Appendix B to Part 37 - Guidance on, and Acceptable Practices in, Compliance with Core Principles
17:1.0.1.1.30.18.7.1.30 : Appendix B
Appendix B to Part 37 - Guidance on, and Acceptable Practices in,
Compliance with Core Principles Link to an amendment published at
86 FR 9249, Feb. 11, 2021.
1. This appendix provides guidance on complying with core
principles, both initially and on an ongoing basis, to maintain
registration under section 5h of the Act and this part 37. Where
provided, guidance is set forth in paragraph (a) following the
relevant heading and can be used to demonstrate to the Commission
compliance with the selected requirements of a core principle of
this part 37. The guidance for the core principle is illustrative
only of the types of matters a swap execution facility may address,
as applicable, and is not intended to be used as a mandatory
checklist. Addressing the issues set forth in this appendix would
help the Commission in its consideration of whether the swap
execution facility is in compliance with the selected requirements
of a core principle; provided however, that the guidance is not
intended to diminish or replace, in any event, the obligations and
requirements of applicants and swap execution facilities to comply
with the regulations provided under this part 37.
2. Where provided, acceptable practices meeting selected
requirements of core principles are set forth in paragraph (b)
following the guidance. Swap execution facilities that follow
specific practices outlined in the acceptable practices for a core
principle in this appendix will meet the selected requirements of
the applicable core principle; provided however, that the
acceptable practice is not intended to diminish or replace, in any
event, the obligations and requirements of applicants and swap
execution facilities to comply with the regulations provided under
this part 37. The acceptable practices are for illustrative
purposes only and do not state the exclusive means for satisfying a
core principle.
Core Principle 1 of Section 5h of the Act - Compliance With Core
Principles
(A) In general. To be registered, and maintain
registration, as a swap execution facility, the swap execution
facility shall comply with - the core principles described in
section 5h of the Act; and any requirement that the Commission may
impose by rule or regulation pursuant to section 8a(5) of the
Act.
(B) Reasonable discretion of swap execution facility.
Unless otherwise determined by the Commission by rule or
regulation, a swap execution facility described in paragraph (A)
shall have reasonable discretion in establishing the manner in
which the swap execution facility complies with the core principles
described in section 5h of the Act.
(a) Guidance. [Reserved]
(b) Acceptable Practices. [Reserved]
Core Principle 2 of Section 5h of the Act - Compliance With Rules
A swap execution facility shall:
(A) Establish and enforce compliance with any rule of the swap
execution facility, including the terms and conditions of the swaps
traded or processed on or through the swap execution facility and
any limitation on access to the swap execution facility;
(B) Establish and enforce trading, trade processing, and
participation rules that will deter abuses and have the capacity to
detect, investigate, and enforce those rules, including means to
provide market participants with impartial access to the market and
to capture information that may be used in establishing whether
rule violations have occurred;
(C) Establish rules governing the operation of the facility,
including rules specifying trading procedures to be used in
entering and executing orders traded or posted on the facility,
including block trades; and
(D) Provide by its rules that when a swap dealer or major swap
participant enters into or facilitates a swap that is subject to
the mandatory clearing requirement of section 2(h) of the Act, the
swap dealer or major swap participant shall be responsible for
compliance with the mandatory trading requirement under section
2(h)(8) of the Act.
(a) Guidance. (1) Investigations and investigation
reports - Warning letters. The rules of a swap execution
facility may authorize its compliance staff to issue a warning
letter to a person or entity under investigation or to recommend
that a disciplinary panel take such an action.
(2) Additional rules required. A swap execution facility
should adopt and enforce any additional rules that it believes are
necessary to comply with the requirements of § 37.203.
(3) Enforcement staff. A swap execution facility's
enforcement staff should not include either members of the swap
execution facility or persons whose interests conflict with their
enforcement duties. A member of the enforcement staff should not
operate under the direction or control of any person or persons
with trading privileges at the swap execution facility. A swap
execution facility's enforcement staff may operate as part of the
swap execution facility's compliance department.
(4) Notice of charges. If compliance staff authorized by
a swap execution facility or a swap execution facility disciplinary
panel determines, based upon reviewing an investigation report
pursuant to § 37.203(f)(3), that a reasonable basis exists for
finding a violation and adjudication is warranted, it should direct
that the person or entity alleged to have committed the violation
be served with a notice of charges and should proceed in accordance
with this guidance. A notice of charges should adequately state the
acts, conduct, or practices in which the respondent is alleged to
have engaged; state the rule, or rules, alleged to have been
violated (or about to be violated); advise the respondent that it
is entitled, upon request, to a hearing on the charges; and
prescribe the period within which a hearing on the charges may be
requested. If the rules of the swap execution facility so provide,
a notice may also advise:
(i) That failure to request a hearing within the period
prescribed in the notice, except for good cause, may be deemed a
waiver of the right to a hearing; and
(ii) That failure to answer or to deny expressly a charge may be
deemed to be an admission of such charge.
(5) Right to representation. Upon being served with a
notice of charges, a respondent should have the right to be
represented by legal counsel or any other representative of its
choosing in all succeeding stages of the disciplinary process,
except by any member of the swap execution facility's board of
directors or disciplinary panel, any employee of the swap execution
facility, or any person substantially related to the underlying
investigations, such as a material witness or respondent.
(6) Answer to charges. A respondent should be given a
reasonable period of time to file an answer to a notice of charges.
The rules of a swap execution facility governing the requirements
and timeliness of a respondent's answer to a notice of charges
should be fair, equitable, and publicly available.
(7) Admission or failure to deny charges. The rules of a
swap execution facility may provide that if a respondent admits or
fails to deny any of the charges, a disciplinary panel may find
that the violations alleged in the notice of charges for which the
respondent admitted or failed to deny any of the charges have been
committed. If the swap execution facility's rules so provide,
then:
(i) The disciplinary panel should impose a sanction for each
violation found to have been committed;
(ii) The disciplinary panel should promptly notify the
respondent in writing of any sanction to be imposed pursuant to
paragraph (7)(i) of this guidance and shall advise the respondent
that it may request a hearing on such sanction within the period of
time, which shall be stated in the notice;
(iii) The rules of a swap execution facility may provide that if
a respondent fails to request a hearing within the period of time
stated in the notice, the respondent will be deemed to have
accepted the sanction.
(8) Denial of charges and right to hearing. In every
instance where a respondent has requested a hearing on a charge
that is denied, or on a sanction set by the disciplinary panel, the
respondent should be given an opportunity for a hearing in
accordance with the rules of the swap execution facility.
(9) Settlement offers. (i) The rules of a swap execution
facility may permit a respondent to submit a written offer of
settlement at any time after an investigation report is completed.
The disciplinary panel presiding over the matter may accept the
offer of settlement, but may not alter the terms of a settlement
offer unless the respondent agrees.
(ii) The rules of a swap execution facility may provide that, in
its discretion, a disciplinary panel may permit the respondent to
accept a sanction without either admitting or denying the rule
violations upon which the sanction is based.
(iii) If an offer of settlement is accepted, the panel accepting
the offer should issue a written decision specifying the rule
violations it has reason to believe were committed, including the
basis or reasons for the panel's conclusions, and any sanction to
be imposed, which should include full customer restitution where
customer harm is demonstrated, except where the amount of
restitution or to whom it should be provided cannot be reasonably
determined. If an offer of settlement is accepted without the
agreement of the enforcement staff, the decision should adequately
support the disciplinary panel's acceptance of the settlement.
Where applicable, the decision should also include a statement that
the respondent has accepted the sanctions imposed without either
admitting or denying the rule violations.
(iv) The respondent may withdraw his or her offer of settlement
at any time before final acceptance by a disciplinary panel. If an
offer is withdrawn after submission, or is rejected by a
disciplinary panel, the respondent should not be deemed to have
made any admissions by reason of the offer of settlement and should
not be otherwise prejudiced by having submitted the offer of
settlement.
(10) Hearings. (i) The swap execution facility need not
apply the formal rules of evidence for a hearing; nevertheless, the
procedures for the hearing may not be so informal as to deny a fair
hearing. No member of the disciplinary panel for the matter may
have a financial, personal, or other direct interest in the matter
under consideration.
(ii) In advance of the hearing, the respondent should be
entitled to examine all books, documents, or other evidence in the
possession or under the control of the swap execution facility. The
swap execution facility may withhold documents that: Are privileged
or constitute attorney work product; were prepared by an employee
of the swap execution facility but will not be offered in evidence
in the disciplinary proceedings; may disclose a technique or
guideline used in examinations, investigations, or enforcement
proceedings; or disclose the identity of a confidential source.
(iii) The swap execution facility's enforcement and compliance
staffs should be parties to the hearing, and the enforcement staff
should present their case on those charges and sanctions that are
the subject of the hearing.
(iv) The respondent should be entitled to appear personally at
the hearing, should be entitled to cross-examine any persons
appearing as witnesses at the hearing, and should be entitled to
call witnesses and to present such evidence as may be relevant to
the charges.
(v) The swap execution facility should require persons within
its jurisdiction who are called as witnesses to participate in the
hearing and produce evidence. The swap execution facility should
make reasonable efforts to secure the presence of all other persons
called as witnesses whose testimony would be relevant.
(vi) The rules of a swap execution facility may provide that a
sanction may be summarily imposed upon any person within its
jurisdiction whose actions impede the progress of a hearing.
(11) Right to appeal. The rules of a swap execution
facility may permit the parties to a proceeding to appeal promptly
an adverse decision of a disciplinary panel in all or in certain
classes of cases. Such rules may require a party's notice of appeal
to be in writing and to specify the findings, conclusions, or
sanctions to which objection are taken. If the rules of a swap
execution facility permit appeals, then both the respondent and the
enforcement staff should have the opportunity to appeal and the
swap execution facility should provide for the following:
(i) The swap execution facility should establish an appellate
panel that should be authorized to hear appeals of respondents. In
addition, the rules of a swap execution facility may provide that
the appellate panel may, on its own initiative, order review of a
decision by a disciplinary panel within a reasonable period of time
after the decision has been rendered.
(ii) The composition of the appellate panel should be consistent
with part 40 of this chapter, and should not include any members of
the swap execution facility's compliance staff or any person
involved in adjudicating any other stage of the same proceeding.
The rules of a swap execution facility should provide for the
appeal proceeding to be conducted before all of the members of the
appellate panel or a panel thereof.
(iii) Except for good cause shown, the appeal or review should
be conducted solely on the record before the disciplinary panel,
the written exceptions filed by the parties, and the oral or
written arguments of the parties.
(iv) Promptly following the appeal or review proceeding, the
appellate panel should issue a written decision and should provide
a copy to the respondent. The decision issued by the appellate
panel should adhere to all the requirements of § 37.206(d) to the
extent that a different conclusion is reached from that issued by
the disciplinary panel.
(12) Final decisions. Each swap execution facility should
establish rules setting forth when a decision rendered pursuant to
its rules will become the final decision of such swap execution
facility.
(13) Summary fines for violations of rules regarding timely
submission of records. A swap execution facility may adopt a
summary fine schedule for violations of rules relating to the
failure to timely submit accurate records required for clearing or
verifying each day's transactions. A swap execution facility may
permit its compliance staff, or a designated panel of swap
execution facility officials, to summarily impose minor sanctions
against persons within the swap execution facility's jurisdiction
for violating such rules. A swap execution facility's summary fine
schedule may allow for warning letters to be issued for first-time
violations or violators. If adopted, a summary fine schedule should
provide for progressively larger fines for recurring
violations.
(14) Emergency disciplinary actions. (i) A swap execution
facility may impose a sanction, including suspension, or take other
summary action against a person or entity subject to its
jurisdiction upon a reasonable belief that such immediate action is
necessary to protect the best interest of the marketplace.
(ii) Any emergency disciplinary action should be taken in
accordance with a swap execution facility's procedures that provide
for the following:
(A) If practicable, a respondent should be served with a notice
before the action is taken, or otherwise at the earliest possible
opportunity. The notice should state the action, briefly state the
reasons for the action, and state the effective time and date, and
the duration of the action.
(B) The respondent should have the right to be represented by
legal counsel or any other representative of its choosing in all
proceedings subsequent to the emergency action taken. The
respondent should be given the opportunity for a hearing as soon as
reasonably practicable and the hearing should be conducted before
the disciplinary panel pursuant to the rules of the swap execution
facility.
(C) Promptly following the hearing provided for in paragraph
(14)(ii)(B) of this guidance, the swap execution facility should
render a written decision based upon the weight of the evidence
contained in the record of the proceeding and should provide a copy
to the respondent. The decision should include a description of the
summary action taken; the reasons for the summary action; a summary
of the evidence produced at the hearing; a statement of findings
and conclusions; a determination that the summary action should be
affirmed, modified, or reversed; and a declaration of any action to
be taken pursuant to the determination, and the effective date and
duration of such action.
(b) Acceptable Practices. [Reserved]
Core Principle 3 of Section 5h of the Act - Swaps Not Readily
Susceptible to Manipulation
The swap execution facility shall permit trading only in swaps
that are not readily susceptible to manipulation.
(a) Guidance. (1) In general, a swap contract is an
agreement to exchange a series of cash flows over a period of time
based on some reference price, which could be a single price, such
as an absolute level or a differential, or a price index calculated
based on multiple observations. Moreover, such a reference price
may be reported by the swap execution facility itself or by an
independent third party. When listing a swap for trading, a swap
execution facility shall ensure a swap's compliance with Core
Principle 3, paying special attention to the reference price used
to determine the cash flow exchanges. Specifically, Core Principle
3 requires that the reference price used by a swap not be readily
susceptible to manipulation. As a result, when identifying a
reference price, a swap execution facility should either: Calculate
its own reference price using suitable and well-established
acceptable methods or carefully select a reliable third-party
index.
(2) The importance of the reference price's suitability for a
given swap is similar to that of the final settlement price for a
cash-settled futures contract. If the final settlement price is
manipulated, then the futures contract does not serve its intended
price discovery and risk management functions. Similarly,
inappropriate reference prices cause the cash flows between the
buyer and seller to differ from the proper amounts, thus
benefitting one party and disadvantaging the other. Thus, careful
consideration should be given to the potential for manipulation or
distortion of the reference price.
(3) For swaps that are settled by physical delivery or by cash
settlement refer to the guidance in appendix C to part 38 of this
chapter - Demonstration of Compliance That a Contract is not
Readily Susceptible to Manipulation, section b(2) and section c(4),
respectively.
(b) Acceptable Practices. [Reserved]
Core Principle 4 of Section 5h of the Act - Monitoring of Trading
and Trade Processing
The swap execution facility shall:
(A) Establish and enforce rules or terms and conditions
defining, or specifications detailing:
(1) Trading procedures to be used in entering and executing
orders traded on or through the facilities of the swap execution
facility; and
(2) Procedures for trade processing of swaps on or through the
facilities of the swap execution facility; and
(B) Monitor trading in swaps to prevent manipulation, price
distortion, and disruptions of the delivery or cash settlement
process through surveillance, compliance, and disciplinary
practices and procedures, including methods for conducting
real-time monitoring of trading and comprehensive and accurate
trade reconstructions.
(a) Guidance. The monitoring of trading activity in
listed swaps should be designed to prevent manipulation, price
distortion, and disruptions of the physical-delivery and cash
settlement processes. The swap execution facility should have rules
in place that allow it to intervene to prevent or reduce such
market disruptions. Once a threatened or actual disruption is
detected, the swap execution facility should take steps to prevent
the market disruption or reduce its severity.
(1) General requirements. Real-time monitoring for market
anomalies is the most effective, but the swap execution facility
may also demonstrate that it has an acceptable program if some of
the monitoring is accomplished on a T+1 basis. The monitoring of
trading should use automated alerts to detect abnormal price
movements and unusual trading volumes in real-time and instances or
threats of manipulation, price distortion, and disruptions on at
least a T+1 basis. The T+1 detection and analysis should
incorporate any additional data that becomes available on a T+1
basis, including the trade reconstruction data. In some cases, a
swap execution facility may demonstrate that its manual processes
are effective. The swap execution facility should continually
monitor the appropriateness of its swaps' terms and conditions,
including the physical-delivery requirements or reference prices
used to determine cash flows or settlement. The swap execution
facility should act promptly to address the conditions that are
causing price distortions or market disruptions, including, when
appropriate, changes to contract terms. The swap execution facility
should be mindful that changes to contract terms may affect whether
a product is subject to the trade execution and clearing
requirements of the Act.
(2) Physical-delivery swaps. For physical-delivery swaps,
the swap execution facility should monitor for conditions that may
cause the swap to become susceptible to price manipulation or
distortion, including: The general availability of the commodity
specified by the swap, the commodity's characteristics, and the
delivery locations; and if available, information related to the
size and ownership of deliverable supplies.
(3) Cash-settled swaps. For cash-settled swaps, the swap
execution facility should monitor for pricing abnormalities in the
index or instrument used to calculate the reference price. If the
swap execution facility computes its own reference price used for
cash flows or settlement, it should promptly amend any
methodologies that result, or are likely to result, in
manipulation, price distortions, or market disruptions, or impose
new methodologies to resolve the threat of disruptions or
distortions. If the swap execution facility relies upon a
third-party index or instrument, including an index or instrument
traded on another venue for the swap reference price, it should
conduct due diligence to ensure that the reference price is not
susceptible to manipulation and that the terms and conditions of
the swap continue to comply with § 37.300.
(4) Ability to obtain information. The swap execution
facility shall demonstrate that it has access to sufficient
information to assess whether trading in swaps listed on its
market, in the index or instrument used as a reference price, or
the underlying commodity for its listed swaps is being used to
affect prices on its market. The swap execution facility should
demonstrate that it can obtain position and trading information
directly from the market participants that conduct substantial
trading on its facility or through an information sharing agreement
with other venues or a third-party regulatory service provider. If
the position and trading information is not available directly from
the market participants in its markets, but is available through
information sharing agreements with other trading venues or a
third-party regulatory service provider, the swap execution
facility should cooperate in such information sharing agreements.
The swap execution facility may limit the application of the
requirement for market participants to keep and provide records of
their activity in the index or instrument used as a reference
price, the underlying commodity, and related derivatives markets,
to only those market participants that conduct substantial trading
on its facility.
(5) Risk controls for trading. An acceptable program for
preventing market disruptions shall demonstrate appropriate trading
risk controls, in addition to pauses and halts. Risk controls
should be adapted to the unique characteristics of the trading
platform and of the markets to which they apply and should be
designed to avoid market disruptions without unduly interfering
with that market's price discovery function. The swap execution
facility may choose from among controls that include: pre-trade
limits on order size, price collars or bands around the current
price, message throttles, daily price limits, and intraday position
limits related to financial risk to the clearing member, or design
other types of controls, as well as clear error-trade and
order-cancellation policies. Within the specific array of controls
that are selected, the swap execution facility should set the
parameters for those controls, so that the specific parameters are
reasonably likely to serve the purpose of preventing market
disruptions and price distortions. If a swap is fungible with,
linked to, or a substitute for other swaps on the swap execution
facility or on other trading venues, such risk controls should, to
the extent practicable, be coordinated with any similar controls
placed on those other swaps. If a swap is based on the level of an
equity index, such risk controls should, to the extent practicable,
be coordinated with any similar controls placed on national
security exchanges.
(b) Acceptable practices. [Reserved]
Core Principle 5 of Section 5h of the Act - Ability To Obtain
Information
The swap execution facility shall:
(A) Establish and enforce rules that will allow the facility to
obtain any necessary information to perform any of the functions
described in section 5h of the Act;
(B) Provide the information to the Commission on request;
and
(C) Have the capacity to carry out such international
information-sharing agreements as the Commission may require.
(a) Guidance. [Reserved]
(b) Acceptable Practices. [Reserved]
Core Principle 6 of Section 5h of the Act - Position Limits or
Accountability
(A) In general. To reduce the potential threat of market
manipulation or congestion, especially during trading in the
delivery month, a swap execution facility that is a trading
facility shall adopt for each of the contracts of the facility, as
is necessary and appropriate, position limitations or position
accountability for speculators.
(B) Position limits. For any contract that is subject to
a position limitation established by the Commission pursuant to
section 4a(a) of the Act, the swap execution facility shall:
(1) Set its position limitation at a level no higher than the
Commission limitation; and
(2) Monitor positions established on or through the swap
execution facility for compliance with the limit set by the
Commission and the limit, if any, set by the swap execution
facility.
(a) Guidance. Until such time that compliance is required
under part 151 of this chapter, a swap execution facility should
have reasonable discretion to comply with § 37.600, including
considering part 150 of this chapter. For Required Transactions as
defined in § 37.9, a swap execution facility may demonstrate
compliance with § 37.600 by setting and enforcing position
limitations or position accountability levels only with respect to
trading on the swap execution facility's own market. For Permitted
Transactions as defined in § 37.9, a swap execution facility may
demonstrate compliance with § 37.600 by setting and enforcing
position accountability levels or sending the Commission a list of
Permitted Transactions traded on the swap execution facility.
(b) Acceptable Practices. [Reserved]
Core Principle 7 of Section 5h of the Act - Financial Integrity of
Transactions
The swap execution facility shall establish and enforce rules
and procedures for ensuring the financial integrity of swaps
entered on or through the facilities of the swap execution
facility, including the clearance and settlement of the swaps
pursuant to section 2(h)(1) of the Act.
(a) Guidance. [Reserved]
(b) Acceptable Practices. [Reserved]
Core Principle 8 of Section 5h of the Act - Emergency Authority
The swap execution facility shall adopt rules to provide for the
exercise of emergency authority, in consultation or cooperation
with the Commission, as is necessary and appropriate, including the
authority to liquidate or transfer open positions in any swap or to
suspend or curtail trading in a swap.
(a) Guidance. (1) A swap execution facility should have
rules that authorize it to take certain actions in the event of an
emergency, as defined in § 40.1(h) of this chapter. A swap
execution facility should have the authority to intervene as
necessary to maintain markets with fair and orderly trading and to
prevent or address manipulation or disruptive trading practices,
whether the need for intervention arises exclusively from the swap
execution facility's market or as part of a coordinated,
cross-market intervention. A swap execution facility should have
the flexibility and independence to address market emergencies in
an effective and timely manner consistent with the nature of the
emergency, as long as all such actions taken by the swap execution
facility are made in good faith to protect the integrity of the
markets. However, the swap execution facility should also have
rules that allow it to take market actions as may be directed by
the Commission. Additionally, in situations where a swap is traded
on more than one platform, emergency action to liquidate or
transfer open interest shall be as directed, or agreed to, by the
Commission or the Commission's staff. Swap execution facility rules
should include procedures and guidelines for decision-making and
implementation of emergency intervention that avoid conflicts of
interest in accordance with the provisions of section 40.9 of this
chapter, and include alternate lines of communication and approval
procedures to address emergencies associated with real time events.
To address perceived market threats, the swap execution facility
should have rules that allow it to take emergency actions,
including imposing or modifying position limits, imposing or
modifying price limits, imposing or modifying intraday market
restrictions, imposing special margin requirements, ordering the
liquidation or transfer of open positions in any contract, ordering
the fixing of a settlement price, extending or shortening the
expiration date or the trading hours, suspending or curtailing
trading in any contract, transferring customer contracts and the
margin, or altering any contract's settlement terms or conditions,
or, if applicable, providing for the carrying out of such actions
through its agreements with its third-party provider of clearing or
regulatory services.
(2) A swap execution facility should promptly notify the
Commission of its exercise of emergency action, explaining its
decision-making process, the reasons for using its emergency
authority, and how conflicts of interest were minimized, including
the extent to which the swap execution facility considered the
effect of its emergency action on the underlying markets and on
markets that are linked or referenced to the contracts traded on
its facility, including similar markets on other trading venues.
Information on all regulatory actions carried out pursuant to a
swap execution facility's emergency authority should be included in
a timely submission of a certified rule pursuant to part 40 of this
chapter.
(b) Acceptable Practices. [Reserved]
Core Principle 9 of Section 5h of the Act - Timely Publication of
Trading Information
(A) In general. The swap execution facility shall make
public timely information on price, trading volume, and other
trading data on swaps to the extent prescribed by the
Commission.
(B) Capacity of swap execution facility. The swap
execution facility shall be required to have the capacity to
electronically capture and transmit trade information with respect
to transactions executed on the facility.
(a) Guidance. [Reserved]
(b) Acceptable Practices. [Reserved]
Core Principle 10 of Section 5h of the Act - Recordkeeping and
Reporting
(A) In general. A swap execution facility shall:
(1) Maintain records of all activities relating to the business
of the facility, including a complete audit trail, in a form and
manner acceptable to the Commission for a period of five years;
(2) Report to the Commission, in a form and manner acceptable to
the Commission, such information as the Commission determines to be
necessary or appropriate for the Commission to perform the duties
of the Commission under the Act; and
(3) Keep any such records relating to swaps defined in section
1a(47)(A)(v) of the Act open to inspection and examination by the
Securities and Exchange Commission.
(B) Requirements. The Commission shall adopt data
collection and reporting requirements for swap execution facilities
that are comparable to corresponding requirements for derivatives
clearing organizations and swap data repositories.
(a) Guidance. [Reserved]
(b) Acceptable Practices. [Reserved]
Core Principle 11 of Section 5h of the Act - Antitrust
Considerations
Unless necessary or appropriate to achieve the purposes of the
Act, the swap execution facility shall not:
(A) Adopt any rules or take any actions that result in any
unreasonable restraint of trade; or
(B) Impose any material anticompetitive burden on trading or
clearing.
(a) Guidance. An entity seeking registration as a swap
execution facility may request that the Commission consider under
the provisions of section 15(b) of the Act, any of the entity's
rules, including trading protocols or policies, and including both
operational rules and the terms or conditions of products listed
for trading, at the time of registration or thereafter. The
Commission intends to apply section 15(b) of the Act to its
consideration of issues under this core principle in a manner
consistent with that previously applied to contract markets.
(b) Acceptable Practices. [Reserved]
Core Principle 12 of Section 5h of the Act - Conflicts of Interest:
The swap execution facility shall:
(A) Establish and enforce rules to minimize conflicts of
interest in its decision-making process; and
(B) Establish a process for resolving the conflicts of
interest.
(a) Guidance. [Reserved]
(b) Acceptable Practices. [Reserved]
Core Principle 13 of Section 5h of the Act - Financial Resources
(A) In general. The swap execution facility shall have
adequate financial, operational, and managerial resources to
discharge each responsibility of the swap execution facility.
(B) Determination of resource adequacy. The financial
resources of a swap execution facility shall be considered to be
adequate if the value of the financial resources exceeds the total
amount that would enable the swap execution facility to cover the
operating costs of the swap execution facility for a one-year
period, as calculated on a rolling basis.
(a) Guidance. [Reserved]
(b) Acceptable Practices. [Reserved]
Core Principle 14 of Section 5h of the Act - System Safeguards
[Reserved] Core Principle 15 of Section 5h of the Act - Designation
of Chief Compliance Officer
(A) In general. Each swap execution facility shall
designate an individual to serve as a chief compliance officer.
(B) Duties. The chief compliance officer shall:
(1) Report directly to the board or to the senior officer of the
facility;
(2) Review compliance with the core principles in this
subsection;
(3) In consultation with the board of the facility, a body
performing a function similar to that of a board, or the senior
officer of the facility, resolve any conflicts of interest that may
arise;
(4) Be responsible for establishing and administering the
policies and procedures required to be established pursuant to this
section;
(5) Ensure compliance with the Act and the rules and regulations
issued under the Act, including rules prescribed by the Commission
pursuant to section 5h of the Act; and
(6) Establish procedures for the remediation of noncompliance
issues found during compliance office reviews, look backs, internal
or external audit findings, self-reported errors, or through
validated complaints.
(C) Requirements for procedures. In establishing
procedures under paragraph (B)(6) of this section, the chief
compliance officer shall design the procedures to establish the
handling, management response, remediation, retesting, and closing
of noncompliance issues.
(D) Annual reports - (1) In general. In accordance
with rules prescribed by the Commission, the chief compliance
officer shall annually prepare and sign a report that contains a
description of:
(i) The compliance of the swap execution facility with the Act;
and
(ii) The policies and procedures, including the code of ethics
and conflict of interest policies, of the swap execution
facility.
(2) Requirements. The chief compliance officer shall:
(i) Submit each report described in clause (1) with the
appropriate financial report of the swap execution facility that is
required to be submitted to the Commission pursuant to section 5h
of the Act; and
(ii) Include in the report a certification that, under penalty
of law, the report is accurate and complete.
(a) Guidance. [Reserved]
(b) Acceptable Practices. [Reserved]
[78 FR 33582, June 4, 2013, as amended at 78 FR 47154, Aug. 5,
2013; 81 FR 64312, Sept. 19, 2016]