Washington, D.C. — The Commodity Futures Trading Commission today issued an order simultaneously filing and settling charges against tpSEF, Inc., a registered swap execution facility (SEF), for failing to comply with the CFTC 15-second delay requirement for certain required transactions on a SEF order book.
Specifically, the CFTC regulation requires that for orders that are pre-arranged or pre-negotiated and will result in two customers’ orders being crossed or a broker or dealer taking the opposite side of a customer’s order, the SEF must subject the broker or dealer to at least a 15-second delay between the entry of the orders. tpSef failed to comply with this requirement and failed to enforce its own rule related to the 15-second delay requirement.
The order requires tpSEF to cease and desist from violating the CFTC time delay regulation, pay a $850,000 civil monetary penalty, and to comply with undertakings requiring tpSEF to review all transactions on the SEF from August 2020 to the present for compliance with the SEF’s own rule related to the 15-second delay requirement, and review its policies and procedures designed to deter and detect future violations of that rule. The order further requires tpSEF to report its findings to the CFTC within 180 days of the date of the order.
“The CFTC’s time delay requirement is important to ensure a competitive regime on swap execution facilities, and the CFTC will act to ensure that registered entities comply with CFTC regulations and their own rules,” said Division of Enforcement Acting Director Gretchen Lowe.
The order finds that tpSEF provides execution services across a full range of asset classes, including interest rate swaps and credit default swaps. The majority of swaps executed on tpSEF involve transactions in which a broker or dealer executes two customers’ orders against each other. According to the order, from October 2016 to July 2020, tpSEF permitted execution of 301 swap transactions that did not comply with the requirement of a 15-second delay between the entry of each side of the transaction as required under CFTC regulations and tpSEF’s rulebook. As a self-regulatory organization, tpSEF has oversight obligations for conduct on the SEF and is required to enforce its rules. tpSEF, however, failed to enforce compliance with the CFTC’s regulation as well as its own rule in connection with the requirement that orders for these required transactions be subject to at least a 15-second delay.
The Division of Enforcement staff responsible for this matter are Erica Bodin, Elizabeth May, Kevin Samuel, Alan Edelman, Michael Solinsky and Rick Glaser.