Swap Data Repository Registration

77306 Federal Register / Vol. 75, No.
237 / Friday, December 10, 2010 / Proposed Rules
SECURITIES AND EXCHANGE Commission does not edit personal amends the Exchange Act to require the
COMMISSION identifying information from following with respect to transactions in
submissions. You should submit only SBSs regulated by the Commission: (1)
17 CFR Parts 240 and 249 information that you wish to make Transactions in SBSs must be cleared
[Release No. 34–63347; File No. S7–35–10] available publicly. through a clearing agency if they are of
FOR FURTHER INFORMATION CONTACT: John a type that the Commission determines
RIN 3235–AK79 Ramsay, Deputy Director; Jo Anne must be cleared, unless an exemption
Swindler, Assistant Director; Richard applies; 4 (2) if an SBS is subject to the
Security-Based Swap Data Repository clearing requirement, then it must be
Vorosmarti, Special Counsel; Angie Le,
Registration, Duties, and Core traded on a registered trading platform,
Special Counsel; Miles Treakle, Staff
Principles i.e., a security-based swap execution
Attorney; or Bradley Gude, Special
AGENCY: Securities and Exchange Counsel, Division of Trading and facility (‘‘SB SEF’’) or SBS exchange,
Commission. Markets, at (202) 551–5777, Securities unless no facility makes such SBS
ACTION: Proposed rule. and Exchange Commission, 100 F available for trading; 5 and (3)
Street, NE., Washington, DC 20549. transactions in SBSs (whether cleared or
SUMMARY: In accordance with Section SUPPLEMENTARY INFORMATION: The uncleared) must be reported to a
763(i) of Title VII (‘‘Title VII’’) of the Commission is proposing Rules 13n–1 registered SDR or the Commission.6
Dodd-Frank Wall Street Reform and to 13n–11 under the Exchange Act The Dodd-Frank Act provides the
Consumer Protection Act of 2010 governing SDRs. The Commission is Commission with broad authority to
(‘‘Dodd-Frank Act’’), the Securities and soliciting comment on all aspects of the adopt rules governing SDRs and to
Exchange Commission (‘‘Commission’’) proposed rules and will carefully develop additional duties applicable to
is proposing new rules under the consider any comments received. SDRs.7 Today, the Commission is
Securities Exchange Act of 1934 proposing in this release new Rules
(‘‘Exchange Act’’) governing the security- I. Introduction 13n–1 to 13n–11 under the Exchange
based swap data repository (‘‘SDR’’) On July 21, 2010, President Barack Act governing SDR registration process,
registration process, duties, and core Obama signed the Dodd-Frank Act into duties, and core principles, including
principles. law.1 The Dodd-Frank Act was enacted duties related to data maintenance and
to, among other things, promote the access by relevant authorities and those
DATES: Comments should be submitted
financial stability of the United States seeking to use the SDR’s repository
on or before January 24, 2011.
by improving accountability and services.8 Pursuant to the legislation,
ADDRESSES: Comments may be
submitted by any of the following transparency in the financial system.2
Specifically, Title VII of the Dodd-Frank participant,’’ in Section 1a(18) of the Commodity
methods: Exchange Act (‘‘CEA’’), 7 U.S.C. 1a(18), as re-
Act provides the Commission and the designated and amended by Section 721 of the
Electronic Comments Commodity Futures Trading Dodd-Frank Act. Further, Section 721(c) of the
• Use the Commission’s Internet Commission (‘‘CFTC’’) with the Dodd-Frank Act requires the CFTC to adopt a rule
authority to regulate over-the-counter to further define the terms ‘‘swap,’’ ‘‘swap dealer,’’
comment form (http://www.sec.gov/ ‘‘major swap participant,’’ and ‘‘eligible contract
rules/proposed.shtml); or (‘‘OTC’’) derivatives in light of the recent participant,’’ and Section 761(b) of the Dodd-Frank
• Send an e-mail to rule- financial crisis, which demonstrated the Act permits the Commission to adopt a rule to
comments@sec.gov. Please include File need for enhanced regulation of the further define the terms ‘‘security-based swap,’’
OTC derivatives market. The Dodd- ‘‘security-based swap dealer,’’ ‘‘major security-based
Number S7–53–10 on the subject line; swap participant,’’ and ‘‘eligible contract
or Frank Act is intended to strengthen the participant,’’ with regard to SBSs, for the purpose
• Use the Federal eRulemaking Portal existing regulatory structure and to of including transactions and entities that have
(http://www.regulations.gov). Follow the provide the Commission and the CFTC been structured to evade Title VII. Finally, Section
with effective regulatory tools to oversee 712(a) of the Dodd-Frank Act provides that the
instructions for submitting comments. Commission and CFTC, after consultation with the
the OTC derivatives market, which has Federal Reserve, shall jointly prescribe regulations
Paper Comments grown exponentially in recent years and regarding ‘‘mixed swaps,’’ as may be necessary to
• Send paper comments in triplicate is capable of affecting significant sectors carry out the purposes of Title VII. To assist the
to Elizabeth M. Murphy, Secretary, of the U.S. economy. Commission and CFTC in further defining the terms
specified above, and to prescribe regulations
Securities and Exchange Commission, The Dodd-Frank Act provides the regarding ‘‘mixed swaps’’ as may be necessary to
100 F Street, NE., Washington, DC CFTC with authority to regulate carry out the purposes of Title VII, the Commission
20549. ‘‘swaps,’’ the Commission with authority and the CFTC are currently seeking comments from
to regulate ‘‘security-based swaps’’ interested parties. See Exchange Act Release No.
All submissions should refer to File 62717 (Aug. 13, 2010), 75 FR 51429 (Aug. 20, 2010)
Number S7–53–10. This file number (‘‘SBSs’’), and both the CFTC and the (File No. S7–16–10) (advance joint notice of
should be included on the subject line Commission with authority to regulate proposed rulemaking regarding definitions
if e-mail is used. To help us process and ‘‘mixed swaps.’’ 3 The Dodd-Frank Act contained in Title VII).
4 See Public Law 111–203, § 763(a) (adding
review your comments more efficiently, 1 The Dodd-Frank Wall Street Reform and Exchange Act Section 3C).
please use only one method. The Consumer Protection Act, Public Law 111–203, 124 5 See Public Law 111–203, § 763(c) (adding
Commission will post all comments on Stat. 1376 (2010). Exchange Act Section 3D).
the Commission’s Internet Web site 2 See Public Law 111–203, Preamble. 6 See Public Law 111–203, §§ 763(i) and 766(a)
mstockstill on DSKH9S0YB1PROD with PROPOSALS3
(http://www.sec.gov/rules/ 3 Section 712(d) of the Dodd-Frank Act provides (adding Exchange Act Sections 13(m)(1)(G) and
that the Commission and the CFTC, in consultation 13A(A)(1), respectively). The Dodd-Frank Act
proposed.shtml). Comments are also amends the CEA to provide for a similar regulatory
with the Board of Governors of the Federal Reserve
available for Web site viewing and System (‘‘Federal Reserve’’), shall jointly further framework with respect to transactions in swaps
printing in the Commission’s Public define the terms ‘‘swap,’’ ‘‘security-based swap,’’ regulated by the CFTC.
Reference Room, 100 F Street, NE., ‘‘swap dealer,’’ ‘‘security-based swap dealer,’’ ‘‘major 7 See Public Law 111–203, § 763(i) (adding
Washington, DC 20549 on official swap participant,’’ ‘‘major security-based swap Exchange Act Sections 13(n)(7)(D)(i) and 13(n)(9)).
participant,’’ ‘‘eligible contract participant,’’ and 8 Section 712(a)(2) of the Dodd-Frank Act
business days between the hours of 10 ‘‘security-based swap agreement.’’ These terms are provides that, before commencing any rulemaking
a.m. and 3 p.m. All comments received defined in Sections 721 and 761 of the Dodd-Frank regarding SBSs, security-based swap dealers (‘‘SBS
will be posted without change; the Act and, with respect to the term ‘‘eligible contract dealers’’), major security-based swap participants
VerDate Mar<15>2010 17:43 Dec 09, 2010 Jkt 223001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 E:\FR\FM\10DEP3.SGM 10DEP3
Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 77307
SDRs are required to collect and framework that promotes transparency SBS transactions is dispersed and not
maintain accurate SBS transaction data and efficiency in the OTC derivatives readily available to regulators and
so that relevant authorities can access markets and creates important others. SDRs may be especially critical
and analyze the data from secure, infrastructure to assist relevant during times of market turmoil, both by
central locations to better monitor for authorities in performing their market giving relevant authorities information
systemic risk and potential market oversight functions. to help limit systemic risk and by
abuse. In preparation for the rulemakings promoting stability through enhanced
A separate release issued by the related to SDRs, Commission and CFTC transparency. By enhancing stability in
Commission today proposes Regulation staff held a joint public roundtable (the the SBS market, SDRs may also
SBSR, which, among other things, ‘‘Data Roundtable’’) on September 14, indirectly enhance stability across
implements the provisions of the Dodd- 2010 to gain further insight into many markets, including equities and bond
Frank Act for reporting SBS transactions of the issues addressed in this markets.13
to SDRs, including standards for the proposal.12 The rules proposed today In addition, SDRs have the potential
data elements that must be provided.9 In take into account the views expressed at to reduce operational risk and enhance
addition, the Dodd-Frank Act requires the Data Roundtable, as well as the operational efficiency in the SBS
the Commission to engage in comments received. market. By maintaining transaction
rulemaking for the public dissemination This proposed rulemaking is among records that are accessible by both
of SBS transaction, volume, and pricing the first that the Commission has counterparties to an SBS, SDRs will
data,10 and provides the Commission considered in connection with its provide a mechanism for counterparties
with discretion to determine an mandates under the Dodd-Frank Act, to ensure that their records reconcile on
appropriate approach to implement this and the Commission is mindful of the all of the key economic details, which
important function. In Regulation SBSR, considerations raised by this timing. may decrease the likelihood of disputes.
the Commission proposes to require The Commission notes that the SBS The Dodd-Frank Act’s requirement of
SDRs to undertake this role.11 market is in a nascent stage of regulatory having all SBSs reported to an SDR
Taken together, the rules that the development compared to the markets encourages standardization of data
Commission proposes today seek to for equity securities and listed options
elements, which promotes operational
provide improved transparency to and that the SBS market could develop
and market efficiency.
regulators and the markets through further as the Dodd-Frank Act is fully
comprehensive regulations for SBS implemented and these transactions The data maintained by an SDR may
transaction data and SDRs. The move to central clearing and trading on also assist regulators in (i) preventing
proposed rules would require SBS organized markets. Accordingly, the market manipulation, fraud, and other
transaction information to be (1) Commission urges all interested parties market abuses; (ii) performing market
provided to SDRs in accordance with to comment on all aspects of this surveillance, prudential supervision,
uniform data standards; (2) verified and proposed rulemaking, including and macroprudential (systemic risk)
maintained by SDRs, which serve as whether this proposal, taken as a whole, supervision; and (iii) resolving issues
secure, centralized recordkeeping appropriately advances the objectives of and positions after an institution fails.14
facilities that are accessible by relevant the Dodd-Frank Act in a manner that SDRs themselves are, however,
authorities; and (3) publicly adequately takes into account the subject to certain operational risks. The
disseminated in a timely fashion by characteristics of the relevant markets. inability of an SDR to protect the
SDRs. In combination, these proposed accuracy and integrity of the data that
II. Role, Regulation, and Business it maintains or the inability of an SDR
rules represent a significant step
Models of SDRs to make such data available to
forward in providing a regulatory
Under the Dodd-Frank Act, SDRs are regulators, market participants, and
(‘‘major SBS participants’’), SDRs, SBS clearing intended to play a key role in enhancing others in a timely manner could have a
agencies, persons associated with an SBS dealer or transparency in the SBS market by significant negative impact on the SBS
major SBS participant, eligible contract participants retaining complete records of SBS market. Failure to maintain privacy of
with regard to SBSs, or SB SEFs pursuant to
Subtitle B of Title VII, the Commission must transactions, maintaining the integrity such data could lead to market abuse
consult and coordinate with the CFTC and other of those records, and providing effective and subsequent loss of liquidity.
prudential regulators for the purposes of assuring access to those records to relevant Therefore, it is important that SDRs are
regulatory consistency and comparability, to the authorities and the public in line with well-run and effectively regulated.
extent possible. See Public Law 111–203,
§ 712(a)(2). Any person that is required to be their respective information needs. The
registered as an SDR under Exchange Act Section enhanced transparency provided by an 13 See Darrell Duffie, Ada Li, and Theo Lubke,
13(n) must register with the Commission, regardless SDR is important to help regulators and Policy Perspectives of OTC Derivatives Market
of whether that person is also registered under the others monitor the build-up and Infrastructure, Federal Reserve Bank of New York
CEA as a swap data repository. Public Law 111– Staff Report No. 424, dated January 2010, as revised
203, § 763(i) (adding Exchange Act Section concentration of risk exposures in the March 2010 (‘‘Transparency can have a calming
13(n)(8)). The Commission preliminarily believes SBS market. Without an SDR, data on influence on trading patterns at the onset of a
that an entity that registers with the Commission as potential financial crisis, and thus act as a source
an SDR is likely to register also with the CFTC as 12 The Commission and the CFTC solicited of market stability to a wider range of markets,
a swap data repository. As a result, the Commission comments on the Data Roundtable. See Exchange including those for equities and bonds.’’).
staff and the CFTC staff have consulted and Act Release No. 62863 (Sept. 8, 2010), 75 FR 55575 14 See Letter from DTCC to Chairmen Mary
coordinated with one another regarding their (Sept. 13, 2010). Comments received by the Schapiro and Gary Gensler (Nov. 15, 2010)
respective Commissions’ proposed rules regarding Commission are available at http://www.sec.gov/cgi- (available at http://www.sec.gov/comments/df-title-
SDRs and swap data repositories as mandated by bin/ruling-comments?ruling=df-title-vii-swap-data- vii/swap-data-repositories/swapdatarepositories-
Sections 763 and 728 of the Dodd-Frank Act, repositories&rule_path=/comments/df-title-vii/ 13.pdf) (‘‘A registered SDR should be able to
respectively. The Commission staff has also swap-data-repositories&file_num= provide (i) enforcement agents with necessary
consulted and coordinated with other prudential DF%20Title%20VII%20- information on trading activity; (ii) regulatory
regulators. %20Swap%20Data%20Repositories&action=Show_ agencies with counterparty-specific information
9 See Exchange Act Release No. 63346 (Nov. 19,
Form&title=Swap%20Data%20Repositories%20- about systemic risk based on trading activity; (iii)
2010) (‘‘Regulation SBSR Release’’). %20Title%20VII%20Provisions%20of%20the% aggregate trade information for publication on
10 Public Law 111–203, § 763(i) (adding Exchange
20Dodd-Frank%20Wall%20Street market-wide activity; and (iv) a framework for real-
Act Section 13(m)(1)). %20Reform%20and%20Consumer%20 time reporting from swap execution facilities and
11 See Regulation SBSR Release, supra note 9. Protection%20Act. derivatives clearinghouses.’’)
77308 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules
The Commission is cognizant that the corporate entities, and credit events utilize to operate registered SDRs, views
proposed rules discussed herein, as well such as bankruptcies, restructurings, on the potential areas of competition
as other proposals that the Commission and insolvencies. Further, an entity that among SDRs, and the interplay between
may consider in the coming months to already offers post-trade processing or the commercial viability of various SDR
implement the Dodd-Frank Act, if matching and confirmation services business models and any rules
adopted, could significantly affect—and might seek to expand its business to implemented under the Dodd-Frank
be significantly affected by—the nature include acting as a data repository. Act. The Commission does not intend
and scope of the SBS market in a Finally, any of these models could by the requirements imposed on an SDR
number of ways. For example, the involve the sale of enhanced data or to mandate any particular business
Commission recognizes that if the tools derived from the use and analysis model, and it solicits comment on the
measures that are adopted are too of data reported to the repository. effect of the proposed rules on business
onerous for new entrants, they could The SDR regulatory regime set forth in models that SDRs would adopt, and the
discourage competition and formation the Dodd-Frank Act and any rules that consequences for market integrity,
of SDRs. On the other hand, if the the Commission may adopt to transparency, and efficiency.
Commission adopts rules that are too implement the Act will likely affect an
entity’s decision over which business Request for Comment
permissive, SDRs might be prone to
deficiencies such as limited access to model to adopt. An entity likely will The Commission also requests
their services or potential lack of data remain in or enter into the SBS market comment on the following specific
integrity. The Commission is also as a registered SDR based upon the issues:
mindful that further development of the interplay between the business model • Are there business models other
SBS market may alter the calculus for that it selects and the regulatory than those described above that an SDR
future regulation of SDRs. As requirements that the Commission may want to adopt? What are the
commenters review this release, they are imposes under the Dodd-Frank Act. business models, and what are their
urged to consider generally the role that The Commission recognizes the benefits and drawbacks for SDRs and for
regulation may play in fostering or importance of promoting the the integrity, transparency, and
limiting development of the SBS market development of SDRs to collect, efficiency of the SBS market?
(or, vice versa, the role that market maintain, and make available accurate • Do the Commission’s proposed
developments may play in changing the SBS data to relevant authorities and the rules favor or discourage one business
nature and implications of regulation) public. The rules that the Commission model over another? If so, identify
and to focus specifically on this issue proposes in this release today reflect its which rule(s) and explain.
with respect to the proposals regarding preliminary views on potentially • Should the Commission’s rules
appropriate regulatory requirements to favor or discourage one business model
SDRs that are discussed below.
implement the Dodd-Frank Act with over another? If so, which models
The Commission is also aware that respect to SDRs. In this regard, the should be favored or discouraged and
the regulatory framework for SDRs being Commission has considered its why?
developed by the Commission must take experience in regulating the securities • What factors determine whether an
into account the commercial viability of market and has sought to propose rules entity decides to operate as an SDR?
SDRs, because realizing the benefits of that take into account the obligations • Who are the likely investors in or
SDRs requires that entities seek to the Commission has imposed on other sources of capital for new SDRs? What
engage in the business of being an SDR. registrants.15 At the same time, the are the key sources of risk or uncertainty
In this regard, the Commission, which Commission is interested in gathering facing such persons? How would the
has limited experience with data additional information regarding the rules being proposed by the
repositories, seeks to understand the business models that the industry may Commission, taken as a whole or
potential revenue streams and operating individually, facilitate or discourage the
costs for SDRs. Based on our 15 For example, proposed Rule 13n-6 would investment of capital in SDRs?
understanding of existing data require SDRs to comply with obligations related to • What are the revenue sources
repositories and discussions with their automated systems’ capacity, resiliency, and
security that are comparable to the standards
available to SDRs? How would the rules
industry representatives, it appears that applicable to self-regulatory organizations, proposed or that may be adopted affect
SDRs might operate under any one of a including clearing agencies, and other registrants potential revenue sources for SDRs, and
number of business models. For pursuant to the Commission’s Automation Review their commercial viability? Could
example, an SDR could provide basic Policy standards. And, the requirement in proposed
Rule 13n-4 for an SDR to ensure that any dues, fees,
repositories be commercially viable if
services and access to data on an at-cost or any other charges imposed by, and any discounts the only permissible sources of revenue
utility model basis. Alternatively, an or rebates offered by, an SDR be fair and reasonable derived from receiving and generating
SDR might seek to earn a profit from and not unreasonably discriminatory is similar to and providing aggregated data? Which
fees charged to participants for reporting obligations imposed by the Exchange Act on other
registrants. See, e.g., Exchange Act Section 6(b)(4) revenue sources are expected to be most
SBS transaction data to the SDR or for (‘‘The rules of the exchange [shall] provide for the important from the standpoint of
providing raw data to participants or equitable allocation of reasonable dues, fees, and commercial viability?
others. In either of these two models, other charges among its members and issuers and • Would there be advantages or
other persons using its facilities’’); Exchange Act
the SDR could also offer to participants Section 17A(b)(3)(D) (‘‘The rules of the clearing disadvantages to the market if SDRs
additional or ancilliary services related agency [shall] provide for the equitable allocation were required to provide basic services
to the SBS data that is reported to the of reasonable dues, fees and other charges among on an at-cost or utility model basis?
SDR, such as calculating quarterly its participants’’); see also Exchange Act Sections • Do the rules proposed by the
11A(c)(1)(C) and (D) (providing that the
coupon and other payments (e.g., Commission may prescribe rules to assure that all
Commission in this release, taken as a
upfront fees or credit event payments) securities information processors (‘‘SIPs’’) may, ‘‘for whole, reflect an appropriate regulatory
due between counterparties of an SBS; purposes of distribution and publication, obtain on burden on SDRs, considering the
providing bilateral netting calculations; fair and reasonable terms such information’’ and to statutory mandates and policy goals of
assure that ‘‘all other persons may obtain on terms
and providing automated life cycle which are not unreasonably discriminatory’’ the
the Dodd-Frank Act? Should the
processing for successor events such as transaction information published or distributed by Commission impose additional or fewer
reorganizations and renaming of SIPs). requirements on SDRs? Which
requirements should be added or swap data repository’’ to mean ‘‘any by which an SDR may apply to the
removed and why? Which requirements, person that collects and maintains Commission for registration. The
if any, in combination or alone, would information or records with respect to proposed rule would provide that an
be unduly burdensome on SDRs? transactions or positions in, or the terms
application for the registration of an
• With respect to entities that and conditions of, security-based swaps SDR must be filed electronically in a
currently perform repository services for entered by third parties for the purposetagged 22 data format on proposed new
SBSs or other instruments, how do of providing a centralized recordkeepingForm SDR with the Commission in
current practices compare to the facility for security-based swaps.’’ 16 accordance with the instructions
practices that the Commission proposes Exchange Act Section 13(n), enacted in contained in the form.23 The
to require in these rules? What are the Section 763(i) of the Dodd-Frank Act, Commission anticipates developing an
incremental costs to potential SDRs in makes it ‘‘unlawful for any person, online filing system through which an
connection with adding to or revising unless registered with the Commission, SDR would be able to file and update
their current practices in order to Form SDR.24 The information filed
directly or indirectly, to make use of the
implement these proposed rules? mails or any means or instrumentality ofwould be available on the Commission’s
• How many SDRs are likely to interstate commerce to perform the Web site.25 The Commission
register with the Commission? Will functions of a security-based swap data preliminarily believes that filing Form
there likely be more than one SDR for repository.’’ 17 To be registered and SDR in an electronic format would be
each asset class of SBSs? If there will maintain such registration, each SDR is less burdensome and more efficient for
likely be only one SDR for each asset required to comply with the both the SDRs and the Commission.
class, will that be due to the inherent requirements and core principles As part of the Commission’s
nature of the market and of the SDR described in Exchange Act Section longstanding efforts to increase
business model; will that be due to the 13(n), as well as with any requirements transparency and the usefulness of
rules proposed by the Commission; or that the Commission adopts by rule or information, the Commission has been
will that be due to other factors? Should regulation.18 The Dodd-Frank Act also implementing data-tagging of
the Commission impose additional requires each SDR to appoint a chief information contained in electronic
regulatory requirements to mitigate any compliance officer (‘‘CCO’’) and filings to improve the accuracy of
potential detrimental impact on the SBS specifies the CCO’s duties.19 In financial information and facilitate its
market related to a single, dominant addition, the Dodd-Frank Act grants the analysis.26 Data becomes machine-
SDR for each asset class? Or should the Commission authority to inspect and readable when it is labeled, or tagged,
Commission instead seek to encourage examine any registered SDR and to using a computer markup language that
more competition among SDRs by prescribe data standards for SDRs.20 can be processed by software programs
modifying or eliminating certain aspects for analysis. Such computer markup
of its proposed rules to facilitate new A. Proposed Rule Regarding Registration
languages use standard sets of
entrants into the market? of SDRs 21
definitions, or ‘‘taxonomies,’’ that
• Exchange Act Section 13(n)(5) The Commission is proposing Rule translate text-based information in
requires an SDR to ‘‘provide direct 13n–1, which establishes the procedures
electronic access to the Commission (or 22 The term ‘‘tag’’ (including the term ‘‘tagged’’)
any designee of the Commission, 16 Public Law 111–203, § 761 (adding Exchange would be defined as an identifier that highlights
including another registered entity).’’ Act Section 3(a)(75)). specific information submitted to the Commission
17 Public Law 111–203, § 763(i) (adding Exchange that is in the format required by the Electronic Data
Under this provision, should the Gathering, Analysis, and Retrieval System
Act Section 13(n)(1)). Any person that is required
Commission designate one SDR as the to be registered as an SDR under Exchange Act (‘‘EDGAR’’) Filer Manual, as described in Rule 301
recipient of the information of other Section 13(n) must register with the Commission, of Regulation S–T. See proposed Rule 13n–1(a)(3);
SDRs, through direct electronic access regardless of whether that person is also registered see also 17 CFR 232.301. The term ‘‘EDGAR Filer
under the CEA as a swap data repository. Id. Manual’’ would have the same meaning as set forth
to the SBS data at the other SDRs, in (adding Exchange Act Section 13(n)(8)). Under the in Rule 11 of Regulation S–T (defining ‘‘EDGAR
order to provide the Commission and legislation, a clearing agency may register as an Filer Manual’’ as ‘‘the current version of the manual
relevant authorities with a consolidated SDR. Id. (adding Exchange Act Section prepared by the Commission setting out the
location for SBS data? If so, should the 13(m)(1)(H)). In addition, any person that is technical format requirements for an electronic
required to register as an SDR pursuant to this submission’’). See Proposed Rule 13n–1(a)(1); see
consolidation of data from SDRs be by section must register with the Commission also 17 CFR 232.11.
asset class of SBSs or across all asset regardless of whether that person is also registered 23 See proposed Rule 13n–1(b).
classes? What would be the costs and as an SB SEF. 24 The Commission anticipates that SDR filings
benefits of requiring SDRs to report 18 See id. (adding Exchange Act Section 13(n)(3)).
will be submitted through EDGAR, in which case
19 See id. (adding Exchange Act Section 13(n)(6)). the electronic filing requirements of Regulation S–
transaction data to another registered
20 See id. (adding Exchange Act Sections 13(n)(2) T would apply. See generally 17 CFR 232
SDR that would consolidate the (governing the electronic submission of documents
and 13(n)(4)). In a separate proposal, the
information? If the Commission were to Commission is proposing rules prescribing the data filed with the Commission).
designate one SDR to be the elements that an SDR is required to accept for each 25 If the Commission adopts the rule as proposed,
consolidator of SBS data in an asset SBS in association with requirements under Section it is possible that SDRs might be required to file
class or for all SBS data, are there 763(i), adding Exchange Act Section 13(n)(4)(A) Form SDR in paper until such time as an electronic
relating to standard setting and data identification. filing system is operational and capable of receiving
requirements that should be imposed on See Regulation SBSR Release (proposed Rule 901), the form. SDRs would be notified as soon as the
such an entity that are different than supra note 9. Any comments regarding the data electronic system can accept filing of Form SDR. At
those imposed on other SDRs? Are there elements should be submitted in connection with such time, the Commission may require each SDR
specific criteria that the Commission that proposal. to promptly re-file electronically Form SDR and any
21 In separate proposals, the Commission is amendments to the form.
should consider in selecting an SDR to proposing rules requiring each SDR to register as a 26 See Regulation S–T, 17 CFR 232. See also
be a consolidator of SBS data? SIP, as defined in Exchange Act Section 3(a)(22), on Securities Act Release No. 8891 (Feb. 6, 2008), 73
Form SIP based on additional requirements FR 10592 (Feb. 27, 2008); Securities Act Release No.
III. Discussion of Proposed Rules proposed in those rules and to register as a clearing 9002 (Jan. 30, 2009), 74 FR 6776 (Feb. 10, 2009);
Governing SDRs agency, depending on an SDR’s services. See, e.g., Securities Act Release No. 9006 (Feb. 11, 2009), 74
Regulation SBSR Release (proposed Rule 909), FR 7748 (Feb. 19, 2009); Exchange Act Release No.
Exchange Act Section 3(a)(75), supra note 9. Any comments regarding such 61050 (Nov. 23, 2009), 74 FR 63832 (Dec. 4, 2009);
enacted in Section 761 of the Dodd- registrations should be submitted in connection Investment Company Release No. 29132 (Feb. 23,
Frank Act, defines a ‘‘security-based with these proposals. 2010), 75 FR 10060 (Mar. 4, 2010).
Commission filings into structured data and maintaining data or for which it foreign jurisdictions may have laws that
that can be retrieved, searched, and proposes to collect and maintain data, complicate the ability of financial
analyzed through automated means. and a description of the functions that institutions such as SDRs located in
Requiring the information to be tagged it performs or proposes to perform. This their jurisdictions from sharing and/or
in a machine-readable format using a information would assist the transferring certain information,
data standard that is freely available, Commission and its staff in evaluating including personal financial data of
consistent, and compatible with the the applications and overseeing individuals that the financial
tagged data formats already in use for registered SDRs. institutions come to possess from third
Commission filings would enable the An SDR would be required to consent persons (e.g., personal data relating to
Commission to review and analyze that any notice or service of process, the identity of market participants or
effectively Form SDR submissions. pleadings, or other documents in their customers). The Commission
connection with any action or preliminarily believes that the non-
1. Proposed New Form SDR proceeding against the SDR may be resident SDR certification is important
Proposed Form SDR includes a set of effectuated by certified mail to an officer to confirm that each SDR located
instructions for its proper completion or person specified by the SDR at a overseas has taken the necessary steps
and submission. These instructions are given U.S. address. The Commission to be in the position to provide the
attached to this release, together with preliminarily believes that this consent Commission with prompt access to its
proposed Form SDR. The instructions is important to minimize any logistical books and records and to be subject to
would require an SDR to indicate the obstacles (e.g., locating defendants or onsite inspection and examination by
purpose for which it is submitting the respondents abroad) that the the Commission. Failure to make this
form (i.e., application for registration, or Commission may encounter when certification may be a basis for the
amendment to an application or to an attempting to provide notice to an SDR Commission to deny an application for
effective registration) and then to or to effect service, including service registration. If a registered non-resident
provide information in seven categories: overseas. SDR becomes unable to comply with
(1) General information, (2) business Form SDR must be signed by a person this certification, then this may be a
organization, (3) financial information, who is duly authorized to act on behalf basis for the Commission to revoke the
(4) operational capability, (5) access to of the SDR. The signer would be SDR’s registration.
services and data, (6) other policies and required to certify that all information Business Organization. Proposed
procedures, and (7) legal opinion. As contained in the application, including Form SDR would require each SDR to
part of the application process, each the required items and exhibits, is true, provide information regarding its
SDR would be required to provide current, and complete. This certification business organization, including
additional information to the is consistent with the certification information about (1) any person who
Commission upon request.27 provisions in the registration forms for owns 10 percent or more of the SDR’s
The Commission preliminarily SIPs, investment advisers, and broker- stock or who, either directly or
believes that permitting an SDR to dealers (i.e., Forms SIP, ADV, and indirectly, through agreement or
provide information in narrative form BD).28 otherwise, in any other manner, may
would allow the SDR greater flexibility If an applicant is a non-resident SDR, control or direct the SDR’s management
and opportunity for meaningful then the signer of Form SDR would also or policies, (2) the business experience,
disclosure of relevant information. The be required to certify that the SDR can, qualifications, and disciplinary history
Commission also preliminarily believes as a matter of law, provide the of its designated CCOs, officers,
that it is necessary to obtain the Commission with prompt access to the directors, governors, and persons
requested information in proposed Form SDR’s books and records and that the performing functions similar to any of
SDR to enable the Commission to SDR can, as a matter of law, submit to the foregoing, and the members of all
determine whether to grant or deny an onsite inspection and examination by standing committees,31 (3) its
application for registration. Specifically, the Commission.29 For purposes of the
the information would assist the certification, the term ‘‘non-resident of ‘‘non-resident broker or dealer’’ in Exchange Act
Commission in understanding the basis security-based swap data repository’’ Rule 17a–7(d)(3). See 17 CFR 240.17a–7(d)(3).
for registration as well as an SDR’s would mean (i) in the case of an 31 More specifically, proposed Form SDR would
overall business structure, financial individual, one who resides in or has require an SDR to disclose the following
condition, track record in providing his principal place of business in any information regarding its designated CCOs, officers,
directors, governors, and persons performing
access to its services and data, place not in the United States; (ii) in the functions similar to any of the foregoing, and the
technological reliability, and policies case of a corporation, one incorporated members of all standing committees: (a) Name, (b)
and procedures to comply with its in or having its principal place of title, (c) date of commencement and, if appropriate,
statutory obligations. The information business in any place not in the United termination of present term of position, (d) length
of time such person has held the same position, (e)
would also be useful to the Commission States; or (iii) in the case of a brief account of the business experience of such
in tailoring any requests for additional partnership or other unincorporated person over the last five years, (f) any other
information that it may ask an SDR to organization or association, one having business affiliations in the securities industry or
provide. Furthermore, the required its principal place of business in any OTC derivatives industry, and (g) a description of:
(1) Any order of the Commission with respect to
information would assist the place not in the United States.30 Certain such person pursuant to Exchange Act Sections
Commission in the preparation of its 15(b)(4), 15(b)(6), 19(h)(2), or 19(h)(3); (2) any
28 See 17 CFR 249.1001 (Form SIP, for application

inspection and examination of an SDR. conviction or injunction of a type described in
General Information. Proposed Form for registration as a securities information processor Exchange Act Sections 15(b)(4)(B) or (C) within the
or to amend such an application or registration); past ten years; (3) any action of a self-regulatory
SDR would require an SDR to provide Form ADV (available at http://www.sec.gov/about/ organization with respect to such person imposing
contact information, information forms/formadv.pdf); and Form BD (available at a final disciplinary sanction pursuant to Exchange
concerning successor entities (if http://www.sec.gov/about/forms/formbd.pdf). Act Sections 6(b)(6), 15A(b)(7), or 17A(b)(3)(G); (4)
29 Under Exchange Act Section 13(n)(2), an SDR
applicable), a list of asset classes of any final action by a self-regulatory organization
is subject to inspection and examination by the with respect to such person constituting a denial,
SBSs for which the SDR is collecting Commission. See Public Law 111–203, § 763(i). bar, prohibition, or limitation of membership,
30 See also proposed Rule 13n–1(a)(2). This participation, or association with a member, or of
27 See proposed Rule 13n–1(b). definition is substantially similar to the definition access to services offered by, such organization of
governance arrangements, (4) the SDR’s charges imposed, or to be imposed, for form and the data elements of such
constitution, articles of incorporation or its services as well as any discounts and service, (4) copies of the contracts
association with all amendments to rebates offered, or to be offered, and (4) governing the terms by which persons
them, existing by-laws, rules, a description of any differentiations in may subscribe to the SDR’s services,
procedures, and instruments such dues, fees, other charges, including ancillary services, (5) any
corresponding to them, (5) the SDR’s discounts, and rebates. specifications, qualifications, and
organizational structure, (6) its Operational Capability. Proposed criteria that limit, are interpreted to
affiliates,32 (7) any material pending Form SDR would also require each SDR limit, or have the effect of limiting
legal proceedings to which the SDR or to provide information on its access to or use of any services offered
its affiliate is a party or to which any of operational capability, including (1) its or data maintained by the SDR, (6) any
its property is the subject, (8) the SDR’s functions and services, (2) the computer specifications, qualifications, or other
material contracts with any SB SEF, hardware that it uses to perform its criteria required of persons who supply
clearing agency, central counterparty, functions, (3) personnel qualifications SBS information to the SDR for
and third party service provider, and (9) for each category of professional, non- collection and maintenance or of
the SDR’s policies and procedures to professional, and supervisory persons who seek to connect to or link
minimize conflicts of interest in its employees employed by the SDR or the with the SDR, (7) any specifications,
decision-making process and to resolve division, subdivision, or other qualifications, or other criteria required
any such conflicts of interest. Obtaining segregable entity within the SDR, (4) the of any person who requests access to
this information would assist the SDR’s measures or procedures to data maintained by the SDR, and (8) the
Commission in understanding an SDR’s provide for the security of any system SDR’s policies and procedures to review
overall business structure, governance employed to perform its functions, any prohibition or limitation of any
arrangements, and operations, all of including any physical and operational person with respect to access to services
which would assist the Commission in safeguards designed to prevent offered or data maintained by the SDR
its inspection and examination of the unauthorized access to the system, (5) and to determine whether any person
SDR. any circumstances within the past year who has been denied access has been
Financial Information. Each SDR in which such security measures or discriminated against unfairly.
would be required to disclose as safeguards failed to prevent any such Obtaining this information would assist
exhibits to proposed Form SDR certain unauthorized access to the system and the Commission in determining, among
financial and related information, any measures taken to prevent a other things, whether an SDR can
including (1) its balance sheet, reoccurrence, (6) any measures used to comply with proposed Rule 13n–4(c)(1),
statement of income and expenses, satisfy itself that the information as discussed further in Section III.D.2.a
statement of sources and application of received or disseminated by the system in this release.
revenues, and all notes or schedules is accurate, (7) the SDR’s backup
thereto, as of the most recent fiscal year systems or subsystems that are designed Other Policies and Procedures.
of the SDR, or, alternatively, a financial to prevent interruptions in the Proposed Form SDR would require each
report, as discussed further in Section performance of any SDR functions, (8) SDR to submit as exhibits: (1) The SDR’s
III.K.3 of this release, (2) a balance sheet limitations on the SDR’s capacity to policies and procedures to protect the
and statement of income and expense receive (or collect), process, store, or privacy of any and all SBS transaction
for each affiliate of the SDR as of the display its data and factors that account information that the SDR receives from
end of the most recent fiscal year of for such limitations, and (9) the a market participant or any registered
each such affiliate, or, alternatively, priorities of assignment of capacity entity, (2) a description of the SDR’s
identification of the most recently filed between functions of the SDR and any safeguards, policies, and procedures to
annual report on Form 10–K of the other uses and methods used to divert prevent the misappropriation or misuse
SDR’s affiliate, if available, (3) the SDR’s capacity between such functions and of (a) any confidential information
schedule of dues, fees, and other other uses. Obtaining this information received by the SDR, including, but not
would assist the Commission in limited to, trade data, position data, and
a member thereof; and (5) any final action by determining, among other things, any nonpublic personal information
another federal regulatory agency, including the whether an SDR is able to comply with about a market participant or any of its
CFTC, any state regulatory agency, or any foreign
proposed Rule 13n–6, as discussed customers; (b) material, nonpublic
financial regulatory authority resulting in: (i) A information; and/or (c) intellectual
finding that such person has made a false statement further in Section III.F of this release.
or omission, or has been dishonest, unfair, or Access to Services and Data. property by the SDR or any person
unethical; (ii) a finding that such person has been Proposed Form SDR would further associated with the SDR for their
involved in a violation of any securities-related require an SDR to provide information personal benefit or for the benefit of
regulations or statutes; (iii) a finding that such others, (3) the SDR’s policies and
person has been a cause of a business having its
regarding access to its services and data,
authorization to do business denied, suspended, including (1) the number of persons procedures regarding its use of the SBS
revoked, or restricted; (iv) an order entered, in the who presently subscribe, or who have transaction information that it receives
past ten years, against such person in connection notified the SDR of their intention to from a market participant, any
with a securities-related activity; or (v) any registered entity, or any other person for
disciplinary sanction, including a denial,
subscribe, to its services, (2) instances in
suspension, or revocation of such person’s which the SDR has prohibited or limited non-commercial and/or commercial
registration or license or otherwise, by order, a any person with respect to access to purposes, (4) the SDR’s procedures and
prevention from associating with a securities- services offered or data maintained by a description of its facilities for
related business or a restriction of such person’s resolving disputes over the accuracy of
activities.
the SDR,33 (3) the storage media of any
32 For purposes of proposed Form SDR, an service furnished in machine-readable the transaction data and positions that
‘‘affiliate’’ of an SDR would be defined as a person are recorded in the SDR, (5) the SDR’s
that, directly or indirectly, controls, is controlled 33 If the Commission adopts proposed Rule 909 of policies and procedures relating to its
by, or is under common control with the SDR. See Regulation SBSR, which would require each SDR to calculation of positions, (6) the SDR’s
also proposed Rule 13n–4(a)(1). This proposed register as a SIP, then Exchange Act Section
definition of ‘‘affiliate’’ is designed to allow the 11A(b)(5) would govern denials of access to all
policies and procedures to prevent any
Commission to collect comprehensive identifying SDRs’ services. See Regulation SBSR Release provision in a valid SBS from being
information relating to an SDR. (proposed Rule 909), supra note 9. invalidated or modified through the
procedures or operations of the SDR, Commission’s electronic filing system and members of all standing committees
and (7) a plan to ensure that the for receiving Form SDR, should the appropriate? If not, what should the
transaction data and position data that Commission require each SDR to timeframes be?
are recorded in the SDR continue to be promptly re-file electronically Form • Should the suggested timeframe
maintained after the SDR withdraws SDR and any amendments to the form relating to any conviction or injunction
from registration, which shall include after the system is operational? If so, of a type described in Exchange Act
procedures for transferring transaction what would be a reasonable timeframe Sections 15(b)(4)(B) or (C) be ten years
data and position data to the to allow such re-filing (e.g., 30 days, 60 as proposed? If not, should it be longer,
Commission or its designee (including days)? Would the re-filing be unduly shorter, or indefinite? Should it be
another registered SDR). As discussed burdensome for SDRs? consistent with other forms (e.g., Form
further below, the Commission is • Which information in Form SDR, BD) or with Section 15(b)(4)(B) itself?
proposing to require each SDR to including exhibits, should be subject to • Is the financial information that the
establish, maintain, and enforce these the proposed data tagging requirements? Commission is requesting on proposed
seven policies and procedures. In • Regarding the format of tagged data, Form SDR appropriate? If not, identify
addition, an SDR would be required to as discussed in Section III.K.3 of this any items that are not appropriate,
submit as exhibits to Form SDR all of release, the Commission is proposing explain why, and, if possible, offer
the policies and procedures set forth in that an SDR’s financial reports be alternatives. For example, should the
Regulation SBSR.34 submitted in eXtensible Business Commission request financial
Legal Opinion. Finally, Form SDR Reporting Language (‘‘XBRL’’) format. information of all affiliates of an SDR or
would require each non-resident SDR to Should the Commission require a only specific affiliates (e.g., an SDR’s
provide an opinion of counsel that the specific format for tagging other parent company, an SDR’s wholly-
SDR can, as a matter of law, provide the information in proposed Form SDR (e.g., owned subsidiaries, entities in which an
Commission with prompt access to the financial information that is not a SDR has at least a 25% interest, entities
books and records of such SDR and that financial report as described in that have at least a 25% interest in the
the SDR can, as a matter of law, submit proposed Rule 13n–11(f), operational SDR)?
to onsite inspection and examination by capability, access to services and data, • Is the information relating to an
the Commission. Each jurisdiction may and other policies and procedures)? If SDR’s operational capability that the
have a different legal framework with so, which format (e.g., XML, XBRL) Commission is requesting on proposed
respect to its laws (e.g., privacy laws) would be best suited to such Form SDR appropriate? If not, identify
that may limit or restrict the information? any items that are not appropriate,
Commission’s ability to receive • Would it be useful for the
explain why, and, if possible, offer
information from an SDR. Providing an Commission to provide any additional
alternatives.
opinion of counsel that an SDR can instructions or define any additional
• Should the Commission require on
provide prompt access to books and terms in proposed Form SDR? If so,
Form SDR a narrative description of any
records and can be subject to onsite what are they?
• Is the consent relating to notice and interruption in an SDR’s functions
inspection and examination will allow performed by automated facilities or
the Commission to better evaluate an service of process on proposed Form
SDR appropriate and sufficiently clear? systems that has lasted for more than
SDR’s ability to meet the requirements thirty minutes within the preceding six
of registration and ongoing supervision. If not, why not and what would be a
better alternative to obtaining such months of filing Form SDR, including
Failure to provide an opinion of counsel the date of each interruption, the cause
may be a basis for the Commission to consent?
• Are there other factors that the and duration of each interruption, and
deny an application for registration. the total number of interruptions that
Commission should consider, in
Request for Comment addition to an opinion of counsel, that have lasted thirty minutes or less? If not,
address whether the Commission can why not? Should the timeframes be
The Commission requests comment
legally, under applicable foreign law, longer or shorter? Would this request be
on the following specific issues:
necessary in light of the Commission’s
• Are the instructions in proposed obtain prompt access to an SDR’s books
and records and conduct onsite proposed Rule 13n–6(b)(3)’s
Form SDR sufficiently clear? If not,
inspection or examination of the SDR? requirement that an SDR notify the
identify any instructions that should be
• Are the representations that would Commission in writing of material
clarified and, if possible, offer
be required to be made by the person systems outages, as discussed further in
alternatives.
• Are the Commission’s proposed who signs Form SDR appropriate and Section III.F.1.c. of this release?
definitions of ‘‘affiliate,’’ ‘‘non-resident sufficiently clear? Should the • Is the information relating to access
security-based swap data repository,’’ Commission require any additional or to an SDR’s services and data that the
and ‘‘tag’’ appropriate and sufficiently alternative representations? Commission is requesting on proposed
clear? If not, why not and how should • Should the Commission require Form SDR appropriate? If not, identify
they be defined? SDRs to provide information on persons any items that are not appropriate,
• Should the Commission implement who own ten percent or more of the explain why, and, if possible, offer
an electronic filing system for receipt of SDR’s stock or who may control or alternatives.
Form SDR, and, if so, what particular direct the management or policies of the • Is the Commission’s request for
features should be incorporated into the SDR? Would a different ownership or information on the specified policies
system? control threshold be more appropriate? and procedures of an SDR appropriate?
• Do SDRs anticipate any burdens of If so, why? If not, explain.
filing Form SDR electronically that the • Are the suggested timeframes of the • Would any of the requested
Commission should consider? business experience, qualifications, and information on proposed Form SDR be
• In the event that there is a delay in disciplinary history of an SDR’s difficult for an SDR to supply? If so,
the full implementation of the designated CCOs, officers, directors, explain.
governors, and persons performing • Should the Commission require any
34 See Regulation SBSR Release, supra note 9. functions similar to any of the foregoing, additional information on proposed
Form SDR? If so, what information and Commission finds that such SDR is so Request for Comment
why? organized, and has the capacity, to be The Commission requests comment
• Are there any items on proposed able to assure the prompt, accurate, and on the following specific issues:
Form SDR that the Commission should reliable performance of its functions as • Is the Commission’s proposed
not request? If so, which items and an SDR, comply with any applicable registration process appropriate and
why? provision of the Federal securities laws sufficiently clear? If not, why not and
• Under proposed Regulation SBSR, and the rules and regulations what would be a better alternative?
an SDR would be required to register thereunder, and carry out its functions • Are the timeframes in the proposed
with the Commission as a SIP on Form in a manner consistent with the registration process appropriate? If not,
SIP.35 Should the Commission combine purposes of Exchange Act Section 13(n) why not and what would be more
Form SDR and Form SIP such that an and the rules and regulations appropriate timeframes?
SDR would register as an SDR and SIP thereunder.39 The Commission shall • Are the proposed factors in
using only one form? For example, deny the registration of an SDR if the determining whether the Commission
should the Commission add item 28c Commission does not make any such should grant or deny an application for
from Form SIP to Form SDR? Are there finding.40 registration appropriate and sufficiently
other items from Form SIP that should clear? If not, why not? Should the
be added to Form SDR that would help The Commission preliminarily
believes that its proposed timeframes for Commission take into consideration any
facilitate the registration process? other factors in determining whether to
• Should the policies and procedures reviewing applications for registration
as an SDR are appropriate to allow the grant or deny an SDR’s application for
required under proposed Regulation registration?
SBSR be filed with the Commission as Commission staff sufficient time to ask
questions and, as needed, to require • If a non-resident SDR is registered
exhibits to Form SDR or attachments to as an SDR in a foreign jurisdiction,
a separate schedule to Form SDR? amendments or changes to address legal
should the registration process for the
• What is the likely impact of the or regulatory concerns before the
non-resident SDR be any different than
Commission’s proposed rule on the SBS Commission approves an application for
the Commission’s proposed registration
market? Would the proposed rule registration. In addition, the registration
process? For example, should the
potentially promote or impede the provides a mechanism for an SDR to
registration process be more streamlined
establishment of SDRs? demonstrate that it can comply with the
for such non-resident SDR? Should the
federal securities laws and the rules and process instead require more
2. Factors for Approval of Registration
regulations thereunder. The proposed information from a non-resident SDR?
and Procedural Process for Review
procedural process for reviewing What would be the reasons to provide
Proposed Rule 13n–1(c) would applications for registration as an SDR for a different registration process or, on
provide that within 90 days of the date is consistent with the procedural the other hand, to require a uniform
of the filing of Form SDR (or within process for reviewing applications of process?
such longer period as to which the SDR other registrants by the Commission • Should the Commission consider
consents), the Commission shall either (e.g., SIPs, broker-dealers, nationally any other factors relating to a non-
grant the registration by order or recognized statistical ratings resident SDR with respect to the
institute proceedings to determine organizations, national securities Commission’s registration rules or in
whether registration should be denied. exchanges, registered securities general?
The 90-day period would not begin to associations, clearing agencies) although • What is the likely impact of the
run until a complete Form SDR has been the timeframes for review vary.41 Commission’s proposed rule on the SBS
filed by an SDR with the Commission.
In order to form a more complete and market? Would the proposed rule
Proceedings instituted pursuant to this
informed basis on which to determine potentially promote or impede the
proposed rule shall include notice of the
whether to grant, deny, or revoke an establishment of SDRs?
grounds for denial under consideration • Should the Commission require an
and opportunity for hearing on the SDR’s registration, the Commission is
considering whether to adopt a SDR to conduct or obtain a review
record and shall be concluded not later relating to the SDR’s operational
than 180 days after the date on which requirement that an SDR file with the
Commission, as a condition of capacity and ability to meet its
the application for registration is filed regulatory obligations? If not, why not?
with the Commission under proposed registration or continued registration, a
review relating to the SDR’s operational If so, how should the Commission
Rule 13n–1(b).36 At the conclusion of define the nature and scope of this
such proceedings, the Commission, by capacity and ability to meet its
regulatory obligations. The Commission review? Should the Commission
order, shall grant or deny such identify a specific framework for SDRs
registration.37 The Commission may could require such a review to be in the
form of a report conducted by the SDR, or independent third parties to follow
extend the time for conclusion of such when conducting a review? If so, what
proceedings for up to 90 days if it finds an independent third party, or both.
This review could be required as an would the critical components of the
good cause for such extension and framework include? Are existing
publishes its reasons for so finding or exhibit to Form SDR at the time of
registration or as an amendment to Form frameworks available that are suitable
for such longer period as to which the for this purpose and, if so, which ones
SDR consents.38 SDR at a later date (e.g., one year after
the registration becomes effective) to would be considered appropriate?

The proposed rule would further
allow the review to evaluate the SDR’s Should the review resemble a report,
provide that the Commission shall grant
capabilities after some operational audit, or something else?
the registration of an SDR if the • Should the Commission require the
experience following registration.
35 See Regulation SBSR Release (proposed Rule
SDR, an independent third party, or
909), supra note 9. 39 Proposed Rule 13n–1(c)(3).
some other entity to conduct the
36 Proposed Rule 13n–1(c). 40 Id. review? What are examples of such a
37 Id. 41 See 15 U.S.C. 78k–1(b)(3), 78o(b), 78o–7(2), and review? Should the Commission require
38 Id. 78s(a). a review on a case-by-case basis or for
all SDRs? Should the Commission comply with any provision of the For example, should a temporary
require that the review be filed with the federal securities laws or the rules or registration be granted provided that an
Commission? If not, why not? If so, regulations thereunder. In addition, the SDR’s completed Form SDR suggests
should it be required to be filed with the Commission would expect that SDRs that it can comply with Exchange Act
Commission as a condition of registered on a temporary registration Section 13(n) and the rules and
registration pursuant to proposed Rule basis demonstrate that they have the regulations thereunder?
13n–1? If not, why not? When should capacity and resources to comply with • Is it feasible for an SDR to comply
the Commission require the filing of any their regulatory obligations on an with Exchange Act Section 13(n) and
review? Would conducting or obtaining ongoing basis as their business evolves. the rules thereunder upon the effective
a review, or filing such review with the The proposed temporary registration date of the final rules applicable to
Commission, impose impracticable would enable an SDR to comply with SDRs? If not, which requirement(s)
burdens and costs on SDRs? Please the Dodd-Frank Act upon its effective would be difficult for an SDR to comply
explain the burdens and quantify the date (i.e., the later of 360 days after the with upon the effective date? Should
costs of such a review. date of its enactment or 60 days after such requirement(s) be imposed on an
• If the Commission were to adopt a publication of the final rule incremental, phased-in approach? If so,
rule requiring a review by an implementing Exchange Act Section what would be an appropriate
independent third party, should the rule 13(n)) 43 regardless of any unexpected timeframe for such requirement(s) to be
specify some minimum standard of contingencies that may arise in met?
review or the types of review that connection with the filing of Form SDR. • Are there specific requirements that
should be performed? If so, what should The temporary registration would also the Commission should consider not
the standards be? Should there be allow the Commission to implement the requiring an SDR to comply with during
minimum qualification standards for the registration requirements of the Dodd- the temporary registration period for
independent third party? Are there any Frank Act for SDRs while still giving the reasons other than feasibility? If so,
particular types of third party service Commission sufficient time to review what requirements and for what
providers that should not be permitted fully the application of an SDR after it reasons?
to conduct a review of an SDR? becomes operational, but before granting • Are there any other reasons not
• Should the Commission also a registration that is not limited in specified in this release upon which a
require that an SDR certify the accuracy duration. An SDR that is temporarily temporary registration should be denied
of the review and provide disclosure registered with the Commission would or rescinded?
regarding the nature of the review, be subject to Exchange Act Section 13(n) • What is the likely impact of the
findings, and conclusions? To what and the rules and regulations Commission’s proposed rule on the SBS
extent should an SDR be permitted to thereunder during the period in which market? Would the proposed rule
rely on a third party that it hired to the Commission is reviewing the SDR’s potentially promote or impede the
perform the review? Should the application of registration. establishment of SDRs?
Commission condition the ability of an Notwithstanding the potential for 4. Amendment on Form SDR
SDR to rely on a third party’s review? temporary registration, the Commission
• Would a review by an independent encourages each SDR to apply for Under proposed Rule 13n–1(e), if any
third party be necessary in light of the registration as soon as possible, information reported in items 1 through
CCO’s annual compliance report or following the Commission’s adoption of 16, 25, and 44 of Form SDR or in any
proposed Rule 13n–6, as discussed final Rules 13n–1 through 13n–11, to amendment thereto is or becomes
further below? permit sufficient time for an SDR to inaccurate for any reason, whether
answer any questions that the before or after the registration has been
3. Temporary Registration granted, an SDR shall promptly file an
Commission staff may have and to
Proposed Rule 13n–1(d) would provide additional information or amendment on Form SDR updating
provide a method for SDRs to register documentation, if necessary. The such information (‘‘interim
temporarily with the Commission. Commission will review applications in amendment’’). Generally, an SDR would
Specifically, the Commission, upon the the order in which they are received. be required to file an amendment within
request of an SDR, may grant temporary Applications received close to the 30 days from the time such information
registration of the SDR that shall expire effective date of the SDR registration becomes inaccurate.
on the earlier of: (1) The date that the For example, a non-resident SDR
requirement may not be reviewed and
Commission grants or denies should file an amendment promptly
approved by the effective date.
registration of the SDR, or (2) the date after any changes in the legal or
that the Commission rescinds the Request for Comment regulatory framework that would impact
temporary registration of the SDR.42 The The Commission requests comment its ability or the manner in which it
reasons that the Commission may on the following specific issues: provides the Commission with prompt
rescind such temporary registration • Is the Commission’s proposed rule access to its books and records or
would be the same as those set forth in regarding temporary registration impacts the Commission’s ability to
proposed Rule 13n–2(c), discussed appropriate? If not, why not? For inspect and examine the SDR onsite.
below, for revoking or cancelling a example, should the temporary The amendment should include a
registration of an SDR—e.g., if the registration be time-limited (e.g., revised opinion of counsel describing
Commission finds that an SDR has made eighteen months from the date the how, as a matter of law, the SDR will
any false and misleading statements registration is made effective)? continue to meet its obligations to
with respect to any material fact on its • Is the Commission’s proposed rule provide the Commission with prompt
Form SDR, is no longer in existence, has for temporary registration sufficiently access to the SDR’s books and records
ceased to do business in the capacity clear? If not, how can it be clarified? and to be subject to the Commission’s
specified in its application for • What conditions should apply to onsite inspection and examination
registration, or has violated or failed to the granting of a temporary registration? under the new regulatory regime. As
noted in Section III.A.1.a of this release,
42 Proposed Rule 13n–1(d). 43 See Public Law 111–203, § 774. if a registered non-resident SDR
becomes unable to comply with this appropriate? If not, should the • Is the Commission’s proposed rule
requirement, because of legal or timeframe be shorter or longer? Should regarding service of process appropriate
regulatory changes, or otherwise, then the Commission permit the SDR to and sufficiently clear? If not, why not
this may be a basis for the Commission request an extension to file an annual and what would be a better alternative?
to revoke the SDR’s registration. amendment on Form SDR (e.g., due to • Should the Commission impose any
In addition to the proposed interim substantial, undue hardship)? minimum requirements on the agent
amendments, an SDR would be required whom a non-resident SDR designates to
5. Service of Process and Non-Resident
to file an annual amendment on Form accept any notice or request for service
SDRs
SDR, including all items subject to of process?
interim amendments, within 60 days The Commission is proposing Rule • Are there any factors or alternatives
after the end of its fiscal year.44 13n–1(f) to require each SDR to that the Commission should take into
Proposed Rule 13n–1(e) is consistent designate and authorize on Form SDR consideration to ensure that there could
with the Commission’s requirements for an agent in the United States, other than be effective service of process on a non-
other registrants (e.g., national securities a Commission member, official, or resident SDR applying for registration as
exchanges, SIPs, broker-dealers) to file employee, to accept any notice or an SDR?
updated and annual amendments with service of process, pleadings, or other • Are there any factors that the
the Commission.45 The Commission documents in any action or proceedings Commission should take into
believes that such amendments are against the SDR to enforce the Federal consideration to ensure that a non-
important to obtain updated information securities laws and the rules and resident SDR seeking to register as an
on each SDR, which would assist the regulations thereunder. If an SDR SDR can, in compliance with applicable
Commission in determining whether appoints another agent to accept such foreign laws, provide the Commission
each SDR continues to be in compliance notice or service of process, then the with access to the SDR’s books and
with the federal securities laws and the SDR would be required to file promptly records that are required pursuant to
rules and regulations thereunder. an amendment on Form SDR updating proposed Rule 13n–7(b), as discussed
Obtaining updated information would this information.46 Proposed Rule 13n– below, and submit to onsite inspection
also assist the Commission in its 1(f) is intended to conserve the and examination by the Commission?
inspection and examination of an SDR. Commission’s resources and to • Are any other documents or
minimize any logistical obstacles (e.g., information necessary to establish a
Request for Comment
locating defendants or respondents non-resident SDR’s ability to comply
The Commission requests comment abroad) that the Commission may with the federal securities laws and the
on the following specific issues: encounter when attempting to effect rules and regulations thereunder?
• Is the Commission’s proposed rule service. For instance, by prohibiting an • What is the likely impact of the
for interim amendments on Form SDR SDR from designating a Commission Commission’s proposed rule on the SBS
appropriate and sufficiently clear? If member, official, or employee as its market? Would the proposed rule
not, why not and what would be a better agent for service of process, the potentially promote or impede the
alternative? proposed rule would reduce a establishment of SDRs?
• Is the proposed timeframe to file an significant resource burden on the
amendment on Form SDR appropriate? 6. Definition of ‘‘Report’’
Commission, including resources to
If not, should the timeframe be shorter locate agents of registrants overseas and Proposed Rule 13n–1(h) would
or longer? keep track of their whereabouts. provide that ‘‘[a]n application for
• Should an SDR be required to file Proposed Rule 13n–1(g) would further registration or any amendment thereto
an interim amendment for any other require any non-resident SDR applying that is filed pursuant to this [rule] shall
items on Form SDR other than items 1 for registration pursuant to this rule to be considered a ‘report’ filed with the
through 16, 25, and 44? If so, which certify on Form SDR and provide an Commission for purposes of Sections
item(s) and why? opinion of counsel that the SDR can, as 18(a) and 32(a) of the [Exchange] Act
• Should any of the items 1 through a matter of law, provide the Commission and the rules and regulations
16, 25, and 44 not be required to be with prompt access to the books and thereunder and other applicable
amended in the interim? If so, which records of such SDR and that the SDR provisions of the United States Code
item(s) and why? can, as a matter of law, submit to onsite and the rules and regulations
• Should interim amendments be inspection and examination by the thereunder.’’ Exchange Act Sections
required under any other circumstances Commission. For the reasons stated in 18(a) and 32(a) set forth the potential
not specified? Section III.A.1.a above, the Commission liability for a person who makes, or
• Is the Commission’s proposed rule preliminarily believes that before causes to be made, any false or
requiring SDRs to file annual granting registration to a non-resident misleading statement in any ‘‘report’’
amendments on Form SDR appropriate SDR, it is appropriate to obtain filed with the Commission (e.g., Form
and sufficiently clear? If not, why not assurance and an opinion of counsel SDR).47
and what would be a better alternative? that such person has taken the necessary
• Is an annual filing requirement steps to be in the position to provide
47 Exchange Act Section 18(a) provides, in part,
redundant, in light of the requirement to that ‘‘[a]ny person who shall make or cause to be
legally the Commission with prompt made any statement in any * * * report * * *
update promptly the form, or should the
access to the SDR’s books and records which statement was at the time and in the light
annual filing be sufficient to obviate the and to be subject to onsite inspection of the circumstances under which it was made false
need for prompt updates? and examination by the Commission. or misleading with respect to any material fact,
• Is the proposed timeframe to file an shall be liable to any person (not knowing that such
Request for Comment statement was false or misleading) who, in reliance
annual amendment on Form SDR upon such statement, shall have purchased or sold
44 Proposed
The Commission requests comment a security at a price which was affected by such
Rule 13n–1(e). statement, for damages caused by such reliance,
45 See Exchange Act Rules 6a–2 and 15b3–1, 17
unless the person sued shall prove that he acted in
CFR 240.6a–2 and 240.15b3–1, respectively. See good faith and had no knowledge that such
also 17 CFR 249.1001, supra note 28. 46 See proposed Rule 13n–1(e). Continued
B. Proposed Rule Regarding Withdrawal burdensome and more efficient for both • Is the Commission’s proposed rule
From Registration the SDRs and the Commission. regarding withdrawal from registration
Proposed Rule 13n–2(c) would appropriate and sufficiently clear? If
Proposed Rule 13n–2(b) would permit provide that a notice of withdrawal from not, why not and what would be a better
a registered SDR to withdraw from registration filed by an SDR shall alternative?
registration by filing a notice of become effective for all matters (except • Are the proposed definitions of
withdrawal with the Commission. An as provided in Rule 13n–2(c)) on the ‘‘person associated with a security-based
SDR would be required to designate on 60th day after the filing thereof with the swap data repository’’ and ‘‘control’’
its notice of withdrawal a person Commission, within such longer period appropriate and sufficiently clear? If
associated with the SDR 48 to serve as of time as to which such SDR consents not, why not and how should they be
the custodian of the SDR’s books and or which the Commission, by order, defined?
records.49 The purpose of this may determine as necessary or • Should the Commission require an
requirement is to ensure that the books appropriate in the public interest or for SDR to designate on its notice of
and records of an SDR are maintained the protection of investors, or within withdrawal a custodian of the SDR’s
and available to the Commission and such shorter period of time as the books and records? If not, why not and
other regulators after the SDR Commission may determine. Proposed what would be a better alternative?
withdraws from registration, and to Rule 13n–2(d) would provide that a • Are there any other instances not
assist the Commission in enforcing notice of withdrawal that is filed specified in this proposed rule in which
proposed Rules 13n–5(b)(7) and 13n– pursuant to this rule shall be considered the Commission should have the
7(c), as discussed below. a ‘‘report’’ filed with the Commission for authority to revoke or cancel an SDR’s
purposes of Exchange Act Sections 18(a) registration?
Prior to filing a notice of withdrawal,
and 32(a) and the rules and regulations • Is the proposed effective date of 60
an SDR would be required to file an thereunder and other applicable days from the filing of the notice of
amended Form SDR to update any provisions of the United States Code withdrawal with the Commission
inaccurate information.50 If there is no and the rules and regulations appropriate? If not, would an earlier or
inaccurate information to update, then thereunder. later date be more appropriate?
an SDR should include a confirmation Under proposed Rule 13n–2(e), if the • What is the likely impact of the
to that effect in its notice of withdrawal. Commission finds, on the record after Commission’s proposed rule on the SBS
The Commission anticipates developing notice and opportunity for hearing, that market? Would the proposed rule
an online filing system through which any registered SDR has obtained its potentially promote or impede the
an SDR can file its notice of withdrawal. registration by making any false and establishment of SDRs?
The information filed would be misleading statements with respect to
available on the Commission’s website. C. Proposed Rule Regarding Registration
any material fact or has violated or
The Commission preliminarily believes of Successor to Registered SDR
failed to comply with any provision of
that filing a notice of withdrawal in an the federal securities laws and the rules 1. Succession by Application
electronic format would be less and regulations thereunder, the Proposed Rule 13n–3 would govern
Commission, by order, may revoke the the registration of a successor to a
statement was false or misleading.’’ 15 U.S.C. 78r(a). registration. The proposed rule would registered SDR. Because this proposed
Exchange Act Section 32(a) provides, in part, that further provide that pending final
‘‘[a]ny person who willfully and knowingly makes, rule is substantially similar to Exchange
or causes to be made, any statement in any * * * determination of whether any Act Rule 15b1–3, which governs the
report * * * which statement was false or registration shall be revoked, the registration of a successor to a registered
misleading with respect to any material fact, shall Commission, by order, may suspend broker-dealer, the Commission is
upon conviction be fined not more than $5,000,000, such registration, if such suspension
or imprisoned not more than 20 years, or both, proposing to incorporate the concepts
except that when such person is a person other than appears to the Commission, after notice that the Commission explained when it
a natural person, a fine not exceeding $25,000,000 and opportunity for hearing on the adopted amendments to Rule 15b1–3.52
may be imposed.’’ 15 U.S.C. 78ff(a). record, to be necessary or appropriate in Specifically, proposed Rule 13n–3(a)
48 The term ‘‘person associated with a security-
the public interest or for the protection would provide that in the event that an
based swap data repository’’ would be defined as (i)
any partner, officer, or director of such SDR (or any
of investors.51 SDR succeeds to and continues the
person occupying a similar status or performing Finally, proposed Rule 13n–2(f) business of an SDR registered pursuant
similar functions), (ii) any person directly or would provide that if the Commission to Exchange Act Section 13(n), the
indirectly controlling, controlled by, or under finds that a registered SDR is no longer registration of the predecessor shall be
common control with such SDR, or (iii) any in existence or has ceased to do
employee of such SDR. Proposed Rule 13n–2(a)(2). deemed to remain effective as the
The term ‘‘control’’ (including the terms ‘‘controlled business in the capacity specified in its registration of the successor if, within
by’’ and ‘‘under common control with’’) would be application for registration, the 30 days after such succession, the
defined as the possession, direct or indirect, of the Commission, by order, may cancel the successor files an application for
power to direct or cause the direction of the registration.
management and policies of a person, whether registration on Form SDR, and the
This proposed rule is similar to
through the ownership of voting securities, by predecessor files a notice of withdrawal
contract, or otherwise. Under the proposed rules, a Exchange Act Rule 15b6–1, which
from registration with the Commission.
person is presumed to control another person if the relates to withdrawal from registration
person: (i) Is a director, general partner, or officer A successor would not be permitted to
as a broker-dealer. The Commission
‘‘lock in’’ the 30-day window period by
exercising executive responsibility (or having

believes that implicit in its authority to
similar status or functions); (ii) directly or submitting an application that is
indirectly has the right to vote 25 percent or more register an SDR is its authority to revoke
incomplete in material respects.
of a class of voting securities or has the power to or cancel such registration. The proposed rule would further
sell or direct the sale of 25 percent or more of a
class of voting securities; or (iii) in the case of a Request for Comment provide that the registration of the
partnership, has the right to receive, upon
dissolution, or has contributed, 25 percent or more The Commission requests comment 52 See Registration of Successors to Broker-
of the capital. Proposed Rule 13n–2(a)(1). on the following specific issues: Dealers and Investment Advisers, Exchange Act
49 Proposed Rule 13n–2(b).
Release No. 31661 (Dec. 28, 1992), 58 FR 7 (Jan. 4,
50 Id. 51 Proposed Rule 13n–2(e). 1993).
predecessor SDR shall cease to be transfer of business between two or as well as any requirement that the
effective 90 days after the application more SDRs and to be used only where Commission prescribes by rule or
for registration on Form SDR is filed by there is a direct and substantial business regulation in order to be registered and
the successor SDR.53 In other words, the nexus between the predecessor and the maintain registration as an SDR with the
90-day period would not begin to run successor SDR. The proposed rule Commission.54 The Commission is
until a complete Form SDR has been would not allow a registered SDR to sell proposing Rule 13n–4, which would
filed by the successor with the its registration, eliminate substantial implement the enumerated duties and
Commission. This 90-day period is liabilities, spin off personnel, or core principles and establish additional
consistent with proposed Rule 13n–1, facilitate the transfer of the registration requirements by rule.
pursuant to which the Commission of a ‘‘shell’’ organization that does not In May 2010, the Committee on
would have 90 days to grant a conduct any business. No entity would Payment and Settlement Systems
registration or institute proceedings to be permitted to rely on proposed Rule (‘‘CPSS’’) and the Technical Committee
determine if a registration should be 13n–3 unless it is acquiring or assuming of the International Organization of
denied. substantially all of the assets and Securities Commissions (‘‘IOSCO’’)
The following are examples of the liabilities of the predecessor’s SDR issued a consultative report that
types of successions that would be business. presented a set of factors for trade
required to be completed by filing an Proposed Rule 13n–3 would not apply repositories in the OTC derivatives
application: (1) An acquisition, through to reorganizations that involve only markets to consider in designing and
which an unregistered entity purchases registered SDRs. In those situations, the operating their services (‘‘CPSS–IOSCO
or assumes substantially all of the assets registered SDRs need not use the rule consultative report’’).55 The OTC
and liabilities of the SDR and then because they can continue to rely on Derivatives Regulators’ Forum 56
operates the business of the SDR, (2) a their existing registrations. The (‘‘ODRF’’) has also made general
consolidation of two or more registered proposed rule would also not apply to recommendations relating to the
entities, resulting in their conducting situations in which the predecessor functionality of trade repositories. The
business through a new unregistered intends to continue to engage in SDR Commission’s proposed rules draw from
entity, which assumes substantially all activities. Otherwise, confusion may recommendations made by CPSS–
of the assets and liabilities of the result as to the identities and IOSCO and the ODRF.
predecessor entities, and (3) dual registration statuses of the parties.
successions, through which one 1. Enumerated Duties
registered entity subdivides its business Request for Comment Under Exchange Act Sections
into two or more new unregistered The Commission requests comment 13(n)(2), 13(n)(5), and 13(n)(6), each
entities. on the following specific issues: SDR is required to:
2. Succession by Amendment • Is there a sufficient likelihood of (1) Subject itself to inspection and
successors to registered SDRs to warrant examination by the Commission;
Proposed Rule 13n–3(b) would further a successor rule? (2) Accept data as prescribed by the
provide that notwithstanding Rule 13n– • Is the Commission’s proposed Commission for each SBS; 57
3(a), if an SDR succeeds to and successor rule appropriate and
continues the business of a registered sufficiently clear? If not, why not and 54 See Public Law 111–203, § 763(i). The
predecessor SDR, and the succession is legislation also authorizes the Commission to
what would be a better alternative? establish additional requirements for SDRs by rule
based solely on a change in the • Are the 30-day and 90-day or regulation.
predecessor’s date or state of timeframes in the proposed successor 55 See Considerations for Trade Repositories in
incorporation, form of organization, or rule appropriate? If not, what would be OTC Derivatives Markets, CPSS–IOSCO (May 2010)
composition of a partnership, the more appropriate timeframes and why? (available at http://www.bis.org/press/
successor may, within 30 days after the • Are there any other instances not p100512.htm). CPSS is a forum for central banks to
monitor and analyze developments in payment and
succession, amend the registration of specified in the proposed rule in which settlement arrangements as well as in cross-border
the predecessor SDR on Form SDR to a successor should be permitted to file and multicurrency settlement schemes. See Press
reflect these changes. Such amendment an amendment to the predecessor’s Release, CPSS–IOSCO, CPSS and IOSCO Consult on
shall be deemed an application for Form SDR for registration? Policy Guidance for Central Counterparties and
Trade Repositories in the OTC Derivatives Market
registration filed by the predecessor and • Are there any reasons not to allow (May 12, 2010) (available at http://www.bis.org/
adopted by the successor. In all three a successor to rely on its predecessor’s press/p100512.htm). IOSCO is an international
types of successions, the predecessor registration by filing an amendment to policy forum for securities regulators. The objective
must cease operating as an SDR. The the predecessor’s Form SDR in the of the Technical Committee, a specialized working
group established by IOSCO’s Executive Committee,
Commission preliminarily believes that specified circumstances? is to review major regulatory issues related to
it is appropriate to allow a successor to • What is the likely impact of the international securities and futures transactions and
file an amendment to the predecessor’s Commission’s proposed rule on the SBS to coordinate practical responses to these concerns.
Form SDR in these types of successions. market? Would the proposed rule See id.
56 The OTC Derivatives Regulators’ Forum is
potentially promote or impede the
3. Scope and Applicability of Proposed comprised of international financial regulators,
establishment of SDRs? including central banks, banking supervisors, and
Rule 13n–3 • Are there any factors not specified market regulators, resolution authorities, and other
The purpose of proposed Rule 13n–3 that the Commission should consider governmental authorities that either have direct
is to enable a successor SDR to operate with respect to this proposed successor authority over OTC derivatives market
infrastructure providers or major OTC derivatives
without an interruption of business by rule? market participants or that consider OTC derivative
relying for a limited period of time on market matters more broadly. See OTC Derivatives
the registration of the predecessor SDR D. Proposed Rule Regarding Duties and Regulators’ Forum Overview, http://
until the successor’s own registration Core Principles of SDRs www.otcdrf.org/.
57 In a separate proposal, the Commission is
becomes effective. The proposed rule is Section 763(i) of the Dodd-Frank Act
proposing rules prescribing the data elements that
intended to facilitate the legitimate requires an SDR to comply with the an SDR is required to accept for each SBS in
requirements and core principles association with requirements under Section 763(i)
53 Proposed Rule 13n–3(a). described in Exchange Act Section 13(n) Continued
(3) Confirm with both counterparties (ii) The Financial Stability Oversight SDR to the Commission or any of its
to the SBS the accuracy of the data that Council; designees, (2) a user interface that
was submitted, as discussed further in (iii) The CFTC; provides the Commission or any of its
Section III.E.2.a of this release; (iv) The Department of Justice; and designees with direct access to the data
(4) Maintain the data in such form, in (v) The FDIC 61 and any other person maintained by the SDR and that
such manner, and for such period as that the Commission determines to be provides the Commission or any of its
prescribed by the Commission, as appropriate, including, but not limited designees with the ability to query or
discussed further in Section III.E.2 of to— analyze the data in the same manner
this release; (i) Foreign financial supervisors that is available to the SDR, or (3)
(5) Provide direct electronic access to (including foreign futures authorities); another mechanism that provides a
the Commission (or any designee of the (ii) Foreign central banks; and mirror copy of the data maintained by
Commission), including another (iii) Foreign ministries. the SDR, which is in an electronic form
(10) Before sharing information with
registered entity; that is downloadable by the
(6) Provide such information in such any entity described in Exchange Act
Commission or any of its designees and
form and at such frequency as the Section 13(n)(5)(G), obtain a written
is in a format that provides the ability
agreement from each entity stating that
Commission may require to comply to query or analyze the data in the same
the entity shall abide by the
with requirements set forth in Exchange manner that is available to the SDR.
confidentiality requirements described The Commission is not proposing in
Act Section 13(m) and the rules and
in Exchange Act Section 24 and the this release that an SDR establish
regulations thereunder; 58
(7) At such time and in such manner rules and regulations thereunder automated systems for monitoring,
relating to the information on SBS screening, and analyzing SBS data. The
as may be directed by the Commission,
transactions that is provided, and each Commission believes that a measured
establish automated systems for
entity shall agree to indemnify the SDR approach to addressing this provision of
monitoring, screening, and analyzing
and the Commission for any expenses the Dodd-Frank Act is appropriate. The
data;
(8) Maintain the privacy of any and all arising from litigation relating to the market infrastructure of the SBS market
SBS transaction information that the information provided under Exchange is in its infancy. The Dodd-Frank Act
SDR receives from an SBS dealer,59 Act Section 24 and the rules and and the rules and regulations that the
regulations thereunder Commission will promulgate over the
counterparty, or any registered entity, as
(‘‘indemnification provision’’); and next year will direct further
discussed further in Section III.I of this (11) Designate a CCO who must
release; development and refinement of this
comply with the duties set forth in
(9) On a confidential basis pursuant to market. As the infrastructure for the SBS
Exchange Act Section 13(n)(6).
Exchange Act Section 24 and the rules With respect to the SDR’s duty to market continues to develop and the
and regulations thereunder, upon provide direct electronic access to the Commission gains experience in
request, and after notifying the Commission or any designee of the regulating this market, the Commission
Commission of the request, make will consider further steps to implement
Commission, the Commission is
available all data obtained by the SDR, this statutory provision.63
proposing to define ‘‘direct electronic
including individual counterparty trade With respect to an SDR’s duty to
access’’ to mean access, which shall be notify the Commission when any entity
and position data, to the following: acceptable to the Commission, to data
(i) Each appropriate prudential described in Exchange Act Section
stored by an SDR in an electronic format 13(n)(5)(G) requests directly from the
regulator; 60 and updated at the same time as the SDR access to data obtained by the SDR,
of the Dodd-Frank Act (adding Exchange Act
SDR’s data is updated so as to provide the SDR must keep such notifications
Section 13(n)(4)(A) relating to standard setting and the Commission or any of its designees and any related requests confidential.64
data identification). See Regulation SBSR Release with the ability to query or analyze the Failure by an SDR to treat such
(proposed Rule 901), supra note 9. Any comments data in the same manner that the SDR
regarding the data elements should be submitted in notifications and requests confidential
connection with that proposal.
can query or analyze the data.62 The could render ineffective or could have
58 Exchange Act Section 13(m) pertains to the Commission may specify the form and adverse effects on the underlying basis
public availability of SBS data. See Public Law manner in which an SDR provides for the requests. If, for example, a
111–203, § 763(i). In a separate proposal relating to direct electronic access. The regulatory use of the data is improperly
implementation of Section 763(i) of the Dodd-Frank Commission is considering different—
Act (adding Exchange Act Section 13(m)), the disclosed, such disclosure could
Commission is proposing rules that would impose and possibly multiple—ways in which possibly signal a pending investigation
various duties on SDRs in connection with the an SDR may be required or permitted to or enforcement action, which could
reporting and real-time public dissemination of SBS provide direct electronic access, have detrimental effects.
transaction information. See Regulation SBSR including, but not limited to, (1) a direct
Release, supra note 9. Any comments regarding With respect to the indemnification
Exchange Act Section 13(m) should be submitted in streaming of the data maintained by the provision, the Commission understands
connection with that proposal. that regulators may be legally prohibited
59 Section 761 of the Dodd-Frank Act codified the CEA identifies the Federal Reserve Board, the Office
of the Comptroller of the Currency, the Federal
or otherwise restricted from agreeing to
term ‘‘security-based swap dealer’’ at Exchange Act
Section 3(a)(71) to generally mean any person that Deposit Insurance Corporation (‘‘FDIC’’), the Farm indemnify third parties, including SDRs
holds itself out as a dealer in SBSs, makes a market Credit Administration, and the Federal Housing
in SBSs, regularly enters into SBSs with Finance Agency as prudential regulators. See Public 63 In a separate proposal relating to
counterparties as an ordinary course of business for Law 111–203, § 721(a)(17) (adding Section 1a(39) of implementation of Section 763(i) of the Dodd-Frank
its own account, or engages in any activity causing the CEA, 7 U.S.C. 1a(39)). Act (adding Exchange Act Section 13(n)(5)(E)), the
it to be commonly known in the trade as a dealer 61 Subject to the statutory requirements of Commission is considering proposing rules that
or market maker in SBSs. See Public Law 111–203, Sections 13(n)(5)(G) and (H), the FDIC, for example, would require SDRs to collect data related to
§ 761; see also Definitions Contained in Title VII of would have access to all data maintained by an monitoring the compliance and frequency of end-
Dodd-Frank Wall Street Reform and Consumer SDR, including in connection with its resolution user clearing exemption claims. Any comments
Protection Act, Exchange Act Release No. 62717 authority under Title II of the Dodd-Frank Act or regarding the end-user clearing exemption proposed
(Aug. 13, 2010), 75 FR 51429 (Aug. 20, 2010). the Federal Deposit Insurance Act and with respect rules should be submitted in connection with that
60 ‘‘Prudential regulator’’ is defined in Exchange to SBS data in the SDR related to all counterparties proposal.
Act Section 3(a)(74) to have the same meaning as to SBS transactions. 64 See Public Law 111–203, § 763(i) (adding
in the CEA. See Public Law 111–203, § 761. The 62 See proposed Rule 13n–4(a)(5). Exchange Act Section 13(n)(5)(G)).
as well as the Commission. The Request for Comment electronic access and which would
indemnification provision could chill The Commission requests comment consolidate the data that would then be
requests for access to data obtained by on the following specific issues: provided to the Commission?
SDRs, thereby hindering the ability of • Is the Commission’s proposed rule • Are there specific reports or sets of
others to fulfill their regulatory incorporating the enumerated duties data that the Commission should
mandates and responsibilities. The appropriate and sufficiently clear? If consider obtaining from SDRs to
Commission preliminarily believes that not, what would be a better alternative? monitor risk exposures of individual
by having access to such data, however, • Under Exchange Act Section counterparties to SBS transactions, to
regulators would be in a better position 13(n)(2), an SDR shall be subject to monitor concentrations of risk
to, among other things, monitor risk inspection and examination by any exposures, or for other purposes that
exposures of individual counterparties representative of the Commission. would help encourage the transparency
to swap and SBS transactions, monitor Should the Commission specify in its and open trading of SBSs?
concentrations of risk exposures, and rule or clarify when the Commission • In addition to the data already
evaluate systemic risks.65 As such, the anticipates inspecting prospective or subject to the Commission’s request,68
Commission expects that an SDR would newly registered SDRs? are there additional reports or sets of
not go beyond the minimum • Is the Commission’s proposed data that the Commission should
requirements of the statute so as not to definition of ‘‘direct electronic access’’ consider obtaining from SDRs to
preclude entities described in Exchange appropriate and sufficiently clear? If evaluate systemic risk or that could be
Act Section 13(n)(5)(G) from obtaining not, how can the Commission clarify used for prudential supervision?
the data maintained by an SDR. • Are there any other reports or sets
this definition?
The Commission notes that, pursuant • What are the advantages and of data that the Commission should
to Exchange Act Section 24 and Rule disadvantages of requiring SDRs to consider obtaining from SDRs?
24c–1 thereunder, the Commission may • Should the Commission require
provide a direct streaming of data to the
share nonpublic information 66 in its SDRs to establish automated systems for
Commission or its designee? Should the
possession with, among others, ‘‘federal, monitoring, screening, and analyzing
Commission require periodic electronic
state, local, or foreign government, or SBS data or provide the data for the
transfer of data as an alternative? If so,
any political subdivision, authority, Commission to perform these functions?
how often should such transfer occur
agency or instrumentality of such Should the Commission require SDRs to
(e.g., hourly, a few times a day, every
government * * * [or] a foreign monitor, screen, and analyze all SBS
few days, once a week)?
financial regulatory authority.’’ Pursuant data in their possession in such a
• What are the advantages and
to Exchange Act Section 21(a), the manner as the Commission may require,
disadvantages of requiring SDRs to
Commission also may assist a foreign including in connection with ad hoc
provide a user interface that provides
securities authority in investigating requests by the Commission?
the Commission or any of its designees
whether any person has violated, is • Besides the FDIC, should the
access to the data maintained by the
violating, or is about to violate any laws Commission specify in its rules any
SDR and that provides the Commission
or rules relating to securities matters other appropriate person to have access
or its designee with the ability to query
that the requesting authority to all data maintained by an SDR (e.g.,
or analyze the data in the same manner
administers or enforces.67 the Federal Reserve Bank of New York)?
that is available to the SDR? • Are there alternative ways that the
65 See Duffie et al., supra note 13 (Regulators can
• What are the advantages and Commission could address the
‘‘explore the sizes and depths of the markets, as well disadvantages of requiring SDRs to indemnification provision while being
as the nature of the products being traded. With this provide a mirror copy of its data, which consistent with Exchange Act Section
information, regulators are better able to identify is in an electronic form that is
and control risky market practices, and are better 13(n)(5)(H)?
positioned to anticipate large market movements.’’).
downloadable and is in a format that • Should the Commission provide in
66 Under Rule 24c–1, the term ‘‘nonpublic provides the ability to query or analyze its rules specific indemnification
information’’ means ‘‘records, as defined in Section the data in the same manner that is language that an SDR would be required
24(a) of the [Exchange] Act, and other information available to the SDR? to use when requesting indemnification
in the Commission’s possession, which are not • What would be the most feasible from entities described in Exchange Act
available for public inspection and copying.’’ 17
CFR 240.24c–1. and cost-effective method for an SDR to Section 13(n)(5)(G)? If so, what
67 Exchange Act Section 21(a)(2) provides: ‘‘On provide direct electronic access to the indemnification language would
request from a foreign securities authority, the Commission or its designee? address the requirements of the statute
Commission may provide assistance in accordance • Are there other methods of
with this paragraph if the requesting authority and the needs of information users?
states that the requesting authority is conducting an
providing direct electronic access to the • Alternatively, should the
investigation which it deems necessary to Commission or its designee that the Commission explicitly require that the
determine whether any person has violated, is Commission should consider? indemnification agreement be fair and
violating, or is about to violate any laws or rules • Are there any other factors that the not unreasonably discriminatory so as
relating to securities matters that the requesting
authority administers or enforces. The Commission
Commission should take into not to preclude entities described in
may, in its discretion, conduct such investigation as consideration when requiring SDRs to Exchange Act Section 13(n)(5)(G) from
the Commission deems necessary to collect provide the Commission or its designee obtaining the data maintained by an
information and evidence pertinent to the request with direct electronic access?
for assistance. Such assistance may be provided SDR?
• What would be the advantages and
without regard to whether the facts stated in the • Should the Commission limit the
request would also constitute a violation of the laws disadvantages of the Commission amount of indemnification to an SDR
of the United States. In deciding whether to provide appointing as its designee for direct and the Commission? If so, what should
such assistance, the Commission shall consider electronic access another registered
whether (A) the requesting authority has agreed to the limit be? For example, should it be
provide reciprocal assistance in securities matters SDR, to which SDRs would grant direct limited to only reasonable litigation
to the Commission; and (B) compliance with the expenses (and not any damages) in
request would prejudice the public interest of the governmental body or regulatory organization
United States.’’ 15 U.S.C. 78u(a)(2). Exchange Act empowered by a foreign government to administer order to facilitate the ability of entities
Section 3(a)(50) defines ‘‘foreign securities or enforce its laws as they relate to securities
authority’’ to mean ‘‘any foreign government, or any matter.’’ 15 U.S.C. 78c(a)(50). 68 See Regulation SBSR Release, supra note 9.
described in Exchange Act Section minimize conflicts of interest in the platforms), and third party service
13(n)(5)(G) to obtain data maintained by SDR’s decision-making process and to providers.
an SDR? establish a process for resolving any The terms ‘‘fair’’ and ‘‘reasonable’’
• Should the Commission impose any such conflicts of interest. Proposed Rule often need standards to guide their
additional duties on SDRs? For 13n–4(c) incorporates and implements application in practice. One factor
example, should SDRs be required to these three core principles. commonly taken into consideration to
provide downstream processing services evaluate the fairness and reasonableness
or ancillary services (e.g., managing life a. First Core Principle: Market Access to of fees, particularly those of a
cycle events and asset servicing)? Services and Data 70 monopolistic provider of a service, is
• Should any additional duties the cost incurred to provide the
In implementing the first core
imposed on SDRs depend on the asset service.73 The Commission does not,
principle, the Commission is proposing
class of SBSs that the SDR is collecting however, intend to establish fees or
rules that are intended to protect
and maintaining? If so, clarify. rates, or to dictate formulas by which
• What is the likely impact of the investors and to maintain a fair, orderly, fees or rates are determined. Based on
Commission’s proposed rule on the SBS and efficient SBS market. These our experience with other registrants,
market? Would the proposed rule proposed rules would protect investors the Commission would need to take a
potentially promote or impede the by, for example, fostering transparency flexible approach and evaluate the
establishment of SDRs? in the services that an SDR provides and fairness and reasonableness of an SDR’s
• With respect to entities that its pricing for such services as well as charges on a case-by-case basis. The
currently perform repository services for promoting competition in the SBS Commission recognizes that there may
SBSs or other instruments, how do market. As discussed more fully below, be instances in which an SDR would
current practices compare to the when administering these rules, the charge different users different prices
practices that the Commission proposes Commission would generally expect to for the same or similar services. Such
to require in this rule? What are the apply the principles and procedures it differences, however, cannot be
incremental costs to potential SDRs in has developed in other areas in which unreasonably discriminatory. For
connection with adding to or revising it monitors analogous services, such as example, if an SDR’s policies and
their current practices in order to clearing agencies. procedures provide that it may accept
implement the Commission’s proposed First, proposed Rule 13n–4(c)(1)(i) an electronic confirmation as reasonable
rule? would require each SDR to ensure that documentation that the data submitted
• How might the evolution of the SBS any dues, fees, or other charges it by both counterparties to an SBS is
market over time affect SDRs or impact imposes, and any discounts or rebates it accurate, then an SDR may charge a
the Commission’s proposed rule? offers, are fair and reasonable and not smaller fee to a market participant that
unreasonably discriminatory.71 Such is expected to send a large volume of
2. Implementation of Core Principles
dues, fees, other charges, discounts, or data that is all electronically confirmed.
Each SDR is required, under Exchange rebates shall be applied consistently If, on the other hand, an SDR requires
Act Section 13(n)(7), to comply with greater resources to contact a
across all similarly situated users of the
core principles relating to (1) market counterparty to reasonably satisfy itself
SDR’s services, including, but not
access to services and data, (2) that the data that was submitted to the
limited to, market participants,72 market
governance arrangements, and (3) SDR is accurate, then higher fees may be
infrastructures (including central
conflicts of interest. Specifically, unless appropriate. The Commission
counterparties), venues from which data
necessary or appropriate to achieve the preliminarily believes that an SDR
purposes of the Exchange Act and the can be submitted to the SDR (including
should make reasonable
rules and regulations thereunder, an exchanges, SB SEFs, electronic trading
accommodations, including
SDR 69 is prohibited from adopting any venues, and matching and confirmation
consideration of any cost burdens, on a
policies and procedures or taking any non-reporting counterparty of an SBS
70 The Dodd-Frank Act refers to the first core
action that results in any unreasonable transaction in connection with any
principle as ‘‘antitrust considerations,’’ which the
restraint of trade or imposing any Commission believes include market access to follow-up by the SDR regarding the
material anticompetitive burden on the services offered by and data maintained by SDRs. accuracy of the SBS transaction data.
trading, clearing, or reporting of See Public Law 111–203, § 763(i). Second, proposed Rule 13n–4(c)(1)(ii)
71 The Exchange Act applies a similar standard
transactions. In addition, each SDR would require each SDR to permit
for other registrants. See, e.g., Exchange Act Section
must establish governance arrangements 6(b)(4) (‘‘The rules of the exchange [shall] provide market participants to access specific
that are transparent to fulfill the public for the equitable allocation of reasonable dues, fees, services offered by the SDR separately.
interest requirements under the and other charges among its members and issuers Although an SDR would be allowed to
Exchange Act and the rules and and other persons using its facilities’’); Exchange bundle its services, including any
Act Section 17A(b)(3)(D) (‘‘The rules of the clearing
regulations thereunder; to carry out agency [shall] provide for the equitable allocation ancillary services, this proposed rule
functions consistent with the Exchange of reasonable dues, fees and other charges among would require the SDR to also provide
Act, the rules and regulations its participants’’); see also Exchange Act Sections market participants with the option of
thereunder, and the purposes of the 11A(c)(1)(C) and (D) (providing that the using its services separately.74 For
Commission may prescribe rules to assure that all
Exchange Act; and to support the SIPs may, ‘‘for purposes of distribution and instance, if an SDR or its affiliate
objectives of the federal government,
publication, obtain on fair and reasonable terms

owners of the SDR, and market such information’’ and to assure that ‘‘all other 73 See Regulation of Market Information Fees and
participants. Moreover, each SDR must persons may obtain on terms which are not Revenues, Exchange Act Release No. 42208 (Dec.
unreasonably discriminatory’’ the transaction 17, 1999).
establish and enforce written policies information published or distributed by SIPs). 74 See also CPSS–IOSCO, supra note 55 (‘‘To the
and procedures reasonably designed to 72 The term ‘‘market participant’’ would be extent a [trade repository] provides complementary
defined as any person participating in the SBS post-trade processing services, these should be
69 Although Exchange Act Section 13(n)(7)(A) market, including, but not limited to, SBS dealers, available independently from its recordkeeping
refers to ‘‘swap data repository,’’ the Commission major SBS participants, and any other function so that users can selectively utilise the
believes that the Congress intended it to refer to counterparties to an SBS transaction. Proposed Rule services they require from the suite of services a
‘‘security-based swap data repository.’’ 13n–4(a)(7). [trade repository] may offer.’’).
provides an ancillary matching and or data maintained by the SDR and to submitted to the SDR by the other
confirmation service, then the SDR grant such person access to such counterparty to the SBS is accurate?
would be prohibited from requiring a services or data if such person has been • In what instances would an SDR
market participant to use and pay for discriminated against unfairly. The differentiate among its users with
that matching and confirmation service Commission preliminarily believes that respect to fees, dues, other charges,
as a condition of using the SDR’s data for any such policies and procedures to discounts, and rebates? Should any of
collection service. In evaluating the be reasonable, at a minimum, those those instances be explicitly prohibited
fairness and reasonableness of fees that involved in the decision-making process or restricted?
an SDR charges for bundled and of prohibiting or limiting a person from • Are there any other requirements
unbundled services, the Commission access to an SDR’s services or data that the Commission should impose on
would take into consideration the cost cannot be involved in the review of an SDR that would promote
to the SDR of making those services whether the prohibition or limitation competition?
available on a bundled or unbundled was appropriate. Otherwise, the purpose • Is the Commission’s proposed rule
basis, as the case may be. of the review process would be requiring an SDR to permit market
Third, proposed Rule 13n–4(c)(1)(iii) undermined. An SDR should consider participants to access specific SDR
would require each SDR to establish, whether its internal review process is services separately appropriate and
monitor on an ongoing basis, and best delegated to the SDR’s board of sufficiently clear? If not, why not?
enforce clearly stated objective criteria directors, a body performing a function • Are there instances in which
that would permit fair, open, and not similar to the board of directors permitting an SDR to offer bundled
unreasonably discriminatory access to (collectively, ‘‘board’’), or an executive services that are not provided separately
services offered and data maintained by committee. would be better for market participants
the SDR as well as fair, open, and not or the SBS market as a whole? For
unreasonably discriminatory Request for Comment
example, would bundling certain
participation by market participants, The Commission requests comment services improve data quality or
market infrastructures, venues from on the following specific issues: promote efficiency? If so, what services
which data can be submitted to the SDR, • Are the Commission’s proposed should be permitted to be bundled?
and third party service providers that rules implementing the first core • Are there any other factors not
seek to connect to or link with the SDR. principle appropriate and sufficiently mentioned that the Commission should
The Commission is concerned, among clear? If not, why not and what would take into consideration with respect to
other things, that an SDR, controlled or be better alternatives? requiring the unbundling of services
influenced by a market participant, may • Is the Commission’s proposed and fees?
limit the level of access to the services definition of ‘‘market participant’’ • Should the Commission require an
offered or data maintained by the SDR appropriate? If not, is it over-inclusive SDR to notify the Commission about the
as a means to impede competition from or under-inclusive and how should it be outcome of the SDR’s internal review of
other market participants or third party defined? any prohibition or limitation of access
service providers. To satisfy the
• Would the proposed rules relating to its services or data? If so, should the
requirements of this proposed rule, an
to fees provide sufficient flexibility to Commission specify a timeframe in
SDR should seek to ensure that its
SDRs such that they can operate in a which an SDR must notify the
practices and procedures do not stifle
commercially viable manner? Commission? What should the
innovation and competition in the
provision of post-trade processing • Besides an SDR’s costs of providing timeframe be?
services. The Commission concurs with its services, what other factors should • Are the Commission’s proposed
the CPSS–IOSCO consultative report’s the Commission consider in rules regarding an SDR’s criteria relating
recommendation that ‘‘[r]equirements determining whether the SDR’s fees, to access to services and data and
that limit access and participation on dues, other charges, rebates, or participation appropriate and
grounds other than risks should be discounts for such services are fair and sufficiently clear? If not, why not and
avoided’’ and that ‘‘[d]enials of access reasonable? what would be a better alternative?
should only be based on risk-related • Are there circumstances in which it • Should the Commission prescribe
criteria’’ 75 (e.g., risks related to the would be fair or reasonable for an SDR specific criteria for fair, open, and not
security or functioning of the SDR). to charge a reporting or non-reporting unreasonably discriminatory access and
Moreover, ‘‘[m]arket infrastructures and counterparty to an SBS a fee or require participation? If so, what should the
service providers that may or may not that a counterparty invest in certain criteria be?
offer potentially competing services technologies to satisfy the SDR that the • In what instances (besides risk-
should not be subject to anti- SBS data submitted to the SDR is related reasons) would it be reasonable
competitive practices such as product accurate? Under what circumstances for an SDR to deny access to its services
tying, contracts with non-compete and/ and for what purposes might allowing and data?
or exclusivity clauses, overly restrictive SDRs to charge higher fees or requiring • Is the Commission’s proposed rule
terms of use and anti-competitive price counterparties to invest in certain requiring an SDR to review its denials
discrimination.’’ 76 technologies be appropriate? of access appropriate and sufficiently
Finally, proposed Rule 13n–4(c)(1)(iv) • Is the Commission’s proposed rule clear? If not, why not and what would
would require each SDR to establish, requiring an SDR’s fees to be fair, be a better alternative?
maintain, and enforce written policies reasonable, and non-discriminatory • Are there any measures that the
and procedures reasonably designed to appropriate and sufficiently clear? If Commission can require that would
review any prohibition or limitation of not, why not and what would be a better result in a more meaningful internal
any person with respect to access to alternative? review process? For example, should
services offered, directly or indirectly, • Are there circumstances in which it the Commission explicitly require that
would be fair and reasonable for an SDR the board review all denials of access?
75 See CPSS–IOSCO, supra note 55. to charge a counterparty to an SBS a fee If so, within what timeframe should the
76 Id. to satisfy itself that the SBS data review be completed?
• Should the Commission require an The Commission notes that directors of commercial use of the transaction data,
SDR to promptly file notice with the an SDR owe a fiduciary duty to the SDR e.g., by developing analytical reports or
Commission if the SDR, in its capacity and all of its shareholders, and that the tools that are derived from aggregate
as an SDR rather than a SIP, prohibits board as a whole is ultimately transaction reports. This commercial
or limits any person’s access to services responsible for overseeing the SDR’s interest may conflict with the statutory
offered or data maintained by the SDR? compliance with the SDR’s statutory objective of protecting data privacy and
If not, why not and what would be a obligations. providing for fair and open access to the
better approach? The proposed rule would further data maintained by the SDR. For
• What is the likely impact of the require each SDR to establish, maintain, example, an SDR might attempt to
Commission’s proposed rule on the SBS and enforce written policies and restrict access to parties who would
market? Would the proposed rule procedures reasonably designed to seek to use the data for their own
potentially promote or impede the ensure that the SDR’s senior commercial purposes.
establishment of SDRs? management and each member of the In order to address this issue, the
• With respect to entities that board or committee that has the Commission could choose to prescribe
currently perform repository services for authority to act on behalf of the board minimum requirements pertaining to
SBSs or other instruments, how do possess requisite skills and expertise to board composition or impose ownership
current practices compare to the fulfill their responsibilities in the restrictions. For example, the
practices that the Commission proposes management and governance of the Commission could require each SDR to
to require in this rule? What are the SDR, to have a clear understanding of establish a governance arrangement
incremental costs to potential SDRs in their responsibilities, and to exercise with a certain percentage of
connection with adding to or revising sound judgment about the SDR’s independent directors 84 (e.g., majority
their current practices in order to affairs.81 This proposed requirement is of independent directors, 35%
implement the Commission’s proposed based on a recommendation in the independent directors) on its board and
rule? CPSS–IOSCO consultative report.82 any committee that has the delegated
• How might the evolution of the SBS Given an SDR’s unique role in an SBS authority to act on behalf of the board
market over time affect SDRs or impact market, the Commission preliminarily so as not to undermine the effect of the
the Commission’s proposed rule? believes that it is particularly important former requirement. The Commission
• What is the likely impact of the that those who are managing and could also require each SDR to establish
Commission’s proposed rule on the overseeing an SDR’s activities are a nominating committee that is
development and use of different qualified to do so. An SDR’s failure to composed of a certain percentage of
technologies for reporting SBS comply with its statutory obligations, independent directors (e.g., majority or
transaction information to SDRs and for for example, could impact the SBS solely composed of independent
accessing the services offered and data market as a whole. directors). Additionally, the
maintained by SDRs? As part of its consideration of Commission could require each SDR to
governance issues as they pertain to establish governance arrangements that
b. Second Core Principle: Governance SDRs, the Commission is considering
Arrangements would restrict any SDR participant and
whether potential conflicts between its related persons or any person and its
To implement the second core commercial incentives of owners of an related persons 85 from (1) beneficially
principle, proposed Rule 13n-4(c)(2) SDR and statutory objectives would owning,86 directly or indirectly, any
would require each SDR to establish warrant prescriptive rules relating to
governance arrangements that are well governance, particularly in light of the 84 The term ‘‘independent director’’ may generally
defined and include a clear Commission’s general oversight be defined as a director who has no material
organizational structure with effective authority and the other specific rules relationship with the SDR, any affiliate of the SDR,
an SDR participant, or any affiliate of an SDR
internal controls. The proposed rule proposed in this release intended to participant. The term ‘‘material relationship’’ may
would also require an SDR’s governance minimize conflicts and ensure that be defined as a relationship, whether compensatory
arrangements to provide for fair SDRs meet core principles.83 As or otherwise, that reasonably could affect the
representation of market participants.77 discussed further below, the owners of independent judgment or decision-making of the
director. The term ‘‘participant’’ when used with
This requirement is similar to an SDR may have an interest in respect to an SDR may be defined as any person
requirements imposed on exchanges.78 maximizing the potential commercial who uses an SDR’s services. Such term would not
Additionally, an SDR would be required value of the information reported to the include a person whose only use of an SDR is
to provide representatives of market SDR, which depends on the extent to through another person who is a participant.
85 The term ‘‘related person’’ may be defined as (i)
participants, including end-users,79 who which the SDR and its affiliates are any affiliate of an SDR participant; (ii) any person
are on the board with the opportunity to permitted to use such information for associated with an SDR participant; (iii) any
participate in the process for commercial purposes. The Commission immediate family member of an SDR participant
nominating directors and with the right is not at this time proposing to preclude who is a natural person, or any immediate family
to petition for alternative candidates.80 member of the spouse of such person, who, in each
an SDR or its affiliates from making case, has the same home as the SDR participant, or
who is a director or officer of the SDR, or any of
77 Proposed Rule 13n-4(c)(2)(ii). 81 Proposed Rule 13–4(c)(2)(iv). its parents or subsidiaries; or (iv) any immediate
78 Exchange Act Section 6(b)(3) requires that the 82 See CPSS–IOSCO, supra note 55. family member of a person associated with an SDR
rules of an exchange assure a fair representation of 83 See, e.g., proposed Rule 13n-4(c)(1) participant who is a natural person, or any
its members in the selection of its directors and (implementing core principle relating to market immediate family member of the spouse of such
administration of its affairs, and must provide that access to SDRs’ services and data), supra Section person, who, in each case, has the same home as
one or more directors be representative of issuers III.D.2.a; proposed Rule 13n-4(c)(3) (implementing the person associated with the SDR participant or
and investors and not be associated with a member core principle relating to conflicts of interest), infra who is a director or officer of the SDR, or any of
of the exchange, broker, or dealer. See 15 U.S.C. Section III.D.2.c; and proposed Rule 13n-5 its parents or subsidiaries. The term ‘‘immediate
78f(b)(3). (requiring an SDR to accept all SBSs in a given asset family member’’ may be defined as a person’s
79 The term ‘‘end-user’’ would be defined as any spouse, parents, children, and siblings, whether by
class if it accepts any SBS in that asset class), infra
counterparty that is described in Exchange Act Section III.E.2.a. See also Item 32 of proposed Form blood, marriage, or adoption, or anyone residing in
Section 3C(g)(1) and the rules and regulations SDR (requiring disclosure of instances in which an such person’s home.
thereunder. Proposed Rule 13n-4(a)(6). SDR has prohibited or limited a person with respect 86 The term ‘‘beneficial ownership’’ (including the
80 Proposed Rule 13n–4(c)(2)(iii). to access to the SDR’s services or data). terms ‘‘beneficially owns’’ or any variation thereof)
interest in the SDR that exceeds a appropriate? Does the answer depend Would a majority independent board be
certain percentage (e.g., 20 percent for upon whether the Commission requires necessary to ensure that an SDR
any SDR participant and its related that a certain percentage of the SDR’s appropriately manages any tensions
persons, 40 percent for any person and board be independent? If so, in what between commercial interests and
its related persons) of any class of way? Would minimum standards have a statutory goals?
securities, or other ownership interest, significant effect on the experience and • Should there be a minimum
entitled to vote of such SDR, or (2) efficiency of an SDR’s board? requirement on the number of
directly or indirectly voting, causing the • What is the likely impact of the independent directors on the board or
voting of, or giving any consent or proxy Commission’s proposed rule on the SBS each board committee? If so, what
with respect to the voting of, any market? Would the proposed rule should the minimum requirement be
interest in the SDR that exceeds a encourage or impede competition and and why? For example, would a
certain percentage (e.g., 20 percent) of the establishment of a greater number of minimum requirement of two
the voting power of any class of SDRs? independent directors be sufficient?
securities or other ownership interest of • With respect to entities that • How are independent directors
such SDR. The Commission recently has currently perform repository services for likely to affect the activities of the SDR?
proposed similar requirements for SBS SBSs or other instruments, how do What are their incentives to assure open
clearing agencies and SB SEFs, which current practices compare with the and fair access to the services offered
pose a different set of competing practices that the Commission proposes and data maintained by the SDR? Do
interests.87 to require in this rule? What are the independent directors have any
incremental costs to potential SDRs in conflicts of interest that would affect
Request for Comment connection with adding to or revising their ability to facilitate this objective?
• Should the Commission’s proposed their current practices in order to • Would participant owners of an
rule regarding fair representation of implement the Commission’s proposed SDR be able to exercise undue influence
market participants include fair rule? over an SDR even if at least 35% of the
representation of others (e.g., public • How might the evolution of the SBS board consists of independent directors?
representation)? What are the market over time affect SDRs or impact Would the requirement of at least 35%
advantages and disadvantages of the Commission’s proposed rule? independent board effectively insulate
including others? • Should the Commission require an an SDR from undue influence by its
• What requirements, if any, should SDR to have independent directors on participant owners?
be in place with respect to the duties its board and board committees? If not, • Would participant owners of an
owed by the board to mitigate tensions why not and what would be a better SDR be able to exercise undue influence
between commercial interests and alternative to improve governance and over an SDR even if the majority of the
statutory goals? What types of tensions mitigate any tensions between board consists of independent directors?
commercial interests and statutory Would the requirement of a majority
might exist and how do they compare in
goals? If so, what should be the required independent board effectively insulate
severity and consequences to those that
composition of the board and each an SDR from undue influence by its
exist in clearing agencies or exchanges?
board committee? How should the terms participant owners?
• Is the proposed definition of ‘‘end-
‘‘independent director’’ and ‘‘related • Should the Commission require
user’’ appropriate and sufficiently clear?
person’’ be defined? Should the each SDR to establish a nominating
If not, why not and how should it be
Commission rely on definitions from committee? If not, why not and what
defined?
existing rules (e.g., Exchange Act Rule would be a better approach? If so, what
• Should end-users or any other
10A–3(b)(1)(ii)(A) or Instruction 1 to should be the required composition of
group be given guaranteed rights of
Item 404(a) of Regulation S–K)? the nominating committee? Would 51
participation in an SDR’s governance?
• Would requiring the board and each percent, 100 percent, or some other
Alternatively, should the Commission
board committee to be composed of at percentage be sufficient to avoid undue
require an SDR to establish governance
least 35% independent directors influence by participants? What is the
arrangements whereby certain market
improve governance of the SDR or potential impact of requiring the
participants, including end-users, may
effectively address concerns pertaining nominating committee to be composed
consult with the board on matters of
to conflicting interests of SDR owners? of a majority of independent directors?
concern?
What potential benefits or drawbacks What is the potential impact of
• Is requiring an SDR’s management
might result from requiring at least 35% requiring the nominating committee to
to meet certain minimum standards
of an SDR’s board and each board be solely composed of independent
appropriate? If not, what would be a
committee to be independent directors? directors? What is the likely impact of
better alternative?
Would 35% be sufficient to give requiring the nominating committee to
• Is requiring the members of an
independent directors a meaningful be composed of another percentage of
SDR’s board or committee(s) to meet
voice within the board and board independent directors? Should the
certain minimum standards
committees? If not, would a higher or Commission require that all or a
may have the same meaning, with respect to any
lower level be appropriate? majority of the nominating committee
security or other ownership interest, as set forth in • Should the Commission require that be independent even if it does not
Exchange Act Rule 13d-3(a), as if such security or a majority of an SDR’s board and each establish requirements for independent
other ownership interest were a voting equity board committee be independent directors on an SDR’s board? Why or
security registered under Exchange Act Section 12; directors? What potential benefits or
provided that to the extent any person is a member
why not? What are the benefits or
of a group within the meaning of Exchange Act drawbacks might result from such a drawbacks of composition requirements
Section 13(d)(3), such person shall not be deemed requirement? Would a majority directed specifically to an SDR’s
to beneficially own such security or other independent board be likely to enhance nominating committee?
ownership interest for purposes of this section, an SDR’s management of any tensions • Should the Commission require an
unless such person has the power to direct the vote
of such security or other ownership interest. between commercial interests and SDR to establish any other committee?
87 See Exchange Act Release No. 63107 (Oct. 14, statutory goals or to enhance its If so, what would be the responsibilities
2010), 75 FR 65882 (Oct. 26, 2010). compliance with the proposed rules? of such committee?
• Should the Commission impose any have access to such person’s books and c. Third Core Principle: Rules and
ownership and voting limitations on records at all times)? Should the waiver Procedures for Minimizing and
SDR participants and others? If not, why be subject to the Commission’s review? Resolving Conflicts of Interest
not and what would be a better • If the Commission were to impose As mentioned above, each SDR is
alternative to minimize any tensions ownership and voting interest
between commercial interests and statutorily required to establish and
limitations, should limitations be enforce written policies and procedures
statutory goals? If so, what should the phased in for SDRs to provide a grace
required ownership and voting reasonably designed to minimize
period for those entities that would not conflicts of interest in the SDR’s
limitations be? For example, would 20% meet the limits at the outset, but that
ownership and voting limitations on an decisionmaking process and to establish
could potentially meet them at a later a process for resolving any such
SDR participant and its related persons date, e.g., one year after the registration
be sufficient to limit the ability of a conflicts of interest.88 Based on
of an SDR with the Commission?
market participant or a group of information provided by industry
• If the Commission were to impose representatives regarding how SDRs will
participants from exercising undue ownership and voting interest
influence or control over the governance likely operate, the Commission
limitations, should the Commission preliminarily believes that a small
of the SDR? Should the 20% limitations specifically require remediation by any
be higher or lower given the existing number of dealers could control SDRs,
SDR when any person and its related which may require SDR owners to
concentration of the industry in a small
persons exceed the ownership or voting balance competing interests.89 Owners
number of large dealers? Would a 40%
limitations? For example, should the of an SDR could derive greater revenues
ownership limitation for any person and
Commission explicitly require that an from their non-repository activities in
its related persons be sufficient to limit
SDR’s policies and procedures provide the SBS market than they would from
anyone from exercising undue influence
a mechanism to divest any interest sharing in the profits of the SDR in
or control over the governance of the
owned or not give effect to any voting which they hold a financial interest. In
SDR? Should the 40% ownership
interest held by any person and its addition, there may be a tension
limitation be higher or lower given the
related persons in excess of the between an SDR’s statutory obligations
existing concentration of the industry in
a small number of large dealers? proposed limitations? (e.g., maintaining the privacy of data
• Would requirements related to the • Are there other methods for reported to the SDR) and its own
governance arrangements (i.e., mitigating any tensions between commercial interests or those of its
independent directors, nominating commercial interests and statutory goals owners.90
committee) of an SDR be more or less without placing any voting and A few entities that presently provide
effective than ownership or voting ownership limitations? or anticipate providing repository
limitations at addressing any tensions • Are there potential ways to more services have identified conflicts of
between commercial interests and narrowly target voting and ownership interest that could arise at an SDR. First,
statutory goals? Could restrictions limitations while effectively mitigating owners of an SDR could have
regarding the governance arrangements any tensions between commercial commercial incentives to exert undue
of an SDR, on their own, be sufficient interests and statutory goals? influence to control the level of access
to effectively address concerns • How do potential tensions between to the services offered and data
pertaining to undue influence (assuming commercial interests and statutory goals maintained by the SDR and to
that such restrictions are necessary for for SDRs differ from tensions for implement policies and procedures that
this purpose)? Would it be appropriate clearing agencies and SEFs? Is there a would further their self-interests to the
or necessary to require both governance qualitative difference? Are potential detriment of others.91 Specifically,
arrangements and ownership or voting tensions more or less attenuated for owners of an SDR could exert their
limitations in order to effectively SDRs? influence and control to prohibit or
address these concerns? • How are potential tensions between limit access to the services offered and
• If the Commission were to require data maintained by the SDR in order to
commercial interests and statutory goals
ownership and voting interest
for SDRs similar to potential tensions
limitations, should the Commission
for clearing agencies and SEFs? Would 88 See Public Law 111–203, § 763(i) (adding
permit an SDR’s board to waive the Exchange Act Section 13(n)(7)(C)).
such similarities warrant similar
limitations for a person who is not an 89 See Office of the Comptroller of the Currency,
restrictions regarding their governance
SDR participant and its related persons Quarterly Report on Bank Trading and Derivatives
arrangements and/or voting and Activities, First Quarter 2010 (‘‘Derivatives activity
provided that certain conditions are
met? If so, under what conditions (e.g., ownership limitations? in the U.S. banking system continues to be
waiver is consistent with the SDR’s • Are there any other restrictions or dominated by a small group of large financial
institutions. Five large commercial banks represent
statutory obligations, waiver would not measures that the Commission should 97% of the total banking industry notional amounts
impair the Commission’s ability to impose on SDRs to improve governance * * *.’’).
enforce the Federal securities laws and and mitigate any tensions between 90 See, e.g., CPSS–IOSCO consultative report,
commercial interests and statutory goals supra note 55 (noting the conflicts of interest
the rules and regulations thereunder, ‘‘between the unique public role of the [SDR] and
such person and its related persons can at SDRs? its own commercial interests particularly if the
comply with the Federal securities laws • Is it important that the Commission [SDR] offers services other than recordkeeping or
and the rules and regulations and the CFTC adopt compatible between commercial interests relating to different
provisions regarding governance for participants and linked market infrastructures and
thereunder, such person and its related service providers’’).
persons irrevocably submit to the SDRs? To what degree are SDRs 91 See, e.g., Reval, Responses to the CFTC’s
jurisdiction of the United States federal registered with the Commission also Questions on the SDR Requirements (available at
courts and Commission, such person’s likely to register as swap data http://www.cftc.gov/ucm/groups/public/@swaps/
books and records related to an SDR’s repositories with the CFTC? Would documents/file/derivative9sub100110-reval.pdf)
(stating that an SDR with any ownership or revenue
activities would be subject at all times incompatible or conflicting governance sharing arrangements directly or indirectly with a
to the Commission’s inspection and provisions provide significant dealer would be an obvious conflict of interest)
examination, the Commission would difficulties for SDRs? (‘‘Reval Response Letter’’).
impede competition.92 Second, an SDR material, nonpublic information, and/or understand how an SDR is going to use
could favor certain market participants intellectual property. Such conflicts of that data and the scope of the market
over others with respect to the SDR’s interest could limit the benefits of an participant’s waiver.
services and pricing for such services.93 SDR and undermine the mandatory
Request for Comment
Third, an SDR could require that reporting requirement in Exchange Act
services be purchased on a ‘‘bundled’’ Section 13(m)(G), thereby impacting The Commission requests comment
basis, as discussed above.94 Finally, an efficiency in the SBS market.98 on the following specific issues:
SDR or a person associated with the Proposed Rule 13n–4(c)(3)(i) would • Is the Commission’s proposed
SDR could misuse or misappropriate require each SDR to establish, maintain, definition of ‘‘nonaffiliated third party’’
data reported to the SDR for financial and enforce written policies and appropriate and sufficiently clear? If
gain.95 As one repository noted, ‘‘SDR procedures reasonably designed to not, why not and how should it be
data is extremely valuable and could be identify and mitigate potential and defined?
sold either stand alone or enhanced existing conflicts of interest in the SDR’s • Are the Commission’s proposed
with other market data and analysis. decisionmaking process on an ongoing rules implementing the third core
The use of this data in this matter would basis. The Commission preliminarily principle appropriate and sufficiently
present competitive problems’’ as well believes that requiring an SDR to clear? If not, why not and what would
as conflicts of interest issues.96 Because conduct ongoing identification and be a better alternative?
these conflicts have been identified by mitigation of conflicts of interest is • Are the Commission’s examples of
only a few potential SDRs, the important because such conflicts can potential conflicts of interest in its
Commission recognizes that this arise gradually over time or proposed rules adequate? If not, are
information may not reflect all business unexpectedly. Furthermore, a situation there other examples of conflicts that
models for SDRs. The Commission that is acceptable one day may present the Commission should identify in its
invites comment on this issue. a conflict of interest the next. In order rule?
Proposed Rule 13n–4(c)(3) would to identify and address potential • Do commenters agree with the
provide general examples of conflicts of conflicts that may arise over time, the potential conflict concerns that the
interest that should be considered by an Commission believes that, in general, an Commission has identified in this
SDR, including, but not limited to: (1) SDR’s procedures should provide a release? How might conflicts of interest
Conflicts between the commercial means for regular review of conflicts as change as SDRs become more
interests of an SDR and its statutory they impact the SDR’s decisionmaking established? How might competitive
responsibilities, (2) conflicts in processes. forces within the SBS market affect or
connection with the commercial Proposed Rule 13n–4(c)(3)(ii) would change current conflicts of interest?
interests of certain market participants require an SDR to recuse any person What potential new conflicts of interest
or linked market infrastructures, third involved in a conflict of interest from could arise that the Commission should
party service providers, and others, (3) the decisionmaking process for consider? Will competition potentially
conflicts between, among, or with resolving any conflicts of interest. The create different or additional conflicts of
persons associated with the SDR, market Commission preliminarily believes that interest that the Commission should
participants, affiliates of the SDR, and such recusal is necessary to eliminate an consider? Will competition potentially
nonaffiliated third parties,97 and (4) apparent conflict of interest in an SDR’s mitigate conflicts of interest?
misuse of confidential information, decisionmaking process. Additionally, • What is the likely impact of the
recusal would increase confidence in Commission’s proposed rule on the SBS
92 See, e.g., Warehouse Trust Company, Draft the SDR’s decisionmaking process and market? Would the proposed rule
Response to CFTC re: CFTC Request for Information avoid an appearance of impropriety. potentially promote or impede the
regarding SDR Governance (available at http:// Finally, proposed Rule 13n–4(c)(3)(iii)
www.cftc.gov/ucm/groups/public/@swaps/
establishment of SDRs?
documents/file/derivative9sub100510-wt.pdf) would require an SDR to establish, • With respect to entities that
(stating that ‘‘ownership of an SDR could lead to maintain, and enforce reasonable currently perform repository services for
access restrictions on non-owners.’’) (‘‘Warehouse written policies and procedures SBSs or other instruments, how do
Trust Response Letter’’). regarding the SDR’s non-commercial current practices compare to the
93 See Reval Response Letter, supra note 91
and/or commercial use of the SBS practices that the Commission proposes
(‘‘Preferential treatment in services provided by an
SDR could also occur * * *.’’). transaction information that it receives to require in this rule? What are the
94 See Warehouse Trust Letter, supra note 92 from a market participant, any incremental costs to potential SDRs in
(‘‘The issue of vertical bundling could arise where registered entity, or any other person. connection with adding to or revising
[SEFs and clearing agencies] have preferred access The Commission recognizes that an SDR their current practices in order to
or servicing arrangements with SDRs primarily due
to ownership overlaps.’’).
may have commercial incentives to implement the Commission’s proposed
95 See Reval Response Letter, supra note 91 operate as an SDR. To the extent that an rule?
(‘‘There will always be an underlying conflict to SDR uses data that it receives from • Should the Commission require an
ensure that the position information or client others for commercial purposes, the SDR to identify and mitigate conflicts of
activity does not get into the hands of investors or Commission preliminarily believes that interest in an SDR’s governance
an SDR business partner who could benefit from
that information.’’). such uses should be clearly defined and arrangements periodically rather than
96 See Warehouse Trust Letter, supra note 92; see disclosed to market participants. If, for on an ongoing basis? Should the
also Reval Response Letter, supra note 91 (‘‘[I]f only example, a market participant agrees to proposed requirement extend to any
one SDR is created for an asset class and that SDR waive confidentiality of the data that it other circumstances?
is held by a market participant that could gain by
having an edge on when the information is
provides to an SDR, then, at the very • Is the Commission’s proposed rule
received, it could have a trading edge.’’). least, the market participant should requiring recusal of any person involved
97 The term ‘‘nonaffiliated third party’’ of an SDR in a conflict of interest appropriate and
would be defined as any person except (1) the SDR, 98 See Public Law 111–203, § 763(i). Exchange
sufficiently clear? If not, what would be
(2) an SDR’s affiliate, or (3) a person employed by Act Section 13(m)(G) imposes a mandatory a better alternative?
an SDR and any entity that is not the SDR’s affiliate reporting requirement, which provides that ‘‘[e]ach
(and ‘‘nonaffiliated third party’’ includes such entity security-based swap (whether cleared or uncleared)
• Is the Commission’s proposed
that jointly employs the person). See proposed Rule shall be reported to a registered security-based swap requirement relating to an SDR’s non-
13n–4(a)(8). data repository.’’ commercial and commercial use of data
appropriate and sufficiently clear? If would it deter persons from registering asset class; (iv) long risk of the
not, why not and what would be a better as SDRs? Would it result in existing underlying instrument, index, or
alternative? SDRs to cease operating as such? Would reference entity; and (v) short risk of the
• Are there conflicts of interest prohibiting an SDR from making underlying instrument, index, or
specific to the commercial use of data commercial use of data reported to it reference entity.102 Position data is
by an SDR that the Commission should have positive benefits, such as required to be provided by SDRs to
address? What are these conflicts? Can enhancing the confidence of market certain entities pursuant to Exchange
they be mitigated? If so, by what means? participants that their trade or position Act Section 13(n)(5)(G).103 Therefore,
• Should the Commission restrict or information will not leak into the the Commission proposes defining the
prohibit an SDR’s use of data for market? term, and has designed this definition to
commercial purposes? If so, in what • Would an SDR need to use data that reflect the way the term is currently
way? For example, should the it receives for commercial purposes in used in the industry.104 The proposed
Commission prohibit an SDR’s use of order to be a viable business? If so, term is designed to be sufficiently
data for commercial purposes unless an explain. specific so that SDRs are aware of the
SDR obtains express written consent • Are there any additional types of position calculations that
from the market participants submitting requirements that the Commission regulators may require an SDR to
such data? Should the Commission should impose to implement the third provide, while at the same time, provide
require that an SDR’s policies and core principle? enough flexibility to encompass the
procedures require it to obtain consent types of position calculations that
E. Proposed Rule Regarding Data
from market participants before the SDR regulators and the industry will find
Collection and Maintenance
uses the data for any purpose or important as new types of SBS are
transmits such data to other parties The Commission is proposing Rule developed.
other than regulators? Should the 13n–5 under the Exchange Act to Proposed Rule 13n–5(a)(3) would
Commission require that an SDR’s specify the data collection and define ‘‘asset class’’ as ‘‘those security-
policies and procedures require it to maintenance requirements applicable to based swaps in a particular broad
obtain consent from market participants SDRs.99 category, including, but not limited to,
before the SDR provides aggregated SBS 1. Definitions credit derivatives, equity derivatives,
transaction data to the public without and loan-based derivatives.’’ The
charge? Proposed Rule 13n–5(a) would define
Commission is proposing this definition
• If some commercial use of data is terms used in the proposed rule.
in order to implement proposed Rule
permitted, should particular commercial Proposed Rule 13n–5(a)(1) would define
13n–5(b)(1)(ii), discussed below.
uses of data by an SDR nonetheless be ‘‘transaction data’’ to mean all the
prohibited? If so, which uses should be information reported to the SDR 102 For purposes of this definition, positions
prohibited and why? Should certain pursuant to the Exchange Act and the aggregated by long risk would be only for the
potential uses of data, or the use of rules and regulations thereunder.100 aggregate notional amount of SBSs in which a
particular types of data, pose particular This would include all information, market participant has long risk of the underlying
including life cycle events, required to instrument, index, or reference entity. Similarly,
concern to the Commission? Which uses positions aggregated by short risk would be only for
or data types are they, and how should be reported to the SDR under Rule 901 the aggregate notional amount of SBSs in which a
the Commission respond? of proposed Regulation SBSR.101 market participant has short risk of the underlying
• Should an SDR’s affiliates be Proposed Rule 13n–5(a)(2) would instrument, index, or reference entity. For SBSs
define ‘‘position’’ as the gross and net other than credit default swaps, a counterparty has
subject to any or all of the restrictions long risk where the counterparty profits from an
on commercial use that are imposed on notional amounts of open SBS increase in the price of the underlying instrument
an SDR? Should the Commission restrict transactions aggregated by one or more or index, and a counterparty has short risk where
the ability of an SDR to share data with attributes, including, but not limited to, the counterparty profits from a decrease in the price
the (i) underlying instrument, index, or of the underlying instrument or index. For credit
any of its affiliates? For example, should default swaps, a counterparty has long risk where
an SDR be prohibited from sharing data reference entity; (ii) counterparty; (iii) the counterparty profits from a decrease in the price
with an affiliate unless the same data is of the credit risk of the underlying index or
99 Proposed Rule 13n–5 is being promulgated reference entity, and a counterparty has short risk
also made available at the same time
under Exchange Act Sections 13(n)(4)(B), where the counterparty profits from an increase in
and on reasonable terms to market 13(n)(7)(D), and 13(n)(9). See Public Law 111–203, the price of the credit risk of the underlying index
participants that are not affiliates? § 763(i). or reference entity. As market events require, the
Should an SDR be prohibited from 100 In a separate proposal relating to Commission may request that an SDR calculate
sharing certain types of data with an implementation of Section 763(i) of the Dodd-Frank positions in another manner and to provide those
Act (adding Exchange Act Section 13(m)), the positions to the Commission on a confidential basis.
affiliate that trades SBSs?
Commission is considering rules requiring an SDR 103 See Public Law 111–203, § 763(i) (adding
• Would full disclosure by an SDR of to publicly disseminate certain SBS data that has Exchange Act Section 13(n)(5)(G)); see also
its commercial use of data provide been affirmed by the parties but has not necessarily proposed Rule 13n–4(b)(9).
meaningful protection for market been confirmed. See Regulation SBSR Release 104 The Commission notes that Section 763(h) of
participants? Are market participants (proposed Rule 902), supra note 9. Any comments the Dodd-Frank Act adds Exchange Act Section
regarding the public dissemination proposed rules 10B, which provides, among other things, for the
likely to have a meaningful choice to should be submitted in connection with that establishment of position limits for any person that
preclude the commercial use of their proposal. In another separate proposal relating to holds SBSs. Specifically, Section 10B(a) provides
transaction data by choosing to report implementation of Section 763(i) of the Dodd-Frank that ‘‘[a]s a means reasonably designed to prevent
transactions to an SDR that does not Act (adding Exchange Act Section 13(n)(5)(E)), the fraud and manipulation, the Commission shall, by
Commission is considering rules that would require rule or regulation, as necessary or appropriate in the
make commercial use of the data? If SDRs to collect data related to monitoring the public interest or for the protection of investors,
commercial use of data is permitted, is compliance and frequency of end-user clearing establish limits (including related hedge exemption
it likely that any SDR would refrain exemption claims. Any comments regarding the provisions) on the size of positions in any security-
from such use? end-user clearing exemption proposed rules should based swap that may be held by any person.’’ In
• What are the possible consequences be submitted in connection with that proposal.
101 A definition of ‘‘life cycle event’’ is being
addition, Exchange Act Section 10B(d) provides
that the Commission may establish position
of restricting or prohibiting an SDR’s proposed in proposed Regulation SBSR. See reporting requirements for any person that effects
use of the data that it receives for Regulation SBSR Release (proposed Rule 900), transactions in SBSs, whether cleared or uncleared.
commercial purposes? For example, supra note 9. See Public Law 111–203, § 763(h).
Proposed Rule 13n–5(b)(1)(ii) would that the SDR’s policies and procedures 5(b)(1)(ii) would not add a material
require an SDR, if it accepts any SBS in make clear what SBSs the SDR will incremental financial or regulatory
a given asset class, to accept all SBSs in accept, make it easier for market burden to SDRs. The Commission
that asset class. participants to determine whether there preliminarily believes that SDRs may
is an SDR that will accept a particular have commercial incentives to limit
Request for Comment SBS.106 SBSs for which they receive reports to
The Commission requests comment Proposed Rule 13n–5(b)(1)(ii) would those with relatively standardized
on the following specific issues: require an SDR, if it accepts any SBS in terms, for operational reasons and
• Are these proposed definitions a given asset class, to accept all SBSs in because standardized instruments lend
over-inclusive or under-inclusive? Is that asset class that are reported to it in themselves more readily to aggregation
there some data that is captured by the accordance with its policies and of information that would have
term ‘‘transaction data’’ that should not procedures required by paragraph (b)(1) commercial value (to the extent that
be subject to the collection and of the proposed rule. This proposed SDRs are entitled under the rules the
maintenance requirements described requirement is designed to maximize Commission adopts to use such
below? Is there data that should be the number of SBSs that are accepted by information for commercial purposes).
subject to these requirements that is not an SDR. The Commission preliminarily Given these incentives, the requirement
included in the proposed definition of believes that if certain SBSs are not that, if an SDR accepts any SBS in a
‘‘transaction data’’? accepted by any SDR and are reported given asset class, it must accept all SBSs
• Is the proposed definition of to the Commission instead, the purpose in that asset class, is meant to facilitate
‘‘position’’ sufficiently precise? of the Dodd-Frank Act to have the aggregation of and access to SBS
• Are there other attributes of SBSs centralized data on SBSs for regulators transaction data.
for which the Commission should and others to access could be
Proposed Rule 13n–5(b)(1)(iii) would
specifically require SDRs to calculate undermined. Without this requirement,
require every SDR to establish,
positions? the transaction costs for the Commission
• Exchange Act Section 10B and other regulators to gather complete maintain, and enforce written policies
authorizes the Commission to establish information on the SBS market could be and procedures reasonably designed to
limits on the size of positions in any higher. In addition, the Commission satisfy itself by reasonable means that
SBS that may be held by any person. preliminarily believes that this the transaction data that has been
Would the definition of ‘‘position’’ in proposed requirement would make it submitted to the SDR is accurate. This
proposed Rule 13n–5(a)(2) be easier for market participants to proposed rule would also require SDRs
appropriate for purposes of any rules determine whether there is an SDR that to clearly identify the source for each
the Commission might propose with will accept a particular SBS. trade side and the pairing method (if
regard to position limits? However, an SDR would be required any) for each transaction in order to
• Is the proposed definition of ‘‘asset to accept only those SBSs from the asset identify the level of quality of that
class’’ sufficiently precise? Is there class that are reported in accordance transaction data.
another definition of ‘‘asset class’’ that with the SDR’s policies and procedures Exchange Act Section 13(n)(5)(B)
better describes the broad categories of required by paragraph (b)(1) of this requires an SDR to ‘‘confirm with both
SBSs commonly referred to as credit proposed rule.107 For example, an SDR’s counterparties to the security-based
derivatives, equity derivatives, and policies and procedures could prescribe swap the accuracy of the data that was
loan-based derivatives, but excluding the necessary security and connectivity submitted.’’ 108 This requirement is
those that are not SBSs? protocols that market participants must based on the premise that an SDR is
• Should each SDR be allowed to have in place prior to transmitting useful only insofar as the data it retains
define the ‘‘asset class’’ for which it will transaction data to the SDR. An SDR is accurate.109 SBS data that is not
accept SBS transaction data under would not be required to accept trusted does not enhance transparency.
proposed Rule 13n–5(b)(1)(ii)? transaction data from market In order to ensure that the data
participants that did not comply with submitted to an SDR is accurate and
2. Requirements these protocols; otherwise the agreed to by both counterparties, the
a. Transaction Data transmission of the transaction data SDR must substantiate the accuracy of
could compromise the SDR’s automated the data submitted with the
Proposed Rule 13n–5(b)(1)(i) would
systems. counterparties. The Commission
require every SDR to establish, To the extent that an SDR already has
maintain, and enforce written policies understands that with respect to certain
systems in place to accept and maintain asset classes, current market practice is
and procedures reasonably designed for SBSs in a particular asset class, the
the reporting of transaction data to the for third party service providers to
Commission preliminarily believes that provide electronic confirmations prior
SDR, and would require the SDR to the requirement of proposed Rule 13n–
accept all transaction data that is to the SBS data reaching an SDR. The
reported to the SDR in accordance with Commission preliminarily believes that
106 In a separate proposal relating to
such policies and procedures. A an SDR would be able to fulfill its
implementation of Section 763(i) of the Dodd-Frank
fundamental goal of Title VII is to have Act, the Commission is considering additional rules responsibilities under Exchange Act
all SBSs reported to SDRs.105 This requiring an SDR to have policies and procedures Section 13(n)(5)(B), proposed Rule 13n–
proposed requirement would prevent
relating to the reporting of SBS data to the SDR. See 4(b)(3),110 and this proposed rule by
Regulation SBSR Release (proposed Rule 907),

SDRs from rejecting SBSs for arbitrary supra note 9. Any comments regarding the
108 See also proposed Rule 13n–4(b)(3).
or anti-competitive reasons, minimize proposed reporting rules should be submitted in
connection with that proposal. 109 See, e.g., CPSS–IOSCO, supra note 55 (the
the number of SBSs that are not 107 An SDR would be required to disclose to primary public policy benefit of an SDR is
accepted by an SDR, and to the extent market participants its criteria for providing others facilitated by the integrity of the information
with access to services offered and data maintained maintained by an SDR).
105 See Exchange Act Section 13(m)(1)(G) by the SDR pursuant to proposed Rule 13n–10(b)(1), 110 Proposed Rule 13n–4(b)(3) would require
requiring ‘‘[e]ach security-based swap (whether as discussed in Section III.J of this release. SDRs to ‘‘[c]onfirm, as prescribed in Rule 13n–5,
cleared or uncleared)’’ to be reported to a registered Therefore, market participants would be aware of with both counterparties to the security-based swap
SDR. Public Law 111–203, § 763(i). an SDR’s policies and procedures for reporting data. the accuracy of the data that was submitted.’’
developing reasonable policies and considered authoritative. Other • Should the Commission require an
procedures that rely on confirmations transaction data may have gone through SDR to accept all SBSs of a given asset
completed by another entity, such as an an electronic confirmation process and class? If not, what other mechanism
SB SEF, clearing agency, or third party be considered authoritative by the should the Commission use to prevent
vendor, as long as such reliance is counterparties. In order for regulators to ‘‘orphaned’’ SBSs? How should the
reasonable. The SDR would have a determine whether an SDR has Commission address SBSs that do not
continuing responsibility to oversee and reasonable policies and procedures for clearly belong to a particular asset class
supervise the performance of the third satisfying itself that the transaction data or that could arguably belong to more
party confirmation provider. This could that has been submitted to the SDR is than one asset class? Should the
include having policies and procedures accurate, the SDR must document the Commission allow an SDR that accepts
in place to monitor the third party processes used by third parties to SBSs in one asset class to accept an SBS
confirmation provider’s compliance substantiate the accuracy of the that arguably belongs to that asset class,
with the terms of any agreements and to transaction data. but which could also belong to a second
assess the third party confirmation Proposed Rule 13n–5(b)(1)(iv) would asset class, without requiring the SDR to
provider’s continued fitness and ability require SDRs to record promptly the then accept all SBSs in the second asset
to perform the confirmations. transaction data that it receives.113 It is class?
For example, if an SBS is traded on important that SDRs keep up-to-date • Will the requirement of proposed
an SB SEF, that SB SEF would confirm records so that regulators and parties to Rule 13n–5(b)(1)(ii) materially add to
the accuracy of the transaction data with SBSs will have access to accurate and the costs of SDRs? How does this
both counterparties, and the SBS would current information.114 proposed requirement affect the
then be reported to the SDR by the SB possible business models under which
SEF. The SDR would not need to further Request for Comment an SDR may operate or the commercial
substantiate the accuracy of the The Commission requests comment viability of SDRs in general? Does it
transaction data, as long as the SDR had on the following specific issues: make any particular business model
a reasonable belief that the SB SEF had • What is the likely impact of these more or less attractive?
performed an accurate confirmation. requirements on the SBS market, • Should the Commission impose
However, the SDR would not comply including the impact on the incentives other requirements that may increase
with Exchange Act Section 13(n)(5)(B), and behaviors of SDRs, the willingness access to an SDR, including:
proposed Rule 13n–4(b)(3), and this Æ Any other requirements that may
of persons to register as SDRs, and the
proposed rule if the confirmation proves prevent an SDR from rejecting those
technologies used for reporting SBSs to
to be inaccurate and the SDR had reason SBSs that are customized to such a
the SDR?
to know that its reliance on the SB SEF degree that they are not in the SDR’s
• With respect to entities that
for providing accurate confirmations economic interest to accept them
currently perform repository services for
was unreasonable. If an SBS is because the SDR will not be able to
SBSs or other instruments, how do
transacted by two commercial end-users perform downstream processing on the
current practices compare to the
and is not electronically traded or SBSs and may incur costs in obtaining
practices that the Commission proposes
cleared, and is reported to the SDR by the information to calculate positions;
to require in this rule? What are the
one of those end-users, the SDR may not and
incremental costs to potential SDRs in Æ Requiring an SDR to employ
have any other entity that it can
reasonably rely on, and may have to connection with adding to or revising technologies that accommodate a wide
contact each of the counterparties itself their current practices in order to range of technological capabilities
to substantiate the accuracy of the implement the Commission’s proposed among persons that desire to report data
transaction data.111 rule? to the SDR or other requirements that
Transaction data may vary in terms of • Should the Commission require an may prevent an SDR from rejecting SBSs
reliability. Some transaction data may SDR to have any particular substantive from less sophisticated persons that do
have been affirmed by counterparties to requirements in its policies and not engage in the volume of SBSs
an SBS, but not confirmed.112 Some procedures, such as requirements necessary to make it economically
transaction data may have been pertaining to robust passwords for practicable to invest in technologies that
confirmed informally by the back-offices persons reporting transaction data? are industry standards?
of the counterparties, but not be • Does the definition of ‘‘asset class’’ • Should the Commission require an
in proposed Rule 13n–5(a)(3) provide SDR itself to substantiate the accuracy
111 The Commission preliminarily believes that sufficient guidance and clarity to of the transaction data that has been
an SDR should make reasonable accommodations, entities that may register as SDRs and to submitted to the SDR?
including consideration of any cost burdens, for a
non-reporting counterparty of an SBS transaction in
other market participants? • Should the Commission require an
connection with any follow-up by the SDR SDR to have any particular substantive
regarding the accuracy of the counterparty’s SBS 113 In a separate proposal, the Commission is
requirements in its policies and
transaction. These accommodations could, for proposing rules prescribing the data elements that procedures relating to these rules?
example, include providing means for non- an SDR is required to accept for each SBS in
reporting counterparties to substantiate the association with requirements under Section 763(i)
• Should the Commission give more
accuracy of the transaction data without having to of the Dodd-Frank Act, adding Exchange Act guidance as to what constitutes
incur significant systems or technology costs. Section 13(n)(4)(A), relating to standard setting and reasonable reliance on a third party? For
112 In a separate proposal relating to data identification. See Regulation SBSR Release example, would it be reasonable to rely
implementation of Section 763(i) of the Dodd-Frank (proposed Rule 901), supra note 9. Any comments
regarding the data elements should be submitted in
on documents provided by the party to
Act (adding Exchange Act Section 13(m)), the
Commission is considering rules requiring an SDR connection with that proposal. an SBS that reports the SBS to an SDR?
to publicly disseminate certain SBS data that has 114 See, e.g., CPSS–IOSCO, supra note 55 (‘‘A What if that party is a clearing agency
been affirmed by the parties but has not necessarily [trade repository] should promptly record the trade that became a party to the SBS as the
been confirmed. See Regulation SBSR Release information it receives from its participants. * * * central counterparty?
(proposed Rule 902), supra note 9. Any comments Ideally, a [trade repository] should record to its
regarding the public dissemination proposed rules central registry information it receives from its
• Where an SDR relies on a third
should be submitted in connection with that participants in real-time, and at a minimum, within party to provide confirmations, should
proposal. one business day.’’). the Commission give more guidance as
to the oversight by the SDR of the third to the SDR as transaction data, some implement the Commission’s proposed
party? For example, how often should information may not. For example, rule?
the SDR review the third party’s credit events for credit default swaps or • The Commission understands that
confirmation procedures? Would events that result in the termination or clearing agencies typically produce
annually be sufficient? adjustment to an equity swap may not market values on cleared SBSs.
• Where an SDR is unable to be reported.116 In order to meet its However, many types of SBSs may not
reasonably satisfy itself that the obligation to calculate positions, an SDR be cleared in the near term. Should the
transaction data is accurate, should the could require reporting parties to report Commission require SDRs to calculate
SDR reject the SBS? Should that SBS such events or it could have a system market values of each position at least
instead be reported to the Commission that will monitor for and collect such daily and provide them to the
pursuant to Exchange Act Section information. In order for the positions to Commission? In your comment, please
13A(a)(1)(B) and the rules and be calculated accurately, the SDR will consider the following:
regulations promulgated thereunder? need to promptly incorporate recently
• Should the Commission give more Æ What would be the benefits and
reported transaction data and collected burdens of such a requirement?
guidance as to whether an SDR (or the unreported data. It is important that the
entity that it reasonably relies on) needs SDR keep up-to-date records so that Æ Should the requirement to calculate
to get an affirmative response from both relevant authorities and parties to the market values of positions be limited to
counterparties when it attempts to SBS will have access to accurate and certain types of SBSs, such as SBSs for
satisfy itself that the transaction data is current information.117 which the counterparties have agreed
accurate? Alternatively, should the SDR that the transaction information
submit the transaction data to a Request for Comment maintained by the SDR is the primary
counterparty, and require a response The Commission requests comment record of the trade to the exclusion of
only if the counterparty disagrees with on the following specific issues: any records held by the counterparties?
the transaction data? Would this answer • Should the Commission specify Æ Should ‘‘market value’’ be defined,
change if the SBS is cleared or if the particular standards or procedures for and if so, how?
counterparty is an end-user? calculating positions? Æ Will the information necessary for
• Should the Commission give more • What information will an SDR need calculating market values of the
guidance as to whether receipt by an to obtain in order to calculate positions positions already be at the SDR? What
SDR of a confirmation under Exchange and how difficult will it be to obtain? information besides transaction data
Act Section 15F(i)(2) and the rules • What is the likely impact of this and positions will be required for the
promulgated thereunder would be requirement on the SBS market, SDR to calculate the market values of
sufficient to fulfill the SDR’s duties including the impact on the incentives positions? Would SDRs be able to obtain
under Exchange Act Section 13(n)(5)(B), and behaviors of SDRs, the willingness the necessary information to calculate
proposed Rule 13n–4(b)(3), and this of persons to register as SDRs, and the market values? Why or why not? How
proposed rule? technologies used for reporting SBSs to could the SDR obtain the necessary
• Should the term ‘‘promptly’’ be the SDR? information?
defined or should the Commission use • With respect to entities that
another term such as ‘‘as soon as currently perform repository services for Æ To the extent that other entities,
technologically practicable after the SBSs or other instruments, how do such as SB SEFs, SBS dealers, or
time at which the data has been current practices compare to the clearing agencies, already perform such
submitted’’? practices that the Commission proposes calculations, would it be sufficient for
• Should an SDR be required to to require in this rule? What are the the SDR to obtain the market values
record transaction data promptly after incremental costs to potential SDRs in from such entity?
execution of a transaction or promptly connection with adding to or revising Æ How frequently should such
after confirmation of the transaction? their current practices in order to valuations be performed? Would daily
valuation be too onerous for SDRs?
b. Positions 116 In a separate proposal, the Commission is What about weekly or monthly
Proposed Rule 13n–5(b)(2) would proposing rules prescribing the data elements that valuation?
require every SDR to establish, an SDR is required to accept for each SBS in
association with requirements under Section 763(i) Æ Would market values be
maintain, and enforce written policies of the Dodd-Frank Act, adding Exchange Act meaningful in assessing risk without
and procedures reasonably designed to Section 13(n)(4)(A), relating to standard setting and knowing the margin calls and collateral
calculate positions for all persons with data identification. See Regulation SBSR Release
posted? Should SDRs also be required to
open SBSs for which the SDR maintains (proposed Rule 901), supra note 9. The proposed
definition of ‘‘life cycle event’’ in proposed maintain margin call and collateral
records. Position data is required to be Regulation SBSR states, ‘‘Notwithstanding the information?
provided by an SDR to certain entities above, a life cycle event shall not include the
pursuant to Exchange Act Section scheduled expiration of the security-based swap, a
Æ How long should the SDR be
13(n)(5)(G).115 Position information is previously described and anticipated interest rate required to maintain such market
important to regulators for risk, adjustment (such as a quarterly interest rate values? Would five years be adequate?
adjustment), or other event that does not result in What about the same time period as the
enforcement, and examination any change to the contractual terms of the security-
purposes. In addition, having a readily based swap.’’ See Regulation SBSR Release
Commission requires for positions?
available source of position information (proposed Rule 900), supra note 9. In order to c. Maintain Accurate Data
calculate positions, SDRs may need this
can be useful to counterparties information, which would not be required to be
themselves in evaluating their own risk. Proposed Rule 13n–5(b)(3) would
reported to it. Any comments regarding the data
While much of the information elements should be submitted in connection with require every SDR to establish,
necessary for an SDR to calculate that proposal. maintain, and enforce written policies
positions (as defined in subsection (a)(2) 117 See, e.g., CPSS–IOSCO, supra note 55 and procedures reasonably designed to
(‘‘Ideally, a [trade repository] should record to its ensure that the transaction data and
of this proposed rule) will be reported central registry information it receives from its
participants in real-time, and at a minimum, within
positions that it maintains are accurate.
115 See also proposed Rule 13n–4(b)(9). one business day.’’). Maintaining accurate records is a core
function of an SDR.118 Maintaining electronic format that is non-rewriteable format applicable to electronic broker-
accurate records requires diligence on and non-erasable. A five-year retention dealer records.123 This proposed
the part of an SDR; SBSs can be period is the current requirement for the requirement would prevent the
amended, assigned, or terminated and records of clearing agencies and other maintained information from being
positions change upon the occurrence of registered entities, and is the statutory modified or removed without
new events (such as corporate actions). requirement for SB SEFs.120 Since an detection.124
Therefore, it is important that an SDR SBS transaction is ongoing, the
Request for Comment
has policies and procedures to ensure transaction data should be maintained
reasonably the accuracy of the for the duration of the SBS and for five The Commission requests comment
transaction data and positions that it years after it expires. Positions are not on the following specific issues:
maintains. These policies and tied to any particular SBS transaction; • Is the appropriate time period for
procedures could include portfolio therefore, the Commission proposes to the Commission to require an SDR to
reconciliation.119 require positions, as required to be maintain transaction data at least five
calculated pursuant to proposed Rule years after the applicable SBS expires
Request for Comment 13n–5(b)(2), to be maintained for five and for positions at least five years? For
The Commission requests comment years, similar to the record retention transaction data, would ten years after
on the following specific issues: requirement for clearing agencies.121 expiration of the applicable SBS be
• Should the Commission specify Alternatively, the Commission is more appropriate and why? 125 What
particular standards or procedures for considering requiring SDRs to ‘‘maintain would be the benefits and burdens
maintaining accurate data, such as transaction data for not less than five associated with each of these time
portfolio reconciliation and payment years after the applicable security-based periods? Are there other retention
reconciliation? swap expires or ten years after the periods that would be more
• What is the likely impact of this applicable security-based swap is appropriate?
requirement on the SBS market, executed, whichever is greater, and • Should the Commission require
including the impact on the incentives historical positions for not less than five SDRs to maintain transaction data for
and behaviors of SDRs, the willingness years.’’ Some SBSs are, in practice, of five years after the applicable SBS
of persons to register as SDRs, and the very short duration due to various expires or ten years after the applicable
technologies used for maintaining SBSs reasons, including being novated upon SBS is executed, whichever is greater?
at the SDR? being submitted for clearing or being What if the Commission required SDRs
• With respect to entities that terminated through portfolio to maintain transaction data for five
currently perform repository services for compression. By requiring SDRs to years after the applicable SBS expires or
SBSs or other instruments, how do retain data of all SBSs for at least ten eight years after the applicable SBS is
current practices compare to the years after execution, regulators would executed, whichever is greater? What
practices that the Commission proposes be able to use the data of the SBSs for would be the benefits and burdens
to require in this rule? What are the analytical studies. associated with each of these time
incremental costs to potential SDRs in The Commission proposes that the periods?
connection with adding to or revising transaction data and positions be in a • Should the Commission instead
their current practices in order to place and format that is readily require an SDR to maintain the
implement the Commission’s proposed accessible to the Commission and other transaction data and positions for an
rule? persons with authority to access or view indefinite period? What would be the
• If portfolio reconciliation and/or such information. The Commission benefits and burdens of requiring an
payment reconciliation is required, how preliminarily believes that this SDR to maintain such information
often would it be done, and what should proposed requirement would ensure indefinitely?
it entail? Would the following definition that SDRs maintain the information in • Should the Commission have
of portfolio reconciliation be sufficient: an organized and accessible manner so additional requirements regarding
‘‘a means of ensuring that the SDR’s that users can easily obtain the data that access to the transaction data and
record of security-based swaps are they need. The Commission also positions, such as requiring such
synchronized with those of a person preliminarily believes that this 123 See Exchange Act Rule 17a–4(f)(2)(ii)(A), 17
with open security-based swaps proposed requirement would ensure CFR 240.17a–4(f)(2)(ii)(A). In Exchange Act Release
maintained by the SDR’’? If not, how that the information is maintained in a No. 47806 (May 7, 2003), 68 FR 25281 (May 12,
should the term be defined? common and easily accessible format, 2003), the Commission stated, among other things,
such as a language commonly used in that a broker-dealer would not violate Exchange Act
d. Data Retention Rule 17a–4(f)(2)(ii)(A) ‘‘if it used an electronic
financial markets.122 storage system that prevents the overwriting,
Proposed Rule 13n–5(b)(4) would The proposed requirement for erasing or otherwise altering of a record during its
require SDRs to maintain the transaction information to be in an electronic format required retention period through the use of
data for not less than five years after the that is non-rewriteable and non-erasable integrated hardware and software control codes.’’
The Commission is proposing to incorporate this
applicable SBS expires and historical is consistent with the record retention interpretation into proposed Rule 13n–5(b)(4).
positions for not less than five years (i) 124 Records made or kept by an SDR, other than
in a place and format that is readily 120 See Exchange Act Rule 17a–1, 17 CFR
transaction data and positions, will be governed by
accessible to the Commission and other 240.17a–1 (for national securities exchanges, proposed Rule 13n–7, as discussed in Section III.G
national securities associations, clearing agencies of this release.

persons with authority to access or view and the MSRB); Exchange Act Section 3D(d)(9), 125 The European Commission has recently
such information; and (ii) in an Public Law 111–203, § 763(c) (for SB SEFs). proposed that trade repositories maintain reported
121 See Exchange Act Rule 17a–1, 17 CFR
data ‘‘for at least ten years following the termination
118 See Section II, Role, Regulation, and Business 240.17a–1 (requiring clearing agencies to retain data of the relevant contracts.’’ See European
Models of SDRs, of this release. for five years). Commission, Proposal for a regulation of the
119 See, e.g., ISDA Operations Committee, Process 122 An example of such a format is Financial European Parliament and of the Council on OTC
Working Group, Recommended Practices for products Markup Language (‘‘FpML’’). FpML is derivatives, central counterparties and trade
Portfolio Reconciliation, version 4.7 (Feb. 2006) based on XML (eXtensible Markup Language), the repositories (2010) (available at http://ec.europa.eu/
(describing recommended practices for portfolio standard meta-language for describing data shared internal_market/financial-markets/docs/
reconciliation). between applications. derivatives/20100915_proposallowbar;en.pdf).
information be maintained on a server duplicate record maintained and maintained by the SDR will be used by
in the United States? preserved thereby? 126 regulators to make assessments about
• What is the likely impact of these counterparties, such as whether the
e. Controls To Prevent Invalidation
requirements on the SBS market, counterparty is a major SBS participant.
including the impact on the incentives Proposed Rule 13n–5(b)(5) would The counterparties also will use this
and behaviors of SDRs, the willingness require every SDR to establish, data, and in some cases the data
of persons to register as SDRs, and the maintain, and enforce written policies maintained by the SDR may be
technologies used for reporting and and procedures reasonably designed to considered by the counterparties to be
maintaining transaction data? prevent any provision in a valid SBS the legal record of the SBS.
• With respect to entities that from being invalidated or modified Counterparties, therefore, should have
currently perform repository services for through the procedures or operations of the ability to dispute the accuracy of the
SBSs or other instruments, how do the SDR. Based on staff discussions with data regarding their SBSs held at the
current practices compare to the market participants, the Commission SDR. Providing the means to resolve
practices that the Commission proposes understands that SDRs, through their such disputes should enhance data
to require in this rule? What are the process of substantiating the accuracy of quality and integrity.
incremental costs to potential SDRs in the data or in their user agreements,
Request for Comment
connection with adding to or revising may, and without the knowledge of the
their current practices in order to counterparties, cause the modification The Commission requests comment
implement the Commission’s proposed of terms of an SBS. SBSs can be highly on the following specific issues:
rule? negotiated between the counterparties, • Should the Commission require an
• Should the Commission require and the Commission preliminarily SDR to have any particular requirements
such information be kept in a particular believes these terms should not be in its dispute resolution procedures
modified or invalidated without the full under this rule?
format that is accessible to the
consent of the counterparties. • Is dispute resolution a necessary
Commission, such as in FpML?
service that must be provided by an
Alternatively, if the Commission does Request for Comment SDR?
not want to specify a particular • What is the likely impact of this
technology, should it require such The Commission requests comment
on the following specific issues: requirement on the SBS market,
information be maintained in ‘‘a global including the impact on the incentives
standard for data modeling’’ or other • Should the Commission establish
more specific requirements to avoid and behaviors of SDRs and the
standard? Should the Commission willingness of persons to register as
require that all SDRs maintain such contract invalidation by an SDR?
• What is the practical effect of this SDRs?
information in the same format? • With respect to entities that
• Should the Commission require that proposed requirement?
currently perform repository services for
SDRs establish and maintain effective • Are such modifications actually
SBSs or other instruments, how do
interoperability and interconnectivity occurring?
current practices compare to the
with other SDRs, market infrastructures, • What is the likely impact of this
practices that the Commission proposes
and venues? requirement on the SBS market,
to require in this rule? What are the
• Should the Commission specifically including the impact on the incentives
incremental costs to potential SDRs in
require the SDR to organize and index and behaviors of SDRs and the connection with adding to or revising
accurately the transaction data and willingness of persons to register as their current practices in order to
positions so that the Commission and SDRs? implement the Commission’s proposed
other users of such information are • With respect to entities that rule?
easily able to obtain the specific currently perform repository services for
information that they require? SBSs or other instruments, how do g. Data Preservation After an SDR
• Is the proposed requirement that current practices compare to the Ceases To Do Business
transaction data and positions be kept in practices that the Commission proposes Proposed Rule 13n–5(b)(7) would
a non-rewriteable and non-erasable to require in this rule? What are the require an SDR, if it ceases to do
format too restrictive? Are there other incremental costs to potential SDRs in business, or ceases to be registered
alternatives for protecting the accuracy connection with adding to or revising pursuant to Exchange Act Section 13(n)
of such information over the time period their current practices in order to and the rules and regulations
that such information is required to be implement the Commission’s proposed thereunder, to continue to preserve,
maintained? rule? maintain, and make accessible the
• Should the Commission require f. Dispute Resolution Procedures transaction data and historical positions
SDRs to verify automatically the quality required to be collected, maintained,
and accuracy of the storage media Proposed Rule 13n–5(b)(6) would and preserved by the rule in the manner
recording process? Should the require every SDR to establish required by the Exchange Act and the
Commission require SDRs to serialize procedures and provide facilities rules and regulations thereunder
the original and, if applicable, duplicate reasonably designed to effectively (including in a place and format that is
units of storage media, and time-date for resolve disputes over the accuracy of the readily accessible to the Commission
the required period of retention the transaction data and positions and other persons with authority to
information placed on such electronic maintained by the SDR.127 The data access or view such information, in an
storage media? Should the Commission electronic format that is non-rewriteable
126 These requirements are consistent with the
require SDRs to have in place an audit broker-dealer retention requirements. See Exchange
and non-erasable, and in a manner that
system providing for accountability Act Rule 17a–4(f), 17 CFR 240.17a–4(f). protects confidentiality and accuracy)
regarding inputting of records required 127 In a separate proposal, the Commission is
to be maintained and preserved proposing rules regarding the correction of errors in Release (proposed Rules 905 and 907(a)(3)), supra
SBS information maintained by an SDR in note 9. Any comments regarding those proposed
pursuant to this section and inputting of association with requirements under Section 763(i) rules should be submitted in connection with that
any changes made to every original and of the Dodd-Frank Act. See Regulation SBSR proposal.
for the remainder of the period required • What is the likely impact of this Systems failures can limit access to
by this rule (that is, not less than five requirement on the SBS market, data, call into question the integrity of
years after the applicable SBS expires including the impact on the incentives data, and prevent market participants
for transaction data and not less than and behaviors of SDRs, the willingness from being able to report transaction
five years for historical positions).128 of persons to register as SDRs, and the data, and thereby have a large impact on
Given the importance of the records technologies used for maintaining SBS market confidence, risk exposure, and
maintained by an SDR to the data at the SDR? market efficiency. Proposed Rule 13n–6
functioning of the SBS market, if an • With respect to entities that would require an SDR to establish,
SDR ceases to do business, this could currently perform repository services for maintain, and enforce written policies
cause serious disruptions in the market SBSs or other instruments, how do and procedures reasonably designed to
should the information it maintains current practices compare to the ensure that its systems provide adequate
become unavailable. practices that the Commission proposes levels of capacity, resiliency, and
to require in this rule? What are the security; and submit to the Commission
Request for Comment incremental costs to potential SDRs in annual reviews of its automated
The Commission requests comment connection with adding to or revising systems, systems outage notices, and
on the following specific issues: their current practices in order to prior notices of planned system
• Should the Commission propose implement the Commission’s proposed changes.
other requirements that might be rule? These proposed requirements
necessary or useful in protecting the essentially codify and parallel the ARP
information maintained by an SDR if the F. Proposed Rule Regarding Automated
Systems requirements that have been in place for
SDR ceases to do business? almost twenty years. The staff has found
• What is the likely impact of this The Commission is proposing Rule these standards to be effective in
requirement on the SBS market, 13n–6 under the Exchange Act to overseeing the capacity, resiliency, and
including the impact on the incentives provide standards for SDRs with regard security of major automated systems in
and behaviors of SDRs, the willingness to their automated systems’ capacity, use in the securities markets. These
of persons to register as SDRs, and the resiliency, and security.129 The
proposed requirements as applied to the
technologies used for maintaining SBS standards being proposed under this
SBS market are designed to prevent and
data at the SDR? rule are comparable to the standards
minimize the impact of systems failures
h. Plan for Data Preservation applicable to self-regulatory
that might negatively impact the
organizations (‘‘SROs’’), including
Proposed Rule 13n–5(b)(8) would stability of the SBS market.
exchanges and clearing agencies,130 and
require an SDR to make and keep certain other entities, including 1. Requirements for SDRs’ Automated
current a plan to ensure that the significant-volume alternative trading Systems
transaction data and positions that are systems (‘‘ATSs’’) 131 and market
recorded in the SDR continue to be a. Policies and Procedures
information dissemination systems,132
maintained in accordance with pursuant to the Commission’s Proposed Rule 13n–6(b)(1) would
proposed Rule 13n–5(b)(7), which shall Automation Review Policy (‘‘ARP’’) require an SDR to ‘‘establish, maintain,
include procedures for transferring the standards. To promote the maintenance and enforce written policies and
transaction data and positions to the of a stable and orderly SBS market, the procedures reasonably designed to
Commission or its designee (including Commission preliminarily believes that ensure that its systems provide adequate
another registered SDR). Given the SDRs should be required to meet the levels of capacity, resiliency, and
importance of the records maintained by same capacity, resiliency, and security security. Such policies and procedures
an SDR to the functioning of the SBS standards applicable to SROs and shall, at a minimum:
market, if an SDR ceases to do business, certain other entities under the (i) Establish reasonable current and
the absence of a plan to transfer Commission’s current ARP program.133 future capacity estimates;
information could cause serious (ii) Conduct periodic capacity stress
disruptions. The Commission 129 Proposed Rule 13n–6 is being promulgated tests of critical systems to determine
preliminarily expects that an SDR’s plan under Exchange Act Sections 13(n)(4)(B), such systems’ ability to process
would establish procedures and 13(n)(7)(D), and 13(n)(9). See Public Law 111–203, transactions in an accurate, timely, and
§ 763(i).
mechanisms so that another entity 130 See Exchange Act Release No. 27445 (Nov. 16, efficient manner;
would be in the position to maintain 1989), 54 FR 48703 (Nov. 24, 1989) (‘‘ARP I (iii) Develop and implement
this information after the SDR ceases to Release’’); Exchange Act Release No. 29185 (May 9, reasonable procedures to review and
do business. 1991), 56 FR 22490 (May 15, 1991) (‘‘ARP II keep current its system development
Release’’).
Request for Comment 131 See Rule 301(b)(6) of Regulation ATS, 17 CFR
and testing methodology;
242.301(b)(6); Exchange Act Release No. 40760 (iv) Review the vulnerability of its
The Commission requests comment (Dec. 8, 1998), 63 FR 70844 (Dec. 22, 1998). systems and data center computer
on the following specific issues: 132 See ARP II Release, 56 FR 22490, supra note operations to internal and external
• Should the Commission propose 130 (the Commission’s ARP policies ‘‘encompass threats, physical hazards, and natural
other requirements that might be SRO systems that disseminate transaction and
disasters; and
necessary or useful in protecting the quotation information’’); See also ARP I Release, 54
FR 48703, supra note 130 (discussing that ‘‘the (v) Establish adequate contingency
information maintained by an SDR if the
SROs have developed and continue to enhance and disaster recovery plans.’’
SDR ceases to do business? automated systems for the dissemination of This list of proposed requirements is
• To what extent does this transaction and quotation information’’).
based on existing ARP requirements
requirement provide additional 133 Clearing agencies are SROs and are therefore
applied to significant-volume ATSs
protections beyond those of proposed subject to the Commission’s Automation Review
Policies. The Dodd-Frank Act requires that the data
Rule 13n–5(b)(7)? maintenance standards of SDRs ‘‘shall be 203, § 763(i). Proposed Rule 13n–6 will impose data
comparable to the data standards imposed by the maintenance standards on SDRs that are
128 This proposed requirement is based on Commission on clearing agencies in connection comparable to those imposed by the Commission on
Exchange Act Rule 17a–4(g), 17 CFR 240.17a–4(g), with their clearing of security-based swaps.’’ clearing agencies by applying the ARP standards to
which applies to broker-dealer books and records. Exchange Act Section 13(n)(4)(C), Public Law 111– them.
under Rule 301(b)(6) of Regulation 6(a)(3) would define ‘‘objective review’’ performance with respect to the review
ATS.134 In addition, the Commission as ‘‘an internal or external review, performed by the internal department.
has applied these requirements to SROs performed by competent, objective Proposed Rule 13n–6(b)(2) would
and other entities in the securities personnel following established require that the external firm issue a
markets for a number of years in the procedures and standards, and report of that review, which the SDR
context of its ARP inspection program. containing a risk assessment conducted must submit to the Commission on an
As a general matter, the Commission pursuant to a review schedule.’’ 138 The annual basis, within thirty calendar
preliminarily believes that, if an SDR’s proposed definition of ‘‘objective days of completion of the review.
policies and procedures satisfy industry review’’ in proposed Rule 13n–6(a)(3) is The proposed requirement in
best practices standards, then these based on the standard for the review of proposed Rule 13n–6(b)(2) that an SDR
policies and procedures would be automated systems set forth in the ARP submit an annual objective review to the
adequate for purposes of proposed Rule II Release.139 Commission is drawn from the ARP II
13n–6(b)(1). However, in the unlikely As in the current ARP program, the Release.141 In addition, the proposed
event that industry best practices Commission staff preliminarily believes requirement in proposed Rule 13n–
standards of widely recognized that a reasonable basis for determining 6(b)(2) that, where the objective review
professional organizations are not that a review is objective for purposes is performed by an internal department,
consistent with the public interest, of proposed Rule 13n–6 is if the level of an objective, external firm must assess
protection of investors, or the objectivity of an SDR’s reviewers the internal department’s objectivity,
maintenance of fair and orderly markets, complied with standards set by widely competency, and work performance, is
the Commission staff would have recognized professional similarly drawn from the ARP II
flexibility to establish such organizations.140 However, in the Release.142
standards.135 unlikely event that industry best The proposed annual review would
The proposed rule would require an practices standards of widely not be required to address each element
SDR to quantify, in appropriate units of recognized professional organizations contained in proposed subsections (i)–
measure the limits of the SDR’s capacity are not consistent with the public (v) of Rule 13n–6(b)(1) every year.
to receive (or collect), process, store, or interest, protection of investors, or the Rather, using its own risk assessment,
display the data elements included maintenance of fair and orderly markets, an SDR’s reviewer would review each
within each function, and identify the the Commission staff would have element on a ‘‘review schedule,’’ as
factors (mechanical, electronic, or other) flexibility to establish such standards. defined in proposed Rule 13n–6(a)(5), in
that account for the current The decision on which type of which each element would be assessed
limitations.136 This will make it easier reviewer, an internal department or an at specific, regular intervals, thus
for the Commission to detect any external firm, should perform the facilitating systematic and timely review
potential capacity constraints of an SDR, review is a decision for each SDR to of each element. This should provide a
which, if left unaddressed, could make. The Commission preliminarily reasonable and cost-effective level of
compromise the ability of an SDR to believes that, as long as the reviewer has assurance that automated systems of
collect and maintain SBS data. An the competence, knowledge, SDRs are being adequately developed
SDR’s failure to clearly understand and consistency, and objectivity sufficient to and managed with respect to capacity,
have procedures to address its capacity perform the role, the review can be security, development, and contingency
limits would increase the likelihood performed by either recognized planning concerns.
that it would experience a loss or information technology firms or by a The proposed requirement to submit
disruption of system operations. qualified internal department an objective review within thirty days of
b. Objective Review of Automated knowledgeable of information completion assures the Commission will
Systems technology systems. have timely notice of the information
Proposed Rule 13n–6(b)(2) would required. The Commission has found
Proposed Rule 13n–6(b)(2) would further require that, where the objective through its experience with the current
require an SDR to submit an objective review is performed by an internal ARP program for SROs and other
review of its systems that support or are department, an objective, external firm entities in the securities market that an
integrally related to the performance of must assess the internal department’s entity generally requires approximately
its activities to the Commission, on an objectivity, competency, and work thirty calendar days after completion of
annual basis, within thirty calendar
days of completion. This proposed the review to complete the internal
138 Proposed Rule 13n–6(a)(4) would define
requirement is drawn from the ARP II ‘‘competent, objective personnel’’ as ‘‘a recognized
review process necessary to submit an
Release.137 This proposed requirement information technology firm or a qualified internal annual review to the Commission. A
is critical to help ensure that SDRs have department knowledgeable of information shorter timeframe might not provide an
technology systems.’’ This proposed definition is SDR with sufficient time to complete its
adequate capacity, resiliency, and based on the standard for reviewers of automated
security and that their automated systems set forth in the ARP II Release. See ARP
internal review of the document; a
systems are not subject to critical II Release, 56 FR 22490, supra note 130. Proposed longer timeframe might serve to
vulnerabilities. Proposed Rule 13n– Rule 13n–6(a)(5) would define ‘‘review schedule’’ as encourage unnecessary delays.
‘‘a schedule in which each element contained in
subsection (b)(1) of this Rule 13n–6 would be c. Material Systems Outages
134 See 17 CFR 242.301(b)(6). assessed at specific, regular intervals.’’ This
Under proposed subsection (3) of Rule
135 Industry best practices standards currently are proposed definition codifies the Commission’s
established by organizations such as: The policy set forth in the ARP II Release. See ARP II 13n–6(b), an SDR would be required to
Information Systems Audit and Control Foundation Release, 56 FR 22490, supra note 130. promptly notify the Commission of
(‘‘ISACF’’); the Federal Financial Institutions 139 See ARP II Release, 56 FR 22490, supra note
material systems outages and any
Examination Council’s (‘‘FFIEC’’); the Institute of 130.
Internal Auditors (‘‘IIA’’); and the SANS Institute.
remedial measures that have been
140 Such standards are currently established by
136 Use of such appropriate units of measure is
organizations such as the IIA, the Information
implemented or are contemplated,
required in proposed Form SDR Item 31. See also Systems Audit and Control Association (‘‘ISACA’’)
Form SIP, Item #27 for SIPs. 17 CFR 249.1001. (formerly the Electronic Data Processing Auditors 141 See ARP II Release, 56 FR 22490, supra note
137 See ARP II Release, 56 FR 22490, supra note Association (‘‘EDPAA’’)), and the American Institute 130.
130. of Certified Public Accountants (‘‘AICPA’’). 142 See id.
including (i) immediately notifying the (v) excessive back-ups or delays in Specifically, proposed subsection (viii)’s
Commission when a material systems processing; (vi) a loss of ability to reference to ‘‘a report or referral of an
outage is detected; (ii) immediately disseminate transaction data, or event * * * ’’ seeks to address situations
notifying the Commission when positions;144 (vii) a communication of in which an SDR might seek to apply an
remedial measures are selected to an outage situation to other external overly narrow definition of an ‘‘outage
address the material systems outage; (iii) entities; (viii) a report or referral of an situation’’ in proposed subsection (vii),
immediately notifying the Commission event to the SDR’s board or senior in order to avoid reporting a problem
when the material systems outage is management; (ix) a serious threat to that nevertheless has a significant
addressed; and (iv) submitting to the systems operations even though systems impact on the performance of the SDR’s
Commission within five business days operations were not disrupted; (x) a systems and therefore warrants
of when the material systems outage queuing of data between system reporting to the Commission. For
occurred a detailed written description components or queuing of messages to example, where an SDR experiences a
and analysis of the outage and any or from customers of such duration that slowing, but not a stoppage, of its ability
remedial measures that have been a customer’s normal service delivery is to accept transaction data, and that
implemented or are contemplated. affected; or (xi) a failure to maintain the slowing of data acceptance is
This subsection would codify the integrity of systems that results in the sufficiently significant to have been
procedures followed by SROs and entry of erroneous or inaccurate
certain other entities under the reported or referred to the SDR’s board
transaction data or other information in
Commission’s current ARP program in or senior management, the Commission
the SDR or the securities markets.
providing the staff with notification of Based on its experience in requiring preliminarily believes that this situation
material system outages. In particular, SROs and other entities to report would constitute a material system
proposed subsection (3) would clarify material systems outages in the context outage under proposed subsection (viii)
that the Commission expects to receive of the current ARP program, the that must be reported to the
immediate notification that an outage Commission preliminarily believes that Commission. By including proposed
has been detected, that remedial this definition is appropriate for SDRs. subsection (viii) in the definition of
measures have been selected to address The Commission preliminarily believes ‘‘material system outage,’’ the
the outage, and that the outage has been that each of the events listed in Commission seeks to ensure that it is
addressed. Proposed subsection (3) paragraphs (i) through (xii) of proposed informed of events that most entities
would also clarify that an SDR should Rule 13n–6(a)(1) are significant events subject to current ARP standards would
submit a detailed written description that warrant reporting to the already understand should be covered
and analysis of the outage within five Commission because such material under the current program. This should
business days of the occurrence of the systems outages could negatively impact permit the Commission to effectively
outage. the stability of the SBS market. The monitor the operation of SDRs’
The Commission preliminarily application of the proposed definition is automated systems. The Commission
believes that the proposed rule would relatively straightforward, and it focuses preliminarily believes that proposed
assist the Commission in assuring that on the types of events that the subsections (ix) and (x) are appropriate
an SDR has diagnosed and is taking Commission preliminarily believes because threats to system operations
steps to correct system disruptions, so should require notification to the and queuing of data are events that may
that systems of the SDR are reasonably Commission under proposed Rule 13n– result in a significant disruption of
equipped to accept and securely 6(b)(3), so that the Commission can normal system operations warranting
maintain transaction data. The respond appropriately to the event that notification to the Commission.
Commission preliminarily believes that caused the loss or disruption. Subsection (xi) covers a failure to
requiring an SDR to submit notifications Specifically, the Commission maintain the integrity of systems that
of material system outages to the preliminarily believes that proposed results in the entry of erroneous or
Commission is essential to help ensure subsections (i), (ii), (iii), (iv), and (v) inaccurate transaction data or other
that the Commission can continue to address events that cause a significant
effectively oversee the SDR. information in an SDR or to market
loss or disruption of normal system participants. This subsection is
Proposed Rule 13n–6(a)(1) would operations sufficient to warrant
define ‘‘material systems outage’’ as an designed to address the unique role of
notification to the Commission. In
unauthorized intrusion into any system, SDRs in the SBS market. In particular,
addition, the Commission preliminarily
or an event at an SDR involving systems it is intended to cover such events as
believes that proposed subsection (vi)
or procedures that results in (i) a failure breakdowns in an SDR’s internal
addresses a type of event that impairs
to maintain service level agreements or controls that result in the entry of
transparency or accurate and timely
constraints;143 (ii) a disruption of erroneous orders into the market. For
regulatory reporting.
normal operations, including The Commission also preliminarily example, it is possible that an SDR
switchover to back-up equipment with believes that proposed subsections (vii) could, while in the process of testing its
no possibility of near-term recovery of and (viii) are appropriate because systems, inadvertently retain ‘‘test’’ data
primary hardware; (iii) a loss of use of communications of an outage to entities in its database. This, in turn, could
any system; (iv) a loss of transactions; outside of the SDR, the board, or senior result in erroneous reporting of SBSs to
management are indicia of a significant the Commission, other regulators, and
143 A service level agreement is a contract

system outage sufficient to warrant counterparties. Counterparties may
between a third party that manages and distributes
notification to the Commission. become uncertain of their positions,
software-based services and a customer, which leading to market disruptions. This, in
commits the third party to a required level of
service. A service level agreement should contain 144 Proposed Rule 13n–6(a)(6) would give the turn, could erode investor confidence in
a specified level of service, support options, term ‘‘transaction data’’ the same meaning as in the integrity of the SBS market,
enforcement or penalty provisions for services not proposed Rule 13n–5(a)(1). Proposed Rule 13n– damaging liquidity and impeding the
provided, a guaranteed level of system performance 6(a)(7) would give the term ‘‘position’’ the same
regarding downtime or uptime, a specified level of meaning as in proposed Rule 13n–5(a)(2). See
capital formation process. Accordingly,
customer support, and indicate what software or Section III.E.1 of this release for the discussion of the Commission preliminarily believes
hardware will be provided and for what fee. these definitions. that this type of breakdown in an SDR’s
systems controls should be reported to the outage and describe them in a functions or services; material changes
the Commission. written submission; a longer timeframe in systems; changes to external
By including proposed subsection (xi) might encourage unnecessary delays. interfaces; changes that could increase
in the definition of ‘‘material system susceptibility to major outages; changes
outage,’’ the Commission is seeking to d. Material Systems Changes
that could increase risks to data
ensure that it is informed of events that Under proposed subsection (4) of Rule security; changes that were, or will be,
could negatively impact the integrity of 13n–6(b), an SDR would be required to reported to or referred to an SDR’s board
systems that result in the entry of notify the Commission in writing at or senior management; and changes that
erroneous or inaccurate transaction data least thirty calendar days before may require allocation or use of
or other information in an SDR or the implementation of any planned material significant resources.
securities markets. This should permit systems changes. This proposed The Commission preliminarily
the Commission to monitor effectively requirement is drawn from the ARP II believes that the proposed thirty
the operation of each SDR’s automated Release.145 calendar day requirement regarding pre-
systems. Proposed Rule 13n–6(a)(2) would implementation written notification to
The definition of material systems define ‘‘material systems change’’ as ‘‘a the Commission of planned material
outage also includes an unauthorized change to automated systems that: (i) systems changes is an appropriate time
intrusion by outside persons, insiders, Significantly affects existing capacity or period. The Commission has found
or unknown persons, into any system. security; (ii) in itself, raises significant through its experience with the current
The Commission preliminarily believes capacity or security issues, even if it ARP program that this amount of time
that this provision would permit the does not affect other existing systems; is necessary for the Commission staff to
Commission to effectively monitor the (iii) relies upon substantially new or evaluate the issues raised by a planned
operation of SDR’s automated systems different technology; (iv) is designed to material systems change. A shorter
by requiring SDRs to notify the provide a new service or function; or (v) timeframe might not provide sufficient
Commission of unauthorized intrusions otherwise significantly affects the time for the Commission staff to analyze
into systems or networks. SDRs would operations of the security-based swap the issues raised by the systems change;
need to immediately report data repository.’’ Based on its experience a longer timeframe might unnecessarily
unauthorized intrusions regardless of in requiring SROs and other entities to delay the covered entity in
whether the intrusions were part of a report material systems changes in the implementing the change.
cyber attack; potential criminal activity; context of the current ARP program, the
other unauthorized attempts to retrieve, Commission preliminarily believes that Request for Comment
manipulate, or destroy data or to disrupt this definition is appropriate for SDRs. The Commission requests comment
or destroy systems or networks; or any Each of the events listed in paragraphs on the following specific issues:
other malicious activity affecting data, (i) through (v) are significant events that • Should the Commission consider
systems, or networks. If unauthorized warrant reporting to the Commission imposing other requirements or
intrusions were successful in breaching because any of those events can lead to standards? Should any of the proposed
systems or networks, SDRs would need a material systems outage that could requirements be eliminated or refined?
to report these intrusions even if the negatively affect the stability of the SBS If so, please explain your reasoning.
parties conducting the unauthorized market. The application of the proposed • Are there factors specific to SBS
intrusion were unsuccessful in definition is relatively straightforward, transactions that would make applying
achieving their apparent goals (such as and it focuses on the types of events that a system that is traditionally used in the
the introduction of malware or other should require notification to the equity markets inappropriate?
means of disrupting or manipulating Commission under proposed Rule 13n– • What is the likely impact of these
data, systems, or networks). SDRs would 6(b)(2). Specifically, the proposed requirements on the SBS market,
need to supplement their initial reports subsections (i)—(iv) are events that including the impact on the incentives
by sending the Commission updates on concern the adequacy of capacity and behaviors of SDRs, the willingness
any harm to data, systems, or networks estimates, testing, and security measures of persons to register as SDRs, and the
as well as any remedial measures that taken by an SDR, and thus are technologies used for maintaining SBS
the SDRs are contemplating or sufficiently significant to warrant data at the SDR?
undertaking to address the unauthorized notification to the Commission. • With respect to entities that
intrusions. SDRs, however, would not Proposed subsection (v) covering a currently perform repository services for
need to report unsuccessful attempts at change that ‘‘otherwise significantly SBSs or other instruments, how do
unauthorized intrusions that did not affects the operations of the security- current practices compare to the
breach systems or networks. based swap data repository’’ is more practices that the Commission proposes
The Commission preliminarily open-ended in order to require to require in this rule? What are the
believes that the proposed five business notification of other major systems incremental costs to potential SDRs in
day requirement regarding submission changes. Examples of changes that fall connection with adding to or revising
of a written description of material within proposed subsection (v) include, their current practices in order to
system outages is an appropriate time but are not limited to: major systems implement the Commission’s proposed
period. In the Commission’s experience architectural changes; reconfigurations rule?
with the current ARP program for SROs of systems that cause a variance greater • Should the Commission expressly
and other entities in the securities than five percent in throughput or require by rule:
market, an entity generally requires storage;146 introduction of new business Æ An SDR’s contingency and disaster
approximately five business days after recovery plans (required in proposed
the occurrence of a material system 145 See ARP II Release, 56 FR 22490, supra note paragraph (b)(1)(v)) to be tested
outage to gather all the relevant details 130.
146 The Commission has identified the five markets for almost twenty years, it believes that
regarding the scope and cause of the
percent threshold as triggering the definition of reconfigurations that exceed five percent in
outage. A shorter timeframe might not ‘‘material systems change’’ in proposed Rule 13n– throughput or storage typically have the greatest
provide sufficient time for the SDR to 6(a)(2) because, based on experience in potential to cause significant disruptions to
gather all relevant details surrounding administrating the ARP program in the equities automated systems.
periodically to assure their effectiveness disaster recovery plans (required in • Are the time periods specified in
and adequacy? 147 proposed paragraph (b)(1)(v)) with those proposed Rule 13n–6(b)(2)–(4) with
Æ An SDR’s contingency and disaster of the SB SEFs, SBS markets, clearing respect to submission of annual reviews
recovery plans (required in proposed agencies, SBS dealers, and major SBS and written notices of material system
paragraph (b)(1)(v)) to cover at a participants who report transaction data outages and material systems changes
minimum: to the SDR, and with those of regulators the correct time periods to use? Should
• Preparation for contingencies identified in Exchange Act Section any of the proposed time periods be
through such devices as appropriate 13(n)(5)(G), with a view to enabling shortened or lengthened? Should the
remote and on-site hardware back-up effective resumption of the SDR’s time periods be replaced with less
and periodic duplication and off-site operations, including programs for specific requirements, such as
storage of data files? periodic, synchronized testing of these ‘‘promptly’’ or ‘‘timely’’? If so, please
• Off-site storage of up-to-date, plans? explain your reasoning.
duplicative software, files and critical Æ An SDR, in developing its • Should the Commission require the
forms and supplies need for processing contingency and disaster recovery notification required by proposed Rule
operations, including a geographically plans, to take into account the business 13n–6(b)(4) to be sufficiently detailed to
diverse back-up site that does not rely continuity-disaster recovery plans of its explain the new system development
on same infrastructure components (e.g., telecommunications, power, water, and process, the new configuration of the
transportation, telecommunications, other essential service providers? system, its relationship to other systems,
water supply, and electric power) as the Æ An SDR, if it offers services in the timeframes or schedule for
SDR primary operations center? addition to acting as a SDR, to establish, installation, any testing performed or
• Immediate availability of software maintain, and enforce written policies planned, and an explanation on the
modifications, detailed procedures, and procedures reasonably designed to impact of the change on the SDR’s
organizational charts, job descriptions, assure that the additional services do capacity estimates, contingency
and personnel for the conduct of not adversely impact the operational protocols and vulnerability
operations under a variety of possible reliability of its core function as an estimates? 152
contingencies? SDR? 150 • Are there specific provisions in the
• Emergency mechanisms for Æ An SDR to identify the potential proposed definitions that should be
establishing and maintaining risks that can arise as a result of eliminated or refined? Are there some
communications with participants, interoperability and/or interconnectivity events which should be included in the
regulators and other entities with other market infrastructures and definitions of ‘‘material systems outage’’
involved? 148 venues from which data can be and ‘‘material systems change’’ that are
Æ An SDR’s contingency and disaster submitted to the SDR (such as not, or events that should not be
recovery plans (required in proposed exchanges, SB SEFs, clearing agencies, included in these definitions but are? If
paragraph (b)(1)(v)) to include SBS dealers, and major SBS so, please explain your reasoning.
resources, emergency procedures, and participants) and service providers and • Should the Commission require the
backup facilities sufficient to enable how the SDR mitigates such risks? 151 use of a specific framework by outside
timely recovery and resumption of its Æ An SDR to abide by substantive or inside parties for evaluating whether
operations and resumption of its requirements (in addition to, or in place SDRs have adequate capacity,
ongoing fulfillment of its duties and of, the policies and procedures resiliency, and security and that their
obligations as an SDR, including, approach of proposed Rule 13n–6(b)(1)), automated systems are not subject to
without limitation, the duties set forth such as (i) having robust system controls critical vulnerabilities? If so, what
in Rule 13n–4, following any disruption and safeguards to protect the data from would the critical components of the
of its operations? 149 If so, what should loss and information leakage, (ii) having framework include? Are existing
the recovery time objective be? Should high-quality safeguards and controls frameworks available that are suitable
the SDR’s contingency and disaster regarding the transmission, handling, for this purpose and, if so, which ones
plans (required in proposed paragraph and protection of data to ensure the would be considered appropriate?
(b)(1)(v)) and resources generally enable accuracy, integrity, and confidentiality • Are the definitions ‘‘objective
resumption of the SDR’s operations and of the trade information recorded in the review’’ and ‘‘competent, objective
resumption of ongoing fulfillment of the SDR, or (iii) having reliable and secure personnel’’ parallel to the requirements
SDR’s duties and obligations during the systems and having adequate, scalable for SROs and other entities in the
next business day following the capacity? and securities markets in the context of the
disruption? Æ An SDR to establish, maintain, and
current ARP program?
Æ An SDR, to the extent practicable, enforce written policies and procedures • Should the objective review
to coordinate its contingency and reasonably designed to ensure that the required in proposed Rule 13n–6(b)(2)
transaction data that it accepts is from be done on a regular, periodic basis,
147 This requirement would be similar to what is the entity it purports to be from, such rather than on an annual basis?
required of clearing agencies. See Exchange Act as requiring robust passwords? • Is the requirement in proposed Rule
Release No. 16900 (June 17, 1980), 45 FR 41920
(June 20, 1980). 150 See, e.g., CPSS–IOSCO, supra note 55 (‘‘Where
13n–6(b)(2) for an objective, external
148 These requirements are similar to
a [trade repository] offers services in addition to its firm to assess the objectivity,
requirements related to disaster recovery plans of record keeping function, or considers doing so, it competency, and work performance of
clearing agencies. See id. The requirement for should ensure that it has adequate resources to do
geographical diversity is currently applicable to
an internal department that performed
so effectively and that the additional service will
securities firms. See Exchange Act Release No. not adversely impact the operational reliability of
an objective review necessary or
47638 (April 7, 2003), 68 FR 17809 (April 11, 2003) its core function of record keeping’’). appropriate? If the objective review is
(the ‘‘BCP Whitepaper’’). 151 See, e.g., id. (Trade repositories ‘‘should done by an internal department, should
149 For example, the BCP Whitepaper requires
evaluate the potential sources of risks that can arise, the Commission require that it be done
clearing and settlement organizations to have a and ensure that the risks that can arise in the design
recovery time objective of ‘‘within the business day and operation of [domestic or cross-border links
by a department or persons other than
on which the disruption occurs with the overall with other trade repositories, market infrastructures
goal of achieving recovery and resumption with two or service providers] are managed prudently on an 152 See ARP II Release, 56 FR 22490, supra note
hours after an event.’’ ongoing basis.’’). 130.
those responsible for the development 3. Confidential Treatment agency responsible for the regulation or
or operation of the systems being tested? Proposed Rule 13n–6(d) would supervision of financial institutions.’’ 156
provide that a person who submits a Similarly, Commission Rule 80(b)(8),
2. Electronic Filing
notification, review, or description and Commission Records and Information,
Proposed Rule 13n–6(c) would analysis pursuant to this rule for which implementing Exemption 8, states that
require that every notification, review, he or she seeks confidential treatment the Commission generally will not
or description and analysis required to should clearly mark each page or publish or make available to any person
be submitted to the Commission under segregable portion of each page with the matters that are ‘‘[c]ontained in, or
proposed Rule 13n–6 (other than those words ‘‘Confidential Treatment related to, any examination, operating,
required under proposed Rule 13n– Requested.’’ Proposed Rule 13n–6(d) or condition report prepared by, on
6(b)(3)(i), (ii), and (iii), which can be would state that ‘‘[a] notification, behalf of, or for the use of, the
verbal) be submitted in an appropriate review, or description and analysis Commission, any other Federal, state,
electronic format to the Office of Market submitted pursuant to this [rule] will be local, or foreign governmental authority
Operations at the Division of Trading accorded confidential treatment to the or foreign securities authority, or any
and Markets at the Commission’s extent permitted by law.’’ securities industry self-regulatory
principal office in Washington, DC. This The Commission would use the organization, responsible for the
proposed requirement is intended to information collected under proposed regulation or supervision of financial
make proposed Rule 13n–6 consistent Rule13n–6 to evaluate whether SDRs are institutions.’’ 157
with electronic-reporting standards set reasonably equipped to handle market Request for Comment
forth in other Commission rules under demand. For this reason, requiring SDRs
the Exchange Act, such as Rule 17a–25 The Commission requests comment
to submit this information would be
(Electronic Submission of Securities on the following specific issues:
critical to the Commission’s ability to • Are there specific provisions in
Transaction Information by Exchange effectively oversee SDRs.
Members, Brokers, and Dealers) 153 and proposed Rule 13n–6(d) that should be
Much of the information that the
Rule 19b–4 (Filings with respect to eliminated or refined? If so, please
Commission expects to receive from
Proposed Rule Changes by Self- explain your reasoning.
SDRs is, by its nature, competitively • What is the likely impact of this
regulatory Organizations).154 sensitive. If the Commission were requirement on the SBS market,
The Commission preliminarily unable to afford confidential protection including the impact on the incentives
believes that the proposed provision to the information that it expects to and behaviors of SDRs and the
would benefit SDRs by automating the receive, then the SDRs may hesitate to willingness of persons to register as
process by which they submit submit the required information to the SDRs?
notifications, reviews, and descriptions Commission. This result could
and analyses under proposed Rule 13n– potentially undermine the G. Proposed Rule Regarding SDR
6 to the Commission. The Commission Commission’s ability effectively to Recordkeeping
currently receives this type of oversee SDRs, which, in turn, could The Commission is proposing Rule
information from SROs and other undermine investor confidence in the 13n–7 under the Exchange Act to
entities in the securities market in SBS market. specify the books and records
electronic format. Moreover, as noted The Freedom of Information Act requirements applicable to SDRs.
above, this provision is intended to be (‘‘FOIA’’) provides at least two Proposed Rule 13n–7’s requirements are
consistent with other Commission rules. exemptions under which the discussed below.
Proposed Rule 13n–6(c) would Commission has authority to grant
confidential treatment for the 1. Records to be Made by SDRs
require submission of notifications,
reviews, and descriptions and analyses information submitted under proposed Proposed Rule 13n–7(a) would
in an ‘‘appropriate electronic format.’’ Rule 13n–6. First, FOIA Exemption 4 require SDRs to make and keep current
The Commission anticipates that, if the provides an exemption for ‘‘trade secrets certain books and records relating to its
provision is adopted, the staff would and commercial or financial information business. Proposed Rule 13n–7(a)(1)
work with SDRs to determine obtained from a person and privileged would require SDRs to make and keep
appropriate electronic formats that or confidential.’’ 155 As specified in current ‘‘a record for each office listing,
could be used. proposed Rule 13n–6(d), ‘‘a notification, by name or title, each person at that
review, or description and analysis office who, without delay, can explain
Request for Comment submitted pursuant to this [rule] will be the types of records the security-based
accorded confidential treatment to the swap data repository maintains at that
The Commission requests comment
extent permitted by law.’’ The office and the information contained in
information required to be submitted to those records.’’ SDR recordkeeping
• Are there specific provisions in the Commission under proposed Rule practices may vary in ways ranging from
proposed Rule 13n–6(c) that should be 13n–6 may contain proprietary format and presentation to the name of
eliminated or refined? If so, please information regarding automated a record. Therefore, each SDR must be
explain your reasoning. systems that is privileged or able to promptly explain how it makes,
• What is the likely impact of this confidential and thus subject to keeps, and titles its records. To comply
requirement on the SBS market, protection from disclosure under with this proposed rule, an SDR may
including the impact on the incentives Exemption 4 of the FOIA. identify more than one person and list
and behaviors of SDRs, the willingness Second, FOIA Exemption 8 provides which records each person is able to
of persons to register as SDRs, and the an exemption for matters that are explain. Because it may be burdensome
technologies used for reporting ‘‘contained in or related to examination, for an SDR to keep this record current
information to the Commission? operating, or condition reports prepared if it lists each person by name, a firm
by, on behalf of, or for the use of an
153 17 CFR 240.17a–25. 156 5 U.S.C. 552(b)(8).
154 17 CFR 240.19b–4. 155 5 U.S.C. 552(b)(4). 157 17 CFR 200.80(b)(8).
may satisfy this proposed requirement inspection.’’ Proposed Rule 13n–7(b)(3) data, positions, and market data that
by recording the persons capable of would require SDRs to, ‘‘upon request of would be required to be maintained in
explaining the firm’s records by either any representative of the Commission, accordance with proposed Rule 13n–5,
name or title. promptly furnish to the possession of as discussed in Section III.E of this
Proposed Rule 13n–7(a)(2) would such representative copies of any release.
require SDRs to make and keep current documents required to be kept and
‘‘a record listing each officer, manager, preserved by it pursuant to sections (a) Request for Comment
or person performing similar functions and (b) of this Rule.’’ The Commission requests comment
of the security-based swap data Proposed Rule 13n–7(b) is based on on the following specific issues:
repository responsible for establishing Exchange Act Rule 17a–1, which is the • Should the Commission
policies and procedures that are recordkeeping rule for national recommend a rule similar to Exchange
reasonably designed to ensure securities exchanges, national securities Act Rule 17a–6 for SDRs? 164
compliance with the [Exchange] Act and associations, registered clearing
• Should the Commission
the rules and regulations thereunder.’’ agencies, and the Municipal Securities
recommend other requirements that
This proposed rule is intended to assist Rulemaking Board (‘‘MSRB’’).160
might be necessary or useful in
securities regulators by identifying Proposed Rule 13n–7(b) is intended to
protecting the records of an SDR upon
individuals responsible for designing an set forth the recordkeeping obligation of
the failure of such entity?
SDR’s compliance procedures and SDRs and thereby facilitate
managing the SDR. implementation of the broad inspection • Should the Commission require
These two proposed requirements are authority given to the Commission in records retained under this section to be
based on Exchange Act Rules 17a– Exchange Act Section 13(n)(2).161 The retained electronically or furnished to
3(a)(21) and (22), respectively, which Commission believes that Exchange Act the Commission electronically?
are applicable to broker-dealers.158 The Rule 17a–1 is better suited as a basis for • What is the likely impact of these
purpose of these rules is to assist the SDR recordkeeping than the broker- requirements on the SBS market,
Commission in its inspection and dealer recordkeeping rules because the including the impact on the incentives
examination function.159 It is important broker-dealer recordkeeping rules are and behaviors of SDRs, the willingness
for the Commission’s examiners to have specifically tailored for the business of of persons to register as SDRs, and the
the ability to find quickly what records broker-dealers. technologies used for maintaining
are maintained in a particular office and records at the SDR?
3. Recordkeeping After an SDR Ceases
who is responsible for establishing
To Do Business • With respect to entities that
particular policies and procedures of the currently perform repository services for
SDR. These proposed requirements are Proposed Rule 13n–7(c) would SBSs or other instruments, how do
designed to assist in obtaining this require an SDR, if the SDR ceases doing current practices compare to the
information. Based on the Commission’s business, or ceases to be registered practices that the Commission proposes
experience in conducting examinations pursuant to Exchange Act Section 13(n) to require in this rule? What are the
of broker-dealers, we believe that and the rules and regulations incremental costs to potential SDRs in
requiring SDRs to comply with these thereunder, to continue to preserve, connection with adding to or revising
two rules will facilitate the maintain, and make accessible the their current practices in order to
Commission’s inspections and records/data required to be collected, implement the Commission’s proposed
examinations of SDRs. maintained, and preserved by Rule 13n– rule?
7 in the manner required by this rule
2. Records To Be Preserved by SDRs and for the remainder of the period H. Proposed Rule Regarding Reports To
Proposed Rule 13n–7(b)(1) would required by this rule.162 This proposed Be Provided to the Commission
require SDRs to ‘‘keep and preserve at requirement is intended to allow the The Commission is proposing Rule
least one copy of all documents, Commission to perform effective 13n–8 under the Exchange Act to
including all documents and policies inspections and examinations of the specify certain reports that the SDR
and procedures required by the SDRs pursuant to Exchange Act Section would have to provide to the
[Exchange] Act and the rules and 13(n)(2).163 The Commission Commission. Proposed Rule 13n–8
regulations thereunder, correspondence, preliminarily expects that an SDR would require an SDR to ‘‘promptly
memoranda, papers, books, notices, would need to establish contingency report to the Commission, in a form and
accounts, and other such records as plans so that another entity would be in manner acceptable to the Commission,
shall be made or received by it in the the position to maintain this such information as the Commission
course of its business as such.’’ This information after the SDR ceases to do
determines to be necessary or
proposed rule is designed to include all business.
appropriate for the Commission to
electronic documents and 4. Applicability perform the duties of the Commission
correspondence such as emails and under the [Exchange] Act and the rules
instant messages. Proposed Rule 13n– Proposed Rule 13n–7(d) states that
‘‘this section does not apply to data and regulations thereunder.’’ While the
7(b)(2) would require SDRs to ‘‘keep all Commission has ‘‘direct electronic
such documents for a period of not less collected and maintained pursuant to
Rule 13n–5.’’ This is to clarify that the access’’ to the SBS transaction
than five years, the first two years in a information maintained by the
requirements under proposed Rule 13n–
place that is immediately available to

the staff of the Commission for 7 are designed to capture those records
164 17 CFR 240.17a–6. Exchange Act Rule 17a–6
of an SDR other than the transaction
applies to national securities exchanges, national
158 17 CFR 240.17a–3(a)(21) and (22).
160 17
securities associations, registered clearing agencies,
159 Exchange Act Section 13(n)(2), Public Law CFR 240.17a–1. and the MSRB. Exchange Act Rule 17a–6 allows for
161 See also proposed Rule 13n–4(b)(1).
111–203, § 763(i), states that ‘‘[e]ach registered the destruction or disposal of records by these
162 This proposed requirement is based on
security-based swap data repository shall be subject entities prior to the 5-year retention period of
to inspection and examination by any Exchange Act Rule 17a–4(g), 17 CFR 240.17a–4(g), Exchange Act Rule 17a–1 if done according to a
representative of the Commission.’’ See also which applies to broker-dealer books and records. plan for destruction or disposal that is filed with
proposed Rule 13n–4(b)(1). 163 See also proposed Rule 13n–4(b)(1). and approved by the Commission.
there may be times when a report may indirectly, of: (1) Any confidential draws from Exchange Act Section 15(g),
be more useful to Commission staff in information received by the SDR, which requires broker-dealers to
fulfilling their duties. For example, the including, but not limited to, trade data, establish, maintain, and enforce written
Commission may request a report on the position data, and any nonpublic policies and procedures reasonably
number of complaints the SDR has personal information about a market designed to prevent the misuse of
received pertaining to data integrity. participant or any of its customers; 168 material, nonpublic information by such
(2) material, nonpublic information; broker or dealer or any person
Request for Comment and/or (3) intellectual property, such as associated with such broker or dealer.172
The Commission requests comment trading strategies or portfolio positions, The Commission anticipates that as a
on the following specific issues: by the SDR or any person associated central recordkeeper of SBS
• What are the benefits and burdens with the SDR for their personal benefit transactions, each SDR will receive
of this requirement? Should any or the benefit of others.169 Such proprietary and highly sensitive
limitations be put on the types or safeguards, policies, and procedures information, which could disclose, for
frequency of reports requested by the shall address, without limitation, (1) instance, a market participant’s trade
Commission? limiting access to such confidential information, trading strategy, or
• Should the term ‘‘promptly’’ be information, material, nonpublic nonpublic personal information.
defined or should the Commission use information, and intellectual property, Proposed Rule 13n–9 is designed to
another term such as ‘‘as soon as (2) standards pertaining to the trading ensure that an SDR has reasonable
technologically practicable after the by persons associated with the SDR for safeguards, policies, and procedures in
time at which the request has been their personal benefit or the benefit of place to protect such information from
submitted’’? others, and (3) adequate oversight to being misappropriated or misused by
• What is the likely impact of this ensure compliance of this provision.170 the SDR or any person associated with
requirement on the SBS market, This particular requirement the SDR. The Commission preliminarily
including the impact on the incentives incorporates current requirements believes that an SDR’s governance
and behaviors of SDRs, the willingness regarding the treatment of proprietary arrangements should have adequate
of persons to register as SDRs, and the information of clearing members, which internal controls to protect against such
technologies used for maintaining SBS are contained in exemptive orders misappropriation or misuse. For
data at the SDR? issued to SBS clearing agencies,171 and instance, an SDR should limit access to
• With respect to entities that the proprietary and sensitive
currently perform repository services for 168 Under the proposed rule, the term ‘‘nonpublic information by creating informational,
SBSs or other instruments, how do personal information’’ would be defined as (1) technological, and physical barriers.
personally identifiable information and (2) any list,
current practices compare to the description, or other grouping of market
The Commission also preliminarily
practices that the Commission proposes participants (and publicly available information believes that an SDR should limit access
to require in this rule? What are the pertaining to them) that is derived using personally to the data that it maintains to only
incremental costs to potential SDRs in identifiable information that is not publicly those officers, directors, employees, and
available information. Proposed Rule 13n–9(a)(5).
connection with adding to or revising The term ‘‘personally identifiable information’’
agents who need to know the data to
their current practices in order to would be defined as any information (i) a market perform their job responsibilities; such
implement the Commission’s proposed participant provides to an SDR to obtain service access should not necessarily be granted
rule? from the SDR, (ii) about a market participant on an all-or-nothing basis. An SDR
resulting from any transaction involving a service
between the SDR and the market participant, or (iii)
should also have controls to prevent
I. Proposed Rule Regarding Privacy of unauthorized or unintentional access to
the SDR obtains about a market participant in
SBS Transaction Information connection with providing a service to that market its data.
The Commission is proposing Rule participant. Proposed Rule 13n–9(a)(6). Additionally, an SDR should consider
169 Proposed Rule 13n–9(b)(2).
13n–9 to require each SDR to establish, restricting the trading activities of
170 Id.
maintain, and enforce written policies 171 See, e.g., ICE Trust Order stating ‘‘ICE Trust
individuals who have access to
and procedures reasonably designed to shall establish and maintain adequate safeguards
proprietary or sensitive information
protect the privacy of any and all SBS and procedures to protect clearing members’ maintained by the SDR or implementing
transaction information that the SDR confidential trading information. Such safeguards
and procedures shall include: (A) limiting access to 2010) (temporary exemptions in connection with
receives from an SBS dealer, the confidential trading information of clearing CDS clearing by Eurex Clearing AG); Exchange Act
counterparty, or any registered entity. members to those employees of ICE Trust who are Release No. 59578 (Mar. 13, 2009), 74 FR 11781
As mentioned above, this requirement is operating the system or responsible for its (Mar. 19, 2009), Exchange Act Release No. 61164
specifically enumerated in the Dodd- compliance with this exemption or any other (Dec. 14, 2009), 74 FR 67258 (Dec. 18, 2009) and
applicable rules; and (B) establishing and Exchange Act Release No. 61803 (Mar. 30, 2010), 75
Frank Act.166 The proposed rule would maintaining standards controlling employees of ICE FR 17181 (Apr. 5, 2010) (temporary exemptions in
further provide that such policies and Trust trading for their own accounts. ICE Trust connection with CDS clearing by Chicago
procedures shall include, but are not must establish and maintain adequate oversight Mercantile Exchange Inc.).
limited to, policies and procedures to procedures to ensure that the safeguards and 172 See 15 U.S.C. 78o(g). See also Public Law 111–
procedures established pursuant to this condition 203 (adding Exchange Act Section 15F(j)(5)
protect the privacy of any and all SBS are followed.’’ Exchange Act Release No. 59527 (requiring SBS dealers and major SBS participants
transaction information that the SDR (Mar. 6, 2009), 74 FR 10791 (Mar. 12, 2009), to ‘‘establish structural and institutional safeguards
shares with affiliates and nonaffiliated Exchange Act Release No. 61119 (Dec. 4, 2009), 74 to ensure that the activities of any person within the
third parties.167 FR 65554 (Dec. 10, 2009), and Exchange Act Release firm relating to research or analysis of the price or
No. 61662 (Mar. 5, 2010), 75 FR 11589 (Mar. 11, market for any security-based swap or acting in a
The proposed rule would also require 2010) (temporary exemptions in connection with role of providing clearing activities or making
each SDR to establish and maintain CDS clearing by ICE Trust US LLC). See also determinations as to accepting clearing customers
safeguards, policies, and procedures Exchange Act Release No. 60372 (July 23, 2009), 74 are separated by appropriate informational
reasonably designed to prevent the FR 37748 (July 29, 2009) and Exchange Act Release partitions with the firm from the review, pressure,
No. 61973 (Apr. 23, 2010), 75 FR 22656 (Apr. 29, or oversight of persons whose involvement in
misappropriation or misuse, directly or 2010) (temporary exemptions in connection with pricing, trading, or clearing activities might
CDS clearing by ICE Clear Europe Limited); potentially bias their judgment or supervision and
166 See Public Law 111–203, § 763(i) (adding
Exchange Act Release No. 60373 (July 23, 2009), 74 contravene the [enumerated] core principles of
Exchange Act Section 13(n)(5)). FR 37740 (July 29, 2009) and Exchange Act Release open access and the business conduct standards
167 Proposed Rule 13n–9(b)(1). No. 61975 (Apr. 23, 2010), 75 FR 22641 (Apr. 29, * * * ’’).
firm-wide restrictions on trading certain J. Proposed Rule Regarding Disclosure OTC derivatives products and their
SBSs, as well as underlying or related to Market Participants markets, and that greater service
investment instruments. Such Pursuant to the Commission’s transparency could improve market
restrictions could include, for example, authority under Exchange Act Sections participants’ confidence in an SDR and
a pre-trade clearance requirement. An 13(n)(3), 13(n)(7)(D)(i), and 13(n)(9),173 result in greater use of the SDR, which
SDR should also have systems in place the Commission is proposing Rule 13n– would ultimately increase market
to prevent and detect insider trading by 10 to enhance transparency in the SBS efficiency.
the SDR or persons associated with the market, bolster market efficiency, Request for Comment
SDR. Such systems could include a promote standardization, and foster
mechanism to monitor such persons’ The Commission requests comment
competition. Specifically, the proposed on the following specific issues:
access to the SDR’s data, their trading rule would provide that before
activities, and their e-mails. • Are the proposed disclosure
accepting any SBS data from a market requirements to market participants
The Commission preliminarily participant or upon a market
believes that to the extent that an SDR appropriate and sufficiently clear? If
participant’s request, each SDR shall not, why not and what would be a better
or any person associated with the SDR furnish to the market participant a
shares information with a nonaffiliated alternative?
disclosure document that contains the • Should the Commission require
third party, an SDR’s policies and following written information, which
procedures should ensure the privacy of SDRs to make the proposed disclosure
must reasonably enable the market to market participants in any other
the information shared. For instance, an participant to identify and evaluate
SDR should consider requiring the instances?
accurately the risks and costs associated • Should the Commission not require
nonaffiliated party to consent to being with using the SDR’s services: (1) The
subject to the SDR’s privacy policies disclosure of any of the information
SDR’s criteria for providing others with specified in this proposed rule? If so,
and procedures as a condition of access to services offered and data
receiving any sensitive information from what and why?
maintained by the SDR, (2) the SDR’s • Should the Commission require
the SDR. criteria for those seeking to connect to disclosure of the specified information
Request for Comment or link with the SDR, (3) a description only upon request and not necessarily
of the SDR’s policies and procedures before an SDR accepts SBS data from a
The Commission requests comment regarding its safeguarding of data and
on the following specific issues: market participant?
operational reliability to protect the • Should the Commission require
• Are the Commission’s proposed confidentiality and security of such disclosure of any other information? If
definitions of ‘‘nonpublic personal data, (4) a description of the SDR’s so, what and why?
information’’ and ‘‘personally policies and procedures reasonably • Should the Commission require
identifiable information’’ appropriate designed to protect the privacy of any SDRs to provide market participants
and sufficiently clear? If not, what and all SBS transaction information that with updated disclosure documents? If
specific modifications are appropriate or the SDR receives from an SBS dealer, so, how often (e.g., annually, when there
necessary? counterparty, or any registered entity, are material changes to an SDR’s
• Are the Commission’s privacy (5) a description of the SDR’s policies disclosed policies and procedures)?
requirements appropriate and and procedures regarding its non- • Should the Commission require
sufficiently clear? If not, why not and commercial and/or commercial use of disclosure of the proposed information
what would be a better alternative? the SBS transaction information that it to anyone else besides market
• Should the proposed SDR’s receives from a market participant, any participants? If so, to whom and why?
protection of privacy extend to any registered entity, or any other person, Should the disclosure be the same or
other person (e.g., third party service (6) a description of the SDR’s dispute vary depending on the recipient?
providers, market infrastructures, or resolution procedures involving market • Should the Commission permit
venues from which data can be participants, (7) a description of all the disclosure of the proposed information
submitted to the SDR)? SDR’s services, including any ancillary on an SDR’s Web site? If so, would such
• What other examples of services, (8) the SDR’s updated schedule disclosure be as meaningful? How
confidential information, material, of any dues; unbundled prices, rates, or should the Commission address the
nonpublic information, and intellectual other fees for all of its services, problem of the disclosure possibly being
property should be protected by an including any ancillary services; any embedded in an SDR’s Web site so as to
SDR? discounts or rebates offered; and the make it difficult for market participates
• Should the Commission require criteria to benefit from such discounts to navigate their way to find the
anything else to be protected in an or rebates, and (9) a description of the disclosure? Would a disclosure on an
SDR’s privacy policies and procedures? SDR’s governance arrangements.174 SDR’s Web site be equally effective, less
• Should the Commission prescribe These proposed disclosure effective, or more effective than a
any other preventive measures that an requirements are intended to promote disclosure document furnished to
SDR must include in its privacy policies competition and foster service market participants? Should the
and procedures? transparency by enabling market Commission prescribe any restrictions
• With respect to entities that participants to identify the range of regarding disclosure on an SDR’s Web
currently perform repository services for services that each SDR offers and to site?
SBSs or other entities, how do current evaluate the risks and costs associated • With respect to entities that
practices compare to the practices that with using such services. The currently perform repository services for
the Commission proposes to require in Commission also preliminarily believes SBSs or other instruments, how do
this rule? What are the incremental that service transparency is particularly current practices compare to the
costs to potential SDRs in connection important in light of the complexity of practices that the Commission proposes
with adding to or revising their current to require in this rule? What are the
practices in order to implement the 173 See Public Law 111–203, § 763(i). incremental costs to potential SDRs in
Commission’s proposed rule? 174 See proposed Rule 13n–10(b). connection with adding to or revising
their current practices in order to responsible for, among other things, • Should the Commission prohibit
implement the Commission’s proposed keeping the board or the SDR’s chief any officers, directors, or employees of
rule? executive officer apprised of significant an SDR from, directly or indirectly,
compliance issues and advising the taking any action to coerce, manipulate,
K. Proposed Rule Regarding Chief
board or chief executive officer of mislead, or fraudulently influence the
Compliance Officer of Each SDR needed changes in the SDR’s policies SDR’s CCO in the performance of his
The Commission is proposing Rule and procedures. Given the critical role responsibilities?
13n–11, which would incorporate the that a CCO is intended to play in • Should the Commission prohibit an
duties of an SDR’s CCO that are ensuring an SDR’s compliance with the SDR’s board from requiring its CCO to
enumerated in Exchange Act Section Exchange Act and the rules and make any changes to his annual
13(n)(6) 175 and impose additional regulations thereunder, the Commission compliance report? Would such a
requirements. believes that an SDR’s CCO should be prohibition be necessary in light of the
competent and knowledgeable regarding CCO’s statutory requirement to certify
1. Enumerated Duties of Chief
the federal securities laws and should that the compliance report is accurate
Compliance Officer
be empowered with full responsibility and complete?
Specifically, proposed Rule 13n–11(a) and authority to develop and enforce
would require each SDR to identify on • Are there other measures that
appropriate policies and procedures for would further enhance the
Form SDR a person who has been the SDR. To meet his statutory
designated by the board to serve as a independence and effectiveness of a
obligations, a CCO should also have a CCO and that should be prescribed in a
CCO of the SDR. The proposed rule position of sufficient seniority and
would also provide that the rule?
authority within the SDR to compel
compensation and removal of the CCO others to adhere to the SDR’s policies • Should the Commission impose any
shall require the approval of a majority and procedures. additional duties on a CCO of an SDR
of the SDR’s board.176 This proposed The Commission is concerned that an that are not already enumerated in the
requirement is intended to promote the SDR’s commercial interests might legislation and incorporated in the
independence and effectiveness of the discourage its CCO from making proposed rule?
CCO. forthright disclosure to the board or • Should the Commission provide
Under proposed Rule 13n–11(c), each chief executive officer about any guidance in its proposed rules about the
CCO shall: (1) Report directly to the compliance failures. To mitigate this CCO’s procedures for the remediation of
board or to the chief executive officer of potential conflict of interest, the noncompliance issues?
the SDR, (2) review the compliance of Commission preliminarily believes that • Should the Commission provide
the SDR with respect to the an SDR’s CCO should be independent guidance in its proposed rules on what
requirements and core principles from its management so as not to be would be considered ‘‘appropriate
described in Exchange Act Section 13(n) conflicted in reporting or addressing procedures’’ for the handling,
and the rules and regulations any compliance failures. As mentioned, management response, remediation,
thereunder, (3) in consultation with the each CCO of an SDR is statutorily retesting, and closing of noncompliance
board or the SDR’s chief executive required to report directly to the board issues? If so, what factors should the
officer, resolve any conflicts of interest or its chief executive officer, but only Commission take into consideration?
that may arise, (4) be responsible for the board would be able to discharge the • What is the likely impact of the
administering each policy and CCO from his or her responsibilities and Commission’s proposed rule on the SBS
procedure that is required to be would be able to approve the CCO’s market? Would the proposed rule
established pursuant to Exchange Act compensation. potentially promote or impede the
Section 13 and the rules and regulations establishment of SDRs?
thereunder, (5) ensure compliance with Request for Comment
• With respect to entities that
the Exchange Act and the rules and The Commission requests comment currently perform repository services for
regulations thereunder relating to SBSs, on the following specific issues: SBSs or other instruments, how do
including each rule prescribed by the • Are there any terms in the proposed current practices compare to the
Commission under Exchange Act rule incorporating the duties of a CCO practices that the Commission proposes
Section 13, (6) establish procedures for that need to be clarified or modified to require in this rule? What are the
the remediation of noncompliance (e.g., ‘‘look-back,’’ ‘‘self-reported error,’’ incremental costs to potential SDRs in
issues identified by the CCO through ‘‘validated complaint’’)? If so, which connection with adding to or revising
any (a) compliance office review, (b) terms and how should they be defined? their current practices in order to
look-back, (c) internal or external audit • Should the Commission require a
implement the Commission’s proposed
finding, (d) self-reported error, or (e) CCO of an SDR to report to any other
rule?
validated complaint, and (7) establish senior officer besides its chief executive
officer? If so, to whom and why? • How might the evolution of the SBS
and follow appropriate procedures for market over time affect SDRs or impact
the handling, management response, • Is the Commission’s proposed
requirement regarding an SDR’s board the Commission’s proposed rule?
remediation, retesting, and closing of
noncompliance issues. approval of a CCO’s compensation and 2. Annual Reports
The Commission notes that an SDR a CCO’s removal appropriate? If not,
A CCO of an SDR is required, under
would not be required to hire an why and what would be a better

alternative to promote the independence Exchange Act Section 13(n)(6)(C)(i), to
additional person to serve as its CCO. annually prepare and sign a report that
Instead, an SDR can designate an and effectiveness of the CCO? Should
the required percentage of board contains a description of the compliance
individual already employed with the of the SDR with respect to the Exchange
SDR as its CCO. The CCO would be approval be lower or higher?
• Should the Commission prohibit a Act and the rules and regulations
175 See Public Law 111–203, § 763(i) (adding CCO of an SDR from being a member of thereunder and each policy and
Exchange Act Section 13(n)(6)). the SDR’s legal department or the SDR’s procedure of the SDR (including the
176 Proposed Rule 13n–11(a). general counsel? code of ethics and conflicts of interest
policies of the SDR).177 The report is accurate and complete.180 The • Should the Commission require any
Commission is proposing Rule 13n– compliance report would also be other disclosure in the CCO’s annual
11(d) to require each annual compliance required to be filed in a tagged data report?
report to contain, at a minimum, a format in accordance with instructions • Should the CCO’s compliance
description of: (1) The SDR’s contained in the EDGAR Filer Manual, reports be deemed confidential, by rule,
enforcement of its policies and as described in Rule 301 of Regulation or should an SDR simply rely on the
procedures, (2) any material changes 178 S–T.181 FOIA exemptions discussed in Section
to the policies and procedures since the In addition, a CCO would be required III.F.3 of this release?
date of the preceding compliance report, to submit the annual compliance report • Would keeping the compliance
(3) any recommendation for material to the board for its review prior to the reports confidential encourage the CCO
changes to the policies and procedures submission of the report to the to be more forthcoming about sensitive
as a result of the annual review, the Commission under proposed Rule 13n– compliance issues or would it likely not
rationale for such recommendation, and 11(d)(2).182 The Commission notes that have any impact on the disclosure of
whether such policies and procedures a CCO should promptly bring serious such issues?
were or will be modified by the SDR to compliance issues to the board’s • Are there any disadvantages to
incorporate such recommendation, and attention rather than wait until an keeping the CCO’s compliance report
(4) any material compliance matters179 annual report is prepared. confidential? How could the
identified since the date of the Commission address any such
Request for Comment disadvantage?
preceding compliance report. The
The Commission requests comment • Would making the CCO’s
Commission notes that individual
on the following specific issues: compliance report public be useful to
compliance matters may not be material
when viewed in isolation, but may • Are the Commission’s proposed the public or other regulators?
rules regarding annual compliance • What is the likely impact of the
collectively suggest a material Commission’s proposed rule on the SBS
compliance matter. reports appropriate and sufficiently
clear? If not, why not and what would market? Would the proposed rule
Although the proposed rule would potentially promote or impede the
require only annual reviews, CCOs be a better approach?
should consider the need for interim • Are the proposed definitions of establishment of SDRs?
‘‘material change’’ and ‘‘material • With respect to entities that
reviews in response to significant currently perform repository services for
compliance events, changes in business compliance matter’’ appropriate? If not,
are they over-inclusive or under- SBSs or other instruments, how do
arrangements, and regulatory current practices compare to the
developments. For example, if there is inclusive and how should they be
defined? practices that the Commission proposes
an organizational restructuring of an to require in this rule? What are the
• Is the Commission’s proposed
SDR, then its CCO should evaluate incremental costs to potential SDRs in
timeframe for a CCO to submit his
whether its policies and procedures are connection with adding to or revising
annual report to the board appropriate?
adequate to guard against potential their current practices in order to
If not, should the timeframe be shorter
conflicts of interest. Additionally, if a implement the Commission’s proposed
or longer? Should the Commission
new rule regarding SDRs is adopted by rule?
permit the SDR to request an extension
the Commission, then a CCO should
to file an annual report (e.g., due to • How might the evolution of the SBS
review its policies and procedures to market impact the SDRs or the
substantial, undue hardship)?
ensure compliance with the rule. • If a CCO reports to the chief Commission’s proposed rule?
Furthermore, a CCO should review, on executive officer of the SDR rather than
an ongoing basis, the SDR’s service 3. Financial Reports
its board, should the Commission
levels, costs, pricing, and operational The Commission is proposing Rule
permit the CCO to submit his annual
reliability, with the view to preventing 13n–11(f) to require each financial
report to the chief executive officer
anticompetitive practices and report to be a complete set of financial
rather than the board, in addition to the
discrimination, and encouraging statements of the SDR that are prepared
board, or only when an SDR does not
innovation and the use of the SDR. in conformity with U.S. generally
have a board? Would any of these accepted accounting principles
Under the proposed rule, an SDR alternatives lessen the independence of
would be required to file with the (‘‘GAAP’’) for the most recent two fiscal
the CCO in any way? years of the SDR.183 Additionally, the
Commission a financial report, as • If the Commission were to require
discussed further in Section III.K.3 proposed rule would provide that each
an SDR to have independent directors,
below, along with a compliance report, financial report shall be audited in
should the Commission require a CCO
which must include a certification that, accordance with the standards of the
to meet separately with the independent
under penalty of law, the compliance Public Company Accounting Oversight
directors at least annually? If not, why
Board (‘‘PCAOB’’) by a registered public
not and what would be a better
177 See Public Law 111–203, § 763(i). accounting firm 184 that is qualified and
alternative?
178 The term ‘‘material change’’ would be defined
• Are the Commission’s proposed independent in accordance with Rule 2–
as a change that a CCO would reasonably need to 01 of Regulation S–X.185Each financial
know in order to oversee compliance of the SDR. minimum disclosure requirements in
See proposed Rule 13n–11(b)(5). the CCO’s annual report appropriate? If report would be required to include a
179 The term ‘‘material compliance matter’’ would

not, why not and what would be a better 183 Proposed
be defined as any compliance matter that the board Rule 13n–11(f)(1).
alternative? 184 The term ‘‘registered public accounting firm’’
would reasonably need to know to oversee the
compliance of the SDR and that involves, without is defined in Exchange Act Section 3(a)(59) to have
180 See proposed Rule 13n 11(d)(2).
limitation: (1) A violation of the federal securities the same meaning as in Section 2 of the Sarbanes-
181 See id.; see also 17 CFR 232.301. The Oxley Act of 2002. See 15 U.S.C. 78c(a)(59). Section
laws by the SDR, its officers, directors, employees,
or agents; (2) a violation of the policies and information in each compliance report would be 2 of the Sarbanes-Oxley Act defines ‘‘registered
procedures of the SDR, its officers, directors, tagged using an appropriate machine-readable, data public accounting firm’’ as a public accounting firm
employees, or agents; or (3) a weakness in the tagging format to enable the efficient analysis and registered with the PCAOB in accordance with the
design or implementation of the SDR’s policies and review of the information contained in the report. Sarbanes-Oxley Act.
procedures. See proposed Rule 13n–11(b)(6). 182 Proposed Rule 13n 11(e). 185 Proposed Rule 13n–11(f)(2).
report of the registered accounting firm required to be filed within 60 days after • Are there any terms in the
that complies with paragraphs (a) the end of the fiscal year covered by Commission’s proposed rule regarding
through (d) of Rule 2–01 of Regulation such reports.195 an SDR’s financial report that need to be
S–X.186 This proposed rule is drawn The Commission notes that with defined or clarified? If so, which terms?
from Exchange Act Rule 17a–5.187 respect to its other registrants, the • What is the likely impact of the
If an SDR’s financial statements Commission has required, at a Commission’s proposed rule on the SBS
contain consolidated information of a minimum, the proposed financial market? Would the proposed rule
subsidiary of the SDR, then the SDR’s information and, in some instances, potentially promote or impede the
financial statements must provide significantly more information.196 The establishment of SDRs?
condensed financial information, in a Commission believes that it is necessary • How might the evolution of the SBS
financial statement footnote, as to the to obtain an audited annual financial market over time impact the SDRs or
financial position, changes in financial report from each registered SDR to affect the Commission’s proposed rule?
position and results of operations of the understand the SDR’s financial and IV. General Request for Comment
SDR, as of the same dates and for the operational condition, particularly
same periods for which audited because SDRs are intended to play a The Commission is requesting
consolidated financial statements are pivotal role in improving the comment from all members of the
required.188 Such financial information transparency and efficiency of the SBS public. The Commission particularly
need not be presented in greater detail market and because SBSs (whether requests comments from the point of
than is required for condensed cleared or uncleared) are required to be view of entities that plan to register as
statements by Rules 10–01(a)(2), (3), and reported to a registered SDR.197 Among SDRs; entities operating platforms that
(4) of Regulation S–X.189 Detailed other things, the Commission would currently trade or clear SBSs; SBS
footnote disclosure that would normally need to know whether an SDR has dealers, broker-dealers, financial
be included with complete financial adequate financial resources to comply institutions, major SBS participants, and
statements may be omitted with the with its statutory obligations or is other persons that trade SBSs; and
exception of disclosures regarding having financial difficulties. If an SDR investors generally. The Commission
material contingencies, long-term ultimately ceases doing business, it will carefully consider the comments
obligations, and guarantees.190 could create a significant disruption in that it receives. The Commission seeks
Descriptions of significant provisions of the OTC derivatives market. comment generally on all aspects of the
the SDR’s long-term obligations, proposed rules. In addition, the
mandatory dividend or redemption Request for Comment Commission seeks comment on the
requirements of redeemable stocks, and The Commission requests comment following:
guarantees of the SDR shall be provided on the following specific issues: 1. Should the Commission clarify or
along with a five-year schedule of • Is the Commission’s proposed rule modify any of the definitions included
maturities of debt.191 If the material regarding an SDR’s financial report in the proposed rules? If so, which
contingencies, long-term obligations, appropriate and sufficiently clear? If definitions and what specific
redeemable stock requirements, and not, why not and what would be a better modifications are appropriate or
guarantees of the SDR have been alternative? necessary?
separately disclosed in the consolidated • Should the Commission permit a 2. Are the obligations in the proposed
statements, then they need not be financial report to be in compliance rules sufficiently clear? Is additional
repeated in this schedule.192 This with International Financial Reporting guidance from the Commission
proposed requirement is substantially Standards as an alternative to GAAP? If necessary?
similar to Rule 12–04 of Regulation S– so, are there any disadvantages to 3. What documents and data are
X, which pertains to condensed permitting this? typically and currently kept by entities
financial information of registrants.193 • Is the Commission’s proposed rule that may register as SDRs? In what
Proposed Rule 13n–11(f) would also requiring financial reports to cover the format? How long are such records
require an SDR’s financial reports to be most recent two fiscal years of an SDR currently maintained by SDRs?
provided in XBRL consistent with Rules 4. What types of documents and data
appropriate? If not, should the
405(a)(1), (a)(3), (b), (c), (d), and (e) of should be retained by SDRs pursuant to
timeframe be shorter or longer (e.g., the
Regulation S–T.194 Specifically, the proposed rules? What burdens or
most recent three fiscal years)?
costs would the retention of such
information in an SDR’s financial report • Is the Commission’s proposed
would be required to be tagged using information entail?
requirement regarding an SDR’s
XBRL to allow the Commission to assess 5. What are the technological or
condensed financial information
and analyze effectively the SDR’s administrative burdens of maintaining
appropriate and sufficiently clear? If
financial and operational condition. the information specified in the
not, why not and what would be a better
Finally, annual compliance reports proposed rules?
alternative? 6. Is there an industry standard format
and financial reports filed pursuant to • Is the Commission’s proposed 60-
proposed Rule 13n–11 would be for information and records regarding
day timeframe for an SDR to file the SBSs? Are there different standard
financial report appropriate? If not, formats depending on the type or class
186 Proposed Rules 13n–11(f)(3).
187 17
should the timeframe be shorter or of SBS? Please answer with specificity.
CFR 240.17a–5.
longer (e.g., 90 days)?
188 Proposed Rule 13n–11(f)(4). 7. Are the burdens of any of the

189 Id. • Would an SDR’s financial report be requirements in the proposed rules
190 Id. useful to the public or other regulators? greater than the benefits that would be
191 Id. If so, explain. attained by such requirement?
192 Id.
195 Proposed
8. Should the Commission implement
193 See 17 CFR 210.9–06. Rule 13n–11(g).
196 See,
substantive requirements in addition to,
194 See 17 CFR 232.405 (imposing content, format, e.g., Exchange Act Rule 17a–5(d), 17 CFR
submission, and Web site posting requirements for 240.17a–5(d). or in place of, the policies and
an interactive data file, as defined in Rule 11 of 197 See Public Law 111–203, § 763(i) (adding procedures required in the proposed
Regulation S–T). Exchange Act Section 13(m)(1)(G)). rules?
9. The role of SDRs is still developing respectively. Specifically, do the A. Summary of Collection of
and may change significantly as the SBS regulatory approaches under the Information
market develops. In particular, the new Commission’s proposed rulemaking 1. Registration Requirements and Form
provisions in the Dodd-Frank Act pursuant to Section 763(i) of the Dodd- SDR
relating to SDRs are not yet effective. Frank Act and the CFTC’s proposed
Once they become effective, SDRs will rulemaking pursuant to Section 728 of Proposed Rule 13n–1(b) would
be subject to substantially more require an SDR to apply for registration
the Dodd-Frank Act result in
regulation. How will the incentives and with the Commission by filing
duplicative or inconsistent efforts on the
behavior of market participants be likely electronically in tagged data format on
part of market participants subject to Form SDR in accordance with the
to change as the reporting of SBSs to
both regulatory regimes or result in gaps instructions contained therein. Under
SDRs becomes more established? How
between those regimes? If so, in what Proposed Rule 13n–1(f), SDRs would be
will potential changes in the trading of
SBSs affect SDRs? How might ways do commenters believe that such required to both designate and authorize
competition issues affect or change duplication, inconsistencies, or gaps on Form SDR an agent in the United
existing SDRs and new SDRs? should be minimized? Do commenters States, other than a Commission
10. With respect to entities that believe that the approaches proposed by member, official, or employee, to accept
currently perform repository services for the Commission and the CFTC to notice or service of process, pleadings,
SBSs or other instruments, how do regulate SDRs and swap data or other documents in any action or
current practices compare to the repositories, respectively, are proceedings brought against the SDR to
practices that the Commission proposes comparable? If not, why? Do enforce the federal securities laws and
to require in these rules? What are the commenters believe there are the rules and regulations thereunder.
incremental costs to potential SDRs in approaches that would make the Under proposed Rule 13n–1(g) a non-
connection with adding to or revising regulation of swap data repositories and resident SDR must certify on Form SDR
their current practices in order to SDRs more comparable? If so, what? Do and provide an opinion of counsel that
implement the Commission’s proposed commenters believe that it would be the SDR can, as a matter of law, provide
rules? appropriate for us to adopt an approach the Commission with prompt access to
In addition, the Commission seeks proposed by the CFTC that differs from the books and records of such SDR and
commenters’ views regarding any can, as a matter of law, submit to onsite
our proposal? If so, which one?
potential impact of the proposals on inspection and examination by the
users of any SDRs, other market Commenters should, when possible, Commission. Under proposed Rule 13n–
participants, and the public generally. provide the Commission with empirical 3(a), in the event that an SDR succeeds
The Commission seeks comment on the data to support their views. Commenters to and continues the business of a
proposal as a whole, including its suggesting alternative approaches registered SDR, the successor SDR
interaction with the other provisions of should provide comprehensive would be required to file an application
the Dodd-Frank Act. The Commission proposals, including any conditions or for registration on Form SDR within 30
seeks comment on whether the proposal limitations that they believe should days after such succession in order for
would help achieve the broader goals of apply, the reasons for their suggested the registration of the predecessor to be
increasing transparency and approaches, and their analysis regarding deemed to remain effective as the
accountability in the SBS market. why their suggested approaches would registration of the successor. Also,
The Commission requests comment satisfy the statutory mandate contained under proposed Rule 13n–11(a), SDRs
generally on whether the rules proposed in Section 763(i) of the Dodd-Frank Act would be required to identify on Form
today to govern the SDR registration SDR a person who has been designated
governing SDRs.
process, duties, and core principles are by the board to serve as CCO of the SDR.
necessary or appropriate for those V. Paperwork Reduction Act Proposed Rule 13n–1(e) would
purposes. If commenters do not believe require SDRs to file an amendment on
one or all such rules are necessary and Certain provisions of the proposed Form SDR annually as well as when
appropriate, why not? What would be rules would impose new ‘‘collection of updating any information provided in
the preferred action? information’’ requirements within the items 1 through 16, 25, and 44 on Form
Title VII requires the SEC to consult meaning of the Paperwork Reduction SDR if any information contained in
and coordinate, to the extent possible, Act of 1995 (‘‘PRA’’).198 The those items is or becomes inaccurate for
with the CFTC for the purposes of Commission has submitted them to the any reason. Under proposed Rule 13n–
assuring regulatory consistency and Office of Management and Budget 3(b), if an SDR succeeds to and
comparability, to the extent possible, (‘‘OMB’’) for review in accordance with continues the business of a registered
and states that in adopting rules, the 44 U.S.C. 3507 and 5 CFR 1320.11. The SDR and the succession is based solely
CFTC and SEC shall treat functionally title of the new collection of information on a change in the predecessor’s date or
or economically similar products or is ‘‘Form SDR and Security-Based Swap state of incorporation, form of
entities in a similar manner. Data Repository Registration, Duties, organization, or composition of a
The CFTC is adopting rules related to and Core Principles.’’ An agency may partnership, the successor SDR would
swap data repositories as required under be permitted, within 30 days after such
not conduct or sponsor, and a person is
Section 728 of the Dodd-Frank Act. succession, to amend the registration of
not required to respond to, a collection
Understanding that the Commission and the predecessor SDR to reflect these
of information unless it displays a
the CFTC regulate different products changes.
and markets, and as such, may currently valid OMB control number.
appropriately be proposing alternative OMB has not yet assigned a control 2. SDR Duties, Data Collection and
regulatory requirements, we request number to the new collection of Maintenance, Automated Systems, and
comment on the impact of any information. Direct Electronic Access
differences between the Commission Proposed Rule 13n–4(b) sets out a
and CFTC’s approaches to the regulation number of duties for SDRs. Under
of SDRs and swap data repositories, 198 44 U.S.C. 3501 et seq. proposed Rule 13n–4(b)(2) and (4),
SDRs would be required to accept data policies and procedures, to accept all capacity stress testing, and review of
as prescribed in proposed Regulation data provided to it regarding all SBSs in vulnerabilities of the SDR’s systems.
SBSR,199 and maintain such data as an asset class if the SDR accepts data on Proposed Rule 13n–6(b)(3) would
required in proposed Rule 13n–5 for any SBS in that particular asset class, require that the SDR promptly notify the
each SBS reported to the SDRs. SDRs and to satisfy itself by reasonable means Commission of any material systems
would be required, pursuant to that the transaction data that has been outages and submit to the Commission
proposed Rule 13n–4(b)(5), to provide submitted to the SDR is accurate, within five business days of when the
direct electronic access to the including clearly identifying the source outage occurred a written description
Commission or its designees.200 The for each trade side, and the pairing and analysis of the outage and any
Commission has reserved the ability to method (if any) for each transaction in remedial measures implemented or
specify the form and manner in which order to identify the level of quality of contemplated. The definition of
an SDR provides this direct electronic the transaction data. An SDR would also ‘‘material system outage’’ in proposed
access. SDRs would be required, be required under proposed Rule 13n– Rule 13n–6(a)(1) refers to a number of
pursuant to Rule 13n–4(b)(6), to provide 5(b)(1)(iv) to promptly record documents that would trigger such an
this data in such form and at such transaction data it receives. event, such as a communication of an
frequency as required by proposed Proposed Rule 13n–5(b) would also outage situation to other external
Regulation SBSR. require that SDRs establish, maintain, entities and a report or referral of an
SDRs would have an obligation under and enforce written policies and event to the SDR’s board or senior
proposed Rule 13n–4(b)(3) to confirm procedures reasonably designed (1) to management. Proposed Rule 13n–6(b)(4)
with both counterparties the accuracy of calculate positions for all persons with would require that the SDR notify the
the information submitted to the SDR. open SBSs for which the SDR maintains Commission in writing at least thirty
Under proposed Rule 13n–4(b)(7), at records; (2) to ensure that the days before implementation of a
such time and in such manner as may transaction data and positions that it planned material systems change.
be directed by the Commission, an SDR maintains are accurate; and (3) to Pursuant to proposed Rule 13n–6(c),
would be required to establish prevent any provision in a valid SBS these notifications and description and
automated systems for monitoring, from being invalidated or modified analysis would be required to be
screening, and analyzing SBS data.201 through the procedures or operations of submitted to the Division of Trading
Under proposed Rule 13n–4(b)(9), SDRs the SDR. and Markets in an appropriate
would be required to, on a confidential Proposed Rule 13n–5(b)(4) would electronic format. Pursuant to proposed
basis and after notification to the require that SDRs maintain the Rule 13n–6(d), these notifications and
Commission, make available all data transaction data for not less than five description and analysis can be afforded
obtained by the SDR upon the request years after the applicable SBS expires confidential treatment, to the extent
of certain government bodies such as and historical positions for not less than permitted by law, if the requestor marks
the CFTC and the Department of five years. This data would be required each page or segregable portion of each
Justice.202 Under proposed Rule 13n– to be maintained in a place and format page with a notation.
4(b)(10), before sharing information that is readily accessible to the
Commission and other persons with 3. Recordkeeping
with any entity described in proposed
Rule 13n–4(b)(9), the SDR must obtain authority to access or view the Proposed Rule 13n–7(d) would
a written agreement from each entity information and would also be required require that the SDR keep records, in
stating that the entity shall abide by the to be maintained in an electronic format addition to those required under
confidentiality requirements of that is non-rewritable and non-erasable. proposed Rule 13n–5. SDRs would be
Exchange Act Section 24 as well as Under proposed Rule 13n–5(b)(7), the required, under proposed Rule 13n–
indemnify the SDR and the Commission SDR’s recordkeeping obligation would 7(a)(1), to make and keep current a
for any expenses arising from litigation extend to the periods required under record for each office listing, by name or
relating to the information provided. these rules even if the SDR ceases to do title, each person at that office who,
Proposed Rule 13n–5 would establish business or to be registered pursuant to without delay, can explain the types of
rules regarding SDR data collection and Section 13(n) of the Act. Proposed Rule records the SDR maintains at that office
maintenance. Proposed Rule 13n–5(b)(1) 15n–5(b)(8) would require SDRs to make and the information contained in those
would require that SDRs establish, and keep current a plan to ensure that records. SDRs would also be required,
maintain, and enforce written policies the transaction data and positions that under proposed Rule 13n–7(a)(2), to
and procedures reasonably designed for are recorded in the SDR continue to be make and keep current a record listing
the reporting of transaction data to the maintained in accordance with Rule each officer, manager, or person
SDR,203 to accept all transaction data 13n–5(b)(7), including procedures for performing similar functions of the SDR
reported to it in accordance with these transferring the transaction data and responsible for establishing policies and
positions to the Commission or its procedures that are reasonably designed
199 See Regulation SBSR Release, supra note 9. designee (including another registered to ensure compliance with the Exchange
200 See also proposed Rule 13n–4(a)(6) (defining SDR). Act and the rules and regulations
‘‘direct electronic access’’). Proposed Rule 13n–6 would establish thereunder. Proposed Rule 13n–7(b)
201 The Commission is not making any such
direction in this release. See supra Section III.D.I.

rules regarding SDR automated systems. would require every SDR to keep and
Should the Commission do so, the collection of As detailed above, proposed Rule 13n– preserve at least one copy of all
information would be amended to reflect the 6(b)(1) would require that SDRs documents as shall be made or received
change. establish, maintain, and enforce written by it in the course of its business as
202 SDRs would also be required under proposed
Rule 13n–4(b)(9) to make all data available to ‘‘any

policies and procedures reasonably such. These records would be required
other person that the Commission determines to be designed to ensure that the SDR’s to be kept for a period of not less than
appropriate,’’ including such entities as foreign systems provide adequate levels of five years, the first two years in a place
financial supervisors, provided that the SDR obtains capacity, resiliency, and security and immediately available to Commission
a written agreement as set forth in proposed Rule
13n–4(b)(10). such policies and procedures shall staff for inspection and examination.
203 Transaction data is defined in proposed Rule include, among other elements, Upon the request of any representative
13n–5(a)(1). reasonable capacity limits, periodic of the Commission, an SDR would be
required to furnish promptly to such (6) the SDR’s dispute resolution 7. Other Provisions Relevant to the
representative copies of any documents procedures required by proposed Rule Collection of Information
required to be kept and preserved by the 13n–5(b)(6); (7) a description of all of Proposed Rule 13n–4(c)(1) sets forth
SDR pursuant to proposed Rule 13n– the SDR’s services, including any the proposed requirements related to
7(a) or (b). Under proposed Rule 13n– ancillary services; (8) an updated market access to services and data.
7(c), the SDR’s recordkeeping obligation schedule of the SDR’s dues, unbundled Among these are requirements that the
would extend to the periods required prices, rates or other fees of all its SDR (1) establish, monitor on an
under these rules even if the SDR ceases services, as well as any discounts or ongoing basis, and enforce clearly stated
to do business or to be registered rebates offered and the criteria to benefit objective criteria that would permit fair,
pursuant to Section 13(n) of the Act. from those discounts or rebates; and (9) open, and not unreasonably
SDRs would also be required to make discriminatory access to services offered
a description of the SDR’s governance
available the books and records required and data maintained by the SDR, as well
arrangements.
by proposed Rules 13n–1 through 13n– as fair, open, and not unreasonably
11 upon request by representatives from 6. Chief Compliance Officer discriminatory participation by those
the Commission for examination and seeking to connect or link with the SDR
inspection.204 Proposed Rules 13n–4(b)(11) and
13n–11(a) would require the board of an and (2) establish, maintain, and enforce
4. Reports and Reviews written policies and procedures
SDR to designate a CCO to perform the
The proposed rules would require reasonably designed to review any
duties identified in proposed Rule 13n–
that a number of reports or reviews be prohibition or limitation of any person
11. Under proposed Rule 13n–11(c)(6)
submitted to the Commission. Under with respect to services offered or data
and (7), the CCO would be responsible maintained by the SDR and to grant
proposed Rule 13n–6(b)(2), SDRs would for, among other things, establishing
be required to submit to the such person access to such services or
procedures for the remediation of data if such person has been
Commission an annual objective review noncompliance issues identified by the
with respect to those systems that discriminated against unfairly.
CCO and establishing and following Proposed Rule 13n–4(c)(2)(iv) would
support or are integrally related to the appropriate procedures for the handling,
performance of the SDR’s activities. If require that SDRs establish, maintain,
management response, remediation, and enforce written policies and
the objective review is performed by an
retesting, and closing of noncompliance procedures reasonably designed to
internal department, an objective
issues. ensure that the SDR’s senior
external firm would be required to
assess the internal department’s The CCO would also be required management and each member of the
objectivity, competency, and work under proposed Rule 13n–11(d) and (g) board or committee that has the
performance. to prepare and submit annual authority to act on behalf of the board
Under proposed Rule 13n–8, SDRs compliance reports to the Commission possess requisite skills and expertise to
would be required to promptly report to and the SDR’s board containing, at a fulfill their responsibilities in the
the Commission, in a form and manner management and governance of the
minimum, the SDR’s enforcement of its
acceptable to the Commission, such SDR, to have a clear understanding of
policies, any material changes to the
information as the Commission their responsibilities, and to exercise
policies and procedures since the date sound judgment about the SDR’s affairs.
determines necessary or appropriate for of the preceding compliance report, any
the Commission to perform the duties of Proposed Rule 13n–4(c)(3) sets forth
recommendation for material changes to the proposed conflicts of interest
the Commission. the policies and procedures, and any controls that would be required of SDRs.
5. Disclosure material compliance matters identified SDRs would be required to establish and
Proposed Rule 13n–10 describes since the date of the preceding enforce written policies and procedures
disclosures that SDRs would be required compliance report. This report must be reasonably designed to minimize
to provide to a market participant before filed in a tagged data format in conflicts of interest, including
accepting any SBS data from that market accordance with the instructions establishing, maintaining, and enforcing
participant or upon a market contained in the EDGAR Filer written policies and procedures
participant’s request. The information Manual.205 reasonably designed to identify and
required in the disclosure document Proposed Rule 13n–11(f) and (g) mitigate potential and existing conflicts
would be (1) the SDR’s criteria for would require that annual financial of interest in the SDR’s decision-making
providing others with access to services reports be prepared and submitted to process on an on-going basis and
offered and data maintained by the SDR; the Commission. These financial reports regarding the SDR’s non-commercial
(2) the SDR’s criteria for those seeking and commercial use of the SBS
must, among other things, be prepared
to connect to or link with the SDR; (3) transaction information that it receives.
in conformity with GAAP for the most
a description of the SDR’s policies and Proposed Rule 13n–5(b)(6) would
recent two fiscal years of the SDR, require that SDRs establish procedures
procedures regarding its safeguarding of audited by a registered public
data and operational reliability to and provide facilities reasonably
accounting firm that is qualified and designed to effectively resolve disputes
protect the confidentiality and security
independent in accordance with Rule 2– over the accuracy of the transaction data
of such data (as described in proposed
01 of Regulation S–X, and are in
Rule 13n–6); (4) the SDR’s policies and and positions that are recorded in the
procedures required by proposed Rule accordance with standards of the Public SDR.
13n–9(b)(1); (5) the SDR’s policies and Company Accounting Oversight Board. Proposed Rule 13n–9 relates to the
procedures regarding its non- This report must be provided in XBRL privacy requirements that would be
commercial and commercial use of the as required in Rules 405(a)(1), (a)(3), (b), required of SDRs. Proposed Rule 13n–
transaction information that it receives; (c), (d), and (e) of Regulation S–T.206 9(b)(1) would require SDRs to establish,
maintain, and enforce written policies
204 See, e.g., proposed Rules 13n–4(b)(1) and 13n– 205 See 17 CFR 232.301. and procedures reasonably designed to
7(b)(3). 206 See 17 CFR 232.405. protect the privacy of any and all SBS
transaction information that the SDR conduct its inspection and examination designed to effectively resolve disputes
receives from any SBS dealer, programs regarding SDRs. regarding the accuracy of the transaction
counterparty, or any registered entity. data and positions that are recorded in
4. Reports and Reviews
Proposed Rule 13n–9(b)(2) would the SDR; and (5) proposed Rule 13n–9
require SDRs to establish and maintain As discussed above, proposed Rules would require SDRs to establish
safeguards, policies, and procedures 13n–6(b)(2) and 13n–8 would require policies, procedures, and safeguards
reasonably designed to prevent the certain reports or reviews be provided to regarding privacy and misappropriation
misappropriation or misuse of any the Commission. The information that or misuse of certain information. The
confidential information received by the would be collected under these information that would be collected
SDR, material, nonpublic information, provisions would be used by the pursuant to these provisions would help
or intellectual property. At a minimum, Commission to assist in its oversight of ensure a transparent and orderly
such policies and procedures must limit SDRs, including ensuring an orderly marketplace for SBSs, protect users’
access to such information, include and transparent SBS market. privacy, and enable Commission
standards that control persons 5. Disclosure oversight of these programs.
associated with the SDR in trading for C. Respondents
their personal benefit or the benefit of As discussed above, proposed Rule
others, and adequate oversight. 13n–10 would require that SDRs 1. Registration Requirements and Form
provide certain specific disclosures to a SDR
B. Proposed Use of Information market participant before accepting any
The registration requirements of
1. Registration Requirements and Form data from that market participant. These
proposed Rules 13n–1, 13n–3, 13n–
SDR disclosures would help market
11(a), and Form SDR would apply to
participants understand the risks and
As discussed above, proposed Rules every SDR. The Dodd-Frank Act does
protections available to them.
13n–1 and 13n–3 would require SDRs to not limit the number of persons that
register on Form SDR and make 6. Chief Compliance Officer may register as SDRs. Commission staff
amendments to Form SDR. Certain As discussed above, proposed Rule is aware of five persons that have
additional information would be 13n–11 would require that an SDR’s indicated the ability and/or interest in
required on Form SDR, including agent CCO establish certain policies relating providing SDR services for SBS. For
for service of process and identification to noncompliance issues as well as PRA purposes, the Commission believes
of the SDR’s CCO pursuant to proposed prepare and submit to the Commission that it is reasonable to expect that, at
Rule 13n–11(a). The information an annual compliance report. Proposed most, ten persons may register with the
collected in these provisions would be Rule 13n–11 would also require that an Commission as SDRs.207 Furthermore,
used to enhance the ability of the annual financial report be prepared and for PRA purposes, the Commission
Commission to monitor SDRs and filed with the Commission. The preliminarily estimates that three such
ensure compliance with the Exchange information that would be collected persons may be ‘‘non-resident’’ SDRs
Act and the rules and regulations under this rule would help ensure subject to the additional requirements of
thereunder by helping the Commission compliance by SDRs of the provisions of proposed Rule 13n–1(g).
identify SDRs, as well as understand the Exchange Act and the rules and 2. SDR Duties, Data Collection and
their operations and organizational regulations thereunder as well as assist Maintenance, Automated Systems, and
structure. the Commission in ensuring such Direct Electronic Access
compliance. The duties, data collection and
2. SDR Duties, Data Collection and
Maintenance, Automated Systems, and 7. Other Provisions Relevant to the maintenance, and automated systems
Direct Electronic Access Collection of Information requirements of proposed Rules 13n–
4(b), 13n–5, and 13n–6 would, as a
As discussed above, proposed Rules As discussed above, (1) proposed Rule
general matter, apply to all SDRs. Thus,
13n–4(b), 13n–5, and 13n–6 would 13n–4(c)(1) would require SDRs to
for these provisions, the Commission
require that SDRs comply with specified comply with certain requirements
estimates that there will be 10
duties, collect specific data that is relating to market access to services and
respondents.
provided to certain entities in specific data including establishment of certain
ways as well as maintain that data in policies and procedures or clearly stated 3. Recordkeeping
specific ways, and establish certain objective criteria; (2) proposed Rule The recordkeeping requirements of
oversight programs over its automated 13n–4(c)(2)(iv) would require SDRs to proposed Rule 13n–7 would apply to all
systems. The information that would be establish policies and procedures SDRs. Thus, for these provisions, the
collected under these provisions would regarding the skills and expertise of an Commission estimates that there will be
help ensure an orderly and transparent SDR’s senior management and members 10 respondents.
SBS market as well as provide the of the board or committee that has the
Commission and other parties with tools authority to act on behalf of the board; 4. Reports and Reviews
to help oversee this market. (3) proposed Rule 13n–4(c)(3) would The reports and review requirements
require SDRs to establish and enforce of proposed Rules 13n–6(b)(2) and 13n–
3. Recordkeeping written conflict of interest policies and
As discussed above, proposed Rule procedures as well as require ongoing 207 In order to withdraw from registration, SDRs
13n–7 would require an SDR to make identification and mitigation of conflicts would be required to file a notice of withdrawal
with the Commission and update any inaccurate
and keep records associated with all the and to establish written policies and information by filing an amended Form SDR with
proposed rules except for the data procedures regarding their the Commission prior to the withdrawal. However,
collected and maintained pursuant to noncommercial and commercial use of since the Commission expects a total of only 10
proposed Rule 13n–5 for a prescribed transaction information; (4) proposed SDRs to register, we estimate that there would be
fewer than 10 potential respondents for this
period. The information that would be Rule 13n–5(b)(6) would require that requirement and therefore this requirement also
collected under these provisions would SDRs establish dispute resolution would not constitute part of the collection of
be necessary for the Commission to procedures and facilities reasonably information.
8 would apply to all SDRs. Thus, for burden for all SDRs would be annualized burden for complying with
these provisions, the Commission approximately 4000 burden hours. The these registration amendment
estimates that there will be 10 Commission believes that SDRs will requirements would be approximately
respondents. prepare Form SDR internally, but the 12 burden hours for each SDR per
Commission solicits comment as to amendment and approximately 120
5. Disclosure
whether SDRs will do so or outsource burden hours for all SDRs per
The disclosure requirements of this requirement. amendment. Proposed Rule 13n–1(e)
proposed Rule 13n–10 would apply to Under proposed Rule 13n–1(g) a non- would require one annual compulsory
all SDRs. Thus, for these provisions, the resident SDR must certify on Form SDR amendment on Form SDR as well as
Commission estimates that there will be and provide an opinion of counsel that interim amendments on Form SDR
10 respondents. the SDR can, as a matter of law, provide when reported information thereto is or
6. Chief Compliance Officer the Commission with access to the becomes inaccurate or, under proposed
books and records of such SDR and can, Rule 13n–3(b), in certain circumstances
The provisions regarding CCOs set as a matter of law, submit to onsite involving successor SDRs detailed
forth in proposed Rule 13n–11 would inspection and examination by the above. When Form ADV was amended
apply to all SDRs. Thus, for these Commission. This creates additional earlier this year, the Commission
provisions, the Commission estimates burdens for non-resident SDRs. We estimated that there were 2 amendments
that there will be 10 respondents. estimate, based on the similar per year for that form.213 The
7. Other Provisions Relevant to the requirements of Form 20–F, that this Commission believes that would be a
Collection of Information additional burden will add 3 hours and reasonable estimate for the number of
$900 in outside legal costs per amendments per year to correct
The remaining requirements of the inaccurate information or in situations
proposed rules relevant to the collection respondent.209 As stated above, the
Commission believes that there will be involving successor SDRs. Including the
of information, specifically proposed required annual amendment, the
Rules 13n–4(c), 13n–5(b)(6) and 13n–9, three respondents to this collection, for
a total additional burden for non- Commission estimates that respondents
would apply to all SDRs. Thus, for these will be required to file on average 3
provisions, the Commission estimates resident SDRs to comply with proposed
Rule 13n–1(g) of 9 hours and $2700.210 amendments per year. Therefore, the
that there will be 10 respondents. Commission estimates that each
The Commission seeks comment SDRs would also be required to
amend Form SDR pursuant to proposed respondent will have an average annual
regarding the accuracy of any of the burden of 36 hours for a total estimated
above figures. Rule 13n–1(e) annually as well as when
information in certain enumerated items average annual burden of 360 hours.214
D. Total Annual Reporting and is or becomes inaccurate. Amendments The Commission believes, based on
Recordkeeping Burden are also required in certain situations discussions with industry participants,
involving successor SDRs outlined that this work will be conducted
1. Registration Requirements and Form internally. The Commission solicits
SDR above pursuant to proposed Rule 13n–
3(b). For purposes of Form SIP, the comment as to the accuracy of this
Proposed Rules 13n–1(b) and 13n– Commission considered amendments to information.
3(a), relating to successor SDRs as be part of the 400 hours of the annual
described above, would require SDRs to 2. SDR Duties, Data Collection and
burden.211 However, the Commission Maintenance, Automated Systems, and
apply for registration using Form SDR believes that Form SDR will have
and file such form electronically in Direct Electronic Access
different initial burden as compared to
tagged data format with the Commission As outlined above, under proposed
the ongoing annual amendments. When
in accordance with the instructions Rules 13n–4(b)(2) and (4) and 13n–5,
amendments to Form ADV were
contained therein. Further, proposed SDRs would be required to accept and
proposed in 2008, the Commission
Rule 13n–1(f) would require SDRs to maintain data received from third
estimated that the hours burden for
designate an agent for service of process parties including transaction data and to
amendments to be roughly 3% of the
on Form SDR, and proposed Rule 13n– calculate and maintain position
initial burden.212 The Commission
11(a) would require SDRs to identify its information. SDRs would be required,
believes that this ratio would be the
CCO on Form SDR. For purposes of the pursuant to proposed Rule 13n–4(b)(5),
same for filers of Form SDR. Thus, the
PRA, the Commission estimates that it to provide direct electronic access to the
Commission estimates that the ongoing
would take an SDR approximately 400 Commission or its designees and,
hours to complete the initial Form SDR 209 Exchange Act Release No. 49616 (Apr. 26, pursuant to proposed Rule 13n–4(b)(9),
with the information required and in 2004); 69 FR 24016 (Apr. 30, 2004). The $900 figure make available data obtained by the
compliance with these proposals. The is based on an estimate of $400 an hour for legal SDR to other parties, including certain
services. government bodies. SDRs would also
Commission bases this estimate on the 210 The base burden of 4000 hours includes
number of hours necessary to complete resident and non-resident SDRs. The 9 hour and
have an obligation under proposed
Form SIP.208 As noted above, the $2700 figures are the additional costs as a result of Rules 13n–4(b)(3) and 13n–5(b)(1)(iii) to
Commission currently estimates that 10 proposed 13n–1(g) for non-resident SDRs not
entities will be subject to this burden. already accounted for in the 4000 hour figure. 213 Investment Advisors Act Release No. 3060
211 ‘‘This annual reporting and recordkeeping (July 28, 2010); 75 FR 49234 (Aug. 12, 2010).
Accordingly, the Commission estimates
burden does not include the burden hours or cost Although this information is based upon
that the one-time initial registration of amending a Form SIP because the Commission investment advisor statistics, the Commission
has already overstated the compliance burdens by believes that for these purposes the differences
208 The Commission calculated in 2008 that Form assuming that the Commission will receive one between investment advisors and SDRs are
SIP takes 400 hours to complete. 73 FR 34060 (June initial registration pursuant to Rule 609 on Form minimal.
16, 2008) (outlining the most recent Commission SIP a year.’’ Id. 214 The 36 hours figure is the result of the
calculations regarding the PRA burdens for Form 212 Investment Advisors Act Release No. 2711 estimated burden per SDR per amendment (12)
SIP). While the requirements of Form SIP and Form (Mar. 3, 2008); 73 FR 13958 (Mar. 14, 2008). In that times the estimated number of amendments per
SDR are not identical, the Commission believes that proposal, the initial burden was calculated to be year (3). The 360 hour figure is the result of the
there is sufficient similarity for PRA purposes that 22.25 hours per respondent and 0.75 hours per estimated burden per SDR (36) times the number of
the burden would be roughly equivalent. respondent for amendments. SDRs (10).
establish and maintain written policies the initial burden for this requirement The Commission based these estimates
and procedures reasonably designed to would be $16,000. The Commission upon those estimates we used with
confirm and to satisfy itself by estimates, for PRA purposes only, that regards to establishing policies and
reasonable means that the transaction SDRs will need to enter into these procedures regarding Regulation
data that has been submitted to the SDR agreements on an average of at most 1 NMS.222 Once these policies and
is accurate. Also, proposed Rule 13n– time per year.219 The Commission procedures are established, the
5(b)(4) would require that SDRs further estimates that each such Commission estimates that it will take
maintain the transaction data for not agreement, subsequent to the initial one, on average 60 hours annually to
less than five years after the applicable will require an average of 3 hours to maintain each of these policies and
SBS expires and historical positions for draft. Thus, the Commission estimates procedures per respondent, with a total
not less than five years.215 Under the an average annual burden of 30 hours. estimated average annual burden of
proposal, this obligation would The Commission believes that in light of 3,000 hours.223 The Commission
continue even if an SDR withdraws the nature of the parties involved, these believes that this maintenance work will
from registration or ceases doing agreements will be created internally at be conducted internally. The
business.216 SDRs would be required to the parties entering into them after the Commission solicits comment as to the
make and keep current a plan to ensure initial agreement is drafted or reviewed accuracy of this information.
compliance with this requirement.217 by outside counsel. The Commission For each material systems outage,
The Commission estimates that the solicits comment as to the accuracy of SDRs would be required under
average one-time start-up burden per this information. proposed Rule 13n–6(b)(3) to promptly
SDR of establishing systems compliant Each SDR would also be required to notify the Commission and submit to
with all of these requirements, establish, maintain, and enforce written the Commission, after the outage, a
including the recordkeeping policies and procedures, specifically (1) written description and analysis of the
requirements of proposed Rules 13n– under proposed Rule 13n–5(b)(1), outage and any remedial measures
5(b)(4), (7), and (8), would be 42,000 reasonably designed for the reporting of implemented or contemplated. Also, the
hours and $10 million in information transaction data to the SDR and to definition of ‘‘material system outage’’
technology costs. This estimate is based satisfy itself of the accuracy of such refers to a number of documents that
on the Commission’s discussions with information; (2) under proposed Rule would trigger such an event, such as a
market participants. Based on the 13n–5(b)(2), reasonably designed to communication of an outage situation to
expected number of respondents, the calculate positions for all persons with other external entities and a report or
Commission estimates a total start-up referral of an event to the SDR’s board
open SBSs for which the SDR maintains
cost of 420,000 hours and $100 million or senior management. The Commission
records; (3) under proposed Rule 13n–
in information technology costs. Based estimates, based on our experience with
5(b)(3), reasonably designed to ensure
on discussions with potential the ARP program,224 that the burden
data and calculations are accurate; (4)
respondents, the Commission further imposed by these requirements would
under proposed Rule 13n–5(b)(5),
estimates that the average ongoing be 15.4 hours on average per respondent
reasonably designed to prevent any
annual costs of these systems to be per year, for a total estimated burden of
provision in an SBS from being
25,200 hours and $6 million per 154 hours per year.225 The Commission
invalidated; and (5) under proposed
respondent or a total of 252,000 hours believes that this work will be
Rule 13n–6(b)(1), reasonably designed
and $60 million for a total ongoing conducted internally. The Commission
to ensure that the SDR’s systems
annual burden. The Commission solicits solicits comment as to the accuracy of
provide adequate levels of capacity,
comment as to the accuracy of this this information.
resiliency, and security. While these
information.
policies and procedures will vary in
Under proposed Rule 13n–4(b)(10),
exact cost, the Commission estimates result of the outside dollar cost per respondent
before sharing information with any ($100,000) times the number of respondents (10).
that such policies and procedures
entity described in new Exchange Act 222 Exchange Act Release No. 51808 (June 9,
would require an average of 210 hours
Section 13(n)(5)(G), an SDR must obtain 2005); 70 FR 37496 (June 29, 2005). The
per respondent per policy and Commission based these estimates on those for non-
written confidentiality and
procedure to prepare and implement. SRO trading centers rather than for SRO trading
indemnification agreements. The centers because we believe that for these purposes
The Commission further estimates that
Commission estimates that these non-SRO trading center burdens are more like those
these policies and procedures would
agreements will require four hours per that SDRs would face under the proposals.
require $100,000 for outside legal 223 The 3,000 hour figure is the result of the
respondent in outside legal costs to
costs.220 In sum, the Commission estimated average hourly burden to maintain each
create for an initial outside cost of
$1600 per respondent.218 As outlined estimates the initial burden for all policy and procedure (60), times the total number
respondents to be 10,500 hours and of policies and procedures required under this
above, the Commission estimates a total requirement (5), times the total number of SDRs
$1,000,000 for outside legal costs.221 (10).
of 10 respondents to this requirement.
224 Under the Commission’s ARP inspection
Therefore, the Commission estimates 219 As noted above, there are other avenues
program of SROs and certain alternative trading
available to the Commission to share this systems (‘‘ATS’’), the Commission staff conducts on-
215 This data would be required to be maintained
information with appropriate entities. As a result, site inspections and attends periodic technology
in a place and format that is readily accessible to for PRA purposes, the Commission believes that briefings presented by SRO and ATS staff to the
the Commission and other persons with authority SDRs will enter into only a few confidentiality and Commission staff, generally covering systems
to access or view the information and would also indemnification agreements. capacity and testing, review of system vulnerability,
be required to be maintained in an electronic format 220 This figure is the result of an estimated $400 review of planned system development, and
that is non-rewritable and non-erasable. an hour cost for outside legal services (as noted business continuity planning. Under the ARP
216 Proposed Rule 13n–5(b)(7).
above) times 50 hours of outside legal consulting inspection program, the Commission staff also
217 Proposed Rule 13n–5(b)(8). per policy and procedure, times 5 policies and monitors system failures and planned system
218 This is based on an estimated $400 an hour procedures. changes on a daily basis.
cost for outside legal services. This is the same 221 The 10,500 hour figure is the result of the 225 Included in this burden is the time to mark
estimate used by the Commission for these services number of hours per policy and procedure (210) these documents confidential under proposed Rule
in the proposed consolidated audit trail rule. times the number of policies and procedures 13n–6(d), as the Commission believes it is likely
Exchange Act Release No. 62174 (May 26, 2010); 75 required by these provisions (5), times the number that an SDR will mark all documents in this
FR 32556 (June 8, 2010). of respondents (10). The $1,000,000 figure is the manner.
Proposed Rule 13n–6(b)(4) would shall be made or received by it in the Commission estimates that the annual
require an SDR to notify the course of its business as such, other cost to hire an objective, external firm
Commission in writing at least thirty than the data collected and maintained to be approximately $90,000 per
days before implementation of a pursuant to proposed Rule 13n–5. These respondent annually. For this reason,
planned material systems change. Based records would be required to be kept for the Commission estimates that the
on our discussions with market a period of not less than five years, the average annual cost of complying with
participants, the Commission estimates first two years in a place immediately proposed Rule 13n–6(b)(2) for all
that there would be an average of 60 available to Commission staff for respondents is approximately $900,000.
such events per respondent per year.226 inspection and examination.229 Upon
Based on the Commission’s experience the request of any representative of the Under proposed Rule 13n–8, SDRs
with the ARP program, we estimate that Commission, an SDR would be required would be required to report promptly to
each of these notices would require an to furnish promptly documents kept and the Commission, in a form and manner
average of 2 hours for a total burden for preserved by it pursuant to proposed acceptable to the Commission, such
all respondents of 1200 hours Rule 13n–7(a) or (b) to such a information as the Commission
annually.227 The Commission believes representative. Based on the determines necessary or appropriate for
that this work will be conducted Commission’s experience with the Commission to perform the duties of
internally. The Commission solicits recordkeeping costs and consistent with the Commission. For PRA purposes
comment as to the accuracy of this prior burden estimates for similar only, the Commission estimates that it
information. provisions,230 the Commission estimates will request these reports at a maximum
that this storage requirement would of once per year, per respondent. For
3. Recordkeeping
create an initial burden of 345 hours PRA purposes only, the Commission
SDRs would be required, under and $1800 in information technology estimates that these reports would be
proposed Rule 13n–7(a)(1), to make and costs per respondent, for a total initial limited to information already compiled
keep current a record of persons at each burden of 3450 hours and $18,000. The under these proposed rules and thus
office of the SDR that can assist with Commission further estimates that the would require only 1 hour per response
explaining the SDR’s records as well as, ongoing annual burden would be 279 to compile and transmit. Thus, the
under proposed Rule 13n–7(a)(2), to hours per respondent and per Commission estimates, for PRA
make and keep current a record listing respondent for a total ongoing annual purposes only, that the total annual
officers, managers, or persons burden of 2790 hours. The Commission
performing similar functions with burden for these reports to be 10 hours.
solicits comment as to the accuracy of The Commission believes that this
responsibility for the policies and this information.
procedures of the SDR to ensure work, should it be required, will be
compliance with the Exchange Act and 4. Reports and Reviews conducted internally. The Commission
the rules and regulations thereunder. Proposed Rule 13n–6(b)(2) would solicits comment as to the accuracy of
The Commission estimates that these require SDRs to submit to the this information.
records would create an initial burden, Commission an annual objective review 5. Disclosure
at a maximum, of 1 hour per with respect to those systems that
respondent, for a total initial burden of support or are integrally related to the As detailed above, pursuant to
10 hours. The Commission estimates performance of the SDR’s activities. If proposed Rule 13n–10, SDRs would be
that the ongoing annual burden would the objective review is performed by an required to provide certain disclosures
be 0.17 hours (10 minutes) per internal department, an objective, to a market participant. The
respondent to keep these records external firm would be required to Commission estimates that the average
current and to store these documents assess the internal department’s one-time start-up burden per SDR of
based on our estimates for similar objectivity, competency, and work preparing this disclosure document is
requirements for broker-dealers.228 This performance. Based on its experience 97.5 hours and $4,400 of external legal
results in a total ongoing annual burden with the ARP program, the Commission costs and $5,000 of external compliance
of 1.7 hours. The Commission believes believes that the annual burden per consulting costs, resulting in a total
that this work will be conducted respondent of conducting an internal
initial burden of 975 hours and $94,000.
internally. The Commission solicits audit is approximately 625 hours.231 As
This estimate reflects the Commission’s
comment as to the accuracy of this a result, the Commission estimates the
information. total average annual burden to be 8250 experience with and burden estimates
Proposed Rule 13n–7(b) would hours for all respondents in total for the for similar disclosure document
require each SDR to keep and preserve collection.232 In addition, based on its requirements imposed on entities with
at least one copy of all documents as experience with the ARP program, the 1000 or fewer employees and as a result
of our discussions with market
226 This would account for weekly maintenance 229 Under the proposal, this obligation would participants.233 The Commission
that would rise to the standard of a ‘‘material continue even if the SDR withdraws from expects that this requirement will result
systems change’’ as well as possible planned registration or ceases doing business. Proposed Rule in an average annual burden, after the
software upgrades, throughout the year, that would 13n–7(c).
also rise to this level. 230 See Exchange Act Release No. 59342 (Feb. 2, initial creation of the disclosure
227 Included in this burden is the time to mark 2009); 74 FR 6456 (Feb. 9, 2009). document, of 1 hour per respondent,
these documents confidential under proposed Rule 231 Further, the Commission’s experience with the with a total annual burden of 10 hours.
13n–6(d), as the Commission believes it is likely ARP program has indicated that an additional 200 The Commission believes that this
that an SDR will mark all documents in this hours per respondent per year would be required
manner. The 1200 hour figure is the result of the on average to oversee and establish the independent ongoing annual work will be conducted
number of events per year (60), times the estimated review of these audits. internally. The Commission solicits
average burden hours per notice (2), times the 232 The 8250 hour figure is the result of the
comment as to the accuracy of this
number of SDRs (10). estimate of annual burden per respondent to
228 See Exchange Act Release No. 44992 (Oct. 26,
information.
conduct the internal audit (625), plus the estimate
2001); 66 FR 55818 (Nov. 2, 2001) (regarding the of the annual burden per respondent to oversee and
collection of information pursuant to Rule 17a– establish the independent review of these audits 233 See Investment Advisers Act Release No. 3060
3(a)(21) and (22)). (200), times the number of SDRs (10). (Aug. 12, 2010); 75 FR 49234 (Aug. 12, 2010).
6. Chief Compliance Officer reports be prepared and filed with the and 600 hours on average, annually. The
Under proposed Rule 13n–11(c)(6) Commission. The Commission Commission also estimates, based on
and (7), an SDR’s CCO would be estimates, based on its experience with this earlier estimate, that a total of
responsible for, among other things, entities of similar size to the $20,000 in initial outside legal costs will
establishing procedures for the respondents to this collection, that these be incurred as a result of this burden per
reports will generally require on average respondent for a total outside cost
remediation of noncompliance issues
500 hours per respondent and cost burden of $200,000.241 The Commission
identified by the CCO, and establishing
$500,000 for independent public solicits comment as to the accuracy of
and following appropriate procedures
accounting services. Thus, the this information.
for the handling, management response, Proposed Rule 13n–4(c)(1) also would
Commission estimates a total annual
remediation, retesting, and closing of require SDRs to establish, monitor on an
burden of 5000 hours and $5,000,000.
noncompliance issues. As outlined ongoing basis, and enforce clearly stated
The Commission solicits comment as to
above, the Commission estimates a total objective criteria that would permit fair,
the accuracy of this information.
of 10 respondents for this requirement. The compliance and financial reports open, and not unreasonably
Based on the Commission’s estimates submitted to the Commission would be discriminatory access to services offered
regarding Regulation NMS,234 it required to be ‘‘tagged’’ pursuant to the and data maintained by the SDR. For
estimates that on average these two requirements of proposed Rule 13n–11. PRA purposes only, the Commission
requirements will require 420 hours to The compliance reports must be filed in believes that this should be a lesser
create and 120 hours to administer per a tagged data format in accordance with burden than for written policies and
year per respondent, for a total burden the instructions contained in the procedures. Thus, the Commission
of 4200 hours initially and 1200 hours EDGAR Filer Manual,238 and the estimates that this requirement will
on average, annually.235 Also based on require 157.5 hours to create, with an
financial reports must be provided in
the estimates regarding Regulation XBRL as required in Rules 405(a)(1), associated outside legal cost of
NMS, the Commission estimates that a (a)(3), (b), (c), (d), and (e) of Regulation $15,000.242 This would result in an
total of $40,000 in initial outside legal S–T.239 These requirements would estimate of an initial burden for this
costs will be incurred as a result of this requirement for all respondents of 1575
create an additional burden on
burden per respondent, for a total hours and $150,000. The Commission
respondents beyond the preparation of
outside cost burden of $400,000.236 The estimates that the average annual
these reports. The Commission
Commission solicits comment regarding preliminarily estimates, based on our burden would be 45 hours each, for a
the accuracy of this information. experience with other data tagging total estimated average annual burden of
A CCO would also be required under initiatives, that these requirements 450 hours.243 The Commission believes
proposed Rule 13n–11(d) and (h) to would add an additional burden of an that this work will be conducted
prepare and submit annual compliance average of 54 hours and $22,772 in internally. The Commission solicits
reports to the Commission and the outside software and other costs per comment as to the accuracy of this
SDR’s board. Based upon the respondent per year, creating an information.
Commission’s estimates for similar estimated total annual burden of 540 Proposed Rule 13n–4(c)(2)(iv) would
annual reviews by CCOs of investment hours and $227,720 to tag the data for require SDRs to establish, maintain, and
companies,237 the Commission both the compliance and financial enforce written policies and procedures
estimates that these reports will require reports that would be required under reasonably designed to ensure that the
on average 5 hours per respondent per proposed Rule 13n–11. The Commission SDR’s senior management and each
year. Thus, the Commission estimates a solicits comment as to the accuracy of member of the board or committee that
total annual burden of 50 hours. this information. has the authority to act on behalf of the
Because the report will be submitted by board possess requisite skills and
an internal CCO, the Commission does 7. Other Provisions Relevant to the expertise to fulfill their responsibilities
not expect any external costs. The Collection of Information in the management and governance of
Commission solicits comment as to the Proposed Rule 13n–4(c)(1)(v) would the SDR, to have a clear understanding
accuracy of this information. require SDRs to establish, maintain, and of their responsibilities, and to exercise
Proposed Rule 13n–11(f) and (g) enforce certain policies and procedures sound judgment about the SDR’s affairs.
would require that annual financial reasonably designed to review any As outlined above, the Commission
prohibition or limitation of any person estimates a total of 10 respondents for
234 See Exchange Act Release No. 51808 (June 9,
2005); 70 FR 37496 (June 29, 2005).

with respect to access to services offered
241 This figure is the result of an estimated $400
235 The 420 hour figure is the result of the or data maintained by the SDR and to
an hour cost for outside legal services (as noted
estimated average hour burden to create one policy grant such person access to such above) times 50 hours, for 10 respondents.
and procedure (210) times the 2 policies and services or data if such person has been 242 These numbers are based on 75% of the 210
procedures required by these provisions. The 120 discriminated against unfairly. As hour and $20,000 (50 hours of outside legal costs
hour figure is the result of the estimated average at $400 an hour) estimates to create one set of
hour burden to administer one policy and outlined above, the Commission
written policies and procedures under Regulation
procedure (60) times the 2 policies and procedures estimates a total of 10 respondents for NMS for non-SRO trading centers. See Exchange
required by these provisions. The 4200 hour figure this requirement. Based on the Act Release No. 51808 (June 9, 2005); 70 FR 37496
is the result of the estimated average hour burden Commission’s estimates regarding (June 29, 2005). This is based on an estimate that
per respondent to create these policies and this requirement will create 75% of the burden of
Regulation NMS,240 it estimates that, on
procedures (420) times the number of SDRs (10). creating written policies and procedures under
The 1200 hour figure is the result of the estimated average, this requirement will require Regulation NMS.
average hour burden per respondent to maintain 210 hours to create and 60 hours to 243 These numbers are 75% of the 60 hour
these policies and procedures (120) times the administer per year per respondent, for estimates of the ongoing burden regarding one set
number of SDRs (10). of written policies and procedures under Regulation
236 $400,000 figure is the result of an estimated
a total burden of 2100 hours initially
NMS for non-SRO trading centers. See Exchange
$400 an hour cost for outside legal services (as Act Release No. 51808 (June 9, 2005); 70 FR 37496
238 See 17 CFR 232.301.
noted above) times 50 hours, times 2 policies and (June 29, 2005). This is based on an estimate that
procedures, times the number of SDRs (10). 239 See 17 CFR 232.405. this requirement will create 75% of the ongoing
237 See Investment Company Act Release No. 240 See Exchange Act Release No. 51808 (June 9, burden of written policies and procedures under
25925 (Feb. 5, 2003); 68 FR 7038 (Feb. 11, 2003). 2005); 70 FR 37496 (June 29, 2005). Regulation NMS.
this requirement. Based on the respondent for a total outside cost estimates a total of 10 respondents for
Commission’s estimates regarding burden of $400,000.248 this requirement. Based on the
similar requirements in Regulation Proposed Rule 13n–5(b)(6) would Commission’s estimates regarding
NMS,244 it estimates that, on average, require that SDRs establish procedures Regulation NMS,252 it estimates that on
this requirement will require 210 hours and provide facilities reasonably average these two requirements will
to create and 60 hours to administer per designed to effectively resolve disputes require 420 hours to create and 120
year per respondent, for a total burden over the accuracy of the transaction data hours to administer per year per
of 2100 hours initially and 600 hours on and positions that are recorded in the respondent, for a total burden of 4200
average, annually. The Commission also SDR. For PRA purposes only, the hours initially and 1200 hours on
Commission believes that this would be average, annually.253 Also based on the
estimates, based on this earlier estimate,
a greater burden than that for written Regulation NMS estimates, the
that a total of $20,000 in outside legal
policies and procedures alone. Thus, the Commission estimates that a total of
costs will be incurred as a result of this $40,000 in initial outside legal costs will
Commission estimates that this
burden per respondent for a total be incurred as a result of this burden per
requirement will require 315 hours to
outside cost burden of $200,000.245 The respondent for a total outside cost
create.249 There would likely be a need
Commission solicits comment as to the for a respondent to consult with outside burden of $400,000.254
accuracy of this information. legal counsel which the Commission Proposed Rule 13n–9(b)(2) would
Proposed Rule 13n–4(c)(3) outlines estimates to cost $30,000 per require SDRs to establish and maintain
the proposed conflicts of interest respondent.250 In total, the Commission safeguards, policies, and procedures
controls that would be required of SDRs. estimates an initial burden for all reasonably designed to prevent the
SDRs would be required to establish and respondents of 3150 hours and $300,000 misappropriation or misuse of any
enforce written policies and procedures in outside costs. The Commission confidential data received by the SDR,
reasonably designed to minimize estimates the ongoing average annual material, nonpublic information, or
burden of this requirement to be 90 intellectual property. At a minimum,
conflicts of interest, including
hours per respondent for a total of 900 this program must limit access to such
establishing, maintaining, and enforcing
hours for the estimated total annual information, include standards that
written policies and procedures control persons associated with the SDR
reasonably designed to identify and burden for all respondents.251 The
Commission believes that this ongoing in trading for their personal benefit or
mitigate potential and existing conflicts the benefit of others, and adequate
of interest in the SDR’s decision-making work will be conducted internally. The
Commission solicits comment as to the oversight. As outlined above, the
process on an on-going basis and Commission estimates a total of 10
regarding the SDR’s non-commercial accuracy of this information.
Proposed Rule 13n–9 relates to the respondents for this requirement. Based
and commercial use of the SBS on the Commission’s estimates
privacy requirements that would be
transaction information that it receives. regarding Regulation NMS,255 it
required of SDRs. Proposed Rule 13n–
As outlined above, the Commission 9(b)(1) would require SDRs to establish, estimates that on average this
estimates a total of 10 respondents for maintain, and enforce written policies requirement will require 210 hours to
this requirement. Based on the and procedures reasonably designed to create and 60 hours to administer per
Commission’s estimates regarding protect the privacy of any and all SBS year per respondent, for a total burden
Regulation NMS,246 it estimates that on transaction information that the SDR of 2100 hours initially and 600 hours on
average these two requirements will average, annually. Also based on the
receives from any SBS dealer,
require 420 hours to create and 120 Regulation NMS estimates, the
counterparty, or any registered entity.
hours to administer per year per Commission estimates that a total of
As outlined above, the Commission
respondent, for a total burden of 4200 $20,000 in initial outside legal costs will
hours initially and 1200 hours on 248 This $400,000 figure is the result of an be incurred as a result of this burden per
average annually.247 Also based on the estimated $400 an hour cost for outside legal respondent for a total outside cost
Regulation NMS estimates, the services (as noted above) times 50 hours, times 2 burden of $200,000.256
policies and procedures, times the number of SDRs
Commission estimates that a total of (10). 252 See Exchange Act Release No. 51808 (June 9,
$40,000 in initial outside legal costs will 249 This number is 150% of the 210 hour estimate
2005); 70 FR 37496 (June 29, 2005).
be incurred as a result of this burden per to create one set of written policies and procedures 253 The 420 hour figure is the result of the
under Regulation NMS for non-SRO trading centers. estimated average hour burden to create one policy
See Exchange Act Release No. 51808 (June 9, 2005); and procedure (210) times the 2 policies and
70 FR 37496 (June 29, 2005). This is based on an procedures required by these provisions. The 120
2005); 70 FR 37496 (June 29, 2005). estimate that this requirement will create 150% of hour figure is the result of the estimated average
245 This figure is the result of an estimated $400 the burden of creating written policies and hour burden to administer one policy and
an hour cost for outside legal services (as noted procedures under Regulation NMS. procedure (60) times the 2 policies and procedures
above) times 50 hours, for 10 respondents. 250 This number is 150% of the estimate of
required by these provisions. The 4200 hour figure
246 See Exchange Act Release No. 51808 (June 9, outside legal costs (50 hours) to create one set of is the result of the estimated average hour burden
2005); 70 FR 37496 (June 29, 2005). written policies and procedures under Regulation per respondent to create these policies and
247 The 420 hour figure is the result of the NMS for non-SRO trading centers, at an estimate of procedures (420) times the number of SDRs (10).
estimated average hour burden to create one policy $400 per hour. See Exchange Act Release No. 51808 The 1200 hour figure is the result of the estimated
and procedure (210) times the 2 policies and (June 9, 2005); 70 FR 37496 (June 29, 2005). This average hour burden per respondent to maintain
procedures required by these provisions. The 120 is based on an estimate that this requirement will these policies and procedures (120) times the
hour figure is the result of the estimated average create 150% of the burden of creating written number of SDRs (10).
policies and procedures under Regulation NMS. 254 This $400,000 figure is the result of an
hour burden to administer one policy and
procedure (60) times the 2 policies and procedures 251 These numbers are based on 150% of the 60 estimated $400 an hour cost for outside legal
required by these provisions. The 4200 hour figure hour estimate of the ongoing burden regarding one services (as noted above) times 50 hours, times 2
is the result of the estimated average hour burden set of written policies and procedures under policies and procedures, times the number of SDRs
per respondent to create these policies and Regulation NMS for non-SRO trading centers. See (10).
procedures (420) times the number of SDRs (10). Exchange Act Release No. 51808 (June 9, 2005); 70
The 1200 hour figure is the result of the estimated FR 37496 (June 29, 2005). This is based on an 2005); 70 FR 37496 (June 29, 2005).
average hour burden per respondent to maintain estimate that this requirement will create 150% of 256 This figure is the result of an estimated $400
these policies and procedures (120) times the the ongoing burden of written policies and an hour cost for outside legal services (as noted
number of SDRs (10). procedures under Regulation NMS. above) times 50 hours, for 10 respondents.
E. Collection of Information Is 2. SDR Duties, Data Collection and 6. Chief Compliance Officer
Mandatory Maintenance, Automated Systems, and The financial report required to be
Direct Electronic Access provided to the Commission pursuant to
1. Registration Requirements and Form
SDR Under the Commission’s proposed proposed Rules 13n–11(f) and (g) may
rules, SDRs would provide participants be provided as an exhibit to Form SDR.
The collection of information relating If this is done, that report would be
access to their own SBS data submitted
to registration requirements and Form made publicly available, as an
to SDRs. The policies and procedures
SDR is mandatory for all SDRs when attachment to Form SDR, unless
required under proposed Rules 13n–
registering with the Commission or confidential treatment is requested, as
amending their registration. 5(b)(1), (2), (3), and (5) would be made
publicly available, as attachments to explained above. Regarding all other
2. SDR Duties, Data Collection and Form SDR, unless confidential elements of the collection of
Maintenance, Automated Systems, and information relating to the CCO, the
treatment is requested, as explained
Direct Electronic Access collection of information would not be
above. A description of the SDR’s
confidential and would be made
policies and procedures regarding its
The collection of information relating publicly available.
safeguarding of data and operational
to SDR duties, data collection and reliability to protect the confidentiality 7. Other Provisions Relevant to the
maintenance, automated systems, and and security of such data, as described Collection of Information
direct electronic access is mandatory for in proposed Rule 13n–6, would be
all SDRs. A list of instances of prohibiting or
required to be disclosed to a market limiting access to the services of the
3. Recordkeeping participant by the SDR pursuant to SDR or the data maintained by an SDR
proposed Rule 13n–10(b)(3) and would would be required as an exhibit to Form
The collection of information relating be made publicly available, as exhibits SDR and, as such, would be made
to recordkeeping is mandatory for all to Form SDR, unless confidential publicly available unless confidential
SDRs. treatment is requested, as explained treatment is requested as explained
4. Reports and Reviews above. above. The policies and procedures that
Upon the request of certain entities must be reasonably designed to review
The collection of information relating described in Exchange Act Section any prohibition or limitation of any
to reports and reviews is mandatory for 13(n)(5)(G), information would be made person with respect to access to services
all SDRs. available upon request if the entity offered or data maintained by the SDR
5. Disclosure making the request agrees to keep that as would be required in proposed Rule
information confidential. Pursuant to 13n–4(c)(1)(vi) would be made publicly
The collection of information relating proposed Rule 13n–6(d), SDRs may available, as attachments to Form SDR,
to disclosure is mandatory for all SDRs. request confidential treatment in unless confidential treatment is
6. Chief Compliance Officers connection with the documents requested, as explained above.
provided to the Commission pursuant to The policies and procedures regarding
The collection of information relating proposed Rule 13n–6, and the skills and expertise of senior
to CCOs is mandatory for all SDRs. Commission will accord confidential management and certain board or
treatment to those documents to the committee members that would be
7. Other Provisions Relevant to the extent permitted by law. Other than required under proposed Rule 13n–
Collection of Information these items, all elements to the 4(c)(2)(iv), conflicts of interest that
The collection of information relating collection of data identified above would be required under proposed Rule
to other relevant provisions is relating to SDR duties, data collection 13n–4(c)(3), and privacy under
mandatory for all SDRs. and maintenance, automated systems, proposed Rule 13n–9(b)(1) would be
and direct electronic access may be made publicly available as attachments
F. Confidentiality provided to Commission staff, but to Form SDR unless confidential
1. Registration Requirements and Form would not be subject to public treatment is requested, as explained
SDR availability. above. The procedures and a description
of the facilities of the SDR for resolving
The collection of information relating 3. Recordkeeping disputes, which would be required
to registration requirements and Form The collection of information relating pursuant to proposed Rule 13n–5(b)(6),
SDR, including attachments thereto, to recordkeeping would be provided to would be made publicly available, as
would generally not be kept Commission staff, but not subject to exhibits to Form SDR, unless
confidential. However, confidential public availability. confidential treatment is requested, as
treatment can be requested by the explained above. A description of the
applicant pursuant to the FOIA and the 4. Reports and Reviews SDR’s policies relating to misuse of
rules of the Commission thereunder.257 information, which would be required
The collection of information relating pursuant to proposed Rule 13n–9(b)(2),
257 ‘‘The information will be used for the
to reports and reviews would be would be made publicly available, as an
provided to Commission staff, but not
principal purpose of determining whether the exhibit to Form SDR, unless

Commission should grant or deny registration to an subject to public availability. confidential treatment is requested, as
applicant. Except in cases where confidential
treatment is requested by the applicant and granted 5. Disclosure explained above. Pursuant to proposed
by the Commission pursuant to the Freedom of Rule 13n–10(b), the SDR would disclose
Information Act and the rules of the Commission The collection of information relating to market participants its policies and
thereunder, information supplied on this form will to disclosure would be provided to the procedures described in proposed Rules
be included routinely in the public files of the
Commission and will be available for inspection by
party entitled to the disclosure and to 13n–5(b)(6) and 13n–9(b)(1).
any interested person.’’ General instruction 5 of Commission staff, but not subject to Regarding all other elements of the
Form SDR. public availability. collection of information relating to
other relevant provisions, the collection submitted to OMB by the Commission Commission adopted an interim final
of information would be provided to with regard to this collection of temporary rule that requires certain SBS
Commission staff, but not subject to information should be in writing, with dealers and other parties to report any
public availability. reference to File No. S7–35–10, and be SBSs entered into prior to the July 21
submitted to the Securities and passage of the Dodd-Frank Act as the
G. Retention Period of Recordkeeping
Exchange Commission, Records first step in that process.260 The interim
Requirements
Management, Office of Filings and final temporary rule provides for the
With regards to proposed Rule 13n–5, Information Services, 100 F Street, NE., reporting of pre-enactment SBSs and
proposed Rule 13n–5(b)(4) would Washington, DC 20549–1090. As OMB enables the Commission to obtain data
require that SDRs maintain the is required to make a decision on pre-enactment SBSs until registered
transaction data for not less than five concerning the collections of SDRs are operating and able to accept
years after the applicable SBS expires information between 30 and 60 days the reports.
and historical positions for not less than after publication, a comment to OMB is Today, the Commission is proposing
five years. This data would be required best assured of having its full effect if new rules and a new form that provide
to be maintained in a place and format OMB receives it within 30 days of for the registration of SDRs and
that is readily accessible to the publication. establish and expand upon the core
Commission and other persons with principles and duties applicable to
authority to access or view the VI. Consideration of Costs and Benefits
registered SDRs. SDRs are intended to
information and would also be required Earlier this year, Congress passed the play a critical role in enhancing
to be maintained in an electronic format Dodd-Frank Act in response to the transparency in the SBS market,
that is non-rewritable and non-erasable. recent financial crisis. Among other bolstering market efficiency and
Pursuant to proposed Rule 13n–7(b) things, the Dodd-Frank Act is designed liquidity, promoting standardization,
an SDR would be required to preserve to strengthen oversight, improve and reducing systemic risks. In
at least one copy of all documents as consumer protections, and reduce conjunction with recordkeeping and
shall be made by it in the course of its systemic risks throughout the financial reporting rules to be proposed with
business as such, including all records system. Title VII of the Dodd-Frank Act respect to other SBS market entities,
that would be required under the specifically addresses the OTC such as SB SEFs, SBS exchanges, SBS
Exchange Act and the rules and derivatives markets, including the dealers, and major SBS participants, the
regulations thereunder. These records market for SBSs. Pursuant to Subtitle B
proposed SDR rules will lead to a more
would be required to be kept for a of Title VII, the Commission is the
robust, transparent environment for the
period of not less than five years, the designated regulator for SBSs.
The swap markets have been market for SBSs.261
first two years in a place immediately
described as being opaque 258 and Proposed Rules 13n–1 through 13n–3
available to Commission staff for
transaction-level data is not publicly and proposed Form SDR establish the
inspection and examination.
available. One of the purposes of the mechanism by which entities meeting
H. Request for Comment the definition of a ‘‘security-based swap
Dodd-Frank Act is to improve the
The Commission invites comment on transparency of the OTC derivatives data repository’’ must register as such
these estimates. Pursuant to 44 U.S.C. market.259 In order to shed light on the pursuant to Exchange Act Section 13(n).
3506(c)(2)(B), the Commission requests SBS market, Title VII requires the Proposed Rules 13n–4 through 13n–10
comment in order to: (a) Evaluate Commission to undertake a number of prescribe the duties and core principles
whether the collection of information is rulemakings to implement the for SDRs and provide further guidance
necessary for the proper performance of regulatory framework for SBSs that is with respect to compliance with such
our functions, including whether the set forth in the legislation, including the duties and core principles. Finally,
information will have practical utility; reporting of SBS transactions. proposed Rule 13n–11 provides for the
(b) evaluate the accuracy of our estimate The Commission views the process of designation of and imposes obligations
of the burden of the collection of implementing SBS data reporting as on SDR CCOs.
information; (c) determine whether incremental. On October 13, 2010, the The Commission is sensitive to the
there are ways to enhance the quality, costs and benefits imposed by its rules,
utility, and clarity of the information to 258 With respect to CDS, for example, the and it has identified the following costs
be collected; and (d) evaluate whether Government Accountability Office found that and benefits. In particular, the
‘‘comprehensive and consistent data on the overall Commission focuses our discussion
there are ways to minimize the burden market have not been readily available,’’ that
of the collection of information on those ‘‘authoritative information about the actual size of below on the costs and benefits of the
who respond, including through the use the CDS market is generally not available,’’ and that decisions made by the Commission to
of automated collection techniques or regulators currently are unable ‘‘to monitor fulfill the mandates of the Dodd-Frank
activities across the market.’’ Government Act within the permitted discretion,
other forms of information technology. Accountability Office, ‘‘Systemic Risk: Regulatory
Persons submitting comments on the Oversight and Recent Initiatives to Address Risk rather than the mandates of the Dodd-
collection of information requirements Posed by Credit Default Swaps,’’ GAO–09–397T Frank Act. However, to the extent that
should direct them to the Office of (March 2009), at 2, 5, 27. See Robert E. Litan, ‘‘The the Commission’s discretion is aligned
Derivatives Dealers’ Club and Derivatives Market to take full advantage of the benefits
Management and Budget, Attention: Reform,’’ Brookings Institution (April 7, 2010) at
Desk Officer for the Securities and 15–20. See also Michael Mackenzie, June 25, 2010, intended by the Dodd-Frank Act, the
Exchange Commission, Office of Era of an opaque swaps market ends, Fin. Times,
June 25, 2010. 260 Reporting of Security-Based Swap Transaction
Information and Regulatory Affairs, 259 See, e.g., 156 Cong. Rec. S5915 (daily ed. July Data, Exchange Act Release No. 63094 (Oct. 13,
Washington, DC 20503, and should also 15, 2010) (statement of Sen. Reed) (‘‘A major 2010), 75 FR 64643 (Oct. 20, 2010).
send a copy of their comments to problem with derivatives is that they have not been 261 See, e.g., 156 Cong. Rec. S5920 (daily ed. July
Elizabeth M. Murphy, Secretary, regulated nor well-understood by even those buying 15, 2010) (statement of Sen. Lincoln) (‘‘These new
Securities and Exchange Commission, and selling them. The legislation changes that and ‘data repositories’ will be required to register with
brings transparency to the marketplace for swaps the CFTC and the SEC and be subject to the
100 F Street, NE., Washington, DC * * * by requiring the reporting of the terms of statutory duties and core principles which will
20549–1090, with reference to File No. these contracts to regulators and market assist the CFTC and the SEC in their oversight and
S7–35–10. Requests for materials participants.’’). market regulation responsibilities.’’).
two types of benefits are not entirely Act 263 and are designed to further the As discussed above, the Commission
separable. The Commission requests legislation’s goals by enhancing the estimates that the average initial
that commenters provide data and any Commission’s ability to oversee the paperwork cost for each non-resident
other information or statistics that the marketplace for SBSs, which is critical SDR to provide an opinion of counsel
commenters relied on to reach any to the continued integrity of our that the SDR can, as a matter of law,
conclusions on such estimates. markets. The information to be provided provide the Commission with prompt
in Form SDR is necessary in order to access to its books and records and
A. Registration Requirements and Form submit to onsite inspection and
enable the Commission to assess
SDR examination would be 3 hours and $900
whether an applicant has the capacity to
The Commission is proposing Rule perform the duties of an SDR and to per SDR. Assuming a maximum of three
13n–1 to set forth the information that comply with the duties, core principles, non-resident SDRs,267 the aggregate one-
must be submitted by a person on new and other requirements imposed on time estimated dollar cost would be
Form SDR to register as an SDR and also registered SDRs pursuant to Exchange $5,544.268
provides for amendments to Form SDR, Act Section 13(n) and the rules and The Commission solicits comment on
including interim amendments and regulations promulgated thereunder. the costs associated with the
required annual amendments that must The Commission solicits comment on registration-related rules and new Form
be filed within 60 days after the end of the benefits associated with the SDR. The Commission specifically
each fiscal year. Each non-resident SDR registration-related rules and new Form requests comment on the estimated
would be required to certify on Form SDR. The Commission specifically number of respondents that would be
SDR and provide an opinion of counsel requests comment on whether it should filing proposed Form SDR and the
that the SDR can, as a matter of law, require different and/or additional initial costs associated with completing
provide the Commission with access to information to be provided on the form the registration form and the ongoing
the books and records of such SDR and and the frequency with which routine annual costs of completing the required
can submit to onsite inspection and amendments should be filed. Please annual amendments. Please describe
examination by the Commission. describe and, to the extent practicable, and, to the extent practicable, quantify
Proposed Rule 13n–2 sets forth the quantify the benefits associated with the costs associated with any comments
process by which a registered SDR any comments that are submitted. that are submitted.
would withdraw its registration and The Commission does not expect
2. Costs these initial costs to have any significant
proposed Rule 13n–3 sets forth the
process for a succession of registration The Commission preliminarily effect on how SDRs conduct business
for SDRs.262 The proposed rules and anticipates that the primary costs to because such costs would not be so
SDRs from the proposed registration- large as to result in a change in how
form are in response to the mandate of
related rules and form result from the such SDRs conduct business, create a
the Dodd-Frank Act, which, among
requirement to complete Form SDR and barrier to entry, or otherwise alter the
other things, requires the Commission to
any amendments thereto. competitive landscape among SDRs.269
prescribe, by rule, the process for
registration to be used by SDRs. The As discussed above, the Commission B. SDR Duties, Data Collection and
proposed rules and form prescribe estimates that the average initial Maintenance, Automated Systems, and
information and documents to be paperwork cost of SDR registration Direct Electronic Access
submitted by SDRs in order to register would be 400 hours per SDR and the
average ongoing paperwork cost of Proposed Rules 13n–4(b)(2)—(7), (9),
with the Commission. and (10), 13n–5, and 13n–6 include
interim and annual updated Form SDR
1. Benefits would be 36 hours for each registered
the Securities Industry 2009, modified by
The proposed rules and form SDR.264 Assuming a maximum of ten Commission staff to account for an 1800-hour work-
described in this section provide for the SDRs, the aggregate one-time estimated year and multiplied by 5.35 to account for bonuses,
registration of SDRs, and the withdrawal dollar cost would be $584,000 265 and firm size, employee benefits, and overhead, suggest
the aggregate ongoing estimated dollar that the cost of a Compliance Attorney is $291 per
from registration and/or successor hour and the cost of a Compliance Clerk is $59 per
registration of SDRs. Congress enacted cost per year would be $49,080 266 to hour. Thus, the total ongoing estimated dollar cost
the new registration requirements as comply with the proposed rule. of complying with the registration amendment
requirements is $4,908 per year per SDR and
part of the Dodd-Frank Act in order to 263 See Public Law 111–203, § 763(i) (adding $49,080 per year for all SDRs, calculated as follows:
bring transparency to the SBS market. Exchange Act Section 13(n)(1)). (Compliance Attorney at $291 per hour for 12
The registration process is intended to 264 See supra Section V.D.1.
hours) + (Compliance Clerk at $59 per hour for 24
hours) × (10 registrants) = $49,080.
assist the Commission in overseeing and 265 The Commission estimates that an SDR will
267 See supra Section V.C.1.
regulating the SBS market. The assign these responsibilities to a Compliance 268 The Commission estimates that an SDR will
requirement that a non-resident SDR Attorney and a Compliance Clerk. Data from
assign these responsibilities to an Attorney. Data
SIFMA’s Management & Professional Earnings in from SIFMA’s Management & Professional Earnings
certify and provide an opinion of the Securities Industry 2009, modified by in the Securities Industry 2009, modified by
counsel that it can provide the Commission staff to account for an 1800-hour work- Commission staff to account for an 1800-hour work-
Commission with access to its books year and multiplied by 5.35 to account for bonuses, year and multiplied by 5.35 to account for bonuses,
and records and submit to inspection firm size, employee benefits, and overhead, suggest firm size, employee benefits, and overhead, suggest
that the cost of a Compliance Attorney is $291 per that the cost of an Attorney is $316 per hour. Thus,
and examination will allow the hour and the cost of a Compliance Clerk is $59 per the total ongoing estimated dollar cost of complying
Commission to better evaluate an SDR’s
hour. Thus, the total one-time estimated dollar cost with the registration amendment requirements is
ability to meet the requirements for of complying with the initial registration-related $1,848 per year per SDR and $5,544 per year for all
registration and ongoing supervision. requirements is $58,400 per SDR and $584,000 for SDRs, calculated as follows: ($900 for outside legal
all SDRs, calculated as follows: (Compliance services + (Attorney at $316 per hour for 3 hours))
The proposed rules and form Attorney at $291 per hour for 150 hours) + × (3 non-resident registrants) = $5,544.
described in this section would be (Compliance Clerk at $59 per hour for 250 hours) 269 The Commission notes that industry
issued pursuant to specific grants of × (10 registrants) = $584,000. representatives have indicated that, based on their
266 The Commission estimates that an SDR will
rulemaking authority in the Dodd-Frank knowledge of existing SEC registration forms for
assign these responsibilities to a Compliance other types of registrants, such as clearing agencies,
Attorney and a Compliance Clerk. Data from they do not believe that completion of registration
262 See supra Sections III.A—III.C. SIFMA’s Management & Professional Earnings in forms would impose a significant cost.
various requirements relating to SDRs’ system vulnerability, and adequate reduction of systemic risk by providing
information technology systems. contingency and disaster recovery the Commission and other regulators to
Proposed Rules 13n–4(b)(2)—(7), 13n–5, plans. SDRs would be required to access SBS market information. In
and 13n–6 are intended to codify and promptly notify the Commission of addition, this data will enhance the
elucidate the statutorily mandated material systems outages and submit a Commission’s ability to detect and deter
duties and core principles relating to an description and analysis of the outages fraudulent and manipulative activity
SDR’s collection, maintenance, and within five business days, and notify the and other trading abuses in connection
analysis of transaction data and other Commission in writing at least thirty with the derivatives markets, conduct
records, including upon an SDR’s calendar days before planned material inspections and examinations to
cessation of business.270 systems changes. monitor the financial responsibility and
Under proposed Rule 13n–4(b)(2) and soundness of market participants, and
(4), an SDR would be required to accept 1. Benefits
verify compliance with the statutory
and maintain transaction data as The SDR provisions in the Dodd- requirements and duties of SDRs. For
required by proposed Rule 13n–5.271 Frank Act depend on the accuracy of the systemic risk monitoring, it is necessary
Proposed Rule 13n–4(b)(5) states that data maintained by registered SDRs. that the Commission and other
each SDR must provide direct electronic Exchange Act Section 13(n) specifically regulators have access to information
access to the Commission or any instructs the Commission to ‘‘prescribe regarding all cleared and uncleared
designee of the Commission. Proposed data collection and maintenance trades of market participants and their
Rule 13n–4(b)(9) would require an SDR standards for’’ SDRs. The proposed rules positions. Pursuant to the proposed
to make available all data obtained by related to an SDR’s information rules, in conjunction with Regulation
the SDR upon the request of certain technology and related policies and SBSR,273 SDRs will receive and
government bodies, such as the CFTC procedures are designed to facilitate maintain systemically important
and the Department of Justice, on a accurate data collection and retention information from multiple trade
confidential basis and after notification with respect to SBSs in order to promote execution facilities, SBS clearing
to the Commission. transparency with respect to the market agencies, and other market participants.
Proposed Rule 13n–5 would establish for SBSs, as well as facilitate orderly The resulting benefit will derive from
requirements for transaction data execution and confirmation of SBS the increased transparency on where
collection and maintenance. Proposed transactions and standardization of such exposures to risk reside in financial
Rule 13n–5(b), among other things, transactions. markets, which will allow regulators to
would require an SDR to promptly The proposed rules discussed in this monitor and act before the risks become
record transaction data, and to establish, section would be issued pursuant to systematically relevant. Therefor, SDRs
maintain, and enforce written policies specific grants of rulemaking authority will help achieve systemic risk
and procedures (1) reasonably designed in the Dodd-Frank Act 272 and are monitoring.
to calculate positions for all persons designed to further the legislation’s Benefits also may accrue from the
with open SBSs for which the SDR goals by enhancing the Commission’s Commission’s and other regulators’
maintains records; (2) reasonably ability to oversee the marketplace for ability to use SBS data in order to
designed to ensure that the transaction SBSs, which is critical to the continued oversee the SBS market for illegal
data and positions that it maintains are integrity of our markets. The ability of conduct. Proposed Rule 13n–5 requires
accurate; and (3) reasonably designed to the Commission and other regulators to SDRs to satisfy itself of the accuracy of
prevent any provision in a valid SBS monitor risk and detect fraudulent transaction data and preserve such data
from being invalidated or modified activity depends on having access to for a sufficient period so that transaction
through the procedures or operations of market data. In particular, the direct level data is available to assist regulators
the SDR. Proposed Rule 13n–5(b)(4) electronic access requirement described in analyzing data to detect market
would establish requirements related to in proposed Rule 13n–4(b)(5) will abuse. The proposed rule also requires
the time periods for which an SDR must permit the Commission, its designees, SDRs to accept data regarding all SBSs
preserve, maintain, and make accessible and other regulators to carry out these in an asset class if the SDR accepts data
transaction data. Proposed Rule 13n– responsibilities in an effective and on any SBS in that particular asset class.
5(b)(7) would require an SDR that ceases efficient manner. The proposed These requirements may help the
doing business to preserve, maintain, requirement that each SDR make and Commission and other regulators to
and make accessible the data and keep current a plan to ensure that SBS identify fraudulent or other predatory
records described above for the data recorded in such SDR continues to market activity.
remainder of the time period required be maintained is essential to ensure that The richness of data collected by
by proposed Rule 13n–5. Proposed Rule regulators will continue to have access SDRs also will facilitate market analysis
13n–5(b)(8) would require SDRs to make to and the ability to analyze SBS data studies by regulators. Periodic reviews
and keep current a plan to ensure that in the event that the SDR ceases to do of market behavior through the study of
the transaction data and positions that business. The proposed provisions SBS transactions will help identify the
are recorded in the SDR continue to be relating to material systems outages are costs and benefits of Commission rules
maintained in accordance with important to ensure that the that can be used to evaluate the overall
proposed Rule 13n–5(b)(7). Commission is apprised when an SDR’s efficiency of market regulation. Such
Proposed Rule 13n–6(b) would ability to accept, maintain, and provide studies can inform the Commission and
require SDRs to establish policies and access to regulators and market other regulators on potential changes to
procedures relating to the SDRs’ system participants to accurate and timely the rules to improve their efficiency.
capacity, resiliency, and security. Such transaction data may be impaired. Central repositories of information
policies and procedures must include The requirements in the proposed also may create benefits from non-core
periodic capacity stress tests, reviews of rules are likely to create various benefits duties, such as facilitating the reporting
including increased transparency and of life cycle events, asset servicing, or
270 See
supra Section III.D—III.F. payment calculations. These activities
271 See
Public Law 111–203, § 763(i) (adding 272 See Public Law 111–203, § 763(i) (adding
Exchange Act Section 13(n)(5)(D)(i)). Exchange Act Sections 13(n)(4) and (5)). 273 See Regulation SBSR Release, supra note 9.
may be less costly to perform when SBS store SBS transaction data. Registered paperwork cost associated with
market transaction data is centrally SDRs also would need to develop, proposed Rule 13n–4(b)(10) would be
located and accessible. maintain, and ensure compliance with $1,600 for each SDR and the average
Since Exchange Act Section 13(n) and related policies and procedures and ongoing paperwork cost would be 3
the rules and regulations promulgated provide applicable training. hours for each SDR.279 Assuming a
thereunder allow for multiple SDRs to As discussed above, the Commission maximum of ten SDRs, the aggregate
register with the Commission, estimates that the average initial one-time estimated dollar cost would be
potentially within the same asset class, paperwork cost associated with creating $16,000 280 and the aggregate ongoing
with each collecting data from a subset the SDR information technology systems estimated dollar cost per year would be
of market participants, proposed Rule would be 42,000 hours and $10,000,000 $9,480 281 to comply with the proposed
13n–4(b)(2) requires all SDRs to accept for each SDR and the average ongoing rule.
data as prescribed by Regulation paperwork cost would be 25,200 hours As discussed above, the Commission
SBSR 274 and proposed Rule 13n–5(b)(1) and $6,000,000 per year for each estimates that the average initial
requires all SDRs to maintain the SDR.276 Assuming a maximum of ten paperwork cost associated with
transaction data in a format that is SDRs, the aggregate one-time estimated developing policies and procedures
readily accessible to the Commission dollar cost would be $200,020,000 277 necessary to comply with Rules 13n–
and other persons with authority to and the aggregate ongoing estimated 5(b)(1), (2), (3), and (5) and 13n–6(b)(1)
access or view such information. The dollar cost per year would be would be 1,050 hours and $100,000 for
effect of these provisions, in $120,012,000 278 to comply with the each SDR and the average ongoing
conjunction with the requirements of proposed rules. Based on conversations paperwork cost would be 300 hours per
Regulation SBSR,275 is that the same with industry representatives, the year for each SDR.282 Assuming a
transaction data will be accepted across Commission estimates that the cost maximum of ten SDRs, the aggregate
SBS market entities (including imposed on SDRs to provide direct one-time estimated dollar cost would be
exchanges, SB SEFs, clearing agencies, electronic access to the Commission $3,926,250 283 and the aggregate ongoing
SBS dealers, and major SBS should be minimal as SDRs likely have estimated dollar cost per year would be
participants) and service providers and or will establish comparable electronic $908,400 284 to comply with the
each SDR will maintain the transaction access mechanisms to enable market proposed rules.
data in a manner that allows the participants to provide data to SDRs and
Commission and others with authority review transactions to which such 279 See supra Section V.D.2.
to access and view such data. Thus, the participants are parties. 280 $1,600 for outside legal services × 10
As discussed above, the Commission registrants = $16,000.
rule both attempts to maintain benefits 281 The Commission estimates that an SDR will
of competition and allow proper estimates that the average initial assign these responsibilities to an Attorney. Data
aggregation of market-wide SBS data. from SIFMA’s Management & Professional Earnings
The reliability of the aggregation of 276 See supra Section V.D.2. in the Securities Industry 2009, modified by
market-wide SBS data depends upon 277 The Commission estimates that an SDR will Commission staff to account for an 1800-hour work-
assign these responsibilities to an Attorney, a year and multiplied by 5.35 to account for bonuses,
data integrity and consistent structuring Compliance Manager, a Programmer Analyst, and a firm size, employee benefits, and overhead, suggest
across all service providers. The Senior Business Analyst. Data from SIFMA’s that the cost of an Attorney is $316 per hour. Thus,
proposed rule requires an SDR to create Management & Professional Earnings in the the total ongoing estimated dollar cost would be
Securities Industry 2009, modified by Commission $948 per SDR and $9,480 for all SDRs, calculated
policies and procedures such that all staff to account for an 1800-hour work-year and as follows: (Compliance Attorney at $316 per hour
transactions are recorded accurately. multiplied by 5.35 to account for bonuses, firm size, for 3 hours) × 10 registrants = $9,480.
Aggregating data across SDRs by employee benefits, and overhead, suggest that the 282 See supra Section V.D.2.
regulators and other users of such data cost of an Attorney is $316 per hour, a Compliance 283 The Commission estimates that an SDR will
Manager is $294 per hour, a Programmer Analyst
will benefit to the extent that policies is $190 per hour, and a Senior Business Analyst is
assign these responsibilities to a Compliance
and procedures result in more accurate Manager, an Attorney, a Senior Systems Analyst,
$234 per hour. Thus, the total initial estimated
and an Operations Specialist. Data from SIFMA’s
data reporting. dollar cost would be $20,002,000 per SDR and
Management & Professional Earnings in the
The Commission solicits comment on $200,020,000 for all SDRs, calculated as follows:
Securities Industry 2009, modified by Commission
($10,000,000 for information technology systems +
the benefits related to Rules 13n– (Attorney at $316 per hour for 7,000 hours) +
staff to account for an 1800-hour work-year and
4(b)(2)—(7), (9), and (10), 13n–5, and (Compliance Manager at $294 per hour for 8,000 multiplied by 5.35 to account for bonuses, firm size,
employee benefits, and overhead, suggest that the
13n–6. The Commission specifically hours) + (Programmer Analyst at $190 per hour for
cost of a Compliance Manager is $294 per hour, the
20,000 hours) + (Senior Business Analyst at $234
requests comment on whether any per hour for 7,000 hours)) × 10 registrants = cost of an Attorney is $316 per hour, the cost of a
additional benefits would accrue if the $200,020,000. Senior Systems Analyst is $251 per hour, and the
Commission imposed further, more 278 The Commission estimates that an SDR will cost of an Operation Specialist is $114 per hour.
Thus, the total initial estimated dollar cost would
specific technology-related assign these responsibilities to an Attorney, a
be $392,625 per SDR and $3,926,250 for all SDRs,
Compliance Manager, a Programmer Analyst, and a
requirements. Are there alternatives that Senior Business Analyst. Data from SIFMA’s calculated as follows: ($100,000 for outside legal
the Commission should consider? Management & Professional Earnings in the services + (Compliance Manager at $294 per hour
Please describe and, to the extent Securities Industry 2009, modified by Commission for 385 hours) + (Attorney at $316 per hour for 435
staff to account for an 1800-hour work-year and hours) + (Senior Systems Analyst at $251 per hour
practicable, quantify the benefits for 115 hours) + (Operations Specialist at $114 per
multiplied by 5.35 to account for bonuses, firm size,
associated with any comments that are employee benefits, and overhead, suggest that the hour for 115 hours)) × 10 registrants = $3,926,250.
submitted. cost of an Attorney is $316 per hour, a Compliance 284 The Commission estimates that an SDR will
Manager is $294 per hour, a Programmer Analyst assign these responsibilities to a Compliance
2. Costs
is $190 per hour, and a Senior Business Analyst is Manager and an Attorney. Data from SIFMA’s
$234 per hour. Thus, the total ongoing estimated Management & Professional Earnings in the
The Commission anticipates that the Securities Industry 2009, modified by Commission
dollar cost would be $12,001,200 per SDR and
primary costs to SDRs from the $120,012,000 for all SDRs, calculated as follows: staff to account for an 1800-hour work-year and
proposed rules described in this section ($6,000,000 for information technology systems + multiplied by 5.35 to account for bonuses, firm size,
would relate to the cost of developing (Attorney at $316 per hour for 4,200 hours) + employee benefits, and overhead, suggest that the
(Compliance Manager at $294 per hour for 4,800 cost of a Compliance Manager is $294 per hour and
and maintaining systems to collect and the cost of an Attorney is $216 per hour. Thus, the
hours) + (Programmer Analyst at $190 per hour for
12,000 hours) + (Senior Business Analyst at $234 total ongoing estimated dollar cost would be
274 See Regulation SBSR Release, supra note 9. per hour for 4,200 hours)) × 10 registrants = $90,840 per SDR and $908,400 for all SDRs,
275 See id. $120,012,000. Continued
As discussed above, the Commission in increased costs for reporting entities immediately available to the staff of the
estimates that the average ongoing and users of transaction data. Commission for inspection and
paperwork cost associated with the The costs associated with aggregating examination. The proposed rule also
proposed Rules 13n–6(b)(3) and (4) data across multiple SDRs by regulators would require an SDR that ceases doing
would be 135.4 hours for each SDR.285 and other users of such data will business to preserve, maintain, and
Assuming a maximum of ten SDRs, the increase to the extent that SDRs choose make accessible the records required to
aggregate ongoing estimated dollar cost to use different identifying information be made and kept pursuant to the rule
per year would be $368,965 to comply for transactions, counterparties, and for the remainder of the time period
with the proposed rules.286 products. Data aggregation costs also required by proposed Rule 13n–7.287
could accrue to the extent that there is
The Commission believes that persons variation in the quality of data 1. Benefits
currently operating as SDRs may have maintained across SDRs. Each SDR has The rule discussed in this section is
developed and implemented aspects of discretion over how to implement its designed to further the Dodd-Frank
the proposed rules already. However, policies and procedures in the recording Act’s goals by enhancing the
such persons currently are not subject to of reportable data, and variations in Commission’s ability to oversee SDRs,
regulation by the Commission and may quality may result. Since aggregated which are critical components of the
not be subject to regulation or oversight data used for surveillance and risk new regulatory scheme governing SBS.
by other regulatory bodies and may monitoring requires that the underlying The proposed rule will assist the
need to enhance their information components are provided with the same Commission in monitoring whether an
technology systems and related policies level of accuracy, variations in the SDR is complying with Exchange Act
and procedures to comply with the quality of data could be costly if Section 13(n) and the rules and
proposed rules. However, the subsequent interpretations of analysis regulations promulgated thereunder. In
Commission does not believe that the based on the data suffer from issues of addition, the rule is designed to reduce
one-time cost of such changes will be integrity. To the extent that market systemic risks by requiring the making
significant. The ongoing annual costs for competition among SDRs impacts profit and keeping of records pertaining to the
persons currently operating as SDRs margins and the level of resources day-to-day business of SDRs. Finally,
likely will be consistent with the devoted to collecting and maintaining the legislative goals of Title VII depend
estimates provided above. transaction data, there is an increased on the ongoing operation of SDRs as the
Exchange Act Section 13(n) and the likelihood of variations in the quality of source for transaction data, and the
proposed rules and regulations reported data and aggregation of data recordkeeping requirements contained
promulgated thereunder allow for across multiple SDRs may be difficult. in the proposed rule will enhance the
multiple SDRs to register with the The Commission solicits comment on ability of the Commission and other
Commission, potentially within the the costs related to proposed Rules 13n– regulators to monitor the financial
same asset class, with each SDR 4(b)(2)—(7), (9), and (10), 13n–5, and responsibility and soundness of SDRs.
collecting data from a subset of market 13n–6. The Commission specifically To the extent that the proposed rule
participants. While multiple SDRs per requests comment on the initial and standardizes the business recordkeeping
asset class will allow for market ongoing costs associated with practices of SDRs, regulators will benefit
competition to decide how data is establishing and maintaining the by being able to perform more efficient,
collected, it may hinder market-wide technology systems and related policies targeted inspections and examinations
data aggregation due to coordination and procedures. Are there additional with an increased likelihood of
costs, particularly if market participants costs to creating an SDR that the identifying improper conduct at earlier
adopt incompatible reporting standards Commission should consider? Are there stages in the inspection or examination.
and practices. The proposed rules do alternatives that the Commission should In addition, SDRs should benefit from
not specify a particular reporting format consider? Do the estimates accurately standardized recordkeeping
or structure, which may create the reflect the cost of storing data in a requirements by having their operations
possibility that entities reporting to convenient and usable electronic format interrupted by inspections or
SDRs, and regulators or other market for the required retention period? Please examinations for shorter time periods.
participants accessing transaction data, describe and, to the extent practicable, Both regulators and SDRs should benefit
will have to accommodate different data quantify the costs associated with any from standardized recordkeeping
standards and develop different systems comments that are submitted. requirements to the extent that uniform
to accommodate each. This may result The Commission does not expect the records will enable regulators and SDRs
initial and ongoing costs necessary to to know what records the SDRs should
calculated as follows: ((Compliance Manager at
comply with these proposed rules to have on hand.
$294 per hour for 180 hours) + (Attorney at $316 have any significant effect on how SDRs The Commission solicits comment on
per hour for 120 hours)) × 10 registrants = $908,400. conduct business because such costs the benefits related to proposed Rule
285 See supra Section V.D.2.
would not be so large as to result in a 13n–7. Would additional benefits accrue
change in how such SDRs conduct if the Commission imposed different or
Manager and a Senior Systems Analyst. Data from
business, create a barrier to entry, or additional recordkeeping requirements
SIFMA’s Management & Professional Earnings in otherwise alter the competitive and, if so, what would these
the Securities Industry 2009, modified by landscape among SDRs. requirements entail? Please describe
Commission staff to account for an 1800-hour work- and, to the extent practicable, quantify
year and multiplied by 5.35 to account for bonuses, C. Recordkeeping
firm size, employee benefits, and overhead, suggest the benefits associated with any
that the cost of a Compliance Manager is $294 per
Proposed Rule 13n–7 would require comments that are submitted.
hour and the cost of a Senior Systems Analyst is an SDR to make and keep certain
$251 per hour. Thus, the total ongoing estimated records relating to its business and 2. Costs
dollar cost would be $36,896.50 per SDR and retain a copy of records made by the The Commission anticipates that the
$368,965 for all SDRs, calculated as follows:
((Compliance Manager at $294 per hour for 67.7
SDR in the course of its business for a primary costs to SDRs from proposed
hours) + (Senior Systems Analyst at $251 per hour period of not less than five years, the
for 67.7 hours)) × 10 registrants = $368,965. first two years in a place that is 287 See supra Section III.G.
Rule 13n–7 would relate to the cost of may be more extensive than current facilitating access by the Commission
making and keeping current a list of market practices. and other regulators to information
officers, managers, or persons The Commission solicits comment on necessary to achieve their legislative
performing similar functions who are the costs related to proposed Rule 13n– mandates and to establish mechanisms
responsible for policies and procedures 7. The Commission specifically requests by which SDRs will provide routine
and developing and maintaining comment on the initial and ongoing reports to the Commission. Access to
information technology systems to costs associated with establishing and such information will enhance
collect and store the various records maintaining the recordkeeping systems regulators’ ability to oversee the SBS
created in the course of an SDR’s and related policies and procedures, market, which is critical to the
business. including whether currently-operating continued integrity of our markets, and
As discussed above, the Commission SDRs would incur different detect and deter fraudulent and
estimates that the average initial recordkeeping costs. Are there manipulative activity and other trading
paperwork cost associated with making additional costs related to abuses in connection with the
and keeping a list of responsible officer, recordkeeping that the Commission derivatives markets.
manager, or persons performing similar should consider? Are there alternatives The Commission solicits comment on
functions and developing and that the Commission should consider? the benefits related to the requirements
maintaining information technology Please describe and, to the extent contained in proposed Rules 13n–
systems to ensure compliance with the practicable, quantify the costs 6(b)(2) and 13n–8. Please describe and,
proposed recordkeeping requirements associated with any comments that are to the extent practicable, quantify the
would be 346 hours and $1,800 for each submitted. benefits associated with any comments
SDR and the average ongoing paperwork The Commission does not expect the that are submitted.
cost associated with developing policies initial and ongoing costs necessary to 2. Costs
and procedures to ensure compliance comply with the proposed rule to have
with the proposed recordkeeping any significant effect on how SDRs The Commission anticipates that the
requirements would be 279.17 hours per conduct business because such costs primary costs to an SDR from proposed
year for each SDR.288 Assuming a would not be so large as to result in a Rule 13n–6(b)(2) would relate to the
maximum of ten SDRs, the aggregate change in how such SDRs conduct cost of conducting an annual review of
one-time estimated dollar cost would be business, create a barrier to entry, or the SDR’s systems and, if the review is
$1,015,460 289 and the aggregate ongoing otherwise alter the competitive performed by an internal department,
estimated dollar cost per year would be landscape among SDRs. the cost associated with hiring an
$820,760 290 to comply with the objective, external firm to assess the
proposed rule. D. Reports and Reviews internal department’s objectivity,
The Commission does not believe that Proposed Rule 13n–6(b)(2) would competency, and work performance.
persons currently operating as SDRs require an SDR to submit an annual The Commission anticipates that the
will be subject to significant additional review of its systems that support or primary costs to SDRs from proposed
recordkeeping costs as a result of integrally relate to its performance as an Rule 13n–8 would relate to the cost of
proposed Rule 13n–7 because such SDR to the Commission.291 Proposed developing and maintaining systems to
persons already maintain business Rule 13n–8 would require an SDR to respond to requests for information and
records as part of their day-to-day comply with certain reporting provide the necessary reports and
operations. However, the proposed rule requirements, including promptly establishing related policies and
provides specific parameters relating to providing reports or information upon procedures. In addition, SDRs will need
the retention and maintenance of these request by the Commission.292 to maintain staff to respond to the
records and the proposed requirements requests and provide the reports
1. Benefits required under the proposed rules.294
288 See supra Section V.D.3. Title VII of the Dodd-Frank Act As discussed above, the Commission
establishes a regulatory framework for estimates that the average ongoing
assign these responsibilities primarily to a
Compliance Manager as well as a Senior Systems the OTC derivatives market that paperwork cost associated with
Analyst. Data from SIFMA’s Management & depends on the Commission’s and other proposed Rule 13n–6(b)(2) would be
Professional Earnings in the Securities Industry regulators’ access to information 825 hours and $90,000.295 Assuming a
2009, modified by Commission staff to account for maximum of ten SDRs, the aggregate
an 1800-hour work-year and multiplied by 5.35 to regarding the current and historical
account for bonuses, firm size, employee benefits, operation of the SBS market to verify ongoing estimated dollar cost per year
and overhead, suggest that the cost of a Compliance compliance with the statute and would be $2,845,750 to comply with the
Manager is $294 per hour and the cost of a Senior proposed rule.296
Systems Analyst is $251 per hour. Thus, the total
effective monitoring for market risk and
initial estimated dollar cost would be $101,546 per abuse. In addition, specific provisions of
294 The Commission understands some currently-
SDR and $1,015,460 for all SDRs, calculated as Title VII require routine, targeted
follows: ($1,800 in information technology costs + existing SDRs may have dedicated personnel who
monitoring of certain types of events. are responsible for responding to and providing ad
(Compliance Manager at $294 per hour for 300
hours) + (Senior Systems Analyst at $251 per hour
The rules discussed in this section hoc report requests from regulators, including the
for 46 hours)) × 10 registrants = $1,015,460. would be issued pursuant to specific Commission. To the extent that proposed Rule 13n–
290 The Commission estimates that an SDR will grants of rulemaking authority in the 8 may result in more automated reporting, the need
assign these responsibilities to a Compliance for such dedicated personnel resources may be
Dodd-Frank Act 293 and are designed to
Manager. Data from SIFMA’s Management & reduced.

Professional Earnings in the Securities Industry
further the legislation’s goals by (a) 295 See supra Section V.D.4.
2009, modified by Commission staff to account for ensuring that each SDR’s systems 296 The Commission estimates that an SDR will
an 1800-hour work-year and multiplied by 5.35 to provide adequate levels of capacity, assign these responsibilities to an Attorney, a
account for bonuses, firm size, employee benefits, resiliency, and security, and (b) Manager Internal Audit, and a Senior Internal
and overhead, suggest that the cost of a Compliance Auditor. Data from SIFMA’s Management &
Manager is $294 per hour. Thus, the total ongoing Professional Earnings in the Securities Industry
291 See supra Section III.F.
estimated dollar cost would be $82,076 per SDR 2009, modified by Commission staff to account for
292 See supra Section III.H.
and $820,760 for all SDRs, calculated as follows: an 1800-hour work-year and multiplied by 5.35 to
(Compliance Manager at $294 per hour for 279.17 293 See Public Law 111–203, § 763(i) (adding account for bonuses, firm size, employee benefits,
hours) × 10 registrants = $820,760. Exchange Act Section 13(n)). Continued
As discussed above, the Commission disclosure document must include, SDR.300 Assuming a maximum of ten
estimates that the average ongoing among other things, the SDR’s criteria registered SDRs, the aggregate one-time
paperwork cost associated with for providing others with access to estimated dollar cost would be
proposed Rule 13n–8 would be 1 hour services offered and data maintained by $266,087.50 301 and the aggregate
per year for each SDR.297 Assuming a the SDR; the SDR’s criteria for those ongoing estimated dollar cost per year
maximum of ten SDRs, the aggregate seeking to connect to or link with the would be $1,765 302 to comply with the
ongoing estimated dollar cost per year SDR; a description of the SDR’s policies proposed rule.
would be $2,340 to comply with the and procedures regarding safeguarding The Commission solicits comment on
proposed rule.298 of data and operational reliability, and the costs related to proposed Rule 13n–
The Commission solicits comment on privacy; the SDR’s policies and 10. The Commission specifically
the costs related to proposed Rules 13n– procedures regarding its non- requests comment on the initial and
6(b)(2) and 13n–8. The Commission commercial and/or commercial use of ongoing costs associated with drafting,
specifically requests comment on the transaction data; dispute resolution reviewing, printing, and providing the
initial and ongoing costs associated with procedures; description of all services, required disclosure document. Are there
establishing and providing the reports including ancillary services; schedule of alternatives that the Commission should
required under the proposed rules. Are dues, unbundled prices, and discounts consider? Please describe and, to the
there additional costs associated with or rebates; and a description of the extent practicable, quantify the costs
supplying the required reports that the SDR’s governance arrangements. associated with any comments that are
Commission should consider? Are there submitted.
alternatives that the Commission should 1. Benefits The Commission does not expect the
consider? Please describe and, to the initial and ongoing costs necessary to
extent practicable, quantify the costs Proposed Rule 13n–10 is intended to comply with proposed Rule 13n–10 to
associated with any comments that are provide certain information regarding have any significant effect on how SDRs
submitted. an SDR to market participants prior to conduct business because such costs
The Commission does not expect the entering into an agreement to provide would not be so large as to result in a
initial and ongoing costs necessary to transaction data to the SDR. Although change in how such SDRs conduct
comply with proposed Rules 13n– the Commission anticipates that there business, create a barrier to entry, or
6(b)(2) and 13n–8 to have any may be only one SDR for any given asset otherwise alter the competitive
significant effect on how SDRs conduct class, to the extent that multiple SDRs landscape among SDRs.
business because such costs would not accept data for the same asset class, the
be so large as to result in a change in disclosure document would enable F. Chief Compliance Officer and
how such SDRs conduct business, create market participants to make an Compliance Functions
a barrier to entry, or otherwise alter the informed choice among SDRs. Even if Proposed Rules 13n–4(b)(11) and
competitive landscape among SDRs. only one SDR serves a given asset class, 13n–11 would require each registered
the disclosure document is necessary to SDR to designate on Form SDR a CCO
E. Disclosure inform market participants of the nature whose duties include preparing an
Under proposed Rule 13n–10, before of the services provided by the SDR and annual compliance report, which would
collecting any transaction data from a the conditions and obligations that are be submitted to the Commission
market participant or upon the market imposed on market participants in order annually along with an annual financial
participant’s request, each SDR would for the participants to submit data to the report.303 The CCO would be appointed
be required to furnish the market SDR.
participant a disclosure document The rule discussed in this section is 300 See supra Section V.D.5.
containing certain information that designed to further the Dodd-Frank
reasonably will enable the market Act’s goals by providing market
participant to identify and evaluate the Manager and a Compliance Clerk. Data from
participants with applicable information SIFMA’s Management & Professional Earnings in
risks and costs associated with using the
regarding the operation of SDRs. The the Securities Industry 2009, modified by
services of the SDR.299 An SDR’s Commission staff to account for an 1800-hour work-
Commission solicits comment on the
year and multiplied by 5.35 to account for bonuses,
benefits related to proposed Rule 13n– firm size, employee benefits, and overhead, suggest
and overhead, suggest that the cost of an Attorney
is $316 per hour, the cost of a Manager Internal 10. Should the Commission narrow or that the cost of a Compliance Manager is $294 per
Audit is $291 per hour, and the cost of a Senior broaden the scope of the information to hour and a Compliance Clerk is 59 per hour. Thus,
Internal Auditor is $195 per hour. Thus, the total be included in the disclosure the total initial estimated dollar cost would be
ongoing estimated dollar cost would be $284,575 $26,608.75 per SDR and $266,087.50 for all SDRs,
per SDR and $2,845,750 for all SDRs, calculated as
document? Should the Commission calculated as follows: ($4,400 for external legal
follows: ($90,000 for external audit firm + (Attorney adjust the frequency with which the costs + $5,000 for external compliance consulting
at $316 per hour for 100 hours) + (Manager Internal disclosure document is provided to costs + (Compliance Manager at $294 per hour for
Auditor at $291 per hour for 225 hours) + (Senior market participants? Please describe 48.75 hours) + (Compliance Clerk at $59 per hour
Systems Analyst at $251 per hour for 500 hours)) for 48.75 hours)) × 10 registrants = $266,087.50.
× 10 registrants = $2,845,750. and, to the extent practicable, quantify 302 The Commission estimates that an SDR will
297 See supra Section V.D.4. the benefits associated with any assign these responsibilities to a Compliance
298 The Commission estimates that an SDR will comments that are submitted. Manager and a Compliance Clerk. Data from
assign these responsibilities to a Senior Business SIFMA’s Management & Professional Earnings in
Analyst. Data from SIFMA’s Management & 2. Costs the Securities Industry 2009, modified by
Professional Earnings in the Securities Industry Commission staff to account for an 1800-hour work-
2009, modified by Commission staff to account for As discussed above, the Commission year and multiplied by 5.35 to account for bonuses,
an 1800-hour work-year and multiplied by 5.35 to estimates that the average initial firm size, employee benefits, and overhead, suggest
account for bonuses, firm size, employee benefits, that the cost of a Compliance Manager is $294 per
and overhead, suggest that the cost of a Senior
paperwork cost associated with hour and a Compliance Clerk is 59 per hour. Thus,
Business Analyst is $234 per hour. Thus, the total developing the disclosure document the total ongoing estimated dollar cost would be
ongoing estimated dollar cost would be $234 per and related policies and procedures $176.50 per SDR and $1,765 for all SDRs, calculated
SDR and $2,340 for all SDRs, calculated as follows: would be 97.5 hours and $9,400 for each as follows: ((Compliance Manager at $294 per hour
(Senior Business Analyst at $234 per hour for 1 for 0.5 hours) + (Compliance Clerk at $59 per hour
hour) × 10 registrants = $2,340. SDR and the average ongoing paperwork for 0.5 hours)) × 10 registrants = $1,765.
299 See supra Section III.J. cost would be 1 hour per year for each 303 See supra Sections III.D and III.K.
by the SDR’s board and would report As a result of the proposed rule, the associated with any comments that are
directly to the chief executive officer of accuracy, reliability, integrity, and submitted.
the SDR or the board. The CCO would consistency of data and other records
2. Costs
be responsible for reviewing the maintained by each SDR would be less
compliance of the SDR with the duties likely to be harmed by violations of the The establishment of a designated
and core principles contained in securities laws because experience has CCO and compliance with the
Exchange Act Section 13(n) and the shown that strong internal compliance accompanying responsibilities of a CCO
rules promulgated thereunder and programs lower the likelihood of would impose certain costs on
reviewing and administering, and securities laws violations and enhance registered SDRs. As discussed above,
ensuring compliance with, the SDR’s the likelihood that any violations that the Commission estimates that the
policies and procedures reasonably do occur will be detected and corrected. average initial paperwork cost
designed to achieve compliance with The designation of a CCO, who will, associated with establishing procedures
the federal securities laws. The CCO among other things, monitor the for the remediation of noncompliance
also would resolve any conflicts of application of the rules proposed herein issues identified by the CCO and
interest, in consultation with the board and the relevant SDR policies and establishing and following appropriate
or the SDR’s chief executive officer, and procedures, will help ensure that each procedures for the handling,
establish procedures for the remediation SDR complies with the policies and management response, remediation,
of noncompliance issues. The CCO procedures that it adopts. The ability of retesting, and closing of noncompliance
would be required to prepare and sign regulators and other users of transaction issues would be 420 hours and $40,000
an annual compliance report and submit data to aggregate such data across SDRs for each registered SDR and the average
the report to the board for its review will improve to the extent that ongoing paperwork cost would be 120
prior to the submission of the report to compliance with applicable policies and hours for each registered SDR.307 In
the Commission. Finally, the annual procedures result in more accurate data addition, each SDR would be required
compliance report must be included reporting. to hire a CCO in order to comply with
with the annual financial report that Proposed Rule 13n–11(f) would the proposed rules, at an annual cost of
must be prepared and filed with the require SDRs to submit annual financial $703,800.308 Assuming a maximum of
Commission pursuant to the reports to the Commission. This rule ten SDRs, the aggregate initial estimated
requirements of proposed Rule 13n– would enhance Commission oversight dollar cost per year would be
11(f). The compliance report must be by facilitating the Commission’s $1,622,200 309 and the aggregate ongoing
filed in a tagged data format in monitoring of an SDR’s financial and estimated dollar cost per year would be
accordance with the instructions managerial resources. The financial $7,387,200 310 to comply with the
contained in the EDGAR Filer reports also would assist the proposed rules.
Manual,304 and the financial report Commission in monitoring potential As discussed above, the Commission
must be provided in XBRL as required conflicts of interests of a financial estimates that the average ongoing
in Rules 405(a)(1), (a)(3), (b), (c), (d), and nature arising from the operation of an paperwork cost associated with
(e) of Regulation S–T.305 SDR. preparing and submitting annual
1. Benefits Benefits also will accrue from compliance reports to the SDR’s board
requiring SDRs to submit the filings pursuant to proposed Rule 13n–11(d)
Proposed Rules 13n–4(b)(11) and
13n–11 would be issued pursuant to required by the proposed rules using the
specific grants of rulemaking authority interactive data format. This
308 Data from SIFMA’s Management &
in the Dodd-Frank Act 306 and are requirement would enable regulators to
designed to further the legislation’s analyze the reported information more 2009, modified by Commission staff to account for
goals by enhancing the Commission’s quickly, more accurately, and at a lower an 1800-hour work-year and multiplied by 5.35 to
ability to oversee the marketplace for cost. In particular, the tagged data will account for bonuses, firm size, employee benefits,
make it easier to aggregate information and overhead, suggest that the cost of a CCO is $391
SBS, which is critical to the continued per hour.
integrity of our markets. The proposed collected from SDRs and compare across 309 The Commission estimates that an SDR will
rules are designed to ensure that SDRs entities and over time, which the assign these responsibilities to a Compliance
comply with the Federal securities laws, Commission believes is important for Attorney. Data from SIFMA’s Management &
regulators to perform their duties under Professional Earnings in the Securities Industry
including Exchange Act Section 13(n) 2009, modified by Commission staff to account for
and the rules and regulations the Dodd-Frank Act. an 1800-hour work-year and multiplied by 5.35 to
promulgated thereunder. Although The Commission solicits comment on account for bonuses, firm size, employee benefits,
persons currently operating as SDRs the benefits related to Rules 13n– and overhead, suggest that the cost of a Compliance
4(b)(11) and 13n–11. The Commission Attorney is $291 per hour. Thus, the total initial
already may have CCOs in place, the estimated dollar cost would be $162,220 per SDR
proposed rules would make this specifically requests comment on the and $1,622,200 for all SDRs, calculated as follows:
standard practice for all registered benefits that would accrue from ($40,000 for outside legal services + (Compliance
SDRs, as mandated by the Dodd-Frank designating a CCO who would be Attorney at $291 per hour for 420 hours)) × 10
responsible for preparing and certifying registrants = $1,622,200.
Act. 310 The Commission estimates that an SDR will
The reliability of the aggregation of as accurate an annual compliance report assign these responsibilities to a Compliance
market-wide transaction data depends and reporting annually to the board. Are Attorney. Data from SIFMA’s Management &
upon data integrity and consistent there alternative reporting structures Professional Earnings in the Securities Industry
structuring across all service providers. that could be established? Should the 2009, modified by Commission staff to account for
an 1800-hour work-year and multiplied by 5.35 to
Commission consider additional account for bonuses, firm size, employee benefits,
304 See 17 CFR 232.301. provisions related to the annual and overhead, suggest that the cost of a Compliance
305 See 17 CFR 232.405 (imposing content, format, compliance report? The Commission Attorney is $291 per hour. Thus, the total ongoing
submission and Web site posting requirements for also requests comment on the benefits estimated dollar cost would be $738,720 per SDR
an interactive data file, as defined in Rule 11 of and $7,387,200 for all SDRs, calculated as follows:
Regulation S–T). associated with the annual financial ($703,800 for a CCO + (Compliance Attorney at
306 See Public Law 111–203, § 763(i) (adding reports. Please describe and, to the $291 per hour for 120 hours)) × 10 registrants =
Exchange Act Section 13(n)(6)). extent practicable, quantify the benefits $7,387,200.
and (g) would be 5 hours.311 Assuming effectively serves as a CCO. In addition, comply with certain duties and core
a maximum of ten SDRs, the aggregate such SDRs may prepare compliance principles pertaining to confidentiality,
ongoing estimated dollar cost per year reports presented to senior management disclosure, and use of information.318
would be $14,550 to comply with the and/or the SDRs’ boards as part of their Proposed Rule 13n–4(c) would require
proposed rule.312 current business practice. Therefore, the each SDR to comply with certain core
As discussed above, the Commission Commission expects that SDRs with principles pertaining to market access to
estimates that the average ongoing substantial commitments to compliance services and data, governance
paperwork cost associated with would incur only minimal costs in arrangements, and conflicts of interest,
preparing annual financial reports connection with the adoption of the including developing policies and
pursuant to proposed Rule 13n–11(f) proposed rule. However, the preparation procedures related to fees, operational
and (g) would be 500 hours and of annual compliance and financial reliability, and objective access and
$500,000 for each registered SDR.313 reports and implementation of related participation criteria.319 Proposed Rule
Assuming a maximum of ten SDRs, the policies and procedures may require a 13n–5(b)(6) would require SDRs to
aggregate ongoing estimated dollar cost staff beyond just a CCO, and therefore develop dispute resolution
per year would be $5,915,000 to comply the proposed rules may result in mechanisms.320
with the proposed rules.314 additional direct costs to entities that
As discussed above, the Commission 1. Benefits
register as SDRs.
estimates that the average ongoing The Commission believes that The proposed rules described in this
paperwork cost associated with currently-existing SDRs already prepare section would be issued pursuant to
submitting annual compliance and financial reports similar to those that specific grants of rulemaking authority
financial reports to the Commission would be prepared in accordance with in the Dodd-Frank Act 321 and are
pursuant to proposed Rule 13n–11(d), proposed Rule 13n–1(f). Therefore, the designed to further the legislation’s
(f), and (g) would be 54 hours and Commission expects that most SDRs goals by specifying the obligations of
$22,772 for each registered SDR.315 would incur only minimal costs in registered SDRs necessary to comply
Assuming a maximum of ten SDRs, the connection with the adoption of the with the goals of the Dodd-Frank Act.
aggregate ongoing estimated dollar cost proposed financial reporting The proposed privacy requirement is
per year would be $363,260 to comply requirement. intended to safeguard transaction data
with the proposed rules.316 The Commission solicits comment on provided to SDRs by market
The Commission believes that participants. Privacy is necessary in
the costs related to Rules 13n–4(b)(11)
currently-existing SDRs already order to ensure that market participants
and 13n–11. The Commission
maintain compliance programs that are will utilize the services of registered
specifically requests comment on the
overseen by a CCO or an individual who SDRs.
initial and ongoing costs associated with The proposed rule relating to market
designating a CCO and the costs access to services and data is designed
312 The Commission estimates that an SDR will associated with any personnel that may to further the legislation’s goals by
assign these responsibilities to a Compliance be necessary to support the CCO and ensuring that SDRs impose fair,
Attorney. Data from SIFMA’s Management & create the annual compliance and reasonable, and consistently applied
Professional Earnings in the Securities Industry financial reports. Are there additional
2009, modified by Commission staff to account for fees and maintain objective access and
an 1800-hour work-year and multiplied by 5.35 to costs that the Commission should participation criteria. As with the
account for bonuses, firm size, employee benefits, consider? Are there alternatives that the privacy requirement, this rule would
and overhead, suggest that the cost of a Compliance Commission should consider? Do the
Attorney is $291 per hour. Thus, the total ongoing encourage market participants to make
estimated dollar cost would be $1,455 per SDR and
estimates accurately reflect the cost of use of SDRs’ services.
$14,550 for all SDRs, calculated as follows: preparing annual compliance and The proposed governance
(Compliance Attorney at $291 per hour for 5 hours) financial reports? Please describe and, requirements are designed to reduce the
× 10 registrants = $14,550. to the extent practicable, quantify the
conflicts of interest relating to SDRs. In
costs associated with any comments that addition, by requiring fair
assign these responsibilities to a Senior Accountant.
are submitted. representation of market participants on
Data from SIFMA’s Management & Professional The Commission does not expect the the board with the opportunity to
Earnings in the Securities Industry 2009, modified costs necessary to comply with participate in the process for
by Commission staff to account for an 1800-hour proposed Rules 13n–4(b)(11) and 13n–
work-year and multiplied by 5.35 to account for
nominating directors and the right to
bonuses, firm size, employee benefits, and
11 to have any significant effect on how petition for alternative candidates, the
overhead, suggest that the cost of a Senior SDRs conduct business because such proposed rule will help reduce the
Accountant is $183 per hour. Thus, the total costs would not be so large as to result likelihood that an incumbent SBS
ongoing estimated dollar cost would be $591,500 in a change in how such SDRs conduct
per SDR and $5,915,000 for all SDRs, calculated as
market participant could exert undue
follows: ($500,000 for independent public
business, create a barrier to entry, or influence on the board.
accounting services (Senior Accountant at $183 per otherwise alter the competitive While the above requirements will
hour for 500 hours)) × 10 registrants = $5,915,000. landscape among SDRs. serve to prevent and constrain potential
G. Other Policies and Procedures conflicts of interest, proposed Rule 13n–
4(c)(3) directly addresses conflicts of
assign these responsibilities to a Senior Systems Relating to an SDR’s Business
Analyst. Data from SIFMA’s Management &
interest through targeted policies and
The proposed rules explicitly and procedures and an obligation to

2009, modified by Commission staff to account for implicitly will require registered SDRs establish a process for resolving
an 1800-hour work-year and multiplied by 5.35 to to develop and maintain various conflicts of interest. This rule would
account for bonuses, firm size, employee benefits, policies and procedures.317 Proposed
and overhead, suggest that the cost of a Senior
Systems Analyst is $251 per hour. Thus, the total Rule 13n–9 will require each SDR to 318 See supra Section III.I.
319 See supra Section III.D.
ongoing estimated dollar cost would be $36,236 per
320 See supra Section III.E.
SDR and $363,260 for all SDRs, calculated as 317 See supra Section VI.B for a discussion of the
follows: ($22,772 for information technology cost and benefits associated with the policies and 321 See Public Law 111–203, § 763(i) (adding
services (Senior Systems Analyst at $251 per hour procedures SDRs must develop and maintain with Exchange Act Sections 13(n)(5)(F)–(H) and (7)(A)–
for 54 hours)) × 10 registrants = $363,260. respect to their information systems. (C)).
help mitigate the possibility that SDRs’ As discussed above, the Commission ongoing estimated dollar cost per year
business practices and internal estimates that the average initial would be $174,600 327 to comply with
structures might disadvantage market paperwork cost associated with the proposed rule.
participants and provide a mechanism proposed Rule 13n–4(c)(1) would be As discussed above, the Commission
through which conflicts may be 367.5 hours and $35,000 and the estimates that the average initial
resolved once identified. average ongoing cost would be 105 paperwork cost associated with
The proposed dispute resolution hours per year for each SDR.322 proposed Rule 13n–4(c)(3) would be 420
requirements also serve the legislative Assuming a maximum of ten SDRs, the hours and $40,000 for each SDR and the
purpose of maintaining accurate records aggregate one-time estimated dollar cost average ongoing paperwork cost would
relating to SDRs. In addition to ensuring would be $1,374,800 323 and the be 120 hours per year for each SDR.328
the accuracy of data contained in SDRs, aggregate ongoing estimated dollar cost Assuming a maximum of ten SDRs, the
the dispute resolution requirement per year would be $294,070 324 to aggregate one-time estimated dollar cost
would provide a forum in which market comply with the proposed rule. would be $1,622,200 329 and the
participants could correct inaccuracies As discussed above, the Commission aggregate ongoing estimated dollar cost
in transaction data regarding estimates that the average initial per year would be $349,200 330 to
transactions to which they are parties, paperwork cost associated with comply with the proposed rule.
thereby fostering increased confidence proposed Rule 13n–4(c)(2) would be 210 As discussed above, the Commission
from market participants in SDRs and hours and $20,000 for each SDR and the estimates that the average initial
the transaction records such SDRs average ongoing paperwork cost would paperwork cost associated with
maintain. be 60 hours per year for each SDR.325 proposed Rule 13n–5(b)(6) would be
Collectively, the rules described in Assuming a maximum of ten SDRs, the 315 hours and $30,000 for each SDR and
this section would help ensure that aggregate one-time estimated dollar cost the average ongoing paperwork cost
SDRs operate consistently with the would be $811,100 326 and the aggregate would be 90 hours per year for each
objectives set forth in the Exchange Act SDR.331 Assuming a maximum of ten
by providing fair, open, and not
322 See supra Section V.D.7. SDRs, the aggregate one-time estimated
unreasonably discriminatory access to dollar cost would be $1,216,650 332 and
all market participants without taking Manager, an Attorney, a Senior Systems Analyst,
and an Operations Specialist. Data from SIFMA’s and $811,100 for all SDRs, calculated as follows:
advantage of the SDRs’ access to ($20,000 for outside legal services + (Compliance
Management & Professional Earnings in the
transaction data that market participants Securities Industry 2009, modified by Commission Attorney at $291 per hour for 210 hours)) × 10
are required to submit to the SDRs. staff to account for an 1800-hour work-year and registrants = $811,100.
The Commission solicits comment on multiplied by 5.35 to account for bonuses, firm size,
employee benefits, and overhead, suggest that the assign these responsibilities to a Compliance
the benefits related to Rules 13n–4(c), Attorney. Data from SIFMA’s Management &
cost of a Compliance Manager is $294 per hour, the
13n–5(b)(6), and 13n–9. Would cost of an Attorney is $316 per hour, the cost of a Professional Earnings in the Securities Industry
additional benefits accrue if the Senior Systems Analyst is $251 per hour, and the 2009, modified by Commission staff to account for
Commission imposed further cost of an Operation Specialist is $114 per hour. an 1800-hour work-year and multiplied by 5.35 to
Thus, the total initial estimated dollar cost would account for bonuses, firm size, employee benefits,
requirements related to the policies and and overhead, suggest that the cost of a Compliance
be $137,480 per SDR and $1,374,800 for all SDRs,
procedures that SDRs must maintain calculated as follows: ($35,000 for outside legal Attorney is $291 per hour. Thus, the total ongoing
and, if so, what would these additional services + (Compliance Manager at $294 per hour estimated dollar cost would be $17,460 per SDR
requirements be? Please describe and, to for 135 hours) + (Attorney at $316 per hour for and $174,600 for all SDRs, calculated as follows:
152.5 hours) + (Senior Systems Analyst at $251 per (Compliance Attorney at $291 per hour for 120
the extent practicable, quantify the hours) × 10 registrants = $174,600.
hour for 40 hours) + (Operations Specialist at $114
benefits associated with any comments per hour for 40 hours)) × 10 registrants = 328 See supra Section V.D.7.
that are submitted. $1,374,800. 329 The Commission estimates that an SDR will
324 The Commission estimates that an SDR will assign these responsibilities to a Compliance
2. Costs assign these responsibilities to a Compliance Attorney. Data from SIFMA’s Management &
Manager, an Attorney, a Senior Systems Analyst, Professional Earnings in the Securities Industry
The Commission anticipates that the 2009, modified by Commission staff to account for
and an Operations Specialist. Data from SIFMA’s
primary costs to SDRs from proposed Management & Professional Earnings in the an 1800-hour work-year and multiplied by 5.35 to
Rules 13n–4(c), 13n–5(b)(6), and 13n–9 Securities Industry 2009, modified by Commission account for bonuses, firm size, employee benefits,
will derive from developing, staff to account for an 1800-hour work-year and and overhead, suggest that the cost of a Compliance
multiplied by 5.35 to account for bonuses, firm size, Attorney is $291 per hour. Thus, the total initial
maintaining, and ensuring compliance estimated dollar cost would be $162,220 per SDR
employee benefits, and overhead, suggest that the
with the required policies and cost of a Compliance Manager is $294 per hour, the and $1,622,200 for all SDRs, calculated as follows:
procedures. cost of an Attorney is $316 per hour, the cost of a ($40,000 for outside legal services + (Compliance
The governance requirements could Senior Systems Analyst is $251 per hour, and the Attorney at $291 per hour for 420 hours)) × 10
cost of an Operation Specialist is $114 per hour. registrants = $1,622,200.
impose costs resulting from educating Thus, the total ongoing estimated dollar cost would 330 The Commission estimates that an SDR will
senior management and each director be $29,407 per SDR and $294,070 for all SDRs, assign these responsibilities to a Compliance
about SBS trading and reporting and the calculated as follows: ((Compliance Manager at Attorney. Data from SIFMA’s Management &
new regulatory structure that will $294 per hour for 38 hours) + (Attorney at $316 per Professional Earnings in the Securities Industry
hour for 45 hours) + (Senior Systems Analyst at 2009, modified by Commission staff to account for
govern SBS, which could slow $251 per hour for 11 hours) + (Operations Specialist an 1800-hour work-year and multiplied by 5.35 to
management or board processes at least at $114 per hour for 11 hours)) × 10 registrants = account for bonuses, firm size, employee benefits,
initially. $294,070. and overhead, suggest that the cost of a Compliance
The dispute resolution requirement 325 See supra Section V.D.7. Attorney is $291 per hour. Thus, the total ongoing
326 The Commission estimates that an SDR will estimated dollar cost would be $34,920 per SDR
also would impose costs on registered and $349,200 for all SDRs, calculated as follows:
SDRs because SDRs would be required Attorney. Data from SIFMA’s Management & (Compliance Attorney at $291 per hour for 120
to develop and implement processes Professional Earnings in the Securities Industry hours) × 10 registrants = $349,200.
through which market participants 2009, modified by Commission staff to account for 331 See supra Section V.D.7.
could challenge the validity of the an 1800-hour work-year and multiplied by 5.35 to 332 The Commission estimates that an SDR will
account for bonuses, firm size, employee benefits, assign these responsibilities to a Compliance
transaction data relating to agreements and overhead, suggest that the cost of a Compliance Attorney. Data from SIFMA’s Management &
to which such participant is a Attorney is $291 per hour. Thus, the total initial Professional Earnings in the Securities Industry
counterparty. estimated dollar cost would be $81,110 per SDR Continued
the aggregate ongoing estimated dollar additional costs implicated by the costs of approximately $295,891,852 340
cost per year would be $261,900 333 to proposed rules related to policies and and aggregate ongoing annualized dollar
comply with the proposed rule. procedures that the Commission should costs of approximately $245,428,520.341
As discussed above, the Commission consider? Are there alternatives that the
I. Request for Comment
estimates that the average initial Commission should consider? Do the
paperwork cost associated with estimates accurately reflect the cost of The Commission requests data to
proposed Rule 13n–9 would be 630 maintaining, implementing, and quantify the costs and the value of the
hours and $60,000 for each SDR and the revising the required policies and benefits above. The Commission seeks
average ongoing paperwork cost would procedures? Please describe and, to the estimates of these costs and benefits, as
be 180 hours per year for each SDR.334 extent practicable, quantify the costs well as any costs and benefits not
Assuming a maximum of ten SDRs, the associated with any comments that are already defined, which may result from
aggregate one-time estimated dollar cost submitted. the adoption of the proposed rules and
would be $2,433,300 335 and the Form SDR. Commenters should provide
The Commission does not expect the
aggregate ongoing estimated dollar cost analysis and empirical data to support
initial and ongoing costs necessary to
per year would be $523,800 336 to their views on the costs and benefits
comply with the rules relating to
comply with the proposed rule. associated with the proposals.
policies and procedures to have any
The Commission solicits comment on significant effect on how SDRs conduct VII. Consideration of Burden on
the costs related to proposed Rules 13n– business because such costs would not Competition, and Promotion of
4(c), 13n–5(b)(6), and 13n–9. The be so large as to result in a change in Efficiency, Competition, and Capital
Commission specifically requests how such SDRs conduct business, create Formation
comment on the initial and ongoing a barrier to entry, or otherwise alter the
costs associated with establishing and Exchange Act Section 23(a) 342
competitive landscape among SDRs. requires the Commission, when making
maintaining the policies and procedures
required by the proposed rules, H. Total Costs rules and regulations under the
particularly as the costs apply to entities Exchange Act, to consider the impact a
Based on the analyses described new rule would have on competition.
currently operating as SDRs. Are there above, the Commission preliminarily Exchange Act Section 23(a)(2) prohibits
estimates that proposed Rules 13n–1 the Commission from adopting any rule
2009, modified by Commission staff to account for
an 1800-hour work-year and multiplied by 5.35 to through 13n–11 and proposed Form that would impose a burden on
account for bonuses, firm size, employee benefits, SDR would impose on registered SDRs competition not necessary or
and overhead, suggest that the cost of a Compliance an aggregate total initial one-time appropriate in furtherance of the
Attorney is $291 per hour. Thus, the total initial estimated dollar cost of approximately
estimated dollar cost would be $121,665 per SDR
purposes of the Exchange Act.
and $1,216,650 for all SDRs, calculated as follows: $214,913,592.337 The Commission Securities Act Section 2(b) 343 and
($30,000 for outside legal services + (Compliance further preliminarily estimates that Exchange Act Section 3(f) 344 require the
Attorney at $291 per hour for 315 hours)) × 10 proposed Rules 13n–1 through 13n–11 Commission, when engaging in
registrants = $1,216,650. and proposed Form SDR would impose rulemaking that requires it to consider

on registered SDRs a total ongoing whether an action is necessary or
Attorney. Data from SIFMA’s Management & annualized aggregate dollar cost of appropriate in the public interest, to
Professional Earnings in the Securities Industry approximately $140,302,120.338 consider, in addition to the protection of
2009, modified by Commission staff to account for Altogether, the Commission investors, whether the action would
an 1800-hour work-year and multiplied by 5.35 to
account for bonuses, firm size, employee benefits,
preliminarily estimates that proposed promote efficiency, competition, and
and overhead, suggest that the cost of a Compliance Rules 13n–1 through 13n–11, proposed capital formation. Below, the
Attorney is $291 per hour. Thus, the total initial Form SDR, and proposed Regulation Commission addresses these issues for
estimated dollar cost would be $26,190 per SDR SBSR 339 would impose on registered the proposed rules regarding data
and $261,900 for all SDRs, calculated as follows:
(Compliance Attorney at $291 per hour for 90
SDRs aggregate initial estimated dollar collection and maintenance and
hours) × 10 registrants = $261,900. recordkeeping by SDRs and books and
334 See supra Section V.D.7. 337 The Commission derived its estimate from the records relating to SBS. The
335 The Commission estimates that an SDR will following: ($589,544 ($584,000 + $5,544) for Commission focuses on the effects of the
assign these responsibilities to a Compliance Registration Requirements and Form SDR) + discretion used by the Commission
Attorney. Data from SIFMA’s Management & ($203,962,250 ($200,020,000 + $16,000 +
Professional Earnings in the Securities Industry $3,926,250) for SDR Duties, Data Collection and rather than the mandates of the Dodd-
2009, modified by Commission staff to account for Maintenance, Automated Systems, and Direct Frank Act. However, to the extent that
an 1800-hour work-year and multiplied by 5.35 to Electronic Access) + ($1,015,460 for Recordkeeping) the discretion is used to take full
account for bonuses, firm size, employee benefits, + ($266,088 for Disclosure) + ($1,622,200 for Chief advantage of the benefits intended by
and overhead, suggest that the cost of a Compliance Compliance Officer and Compliance Functions) +
Attorney is $291 per hour. Thus, the total initial ($7,458,050 ($1,374,800 + $811,100 + $1,622,200 + the Dodd-Frank Act, the two types of
estimated dollar cost would be $243,330 per SDR $1,216,650 + $2,433,300) for Other Policies and benefits are not entirely separable.
and $2,433,300 for all SDRs, calculated as follows: Procedures Relating to an SDR’s Business) = The economic effects of the proposed
($60,000 for outside legal services + (Compliance $214,913,592. rules were discussed in detail in the
Attorney at $291 per hour for 630 hours)) × 10 338 The Commission derived its estimate from the
registrants = $2,433,300. following: ($49,080 for Registration Requirements 340 The Commission derived its estimate from the
336 The Commission estimates that an SDR will and Form SDR) + ($121,298,845 ($120,012,000 +
$9,480 + $908,400 + $368,965) for SDR Duties, Data following: ($214,913,592 for proposed Rules 13n–1
through 13n–11 and proposed Form SDR) +
Attorney. Data from SIFMA’s Management & Collection and Maintenance, Automated Systems,
and Direct Electronic Access) + ($820,760 for ($80,978,260 for proposed Regulation SBSR) =
Recordkeeping) + ($2,848,090 ($2,845,750 + $2,340) $295,891,852.
2009, modified by Commission staff to account for 341 The Commission derived its estimate from the
an 1800-hour work-year and multiplied by 5.35 to for Reports and Reviews) + ($1,765 for Disclosure)
account for bonuses, firm size, employee benefits, + ($13,680,010 ($7,387,200 + $14,550 + $5,915,000 following: ($140,302,120 for proposed Rules 13n–1
and overhead, suggest that the cost of a Compliance + $363,260) for Chief Compliance Officer and through 13n–11 and proposed Form SDR) +
Attorney is $291 per hour. Thus, the total ongoing Compliance Functions) + ($1,603,570 ($294,070 + ($105,126,400 for proposed Regulation SBSR) =
estimated dollar cost would be $52,380 per SDR $174,600 + $349,200 + $261,900 + $523,800) for $245,428,520.
342 15 U.S.C. 78w(a).
and $523,800 for all SDRs, calculated as follows: Other Policies and Procedures Relating to an SDR’s
Business) = $140,302,120. 343 15 U.S.C. 77b(b).
(Compliance Attorney at $291 per hour for 180
hours) × 10 registrants = $523,800. 339 See Regulation SBSR Release, supra note 9. 344 15 U.S.C. 78c(f).
costs and benefits section. These The practices that are proposed in the B. Certification
economic benefits encompassed effects rules would also help regulators In the Commission’s preliminary
on economic efficiency, competition, perform their supervisory functions in view, the proposed rules would not
and capital formation. an effective manner. The resulting have a significant economic impact on
To reiterate, by allowing multiple increase in market integrity is likely to a substantial number of small entities,
SDRs to provide data collection, affect capital formation in our capital including national securities exchanges,
maintenance, and recordkeeping markets positively. In addition, clearing agencies, or other small
services, the rules are intended to regulators would be better equipped to businesses or small organizations. For
promote competition among SDRs. We perform their duties in the management the above reasons, the Commission
do not preliminarily believe that the and mitigation of systemic risk. certifies that the proposed rules would
provisions would give undue market not have a significant economic impact
influence to any potential market VIII. Initial Regulatory Flexibility Act
Certification on a substantial number of small
participants. We believe that non- entities. The Commission requests
resident SDRs generally can take steps Section 603(a) of the Regulatory comment regarding this certification.
to comply with their home country Flexibility Act 345 (‘‘RFA’’) requires the The Commission requests that
requirements and the Commission’s Commission to undertake an initial commenters describe the nature of any
supervisory requirements, and therefore regulatory flexibility analysis of the impact on small entities, including
can register with the Commission. We impact of proposed Rules 13n–1 national securities exchanges, clearing
recognize that there potentially could be through 13n–11 on small entities, unless agencies, or other small businesses or
instances in which a non-resident SDR the Commission certifies that the small organizations that may register as
is unable to register because, for proposed rules, if adopted, would not SDRs, and provide empirical data to
example, they cannot make the have significant economic impact on a support the extent of the impact.
certification or provide the opinion of substantial number of small entities.346
counsel required by proposed Rule 13n– IX. Consideration of Impact on the
1(g). We believe, however, that these A. SDRs Economy
requirements are necessary and For purposes of the Small Business
appropriate in furtherance of the Proposed Rules 13n–1 through 13n– Regulatory Enforcement Fairness Act of
purpose of the Exchange Act. 11 would apply to all SDRs. In the 1996, or ‘‘SBREFA,’’ 349 the Commission
Dodd-Frank Act, Congress defined for must advise the OMB as to whether the
However, by allowing multiple SDRs,
the first time what activity would proposed regulations constitute a
the proposed rules may result in
constitute an SDR and mandated the ‘‘major’’ rule. Under SBREFA, a rule is
inefficiencies as explained in the
registration of these new entities. The considered ‘‘major’’ where, if adopted, it
benefits and costs section of this release.
Commission does not know exactly how results or is likely to result in: (1) An
In particular, the potential reporting of
many entities may seek to register as annual effect on the economy of $100
transaction data to multiple SDRs would
SDRs and become subject to the million or more (either in the form of an
create a need to aggregate those data by
requirements of the proposed rules. increase or a decrease); (2) a major
regulators and other interested parties.
However, based on its understanding of increase in costs or prices for consumers
From a systemic risk perspective,
the market and conversations with or individual industries; or (3)
monitoring costs increase if identifiers
industry sources, the Commission significant adverse effect on
or data field definitions used by
preliminarily believes that likely no competition, investment or innovation.
different SDRs are not compatible with
more than ten SDRs could be subject to The Commission requests comment
each other and aggregation is difficult.
the requirements of proposed Rules on the potential impact of the proposed
The complications associated with
13n–1 through 13n–11. rules on the economy on an annual
aggregation could be particularly costly
when aggregation is required across the For purposes of Commission basis, on the costs or prices for
same asset class and different legs of the rulemaking in connection with the RFA, consumers or individual industries, and
same transaction reside in different an issuer or person, other than an on competition, investment, or
SDRs. However, the current market investment company, is a small innovation. Commenters are requested
structure essentially consists of only one business if its total assets on the last day to provide empirical data and other
SDR per asset class, and it is likely that of its most recent fiscal year were $5 factual support for their views to the
the market would, under competitive million or less.347 The Commission extent possible.
forces, ultimately converge to an preliminarily believes that the entities X. Statutory Authority
efficient outcome that does not present likely to register as SDRs will not be
compatibility problems or that entails considered small entities. The Pursuant to the Exchange Act, and
fewer, rather than many, SDRs. Commission preliminarily believes that particularly Sections 13(n) and 23(a)
most, if not all, of the SDRs will be part thereof, 15 U.S.C. 78m(n) and 78w(a),
The Commission believes that the
of large business entities, and that all the Commission proposes new Rules
proposed rules use the discretion that
SDRs will have assets in excess of $5 13n–1 to 13n–11, which would govern
the Dodd-Frank Act permits the
million and total capital in excess of SDRs.
Commission to use to promote data
collection, maintenance, and $500,000.348 Therefore, the Commission List of Subjects in 17 CFR Parts 240 and
preliminarily believes that none of the
recordkeeping according to existing best 249

practices that are used in similar capital SDRs will be considered small entities.
Reporting and recordkeeping
market institutions. This is likely to requirements, Securities.
positively affect transparency in credit 345 5 U.S.C. 603(a).
346 5 U.S.C. 605(b). In accordance with the foregoing,
markets. Therefore, the proposed rules
347 17 CFR 230.157. See also 17 CFR 240.0–10(a). Title 17, Chapter II of the Code of
would help capital formation in the 348 Commission staff based this determination on
broader capital markets whose its review of public sources of financial information 349 Public Law 104–121, Title II, 110 Stat. 857
participants rely on SBS markets to about the current repositories that are providing (1996) (codified in various sections of 5 U.S.C., 15
meet their hedging objectives. services in the OTC derivatives market. U.S.C. and as a note to 5 U.S.C. 601).
Federal Regulations is proposed to be described in Rule 301 of Regulation (2) The date that the Commission
amended as follows: S–T (17 CFR 232.301). rescinds the temporary registration of
(b) An application for the registration the security-based swap data repository.
PART 240—GENERAL RULES AND of a security-based swap data repository (e) If any information reported in
REGULATIONS, SECURITIES shall be filed electronically in a tagged items 1 through 16, 25, and 44 of Form
EXCHANGE ACT OF 1934 data format on Form SDR (17 CFR SDR (17 CFR 249.1500) or in any
249.1500) with the Commission in amendment thereto is or becomes
1. The authority citation for part 240
accordance with the instructions inaccurate for any reason, whether
continues to read, in part, as follows:
contained therein. As part of the before or after the registration has been
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, application process, each SDR shall granted, the security-based swap data
77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, repository shall promptly file an
77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j,
provide additional information to the
Commission upon request. amendment on Form SDR updating
78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78p,
(c) Within 90 days of the date of the such information. In addition, the
78q, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 80a–
20, 80a–23, 80a–29, 80a–37, 80b–3, 80b–4, filing of such application (or within security-based swap data repository
80b–11, and 7201 et seq.; 18 U.S.C. 1350; and such longer period as to which the shall annually file an amendment on
12 U.S.C. 5221(e)(3), unless otherwise noted. applicant consents), the Commission Form SDR within 60 days after the end
shall— of each fiscal year of such security-
* * * * * based swap data repository.
(1) By order grant registration, or
2. Sections 240.13n–1 through 240– (f) Each security-based swap data
13n–11 are added to read as follows: (2) Institute proceedings to determine
whether registration should be denied. repository shall designate and authorize
Sec. Such proceedings shall include notice on Form SDR an agent in the United
240.13n–1 Registration of security-based of the grounds for denial under States, other than a Commission
swap data repository. member, official, or employee, who
240.13n–2 Withdrawal from registration.
consideration and opportunity for
hearing on the record and shall be shall accept any notice or service of
240.13n–3 Registration of successor to process, pleadings, or other documents
registered security-based swap data concluded not later than 180 days after
the date on which the application for in any action or proceedings brought
repository.
240.13n–4 Duties and core principles of registration is filed with the against the security-based swap data
security-based swap data repository. Commission under paragraph (b) of this repository to enforce the Federal
240.13n–5 Data collection and section. At the conclusion of such securities laws and the rules and
maintenance. proceedings, the Commission, by order, regulations thereunder.
240.13n–6 Automated systems. (g) Any non-resident security-based
shall grant or deny such registration.
240.13n–7 Recordkeeping of security-based swap data repository applying for
swap data repository.
The Commission may extend the time
registration pursuant to this section
240.13n–8 Reports to be provided to the for conclusion of such proceedings for
shall certify on Form SDR and provide
Commission. up to 90 days if it finds good cause for
an opinion of counsel that the security-
240.13n–9 Privacy requirements of security- such extension and publishes its
based swap data repository can, as a
based swap data repository. reasons for so finding or for such longer
240.13n–10 Disclosure requirements of matter of law, provide the Commission
period as to which the applicant
security-based swap data repository. with prompt access to the books and
consents.
240.13n–11 Designation of chief records of such security-based swap
(3) The Commission shall grant the
compliance officer of security-based data repository and that the security-
registration of a security-based swap
swap data repository. based swap data repository can, as a
data repository if the Commission finds
matter of law, submit to onsite
§ 240.13n–1 Registration of security-based that such security-based swap data
inspection and examination by the
swap data repository. repository is so organized, and has the
Commission.
(a) Definition. For purposes of this capacity, to be able to assure the (h) An application for registration or
section— prompt, accurate, and reliable any amendment thereto that is filed
(1) EDGAR Filer Manual has the same performance of its functions as a pursuant to this section shall be
meaning as set forth in Rule 11 of security-based swap data repository, considered a ‘‘report’’ filed with the
Regulation S–T (17 CFR 232). comply with any applicable provision of Commission for purposes of Sections
(2) Non-resident security-based swap the federal securities laws and the rules 18(a) and 32(a) of the Act (15 U.S.C.
data repository means: and regulations thereunder, and carry 78r(a) and 78ff(a)) and the rules and
(i) In the case of an individual, one out its functions in a manner consistent regulations thereunder and other
who resides in or has his principal place with the purposes of Section 13(n) of applicable provisions of the United
of business in any place not in the the Act (15 U.S.C. 78m(n)) and the rules States Code and the rules and
United States; and regulations thereunder. The regulations thereunder.
(ii) In the case of a corporation, one Commission shall deny the registration
incorporated in or having its principal of a security-based swap data repository § 240.13n–2 Withdrawal from registration.
place of business in any place not in the if it does not make any such finding. (a) Definitions. For purposes of this
United States; or (d) For any application of registration section—
(iii) In the case of a partnership or as a security-based swap data (1) Control (including the terms
other unincorporated organization or repository, the Commission, upon the controlled by and under common
association, one having its principal request of a security-based swap data control with) means the possession,
place of business in any place not in the repository, may grant temporary direct or indirect, of the power to direct
United States. registration of the security-based swap or cause the direction of the
(3) Tag (including the term tagged) data repository that shall expire on the management and policies of a person,
means an identifier that highlights earlier of: whether through the ownership of
specific information submitted to the (1) The date that the Commission voting securities, by contract, or
Commission that is in the format grants or denies registration of the otherwise. A person is presumed to
required by the EDGAR Filer Manual, as security-based swap data repository; or control another person if the person:
(i) Is a director, general partner, or based swap data repository has obtained § 240.13n–4 Duties and core principles of
officer exercising executive its registration by making any false and security-based swap data repository.
responsibility (or having similar status misleading statements with respect to (a) Definitions. For purposes of this
or functions); any material fact or has violated or section—
(ii) Directly or indirectly has the right failed to comply with any provision of (1) Affiliate of a security-based swap
to vote 25 percent of more of a class of the federal securities laws and the rules data repository means a person that,
voting securities or has the power to sell and regulations thereunder, the directly or indirectly, controls, is
or direct the sale of 25 percent or more Commission, by order, may revoke the controlled by, or is under common
of a class of voting securities; or registration. Pending final control with the security-based swap
(iii) In the case of a partnership, has determination of whether any data repository.
the right to receive, upon dissolution, or registration shall be revoked, the (2) Board means the board of directors
has contributed, 25 percent or more of Commission, by order, may suspend of the security-based swap data
the capital. such registration, if such suspension repository or a body performing a
(2) Person associated with a security- appears to the Commission, after notice function similar to the board of directors
based swap data repository means: and opportunity for hearing on the of the security-based swap data
(i) Any partner, officer, or director of record, to be necessary or appropriate in repository.
such security-based swap data the public interest or for the protection (3) Control (including the terms
repository (or any person occupying a of investors. controlled by and under common
similar status or performing similar control with) means the possession,
(f) If the Commission finds that a
functions); direct or indirect, of the power to direct
(ii) Any person directly or indirectly registered security-based swap data
or cause the direction of the
controlling, controlled by, or under repository is no longer in existence or
management and policies of a person,
common control with such security- has ceased to do business in the
whether through the ownership of
based swap data repository; or capacity specified in its application for
voting securities, by contract, or
(iii) Any employee of such security- registration, the Commission, by order,
otherwise. A person is presumed to
based swap data repository. may cancel the registration.
control another person if the person:
(b) A registered security-based swap § 240.13n–3 Registration of successor to (i) Is a director, general partner, or
data repository may withdraw from registered security-based swap data officer exercising executive
registration by filing a notice of repository. responsibility (or having similar status
withdrawal with the Commission. The or functions);
security-based swap data repository (a) In the event that a security-based
swap data repository succeeds to and (ii) Directly or indirectly has the right
shall designate on its notice of to vote 25 percent of more of a class of
withdrawal a person associated with the continues the business of a security-
based swap data repository registered voting securities or has the power to sell
security-based swap data repository to or direct the sale of 25 percent or more
serve as the custodian of the security- pursuant to Section 13(n) of the Act (15
U.S.C. 78m(n)), the registration of the of a class of voting securities; or
based swap data repository’s books and (iii) In the case of a partnership, has
records. Prior to filing a notice of predecessor shall be deemed to remain
the right to receive, upon dissolution, or
withdrawal, a security-based swap data effective as the registration of the
has contributed, 25 percent or more of
repository shall file an amended Form successor if, within 30 days after such
the capital.
SDR (17 CFR 249.1500) to update any succession, the successor files an (4) Director means any member of the
inaccurate information. application for registration on Form board.
(c) A notice of withdrawal from SDR (17 CFR 249.1500), and the (5) Direct electronic access means
registration filed by a security-based predecessor files a notice of withdrawal access, which shall be in a form and
swap data repository shall become from registration with the Commission; manner acceptable to the Commission,
effective for all matters (except as provided, however, that the registration to data stored by a security-based swap
provided in this paragraph (c)) on the of the predecessor security-based swap data repository in an electronic format
60th day after the filing thereof with the data repository shall cease to be and updated at the same time as the
Commission, within such longer period effective 90 days after the application security-based swap data repository’s
of time as to which such security-based for registration on Form SDR is filed by data is updated so as to provide the
swap data repository consents or which the successor security-based swap data Commission or any of its designees with
the Commission, by order, may repository. the ability to query or analyze the data
determine as necessary or appropriate in (b) Notwithstanding paragraph (a) of in the same manner that the security-
the public interest or for the protection this section, if a security-based swap based swap data repository can query or
of investors, or within such shorter data repository succeeds to and analyze the data.
period of time as the Commission may continues the business of a registered (6) End-user means any counterparty
determine. predecessor security-based swap data to a security-based swap that is
(d) A notice of withdrawal that is filed repository, and the succession is based described in Section 3C(g)(1) of the Act
pursuant to this section shall be solely on a change in the predecessor’s (15 U.S.C. 78c–3(g)(1)) and the rules and
considered a ‘‘report’’ filed with the date or state of incorporation, form of regulations thereunder.
Commission for purposes of Sections organization, or composition of a (7) Market participant means any
18(a) and 32(a) of the Act (15 U.S.C. partnership, the successor may, within person participating in the security-
78r(a) and 78ff(a)) and the rules and 30 days after the succession, amend the based swap market, including, but not
regulations thereunder and other registration of the predecessor security- limited to, security-based swap dealers,
applicable provisions of the United based swap data repository on Form major security-based swap participants,
States Code and the rules and SDR to reflect these changes. This and any other counterparties to a
regulations thereunder. amendment shall be deemed an security-based swap transaction.
(e) If the Commission finds, on the application for registration filed by the (8) Nonaffiliated third party of a
record after notice and opportunity for predecessor and adopted by the security-based swap data repository
hearing, that any registered security- successor. means any person except:
(i) The security-based swap data thereunder, upon request, and after applied consistently across all similarly-
repository, notifying the Commission of the request, situated users of such security-based
(ii) Any affiliate of the security-based make available all data obtained by the swap data repository’s services,
swap data repository, or security-based swap data repository, including, but not limited to, market
(iii) A person employed by a security- including individual counterparty trade participants, market infrastructures
based swap data repository and any and position data, to the following: (including central counterparties),
entity that is not the security-based (i) Each appropriate prudential venues from which data can be
swap data repository’s affiliate (and regulator, as defined in Section 3(a)(74) submitted to the security-based swap
‘‘nonaffiliated third party’’ includes such of the Act (15 U.S.C. 78c(a)(74)); data repository (including exchanges,
entity that jointly employs the person). (ii) The Financial Stability Oversight security-based swap execution facilities,
(9) Person associated with a security- Council; electronic trading venues, and matching
based swap data repository means: (iii) The Commodity Futures Trading and confirmation platforms), and third
(i) Any partner, officer, or director of Commission; party service providers;
such security-based swap data (iv) The Department of Justice; and (ii) Permit market participants to
repository (or any person occupying a (v) The Federal Deposit Insurance access specific services offered by the
similar status or performing similar Corporation and any other person that security-based swap data repository
functions); the Commission determines to be separately;
(ii) Any person directly or indirectly appropriate, including, but not limited (iii) Establish, monitor on an ongoing
controlling, controlled by, or under to— basis, and enforce clearly stated
common control with such security- (A) Foreign financial supervisors objective criteria that would permit fair,
based swap data repository; or (including foreign futures authorities); open, and not unreasonably
(iii) Any employee of such security- (B) Foreign central banks; and discriminatory access to services offered
based swap data repository. (C) Foreign ministries; and data maintained by the security-
(b) Duties. To be registered, and (10) Before sharing information with based swap data repository as well as
maintain registration, as a security- any entity described in paragraph (b)(9) fair, open, and not unreasonably
based swap data repository, a security- of this section, obtain a written discriminatory participation by market
based swap data repository shall: agreement from each entity stating that participants, market infrastructures,
(1) Subject itself to inspection and the entity shall abide by the venues from which data can be
examination by the Commission; confidentiality requirements described submitted to the security-based swap
(2) Accept data as prescribed in in Section 24 of the Act (15 U.S.C. 78x) data repository, and third party service
Regulation SBSR for each security-based and the rules and regulations providers that seek to connect to or link
swap; thereunder relating to the information with the security-based swap data
(3) Confirm, as prescribed in Rule on security-based swap transactions that repository; and
13n–5, with both counterparties to the is provided, and each entity shall agree (iv) Establish, maintain, and enforce
security-based swap the accuracy of the to indemnify the security-based swap written policies and procedures
data that was submitted; data repository and the Commission for reasonably designed to review any
(4) Maintain, as prescribed in Rule any expenses arising from litigation prohibition or limitation of any person
13n–5, the data described in Regulation relating to the information provided with respect to access to services
SBSR in such form, in such manner, and under Section 24 of the Act (15 U.S.C. offered, directly or indirectly, or data
for such period as provided therein and 78x) and the rules and regulations maintained by the security-based swap
in the Act and the rules and regulations thereunder; and data repository and to grant such person
thereunder; (11) Designate an individual to serve access to such services or data if such
(5) Provide direct electronic access to as a chief compliance officer who shall person has been discriminated against
the Commission (or any designee of the comply with Rule 13n–11. unfairly.
Commission, including another (c) Compliance with core principles. (2) Governance arrangements. Each
registered entity); A security-based swap data repository security-based swap data repository
(6) Provide the information described shall comply with the core principles as shall establish governance arrangements
in Regulation SBSR in such form and at described in this paragraph. that are transparent to fulfill public
such frequency as prescribed in (1) Market Access to Services and interest requirements under the Act and
Regulation SBSR to comply with the Data. Unless necessary or appropriate to the rules and regulations thereunder; to
public reporting requirements set forth achieve the purposes of the Act and the carry out functions consistent with the
in Section 13(m) of the Act (15 U.S.C. rules and regulations thereunder, the Act, the rules and regulations
78m(m)) and the rules and regulations security-based swap data repository thereunder, and the purposes of the Act;
thereunder; shall not adopt any policies and and to support the objectives of the
(7) At such time and in such manner procedures or take any action that Federal Government, owners, and
as may be directed by the Commission, results in an unreasonable restraint of participants. To comply with this core
establish automated systems for trade or impose any material principle, each security-based swap data
monitoring, screening, and analyzing anticompetitive burden on the trading, repository shall:
security-based swap data; clearing, or reporting of transactions. To (i) Establish governance arrangements
(8) Maintain the privacy of any and all comply with this core principle, each that are well defined and include a clear
security-based swap transaction security-based swap data repository organizational structure with effective
information that the security-based shall: internal controls;
swap data repository receives from a (i) Ensure that any dues, fees, or other (ii) Establish governance
security-based swap dealer, charges imposed by, and any discounts arrangements that provide for fair
counterparty, or any registered entity as or rebates offered by, a security-based representation of market participants;
prescribed in Rule 13n–9; swap data repository are fair and (iii) Provide representatives of market
(9) On a confidential basis, pursuant reasonable and not unreasonably participants, including end-users, with
to Section 24 of the Act (15 U.S.C. 78x) discriminatory. Such dues, fees, other the opportunity to participate in the
and the rules and regulations charges, discounts, or rebates shall be process for nominating directors and
with the right to petition for alternative of other provisions of the Federal securities (iv) Every security-based swap data
candidates; and laws, including, but not limited to, Section repository shall promptly record the
(iv) Establish, maintain, and enforce 13(m) of the Act (15 U.S.C. 78m(m)) and the transaction data it receives.
written policies and procedures rules and regulations thereunder.
(2) Positions. Every security-based
reasonably designed to ensure that the swap data repository shall establish,
security-based swap data repository’s § 240.13n–5 Data collection and
maintain, and enforce written policies
maintenance.
senior management and each member of and procedures reasonably designed to
the board or committee that has the (a) Definitions. For purposes of this calculate positions for all persons with
authority to act on behalf of the board section— open security-based swaps for which
possess requisite skills and expertise to (1) Transaction data means all the security-based swap data repository
fulfill their responsibilities in the information reported to a security-based maintains records.
management and governance of the swap data repository pursuant to the (3) Every security-based swap data
security-based swap data repository, to Act and the rules and regulations repository shall establish, maintain, and
have a clear understanding of their thereunder. enforce written policies and procedures
responsibilities, and to exercise sound (2) Position means the gross and net
reasonably designed to ensure that the
judgment about the security-based swap notional amounts of open security-based
transaction data and positions that it
data repository’s affairs. swap transactions aggregated by one or
maintains are accurate.
(3) Conflicts of interest. Each security- more attributes, including, but not
(4) Every security-based swap data
based swap data repository shall limited to, the:
repository shall maintain transaction
(i) Underlying instrument, index, or
establish and enforce written policies data for not less than five years after the
reference entity;
and procedures reasonably designed to applicable security-based swap expires
(ii) Counterparty;
minimize conflicts of interest in the and historical positions for not less than
(iii) Asset class;
decision-making process of the security- (iv) Long risk of the underlying five years:
based swap data repository and instrument, index, or reference entity; (i) In a place and format that is readily
establish a process for resolving any and accessible to the Commission and other
such conflicts of interest. Such conflicts (v) Short risk of the underlying persons with authority to access or view
of interest include, but are not limited instrument, index, or reference entity. such information; and
to: conflicts between the commercial (3) Asset class means those security- (ii) In an electronic format that is non-
interests of a security-based swap data based swaps in a particular broad rewriteable and non-erasable.
repository and its statutory category, including, but not limited to, (5) Every security-based swap data
responsibilities; conflicts in connection credit derivatives, equity derivatives, repository shall establish, maintain, and
with the commercial interests of certain and loan-based derivatives. enforce written policies and procedures
market participants or linked market (b) Requirements. Every security- reasonably designed to prevent any
infrastructures, third party service based swap data repository registered provision in a valid security-based swap
providers, and others; conflicts between, with the Commission shall comply with from being invalidated or modified
among, or with persons associated with the following data collection and data through the procedures or operations of
the security-based swap data repository, maintenance standards: the security-based swap data repository.
market participants, affiliates of the (1) Transaction data. (6) Every security-based swap data
security-based swap data repository, (i) Every security-based swap data repository shall establish procedures
and nonaffiliated third parties; and repository shall establish, maintain, and and provide facilities reasonably
misuse of confidential information, enforce written policies and procedures designed to effectively resolve disputes
material, nonpublic information, and/or reasonably designed for the reporting of over the accuracy of the transaction data
intellectual property. To comply with transaction data to the security-based and positions that are recorded in the
this core principle, each security-based swap data repository and shall accept security-based swap data repository.
swap data repository shall: all transaction data that is reported in (7) If a security-based swap data
(i) Establish, maintain, and enforce accordance with such policies and repository ceases doing business, or
written policies and procedures procedures. ceases to be registered pursuant to
reasonably designed to identify and (ii) If a security-based swap data Section 13(n) of the Act (15 U.S.C.
mitigate potential and existing conflicts repository accepts any security-based 78m(n)) and the rules and regulations
of interest in the security-based swap swap in a particular asset class, the thereunder, it must continue to
data repository’s decision-making security-based swap data repository preserve, maintain and make accessible
process on an ongoing basis; shall accept all security-based swaps in the transaction data and historical
(ii) With respect to the decision- that asset class that are reported to it in positions required to be collected,
making process for resolving any accordance with its policies and maintained and preserved by this
conflicts of interest, require the recusal procedures required by paragraph (b)(1) section in the manner required by the
of any person involved in such conflict of this section. Act and the rules and regulations
from such decision-making; and (iii) Every security-based swap data thereunder and for the remainder of the
(iii) Establish, maintain, and enforce repository shall establish, maintain, and period required by this section.
reasonable written policies and enforce written policies and procedures (8) Every security-based swap data
procedures regarding the security-based
reasonably designed to satisfy itself by repository shall make and keep current
swap data repository’s non-commercial reasonable means that the transaction a plan to ensure that the transaction
and/or commercial use of the security- data that has been submitted to the data and positions that are recorded in
based swap transaction information that security-based swap data repository is the security-based swap data repository
it receives from a market participant, accurate, including clearly identifying continue to be maintained in
any registered entity, or any other the source for each trade side and the accordance with Rule 13n–5(b)(7),
person. pairing method (if any) for each which shall include procedures for
Note to § 240.13n–4: This rule is not transaction in order to identify the level transferring the transaction data and
intended to limit, or restrict, the applicability of quality of the transaction data. positions to the Commission or its
designee (including another registered technology firm or a qualified internal are selected to address the material
security-based swap data repository). department knowledgeable of systems outage;
information technology systems. (iii) Immediately notify the
§ 240.13n–6 Automated systems. (5) Review schedule means a schedule Commission when the material systems
(a) Definitions. For purposes of this in which each element contained in outage is addressed; and
section— paragraph (b)(1) of this section would be (iv) Submit to the Commission within
(1) Material system outage means an assessed at specific, regular intervals. five business days of the occurrence of
unauthorized intrusion into any system, (6) Transaction data has the same the material systems outage a detailed
or an event at a security-based swap meaning as in Rule 13n–5(a)(1). written description and analysis of the
data repository that causes a problem in (7) Position has the same meaning as outage and any remedial measures that
its systems or procedures that results in: in Rule 13n–5(a)(2). have been implemented or are
(i) A failure to maintain service level (b) Requirements for security-based contemplated; and
agreements or constraints; swap data repositories. Every security- (4) Notify the Commission in writing
(ii) A disruption of normal operations, based swap data repository, with respect at least thirty calendar days before
including switchover to back-up to those systems that support or are implementation of any planned material
equipment with no possibility of near- integrally related to the performance of systems changes.
term recovery of primary hardware; its activities, shall: (c) Electronic filing. Every security-
(iii) A loss of use of any system; (1) Establish, maintain, and enforce based swap data repository shall submit
(iv) A loss of transactions; written policies and procedures every notification, review, or
(v) Excessive back-ups or delays in reasonably designed to ensure that its description and analysis that is required
processing; systems provide adequate levels of
(vi) A loss of ability to disseminate to be submitted to the Commission
capacity, resiliency, and security. These pursuant to this section (other than the
transaction data and positions;
(vii) A communication of an outage policies and procedures shall, at a notifications pursuant to paragraph
situation to other external entities; minimum: (b)(3)(i), (ii), or (iii) of this section) in an
(viii) A report or referral of an event (i) Establish reasonable current and appropriate electronic format. Every
to the security-based swap data future capacity estimates; such notification, review, or description
repository’s board of directors, a body (ii) Conduct periodic capacity stress and analysis shall be submitted to the
performing a function similar to the tests of critical systems to determine Division of Trading and Markets, Office
board of the directors, or senior such systems’ ability to process of Market Operations, at the principal
management; transactions in an accurate, timely, and office of the Commission in
(ix) A serious threat to its systems efficient manner; Washington, DC. Every such
operations even though its systems (iii) Develop and implement notification, review, or description and
operations were not disrupted; reasonable procedures to review and analysis shall be considered submitted
(x) A queuing of data between system keep current its system development when an electronic version is received
components or queuing of messages to and testing methodology; at the Division of Trading and Markets,
or from customers of such duration that (iv) Review the vulnerability of its Office of Market Operations, at the
a customer’s normal service delivery is systems and data center computer principal office of the Commission in
affected; or operations to internal and external Washington, DC.
(xi) A failure to maintain the integrity threats, physical hazards, and natural (d) Confidential treatment. A person
of its systems that results in the entry of disasters; and who submits a notification, review, or
erroneous or inaccurate transaction data (v) Establish adequate contingency description and analysis pursuant to
or other information in the security- and disaster recovery plans. this section for which he or she seeks
based swap data repository or the (2) On an annual basis, submit an confidential treatment shall clearly
securities markets. objective review to the Commission mark each page or segregable portion of
(2) Material systems change means a within thirty calendar days of its each page with the words ‘‘Confidential
change to automated systems of a completion. Where the objective review Treatment Requested.’’ A notification,
security-based swap data repository is performed by an internal department, review, or description and analysis
that: an objective, external firm shall assess submitted pursuant to this section will
(i) Significantly affects its existing the internal department’s objectivity, be accorded confidential treatment to
capacity or security; competency, and work performance the extent permitted by law.
(ii) In itself, raises significant capacity with respect to the review performed by
or security issues, even if it does not the internal department. The external § 240.13n–7 Recordkeeping of security-
affect other existing systems; firm must issue a report of the objective based swap data repository.
(iii) Relies upon substantially new or review, which the security-based swap (a) Every security-based swap data
different technology; data repository must submit to the repository shall make and keep current
(iv) Is designed to provide a new Commission on an annual basis, within the following books and records relating
service or function; or 30 calendar days of completion of the to its business:
(v) Otherwise significantly affects the review; (1) A record for each office listing, by
operations of the security-based swap (3) Promptly notify the Commission of name or title, each person at that office
data repository. material systems outages and any who, without delay, can explain the
(3) Objective review means an internal remedial measures that have been types of records the security-based swap
or external review, performed by implemented or are contemplated. data repository maintains at that office
competent, objective personnel Prompt notification includes the and the information contained in those
following established procedures and following: records; and
standards, and containing a risk (i) Immediately notify the (2) A record listing each officer,
assessment conducted pursuant to a Commission when a material systems manager, or person performing similar
review schedule. outage is detected; functions of the security-based swap
(4) Competent, objective personnel (ii) Immediately notify the data repository responsible for
means a recognized information Commission when remedial measures establishing policies and procedures
that are reasonably designed to ensure (2) Control (including the terms (7) Person associated with a security-
compliance with the Act and the rules controlled by and under common based swap data repository means:
and regulations thereunder. control with) means the possession, (i) Any partner, officer, or director of
(b) Recordkeeping rule for security- direct or indirect, of the power to direct such security-based swap data
based swap data repositories. or cause the direction of the repository (or any person occupying a
(1) Every security-based swap data management and policies of a person, similar status or performing similar
repository shall keep and preserve at whether through the ownership of functions);
least one copy of all documents, voting securities, by contract, or (ii) Any person directly or indirectly
including all documents and policies otherwise. A person is presumed to controlling, controlled by, or under
and procedures required by the Act and control another person if the person: common control with such security-
the rules and regulations thereunder, (i) Is a director, general partner, or based swap data repository; or
correspondence, memoranda, papers, officer exercising executive (iii) Any employee of such security-
books, notices, accounts, and other such responsibility (or having similar status based swap data repository.
records as shall be made or received by or functions); (b) Each security-based swap data
it in the course of its business as such. (ii) Directly or indirectly has the right repository shall:
(2) Every security-based swap data to vote 25 percent of more of a class of (1) Establish, maintain, and enforce
repository shall keep all such voting securities or has the power to sell written policies and procedures
documents for a period of not less than or direct the sale of 25 percent or more reasonably designed to protect the
of a class of voting securities; or privacy of any and all security-based
five years, the first two years in a place
(iii) In the case of a partnership, has swap transaction information that the
that is immediately available to the staff
the right to receive, upon dissolution, or security-based swap data repository
of the Commission for inspection and
has contributed, 25 percent or more of receives from a security-based swap
examination.
the capital. dealer, counterparty, or any registered
(3) Every security-based swap data
(3) Market participant means any entity. Such policies and procedures
repository shall, upon request of any
person participating in the security- shall include, but are not limited to,
representative of the Commission,
based swap market, including, but not policies and procedures to protect the
promptly furnish to the possession of
limited to, security-based swap dealers, privacy of any and all security-based
such representative copies of any
major security-based swap participants, swap transaction information that the
documents required to be kept and
and any other counterparties to a security-based swap data repository
preserved by it pursuant to paragraphs
security-based swap transaction. shares with affiliates and nonaffiliated
(a) and (b) of this section. third parties; and
(c) If a security-based swap data (4) Nonaffiliated third party of a
security-based swap data repository (2) Establish and maintain safeguards,
repository ceases doing business, or policies, and procedures reasonably
ceases to be registered pursuant to means any person except:
(i) The security-based swap data designed to prevent the
Section 13(n) of the Act (15 U.S.C. misappropriation or misuse, directly or
78m(n)) and the rules and regulations repository,
(ii) The security-based swap data indirectly, of:
thereunder, it must continue to (i) Any confidential information
preserve, maintain, and make accessible repository’s affiliate, or
(iii) A person employed by a security- received by the security-based swap
the records/data required to be data repository, including, but not
collected, maintained and preserved by based swap data repository and any
entity that is not the security-based limited to, trade data, position data, and
this section in the manner required by any nonpublic personal information
this section and for the remainder of the swap data repository’s affiliate (and
about a market participant or any of its
period required by this section. nonaffiliated third party includes such
customers;
(d) This section does not apply to data entity that jointly employs the person).
(ii) Material, nonpublic information;
collected and maintained pursuant to (5) Nonpublic personal information
and/or
Rule 13n–5. means: (iii) Intellectual property, such as
(i) Personally identifiable information
trading strategies or portfolio positions,
§ 240.13n–8 Reports to be provided to the and by the security-based swap data
Commission. (ii) Any list, description, or other
repository or any person associated with
Every security-based swap data grouping of market participants (and
the security-based swap data repository
repository shall promptly report to the publicly available information
for their personal benefit or the benefit
Commission, in a form and manner pertaining to them) that is derived using
of others. Such safeguards, policies, and
acceptable to the Commission, such personally identifiable information that procedures shall address, without
information as the Commission is not publicly available information. limitation,
determines to be necessary or (6) Personally identifiable information (A) Limiting access to such
appropriate for the Commission to means any information: confidential information, material,
perform the duties of the Commission (i) A market participant provides to a
nonpublic information, and intellectual
under the Act and the rules and security-based swap data repository to
property,
regulations thereunder. obtain service from the security-based (B) Standards pertaining to the trading
swap data repository, by persons associated with the security-
§ 240.13n–9 Privacy requirements of (ii) About a market participant based swap data repository for their
security-based swap data repository. resulting from any transaction involving personal benefit or the benefit of others,
(a) Definitions. For purposes of this a service between the security-based and
section— swap data repository and the market (C) Adequate oversight to ensure
(1) Affiliate of a security-based swap participant, or compliance with this subparagraph.
data repository means a person that, (iii) The security-based swap data
directly or indirectly, controls, is repository obtains about a market § 240.13n–10 Disclosure requirements of
controlled by, or is under common participant in connection with security-based swap data repository.
control with the security-based swap providing a service to that market (a) Definition. For purposes of this
data repository. participant. section—
(1) Market participant means any benefit from such discounts or rebates; (c) Duties. Each chief compliance
person participating in the over-the- and officer of a security-based swap data
counter derivatives market, including, (9) A description of the security-based repository shall:
but not limited to, security-based swap swap data repository’s governance (1) Report directly to the board or to
dealers, major security-based swap arrangements. the chief executive officer of the
participants, and any other security-based swap data repository;
§ 240.13n–11 Designation of chief
counterparties to a security-based swap (2) Review the compliance of the
compliance officer of security-based swap
transaction. data repository. security-based swap data repository
(b) Before accepting any security- with respect to the requirements and
(a) In general. Each security-based
based swap data from a market core principles described in Section
swap data repository shall identify on
participant or upon a market 13(n) of the Act (15 U.S.C. 78m(n)) and
Form SDR (17 CFR 249.1500) a person
participant’s request, a security-based the rules and regulations thereunder;
who has been designated by the board
swap data repository shall furnish to the (3) In consultation with the board or
to serve as a chief compliance officer of
market participant a disclosure the chief executive officer of the
the security-based swap data repository.
document that contains the following security-based swap data repository,
The compensation and removal of the
written information, which must resolve any conflicts of interest that may
chief compliance officer shall require
reasonably enable the market arise;
the approval of a majority of the
participant to identify and evaluate (4) Be responsible for administering
security-based swap data repository’s
accurately the risks and costs associated each policy and procedure that is
board.
with using the services of the security- (b) Definitions. For purposes of this required to be established pursuant to
based swap data repository: section— Section 13 of the Act (15 U.S.C. 78m)
(1) The security-based swap data (1) Affiliate of a security-based swap and the rules and regulations
repository’s criteria for providing others data repository means a person that, thereunder;
with access to services offered and data directly or indirectly, controls, is (5) Ensure compliance with the Act
maintained by the security-based swap controlled by, or is under common and the rules and regulations
data repository; control with the security-based swap thereunder relating to security-based
(2) The security-based swap data data repository. swaps, including each rule prescribed
repository’s criteria for those seeking to (2) Board means the board of directors by the Commission under Section 13 of
connect to or link with the security- of the security-based swap data the Act (15 U.S.C. 78m);
based swap data repository; repository or a body performing a (6) Establish procedures for the
(3) A description of the security-based function similar to the board of directors remediation of noncompliance issues
swap data repository’s policies and of the security-based swap data identified by the chief compliance
procedures regarding its safeguarding of repository. officer through any—
data and operational reliability to (3) Director means any member of the (i) Compliance office review;
protect the confidentiality and security board. (ii) Look-back;
of such data, as described in Rule (4) EDGAR Filer Manual has the same (iii) Internal or external audit finding;
13n–6; meaning as set forth in Rule 11 of (iv) Self-reported error; or
(4) A description of the security-based Regulation S–T (17 CFR 232.11). (v) Validated complaint; and
swap data repository’s policies and (5) Material change means a change (7) Establish and follow appropriate
procedures reasonably designed to that a chief compliance officer would procedures for the handling,
protect the privacy of any and all reasonably need to know in order to management response, remediation,
security-based swap transaction oversee compliance of the security- retesting, and closing of noncompliance
information that the security-based based swap data repository. issues.
swap data repository receives from a (6) Material compliance matter means (d) Annual reports.
security-based swap dealer, any compliance matter that the board (1) In general. The chief compliance
counterparty, or any registered entity, as would reasonably need to know to officer shall annually prepare and sign
described in Rule 13n–9(b)(1); oversee the compliance of the security- a report that contains a description of
(5) A description of the security-based based swap data repository and that the compliance of the security-based
swap data repository’s policies and involves, without limitation: swap data repository with respect to the
procedures regarding its non- (i) A violation of the Federal Act and the rules and regulations
commercial and/or commercial use of securities laws by the security-based thereunder and each policy and
the security-based swap transaction swap data repository, its officers, procedure of the security-based swap
information that it receives from a directors, employees, or agents; data repository (including the code of
market participant, any registered (ii) A violation of the policies and ethics and conflicts of interest policies
entity, or any other person; procedures of the security-based swap of the security-based swap data
(6) A description of the security-based data repository by the security-based repository). Each compliance report
swap data repository’s dispute swap data repository, its officers, shall also contain, at a minimum, a
resolution procedures involving market directors, employees, or agents; or description of:
participants, as described in Rule 13n– (iii) A weakness in the design or (i) The security-based swap data
5(b)(6); implementation of the policies and repository’s enforcement of its policies
(7) A description of all the security- procedures of the security-based swap and procedures;
based swap data repository’s services, data repository. (ii) Any material changes to the
including any ancillary services; (7) Tag (including the term tagged) policies and procedures since the date
(8) The security-based swap data means an identifier that highlights of the preceding compliance report;
repository’s updated schedule of any specific information submitted to the (iii) Any recommendation for material
dues; unbundled prices, rates, or other Commission that is in the format changes to the policies and procedures
fees for all of its services, including any required by the EDGAR Filer Manual, as as a result of the annual review, the
ancillary services; any discounts or described in Rule 301 of Regulation rationale for such recommendation, and
rebates offered; and the criteria to S–T (17 CFR 232.301). whether such policies and procedures
were or will be modified by the omitted with the exception of UNITED STATES SECURITIES AND
security-based swap data repository to disclosures regarding material EXCHANGE COMMISSION
incorporate such recommendation; and contingencies, long-term obligations, Washington, D.C. 20549
(iv) Any material compliance matters and guarantees. Descriptions of
identified since the date of the significant provisions of the security- FORM SDR
preceding compliance report. based swap data repository’s long-term APPLICATION OR AMENDMENT TO
(2) Requirements. A financial report obligations, mandatory dividend or APPLICATION FOR REGISTRATION
of the security-based swap data
redemption requirements of redeemable AS SECURITY-BASED SWAP DATA
repository shall be filed with the
stocks, and guarantees of the security- REPOSITORY UNDER THE
Commission as described in paragraph
based swap data repository shall be SECURITIES EXCHANGE ACT OF 1934
(f) of this section and shall accompany
a compliance report as described in provided along with a five-year GENERAL INSTRUCTIONS FOR
paragraph (d)(1) of this section. The schedule of maturities of debt. If the PREPARING AND FILING FORM SDR
compliance report shall include a material contingencies, long-term
1. Form SDR and Exhibits thereto are
certification that, under penalty of law, obligations, redeemable stock
to be filed electronically in a tagged data
the compliance report is accurate and requirements, and guarantees of the format with the Securities and Exchange
complete. The compliance report shall security-based swap data repository Commission by an applicant for
also be filed in a tagged data format in have been separately disclosed in the registration as a security-based swap
accordance with the instructions consolidated statements, then they need data repository, or by a registered
contained in the EDGAR Filer Manual, not be repeated in this schedule; and security-based swap data repository
as described in Rule 301 of Regulation (5) Be provided in eXtensible amending its registration, pursuant to
S–T (17 CFR 232.301). Business Reporting Language consistent Section 13(n) of the Securities Exchange
(e) The chief compliance officer shall Act of 1934 (‘‘Exchange Act’’) and Rule
with Rules 405 (a)(1), (a)(3), (b), (c), (d),
submit the annual compliance report to 13n–1 thereunder. No application for
the board for its review prior to the and (e) of Regulation S–T (17 CFR
232.405). registration shall be effective unless the
submission of the report to the Commission grants such registration.
Commission. (g) Reports filed pursuant to 2. Individuals’ names shall be given
(f) Financial report. Each financial paragraphs (d) and (f) of this section in full (last name, first name, middle
report filed with a compliance report shall be filed within 60 days after the name).
shall: end of the fiscal year covered by such 3. Form SDR shall be signed by a
(1) Be a complete set of financial reports. person who is duly authorized to act on
statements of the security-based swap behalf of the security-based swap data
data repository that are prepared in PART 249—FORMS, SECURITIES repository.
accordance with U.S. generally accepted EXCHANGE ACT OF 1934 4. If Form SDR is being filed as an
accounting principles for the most application for registration, all
recent two fiscal years of the security- 3. The authority citation for part 249 applicable items must be answered in
based swap data repository; continues to read in part as follows: full. If any item is not applicable,
(2) Be audited in accordance with the indicate by ‘‘none’’ or ‘‘N/A’’ as
Authority: 15 U.S.C. 78a et seq. and 7201;
standards of the Public Company appropriate.
and 18 U.S.C. et seq. unless otherwise noted.
Accounting Oversight Board by a 5. Disclosure of the information
registered public accounting firm that is 4. Subpart P consisting of § 249.1500 specified on this form is mandatory
qualified and independent in is added to read as follows: prior to processing of an application for
accordance with Rule 2–01 of registration as a security-based swap
Regulation S–X (17 CFR 210.2–01); Subpart P—Form for Registration of data repository. The information will be
(3) Include a report of the registered Security-Based Swap Data used for the principal purpose of
public accounting firm that complies Repositories determining whether the Commission
with paragraphs (a) through (d) of Rule should grant or deny registration to an
2–02 of Regulation S–X (17 CFR 210.2– § 249.1500 Form SDR, application for applicant. Except in cases where
02); registration as a security-based swap data confidential treatment is requested by
(4) If the security-based swap data repository. the applicant and granted by the
repository’s financial statements contain Commission pursuant to the Freedom of
consolidated information of a subsidiary [Note: The text of Form SDR does not, and Information Act and the rules of the
of the security-based swap data the amendments will not, appear in the Code Commission thereunder, information
repository, provide condensed financial of Federal Regulations.] supplied on this form will be included
information, in a financial statement routinely in the public files of the
footnote, as to the financial position, The form shall be used for registration Commission and will be available for
changes in financial position and results as a security-based swap data inspection by any interested person. A
of operations of the security-based swap repository, and for the amendments to, form that is not prepared and executed
data repository, as of the same dates and such registration pursuant to Section in compliance with applicable
for the same periods for which audited 13(n) of the Exchange Act (15 U.S.C. requirements may be deemed as not
consolidated financial statements are 78m(n)). acceptable for filing. Acceptance of this
required. Such financial information form, however, shall not constitute any
need not be presented in greater detail finding that it has been filed as required
than is required for condensed or that the information submitted is
statements by Rules 10–01(a)(2), (3), and true, current, or complete. Intentional
(4) of Regulation S–X (17 CFR 210.10– misstatements or omissions of fact
01). Detailed footnote disclosure that constitute federal criminal violations
would normally be included with (see 18 U.S.C. 1001 and 15 U.S.C.
complete financial statements may be 78ff(a)).
6. Rule 13n–1(e) under the Exchange 3. Mailing address, if different than ad- process, pleadings, or other
Act requires a security-based swap data dress specified herein: llllllll documents in connection with any
repository to amend promptly Form lllllllllllllllllll action or proceeding against the
SDR if any information contained in (Number and Street) applicant may be effectuated by
items 1 through 16, 25, and 44 of this lllllllllllllllllll certified mail to the officer
application, or any supplement or (City) (State) (Zip Code) specified or person named below at
amendment thereto, is or becomes the U.S. address given. Such officer
inaccurate for any reason. 4. List of principal office(s) and
address(es) where security-based or person cannot be a Commission
7. For the purposes of this form, the
swap data repository activities are member, official, or employee.
term ‘‘applicant’’ includes any applicant
for registration as a security-based swap conducted: (Name of Person or, if Applicant is a
data repository or any registered Corporation, Title of Officer) lllll
Office Address (Name of Applicant or Applicable
security-based swap data repository that
is amending Form SDR. Entity) lllllllllllllll
8. Applicants filing Form SDR as an (Number and Street) lllllllll
amendment (other than an annual
amendment) need file only the cover (City) (State) (Zip Code) lllllll
page (items 1 through 3), the signature (Area Code) (Telephone Number)
page (item 12), and any pages on which
an answer is being amended, together 12. SIGNATURES: Applicant has duly
with such exhibits as are being caused this application or
5. If the applicant is a successor (within amendment to be signed on its
amended. An applicant submitting an
the definition of Rule 12b–2 under behalf by the undersigned, hereunto
amendment represents that all
the Exchange Act) to a previously duly authorized, this llllday
unamended items and exhibits remain
registered security-based swap data of lllllllll,ll.
true, current, and complete as
repository, please complete the Applicant and the undersigned
previously filed.
DEFINITIONS: Unless the context following: hereby represent that all
requires otherwise, all terms used in a. Date of succession llllllll information contained herein is
this form have the same meaning as in b. Full name and address of predecessor true, current, and complete. It is
the Exchange Act, as amended, and in security-based swap data repository understood that all required items
the rules and regulations of the lllllllllllllllllll and exhibits are considered integral
Commission thereunder. (Name) parts of this form and that the
UNITED STATES SECURITIES AND lllllllllllllllllll submission of any amendment
EXCHANGE COMMISSION (Number and Street) represents that all unamended
Washington, D.C. 20549 lllllllllllllllllll items and Exhibits remain true,
(City) (State) (Zip Code) current, and complete as previously
FORM SDR 6. List all asset classes of security-based filed. If the applicant is a non-
APPLICATION OR AMENDMENT TO swaps for which the applicant is resident security-based swap data
APPLICATION FOR REGISTRATION collecting and maintaining or for repository, Applicant and the
AS SECURITY-BASED SWAP DATA which it proposes to collect and undersigned further represent that
REPOSITORY UNDER THE maintain. the applicant can, as a matter of
SECURITIES EXCHANGE ACT OF 1934 lllllllllllllllllll law, provide the Commission with
lllllllllllllllllll prompt access to the applicant’s
lllllllllllllllllll
(Exact Name of Applicant as Specified 7. Furnish a description of the func- books and records and that the
in Charter) tion(s) that the applicant performs or applicant can submit to an onsite
lllllllllllllllllll proposes to perform. llllllll
inspection and examination by the
(Address of Principal Executive Offices) lllllllllllllllllll Commission. For purposes of this
If this is an APPLICATION for lllllllllllllllllll certification, ‘‘non-resident security-
registration, complete in full and check lllllllllllllllllll based swap data repository’’ means
here b BUSINESS ORGANIZATION (i) in the case of an individual, one
If this is an AMENDMENT to an who resides in or has his principal
8. Applicant is a: place of business in any place not
application, or to an effective
b Corporation in the United States; (ii) in the case
registration (including an annual
b Partnership of a corporation, one incorporated
amendment), list all items that are
b Other Form of Organization
amended and check here b in or having its principal place of
(Specify) llllllllllllll
lllllllllllllllllll business in any place not in the
9. If applicant is a corporation:
lllllllllllllllllll United States; or (iii) in the case of
a. Date of incorporation lllllll
lllllllllllllllllll a partnership or other
b. Place of incorporation or state/coun- unincorporated organization or
GENERAL INFORMATION try of formation lllllllllll

association, one having its principal
1. Name under which business is con- 10. If Applicant is a partnership: place of business in any place not
ducted, if different than name specified a. Date of filing of partnership in the United States.
herein: lllllllllllllll articles lllllllllllllll
(Name of Applicant) lllllllll
lllllllllllllllllll b. Place where partnership agreement
2. If name of business is amended, state was filed llllllllllllll (Signature of General Partner, Managing
previous business name: lllllll 11. Applicant understands and consents Agent or Principal Officer) llllll
lllllllllllllllllll that any notice or service of (Title) lllllllllllllll
Exchange Act that owns 10 percent ii. a finding that such person has been denial, bar, prohibition, or
or more of the applicant’s stock or involved in a violation of any limitation of membership,
that, either directly or indirectly, securities-related regulations or participation, or association with a
through agreement or otherwise, in statutes; member, or of access to services
any other manner, may control or iii. a finding that such person has offered by, such organization of a
direct the management or policies been a cause of a business having member thereof; and
of the applicant. State in Exhibit A its authorization to do business (5) any final action by another federal
the full name and address of each denied, suspended, revoked, or regulatory agency, including the
such person and attach a copy of restricted; Commodity Futures Trading
the agreement or, if there is none iv. an order entered, in the past ten Commission, any state regulatory
written, describe the agreement or years, against such person in agency, or any foreign financial
basis upon which such person connection with a securities-related regulatory authority resulting in:
exercises or may exercise such activity; or i. a finding that such person has made
control or direction. v. any disciplinary sanction, a false statement or omission, or has
14. Attach as Exhibit B the following including a denial, suspension, or been dishonest, unfair, or unethical;
information about the chief revocation of such person’s ii. a finding that such person has been
compliance officer who has been registration or license or otherwise, involved in a violation of any
appointed by the board of directors by order, a prevention from securities-related regulations or
of the security-based swap data associating with a securities-related statutes;
repository or a person or group business or a restriction of such iii. a finding that such person has
performing a function similar to person’s activities. been a cause of a business having
such board of directors: 15. Attach as Exhibit C a list of the its authorization to do business
a. Name officers, directors, governors, and denied, suspended, revoked, or
b. Title persons performing similar restricted;
c. Date of commencement and, if functions, and the members of all iv. an order entered, in the past ten
appropriate, termination of present standing committees grouped by years, against such person in
term of position committee of the security-based connection with a securities-related
d. Length of time the chief swap data repository or of the entity activity; or
compliance officer has held the identified in item 18 that performs v. any disciplinary sanction,
same position the security-based swap data including a denial, suspension, or
e. Brief account of the business repository activities of the revocation of such person’s
experience of the chief compliance applicant, indicating for each: registration or license or otherwise,
officer over the last five years a. Name by order, a prevention from
f. Any other business affiliations in b. Title associating with a securities-related
the securities industry or OTC c. Dates of commencement and, if business or a restriction of such
derivatives industry appropriate, termination of present person’s activities.
g. Details of: term of office or position 16. Attach as Exhibit D a copy of
(1) any order of the Commission with d. Length of time each present officer, documents relating to the
respect to such person pursuant to director, governor, persons governance arrangements of the
Sections 15(b)(4), 15(b)(6), 19(h)(2), performing similar functions, or applicant, including, but not
or 19(h)(3) of the Exchange Act; member of a standing committee limited to, the nomination and
(2) any conviction or injunction of a has held the same office or position selection process of the members on
type described in Sections e. Brief account of the business the applicant’s board of directors, a
15(b)(4)(B) or (C) of the Exchange experience of each officer, director, person or group performing a
Act within the past ten years; governor, persons performing function similar to a board of
(3) any action of a self-regulatory similar functions, or member of a directors (collectively, ‘‘board’’), or
organization with respect to such standing committee over the last any committee that has the
person imposing a final disciplinary five years authority to act on behalf of the
sanction pursuant to Sections f. Any other business affiliations in board; the responsibilities of each of
6(b)(6), 15A(b)(7), or 17A(b)(3)(G) of the securities industry or OTC the board and such committee; the
the Exchange Act; derivatives industry composition of each board and such
(4) any final action by a self- g. Details of: committee; and the applicant’s
regulatory organization with respect (1) any order of the Commission with policies and procedures reasonably
to such person constituting a respect to such person pursuant to designed to ensure that the
denial, bar, prohibition, or Sections l5(b)(4), 15(b)(6), 19(h)(2), applicant’s senior management and
limitation of membership, or 19(h)(3) of the Exchange Act; each member of the board or such
participation, or association with a (2) any conviction or injunction of a committee possess requisite skills
member, or of access to services type described in Sections and expertise to fulfill their
offered by, such organization of a l5(b)(4)(B) or (C) of the Exchange responsibilities in the management
member thereof; and Act within the past ten years; and governance of the applicant, to
(5) any final action by another federal (3) any action of a self-regulatory have a clear understanding of their
regulatory agency, including the organization with respect to such responsibilities, and to exercise
Commodity Futures Trading person imposing a final disciplinary sound judgment about the
Commission, any state regulatory sanction pursuant to Sections applicant’s affairs.
agency, or any foreign financial 6(b)(6), l5A(b)(7), or 17A(b)(3)(G) of 17. Attach as Exhibit E a copy of the
regulatory authority resulting in: the Exchange Act; constitution, articles of
i. a finding that such person has made (4) any final action by a self- incorporation or association with
a false statement or omission, or has regulatory organization with respect all amendments thereto, existing
been dishonest, unfair, or unethical; to such person constituting a by-laws, rules, procedures, and
instruments corresponding thereto, EXHIBITS—FINANCIAL data repository. Include a

of the applicant. INFORMATION description of all procedures
18. Attach as Exhibit F a narrative and/ utilized for the collection and
23. Attach as Exhibit K a balance sheet,
or graphic description of the maintenance of information or
statement of income and expenses,
organizational structure of the records with respect to transactions
statement of sources and
applicant. Note: If the security- or positions in, or the terms and
application of revenues and all
based swap data repository conditions of, security-based swaps
notes or schedules thereto, as of the
activities of the applicant are entered into by market participants.
most recent fiscal year of the
conducted primarily by a division, 27. Attach as Exhibit O a list of all
applicant. If a balance sheet and
subdivision, or other segregable computer hardware utilized by the
statements certified by an applicant to perform the security-
entity within the applicant’s
corporation or organization, independent public accountant are based swap data repository
describe the relationship of such available, such balance sheet and functions listed in item 7,
entity within the overall statement shall be submitted as indicating:
organizational structure and attach Exhibit K. Alternatively, a financial a. Name of manufacturer and
as Exhibit F the description that report, as described in Rule 13n– manufacturer’s equipment
applies to the segregable entity. 11(f) under the Exchange Act, may identification number;
19. Attach as Exhibit G a list of all be filed as Exhibit K. b. Whether such hardware is
affiliates of the security-based swap 24. Attach as Exhibit L a balance sheet purchased or leased (If leased, state
data repository and indicate the and statement of income and from whom leased, duration of
general nature of the affiliation. For expenses for each affiliate of the lease, and any provisions for
purposes of this application, an security-based swap data repository purchase or renewal); and
‘‘affiliate’’ of a security-based swap as of the end of the most recent c. Where such equipment (exclusive
data repository means a person that, fiscal year of each such affiliate. of terminals and other access
directly or indirectly, controls, is Alternatively, identify, if available, devices) is physically located.
controlled by, or is under common the most recently filed Annual 28. Attach as Exhibit P a description of
control with the security-based Report on Form 10–K under the the personnel qualifications for
swap data repository. Exchange Act for any such affiliate each category of professional, non-
20. Attach as Exhibit H a brief as Exhibit L. professional, and supervisory
description of any material pending 25. Attach as Exhibit M the following: employees employed by the
legal proceeding(s), other than a. A complete list of all dues, fees, security-based swap data repository
ordinary and routine litigation and other charges imposed, or to be or the division, subdivision, or
incidental to the business, to which imposed, as well as all discounts or other segregable entity within the
the applicant or any of its affiliates rebates offered, or to be offered, by security-based swap data repository
is a party or to which any of its or on behalf of the applicant for its as described in item 18.
property is the subject. Include the services, including the security- 29. Attach as Exhibit Q a description of
name of the court or agency in based swap data repository’s the measures or procedures
which the proceeding(s) are services and any ancillary services, implemented by the applicant to
pending, the date(s) instituted, the and identify the service(s) provided provide for the security of any
principal parties to the proceeding, for each such due, fee, other charge, system employed to perform the
a description of the factual basis discount, or rebate; functions of the security-based
alleged to underlie the b. A description of the basis and swap data repository. Include a
proceeding(s) and the relief sought. methods used in determining at general description of any physical
Include similar information as to least annually the level and and operational safeguards
any such proceeding(s) known to be structure of the services as well as designed to prevent unauthorized
contemplated by any governmental the dues, fees, other charges, access (whether by input or
agencies. discounts, or rebates listed in retrieval) to the system. Describe
21. Attach as Exhibit I copies of all paragraph a of this item; and any circumstances within the past
material contracts with any c. If the applicant differentiates, or year in which the described
security-based swap execution proposes to differentiate, among its security measures or safeguards
facility, clearing agency, central customers, or classes of customers failed to prevent any such
counterparty, or third party service in the amount of any dues, fees, or unauthorized access to the system
provider. To the extent that form other charges imposed or any and any measures taken to prevent
contracts are used by the applicant, discount or rebate offered for the a reoccurrence. Describe any
submit a sample of each type of same or similar services, then state measures used by the applicant to
form contract used. In addition, and indicate the amount of each satisfy itself that the information
include a list of security-based differential. In addition, identify received or disseminated by the
swap execution facilities, clearing and describe any differences in the system is accurate.
agencies, central counterparties, cost of providing such services, and 30. Where security-based swap data
and third party service providers any other factors, that account for repository functions are performed
with whom the applicant has such differences. by automated facilities or systems,
entered into material contracts. attach as Exhibit R a description of
22. Attach as Exhibit J procedures EXHIBITS—OPERATIONAL all backup systems or subsystems
implemented by the applicant to CAPABILITY that are designed to prevent
minimize conflicts of interest in the 26. Attach as Exhibit N a narrative interruptions in the performance of
decision-making process of the description, or the functional any such function as a result of
security-based swap data repository specifications, of each service or technical malfunctions or otherwise
and to resolve any such conflicts of function listed in item 7 and in the system itself, in any
interest. performed as a security-based swap permitted input or output system
connection, or as a result of any interpreted to limit, or have the 40. Attach as Exhibit BB policies and
independent source. effect of limiting access to or use of procedures implemented by the
31. Attach as Exhibit S the following: any security-based swap data applicant regarding its use of the
a. For each of the security-based swap repository services offered or data security-based swap transaction
data repository functions described maintained by the applicant and information that it receives from a
in item 7: state the reasons for imposing such market participant, any registered
(1) quantify in appropriate units of specifications, qualifications, or entity, or any person for non-
measure the limits on the security- other criteria. commercial and/or commercial
based swap data repository’s 35. Attach as Exhibit W any purposes.
capacity to receive (or collect), specifications, qualifications, or 41. Attach as Exhibit CC procedures and
process, store, or display the data other criteria required of persons a description of facilities of the
elements included within each who supply security-based swap applicant for effectively resolving
function; and information to the applicant for disputes over the accuracy of the
(2) identify the factors (mechanical, collection and maintenance by the transaction data and positions that
electronic or other) that account for applicant or of persons who seek to are recorded in the security-based
the current limitations reported in connect to or link with the swap data repository.
answer to (1) on the security-based applicant. 42. Attach as Exhibit DD policies and
swap data repository’s capacity to 36. Attach as Exhibit X any procedures relating to the
receive (or collect), process, store, specifications, qualifications, or applicant’s calculation of positions.
or display the data elements other criteria required of any 43. Attach as Exhibit EE policies and
included within each function. person, including, but not limited
b. If the applicant is able to employ, procedures implemented by the
to, regulators, market participants, applicant to prevent any provision
or presently employs, its system(s)
market infrastructures, venues from in a valid security-based swap from
for any use other than for
which data could be submitted to being invalidated or modified
performing the functions of a
the applicant, and third party through the procedures or
security-based swap data
service providers who request operations of the applicant.
repository, state the priorities of
access to data maintained by the 44. Attach as Exhibit FF a plan to ensure
assignment of capacity between
applicant. that the transaction data and
such functions and such other uses,
37. Attach as Exhibit Y policies and position data that are recorded in
and state the methods used or able
procedures implemented by the the applicant continue to be
to be used to divert capacity
applicant to review any prohibition maintained after the applicant
between such functions and other
or limitation of any person with withdraws from registration as a
uses.
respect to access to services offered security-based swap data
EXHIBITS—ACCESS TO SERVICES or data maintained by the applicant repository, which shall include
AND DATA and to grant such person access to procedures for transferring the
32. Attach as Exhibit T the following: such services or data if such person transaction data and position data
a. State the number of persons who has been discriminated against to the Commission or its designee
subscribe, or who have notified the unfairly. (including another registered
applicant of their intention to EXHIBITS—OTHER POLICIES AND security-based swap data
subscribe, to the security-based PROCEDURES repository).
swap data repository’s services. 45. Attach as Exhibit GG all of the
b. For each instance during the past 38. Attach as Exhibit Z policies and policies and procedures required
year in which any person has been procedures implemented by the under Regulation SBSR.
prohibited or limited with respect applicant to protect the privacy of
any and all security-based swap EXHIBIT—LEGAL OPINION
to access to services offered or data
maintained by the applicant, transaction information that the 46. If the applicant is a non-resident
indicate the name of each such security-based swap data repository security-based swap data
person and the reason for the receives from a market participant repository, then attach as Exhibit
prohibition or limitation. or any registered entity. HH an opinion of counsel that the
c. For each service that is furnished in 39. Attach as Exhibit AA a description security-based swap data repository
machine-readable form, state the of safeguards, policies, and can, as a matter of law, provide the
storage media of any service procedures implemented by the Commission with prompt access to
furnished and define the data applicant to prevent the the books and records of such
elements of such service. misappropriation or misuse of security-based swap data repository
33. Attach as Exhibit U copies of all (a) any confidential information and that the security-based swap
contracts governing the terms by received by the applicant, data repository can, as a matter of
which persons may subscribe to the including, but not limited to, trade law, submit to onsite inspection
security-based swap data repository data, position data, and any and examination by the
services and any ancillary services nonpublic personal information Commission.
provided by the applicant. To the about a market participant or any of

By the Commission.
extent that form contracts are used its customers; (b) material,
nonpublic information; and/or (c) Dated: November 19, 2010.
by the applicant, submit a sample of
each type of form contract used. intellectual property by applicant or Elizabeth M. Murphy,
34. Attach as Exhibit V a description of any person associated with the Secretary.
any specifications, qualifications, or applicant for their personal benefit [FR Doc. 2010–29719 Filed 12–9–10; 8:45 am]
other criteria that limit, are or the benefit of others. BILLING CODE 8011–01–P

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77306 Federal Register / Vol. 75, No.

237 / Friday, December 10, 2010 / Proposed Rules

28 See 17 CFR 249.1001 (Form SIP, for application

the registration becomes effective) to would be considered appropriate?

exercising executive responsibility (or having

publication, obtain on fair and reasonable terms

Regulation SBSR Release (proposed Rule 907),

national securities associations, clearing agencies of this release.

143 A service level agreement is a contract

place that is immediately available to

would not be required to hire an why and what would be a better

179 The term ‘‘material compliance matter’’ would

188 Proposed Rule 13n–11(f)(4). 7. Are the burdens of any of the

direction in this release. See supra Section III.D.I.

Rule 13n–4(b)(9) to make all data available to ‘‘any

2005); 70 FR 37496 (June 29, 2005).

principal purpose of determining whether the exhibit to Form SDR, unless

Manager. Data from SIFMA’s Management & reduced.

Professional Earnings in the Securities Industry

assign these responsibilities to a Compliance

recordkeeping according to existing best 249

GENERAL INFORMATION try of formation lllllllllll

instruments corresponding thereto, EXHIBITS—FINANCIAL data repository. Include a

provided by the applicant. To the about a market participant or any of

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