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

<RULE> 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> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Commodity Futures Trading Commission (“CFTC” or “Commission”) is adopting a final rule (the “Final Rule”) amending certain of the Commission's business conduct and documentation requirements applicable to swap dealers and major swap participants. The Final Rule provides 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, and makes certain other changes discussed herein. The adopted amendments supersede certain no-action positions issued by the Commission's Market Participants Division (“MPD”), which the Commission expects MPD to terminate in due course. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> The Final Rule is effective January 29, 2026. </EFFDATE> <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 Final Rule to amend certain business conduct standards for swap dealers (“SDs”) and major swap participants (“MSPs” and, together with SDs, “Swap Entities”)  <SU>1</SU> <FTREF/> contained in subpart H of part 23 of the Commission's regulations, <SU>2</SU> <FTREF/> and to the swap trading relationship documentation rule for Swap Entities in § 23.504. <SU>3</SU> <FTREF/> These amendments are intended to address certain long-standing issues with the Commission's external business conduct standards and swap trading relationship documentation rule, and are intended to supersede many long-standing no-action positions issued by MPD (together, the “Covered Staff Letters”) by codifying such positions in the Commission's regulations, as explained below. <SU>4</SU> <FTREF/> 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 is amending the external business conduct standards and the swap trading relationship documentation rule to provide an outcome comparable to such no-action positions, with certain modifications discussed below. <FTNT> <SU>1</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. 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>  17 CFR part 23, subpart H. </FTNT> <FTNT> <SU>3</SU>  17 CFR 23.504. </FTNT> <FTNT> <SU>4</SU>  For purposes of the Final Rule, the Covered Staff Letters are 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 Final Rule refers 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, in due course, MPD will withdraw all of the no-action positions contained in the Covered Staff Letters necessary to reflect the amendments to Commission Regulations made by this Final Rule. <SU>5</SU> <FTREF/> <FTNT> <SU>5</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>6</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>7</SU> <FTREF/> Pursuant to this rulemaking authority, the Commission adopted rules in subpart H of part 23 of its regulations, which set forth business conduct standards for Swap Entities in their dealings with counterparties (the “External Business Conduct Standards”). <SU>8</SU> <FTREF/> <FTNT> <SU>6</SU>  7 U.S.C. 6s(h). </FTNT> <FTNT> <SU>7</SU>  “Special Entity” is currently defined in § 23.401(c), 17 CFR 23.401(c) (redesignated as § 23.401(h), 17 CFR 23.401(h)), in the Final Rule text <E T="03">infra</E> ). </FTNT> <FTNT> <SU>8</SU>   <E T="03">See generally</E> Business Conduct Standards for Swap Dealers and Major Swap Participants with Counterparties, 77 FR 9734 (Feb. 17, 2012) (“Final EBCS Rulemaking”). </FTNT> The External Business Conduct Standards include certain pre-trade disclosures required to be made by Swap Entities to their counterparties that are not Swap Entities, security-based swap dealers, or security-based major swap participants, including a requirement under § 23.431(a)(3)(i) to disclose the price of the swap and the so-called “pre-trade mid-market mark” (the “PTMMM”; and such disclosure requirement, the “PTMMM Requirement”). <SU>9</SU> <FTREF/> The PTMMM was intended to be the mid-market mark of the swap, not including any amount added by the Swap Entity for profit, credit reserve, hedging, funding, liquidity, or any other costs or adjustments. <SU>10</SU> <FTREF/> <FTNT> <SU>9</SU>  17 CFR 23.431(a)(3)(i). </FTNT> <FTNT> <SU>10</SU>  § 23.431(d)(2), 17 CFR 23.431(d)(2). <E T="03">See</E> Final EBCS Rulemaking at 77 FR 9766 (where the Commission noted that the spread between the quote and mid-market mark is relevant to disclosures regarding material incentives; and provides the counterparty with pricing information that facilitates negotiations and balances historical information asymmetry regarding swap prices). </FTNT> The External Business Conduct Standards also include a requirement under § 23.431(b) that an SD must provide counterparties that are not Swap Entities, security-based swap dealers, or security-based major swap participants with notice that the counterparty may request and consult on the design of a scenario analysis to allow the counterparty to assess its potential exposure in connection with a swap (the “Scenario Analysis Requirement”). <SU>11</SU> <FTREF/> The scenario analysis, if requested, was required to (1) be completed over a range of assumptions, including severe downside stress scenarios that would result in significant loss; (2) disclose all non-proprietary material assumptions and calculation methodologies; and (3) consider any relevant analysis that an SD undertakes for its own risk management purposes. <SU>12</SU> <FTREF/> <FTNT> <SU>11</SU>  17 CFR 23.431(b). </FTNT> <FTNT> <SU>12</SU>  §§ 23.431(b)(2)-(4 ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 275k characters. 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