On Jul. 26, CFTC proposed rule on swap confirmation requirements.
CFTC proposed rule on confirmation requirements for Swap execution facilities (SEF).
Commissioners Romero and Johnson issued statements in support of proposed rule.
Background
During implementation of Rule 37 (17 CFR 37), SEFs informed CFTC that confirmation requirement for uncleared swaps is operationally, technologically difficult to implement.
In response, the Commission issued CFTC no-action letter no. 17-17 (NAL No. 17-17).
Provides a no-action position with respect to the obligation to obtain copies of underlying, previously negotiated agreements between the swap counterparties.
Applies for SEF that seeks for uncleared swaps to satisfy the confirmation requirement in Rule 37.6(b) by incorporating the reference terms of such underlying agreements.
Rule Proposal
Rule proposal amended SEF regulations related to uncleared swap confirmations.
Specifically, CFTC rule 37.6 (17 CFR 37.6) on Enforceability of swap execution facilities
Rule will codify no-action position of NAL 17-17, to enable SEFs to incorporate terms by reference in uncleared swap without being required to obtain underlying agreement
Also will clarify that term confirmation should occur as soon as technologically viable.
Makes clear that the SEF-provided confirmation under rule 37.6(b) legally supersedes any conflicting terms in a previous agreement, rather than the entire agreement.
Further, proposes conforming amendments to Rule 23.501(a)(4)(i) (17 CFR 23.501).
Commissioner Romero Comments
Prudent for the CFTC to revisit its regulations in order to keep pace with technology.
Believes CFTC needs to be careful about proposing new rules that only codify no-action relief from regulation, particularly no-action relief that has been extended for years.
Instead, CFTC should determine what it is trying to accomplish with the regulation, if CFTC still wants to accomplish that, and if there is another way to achieve it.
Supports rule because supports idea that the technological obstacle needs to be fixed.
Commissioner Johnson Comments
Supports the proposal and look forward to carefully considering comments received.
In order to determine the best path forward to protect markets through stability of SEFs while balancing practical approaches to implementing regulatory requirements.
Hopeful the comments submitted in response to the proposal will answer some of the explicit questions set out in release text as well as support the drafting of final rules.
Consultation
The rule will have a 60-day comment period after publication in the federal register.
Jul. 26, 2023 CFTC Chairman Behnam Statement
On Jul. 26, 2023, CFTC issued statement by Chairman Behnam in support of proposal.
Behnam stated proposal represents sound judgment and clear consideration of issues.
Jul. 26, 2023 CFTC Commissioner Pham Statement
On Jul. 26, 2023, CFTC Commissioner Pham issued statement in support of proposal.
Clear example of a rule that was implemented that never worked from the beginning.
Remedy for unworkable rules is best done through formal action undertaken by entire CFTC, rather than informal and perpetual no-action positions maintained by the staff.
Aug. 2023 Fed Reg Proposal
On Aug. 25, 2023, CFTC published proposal in federal register, comments by Oct. 24.
