CFTC Proposes Ending SEF Order Book Requirement for Permitted Transactions

The CFTC is proposing to remove a rule requiring swap execution facilities to maintain order books for permitted transactions, citing limited market use and seeking public feedback before making changes.

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CFTC Targets SEF Order Book Requirement

The Commodity Futures Trading Commission published a Notice of Proposed Rulemaking covering amendments to Regulation 37.3(a)(2). The proposal would remove the requirement for swap execution facilities, or SEFs, to offer an order book for permitted transactions.

Current rules require SEFs to maintain order books for swaps listed on their platforms. However, the CFTC said market participants rarely use order books for permitted transactions, even though the facilities remain available. The requirement differs from rules covering required transactions, where order books remain part of the trading framework.

CFTC Chair Michael Selig said the proposal is designed to reduce requirements that the agency considers unnecessary. “Today’s action continues the agency’s commitment to prescribing the minimum effective dose of regulation for market participants,” Selig said.

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Proposal Could Give Swap Platforms More Flexibility

Removing the requirement would allow SEFs to decide whether maintaining an order book for permitted transactions serves their markets. Platforms could instead direct resources toward other execution methods that match how participants trade particular swap products.

The CFTC said the change could also support the development of alternative trading methods. However, the proposal has not been finalized. Market participants and other interested parties will have 30 days after publication in the Federal Register to submit comments.

The agency will consider that feedback before deciding whether to adopt the amendments. The proposed rule specifically addresses SEF order books for permitted transactions and does not remove the requirement covering required transactions.

CFTC Advances Wider Regulatory Agenda

The proposal arrives as the CFTC begins the first meeting of its Innovation Advisory Committee. The committee is scheduled to discuss cryptocurrency regulation, artificial intelligence in financial markets and prediction markets with participants from crypto, traditional finance and academia.

Meanwhile, Selig has said the CFTC is preparing crypto market structure rules using its existing authority as Congress continues negotiations over the CLARITY Act. He said the agency would begin implementing the legislation if Congress passes it.

However, Selig said the CFTC could move ahead with its own rule proposals if the bill remains stalled. Staff are exploring a framework that could allow crypto trading platforms to operate as CFTC-regulated crypto asset markets and provide compliant routes for developers to offer blockchain protocols.

The CLARITY Act would divide digital asset oversight between the CFTC and Securities and Exchange Commission, but disagreements over ethics rules and other provisions remain unresolved.

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