The Commodity Futures Trading Commission (CFTC) has proposed to delete the requirement that every swap execution facility (SEF) operate an order book for swaps outside the trade execution requirement, ending a 13-year piece of Dodd-Frank market-structure plumbing that two SEF operators say has carried, between them, close to zero trades.

On August 20, 2026 the Commission published a Notice of Proposed Rulemaking amending Commission regulation § 37.3(a)(2) so that a SEF “shall, at a minimum, offer an Order Book … for Required Transactions as defined in § 37.9(a)(1)” — and for nothing else (RIN 3038-AF79, CFTC Release 9287-26). The Commission’s own evidence is that order-book trading accounts for as little as one percent of credit default swap volume on SEFs. This analysis walks through what a permitted transaction is, why the order-book mandate attached to it in the first place, how the European Union, United Kingdom and Japan solved the same problem without ever mandating a trading system, and what regulated firms would actually have to do if the rule is finalised.

Key facts

• The instrument: Notice of proposed rulemaking, “Swap Execution Facility Order Book Requirement for Permitted Transactions,” RIN 3038-AF79, approved by the Commission and released August 20, 2026. It amends a single provision, 17 CFR 37.3(a)(2) (CFTC proposing release).
• No comment deadline exists yet. The release states comments will be accepted “for 30 days following publication in the Federal Register.” As of August 25, 2026 the proposal had not been published in, or scheduled for public inspection by, the Federal Register. No closing date can therefore be quoted.
• Usage data: order-book trading “typically ranges between ‘less than [one percent] to less than [three percent] of total CDS transactions’ on SEFs,” and between “‘less than [one percent] to approximately [twenty percent] of total IRS transactions,'” per the April 26, 2018 Giancarlo–Tuckman white paper cited in the proposal.
• Operator evidence: Bloomberg SEF LLC told regulators that “since 2015, over 96% of Order Book trading has been in [Required Transactions], and less than 4% of Order Book trades have been in [Permitted Transactions]” (BSEF request letter, February 25, 2026, at 5). LSEG FX SEF stated that “not a single trade has been executed on, nor any orders submitted to, LSEG SEF’s Order Book” (request letter, June 30, 2025, at 2–3).
• Already live in practice: CFTC Letter No. 25-24 (July 30, 2025) granted a Division of Market Oversight no-action position from § 37.3(a)(2) for permitted transactions, running “until the adoption of a Commission action” (Release 9101-25).
• Population affected: 26 SEFs were registered after SwapEx LLC’s registration was vacated effective September 30, 2023, “including four that are dormant” (Release 8797-23). Proposed effective date: 30 days after publication of final regulations.

Methodology and sources

This analysis is built on primary documents only. The core text is the Commission’s proposing release for RIN 3038-AF79 as posted to cftc.gov on August 20, 2026, read alongside CFTC Letter No. 25-24 (July 30, 2025), the LSEG FX SEF and Bloomberg SEF request letters as quoted in those documents, the SEF Core Principles Final Rule at 78 FR 33476 (June 4, 2013), and the 2018 SEF Proposal at 83 FR 61946 (November 30, 2018) with its partial withdrawal at 86 FR 9304 (February 12, 2021). Federal Register status was checked against the Federal Register API on August 25, 2026 for both published documents and the current public-inspection list. Comparative material comes from Regulation (EU) No 600/2014 as adopted and as it stands in assimilated UK law. Anything not confirmable from a primary source is flagged as unverified rather than asserted.

What § 37.3(a)(2) actually says, and why permitted transactions are different

A permitted transaction is any swap transaction not caught by the trade execution requirement. Commission regulation 37.9(c)(1) defines it as “any transaction not involving a swap that is subject to the trade execution requirement in section 2(h)(8) of the Act.” That requirement, added by the Dodd-Frank Wall Street Reform and Consumer Protection Act, bites only where a swap is subject to the clearing mandate in Commodity Exchange Act (CEA) section 2(h)(1) and a designated contract market (DCM) or SEF has made it available to trade — the “made available to trade,” or MAT, determination. Anything failing either limb is a permitted transaction: uncleared swaps, cleared swaps nobody has MAT-ed, foreign exchange non-deliverable forwards, FX options, and most of the long tail. Under § 37.9(c) a SEF may offer any execution method for these, and participants trade them on a SEF voluntarily.

The friction is that a separate rule cut across that flexibility. Commission regulation § 37.3(a)(2) prescribes “minimum trading functionality” and states flatly that a SEF “shall, at a minimum, offer an Order Book as defined in paragraph (a)(3)” — with no carve-out by transaction type. So while a SEF was free to execute permitted transactions by request-for-quote, voice, auction or workup, it still had to build, staff, surveil and upgrade an order book for every swap it listed. For required transactions the picture is different and unchanged: under § 37.9(a) a SEF must offer either an order book or a request-for-quote system that sends the request to no fewer than three unaffiliated participants and “operates in conjunction with an Order Book” — the RFQ-to-3 rule. That structure survives the proposal intact.

How five regimes handle venue trading functionality

Jurisdiction / regulator	Effective date	Scope	Key requirement	Penalty / sanction
US (CFTC) — current rule	Final rule published June 4, 2013 (78 FR 33476)	All 26 registered SEFs, all listed swaps	§ 37.3(a)(2): a SEF “shall, at a minimum, offer an Order Book”; § 37.9(a)(2) adds order book or RFQ-to-3 for required transactions	CEA civil money penalties; Tradition SEF LLC paid $875,000 on October 1, 2024 for system-safeguards failures
US (CFTC) — as proposed	30 days after final rule publication (date unset)	Permitted transactions only, per § 37.9(c)(1)	Order book required only “for Required Transactions as defined in § 37.9(a)(1)”; SEFs may retain one voluntarily	Unchanged; part 43 real-time post-trade reporting continues to apply
EU (ESMA and national competent authorities)	MiFIR applied January 3, 2018; Articles 8a and 11a added by the 2024 review	Regulated markets, MTFs and OTFs	Article 8(2) of MiFIR: transparency “shall be calibrated for different types of trading systems, including order-book, quote-driven, hybrid, periodic auction trading and voice trading systems” — no order book is mandated	Member-State administrative sanctions under Article 70 of MiFID II (Directive 2014/65/EU); maximum levels set in national law
UK (FCA)	Articles 8–11 substituted December 1, 2024 (S.I. 2024/1071)	Market operators and investment firms operating a UK trading venue	UK MiFIR Article 8(1): “The FCA must by rules impose pre-trade transparency requirements”; Article 8(5)(a) permits rules “by reference to the types of trading system used”	FCA financial penalties under section 206 of the Financial Services and Markets Act 2000
Japan (JFSA)	CFTC exemption order and joint statement, July 16, 2019	Electronic trading platforms and authorised Foreign ETP Operators	Japanese trading obligation under Article 40-7 of the Financial Instruments and Exchange Act (FIEA); execution method not prescribed	JFSA business-improvement and registration powers under the FIEA

Sources: CFTC proposing release RIN 3038-AF79; 17 CFR 37.3 and 37.9; Regulation (EU) No 600/2014, Article 8 as adopted; UK MiFIR Article 8 as substituted; CFTC Releases 8797-23, 8989-24 and 9287-26. Last updated: August 25, 2026.

Why the EU and UK never had this problem

The common assumption is that stripping out an order-book mandate widens the gap between American and European swaps regulation. On the primary texts, it does the opposite. Regulation (EU) No 600/2014 — the Markets in Financial Instruments Regulation (MiFIR) — regulates the outcome, not the machinery. Article 8(1) requires venue operators to publish current bid and offer prices and depth of trading interest for derivatives; Article 8(2) then states that those requirements “shall be calibrated for different types of trading systems, including order-book, quote-driven, hybrid, periodic auction trading and voice trading systems.” The EU anticipated request-for-quote and voice venues in the primary legislation. It never told a multilateral trading facility (MTF) to build a central limit order book it would not use.

The parallel runs deeper. Article 9(1)(c) of MiFIR lets a competent authority waive pre-trade transparency altogether for “derivatives which are not subject to the trading obligation specified in Article 28 and other financial instruments for which there is not a liquid market.” Article 28 is the EU analogue of CEA section 2(h)(8). So the European instrument that most closely matches a US permitted transaction has, since 2018, been eligible for a transparency waiver — the very population the CFTC now proposes to release. The 2024 MiFIR review went further, creating a dedicated derivatives pre-trade article, Article 8a, under which real-time pre-trade transparency attaches to venues running a central limit order book or periodic auction. Running an order book triggers transparency duties in the EU; it is not itself the duty. ESMA’s April 2025 consultation on derivatives transparency standards is the current vehicle for those calibrations.

The UK went further still. Articles 8 to 11 of assimilated UK MiFIR were substituted by Schedule 2 to the Financial Services and Markets Act 2023 with effect from December 1, 2024. The text now reads: “The FCA must by rules impose pre-trade transparency requirements on relevant persons in respect of the trading of such relevant instruments as the FCA determines should be subject to the requirements.” Parliament moved the entire non-equity transparency regime out of statute and into the FCA Handbook, and told the regulator it “must (in particular) have regard to the impact that requirements imposed by the rules will have on market liquidity.” Two G7 regulators have concluded within two years of each other that hard-coded venue functionality rules age badly.

“Today’s action continues the agency’s commitment to prescribing the minimum effective dose of regulation for market participants. By removing excessive requirements from our rulebook, the Commission is remaining true to its principles-based regulatory approach.”

— Michael S. Selig, Chairman, Commodity Futures Trading Commission (CFTC Release 9287-26)

The enforcement backdrop: what SEF infrastructure obligations actually cost

The proposal’s cost case is not abstract, and there is a named enforcement action that shows why. On October 1, 2024 the CFTC settled charges against Tradition SEF LLC, a registered SEF based in New York, requiring an $875,000 civil monetary penalty and remediation. The order found the SEF failed to brief its board fully on business continuity–disaster recovery, technical risk and penetration testing results, failed to conduct regular periodic testing of its BCDR capabilities, and lacked finalised written policies addressing operational and third-party risk. It also failed to produce records promptly to the Division of Market Oversight during a routine examination.

“Today’s enforcement action represents two firsts for the CFTC—the first action charging a SEF with system safeguards violations and the first charging a registrant for failing to provide records promptly during a DMO examination. Ensuring that SEFs comply with their system safeguards obligations is essential to the safety and reliability of our markets.”

— Ian McGinley, Director of Enforcement, Commodity Futures Trading Commission (CFTC Release 8989-24)

Every system a SEF operates sits inside that supervisory perimeter. An order book that has never matched a trade still needs penetration testing, disaster-recovery drills, board reporting, surveillance integration and periodic hardware refresh — and each is examinable. LSEG SEF made exactly this argument, telling the Division of Market Oversight that “the requirement to offer and maintain a seldom (if ever) used Order Book requires SEF participants to effectively pay for systems that they will rarely, if ever, use and restricts SEFs’ ability to develop new offerings.” The attrition data points the same way: SwapEx LLC surrendered its registration in 2023, leaving four of the remaining 26 registrants dormant, while new entrants such as RTX, authorised as the 24th SEF in April 2023, faced the full build cost on day one.

What this means for SEFs, dealers, the buy side and compliance teams

SEF operators. Nothing changes on the day the proposal lands, because CFTC Letter No. 25-24 already provides relief. What changes is durability. A no-action letter “represents only the issuing Division’s position and binds only that Division,” and the Division “retains the authority to condition further, modify, suspend, terminate, or otherwise restrict” it. Codification converts a revocable staff position into a Commission rule. Operators that have already decommissioned order books should keep the decommissioning file — part 40 rulebook amendments, board minutes, participant notices — because a SEF that removed functionality in reliance on staff relief must be able to show its work if the proposal is not finalised.

Dealers and futures commission merchants. The RFQ-to-3 requirement in § 37.9(a)(2) and the fifteen-second cross-trade exposure delay in § 37.9(b) are untouched, because both attach to required transactions. Desk supervision procedures that reference “the SEF order book” generically, rather than by transaction type, will need re-drafting to avoid describing a control that no longer exists on some venues.

The buy side. This is where the honest cost sits, and the Commission concedes it in a footnote: eliminating the requirement “creates a potential decrease in future pre-trade price transparency,” and “some swaps markets may not be able to move onto an Order Book even if there is future interest from some market participants.” Post-trade transparency is unaffected — part 43 real-time reporting continues — but a firm whose best-execution policy cites SEF order books as a reference price for uncleared or non-MAT products should re-paper it against the execution methods its venues actually offer.

Legal and compliance. Three tasks: map which traded products are permitted rather than required transactions, since the distinction now drives venue functionality; confirm venue by venue which SEFs have retained an order book voluntarily; and diarise the comment window once a Federal Register date appears. Cross-border teams should note that the CFTC’s exempt-SEF framework and its comparability arrangements with the Japan Financial Services Agency and the Monetary Authority of Singapore rest on outcomes-based deference, which this proposal makes marginally easier to argue.

“Proponents of bringing all market participants onto one limit order book typically argue that it would (i) increase quote competition among dealers and (ii) allow clients to occasionally supply liquidity via limit orders thereby lowering overall transaction costs (although at the cost of execution risk). However, a limit order book arguably works best when trading is continuous and it is not necessarily optimal when trading is more episodic as is the case for index CDSs.”

— Pierre Collin-Dufresne, Benjamin Junge and Anders B. Trolle, Market Structure and Transaction Costs of Index CDSs, Swiss Finance Institute Research Paper No. 18-40, cited at footnote 26 of the CFTC proposing release

What’s next — the forward view

The immediate variable is the Federal Register. Until publication, the 30-day clock has not started and participants cannot file. Two other CFTC proposals from the same August window — the compute derivatives request for comment and the small commodity pool exemption proposal — reached the Federal Register on August 21, 2026 with comment dates of October 20 and October 5 respectively, so the SEF proposal is late rather than stalled.

The second variable is scope creep, written into the document. Request for comment question 3 asks: “Should the Commission eliminate the requirement for SEFs to offer an Order Book for Required Transactions, as defined in § 37.9(a)(1)?” That is the Commission inviting a record on repealing the mandate outright, which would reach MAT-ed interest rate and credit index swaps — a materially larger change than the one on the table. Question 2 offers the opposite path, a volume-based test that would keep order books for liquid permitted transactions.

The third variable is governance, and it is unusual enough to state plainly. The CFTC is a five-seat Commission. As of August 25, 2026 the agency’s own Chairman and Commissioners page listed a single sitting member, Chairman Michael S. Selig, sworn in December 22, 2025. Release 9287-26 carried no dissent and no separate statement, and none was possible: there is no second Commissioner to write one. The reasons for the four vacancies, and any pending nominations, are unverified here. The absence of dissent is an artefact of composition, not consensus, and it raises the value of the comment file as the only adversarial record this rulemaking will generate. The 2018 precedent is instructive: the Commission proposed the same repeal, took comments, then withdrew the unadopted portions in February 2021. This proposal warns that comments filed on the 2018 version “should be resubmitted” to be considered.

FAQ

What is a permitted transaction?

Commission regulation 37.9(c)(1) defines a permitted transaction as any swap transaction not subject to the trade execution requirement in CEA section 2(h)(8). In practice that covers uncleared swaps, cleared swaps that no venue has made available to trade, foreign exchange non-deliverable forwards and FX options. A SEF may offer any execution method for them, and participants trade them on a SEF voluntarily rather than by mandate.

Does this change the RFQ-to-3 rule?

No. The request-for-quote requirement in § 37.9(a)(2) — sending a request to at least three unaffiliated participants, operating in conjunction with an order book — applies only to required transactions, which the proposal leaves alone. The fifteen-second cross-trade exposure delay in § 37.9(b) is likewise unchanged. Every execution obligation attaching to a MAT-ed swap survives intact.

When do comments close?

There is no deadline yet. The CFTC will accept comments for 30 days following Federal Register publication, and as of August 25, 2026 the proposal had not been published or scheduled for public inspection. Submissions go to Regulations.gov referencing RIN 3038-AF79, or by mail to the Secretary of the Commission at Three Lafayette Centre, Washington, DC.

Do SEFs have to shut their order books down?

No. The proposal removes an obligation, not a permission. The Commission states that “a SEF would be free to continue to offer an order book, if it chooses,” and anticipates that venues already listing permitted transactions on one will keep doing so where appropriate. The practical result is divergence: participants must check venue by venue which execution methods remain available.

Does this widen the gap with European rules?

On the primary texts, no — it narrows it. MiFIR has never required a trading venue to run a central limit order book. Article 8(2) calibrates transparency across “order-book, quote-driven, hybrid, periodic auction trading and voice trading systems,” and Article 9(1)(c) allows a waiver for derivatives outside the Article 28 trading obligation. The CFTC is moving toward the European design, not away from it.

What happens to CFTC Letter No. 25-24 if the rule is not finalised?

The no-action position continues “until the adoption of a Commission action addressing the Minimum Trading Functionality Requirement in connection with Permitted Transactions.” It is not self-executing relief: it binds only the Division of Market Oversight, not the Commission, and the Division retains discretion to modify, suspend or terminate it. That revocability is the Commission’s stated reason for codifying the position in a rule.

Has the CFTC tried this before?

Yes. The 2018 SEF Proposal at 83 FR 61946 included elimination of the order-book requirement within a broader overhaul. The Commission adopted two related final rules in February 2021, then withdrew the unadopted portions at 86 FR 9304, including this one. Comments made on the 2018 version must be resubmitted to be considered.

This article is informational analysis only and does not constitute legal, regulatory, tax, or investment advice. Regulatory frameworks change frequently and interpretation depends on facts and circumstances; primary documents and official regulator guidance always supersede summaries. Firms should consult qualified legal counsel and their relevant supervisory authority before taking any action based on the analysis above.