours of burden for each SEF or DCM

    to submit available-to-trade determinations under proposed Sec. Sec.

    37.10(a) and 38.12(a) because, as stated in the FNPRM, it is not

    feasible to determine the number of part 40 rule submission filings, on

    average, that each SEF or DCM would submit, as the number of swap

    contracts to be traded on a DCM or SEF and the number of those swaps

    that a SEF or DCM will eventually submit as available to trade is

    presently unknown.

    2. Summary of Comments and Commission Response

    Sections 37.10(a) and 38.12(a)--Process To Make a Swap Available To

    Trade

    MarketAxess and SDMA characterized the proposed approach as

    burdensome and commented that it would require SEFs to expend a

    significant amount of time and resources.\194\ MarketAxess recommended

    an alternative ``recognition and notification'' process in which a SEF

    or DCM provides notice to the Commission that a swap is available to

    trade when it becomes subject to the clearing requirement.\195\

    MarketAxess stated that this approach would allow SEFs to use their

    resources in a more efficient manner.\196\ SDMA supported the part 40

    approach, but stated that a SEF should determine if a swap is available

    to trade based on whether the swap is required to be cleared, not based

    on the enumerated factors.\197\ Sunguard Kiodex also recommended an

    alternative approach--a real-time ``illiquidity'' test that would

    temporarily permit off-facility trading in a swap based on certain

    market observations--that would require less time and reduce

    costs.\198\ WMBAA and Spring Trading commented that the Commission's

    estimate of the hours of burden for a SEF or DCM to make an available-

    to-trade determination are too low based on the different types of

    personnel that would be involved in a determination.\199\ Spring

    Trading estimated that each rule filing would require at least 15-20

    hours.\200\

    ---------------------------------------------------------------------------

    \194\ MarketAxess Comment Letter at 7-8; SDMA Comment Letter at

    4-5.

    \195\ MarketAxess Comment Letter at 6.

    \196\ Id. at 7.

    \197\ SDMA Comment Letter at 6-7.

    \198\ Sunguard Kiodex Comment Letter at 3.

    \199\ WMBAA Comment Letter at 5; Spring Trading Comment Letter

    at 5 (Jan. 12, 2012).

    \200\ Id.

    ---------------------------------------------------------------------------

    The Commission notes that the alternative approaches proposed by

    commenters would eliminate a separate formal determination process. As

    stated in the preamble, however, the Commission believes that

    determining whether a swap is available to trade and whether a swap

    should be mandatorily cleared should remain separate

    [[Page 33619]]

    processes because each inquiry addresses different concerns. Further,

    adopting a real-time ``illiquidity'' test would require objective

    criteria, which the Commission has declined to adopt at this time.

    The Commission acknowledges the comments from WMBAA and Spring

    Trading regarding the resources required to make a determination.

    Therefore, the Commission is revising its estimate of the hours of

    burden to reflect the addition of additional personnel that would

    process and analyze trading data, for which the Commission estimates

    this hourly burden to be 8 hours per submission. The Commission is also

    adopting a listing requirement in the final rule under new Sec. Sec.

    37.10(a)(2) and 38.12(a)(2), which requires a SEF or DCM to certify

    that it is listing the swap for which it submits an available-to-trade

    determination. The Commission notes that the listing process is

    governed by Sec. Sec. 40.2 and 40.3 of the Commission's regulations,

    for which it has previously estimated the average hourly burden to be 2

    hours per submission in a previous rulemaking.\201\

    ---------------------------------------------------------------------------

    \201\ 76 FR 77734.

    ---------------------------------------------------------------------------

    Accordingly, the Commission revises its estimate of the total

    hourly burden to be 16 hours per submission.

    C. Cost-Benefit Considerations

    Introduction

    Title VII of the Dodd-Frank Act seeks to prevent a repeat of the

    harm caused by the 2008 financial crisis by establishing a

    comprehensive new regulatory framework for swaps and security-based

    swaps.\202\ Among other things, the legislation seeks to promote market

    integrity, reduce risk, and increase transparency within the financial

    system and swaps markets. Consistent with the view that several

    weaknesses contributed to the crisis,\203\ Title VII establishes a

    multidimensional regulatory approach designed to ``mitigate costs and

    risks to taxpayers and the financial system.'' \204\ Provisions

    designed to move the transaction of swaps from primarily opaque, over-

    the-counter (``OTC'') markets--which traditionally feature bilateral

    negotiation and execution--to registered swap execution facilities

    (``SEFs'') and designated contract markets (``DCMs'')--which provide

    market participants and the public with improved swap market

    transparency--represent an important element of this approach.

    ---------------------------------------------------------------------------

    \202\ Dodd-Frank Act section 701, et seq.

    \203\ See, e.g., Financial Crisis Inquiry Commission, ``The

    Financial Crisis Inquiry Report: Final Report of the National

    Commission on the Causes of the Financial and Economic Crisis in the

    United States'' at xxiv (Jan. 2011), available at http://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf. (listing

    uncontrolled leverage; lack of transparency, capital and collateral

    requirements; speculation; interconnection among firms; and

    concentrations of risk in the market as contributing factors).

    \204\ S. Rep. No. 111-176, at 92 (2010).

    ---------------------------------------------------------------------------

    In particular, section 733 of the Dodd-Frank Act amended the CEA

    to, among other things, move swap trading and execution to SEFs and

    DCMs.\205\ Section 723(a)(3) of the Dodd-Frank Act added a trade

    execution requirement,\206\ which requires that swap transactions

    subject to the clearing requirement under section 2(h)(1) of the CEA be

    executed on a SEF or a DCM, unless no SEF or DCM ``makes the swap

    available to trade'' or the clearing exception under section 2(h)(7) of

    the CEA applies.\207\ Taken together, these provisions are intended to

    transform the swaps market from one in which prices for bilaterally-

    negotiated contracts are privately quoted--typically by dealers who,

    unlike non-dealer market participants (typically the ``buy-side''),

    enjoy asymmetric information advantages--to one in which bid/offer

    prices for swap contracts are accessible to multiple market

    participants to compare, assess, and accept or reject.\208\ With this

    release, in conjunction with the Commission's final rulemaking

    establishing SEFs\209\ and the final rulemaking defining appropriate

    minimum block sizes for swaps,\210\ the Commission is implementing the

    trade execution requirement.

    ---------------------------------------------------------------------------

    \205\ SEFs are a new type of regulated marketplace modeled

    largely on the existing Commission-regulated DCM structure. Section

    1a(50) of the CEA, as enacted by section 721 of the Dodd-Frank Act,

    defines a SEF as ``a trading system or platform in which multiple

    participants have the ability to execute or trade swaps by accepting

    bids and offers made by multiple participants in the facility or

    system, through any means of interstate commerce, including any

    trading facility, that (A) facilitates the execution of swaps

    between persons; and (B) is not a designated contract market.'' 7

    U.S.C. 1a(50). Section 5h(a)(1) of the CEA, as amended by the

    section 733 of the Dodd-Frank Act, prohibits any person from

    operating a facility for the trading and processing of swaps unless

    the facility is registered as a SEF or a DCM. 7 U.S.C. 7b-3(a)(1).

    \206\ CEA section 2(h)(8), 7 U.S.C. 2(h)(8).

    \207\ 7 U.S.C. 2(h)(7).

    \208\ Asymmetric information exists when one counterparty to a

    transaction has more or better information than the other

    counterparty. In some instances, a dealer could have an information

    advantage over a non-dealer, and vice versa. Abuse of this advantage

    is likely to contribute to market failure. By definition, bilateral

    negotiations imply lower levels of transparency of orders, quotes,

    trades and transaction prices. In the context of swap markets, as

    dealers are on one side of a large fraction of trades, they are

    privy to better information on prevailing market conditions and

    valuations relative to their non-dealer counterparties. See ``An

    Analysis of OTC Interest Rate Derivatives Transactions: Implications

    for Public Reporting,'' Michael Fleming, John Jackson, Ada Li, Asani

    Sarkar, and Patricia Zobel, Federal Reserve Bank of New York Staff

    Reports, no. 557, at 6 n.14 (Mar. 2012). Major derivatives dealer

    activity accounts for 89 percent of the total interest rate swap

    activity in notional terms. Id.

    \209\ See Core Principles and Other Requirements for Swap

    Execution Facilities (May 16, 2013).

    \210\ See Procedures to Establish Appropriate Minimum Block

    Sizes for Large Notional Off-Facility Swaps and Block Trades (May

    16, 2013).

    ---------------------------------------------------------------------------

    In this release, the Commission is adopting final rules (1)

    specifying the process by which a swap is made ``available to trade,''

    thereby making it subject to the trade execution requirement under

    section 2(h)(8) of the CEA (``available-to-trade rule''); and (2)

    establishing the compliance schedule of the trade execution

    requirement, following a Commission determination that a swap is both

    required to be cleared and is available to trade (``trade execution

    compliance schedule'').\211\ More specifically, these rules allow SEFs

    and DCMs to designate swaps that they list or offer for trading as

    ``available to trade,'' \212\ thereby requiring market participants who

    transact such swaps (and who are subject to the clearing requirement

    under section 2(h)(1)(A) of the CEA) to comply with the trade execution

    requirement in carrying out these transactions. Swaps that are subject

    to the trade execution requirement (and are not block trades as defined

    under Sec. 43.2 of the Commission's regulations) must be executed in

    accordance with other separately promulgated rules that implement the

    Dodd-Frank Act's swap exchange trading requirements and are intended to

    provide improved price transparency for swap transactions.\213\

    ---------------------------------------------------------------------------

    \211\ CEA section 2(h)(8), 7 U.S.C. 2(h)(8).

    \212\ See supra note 1.

    \213\ The rules establishing SEFs focus on measures to promote

    pre-trade transparency and trade execution of swaps. To comply with

    the trade execution requirement, swaps that are traded on a SEF must

    be executed as Required Transactions. Under Sec. 37.9(a)(2),

    Required Transactions must be executed by either (1) an Order Book,

    as defined in Sec. 37.3(a)(3); or (2) a Request for Quote System,

    as defined in Sec. 37.9(a)(3). See Core Principles and Other

    Requirements for Swap Execution Facilities (May 16, 2013). Swaps

    that are subject to the trade execution requirement, under section

    2(h)(8) of the CEA, and traded on a DCM must be executed pursuant to

    subpart J of part 38 of the Commission's regulations, which

    implements revised DCM Core Principle 9 under section 5(d)(9) of the

    CEA, as amended by section 735(b) of the Dodd-Frank Act. 7 U.S.C.

    7(d)(9).

    ---------------------------------------------------------------------------

    Operating in concert with the statutory requirements and other

    rules,\214\ the rules adopted in this rulemaking are designed to

    provide a process that fosters swaps becoming available to trade, and

    therefore subject to the trade execution requirement; this,

    [[Page 33620]]

    indirectly will counter information asymmetry and in turn, the

    informational advantage enjoyed by dealers to the potential detriment

    of other market participants. In this way, these rules will promote a

    competitive market environment with improved price discovery and

    characterized by narrower spreads and more reliable prices. Ultimately,

    these rules will benefit the financial system as a whole by creating a

    more efficient marketplace where market participants will be able to

    take into account the price at which recent transactions have occurred

    when determining at what price to quote or place orders.

    ---------------------------------------------------------------------------

    \214\ See part 37 and subpart J of part 38 of the Commission's

    regulations.

    ---------------------------------------------------------------------------

    The Commission believes that some of the costs related to the

    application of these rules are a consequence of the Congressional trade

    execution requirement under section 2(h)(8) of the CEA. For example,

    those market participants who are not eligible for the end-user

    exception under section 2(h)(7) of the CEA\215\ will not have the

    option to execute swaps made available to trade on a bilateral basis,

    even if they consider it more costly or less convenient to execute

    trades on a SEF or a DCM. As described further below, the Commission

    was cognizant of these costs in adopting these final rules, and has,

    where appropriate, attempted to mitigate the costs while observing CEA

    section 2(h)(8).

    ---------------------------------------------------------------------------

    \215\ The Commission may determine that swap transactions

    exempted from the section 2(h)(1) clearing requirement pursuant to

    other statutory authority would also not be subject to the section

    2(h)(8) trade execution requirement. See supra note 1.

    ---------------------------------------------------------------------------

    The Statutory Mandate To Consider the Costs and Benefits of the

    Commission's Action: Section 15(a) of the CEA

    Section 15(a) \216\ of the CEA requires the Commission to consider

    the costs and benefits of its actions before promulgating a regulation

    under the CEA or issuing certain orders. Section 15(a) further

    specifies that the costs and benefits shall be evaluated in light of

    the following 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 section 15(a) factors.

    ---------------------------------------------------------------------------

    \216\ CEA section 15(a), 7 U.S.C. 19(a).

    ---------------------------------------------------------------------------

    In this rulemaking to implement the trade execution requirement,

    the Commission is exercising its discretion to adopt the available-to-

    trade rule and the trade execution compliance schedule. The discussion

    that follows considers the section 15(a) factors for each set of rules

    separately. Prior to the section 15(a) consideration for each set of

    rules, the Commission discusses the costs, benefits, and alternatives

    to the approach adopted in these final rules as well as relevant

    comment letters.\217\ With respect to the available-to-trade rule,

    costs, benefits, and alternatives are further broken out and discussed

    separately for various components of the process--Part 40 Process and

    Determination Factors, and Applicability.

    ---------------------------------------------------------------------------

    \217\ The Commission solicited comments to aid its consideration

    of the costs and benefits resulting from (1) the proposed available-

    to-trade rule, 76 FR 77733, and (2) the proposed trade execution

    compliance schedule. 76 FR 58192.

    ---------------------------------------------------------------------------

    Quantifying the costs and benefits to SEFs and DCMs is not

    reasonably feasible for many aspects of the available-to-trade rule

    because costs will depend, among other things, on the future business

    decisions of SEFs and DCMs. The Commission expects that the costs and

    benefits with respect to the available-to-trade rule will vary, based

    on the specific circumstances of the individual SEFs, DCMs, and market

    participants. Where the Commission is unable to quantify the costs and

    benefits, the Commission identifies and considers the costs and

    benefits of these rules in qualitative terms.

    Given the novelty of the trade execution requirement--the mandatory

    trading of swaps on a new type of entity, SEFs, or on DCMs--the

    Commission is inherently limited by a lack of available data in

    attempting to quantify the costs and benefits of implementing the trade

    execution compliance schedule. As discussed further below, the

    Commission is not aware of any analog to another requirement that would

    provide information that is sufficient to ascertain such costs and

    benefits in quantitative terms. Accordingly, the Commission identifies

    and considers the costs and benefits of the compliance schedule in

    qualitative terms.

    1. Available-to-Trade Rule

    a. Part 40 Process and Determination Factors

    Final Sec. Sec. 37.10 and 38.12 govern the process that a SEF or

    DCM must use to determine whether a swap is available to trade for

    purposes of the trade execution requirement. For a swap to be subject

    to the trade execution requirement under section 2(h)(8) of the CEA, a

    SEF or DCM must have first determined that a swap is available to

    trade. The Commission views this determination as a trading protocol

    issued by the SEF or DCM (and therefore as a ``rule,'' as defined in

    Sec. 40.1 of the Commission's regulations); as a rule, the SEF or DCM

    must submit the determination to the Commission in accordance with the

    procedures contained in part 40 of the Commission's regulations. Final

    Sec. Sec. 37.10(a) and 38.12(a) set forth the procedure for a SEF or

    DCM to submit the determination under Sec. 40.5 or Sec. 40.6 of the

    Commission's regulations.

    Final Sec. Sec. 37.10(b) and 38.12(b) require a SEF or DCM to

    consider, as appropriate, six factors with respect to each swap when

    determining whether a swap is available to trade: (1) Whether there are

    ready and willing buyers and sellers; (2) the frequency or size of

    transactions; (3) the trading volume; (4) the number and types of

    market participants; (5) the bid/ask spread; or (6) the usual number of

    resting firm or indicative bids and offers. No single factor must

    always be considered as to whether a swap is available to trade;

    therefore, the SEF or DCM may consider any one or more of the factors

    in its initial determination. In its submission to the Commission under

    Sec. 37.10(a) or Sec. 38.12(a), a SEF or DCM must describe how it

    considered the factors that it deems appropriate.

    Costs

    Costs to SEFs and DCMs

    In the proposed rule, the Commission estimated that conducting the

    assessment and submission process in Sec. Sec. 37.10(a) and (b) and

    38.12(a) and (b) could be performed internally by one compliance

    personnel of the SEF or DCM over approximately eight hours on average.

    The Commission further estimated that the cost per hour for one

    compliance personnel to be $43.25 per hour; \218\ therefore, it would

    cost each SEF and DCM $346 per rule submission to comply with the

    proposed requirements.\219\ The Commission also noted that this

    estimate was general in nature and that it would be difficult to

    determine the number of hours involved with reasonable precision, given

    the novelty of the process.\220\ The

    [[Page 33621]]

    Commission solicited comments on the costs associated with Sec. Sec.

    37.10(a) and (b) and 38.12(a) and (b), i.e., assessing whether a swap

    is available to trade and submitting a determination pursuant to part

    40 of the Commission's regulations.\221\

    ---------------------------------------------------------------------------

    \218\ See Report on Management & Professional Earnings in the

    Securities Industry 2010, Securities Industry and Financial Markets

    Association at 4 (Sept. 2010). The report lists the average total

    annual compensation for a compliance specialist (intermediate) as

    $58,878. The Commission estimated the personnel's hourly cost by

    assuming an 1,800 hour work year and by multiplying by 1.3 to

    account for overhead and other benefits.

    \219\ 76 FR 77735.

    \220\ The Commission also noted that certain additional factors

    could affect these estimates, such as the complexity of the swap's

    terms. Id.

    \221\ Id.

    ---------------------------------------------------------------------------

    Some commenters claimed that the Commission's estimate for the

    number of personnel required to carry out the process was low.\222\ For

    example, WMBAA stated that the Commission under-estimated the different

    types of personnel that would be required to make an available-to-trade

    determination, which include information technology professionals,

    operations staff, legal and compliance staff, and management.\223\

    Spring Trading anticipated that the Commission would require large

    amounts of data and analysis from SEFs and DCMs to support their

    determinations; therefore, the costs required to make a determination

    and submit a filing would be similar to the effort required by a DCM to

    assess whether a new futures contract is susceptible to

    manipulation.\224\ WMBAA also asserted that the initial costs of

    implementing the new procedure would be higher than the Commission's

    proposed projection.\225\ MarketAxess commented that the process would

    require SEFs to expend significant resources, which would pose a

    barrier to entry and lead to fewer trading platforms for market

    participants.\226\

    ---------------------------------------------------------------------------

    \222\ WMBAA Comment Letter at 5; Spring Trading Comment Letter

    at 5 (Jan. 12, 2012).

    \223\ WMBAA Comment Letter at 5.

    \224\ Spring Trading Comment Letter at 5 (Jan. 12, 2012). The

    Commission has noted that the costs of compliance with DCM Core

    Principle 3--Contracts Not Readily Subject to Manipulation, as

    codified in Sec. 38.200 of the Commission's regulations--consist of

    supplying supporting information and documentation to justify the

    contract specifications of a new product. That process is governed

    by the product listing submission procedures codified in Sec. Sec.

    40.2 and 40.3 of the Commission's regulations.

    \225\ Id.

    \226\ MarketAxess Comment Letter at 9.

    ---------------------------------------------------------------------------

    Commenters did not provide alternative numerical estimates or

    discuss the magnitude of costs that would be imposed by the

    determination process. Based on the qualitative comments received from

    WMBAA and Spring Trading, however, the Commission is revising its

    estimated cost of conducting the assessment and submission process to

    reflect the addition of an economist to the estimate of necessary

    personnel. The Commission agrees with Spring Trading that SEFs and DCMs

    may analyze trading data in considering the factors under Sec. Sec.

    37.10(b) and 38.12(b); the compliance personnel would likely be

    assisted by an economist in carrying out such an analysis over

    approximately eight hours on average. Further, the Commission is also

    revising its estimates based on updated wage rate data. The

    Commission's updated estimate of the cost per hour for one compliance

    personnel is $42.16 per hour \227\ and $64.60 per hour for one

    economist.\228\

    ---------------------------------------------------------------------------

    \227\ See Report on Management & Professional Earnings in the

    Securities Industry 2011, Securities Industry and Financial Markets

    Association at 4 (Oct. 2011). The FRPRM calculated the proposed

    estimate for the assessment and submission process based on salary

    information in the 2010 report. See supra note 218. The 2011 report

    lists the average total annual compensation for a compliance

    specialist (intermediate) as $58,371. The Commission estimated the

    personnel's hourly cost by assuming an 1,800 hour work year and by

    multiplying by 1.3 to account for overhead and other benefits.

    \228\ See Bureau of Labor Statistics, U.S. Department of Labor,

    Occupational Outlook Handbook, 2012-13 Edition, Economists, http://www.bls.gov/ooh/life-physical-and-social-science/economists.htm. The

    report lists the average total annual compensation for an economist

    as $89,450. The Commission estimated the personnel's hourly cost by

    assuming an 1,800 hour work year and by multiplying by 1.3 to

    account for overhead and other benefits.

    ---------------------------------------------------------------------------

    The Commission is also adopting a listing requirement under final

    Sec. Sec. 37.10(a)(2) and 38.12(a)(2) that requires the SEF or DCM to

    demonstrate that they have listed or offered for trading the swap for

    which they are submitting an available-to-trade determination. A SEF or

    DCM incurs costs to list or offer a swap for trading pursuant to Sec.

    40.2 and 40.3 of the Commission's regulations, which requires a product

    filing that includes, among other things, a ``concise explanation and

    analysis'' of the product, that the Commission has acknowledged as de

    minimis.\229\ Although a SEF or DCM may decide to list a product for

    trading without a desire to submit an available-to-trade determination,

    to the extent that the SEF or DCM lists a product exclusively to meet

    the requirements of Sec. Sec. 37.10(a)(2) or 38.12(a)(2), the

    Commission estimates that it would take one compliance personnel

    approximately 2 hours, on average, to submit a product filing.

    ---------------------------------------------------------------------------

    \229\ For further Commission discussion of the costs associated

    with listing or offering a product for trading under Sec. Sec. 40.2

    and 40.3 of the Commission's regulations, see Provisions Common to

    Registered Entities, 76 FR 44776, 44787 (Jul. 27, 2011).

    ---------------------------------------------------------------------------

    Therefore, the Commission estimates that it would cost a SEF and

    DCM a maximum of $938.40 per rule submission filing to comply with

    final Sec. Sec. 37.10(a) and (b) and 38.12(a) and (b).

    With respect to MarketAxess's comment, the Commission does not

    believe that the costs associated with the determination process pose a

    barrier to entry for trading platforms. The rule does not affirmatively

    require a SEF or DCM to first submit to the Commission that a swap is

    available to trade via a part 40 filing in order to list or offer that

    swap for trading on its platform. If one SEF or DCM makes the swap

    available to trade through the part 40 process, then other SEFs and

    DCMs who subsequently choose to list or trade the swap are only

    required to do so through methods of execution consistent with the

    trade execution requirement. The Commission notes that in order to

    register and operate as a SEF, a trading platform or facility must

    already be able to demonstrate that they offer certain minimum

    functionality in terms of methods of execution (i.e., a central limit

    order book (``CLOB'') or request-for-quote (``RFQ'') system).\230\

    ---------------------------------------------------------------------------

    \230\ See Core Principles and Other Requirements for Swap

    Execution Facilities (May 16, 2013).

    ---------------------------------------------------------------------------

    The Commission specifically designed the process to mitigate costs

    by allowing SEFs and DCMs to utilize existing personnel and

    infrastructure to carry out the determination and submission process

    under part 40 procedures. Further, the process affords SEFs and DCMs

    the flexibility to consider any one or more enumerated factors in

    determining that a swap is available to trade. This flexibility will

    allow them to tailor their considerations, while also managing costs of

    research and analysis, by selecting from a range of factors. Moreover,

    the Commission believes that the costs will decrease for both SEFs and

    DCMs as they become more familiar with using the part 40 procedures to

    make a swap available to trade. The Commission also believes that the

    part 40 process will require fewer resources as centralized trading

    develops and SEFs and DCMs become more familiar with the types of swaps

    that can be made available to trade.

    The Commission believes that Spring Trading's comparison between

    the costs of the process and the costs to assess whether a new futures

    contract is susceptible to manipulation rests on a flawed analogy. The

    costs of the latter are based upon the Commission's annual burden hours

    estimate, in the aggregate, for the information collection requirements

    under Sec. Sec. 40.2 and 40.3 of the Commission's regulations,\231\

    estimated per registered entity to be 200 hours based on 100 responses

    and an estimated average of 2 hours per

    [[Page 33622]]

    response.\232\ The Commission's estimate of 18 hours to comply with

    final Sec. Sec. 37.10(a) and (b) and 38.12(a) and (b), however, is

    based upon a single submission of an available-to-trade

    determination.\233\ It is not feasible at this time to estimate the

    average number of rule submissions that a SEF or DCM will file per

    year; therefore, the Commission believes that the burden hours estimate

    for the information collection requirements under Sec. Sec. 40.2 and

    40.3 is not illustrative here.

    ---------------------------------------------------------------------------

    \231\ 76 FR 44790.

    \232\ Id.

    \233\ As discussed above, the Commission estimates the

    assessment and submission process in Sec. Sec. 37.10(a) and (b) and

    38.12(a) and (b) for each submission will be performed by one

    compliance personnel and one economist over approximately eight

    hours each on average. In addition, the Commission estimates that it

    would take one compliance personnel approximately 2 hours, on

    average, to comply with the listing prerequisite under Sec. Sec.

    37.10(a)(2) and 38.12(a)(2) by submitting a product filing.

    ---------------------------------------------------------------------------

    Costs to Market Participants

    Some commenters also stated that the process would impose direct

    costs on market participants. For example, Chatham stated that end-

    users would have to expend resources to monitor whether swaps are

    subject to the trade execution requirement, and if so, connect to a SEF

    or DCM that offers or lists that swap for trading.\234\

    ---------------------------------------------------------------------------

    \234\ Chatham Comment Letter at 2.

    ---------------------------------------------------------------------------

    Some commenters also expressed concern that the available-to-trade

    determination process would impose indirect costs on market

    participants. These commenters maintained that SEFs and DCMs would be

    incentivized to exploit the process by indiscriminately determining

    that swaps are available to trade. Making determinations in this

    manner, they claimed, would lead to illiquid swaps trading on a SEF or

    DCM, which could result in increasing swap price volatility; increased

    spreads; misleading market prices; and front-running behavior.\235\

    Chatham commented that end-users would encounter higher hedging and

    swap execution costs, particularly from swap dealers passing on the

    costs of higher volatility.\236\ ISDA stated that those costs would

    deter market participants from executing hedge transactions.\237\ FSR

    stated that improper determinations by a SEF or DCM, such as one

    primarily driven by the desire to capture market share rather than on

    the merits, would compel market participants to avail themselves of

    exemptions to the trade execution requirement, thus undermining the

    goal of promoting a centralized trading market.\238\

    ---------------------------------------------------------------------------

    \235\ AIMA Comment Letter at 1; CME Comment Letter at 6; Morgan

    Stanley Comment Letter at 3; CEWG Comment Letter at 4.

    \236\ Chatham Comment Letter at 2.

    \237\ ISDA Comment Letter at 4.

    \238\ FSR Comment Letter at 2.

    ---------------------------------------------------------------------------

    Notwithstanding the fact that commenters did not provide data to

    support or monetize their cost concerns, the Commission has

    qualitatively considered their comments about the direct and indirect

    costs of the available-to-trade determination process. First, with

    respect to the direct costs cited by Chatham--that end-users would have

    to follow which swaps are subject to mandatory trade execution and

    connect to a SEF or DCM to trade that swap--these costs are primarily

    attributable to the statutory trade execution requirement and not to

    the Commission's action in this final rule. The costs incurred by

    market participants to connect to a SEF or DCM are attendant to

    complying with the trade execution requirement. While the number of

    swaps subject to the trade execution requirement will be affected by

    this final rule in conjunction with business decisions by SEFs and

    DCMs, market participants (as well as SEFs and DCMs) would incur these

    costs for any swap subject to the statutory trade execution

    requirement. While commenters did not provide any quantitative

    estimates regarding connectivity costs, the Commission understands that

    clearing firms' connectivity services to DCMs can be bundled into the

    clearing services provided by clearing firms, and expects that this

    will occur at SEFs as well. Hence, the connectivity costs arising

    directly from the trade execution requirement are likely to be subsumed

    into the costs of complying with the mandatory clearing

    requirement.\239\ It is also possible that SEFs and DCMs will bundle

    connectivity costs into transaction fees. Moreover, SEFs and DCMs have

    an incentive to keep connectivity costs low in order to attract market

    participants.

    ---------------------------------------------------------------------------

    \239\ Depending on their individual business needs, market

    participants could also use connectivity services provided by

    independent software vendors to trade swaps subject to the trade

    execution requirement. These costs may also be bundled into

    transaction fees. The Commission also notes that it is typically the

    case that for most new contracts, DCMs tend to waive execution and

    other fees during the initial six to twelve months after listing,

    and such fee waivers are meant to help mitigate any incremental

    costs for market participants to connect to a new platform or trade

    a new product.

    ---------------------------------------------------------------------------

    Further, while there may be some attendant search costs, the

    Commission's approach in this final rule greatly minimizes the costs to

    market participants to monitor whether a SEF or DCM is subject to the

    trade execution requirement. Under existing practice for part 40 rule

    submissions, the Commission will post a notice and copy of all

    available-to-trade submissions on its Web site. The Commission also

    intends to establish an updated, centralized list of all of the swaps

    that are available to trade. This will provide market participants with

    a single reference for knowing whether a particular swap has been

    determined to be available to trade.

    With respect to the potential indirect costs imposed upon market

    participants if illiquid swaps are made available to trade and become

    subject to the trade execution requirement, the Commission acknowledges

    the concerns of commenters. The Commission, however, believes that the

    part 40 process is appropriate and well-suited to moderate this

    possibility and views the adopted determination factors as probative of

    whether an actual trading market exists.\240\ Mandating SEFs and DCMs

    to consider these factors prior to making a determination will compel

    them at the outset to internally consider the benefits versus the costs

    that will be incurred to list and subsequently support trading in a

    particular swap. The Commission also believes that the transparency of

    the process (e.g., submissions must be posted on the submitting SEF or

    DCM's Web site and will be posted on the Commission's Web site as

    well), coupled with Commission review and potential for public comment,

    provides an important backstop to protect the integrity of the

    determinations that are submitted.

    ---------------------------------------------------------------------------

    \240\ The Commission believes that market participants can use

    any or each of the factors to demonstrate that active trading is

    occurring for a particular swap. For example, a high frequency of

    transactions, narrow bid/ask spread, or large trading volume would

    indicate execution of transactions for that swap. A large number of

    buyers or sellers, or a large number of resting firm or indicative

    bids and offers would also indicate an active market based on the

    presence of market participants seeking to execute transactions in

    that swap.

    ---------------------------------------------------------------------------

    Benefits

    The process set forth in Sec. Sec. 37.10 and 38.12 will advance

    the Congressional goal of promoting swap execution and developing a

    centralized trading market that facilitates price discovery in the

    manner as described below.

    Most importantly, the adopted process in the final rule will

    provide an up-to-date, singular reference for SEFs, DCMs, and market

    participants for identifying which swaps are available to trade, and

    therefore subject to the trade execution requirement. Sections 37.10(a)

    and 38.12(a) prescribe the use of the part 40 process for the

    submission of rules for Commission review and approval (Sec. 40.5) or

    the self-certification

    [[Page 33623]]

    of rules (Sec. 40.6).\241\ Under these processes, SEFs and DCMs must

    submit an initial available-to-trade determination to the Commission

    either for rule approval or as a self-certification; both require

    Commission review. If appropriate, the Commission may approve a Sec.

    40.5 or Sec. 40.6 rule submission within the designated timeframes.

    SEFs and DCMs will be familiar with this process; part 40 is already

    used by DCMs for other rule filings and similarly will be used by SEFs

    going forward. Part 40 further requires SEFs and DCMs to post a copy

    and notice of their submissions on their respective Web sites; the

    Commission also posts that information on its own Web site. Therefore,

    the adopted process will allow market participants to know (1) whether

    a particular swap has been submitted as available to trade; (2) whether

    that swap has been deemed as available to trade by the Commission; and

    (3) when the swap was made or will be made available to trade. In those

    submissions, SEFs and DCMs must consider the six enumerated factors

    under Sec. Sec. 37.10(b) and 38.12(b) as appropriate, which provides

    other SEFs, DCMs, and market participants with information about the

    basis for determining that a swap is available to trade.

    ---------------------------------------------------------------------------

    \241\ Part 40 of the Commission's regulations governs regulatory

    obligations of registered entities, which include DCMs and SEFs

    under section 1(a)(40) of the CEA, with respect to, among other

    things, the certification or approval of new products for trading;

    and the certification or approval of rules governing the SEF or DCM.

    ---------------------------------------------------------------------------

    The process adopted in Sec. Sec. 37.10 and 38.12 also increases

    transparency for market participants and the public. Under part 40,

    submissions must contain an explanation of how the SEF or DCM

    determined that a swap is available to trade, including the

    consideration of one or more of the relevant factors listed in

    Sec. Sec. 37.10(b) and 38.12(b), as well as a brief explanation of any

    substantive opposing views. The part 40 process allows the Commission

    to go back to the submitting entity in the case that an insufficient

    explanation of the determination is provided.\242\ In addition, when

    warranted (e.g., when a submission presents novel or complex issues),

    market participants and the public will have the opportunity to provide

    public comment on the merits of the SEF or DCM's submission directly

    through the Commission's Web site.\243\ Therefore, part 40 will not

    only inform market participants of the justifications for and against

    an available-to-trade determination, but provides an opportunity for

    market participants and the public to submit their own views as well.

    ---------------------------------------------------------------------------

    \242\ Under rule approval process, the Commission may extend the

    review period of a determination submitted if, among other things,

    the submission is incomplete. Sec. 40.5(d)(1). Under the self-

    certification process, the Commission may stay the certification if,

    among other things, the rule submission is accompanied by an

    inadequate explanation. Sec. 40.6(c)(1).

    \243\ Under Sec. 40.6(c)(2) of the Commission's regulations,

    the Commission will provide a 30-day public comment period where the

    available-to-trade determination submitted is subject to a stay

    because, among other things, it presents novel or complex issues

    that require additional time to analyze. As discussed in section

    II.A.1 of the preamble to the final rule, the Commission will also

    provide an opportunity to submit public comment for determinations

    submitted to the Commission under the Sec. 40.5 rule approval

    process. See supra notes 58-60 and accompanying text.

    ---------------------------------------------------------------------------

    The adopted process also provides SEFs and DCMs with flexibility in

    determining whether a swap is available to trade. Under Sec. Sec.

    37.10(b) and 38.12(b), a SEF or DCM may consider any one or more of the

    enumerated factors in its initial determination, given that the

    Commission believes that no single factor must always be considered.

    Accordingly, this approach allows SEFs and DCMs to submit swaps with

    different trading characteristics to the Commission as available to

    trade. Rather than require SEFs and DCMs to respond to a rigid set of

    determination criteria, this flexibility was designed to encourage SEFs

    and DCMs to make a broader range of swaps subject to the trade

    execution requirement.

    The Commission anticipates that these benefits will produce a more

    efficient process and consistent determinations over time. Under the

    part 40 procedures, SEFs and DCMs will submit to the Commission, for

    further review with the potential for public comment, an initial

    determination of whether a swap is available to trade. This approach

    will (1) benefit market participants during the initial stages of

    implementation by providing them, in circumstances as described above,

    with an opportunity to comment on determinations and (2) help the

    Commission track and maintain a record of which swaps are subject to

    the trade execution requirement.

    The transparency and flexibility offered under the adopted

    processes will further the development of a centralized trading market,

    consistent with the objectives of the Dodd-Frank Act.\244\ By requiring

    a submission that details the analysis and justifications behind an

    available-to-trade determination, the part 40 procedures provide the

    Commission with a well-established protocol for reviewing whether swaps

    should be subject to the trade execution requirement. The procedures

    set forth in the final rule provide the building blocks for the

    development of a robust and liquid centralized trading market,

    consisting of a diverse array of offered or listed swaps, thus inviting

    market participation. Competition between SEFs and DCMs is expected to

    increase the number of swaps available for trading on SEFs and DCMs,

    thereby encouraging innovation and inviting broader market

    participation. Growth in swaps trading on SEFs and DCMs will benefit

    market participants by increasing price transparency and facilitating

    price discovery.

    ---------------------------------------------------------------------------

    \244\ See CEA section 5h(e), as enacted by section 733 of the

    Dodd-Frank Act, 7 U.S.C. 7b-3(e) (stating that one of the Act's

    objectives is ``to promote the trading of swaps on swap execution

    facilities and to promote pre-trade price transparency in the swaps

    market''); CEA section 5(d)(9)(A), as amended by section 735(b) of

    the Dodd-Frank Act, 7 U.S.C. 7(d)(9) (stating under a DCM core

    principle that ``the board of trade shall provide a competitive,

    open and efficient market and mechanism for executing transactions

    that protects the price discovery process of trading in the

    centralized market of the board of trade'').

    ---------------------------------------------------------------------------

    Consideration of Alternatives

    Several commenters recommended that swaps subject to the clearing

    requirement should be subject to the trade execution requirement

    without an additional available-to-trade determination. Some of these

    commenters stated that the CEA does not specify a formal process with

    determination factors.\245\ Other commenters asserted that the clearing

    determination considers a swap's trading liquidity and therefore

    already addresses whether the swap should be subject to mandatory trade

    execution.\246\ Several commenters stated that requiring trading

    facilities to consider the enumerated factors in an available-to-trade

    determination would be ``inefficient and burdensome'' and waste limited

    regulatory resources.\247\ MarketAxess asserted that allowing a SEF or

    DCM to (1) recognize that a swap is available to trade based on the

    clearing determination and (2) notify the Commission that it is listing

    the swap, thereby making the swap subject to

    [[Page 33624]]

    mandatory trade execution, would not require the Commission, or a SEF

    or DCM to expend any resources.\248\

    ---------------------------------------------------------------------------

    \245\ MarketAxess Comment Letter at 3; WMBAA Comment Letter at

    3; AFR Comment Letter at 2-3; ODEX Comment Letter at 1; SDMA Comment

    Letter at 3-4.

    \246\ SDMA Comment Letter at 4-5; WMBAA Comment Letter at 3;

    MarketAxess Comment Letter at 5. AFR claimed that a DCO can only

    clear a class of swaps if a reasonable level of market liquidity is

    demonstrated; otherwise, the DCO could not establish the

    statistically expected loss levels in a liquidation of positions so

    as to set an initial margin level. AFR Comment Letter at 4.

    \247\ SDMA Comment Letter at 5-6; WMBAA Comment Letter at 3;

    MarketAxess Comment Letter at 7-8.

    \248\ MarketAxess Comment Letter at 7-8.

    ---------------------------------------------------------------------------

    The Commission considered the costs and benefits of subjecting

    swaps to mandatory trade execution based on whether the swap must be

    cleared rather than through a separate available-to-trade

    determination. While the Commission recognizes that adopting a distinct

    determination process may impose some additional costs on SEFs and

    DCMs, it believes that these costs are warranted by the benefits that

    market participants will realize from the process: transparency and

    knowledge that only swaps that are either deemed certified or approved

    by the Commission as available to trade are subject to the trade

    execution requirement. This process insulates against SEFs or DCMs

    engaging in inconsistent or improper determinations to subject swaps to

    the trade execution requirement. As previously stated, the Commission

    expects the cost of making a determination to decrease over time as

    SEFs, DCMs, and market participants become more knowledgeable about the

    process and gain more experience in considering the factors to make a

    swap available to trade.

    Several commenters proposed that the Commission, not SEFs and DCMs,

    should maintain the exclusive authority to determine whether a swap is

    available to trade.\249\ Commenters expressed concern that illiquid

    swaps would become subject to the trade execution requirement if SEFs

    and DCMs were allowed to make the determination based on their

    incentives to maximize the number of swaps traded on a facility or

    platform.\250\ CME stated a Commission-based review of whether a swap

    is available to trade would lead to a more ``logical and efficient''

    use of Commission and industry resources.\251\

    ---------------------------------------------------------------------------

    \249\ Markit Comment Letter at 5-6; Vanguard Comment Letter at

    5; Geneva Energy Markets Comment Letter at 2; JPMorgan Comment

    Letter at 1; CME Comment Letter at 4-5; FHLB Comment Letter at 3;

    FSR Comment Letter at 4; FXall Comment Letter at 5-6; Morgan Stanley

    Comment Letter at 5-6; CEWG Comment Letter at 6; ISDA Comment Letter

    at 3-4, 6; Tradeweb Comment Letter at 4-5.

    \250\ Bloomberg Comment Letter at 2; Vanguard Comment Letter at

    5; Geneva Energy Markets Comment Letter at 2; JPMorgan Comment

    Letter at 1-2; CME Comment Letter at 4-5; FHLB Comment Letter at 3;

    ISDA Comment Letter at 3-4; Markit Comment Letter at 5; CEWG Comment

    Letter at 2; Morgan Stanley Comment Letter at 5-6; AIMA Comment

    Letter at 2; FXall Comment Letter at 6-7; Tradeweb Comment Letter at

    2-3; FSR Comment Letter at 2.

    \251\ CME Comment Letter at 4-5.

    ---------------------------------------------------------------------------

    The Commission believes that benefits are maximized under the

    approach adopted, rather than an alternative under which the Commission

    would hold sole authority to determine whether a swap is available to

    trade. The part 40 approach leverages the trading expertise of SEFs and

    DCMs to determine whether a swap is available to trade, while the

    Commission's authority to review these determinations under part 40

    will help ensure that they are appropriate. The Commission expects that

    SEFs and DCMs will have an understanding of the markets that they list

    for trading and will regularly communicate with market participants

    about liquidity in their markets. Accordingly, the Commission believes

    that SEFs and DCMs are best positioned to make appropriate available-

    to-trade determinations. Relying on SEFs and DCMs, who would be

    incentivized to make swaps available to trade, to initiate the

    determination process in consultation with market participants will

    also facilitate innovation and promote swaps trading in accordance with

    section 5h(e) of the CEA. By allowing SEFs and DCMs to make these

    determinations, the Commission will be able to focus on its

    responsibilities in conducting market oversight.

    The Commission has also considered whether a SEF or DCM should be

    able to submit an available-to-trade determination for a swap that it

    does not list or offer for trading. While SDMA responded in the

    affirmative,\252\ several other commenters stated that a SEF or DCM

    should be required to list the swap for a period of time prior to

    submitting a determination.\253\ ISDA stated that the lack of such a

    requirement would otherwise incentivize SEFs and DCMs to submit as many

    determinations as possible, merely to promote centralized trading.\254\

    ---------------------------------------------------------------------------

    \252\ SDMA Comment Letter at 9.

    \253\ Eaton Vance Management Comment Letter at 3; SIFMA AMG

    Comment Letter at 10; UBS Comment Letter at 2; Morgan Stanley

    Comment Letter at 6 n.6; ISDA Comment Letter at 7; Tradeweb Comment

    Letter at 5.

    \254\ ISDA Comment Letter at 6.

    ---------------------------------------------------------------------------

    The Commission has determined that a listing requirement supports

    the integrity of the available-to-trade determination process.

    Moreover, the Commission expects that a SEF or DCM will have no

    business incentive to submit an available-to-trade determination for a

    swap that it has no intention of listing for trading. While the

    Commission recognizes that the listing SEF or DCM will likely incur

    some cost to submit an available to trade determination, the Commission

    believes that those costs would necessarily be accompanied by a stream

    of benefits once the swap is subject to the trade execution

    requirement. Accordingly, the Commission has adopted a listing

    requirement under new Sec. Sec. 37.10(a)(2) and 38.12(a)(2). As

    discussed above, the Commission believes that a SEF or DCM will incur

    de minimis costs to list or offer a swap for trading under the part 40

    procedures for listing a product for trading--the Commission estimates

    that it would take one compliance personnel approximately 2 hours, on

    average, to submit a product filing.

    The Commission has also considered the costs and benefits of, and

    requested comment on, whether or not a SEF or DCM should (1) be allowed

    to submit its available-to-trade determination for a ``group, category,

    type or class of swap''; and (2) be allowed to consider the

    determination factors under Sec. Sec. 37.10(b) and 38.12(b) for the

    same swap on another SEF or DCM, or activity primarily or solely in

    bilateral transactions. Because each of the adopted provisions is

    permissive rather than compulsory in nature, neither should impose

    costs upon SEFs and DCMs relative to the alternative of not providing

    such allowances. SEFs and DCMs will internally analyze the costs and

    benefits before availing themselves of either provision, and forego the

    opportunity if not warranted by the perceived benefits. Should a SEF or

    DCM choose to submit a ``group, category, type or class of swap,'' the

    adopted approach would impose fewer costs than requiring a submission

    for each individual swap.

    The Commission has identified the benefits of both provisions

    relative to the alternatives of not providing such allowances. First,

    allowing a SEF or DCM to submit a determination for a group, category,

    type or class of swap would promote economies of scale and streamline

    the process for SEFs, DCMs, and the Commission; rather than submit

    separate determinations for individual swaps with similar

    characteristics, a SEF or DCM may elect to include them in a single

    filing.\255\ Based on its review, however, the Commission may approve

    or deem only part or some of the swaps within that group, category,

    type or class as available to trade. Second, allowing a SEF or DCM to

    consider activity in the same swap that is listed on another trading

    platform or in the bilateral market would yield information about how

    that swap trades in the overall market and better inform market

    participants and the Commission

    [[Page 33625]]

    about how the swap may trade in a centralized environment.

    ---------------------------------------------------------------------------

    \255\ The Commission notes that it also considers swaps as a

    group, category, type or class in other instances, such as for

    clearing determinations. See supra note 79.

    ---------------------------------------------------------------------------

    A number of commenters recommended that the Commission pursue an

    alternative approach that would establish objective threshold criteria

    for the determination factors.\256\ For example, Markit and FSR

    commented that without objective thresholds, SEFs and DCMs would not be

    able to determine that a swap is available to trade with regards to its

    liquidity.\257\ ICI and Eaton Vance Management stated that buy-side

    market participants would indirectly incur higher trading costs in the

    event that a swap with limited liquidity were to trade on a SEF or

    DCM.\258\

    ---------------------------------------------------------------------------

    \256\ Markit Comment Letter at 3; Spring Trading Comment Letter

    at 4; AIMA Comment Letter at 4; Bloomberg Comment Letter at 4; FXall

    Comment Letter at 6; Vanguard Comment Letter at 5; SIFMA AMG Comment

    Letter at 5; JPMorgan Comment Letter at 1; ISDA Comment Letter at 7;

    Eaton Vance Management Comment Letter at 3; ICI Comment Letter at 6;

    Morgan Stanley Comment Letter at 6; FSR Comment Letter at 6-7.

    \257\ Markit Comment Letter at 3; FSR Comment Letter at 3, 6-7.

    \258\ ICI Comment Letter at 6; Eaton Vance Management Comment

    Letter at 2-3.

    ---------------------------------------------------------------------------

    The Commission does not deem the risk of limited liquidity swaps

    becoming available to trade as significant relative to the benefits of

    the final rule's flexible approach. As such, the Commission does not

    believe that establishing objective threshold criteria would provide a

    sufficient benefit to warrant imposing additional administrative

    burdens--the Commission would first be required to determine which

    swaps (among a wide variety) may potentially be available to trade, and

    establish and update criteria for those swaps. Market participants

    would then have to fulfill the burden of processing and analyzing trade

    data to demonstrate that those criteria are met for swaps that they

    submit. The rule, as adopted, allows the Commission to consider data

    and other objective factors submitted by SEFs and DCMs, or the comments

    from other market participants during the determination process. The

    Commission will review and assess each available-to-trade submission to

    ensure that it is consistent with the CEA and the Commission's

    regulations. Further, the Commission believes that the adopted approach

    promotes greater swaps trading on SEFs and DCMs, in accordance with the

    statutory objectives of the CEA, by providing the flexibility to make

    swaps with different trading characteristics available to trade, rather

    than imposing rigid threshold criteria.

    Several commenters recommended that SEFs and DCMs must consider and

    demonstrate that a swap is available to trade based on more than one

    factor.\259\ Many of these commenters stated that SEFs and DCMs should

    be required to consider all of the enumerated factors; \260\ Vanguard

    and SIFMA AMG, for example, supported this approach because they

    believed that all of the factors are relevant in determining if a swap

    is available to trade.\261\ Bloomberg commented that the factors are

    all important indicators of an actual trading market and recommended

    mandatory consideration of all of them, given the implications of

    making a swap available to trade and potential conflicts of

    interest.\262\ FHLB commented that a determination should be based on

    multiple factors.\263\

    ---------------------------------------------------------------------------

    \259\ FHLB Comment Letter at 3; Markit Comment Letter at 3; ICI

    Comment Letter at 5; CEWG Comment Letter at 3.

    \260\ Markit Comment Letter at 3; ISDA Comment Letter at 7;

    Morgan Stanley Comment Letter at 4; FSR Comment Letter at 3; ICI

    Comment Letter at 5; SIFMA AMG Comment Letter at 7.

    \261\ Vanguard Comment Letter at 4; SIFMA AMG Comment Letter at

    5.

    \262\ Bloomberg Comment Letter at 4.

    \263\ FHLB Comment Letter at 4.

    ---------------------------------------------------------------------------

    The Commission has considered the range of alternatives suggested

    by some commenters with respect to more specific or mandatory

    consideration of the determination factors, but believes that requiring

    consideration of every factor or a specific set of factors would

    require additional effort on the part of the SEFs or DCMs without

    significant added benefit.\264\ In the event that a SEF's or DCM's

    submission does not adequately support an available-to-trade

    determination, the Commission, under part 40, may request additional

    information in order to complete its review \265\ or extend the review

    period. The adopted approach achieves the goal of making swaps

    available for centralized trading, while allowing SEFs and DCMs the

    flexibility to subject swaps with different trading characteristics to

    the trade execution requirement.

    ---------------------------------------------------------------------------

    \264\ The Commission notes that a SEF or DCM, if it chooses, may

    consider more than one factor in determining if a swap is available

    to trade.

    \265\ Under Sec. Sec. 40.5(c)(2)(ii) and 40.6(a)(8), the

    Commission may request that a registered entity to supplement the

    submission with additional information.

    ---------------------------------------------------------------------------

    Several commenters supported incorporating a process for

    determining whether a swap is no longer available to trade; \266\ some

    recommended using the same factors as those used to determine whether a

    swap is available to trade, albeit with objective thresholds.\267\

    Commenters were split on the issue of applicability; some expressed

    that a determination that a swap is no longer available to trade should

    apply only to individual SEFs or DCMs,\268\ while others recommended

    that such a determination should apply on a marketwide basis,

    consistent with how the trade execution requirement is applied.\269\

    ---------------------------------------------------------------------------

    \266\ MFA Comment Letter at 4; FXall Comment Letter at 7-8; ICI

    Comment Letter at 7; SIFMA AMG Comment Letter at 11-12; Spring

    Trading Comment Letter at 7 (Jan. 12, 2012); ISDA Comment Letter at

    8-9; JPMorgan Comment Letter at 2.

    \267\ MFA Comment Letter at 4; ICI Comment Letter at 7-8; FXall

    Comment Letter at 7-8.

    \268\ Spring Trading Comment Letter at 7-8 (Jan. 12, 2012); SDMA

    Comment Letter at 10.

    \269\ MFA Comment Letter at 4-5; ICI Comment Letter at 8.

    ---------------------------------------------------------------------------

    The Commission believes that inclusion at this time of a separate

    process for determining that a swap is no longer available to trade is

    unnecessary and unwarranted by the limited, if any, benefit that would

    be afforded. In this circumstance, to impose a requirement for the last

    SEF or DCM that ceases to list a swap for trading to submit an official

    determination that the swap is no longer available to trade would be

    unnecessary.\270\

    ---------------------------------------------------------------------------

    \270\ The Commission acknowledges the concern that the de-

    listing of swaps by one or more SEFs or DCMs may affect the

    liquidity in the market for such swaps, or could be a reflection of

    reduced liquidity in such markets, and that such reduced liquidity

    could affect the costs of executing such swaps on a SEF or DCM. In

    such circumstances where swaps are de-listed by SEFs or DCMs,

    however, the Commission may review the available-to-trade status of

    such a swap under part 40 of the Commission's regulations;

    additionally, section 8a(7) of the CEA affords market participants

    an avenue to request the Commission to designate a swap as no longer

    available to trade. See supra note 140.

    ---------------------------------------------------------------------------

    The Commission proposed, and several commenters supported, a

    requirement that each SEF or DCM (1) conduct an annual review and

    assessment of each swap it has made available to trade to determine

    whether or not each of these swaps should continue to be available to

    trade; and (2) submit an electronic copy of the review and assessment,

    including any supporting information or data, to the Commission no

    later than 30 days after its fiscal year end. The Commission estimated

    that it would cost each DCM an additional $1,730 per review to comply

    with the proposed requirement.\271\ Some commenters recommended more

    frequent reviews in order to identify illiquid swaps on a timelier

    basis.\272\

    ---------------------------------------------------------------------------

    \271\ 76 FR 77735.

    \272\ Morgan Stanley Comment Letter at 8; MFA Comment Letter at

    4-5; ISDA Comment Letter at 8; AIMA Comment Letter at 2-3; Eaton

    Vance Management Comment Letter at 4; ICI Comment Letter at 7;

    Markit Comment Letter at 4; Vanguard Comment Letter at 6; JPMorgan

    Comment Letter at 2; SIFMA AMG Comment Letter at 11; FSR Comment

    Letter at 3-4.

    ---------------------------------------------------------------------------

    [[Page 33626]]

    Other commenters, however, opposed the requirement. MarketAxess

    commented that conducting annual assessments would require SEFs and

    DCMs to allocate substantial resources.\273\ WMBAA stated that the

    proposed requirement is arbitrary, time-consuming, and offered

    insufficient regulatory value, and that the costs and burdens of an

    annual review would be higher than the Commission's projections.\274\

    Sunguard Kiodex asserted that periodic reviews would cause swaps'

    statuses to fluctuate, therefore negating the benefit of an initial

    determination.\275\ WMBAA and SDMA alternatively recommended that a SEF

    or DCM annually renew its self-certification based on the clearing

    determination review.\276\

    ---------------------------------------------------------------------------

    \273\ MarketAxess Comment Letter at 9.

    \274\ WMBAA Comment Letter at 5.

    \275\ Sunguard Kiodex Comment Letter at 2.

    \276\ SDMA Comment Letter at 10; WMBAA Comment Letter at 4.

    ---------------------------------------------------------------------------

    In line with its reasoning for not adopting a separate process for

    determining that a swap is no longer available to trade, the Commission

    is also not adopting an annual review and assessment requirement. A

    swap will no longer be available to trade when all relevant SEFs and

    DCMs have de-listed the swap; in the ordinary course of business, the

    Commission believes that a SEF or DCM will already assess whether it

    should continue to list or offer a swap for trading. Such an assessment

    would likely consider similar factors, such as trading volume, to those

    used to determine that a swap is available to trade. Therefore, the

    Commission believes that imposing a separate review and assessment

    requirement would necessitate duplicative and costly effort with

    limited, if any, additional benefit. In response to commenters who

    support more frequent reviews to identify illiquid swaps that should no

    longer be available to trade, the Commission notes that market

    participants themselves may request that a SEF or DCM review and assess

    an available-to-trade determination. The Commission may also request

    relevant information from SEFs and DCMs to conduct a review and

    assessment.\277\

    ---------------------------------------------------------------------------

    \277\ See supra note 155 and accompanying text.

    ---------------------------------------------------------------------------

    b. Applicability

    Sections 37.10(c) and 38.12(c) of the final rule require that once

    a swap is deemed to be available to trade, then all other SEFs and DCMs

    listing or offering the same swap must do so in accordance with the

    trade execution requirement under section 2(h)(8) of the CEA.\278\ The

    Commission did not identify alternatives to this requirement. Further,

    the Commission also requested, but did not receive, comments on

    alternatives to the proposed requirement.

    ---------------------------------------------------------------------------

    \278\ See supra note 14.

    ---------------------------------------------------------------------------

    Costs

    The Commission anticipates that final Sec. Sec. 37.10(c) and

    38.12(c) will impose some minimal costs for SEFs and DCMs related to

    monitoring and identifying swaps to discern whether a swap is available

    to trade on another SEF or DCM, and therefore would be subject to the

    trade execution requirement. The Commission has almost entirely

    eliminated these costs by assuming the responsibility for maintaining a

    public record of all of the swaps that are subject to the trade

    execution requirement in an accessible, central location on its Web

    site.

    The Commission solicited comments on the costs associated with

    Sec. Sec. 37.10(c) and 38.10(c) and received one comment. WMBAA stated

    that the ongoing surveillance necessary to determine which swaps have

    been made available to trade would impose excessive costs on SEFs and

    DCMs.\279\ WMBAA, however, did not provide an estimate of such costs or

    further substantiate its claim. Therefore, the Commission does not deem

    WMBAA's comment sufficient to alter its belief that these costs will be

    minimal, given that the Commission will maintain on its Web site a

    centralized list of all swaps that are available to trade.

    ---------------------------------------------------------------------------

    \279\ WMBAA Comment Letter at 5.

    ---------------------------------------------------------------------------

    Benefits

    Sections 37.10(c) and 38.12(c) promote trading on SEFs and DCMs,

    consistent with the trade execution requirement under section 2(h)(8)

    of the CEA. Specifically, swaps traded on a SEF will be executed as

    Required Transactions under Sec. 37.9 of the Commission's regulations,

    which means that they will be executed via an Order Book or RFQ. Swaps

    that are subject to the trade execution requirement and traded on a DCM

    must be executed pursuant to subpart J of part 38 of the Commission's

    regulations, which implements revised DCM Core Principle 9, as amended

    by section 735(b) of the Dodd-Frank Act. Core Principle 9 requires DCMs

    to ``provide a competitive, open, and efficient market and mechanism

    for executing transactions that protects the price discovery process of

    trading in the centralized market of the board of trade.'' Accordingly,

    market participants in these swaps will benefit from the pre-trade

    transparency and price discovery associated with trading on DCMs and

    SEFs as well as the application of other DCM and SEF core principles.

    The Commission also anticipates that greater competition among SEFs and

    DCMs will lower bid-ask spreads and transaction costs for some market

    participants.\280\

    ---------------------------------------------------------------------------

    \280\ S. Rep. No. 111-176, at 34 (2010) (quoting International

    Risk Analytics co-founder Christopher Whalen, ``[t]he absence of an

    exchange trading mandate provides `supra-normal returns paid to the

    dealers in the closed OTC derivatives market [and] are effectively a

    tax on other market participants, especially investors who trade on

    open, public exchanges''').

    ---------------------------------------------------------------------------

    c. Consideration of Section 15(a) Factors--Available-to-Trade Rule

    Protection of Market Participants and the Public

    In crafting the final rule to provide a method for determining that

    a swap is subject to the trade execution requirement under section

    2(h)(8) of the CEA, the Commission has endeavored to create a regime

    that foremost will protect market participants and the public. Under

    the final rule, a SEF or DCM must consider certain factors specified by

    the Commission under Sec. 37.10(b) or Sec. 38.12(b), respectively, in

    determining that a swap is available to trade. A SEF or DCM must also

    submit such determinations to the Commission, either for approval or

    under self-certification procedures, pursuant to part 40 of the

    Commission's regulations. Part 40 also requires SEFs and DCMs to post a

    notice and a copy of rule submissions on their Web site concurrent with

    the filing of the submissions with the Commission. The Commission,

    consistent with current practice, will also post SEF and DCM rule

    submission filings on its Web site. Therefore, under the final rule,

    SEFs, DCMs, and market participants will have full information about

    the factors that a SEF or DCM considered in determining that a swap is

    available to trade, the procedure for a SEF or DCM to submit a swap as

    available to trade, the swaps that are presently available to trade,

    and the progress of swaps under review. Accordingly, the final rule

    promotes the protection of market participants by ensuring transparency

    in the available-to-trade process.

    The final rule will also promote the protection of market

    participants and the public by providing for Commission review and

    encouraging public comment in appropriate circumstances. Under the

    final rule, the Commission will review the SEF's or DCM's available-to-

    trade determination. To facilitate this review, part 40 requires

    [[Page 33627]]

    SEFs and DCMs to provide the Commission with, and to post on their Web

    sites, a brief explanation of any substantive opposing views in rule

    filings, and allow for a public comment period when warranted.

    The final rule also will promote the protection of market

    participants and the public by ensuring that transactions in swaps that

    are available to trade and subject to the trade execution requirement

    are executed on regulated SEFs and DCMs in accordance with section

    2(h)(8) of the CEA, rather than the bilateral OTC market. Therefore,

    these swaps will be transacted with the pre-trade and post-trade

    transparency that swap execution on SEFs and DCMs provide, reducing

    search costs relative to the bilateral OTC market, and potentially

    lowering bid-ask spreads.

    At the same time, the final rule will further promote the

    protection of market participants and the public by providing for a

    Commission review of the available-to-trade process. SEFs and DCMs will

    have considerable discretion on the application and consideration of

    the factors to make swaps available to trade, which may vary depending

    on the nature of the relevant swap market. This approach will enable

    SEFs and DCMs to utilize their expertise in the markets in which they

    list swaps for trading to determine which swaps should be available to

    trade, subject to Commission review of these determinations to ensure

    that they are consistent with the CEA and the Commission's regulations,

    and therefore for market participants and the public.

    Efficiency, Competitiveness, and Financial Integrity of the Markets

    The final rule promotes the trading of swaps on SEFs and DCMs by

    establishing a process that specifies when a swap is available to

    trade; once a swap is deemed available to trade, that swap must be

    traded on a SEF or DCM if it is subject to the clearing requirement.

    Accordingly, the adopted process will promote market efficiency and

    competitiveness by (1) informing market participants of when the trade

    execution requirement applies and (2) prescribing the methods by which

    all market participants may execute a particular swap, depending on

    whether the trade execution requirement applies.

    The final rule further promotes market efficiency by tasking SEFs

    and DCMs with the primary responsibility and discretion to consider any

    one or several factors in determining whether a swap is available to

    trade. This approach reflects the Commission's view that SEFs and DCMs

    have (or will have) the expertise and ability to form reasonable

    conclusions about which swaps should be subject to the trade execution

    requirement and which swaps should not be traded pursuant to mandatory

    trade execution. By assigning primary responsibility to SEFs and DCMs

    in this manner--subject to Commission review to assure consistency with

    the CEA and the Commission's regulations--the Commission believes that

    the final rule further promotes both market efficiency and integrity.

    Further, by assuming the responsibility for maintaining an up-to-date

    list of swaps made available to trade, the Commission is also

    mitigating the search costs for market participants to identify whether

    a swap is available to trade on SEF or a DCM, thereby promoting the

    overall efficiency of the swaps markets for SEFs, DCMs and market

    participants.

    Price Discovery

    As stated above, the final regulations are expected to promote the

    trading of swaps on SEFs and DCMs. Swaps that are subject to the

    clearing requirement must be executed on a SEF or DCM, in a manner

    consistent with the trade execution requirement, if made available to

    trade on a SEF or DCM. By providing the procedural mechanism to

    establish when a swap is available to trade--an issue on which the

    statute is silent--the rule operationalizes the trade execution

    requirement. Accordingly, the rule reinforces price discovery promoted

    through mandatory trade execution. For example, swaps traded on DCMs

    that are made available to trade would be subject to DCM Core Principle

    9, which requires DCMs to ``provide a competitive, open, and efficient

    market and mechanism for executing transactions that protects the price

    discovery process of trading in the centralized market of the board of

    trade.'' \281\ Under Sec. 37.9 of the Commission's regulations, SEFs

    will be required to provide an order book or an RFQ method of trade

    execution that offers pre-trade price transparency for swaps listed or

    offered for trading that are available to trade. This pre-trade

    transparency promotes price discovery for swaps.

    ---------------------------------------------------------------------------

    \281\ 7 U.S.C. 7(d)(9); subpart J of part 38 of the Commission's

    regulations, which implements revised DCM Core Principle 9, as

    amended by section 735(b) of the Dodd-Frank Act.

    ---------------------------------------------------------------------------

    Sound Risk Management Practices

    The enhanced pre-trade and post-trade transparency and price

    discovery in contracts that have been made available to trade, and thus

    subject to the trade execution requirement, under the procedures set

    out in this rule will promote sound risk management practices by

    ensuring that market participants and clearing organizations are able

    to base their risk management decisions on publicly available prices

    discovered on the competitive and efficient markets offered by SEFs and

    DCMs. As trading on SEFs and DCMs is not relationship-based, as is

    typical of trading in the OTC market, market participants will have

    access to a broader range of risk management options in the form of

    swaps that are available to trade.

    Other Public Interest Considerations

    The final regulations are not expected to affect public interest

    considerations other than those identified above.

    2. Trade Execution Compliance Schedule

    Final Sec. Sec. 37.12 and 38.11 establishes a compliance schedule

    following a determination that a swap is subject to the trade execution

    requirement under section 2(h)(8) of the CEA. Market participants are

    required to comply with the trade execution requirement upon the later

    of (1) the applicable deadline established under the compliance and

    implementation schedule for the clearing requirement for a swap under

    section 2(h)(1) of the CEA; \282\ or (2) 30 days after the swap is

    first made available to trade on either a SEF or DCM. Absent this final

    rule, market participants would have been required to comply with the

    trade execution requirement immediately after a swap is determined to

    be available to trade and required to be cleared. To provide further

    flexibility to registrants and market participants, the Commission is

    exercising its discretion to stagger implementation of the trade

    execution requirement.

    ---------------------------------------------------------------------------

    \282\ The Commission has adopted the final compliance and

    implementation schedule for the clearing requirement under section

    50.25(b). Swap Transaction Compliance and Implementation Schedule:

    Clearing Requirement Under Section 2(h) of the CEA, 77 FR 44441

    (July 20, 2012). See supra note 158.

    ---------------------------------------------------------------------------

    For reasons discussed below, the cost and benefits associated with

    requiring mandatory trade execution immediately upon making a swap

    available to trade and requiring it to be cleared, or after some longer

    versus shorter period of delay, are not susceptible to meaningful

    quantification. Costs and benefits associated with trade execution are

    independent of costs and benefits of implementing mandatory trade

    execution itself and pertain exclusively to the pace of implementation.

    The Commission is not aware of any analog,

    [[Page 33628]]

    to either an immediate or delayed requirement, to comply with the trade

    execution requirement that would produce data useful in estimating the

    difference in costs and benefits between the two approaches.

    Notwithstanding these limitations, the Commission identifies and

    considers the costs and benefits of this rule in qualitative terms.

    Costs

    The Commission solicited comments regarding costs associated with

    Sec. Sec. 37.12 and 38.11, including the costs and benefits of any

    alternative compliance schedule proposed. Although the Commission

    requested quantification of those costs discussed, commenters did not

    provide specific estimates in dollar terms.

    The Commission recognizes that the compliance schedule entails

    certain initial costs to the market and public--in particular, a delay

    in obtaining the benefits of pre-trade price transparency and price

    discovery. The Commission believes, however, that such costs are

    warranted because incurring them at the outset facilitates the ability

    to more fully realize the intended pre-trade price transparency and

    price discovery benefits upon the compliance date and thereafter. As

    discussed below in connection with the benefits of this rule, this

    compliance schedule provides market participants with sufficient time

    to transition trading from the OTC markets to SEFs and DCMs. Absent

    this window for transition, market participants would likely encounter

    an impaired ability to manage their risks and adequately hedge their

    positions. Further, the inability of market participants to execute

    swaps on SEFs and DCMs as they engage in necessary transaction

    activities would likely reduce liquidity in certain swaps and increase

    transaction costs for other market participants.

    In response to requests for comment on the compliance schedule,

    some commenters stated that 30 days would be insufficient for market

    participants to comply with the trade execution requirement.\283\ For

    example, ISDA and AIMA expressed concern that such a compressed

    schedule would preclude market participants from hedging their

    exposures,\284\ while CME commented that DCOs, DCMs, and SEFs would not

    be able to establish technological linkages within 30 days.\285\ MFA

    stated that the Commission's compliance schedule could require

    simultaneous compliance with the trade execution requirement and the

    clearing requirement, which would require devoting resources to both

    efforts and create a significant burden.\286\

    ---------------------------------------------------------------------------

    \283\ JPMorgan Comment Letter at 3-4; UBS Comment Letter at 2;

    ICI Comment Letter at 5 (Nov. 4, 2011); CME Comment Letter at 2

    (Nov. 4, 2011); Westpac Comment Letter at 3 (Nov. 4, 2011); Regional

    Banks Comment Letter at 7 (Nov. 4, 2011); FHLBanks Comment Letter at

    5 (Nov. 4, 2011); ICI Comment Letter at 9; ISDA Comment Letter at

    11; AIMA Comment Letter at 2-3; ACLI Comment Letter at 2.

    \284\ ISDA Comment Letter at 11; AIMA Comment Letter at 2-3.

    \285\ CME Comment Letter at 2 (Nov. 4, 2011).

    \286\ MFA Comment Letter at 10-11.

    ---------------------------------------------------------------------------

    Given that the final rule does not impose a fixed 30-day

    requirement, the Commission disagrees that the schedule is overly

    costly or onerous. In response to commenters concerned that 30 days

    would be insufficient to achieve compliance, the Commission notes that

    the implementation period for the trade execution requirement may vary

    depending on the timing of the available-to-trade determination and the

    clearing determination. In some, if not many, instances, market

    participants will have more than 30 days after a swap is made available

    to trade to comply. For example, depending upon when a swap is deemed

    as available to trade and the amount of time a particular market

    participant is afforded to comply with the clearing requirement under

    the Commission's final schedule (90 days, 180 days, or 270 days), the

    30th day after a swap is deemed as available to trade pursuant to the

    part 40 procedures may occur prior to the date in which the market

    participant must comply with the clearing requirement. Further, part 40

    review procedures will provide market participants advance awareness

    that a swap may potentially be deemed as available to trade, during

    which time market participants logically should undertake initial

    transition planning in the event that the swap is ultimately deemed as

    available to trade.\287\ Moreover, certain prerequisite activities,

    such as establishing SEF or DCM connectivity, will be carried out

    infrequently or on a one-time basis, such that a longer implementation

    period would not be necessary when preparing to comply with the trade

    execution requirement for future swap trading.\288\

    ---------------------------------------------------------------------------

    \287\ Similarly, where a swap first becomes subject to the

    clearing requirement before being made available to trade, the

    clearing determination would alert market participants to the fact

    that specific classes of swaps may become subject to the trade

    execution requirement.

    \288\ Under the Sec. Sec. 37.10(a)(2) and 38.12(a)(2) of the

    final rule, a SEF or DCM that submits a swap as available to trade

    must certify that it is listing it for trading on its own trading

    system or platform. This requirement will ensure that a minimum

    level of connectivity is present between a SEF or DCM and market

    participants prior to determining whether it is available to trade.

    ---------------------------------------------------------------------------

    Benefits

    The compliance schedule set forth in final Sec. Sec. 37.12 and

    38.11 will allow market participants to comply with the trade execution

    requirement in an organized and timely manner, while mitigating

    potential disruptions to trading during the transition. The schedule

    will afford market participants the opportunity to resolve logistical

    issues prior to trading swaps on a SEF or DCM,\289\ such as

    establishing connectivity to a registered trading facility or platform;

    notifying customers and completing or amending any applicable legal

    documentation; and revising internal standards and procedures. The

    additional time will facilitate a greater number of potential swap

    counterparties who are prepared to participate in centralized trading,

    thereby increasing competition, pre-trade price transparency, and price

    discovery. Increasing the number of potential market participants will

    also promote market liquidity and reduce the costs of using swaps to

    manage risk.

    ---------------------------------------------------------------------------

    \289\ The Commission believes that DCMs will be prepared to

    comply with the trade execution requirement to a certain extent

    because they may have the infrastructure in place to facilitate the

    trading of swaps. DCMs may require fewer technology, legal

    arrangements, and changes to operational patterns. As the Commission

    noted in the proposed rule, however, they may still have to update

    their internal policies and procedures. 76 FR 58190.

    ---------------------------------------------------------------------------

    Consideration of Alternatives

    Tradeweb commented that 30 days may not be sufficient to achieve

    compliance for a class of swaps that is being made available to trade

    for the first time, and recommended that the Commission set an

    appropriate implementation period on a case-by-case basis, with input

    from SEFs, DCMs, and market participants.\290\

    ---------------------------------------------------------------------------

    \290\ Tradeweb Comment Letter at 4.

    ---------------------------------------------------------------------------

    The Commission, however, believes that a case-by-case approach is

    neither feasible nor necessary to establish an appropriate

    implementation period for different classes of swaps. The data needed

    to precisely determine the optimal time period--accommodating a

    reasonable transition while not unduly delaying the benefits of trade

    execution--does not yet exist; such data would be obtained from the

    transition process itself. Further, the adopted approach will allow the

    Commission to accommodate a large number of submissions for different

    classes of swaps through the transition process. Accordingly, the

    Commission believes that it is more appropriate to opt for an approach

    that is flexible and provides market participants with notice and

    [[Page 33629]]

    certainty, rather than one that attempts to assign a definite time

    period for swaps on a case-by-case basis.

    The Commission views the ideal implementation period for a class of

    swaps to depend on, among other factors, how the class of swaps is

    defined, and the number and complexity of those swaps within that

    class. This amount of time also depends on the nature, experience, and

    resources of the market participant to whom the requirement applies.

    The Commission's adopted approach accounts for the latter consideration

    by incorporating the implementation periods for the clearing

    requirement--90, 180, and 270 days--that are based on the type of

    market participant.\291\ Where a swap first becomes subject to the

    clearing requirement before being made available to trade, the clearing

    determination would alert market participants to the fact that specific

    classes of swaps may become subject to the trade execution requirement.

    Therefore, the rule as adopted addresses Tradeweb's concern by

    providing sufficient flexibility to accommodate different classes of

    swaps, without the added complexity of instituting an compliance

    schedule that applies on a case-by-case basis. In contrast, a case-by-

    case approach would likely increase the administrative burden by

    requiring an additional review and determination process, thereby

    further delaying the benefits of the trade execution requirement.

    ---------------------------------------------------------------------------

    \291\ See supra note 158.

    ---------------------------------------------------------------------------

    Several commenters recommended a longer implementation period,

    i.e., more than 30 days after a swap is made available to trade,

    ranging from 90 to 180 days after a swap is made available to

    trade.\292\ Some commenters also recommended establishing the

    implementation period after the swap becomes subject to the trade

    execution requirement.\293\ Other commenters recommended that the trade

    execution requirement should not apply until full implementation of the

    clearing requirement.\294\ Commenters generally stated that lengthening

    the implementation period would provide market participants with

    adequate time to establish new infrastructure, standards, and

    procedures;\295\ develop adequate connectivity \296\ and obtain trading

    access;\297\ and complete documentation and agreements.\298\ Tradeweb,

    however, stated that 30 days would be adequate to comply with the trade

    execution requirement for individual swaps.\299\

    ---------------------------------------------------------------------------

    \292\ FXall Comment Letter at 7; ICI Comment Letter at 9; CME

    Comment Letter at 6-7; Vanguard Comment Letter at 6; Bloomberg

    Comment Letter at 5; Westpac Comment Letter at 3 (Nov. 4, 2011);

    Chatham Comment Letter at 4; FSR Comment Letter at 4.

    \293\ SIFMA AMG Comment Letter at 9; Eaton Vance Management

    Comment Letter at 3; ISDA Comment Letter at 11; Westpac Comment

    Letter at 3 (Nov. 4, 2011); FHLBanks Comment Letter at 5 (Nov. 4,

    2011).

    \294\ AIMA Comment Letter at 3 (Nov. 3, 2011); MarkitSERV

    Comment Letter at 5 (Nov. 4, 2011); Citadel Comment Letter at 5

    (Nov. 4, 2011); MFA Comment Letter at 7 (Nov. 4, 2011); Vanguard

    Comment Letter at 5 (Nov. 4, 2011).

    \295\ JPMorgan Comment Letter at 3-4; ISDA Comment Letter at 11;

    FHLBanks Comment Letter at 5 (Nov. 4, 2011); Westpac Comment Letter

    at 2-3 (Nov. 4, 2011).

    \296\ FSR Comment Letter at 4; Bloomberg Comment Letter at 5;

    ICI Comment Letter at 8; ISDA Comment Letter at 11; Eaton Vance

    Management Comment Letter at 3; Chatham Comment Letter at 4; SIFMA

    AMG Comment Letter at 9; CME Comment Letter at 6-7; Westpac Comment

    Letter at 3 (Nov. 21, 2011); ICI Comment Letter at 5 (Nov. 4, 2011).

    \297\ MFA Comment Letter at 4; Vanguard Comment Letter at 6;

    SIFMA AMG Comment Letter at 9; AIMA Comment Letter at 3; CME Comment

    Letter at 6-7.

    \298\ SIFMA AMG Comment Letter at 9; ICI Comment Letter at 9;

    AIMA Comment Letter at 3; CME Comment Letter at 7; ISDA Comment

    Letter at 11; Westpac Comment Letter at 3; FIA/ISDA/SIFMA Comment

    Letter at 8 (Nov. 4, 2011).

    \299\ Tradeweb Comment Letter at 4 (Nov. 4, 2011).

    ---------------------------------------------------------------------------

    The Commission believes that the adopted approach appropriately

    balances the benefits of attaining mandatory trade execution as

    expeditiously as possible with the need for sufficient preparation time

    for compliance. As noted above, 30 days represents a minimum duration

    of time provided for compliance. Depending on when a swap is submitted

    and deemed available to trade, market participants may also utilize the

    time afforded under the clearing implementation schedule to complete

    the requisite activities necessary to trade on a SEF or DCM. The

    Commission also notes that the final rule requires that a SEF or DCM

    submitting a swap as available to trade must already list it for

    trading. This requirement will ensure that a minimum level of

    connectivity is present between a SEF or DCM and market participants

    prior to determining whether it is available to trade.

    Consideration of Section 15(a) Factors--Trade Execution Compliance

    Schedule Protection of Market Participants and the Public

    An extended implementation period will help facilitate an orderly

    transition of swaps trading to a centralized market structure. The

    inability of SEFs and DCMs to comply with the trade execution

    requirement by any particular designated date risks excluding market

    participants from transacting swaps that are subject to mandatory trade

    execution; this would reduce overall liquidity and increase the costs

    of executing those swaps for other market participants. Thus, absent a

    reasonable implementation schedule, market participants could

    potentially be exposed to higher market risk due to increased costs of

    hedging their positions or the inability to hedge their positions. The

    implementation period allows for timely compliance and protects market

    participants by mitigating the potential disruptions to the transition

    to trading on a SEF or DCM.

    Efficiency, Competitiveness, and Financial Integrity of the Markets

    The implementation period promotes efficiency in the markets by

    providing additional time for market participants to identify and

    resolve technical or logistical issues related to trading on a SEF or

    DCM in a manner consistent with the trade execution requirement. By

    enabling a broader group of market participants to comply with the

    trade execution requirement in a timely manner, the implementation

    period will facilitate competition in the centralized market, which in

    turn will promote greater pre-trade price transparency and price

    integrity in the market.

    Price Discovery

    By providing adequate time to prepare for such trading, the

    implementation period will facilitate an orderly transition to

    centralized trading and mitigate instances in which some market

    participants would not be prepared to enter the market by the given

    compliance date. In doing so, the Commission is affording the

    opportunity for the maximum number of potential swap counterparties to

    participate, thereby enhancing the price discovery process.

    Sound Risk Management Practices

    The implementation period reflected in the final rule should ensure

    that market participants have adequate time to comply with the trade

    execution requirement and will be prepared to transact swaps on a SEF

    or DCM. As a result, market participants should be able to maintain

    hedges that have been executed through swap transactions, thereby

    mitigating market and counterparty risks. Moreover, a compliance

    schedule that facilitates SEF and DCM swap execution by the greatest

    number of potential market participants, as does the final rule,

    indirectly promotes market liquidity, thereby reducing the overall

    costs of utilizing swaps for risk management purposes.

    [[Page 33630]]

    Other Public Interest Considerations

    The final regulations are not expected to affect public interest

    considerations other than those identified above.

    V. List of Commenters

    1. Alternative Investment Management Association (``AIMA'')

    2. Americans for Financial Reform (``AFR'')

    3. American Council of Life Insurers (``ACLI'')

    4. Asset Management Group, Securities Industry and Financial Markets

    Association (``SIFMA AMG'')

    5. Bloomberg

    6. CBOE Futures Exchange (``CBOE'')

    7. Chatham Financial (``Chatham'')

    8. Chris Barnard

    9. Citadel

    10. CME Group (``CME'')

    11. Commercial Energy Working Group (``CEWG'')

    12. Eaton Vance Management

    13. Federal Home Loan Banks (``FHLB'')

    14. Fifth Third Bank, PNC Bank, Regions Bank, U.S. Bank National

    Association (``Regional Banks'')

    15. Financial Services Roundtable (``FSR'')

    16. Futures Industry Association (``FIA'')

    17. FX Alliance (``FXall'')

    18. Geneva Energy Markets, LLC

    19. ICAP

    20. International Swaps and Derivatives Association (``ISDA'')

    21. Investment Company Institute (``ICI'')

    22. Javelin Capital Markets

    23. JP Morgan

    24. Managed Funds Association (``MFA'')

    25. MarketAxess Holdings, Inc. (``MarketAxess'')

    26. Markit

    27. MarkitSERV

    28. Morgan Stanley

    29. ODEX Group, Inc. (``ODEX'')

    30. Spring Trading, LLC (``Spring Trading'')

    31. Swaps & Derivatives Market Association (``SDMA'')

    32. Sunguard Kiodex LLC (``Sunguard Kiodex'')

    33. Tradeweb Markets LLC (``Tradeweb'')

    34. UBS Securities LLC (``UBS'')

    35. Vanguard

    36. Westpac Banking Corporation (``Westpac'')

    37. Wholesale Markets Brokers' Association, Americas (``WMBAA'')

    List of Subjects

    17 CFR Part 37

    Registered entities, Reporting and recordkeeping requirements, Swap

    execution facilities, Swaps.

    17 CFR Part 38

    Designated contract markets, Registered entities, Reporting and

    recordkeeping requirements, Swaps.

    For the reasons stated in the preamble, the Commission amends 17

    CFR part 37 and part 38 as follows:

    PART 37--SWAP EXECUTION FACILITIES

    0

    1. 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 (2010).

    0

    2. Subpart A, as amended elsewhere in this issue of the Federal

    Register, is further amended by adding Sec. Sec. 37.10 through 37.12

    to read as follows:

    Subpart A--General Provisions

    Sec.

    * * * * *

    37.10 Process for a swap execution facility to make a swap available

    to trade.

    37.11 [Reserved].

    37.12 Trade execution compliance schedule.

    Sec. 37.10 Process for a swap execution facility to make a swap

    available to trade.

    (a)(1) Required submission. A swap execution facility that makes a

    swap available to trade in accordance with paragraph (b) of this

    section, shall submit to the Commission its determination with respect

    to such swap as a rule, as that term is defined by Sec. 40.1 of this

    chapter, pursuant to the procedures under part 40 of this chapter.

    (2) Listing requirement. A swap execution facility that makes a

    swap available to trade must demonstrate that it lists or offers that

    swap for trading on its trading system or platform.

    (b) Factors to consider. To make a swap available to trade, for

    purposes of section 2(h)(8) of the Act, a swap execution facility shall

    consider, as appropriate, the following factors with respect to such

    swap:

    (1) Whether there are ready and willing buyers and sellers;

    (2) The frequency or size of transactions;

    (3) The trading volume;

    (4) The number and types of market participants;

    (5) The bid/ask spread; or

    (6) The usual number of resting firm or indicative bids and offers.

    (c) Applicability. Upon a determination that a swap is available to

    trade on any swap execution facility or designated contract market

    pursuant to part 40 of this chapter, all other swap execution

    facilities and designated contract markets shall comply with the

    requirements of section 2(h)(8)(A) of the Act in listing or offering

    such swap for trading.

    (d) Removal--(1) Determination. The Commission may issue a

    determination that a swap is no longer available to trade upon

    determining that no swap execution facility or designated contract

    market lists such swap for trading.

    (2) Delegation of Authority. (i) The Commission hereby delegates,

    until it orders otherwise, to the Director of the Division of Market

    Oversight or such other employee or employees as the Director may

    designate from time to time, the authority to issue a determination

    that a swap is no longer available to trade.

    (ii) The Director may submit to the Commission for its

    consideration any matter that has been delegated in this section.

    Nothing in this section prohibits the Commission, at its election, from

    exercising the authority delegated in this section.

    Sec. 37.11 [Reserved].

    Sec. 37.12 Trade execution compliance schedule.

    (a) A swap transaction shall be subject to the requirements of

    section 2(h)(8) of the Act upon the later of:

    (1) The applicable deadline established under the compliance

    schedule provided under Sec. 50.25(b) of this chapter; or

    (2) Thirty days after the available-to-trade determination

    submission or certification for that swap is, respectively, deemed

    approved under Sec. 40.5 of this chapter or deemed certified under

    Sec. 40.6 of this chapter.

    (b) Nothing in this section shall prohibit any counterparty from

    complying voluntarily with the requirements of section 2(h)(8) of the

    Act sooner than as provided in paragraph (a) of this section.

    PART 38--DESIGNATED CONTRACT MARKETS

    0

    3. The authority citation for part 38 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 6, 6a, 6c, 6d, 6e, 6f, 6g, 6i, 6j,

    6k, 6l, 6m, 6n, 7, 7a-2, 7b, 7b-1, 7b-3, 8, 9, 15, and 21, as

    amended by the Dodd-Frank Wall Street Reform and Consumer Protection

    Act, Pub. L. 111-203, 124 Stat. 1376.

    Subpart A--General Provisions

    0

    4. Add Sec. 38.11 to subpart A to read as follows:

    [[Page 33631]]

    Sec. 38.11 Trade execution compliance schedule.

    (a) A swap transaction shall be subject to the requirements of

    section 2(h)(8) of the Act upon the later of:

    (1) The applicable deadline established under the compliance

    schedule provided under Sec. 50.25(b) of this chapter; or

    (2) Thirty days after the available-to-trade determination

    submission or certification for that swap is, respectively, deemed

    approved under Sec. 40.5 of this chapter or deemed certified under

    Sec. 40.6 of this chapter.

    (b) Nothing in this section shall prohibit any counterparty from

    complying voluntarily with the requirements of section 2(h)(8) of the

    Act sooner than as provided in paragraph (a) of this section.

    0

    5. Add Sec. 38.12 to subpart A to read as follows:

    Sec. 38.12 Process for a designated contract market to make a swap

    available to trade.

    (a)(1) Required submission. A designated contract market that makes

    a swap available to trade in accordance with paragraph (b) of this

    section, shall submit to the Commission its determination with respect

    to such swap as a rule, as that term is defined by Sec. 40.1 of this

    chapter, pursuant to the procedures under part 40 of this chapter.

    (2) Listing requirement. A designated contract market that makes a

    swap available to trade must demonstrate that it lists or offers that

    swap for trading on its trading system or platform.

    (b) Factors to consider. To make a swap available to trade, for

    purposes of section 2(h)(8) of the Act, a designated contract market

    shall consider, as appropriate, the following factors with respect to

    such swap:

    (1) Whether there are ready and willing buyers and sellers;

    (2) The frequency or size of transactions;

    (3) The trading volume;

    (4) The number and types of market participants;

    (5) The bid/ask spread; or

    (6) The usual number of resting firm or indicative bids and offers.

    (c) Applicability. (1) Upon a determination that a swap is

    available to trade on any designated contract market or swap execution

    facility pursuant to part 40 of this chapter, all other designated

    contract markets and swap execution facilities shall comply with the

    requirements of section 2(h)(8)(A) of the Act in listing or offering

    such swap for trading.

    (d) Removal--(1) Determination. The Commission may issue a

    determination that a swap is no longer available to trade upon

    determining that no swap execution facility or designated contract

    market lists such swap for trading.

    (2) Delegation of Authority. (i) The Commission hereby delegates,

    until it orders otherwise, to the Director of the Division of Market

    Oversight or such other employee or employees as the Director may

    designate from time to time, the authority to issue a determination

    that a swap is no longer available to trade.

    (ii) The Director may submit to the Commission for its

    consideration any matter that has been delegated in this section.

    Nothing in this section prohibits the Commission, at its election, from

    exercising the authority delegated in this section.

    Issued in Washington, DC, on May 17, 2013, by the Commission.

    Christopher J. Kirkpatrick,

    Deputy Secretary of the Commission.

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

    Federal Regulations.

    Appendices To Process for a Designated Contract Market or Swap

    Execution Facility to Make a Swap Available to Trade, Swap Transaction

    Compliance and Implementation Schedule, and Trade Execution Requirement

    Under the Commodity Exchange Act--Commission Voting Summary and

    Statements of Commissioners

    Appendix 1--Commission Voting Summary

    On this matter, Chairman Gensler and Commissioners Chilton and

    Wetjen voted in the affirmative; Commissioners Sommers and O'Malia

    voted in the negative.

    Appendix 2--Statement of Chairman Gary Gensler

    I support the final rulemaking to implement a process for swap

    execution facilities (SEFs) and designated contract markets (DCMs)

    to ``make a swap available to trade'' (MAT). Today's rule also

    finalizes the Commission's separate rule proposal to phase in

    compliance for the trade execution requirement.

    Completion of these two rules facilitates the congressionally

    mandated critical reform promoting pre-trade transparency in the

    swaps market.

    The trade execution provision of the Dodd-Frank Wall Street

    Reform and Consumer Protection Act requires that swaps be traded on

    SEFs or DCMs if they are (1) subject to mandatory clearing, and (2)

    made available to trade. Such platforms allow multiple participants

    the ability to trade swaps by accepting bids and offers made by

    multiple participants with all participants given impartial access

    to the market.

    The MAT rule establishes a flexible process for a SEF or DCM to

    make a swap available to trade. The SEFs and DCMs first will

    determine which swaps they wish to make available to be traded on

    their platforms. Then these determinations will be submitted to the

    Commission either as self-certified by the trading platform or for

    approval under the Commission's Part 40 rules.

    The phase-in rule would provide market participants with 30 days

    after the SEF's or DCM's self-certification or submission is deemed

    approved prior to such swaps being subject to the trade execution

    mandate.

    Those swaps that are made available to trade and thus subject to

    the trade execution requirement will be publicly posted on the

    Commission's Web site.

    Appendix 3--Dissenting Statement of Commissioner Scott D. O'Malia--May

    16, 2013

    I respectfully dissent from the Commission's approval today of

    the rule establishing Process for a Designated Contract Market or

    Swap Execution Facility to Make a Swap Available to Trade under

    Section 2(h)(8) of the Commodity Exchange Act (CEA).

    I supported the proposed rule because I wanted to solicit public

    comment and engage market participants in an open discussion on how

    the Commission should implement the available-to-trade provision in

    section 2(h)(8) of the CEA.

    During the comment period, the Commission received 33 comment

    letters and held a roundtable \300\ to solicit public views on this

    matter. The commenters provided various recommendations but in

    general virtually all of them rejected the proposal; the Commission

    would be hard pressed to point to one comment letter that supported

    the Commission's approach. Unfortunately, despite this strong

    feedback from the public, the Commission has chosen to follow its

    original proposal.

    ---------------------------------------------------------------------------

    \300\ January 30, 2012.

    ---------------------------------------------------------------------------

    I recognize the challenge that the Commission is facing in

    interpreting the ``make available to trade'' provision.

    Unfortunately, Congress did not provide the Commission with any

    guidance as to how and under what conditions the trade execution

    mandate must be triggered. Nevertheless, a lack of direction from

    Congress should not be an excuse for the Commission to come up with

    an unworkable rule.

    As I explain below, the rule provides illusory comfort that the

    Commission will have a legal authority to review and, if necessary,

    challenge a mandatory trading determination made by a Swap Execution

    Facility (SEF) or Designated Contract Market (DCM). In fact, the

    only authority that the Commission has is to ``rubber stamp'' a SEF

    or DCM's initial determination.

    Sections 40.5 and 40.6 of the Commission's Regulations Do Not Provide

    an Appropriate Avenue for a Made Available-to-Trade Determination

    I have deep reservations about the process that the Commission

    is proposing for ``making a swap available to trade.''

    First, the Commission's determination under the rule approval

    process (Sec. 40.5) or the rule certification process (Sec. 40.6)

    is

    [[Page 33632]]

    intended to apply to only one particular DCM or SEF that requested

    such rule approval or submitted such rule certification. However,

    under this rule, an available-to-trade determination has a far

    reaching effect. It binds not only the requesting SEF or DCM but the

    entire market, thus forcing all SEFs and all DCMs to trade a

    particular swap by using more restrictive methods of execution.

    Second, the Part 40 process does not give the Commission any

    legal authority to object to a SEF or DCM's made available-to-trade

    determination. Under the rule approval procedures, the Commission

    must approve a rule unless such rule is inconsistent with the CEA or

    the Commission's regulations.\301\ Similarly, a new rule subject to

    stay will become effective, pursuant to its certification, unless

    the rule is inconsistent with the CEA or the Commission's

    regulations.\302\

    ---------------------------------------------------------------------------

    \301\ Commission Regulation Sec. 40.5(b)

    \302\ Commission Regulation Sec. 40.6(c)(3).

    ---------------------------------------------------------------------------

    How will the Commission be able to point to a provision in the

    CEA or in the regulations that is inconsistent with one or all

    subjective factors?

    The Commission's Determinations Must Be Based on Objective Criteria

    In essence, the rule allows a SEF or a DCM to make a made

    available-to-trade determination based solely on factors it deems

    relevant, while ignoring other considerations that may be of vital

    importance to the trading liquidity of a particular contract. The

    Commission needs to require more than a simple ``consideration'' of

    these factors.\303\

    ---------------------------------------------------------------------------

    \303\ Commission Regulations Sec. 37.10(b) and 38.12(b).

    ---------------------------------------------------------------------------

    The lack of specific objective criteria for determining trading

    liquidity introduces uncertainty into the market and makes it

    unfeasible for the Commission to have any meaningful regulatory

    oversight over the made available-to-trade determination process.

    The Commission's Factors Are Not Supported by Data

    I agree with the commenters who requested that the Commission

    implement a pilot program or perform an in-depth study of various

    classes of swaps to determine the appropriate criteria for a made

    available-to-trade determination.\304\ A better approach would be

    for the Commission to review trading data currently submitted to the

    Commission pursuant to the Swap Data Repository (SDR) rules and

    after thorough analysis, come up with objective criteria that would

    define trading liquidity. Instead, the Commission chose to implement

    a flawed process that does not lead to any substantive analysis of

    trading liquidity.

    ---------------------------------------------------------------------------

    \304\ Tradeweb Markets Comment Letter at 3-5 (Feb. 13, 2012);

    ISDA/SIFMA Comment Letter at 8-9 (March 8, 2011).

    ---------------------------------------------------------------------------

    The Commission Failed to Establish a Process for Removing Made

    Available-to-Trade Determinations

    Without providing any reasoning, the Commission has decided that

    only after all SEFs and all DCMs have de-listed a particular swap,

    will such swap be deemed by the Commission to be no longer

    available-to-trade.\305\ This process lacks any logical or legal

    basis and is the exact opposite of what is required to make the

    initial available-to-trade determination. The initial made

    available-to-trade determination provides that, if one SEF or DCM

    determines a swap to be made available to trade, then such swap is

    deemed to be made available-to-trade on all SEFs or DCMs.

    ---------------------------------------------------------------------------

    \305\ Commission Regulations Sec. Sec. 37.10(c), 37.10(d),

    38.12(c), 38.12(d).

    ---------------------------------------------------------------------------

    Again, the Commission neglects to analyze swap transaction data

    that it receives from SDRs. In my view, if a swap does not have

    sufficient trading liquidity to be traded in a more restrictive

    manner on a SEF or DCM, as determined by the Commission's broader

    view of market trading data, then such product must be determined by

    the Commission to be no longer available-to-trade.

    Conclusion

    Due to the above concerns, I respectfully dissent from the

    decision of the Commission to approve this final rule for

    publication in the Federal Register.

    [FR Doc. 2013-12250 Filed 6-3-13; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: June 4, 2013



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