2020-14343

Federal Register, Volume 85 Issue 143 (Friday, July 24, 2020) 
[Federal Register Volume 85, Number 143 (Friday, July 24, 2020)]
[Rules and Regulations]
[Pages 44693-44708]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14343]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 37

RIN Number 3038-AE79


Post-Trade Name Give-Up on Swap Execution Facilities

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (CFTC or Commission)
is issuing a final rule to prohibit post-trade name give-up for swaps
executed, pre-arranged, or pre-negotiated anonymously on or pursuant to
the rules of a swap execution facility (SEF) and intended to be
cleared. The final rule provides an exception for package transactions
that include a component transaction that is not a swap intended to be
cleared, including but not limited to U.S. Treasury swap spreads.

DATES: The effective date for this final rule is September 22, 2020.
The compliance date for swaps subject to the trade execution
requirement under section 2(h)(8) of the Commodity Exchange Act (CEA or
Act) is November 1, 2020. The compliance date for swaps not subject to
the trade execution requirement under section 2(h)(8) of the CEA is
July 5, 2021.

FOR FURTHER INFORMATION CONTACT: Alexandros Stamoulis, Special Counsel,
(646) 746-9792, [email protected], Division of Market Oversight,
Commodity Futures Trading Commission, 140 Broadway, 19th Floor, New
York, NY 10005; Roger Smith, Special Counsel, (202) 418-5344,
[email protected], Division of Market Oversight, Commodity Futures
Trading Commission, 525 West Monroe Street, Suite 1100, Chicago,
Illinois 60661; Israel Goodman, Special Counsel, (202) 418-6715,
[email protected], Division of Market Oversight; or Vincent McGonagle,
Principal Deputy Director, (202) 418-5387, [email protected],
Division of Enforcement, Commodity Futures Trading Commission, Three
Lafayette Centre, 1151 21st Street NW, Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Background

A. November 2018 Request for Comment

    On November 30, 2018, the Commission published in the Federal
Register a request for comment regarding the practice of post-trade
name give-up on SEFs (2018 RFC).\1\ As described in the 2018 RFC, some
SEFs facilitate post-trade name give-up by directly or indirectly
disclosing the identities of swap counterparties to one another after a
trade is matched anonymously. The 2018 RFC noted that a SEF may
effectuate such disclosure through its own trade protocols or through a
third-party service provider utilized to process and route transactions
to a derivatives clearing organization (DCO) for clearing. In the 2018
RFC, the Commission questioned the necessity of the practice with
respect to cleared swaps anonymously executed on a SEF. The Commission
also summarized some of the general views on post-trade name give-up of
various industry participants and requested public comments on the
merits of the practice and whether the Commission should prohibit it.
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    \1\ Post-Trade Name Give-up on Swap Execution Facilities, 83 FR
61571 (Nov. 30, 2018). ``Post-trade name give-up'' refers to the
practice of disclosing the identity of each swap counterparty to the
other after a trade has been matched anonymously.
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    The Commission received 13 comment letters in response to the 2018
RFC. Most commenters opposed the practice of post-trade name give-up
for anonymously-executed swaps submitted to clearing, and requested
that the Commission adopt a regulatory prohibition. The Securities
Industry and Financial Markets Association (SIFMA) expressed support
for the practice and concern about the effects of a prohibition. The
views raised in those comment letters were considered and discussed by
the Commission in a proposed rule on post-trade name give-up issued in
December 2019.

B. December 2019 Proposed Rule

    After considering the comments received in response to the 2018
RFC, on December 31, 2019, the Commission published in the Federal
Register a proposed rule to prohibit post-trade name give-up for
anonymously-executed and intended-to-be-cleared swaps (Proposal).\2\
The Proposal prohibits a SEF from directly or indirectly, including
through a third-party service provider, disclosing the identity of a
counterparty to a swap executed anonymously and intended to be cleared.
The Proposal also requires SEFs to establish and enforce rules
prohibiting any person from effectuating such a disclosure.
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    \2\ Post-Trade Name Give-up on Swap Execution Facilities, 84 FR
72262 (Dec. 31, 2019).
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    In the Proposal, the Commission reasoned that a prohibition on
post-trade name give-up may (1) advance the statutory objectives of
promoting swaps

[[Page 44694]]

trading on SEFs and fair competition among market participants; (2)
further the objectives underlying the prohibition against swap data
repositories (SDRs) disclosing the identity of a counterparty to a swap
that is anonymously executed and cleared in accordance with the
Commission's straight-through processing (STP) requirements; and (3)
promote impartial access on SEFs.\3\
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    \3\ See Proposal at 72265-72267.
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    The Commission requested comments on all aspects of the Proposal,
and also solicited comments through targeted questions relating to
whether and how the proposed rule, if adopted, (1) would advance the
statutory and regulatory goals described above; (2) might impact
aspects of market quality and liquidity; and (3) should be tailored.
Overall, the Commission received comment letters on the Proposal from
20 different respondents: 13 public interest and industry groups; two
global banks with affiliated swap dealers; two global market makers; a
global asset manager; a SEF operator; and a third-party provider of
derivatives trade processing services.\4\ Additionally, Commission
staff participated in several ex parte meetings concerning the
proposal.\5\ The Commission also consulted with the U.S. Securities and
Exchange Commission and foreign regulators on the proposed rule.
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    \4\ Comment letters were submitted by the following entities:
Alternative Investment Management Association (AIMA) (Feb. 17,
2020); American Bankers Association (ABA) (Mar. 2, 2020); Americans
for Financial Reform Education Fund (AFR) (Mar. 2, 2020); Bank
Policy Institute (BPI) (Mar. 10, 2020); Better Markets, Inc. (Better
Markets) (Mar. 2, 2020); Citadel and Citadel Securities (Citadel)
(Letter 1: Mar. 2, 2020, and Letter 2: Apr. 21, 2020); Citibank,
N.A. (Citi) (Mar. 2, 2020); Coalition for Derivatives End-Users
(Mar. 2, 2020); CTC Trading Group, LLC (CTC) (Mar. 10, 2020); FIA
Principal Traders Group (FIA PTG) (Mar. 2, 2020); Financial Services
Forum (FSF) (Mar. 2, 2020); Healthy Markets Association (HMA) (Mar.
9, 2020); IHS Markit (Mar. 2, 2020); Investment Company Institute
(ICI) (Mar. 2, 2020); JPMorgan Chase & Co. (JPMorgan) (Mar. 2,
2020); Managed Funds Association (MFA) (Mar. 2, 2020); SIFMA, on
behalf of a majority of SIFMA's swap dealer members who have
expressed a view (Mar. 2, 2020); SIFMA's Asset Management Group
(SIFMA AMG) (Mar. 2, 2020); ICAP Global Derivatives Limited and
tpSEF, Inc. (TP ICAP); and Vanguard (Mar. 2, 2020).
    \5\ See Comments for Proposed Rule 84 FR 72262, available at
https://comments.cftc.gov/PublicComments/CommentList.aspx?id=3066
(last retrieved June 23, 2020).
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II. Final Rule

    After considering the public comments on the Proposal, the
Commission is adopting the proposed regulations, with certain
modifications and clarifications discussed below. Specifically, the
Commission is amending its part 37 regulations to prohibit post-trade
name give-up for swaps anonymously executed, pre-arranged, or pre-
negotiated on or pursuant to the rules of a SEF and intended to be
cleared. New Sec.  37.9(d) prohibits a SEF from directly or indirectly
disclosing the identity of a counterparty to any such swap, and
requires a SEF to establish and enforce rules that prohibit any person
from doing so.\6\ The final rule, however, contains an exception for
package transactions that include a component transaction that is not a
swap intended to be cleared.
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    \6\ The Commission notes that this rule does not prohibit a SEF
from disclosing the identities of all of the participants on the SEF
to all other participants. However, such disclosure in specific
cases may be prohibited under other provisions of the CEA and
Commission regulations. In addition, the Commission may consider
this issue in a future rulemaking.
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A. Statutory Authorities
    CEA section 8a(5) authorizes the Commission to make and promulgate
such rules and regulations as, in the judgment of the Commission, are
reasonably necessary to effectuate any of the provisions or to
accomplish any of the purposes of the CEA.\7\ The Commission believes
that prohibiting the practice of post-trade name give-up for intended-
to-be-cleared swaps is reasonably necessary to promote trading of swaps
on SEFs and fair competition among market participants. The Commission
also believes that post-trade name give-up for intended-to-be-cleared
swaps is inconsistent with the requirement that SEFs provide market
participants with impartial access to trading on SEFs, as well as the
objectives underlying the prohibition against SDRs disclosing the
identities of counterparties to swaps anonymously executed on a SEF and
cleared in accordance with STP requirements.
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    \7\ 7 U.S.C. 12(a)(5).
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1. Promoting Trading on SEFs and Pre-trade Price Transparency (CEA
Section 5h(e))
    CEA section 5h(e) establishes the statutory goal of the SEF
regulatory regime to promote swaps trading on SEFs and promote pre-
trade price transparency in the swaps market.\8\ In the Proposal, the
Commission stated that despite available liquidity for cleared products
on certain SEF platforms, the range and number of active participants
may be limited due to market participants' concerns about information
leakage and anticompetitive behavior made possible by post-trade name
give-up.\9\ The Commission also stated that fully-anonymous trading
(i.e., without post-trade name give-up) would likely encourage more
participants to trade on those platforms.\10\ The Proposal requested
public comments on how a prohibition on post-trade name give-up would
impact trading and pre-trade price transparency on affected SEFs.
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    \8\ 7 U.S.C. 7b-3(e).
    \9\ Proposal at 72265-72266.
    \10\ Id. at 72266.
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    Several commenters on the Proposal stated that prohibiting post-
trade name give-up would remove a significant barrier to increased
participation on certain SEF platforms,\11\ and that prohibiting the
practice would lead to an increase in the number of participants
trading on affected SEFs.\12\ MFA, for example, stated that its members
are ``eager'' to participate on affected SEFs and ``to have the ability
to transact cleared swaps anonymously; similar to how they currently
trade in other asset classes (e.g., equities, futures, foreign
exchange, and Treasuries, among others).'' \13\ JPMorgan, on the other
hand, opined that ``the more likely outcome of banning [post-trade name
give-up] will be to reduce overall trading on SEFs, as dealers pull
back from trading . . . .'' \14\ Other commenters similarly argued that
incumbent swap dealers may exit the market or reduce their trading.\15\
ICI and MFA, however, characterized this outcome as ``unlikely.'' \16\
MFA stated that competitive market forces would ensure that ``in the
unlikely event an individual dealer reduced its offering, other dealers
would quickly step into its place.'' \17\ Asserting its experience as a
``top liquidity provider'' in SEF markets, Citadel stated that it does
not expect a prohibition on post-trade name give-up to affect its
liquidity provision on pre-trade disclosed platforms or its use of pre-
trade anonymous trading protocols.\18\ Citadel further asserted that
``other swap dealers share our view, as UBS has supported the
prohibition and SIFMA indicated that the views among swap dealers `are
not uniform.' '' \19\

[[Page 44695]]

Commenters in favor of the Proposal also pointed to their experience in
other asset classes where post-trade name give-up is not practiced,
asserting that such markets demonstrate that the purported negative
liquidity impacts raised by some incumbent swap dealers are
unwarranted.\20\ Commenters opposed to the Proposal, however, asserted
that the quality of liquidity in certain fully-anonymous markets has
degraded, even as new types of market participants have entered the
marketplace.\21\
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    \11\ See SIFMA AMG Letter, at 2; ICI Letter, at 3; MFA Letter,
at 6 (``While MFA speaks only on behalf of our members, we have
heard broadly and uniformly from them that the practice of Name
Give-Up is the most significant obstacle to their participation on
IDB SEFs.''); Citadel Letter 1, at 3-4 (``Name give-up is the most
significant remaining such barrier preventing buy-side firms from
trading on certain SEFs . . . .'').
    \12\ See AFR Letter, at 3; CTC Letter, at 1-2; FIA PTG Letter,
at 2; MFA Letter, at 6.
    \13\ MFA Letter, at 6.
    \14\ JPMorgan Letter, at 10.
    \15\ See ABA Letter, at 2; BPI Letter, at 1; FSF Letter, at 7-8;
SIFMA Letter, at 4.
    \16\ ICI Letter, at 5; MFA Letter, at 4.
    \17\ MFA Letter, at 4.
    \18\ Citadel Letter 1, at 6.
    \19\ Citadel Letter 1, at 7.
    \20\ See Citadel Letter 1, at 7; Citadel Letter 2, at 7, FIA PTG
Letter, at 1-2, MFA Letter, at 4.
    \21\ For example, FSF and JPMorgan assert that dealer-provided
liquidity in some markets has increasingly been replaced by high-
frequency trading firms that tend to retract liquidity sooner than
other types of market participants during periods of high
volatility. FSF Letter, at 9; JPMorgan Letter, at 6 and 9. See also
Citi Letter, at 4 note 7 (``[D]egradations in liquidity have
occurred in other markets that have transitioned to fully anonymous
trading.''). By contrast, Citadel asserts that it is ``bank
dealers'' that have withdrawn from SEFs and U.S. Treasury markets
during certain periods of market volatility. Citadel Letter 2, at
12.
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    Commenters also asserted that prohibiting post-trade name give-up
would improve price transparency.\22\ Citadel noted that pre-trade
anonymous execution methods, such as anonymous order books, will
continue to function on a pre-trade basis as they do today, providing
the same level of price transparency to market participants.\23\
Citadel and MFA opined, however, that eliminating post-trade name give-
up should be expected to increase pre-trade transparency, as more
market participants are able to participate in these trading
protocols.\24\ MFA stated that post-trade name give-up has limited
investor access to affected SEFs, thereby reducing pre-trade
transparency regarding available bids and offers, limiting investor
choice of trading protocols, and creating information asymmetries
between market participants.\25\ MFA asserted that eliminating post-
trade name give-up would facilitate investors selectively accessing
additional liquidity pools and trading protocols, thereby improving
price discovery and pre-trade transparency while reducing information
asymmetries.\26\
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    \22\ Citadel Letter 1, at 4-5; Citadel Letter 2, at 5; MFA
Letter, at 4; SIFMA AMG Letter, at 2; Vanguard Letter, at 1.
    \23\ Citadel Letter 1, at 4-5.
    \24\ Id. at 5; Citadel Letter 2, at 5; MFA Letter, at 4.
    \25\ MFA Letter, at 4.
    \26\ Id.
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    The Commission believes that prohibiting post-trade name give-up is
reasonably necessary to facilitate and promote trading on SEFs. The
practice of post-trade name give-up has reportedly deterred a
significant segment of market participants from making markets on or
otherwise participating on affected SEFs. Such market participants have
ascribed their lack of participation to several potential harms
resulting from post-trade name give-up, a principal concern being the
risk of information leakage allowing counterparties to glean a SEF
participant's trading positions and strategies.\27\ The Commission has
heard repeatedly and consistently from market participants eager to
trade fully-anonymously on SEFs.\28\ The Commission expects that many
of these market participants will choose to participate on affected
SEFs once the practice is prohibited, leading to increased trading.
Furthermore, the Commission believes that prohibiting post-trade name
give-up will promote pre-trade price transparency in the swaps market
by encouraging a greater number, and a more diverse set, of market
participants to anonymously post bids and offers on affected SEFs.
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    \27\ See CFTC Market Risk Advisory Committee Meeting, Panel
Discussion: Market's Response to the Introduction of SEF's, 133 et
seq. (Apr. 2, 2015) (MRAC Meeting Transcript) at 142-144; Proposal
at 72264; AIMA Letter, at 1; Citadel Letter 1, at 1, 3 and 10; ICI
Letter, at 3; MFA Letter, at 3 and 7; SIFMA AMG Letter, at 1 and 2;
Vanguard Letter, at 2.
    \28\ See, e.g., supra notes 12-13 and accompanying text;
Proposal at 72264, notes 31-32 and accompanying text; MRAC Meeting
Transcript at 140.
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    With respect to claims made by some commenters that incumbent swap
dealers may pull back from trading on SEFs if post-trade name give-up
is prohibited, the Commission does not believe that this prospect
justifies maintaining the practice. In the Commission's view, there is
not convincing evidence, such as research or data, supporting the
proposition that participation and trading on SEFs will decrease as a
result of prohibiting post-trade name give-up. Rather, the Commission
believes that fully-anonymous trading has facilitated liquidity and
diverse participation in markets for instruments such as futures,
equities, and U.S. Treasury securities, and academic literature
suggests that markets with pre- and post-trade anonymity generally
feature greater liquidity than those without.\29\ The Commission
believes that increased anonymity is reasonably likely to similarly
enhance trading on SEFs.\30\ The Commission intends to study the state
of the swaps market in order to observe any changes to trading on SEFs
following the implementation of this final rule.\31\
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    \29\ See, e.g., S. Freiderich & R. Payne, Trading Anonymity and
Order Anticipation, 21 Journal of Financial Markets 1-24 (2014)
(finding that post-trade anonymity improved market liquidity,
particularly for small stocks and stocks with concentrated trading,
which may be more analogous to swaps); T.G. Meling, Anonymous
Trading in Equities (2019 working paper) (also finding that post-
trade anonymity improved market liquidity); P.J. Dennis & P. Sandas,
Does Trading Anonymously Enhance Liquidity? Journal of Financial and
Quantitative Analysis 1-25 (2019) (same); A. Hachmeister & D.
Schierek, Dancing in the Dark: Post-Trade Anonymity, Liquidity, and
Informed Trading, 34 Review of Quantitative Finance and Accounting
145-177 (2010) (same); J. Linnainmaa & G. Saar, Lack of Anonymity
and the Inference from Order Flow, 25 Review of Financial Studies
1,414-1,456 (2012) (same). See also Treasury Market Practices Group,
White Paper on Clearing and Settlement in the Secondary Market for
U.S. Treasury Securities (Jul. 11, 2019) (stating that the emergence
of new types of market participants in the U.S. Treasury securities
market has ``likely improved overall liquidity through enhanced
order flow and competition'').
    \30\ See, e.g., T. Lee & C. Wang, Why Trade Over-the-Counter?
When Investors Want Price Discrimination, at 26-27 (2019 working
paper) (predicting that eliminating name give-up in swaps markets
would decrease spreads on SEFs and increase total market participant
welfare).
    \31\ In this respect, the Commission will endeavor to conduct a
preliminary study on the state of the swaps markets by July 2021,
and a further study by July 2023.
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    Moreover, the Commission finds the reasoning behind claims that
incumbent swap dealers may reduce their trading if post-trade name
give-up is prohibited to be at odds with the statutory requirements
discussed in the following two sections: To promote fair competition
among market participants and impartial access to the market. The
reason proffered for a potential pullback in trading by incumbent swap
dealers is that post-trade name give-up is important to ensure that
swap dealers can hedge the risk of their client-facing trades.\32\ In
this regard, some market participants argue that participation of buy-
side clients and speculators on pre-trade anonymous SEFs (and without
the ability to identify them through post-trade name give-up) will harm
the ability of dealers to hedge reliably.\33\ These arguments can be
understood to imply that greater participation and competition from
certain types of market participants (such as buy-side clients and
speculators) on affected pre-trade anonymous SEFs will harm overall
market quality and welfare. The Commission finds this proposition to be
at odds with the statutory requirements to promote fair competition
among

[[Page 44696]]

market participants and impartial access on SEFs. The Commission
believes that maintaining post-trade anonymity, where it is reasonable
to do so, will better align with the statutory framework discussed
below and level the playing field for market participants of all types
and sizes to trade and compete on affected SEFs without exposing
sensitive swap transaction information.
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    \32\ See ABA Letter, at 2; BPI Letter, at 1; Citi Letter, at 4;
FSF Letter, at 3-6; JPMorgan Letter, at 4-5; SIFMA Letter, at 4-5;
TP ICAP Letter, at 5. Commenters supporting the Proposal, however,
asserted that the proposition that post-trade name give-up is
necessary for dealer risk management is spurious. See, Better
Markets Letter, at 8; Citadel Letter 1, at 2; Vanguard Letter, at 2.
    \33\ See FSF Letter, at 4-6; Citi Letter, at 3; infra notes 53-
57 and accompanying text.
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2. Promoting Fair Competition Among Market Participants (CEA Section
3(b))
    CEA Section 3(b) specifies that a purpose of the CEA is to promote
fair competition among market participants.\34\ In the Proposal, the
Commission noted commenters' stated concerns about information leakage
and anticompetitive behavior made possible by post-trade name give-up.
The Commission reasoned that greater participation on SEFs resulting
from a prohibition on post-trade name give-up would advance the goal of
promoting competition on SEFs.\35\ The Commission stated that the
proposed rule may also advance the CEA's goal of fostering fair
competition among market participations by reducing opportunities for
information leakage associated with post-trade name give-up.\36\
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    \34\ 7 U.S.C. 5(b).
    \35\ Proposal at 72266.
    \36\ Id.
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    In response to the Proposal, several commenters emphasized the view
that post-trade name give-up is an anticompetitive practice and/or
permits swap dealers to engage in certain anticompetitive behavior,\37\
and some commenters opined that prohibiting the practice may lead to
greater competition among dealers and liquidity providers.\38\
Conversely, JPMorgan asserted that post-trade name give-up ``promotes
competition and attracts SEF trading by providing market participants
multiple protocols from which to choose depending on their business
models and preferences.'' \39\ By ``limiting the methods through which
SEFs can operate and compete with each other,'' JPMorgan argued,
banning post-trade name give-up ``would clearly reduce innovation and
reduce competition `among . . . markets,' thus in fact contravening
Section 3(b)'s mandate.'' \40\
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    \37\ See AFR Letter, at 2-3; Better Markets Letter, at 11-12
(``[T]he gleaning of trading interest and trade information and the
apparent consequences of the practice of Post-Trade Name Give-Up--to
permit dealers to exit order books with non-dealer participation and
trade with informational advantages--conflict with the CEA's
overarching statutory objectives to `promote . . . fair competition
among boards of trade, other markets and market participants' . . .
.''); Citadel Letter 1, at 1; Citadel Letter 2, at 5 and 10; HMA
Letter, at 2; MFA Letter, at 3; SIFMA AMG Letter, at 1.
    \38\ See CTC Letter, at 1-2 (``[W]e would expect abolishing name
give-up to increase liquidity provision on SEFs given increased
participation from buy-side firms, which should in turn drive
enhanced participation from liquidity providers.''); ICI Letter, at
5 (``[P]rohibiting post-trade name give-up could encourage
competition among dealers to the extent post-trade name give-up
today gives a few dominant dealers in the market leverage over buy-
side participants and other dealers.''); MFA Letter, at 4 (``[N]ew
liquidity providers may be able to enter the market more easily,
which will diversify sources of liquidity and increase
competition.'').
    \39\ JPMorgan Letter, at 10.
    \40\ Id. at 11. See also FSF Letter, at 10 (``Contrary to what
is argued in the [Proposal] and by commenters, banning name give-up
would itself impair competition (certainly, innovation and
competition among markets) . . . .'').
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    The Commission is not persuaded by comments that prohibiting post-
trade name give-up would itself impair competition or innovation. Post-
trade name give-up is an ancillary post-trade protocol, and not a
method of execution. The prohibition of post-trade name give-up, as
proposed and adopted by the Commission, applies to all SEFs and all
pre-trade anonymous execution methods. It does not proscribe SEFs from
offering any existing execution method, nor does it prevent SEFs from
developing new execution methods. Moreover, the Commission is concerned
by other commenters' assertions that post-trade name give-up enables
anticompetitive behavior. Regardless of the prevalence or magnitude of
such behavior, the Commission believes that prohibiting post-trade name
give-up will reduce the opportunity for such behavior to occur, and is
therefore reasonably necessary to promote fair competition among market
participants on pre-trade anonymous SEF markets for cleared swaps. The
Commission believes that prohibiting post-trade name give-up will
address concerns about information leakage and discriminatory behavior
that market participants claim have dissuaded them from accessing pre-
trade anonymous liquidity pools to date, thereby removing barriers to
greater participation and competition.
3. Providing Market Participants With Impartial Access to the Market
(CEA Section 5h(f)(2)(B) and CFTC Regulation 37.202)
    CEA section 5h(f)(2)(B) requires a SEF to establish and enforce
trading, trade processing, and participation rules that provide market
participants with ``impartial access'' to the market.\41\ The
Commission implemented this statutory requirement by adopting CFTC
regulation 37.202,\42\ which requires a SEF to provide market
participants with impartial access to its market(s), including, among
other things, criteria governing such access that are ``impartial,
transparent and applied in a fair and non-discriminatory manner.'' \43\
In this context, ``impartial'' means fair, unbiased, and
unprejudiced.\44\ The impartial access requirement allows participants
to compete on a level playing field, and additional liquidity providers
to participate on SEFs.\45\
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    \41\ 7 U.S.C. 7b-3(f)(2)(B).
    \42\ 17 CFR 37.202.
    \43\ 17 CFR 37.202(a).
    \44\ See Core Principles and Other Requirements for SEFs, 78 FR
33476, 33508 (June 4, 2013).
    \45\ Id.
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    In the Proposal, the Commission stated that post-trade name give-up
may result in a ``discriminatory effect'' against certain market
participants, and that the Commission preliminarily believed post-trade
name give-up undermines the policy goals of the impartial access
requirement, namely, to: (1) Ensure that market participants can
compete on a level playing field; and (2) allow additional liquidity
providers to participate on SEFs.\46\ The Commission also stated its
preliminary assessment that promoting a fully-anonymous trading
environment without post-trade name give-up would better fulfill the
goals of the impartial access requirement.\47\ The Proposal asked for
public comments on whether post-trade name give-up undermines the
stated goals of impartial access.
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    \46\ Proposal at 72267.
    \47\ Id.
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    Several commenters stated that post-trade name give-up creates an
uneven or unfair playing field by conferring benefits to select market
participants (large incumbent swap dealers) and permitting such market
participants to engage in discriminatory trading practices.\48\ AFR
stated that post-trade

[[Page 44697]]

name give-up thereby ``undermines impartial access and reduces the
number of competitive liquidity providers on SEFs.'' \49\ Commenters
also asserted that prohibiting post-trade name give-up would lead to
additional, more diversified sources of liquidity on SEFs.\50\
JPMorgan, on the other hand, opined that although eliminating post-
trade name give-up ``might draw certain market participants to trade on
. . . SEFs that are fully anonymous, it may drive others (e.g.,
dealers) away. Therefore, it is not clear that prohibiting [post-trade
name give-up] would further the goal of impartial access . . . .'' \51\
JPMorgan also argued that the concept of ``discriminatory effect'' is
``amorphous'' and could be used to justify other market interventions
simply because certain market participants prefer it.\52\
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    \48\ See AFR Letter, at 3 (``Post-trade name give-up exposes
liquidity providers to several risks, including the risk of
retaliation from large competitors and the risk of revealing
information relevant to trading strategies to competitors. Smaller
liquidity providers and new entrants would tend to be more
vulnerable to these dangers.''); Better Markets Letter, at 9;
Citadel Letter 1, at 3-4 and 6 (``[S]wap dealers are able to use
name give-up as a post-trade check to ensure that they are only
transacting with other swap dealer counterparties on [interdealer
broker] SEFs, thereby maintaining dealer-only liquidity pools in
direct contradiction of statutory impartial access requirements.'');
Citadel Letter 2, at 10 (``[W]e note the experience of Citadel
Securities entering the swaps market as a new liquidity provider,
where we witnessed how certain other swap dealers can use name give-
up for purposes that are inconsistent with the Commission's
impartial access requirements. Immediately following our entry as a
new liquidity provider, this included certain incumbent swap dealers
asking [interdealer broker] SEFs to cancel executed trades upon
learning through name give-up that their counterparty was Citadel
Securities.''); SIFMA AMG Letter, at 2.
    \49\ AFR Letter, at 3.
    \50\ CTC Letter, at 1-2; FIA PTG Letter, at 2; AFR Letter, at 3;
MFA Letter, at 4; Better Markets Letter, at 5.
    \51\ JPMorgan Letter, at 12.
    \52\ Id. See also FSF Letter, at 11. But cf. Better Markets
Letter, at 10 (``[I]mpartial access would essentially become a
fiction if certain classes of SEF participants could be targeted
with trading practices, like Post-Trade Name Give-Up, that not only
impose, but are meant to impose, disparate economic costs and
trading limitations on competitors . . . .'').
---------------------------------------------------------------------------

    For commenters opposed to a prohibition on post-trade name give-up,
the crux of their opposition is the notion that prohibiting the
practice may impose ``adverse selection'' risk on incumbent swap
dealers.\53\ FSF explained that ``dealers prefer to match with the
natural other side of a trade (e.g., another dealer generally seeking
to maintain a risk-neutral position)'' as opposed to other market
participants, such as speculators, who may impose adverse selection
costs.\54\ According to FSF, swap dealers use post-trade name give-up
to ascertain ``what types of market participants are generally
trading'' on pre-trade anonymous SEFs, and ``maximize the chances of
trading with the natural other side and thus manage adverse selection
costs.'' \55\ Citi similarly commented that ``[i]f new participants
will be enticed to join [dealer-to-dealer] SEFs, some presumably may be
participants that quote speculatively and intermittently, thereby
diluting the reliable and consistent nature of quoting and trading that
is the hallmark of [dealer-to-dealer] SEFs.'' \56\ In a related
argument, FSF asserted that post-trade name give-up makes request-for-
quote (RFQ) pricing ``more tailored and efficient'' by allowing dealers
to ensure their RFQ clients are not trading on dealer-to-dealer order
books, or if they are, quoting them wider spreads via RFQ to
accommodate a greater anticipated risk of hedging the balance sheet
capacity allocated to such clients.\57\
---------------------------------------------------------------------------

    \53\ See ABA Letter, at 2; BPI Letter, at 1; FSF Letter, at 4-5;
SIFMA Letter, at 3. FSF explained adverse selection in this context
as follows. ``[I]nstead of facing a speculator on the other side of
a trade, who is more likely to trade in the same direction on other
venues or trade in one direction in a small size on one venue in
order to push the price in a certain direction so that it can trade
in the opposite direction on a different venue at a better price,
dealers prefer to match with the natural other side of a trade
(e.g., another dealer generally seeking to maintain a risk-neutral
position). Such ``naturals'' are more likely to be hedging all their
residual accumulated risk, rather than trading in a manner that
would move the price in an unfavorable direction.'' FSF Letter, at
5.
    \54\ FSF Letter, at 4-5.
    \55\ Id.
    \56\ Citi Letter, at 3.
    \57\ See FSF Letter, at 5 (``Name give-up allows a dealer, over
time (not just at the point of execution), to more accurately assess
its risk of providing balance sheet capacity to a particular client
and determine how it should quote to the client in order to achieve
the same desired return on capital for trading with that client as
with another, e.g., by quoting a tighter price to [an RFQ requester
that does not trade in the dealer-to-dealer order book SEFs] than
[an RFQ requester the dealer has seen trade frequently in order book
SEFs].''). FSF explained that the price that a dealer gives a client
over RFQ depends on the costs of hedging the client-facing trade,
and the dealer's available liquidity for hedging depends in turn on
whether the client will also be accessing that liquidity. Id.
---------------------------------------------------------------------------

    After considering all comments, the Commission believes that post-
trade name give-up undermines the policy goals of the impartial access
requirement, and that prohibiting the practice is reasonably necessary
to effectuate the purposes of section 5h(f)(2)(B) of the Act. The
Commission finds that the practice of post-trade name give-up
effectively discriminates against certain market participants and has
deterred participants from joining or trading in a meaningful way on
SEFs that employ the practice. The use of post-trade name give-up to
discriminate between certain types of market participants in order to
maximize trading with one type of market participant and avoid trading
with another--or to dissuade certain types of market participants from
trading on a SEF--undermines the policy goals of the impartial access
requirement to ensure that market participants can compete on a level
playing field and to allow additional liquidity providers to
participate on SEFs. Further, in implementing Sec.  37.202(a), the
Commission rejected the notion that a SEF could limit access to its
trading systems to certain types of market participants such as swap
dealers.\58\ However, the practice of post-trade name give-up
purportedly to avoid adverse selection risk, in the Commission's view,
leads to a similar result, and therefore conflicts with the purposes of
the impartial access requirement imposed by CEA section 5h(f)(2)(B).
Finally, the comment that a potential ``discriminatory effect'' could
be used to justify market intervention simply because certain market
participants prefer it misses the point. The Commission's view here is
based not upon the mere preference of certain market participants, but
rather upon the entirety of facts and circumstances presented, the
discriminatory manner in which post-trade name give-up is applied, and
the realized effect of post-trade name give-up as a disincentive to
access and participation by certain types of market participants and
not others.
---------------------------------------------------------------------------

    \58\ See Core Principles and Other Requirements for Swap
Execution Facilities, 78 FR 33476, 33507-33508 (June 4, 2013).
---------------------------------------------------------------------------

4. Information Privacy and Prohibition Against Post-Trade Name Give-up
at an SDR (CEA Section 21(c)(6) and CFTC Regulation 49.17(f)(2))
    CEA section 21(c)(6) requires an SDR to maintain the privacy of any
and all swap transaction information that it receives from a swap
dealer, counterparty, or any other registered entity.\59\ In
implementing this statutory provision, the Commission promulgated
regulation 49.17(f) to address the scope of access a market participant
may have to swap data maintained by an SDR. For swaps executed
anonymously on a SEF and cleared in accordance with the Commission's
STP requirements, Sec.  49.17(f)(2) prohibits an SDR from providing a
counterparty to a swap with access to the identity of the other
counterparty or its clearing member.\60\ In adopting this provision,
the Commission explained that this swap transaction information is
subject to the statutory privacy protections because, in the
Commission's view, swap counterparties would not otherwise know one
another's identity if the swap were submitted to clearing via STP.\61\
In the Proposal, the Commission stated that post-trade name give-up
undercuts the intent of Sec.  49.17(f)(2) and the congressional
objectives of CEA section 21(c)(6). Therefore, the Commission reasoned,
prohibiting post-trade name give-up would help to advance the
objectives underlying the statutory

[[Page 44698]]

privacy protections in CEA section 21(c)(6) and the Commission's
regulations thereunder.\62\
---------------------------------------------------------------------------

    \59\ 7 U.S.C. 24a(c)(6).
    \60\ 17 CFR 49.17(f)(2).
    \61\ Swap Data Repositories--Access to SDR Data by Market
Participants, 79 FR 16673-16674 (Mar. 26, 2014).
    \62\ Proposal at 72266.
---------------------------------------------------------------------------

    Several commenters agreed with the Commission's assessment in the
Proposal that post-trade name give-up undercuts the intent of CEA
section 21(c)(6) and Sec.  49.17(f)(2).\63\ FSF, on the other hand,
asserted that name give-up is not comparable to an SDR disclosing
counterparty information since, in FSF's view, market participants
choose to have their names disclosed by trading on a SEF that practices
post-trade name give-up.\64\ FSF also asserted that ``[i]f Congress
wanted to extend the privacy requirement to SEFs, it certainly would
have done so.'' \65\
---------------------------------------------------------------------------

    \63\ See Better Markets Letter, at 11; Citadel Letter 1, at 4;
FIA PTG Letter, at 2-3; ICI Letter, at 4.
    \64\ See FSF Letter, at 10-11.
    \65\ FSF Letter, at 11. See also SIFMA Letter, at 5; TP ICAP
Letter, at 6.
---------------------------------------------------------------------------

    After considering commenters' arguments, the Commission continues
to believe that post-trade name give-up undermines the objectives
underlying CEA section 21(c)(6) and Sec.  49.17(f)(2) thereunder. In
response to commenters who noted CEA section 21(c)(6) addresses SDRs
and not SEFs, the Commission does not believe this reflects a
Congressional intent to permit post-trade name give-up on SEFs. As the
Commission noted in the Proposal, the Congressional intent to protect
the privacy of trading information, including trader identities, is
evident in other statutory provisions.\66\ While some market
participants willingly participate on SEF platforms practicing post-
trade name give-up, others are reportedly deterred from doing so due to
concerns over the privacy of their swap transaction information.\67\
The Commission believes that prohibiting post-trade name give-up is
consistent with Congressional intent and will further the objectives
underlying CEA section 21(c)(6) and statutory provisions similarly
aimed at protecting private information of market participants.
---------------------------------------------------------------------------

    \66\ Proposal at 72266, note 62. CEA Section 8(a), for example,
prohibits the Commission from publication of data and information
that would disclose the business transactions or market positions of
any person and trade secrets or names of customers. 7 U.S.C. 12(a).
    \67\ See, e.g., Proposal at 72263-72264 (discussing market
participants' concerns over ``information leakage'' that could
expose a counterparty's trading positions, strategies and/or
objectives).
---------------------------------------------------------------------------

B. Application of the Rule

1. Scope of Swaps Covered
    In the Proposal, the Commission stated its preliminary belief that,
with respect to operational, credit and settlement, and legal issues in
particular, post-trade name give-up is generally unnecessary where a
swap is executed on a SEF and submitted to a DCO for clearing.\68\
Accordingly, the Commission proposed in Sec.  37.9(d) to prohibit
disclosing the identity of a counterparty to a swap executed
anonymously and ``intended to be cleared.'' The Commission specifically
requested public comments on whether any operational, credit and
settlement, legal, or similar issues exist that would still require
post-trade name give-up for an intended-to-be-cleared swap. The
Commission also requested public comments on whether it should narrow
the scope of the proposed prohibition on post-trade name give-up to
swaps required to be cleared under section 2(h)(1) of the Act or swaps
subject to the trade execution requirement under section 2(h)(8) of the
Act.
---------------------------------------------------------------------------

    \68\ Proposal at 72267. The Commission also noted that STP
requirements for transactions subject to clearing obviate the need
for counterparty name disclosure. Id.
---------------------------------------------------------------------------

    The Commission received a number of comments opposing limiting the
scope of the prohibition.\69\ MFA opposed narrowing the scope of the
prohibition to swaps required to be cleared or subject to the trade
execution requirements, asserting that doing so ``would mute the
overall effectiveness of the Proposed Rule . . . .'' \70\ Similarly,
Citadel asserted that the rationale for prohibiting post-trade name
give-up applies equally to all swaps intended to be cleared, not just
swaps subject to the clearing requirement or trade execution
requirement and, therefore, ``there is no rational basis for drawing
such a distinction.'' \71\ Citadel and FIA PTG, however, requested that
the Commission clarify that ``intended to be cleared'' be interpreted
to mean swaps that are intended to be submitted for clearing
contemporaneously with execution, and not include swaps that begin as
uncleared transactions and are later submitted to clearing.\72\ TP
ICAP, on the other hand, asserted that any prohibition on post-trade
name give-up should be limited to, at most, swaps subject to the
clearing requirement.\73\ TP ICAP reasoned that a SEF may not know
whether parties to a voluntarily-cleared swap will in fact submit the
swap to a DCO, as the parties may do so themselves post-execution.\74\
TP ICAP stated that ``it would be difficult, if not impossible, to
impose a restriction on [post-trade name give-up] post-execution when
it is not known whether the transaction will be submitted for
clearing.'' \75\
---------------------------------------------------------------------------

    \69\ See AFR Letter, at 3; Citadel Letter 1, at 4; FIA PTG
Letter, at 2; ICI Letter, at 5; MFA Letter, at 5-6.
    \70\ MFA Letter, at 5.
    \71\ Citadel Letter 1, at 4 (asserting that name give-up has no
justification where: (1) the Commission's STP requirements ensure
that a swap is quickly submitted to, and accepted or rejected by, a
DCO (and is considered void ab initio if rejected); and (2) the two
trading counterparties do not have credit, operational, or legal
exposure to each other at any stage).
    \72\ See FIA PTG Letter, at 2; Citadel Letter 1, at 4; Citadel
Letter 2, at 16. Citadel noted that ``SEFs may offer pre-trade
anonymous trading protocols for swaps that begin as uncleared and
then are `backloaded' into clearing by the trading counterparties at
a later time.'' Id.
    \73\ TP ICAP Letter, at 2.
    \74\ Id.
    \75\ Id. TP ICAP also asserted that the Proposal ``does not
accommodate the necessity of Name Give-Up in transactions that are
executed and cleared across time zones.'' Id. TP ICAP stated that in
such circumstances, transactions executed in one time zone may
remain bilateral transactions until the relevant clearing house
opens in another time zone, and post-trade name give-up would be
necessary for the parties to manage counterparty credit risk until
the trade can be submitted to the clearing house.
---------------------------------------------------------------------------

    The Commission declines to narrow the prohibition as requested by
TP ICAP and is adopting Sec.  37.9(d), as proposed, to include swaps
that are intended to be cleared. The Commission continues to believe
that there is no need for post-trade name give-up if a swap is executed
on a SEF and submitted to a DCO for clearing pursuant to STP
requirements. Narrowing the prohibition to apply only to swaps required
be cleared under section 2(h)(1) of the Act would unduly narrow its
scope and hamper the statutory and regulatory objectives underlying the
prohibition. Whether or not a swap is intended to be cleared is a
material term that affects trade pricing and trade processing
workflows, and it is something a SEF should be able to determine at the
time of execution.\76\ However, to the extent a SEF's current systems
do not indicate whether a swap is intended to be cleared, the
Commission notes that the SEF must make necessary adjustments to its
systems and processes to ensure that it can determine whether a swap is
intended to be cleared before permitting post-trade name give-up.\77\
The Commission recognizes that some SEFs may need time to make such
adjustments, and the Commission is

[[Page 44699]]

therefore providing a later compliance date for voluntarily-cleared
swaps, as further described below. Finally, in response to the comments
from Citadel and FIA PTG, the Commission clarifies that ``intended to
be cleared'' should be interpreted to mean swaps that are intended to
be submitted for clearing contemporaneously with execution.
Accordingly, if a swap begins as an uncleared transaction and then is
voluntarily submitted for clearing by the counterparties at a later
time, the swap would not be considered ``intended to be cleared,'' and
therefore would not be subject to the prohibition on post-trade name
give-up.\78\
---------------------------------------------------------------------------

    \76\ Furthermore, the Commission notes that a SEF's knowledge of
whether or not a swap is intended to be cleared is relevant to real-
time reporting and STP requirements. See 17 CFR 43.3(b) and Appendix
A to Part 43; 17 CFR 39.12(b)(7).
    \77\ As discussed in the following section below, the
prohibition on post-trade name give-up applies equally to swaps that
are pre-arranged or pre-negotiated by a broker on an anonymous
basis. Therefore, a SEF must also ensure that its rules, systems,
and processes require and enable brokers to engage in such pre-
arrangement or pre-negotiation without compromising counterparty
anonymity, and to reliably determine whether a swap is intended to
be cleared prior to engaging in name give-up.
    \78\ This includes swaps that are ``backloaded'' into clearing
as described by Citadel. See supra note 72. The Commission notes
that its STP regulations apply to all swaps cleared through a DCO,
including voluntarily-cleared swaps. Those requirements are designed
to (1) ensure that swaps are processed and accepted or rejected
promptly from clearing, and (2) require swap dealers, SEFs and DCOs
to coordinate with one another to ensure they have the capacity to
accept or reject trades as quickly as technologically practicable if
fully automated systems were used. 17 CFR 23.610, 37.702(b),
39.12(b)(7).
---------------------------------------------------------------------------

2. Trades Pre-arranged or Pre-negotiated by a Broker
    A number of commenters recommended the Commission clarify that the
prohibition on post-trade name give-up applies to a swap that is pre-
arranged or pre-negotiated by a broker on an anonymous basis and
thereafter submitted for execution on a SEF.\79\ Commenters stated that
doing so would help ensure that market participants cannot evade the
prohibition on post-trade name give-up.\80\ For example, Citadel stated
that voice brokers, operating either within a SEF or through an
affiliated introducing broker, may seek to evade a prohibition on post-
trade name give-up by pre-negotiating or pre-arranging trades
anonymously and then disclosing counterparty identities prior to
formally executing the transaction on the SEF.\81\
---------------------------------------------------------------------------

    \79\ See AIMA Letter, at 2; Citadel Letter 1, at 11; Citadel
Letter 2, at 17-18; FIA PTG Letter, at 2; MFA Letter, at 7. In a
related comment, TP ICAP noted that the Commission should consider
additional exceptions or guidance ``where a swap is arranged off-SEF
(e.g., by an Introducing Broker) [and] submitted for execution and
clearing through a SEF to a [DCO]'' where a prohibition on name
give-up ``would . . . be incongruous because the counterparties will
already know one another's identity at the point of execution.'' TP
ICAP Letter, at 7.
    \80\ Citadel Letter 1, at 11; Citadel Letter 2, at 17-18; CTC
Letter, at 2; FIA PTG Letter, at 2; MFA Letter, at 7. The Commission
notes that the ban on post-trade name give-up is subject to the
Commission's broad anti-evasion requirements.
    \81\ Citadel Letter 1, at 2; Citadel Letter 2, at 17-18.
---------------------------------------------------------------------------

    To address this concern, the Commission is revising proposed Sec. 
37.9(d)(3) to state that the phrase ``executed anonymously'' for
purposes of Sec. Sec.  37.9(d)(1) and (2) includes a swap that is pre-
arranged or pre-negotiated anonymously, including by a participant of
the SEF. In addition, the Commission is deleting the original text of
proposed Sec.  37.9(d)(3), which the Commission believes is
superfluous.\82\
---------------------------------------------------------------------------

    \82\ As proposed, Sec.  37.9(d)(3) read as follows: The
provisions in paragraphs (d)(1) and (d)(2) of this section shall not
apply with respect to any method of execution whereby the identity
of a counterparty is disclosed prior to execution of the swap. The
Commission notes that the removal of this language from the final
regulation is not intended to be a substantive revision or change
the intended meaning or effect of the final rule. Notwithstanding
this revision, the final rule does not apply to execution methods
that are not pre-trade anonymous, such as name-disclosed RFQ.
---------------------------------------------------------------------------

    3. Package Transactions
    In the Proposal, the Commission recognized that a limited exception
to the post-trade name give-up prohibition may be necessary for cleared
swaps that are components of package transactions that include
uncleared swap components.\83\ Uncleared swap components create
bilateral credit, operational, and/or legal exposures that the
counterparties must manage on an ongoing basis. Therefore, the
Commission requested public comments on the necessity and scope of an
exception to the post-trade name give-up prohibition for package
transactions. The Commission also requested comments on whether an
exception should be provided for package transactions involving any
non-swap instrument, including U.S. Treasury securities.
---------------------------------------------------------------------------

    \83\ Proposal at 72267.
---------------------------------------------------------------------------

    Commenters agreed that a prohibition on post-trade name give-up
should not apply to components of a package transaction that are
uncleared swaps or non-swap instruments. Commenters differed on whether
the Commission should provide an explicit exception in the regulation.
FIA PTG, MFA and Citadel argued that while uncleared and non-swap
components of package transactions should not be subject to a
prohibition on post-trade name give-up, an explicit exclusion in the
regulation is not necessary.\84\ These commenters reasoned that, by its
very terms, the proposed prohibition applies to swaps intended to be
cleared; thus, where a package transaction contains a cleared swap
component and another uncleared swap or a non-swap component, the
prohibition would not apply to the uncleared swap or non-swap component
of the transaction.\85\ In contrast, JPMorgan and FSF stated that the
Commission should provide an exception to the post-trade name give-up
prohibition for package transactions that include an uncleared swap or
security component.\86\
---------------------------------------------------------------------------

    \84\ See FIA PTG Letter, at 2; MFA Letter, at 5-6; Citadel
Letter, at 9; Citadel Letter 2, at 17.
    \85\ Citadel and FIA PTG also stated that each component of a
package already faces distinct post-trade operational workflows, so
this treatment would be consistent with current market practice. FIA
PTG Letter, at 2; Citadel Letter 1, at 9; Citadel Letter 2, at 17.
    \86\ See FSF Letter, at 6 and 15; JPMorgan Letter, at 6 and 19.
Similarly, SIFMA stated that any prohibition on post-trade name
give-up should exempt package transactions that involve a non-swap
component. Without such an exemption, SIFMA argued, SEFs will be
required to change the operational flow of both the swap component
and the non-swap/security component of the package transaction.
SIFMA Letter, at 6. SIFMA raised concern that ``the changes
necessary for this infrastructure have not been considered in the
cost/benefit analysis, and have not been analyzed enough to consider
unintended consequences.'' Id.
---------------------------------------------------------------------------

    The Commission agrees with commenters that the post-trade name
give-up prohibition should not apply to an uncleared swap or non-swap
component of a package transaction. Uncleared swap and non-swap
components of package transactions may create bilateral credit,
operational, and/or legal exposures that require the counterparties to
know each other's identities. For uncleared components of a package
transaction, post-trade name give-up enables market participants to
perform credit checks on counterparties prior to finalizing the
transaction. The practice also allows counterparties to manage credit
exposure and payment obligations arising from the bilateral nature of
such uncleared transactions. In the case of U.S. Treasury securities,
post-trade name give-up may still be necessary to accommodate trading
mechanisms and infrastructures currently used for U.S. Treasury swap
spreads that do not allow for anonymous clearing and settlement of the
Treasury component of such transactions.\87\ Therefore, the Commission
believes that a limited exception to the prohibition is appropriate at
this time for package transactions that include a component that is an
uncleared swap or a non-swap.\88\ The Commission will continue

[[Page 44700]]

to monitor the operational development of these markets, and encourages
SEFs and market participants to address existing operational
limitations so that any need for post-trade name give-up may be further
diminished.
---------------------------------------------------------------------------

    \87\ To the extent that counterparties may be facilitating
package transactions that involve a ``security,'' as defined in
section 2(a)(1) of the Securities Act of 1933 or section 3(a)(10) of
the Securities Exchange Act of 1934, or any component agreement,
contract, or transaction over which the Commission does not have
exclusive jurisdiction, the Commission does not opine on whether
such activity complies with other applicable laws and regulations.
    \88\ TP ICAP commented that the Commission should also consider
an exception or additional guidance in cases where ``a swap is a
component of a package transaction involving another component that
is not cleared at the same DCO.'' TP ICAP Letter, at 7. The
Commission believes that such an exception or guidance is not
necessary at this time, and further submits that an explanation as
to what the issue or underlying problem could be in such cases has
not been provided.
---------------------------------------------------------------------------

    Accordingly, the Commission is revising proposed Sec.  37.9(d) by
adding Sec.  37.9(d)(4), which provides a limited exception to the
post-trade name give-up prohibition for a swap that is intended to be
cleared, when it is a component of a package transaction that includes
a component transaction that is not an intended-to-be-cleared swap. The
post-trade name give-up prohibition, as adopted in this release,
prohibits SEFs from directly or indirectly disclosing the identity of a
counterparty to a swap that is anonymously executed, pre-arranged or
pre-negotiated on or pursuant to the rules of a SEF and intended to be
cleared. Because the components of a package transaction are priced or
quoted together as one economic transaction, the disclosure of the
identity of a counterparty to any component of a package transaction
effectively discloses the counterparty identity for all components of
that package transaction. As such, if a SEF were to disclose the
identity of a counterparty to the uncleared swap or non-swap component
of a package transaction, the SEF would also be indirectly disclosing
the identity of the counterparty to the intended-to-be-cleared swap
component of the package transaction; and such indirect disclosure is
otherwise prohibited under the regulation. Therefore, the Commission
believes that a limited exception to the post-trade name give-up
prohibition for package transactions with uncleared swap and non-swap
components is necessary to provide clarity and regulatory certainty to
SEFs and market participants.
    The exception will apply, for example, to U.S. Treasury swap
spreads involving an intended-to-be-cleared swap and a U.S. Treasury
security. However, the Commission emphasizes that the exception is
limited in scope. Many package transactions are traded anonymously and
involve only intended-to-be-cleared swaps, and the prohibition on post-
trade name give-up will apply to these transactions in full.\89\ The
Commission notes that this exception is intended to accommodate trading
and settlement workflows for certain package transactions as they exist
today. It is not an invitation to structure package transactions to
allow post-trade name give-up or to evade the prohibition on post-trade
name give-up that the Commission is adopting in this final rule. In
that regard, the final rule adopted herein is subject to the
Commission's broad anti-evasion requirements.
---------------------------------------------------------------------------

    \89\ For example, ``curve'' and ``butterfly'' trades involving
only intended-to-be-cleared swaps.
---------------------------------------------------------------------------

    The Commission emphasizes that this exception does not limit,
prohibit, or otherwise restrain SEFs or market participants from
developing and utilizing trading functionalities, operational
workflows, or infrastructures for package trades that are fully
anonymous, and do not utilize post-trade name give-up. The Commission
encourages SEFs and market participants to continue to work to
eliminate the technological and/or operational need for post-trade name
give-up. The Commission will continue to monitor whether the exception
in Sec.  37.9(d)(4) can be refined as trading functionalities,
operational workflows, and/or infrastructure continue to develop in the
future.
4. Workups
    In the Proposal, the Commission requested public comments on how,
if at all, a prohibition on post-trade name give-up would affect
trading protocols such as auctions, portfolio compression, and/or
workup sessions. JPMorgan and FSF asserted that post-trade name give-up
is an integral part of workup protocols, and the Proposal will impair
workup protocols and adversely affect dealers' ability to hedge.\90\
These commenters asserted that a dealer's willingness to offer greater
size through a workup may depend on (1) who its counterparty is, in
particular whether the counterparty is likely to be able to execute on
the full size the dealer is willing to offer, \91\ and (2), as FSF
stated, whether the counterparty might impose adverse selection costs
on the dealer upon knowing its trading interests.\92\ FSF suggested
that if the Commission proceeds with a prohibition on post-trade name
give-up, it should exclude from the prohibition any SEF that obtains a
material portion of its trading volume, over a specified period,
through workups.\93\
---------------------------------------------------------------------------

    \90\ See FSF Letter, at 2; JPMorgan Letter, at 7.
    \91\ FSF Letter, at 4; JPMorgan Letter, at 7.
    \92\ FSF Letter, at 4.
    \93\ FSF Letter, at 15.
---------------------------------------------------------------------------

    In contrast, Citadel and MFA asserted that post-trade name give-up
is not necessary for workup sessions. Citadel asserted that if a
trading protocol is pre-trade anonymous, there is no need to disclose
the trading counterparties in order to engage in a work-up session and,
therefore, ``work-up sessions on [interdealer broker] SEFs will
function just as they do today in order to facilitate trading in
size.'' \94\ Citadel also stated that claims to the contrary ``are
easily disproven by looking at the U.S. Treasury market, where work-ups
are commonly employed on interdealer platforms even though name give-up
is not used.'' \95\ MFA further argued that prohibiting post-trade name
give-up would benefit trading protocols such as auctions, portfolio
compression, and/or workup sessions by increasing buy-side access and
participation.\96\
---------------------------------------------------------------------------

    \94\ Citadel Letter 1, at 6. Citadel added that, similarly, a
pre-trade anonymous auction or compression exercise should not
require post-trade name give-up for intended-to-be-cleared swaps.
Id.
    \95\ Citadel Letter 2, at 11. Citadel further stated that
``there is nothing unique about transactions executed via work-up
compared to other anonymously-executed cleared swaps that would
require the disclosure of counterparty identities post-trade. In the
fully anonymous U.S. Treasury market, work-ups account for a
significant percentage of overall trading activity.'' Id. (citing to
M.J. Fleming, E. Schaumburg & R. Yang, The Evolution of Workups in
the U.S. Treasury Securities Market, Liberty Street Economics Blog
(Aug. 20, 2015)).
    \96\ MFA Letter, at 6.
---------------------------------------------------------------------------

    The Commission agrees that post-trade name give-up is not necessary
for workup sessions. The reasons given by commenters for why they view
post-trade name give-up as an important aspect of workup sessions are
essentially the same reasons espoused for the purported benefits of
post-trade name give-up generally, i.e., ensuring reliable hedging and
avoiding adverse selection for incumbent swap dealers.\97\ The
Commission does not find that workup sessions present a particular need
for post-trade name give-up that is distinct from pre-trade anonymous
order books. Accordingly, the Commission does not believe it is
necessary or appropriate to include an exception for workups.
---------------------------------------------------------------------------

    \97\ See supra notes 32, 33, 53, 54, 55 and accompanying text.
---------------------------------------------------------------------------

5. Error Trades
    Commenters also addressed the potential impact of a prohibition on
post-trade name give-up on error trade corrections. TP ICAP asserted
that a prohibition would prevent an efficient means for correcting
trade errors, specifically, in cases ``[w]here a party to a swap
identifies an error that requires coordination with its counterparty.''
\98\ TP ICAP therefore identified error trade correction among issues
``that require the Commission to consider exceptions and additional
guidance.'' \99\ Similarly, FSF stated that post-trade name give-up

[[Page 44701]]

``will remain necessary for counterparties to correct operational or
clerical errors resulting in a trade being rejected.'' \100\ Citadel
disagreed with these commenters, stating that ``[i]n the event of an
operational or clerical error, the SEF can facilitate the correction of
the error without disclosing a counterparty's identity . . . .'' \101\
---------------------------------------------------------------------------

    \98\ TP ICAP Letter, at 7.
    \99\ Id.
    \100\ FSF Letter, at 15.
    \101\ Citadel Letter 1, at 10. See also Citadel Letter 2, at 17.
---------------------------------------------------------------------------

    The Commission does not believe that post-trade name give-up is
necessary or appropriate to resolve error trades for pre-trade
anonymous and intended-to-be-cleared swaps. A SEF can intermediate
communications if necessary, and otherwise facilitate error trade
corrections, without disclosing counterparty identities.\102\
Accordingly, the Commission declines to adopt an exception to the
prohibition on post-trade name give-up for error trade corrections.
Therefore, any SEF offering trading in swaps subject to the prohibition
must ensure its rules and procedures for error trades allow for error
trade remediation without disclosure of the identities of
counterparties to one another.
---------------------------------------------------------------------------

    \102\ The Commission's view on this issue is consistent with its
stated view in the Proposal. See Proposal at 72267, note 78.
---------------------------------------------------------------------------

C. Compliance Dates

    The Commission recognizes the final rule adopted herein may require
SEFs to modify, in varying degrees, their rules and operations with
respect to trading and trade processing systems, error trades, and
compliance programs.\103\ The Commission also recognizes that the
modifications required--and the time necessary to implement them--may
vary for different swap products. The Commission anticipates that
compliance with the final rule will be simpler to implement for
required transactions due to the fact that the methods of execution for
such transactions are limited.\104\ Permitted transactions may require
more time to establish compliance, given that a SEF may offer any
method of execution for such transactions.\105\ Furthermore, for swaps
that are not subject to mandatory clearing, a SEF may need to make
additional adjustments to its systems and processes to ensure that it
can determine whether a swap is intended to be cleared, and therefore
subject to the prohibition on post-trade name give-up.
---------------------------------------------------------------------------

    \103\ This includes establishing rules to prohibit post-trade
name give-up, as required under Sec.  37.9(d)(2).
    \104\ 17 CFR 37.9(a) defines ``required transaction'' as a
transaction involving a swap that is subject to the trade execution
requirement in section 2(h)(8) of the Act, and provides that
required transactions shall be executed on a SEF through an order
book or RFQ to no less than three market participants.
    \105\ 17 CFR 37.9(c) (defining ``permitted transaction'' as any
transaction not involving a swap that is subject to the trade
execution requirement in section 2(h)(8) of the Act).
---------------------------------------------------------------------------

    Accordingly, the Commission is adopting a phased compliance
schedule. Specifically, for swaps subject to the trade execution
requirement under CEA section 2(h)(8), SEFs must commence compliance
with the requirements of Sec.  37.9(d) no later than November 1, 2020.
For swaps not subject to the trade execution requirement under CEA
section 2(h)(8), SEFs must commence compliance with the requirements of
Sec.  37.9(d) no later than July 5, 2021.

III. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \106\ requires Federal
agencies to consider whether the rules they propose will have a
significant economic impact on a substantial number of small entities
and, if so, to provide an analysis regarding the economic impact on
those entities. The final rule adopted by the Commission will directly
affect SEFs. The Commission has previously determined that SEFs are not
``small entities'' for the purpose of the RFA.\107\ Therefore, the
Chairman, on behalf of the Commission, hereby certifies, pursuant to 5
U.S.C. 605(b), that the rule adopted herein will not have a significant
economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \106\ 5 U.S.C. 601 et seq.
    \107\ See Core Principles and Other Requirements for Swap
Execution Facilities, 78 FR 33476, 33548 (June 4, 2013).
---------------------------------------------------------------------------

B. Paperwork Reduction Act

    The Paperwork Reduction Act (PRA) \108\ imposes certain
requirements on Federal agencies, including the Commission, in
connection with their conducting or sponsoring any collection of
information, as defined by the PRA. The Commission may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless it displays a currently valid Office of Management
and Budget (OMB) control number. The Commission has previously received
a control number from OMB that includes the collection of information
associated with part 37 of the Commission's regulations. The title for
this collection of information is ``Core Principles and Other
Requirements for Swap Execution Facilities, OMB control number 3038-
0074.'' \109\ Collection 3038-0074 is currently in force with its
control number having been provided by OMB. However, the rule adopted
herein does not impose any new recordkeeping or information collection
requirements, and therefore contains no requirements subject to the
PRA.
---------------------------------------------------------------------------

    \108\ 44 U.S.C. 3501 et seq.
    \109\ See OMB Control No. 3038-0074, available at https://www.reginfo.gov/public/do/PRAOMBHistory?ombControlNumber=3038-0074
(last retrieved June 23, 2020).
---------------------------------------------------------------------------

C. Cost-Benefit Considerations

    Section 15(a) of the CEA requires the Commission to consider the
costs and benefits of its actions before promulgating a regulation
under the CEA.\110\ Section 15(a) further specifies that costs and
benefits shall be evaluated in light of five broad areas of market and
public concern: (1) Protection of market participants and the public;
(2) efficiency, competitiveness, and financial integrity of futures
markets; (3) price discovery; (4) sound risk management practices; and
(5) other public interest considerations. The Commission considers the
costs and benefits resulting from its discretionary determinations with
respect to the Section 15(a) factors.
---------------------------------------------------------------------------

    \110\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------

    The Commission is adopting amendments to part 37 of the
Commission's regulations to prohibit post-trade name give-up for swaps
anonymously executed, pre-arranged, or pre-negotiated on or pursuant to
the rules of a SEF and intended to be cleared. Section 37.9(d) of the
Commission's regulations adopted herein prohibits a SEF from directly
or indirectly, including through a third-party service provider,
disclosing the identity of a counterparty to any such swap. The
regulation also requires SEFs to establish and enforce rules that
prohibit any person from effectuating such a disclosure.
    The baseline for this consideration of costs and benefits with
respect to the rule adopted herein is the status quo, which includes
the existing practice of post-trade name give-up for cleared swaps on
some SEFs, and the current regulatory requirements that do not
explicitly prohibit post-trade name give-up for cleared swaps
anonymously executed, pre-arranged, or pre-negotiated on or pursuant to
the rules of a SEF. The prohibition does not apply to uncleared swaps
or SEF trading systems and platforms that are not pre-trade anonymous;
and the final rule includes an exception for package transactions that
include components that are not intended-to-be-cleared

[[Page 44702]]

swaps. Much of the swaps trading on SEFs today occurs on disclosed
trading systems and platforms that display the identities of potential
counterparties to one another before execution occurs. Such is the
case, for example, with many RFQ systems offered by SEFs.
    The Commission notes that this consideration of costs and benefits
is based on the understanding that the swaps market functions
internationally, with many transactions involving U.S. firms taking
place across international boundaries, with some Commission registrants
being organized outside of the United States, with leading industry
members typically conducting operations both within and outside the
United States, and with industry members commonly following
substantially similar business practices wherever located. Where the
Commission does not specifically refer to matters of location, the
below discussion of costs and benefits refers to the effects of the
final rules on all swaps activity subject to the proposed and amended
regulations, whether by virtue of the activity's physical location in
the United States or by virtue of the activity's connection with or
effect on U.S. commerce under CEA section 2(i).\111\
---------------------------------------------------------------------------

    \111\ 7 U.S.C. 2(i). Section 2(i)(1) applies the swaps
provisions of both the Dodd-Frank Act and Commission regulations
promulgated under those provisions to activities outside the United
States that have a direct and significant connection with activities
in, or effect on, commerce of the United States. Section 2(i)(2)
makes them applicable to activities outside the United States that
contravene Commission rules promulgated to prevent evasion of Dodd-
Frank.
---------------------------------------------------------------------------

    The Commission has endeavored to assess the expected costs and
benefits of the final rulemaking in quantitative terms, where possible.
In situations where the Commission is unable to quantify the costs and
benefits, the Commission identifies and considers the costs and
benefits of the adopted rule in qualitative terms. The lack of data and
information to estimate those costs is attributable in part to the
nature of the final rule and uncertainty about the potential responses
of market participants to the implementation of the final rule. The
Commission recognizes that potential indirect costs and benefits of the
prohibition on post-trade name give-up adopted herein--i.e., those
relating to effects on trading behavior, liquidity, and competition--
may be impossible to accurately predict or quantify prior to
implementation of the rule.
    The final rule differs from the proposed rule in several ways.
Section 37.9(d)(3) of the final rule states that for purposes of the
rule, the term ``executed anonymously'' shall include a swap that is
pre-arranged or pre-negotiated anonymously, including by a participant
of the SEF. The proposed rule does not include this provision, which is
intended to clarify that the prohibition on name disclosure also
applies in cases where a broker pre-negotiates or pre-arranges a trade
anonymously. The final rule also includes an exception for package
transactions that include a component transaction that is not an
intended-to-be-cleared swap, and a staggered compliance schedule
depending on whether a swap is subject to the trade execution
requirement.
1. Costs
    The Commission recognizes that the final rule adopted herein may
require SEFs to modify their rules and operations in varying degrees,
including, potentially, with respect to trading and trade processing
systems, error trades, and compliance programs; and that these
modifications are likely to impose costs. For example, Sec.  37.9(d)(2)
requires SEFs to establish and enforce rules to prohibit any person
from directly or indirectly, including through a third-party service
provider, disclosing the identity of a counterparty to a swap that is
executed anonymously and intended to be cleared. Complying with Sec. 
37.9(d)(2) will require a SEF to file such rules with the Commission in
accordance with part 40 of the Commission's regulations. The Commission
estimates that filing such rules may take up to 50 hours, which is
unlikely to be a major cost burden on SEFs. The Commission also
recognizes that the modifications required--and the time necessary to
implement them--may vary for different swap products.
    The Commission believes that these costs will be relatively small
as compared to a SEF's overall operating costs. In the Proposal, the
Commission stated a preliminary assessment that the direct costs in
implementing and complying with the proposed rule would not be
material, and that the costs of adjusting affected SEF protocols in
order to comply would be negligible.\112\ The Commission requested that
SEFs provide estimates of any direct costs they would incur.\113\ The
Commission received no such comments. The Commission anticipates that
compliance with the final rule will be simpler and less costly to
implement for swaps that are subject to the clearing requirement. The
Commission recognizes that a SEF may incur additional costs with
respect to swaps that are not subject to mandatory clearing, insofar as
its systems and processes must be adjusted to ensure that it is
determined whether a swap is intended to be cleared prior to permitting
post-trade name give-up to occur. The Commission is adopting a phased
compliance schedule based on whether a swap is subject to the trade
execution requirement. The extended compliance period for swaps not
subject to the trade execution requirement will delay the benefits
associated with the rule for certain swaps, but should also mitigate
the costs to SEFs associated with compliance with the rule.
---------------------------------------------------------------------------

    \112\ Proposal at 72269.
    \113\ Id.
---------------------------------------------------------------------------

    The Commission anticipates the direct cost of complying with Sec. 
37.9(d) for market participants to be at or near zero and has received
no comments to the contrary. With respect to potential indirect costs
of the proposed rule, commenters opposing the Proposal argued that it
will harm liquidity by causing incumbent swap dealers to exit the
market or reduce their trading and the liquidity they provide.\114\
Several proponents of the Proposal disputed these assertions. ICI and
MFA characterized this outcome as ``unlikely.'' \115\ MFA stated that
competitive market forces would ensure that ``in the unlikely event an
individual dealer reduced its offering, other dealers would quickly
step into its place.'' \116\ Asserting its experience as a ``top
liquidity provider'' in SEF markets, Citadel stated that it does not
expect a prohibition on post-trade name give-up to affect its liquidity
provision on RFQ platforms or its use of pre-trade anonymous trading
protocols.\117\ Citadel further asserted that ``other swap dealers
share our view, as UBS has supported the prohibition and SIFMA
indicated that the views among swap dealers `are not uniform.' '' \118\
Commenters also pointed to their experience in other asset classes
where post-trade name give-up is not practiced, asserting that such
markets demonstrate that the purported negative liquidity impacts
raised by incumbent swap dealers are unwarranted.\119\
---------------------------------------------------------------------------

    \114\ See ABA Letter, at 2; BPI Letter, at 1; FSF Letter, at 7-
8; SIFMA Letter, at 4.
    \115\ ICI Letter, at 5; MFA Letter, at 4.
    \116\ MFA Letter, at 4.
    \117\ Citadel Letter 1, at 6.
    \118\ Citadel Letter 1, at 7.
    \119\ See Citadel Letter 1, at 7; Citadel Letter 2, at 7, FIA
PTG Letter, at 1-2, MFA Letter, at 4.
---------------------------------------------------------------------------

    The Commission believes that incumbent swap dealers will continue
to provide liquidity on the affected SEFs as long as it is in their
business interest to do so and notes that the apparent desire of other
entities to provide

[[Page 44703]]

liquidity once post-trade name give-up is prohibited suggests that
overall liquidity is not likely to decline.
    A number of commenters asserted that without post-trade name give-
up on dealer-to-dealer SEFs, pricing and liquidity offered by dealers
to clients via RFQ or over-the-counter (OTC) may suffer.\120\ Some of
these commenters stated that post-trade name give-up helps dealers
predict their hedging costs and tailor their pricing on RFQ SEFs.\121\
They argued that prohibiting the practice would likely result in
inferior pricing for clients on RFQ SEFs.\122\ Similarly, commenters
asserted that post-trade name give-up enables dealers to hedge the risk
they accumulate by providing liquidity to clients off-SEF.\123\ FSF
argued that if dealers widen spreads as a result of a prohibition on
post-trade name give-up, commercial end users may be disproportionately
harmed because they rely more exclusively on dealer pricing and
generally do not trade in cleared swaps on SEFs.\124\ The Coalition for
Derivatives End-Users (Coalition) stated that they ``have heard from
bank swap dealers that the Proposed Rule would result in less liquidity
and worse pricing on SEFs, which in turn may increase costs for
derivatives end users hedging transactions in the non-cleared OTC
derivatives markets.'' \125\ The Coalition also stated that they ``have
heard from other market participants that, under the Proposed Rule,
liquidity would increase and result in better pricing on SEFs, which in
turn may drive down costs for derivatives end-users in the non-cleared
OTC derivatives markets.'' \126\ The Coalition further stated that it
``lacks the empirical data and institutional knowledge to reach a firm
conclusion as to the effects of the Proposed Rule on the ability of
end-users to access efficient and economical markets to hedge their
commercial risks.'' \127\
---------------------------------------------------------------------------

    \120\ See ABA Letter, at 2; Citi Letter, at 3-4; FSF Letter, at
2 and 5-6; JPMorgan Letter, at 5-6.
    \121\ See JPMorgan Letter, at 5-6; FSF Letter, at 2; Citi
Letter, at 3.
    \122\ See Citi Letter, at 3-4; FSF Letter, at 5-6.
    \123\ ABA Letter, at 3; FSF Letter, at 2 and 5; Citi Letter, at
3-4.
    \124\ See FSF Letter, at 2 and 7.
    \125\ Coalition Letter, at 1.
    \126\ Id.
    \127\ Id. at 2.
---------------------------------------------------------------------------

    SIFMA AMG and Citadel each generally disagreed with the notion that
client pricing will be harmed by a prohibition on post-trade name give-
up.\128\ Citadel asserted that, ``if anything, pricing should become
more competitive, as buy-side firms gain access to additional sources
of liquidity and will have more pre-trade price information on which to
transact''; \129\ and that ``increasing competition should lower
transaction costs, thereby facilitating dealer hedging.'' \130\
---------------------------------------------------------------------------

    \128\ See Citadel Letter 1, at 7; Citadel Letter 2, at 11; SIFMA
AMG Letter, at 2.
    \129\ Citadel Letter 1, at 7.
    \130\ Citadel Letter 2, at 11.
---------------------------------------------------------------------------

    The Commission continues to believe that prohibiting post-trade
name give-up is likely to increase competition on affected SEFs, which
in turn should lead to lower overall transaction costs.\131\ The
Commission is basing its belief on several studies described in the
benefits section below, finding that post-trade anonymity tends to
reduce trading costs and lead to better price quotes and lower realized
spreads.\132\ Nevertheless, the Commission acknowledges that it is
theoretically possible that the prohibition on post-trade name give-up
could lead to increased trading costs associated with some OTC swaps,
even if, as the Commission anticipates, it leads to improved liquidity
and lower transaction costs for swaps traded on SEFs. One study
reviewed by the Commission, as discussed below, describes a theoretical
scenario, where post-trade anonymity in swaps and bond markets could
lead to an increase in OTC spreads and a simultaneous decrease in
spreads on exchanges that ultimately improves overall welfare of market
participants.\133\
---------------------------------------------------------------------------

    \131\ See Proposal at 72269.
    \132\ The Commission does note that reductions in transaction
costs may lead to a reduction in profits for incumbent liquidity
providers and thus, these lower costs may be perceived as a cost for
those liquidity providers, even as it is perceived as a benefit for
other market participants.
    \133\ T. Lee & C. Wang, Why Trade Over-the-Counter? When
Investors Want Price Discrimination (2019 working paper).
---------------------------------------------------------------------------

2. Benefits
    The Commission believes that implementing the rule may reduce
information asymmetries and improve liquidity, particularly on affected
SEFs, and may reduce transaction costs and bid-ask spreads. The
practice of post-trade name give-up and the prospect of information
leakage have reportedly deterred a significant segment of market
participants from making markets on or otherwise participating on
affected SEFs. The Commission expects that many of these market
participants will choose to participate on these SEFs once the practice
is prohibited, leading to increased liquidity. Increased liquidity may
benefit market participants by making it easier to execute
transactions, especially larger transactions, quickly and without undue
price impact.
    In order to evaluate the expected benefits of implementing the
rule, the Commission reviewed several empirical studies examining prior
experiences with changes in post-trade anonymity. As detailed in the
Proposal, the studies covered the experiences in U.S. securities
markets and a wide range of foreign financial markets and, on balance,
support the premise that post-trade anonymity promotes trading
liquidity. Commenters in favor of the prohibition of name give-up cited
other studies that further support the benefits of fully-anonymous
trading. Commenters not in favor of prohibiting post-trade name give-up
did not provide data, evidence, or studies regarding the impact of
post-trade anonymity.
    Specifically, as discussed in more detail in the Proposal, the
Commission reviewed six event studies focusing on post-trade anonymity
in various equity exchanges around the world, most of which document an
improvement in liquidity. The Commission acknowledges that none of
these studies examine a change in post-trade anonymity for a swaps
market, but the studies do provide real-world evidence on the effects
on liquidity in a range of markets when the rules for post-trade
anonymity are changed. Hence, they provide the most instructive
empirical evidence available regarding a proposed change in such rules.
Four of these studies, which focus on European equity markets, provide
evidence of a liquidity improvement associated with post-trade
anonymity,\134\ which could be attributed to a reduction of information
leakage.\135\ A study on the 2003 introduction of post-trade anonymity
on the NASDAQ platform found no evidence that best quotes were
improved,\136\ while a study on the South Korea Exchange found that
reducing post-trade anonymity led to lower realized spreads.\137\ The
Commission

[[Page 44704]]

believes that on balance the empirical evidence presented in these
academic studies supports the benefits of anonymous trading.
---------------------------------------------------------------------------

    \134\ S. Freiderich & R. Payne, Trading Anonymity and Order
Anticipation, 21 Journal of Financial Markets 1-24 (2014); T.G.
Meling, Anonymous Trading in Equities (2019 working paper); P.J.
Dennis & P. Sandas, Does Trading Anonymously Enhance Liquidity?,
Journal of Financial and Quantitative Analysis 1-25 (2019); A.
Hachmeister & D. Schierek, Dancing in the Dark: Post-Trade
Anonymity, Liquidity, and Informed Trading, 34 Review of
Quantitative Finance and Accounting 145-177 (2010).
    \135\ S. Freiderich & R. Payne, Trading Anonymity and Order
Anticipation, 21 Journal of Financial Markets 1-24 (2014); J.
Linnainmaa & G. Saar, Lack of Anonymity and the Inference from Order
Flow, 25 Review of Financial Studies 1,414-1,456 (2012).
    \136\ K. Benhami, Liquidity providers' valuation of anonymity:
The NASDAQ Market Makers evidence (2006 working paper).
    \137\ T.P. Pham, et al., Intra-day Revelation of Counterparty
Identity in the World's Best-Lit Market (2016 working paper).
---------------------------------------------------------------------------

    As discussed in more detail in the Proposal, the Commission also
reviewed several theoretical studies. The studies present models with
various levels of post-trade disclosure in different settings, and the
results offer insight into the trade-offs associated with changes in
post-trade anonymity, notwithstanding the fact that the studies did not
directly examine the case of bilateral disclosure of counterparty
identities immediately after each trade. The Commission found that the
results of these theoretical studies were mixed. One study, for
example, focused on the post-trade public disclosure of the trades of
insiders in equity markets, and the authors concluded that public
disclosure of insider trades accelerates the price discovery
process.\138\ Therefore, the results suggest that post-trade anonymity
might strengthen asymmetric information problems in the market and lead
to subsequently reduced liquidity by exacerbating the market maker's
adverse selection problem. Another study concluded that public
disclosure can reduce the informational efficiency of prices and reduce
market liquidity, because informed traders reduce trading in order to
preserve their informational advantage.\139\
---------------------------------------------------------------------------

    \138\ S. Huddart, J.S., Hughes & C.B. Levine, Public Disclosure
and Dissimulation of Insider Trades, Econometrica, Vol. 69, No. 3
(May 2001), 665-681.
    \139\ A.M. Buffa, Insider Trade Disclosure, Market Efficiency,
and Liquidity (2014 working paper).
---------------------------------------------------------------------------

    The Commission also examined one theoretical study that explicitly
addresses the practice of post-trade name give-up. The study,
considered in more detail in the Proposal, modeled the investor choice
between OTC markets and electronic order books.\140\ The authors
supported that the OTC market can detect and attract uninformed traders
(i.e., hedgers who are demanding liquidity but do not possess market
moving information) by offering them lower spreads, which results in an
increase in spreads for informed traders (i.e., traders who demand
liquidity in order to profit from the trade) in an electronic order
book, as well as a decrease in average spreads and an increase in total
volume. The authors concluded that a prohibition on post-trade name
give-up would likely lead to an increase in overall welfare. They
reasoned that, in the absence of post-trade name give-up, informed
traders will continue to trade via RFQ in order to minimize exposure of
their trading intentions, and that spreads in this venue will stay high
to reflect this situation. On the other hand, uninformed traders will
migrate to the order book and trade more, because spreads will decline
due to the increased activity. They predicted that overall welfare
would increase because the aggregate benefits of increased electronic
trading at low spreads would more than offset the aggregate costs to
informed traders who remain concerned about information leakage. The
study is consistent with the Commission's recognition of the trade-offs
in prohibiting post-trade name give-up.
---------------------------------------------------------------------------

    \140\ T. Lee & C. Wang, Why Trade Over-the-Counter? When
Investors Want Price Discrimination (2019 working paper).
---------------------------------------------------------------------------

    Citadel cited two additional studies that the Commission did not
consider in the Proposal, but which it has now reviewed.\141\ These
studies examined the effect of various levels of intermediation (i.e.,
access to multiple market makers) on liquidity in OTC markets and may
be closer to the setting of the swaps market. One study provided an
empirical evaluation of the implications of the OTC market structure
for non-financial firms in the foreign exchange derivatives
market.\142\ The authors documented extensive discriminatory pricing by
dealers, who appeared to favor sophisticated customers, defined as
those customers transacting high volume with multiple counterparties.
However, clients trading on RFQ platforms, where they can request
quotes from multiple dealers simultaneously, appeared to receive
competitive pricing irrespective of the level of their sophistication
which leads the authors to conclude that discriminatory pricing could
be potentially eliminated with the use of a centralized order book.
Finally, the authors argued that the lack of centralized dissemination
of transaction prices provides dealers with an information advantage
compared to clients, which enables them to extract information
rents.\143\ The Commission recognizes the empirical fact that trading
costs appear to differ across different venues and for different
traders, as this study emphasizes. Nonetheless, the Commission finds
that the design of the study precludes strong causal statements
regarding the causes and effects of the observed variation.
---------------------------------------------------------------------------

    \141\ See Citadel Letter 2, at 16.
    \142\ H. Hau, P. Hoffmann, S. Langfield, & Y. Timmer,
Discriminatory pricing of over-the-counter derivatives (2017 working
paper). We note that, while the paper focuses on the foreign
exchange derivatives market, its conclusions regarding the impact of
multi-dealer RFQ platforms are generally applicable across markets.
    \143\ Id.
---------------------------------------------------------------------------

    The second study, which provides a theoretical model of a generic
OTC market, concluded that sophisticated investors, who have access to
multiple market makers or other investors, face lower transaction
costs.\144\ The authors theorized that the availability of other
trading counterparties (i.e., more competition) forces market makers to
provide better pricing. The Commission agrees with the broad conclusion
that more active, competitive markets are welfare enhancing.
---------------------------------------------------------------------------

    \144\ D. Duffie, N. G[acirc]rleanu, & L.G. Pedersen, Valuation
in Over-the-Counter Markets, Review of Financial Studies, Vol. 20,
No. 5 (2007).
---------------------------------------------------------------------------

    Several commenters addressed the Commission's review of academic
studies in the Proposal. FSF, SIFMA, JPMorgan and TP ICAP each asserted
that the studies on equity markets cited in the Proposal's Cost-Benefit
Considerations (CBC) are not relevant because equity markets are not
comparable to the swaps market.\145\ JP Morgan stated that ``swap
markets have many fewer participants, of which institutional
participants constitute a far larger proportion, much lower trading
frequency, far greater variation in tradeable products, and much larger
typical trade sizes.'' \146\ The Coalition requested a quantitative
analysis of the costs and benefits for commercial end users.\147\ BPI,
FSF, Citi and JPMorgan further asserted that the CBC is not sufficient
and that further study is necessary.\148\
---------------------------------------------------------------------------

    \145\ See FSF Letter, at 9; SIFMA Letter, at 3; JPMorgan Letter,
at 9; TP ICAP Letter, at 5.
    \146\ JPMorgan Letter, at 9. See also FSF Letter, at 9 (``The
swap markets have many fewer participants, much lower trading
volume, far greater variation in tradable products, and much larger
typical trade sizes.'').
    \147\ Coalition Letter, at 2. The Commission notes that it is
not possible to conduct a quantitative analysis of the costs and
benefits to commercial end users of a prohibition on post-trade name
give-up prior to finalizing the rule, because there is no data on
the effects until after the rule is implemented.
    \148\ See BPI Letter, at 2; FSF Letter, at 12; Citi Letter, at
3; JPMorgan Letter, at 13-14. See also ABA Letter, at 2 (``[W]e see
no relevant data cited in the Proposed Rule to support the
contention that the prohibition would attract sufficient additional
non-dealer market participants to CLOB SEFs to outweigh these
negative consequences.'').
---------------------------------------------------------------------------

    Better Markets, Citadel and AFR each commented that the Proposal,
including the consideration of costs and benefits therein, provides a
sufficient basis with which to move forward with a final rule.\149\
Citadel also argued that the Proposal is consistent with the
Commission's previous decision in implementing part 37 not to limit SEF

[[Page 44705]]

access to just swap dealers, and therefore the Commission can rely on
its cost-benefit considerations for that rulemaking to support a
prohibition on post-trade name give-up.\150\ Citadel further argued
that claims by some commenters that commercial end-users transacting
swaps off-SEF might be negatively affected by the Proposal conflicts
with academic research.\151\
---------------------------------------------------------------------------

    \149\ See AFR Letter, at 1; Better Markets Letter, at 5; Citadel
Letter 1, at 11; Citadel Letter 2, at 14-15.
    \150\ Citadel Letter 2, at 14.
    \151\ Citadel Letter 2, at 15. Citadel cited two academic
studies that it asserted ``suggests that commercial end-users may
not be best-served by maintaining the current status quo.'' Id.
These studies show that access to multiple market makers reduces
trading costs.
---------------------------------------------------------------------------

    The Commission notes that commenters who support prohibiting post-
trade name give-up generally considered the academic studies discussed
in the Proposal to be informative, while commenters who oppose the
prohibition assert that the studies are not informative because swaps
markets are different than equity markets. The Commission acknowledges
that there are differences between the equity markets in most of these
empirical studies and the U.S. swaps markets. Further, the Commission
understands that the equity markets examined do not generally mirror
the exact dealer-centric swaps markets under consideration.
Nonetheless, the wide range of markets, time periods, and experiences
considered in the empirical studies leads the Commission to conclude
that the value of anonymous trading is well-established. Moreover, to
the extent that liquidity provision in swaps markets is more
concentrated than in the most active and liquid equity markets, the
empirical studies that provide evidence on smaller equity markets, or
on the less liquid stocks in a given market, might be most informative.
    Some of the equity markets studied may be deeper and more liquid
than the U.S. swaps market. However, several of the markets studied are
equity markets that are smaller than the U.S. equity market (e.g.,
Finland, Norway, and Sweden), and therefore potentially more comparable
to the swaps markets in the U.S. For example, one of the early
empirical studies on the implementation of post-trade anonymity on the
London Stock Exchange in 2001 finds that liquidity improvements were
more pronounced for small stocks and stocks with higher trading
concentration, which were potentially subject to larger information
asymmetries. The Commission notes that, with respect to the smaller
universe of liquidity providers, markets for smaller stocks could be
more analogous to swaps markets than markets for larger and more liquid
stocks with a broader array of market participants.
    Commenters who objected to the application of the studies did not
provide evidence to support the argument that the differences between
the anonymous order books in swaps and equity markets would prevent the
liquidity improvement associated with greater post-trade anonymity, as
suggested by the empirical studies in equity markets. Accordingly, the
Commission agrees with those commenters who stated that the studies are
instructive for U.S. swap markets, since they share the use of pre-
trade anonymous order books and these studies appear to be of markets
that are more analogous to swap markets than any other empirical study
the Commission or commenters have identified.\152\
---------------------------------------------------------------------------

    \152\ Citi did suggest that the Commission study the effects of
post-trade anonymity on the emerging market bond market. Citi
Letter, at 4. The Commission does not have jurisdiction over
emerging market bonds and does not have access to the relevant data.
---------------------------------------------------------------------------

    The Commission believes that prohibiting post-trade name give-up is
reasonably likely to improve liquidity on SEFs, particularly on
affected pre-trade anonymous markets, as additional market participants
choose to participate on these markets once post-trade name give-up is
prohibited. The Commission has not found convincing evidence that a
prohibition on post-trade name give-up will have net liquidity-reducing
effects. Rather, the Commission notes that the evidence from the
studies, as discussed above, suggests that markets with pre- and post-
trade anonymity generally feature greater liquidity than those without.
Moreover the Commission is concerned that the status quo may facilitate
information asymmetries and hinder access and participation on affected
SEFs for many market participants. The Commission believes that the
rule as adopted may benefit market participants by reducing these
information asymmetries and will increase participation on these SEF
platforms.
3. Consideration of Alternatives
    TP ICAP suggested the alternative that any prohibition on post-
trade name give-up should be limited to, at most, swaps subject to the
clearing requirement rather than all swaps that are intended to be
cleared, because a SEF may not know whether the parties to a
voluntarily-cleared swap will submit the swap to a DCO, as the parties
may do so themselves post-execution. The Commission has determined not
to adopt this alternative. The Commission notes that whether a swap is
intended to be cleared is a material term that affects trade pricing
and trade processing workflows, and it is something that SEF should be
able to determine at the time of execution, including for voluntarily-
cleared swaps. Thus, the Commission believes that the final rule, which
applies the prohibition to voluntarily-cleared swaps, will enable a
larger scope of swaps to receive the benefits associated with the
regulation, including, potentially, greater participation and improved
liquidity. However, to ensure that SEFs are provided with adequate time
to make any necessary changes to their systems, the Commission is
providing a phased compliance schedule, as discussed above.
    A number of commenters suggested that before implementing a full
post-trade name give-up prohibition, the Commission should implement a
time-limited pilot program that would prohibit post-trade name give-up
for some, but not all, products.\153\ These commenters asserted that a
pilot program would allow the Commission to assess the impact of a
post-trade name give-up prohibition before requiring market-wide
changes. The Commission has determined not to adopt this alternative. A
temporary pilot program may provide market participants with different
incentives than a permanent rule and thus may not be indicative of the
efficacy of a permanent rule. As Citadel noted, ``a short-term pilot
would be easily susceptible to manipulation. Given their commercial
interests in maintaining the status quo and privileged position as
liquidity providers, the incumbent dealer banks could temporarily
provide worse pricing for instruments covered by the name give-up
prohibition in order to dictate the pilot results.'' \154\ The
Commission agrees that a pilot program could create an incentive to
engage in such conduct, but a permanent prohibition will not.
---------------------------------------------------------------------------

    \153\ See Citi Letter, at 5; JPMorgan Letter, at 14; FSF Letter,
at 14.
    \154\ Citadel Letter 2, at 16.
---------------------------------------------------------------------------

    FSF and JP Morgan suggested the alternative approach whereby the
Commission would require every order book SEF that offers post-trade
name give-up to design a method that would permit its participants to
opt out of post-trade name give-up, which could be through a parallel,
fully-anonymous order book, or by allowing participants to opt-out of
post-trade name give-up on

[[Page 44706]]

an order-by-order basis.\155\ In the view of FSF, this approach would
provide freedom for market participants to transact in the manner in
which they wish to, while providing the option of fully-anonymous
trading to buy-side clients concerned with undesirable information
leakage.\156\ The Commission has determined not to adopt this
alternative. The Commission believes that post-trade name give-up is
likely to persist wherever it is permitted, and that this alternative
would provide little or no benefit while still imposing costs on SEFs
that are at least as high as those of a full prohibition (as SEFs would
need to change their systems to allow opting out). The Commission
agrees with Citadel's statement that one ``would expect incumbent
dealer banks not to agree to opt-out of name give-up, meaning that very
little would change on [interdealer broker] SEFs.'' \157\
---------------------------------------------------------------------------

    \155\ FSF Letter, at 14, JPMorgan Letter, at 15.
    \156\ FSF Letter, at 14.
    \157\ See Citadel Letter 2, at 16.
---------------------------------------------------------------------------

    FSF suggested an alternative whereby the Commission would exclude
from the prohibition on post-trade name give-up any SEF that obtains a
material portion of its trading volume, over a specified period,
through workups. JPMorgan and FSF asserted that post-trade name give-up
is an integral part of workup protocols, and the prohibition will
impair workup protocols and adversely affect dealers' ability to hedge
via adverse selection. In contrast, Citadel and MFA assert that post-
trade name give-up is not necessary for workup sessions. Citadel
asserted that if a trading protocol is pre-trade anonymous, there is no
need to disclose the trading counterparties in order to engage in a
workup session and, therefore, workup sessions will function just as
they do today. Citadel also stated that claims to the contrary ``are
easily disproven by looking at the U.S. Treasury market, where work-ups
are commonly employed on interdealer platforms even though name give-up
is not used.'' \158\ MFA further argued that prohibiting post-trade
name give-up would benefit trading protocols such as auctions,
portfolio compression, and/or workup sessions by increasing buy-side
access and participation.
---------------------------------------------------------------------------

    \158\ Citadel Letter 2, at 11.
---------------------------------------------------------------------------

    The Commission has determined not to adopt this alternative. The
Commission agrees with those comments asserting that post-trade name
give-up is not necessary for workup sessions and that post-trade
anonymity will not make workup sessions more difficult or costly and
may provide the benefits associated with increased participation. The
reasons given by JPMorgan and FSF relating to why they view post-trade
name give-up to be an important aspect of workup sessions are
essentially the same reasons espoused for the purported benefits of
post-trade name give-up generally, i.e., avoiding adverse selection and
ensuring reliable hedging for incumbent swap dealers.
    Some commenters proposed an alternative of not applying the
prohibition on post-trade name give-up to error trade corrections.
Commenters asserted that post-trade name give-up remains necessary for
counterparties to correct operational or clerical errors resulting in a
trade being rejected for clearing. Citadel disagreed with these
commenters, noting that SEFs can facilitate the correction of errors
without disclosing the identities of counterparties. The Commission has
determined not to adopt this alternative. A SEF can intermediate
communications, if necessary, and otherwise facilitate error trade
corrections without disclosing counterparty identities. The Commission
acknowledges that some SEFs may incur additional costs associated with
ensuring that their rules and procedures for error trades allow for
error trade remediation without disclosure of the identities of
counterparties to one another. The Commission notes that designated
contract markets resolve error trades without engaging in name give-up,
and SEFs already intermediate the resolution of error trades to varying
degrees. The Commission believes that the additional costs some SEFs
may incur to employ anonymous error trade remediation are relatively
modest.
4. Section 15(a) Factors
a. Protection of Market Participants and the Public
    The final rule is intended to protect market participants and the
public by advancing the statutory goals of: (1) Promoting swaps trading
and pre-trade price transparency on SEFs; (2) fostering fair
competition among market participants; (3) providing market
participants with impartial access to SEFs; and (4) maintaining the
privacy of swap transaction information.
b. Efficiency, Competitiveness, and Financial Integrity of the Markets
    The final rule is intended to enhance competitiveness in the swap
markets by removing an effective barrier to participation on SEFs for
many market participants who are concerned with the prospect of
information leakage. The Commission expects participation on SEFs to
increase as a result, leading to greater competition.
c. Price Discovery
    The Commission believes that by increasing participation and
competition on SEFs, the final rule will decrease information
asymmetries between market participants, allowing market participants
to attain broader knowledge of pricing across more SEFs, thereby
enhancing SEF trading as a mechanism for price discovery.
d. Sound Risk Management Practices
    Similarly, increased participation and competition on SEFs and
decreased information asymmetry among market participants is likely to
enhance SEF trading as a mechanism for risk management.
e. Other Public Interest Considerations
    Post-trade name give-up is inconsistent with provisions intended to
protect the privacy of a swap counterparty's trading information.
Prohibiting post-trade name give-up will help to effectuate the
statutory privacy protections under CEA section 21(c)(6) that apply to
this information. Moreover, the Commission believes that the
prohibition is reasonably likely to lead to enhanced liquidity and
lower transaction costs.

D. Antitrust Considerations

    Section 15(b) of the CEA requires the Commission to take into
consideration the public interest to be protected by the antitrust laws
and endeavor to take the least anticompetitive means of achieving the
purposes of the CEA, in issuing any order or adopting any Commission
rule or regulation.\159\ The Commission believes that the public
interest to be protected by the antitrust laws is generally to protect
competition. In the Proposal, the Commission requested comments on
whether: (1) The proposed rulemaking implicates any other specific
public interest to be protected by the antitrust laws; (2) the proposed
rulemaking is anticompetitive, and if it is, what are anticompetitive
effects; and (3) there are less anticompetitive means of achieving the
relevant purposes of the CEA that would otherwise be served by adopting
the proposed rules.
---------------------------------------------------------------------------

    \159\ 7 U.S.C. 19(b).
---------------------------------------------------------------------------

    The Commission does not anticipate that the amendments to part 37
that it is adopting today will result in anticompetitive behavior, but
instead, believes that the amendments will

[[Page 44707]]

promote greater competition on, and among, SEFs. In the proposal, the
Commission encouraged comments from the public on any aspect of the
rulemaking that may have the potential to be inconsistent with the
antitrust laws or be anticompetitive in nature. The Commission received
two comments asserting that the proposed rule may be anticompetitive.
JPMorgan commented that prohibiting post-trade name give-up ``would
itself impair competition and pose an unreasonable restraint on trade
by forcing dealers to trade fully anonymously in order to access a
[central-limit order-book], even though dealers prefer [post-trade name
give-up] . . . .'' \160\ FSF similarly commented that ``banning name
give-up would itself impair competition (certainly, innovation and
competition among markets) and unnecessarily push dealers to trade
fully anonymously in order to access an Order Book SEF, despite their
bona fide preference for name give-up.'' \161\ As stated above, the
Commission disagrees with comments that prohibiting post-trade name
give-up would impair competition. Post-trade name give-up is an
ancillary post-trade protocol, and not a method of execution. It does
not proscribe SEFs from offering any existing execution method, nor
does it prevent SEFs from developing new execution methods. Moreover,
the Commission is concerned by other commenters' assertions that post-
trade name give-up enables anticompetitive behavior,\162\ and the
Commission believes that prohibiting post-trade name give-up will
reduce the opportunity for such behavior to occur, and is therefore
reasonably necessary to promote fair competition among market
participants. The Commission has considered the rulemaking and related
comments to determine whether it is anticompetitive and continues to
believe that these amendments to part 37 will not result in
anticompetitive behavior.
---------------------------------------------------------------------------

    \160\ JPMorgan Letter, at 10.
    \161\ FSF Letter, at 10.
    \162\ See supra note 37 and accompanying text.
---------------------------------------------------------------------------

List of Subjects in 17 CFR Part 37

    Swaps, Swap execution facilities.
    For the reasons stated in the preamble, the Commodity Futures
Trading Commission amends 17 CFR part 37 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.


0
2. In Sec.  37.9, add paragraph (d) to read as follows:


Sec.  37.9   Methods of execution for required and permitted
transactions.

* * * * *
    (d) Counterparty anonymity. (1) Except as otherwise required under
the Act or the Commission's regulations, a swap execution facility
shall not directly or indirectly, including through a third-party
service provider, disclose the identity of a counterparty to a swap
that is executed anonymously and intended to be cleared.
    (2) A swap execution facility shall establish and enforce rules
that prohibit any person from directly or indirectly, including through
a third-party service provider, disclosing the identity of a
counterparty to a swap that is executed anonymously and intended to be
cleared.
    (3) For purposes of paragraphs (d)(1) and (2) of this section,
``executed anonymously'' shall include a swap that is pre-arranged or
pre-negotiated anonymously, including by a participant of the swap
execution facility.
    (4) For a package transaction that includes a component transaction
that is not a swap intended to be cleared, disclosing the identity of a
counterparty shall not violate paragraph (d)(1) or (2) of this section.
For purposes of this paragraph, a ``package transaction'' consists of
two or more component transactions executed between two or more
counterparties where:
    (i) Execution of each component transaction is contingent upon the
execution of all other component transactions; and
    (ii) The component transactions are priced or quoted together as
one economic transaction with simultaneous or near-simultaneous
execution of all components.

    Issued in Washington, DC, on June 29, 2020, by the Commission.
Robert Sidman,
Deputy Secretary of the Commission.

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

Appendices to Post-Trade Name Give-Up on Swap Execution Facilities--
Commission Voting Summary, Chairman's Statement, and Commissioners'
Statements

Appendix 1--Commission Voting Summary

    On this matter, Chairman Tarbert and Commissioners Quintenz,
Behnam, Stump, and Berkovitz voted in the affirmative. No
Commissioner voted in the negative.

Appendix 2--Joint Supporting Statement of Chairman Heath P. Tarbert,
Commissioner Rostin Behnam, and Commissioner Dan M. Berkovitz

    As we have previously stated,\1\ it is a fundamental principle
of exchange-style trading systems that the buyer and seller of a
given financial instrument have no reason to know--and do not know--
one another's identity.\2\ This levels the playing field for
counterparties of all sizes and types by allowing traders to enter
and exit the market without exposing their trading positions and
strategies.\3\ As a result, markets with pre- and post-trade
anonymity are generally not only fairer, but also feature greater
liquidity, a more diverse set of market participants, and greater
competition.\4\
---------------------------------------------------------------------------

    \1\ Joint Statement of Chairman Heath Tarbert, Commissioner
Rostin Behnam, and Commissioner Dan Berkovitz in Support of Proposed
Rule Restricting Post-Trade Name Give-Up (Dec. 18, 2019).
    \2\ See, e.g., Peter A. McKay, CME and CBOT to Close Loophole,
Wall St. J. (Apr. 15, 2006) (``When stocks are traded on public
exchanges, investors generally don't know who they are buying from
or selling to. On futures exchanges, most investors expect the same
thing when trading electronically.'').
    \3\ See, e.g., Peter Madigan, CFTC to Test Role of Anonymity in
SEF Order Book Flop, Risk (Nov. 21, 2014) (noting arguments that
anonymity creates a more egalitarian market); Managed Funds
Association (``MFA''), Position Paper: Why Eliminating Post-Trade
Name Disclosure Will Improve the Swaps Market 8 (Mar. 31, 2015)
(arguing that ``markets should remain anonymous to create a level
playing field for all participants''); CFTC Market Risk Advisory
Committee, Panel Discussion: Market's Response to the Introduction
of SEFs 139 (Apr. 2, 2015) (``MRAC Meeting Transcript'') (noting
buy-side reticence to use SEF order books with name give-up because
of potential uncontrolled information leakage). This can prevent
price discrimination based on the identity of the counterparty.
    \4\ See, e.g., MRAC Meeting Transcript, supra note 3, at 154
(explaining that anonymous order books have facilitated liquidity
and diverse participation in markets for other instruments, such as
equities and futures); S. Freiderich & R. Payne, Trading Anonymity
and Order Anticipation, 21 Journal of Financial Markets 1-24 (2014)
(finding that post-trade anonymity improved market liquidity,
particularly for small stocks and stocks with concentrated trading,
which may be more analogous to swaps); Treasury Market Practices
Group, White Paper on Clearing and Settlement in the Secondary
Market for U.S. Treasury Securities (Jul. 11, 2019) (stating that
emergence of new types of market participants in the fully anonymous
U.S. Treasury securities market has ``likely improved overall
liquidity through enhanced order flow and competition'').

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

[[Page 44708]]

    In the swaps market, a number of swap execution facilities
(``SEFs'') provide for post-trade disclosure of the name of the
counterparty, a practice that is known as ``name give-up.'' This
protocol is a vestige of the pre-Dodd-Frank era, when few swaps were
centrally cleared and market participants needed to know their
counterparty's identity to manage the associated credit risk. Given
the advent of central clearing, many have appropriately questioned
the continuing need for post-trade name give-up for cleared swaps.
Others have gone further, criticizing the practice as
anticompetitive, an obstacle to broad and diverse participation on
SEFs, and potentially inconsistent with numerous provisions of the
Commodity Exchange Act (``CEA'') and Commission regulations.
    In 2019, after considering responses to a request for comment on
the issue,\5\ the Commission issued a proposed rule (``Proposal'')
to restrict name give-up such that trades that are executed
anonymously on-SEF and cleared would remain anonymous after
execution.\6\ Public comments on the Proposal reflected a variety of
differing viewpoints and interests. The agency carefully considered
all comments in crafting the final rule we voted to approve today.
---------------------------------------------------------------------------

    \5\ CFTC Request for Comment on Post-Trade Name Give-Up on Swap
Execution Facilities, 83 FR 61,571 (Nov. 30, 2018).
    \6\ Post-Trade Name Give-Up on Swap Execution Facilities, 84 FR
72262 (Dec. 31, 2019).
---------------------------------------------------------------------------

    We believe the final rule reflects a balanced approach, is
workable, and will improve overall market vibrancy. The rule
prohibits name give-up for swaps that are executed anonymously and
intended to be cleared. However, it does not apply to swaps that are
not intended to be executed anonymously, such as trades done via a
name-disclosed request for quote. The rule also includes a limited
exception for package transactions \7\ with at least one component
that is an uncleared swap or a non-swap instrument. This exception
reflects current technological and operational realities that
require counterparty disclosure for the non-swap or non-cleared swap
component of such trades.\8\ In addition, the rule includes a phased
implementation schedule to allow SEFs and market participants time
to adjust to the changes.
---------------------------------------------------------------------------

    \7\ The rule defines a ``package transaction'' as ``consist[ing]
of two or more component transactions executed between two or more
counterparties where: (i) Execution of each component transaction is
contingent upon the execution of all other component transactions;
and (ii) the component transactions are priced or quoted together as
one economic transaction with simultaneous or near-simultaneous
execution of all components.''
    \8\ As noted in the preamble to the final rule, we urge SEFs and
their participants to work towards an infrastructure that ultimately
does support anonymous post-trade processing for packages including
certain cleared non-swap components (e.g., U.S. Treasuries). The
preamble to the final rule also notes the Commission's intention to
monitor market developments and evaluate the continued need for the
package transaction exception in the future.
---------------------------------------------------------------------------

    We believe the rule's fundamental objective--protecting trading
anonymity where it is possible to do so--is key to two statutory
goals for the SEF regime: (1) Promoting swaps trading on SEFs \9\
and (2) promoting fair competition among market participants,
including through impartial access to a SEF's trading platform.\10\
Indeed, we hope the rule will help attract a diverse set of
additional market participants who have been deterred from trading
on these platforms by the practice of post-trade name give-up, but
remain interested in bringing liquidity and competition to SEFs.
---------------------------------------------------------------------------

    \9\ CEA section 5h(e), 7 U.S.C. 7b-3(e). In this regard, the
CFTC intends to complete a preliminary study of the state of swaps
markets one year after the initial phase of the rule takes effect,
and to follow up with further study after the rule has been in
effect for three years.
    \10\ CEA section 3(b), 7 U.S.C. 5(b) (listing fair competition
among market participants as a goal of the CEA); CEA section
5h(f)(2)(B)(i) (requiring a SEF to establish and enforce rules to
provide participants impartial access to the market).
---------------------------------------------------------------------------

    The issue of name give-up can be a bit of a lightning rod,
sometimes inciting passionate disagreements between stakeholders. We
and CFTC staff stand ready to work with market participants and
market operators to resolve any new issues that may arise as the
rule is implemented. We hope that all parties to this debate can
constructively move forward together toward the goals of sound
derivatives regulation and robust financial markets.

Appendix 3--Supporting Statement of Commissioner Brian Quintenz

    I will vote in favor of today's final rule to prohibit post-
trade name give-up practices for swaps executed, pre-arranged, or
pre-negotiated anonymously on or pursuant to the rules of a swap
execution facility (SEF) and intended-to-be-cleared (Final Rule).
    As I have noted previously, I have concerns about the government
banning an established trading practice that has evolved from
natural market forces to support swaps liquidity provision. Client
swap activity is inherently dealer and relationship-sourced. That is
why the name-disclosed Request for Quote (RFQ) model has been highly
favored over the anonymous Central Limit Order Book (CLOB) model in
the client market. Although the Final Rule predicts that the ban on
name give-up will result in increased participation and competition
in the dealer-to-dealer market, I remain concerned that banning
post-trade name give-up will negatively impact dealers' ability to
hedge efficiently on existing inter-dealer platforms, which will
ultimately lead to a degradation in the pricing and liquidity
provision of swaps trading on dealer-to-client platforms. I am also
doubtful that new entrants into the wholesale market will use the
advantages of that participation to add any meaningful liquidity in
the client market, making it even less certain that the benefits of
enhanced competition hoped for in this Final Rule will be passed
through to end-users.
    Despite my concerns, I am supporting the Final Rule because it
adopts an important exception from the prohibition, as well as an
incremental approach that will give the Commission and market
participants time to transition into compliance, observe the impact
of the Final Rule, and make adjustments in the future, if necessary.
    For example, the Final Rule includes a significant exception for
package transactions that include a component transaction that is
not a swap intended-to-be-cleared. The exception would include U.S.
Treasury swap spread package trades involving an intended-to-be-
cleared swap and a U.S. Treasury security component. These package
transactions are rarely traded on dealer-to-client platforms, but
make up a significant portion of volume on dealer-to-dealer
platforms. Recognizing this important difference between markets is
a small but necessary accommodation to ensure package trades can
continue to be efficiently executed in light of this mandated change
to market trading protocols.
    The Final Rule also adopts staggered compliance deadlines, with
the most liquid swaps coming into compliance first, and less liquid
swaps becoming subject to the ban in July 2021. In the interim, the
Commission plans to conduct a preliminary study of the Final Rule's
impact on SEF trading by July 2021, with a further study to be
conducted by July 2023. These studies will allow the Commission to
assess if the ban on post-trade name give-up is, in fact, increasing
competition and liquidity on SEFs, as the ban is intended to do. If
a more fulsome analysis reveals that the ban has not yielded its
expected benefits, or may not be appropriate for certain products
given their liquidity profile, I expect further adjustments will be
made to maintain a well-functioning swaps market.
    Lastly, I would like to thank staff of the Division of Market
Oversight for working with my staff to incorporate many of my
comments into the Final Rule.

[FR Doc. 2020-14343 Filed 7-23-20; 8:45 am]
BILLING CODE 6351-01-P