7 U.S.C. § 7b–3 — Swap execution facilities

(a) Registration. (1) No one may operate a facility for trading or processing swaps unless it's registered as a swap execution facility or as a designated contract market under this section. (2) Anyone registered as a swap execution facility here must register with the Commission regardless of whether they're also registered with the SEC as one. (b) Trading and trade processing. (1) A registered swap execution facility may make any swap available for trading and facilitate its trade processing, except that (2) it can't list for trading or confirm execution of a swap in an agricultural commodity, as the Commission defines that term, unless a Commission rule allows it under specified terms and conditions. (c) Identification of facility used to trade swaps by contract markets. If a board of trade runs both a contract market and a swap execution facility using the same electronic trading system for both, it must identify, for each swap trade, whether the trade happened through the contract market or through the swap execution facility. (d) Rule-writing. (1) The SEC and CFTC may write rules defining which swaps must be executed on a swap execution facility, considering both price and non-price factors for counterparties and the goal stated in (e). (2) Swaps not required to go through a swap execution facility under those rules may be executed through any other lawful means of interstate commerce. (3) The two Commissions must update these rules as needed for new technology and other innovation. (e) Rule of construction. This section's goal is to encourage swap trading on swap execution facilities and to promote price transparency before trades happen. (f) Core principles for swap execution facilities. (1) To register and stay registered, a facility must follow the core principles below and any Commission rule, with reasonable discretion in how it complies unless the Commission decides otherwise. The core principles are: (2) Compliance with rules — the facility must establish and enforce its own rules, including the terms of swaps traded there and any access limits; have rules against abuse, with the ability to detect, investigate, and enforce violations, including giving participants impartial market access and capturing information to identify rule breaks; set rules for trading procedures, including block trades; and make clear that when a swap dealer or major swap participant enters a swap subject to mandatory clearing, that dealer or participant is responsible for complying with the mandatory-trading requirement. (3) Swaps not readily susceptible to manipulation — the facility may only allow trading in swaps that aren't easily manipulated. (4) Monitoring of trading and trade processing — the facility must set rules and procedures for trading and processing, and monitor trading to prevent manipulation, price distortion, and disruption of delivery or settlement, including real-time monitoring and accurate trade reconstruction. (5) Ability to obtain information — the facility must have rules letting it get whatever information it needs, give that information to the Commission on request, and be able to carry out international information-sharing agreements the Commission requires. (6) Position limits or accountability — to reduce manipulation or congestion risk, especially near delivery, a trading facility must, as needed, adopt position limits or position accountability rules for speculators on each of its contracts. Where the Commission has set a position limit for a contract, the facility must set its own limit no higher than the Commission's, and monitor positions for compliance with both. (7) Financial integrity of transactions — the facility must have rules ensuring the financial integrity of swaps traded or processed there, including their clearance and settlement. (8) Emergency authority — the facility must adopt rules for using emergency powers, in consultation with the Commission, including the power to liquidate or transfer open positions or suspend or curtail trading. (9) Timely publication of trading information — the facility must publicly release timely price, volume, and other trading data as the Commission requires, and must be able to electronically capture and transmit trade information. (10) Recordkeeping and reporting — the facility must keep a complete audit trail of all its activities, in an acceptable form, for 5 years; report to the Commission whatever information the Commission needs; and keep records on certain security-based swap agreements open to SEC inspection. The Commission must set data-collection and reporting rules for these facilities comparable to those for clearing organizations and swap data repositories. (11) Antitrust considerations — unless necessary to achieve this chapter's purposes, the facility must not adopt rules or take actions that unreasonably restrain trade or place a material anticompetitive burden on trading or clearing. (12) Conflicts of interest — the facility must have rules to minimize conflicts of interest in its decisions and a process to resolve them. (13) Financial resources — the facility must have adequate financial, operational, and managerial resources; its resources count as adequate if they're enough to cover a full year of its own operating costs, calculated on a rolling basis. (14) System safeguards — the facility must run a risk-analysis and oversight program with reliable, secure, scalable systems; maintain emergency and disaster-recovery plans for timely resumption of operations; and periodically test its backup systems for order processing, trade matching, price reporting, market surveillance, and audit-trail accuracy. (15) Designation of chief compliance officer — each facility must name a chief compliance officer, who must report directly to the board or senior officer; review compliance with these core principles; help resolve conflicts of interest with the board or senior officer; administer required policies and procedures; ensure compliance with this chapter and Commission rules; and set up procedures to fix problems found through reviews, look-backs, audits, self-reported errors, or complaints, covering how they're handled, responded to, fixed, retested, and closed. The compliance officer must also sign an annual report describing the facility's compliance and its policies, including its code of ethics and conflict-of-interest rules, submit it with the facility's required financial report, and certify under penalty of law that it's accurate and complete. (g) Exemptions. The Commission may exempt a swap execution facility from registering, with or without conditions, if it finds the facility already gets comparable, comprehensive, consolidated supervision from the SEC, a prudential regulator, or the right authorities in its home country. (h) Rules. The Commission must write rules governing how alternative swap execution facilities are regulated under this section.