On November 14, the Commodity Futures Trading Commission’s Divisions of Clearing and Risk, Market Oversight and Swap Dealer and Intermediary Oversight (the Divisions) issued guidance to swap execution facilities (SEFs) and applicants for registration as SEFs on restrictions related to intended-to-be-cleared swaps (ITBC Swaps) that are executed on SEFs and access requirements for eligible contract participants (ECPs).

The guidance addresses “enablement mechanisms,” which the Divisions defined broadly to mean any device that prevents a market participant from interacting, trading with or viewing bids and offers from any other market participant on the SEF. In the Divisions’ view, these restrictions are inconsistent with the SEF core principles and CFTC Regulation 37.202. The Divisions noted that, because ITBC swaps are subject to pre-execution credit checks and trades that fail to clear are void ab initio under SEF rules, enablement mechanisms are not necessary to eliminate credit risk. The guidance further takes the position that enablement mechanisms are inconsistent with other CFTC Regulations regarding SEF order books, request for quote systems and counterparty limitations.

The guidance also addresses restrictions on market access by ECPs. The guidance reflects the Divisions’ view that SEFs may not, consistent with the impartial access requirement, limit access to their trading platforms to certain types of ECPs. The guidance further notes that while SEFs must require a market participant to have a clearing agreement with a clearing member prior to executing a swap, SEFs cannot require that the trade be executed through a clearing member.

The Divisions’ guidance is available here.