This adoption marks the latest step in what has been a long journey.

While there have been many policy debates about the swaps markets for decades, these markets largely were unregulated coming into the 2008 financial crisis.

Though there were many reasons for the 2008 crisis, near the center of the crisis were swaps and particularly credit default swaps. Lest we forget, credit default swaps played a critical role in the collapse of then the world’s largest insurance company, AIG, as well as in broader risk-management breakdowns in the mortgage markets.

In the midst of the crisis, I recall working for the Obama-Biden transition in late 2008 and 2009. It was then, working with then-Treasury Secretary-Designee Timothy Geithner and SEC Chair-Designee Mary Schapiro, that we first considered recommending to the incoming president and to Congress broad reforms of the swaps markets, including the security-based swap market.

Given the role of swaps in the 2008 crisis, these matters naturally came up in 2009, when I was being considered for confirmation by Congress to serve as Chair of the Commodity Futures Trading Commission (CFTC).[1]

A key feature of those Congressional debates and subsequent legislative actions focused on ensuring that the trading venues for swaps—so-called swap execution facilities (SEFs)—were registered with and overseen by market regulators. Congress was seeking to close the so-called “Enron loophole,” whereby registered swaps trading platforms could avoid such registration and oversight by market regulators.[2]

So-called security-based swaps were defined by Congress (and in subsequent joint rulemaking with the CFTC) generally to cover credit default swaps and total return swaps based upon either individual securities or a narrow basket of securities.

While the swaps markets overseen by the CFTC—such as interest rate swaps, energy swaps, and other commodity swaps—have a notional value in the hundreds of trillions of dollars, security-based swaps overseen by the SEC still are quite significant, with a notional value of approximately $8.5 trillion.[3]

In 2013, while I was honored to serve at the CFTC, that Commission adopted rules to fulfill Congress’s mandate and require the registration of SEFs.[4]

Contemporaneously, in 2011, the SEC had started its work on security-based SEFs and re-opened those rules for public comment in 2013.[5]

Maybe it’s my lot in life, or like the Bob Dylan classic a “Simple Twist of Fate,” but it seems that my professional life once again is intertwined with these swaps, swap execution facilities, and in particular security-based swap execution facilities. Though the SEC has made significant progress regarding the broader security-based swap market, when I arrived at the SEC in 2021, the SEC’s rulemaking regarding security-based SEFs remained unfinished.

In taking up these matters in 2021, we heard from many market participants suggesting that we should look to the CFTC’s SEFs rules as our template. This was for good reason. Many in the markets thought that, over the years, the CFTC framework for SEFs was working well. In fact, Bank of England economists found that that regime saves end users millions of dollars per day.[6]

I believe aligning the SEC’s regime closely with the CFTC’s garners many of the same benefits—bringing together buyers and sellers with transparent, pre-trade pricing. That lowers risk in the marketplace and protects investors.

Based upon the current market for security-based swaps, we expect that the entities that will register as security-based SEFs also are registered as SEFs with the CFTC. Further, many participants in the security-based swap market also participate in the swaps markets that the CFTC oversees. Thus, by aligning our security-based SEFs rules with the CFTC’s rules for other SEFs, this adoption facilitates efficiencies for and minimize the new burdens on market participants through a framework with which they already comply.

The adopting release reflects changes in response to public comment. For example, the proposing release included a size-based exception for block trades. Rather than adopting the proposed definition of “block trade,” the Commission has reserved this definition. If and when there comes a time a security-based swap trading mandate is considered, the Commission will have the opportunity to consider, after notice and comment, the appropriate block-size threshold.

I want to thank so many people for making this final adoption possible. This has been a 15-year journey since the 2008 financial crisis. I’d like to give my thanks to many members of Congress and officials from the Obama Administration who worked on the Dodd-Frank provisions regarding swap execution facilities as well as swaps market reforms more broadly. I would like to thank the many CFTC and SEC Commissioners, staff, and alumni involved in these matters, and in particular the team at the SEC who worked on this rulemaking.

The adoption makes a traditionally opaque market more transparent and increase its integrity.

For their work on these matters, I’d like to thank members of the SEC staff including:

• Haoxiang Zhu, Andrea Orr, David Saltiel, William Miller, Kyle Druding, Sharon Park, Roni Bergoffen, Eric Juzenas, Michael Coe, Michael Gaw, David Liu, Leah Mesfin, Michou Nguyen, Geoffrey Pemble, Justin Pica, Leah Drennan Will Magliocco, Carol McGee, John Guidroz, Israel Goodman, Matthew Lee, and Stephanie Park in the Division of Trading and Markets;
• Meridith Mitchell, Robert Teply, Leila Bham, Donna Chambers, Brooks Shirey, Stephen Robinson, and Brian Wong in the Office of the General Counsel;
• Jessica Wachter, Lauren Moore, Charles Woodworth, Jill Henderson, Julie Marlowe, Juan Echeverri, Y.C. Loon, PJ Hamidi, Andrew Glickman, Gregory Scopino, and Joseph Otchin in the Division of Economic and Risk Analysis;
• Connie Kiggins and Michael Hershaft in the Division of Examinations; and
• Stephanie Reinhart in the Division of Enforcement.