Securities Regulation Daily Wrap Up, SWAPS – CFTC Division takes no-action position regarding SEFs without central limit order books, (Jul 31, 2025)

By Suzanne Cosgrove

The Commission’s Division of Market Oversight issued a no-action letter in response to a June 30 request from LSEG FX SEF, operated by Refinitiv US SEF LLC.

The CFTC’s Division of Market Oversight has issued a no-action letter, CFTC letter No. 25-24, stating that it will not recommend the Commission take an enforcement action against a swap execution facility (SEF) that does not provide a central limit order book as set forth in CFTC Regulation 37.3(a)(2), in connection with swap transactions executed on the SEF that are not subject to the trade execution requirement in Commodity Exchange Act section 2(h)(8).

LSEG SEF requested that the Division issue the no-action letter.

While “well-intentioned,” LSEG SEF stated, requiring SEFs to maintain an Order Book for Permitted Transactions “has neither increased trading on SEFs nor improved pre-trade price transparency, yet the requirement to offer and maintain an Order Book for all products listed on a SEF imposes significant costs on SEFs.”

Prior actions. In 2013, the Commission issued final rules pursuant to Section 5h of the CEA requiring entities that satisfy the definition of a SEF to register with the Commission, and prescribing certain requirements for registered SEFs, including the minimum trading functionality requirement set forth in Commission regulation 37.3(a)(2).

The Commission stated in the adopting release for the SEF Final Rules that “the Commission believes that an Order Book, as defined in final § 37.3(a)(3), is consistent with the SEF definition and promotes the goals provided in section 733 of the Dodd-Frank Act,” and that its goals are to “promote the trading of swaps on [SEFs] and to promote pre-trade price transparency in the swaps market.”

In 2018, the Commission proposed amendments to the Final SEF Rules, including amendments to eliminate the Minimum Trading Functionality Requirement. The Commission noted in the proposing release that “market participants have rarely used Order Books to trade swaps on SEFs despite their availability for all swaps listed by SEFs,” and that “other execution methods may be better suited to maximizing participation and concentrating liquidity formation on SEFs in episodically liquid swaps markets.”

The Commission ultimately finalized certain aspects of the 2018 SEF Proposal but did not finalize the elimination of the Minimum Trading Functionality Requirement.

LSEG SEF’s request. LSEG SEF noted that the Commission believed in 2013 that requiring a SEF to offer an Order Book for all products listed on the SEF “would have the tendency to shift liquidity from the over-the-counter bilateral markets onto SEFs,” and that this belief was “based in part on experiences with the securities and futures markets, where ‘order books attract participation from new and alternate sources of liquidity, including participants using automated trading strategies’.”

However, LSEG SEF argued, during the several years since SEFs have been registered with the Commission, Order Books have not attracted liquidity onto SEFs, in part due to differences between the securities and futures markets and the swaps market.

“Order Books are seldom used, particularly for Permitted Transactions,” LSEG SEF stated. “During the entire time that LSEG SEF’s Order Book has been operational (i.e., prior to obtaining temporary registration status in 2013), not a single trade has been executed on, nor any orders submitted to, LSEG SEF’s Order Book.”

No-Action Position. Based on LSEG SEF’s representations, and on the idea that other execution methods may be better suited to maximizing participation and concentrating liquidity formation on SEFs in episodically liquid swaps markets, the Division said it decided to reconsider the usefulness of the Minimum Trading Functionality Requirement in connection with Permitted Transactions, and that a no-action position is warranted until that reconsideration is completed.

This is CFTC release No. 9101-25.

RegulatoryActivity: CFTCNews Enforcement ExchangesMarketRegulation Swaps DoddFrankAct