CFTC Pulls Back on SEF Registration Advisory: A Win for Market Clarity
The Commodity Futures Trading Commission (CFTC) just hit the reset button. On March 13, 2025, the Division of Market Oversight (DMO) issued CFTC Letter No. 25-05, officially scrapping the controversial 2021 Advisory on Swap Execution Facility (SEF) Registration (CFTC Letter No. 21-19). Effective immediately, this move restores the pre-2021 regulatory framework, providing much-needed clarity for commodity trading advisors (CTAs), introducing brokers (IBs), and other market players facilitating swap execution.
Key Takeaways
The CFTC has walked back its 2021 Advisory, which had raised alarm bells in the industry over the scope of SEF registration.
The rollback reinstates the original SEF framework from the 2013 final SEF rules, eliminating the added compliance burdens imposed by the Advisory.
CTAs, IBs, and other intermediaries facilitating swaps for clients can breathe easier—the prior Advisory is no longer in play.
Determining whether SEF registration applies still depends on a case-by-case analysis, but without the overreach of the 2021 guidance.
What Was the Controversy About?
SEF: What’s the Big Deal?
Under Section 1a(50) of the Commodity Exchange Act (CEA), a Swap Execution Facility (SEF) is defined as:
A trading system or platform where multiple participants can execute or trade swaps by accepting bids and offers from multiple other participants, 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 key phrase here? “Multiple-to-multiple” trading, which is what distinguishes a SEF from other types of trading platforms.
The 2021 Advisory That Stirred the Pot
Issued in September 2021, the Advisory expanded the CFTC’s interpretation of what constitutes a SEF. The result? More entities—many of which had never viewed themselves as SEFs—suddenly found themselves under scrutiny. The Advisory suggested that SEF registration could apply to:
Platforms with one-to-many or bilateral communications, such as online chat-based pricing requests.
Off-exchange swaps that weren’t subject to mandatory trade execution.
Voice-based or other non-electronic execution methods.
CTAs and IBs that merely facilitated swaps on behalf of clients.
This broad interpretation upended the status quo, forcing firms to rethink their business models overnight to avoid unintentional noncompliance.
Regulatory Whiplash: The ARM and CMS Cases
The ARM Crackdown (2022)
In September 2022, the CFTC went after Asset Risk Management, LLC (ARM), a CFTC-registered CTA, for allegedly operating an unregistered SEF. ARM’s role?
Transmitting swap pricing requests from clients to swap counterparties.
Approving or rejecting counterparty quotes based on client-set thresholds.
Facilitating trades via email or chat—yes, even just saying “done” in a message.
The CFTC ruled that ARM’s involvement in swaps execution crossed the line, effectively making it an unregistered SEF. The industry took notice—and not in a good way.
The CMS Curveball (2024)
Then, in August 2024, the CFTC went after Cost Management Solutions, LLC (CMS)—but with a different spin. Unlike ARM, CMS was not registered with the CFTC at all. The company acted as an introducing broker (IB) by facilitating swap transactions for energy commodity clients, connecting them with counterparties, and negotiating on their behalf.
However, this time the CFTC did not classify CMS as an unregistered SEF—despite activities nearly identical to ARM’s. This contradictory enforcement stance sent mixed signals to the industry, leaving firms confused about what actually constituted an unregistered SEF.
CFTC Letter No. 25-05: Pressing the Reset Button
Fast forward to March 13, 2025—the CFTC’s DMO finally pulled the plug on the 2021 Advisory. In its official withdrawal statement, the agency admitted:
The Advisory created regulatory uncertainty regarding whether certain entities that operate in the swaps market are required to register as SEFs... as well as the specific attributes of their business models.
Translation? The Advisory created more problems than it solved. By rescinding it altogether, the CFTC is effectively returning to the pre-2021 regulatory landscape—one that businesses were already familiar with.
What’s Next for Market Participants?
CTAs, IBs, and swaps market facilitators can go back to business as usual—without the looming threat of unintended SEF registration.
SEF registration still exists, but its application will now follow the traditional, pre-2021 interpretation.
The CFTC has not issued new guidance, which suggests a return to a more hands-off regulatory approach.
Final Thoughts: A Step Toward Sanity
The CFTC’s decision to pull back from aggressive SEF registration expansion is a welcome change for market participants who felt blindsided by the 2021 Advisory. This move aligns with Acting Chairman Caroline Pham’s broader push for regulatory clarity, including:
Industry roundtables on innovation and market structure (January 2025).
Refocusing enforcement on fraud prevention instead of regulatory expansion (February 2025).
Encouraging self-reporting and cooperation in enforcement actions (March 2025).
While firms should continue to assess their regulatory obligations, the good news is that a major source of uncertainty has been removed.
For a deeper dive into how this affects your business, reach out to Anderson P.C. at (202) 787-5796 or visit anderpc.com.
References:
CFTC Letter No. 21-19, Division of Market Oversight, Commodity Futures Trading Commission (Sept. 29, 2021)
CFTC Final Rule on Swap Execution Facilities (June 4, 2013)
CFTC Enforcement Actions: ARM (2022), CMS (2024)
CFTC Acting Chairman Pham’s Regulatory Announcements (2025)
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