299 Park Avenue

10th floor

New York, NY 10171

Tel 212 813-6300

www.marketaxess.com

February 21, 2013

Ms. Melissa Jurgens

Secretary

Commodity Futures Trading Commission

Three Lafayette Centre

1155 21st Street, N.W.

Washington, DC 20581

Re: Notice Of Intent To File An Application For A Swap Execution Facility

Registration Exemption

Dear Ms. Jurgens:

In January 2011, the Commodity Futures Trading Commission ("CFTC" or

"Commission") proposed rules to implement core principles and other requirements for swap

execution facilities ("SEFs") under the Commodity Exchange Act ("CEA") as amended by the

Dodd-Frank Act.1 MarketAxess Corporation ("MarketAxess") is aware that the Commission

may adopt final SEF rules in the near future. In anticipation of those final deliberations and

rules, MarketAxess is filing this letter to notify the Commission of our intent to request a

conditional exemption from SEF registration as authorized under Section 5h(g) of the CEA once

the Commission finalizes its SEF rules.

In brief, MarketAxess intends to request conditional exempt SEF status for the limited

purpose of offering a facility for trading broad-based index credit default swaps ("Index CDS").

Our exempt SEF would offer many-to-many trading in Index CDS on the same electronic trading

platform that is currently used by nearly a thousand institutional investors and over 80 broker-

dealers to trade corporate bonds subject to comprehensive regulation by the Securities and

Exchange Commission ("SEC") and the Financial Industry Regulatory Authority ("FINRA"). As

a condition of the exemption we intend to request, MarketAxess will comply with 19 specific

regulatory conditions set out in this letter, including meeting any trading standard and pre-trade

price transparency standard for SEFs established under the Commission's final SEF rules.

Consistent with the purposes of the Dodd-Frank Act and the congressionally stated goal of

Section 5h, the heavily-conditioned and limited registration exemption we intend to request "will

1 See Core Principles and Other Requirements for Swap Execution Facilities, 76 Fed. Reg. 1214 (Jan. 7, 2011).

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promote the trading of swaps on [SEFs] and … promote pre-trade price transparency in the

swaps market." Section 5h(e) of the CEA.

Summary

MarketAxess currently operates a leading electronic platform for corporate bond trading

where, on average, over 4,000 corporate bond transactions are executed daily in compliance with

the federal securities laws and SEC-FINRA oversight. We intend to use that same time-tested

platform to offer a facility for trading Index CDS. Our facility would fall within the SEF

definition under the CEA and would be subject to the SEF registration requirement under CEA

Section 5h(a). Congress provided, however, that a SEF may be exempt from SEF registration if

the facility is subject to comparable, comprehensive supervision and regulation by the SEC.2

MarketAxess qualifies for, and the Commission should grant, a product-limited, conditional

exemption to MarketAxess to allow us to strive first to establish a solid foothold in the Index

CDS market before incurring the substantial cost of full SEF registration.

In essence, MarketAxess is requesting an opportunity to operate a regulated electronic

trading platform in Index CDS in compliance with most of the key SEF requirements without

acting as a self-regulatory organization ("SRO"). This is the same business model we have

followed for many years in the corporate bond and other credit markets under the watchful eyes

of both the SEC and FINRA. The requested conditional exemption will allow us to offer a

regulated trading platform in Index CDS without having to incur the significant additional start-

up expense necessary to perform the SRO-like functions that full SEF regulation would require.

As the operator of a regulated electronic trading platform in corporate bonds, we have a

strong natural interest in offering a complementary service for the Index CDS market, which we

estimate today to involve about 3,000 transactions daily in Index CDS subject to CFTC

jurisdiction. Roughly half of those transactions are dealer to dealer; MarketAxess currently

serves the client to dealer market. Although our target product market is considerably smaller

than that served by traditional SROs that often execute millions of transactions a day, we have

already spent more than ten million dollars to build new systems in anticipation of new

regulatory standards under the final SEF rules. Furthermore, our budget for full SEF registration

is projected to exceed five million dollars in the first year of operation, and in subsequent years

we expect our costs will exceed one million dollars annually to operate a registered SEF as an

SRO. While these expenditures are and will be substantial, especially in light of the current scale

of the Index CDS market, we still intend to operate a SEF in order to bring the benefits of

transparency and fully traceable electronic trading to the Index CDS market.

Rather than incur at the outset the steep start-up and operating costs associated with the

SRO functions required of a registered SEF, we propose that the Commission allow us to

implement an approach that will phase-in those costs as market acceptance grows, while serving

2 See CEA § 5h(g) ("The Commission may exempt, conditionally or unconditionally, a swap execution facility

from registration under this section if the Commission finds that the facility is subject to comparable,

comprehensive supervision and regulation on a consolidated basis by the Securities and Exchange Commission,

a prudential regulator, or the appropriate governmental authorities in the home country of the facility.").

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the CFTC's immediate regulatory interests as well as the public interest by making available a

proven system for electronic trading to Index CDS market participants. When and if trading on

our exempt SEF exceeds, on average for four months over a six month period, 20% of the daily

notional transaction volume of all Index CDS trades executed in the U.S., we will promptly

register with the Commission as a SEF and carry out the required SRO functions.3 (Again, by

Index CDS we intend only broad-based index credit default swaps subject to the CFTC's

jurisdiction.) Until such time, however, we would operate as an exempt SEF subject to

continued compliance with the 19 listed regulatory conditions, but without the expensive SRO

requirements.

The CEA provides the Commission with ample authority to grant exempt SEF status to

MarketAxess. Section 5h(g) specifically authorizes the Commission to grant unconditional or

conditional exemptions from SEF registration if a "facility is subject to comparable,

comprehensive supervision and regulation on a consolidated basis by the Securities and

Exchange Commission . . . ." Because MarketAxess now operates, and would use for Index

CDS trading, the same fully-regulated facility we now use for trading securities under a

comprehensive regulatory structure administrated by the SEC and FINRA, we might qualify for

an unconditional exemption under Section 5h(g). Nevertheless, we intend to apply for a

conditional SEF exemption subject to our compliance with the 19 regulatory conditions we set

out in this letter.

Granting an exemption under Section 5h(g) would be consistent with the goals of Section

5h as a whole – more swaps trading and transparency – as expressed in the rule of construction

Congress adopted in Section 5h(e). Allowing MarketAxess to defer the costs of SRO operations

would enable Index CDS market participants to enjoy immediately the benefits of our well-

regarded and fully implemented and tested electronic trading systems in a regulated Index CDS

market, while enhancing competition in the Index CDS market. The exemption would also

permit us to defer SRO functionality and costs until we have achieved daily transaction volume

levels that are solid, but relatively modest when compared to our current rate of daily securities

trading volume (averaging well over 4,000 trades daily). SRO operations will then begin once

trading volumes rise to a level that merits the kinds of full-blown SRO activity we expect the

Commission's final SEF rules will codify.

A balanced approach will reduce the barriers to entry that would otherwise result in a

limited number of SEFs operated exclusively by established exchanges or deep-pocketed dealer-

financed entities with the resources to build an expensive SRO infrastructure. Congress intended

to transform the swap markets from a marketplace dominated by only a handful of dealers to one

that promotes competition and attracts new market entrants. If the SEF entry barriers remain

unnecessarily high, competition will be stifled and SEF trading will be limited to only a few

large platforms that intend to offer multiple swap asset classes to the market. Granting our

registration exemption would underscore Congress' wisdom in making certain that exempt SEFs

3 Recent Depository Trust and Clearing Corporation data indicate that currently worldwide average daily notional

trading volume of index CDS is approximately $65 billion, and we estimate that $25-$30 billion account for

trades in the U.S. Although these are only estimates, the availability of more precise data will increase as more

CDS transactions are reported under the CFTC's swap reporting rules.

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would be an integral part of the SEF landscape. See Section 2(h)(8) (permitting parties to satisfy

the swap trade execution mandate by trading on exempt SEFs).

Our extensive list of conditions illustrates that we seek an exemption from SEF

registration, not regulation. Under our exemption request, we would:

Use our existing electronic trading platform that is now widely used by

institutional investors and broker-dealers in the corporate bond and other credit

markets;

Continue to be registered as a broker-dealer with the SEC and subject to SEC and

FINRA regulation;

Reserve the right to terminate the trading privileges of any party that violates the

terms of our user agreement;

Limit swap trading on our exempt SEF to Index CDS traded among eligible

contract participants;

Meet all SEF reporting obligations under CFTC Part 43 (real-time reporting) and

Part 45 (swap data reporting);

Meet all SEF trading standards adopted in the final SEF rules;

Meet the Commission's proposed conflict of interest standards for ownership;

Continue to meet the CFTC's proposed conflict of interest standards for Board

governance and independent director requirements applicable to public

companies;

Maintain a complete audit trail;

Remain fully subject to CFTC fraud, manipulation and other statutory trading

prohibitions;

Have a Chief Compliance Officer who meets the qualification requirements under

the final SEF rules;

Require the Chief Compliance Officer to certify a daily review of all trades on our

exempt SEF and refer to the appropriate Commission authorities any suspicious

behavior; and

Register as a SEF once trading reaches a specified critical mass level.

Approving this product-limited, multiple-conditioned exempt SEF request is authorized by the

CEA and would be perfectly compatible with both the Commission's regulatory goals and the

public interest.

The sections following this Summary set out the following:

I. Background – MarketAxess is experienced in providing well-regulated, many-to-

many electronic trading platform solutions to financial marketplaces that are

otherwise dominated by one-to-one telephone brokered transactions.

II. The CFTC Has the Authority to Grant Our Exempt SEF Request – Granting a

registration exemption is clearly within the Commission's authority and will

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advance a primary goal of Dodd-Frank – to promote competition among and trading

on SEFs.

III. MarketAxess Will Meet Many of the Regulatory Requirements for SEFs and Will

Register as a SEF When Trading Volume Meets a Specified Level – Our exemption

request would be conditioned on meeting many of the significant regulatory

requirements for SEFs. If trading volume on our facility exceeds 20% of the daily

notional transaction volume for all Index CDS trades (we estimate today that in the

market we serve, there are approximately 1,500 daily transactions in the U.S.

representing roughly $12.5-15 billion in notional value) on average for four out of

six months, then MarketAxess would register as a SEF.

IV. The Commission Should Grant Our Limited Conditional Registration Exemption –

The proposed conditional exemption would permit MarketAxess to compete with

other trading platforms as an exempt SEF while avoiding the initial build-out of a

costly SRO apparatus and still providing more than adequate substitute regulation to

promote the goals of the CEA and encourage SEF trading.

I. Background

MarketAxess Is Experienced at Bringing New and

Well-Regulated Electronic Trading Solutions to Dealer Markets

MarketAxess operates a leading electronic trading platform for investment industry

professionals that promotes transparency, price discovery, and liquidity in the corporate bond

and other fixed income markets, including Index CDS. MarketAxess was formed in April 2000

in response to investors' need for a single electronic trading platform with easy access to multi-

dealer competitive pricing in a wide range of debt securities. Our annual trading volume has

increased from $11.7 billion in 2001 to more than $500 billion during 2012. Currently,

approximately 4,000 to 4,500 corporate bond transactions are executed on our platform daily,

and during the fourth quarter of 2012 we represented approximately 13.6% of the total volume in

U.S. high-grade corporate bonds, excluding convertible bonds, as reported on FINRA's Trade

Reporting and Compliance Engine ("TRACE"), which includes inter-dealer and retail trading as

well as trading between institutional investors and broker-dealers. We believe that we account

today for substantially all of the U.S. high-grade corporate bond volume that is traded

electronically.

Traditionally, bond trading has been a manual process, with product and price discovery

conducted over the telephone between two or more parties. In contrast, our multi-dealer trading

platform allows our more than 950 active institutional investor clients to simultaneously request

competing, executable bids or offers from any or all of our 88 broker-dealer market-maker

liquidity providers and execute trades with the broker-dealer of their choice from among those

that choose to respond. This enables our broker-dealer liquidity providers to efficiently reach

our institutional investor clients for the distribution and trading of bonds. Through our disclosed

multi-dealer request-for-quote ("RFQ") trading functionality, our institutional investor clients

can determine prices available for a security, as well as trade securities directly with our broker-

dealer crowd. We also provide fixed-income market data, analytics and compliance tools that

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help our clients make trading decisions, and our automated post-trade messaging facilitates the

communication of trade acknowledgment and allocation information between our institutional

investor and broker-dealer market participants.

Our trading systems provide numerous benefits to customers and the markets that

traditional fixed-income trading methods do not offer, including:

Competitive Prices. By enabling institutional investors to simultaneously request bids or

offers from a large group of broker-dealers, our electronic trading platform creates an

environment that motivates broker-dealers to provide competitive prices and gives institutional

investors confidence that they are obtaining a competitive price.

Transparent Pricing. Subject to applicable regulatory requirements, institutional

investors can search for bonds in inventory in a fraction of the time it takes to do so manually.

Institutional investors can also request executable bids and offers on our electronic trading

platform and may also elect to display live requests for bids or offers anonymously to all other

platform users.

Improved Cost Efficiency. We provide improved efficiency by reducing the time and

labor required to conduct broad product and price discovery. In addition, our Corporate

BondTickerTM

service eliminates the need for manually-intensive phone calls or e-mail

communication to gather, sort and analyze information concerning historical transaction prices.

Greater Trading Accuracy. Our electronic trading platform includes verification

mechanisms at various stages of the execution process that result in greater accuracy in the

processing, confirming and clearing of trades between institutional investor and broker-dealer

clients.

Efficient Risk Monitoring and Compliance. Our electronic trading platform offers both

institutional investors and broker-dealers an automated audit trail for each stage in the trading

cycle. As a result of our electronic connectivity to the trade processing operations of our

participating dealers, the vast majority of the trades done on the MarketAxess trading platform

are reported to TRACE within one to two minutes following execution, further enhancing

transparency and price discovery in the markets we serve.

MarketAxess's current operations under the federal securities laws are consistent with the

CFTC's SEF proposals for trading protocols, price transparency, audit trails, and financial

resources, and we would bring the same benefits to the Index CDS market that we have provided

to the corporate bond market. Furthermore, as a public company we already adhere to

governance and independence standards that are consistent with the CFTC's SEF proposals.4 We

4 MarketAxess Corporation is the principal operating subsidiary of MarketAxess Holdings Inc., a public company

with no dealer(s) owning, individually or in the aggregate, more than 20% of MarketAxess's common stock. In

addition, MarketAxess's nine-person Board of Directors includes eight individuals who meet the requirements

for independence under the rules of the Nasdaq Stock Market.

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are also well-positioned to bring new competition to the Index CDS market through our

technology solutions and vast trading network. We are ideally suited to achieve Dodd-Frank's

objectives for SEFs, including pre-trade price transparency and efficient real-time reporting of

trades.

II. The CFTC Has the Authority to Grant Our Exempt SEF Request

The Commission's authority to grant a SEF registration exemption is clear. CEA Section

5h(g) states that the Commission may exempt, conditionally or unconditionally, a SEF from

registration if the Commission finds it is subject to comparable regulation and supervision.

Congress gave the Commission broad authority to grant SEF registration exemptions. Granting a

conditional Section 5h(g) registration exemption to allow MarketAxess to operate a limited

Index CDS-only SEF will promote the goals of the statute and trading on SEFs.

The Commission Has the Authority to Grant SEF Registration Exemptions Under Section 5h(g)

Congress has authorized the Commission to grant SEF registration exemptions. Section

5h(g) of the CEA states:

The Commission may exempt, conditionally or unconditionally, a

swap execution facility from registration under this section if the

Commission finds that the facility is subject to comparable,

comprehensive supervision and regulation on a consolidated basis

by the Securities and Exchange Commission, a prudential

regulator, or the appropriate governmental authorities in the home

country of the facility.

MarketAxess is an SEC-registered broker-dealer and a FINRA member. Securities trading on

MarketAxess's platform is subject to the federal securities laws, which are surely comparable to

the protections for Index CDS in the CEA. As a registered broker-dealer, we are also subject to

comprehensive SEC regulation, and the SEC and FINRA have extensive supervisory authority

over MarketAxess's business operations. MarketAxess is required to file quarterly financial

reports and audited annual reports. We are subject to both SEC and FINRA examinations, and

we have been examined by FINRA in 2002, 2006, and 2010. MarketAxess and its employees

are subject to statutory disqualification standards and the SEC's disciplinary authority, which

prohibit persons with adverse disciplinary histories from becoming associated with the firm.

Furthermore, MarketAxess employees are required to maintain adequate competency levels and

satisfy FINRA qualification requirements. MarketAxess is also subject to the general antifraud

prohibitions under the federal securities laws and additional antifraud prohibitions specific to

broker-dealers.5 We are required to keep and retain accurate books and records and demonstrate

compliance with applicable securities laws. In addition, we are required to maintain sufficient

capital to operate safely pursuant to SEC rules.

5 See, e.g., section 15(c) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78o(c).

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As this description demonstrates, the trading facility we would use to trade Index CDS as

an exempt SEF is already subject to comprehensive regulation under the federal securities laws

and comparable oversight by the SEC and FINRA. Accordingly, we could qualify for an

unconditional exemption under the terms of Section 5h(g). However, we intend to apply for an

exemption that is heavily conditioned as set forth below.

Congress Designed the CEA to Allow the Commission to Grant SEF Registration Exemptions to

Promote Trading on All SEFs and to Satisfy the Trade Execution Mandate

The SEF exemption provisions are found in Section 5h(g) of the CEA. The goal of

Section 5h of the CEA in its entirety, including Section 5h(g), is to "promote the trading of

swaps on swap execution facilities and to promote pre-trade price transparency in the swaps

market." CEA Section 5h(e). Granting appropriate SEF exemptions under Section 5h(g) surely

advances this goal, as would the specific conditions in our exemption request which would meet

the CFTC registered SEF standards for pre-trade and post-trade price transparency.

In addition, Congress understood that exempt SEFs would promote trading in swaps

through the Section 2(h)(8) trading mandate. Section 2(h)(8) allows market participants to

satisfy the swap trading mandate by executing swaps that are subject to that mandate either on a

registered SEF or a SEF exempt from registration. CEA Section 2(h)(8)(A)(ii). Section

2(h)(8) thereby confirms that Congress envisioned that SEFs exempt from registration would

fulfill one of the cornerstone requirements of the Dodd-Frank scheme for swaps regulation.

Conversely, Congress mandated that the Commission adopt rules for "alternative swap execution

facilities" ("ASEFs")6 but did not provide that trading on an ASEF would satisfy the trading

mandate in Section 2(h)(8). Sections 5h(g) and 2(h)(8) read together illustrate that SEFs exempt

from registration were expressly contemplated by Congress to play an important role in the new

regulatory regime for swaps.

The Commission's Section 5h(g) Exemptive Authority Is Not Limited to Dual Registrants

Section 5h(g) authorizes the Commission to grant SEF registration exemptions. It has

been suggested, however, that Section 5h(g) is merely intended to permit the Commission to

exempt an SEC registrant from dual registration with the Commission once the SEC implements

its regulatory regime for security-based SEFs ("SBSEFs") under Section 3D of the Securities

Exchange Act of 1934 ("Exchange Act"). That suggested, limited reading of Section 5h(g)

cannot be reconciled with other CEA provisions that were enacted as part of the Dodd-Frank

Act.

6 See CEA Section 5h(h) ("The Commission shall prescribe rules governing the regulation of alternative swap

execution facilities under this section."); as of this writing, the Commission has not proposed rules for ASEFs.

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The language in Section 5h(a)(2) of the CEA and Section 3D(a)(2) of the Exchange Act

precludes interpreting Section 5h(g) to merely permit the Commission or SEC to exempt dual

SEF-SBSEF registrants. Section 5h(a) provides:

(1) IN GENERAL.–No person may operate a facility for the trading

or processing of swaps unless the facility is registered as a swap

execution facility . . . under this section.

(2) DUAL REGISTRATION.–Any person that is registered as a swap

execution facility under this section shall register with the [CFTC]

regardless of whether the person also is registered with the [SEC]

as a [security-based] swap execution facility [sic].

Section 3D(a) of the Exchange Act has nearly identical language with respect to registration with

the SEC "regardless of whether the person also is registered with the [CFTC] as a swap

execution facility." Sections 5h(a)(2) of the CEA and 3D(a)(2) of the Exchange Act confirm

Congress's intent to have SEFs and SBSEFs dual registered with the CFTC and SEC (although

neither provision precludes either agency from accepting a notice registration for a SEF or

SBSEF that is fully registered with its sister agency). Thus, Congress intended the Commission

to use its exempt SEF authority under CEA Section 5h(g) to exempt SEFs other than dual

registrants.7

III. MarketAxess Will Meet Many of the Regulatory Requirements for SEFs and Will

Register as a SEF When Trading Volume Meets a Specified Level

MarketAxess intends to request a limited exemption from SEF registration and is

proposing 19 specific conditions that must be met for MarketAxess to operate as an exempt SEF.

These conditions require full compliance with many of the key SEF regulations, including trade

execution and pre-trade price transparency requirements. The conditional exemption would be

designed, however, to permit MarketAxess, as an exempt SEF, to begin to operate a regulated

electronic trading platform for Index CDS without acting as an SRO. In the absence of the

requested relief, the Commission's SEF rules would impose costly self-regulatory obligations

that could create formidable barriers to entry and limit the development of SEFs to exchanges

and the largest financial institutions with the resources to immediately begin operating as an

SRO.

The first limitation on our exemption is important to emphasize. We are seeking an

exemption only for the relatively small Index CDS market. We will offer no other types of

7 In addition, Section 5h(g) grants the Commission broader authority to exempt a SEF from registration than the

SEC's comparable registration exemption authority for SBSEFs. The CFTC may exempt a SEF from

registration if it is subject to comparable supervision and regulation by the SEC, a prudential regulator or a

foreign authority. The related provision under Section 3D(e) of the Exchange Act limits the SEC's exemptive

authority to SBSEFs that are subject to CFTC oversight and does not extend to SBSEFs subject to regulation by

a prudential regulator or a foreign authority. Unlike the SEC, prudential regulators and foreign authorities will

not have nearly identical statutory authority to the Commission to implement comparable SEF regulation.

Because the Commission is authorized to assess regulatory regimes other than the SEC's, the authority in

Section 5h(g) must be read to permit consideration of exempt SEF requests in a broader context than merely the

SEC's regulatory regime for SBSEFs.

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swaps on our exempt SEF. Moreover, MarketAxess is only seeking an exemption from

registration as long as the average daily notional volume of Index CDS executed through our

trading platform is below 20% of the total daily notional volume of Index CDS trades executed

in the U.S., for 4 out of 6 months. We estimate that the current average daily notional volume

for Index CDS in the U.S. is approximately $25-$30 billion – comprised of roughly 3,000 daily

transactions. Roughly one half of the 3,000 daily Index CDS trades in the U.S. are dealer to

client, which is the type of market MarketAxess currently operates in corporate bonds and other

fixed-income products, while the other half represents dealer to dealer trades.

Our exemptive request, therefore, would affect a small portion of the overall swap

market. The U.S. Index CDS market is relatively small when compared to other regulated

instruments that trade on traditional SROs like exchanges and often exceed well over a million

daily transactions in a single product. Index CDS markets are also significantly smaller than the

interest rate swap markets. According to the Bank for International Settlements, in mid-2012 the

global notional amount outstanding for interest rates swaps was more than $490 trillion

compared to just over $9.7 trillion for Index CDS products.8 Thus, in the context of an Index

CDS-only SEF as we intend to operate, a registration threshold set at 20% of the average

notional volume appropriately reflects a level of expected revenue that would begin to justify the

costs attendant to operating an SRO.

This approach to permit limited trading activity on a platform before requiring SRO

functionality through registration is not unprecedented. In our comment letter on the proposed

SEF rules, MarketAxess informed the Commission of a somewhat similar regulatory precedent

for alternative trading systems ("ATS") under the federal securities laws that exempt trading

systems from registering as national securities exchanges if trading levels remain below certain

thresholds.9 The SEC's regulatory approach for ATSs encourages development of regulated

market platforms, and a similar approach is appropriate for Index CDS-only SEFs.

We note that the extensive list of regulatory conditions is subject to our review of the

CFTC's soon-to-be-issued final SEF rules. It is possible that after reviewing those rules we may

need to amend this list or that we may wish to add to it, as necessary. It is also possible that the

Commission or its staff may suggest modifications to this list. MarketAxess would welcome

those suggestions.

Conditions for SEF Registration Exemption

MarketAxess proposes to comply with the following items as conditions for a SEF

registration exemption.

1. Electronic Trading System: MarketAxess will use the same trading system for Index CDS

as it uses for corporate bonds today.

8 Bank for International Settlements, Statistical Release: OTC Derivatives Statistics at End-June 2012, p. 12

(Nov. 2012).

9 MarketAxess Letter, Core Principles and Other Requirements for Swap Execution Facilities (March 8, 2011).

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2. SEC Registered Broker-Dealer: MarketAxess is, and will continue to be, an SEC-

registered broker-dealer.

3. FINRA Membership: MarketAxess is, and will continue to be, a member of FINRA in

good standing.

4. Access Agreements: MarketAxess's trading system will (i) enter into access agreements

with all of its end users and dealers, and (ii) reserve the right to exclude any market

participant from trading on our exempt SEF that violates the access agreement.

5. Limited to Index CDS: The exemption will be limited to Index CDS products (e.g., the

exemption would not apply to interest rate swap trading). No other classes of swap

products (e.g., interest rate swaps, commodity swaps, etc.) will be eligible to trade on

MarketAxess' exempt SEF.

6. Swap Data Reporting: MarketAxess will comply with any and all of the CFTC's Part 43

real-time public reporting requirements and Part 45 swap data reporting requirements as

if MarketAxess were a registered SEF.

7. Trade Execution Requirements: MarketAxess will comply with any and all of the CFTC's

trade execution standards for swaps that are traded on a registered SEF and "made

available to trade" under Section 2(h)(8) as provided in the Commission's final SEF rules.

8. CFTC RFQ Requirements and Pre-Trade Price Transparency: MarketAxess will require

RFQs be sent to whatever minimum number of market participants the Commission

requires in its final SEF rules.

9. Conflicts of Interest: MarketAxess will implement procedures that minimize conflicts of

interest regarding ownership limitations and independent directors, as the Commission

has proposed but not yet adopted.10

10. Recordkeeping and Audit Trail: MarketAxess will maintain records related to its

business, including an audit trail of all Index CDS transactions executed on the trading

platform for the period of time specified in the Commission's final SEF rules and allow

the Commission the same access to such records as required in its final SEF rules.

11. Electronic Trading: MarketAxess will electronically capture and transmit information as

required in the Commission’s final SEF rules with respect to any and all Index CDS

transactions executed on the trading platform.

12. Swaps Not Readily Susceptible to Manipulation: MarketAxess will not list for trading

any Index CDS that are readily susceptible to manipulation.

13. Adequate Financial Resources: MarketAxess will maintain adequate financial resources

in compliance with any financial resource standard for SEFs contained in the

Commission's final SEF rules and will remain in compliance with SEC net capital rules

for broker-dealers.

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MarketAxess's current operations are consistent with the CFTC's proposals on independence. As noted above,

MarketAxess Holdings Inc. is a public company, with no dealer owning more than 20% of MarketAxess's

common stock, and eight directors of our nine-person Board meet the requirements for independence under

Nasdaq rules.

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14. Position Limits: As is necessary and appropriate, MarketAxess will establish speculative

position limits or accountability levels for Index CDS contracts on the facility in

compliance with the Commission's final SEF rules.

15. Anti-Fraud & Manipulation Prohibitions: MarketAxess and its participants will be subject

to all anti-fraud and manipulation prohibitions under the CEA and CFTC rules, and

MarketAxess will inform the CFTC if any suspicious trading occurs on its trading

platform.

16. Chief Compliance Officer: MarketAxess will employ a chief compliance officer who

meets the requirements set forth by the Commission in its final SEF rules.

17. Review of Trades: MarketAxess will require its chief compliance officer to oversee a

daily review of all Index CDS trades executed on the trading platform and promptly

report any abnormal or irregular trading activities to the Commission.

18. Trading Eligibility Requirements: MarketAxess will permit only eligible contract

participants to trade on its exempt SEF in Index CDS.

19. Compliance with Block Trading Rules: MarketAxess will comply with the CFTC's final

rules for block trades as if MarketAxess were a registered SEF.

Trading Threshold Triggers for MarketAxess's SEF Registration Exemption

MarketAxess proposes that if granted a conditional SEF registration exemption, we

would register as a SEF with the CFTC once the following notional transaction volume threshold

is met. If, during any 4 months within a 6 month period, MarketAxess's trading system is used to

execute more than 20% of the daily notional transaction volume in Index CDS products subject

to CFTC jurisdiction (we estimate today that market-wide approximately 3,000 daily transactions

are executed involving a U.S. counterparty, representing roughly $25-$30 billion in notional

value; half of those transactions are in the client to dealer market we currently serve),

MarketAxess will:

File a temporary SEF registration application with the Commission within 90 days, and

Register as a SEF with the Commission within 180 days.

The proposed volume trigger for MarketAxess's SEF registration is similar to the SEC's

regulatory scheme for ATSs. Regulation ATS was adopted to impose "market-oriented

regulation" and permits broker-dealers to operate trading platforms that provide electronic

execution of orders without becoming an SRO by registering with the SEC as a national

securities exchange.11

Through this volume threshold, the Commission could be certain that if

MarketAxess achieves a certain level of trading activity in Index CDS on its exempt SEF,

MarketAxess will quickly become a registered SEF and will promptly discharge its SRO

obligations. In this way, the Commission would be striking an appropriate regulatory balance

11

Regulation of Exchanges and Alternative Trading Systems, 63 Fed. Reg. 70844, 70847 (Dec. 22, 1998); 17

C.F.R. §§ 242.300-303.

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that would promote swap trading while ensuring pre-trade price transparency for SEF trading.

See Section 5h(e).

Finally, we note that Index CDS are not the types of bespoke, complex instruments –

such as credit default swaps on tranches of structured vehicles holding mortgage-backed

securities – that some viewed as having played a key role in the 2008 financial crisis. Rather,

these are widely-accepted, plain vanilla Index CDS, which are safer and less volatile than many

corporate bonds and other securities that are subject to extensive SEC regulation and are

currently traded on MarketAxess and other platforms. Even so, under our exemption request, the

Commission would retain regulatory authority and oversight of the Index CDS traded on our

platform under our heavily-conditioned and limited exemption proposal.

IV. The Commission Should Grant Our Limited Conditional Registration Exemption

The Commission should grant MarketAxess a limited conditional SEF registration

exemption when filed. This action will reduce entry barriers and promote the development of

and competition among SEFs. Requiring full SEF registration for a limited product platform

would be burdensome and inefficient, especially in light of a registered SEF's obligation to have

a fully operational SRO regimen from the outset of operations.

In the absence of a registration exemption, MarketAxess and others would face a cost-

benefit quandary. We expect that initial daily trading in Index CDS may be limited; in these

circumstances, it would be cost prohibitive to require full SEF registration. In our experience, it

may take years to develop sustained new product trading volume. When that occurs on our

platform for Index CDS, we will apply for SEF registration. In the interim, under our proposed

conditional SEF exemption, the Commission will retain ample regulatory authority over

MarketAxess and its market participants while further advancing the goal of Section 5h – as

codified in Section 5h(e) – to promote trading on SEFs.

Our budget for full SEF registration is projected to exceed five million dollars in the first

year of operation, and we estimate our costs will be more than $1 million annually to perform the

SRO functions of a registered SEF. These costs will substantially surpass the revenues from

trade execution fees a SEF could reasonably expect to receive for only Index CDS in the first

year or years of operations. Requiring a start-up SEF with a limited product offering to operate a

fully functional SRO will not improve market efficiencies or otherwise serve the public interest.

Absent an exemption, even with only a limited number of expected trades, MarketAxess would

be required to conduct surveillance, be capable of conducting lengthy investigations and hearings

for alleged misconduct, and provide arbitration capability for market participants.

Rather than impose burdensome SRO requirements on our fledgling Index CDS market,

the Commission should grant MarketAxess conditional exempt SEF status. Similar to

Regulation ATS, an exempt SEF that experiences episodic trading could avoid building a costly

internal SRO apparatus until its market's trading volume matures. Under our proposal, the CFTC

would retain regulatory authority over our conditionally exempt SEF and would benefit from the

real-time public reporting and daily chief compliance officer review of trades executed on the

platform. As trading grows on the MarketAxess platform, full SEF registration could follow.

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For now, the substitute regulation of the SEC, FINRA, and our proposed conditions are more

than adequate to promote the goals of the CEA's SEF provisions in Section 5h.

Conclusion

MarketAxess very much appreciates the Commission's consideration of our intention to

file a request for a conditional SEF registration exemption. Based on our experience operating a

successful SEC and FINRA regulated electronic trading platform, we request that the

Commission grant the proposed SEF registration exemption to promote competition among and

trading on SEFs. We believe strongly that this model is completely appropriate for limited-

product SEFs like ours to allow us to defer the cost of implementing SRO functionality until our

SEF market develops a critical mass of trading volume.

We look forward to working with the CFTC to achieve the congressional objective of

promoting swap trading on SEFs. If you have any comments or questions about this letter or the

SEF issues generally, please contact me or our General Counsel, Chuck Hood, at (212) 813-

6053.

Respectfully,

Richard M. McVey

Chairman and Chief Executive Officer

MarketAxess Holdings Inc.

Cc:

Chairman Gary Gensler

Commissioner Jill Sommers

Commissioner Bart Chilton

Commissioner Scott O'Malia

Commissioner Mark Wetjen