Simon Romano and Ramandeep Grewal -
On October 10, 2013 the Ontario Securities Commission issued Staff Notice 21-707 Swap Execution Facilities to notify that it provided exemptive relief in respect of a number of “Swap Execution Facilities” or “SEFs” regulated by the U.S. Commodity Futures Trading Commission (the CFTC) from the requirement to be recognized as an exchange in Ontario.
Background – CFTC regulation of SEFs
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) certain amendments were made to the Commodity Exchange Act (U.S.) (the CEA) to establish a new regulatory framework for swaps. Among other changes to the CEA, the Dodd-Frank Act established SEFs as a new regulated market category, and required that the execution of certain swaps occur on a designated contract market or SEF.
The Dodd-Frank Act defines an SEF as “a trading system or platform in which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by multiple participants in the facility or system, through any means of interstate commerce, including any trading facility that: (A) facilitates the execution of swaps between persons; and (B) is not a designated contract market.” The CFTC’s final SEF Rule, adopted on May 16, 2013 (the SEF Rule), formalizes this definition and establishes registration requirements for SEFs as well as core principles to govern the operation of SEFs.
The SEF Rule had an effective date of August 5, 2013 with general compliance required as of October 2, 2013. The CFTC granted temporary registration to a number of SEFs in advance of the October 2 deadline to be effective until the CFTC has fully reviewed each SEF application for full compliance with the applicable requirements under the CEA and the SEF Rule.