Public Statements & Remarks

Statement of Commissioner Caroline D. Pham In Support of Swap Confirmation Requirements for Swap Execution Facilities Proposal

July 26, 2023

I support the Notice of Proposed Rulemaking on Swap Confirmation Requirements for Swap Execution Facilities (SEF Confirmation Proposal) because the Commission is finally fixing unworkable rules that have defied the reality of market structure, legal documentation, and operational processes since they were first issued in 2013.  I would like to thank Roger Smith, Nora Flood, and Vince McGonagle in the Division of Market Oversight for their work on the SEF Confirmation Proposal.

As I previously stated, the Commission must take action to fix unworkable rules by codifying “perpetual” no-action relief through notice-and-comment rulemaking as required by the Administrative Procedure Act.[1]  I am pleased that we are doing so today.

The Dodd-Frank Act amended the Commodity Exchange Act (CEA) to establish the SEF regulatory framework in order to reduce risk, promote transparency, and enhance market integrity for over-the-counter (OTC) derivatives.[2]  Following that mandate, the CFTC implemented Part 37, which requires, among other things, that SEFs provide written final confirmation for uncleared swaps at the time of execution.[3]  Moreover, Rule 37.6(b) requires that SEFs  provide each counterparty “a written record of all of the terms of the transaction which shall legally supersede any previous agreement and serve as a confirmation of the transaction.”  Contrary to its intent, this requirement actually undermines legal certainty by potentially voiding carefully negotiated and highly technical and complex legal agreements.[4]  These provisions, while well-intentioned, have proven impracticable (if not impossible) for both SEFs and market participants.  In fact, the requirement to provide SEF confirmation at the time of execution is temporally impossible for block trades, which are executed away from the SEF and then submitted to the SEF afterwards.

After hearing from the public, CFTC staff provided no-action relief in 2014 that has been extended repeatedly in order to provide a practical solution that could be implemented and would still support the CFTC’s public and regulatory transparency requirements.  For example, the no-action relief provided that SEFs could incorporate prior agreements to a transaction by reference, instead of receiving hundreds of thousands of pages of legal agreements, such as bilateral counterparty swap trading relationship documentation, and then attaching hundreds of pages to SEF confirmations.[5]  This requirement was unworkable in light of Part 23 rules for swap dealers, and for a SEF to collect such legal documentation from swap counterparties and then to maintain it continuously on an ongoing basis (since these bilateral agreements are occasionally revised), turns SEFs into giant legal document repositories of questionable benefit.

Once CFTC staff realized the unrealistic nature of these SEF confirmation requirements, I believe the staff very prudently issued no-action relief.  And I believe that this was an appropriate exercise of no-action relief because in the rush to implement the Dodd-Frank Act, the Commission did not always get it right.

When we don’t get it right, it is incumbent upon the Commission to acknowledge technical and operational issues and fix them. I look forward to public comment, particularly whether this proposal sufficiently fixes the unworkable aspects of our existing rules.  Thank you.

[1] Statement of Commissioner Caroline D. Pham on Conditional Order of SEF Registration, U.S. Commodity Futures Trading Commission (July 20, 2022),

[2] Core Principles and Other Requirements for Swap Execution Facilities, 76 FR 1213, 1214 (Jan. 7, 2011) (codified at 17 CFR 37).

[3] See 17 C.F.R. § 37.6(b) (“The confirmation of all terms of the transaction shall take place at the same time as execution.”).

[4] Id.

[5] See, e.g., NAL No. 17-17, Re: Extension of No-Action Relief for Swap Execution Facility Confirmation and Recordkeeping Requirements under Commodity Futures Trading Commission Regulations 37.6(b), 37.1000, 37.1001, 45.2, and 45.3(a) (Mar. 24, 2017).