Revisions to Business Conduct and Swap Documentation Requirements for Swap Dealers and Major Swap Participants

COMMODITY FUTURES TRADING COMMISSION <CFR>17 CFR Part 23</CFR> <RIN>RIN 3038-AF38</RIN> <SUBJECT>Revisions to Business Conduct and Swap Documentation Requirements for Swap Dealers and Major Swap Participants</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Commodity Futures Trading Commission. <HD SOURCE="HED">ACTION:</HD> Notice of proposed rulemaking. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Commodity Futures Trading Commission (“CFTC” or “Commission”) is proposing amendments to certain of the Commission's business conduct and documentation requirements applicable to swap dealers and major swap participants. These amendments would provide exceptions to compliance with such requirements when executing swaps that are: intended by the parties to be cleared contemporaneously with execution; or subject to prime broker arrangements that meet certain qualifying conditions. The proposed amendments would also make certain other changes discussed herein. The proposed amendments, if adopted, would supersede certain no-action positions issued by the Commission's Market Participants Division (“MPD”). </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments must be received on or before October 24, 2025. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> You may submit comments, identified by “ <E T="03">Revisions to Business Conduct and Swap Documentation Requirements for Swap Dealers and Major Swap Participants</E> ” and RIN 3038-AF38, by any of the following methods: • <E T="03">CFTC Comments Portal: https://comments.cftc.gov</E> . Select the “Submit Comments” link for this rulemaking and follow the instructions on the Public Comment Form. • <E T="03">Mail:</E> Send to Christopher Kirkpatrick, Secretary of the Commission, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581. • <E T="03">Hand Delivery/Courier:</E> Follow the same instructions as for Mail, above. Please submit your comments using only one of these methods. To avoid possible delays with mail or in-person deliveries, submissions through the CFTC Comments Portal are encouraged. All comments must be submitted in English, or if not, accompanied by an English translation. Comments will be posted as received to <E T="03">https://comments.cftc.gov</E> . You should submit only information that you wish to make available publicly. If you wish the Commission to consider information that you believe is exempt from disclosure under the Freedom of Information Act (“FOIA”), a petition for confidential treatment of the exempt information may be submitted according to the procedures established in § 145.9 of the Commission's regulations. <SU>1</SU> <FTREF/> The Commission reserves the right, but shall have no obligation, to review, pre-screen, filter, redact, refuse or remove any or all of your submission from <E T="03">https://comments.cftc.gov</E> that it may deem to be inappropriate for publication, such as obscene language. All submissions that have been redacted or removed that contain comments on the merits of the rulemaking will be retained in the public comment file and will be considered as required under the Administrative Procedure Act (“APA”)  <SU>2</SU> <FTREF/> and other applicable laws, and may be accessible under FOIA. <FTNT> <SU>1</SU>   <E T="03">See</E> 17 CFR 145.9. The Commission's regulations referred to in this release are found at 17 CFR chapter I (2025) and are accessible on the Commission's website at <E T="03">https://www.cftc.gov/LawRegulation/CommodityExchangeAct/index.htm</E> . </FTNT> <FTNT> <SU>2</SU>  5 U.S.C. 500 <E T="03">et seq.</E> </FTNT> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Frank N. Fisanich, Deputy Director, 202-418-5949, <E T="03">ffisanich@cftc.gov;</E> Jacob Chachkin, Associate Director, 202-418-5496, <E T="03">jchachkin@cftc.gov;</E> or Dina Moussa, Special Counsel, 202-418-5696, <E T="03">dmoussa@cftc.gov,</E> Market Participants Division, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> The Commission is issuing this notice of proposed rulemaking (“Proposal”) to propose amendments to certain business conduct standards for swap dealers (“SDs”) and major swap participants (“MSPs” and, together with SDs, “Swap Entities”)  <SU>3</SU> <FTREF/> contained in subpart H of part 23 of the Commission's regulations, <SU>4</SU> <FTREF/> and to the swap trading relationship documentation rule for Swap Entities in § 23.504. <SU>5</SU> <FTREF/> These proposed amendments are intended to address certain long-standing issues with the Commission's external business conduct standards and swap trading relationship documentation rule, as explained below. <SU>6</SU> <FTREF/> The Commission is aware that various market participants have argued that certain aspects of the external business conduct standards and swap trading relationship documentation rule have impeded the efficient trading of cleared swaps, either executed bilaterally between a counterparty and an SD or executed on or pursuant to the rules of a swap execution facility, and that other aspects of the external business conduct standards make compliance with such rules either impossible or impracticable in the context of swaps executed pursuant to prime brokerage arrangements in place prior to the implementation of the Commission's swap rules. As explained below in the discussions of the Covered Staff Letters, the Commission has observed that MPD's long-standing no-action positions set forth in the Covered Staff Letters appear to have addressed many of the issues raised by market participants and the Commission is not aware of any adverse consequences of such MPD no-action positions. Therefore, the Commission has preliminarily determined to propose that the external business conduct standards and the swap trading relationship documentation rule be amended to provide an outcome comparable to such no-action positions, with certain modifications discussed below. <FTNT> <SU>3</SU>  “Swap dealer” is defined in section 1a(49) of the Commodity Exchange Act (“CEA”), 7 U.S.C. 1a(49); and § 1.3, 17 CFR 1.3. “Major swap participant” is defined in section 1a(33) of the CEA, 7 U.S.C. 1a(33); and § 1.3, 17 CFR 1.3. SDs and MSPs are collectively referred to as “Swap Entities” throughout this release. </FTNT> <FTNT> <SU>4</SU>  17 CFR part 23, subpart H. </FTNT> <FTNT> <SU>5</SU>  17 CFR 23.504. </FTNT> <FTNT> <SU>6</SU>  The proposed amendments are also intended to supersede the no-action positions of MPD (formerly, the Division of Swap Dealer and Intermediary Oversight) contained in CFTC Staff Letters 12-58, 13-11, 13-12, 19-06, 23-01, and 25-09 (collectively, the “Covered Staff Letters”). To avoid confusion and simplify understanding, this Proposal will refer to no-action positions issued by the Division of Swap Dealer and Intermediary Oversight as no-action positions issued by its successor division, MPD. <E T="03">See</E> CFTC Staff Letter 12-58 (Dec. 18, 2012), Re: Request for Relief Regarding Obligation to Provide Pre-Trade Mid-Market Mark for Certain Credit Default Swaps and Interest Rate Swaps (“CFTC Staff Letter 12-58”); CFTC Staff Letter 13-11 (April 30, 2013), Re: Time Limited Relief for Swap Dealers in Connection with Prime Brokerage Arrangements (“CFTC Staff Letter 13-11”); CFTC Staff Letter 13-12 (May 1, 2013), Re: Relief for Swap Dealers and Major Swap Participants Regarding the Obligation to Provide Certain Disclosures for Certain Transactions Under Regulation 23.431 (“CFTC Staff Letter 13-12”); CFTC Staff Letter 19-06 (March 22, 2019), Re: No-Action Position for Off-SEF Swaps Executed Pursuant to Prime Brokerage Arrangements (“CFTC Staff Letter 19-06”); CFTC Staff Letter 23-01 (Feb. 1, 2023), Re: Revised No-Action Positions for Swaps Intended to be Cleared (“CFTC Staff Letter 23-01”); and CFTC Staff Letter 25-09 (Apr. 4, 2025), Re: No-Action Position for Swap Dealers and Major Swap Participants Regarding the Obligation to Provide a Pre-Trade Mid-Market Mark under 17 CFR 23.431(a)(3)(i) (“CFTC Staff Letter 25-09”). CFTC Staff Letters 13-12 and 23-01 are revisions to previous CFTC Staff Letters, as described in the relevant Covered Staff Letters. CFTC Staff Letters are available on the Commission's website at <E T="03">https://www.cftc.gov/LawRegulation/CFTCStaffLetters/index.htm</E> . </FTNT> Together, the Covered Staff Letters provided no-action positions regarding compliance with certain external business conduct standards (including certain required pre-trade disclosures) and documentation requirements applicable to Swap Entities in the context of: (1) swaps executed pursuant to prime broker arrangements between SDs acting as prime brokers and their customers; and (2) swaps executed by Swap Entities with counterparties where the parties to the swap intend the swap to be cleared contemporaneously with execution of such swap. The Commission expects that, upon the adoption of a final rule enacting this Proposal, MPD will withdraw some or all of the Covered Staff Letters as necessary to reflect the Commission's final rule. <SU>7</SU> <FTREF/> <FTNT> <SU>7</SU>  The Commission notes that it is also changing inconsistencies found with respect to capitalization used throughout the regulatory text. </FTNT> <HD SOURCE="HD2">A. Applicable Regulatory Requirements</HD> Section 4s(h) of the CEA  <SU>8</SU> <FTREF/> provides the Commission with both mandatory and discretionary rulemaking authority to impose business conduct standards on Swap Entities in their dealings with counterparties, including Special Entities. <SU>9</SU> <FTREF/> Pursuant to this rulemaking authority ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 264k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━