(5) In accordance with Article 2(h)(8) of the ECA, swap transactions subject to the clearing obligation referred to in Article 2(h)(1) of the FTA are to be executed in accordance with the rules of a DCM or SEF or SEF exempt from registration, unless no DCM or SEF makes such swaps available to trading (“MAT”) or such swaps are eligible for the clearing exemption under Section 2(h)(7) of the AEA (the “Trade Execution Request”). See 7 U.S.C. 2(h)(8). The addition of § 37.9(e) may improve the efficiency and financial integrity of markets by allowing counterparties to correct operational or material errors in a swap transaction. In particular, the final rules will help promote greater accuracy of transactions in the market by allowing counterparties to trade as originally intended and avoiding unexpected trading losses due to erroneous transactions. The requirement under Article 37.9(e)(2)(i) that market participants promptly inform an SEF of an erroneous transaction and, where appropriate, of corrective and compensatory trading would enhance the ability of a SEF to perform its market surveillance and surveillance functions, thereby helping to promote the financial integrity of start-printed markets page 82328. The Commission considers that the absence of the non-binding provision requiring SEFs to confirm that there has been negotiation of errors would increase the efficiency of the process for settling erroneous transactions and would not significantly affect the competitiveness or financial integrity of the swap market for SEFs. Citadel explained that it “supports the formal codification of the proposal of the remaining non-action facilitation that allows it. the efficient solution of error transactions in SEF. [91] In particular, Citadel supports the codification of the existing error relief, of no-action negotiations, “which allows FES and market participants to effectively correct transactions that present an operational or material error. This includes that SEF can allow members to quickly correct a trading error themselves, with an ex post facto review carried out by the SEF. [92] In addition, Citadel considers it important that “erroneous transaction cancellations and corrected transactions be properly reported in accordance with Parts 43 and 45” and recommends that the Commission address error reporting in the final rules. [93] In line with the principles-based approach adopted in this press release, the Commission notes that an SEF would not be prohibited from correcting trading and correcting trading on a T+1 basis, as set out in NAL No.
17-27 or in the implementing rules allowing market participants to correct error transactions accepted for clearing with a posteriori examination of error transactions by the SEF, as provided for in No. 20-01. Furthermore, those definitive rules would not prevent SEFs from applying error trading rules and procedures that assess whether the cancellation or adjustment of transaction prices affects market integrity, facilitates market manipulation or other illegitimate activities, or otherwise violates the CEA, the Commission Regulation or the SEF rules. However, irrespective of the rules and procedures for error trading that an SEF may adopt, the Commission notes that those rules must be fair, transparent and consistent in accordance with this acceptance statement. [103] Consideration of alternatives. Commentators generally supported the proposed rules and recommended only a viable alternative. [134] With respect to error trading rules, IHS Markit recommended that, particularly in times of market stress, the “reasonable timeline for the submission of corrective trades should be five (5) business days.” [135] As discussed above, pursuant to paragraph 37.9(e)(2)(i) final, an SEF must submit an adjustment transaction for clearing to the registered COD as soon as technologically feasible, but no later than one hour (if refused for set-off) or three days (if accepted for set-off) after notification of the erroneous transaction, or exempt the COD from the tax. The Commission notes that the final regime complies with the requirements of discharge without measures and that the FFF have successfully introduced procedures for negotiating errors in accordance with the discharge without measures and therefore with the final rule. The SEF has not informed the Commission that the deadlines are excessively costly or burdensome. In addition, in the recent phase of market tension related to the COVID-19 pandemic, no SEF requested an exemption from error trading requirements. The Commission has therefore decided not to adopt the alternative recommended by IHS Markit.
114. The Commission notes that the adoption of Article 37(9)(e) on the date of entry into force of those provisions will eliminate the need for the facilities provided for in NAL No 17-27 and NAL No 20-01. It is a part of the market that is developing. [7] However, several types of Start Printed Page 82331 transactions would include swaps that must be traded in accordance with cfTC rules via the required methods, but cannot currently do so as part of a package. And it`s not clear if they`ll be able to do that anytime soon. As a result, the current final regime codifies relief without measures allowing swap components of these packages to be traded by any execution method, provided that trading is carried out on SEF. [8] I support this approach because it recognizes the progress towards centralized exchange-like trading for swaps without forcing the market too far into its natural evolution process. We must also ensure that our rules reflect the actual practices and functioning of the market. 87.
The Commission notes that, at the time of the entry into force of those provisions, the exemption from the obligation to carry out swap operations of components of transactions involving new bond issues reduces the need for the requirements set out in NAL No. . . .