Appendix 2 – Analysis of New Responsibilities and Authorities on 2013 Budgetary Requirements (continued)
Analysis of Swap Execution Facilities
In FY 2013, the Commission will enforce rules and requirements that standardized OTC derivatives contracts be executed on regulated trading platforms. The new requirements are intended to facilitate a transparent, liquid, and competitive marketplace with trades occurring on regulated exchanges or swap execution facilities. In implementing the new requirements, the CFTC will be required to:
- collect, assemble, analyze and report aggregate swaps data;
- oversee swap execution facilities;
- expand the Commission’s position limit-setting authority beyond futures contracts to swaps that perform a significant price discovery function;
- establishment and execution of cross-exchange aggregate position limits; and
- a new contract and rule review process.
There are many new activities related to the oversight of swaps trading activity. These include implementing procedures for the review and oversight of an entirely new regulated market category, SEFs.
Staff in the Market and Product Review and Market Compliance units must establish and implement procedures for the review of new SEF applications and for the annual examination of the operations of SEFs. Staff in the Surveillance units must establish and carry out surveillance for new SEFs.
Based on industry comments, there could be at least 20-30 entities will apply to become SEFs. This estimate is based on the number of exempt commercial markets (ECMs), exempt boards of trade (EBOTs), interdealer brokers, information service providers and swap dealers who have formally or informally expressed an interest in registering as SEFs. Furthermore, some DCMs that in the past only listed futures will start listing swaps.
Each SEF must be thoroughly evaluated by staff before making determinations whether they should be approved. Those that are approved also must be regularly examined for ongoing compliance.
The CFTC expects that a number of Exempt Commercial Markets and Exempt Boards of Trade would apply to Be SEFs. Transactions by eligible contract participants in selected commodities may be conducted on an EBOT as set forth under the CEA and the Commission’s regulations. EBOTs are subject only to the CEA’s anti-fraud and anti-manipulation provisions. An EBOT is prohibited from claiming that the facility is registered with, or recognized, designated, licensed, or approved by the Commission. Also, if it is performing a price discovery function, the EBOT must provide certain pricing information to the public. To date, 20 EBOTs filed notices with the Commission. In FY 2011, 21 EBOTs were in business for at least part of the year; one however, withdrew its EBOT notification during the fiscal year.
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| Rules Under Development | Status |
|---|---|
| Agricultural Swaps (ANPR) | Still Under Commission Consideration |
| Governance & Possible Limits - Section 726 | Still Under Commission Consideration |
| Position reports for physical commodity swaps | Still under Commission consideration |
| Anti-Manipulation | (ENF) |
| Disruptive Trading Practices (ANPR) | (ENF) |
| Rule Certification | Completed |
| Swap Data Recordkeeping and Reporting | Completed |
| Real Time Reporting | Still under Commission consideration |
| SEF Registration and Rules | Still under Commission consideration |
| Position Limits for Exempt and Agricultural Commodities | Still under Commission consideration |
| Disruptive Trading Practices Interp. Order | (ENF) |
| Conforming Rules – Revising Part 1 | Comment period still open |
| Product Definitions (Joint with SEC) | (OGC) |
| Testing and Supervision (DRT and algorithms) | (ENF) |
| Governance & Possible Limits – Core Principles Implementation – Final Rule | Still under Commission consideration |
IT Category |
IT Requirement1 |
|---|---|
| New Mission Authorities | Swaps Position & Transaction Standards/Data Loading |
| Swaps Position & Transaction Surveillance | |
| Position Limit Monitoring | |
| CFTC.gov Online Participant Portal | |
| Electronic Forms (102, 40, etc.) | |
| Dodd-Frank Participant Registration (SEF, SDR, etc.) | |
| Enterprise Case Management (Market Surveillance & Enforcement) | |
| Order Message Standards and Loading | |
| Current Mission Authorities | Large Trader Reporting, Trade Practice Compliance, Filings & Actions |
| New Alerts and Alerts Using Intraday Data | |
| Data Standardization, Data Loading, Data Analysis - e.g., Order Data, Large Trader, Time & Sales | |
| Automate Secure File Transfer Sign-Up | |
| Reporting Usability Enhancements | |
| Swaps Transparency Reporting | |
1 The listing of technology requirements is not limited to registrants but support other activities Commission-wide. (back to text) |
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