[Federal Register Volume 75, Number 231 (Thursday, December 2, 2010)]
[Proposed Rules]
[Pages 75208-75288]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-29710]



[[Page 75207]]

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Part II





 Securities and Exchange Commission





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17 CFR Parts 240 and 242



Regulation SBSR--Reporting and Dissemination of Security-Based Swap 
Information; Proposed Rule

Federal Register / Vol. 75 , No. 231 / Thursday, December 2, 2010 / 
Proposed Rules

[[Page 75208]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 242

[Release No. 34-63346; File No. S7-34-10]
RIN 3235-AK80


Regulation SBSR--Reporting and Dissemination of Security-Based 
Swap Information

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rules.

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SUMMARY: In accordance with Section 763 (``Section 763'') and Section 
766 (``Section 766'') of Title VII (``Title VII'') of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (the ``Dodd-Frank 
Act''), the Securities and Exchange Commission (``SEC'' or 
``Commission'') is proposing Regulation SBSR--Reporting and 
Dissemination of Security-Based Swap Information (``Regulation SBSR'') 
under the Securities Exchange Act of 1934 (``Exchange Act'').\1\ 
Proposed Regulation SBSR would provide for the reporting of security-
based swap information to registered security-based swap data 
repositories or the Commission and the public dissemination of 
security-based swap transaction, volume, and pricing information. 
Registered security-based swap data repositories would be required to 
establish and maintain certain policies and procedures regarding how 
transaction data are reported and disseminated, and participants of 
registered security-based swap data repositories that are security-
based swap dealers or major security-based swap participants would be 
required to establish and maintain policies and procedures that are 
reasonably designed to ensure that they comply with applicable 
reporting obligations. Finally, proposed Regulation SBSR also would 
require a registered SDR to register with the Commission as a 
securities information processor on existing Form SIP.
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    \1\ 15 U.S.C. 78a et seq. All references in this release to the 
Exchange Act refer to the Securities Exchange Act of 1934, as 
amended by the Dodd-Frank Act.

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DATES: Comments should be received on or before January 18, 2011.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/final.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#9be9eef7feb6f8f4f6f6fef5efe8dbe8fef8b5fcf4ed"><span class="__cf_email__" data-cfemail="4133342d246c222e2c2c242f3532013224226f262e37">[email protected]</span></a>. Please include 
File Number S7- on the subject line; or
    <bullet> Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

    <bullet> Send paper comments in triplicate to Elizabeth Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number S7-34-10. This file number 
should be included on the subject line if e-mail is used. To help us 
process and review your comments more efficiently, please use only one 
method. The Commission will post all comments on the Commission's 
Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments 
are also available for Web site viewing and printing in the 
Commission's Public Reference Room, 100 F Street, NE., Washington, DC 
20549 on official business days between the hours of 10 a.m. and 3 p.m. 
All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly.

FOR FURTHER INFORMATION CONTACT: Michael Gaw, Assistant Director, at 
(202) 551-5602, David Michehl, Senior Special Counsel, at (202) 551-
5627, Sarah Albertson, Special Counsel, at (202) 551-5647, Natasha 
Cowen, Special Counsel, at (202) 551-5652, Yvonne Fraticelli, Special 
Counsel, at (202) 551-5654, Geoffrey Pemble, Special Counsel, at (202) 
551-5628, Brian Trackman, Special Counsel, at (202) 551-5616, Mia Zur, 
Special Counsel, at (202) 551-5638, Kathleen Gray, Attorney, at (202) 
551-5305, Division of Trading and Markets, Securities and Exchange 
Commission, 100 F Street, NE., Washington, DC 20549-7010.

SUPPLEMENTARY INFORMATION: The Commission is proposing Regulation SBSR 
under the Exchange Act providing for the reporting of security-based 
swap information to registered security-based swap data repositories or 
the Commission, and the public dissemination of security-based swap 
transaction, volume, and pricing information. The Commission is 
soliciting comments on all aspects of the proposed rules and will 
carefully consider any comments received.

I. Introduction

A. Background

    On July 21, 2010, the President signed the Dodd-Frank Act into 
law.\2\ The Dodd-Frank Act was enacted to, among other things, promote 
the financial stability of the United States by improving 
accountability and transparency in the financial system.\3\ Title VII 
of the Dodd-Frank Act provides the Commission and the Commodity Futures 
Trading Commission (``CFTC'') with the authority to regulate over-the-
counter (``OTC'') derivatives in light of the recent financial crisis, 
which demonstrated the need for enhanced regulation in the OTC 
derivatives markets. The Dodd-Frank Act is intended to close loopholes 
in the existing regulatory structure and to provide the Commission and 
the CFTC with effective regulatory tools to oversee the OTC derivatives 
markets, which have grown exponentially in recent years and are capable 
of affecting significant sectors of the U.S. economy. The primary goals 
of Title VII, among others, are to increase the transparency and 
efficiency of the OTC derivatives markets and to reduce the potential 
for counterparty and systemic risk.\4\
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    \2\ The Dodd-Frank Wall Street Reform and Consumer Protection 
Act (Pub. L. No. 111-203, H.R. 4173).
    \3\ See id. at Preamble.
    \4\ See ``Financial Regulatory Reform--A New Foundation: 
Rebuilding Financial Supervision and Regulation,'' U.S. Department 
of the Treasury, pp. 47-48 (June 17, 2009).
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    The Dodd-Frank Act provides that the CFTC will regulate ``swaps,'' 
the Commission will regulate ``security-based swaps'' (``SBSs''), and 
the CFTC and the Commission will jointly regulate ``mixed swaps.'' \5\ 
The Dodd-

[[Page 75209]]

Frank Act amends the Exchange Act to require the Commission to adopt 
rules providing for, among other things (1) the reporting of SBSs to a 
registered security-based swap data repository (``SDR'') \6\ or to the 
Commission; and (2) real-time public dissemination of SBS transaction, 
volume, and pricing information.\7\ To fulfill these requirements, the 
Commission today is proposing Regulation SBSR, which would be comprised 
of Rules 900 to 911 under the Exchange Act. In preparation for the 
rulemakings required by the Dodd-Frank Act, the Commission and the CFTC 
held a joint public roundtable (the ``Market Data Roundtable'') on 
September 14, 2010, to gain further insight into many of the issues 
addressed in this proposal.\8\ In addition, the Commission has offered 
the opportunity for the public to express its views on the Commission 
rulemakings required by the Dodd-Frank prior to proposing rules.\9\ The 
rules proposed today generally take into account the views expressed at 
the Market Data Roundtable, as well as any comments received.
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    \5\ Section 712(d) of the Dodd-Frank Act provides that the 
Commission and the CFTC, in consultation with the Board of Governors 
of the Federal Reserve System (``Federal Reserve''), shall jointly 
further define the terms ``swap,'' ``security-based swap,'' ``swap 
dealer,'' ``security-based swap dealer,'' ``major swap 
participant,'' ``major security-based swap participant,'' ``eligible 
contract participant,'' and ``security-based swap agreement.'' These 
terms are defined in Sections 721 and 761 of the Dodd-Frank Act and, 
with respect to the term ``eligible contract participant,'' in 
Section 1a(18) of the Commodity Exchange Act (``CEA''), 7 U.S.C. 
1a(18), as re-designated and amended by Section 721 of the Dodd-
Frank Act. Further, Section 721(c) of the Dodd-Frank Act requires 
the CFTC to adopt a rule to further define the terms ``swap,'' 
``swap dealer,'' ``major swap participant,'' and ``eligible contract 
participant,'' and Section 761(b) of the Dodd-Frank Act requires the 
Commission to adopt a rule to further define the terms ``security-
based swap,'' ``security-based swap dealer,'' ``major security-based 
swap participant,'' and ``eligible contract participant,'' with 
regard to SBSs, for the purpose of including transactions and 
entities that have been structured to evade Title VII of the Dodd-
Frank Act. Finally, Section 712(a) of the Dodd-Frank Act provides 
that the Commission and CFTC, after consultation with the Federal 
Reserve, shall jointly prescribe regulations regarding ``mixed 
swaps,'' as may be necessary to carry out the purposes of Title VII. 
To assist the Commission and CFTC in further defining the terms 
specified above, and to prescribe regulations regarding ``mixed 
swaps'' as may be necessary to carry out the purposes of Title VII, 
the Commission and the CFTC sought comment from interested parties. 
See Securities Exchange Act Release No. 62717 (August 13, 2010), 75 
FR 51429 (August 20, 2010) (File No. S7-16-10) (advance joint notice 
of proposed rulemaking regarding definitions contained in Title VII 
of the Dodd-Frank Act) (``Definitions Release'').
    \6\ A SDR is ``any person that collects and maintains 
information or records with respect to transactions or positions in, 
or the terms and conditions of, security-based swaps entered into by 
third parties for the purpose of providing a centralized 
recordkeeping facility for security based swaps.'' See Section 
3(a)(75) of the Exchange Act, 15 U.S.C. 78c(a)(75). The Commission 
is also proposing today new Rules 13n-1 through 13n-11 under the 
Exchange Act relating to the SDR registration process, the duties of 
SDRs, and the core principles for operating a registered SDR. See 
Securities Exchange Act Release No. 63347 (November 19, 2010) (``SDR 
Registration Proposing Release'').
    \7\ Rules governing the reporting and dissemination of swaps are 
the subject of a separate rulemaking by the CFTC.
    \8\ The Commission and the CFTC solicited comments on the Market 
Data Roundtable. See Securities Exchange Act Release No. 62863 
(September 8, 2010), 75 FR 55575 (September 13, 2010). Comments 
received by the Commission are available at http://www.sec.gov/cgi-bin/ruling-comments?ruling=df-title-vii-real-time-reporting&rule_path=/comments/df-title-vii/real-time-reporting&file_num=DF%20Title%20VII%20-%20Real%20Time%20Reporting&action=Show_Form&title=Real-Time%20Reporting%20-%20Title%20VII%20Provisions%20of%20the%20Dodd-Frank%20Wall%20Street%20Reform%20and%20Consumer%20Protection%20Act.
    \9\ See http://www.sec.gov/spotlight/regreformcomments.shtml.
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    In a separate release, the Commission is today proposing new rules 
under the Exchange Act governing the security-based swap data 
repository registration process, duties, and core principles.\10\ 
Proposed Rules 13n-1 through 13n-11 under the Exchange Act would, among 
other things, require SDRs to comply with the requirements and core 
principles described in Section 13(n) of the Exchange Act. An SDR also 
would be required to appoint a chief compliance officer and specify the 
duties of the chief compliance officer.
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    \10\ See SDR Registration Proposing Release, supra note 6.
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    Taken together, the rules that the Commission proposes today would 
establish comprehensive regulation of SBS data and thus provide 
transparency for SBSs to regulators and the markets. The proposed rules 
would require SBS transaction information to be (1) provided to 
registered SDRs in accordance with uniform data standards; (2) verified 
and maintained by registered SDRs, which would serve as secure, 
centralized recordkeeping facilities that are accessible by regulators 
and relevant authorities; and (3) publicly disseminated in a timely 
fashion by registered SDRs. In combination, these proposed rules are 
designed to promote transparency and efficiency in the SBS markets and 
create an infrastructure to assist the Commission and other regulators 
in performing their market oversight functions.
    In proposing these rules, the Commission is mindful that there may 
be differences between the SBS market and the other securities markets 
that the Commission regulates. For example, though the marketplace has 
developed standardized terms for various types of SBSs, contracts are 
nevertheless customizable. Furthermore, unlike bonds or equity 
securities, SBSs are not today readily fungible. The liquidity 
characteristics of SBSs also may differ in comparison with other 
markets. Relative to the overall equity markets, SBSs trade much less 
frequently, though the trading frequency of some illiquid equities 
would be comparable to that of some SBSs. The liquidity of SBSs 
compared to the bond market depends on the specifics of the SBS and the 
bond (e.g., Treasury, corporate, municipal). Many bonds do not have 
standardized SBS analogs and would therefore be more liquid than 
bespoke customizable SBS contracts that would function as the analog. 
But some market participants have found the SBSs written on some 
issuers and securities to be more liquid and readily tradable during 
certain periods of time than the underlying securities themselves.
    Another notable distinction is that the SBS market does not 
generally have the equivalent of a ``retail'' segment characterized by 
a high-volume of small-sized trades. Though some swaps on some interest 
rates, indices, and currencies may support high volumes, many SBSs 
trade infrequently. For example, an analysis by the staff of trading in 
single-name credit default swaps (``CDS'') show that approximately 90% 
of single-name CDS on corporate issuers trade at an average of five 
times or less per day, with an average trade size of over $5 
million.\11\ This same analysis shows that 89% of single-name CDS on 
sovereign issuers trade at an average of ten times or less per day, 
with an average trade size of over $12 million.
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    \11\ This analysis is based on a sample of dollar-quoted, gold 
record transactions submitted to the Depository Trust & Clearing 
Corporation (``DTCC'') between August 1, 2009, and July 30, 2010.
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    The Commission also is mindful that, both over time and as a result 
of Commission proposals to implement the Dodd-Frank Act, the further 
development of the SBS market may alter some of the specific calculus 
for future regulation of reporting and real-time public dissemination 
of SBS transaction information. During the process of implementing the 
Dodd-Frank Act and beyond, the Commission will therefore closely 
monitor developments in the SBS market.

B. Overview of Security-Based Swap Reporting and Dissemination 
Requirements in the Dodd-Frank Act

1. Security-Based Swap Reporting Requirements

    The Dodd-Frank Act adds several provisions to the Exchange Act that 
require the reporting of information relating to SBSs. Section 3C(e) of 
the Exchange Act \12\ requires the Commission to adopt rules that 
provide for the reporting of SBS data as follows: (1) SBSs entered into 
before the date of enactment of Section 3C shall be reported to a 
registered SDR or the Commission no later than 180 days after the 
effective date of Section 3C (i.e., 540 days after the enactment of the 
Dodd-Frank Act); and (2) SBSs entered into on or after the date of 
enactment of Section 3C shall be reported to a registered SDR or to the 
Commission no later than the later of (1) 90 days after the effective 
date of Section 3C (i.e., 450 days after the enactment of the Dodd-
Frank Act),

[[Page 75210]]

or (2) such other time after entering into the SBS as the Commission 
may prescribe by rule or regulation.
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    \12\ 15 U.S.C. 78c-3(e).
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    In addition, Section 13A(a)(1) of the Exchange Act \13\ requires 
that each SBS that is not accepted for clearing by any clearing agency 
or derivatives clearing organization be reported to (1) an SDR, or (2) 
in the case in which there is no SDR that would accept such SBS, to the 
Commission, within such time period as the Commission may by rule or 
regulation prescribe. Section 13(m)(1)(G) of the Exchange Act \14\ 
provides, further, that each SBS (whether cleared or uncleared) shall 
be reported to a registered SDR. Section 13(m)(1)(F) of the Exchange 
Act \15\ states that the parties to a SBS, including agents of the 
parties to a SBS, shall be responsible for reporting SBS transaction 
information to the appropriate registered entity in a timely manner as 
may be prescribed by the Commission.\16\
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    \13\ 15 U.S.C. 78m-1(a)(1).
    \14\ 15 U.S.C. 78m(1)(G).
    \15\ 15 U.S.C. 78m(m)(1)(F).
    \16\ In addition, Section 13A(a)(2) of the Exchange Act requires 
the Commission to adopt an interim final rule providing for the 
reporting of SBSs entered into before the date of enactment of the 
Dodd-Frank Act the terms of which had not expired as of that date. 
To satisfy this requirement, the Commission adopted Rule 13Aa-2T 
under the Exchange Act, an interim final temporary rule for the 
reporting of such SBSs. See Securities Exchange Act Release No. 
63094 (``Interim Rule Release'').
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    Section 13(n)(4)(A)(i) of the Exchange Act \17\ requires the 
Commission to prescribe standards that specify the data elements for 
each SBS that must be collected and maintained by each registered SDR. 
Further, Section 13(n)(4)(A)(ii) of the Exchange Act \18\ requires the 
Commission, in carrying out Section 13(n)(4)(A)(i) of the Exchange Act, 
to prescribe consistent data element standards applicable to registered 
entities and reporting counterparties. Under Section 13(n)(5) of the 
Exchange Act, a registered SDR must, among other things, maintain the 
SBS data it collects in the form and manner prescribed by the 
Commission, provide the Commission or its designee with direct 
electronic access, and make SBS data available on a confidential basis, 
upon request, to certain regulatory authorities.\19\
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    \17\ 15 U.S.C. 78(n)(4)(A)(i).
    \18\ 15 U.S.C. 78(n)(4)(A)(ii).
    \19\ These responsibilities of registered SDRs under Section 
13(n)(5) of the Exchange Act, 15 U.S.C. 78m(n)(5), will be the 
subject of a separate Commission rulemaking. See SDR Registration 
Proposing Release, supra note 6.
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2. Security-Based Swap Dissemination Requirements
    Section 13(m)(1)(B) of the Exchange Act \20\ authorizes the 
Commission to make SBS transaction and pricing data available to the 
public in such form and at such times as the Commission determines 
appropriate to enhance price discovery, subject to the general 
requirement in Section 13(m)(1)(C) of the Exchange Act \21\ that all 
SBS transactions be subject to real-time public reporting. Section 
13(m)(1)(C) authorizes the Commission to provide by rule for the public 
availability of SBS transaction, volume, and pricing data as follows:
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    \20\ 15 U.S.C. 78m(m)(1)(B).
    \21\ 15 U.S.C. 78m(m)(1)(C).
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    (1) With respect to those SBSs that are subject to the mandatory 
clearing requirement described in Section 3C(a)(1) of the Exchange Act 
(including those SBSs that are excepted from the requirement pursuant 
to Section 3C(g) of the Exchange Act), the Commission shall require 
real-time public reporting for such transactions; \22\
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    \22\ Section 3C(a)(1) of the Exchange Act provides that it shall 
be unlawful for any person to engage in a SBS unless that person 
submits such SBS for clearing to a clearing agency that is 
registered under the Exchange Act or a clearing agency that is 
exempt from registration under the Exchange Act if the SBS is 
required to be cleared. Section 3C(g)(1) of the Exchange Act 
provides that requirements of Section 3C(a)(1) will not apply to a 
SBS if one of the counterparties to the SBS (1) is not a financial 
entity; (2) is using SBSs to hedge or mitigate commercial risk; and 
(3) notifies the Commission, in a manner set forth by the 
Commission, how it generally meets its financial obligations 
associated with entering into non-cleared SBSs.
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    (2) With respect to those SBSs that are not subject to the 
mandatory clearing requirement described in Section 3C(a)(1) of the 
Exchange Act, but are cleared at a registered clearing agency, the 
Commission shall require real-time public reporting for such 
transactions;
    (3) With respect to SBSs that are not cleared at a registered 
clearing agency and which are reported to a SDR or the Commission under 
Section 3C(a)(6),\23\ the Commission shall require real-time public 
reporting for such transactions, in a manner that does not disclose the 
business transactions and market positions of any person; and
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    \23\ The reference in Section 13(m)(1)(C)(iii) of the Exchange 
Act to Section 3C(a)(6) of the Exchange Act is incorrect. Section 3C 
of the Exchange Act does not contain a paragraph (a)(6).
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    (4) With respect to SBSs that are determined to be required to be 
cleared under Section 3C(b) of the Exchange Act but are not cleared, 
the Commission shall require real-time public reporting for such 
transactions.\24\
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    \24\ Section 3C(b)(1) of the Exchange Act requires the 
Commission to review on an ongoing basis each SBS, or any group, 
category, type, or class of SBS to make a determination that such 
SBS, or group, category, type, or class of SBS should be required to 
be cleared.
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    Section 13(m)(1)(A) of the Exchange Act \25\ states that the term 
``real-time public reporting'' means to report data relating to a SBS 
transaction, including price and volume, as soon as technologically 
practicable after the time at which the SBS transaction has been 
executed.
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    \25\ 15 U.S.C. 78m(m)(1)(A).
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    With respect to SBSs that are subject to Sections 13(m)(1)(C)(i) 
and (ii) of the Exchange--i.e., SBSs that are subject to the mandatory 
clearing requirement in Section 3C(a)(1) (including those SBSs that are 
not cleared pursuant to the exception in Section 3C(g)(1)) and SBSs 
that are not subject to the mandatory clearing requirement in Section 
3C(a)(1) but are cleared--Section 13(m)(1)(E) of the Exchange Act \26\ 
requires that the Commission's rule providing for the public 
availability of SBS transaction and pricing data contain provisions to: 
(1) Ensure that such information does not identify the participants; 
(2) specify the criteria for determining what constitutes a large 
notional SBS transaction (block trade) for particular markets and 
contracts; (3) specify the appropriate time delay for reporting large 
notional SBS transactions (block trades) to the public; and (4) that 
take into account whether public disclosure will materially reduce 
market liquidity.
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    \26\ 15 U.S.C. 78m(m)(1)(E).
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    Section 13(m)(1)(D) of the Exchange Act \27\ authorizes the 
Commission to require registered entities \28\ to publicly disseminate 
the SBS transaction and pricing data required to be reported under 
Section 13(m)(1) of the Exchange Act. In addition, Section 
13(n)(5)(D)(ii) of the Exchange Act states that a registered SDR shall 
provide data ``in such form and at such frequency as the Commission may 
require to comply with the public reporting requirements set forth in 
subsection (m).'' \29\
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    \27\ 15 U.S.C. 78m(m)(1)(D).
    \28\ The Exchange Act does not define the term ``registered 
entity'' or ``registered entities.'' The Commission believes that 
the term ``registered entities'' in Sections 13(m)(1)(F) and 
13(n)(4)(A)(ii) of the Exchange Act includes registered SDRs because 
SDRs are required to register with the Commission pursuant to 
Section 13(n) of the Exchange Act, 15 U.S.C. 78m(n).
    \29\ 15 U.S.C. 78m(n)(5)(D)(ii).
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II. Description of Proposed Rules

A. Overview

    In general, proposed Regulation SBSR would provide for the 
reporting of three broad categories of SBS information: (1) Information 
that would be required to be reported to a registered SDR in real

[[Page 75211]]

time and publicly disseminated; \30\ (2) additional information that 
would be required to be reported to a registered SDR or, if there is no 
registered SDR that would receive such information, to the Commission, 
within specified timeframes, but that would not be publicly 
disseminated; and (3) information about ``life cycle events'', as 
defined in proposed Rule 900 \31\ and discussed below, that would be 
reported as a result of a change to information previously reported for 
a SBS. As described in greater detail below, proposed Regulation SBSR 
would identify the SBS transaction information that would be required 
to be reported, establish reporting obligations, and specify the 
timeframes for reporting and disseminating information.
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    \30\ See proposed Rule 900 (defining ``real time'' to mean, with 
respect to the reporting of SBS information, as soon as 
technologically practicable, but in no event later than 15 minutes 
after the time of execution of the SBS, and defining ``time of 
execution'' as the point at which the counterparties to a SBS become 
irrevocably bound under applicable law). See also infra Section III 
(discussing proposed rules relating to real-time public 
dissemination of SBS transaction information).
    \31\ Proposed Rule 900 would provide definitions of various 
terms used in proposed Regulation SBSR and further provide that 
terms that appear in Section 3 of the Exchange Act, 15 U.S.C. 78c, 
would have the same meaning as in Section 3 and the rules or 
regulations thereunder.
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    In addition, proposed Regulation SBSR would require a registered 
SDR to publicly disseminate the SBS information that would be required 
to be reported in real time. Proposed Regulation SBSR also would 
require a registered SDR to register with the Commission as a 
securities information processor (``SIP'') on existing Form SIP.

B. Who Must Report

    Section 13(m)(1)(F) of the Exchange Act \32\ provides that parties 
to a SBS (including agents of parties to a SBS) shall be responsible 
for reporting SBS transaction information to the appropriate registered 
entity in a timely manner as may be prescribed by the Commission. 
Section 13A(a)(3) of the Exchange Act \33\ specifies the party 
obligated to report SBSs that are not accepted by any clearing agency 
or derivative clearing organization. Proposed Rule 901(a) would specify 
which counterparty is the ``reporting party'' for a SBS, thereby 
implementing Sections 13(m)(1)(F) and 13A(a)(3) of the Exchange Act, as 
follows:
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    \32\ 15 U.S.C. 78m(m)(1)(F).
    \33\ 15 U.S.C. 78m[A(a)(3)].
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    <bullet> With respect to a SBS in which only one counterparty is a 
security-based swap dealer (``SBS dealer'') or major security-based 
swap participant (``major SBS participant''),\34\ the SBS dealer or 
major SBS participant shall be the reporting party;
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    \34\ See 15 U.S.C. 78c(a)(71) (defining ``security-based swap 
dealer''); 15 U.S.C. 78c(a)(67) (defining ``major security-based 
swap participant''). See also supra note 5.
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    <bullet> With respect to a SBS in which one counterparty is a SBS 
dealer and the other counterparty is a major SBS participant, the SBS 
dealer shall be the reporting party; and
    <bullet> With respect to any other SBS not described in the first 
two cases, the counterparties to the SBS shall select a counterparty to 
be the reporting party.
    The Exchange Act, as modified by the Dodd-Frank Act, does not 
explicitly specify which counterparty should be the reporting party for 
those SBSs that are cleared by a clearing agency or derivative clearing 
organization. The Commission preliminarily believes that, for the sake 
of uniformity and ease of applicability, the duty to report a SBS 
should attach to the same counterparty regardless of whether the SBS is 
cleared or uncleared. In addition, the Commission preliminarily 
believes that SBS dealers and major SBS participants generally should 
have the responsibility to report SBS transactions, as they are more 
likely than other counterparties to have appropriate systems in place 
to facilitate reporting.
    Accordingly, with respect to a SBS where both counterparties are 
U.S. persons,\35\ proposed Rule 901(a) would assign reporting 
responsibilities as follows:
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    \35\ See proposed Rule 900 (defining ``U.S. person'' to mean a 
natural person that is a U.S. citizen or U.S. resident or a legal 
person that is organized under the corporate laws of any part of the 
United States or has its principal place of business in the United 
States). See also infra Section VIII (discussing application of 
proposed Regulation SBSR to cross-border SBS transactions).
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    <bullet> With respect to a SBS in which only one counterparty is a 
SBS dealer or major SBS participant, the SBS dealer or major SBS 
participant would be the reporting party;
    <bullet> With respect to a SBS in which one counterparty is a SBS 
dealer and the other counterparty is a major SBS participant, the SBS 
dealer would be the reporting party; and
    <bullet> With respect to any other SBS not described in the first 
two cases, the counterparties to the SBS would select a counterparty to 
be the reporting party.
    Proposed Rule 901(a)(1) would provide that, where only one 
counterparty to a SBS is a U.S. person, the U.S. person would be the 
reporting party. The Commission preliminarily believes that, where only 
one counterparty is a U.S. person, assigning the reporting duty to the 
counterparty that is a U.S. person would help to assure compliance with 
the reporting requirements of proposed Regulation SBSR.
    In addition, it is possible that a SBS executed in the United 
States or through any means of interstate commerce, or that is cleared 
through a clearing agency having its principal place of business in the 
United States, could be executed between two counterparties neither of 
which is a U.S. person. Proposed Rule 901(a)(3) would provide that, if 
neither party is a U.S. person but the SBS is executed in the United 
States or through any means of interstate commerce, or is cleared 
through a clearing agency having its principal place of business in the 
United States,\36\ the counterparties to the SBS would be required to 
select a counterparty to be the reporting party.\37\
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    \36\ See proposed Rules 908(a)(2) and (3) and infra Section 
VIII.
    \37\ See infra Section VIII (discussing the requirements for the 
reporting of a SBS if the SBS is executed in the United States or 
through any means of interstate commerce, or is cleared through a 
registered clearing agency having its principal place of business in 
the United States).
---------------------------------------------------------------------------

    To comply with the duty to report in real time itself, a reporting 
party likely would need to develop and maintain an internal order 
management system (``OMS'') capable of capturing all relevant SBS data 
and sending it in real time. The Commission further believes that each 
reporting party likely would need to establish and maintain an 
appropriate compliance program and support for the operation of the OMS 
and reporting mechanism, which could include transaction verification 
and validation protocols, and necessary technical, administrative, and 
legal support. However, proposed Rule 901(a) would not prevent a 
reporting party to a SBS from entering into an agreement with a third 
party to report the transaction on behalf of the reporting party. For 
example, for a SBS executed on a security-based swap execution facility 
(``SB SEF'') \38\ or a national securities exchange, the SB SEF or 
national securities exchange could transmit a transaction report for 
the SBS to a registered SDR. By specifying the reporting party with the 
duty to report SBS information under proposed Regulation SBSR, the 
Commission does not intend to inhibit the development of commercial 
ventures to provide trade processing services to SBS counterparties. 
Nevertheless, a SBS counterparty that is a reporting party would retain 
the obligation to ensure

[[Page 75212]]

that information is provided to a registered SDR in the manner and form 
required by proposed Regulation SBSR, even if the reporting party has 
entered into an agreement with a third party to report on its 
behalf.\39\
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    \38\ See 15 U.S.C. 78c(a)(77) (defining ``security-based swap 
execution facility''). The registration and regulation of SB SEFs is 
the subject of a separate Commission rulemaking.
    \39\ Thus, a reporting party would be liable for a violation of 
proposed Rule 901 if, for example, a SB SEF acting on the reporting 
party's behalf reported a SBS transaction to a registered SDR late 
or inaccurately.
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Request for Comment

    The Commission requests comment on all aspects of the proposal as 
to who would be responsible for reporting SBSs to a registered SDR.
    1. Do any entities currently have the functionality to report SBSs, 
as proposed, to data repositories? If so, who? Do commenters think it 
is likely that entities other than SBS counterparties will develop the 
functionality to report SBSs to registered SDRs? If so, what are these 
entities and how will they operate?
    2. Should the Commission require one or more entities other than a 
SBS counterparty, such as a registered SB SEF, a national securities 
exchange, a clearing agency, or a broker, to report SBSs? Or do 
commenters agree with the Commission's approach of assigning the 
responsibility to report to a counterparty, while allowing the 
counterparty to have an agent (such as a SB SEF) act on its behalf?
    3. In practice, would reporting parties employ agents? Should the 
Commission encourage this?
    4. Are the obligations assigned in proposed Rule 901(a) 
sufficiently clear?
    5. For SBSs executed on a SB SEF or national securities exchange, 
would the counterparties to the SBS have the information necessary to 
know which counterparty would incur the reporting obligation? For 
example, for an anonymous SBS executed on a SB SEF and cleared by a 
clearing agency, would the counterparties know each other's identities? 
If not, what steps could they take to obtain enough information to be 
able to ascertain which party has the reporting obligation? Could the 
SB SEF provide that information to the counterparties? Alternatively, 
should the reporting obligation be assigned to the SB SEF or other 
trading venue?
    6. In cases where counterparties would be required to select which 
counterparty would report the transaction, is additional Commission 
guidance likely to be necessary? Should the Commission adopt a default 
mechanism to allocate the reporting obligation in such cases? For 
example, if a SBS is between two SBS dealers, should the Commission 
mandate that the ``seller'' always have the responsibility for 
reporting?
    7. Do commenters agree with the Commission's proposed approach for 
reporting for SBSs where only one counterparty is a U.S. person? If 
not, how should it be revised?
    8. Do commenters agree with the Commission's proposed approach for 
reporting for SBSs where neither counterparty is a U.S. person? If not, 
how should it be revised?
    9. To what extent would reporting parties have to obtain new or 
update existing OMSs and establish appropriate compliance programs to 
satisfy the real-time reporting obligations of proposed Rule 901(c)? 
Would current systems be able to handle this responsibility? Could 
current systems be upgraded or would they have to be replaced 
completely?

C. Where Information Is Reported

    Proposed Rule 901(b) would require a reporting party to report the 
information required under proposed Regulation SBSR to a registered SDR 
or, if there is no registered SDR that would accept the information, to 
the Commission. The Commission believes that it would be very unlikely 
that there would be a situation where a reporting party would be 
required to report to the Commission rather than a registered SDR. 
Proposed Rule 13n-5(b)(1)(ii) under the Exchange Act would require a 
registered SDR that accepts reports for any SBS in a particular asset 
class to accept reports for all SBSs in that asset class.\40\ Thus, a 
reporting party would not be able to report a SBS transaction to the 
Commission unless no registered SDR accepts transaction information for 
any SBS in the same asset class as the transaction. In addition, there 
currently exist entities that accept SBS transaction data in CDS and 
equity swaps that would likely be required to register as a SDR.
---------------------------------------------------------------------------

    \40\ See SDR Registration Proposing Release, supra note 6.
---------------------------------------------------------------------------

Request for Comment

    10. Is the Commission's belief that it would be unlikely to have a 
situation where a reporting party must report to the Commission rather 
than a registered SDR reasonable?
    11. Do commenters believe that there will be at least one 
registered SDR in each SBS asset class?
    12. Are there any SBS asset classes for which there might not be a 
registered SDR?

III. Information To Be Reported in Real Time

A. Introduction

    Proposed Rule 901 divides the SBS information that would be 
required to be reported into three broad categories: (1) Information 
that would be required to be reported in real time pursuant to proposed 
Rule 901(c) \41\ and publicly disseminated pursuant to proposed Rule 
902; (2) additional information that would be required to be reported 
(but not publicly disseminated) pursuant to proposed Rule 901(d)(1) 
\42\ within the timeframes specified in proposed Rule 901(d)(2), which 
would vary depending on whether the transaction was executed and 
confirmed electronically or manually; and (3) life cycle event 
information that would be required to be reported under proposed Rule 
901(e).\43\
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    \41\ See infra Section III.B (discussing the categories of 
information to be provided for real-time reporting).
    \42\ See infra Section IV.B (discussing those data elements 
required under Rule 901(d)(1)).
    \43\ See infra Section IV.D (discussing the reporting of life 
cycle event information). A registered SDR would be required to 
adopt policies and procedures to determine, among other things, 
whether and how it would publicly disseminate reports of life cycle 
events. See proposed Rule 907(a)(4).
---------------------------------------------------------------------------

    The Commission notes that, although only the information specified 
in proposed Rule 901(c) would be required to be reported in real time, 
proposed Rule 901(c) would not prevent a reporting party from reporting 
some or all of the additional information required under proposed Rule 
901(d)(1) at the same time that it reports the information required 
under proposed Rule 901(c). In other words, proposed Rule 901 would not 
mandate separate reports for the SBS information required under 
paragraphs (c) and (d) of proposed Rule 901; if a reporting party 
wished to provide all of the information required under proposed Rule 
901 in a single transaction report, it would be free to do so--provided 
it could provide all of the information within the timeframe required 
by proposed Rule 901(c).

B. Categories of Information To Be Provided for Real-time Reporting

    Proposed Rule 901(c) would set forth the categories of information 
pertaining to a SBS transaction that a reporting party would be 
required to report to a registered SDR in real time. For the reasons 
discussed below, the Commission preliminarily believes that the SBS 
information required to be reported under proposed Rule 901(c)--which 
the registered SDR would publicly disseminate pursuant to

[[Page 75213]]

proposed Rule 902--would serve the objectives of Section 13(m) of the 
Exchange Act by enhancing price discovery in the SBS market.
    The Commission recognizes that the SBS market involves complex 
instruments and that reporting conventions continue to evolve. 
Consequently, in developing proposed Rule 901, the Commission explored 
various alternative approaches, including mandating by rule an 
enumerated list of all specific data elements to be reported. The 
Commission believes that such a list likely would have to vary by asset 
class (e.g., CDS and equity-based swaps), and would require further 
variations based on sub-asset type.\44\ The Commission understands, 
based on discussion with industry participants, that between 50 and 100 
or more separate data elements could be used to express a typical CDS.
---------------------------------------------------------------------------

    \44\ For example, the following types of CDS could each require 
a different list of data elements: Single-name CDS, index CDS, loan 
CDS, and CDS on asset-backed securities.
---------------------------------------------------------------------------

    A Commission rule that attempted to identify each data element for 
each SBS asset class or sub-asset type could be less flexible in 
responding to changes in the marketplace, including the introduction of 
new types of SBSs, because it would be necessary for the Commission to 
amend its rules each time it sought to require the reporting of 
additional or different data elements. Accordingly, rather than 
enumerating each data element for each SBS asset class or sub-asset 
type that would be required to be reported, proposed Rule 901(c) would 
instead specify the categories of information that would be required to 
be reported for each SBS transaction. Furthermore, proposed Rule 907, 
discussed more fully below, would require each registered SDR to 
establish, maintain, and make publicly available policies and 
procedures that, among other things, specify the data elements of a SBS 
(or a life cycle event) that a reporting party would be required to 
report. These data elements would be required to include, at a minimum, 
the data elements required under proposed Rule 901(c) (for information 
that will be publicly disseminated) and proposed Rule 901(d) (for non-
disseminated regulatory information). The Commission preliminarily 
believes that proposed Rule 901(c), together with these policies and 
procedures, would promote the reporting of uniform, material 
information for each SBS, while providing flexibility to account for 
changes to the SBS market over time.
    The Commission discusses below the SBS data that would be required 
to be reported in real time, and which would be publicly disseminated.
1. Asset Class
    Proposed Rule 901(c)(1) would require the reporting party to report 
the asset class of the SBS and, if the SBS is an equity derivative, 
whether the SBS is a total return swap or is otherwise designed to 
offer risks and returns proportional to a position in the equity 
security or securities on which the SBS is based. Proposed Rule 900 
would define ``asset class'' to mean those SBSs in a particular broad 
category, including, but not limited to, credit derivatives, equity 
derivatives, and loan-based derivatives. The Commission believes that 
identifying the asset class would provide market participants with 
basic information about the SBS transaction to identify the type of SBS 
being publicly reported. In addition, requiring the reporting party to 
indicate whether the SBS is an equity total return swap or is otherwise 
designed to offer risks and returns proportional to a position in the 
equity security or securities on which the SBS is based would enable a 
registered SDR to know if the SBS was excluded from being a block 
trade.\45\
---------------------------------------------------------------------------

    \45\ See proposed Rule 907(b)(4)(ii).
---------------------------------------------------------------------------

2. Date and Time of Execution
    Proposed Rule 901(c)(4) would require the reporting party to report 
the date and time, to the second, of execution of a SBS, so that prices 
of transactions that are disseminated in real time can be properly 
ordered, and so the Commission can have a detailed record of when any 
given SBS was executed. In the absence of this information, market 
participants and regulators would not know whether transaction reports 
they are seeing reflect the current state of the market.
    The Commission preliminarily believes that the time at which the 
SBS transaction has been executed should be the point at which the 
counterparties to a SBS become irrevocably bound under applicable 
law.\46\ For example, in the context of SBSs, an oral agreement over 
the phone will create an enforceable contract, and the time of 
execution would be deemed to be the time that the parties to the 
telephone call agree to the material terms.\47\ The Commission 
recognizes that trades agreed to over the phone would need to be 
systematized for purposes of fulfilling this reporting requirement (as 
well as real-time reporting of other data elements) by being entered in 
an electronic system that assigns a time stamp. The Commission believes 
that it is consistent with Congress' intent for orally negotiated SBS 
transactions to be systematized as quickly as possible so that they 
could be publicly disseminated using electronic means.\48\
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    \46\ See proposed Rule 900. Section 13(m)(1)(A) of the Exchange 
Act defines ``real time'' in relation to the ``execution'' of the 
SBS, not when it is confirmed or cleared.
    \47\ The Dodd-Frank Act amends the definition of ``security'' 
under the Securities Act and Exchange Act to explicitly include 
SBSs, and the execution of the transaction will be the sale for 
purposes of the federal securities laws. See Securities Act Release 
No. 3591 (July 19, 2005), 70 FR 44722 (August 3, 2005), notes 391 
and 394 (explaining when a sale occurs under the Securities Act).
    \48\ The Senate Report accompanying the Dodd-Frank Act indicates 
that ``[m]arket participants--including exchanges, contract markets, 
brokers, clearing houses and clearing agencies-were consulted and 
affirmed that the existing communications and data infrastructure 
for the swaps markets could accommodate real time swap transaction 
and price reporting.'' The Senate Report stated, further, that real 
time swap transaction and price reporting would narrow swap bid/ask 
spreads, make for a more efficient swaps market and benefit 
consumers and counterparties overall. See 156 Cong. Rep. S5921 (July 
15, 2010). In light of this acknowledgement of the benefits of real-
time SBS transaction and price reporting, and the apparent 
feasibility of such reporting, the Commission believes that Congress 
intended for orally negotiated SBS transactions to be systematized 
as quickly as possible and reported in real time.
---------------------------------------------------------------------------

    The Commission is proposing that the date and time of execution be 
expressed using Coordinated Universal Time (``UTC''), a slight 
variation on Greenwich Mean Time.\49\ SBSs are traded globally, and the 
Commission expects that many SBSs subject to these reporting and 
dissemination rules would be executed between counterparties in 
different time zones. In the absence of a uniform standard, it might 
not be clear whether the date and time of execution were being 
expressed from the standpoint of the time zone of the first 
counterparty, the second counterparty, or the registered SDR itself. 
Mandating a common standard for expressing date and time is designed to 
alleviate any potential confusion on the part of registered SDRs, 
counterparties, other market participants, and the public as to when 
the SBS was executed. The Commission believes that UTC is an 
appropriate and well known standard

[[Page 75214]]

suitable for purposes of reporting the time of execution of SBSs.
---------------------------------------------------------------------------

    \49\ The generally acknowledged acronym for Coordinated 
Universal Time is ``UTC,'' rather than ``CUT.'' The International 
Telecommunication Union, an agency of the United Nations that 
oversees information and communication technology issues, wanted 
Coordinated Universal Time to have the same symbol in all languages. 
English and French speakers wanted the initials of both their 
respective language's terms to be used internationally: ``CUT'' for 
``coordinated universal time'' and ``TUC'' for ``temps universel 
coordonn[eacute].'' This resulted in the final compromise of 
``UTC.'' See http://www.nist.gov/physlab/div847/utenist.cfm#cut.
---------------------------------------------------------------------------

3. Price
    Proposed Rule 901(c)(7) would require the reporting of the price of 
a SBS transaction, expressed in terms of the commercial conventions 
used in that asset class.\50\ The Commission recognizes that the price 
of a SBS generally would not be a simple number, as with stocks, but 
would be expressed in terms of the quoting conventions for that SBS. 
For example, a CDS may be quoted in terms of the economic spread--which 
is variously referred to as the ``traded spread,'' ``quote spread,'' or 
``composite spread''--expressed as a number of basis points per annum. 
Alternately, CDS can be quoted in terms of prices representing a 
discount or premium over par. In contrast, an equity or loan total 
return swap may be quoted in terms of a LIBOR-based floating rate 
payment, expressed as a floating rate plus a fixed number of basis 
points.
---------------------------------------------------------------------------

    \50\ One commenter identified the traded price as one of the 
elements that should be included in a SBS transaction report. See 
letter from James W. Toffey, Chief Executive Officer, Benchmark 
Solutions, to David A. Stawick, Secretary, CFTC, and Elizabeth M. 
Murphy, Secretary, Commission, dated October 1, 2010 (``Benchmark 
Letter'') at 2.
---------------------------------------------------------------------------

    The Commission preliminarily believes that, because these quoting 
conventions are widely used and understood by SBS market participants, 
requiring the price of a SBS to be reported in terms of one of these 
existing quoting conventions would be consistent with the mandate in 
Section 13(m)(1)(B) of the Exchange Act to enhance price discovery. As 
discussed further below, however, proposed Rule 907(a)(1) would require 
a registered SDR to establish, maintain, and make publicly available 
policies and procedures that specify the data elements of a SBS that a 
reporting party must report, which would include the elements that 
constitute the price. The Commission preliminarily believes that, 
because of the many different conventions that exist to express the 
price in various SBS markets and the new conventions that might arise 
in the future, some flexibility should be given to registered SDRs to 
select appropriate conventions for denoting the price of different 
asset classes of SBSs.
4. Other Terms of the SBS
    Proposed Rule 901(c) would require the reporting of, among other 
things, information that identifies the SBS instrument \51\ and the 
specific asset(s) or issuer(s) of a security or indexes on which the 
SBS is based; the notional amount(s) of the SBS and the currenc(ies) in 
which the notional amount(s) is expressed; the effective date of the 
SBS; the scheduled termination date of the SBS; and the terms of any 
fixed or floating rate payments and the frequency of any payments. The 
Commission preliminarily believes that this information is fundamental 
to understanding the SBS transaction being publicly reported, and that 
a SBS transaction report that lacked such information would not be 
meaningful.
---------------------------------------------------------------------------

    \51\ See proposed Rule 900 (defining ``security-based swap 
instrument'' to mean each SBS in the same asset class, with the same 
underlying reference asset, reference issuer, or reference index).
---------------------------------------------------------------------------

    For example, some types of SBSs are contractual agreements that 
generally involve the periodic exchange of cash flows from specified 
assets over a defined time period. These cash flows are based on the 
notional amount(s) of the SBS--i.e., the notional principal(s) of the 
SBS is used to calculate the periodic payments made under the 
agreement. Accordingly, information that identifies the asset(s), 
including a narrow-based index, or issuer(s) of the security or 
securities on which a SBS is based, the notional amount(s) of the SBS 
(including the currenc(ies) in which it is expressed), the effective 
date, and the scheduled termination date of that SBS are fundamental 
elements of the transaction that would enhance price discovery.\52\
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    \52\ One commenter believed that a SBS transaction report should 
include: (1) The traded price and execution time; (2) the 
counterparty type, including a designation for an ``end user;'' (3) 
the notional size of the transaction; and (4) contract ``open 
interest.'' See Benchmark Letter at 2. In addition, the commenter 
believed that the reference data for a SBS must include ``standard 
attributes necessary to derive cash flows and any contingent claims 
that can alter or terminate payments'' of the SBS. See id. at 1. As 
described above, the proposed rules would require the real-time 
reporting of price and time of execution, notional size, and an 
indication of whether a SBS is between two dealers. The proposed 
rules would not require the reporting of ``open interest.'' However, 
another Commission rulemaking will provide regulators with the 
ability to monitor open SBS positions. See SDR Registration 
Proposing Release, supra note 6.
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    The Commission anticipates that, for at least some standardized 
instruments, conventions about how a SBS instrument is referred to can 
become so well known that certain terms of the underlying contract can 
be assumed, and thus would not need to be specifically provided 
pursuant to other provisions of proposed Rule 901(c).
5. Whether the SBS Will Be Cleared by a Clearing Agency
    Proposed Rule 901(c)(9) would require the reporting party to 
indicate whether or not the SBS will be cleared by a clearing agency. 
This factor can impact the price of the SBS. If a SBS is not cleared, 
one counterparty might charge a higher price to do the trade because of 
the counterparty credit risk it would incur (which might be 
significantly diminished if the SBS were centrally cleared). Because 
the use of a clearing agency to clear a SBS would thus impact price, 
knowing whether a SBS will be cleared should provide market 
participants with additional information that would be useful in 
assessing the reported price for a SBS, thus enhancing price discovery. 
Therefore, the Commission is proposing to require that this data 
element be reported in real time and publicly disseminated.
6. Indication That a Transaction Is Between Two SBS Dealers
    Proposed Rule 901(c)(10) would require the reporting party to 
indicate if both counterparties to the SBS are SBS dealers. The 
Commission preliminarily believes that such an indication would enhance 
market transparency and provide more accurate information about the 
pricing of the SBS transaction, and thus about trading activity in the 
SBS market. Prices of transactions involving a dealer and non-dealer 
are typically ``all-in'' prices that include a mark-up or mark-down, 
while interdealer transaction prices typically do not. Thus, the 
Commission believes that requiring an indication of whether a SBS was 
an interdealer transaction or a transaction between a dealer and a non-
dealer counterparty would enhance transparency by allowing market 
participants to more accurately assess the reported price for a SBS.
7. If Applicable, an Indication That the SBS Transaction Does Not 
Accurately Reflect the Market
    In some instances, a SBS transaction might not reflect the current 
state of the market. Thus, publicly disseminating a report of that 
transaction without an indication to that effect could mislead market 
participants and other observers. The Commission does not expect that a 
registered SDR would be able to identify such cases. Therefore, 
proposed Rule 901(c)(11) would require the reporting party to alert the 
registered SDR in such cases. This could occur, for example, if the 
reporting party were reporting the transaction late (i.e., over 15 
minutes after the time of execution). An aged transaction by definition 
no longer represents the current state of the market, and a reporting 
party would therefore be required to indicate that the

[[Page 75215]]

transaction is being reported late.\53\ Other situations where this 
could occur are inter-affiliate transfers and assignments where the new 
counterparty has no opportunity to negotiate the terms, including the 
price, of taking on the position. In such cases, there might not be an 
arm's length negotiation over the terms of the SBS transaction, and 
disseminating a report of the transaction report without noting that 
fact would be inimical to price discovery. Accordingly, the Commission 
preliminarily believes that a reporting party must note such 
circumstances in its real-time transaction report to a registered SDR.
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    \53\ The registered SDR could deduce that a transaction has been 
reported late by looking to the time of execution, a data element 
required to be reported by proposed Rule 901(c)(4). However, if a 
registered SDR received a transaction report submitted with an 
anomalous time stamp, the registered SDR might not know whether the 
time stamp was correct and the trade was reported late, or whether 
the trade was reported in a timely fashion but the time stamp was 
inaccurate. Supplementing the time stamp with a ``late'' indicator 
would confirm to the registered SDR that the transaction was in fact 
being reported late.
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    The Commission further notes that a registered SDR would be 
required to have policies and procedures that, among other things, 
describe how reporting parties shall report SBS transactions that, in 
the estimation of the registered SDR, do not accurately reflect the 
market.\54\ The Commission expects that these policies and procedures 
would require, among other things, different indicators being applied 
in different situations.
---------------------------------------------------------------------------

    \54\ See proposed Rule 907(a)(4); infra Section VI.A.
---------------------------------------------------------------------------

8. Indication for Customized Trades
    Proposed Rule 901(c)(12) would provide that the reporting party 
must indicate if the SBS is customized to the extent that the other 
information provided pursuant to proposed Rule 901(c) does not provide 
all of the material information necessary to identify such customized 
SBS or does not contain the data elements necessary to calculate the 
price of the SBS. The Commission believes that reporting highly 
customized SBS in this manner would promote transparency by providing 
market participants with knowledge of the transaction in a given asset 
class and on certain reference securities or issuers while, at the same 
time, making clear that the reported data elements would not, and would 
not be required to, provide sufficient information to fully understand 
all aspects of the customized transaction. The Commission preliminarily 
believes that requiring public dissemination of more detailed 
information about customized SBSs would be of limited utility in 
facilitating price discovery because of the unique nature of such 
transactions.

Request for Comment

    The Commission requests comment generally on all aspects of the 
categories of information that would be required to be reported in real 
time for public dissemination.
    13. Do commenters agree with the proposed categories of information 
that would be required to be reported in real time for public 
dissemination? If not, what additional specific categories of 
information should be required to be reported in real time for public 
dissemination, and why? How would public dissemination of such 
additional information enhance price discovery or market liquidity?
    14. What categories of information, if any, should not be required 
to be reported in real time for public dissemination, and why? Would 
the public dissemination of certain information materially reduce 
market liquidity? If so, how, specifically, would dissemination of the 
particular information affect liquidity? Please supply data to support 
your answer.
    15. Does proposed Rule 901(c) provide adequate guidance with 
respect to the information that must be reported? If not, what 
additional guidance do commenters believe is necessary?
    16. Would the real-time dissemination of the categories of 
information specified in proposed Rule 901(c) serve the objectives of 
Section 13(m) of the Exchange Act by enhancing price discovery in the 
SBS market? If so, how? Would disclosure of certain categories of 
information not further price discovery? If so, why not? Please provide 
examples.
    17. Is it necessary to require dissemination of the date of 
execution, unless it is a date other than the current date?
    18. Do commenters agree that it would be feasible to require SBSs 
agreed to by phone to be entered into an electronic system that assigns 
a time stamp? Why or why not?
    19. Do commenters agree that the time of execution should be 
reported to the second? Why or why not? Should it be reported in a 
finer increment?
    20. Would requiring the reporting and dissemination of price in 
terms of the existing quoting conventions provide adequate information 
regarding the price of a SBS? Where more than one quoting or pricing 
convention exists within an asset class, what convention should be 
used? Should proposed Regulation SBSR require specific conventions to 
be used?
    21. Are there specific data elements that should be required to be 
reported to help understand the price of a SBS? If so, what are they, 
and do they vary by asset class? Or by some further categorization?
    22. Are there categories of SBSs that do not have an existing 
quoting convention? If so, how should ``price'' be expressed for those 
SBSs? What data elements should be required to be reported and 
disseminated to capture the price of such SBSs?
    23. Would information regarding whether a SBS is cleared impact the 
price of the SBS? If not, why not? Would the reporting party in all 
cases know whether the SBS transaction will be cleared?
    24. Would information concerning whether a SBS is a transaction 
between two SBS dealers enhance transparency and provide more accurate 
information about the pricing of the SBS? If not, why not?
    25. In a SBS executed on a SB SEF or national securities exchange, 
would a counterparty know in real time the category of its 
counterparty, e.g., whether its counterparty is a SBS dealer, a major 
SBS participant, or not?
    26. Do commenters agree that it would be appropriate for reporting 
parties to report whether a SBS transaction accurately reflects the 
market? How should such ``off-market'' transactions be defined? Could 
public dissemination of potential off-market transactions (e.g., 
related to portfolio compressions) make it more difficult for market 
participants to understand and analyze market pricing?
    27. Do commenters agree with the proposed approach for real-time 
reporting and public dissemination with respect to customized SBSs? 
Should the Commission require that additional information be reported 
and publicly disseminated for these SBSs? How practical would it be to 
report and publicly disseminate sufficient details about a customized 
SBSs in real time? Is there sufficient agreement over which SBSs should 
be considered customized for this purpose or is additional guidance 
needed? Is there a risk that this rule could be applied inconsistently 
by counterparties or across asset classes? Would public dissemination 
of information concerning customized SBSs materially reduce market 
liquidity? If so, why?
    28. Would real-time transaction reports of customized SBSs have 
price discovery value? If so, in what way and how much? If not, why 
not? Would price discovery be enhanced by

[[Page 75216]]

requiring public dissemination of additional details of a customized 
SBS at a later time? If so, what additional details of the transaction 
should be publicly disseminated, and when?
    29. Would any of the data elements specified in proposed Rule 
901(c), if reported in real time, reveal the trading strategies or 
positions of any person? If so, how?
    30. What do commenters believe would be the costs of reporting and 
publicly disseminating the proposed categories of information for SBSs? 
Or the benefits? Please be specific in your responses, and quantify 
your answers to the extent possible.

C. Definition of Real Time

    Proposed Rule 900 would define ``real time'' to mean, with respect 
to the reporting of SBS transaction information, ``as soon as 
technologically practicable, but in no event later than 15 minutes 
after the time of execution of the SBS transaction.'' \55\ The 
Commission preliminarily believes that this proposed definition of 
``real-time'' reporting is consistent with Sections 13(m)(1)(A) and (B) 
of the Exchange Act and technologically practicable in light of current 
industry practice.\56\ Based on its discussions with market 
participants, the Commission understands that much of the 
infrastructure necessary to support real-time reporting to a registered 
SDR may already be in place.\57\ The Commission understands, further, 
that the SBS market is almost entirely institutional, and large 
institutions have in place the systems and processes necessary to 
support trading and risk management of complex structured products. In 
many cases, trade details will already be systematized and little or no 
manual intervention would be necessary to aggregate or send the 
transaction data. In such cases, where it is technologically 
practicable for a reporting party to report the SBS transaction 
information required by proposed Rule 901(c) in one second, then it 
would be required to report the SBS transaction to a registered SDR in 
one second.
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    \55\ See supra note 30 (noting that the ``time of execution'' 
would mean the point at which the counterparties to a SBS become 
irrevocably bound under applicable law).
    \56\ The Commission notes, in addition, that the Senate report 
accompanying the Dodd-Frank Act indicates that ``[m]arket 
participants--including exchanges, contract markets, brokers, 
clearing houses and clearing agencies--were consulted and affirmed 
that the existing communications and data infrastructure for the 
swaps markets could accommodate real time swap transaction and price 
reporting.'' See 156 Cong. Rec. S5921 (July 15, 2010).
    \57\ See, e.g., CFTC and SEC, Public Roundtable to Discuss Swap 
Data, Swap Data Repositories, and Real Time Reporting, transcript 
available at http://www.cftc.gov/ucm/groups/public/@swaps/documents/file/derivative18sub091410.pdf, comments of Sean Bernardo, Managing 
Director of Tullett Prebon Americas Corp. and representing the 
Wholesale Market Brokers Association, at 297 (``From the brokers' 
perspective, however you tell us to send those [transactions] 
straight to you, whatever the time frame is, we're able to do that, 
whether it's done voice, whether it's done electronic, or whether 
it's done hybrid''), and at 310 (``From the brokers' perspective, we 
already have these systems in place for 99 percent of these products 
already in some way, shape, or form. So, as far as upgrading them, 
we're upgrading the systems on a regular basis. So, I think, again, 
we can accommodate the needs that you have, and we currently do a 
lot of the reporting and * * * processing with the firms'').
---------------------------------------------------------------------------

    The Commission recognizes that, in other cases, a SBS transaction 
might be negotiated orally, and some manual data entry might be 
necessary before a transaction report could be sent. At the same time, 
however, the Commission believes it is appropriate to encourage market 
participants to take steps to minimize manual handling of such 
transactions, because the Dodd-Frank Act requires price and volume 
information of all SBS transactions to be disseminated publicly as soon 
as technologically practicable after the time of execution. 
Furthermore, the Commission notes that real-time reporting under 
proposed Rule 901(c) would require only certain elements of the trade 
to be systematized and reported, not all of the data elements that are 
required for full regulatory reporting under proposed Rule 901(d). The 
Commission is, therefore, proposing a 15-minute outer boundary for 
real-time public reporting of the data elements specified in proposed 
Rule 901(c) following the SBS's time of execution.\58\
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    \58\ One commenter believed that SBS transaction reports should 
be disseminated to the market within five minutes of execution, or 
as soon as technologically feasible. See Benchmark Letter at 2. The 
commenter noted that ``the sooner post trade data is accessible to 
the market, the more effectively it can feed back into the update 
cycle of pre-trade information. Better pre-trade information allows 
investors to make more well-informed decisions regarding market 
values, risk and helps assure that investors achieve best 
execution.'' Id. Another commenter argued that ``voice/hybrid 
execution systems'' should have the same reporting timeframes as 
venues that execute electronically, because ``a bifurcated 
requirement could result in an inaccurate trade tape confusing the 
market and regulator alike,'' and because ``such a bifurcation might 
also create a `race to the slowest' * * * as certain market 
participants, seeking to shroud their trading, favor slower 
reporting SEF's with their business over more efficient and 
transparent counterparts.'' See letter from James Cawley, CEO, 
Javelin Capital Markets, to SEC and CFTC (October 20, 2010) 
(``Javelin Letter'') at 2. The Commission further notes that the 
Financial Industry Regulatory Authority (``FINRA'') requires its 
members to report transactions in corporate and agency debt 
securities to FINRA's Transaction Reporting and Compliance Engine 
(``TRACE'') within 15 minutes of the time of execution. See FINRA 
Rule 6730(a). For purposes of TRACE reporting, the time of execution 
generally means the time when the parties to the trade agree to all 
of the terms of the transaction that are sufficient to calculate the 
dollar price of the trade. See FINRA Rule 6710(d). FINRA has 
indicated that, based on 2009 figures, approximately 98% of 
corporate bond trades were reported within 15 minutes, 96% within 
ten minutes, and 92% within five minutes. See e-mail from Steve 
Joachim, Executive Vice President for Transparency Services, FINRA, 
to Michael Gaw, Assistant Director, Division of Trading and Markets, 
Commission (November 17, 2010).
---------------------------------------------------------------------------

    Under the proposed approach, a reporting party would not be 
permitted to delay submission of a transaction report required by 
proposed Rule 901(c) while preparing the information necessary to 
provide a transaction report under proposed Rule 901(d), even if the 
reporting party could prepare the latter in under 15 minutes. Assume, 
for example, that two counterparties execute a SBS on an electronic 
trading platform, which permits the collection and transmission of all 
information required by proposed Rule 901(c) in one second, and all 
other details of the SBS can be confirmed in eight minutes. The 
reporting party would not be permitted to wait eight minutes to send a 
single transaction report containing the information required under 
proposed Rules 901(c) and (d) to a registered SDR. Instead, the 
reporting party would be required to send the information required by 
proposed Rule 901(c) in one second--because one second in this example 
is as soon as technologically practicable--and to send the information 
required by proposed Rule 901(d) in eight minutes. The Commission 
preliminarily believes that this approach is most conducive to price 
discovery. Collecting data elements that have less bearing on price 
discovery (such as those required by proposed Rule 901(d)) should not 
slow down the public dissemination of data elements that would 
facilitate price discovery (i.e., those required by proposed Rule 
901(c)).

Request for Comment

    31. Do commenters agree with the proposed definition of ``real 
time''? Would it be technologically practicable in all cases to report 
the information that would be required under proposed Rule 901(c) 
within 15 minutes? If not, why not? Would it be technologically 
practicable for some, but not all, SBSs? Or some, but not all, of the 
data elements? If so, what are the differentiating factors?
    32. Should the Commission require shorter reporting time frames for 
certain SBS transactions? For example, should electronically executed 
SBSs be

[[Page 75217]]

reported as soon as technologically practical but in any event no later 
than 5 seconds? 30 seconds? Some other period? What should that period 
be, and why?
    33. Should the Commission require longer reporting time frames for 
orally executed SBS transactions (such as 30 minutes)? If so, what 
should that longer period be, and why?
    34. If there were a longer reporting time frame for orally executed 
SBSs, would the potential benefits of real-time public reporting be 
compromised? If so, how? If not, why not? Would this create an 
incentive for market participants to prefer oral negotiation of SBSs to 
delay real-time reporting of their transactions?
    35. In the context of real-time reporting of SBS transactions, what 
is ``technologically practicable''? Should the Commission define that 
term specifically? What systems and processes would be necessary to 
report orally concluded SBSs as soon as technologically practicable? 
Does this imply a requirement that all such SBSs must be immediately 
systematized?
    36. What do commenters believe would be the costs of reporting the 
proposed data elements within 15 minutes? What would be the benefits? 
Please be specific in your response, and quantify the costs and 
benefits to the extent possible.

IV. Additional Reporting of Regulatory Information

A. Introduction

    Proposed Rule 901(d) would require the reporting, within specified 
timeframes, of certain SBS transaction information that would not be 
publicly disseminated, in addition to the information required to be 
reported in real time pursuant to proposed Rule 901(c) that would be 
publicly disseminated. The Commission believes that the information 
that would be reported pursuant to proposed Rule 901(d) would 
facilitate regulatory oversight and monitoring of the SBS market by 
providing comprehensive information regarding SBS transactions and 
trading activity.\59\ The Commission believes, further, that this 
information would assist the Commission in detecting and investigating 
fraud and trading abuses in the SBS market.
---------------------------------------------------------------------------

    \59\ To the extent the Commission receives information that is 
reported under proposed Rule 901(d), such information would be kept 
confidential, subject to the provisions of the Freedom of 
Information Act.
---------------------------------------------------------------------------

B. Data Elements Required Under Proposed Rule 901(d)

    The data elements that would be required to be reported by the 
reporting party for each SBS pursuant to proposed Rule 901(d) are 
discussed below.
1. Unique Identifiers
    Proposed Rule 901(d) would require the reporting of a participant 
ID of each counterparty and, as applicable, the broker ID, desk ID, and 
trader ID of the reporting party. The Commission preliminarily believes 
that reporting of this information would help promote effective 
oversight, enforcement, and surveillance of the SBS market by the 
Commission and other regulators. For example, activity could be tracked 
by a particular participant, a particular desk, or a particular trader. 
Regulators could observe patterns and connections in trading activity, 
or examine whether a trader had engaged in questionable activity across 
different SBS instruments. These identifiers also would facilitate 
aggregation and monitoring of the positions of SBS counterparties, 
which could be of significant benefit for systemic risk management.
    The Commission understands that some efforts have been undertaken--
in both the private and public sectors, both domestically and 
internationally--to establish a comprehensive and widely accepted 
system for identifying entities that participate not just in the SBS 
market, but in the financial markets generally. Such a system could be 
of significant benefit to regulators worldwide, as each market 
participant could readily be identified using a single reference code 
regardless of the jurisdiction or product market in which the market 
participant was engaging. Such a system also could be of significant 
benefit to the private sector, as market participants would have a 
common identification system for all counterparties and reference 
entities, and would no longer have to use multiple identification 
systems. The enactment of the Dodd-Frank Act and the establishment of a 
comprehensive system for reporting and dissemination of SBSs--and for 
reporting and dissemination of swaps, under the jurisdiction of the 
CFTC--offer a unique opportunity to facilitate the establishment of a 
comprehensive and widely accepted system for identifying entities that 
participate not just in the SBS market, but in the financial markets 
generally.\60\
---------------------------------------------------------------------------

    \60\ One commenter believes that a single source of reference 
data and a standard set of unique identifiers must be used across 
the industry (i.e., SB SEFs and SDRs) to ensure the comparability of 
similar contracts. The commenter urged the Commission to work with 
the industry to standardize terms and definitions of all reference 
data components and establish a single master reference data source. 
See Benchmark Letter at 1. See also Neal S. Wolin, Deputy Secretary 
of the Treasury, Remarks at Georgetown University McDonough School 
of Business (October 25, 2010), available at http://www.treas.gov/press/releases/tg923.htm (stating that the Office of Financial 
Research (``OFR'') ``is working with regulators and industry, laying 
the groundwork to standardize financial reporting and develop 
reference data that will identify and describe financial contracts 
and institutions. Data standardization will provide for more 
consistent and complete reporting, making the data available to 
decision makers easier to obtain, digest, and utilize. Over the 
coming weeks and months, the OFR will begin to define a set of 
standards for reporting of financial transaction and position data. 
The OFR will collaborate with the financial industry, data experts, 
and regulators to develop an approach to standardization that works 
for everyone'').
---------------------------------------------------------------------------

    The Commission preliminarily believes that a registered SDR must 
have a systematic means to identify and track all products and all 
persons involved in SBS transactions captured and recorded by the 
registered SDR. Therefore, the Commission is requiring that a ``unique 
identification code'' (``UIC'') be assigned to each such product or 
person (or unit thereof, such as a branch or desk of a financial 
institution). Thus, under proposed Regulation SBSR, the ``participant 
ID'' would mean the UIC assigned to a participant.\61\ ``Broker ID'' 
would be defined as the UIC assigned to an entity acting as a broker 
for a participant. ``Desk ID'' would be defined as the UIC assigned to 
the trading desk of a participant or of a broker of a participant, and 
``trader ID'' would be defined as the UIC assigned to a natural person 
who executes SBSs.
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    \61\ ``Participant'' would be defined as: (1) a U.S. person that 
is a counterparty to a SBS that is required to be reported to a 
registered SDR; or (2) a non-U.S. person that is a counterparty to a 
SBS that is (i) required to be reported to a registered SDR; and 
(ii) executed in the United States or through any means of 
interstate commerce, or cleared through a clearing agency having its 
principal place of business in the United States. See proposed Rule 
900.
---------------------------------------------------------------------------

    Under the definition of ``unique identification code'' in proposed 
Rule 900, a UIC would have to be assigned by or on behalf of an 
internationally recognized standards-setting body (``IRSB'') that 
imposes fees and usage restrictions that are fair and reasonable and 
not unreasonably discriminatory. The Commission seeks to avoid 
requiring market participants to participate in a system that would 
require them to pay unreasonable fees, or that would permit 
discrimination among potential users of the system. Thus, the 
definition of ``UIC'' would further provide that, if no standards-
setting body meets these criteria, a

[[Page 75218]]

registered SDR would be required to assign all necessary UICs using its 
own methodology.
    The Commission preliminarily believes that, if an IRSB meets these 
criteria, the UICs employed by a registered SDR must come from the 
IRSB, and participants of that registered SDR must take necessary steps 
to obtain UICs from that IRSB. However, it could take an extended 
period for an IRSB to assign, or establish protocols for assigning, 
UICs for all entities participating in the SBS market. A registered SDR 
would be required to use the UICs available from the IRSB's system, 
while using its own methodology to assign the rest. In addition, the 
definition of ``UIC'' would provide that, if a standards-setting body 
meets these criteria but has not assigned a UIC to a particular person, 
unit of a person, or product, a registered security-based swap data 
repository would be required to assign a UIC to that person, unit of a 
person, or product using its own methodology.
    The proposed definition of ``UIC'' would not require that a UIC be 
assigned ``by'' a IRSB itself. Rather, the proposed definition would 
provide only that the UIC be assigned ``by or on behalf of'' the IRSB. 
This is designed to preserve flexibility in how UICs may be assigned. 
An IRSB might establish the general protocols under which UICs are 
assigned, while another entity operating as an agent on behalf of the 
IRSB might assign the UICs pursuant to the protocols established by the 
IRSB. The proposed definition would allow for that possibility.
2. Other Terms of the SBS
    Proposed Rule 901(d) would require identification of the amount(s) 
and currenc(ies) of any up-front payment(s) and a description of the 
terms and contingencies of the payment streams of each counterparty to 
the other; \62\ the title of any master agreement, or any other 
agreement governing the transaction (including the title of any 
document governing the satisfaction of margin obligations), 
incorporated by reference and the date of any such agreement; and the 
data elements necessary to calculate the market value of a 
transaction.\63\ In addition, for a SBS that is not cleared, proposed 
Rule 901(d) would require a description of the settlement terms, 
including whether the SBS is cash-settled or physically settled, and 
the method for determining the settlement value.\64\
---------------------------------------------------------------------------

    \62\ For example, this would include, for a CDS, an indication 
of the counterparty purchasing protection and the counterparty 
selling protection, and the terms and contingencies of their 
payments to each other; and for other SBSs, an indication of which 
counterparty is long and which is short. This information could be 
useful to regulators in investigating suspicious trading activity.
    \63\ The Commission believes that these elements would include, 
for a SBS that is not cleared, information related to the provision 
of collateral, such as the title and date of the relevant collateral 
agreement.
    \64\ One commenter believed that a SBS transaction report should 
include information necessary to derive cash flows and any 
contingent claims that could alter or terminate payments of the SBS. 
See Benchmark Letter at 1. This is similar to the information 
required by proposed Rule 901(d)(1)(iii).
---------------------------------------------------------------------------

    The Commission believes that each of these data elements would 
facilitate regulatory oversight of counterparties and the SBS market 
generally by providing information concerning counterparty obligations 
and risk exposures. For example, the reporting of data elements 
necessary to calculate the market value of a transaction would allow 
regulators to value an entity's SBS positions and calculate the 
exposure resulting from those positions. The Commission understands, 
based on discussions with industry participants, that market 
participants currently provide this information regarding SBSs to data 
repositories.
3. Clearing Information
    Proposed Rule 901(d) would require the reporting of the name of the 
clearing agency, if the SBS is cleared. The Commission believes that 
the identity of the clearing agency that cleared a SBS is fundamental 
information regarding a cleared SBS. This information would allow 
regulators to verify, if necessary, that a SBS was cleared, and to 
easily identify the clearing agency that cleared the transaction.
    Proposed Rule 901(d) also would require the reporting party to 
report, if the SBS is not cleared, whether the exception provided in 
Section 3C(g) of the Exchange Act was invoked. Section 3C(g)(1) of the 
Exchange Act provides that the requirements of Section 3C(a)(1) will 
not apply to a SBS if one of the counterparties to the SBS: (1) Is not 
a financial entity; (2) is using SBSs to hedge or mitigate commercial 
risk; and (3) notifies the Commission, in a manner set forth by the 
Commission, how it generally meets its financial obligations associated 
with entering into non-cleared SBSs. The application of the clearing 
exception in Section 3C(g)(1) of the Exchange Act is solely at the 
discretion of the SBS counterparty that satisfies these conditions.\65\ 
Section 3C(g)(6) of the Exchange Act \66\ authorizes the Commission, 
among other things, to request information from those persons claiming 
the clearing exception as necessary to prevent abuse of the exceptions 
described in Section 3C(g) of the Exchange Act. The Commission believes 
that information regarding whether the exception in Section 3C(g)(1) 
was invoked for a non-cleared SBS would assist the Commission in 
overseeing and monitoring the use of the exception. This information 
would be a necessary preliminary step in determining whether the 
exception was properly invoked.\67\
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    \65\ See 15 U.S.C. 78c[C(g)(2)].
    \66\ 15 U.S.C. 78c[C(g)(6)].
    \67\ The use of this exception, and further information required 
to be reported regarding this exception, will be the subject of 
another Commission rulemaking. Any comments regarding this exception 
should be submitted in connection with that proposal.
---------------------------------------------------------------------------

4. Execution Venue
    Proposed Rule 901(d) would require the reporting party to report 
the venue where the SBS was executed, or whether the SBS was executed 
bilaterally in the OTC market. The venue where a SBS is executed is 
necessary for investigating any potential improper behavior relating to 
the transaction. For example, regulators investigating a suspected 
abuse or other impropriety would need to know the execution venue in 
order to obtain records from the venue to assist in their 
investigation.

Request for Comment

    The Commission requests comment on all aspects of the proposed 
additional information that would be required to be reported pursuant 
to proposed Rule 901(d).
    37. Do commenters agree with the information that the Commission 
has proposed to be required to be reported pursuant to proposed Rule 
901(d)? Should additional information be reported? If so, what 
information, and why?
    38. Are there any data elements proposed to be reported that 
commenters believe should not be reported? If so, why not?
    39. Should proposed Rule 901(d) also require reporting of the 
purpose of the SBS transaction (such as market making, directional 
trade, or asset hedge)? If so, what categories of purposes should be 
established, and why?
    40. Is it possible that inconsistencies in pricing conventions 
among SBS market participants could result in uninformative prices 
being reported to a registered SDR? Could a reporting party use 
variation in pricing conventions to obscure pricing information? Do 
commenters believe that proposed Regulation SBSR should prescribe the

[[Page 75219]]

specific pricing conventions that should be used?
    41. Does proposed Rule 901(d) provide adequate guidance with 
respect to the information that must be reported?
    42. Do commenters agree that the information described above 
regarding the material terms of a SBS would be useful for monitoring 
risk exposure and for other regulatory purposes? Why or why not?
    43. Would it be difficult or cost prohibitive for reporting parties 
to report such information? If so, why?
    44. Do SBS counterparties employ transaction-level collateral 
arrangements? If so, what specific information on transaction-level 
collateral information should be reported to a registered SDR?
    45. Do commenters agree that the participant ID of each 
counterparty, and, as applicable, the broker ID, desk ID, and trader ID 
of the reporting party or its broker would be useful information to be 
reported? Why or why not? Would these identifiers be helpful for 
conducting regulatory oversight, including measuring risk exposure? How 
costly would it be for participants to report this information for each 
SBS?
    46. Are there other entities that may play some part in the 
execution or reporting of a SBS transaction? If so, what are they? 
Should their identification information be reported to a registered 
SDR?
    47. Are there additional subunits of a legal person, besides the 
desk, that should be identified by a UIC? If so, what are those 
subunits and how should they be defined?
    48. Would the reporting party be in a position to know, in all 
cases, the participant ID of its counterparty? If a SBS is executed on 
a SB SEF, would the SB SEF be able to provide the reporting party the 
participant ID of the counterparty? If not, what alternative would be 
available to have this information reported?
    49. Does an IRSB currently exist or will one exist in the near 
future that could carry out the functions envisioned by proposed 
Regulation SBSR? What additional steps would need to be taken for that 
entity to carry out these functions?
    50. Who would own the intellectual property underlying the UICs 
assigned by or on behalf of an IRSB? Would a registered SDR have to pay 
fees to obtain UICs from an IRSB? If so, how much? What usage 
restrictions might the owners of the relevant intellectual property 
impose on registered SDRs or on consumers of the market data feed? Are 
any fees and usage restrictions imposed by an IRSB (or any entity that 
might become an IRSB) fair and reasonable and not unreasonably 
discriminatory? If not, in what way are they not?
    51. Are there any issues that could result from the Commission 
requiring that UICs only be assigned by or on behalf of an IRSB that 
imposes fees and usage restrictions that are fair and reasonable and 
not unreasonably discriminatory? Would imposing such a standard allow 
for any activity that could undermine the ability of market 
participants to effectively obtain or use the UICs as anticipated? In 
the alternative, should the Commission require that there be no fees 
related to the use of UICs?
    52. Would any end users of SBS market data disseminated by a 
registered SDR have to pay fees relating to an IRSB? If so, why? How 
much would these fees be?
    53. How do data repositories currently identify participants and 
products? If UICs cannot be assigned by or on behalf of an IRSB, would 
the current methodologies of data repositories be adequate for 
assigning UICs pursuant to proposed Regulation SBSR? What would be the 
likely costs to a registered SDR of assigning such UICs itself?
    54. What would be the potential impact on market participants and 
registered SDRs if no IRSB emerges and there are multiple SDRs per 
asset class assigning UICs?
    55. What additional steps can or should the Commission take to 
promote internationally recognized standards for UICs?
    56. Are there any other factors not already discussed that the 
Commission should take into account when considering voluntary 
consensus standards for UICs?

C. Reporting Timeframes for Regulatory Information

    The Dodd-Frank Act does not specify the timeframes under which SBS 
transaction information, beyond that necessary to support real-time 
public dissemination for enhancing price discovery, must be reported to 
a registered SDR or to the Commission for regulatory purposes. However, 
the Commission preliminarily believes that, to further the objectives 
of the Dodd-Frank Act, SBS transaction information should be reported 
within a reasonable time following the time of execution--i.e., the 
point at which the counterparties to a SBS become irrevocably bound 
under applicable law--rather than waiting until the time a transaction 
is confirmed.\68\ For purposes of proposed Regulation SBSR, the time a 
transaction is confirmed means the production of a confirmation that is 
agreed to by the parties to be definitive and complete and that has 
been manually, electronically, or, by some other legally equivalent 
means, signed.\69\ Requiring reporting at or after the time a SBS 
transaction is confirmed, rather than at the time of execution, could 
encourage counterparties to delay confirming in order to delay the 
reporting of a transaction.
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    \68\ See proposed Rule 900 (defining ``time of execution''); 
supra Section III.B.2.
    \69\ See proposed Rule 900 (defining ``confirm''). 
``Confirmation'' refers to the specific documentation that evidences 
the legally binding agreement. Section 15F(i)(2) of the Exchange Act 
provides that SBS dealers and major SBS participants shall conform 
with such standards as may be prescribed by the Commission that 
relate, among other things, to timely and accurate confirmation of 
SBSs. Requirements for confirmations issued by SBS dealers and major 
SBS participants will be the subject of a separate Commission 
rulemaking.
---------------------------------------------------------------------------

    The Commission recognizes that the amount of time required for 
counterparties to report the data elements that would be required to be 
reported under proposed Rule 901(d)(1) could vary depending upon, among 
other things, the extent to which the SBS is customized and whether the 
SBS is executed or confirmed electronically or manually. The Commission 
believes that the extent to which a SBS is executed or confirmed 
electronically is an indication of the degree to which the SBS is or 
could be systematized, and thus could directly impact the amount of 
time needed to report such SBS. For example, the Commission believes, 
based on discussions with industry participants, that the required 
information would be available relatively quickly for a SBS that is 
executed and confirmed electronically because most of the information 
required to be reported would already be in an electronic format. On 
the other hand, the Commission recognizes that, for those SBSs that are 
not executed or confirmed electronically, additional time may be needed 
to systematize the information required to be reported under proposed 
Rule 901(d) and put it into an acceptable format. Accordingly, proposed 
Rule 901(d)(2) would obligate a reporting party to report the 
regulatory, non-real-time information required to be reported under 
proposed Rule 901(d)(1) promptly, but in no event later than:
    <bullet> 15 minutes after the time of execution for a SBS that is 
executed and confirmed electronically;
    <bullet> 30 minutes after the time of execution for a SBS that is 
confirmed

[[Page 75220]]

electronically but not executed electronically; or
    <bullet> 24 hours after execution for a SBS that is not executed or 
confirmed electronically.
    The Commission preliminarily believes that requiring a SBS that is 
executed and confirmed electronically to be reported promptly, but in 
no event later than 15 minutes after the time of execution, is 
appropriate because such SBS could be easily systematized (if it is not 
already), thus allowing the SBS to be reported within a time period 
similar to that required for real-time reporting. The Commission 
further believes that, for a SBS that is confirmed electronically but 
not executed electronically, additional time would be needed to report 
such SBS. However, the Commission preliminarily believes that 30 
minutes would be a sufficient amount of time because such SBS already 
would be put into electronic form for confirmation, and thus likely 
could be easily systematized and would not require a significant amount 
of manual handling.
    Finally, since a SBS that is not executed or confirmed 
electronically would likely not already be systematized and could 
require a significant amount of manual intervention, the proposed rules 
would allow additional time for reporting. For this group of SBSs, the 
Commission seeks to balance the need to allow market participants 
sufficient time to determine the terms of their trade, with the need 
for regulators to have current and complete information about positions 
in the SBS market.

Request for Comment

    The Commission requests general comments on the proposed reporting 
times and the basis for the proposed reporting times.
    57. Do commenters believe that there should be different reporting 
times based on whether a SBS is executed or confirmed manually or 
electronically? If so, why? If not, what other basis should be used to 
distinguish reporting timeframes, and why? Should all SBSs be reported 
in the same time frame? If so, what should the timeframe be, and why?
    58. Do commenters agree that the reporting time for a SBS that is 
executed and confirmed electronically should be 15 minutes after the 
time of execution? Should that period be shorter, for example, 30 
seconds, one minute, or five minutes? Why or why not?
    59. Do commenters agree that the reporting time for a SBS that is 
confirmed electronically but not executed electronically should be 30 
minutes after the time of execution? Should that period be shorter, for 
example, one minute, five minutes, or 15 minutes? Why or why not?
    60. Do commenters agree that the reporting time for a SBS that is 
not executed or confirmed electronically should be 24 hours? Should 
that period be shorter--perhaps eight hours? 12 hours? Should that 
period be longer--perhaps 36 hours? 48 hours? Why or why not? If the 
time period were greater than 24 hours, how significant would be the 
risks that regulators would not know of SBS positions recently taken by 
counterparties engaging in SBSs that are not executed or confirmed 
electronically?
    61. Do commenters agree with the proposed timeframes for reporting 
information required to be reported pursuant to proposed Rule 
901(d)(1)? Would the timeframes in proposed Rule 901(d)(2) provide 
adequate time for reporting the information that would be required to 
be reported under proposed Rule 901(d)(1)? If not, why not? Should the 
time frame for reporting be shorter or longer? Why or why not?
    62. Would public dissemination of information in the proposed 
timeframes materially reduce market liquidity? If so, for what types of 
SBSs? Why? What timeframe(s) would balance the concerns about market 
liquidity with the requirement for real-time reporting?
    63. Are there customized SBSs for which it would be too difficult 
or burdensome to report within 24 hours? How long do those SBS 
transactions currently take to report to a SDR? What steps would have 
to be taken to accelerate reporting for such SBS transactions?

D. Reporting of Life Cycle Events

    Proposed Rule 901(e) would require the reporting of certain ``life 
cycle event'' information. Proposed Rule 900 would define a ``life 
cycle event'' to mean, with respect to a SBS, any event that would 
result in a change in the information reported to a registered SDR 
pursuant to proposed Rule 901, including a counterparty change 
resulting from an assignment or novation; a partial or full termination 
of the SBS; a change in the cash flows originally reported; for a SBS 
that is not cleared, any change to the collateral agreement; or a 
corporate action affecting a security or securities on which the SBS is 
based (e.g., a merger, dividend, stock split, or bankruptcy). 
Notwithstanding the above, a life cycle event shall not include the 
scheduled expiration of the SBS, a previously described and anticipated 
interest rate adjustment (such as a quarterly interest rate 
adjustment), or other event that does not result in any change to the 
contractual terms of the SBS.
    For any life cycle event that results in a change to information 
previously reported, proposed Rule 901(e) would require the reporting 
party to promptly provide updated information reflecting such change to 
the entity to which it reported the original transaction, using the 
transaction ID, except that:
    (1) If a reporting party ceases to be a counterparty to a SBS due 
to an assignment or novation, the new counterparty would be the 
reporting party following such assignment or novation, if the new 
counterparty is a U.S. person; and
    (2) If, following an assignment or novation, the new counterparty 
is not a U.S. person, the counterparty that is a U.S. person would be 
the reporting party following such assignment or novation.
    As discussed in greater detail below, proposed Rule 907(a)(1) would 
require the policies and procedures of a registered SDR to specify the 
data elements of a life cycle event that a reporting party would be 
required to report, which would include, at a minimum, the data 
elements specified in proposed Rules 901(c) and (d). Proposed Rule 
901(g) would require a registered SDR to assign a transaction ID to 
each SBS reported by a reporting party. The assignment of a transaction 
ID, which would be included in a life cycle event report, would 
facilitate the reporting of life cycle event information by identifying 
the particular SBS transaction to which the life cycle event 
pertained.\70\
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    \70\ See infra Section IV.E.2 (discussing proposed Rule 901(g)).
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    The reporting of life cycle event information would provide 
regulators with access to information about significant changes that 
occur over the duration of a SBS, including, for example, a 
counterparty change resulting from an assignment or novation, a change 
in the data elements necessary to calculate the value of the SBS, a 
partial or full termination of the SBS prior to the scheduled 
termination date of the SBS, or a modification of the periodic cash 
flows originally reported. The Commission preliminarily believes that 
the reporting of life cycle event information would help to assure that 
regulators have accurate and up-to-date information concerning 
outstanding SBSs and the current obligations and exposures of SBS 
counterparties.\71\
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    \71\ In a separate rulemaking today, the Commission is proposing 
to require a registered SDR to establish, maintain, and enforce 
policies and procedures reasonably designed to calculate positions 
for all persons with open SBSs maintained by the registered SDR, and 
is requesting comment on whether a SDR should calculate (on at least 
a daily basis) the market value of each position in SBSs for which 
the registered SDR maintains transaction data. See SDR Registration 
Proposing Release, supra note 6 (proposing Rule 13n-5(b)(2) under 
the Exchange Act).

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[[Page 75221]]

Request for Comment

    The Commission requests comment on all aspects of the proposed life 
cycle event reporting requirements.
    64. Do participants agree with the proposed definition of life 
cycle event? What life cycle event information should be reported? 
Should changes to all information that would be required to be reported 
under proposed Rules 901(c) and (d) be updated, or only specific items? 
If so, which items, and why?
    65. Should a life cycle event report be formatted to include only 
the transaction ID and the updated information, or should it include 
the transaction ID, the updated information, and the other information 
that would be required to be reported under proposed Rules 901(c) and 
(d)? Should the Commission prescribe the format of a life cycle event 
report, or allow a registered SDR to determine the format of the 
report?
    66. Does the proposed rule provide adequate guidance concerning the 
life cycle events that would be required to be reported? If not, what 
areas require further guidance? Does the proposed rule provide adequate 
guidance regarding what information would be required to be reported 
for each life cycle event?
    67. What benefits would result from the reporting of life cycle 
events? What would be the costs of such reporting?
    68. Is it appropriate to require that life cycle events be reported 
promptly? If not, what should be the appropriate timeframe for 
reporting such events?

E. Additional Requirements Applicable to Registered SDRs or 
Participants

1. Time Stamp for Reported Information
    Proposed Rule 901(f) would require a registered SDR to time stamp, 
to the second, receipt of any information required to be submitted 
pursuant to proposed Rule 901(c), (d), or (e). The Commission believes 
that this requirement would help regulators to evaluate certain trading 
activity. For example, a reporting party's pattern of submitting late 
transaction reports could be an indicator of weaknesses in the 
reporting party's internal compliance processes. Accordingly, the 
Commission believes that the ability to compare the time of execution 
reported with the time of receipt of the report by the registered SDR 
could be an important component of surveillance activity conducted by 
regulators.
2. Transaction Identifiers
    Proposed Rule 901(g) would require a registered SDR to assign a 
transaction ID to each SBS transaction reported to it. Proposed Rule 
900 would define ``transaction ID'' to mean the unique identification 
code assigned by a registered SDR to a specific SBS. The Commission 
preliminarily believes that, because each transaction is unique, it is 
not necessary or appropriate to look to an IRSB for assigning such 
identifiers. Accordingly, a registered SDR would be required to use its 
own methodology for assigning transaction IDs.\72\
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    \72\ Cf. supra Section IV.B.1 (discussing participant IDs, 
broker IDs, desk IDs, and trader IDs, which could be used for 
multiple transactions across multiple asset classes).
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    The Commission preliminarily believes that a unique transaction ID 
would allow registered SDRs, regulators, and counterparties to more 
easily track a SBS over its duration and facilitate the reporting of 
life cycle events and the correction of errors in previously reported 
SBS information. The transaction ID of the original SBS would allow for 
the linking of the original report to a report of a life cycle event. 
Similarly, the transaction ID would be required to be included on an 
error report to identify the transaction to which the error report 
pertained.
3. Counterparty ID Information
    As discussed above, proposed Rule 901(d) would require the 
reporting of a participant ID of each counterparty and, as applicable, 
the broker ID, desk ID, and trader ID of the reporting party or its 
broker.\73\ For regulators to monitor the SBS positions of market 
participants, evaluate trading activity, and conduct effective 
oversight and enforcement of the SBS market, it is important that the 
applicable UICs for both counterparties to a SBS be available to 
regulators.
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    \73\ See id.
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    Proposed Rule 901(d) would require the reporting party, for each 
SBS for which it is a reporting party, to report the participant ID of 
itself and its counterparty, and (as applicable) the reporting party's 
broker ID, desk ID, and trader ID. The reporting party would not be 
required to report the broker ID, desk ID, and trader ID for its 
counterparty. However, nothing in proposed Regulation SBSR would 
prevent a reporting party from reporting, or providing for the 
reporting to a registered SDR, of its counterparty's applicable UICs. 
For example, orders entered into an electronic trading system could be 
coded to include all relevant UICs. When the system matches two orders, 
it could bundle information about both orders (including the UICs) into 
a transaction report for the reporting party to report to a registered 
SDR, or the execution venue could provide the UICs directly to the 
registered SDR on behalf of the reporting party. Further, in a 
bilateral negotiated SBS, the counterparties could agree to have the 
non-reporting-party participant provide the applicable UICs to the 
reporting party for reporting to the registered SDR.
    The Commission preliminarily believes that, to the extent that it 
is not feasible or desirable in a particular SBS transaction for the 
reporting party to report UICs, proposed Regulation SBSR should contain 
some means for the registered SDR to obtain the applicable UICs from 
the counterparty that is not the reporting party. Accordingly, proposed 
Rule 906(a) would set forth a procedure designed to ensure that a 
registered SDR obtains applicable UICs for both counterparties to a 
SBS, not just the reporting party. Proposed Rule 906(a) would require a 
registered SDR to identify any SBS reported to it for which the 
registered SDR did not have a participant ID and (if applicable), the 
broker ID, desk ID, and trader ID of each counterparty. Proposed Rule 
906(a) would further require the registered SDR, once a day, to send a 
report to each participant identifying, for each SBS to which that 
participant is a counterparty, the SBS(s) for which the registered SDR 
lacks participant ID and (if applicable) broker ID, desk ID, and trader 
ID. Finally, under proposed Rule 906(a), a participant that receives 
such a report would be required to provide the missing UICs to the 
registered SDR within 24 hours of receipt of the report.
    The Commission preliminarily believes that the registered SDR would 
be in the best position to know whether the reporting party had 
reported the UICs for its counterparty, and to request the missing UICs 
from any participant as necessary. In addition, the Commission 
recognizes that some reasonable period should be afforded to the 
registered SDR to determine what UICs have not been reported, to 
provide the report to each participant requesting such information, and 
for the participant to complete and return the report. The Commission 
preliminarily believes that it would be reasonable to require a 
registered SDR to produce only one such report per day, and to allow a 
participant up to 24 hours to complete

[[Page 75222]]

and return the report with the requested information.
4. Parent and Affiliate Information
    The Commission also preliminarily believes that, to be able to 
effectively report on participant positions to assist the Commission 
and other regulators in monitoring systemic risk, a registered SDR 
should be able to identify all SBS positions within the same ownership 
group. Therefore, the Commission is proposing Rule 906(b), which would 
require each participant of a registered SDR to provide to the 
registered SDR information sufficient to identify its ultimate 
parent(s) \74\ and any affiliate(s) \75\ of the participant that also 
are participants of the registered SDR. Proposed Rule 906(b) also would 
require a participant to promptly notify the registered SDR of any 
changes to that information. Under proposed Rule 906(b), a participant 
would be required to provide this ownership and affiliation information 
to a registered SDR immediately upon becoming a participant (in other 
words, as soon as a SBS for which it is a counterparty is required to 
be reported to the registered SDR). As with other UICs,\76\ an ultimate 
parent ID would be the unique identification code assigned to an 
ultimate parent by or on behalf of an IRSB (or, if no standards-setting 
body meet the required criteria or the IRSB has not assigned a UIC to a 
particular person or unit thereof, by the registered SDR).
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    \74\ See proposed Rule 900 (defining ``parent'' as a legal 
person that controls a participant); Rule 900 (defining ``ultimate 
parent'' as a legal person that controls a participant and that 
itself has no parent); Rule 900 (defining ``control'' for purposes 
of proposed Regulation SBSR as the possession, direct or indirect, 
of the power to direct or cause the direction of the management and 
policies of a person, whether through the ownership of voting 
securities, by contract or otherwise. A person would be presumed to 
control another person if the person: (1) Is a director, general 
partner or officer exercising executive responsibility (or having 
similar status or functions); (2) directly or indirectly has the 
right to vote 25% or more of a class of voting securities or has the 
power to sell or direct the sale of 25% or more of a class of voting 
securities; or (3) in the case of a partnership, has the right to 
receive, upon dissolution, or has contributed, 25% or more of the 
capital). The proposed definitions of ``parent'' and ``ultimate 
parent'' are designed to identify particular categories of 
affiliated entities based on their ability to control a participant. 
Thus, a ``parent'' refers to a legal person that controls a 
participant, and the ``ultimate parent'' refers to an entity that 
controls a participant but that itself has no parent and thus is not 
controlled by another entity.
    \75\ See proposed Rule 900 (defining ``affiliate'' as any person 
that, directly or indirectly, controls, is controlled by, or is 
under common control with, a person).
    \76\ See supra Section IV.B.1.
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Request for Comment

    The Commission requests comment on all aspects of the proposed time 
stamp and identifier requirements.
    69. Would it be feasible for a registered SDR to time stamp, to the 
second, information that would be submitted pursuant to proposed Rule 
901? Would some other time increment be appropriate? If so, why?
    70. Would requiring a transaction ID for each reported SBS help 
facilitate reporting of all events related to that SBS? If not, what 
alternative method should be required to allow for tracking of all 
events related to a SBS throughout its life?
    71. Would transaction IDs be helpful to counterparties? If so, how?
    72. Should registered SDRs have the sole responsibility to assign 
transaction IDs? Would it be feasible for other registered entities 
(e.g., exchanges or SB SEFs) to assign transaction IDs?
    73. Do existing SDRs that accept reports of SBSs assign transaction 
IDs or an equivalent identifier? If so, how?
    74. Do commenters agree that the applicable UICs for both 
counterparties to a SBS would be useful to regulators? Why or why not?
    75. Is the method set forth in proposed Rule 906(a) a practical way 
for the registered SDR to obtain the applicable UICs from the other 
counterparty if necessary? Why or why not? If not, what better 
mechanism should be required to ensure that a registered SDR has 
applicable UICs for both counterparties for any SBSs for which it acts 
as a repository?
    76. Do commenters agree with the proposal to require participants 
to provide the required UICs within 24 hours? If not, why not? How long 
should the counterparty be given to complete the report?
    77. Would it be more practicable and less burdensome to require a 
registered SDR to post on its Web site (in an area accessible only to 
participants) reports identifying missing UICs and requiring 
participants to check these reports daily, rather than requiring the 
registered SDR to send these reports to participants each day, as 
provided in proposed Rule 906(a)?
    78. Would it be unduly burdensome to require a registered SDR to 
periodically obtain information from each participant that identifies 
the participant's ultimate parent(s) and any other participant(s) with 
which the counterparty is affiliated? If so, why? Would there be an 
easier method for assuring that such information is readily available 
to regulators? If so, what is it?
    79. How much information about its counterparty should a reporting 
party be expected to obtain? Would it be practical to require the 
reporting party to report applicable UICs on behalf of its 
counterparty? If not, what alternative do commenters propose? For 
example, should the Commission directly require each counterparty to 
report applicable UICs for each SBS?
    80. For SBSs executed on a SB SEF or on a national securities 
exchange where a reporting party might not know the identity of its 
counterparty, how should the reporting of counterparty UICs be 
addressed? Should the Commission require the SB SEF or national 
securities exchange to report to the registered SDR, at a minimum, the 
participant ID of the counterparty?
    81. Do commenters agree with the need for, and the goal of, having 
parent and affiliate information reported to a registered SDR?
    82. What difficulties do commenters envision in establishing and 
implementing a UIC system for ultimate parents and affiliates of 
participants of a registered SDR?
6. Format of Reported Information
a. Data Format
    To develop a meaningful reporting and dissemination regime for 
SBSs, the Commission believes that it is essential that all required 
information for all SBS transactions be reported in a uniform 
electronic format.\77\ Accordingly, proposed Rules 901(h) and 907(a)(2) 
together would mandate the use of a uniform reporting format for SBS 
information reported to a particular registered SDR. Specifically, 
proposed Rule 901(h) would require the reporting party to 
electronically transmit the information required to be reported by 
proposed Rule 901 in a format as required by the registered SDR. In 
addition, proposed Rule 907(a)(2) would require a registered SDR to 
have policies and procedures that specify the data format (which must 
be an open-source structured data format that is widely used by 
participants), connectivity requirements, and other protocols for 
submitting information.\78\
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    \77\ In a separate rulemaking today, the Commission is proposing 
various requirements for registered SDRs that would include, among 
other things, standards regarding data that registered SDRs would be 
required to collect and maintain. See SDR Registration Proposing 
Release, supra note 6.
    \78\ See infra Section VI.
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    The Commission recognizes that this likely would require some 
change in existing practice, particularly with respect to highly 
customized transactions that may not be electronically executed or 
confirmed currently. However, the Commission

[[Page 75223]]

believes that such a requirement would provide significant benefits by 
allowing for more efficient use and analysis of the data. The 
Commission understands that, currently, information for certain SBSs is 
communicated using an open-source structured data format called 
Financial Products Markup Language (``FpML''), which is accepted and 
used industry-wide and has a sufficiently flexible structure to 
accommodate new products and asset classes.\79\
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    \79\ FpML is based on XML (eXtensible Markup Language), the 
standard meta-language for describing data shared between 
applications. The Commission preliminarily believes that FpML would 
be an appropriate format for data reporting, in part because it is 
already widely understood and used and can be used across multiple 
asset classes.
---------------------------------------------------------------------------

Request for Comment

    The Commission requests comment on all aspects of the proposed 
rules regarding the electronic submission of information required under 
proposed Rule 901 and the formatting of information that would be 
required to be reported to a registered SDR.
    83. Are there different standard data formats currently in use 
depending on the type or class of SBS?
    84. Should the registered SDR have the flexibility to specify 
acceptable data formats, connectivity requirements, and other protocols 
for submitting information? Are there disadvantages to this approach? 
If so, what are they and how should they be addressed?
    85. Are there concerns with a registered SDR requiring use of FpML 
to report SBSs? If so, what are they? Are there any licensing fees 
associated with use of FpML? If so, what actions should the Commission 
take, if any, to help ensure wide availability of a common data format 
by all participants?
    86. Are commenters concerned that varying reporting formats would 
develop if there were more than one registered SDR in each asset class? 
If so, should there be a uniform reporting format across all registered 
SDRs? How would commenters recommend that the Commission achieve this 
goal? Should the Commission require all registered SDRs to use the same 
format and the same data elements?
b. Reference Codes
    The Commission understands that there are--or could be developed--
industry conventions for identifying SBSs or reference entities on 
which SBS are based through readily available reference codes 
comparable to the CUSIP identifier used for debt, equity, and certain 
derivative securities.\80\ Proposed Rule 903 would permit the use of 
codes in place of certain data elements for purposes of reporting and 
disseminating the information required under proposed Regulation SBSR, 
provided that the information needed to interpret such codes is widely 
available on a non-fee basis. Specifically, proposed Rule 903 would 
provide that a reporting party could provide information to a 
registered SDR pursuant to proposed Rule 901, and a registered SDR 
could publicly disseminate information pursuant to proposed Rule 902, 
using codes in place of certain data elements, provided that the 
information necessary to interpret such codes is widely available on a 
non-fee basis.
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    \80\ The CUSIP number for a security uniquely identifies a 
company or issuer, the type of security, and other information about 
the instrument. From the CUSIP number for a debt instrument, for 
example, market participants are able to determine the issuer, the 
date of maturity, the interest rate, the coupon structure, and other 
terms of the instrument.
---------------------------------------------------------------------------

    The Commission preliminarily believes that it is appropriate for 
the information required to interpret any codes used for reporting SBSs 
be widely available on a non-fee basis. If the information necessary to 
interpret such codes were not widely available, or available only for a 
fee, SBS transaction and pricing data might not be meaningfully 
available to the public. In the absence of proposed Rule 903, a 
registered SDR potentially could use proprietary code information, 
thereby requiring all consumers of its SBS market data to purchase from 
the code creator information necessary to interpret the codes.

Request for Comment

    The Commission requests comment on all aspects of the proposed 
rules regarding the use of reference codes.
    87. Do commenters agree it would be useful to permit the use of 
codes in place of specific data elements? Why or why not?
    88. Are such codes currently in use? How would proposed Rule 903 
affect how market participants employ any existing codes? Should the 
Commission permit registered SDRs to publicly disseminate SBS 
information using existing codes? Are market participants able to 
understand the codes without having to pay licensing or other usage 
fees?
    89. Who might in the future develop any codes to be used in place 
of specific data elements? Would it be costly to develop these codes?
    90. Is it feasible for information necessary to interpret these 
codes to be widely available on a non-fee basis? If not, why not? Would 
codes be developed if developers were not able to charge fees for the 
information necessary to interpret the codes? How would permitting 
developers of codes to charge fees for information necessary to 
interpret the codes affect SBS market participants? Would SBS market 
participants effectively be compelled to purchase this information?
    91. If fees are necessary to protect the investment in intellectual 
property, what standards should be established to assure that such fees 
are fair and reasonable and not unreasonably discriminatory?
    92. Do commenters believe a better approach would be to permit the 
use of fee-based codes for reporting information to a registered SDR, 
provided that SBS transaction reports are disseminated by the 
registered SDR without the codes, or with codes that are widely 
available on a non-fee basis? Should a registered SDR be expected to 
pay any fees or be subject to any usage restrictions imposed by the 
code creator? Would these fees and usage restrictions impact the 
public's access to the registered SDR's market data feed?

F. Reporting of Data for Historical SBSs

    Section 3C(e)(1) of the Exchange Act requires the Commission, no 
later than 180 days after the effective date of Section 3C, to adopt 
rules providing for the reporting to a registered SDR or to the 
Commission of SBSs entered into before the date of enactment of Section 
3C. Section 3C(e)(2) of the Exchange Act requires the Commission to 
adopt rules that provide for the reporting of SBSs entered into on or 
after the date of enactment of Section 3C no later than the later of 
(1) 90 days after the effective date of Section 3C, or (2) such other 
time after entering into the SBS as the Commission may prescribe by 
rule or regulation.
    The statutory provision applicable to the reporting of SBSs entered 
into prior to the date of enactment does not limit the SBSs subject to 
the reporting. In contrast, the statutory provision requiring the 
Commission to adopt an interim final rule for the reporting of SBSs 
entered into prior to the effective date of the Dodd-Frank Act does 
limit the applicability of that rule to such SBSs that had ``not 
expired as of the date of enactment.'' \81\ Indeed, the statutory 
language applicable in this proposal would not prohibit collection of 
SBS data on all SBSs entered into since the first SBS, whether or not 
those SBS positions remain open or have been closed. This would 
potentially capture a very large amount of data on SBSs going

[[Page 75224]]

back many years. The Commission preliminarily believes that an attempt 
to collect many years' worth of transaction-level SBS data (including 
closed or expired SBSs) would not enhance the goal of price discovery, 
nor would it be particularly useful to regulators or market 
participants in implementing a forward-looking SBS reporting and 
dissemination regime. Furthermore, collecting, reporting, and 
processing all such data would involve substantial costs to market 
participants with little potential benefit. Accordingly, the Commission 
has proposed to limit the reporting of SBSs entered into prior to the 
date of enactment to those SBSs that had not expired as of that date 
(``pre-enactment SBSs'').\82\
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    \81\ 15 U.S.C. 78m[A(a)(2)(A)].
    \82\ See proposed Rule 900 (defining ``pre-enactment security-
based swap'' to mean any SBS executed before July 21, 2010--the date 
of enactment of the Dodd-Frank Act--the terms of which had not 
expired as of that date).
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    The Commission acknowledges that reporting parties will not 
necessarily possess all of the information required by proposed Rule 
901(c) and (d) with respect to pre-enactment SBSs or SBSs executed on 
or after July 21, 2010, and before the effective reporting date \83\ 
(``transitional SBSs'') (and together with pre-enactment SBSs, 
``historical SBSs''). Thus, proposed Rule 901(i) would require a 
reporting party to report all of the information required by proposed 
Rules 901(c) and (d) for any historical SBSs, to the extent such 
information is available.\84\ For example, a reporting party would not 
have to report the time stamp of a historical SBS if a time stamp had 
not already been captured. In addition, if the terms of a SBS had been 
amended since the initial time of execution, only the most current 
version of the SBS would be considered the historical SBS that had to 
be reported pursuant to proposed Rules 901(i) and 910(a).
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    \83\ See proposed Rule 900 (defining ``effective reporting 
date,'' with respect to a SDR, as the date six months after the 
registration date); proposed Rule 900 (defining ``registration 
date,'' with respect to a SDR, as the date on which the Commission 
registers the SDR, or, if the Commission registers the SDR before 
the effective date of proposed Regulation SBSR, the effective date 
of proposed Regulation SBSR).
    \84\ Information concerning historical SBSs would be reported, 
but would not be publicly disseminated. See proposed Rules 901(i) 
and 910. This reporting is consistent with the requirements 
contained in Rule 13Aa-2T(b)(1) under the Exchange Act, as the 
Commission recognizes that such information may not be available. 
See Interim Rule Release, supra note 16. Furthermore, if a reporting 
party has reported a SBS to a registered SDR pursuant to proposed 
Rule 901(i), the reporting party would become obligated to report to 
the registered SDR any life cycle events pertaining to that SBS. See 
proposed Rule 901(e).
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    By requiring reporting of pre-enactment SBS transactions, proposed 
Rule 901(i) would provide the Commission with insight as to outstanding 
notional size, number of transactions, and number and type of 
participants in the SBS market. This would provide a starting benchmark 
against which to assess the development of the SBS market over time 
and, thus, represent a first step toward a more transparent and well 
regulated market for SBSs. The data reported pursuant to proposed Rule 
901(i) also could help the Commission prepare the reports that it is 
required to provide to Congress. Further, proposed Rule 901(i) would 
require market participants to inventory their positions in SBS to 
determine what information needs to be reported, which could benefit 
market participants by encouraging management review of their internal 
procedures and controls.
    The Commission notes that, especially with respect to CDSs, 
reporting parties may already have reported SBS information about 
historical SBSs to a data repository. Should such a data repository 
become registered with the Commission, the Commission would not require 
reporting parties to submit duplicate information to the registered 
SDR, except to the extent the reporting party has information in its 
possession that satisfies the provisions of proposed Rules 901(c) and 
(d) that had not previously been reported to the registered SDR.

Request for Comment

    The Commission requests comment on all aspects of the proposed 
rules relating to pre-enactment SBSs and transitional SBSs.
    93. Do commenters agree with the proposed reporting requirements 
for historical SBSs? Should the Commission extend the reporting 
requirement to include SBSs that were entered into prior to the date of 
enactment of the Dodd-Frank Act that had expired as of that date? If 
so, what information should be reported with respect to these SBSs? 
Would this approach be feasible? What would be the benefits of such an 
approach? Who would use this information, and for what purpose(s)? What 
would be the costs of this approach?
    94. Would data concerning expired SBSs be of use to anyone? If so, 
who would use this information, and for what purpose?
    95. Should the proposed rule ``grandfather'' all SBSs previously 
reported to a SDR regardless of whether the reporting party has 
information in its possession that satisfies the provisions of proposed 
Rule 901(c) and (d) that had not previously been reported to the 
registered SDR?

V. Public Dissemination of Security-Based Swap Transaction Information

    In seeking to carry out Congress's mandate to require real-time 
public reporting for all SBSs, the Commission is mindful of Congress's 
statement in Section 13(m)(1)(B) of the Exchange Act \85\ that ``[t]he 
purpose of [Section 13(m)] is to authorize the Commission to make 
security-based swap transaction and pricing data available to the 
public in such form and at such times as the Commission determines 
appropriate to enhance price discovery.'' Section 13(m)(1)(E)(iv) of 
the Exchange Act \86\ further provides that the rule promulgated by the 
Commission to carry out the real-time reporting mandate shall contain 
provisions that take into account whether the public disclosure will 
materially reduce market liquidity.\87\
---------------------------------------------------------------------------

    \85\ 15 U.S.C. 78m(m)(1)(B).
    \86\ 15 U.S.C. 78m(m)(1)(E)(iv).
    \87\ This provision applies only with regard to SBSs described 
in clauses (i) and (ii) of Section 13(m)(1)(C) of the Exchange Act, 
not SBSs described in clauses (iii) and (iv) of Section 13(m)(1)(C). 
See supra Section I.B.2 (describing which SBSs fall into each of 
these four categories).
---------------------------------------------------------------------------

    By reducing information asymmetries, post-trade transparency has 
the potential to lower transaction costs, improve confidence in the 
market, encourage participation by a larger number of market 
participants, and increase liquidity in the SBS market. The current 
market is opaque. Market participants, even dealers, lack an effective 
mechanism to learn the prices at which other market participants 
transact. In the absence of post-trade transparency, market 
participants do not know whether the prices they are paying or would 
pay are higher or lower than what others are paying for the same SBS 
instruments. Currently, market participants resort to ``screen-
scraping'' e-mails containing indicative quotation information to 
develop a sense of the market. Supplementing that effort with prompt 
last-sale information would provide all market participants with more 
extensive and more accurate information on which to make trading and 
valuation determinations.
    SBSs are complex derivative instruments, and there exists no single 
accepted way to model a SBS for pricing purposes. Post-trade pricing 
and volume information could allow valuation models to be adjusted to 
reflect how other market participants have valued a SBS instrument at a 
specific moment in time. Public, real-time dissemination of

[[Page 75225]]

last-sale information also could aid dealers in deriving better 
quotations, because they would know the prices at which other market 
participants have traded. The same information could aid end users in 
evaluating current quotations, because they would be able to inquire 
from dealers why the quotations that the dealers are providing them 
differ from the prices of the most recent transactions. Furthermore, 
end users that could view last-sale information in real time would be 
able to test whether quotations offered by dealers before the last sale 
were close to the price at which the last sale was executed. In this 
manner, post-trade transparency could promote price competition and 
more efficient price discovery in the SBS market.
    In other markets, greater post-trade transparency has increased 
competition among market participants and reduced transaction costs. A 
number of studies of the corporate bond market, for example, have found 
that post-trade transparency, resulting from the introduction of TRACE, 
has reduced transaction costs.\88\
---------------------------------------------------------------------------

    \88\ See Amy K. Edwards, Lawrence Harris, & Michael S. Piwowar, 
Corporate Bond Market Transparency and Transaction Costs, J. of 
Fin., Vol. 62, at 1421-1451 (2007); Hendrik Bessembinder, William F. 
Maxwell, & Kumar Venkataraman, Market Transparency, Liquidity, 
Externalities and Institutional Trading Costs in Corporate Bonds, J. 
of Fin. Econ., Vol. 82, at 251-288 (2006). It should be noted that 
Amy Edwards, one of the co-authors of the first article cited, 
currently serves as an economist in the Commission's Division of 
Risk, Strategy, and Financial Innovation.
---------------------------------------------------------------------------

    However, the structure of the SBS market and the way in which 
participants manage risk in this market might be sufficiently different 
from other financial markets to warrant different approaches to post-
trade transparency. The SBS market is almost wholly institutional, 
unlike other securities markets where there is substantial retail 
participation. Moreover, the SBS market has many fewer market 
participants, fewer transactions, and larger trade sizes relative to 
other securities markets. It could be argued that post-trade 
transparency in the SBS market might not have the same effects as in 
other securities markets. Indeed, one study of TRACE stated that 
``[o]ur evidence suggests that the availability of last sale price 
information may have little impact on spreads for less active bonds'' 
and that ``[w]e do not find any effect (positive or negative) of 
transparency for very thinly traded bonds.'' \89\
---------------------------------------------------------------------------

    \89\ Michael A. Goldstein, Edith S. Hotchkiss, & Erik R. Sirri, 
Transparency and Liquidity: A Controlled Experiment on Corporate 
Bonds, Rev. of Fin. Stud., Vol. 20, Issue 4, at 235-273 (2007), at 
269, 270.
---------------------------------------------------------------------------

    It could be argued that post-trade transparency in the SBS market, 
particularly for large-sized trades, might even adversely impact 
liquidity by increasing the costs of dealers to hedge. In a typical 
SBS, one party (the ``natural long'') either has a risk position that 
it wishes to offset (because, for example, it is long the bonds of a 
reference company) or it wishes to establish a risk position. The 
natural long typically would approach one or more dealers to take the 
other side of the trade. If a dealer were to enter into a SBS with the 
natural long, the dealer typically would seek to lay off that risk as 
much as possible, perhaps with another dealer. Eventually, however, the 
risk would typically be assumed by a market participant (the ``natural 
short'') who is willing to assume the risk being laid off by the 
natural long. In the SBS market, dealers generally are not natural 
longs or natural shorts, because they do not seek to profit by taking 
long or short risk positions. Dealers profit, rather, by collecting 
spreads between the price at which they buy risk and the price at which 
they sell risk, and by charging commissions.
    The larger the natural long's initial risk position, the more 
difficult it would likely be for a dealer that enters into an SBS with 
the natural long to lay off the risk. All other things being equal, it 
would likely be easier for the dealer to find another dealer or a 
natural short willing to take on a small risk than a larger one. This 
is the case even in an opaque market, such as the SBS market as it 
exists today. The difficulties in transferring the risk could be even 
greater if the transaction details of the initial SBS between the 
natural long and the dealer were publicly disseminated in real time. A 
dealer trying to engage in hedging transactions following an initial, 
large SBS trade could be put in a weaker bargaining position relative 
to subsequent counterparties, who could anticipate the structure of the 
hedge.
    In an opaque market, market participants have to rely primarily on 
their understanding of the market's fundamentals to arrive at a price 
at which they would be willing to assume risk. With immediate real-time 
public dissemination of a block trade, however, market participants who 
might be willing to offset that risk--i.e., other dealers and natural 
shorts--could extract rents from a dealer that takes the risk from the 
natural long. Because the initial dealer would not internalize those 
higher costs, it would most likely seek to pass those costs on to the 
natural long in the form of a higher price for the initial SBS up 
front. Alternatively, the initial dealer could choose not to enter into 
the initial SBS if the dealer's cost to hedge increased. In other 
words, increasing the dealer's initial cost to hedge could increase 
costs to those seeking to take a natural long position both in the form 
of less favorable SBS prices for the natural long and potentially fewer 
counterparties for a natural long to transact with, if certain dealers 
were to scale back their activity in the SBS market. This could lead to 
less liquidity in the SBS market, and thus lower trading volume and 
less ability for market participants to manage risk.\90\ It also might 
be argued that increased post-trade transparency could drive large 
trades to other markets that offer the opacity desired by traders, 
creating fragmentation and harming price efficiency and liquidity. This 
possibility is consistent with the argument that large, informed 
traders may prefer a less transparent trading environment that allows 
them to minimize the price impact of their trades.\91\
---------------------------------------------------------------------------

    \90\ See N.Y. Naik, A. Neuberger, & S. Viswanathan, Trade 
Disclosure Regulation in Markets with Negotiated Trades, Rev. of 
Fin. Stud., Vol. 2, Issue 4, at 873-900 (1999).
    \91\ See Ananth Madhavan, Consolidation, Fragmentation, and the 
Disclosure of Trading Information, Rev. of Fin. Stud., Vol. 8, Issue 
3, at 579-603 (1995).
---------------------------------------------------------------------------

    Under this view of the SBS market, real-time public dissemination 
of SBS block trades could result in market inefficiencies, as evidenced 
by fewer transactions or less liquidity. If the natural long were 
unable or unwilling to assume higher costs for the initial SBS 
transaction, it might be left with an undesired level of risk, because 
the market has been unable to relocate the risk to others who are more 
willing or able to assume it. Furthermore, higher overall transaction 
costs could hurt dealers, even though they can pass on to the natural 
long the higher costs to hedge. This is because post-trade transparency 
could cause overall transaction volumes to decline, thereby reducing 
profits accruing to dealers, whether in the form of spreads or 
commissions. Furthermore, to the extent natural shorts are able under a 
post-trade transparency regime without a block trade exception to 
extract rents from natural longs (albeit indirectly), there could be a 
wealth transfer from natural longs to natural shorts. This could be 
viewed as inefficient, because the prices charged (and presumably 
obtained) by the natural shorts are not based solely on economic 
fundamentals, but also are impacted by the predicament of the natural 
longs (or dealers that have traded with the natural longs), where all 
market participants

[[Page 75226]]

know that the natural longs (or the dealers) have a large risk position 
that they presumably will wish to offset in the near future.
    On the other hand, fully and immediately disseminating SBS 
transactions to the public--even those of large notional size--could 
incentivize additional market participants to compete to purchase the 
risk that the natural long is trying to acquire or offset. In other 
words, the desire by natural shorts to extract rents from natural longs 
might be offset by more natural shorts competing to acquire the risk. 
In this view, greater post-trade transparency would result in lower 
rather than higher costs for natural longs to offset or acquire their 
risk positions. In the existing, opaque market for SBSs, any individual 
market participant possesses only incomplete knowledge of when 
transactions occur, and thus when opportunities arise to enter the 
market by offering to offset risk. Moreover, any individual market 
participant possesses only incomplete information about where others 
view the price of risk. Real-time public dissemination of both the 
price and full size of all SBS transactions, including block trades, 
could cause more market participants to bid to take on risk after 
seeing a report of the block trade. Moreover, full post-trade 
transparency of block trades would allow natural shorts to know the 
prices at which natural longs transacted, which would enable natural 
shorts to bid more efficiently to accept the risk, particularly if 
natural shorts used the post-trade information as an input to, rather 
than as a substitute for, their own independent valuation and pricing 
decisions. Currently, a natural short--without knowledge of the price 
at which the natural long transacted--could underprice its willingness 
to acquire the risk, resulting in a windfall profit for the dealer, who 
can capture a greater spread.
    Discussed in greater detail below are the provisions in proposed 
Regulation SBSR relating to post-trade transparency. In particular, the 
Commission is proposing Rules 907(b) and 902(b) relating to block 
trades, and is thereby taking into account the possibility that public 
disclosure required under the Dodd-Frank Act could materially reduce 
market liquidity for SBSs of large notional size.\92\ These proposed 
rules are designed to balance the benefits of post-trade transparency 
against the potential harm that could be done to dealers and natural 
longs that could face higher costs of transferring or hedging a large 
risk position after other market participants learn of the execution of 
a block trade.
---------------------------------------------------------------------------

    \92\ See 15 U.S.C. 78m(m)(1)(E)(iv).
---------------------------------------------------------------------------

    The Commission acknowledges that it would be difficult at this 
stage to accurately predict how post-trade transparency in general, or 
the particular methods of post-trade transparency discussed in this 
release, would affect the SBS market. The Commission is mindful that 
there are similarities and differences between the SBS market and the 
other securities markets that the Commission regulates, and that these 
similarities and differences may impact how post-trade transparency 
could affect the SBS market, in contrast to how post-trade transparency 
affects other securities markets. Moreover, the effects of immediate 
real-time dissemination could differ between the near term and the long 
term, particularly as the SBS market evolves in response to other 
regulatory actions. The Commission expects that, as post-trade 
transparency is implemented in the SBS market, new data will come to 
light that will inform the discussion and could cause subsequent 
revision of Regulation SBSR. Whatever approach is ultimately adopted, 
the Commission will study the development of the market closely, 
particularly with regard to block trades, and make subsequent revisions 
to the rules relating to post-trade transparency in the SBS market as 
necessary or appropriate.

Request for Comment

    The Commission requests comment generally on how the Commission 
should address Congress's instruction in Section 13(m)(1)(E)(iv) of the 
Exchange Act that, with respect to certain SBSs, the rule promulgated 
by the Commission to carry out the real-time reporting mandate shall 
contain provisions that take into account whether the public disclosure 
will materially reduce market liquidity. In particular:
    96. Would post-trade transparency have an effect on the SBS market 
similar to its effect in other securities markets? Why or why not?
    97. Academic studies of other securities markets generally have 
found that post-trade transparency reduces transaction costs and has 
not reduced market liquidity. How do those markets differ or compare to 
the SBS market? How would those similarities or differences affect 
post-trade transparency in the SBS market?
    98. The SBS market currently is almost wholly institutional. Would 
this characteristic impact the effect of post-trade transparency on the 
SBS market? If so, how and how much? Are the needs of market 
participants in the SBS market for access to transaction information 
different than the needs of market participants in other securities 
markets for access to transaction information?
    99. A significant amount of trading in the SBS market is currently 
carried out by only a limited number of market participants. Would this 
characteristic impact the effect of post-trade transparency on the SBS 
market? If so, how and how much? For example, is there a concern that 
it would be easier to determine the identity of the counterparties to a 
SBS transaction in certain instances based on the real-time transaction 
report? If so, what would be the harm, if any, of such knowledge? Would 
the answer differ depending upon the liquidity of the SBS instrument, 
or whether it was a customized SBS or not?
    100. Overall, the SBS market is significantly more illiquid than 
other securities markets that have post-trade transparency regimes. How 
would this characteristic impact, if at all, the effect of post-trade 
transparency on the SBS market? Do commenters believe that post-trade 
transparency could materially reduce market liquidity in the SBS 
market, or particular subsets thereof? Why and how? Please be specific 
in your response and provide data to the extent possible.
    101. In an illiquid market (such as the CDS market for smaller 
reference entities), there will likely be fewer last-sale prints than 
in a more liquid market (such as the CDS market for large corporate 
debt issuers). Would these few last-sale prints in the illiquid market 
have more, less, or the same value as prints in the more liquid market? 
Why or why not?
    102. How would a post-trade transparency regime in SBSs affect the 
liquidity of the underlying securities? For example, how, if at all, 
would the post-trade transparency regime affect liquidity in the 
corporate bond market?
    103. Should there be exceptions other than a block trading 
exception to post-trade transparency to avoid unnecessarily reducing 
market liquidity, e.g., for SBSs based on illiquid securities? Please 
be specific in your response and provide data to the extent possible.
    104. As noted above, Section 13(m)(1)(E)(iv) of the Exchange Act 
provides that, with respect to real-time public dissemination of 
information about SBSs that are subject to mandatory clearing or that 
are not subject to mandatory clearing but are cleared regardless, the 
rule promulgated by the Commission regarding such

[[Page 75227]]

dissemination shall contain provisions ``that take into account whether 
the public disclosure will materially reduce market liquidity.'' Do 
commenters believe that there are circumstances under which real-time 
public dissemination of information about SBS transactions, as 
contemplated by proposed Regulation SBSR, whether or not the 
transactions are block trades, would materially reduce market 
liquidity? If so, how, why, and under what circumstances would real-
time public dissemination affect market liquidity? If market liquidity 
would be materially reduced, how do commenters believe that the 
Commission should address that issue, given the general requirement in 
Section 13(m)(1)(C) of the Exchange Act that the Commission generally 
shall require real-time public reporting for all SBSs?

A. Registered SDRs as Entities With Duty To Disseminate

    The Dodd-Frank Act identifies four types of SBSs and states, with 
respect to each, that the Commission shall require real-time public 
reporting for such transactions.\93\ In implementing the requirements 
of the Dodd-Frank Act, the Commission preliminarily believes that the 
best approach would be to require registered SDRs to disseminate SBS 
transaction information, and to require other market participants to 
report such information to a registered SDR in real time, so that the 
registered SDR can in turn provide transaction reports to the public in 
real time.\94\ Under this approach, market participants would not have 
to obtain SBS market data from other potential sources of SBS 
transaction information--such as SB SEFs, clearing agencies, brokers, 
or the counterparties themselves--to obtain a comprehensive view of the 
SBS market. Requiring registered SDRs to be the registered entities 
with the duty to disseminate information would produce some degree of 
mandated consolidation of SBS transaction data and help to provide 
consistency in the form of the reported information. This approach is 
designed to limit the costs and difficulty to market participants of 
obtaining and assembling data feeds from multiple venues that might 
disseminate information using different formats.
---------------------------------------------------------------------------

    \93\ See 15 U.S.C. 78m(m)(1)(C).
    \94\ One commenter has expressed support for this approach. See 
Benchmark Letter at 2 (arguing that trade reporting and 
dissemination, including the reference data and identifier system, 
``should be provided via a non-profit industry utility such as a 
SDR''). See also letter from Larry E. Thompson, General Counsel, 
DTCC, to Mary Schapiro, Chairman, Commission, and Gary Gensler, 
Chairman, CFTC, at 1 (November 15, 2010) (stating that a registered 
SDR ``should be able to provide * * * a framework for real-time 
reporting from swap execution facilities and derivatives 
clearinghouses'').
---------------------------------------------------------------------------

    Multiple uniquely formatted data feeds could impair the ability of 
market participants to receive, understand, or compare SBS transaction 
data and thus undermine its value. The Commission is cognizant of this 
potential and seeks public comment on means to address this issue. One 
way to address that issue would be to dictate the exact format and mode 
of providing required SBS transaction data to the public. Although this 
approach could promote consistency, the Commission preliminarily 
believes that such an approach could inhibit innovation and the 
development of best practices, and could inadvertently omit key 
elements to a successful SBS transaction reporting system. The 
Commission also preliminarily believes that such an approach may be 
difficult to administer over time.
    The Commission understands that existing SDRs that accept SBS data 
do not currently have the functionality to publicly disseminate data in 
real time. The Commission notes that nothing in the proposal would 
prohibit a registered SDR from contracting with a vendor to carry out 
the dissemination function. Over time, as registered SDRs and SBS 
transaction reporting become more established, it is possible that 
alternative approaches for reporting and disseminating SBS transaction 
information could develop. Thus, the proposal would not prohibit 
registered SDRs that cover the same asset classes from acting together 
to create a central consolidator that would disseminate information for 
all SBSs in that asset class. Allowing registered SDRs to satisfy their 
dissemination obligation by providing information to a third party that 
would consolidate and disseminate information for all SBSs in an asset 
class might provide an economic incentive for registered SDRs to 
create, fund, and operate a single central consolidator.
    The Commission is sensitive to the possibility that there could 
emerge multiple registered SDRs in an asset class. Should this occur, 
the Commission and the markets would be confronted with the possibility 
that different registered SDRs could adopt different dissemination 
protocols, potentially creating fragmentation in SBS market data. Based 
on conversations with market participants, however, the Commission 
preliminarily believes that the most likely outcome is for the market 
to have only a few registered SDRs (although nothing in the Dodd-Frank 
Act prevents more from being established). Furthermore, even if 
multiple registered SDRs were to be established in an asset class, it 
is unclear whether market participants would have an incentive to 
spread their business across those multiple registered SDRs. The 
Commission seeks comment on the likelihood of multiple registered SDRs 
per asset class emerging; how that would likely affect market 
participant behavior; and what steps, if any, that the Commission 
should take to address any attendant regulatory issues that could 
arise.
    One step that the Commission could take would be to require one 
consolidated reporting entity to disseminate all SBS transaction data 
for that asset class, by requiring each registered SDR in an asset 
class to provide all of its SBS data to a ``central processor'' that 
would also be a registered SDR. There is substantial precedent for this 
approach in the equity markets, where market participants may access a 
consolidated quote for national markets system securities and a 
consolidated tape reporting executed transactions. A central processor 
could receive a data feed from each registered SDR, consolidate the 
information, and then publicly disseminate the consolidated data. 
However, this approach likely would take more time to implement and may 
not be warranted given the present SBS market structure. Furthermore, 
as noted above, the proposal would not prohibit registered SDRs that 
cover the same asset classes from determining on their own to act 
together to create a central processor.
    Another approach would be to require public dissemination pursuant 
to a ``first touch'' or ``modified first touch'' approach. For a first 
touch approach, a SBS dealer or major SBS participant that is a party 
to the SBS would be responsible for dissemination, and for SBSs in 
which no SBS dealer or major SBS participant is a party, the SDR would 
be responsible for dissemination. Under a modified first touch 
approach, a SB SEF or national securities exchange would be required to 
disseminate the information for those SBSs executed on the SB SEF or 
national securities exchange. In connection with either of these 
approaches, the Commission could allow a party required to disseminate 
to satisfy its obligation if it provided the information to a third-
party consolidator that would disseminate the information for all SBSs 
in that asset class. However, if that did not occur in a timely 
manner--if, for example, the reporting parties could not agree on the 
practicalities of such an undertaking, or if not all reporting parties 
wanted to join--it would result

[[Page 75228]]

in less consolidation than the proposed approach to require registered 
SDRs to disseminate the SBS data.

Request for Comment

    The Commission requests comment on all aspects of the proposed 
rules requiring registered SDRs to disseminate SBS information.
    105. Would requiring registered SDRs to disseminate SBS information 
be an effective means of dissemination? Why or why not? Would another 
approach be more effective? What would be the advantages, or 
disadvantages, of requiring different registered entities, in addition 
to or instead of registered SDRs, to disseminate SBS information?
    106. Would the presence of multiple disseminators increase the need 
for a consolidated data feed? Why or why not?
    107. Should the Commission require consolidation of data feeds now? 
Or over time if multiple registered SDRs begin to operate in an asset 
class?
    108. What are the costs and benefits of requiring registered SDRs 
to disseminate SBS data? Would this approach have an impact on an 
entity's desire to become a registered SDR? Are other entities, such as 
SB SEFs, better suited to disseminate SBS data? How should the 
Commission balance the costs to particular entities with the benefits 
of greater consolidation of publicly disseminated SBS data?

B. Dissemination in Real Time

    Proposed Rule 902(a) would require a registered SDR to publicly 
disseminate a transaction report of a SBS, other than a block 
trade,\95\ immediately upon (1) receipt of information about the SBS 
from a reporting party, or (2) re-opening following a period when the 
registered SDR was closed.\96\ The Commission preliminarily believes 
that ``immediately'' as used in this context would require a wholly 
automated process to accept the incoming information, process the 
information to assure that only information required to be disseminated 
is disseminated, and disseminate a trade report through electronic 
means. The transaction report that is disseminated would be required to 
consist of all the information reported by the reporting party pursuant 
to proposed Rule 901(c),\97\ along with any indicator or indicators 
contemplated by the registered SDR's policies and procedures.\98\ In 
addition, the registered SDR would be required to have policies and 
procedures that specify the specific data elements that must be 
reported to it and the format for reporting this information,\99\ which 
could help to provide greater uniformity in the disseminated 
transaction data.
---------------------------------------------------------------------------

    \95\ See infra Section V.C (discussing block trades).
    \96\ The Commission notes that FINRA disseminates information on 
all transactions in TRACE-eligible securities immediately upon 
receipt of a transaction report. See FINRA Rule 6750(a). The 
Commission also notes that the Municipal Securities Rulemaking Board 
disseminates information on most transactions in municipal 
securities almost immediately. See http://emma.msrb.org/EducationCenter/FAQs.aspx?topic+AboutTrade.
    \97\ See supra Section III.B (discussing the data elements 
required to be reported in real time by proposed Rule 901(c)).
    \98\ See proposed Rule 907(a)(4).
    \99\ See proposed Rules 907(a)(1) and (2).
---------------------------------------------------------------------------

    The Commission recognizes that there may be circumstances when a 
registered SDR's systems might be unavailable for publicly 
disseminating transaction data. In such cases, as provided in proposed 
Rule 902, the registered SDR would be required to disseminate the 
transaction data immediately upon its re-opening.\100\
---------------------------------------------------------------------------

    \100\ See infra Section V.D (discussing proposed Rule 904, which 
deals with hours of operation of registered SDRs and related 
operational procedures).
---------------------------------------------------------------------------

C. Block Trades

    The Commission proposes to establish criteria for what constitutes 
a block trade and for specifying a time delay for disseminating certain 
information about a block trade to the public, for all SBSs except 
those that are determined to be required to be cleared under Section 
3C(b) of the Exchange Act but are not cleared.\101\ Proposed Rule 
907(b) would establish criteria for what constitutes a block trade, and 
proposed Rule 902(b) would specify the time delay for disseminating 
certain information about a block trade to the public.
---------------------------------------------------------------------------

    \101\ See 15 U.S.C. 13m(m)(1)(C)(iv) (providing that, with 
respect to SBSs that are determined to be required to be cleared 
under Section 3C(b) but are not cleared, the Commission shall 
require real-time public reporting of such transactions).
---------------------------------------------------------------------------

1. Role of Registered SDRs Generally
    Proposed Rule 900 would define ``block trade'' to mean a large 
notional SBS transaction that meets the criteria set forth in proposed 
Rule 907(b). Proposed Rule 907(b)(1) would require a registered SDR to 
establish and maintain written policies and procedures for calculating 
and publicizing block trade thresholds for all SBS instruments reported 
to the registered SDR in accordance with the criteria and formula for 
determining block size as specified by the Commission. In determining 
block trade thresholds, a registered SDR would be performing 
mechanical, non-subjective calculations.
    The Commission preliminarily believes that requiring a registered 
SDR to calculate and publicize block trade thresholds pursuant to its 
written policies and procedures would allow for a more streamlined and 
accurate process, as registered SDRs would have more ready access to 
the data necessary to make block trade calculations. Further, placing 
the responsibility on registered SDRs rather than reporting parties 
would eliminate the burden on reporting parties for making block trade 
calculations, and should provide greater uniformity in what constitutes 
a block trade.
2. Block Trade Threshold
    As noted above, Section 13m(1)(E)(ii) of the Exchange Act \102\ 
requires the Commission rule for real-time public dissemination of SBS 
transactions ``to specify the criteria for determining what constitutes 
a large notional security-based swap transaction (block trade).'' In 
this release, the Commission is proposing general criteria that it 
would consider when setting specific block trade thresholds, but is not 
proposing specific thresholds at this time. The Commission believes 
that it would be appropriate to seek additional comment from the 
public, as well as to collect and analyze additional data on the SBS 
market, in the coming months. The Commission intends to propose 
specific block trade thresholds simultaneous with the adoption of 
Regulation SBSR (in whatever form it may ultimately take).
---------------------------------------------------------------------------

    \102\ 15 U.S.C. 13m(m)(1)(E)(ii). This provision applies with 
respect to SBSs that are subject to mandatory clearing and SBSs that 
are not subject to mandatory clearing but are cleared at a 
registered clearing agency.
---------------------------------------------------------------------------

    The Commission preliminarily believes that the general criteria for 
what constitutes a large notional SBS transaction must be specified in 
a way that takes into account whether public disclosure of such 
transactions would materially reduce market liquidity, but presumably 
should be balanced by the general mandate of Section 13(m)(1) of the 
Exchange Act, which provides that data on SBS transactions must be 
publicly disseminated in real time, and in a form that enhances price 
discovery. In considering criteria for what constitutes a large 
notional SBS, the Commission notes that there are mechanisms by which 
reporting data on any SBS might impact liquidity. If the intent to 
trade were publicly reported prior to a transaction taking place (i.e., 
if there were pre-trade transparency), it would be reasonable to 
suppose that the marketplace would have an opportunity to react to this 
information in a way that

[[Page 75229]]

impacted the ability of such a transaction to be completed at the 
desired price, which might in turn impact the liquidity of such a 
market by causing participants to withdraw from trading or reduce the 
size of their trades.
    However, this effect could not manifest itself directly via post-
trade transparency, since the transaction has already taken place. For 
post-trade transparency to have a negative impact on liquidity, market 
participants would need to be affected in a way that either: (1) 
Impacted their desire to engage in subsequent transactions unrelated to 
the first, or (2) impacted their ability to follow through with further 
actions after the reported transaction has been completed that they 
feel are a necessary consequence of the reported transaction. In 
instance (1), post-trade dissemination of transaction prices, without 
necessarily any reference to notional size, could impact the desire for 
certain market participants to trade if spreads narrowed, because price 
transparency led to an increased negotiating ability for market 
participants who otherwise would not have been privy to such 
information. But this same transparency also could lead to an increase 
in liquidity if other market participants increase their trading as a 
result of having access to new information or of narrower spreads. It 
may not be possible to estimate with any certainty which of these 
factors will outweigh the other as the SBS market continues to evolve. 
Analogs to other markets (such as fixed income or equities) may provide 
guidance; however, those markets each have structures and instruments 
that differ significantly from the SBS market.
    In determining whether there should be a delay in the disclosure of 
prices of SBS block trades, without necessarily any reference to 
notional size, the Commission is guided by the general mandate of 
Section 13(m)(1) of the Exchange Act, which provides that transaction 
information should be disseminated in a form that enhances price 
discovery. Nonetheless, the Commission recognizes that mandating 
disclosure of trades below a certain size would essentially signal to 
the market that a trade was at or above that size--that is to say, 
would signal that the trade was ``of size''--even when there is no 
disclosure of the precise size of the trade if it is above some 
threshold size. The Commission preliminarily believes that even in very 
illiquid markets transaction prices form the foundation of price 
discovery. Past transactions may not be indicative of those in the 
future, and may not themselves accurately reflect fundamental value, 
but they provide an objective starting point for participants to 
consider. Moreover, in an illiquid market, the low frequency of 
transactions and potentially wide variation of past prices inform 
participants as to uncertainty in pricing that they may expect in the 
future, which may not only influence trading decisions, but could also 
play a role in mark-to-market valuations and risk management. There 
does not seem to be a reason that post-trade price disclosure for large 
notional SBS transactions would be less relevant for price discovery 
than similar disclosure for other SBSs. Therefore, as described further 
below, the Commission is proposing that prices for block trades be 
disseminated in the same fashion as prices for non-block-trade 
transactions.
    In contrast, instance (2) above considers that disclosure that a 
block trade has taken place, with or without the exact size of the 
trade, may lead to a reduction in liquidity if one or both of the 
parties engaged in such a transaction need to take further actions in 
the marketplace after the reported transaction was completed and 
disseminated, and dissemination would inhibit their ability to take 
such action. In this situation, one or both of the parties might choose 
not to have participated in the original transaction.
    One reason an SBS counterparty might desire to take further action 
after an initial transaction is completed would be for hedging 
purposes. This hedge may take the form of re-entering the SBS market on 
the contra side, or hedging the exposure underlying the initial SBS by 
taking a contra position in the cash security market. Whether or not 
one or more parties to a transaction will be subsequently hedging its 
exposure after the transaction is complete cannot be discerned from 
data about the transaction. However, if a transaction is to be hedged, 
the size of the transaction would be a factor in how readily the hedge 
can be executed.
    For transactions that are sufficiently small, disseminating the 
exact size of the transaction would likely not provide other market 
participants with information that could be used to the detriment of 
the hedging party, since the hedging transaction would be 
indistinguishable from other market activity. However, for transactions 
that are sufficiently large, it may be the case that disseminating the 
size of such a transaction would provide a signal to other market 
participants that there is the potential, though not certainty, that a 
large transaction could take place in an SBS or a related security. 
Market participants might be able to use this information to their 
advantage in a way that disadvantages the hedging party and disincents 
that party from engaging in such types of SBS transactions. In this 
fashion, post-trade transparency for one transaction is transformed 
into pre-trade signaling for another.
    To address this issue, the Commission preliminarily believes that 
the size of an SBS transaction that is sufficiently large to signal 
other market participants that there is the potential for a subsequent 
outsized transaction, should itself be suppressed to provide time for 
those subsequent transactions, if any, to be absorbed by the market. 
Moreover, the Commission recognizes that mandating disclosure of trades 
below a certain size would essentially signal to the market that a 
trade was at or above that size--that is to say, would signal that a 
trade was ``of size''--even when there is no disclosure of the precise 
size of the trade, if it is above some threshold size.
    There are a variety of metrics that can be used to determine the 
criteria for whether or not a SBS transaction should be considered a 
block trade. These include the absolute size of the transaction, the 
size of the transaction relative to other similar transactions, the 
size of the transaction relative to some measure of overall volume for 
that SBS instrument, and the size of the transaction relative to some 
measure of overall volume for the security or securities underlying the 
SBS. The most relevant metric would depend on the specific nature and 
timing of the hedging, which cannot be discerned from data about the 
transaction. However, if the goal of not publicly disseminating the 
size of a large notional SBS transaction is to prevent inadvertent 
signaling to the market of potential large subsequent transactions, 
then criteria should be chosen in a way that minimizes such signaling.
    This suggests the use of one or more metrics that can help 
distinguish ordinary transaction sizes from extraordinary transaction 
sizes. An ordinary transaction size would be one in which the size of 
subsequent hedging transactions (if any) would be indistinguishable 
from the rest of the market. Extraordinary transaction sizes would be 
those in which subsequent transactions could be distinguished from the 
rest of the market.
    One possibility could be to order the sizes of all transactions for 
a given SBS instrument and identify the top N-percent as large. 
However, it is not a priori obvious what percent should be used. Also, 
using a simple percentile threshold would not account for the 
distribution of trade sizes that could be widely dispersed or narrowly 
clustered. In addition, the distribution of the trade sizes could 
change over time.

[[Page 75230]]

    A second possibility would be to examine trade size data to 
determine if the distribution of trade sizes suggests thresholds that 
could be used to discern ordinary versus extraordinary trade size. The 
figure below plots the distribution of trade sizes, bucketed in bins of 
$5 million, for over 370,000 single name corporate CDS 
transactions.\103\ Almost half of all trades have sizes of less than $5 
million, and over 90% have sizes less than $15 million. There is a 
small cluster of trades between $15 million and $30 million, followed 
by a long tail beginning at $30 million and extending to over $100 
million.
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    \103\ See supra note 11.
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BILLING CODE 8011-01-P
[GRAPHIC] [TIFF OMITTED] TP02DE10.025

    These data would suggest two possible thresholds--$15 million or 
$30 million. A cutoff of $15 million would have resulted in about 8% of 
trades executed over this time period being considered large notional, 
and a cutoff of $30 million would have resulted in about 1% of trades 
being considered large notional.
    The second figure below presents similar data for over 20,000 
sovereign CDS transactions from the same source over the same time 
period. The plot suggests similar cutoff points, although there are 
notably many more transactions in the tail for sovereign CDS than there 
were for single-name corporate CDS. A cutoff of $15 million would 
result in about 26% of all trades being considered large notional, and 
a cutoff of $30 million would result in about 7.5% of all trades being 
considered large notional.

[[Page 75231]]

[GRAPHIC] [TIFF OMITTED] TP02DE10.027

BILLING CODE 8011-01-C
    Splitting the universe of transactions into single-name corporate 
CDS and sovereign CDS would not provide for potential differences 
between individual corporates or sovereigns that may have unique 
distributions or liquidity profiles. As a further consideration, the 
Commission notes that some SBSs may trade very infrequently, such as 
only a few times per month. Under these conditions, it would not be 
obvious how to distinguish an ordinary sized transaction from an 
extraordinary size. However, if a market were that illiquid it would 
most likely not be the case that subsequent hedging would be done in 
that same market. In such case, it is somewhat harder to see how the 
post-trade reporting of size would further impact the ability for one 
or more market participants to affect subsequent hedging transactions, 
since in such an illiquid market it may not be possible to hedge at 
all.
    The Commission also notes that this criterion considers only 
typical trade sizes within the CDS market without regard to overall 
daily, weekly, or monthly volume. This criterion also does not consider 
liquidity or volume in the underlying cash markets. Inclusion of volume 
metrics may be helpful in defining the criteria for what constitutes a 
block trade. For example, a single trade that is equivalent in size to 
a full- or half-day's average volume may be considered out-sized. On 
the other hand, if a particular SBS trades only once or twice per day 
then every trade would be equivalent to a full or half-day's average 
size. The Commission invites comment on if and how volume 
considerations should be included in the criteria for setting block 
trade thresholds.
    For the reasons discussed above, a simple metric based on recent 
trade sizes of SBSs designed to help distinguish ordinary from 
extraordinary trade sizes could address the issue of inadvertently 
signaling market participants that a potential large transaction in a 
specific SBS or underlying security may be forthcoming as the result of 
one or more participants hedging a just-completed large notional 
transaction. On the other hand, the Commission recognizes that 
requiring disclosure of the fact that a block trade took place may 
raise some of the same concerns as requiring disclosure of the exact 
size of the large trade, and that to mandate disclosure of trades below 
a certain size is tantamount to mandating disclosure that a large trade 
occurred, even if the precise size of the trade is not disclosed. The 
Commission is interested in and invites comment on whether there are 
other means by which the dissemination protocol for block trades could 
effectively not reveal the size of a block trade or mitigate the 
potential effects of revealing that a block trade took place, while 
still offering the price component in real time. For example, could the 
block trade be disseminated with a ``proxy'' size, such as the size of 
the block trade threshold or a randomized size, with no identifier 
showing that the trade is a block trade?
    Finally, the Commission preliminarily believes that it would not be 
appropriate to establish different block trade thresholds for similar 
instruments with different maturities. This is reflected in the 
proposed definition of ``security-based swap instrument,'' which would 
mean ``each security-based swap in the same asset class, with the same 
underlying reference asset, reference issuer, or reference index.'' 
\104\ The proposed definition would not include any distinction based 
on tenor or date until expiration. The Commission is proposing this 
approach for three reasons. First, the larger the number of 
distinctions between SBS instruments that are created by the proposed 
rule, the larger the number of potentially

[[Page 75232]]

illogical categorizations at the margins. For example, there would be 
little economic rationale to draw a distinction between SBSs alike in 
all respects except that they had maturities one day apart. Second, the 
Commission understands that SBSs in the same asset class, with the same 
underlying reference asset, reference issuer, or reference index have 
pricing impacts on each other, regardless of their maturities. This is 
because market participants typically price SBSs based on the same 
reference issuer or index along a curve, whereby prices at points along 
the curve where no hard data exist may be interpolated or extrapolated 
from different points along the curve where harder data (such as 
publicly disseminated last-sale prints) may exist. Thus, even if a SBS 
of an unusual maturity were traded only infrequently, the market in 
that SBS would likely be affected more by the characteristics of other 
SBSs based in the same asset class, with the same underlying reference 
asset, reference issuer, or reference index, rather than the fact that 
there is low liquidity in SBSs having that specific maturity. Third, a 
regime that differentiated SBSs based on maturities could invite market 
participants to fragment the market by creating SBSs with non-standard 
maturities in an effort to gain more favorable block trade treatment.
---------------------------------------------------------------------------

    \104\ See proposed Rule 900.
---------------------------------------------------------------------------

3. Exclusions From Block Trade Definition
    Proposed Rule 907(b)(2)(i) would provide that a registered SDR 
shall not designate as a block trade any SBS that is an equity total 
return swap or is otherwise designed to offer risks and returns 
proportional to a position in the equity security or securities on 
which the security-based swap is based.\105\ A SBS can be designed as a 
synthetic substitute for a position in the underlying equity security 
or securities. There is no delay in the reporting of block trade 
transactions for equity securities in the United States. Proposed Rule 
907(b)(2)(i) is designed to discourage SBS market participants from 
evading post-trade transparency in the equity securities markets by 
using synthetic substitutes in the SBS market.\106\
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    \105\ Proposed Rule 901(c)(1) would require the reporting party 
to report, in real time, the asset class of the SBS and, if the SBS 
is an equity derivative, whether it is a total return swap or is 
otherwise designed to offer risks and returns proportional to a 
position in the equity security or securities on which the SBS is 
based.
    \106\ As an example: Bank DEF wants to purchase ten million 
shares of Company XYZ and would like to avoid real-time public 
reporting of the purchase. If Bank DEF purchased those shares on a 
national securities exchange, the purchase would be reported in real 
time. However, Bank DEF could instead enter into a total return swap 
with ten million shares of XYZ as a reference asset and create an 
economically similar position. If the total return swap, but not the 
equity security transaction, were afforded a block trade exception 
under proposed Regulation SBSR, this disparate regulatory treatment 
might influence market participants' investment choices.
---------------------------------------------------------------------------

    Proposed Rule 907(b)(2)(ii) would provide that a registered SDR 
shall not designate as a block trade any SBS contemplated by Section 
13(m)(1)(C)(iv) of the Exchange Act, i.e., any SBS that is determined 
to be required to be cleared under Section 3C(b) of the Exchange Act, 
but that is not cleared. The Dodd-Frank Act expressly requires the 
Commission to mandate real-time public dissemination for SBSs that are 
determined to be required to be cleared but are not cleared.
4. Public Dissemination of Block Trades
    Proposed Rule 902(b) would provide that a registered SDR shall 
publicly disseminate a transaction report of an SBS that constitutes a 
block trade immediately upon receipt of information about the block 
trade from the reporting party. The transaction report would be 
required to consist of all the information reported by the reporting 
party pursuant to proposed Rule 901(c), except for the notional size, 
plus the transaction ID and an indicator that the report represents a 
block trade. The Commission proposes that the registered SDR would be 
required to publicly disseminate a complete transaction report for such 
block trade (including the transaction ID and the full notional size) 
as follows:
    <bullet> Proposed Rule 902(b)(1) would provide that, if the SBS was 
executed on or after 05:00 UTC and before 23:00 UTC of the same day 
(which corresponds to 12 midnight and 6 p.m. EST), the transaction 
report (including the transaction ID and the full notional size) shall 
be disseminated at 07:00 UTC of the following day (which corresponds to 
2 a.m. EST of the following day).
    <bullet> Proposed Rule 902(b)(2) would provide that, if the SBS was 
executed on or after 23:00 UTC and up to 05:00 UTC of the following day 
(which corresponds to 6 p.m. until midnight EST), the transaction 
report (including the transaction ID and the full notional size) shall 
be disseminated at 13:00 UTC of that following day (which corresponds 
to 8 a.m. EST of the following day).
    Under proposed Rule 902(b), market participants would learn the 
price of an SBS block trade in real time, although not the notional 
size. The Commission preliminarily believes that this approach promotes 
the public's interest in price discovery without subjecting the block 
trade counterparties to undue risk of a significant change in the price 
necessary to hedge the market risk created by entering into the block 
trade. Other market participants would know the SBS transaction was 
above a certain size, and it may be possible to infer the size or 
direction of a large trade before the size is publicly disseminated, 
based on the liquidity premium inferred from the reported trade price. 
The Commission recognizes that the disclosure that a block trade took 
place, even without disclosure of the exact size, can still implicate 
some of the concerns regarding subsequent hedging that were previously 
discussed. On the other hand, there would still be substantial risk for 
any other market participant that seeks to take long or short market 
positions solely to profit from the information that a block trade 
occurred, due to the uncertainty regarding the true size of the trade. 
Moreover, disseminating the price in real time could allow all market 
participants to obtain useful information about the block trade for 
valuation purposes, even though they would not learn about the full 
size of the block trade until later.\107\ The Commission notes that the 
approach that it is proposing here is similar to TRACE's handling of 
block trades.\108\
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    \107\ SBS market participants typically value their holdings at 
the end of the business day. If no information about a block trade 
were made public until after the end of the business day (for 
example, if the block trade occurred at 15:00 UTC/noon EST but no 
public trade report were required until eight hours later, i.e., at 
23:00 UTC/8:00 p.m. EST), all market participants would lose a 
potentially significant input into their valuation methodologies. 
This could be the case in particular for infrequently traded SBS 
instruments, where there are few last-sale prints. This would also 
likely be the case for market participants that hold SBS instruments 
in notional sizes similar to the undisseminated SBS block trade. A 
large position might be valued less on a per-unit basis than a 
smaller position, due to an illiquidity premium. Seeing the price of 
the block trade in real time could be useful for market participants 
that must value a larger SBS position, because the price of the 
reported block trade (even if the exact size is unknown) would also 
likely reflect an illiquidity premium to some extent.
    \108\ FINRA rules require member broker-dealers to report 
transactions in corporate and agency debt securities to TRACE within 
15 minutes. FINRA publicly disseminates a transaction report 
immediately upon receipt of the information. If the par value of the 
trade exceeds $5 million (in the case of investment grade bonds) or 
$1 million (in the case of non-investment-grade bonds) the quantity 
disseminated by TRACE will be either ``5 million+'' or ``1 
million+''. At no time will TRACE subsequently disseminate the full 
size of the trade. See TRACE User Guide, version 2.4 (last update 
March 31, 2010), at 50.
---------------------------------------------------------------------------

    Unlike TRACE, however, the Commission is proposing a second wave of 
transaction reporting, which would include the full notional size of 
the

[[Page 75233]]

block trade, after an appropriate delay. Under proposed Rules 907(b)(1) 
and (2), all block trades would have at least an eight-hour delay 
before the full notional size would be disseminated. Proposed Rule 
907(b) would establish a cut-off time of 23:00 UTC, which correspond to 
6 p.m. EST. Block trades executed on or after 05:00 UTC (which 
corresponds to midnight EST) and up to 23:00 UTC (6 p.m. EST) would 
have to have their full notional size disseminated by 07:00 UTC, which 
corresponds to 2 a.m. EST. Thus, most block trades executed on a given 
U.S. day would have their full notional sizes disseminated overnight. 
However, block trades executed on or after 23:00 UTC (6 p.m. EST) and 
before 05:00 UTC (midnight EST) would instead have their full notional 
sizes disseminated at 13:00 UTC, which corresponds to 8 a.m. EST of the 
following U.S. day. If there were only one point in the day when a 
registered SDR were required to disseminate the full notional sizes, 
block trades executed a short time before the second wave of 
dissemination would not benefit from the proposed delay in the 
dissemination of the notional size. Under the proposed approach, block 
trades executed during a period that runs roughly from the close of the 
U.S. business day to midnight EST would have their full sizes 
disseminated by a registered SDR at a time that corresponds to the 
opening of business on the next U.S. day.
    The Commission preliminarily believes that disseminating the full 
size of a block trade, albeit with a delay, would further promote price 
transparency while having only minimal costs. The ability to view the 
full notional size, although with a delay of between eight and 26 
hours,\109\ would allow market participants to understand the full 
scope of activity in the market. At the same time, market participants 
that execute block trades would have at minimum eight hours to hedge or 
take other action to minimize their risks before the full size of their 
trades was disseminated. Based on preliminary discussions with market 
participants, the Commission believes that the proposed delay of 
between eight and 26 hours, which in most cases would represent the 
better part of a business day, would allow sufficient time for the 
counterparties to the transaction to take follow-up action as needed. 
The Commission preliminarily believes, therefore, that these time 
periods strike a reasonable balance between the goals of post-trade 
transparency and of providing market participants that trade in large 
size a reasonable opportunity to mitigate their risks.
---------------------------------------------------------------------------

    \109\ Market participants would be able to view the full 
notional size of a SBS transaction no sooner than eight hours and no 
more than 26 hours after the time of execution. A SBS block trade 
executed at 05:00 UTC would have its full size disseminated by a 
registered SDR at 07:00 UTC of the next day, which is 26 hours 
later. Any other SBS block trade would be disseminated after a 
shorter delay. For example, a SBS block trade executed at 17:00 UTC 
also would be disseminated with its full size at 07:00 UTC of the 
next day, which is 14 hours later. A SBS block trade executed at 
04:59:59 would have its full size disseminated by a registered SDR 
at 13:00 UTC of that same day, just over eight hours later.
---------------------------------------------------------------------------

    Finally, proposed Rule 907(b)(3) would provide that, if a 
registered SDR is in normal closing hours or special closing hours 
\110\ at a time when it would be required to disseminate information 
about a block trade pursuant to this section, the registered SDR shall 
instead disseminate information about the block trade immediately upon 
re-opening. Under proposed Rules 907(b)(1) and (2), a registered SDR 
could otherwise be required to disseminate the full report of a block 
trade, including the notional size, at a time when it is closed.
---------------------------------------------------------------------------

    \110\ See infra Section V.E (discussing hours of operation of 
registered SDRs).
---------------------------------------------------------------------------

5. No Delay in Reporting Block Trades to Registered SDR
    Because the registered SDR, rather than the reporting party, would 
have the responsibility to determine whether a transaction qualifies as 
a block trade, the reporting party would be required to report a SBS to 
a registered SDR or the Commission pursuant to the time frames set 
forth in Rules 901(c) and (d), regardless of whether the reporting 
party believes the transaction qualifies for block trade treatment.
6. Block Trade Policies and Procedures
    Proposed Rule 907(b)(1) would provide that a registered SDR shall 
establish and maintain written policies and procedures for calculating 
and publicizing block trade thresholds for all SBS instruments reported 
to the registered SDR. At a minimum, a registered SDR would be required 
to establish written policies and procedures reasonably designed to: 
(1) Immediately determine whether a SBS reported to the registered SDR 
constitutes a block trade and, if so, (2) disseminate information about 
the block trade in a manner consistent with proposed Rule 902(b).
    As noted above, the specific threshold that a registered SDR would 
have to apply to make the block trade calculations will be established 
in a future Commission rulemaking.

Request for Comment

    The Commission requests comment generally on all aspects of the 
proposed rules regarding block trades, including the proposed criteria 
and the proposed exclusions. In particular, the Commission specifically 
requests comment on the following issues:
    109. Do commenters agree with the approach of having a registered 
SDR calculate and publicize block size thresholds, in accordance with 
the criteria established by the Commission? Why or why not? If not, 
what would be an alternative approach?
    110. If there is more than one registered SDR for an asset class, 
how would the Commission ensure that all registered SDRs calculated the 
same block trade thresholds for the same SBS instrument? How should the 
Commission address this issue? Is it feasible to expect multiple 
registered SDRs in the same asset class to obtain each others' market 
data feeds to obtain the data with which to calculate block trade 
thresholds?
    111. If commenters believe that there would be adverse price impact 
for traders if all information on block trades was made available in 
real time, do commenters have any studies or empirical evidence to 
support that assertion? What would be the long-term effects on the 
market if all market participants knew the full transaction details of 
all SBSs in real time? Would this impact liquidity? If so, how?
    112. Some participants in the Market Data Roundtable referred to 
the likelihood of ``front running'' if all information on block trades 
were made available in real time. How would front running occur in the 
SBS market if all the details of block trades were disseminated in real 
time?
    113. How do counterparties hedge large SBS trades? At what notional 
trade size does it become difficult to hedge a SBS such that a 
dissemination delay is necessary? How does this vary by asset class? 
How long does it take to complete a hedge? What characteristics of a 
SBS instrument or asset class affect the length of time needed to 
deploy the hedge?
    114. Does a counterparty's ability to hedge a trade increase or 
decrease depending on market characteristics such as trading volume and 
trading frequency? Does this depend on asset class, and within an asset 
class does it depend on maturity or other contract characteristics?
    115. Do commenters agree that the criteria for determining whether 
or not a SBS transaction is considered a block trade should be based on 
a distribution

[[Page 75234]]

of past trade sizes? Should overall volume also be considered? Should 
volume or trade sizes in the cash market be considered?
    116. Should block trade thresholds be determined with more 
granularity, such as on a SBS instrument by instrument basis?
    117. How often should thresholds be updated? What should be the 
appropriate look back period for data used to determine thresholds?
    118. Is there a preferred formulaic way of computing the thresholds 
from trade size or other distributions? Should a simple percentile cut-
off be chosen? If so, how? Would a standard deviation metric be 
appropriate?
    119. How might trading change as a result of the chosen threshold? 
Could these provisions be gamed? Would market participants change their 
trading patterns to purposely skew the distribution to alter the 
threshold when they are next updated?
    120. For any criterion that takes into account trading activity in 
the SBS instrument, should inter-affiliate transactions or trades 
resulting from portfolio compressions be excluded? If so, why? Are 
there other types of SBSs that should be excluded? If so, why? How 
could those exclusions be defined so as to prevent market participants 
from inappropriately deeming a SBS as qualifying for an exclusion?
    121. Should there be a fixed minimum notional size threshold below 
which no SBS could be considered a block trade? If so, what should that 
threshold be and why? Should there be a different fixed minimum 
threshold for different asset classes or SBS instruments? If so, why? 
What would those different thresholds be?
    122. Do commenters agree with the proposed exclusions from the 
block trade determination? If so, why or why not? Should other kinds of 
transactions be prevented from having a block trade exception?
    123. Do commenters believe that block trades (however defined) 
should be treated differently from other trades for purposes of public 
dissemination? If so, why? If not, why not?
    124. What would be the effect of having no or only a short 
dissemination delay for a block trade report that includes the full 
notional size? Would it enhance or slow the speed of price discovery 
and the level of price efficiency in the market? Would it increase or 
decrease competition among market participants in general, or SBS 
dealers in particular? Would any short-term increases in the cost of 
hedging be offset by reductions in the cost of hedging in the longer 
term?
    125. Do commenters agree with the proposed two-step process for 
public dissemination of a block trade?
    126. How likely is it that market participants would be able to 
infer the size or direction of a large trade before the size is 
publicly disseminated, based on the liquidity premium inferred from the 
reported traded price? Is it feasible to remove the liquidity premium 
component from the price of a large trade, leaving only a normalized 
price for a standard (non-block) size trade to be reported in real 
time, with the actual price including the liquidity premium component 
being reported only at the time that actual trade size is revealed?
    127. Would it be preferable to have a single transaction report for 
a block trade that contains all transaction details, including the 
notional size, but with a delay in dissemination of the complete trade 
report? If so, why? What should that delay be? Five minutes? Ten 
minutes? An hour? Three hours? At the end of the day? Why would this 
length of time be appropriate?
    128. Are there other means by which the dissemination protocol for 
block trades could effectively not reveal the size of the block trade 
while still offering the price component in real time? For example, 
could the block trade be disseminated with a ``proxy'' size, such as 
the size of the block trade threshold or a randomized size, with no 
identifier showing that the trade is a block trade? Even if that 
approach were to effectively not reveal the true size of the block, 
would it do so at the cost of creating misinformation in the market?
    129. Do commenters believe it is important for market participants 
to have pricing information from block trades to set end-of-day marks? 
When are these marks typically set? How valuable would it be in setting 
end-of-day marks to know the price of a SBS block trade, even without 
the full size?
    130. If the Commission were to adopt a requirement that the price 
and size of a block trade must be publicly disseminated before the time 
that market participants typically set marks, would that cause SBS 
counterparties to avoid executing block trades near that time? For 
example, assume the Commission were to require that the full 
transaction details of block trades had to be publicly disseminated by 
a registered SDR at 21:00 UTC/4:00 p.m. EST, and that even a block 
trade executed at 3:55 p.m. EST had to be disseminated at 4 p.m. EST. 
Would this cause market participants to shift block trading earlier or 
later in the day? If so, would there be any harm in such movement?
    131. Do commenters agree with the Commission's proposed times for 
disseminating the full notional size of block trades? If not, what 
other times would be appropriate, and why? Would counterparties be able 
to effectively hedge large SBSs executed toward the end of the day 
during the time allowed by the proposed rules (i.e., between 6 p.m. and 
midnight EST)?
    132. Do commenters believe it would be more appropriate for a 
registered SDR to disseminate the notional size of each block trade 
after a fixed period after the trade report for that SBS transaction is 
disseminated without the notional size, rather than requiring the 
registered SDR to disseminate the full trade reports in two ``batches'' 
during the day? If so, what would be an appropriate delay for 
disseminate the full notional size, and why?
    133. Under the Commission's proposal, there would be at least an 
eight-hour delay between the time of execution of a block trade and 
when the full notional size is required to be disseminated by a 
registered SDR. Is an eight-hour minimum appropriate? Should that 
period be longer or shorter? Why?
    134. Would the Commission's proposed times for disseminating block 
trade information with the full notional size included cause any 
disruptive change in trading patterns or activity for large SBS trades, 
for example by providing market participants the incentive to move 
block trading toward the very beginning of the day, or by prompting 
market participants to avoid trading around the release of block trade 
information at 07:00 UTC/2 a.m. EST and 13:00 UTC/8 a.m. EST?
    135. Would the public dissemination of block trades as proposed 
allow some market participants to infer the identity of the parties to 
the transaction or materially reduce market liquidity? If so, how? Can 
or should there be another means of suppressing the exact size of a 
block trade?

D. SBS Information That Will Not Be Disseminated

    The Commission is proposing Rule 902(c)(1), which would prohibit a 
registered SDR from disseminating the identity of either counterparty 
to a SBS, and Rule 902(c)(2), which would prohibit a registered SDR 
from disseminating, with respect to a SBS that is not cleared at a 
registered clearing agency and that is reported to a registered SDR, 
any information disclosing the business transactions and market 
positions of any person.\111\
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    \111\ See 15 U.S.C. 13m(m)(1)(C)(iii) (``With respect to 
security-based swaps that are not cleared * * * and which are 
reported to a security-based swap data repository or the Commission 
under section 3C(a)(6), the Commission shall require real-time 
public reporting * * * in a manner that does not disclose the 
business transactions and market positions of any person.''); 15 
U.S.C. 13m(m)(1)(E)(i) (requiring that the Commission's rules 
governing the dissemination of SBS transaction and pricing 
information ``does not identify the participants''). The Commission 
does not believe that the information that would be disseminated 
pursuant to proposed Regulation SBSR would disclose the business 
transactions, identities, or market positions of any person.

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[[Page 75235]]

    In addition, proposed Rule 902(c)(3) would prohibit a registered 
SDR from publicly disseminating any information regarding a SBS 
reported pursuant to proposed Rule 901(i), which would require 
participants to report pre-enactment and transitional SBSs.\112\ The 
Commission preliminarily believes that price discovery would not be 
enhanced by publicly disseminating information about historical 
SBSs.\113\
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    \112\ See proposed Rule 900 (defining ``pre-enactment security 
based swap'' and ``transactional security-based swap'').
    \113\ See supra Section IV.F.
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Request for Comment

    136. Do commenters believe that information that would be 
disseminated pursuant to proposed Regulation SBSR would disclose the 
business transactions, identities, or market positions of any person?
    137. If so, what revisions to proposed Regulation SBSR do 
commenters believe would be necessary to avoid disclosing the business 
transactions, identities, or market positions of any person?

E. Operating Hours of Registered SDRs

1. Continuous Operation
    The Dodd-Frank Act does not explicitly address or prescribe the 
hours of operation of the real-time reporting and dissemination regime. 
However, to serve the goals of transparency and price discovery, the 
Commission believes that it is appropriate to implement a system of 
real-time reporting and dissemination that, in general, operates 
continuously.\114\ Accordingly, proposed Rule 904 would require a 
registered SDR to design its systems to allow for continuous receipt 
and dissemination of SBS data, except that a registered SDR would be 
permitted to establish ``normal closing hours.'' Such normal closing 
hours may occur only when, in the estimation of the registered SDR, the 
U.S. markets and other major markets are inactive. In addition, a 
registered SDR would be permitted to declare, on an ad hoc basis, 
special closing hours to perform routine system maintenance, subject to 
certain requirements.
---------------------------------------------------------------------------

    \114\ The Commission is aware that one current data repository, 
Warehouse Trust Company LLC, a subsidiary of DTCC, operates 24 hours 
a day for six days a week.
---------------------------------------------------------------------------

    The Commission believes there are compelling reasons to adopt this 
approach. First, the market for SBSs is global, and the Commission 
believes the public interest is served by requiring continuous real-
time dissemination of any SBS transactions that would be required to be 
reported to a registered SDR, no matter when they are executed. Second, 
a continuous dissemination regime would reduce the incentive for market 
participants to defer execution of SBS transactions until after regular 
business hours to avoid real-time post-trade transparency. Third, the 
Commission believes that this continuous dissemination regime would be 
``technologically practicable,'' and thus consistent with the Dodd-
Frank definition of what constitutes real-time dissemination.\115\
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    \115\ See 15 U.S.C. 78m(m)(1)(A).
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2. Normal Closing Hours and Special Closing Hours
    Although the Commission believes that continuous operation of a 
real-time reporting and dissemination regime should be the goal, the 
Commission recognizes the potential need for a registered SDR to 
establish normal closing hours to perform necessary system maintenance. 
Such normal closing hours should occur only when, in the estimation of 
the registered SDR, the U.S. markets and major foreign markets are 
inactive. Consequently, proposed Rule 904(a) would allow a registered 
SDR to establish normal closing hours during periods when, in its 
estimation, the U.S. market and major foreign markets are inactive. A 
registered SDR would be required to provide reasonable advance notice 
to participants and to the public of its normal closing hours.\116\
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    \116\ For example, a registered SDR could provide notices to its 
participants or publicize its normal closing hours in a conspicuous 
place on its Web site.
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    Further, the Commission recognizes that unexpected circumstances 
could arise that would require a registered SDR to temporarily make 
unavailable its systems for processing transaction reports and publicly 
disseminating transaction data. Consequently, proposed Rule 904(b) 
would permit a registered SDR to declare, on an ad hoc basis, special 
closing hours to perform system maintenance that cannot wait until 
normal closing hours. A registered SDR would be required, to the extent 
reasonably possible under the circumstances, to avoid scheduling 
special closing hours during when, in its estimation, the U.S. market 
and major foreign markets are most active, and to provide reasonable 
advance notice of its special closing hours to participants and to the 
public.
    Paragraphs (c) to (e) of proposed Rule 904 would specify 
requirements for handling and disseminating reported data during a 
registered SDR's normal and special closing hours. During normal 
closing hours and, to the extent reasonably practicable, during special 
closing hours, a registered SDR would be required to have the 
capability to receive and hold in queue transaction data it receives. 
Immediately upon system re-opening following normal closing hours (or 
opening following special closing hours, if it were able to hold 
incoming data in queue), the registered SDR would be required to 
publicly disseminate any transaction data required to be reported under 
proposed Rule 901(c) that it received and held in queue. If the 
registered SDR could not, while it was closed, receive and hold in 
queue information required to be reported, it would be required, 
immediately upon resuming normal operations, to send a notice to all 
participants that it had resumed normal operations but could not, while 
closed, receive and hold in queue such transaction information. 
Thereafter, any participant that had an obligation to report 
information, but was unable to do so because of the registered SDR's 
inability to receive and hold data in queue, would be required to 
immediately report the information to the registered SDR.
    Regardless of the current operating status of a registered SDR, 
reporting parties would be required to submit information to the 
registered SDR under the same standards and permissible timing detailed 
in proposed Rule 901. If a party that has an obligation to report the 
transaction data is unable to do so because the registered SDR's system 
is unable to receive and hold in queue such data, the reporting party 
would be required to report any information that it was obligated to 
report immediately after it received a notice that it was possible to 
do so.

Request for Comment

    The Commission requests comment on all aspects of the proposed 
operating hours for registered SDRs.
    138. Do commenters agree with the provisions that would allow 
registered SDRs to have normal and special closing hours and the 
proposed process for receipt and dissemination of data during and after 
such hours?
    139. Is it reasonable for the Commission to provide registered SDRs 
with flexibility to set specific closing

[[Page 75236]]

times, or should the Commission adopt a rule that specifies hours of 
operation?
    140. Are there alternatives to allowing registered SDRs to close 
during normal and special closing hours? Would it be feasible for 
registered SDRs to operate without normal and special closing hours?

F. Procedures for Correcting Errors

    Proposed Rule 905 would establish procedures to correct errors in 
reported and disseminated SBS information. The Commission recognizes 
that any system for transaction reporting must accommodate the 
possibility that certain data elements may be incorrectly reported. 
Proposed Rule 905 would establish error reporting procedures for 
counterparties and for registered SDRs.
1. Counterparty Reporting Error
    Proposed Rule 905(a) would apply where a counterparty discovers an 
error after a SBS transaction has been reported. A counterparty that 
was not the reporting party would be required to promptly notify the 
reporting party of the error. A reporting party that discovers an error 
or receives notification of an error from its counterparty would be 
required to promptly submit to the entity to which it provided the 
original transaction report an amended report pertaining to the 
original transaction report. If the reporting party reported the 
initial transaction to a registered SDR, the reporting party must 
submit an amended report to the registered SDR in a manner consistent 
with the policies and procedures contemplated by proposed Rule 
907(a)(3).\117\ The Commission preliminarily believes that it is 
reasonable to place the duty to submit a correction report on the 
reporting party, because the reporting party was responsible for 
submitting the initial transaction report. This approach should 
establish a clear duty and help to avoid the submission of duplicative 
error reports.
---------------------------------------------------------------------------

    \117\ See proposed Rule 905(a)(2).
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2. Responsibility of Registered SDR To Correct
    Proposed Rule 905(b) outlines the duties of registered SDRs in 
correcting information and re-disseminating corrected information.\118\ 
If the registered SDR either discovers an error in the SBS information 
contained in its system or receives notice of an error from a 
counterparty, the registered SDR would be required to verify the 
accuracy of the terms of the SBS and, following such verification, 
promptly correct the information in its system.\119\ Proposed Rule 905 
would further require that, if the erroneous information contains any 
information that falls into the categories enumerated in proposed Rule 
901(c) as information required to be reported and disseminated in real 
time, the registered SDR would be required to publicly disseminate a 
corrected transaction report of the SBS promptly following verification 
of the trade by the parties to the SBS, with an indication that the 
report relates to a previously disseminated transaction.\120\
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    \118\ See also SDR Registration Proposing Release, supra note 6 
(proposing Rule 13n-5 under the Exchange Act).
    \119\ See proposed Rule 905(b)(1). The Commission is also 
proposing to require the registered SDR to establish and maintain 
written policies and procedures that, among other things, specify 
how reporting parties are to report corrections to previously 
submitted information and how information in the records of the SDR, 
upon being discovered to be erroneous, is to be corrected. See 
proposed Rule 907(a)(3); infra Section VI.A (discussing the policies 
and procedures of registered SDRs).
    \120\ See proposed Rule 905(b)(2).
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    Proposed Rule 907(a)(3) would require a registered SDR to, among 
other things, establish and maintain written policies and procedures 
for determining how participants would be required to report 
corrections of prior reports. The registered SDR would have flexibility 
to specify the modifiers or indicators to allow reporting parties to 
submit reports distinguishing corrected trades from new trades and 
indicating the actual execution date and time.
    For example: Counterparty B (the reporting party) notices that 
there is an error in the reported notional amount of a SBS transaction. 
Counterparty B then would be required under proposed Rule 905(a) to 
promptly notify the registered SDR to which it originally reported the 
trade of the error in the notional amount. Because the notional amount 
is one of the data elements that must be reported in real time under 
proposed Rule 901(c), the registered SDR would be required to 
immediately disseminate a corrected transaction report to the public, 
with a notation indicating that it is a corrected trade report.

Request for Comment

    The Commission requests comment on all aspects of the proposed 
rules relating to procedures for correcting errors in reported and 
disseminated SBS information.
    141. Are the proposed obligations for submitting error reports 
sufficiently clear?
    142. Are additional requirements necessary? Are the proposed 
requirements adequate to assure that errors are corrected promptly and 
corrections are promptly disseminated as appropriate? If not, what 
additional procedures should be required?
    143. Do commenters agree with the proposed approach? Why or why 
not?
    144. Do commenters agree that error reports should be publicly 
disseminated? Why or why not?

VI. Policies and Procedures of Registered SDRs

    In designing a comprehensive system of transaction reporting and 
post-trade transparency for all SBS--involving a constantly evolving 
market, thousands of participants, and potentially millions of 
transactions--the Commission preliminarily believes that it is not 
necessary or appropriate for it to specify by rule every detail of how 
this system should operate. On some matters, there may not be a single 
correct approach for maximizing transparency and price discovery; 
rather, it might be more important that there be a coordinated approach 
that all market participants understand and adhere to.
    The Commission believes that registered SDRs could play an 
important role in developing, operating, and improving the system for 
transaction reporting and post-trade transparency in SBS, as laid out 
by Congress in the Dodd-Frank Act. Registered SDRs are placed at the 
center of the market infrastructure, as the Dodd-Frank Act requires all 
SBSs, whether cleared or uncleared, to be reported to them.\121\ The 
Commission preliminarily believes that some reasonable flexibility 
should be given to registered SDRs to carry out their functions--by, 
for example, being able to specify data formats, connectivity 
requirements, and other protocols for submitting information to them. 
The Commission's intent is to set out broad principles that registered 
SDRs and their participants would be required to follow, while 
providing registered SDRs with flexibility in determining the precise 
means of doing so.
---------------------------------------------------------------------------

    \121\ See 15 U.S.C. 13m(m)(1)(G).
---------------------------------------------------------------------------

    As discussed more fully below, a registered SDR would be required 
to establish and maintain certain policies and procedures, including 
policies and procedures to: (1) Enumerate the specific data elements of 
SBS or life cycle event that a reporting party must report; (2) specify 
one or more acceptable data formats, connectivity requirements, and 
other protocols for submitting information; (3) promptly correct 
information in its records that is discovered to be erroneous; (4) 
determine whether and how life cycle events and other SBSs that may not 
accurately reflect the market should be

[[Page 75237]]

disseminated; (5) assign or obtain certain unique identifiers; (6) 
receive information concerning a participant's ultimate parent and 
affiliated entities; and (7) handle block trades.
    A registered SDR also would be required to make its policies and 
procedures required by proposed Regulation SBSR publicly available on 
its Web site.\122\ This would allow all interested parties to 
understand how the registered SDR is utilizing the flexibility it has 
in operating the transaction reporting and dissemination system.\123\ 
The Commission anticipates that participants might make suggestions to 
the registered SDR for altering and improving that system, or 
developing new policies and procedures to address new products or 
circumstances, consistent with the principles set out in proposed 
Regulation SBSR. In conclusion, the Commission preliminarily believes 
that requiring registered SDRs to adopt and maintain policies and 
procedures, as required under proposed Rule 907, would improve 
compliance with proposed Regulation SBSR.
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    \122\ See proposed Rule 907(c).
    \123\ See SDR Registration Proposing Release, supra note 6, 
proposed Rule 13n-10. Furthermore, proposed Form SDR would require 
all of the policies and procedures required by proposed Regulation 
SBSR be submitted by a data repository registering with the 
Commission. See SDR Registration Proposing Release, supra note 6, 
Exhibit GG to proposed Form SDR.
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A. Elements of Policies and Procedures

    Proposed Rule 907(a)(1) of Regulation SBSR would require a 
registered SDR to establish and maintain written policies and 
procedures that enumerate the specific data elements of a SBS or a life 
cycle event that a reporting party must report. These data elements 
would be required to include, at a minimum, those specified in proposed 
Rules 901(c) and (d). The Commission expects that the policies and 
procedures adopted under proposed Rule 907(a)(1) would explain to 
reporting parties how to report if all the SBS transaction data 
required by Rules 901(c) and (d) is being reported simultaneously, and 
how to report if responsive data are being provided at separate 
times.\124\
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    \124\ In the latter case, the Commission expects that the 
registered SDR would provide the reporting party the transaction ID 
after the reporting party reports the information required by 
proposed Rule 901(c). The reporting party would then include the 
transaction ID with its submission of data required by proposed Rule 
901(d), thereby allowing the registered SDR to match the real-time 
report and the subsequent regulatory report.
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    Proposed Rule 907(a)(2) would require a registered SDR to establish 
and maintain written policies and procedures that specify one or more 
acceptable data formats (each of which must be an open-source 
structured data format that is widely used by participants), 
connectivity requirements, and other protocols for submitting 
information. The Commission preliminarily believes that a registered 
SDR should have reasonable flexibility to design its systems and 
develop ways for participants to input information into those systems.
    Proposed Rule 907(a)(3) would require a registered SDR to establish 
and maintain written policies and procedures for specifying how 
reporting parties are to report corrections to previously submitted 
information, making corrections to information in its records that is 
subsequently discovered to be erroneous, and applying an appropriate 
indicator to any report required to be disseminated by proposed Rule 
905(b)(2), which would denote that the report relates to a previously 
disseminated transaction. There could be a number of acceptable ways to 
carry out the general directive to correct erroneous information, and 
reasonable flexibility should be afforded a registered SDR in this 
regard. Use of transaction IDs assigned by the registered SDR would 
facilitate this process, as this would offer a clear way for 
participants and the registered SDR to refer to an earlier 
transaction.\125\ The Commission preliminarily believes that a 
registered SDR should be required to have an appropriate means to 
confirm that the information provided by the reporting party is indeed 
correct.
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    \125\ See supra Section IV.E.2.
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    Finally, the policies and procedures required by proposed Rule 
907(a)(3) would have to address applying an appropriate indicator to 
any new transaction report required by proposed Rule 905(b)(2) that the 
report relates to a previously disseminated transaction. It is 
essential that market observers understand that the transaction report 
triggered by proposed Rule 905 does not represent a new transaction, 
but merely a correction to a previous transaction. Without some kind of 
indication to that effect, market observers could misunderstand the 
true state of the market. Therefore, the Commission preliminarily 
believes that the registered SDR must apply an appropriate indication 
to the publicly disseminated transaction report.
    Proposed Rule 907(a)(4) would require a registered SDR to establish 
and maintain written policies and procedures describing how reporting 
parties shall report--and, consistent with the enhancement of price 
discovery, how the registered SDR shall publicly disseminate--reports 
of, and adjustments due to, life cycle events; SBS transactions that do 
not involve an opportunity to negotiate any material terms, other than 
the counterparty; and any other SBS transactions that, in the 
estimation of the registered SDR, do not accurately reflect the market. 
As noted above, all SBS transactions must be reported to a registered 
SDR, pursuant to proposed Rules 901(c) and (d). However, some SBSs 
might not involve arm's-length negotiations that reflect competitive 
price discovery.\126\ Similarly, there might be no price discovery in 
the case of an assignment where the new counterparty to which a SBS is 
assigned has no opportunity to negotiate a different price. Proposed 
Rule 907(a)(4) would provide some flexibility to a registered SDR 
regarding how to publicly disseminate transaction reports for such 
SBSs. The registered SDR could determine in some cases that an 
indication should be provided that explains the circumstances. Publicly 
disclosed policies and procedures would permit market observers to 
understand which indicators applied to which circumstances. The 
Commission expects that the policies and procedures would direct 
reporting parties to provide additional information to the registered 
SDR about the existence of such circumstances. Furthermore, the 
Commission preliminarily believes that all transactions reported late 
(i.e., over 15 minutes after time of execution) should bear an 
indicator so that market participants know that the transaction was 
reported late. While there is likely to be value in disseminating the 
transaction report, all market participants should understand that the 
report is no longer timely and thus would not reflect the current 
market at the time of dissemination.
---------------------------------------------------------------------------

    \126\ This could be the case, for example, with an inter-
affiliate transfer.
---------------------------------------------------------------------------

    Finally, the policies and procedures required by proposed Rule 
907(a)(4) would be required to address applying an appropriate 
indicator to reports of, and adjustments due to, life cycle events. As 
with corrected transaction reports, it is essential that market 
observers understand that the transaction report triggered by a life 
cycle event does not represent a new transaction, but merely a change 
to the terms of a previously executed SBS. Without an indicator to that 
effect, market observers could misunderstand the true state of the 
market. Therefore, the Commission preliminarily believes that the 
registered SDR must apply an appropriate indicator to the publicly 
disseminated transaction report.

[[Page 75238]]

    Proposed Rule 907(a)(5) would require a registered SDR to establish 
and maintain written policies and procedures for assigning: (1) A 
transaction ID to each SBS that is reported to it; and (2) UICs 
established by or on behalf of an IRSB (or, if such UICs are not yet 
able to be so assigned, for assigning UICs in a consistent manner using 
its own methodology). Proposed Rule 907(a)(6) would require a 
registered SDR to establish and maintain written policies and 
procedures for periodically obtaining from each participant information 
that identifies the participant's ultimate parent(s) and any other 
participant(s) with which the counterparty is affiliated, using 
ultimate parent IDs and participant IDs. The Commission expects that 
the registered SDR's policies and procedures would address the 
relationship between itself and an IRSB, and how UICs could be obtained 
from the IRSB or an agent or other person acting on its behalf. 
Furthermore, the Commission expects that, if an IRSB exists and the 
registered SDR is using UICs assigned by that IRSB or on its behalf, 
the registered SDR's policies and procedures should explain how a 
participant could obtain applicable UICs from the IRSB. To the extent 
that the IRSB cannot provide certain UICs required of a participant by 
proposed Regulation SBSR, the registered SDR's policies and procedures 
would be required to explain the process by which a participant could 
obtain such UICs from the registered SDR.
    Proposed Rule 907(d) would require a registered SDR to review and, 
as necessary, update its policies and procedures required by proposed 
Regulation SBSR at least annually, and to indicate the date on which 
they were last reviewed. Periodic review should help ensure that a 
registered SDR's policies and procedures remain well-functioning over 
time. Indicating the date on which the policies and procedures were 
last reviewed would allow regulators and market participants to 
understand which version of the policies and procedures are current. 
The Commission is proposing recordkeeping and retention rules for 
registered SDRs in a separate rulemaking.\127\ Prior versions of a 
registered SDR's policies and procedures would be records under that 
proposed rule, and thus would be required to be retained in accordance 
with those rules. Access to these records would permit the Commission, 
when conducting a review of past actions, to understand what policies 
and procedures were in force at the time.
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    \127\ See SDR Registration Proposing Release, supra note 6, 
proposed Rule 13n-7 under the Exchange Act.
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    Proposed Rule 907(e) would require a registered SDR to have the 
capacity to provide to the Commission, upon request, information or 
reports related to the timeliness, accuracy, and completeness of data 
reported to it pursuant to proposed Regulation SBSR and the registered 
SDR's policies and procedures thereunder.\128\ Under Title VII of the 
Dodd-Frank Act, the Commission is responsible for regulating and 
overseeing the SBS market. The Commission preliminarily believes that, 
to carry out this responsibility, it could be valuable to obtain 
information from each registered SDR related to the timeliness, 
accuracy, and completeness of data reported to it. Required data 
submissions that are untimely, inaccurate, or incomplete could 
compromise the regulatory data that the Commission would utilize to 
carry out its oversight responsibilities. Furthermore, required data 
submissions that are untimely, inaccurate, or incomplete could diminish 
the value of publicly disseminated reports that promote transparency 
and price discovery. Information or reports provided to the Commission 
by a registered SDR related to the timeliness, accuracy, and 
completeness of data could assist the Commission in examining for 
compliance with proposed Regulation SBS and in bringing enforcement or 
other administrative actions as necessary and appropriate.
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    \128\ See id., proposed Rule 13n-8 under the Exchange Act 
(requiring every registered SDR to promptly report to the 
Commission, in a form and manner acceptable to the Commission, such 
information as the Commission determines to be necessary or 
appropriate for the Commission its duties under the Exchange Act and 
the rules and regulations thereunder).
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Request for Comment

    The Commission requests comment on all aspects of the proposed 
policies and procedures for registered SDRs.
    145. Do commenters agree, overall, with the proposed policies and 
procedures for registered SDRs? Why or why not?
    146. Should proposed Rule 907 specify more detailed elements to be 
included in the required policies and procedures? If so, what should 
those elements be? Or, are the proposed policies and procedures too 
prescriptive? If so, in what way(s)?
    147. Should a registered SDR have flexibility to specify acceptable 
data formats, connectivity requirements, and other protocols for 
submitting information? Why or why not? Are there disadvantages to this 
approach? If so, how should they be addressed?
    148. Should all acceptable data formats be open-source structured 
data formats? What data formats are currently in use by SDRs? Would 
they qualify as open-source structured data formats?
    149. Assuming special indicators on certain publicly disseminated 
trade reports may be necessary, do commenters agree that a registered 
SDR should have the flexibility to determine and apply those 
indicators? If not, can commenters suggest another system for assigning 
relevant indicators?
    150. What kinds of special circumstances would warrant indicators 
for public dissemination? What should those indicators be? How should 
they be reflected on the publicly disseminated trade report?
    151. Should inter-affiliate transactions be publicly disseminated 
with an indicator? Should they be disseminated at all? Why or why not?
    152. Should portfolio compressions and terminations be publicly 
disseminated with an indicator? Should they be disseminated at all? Why 
or why not?
    153. Should a registered SDR have the flexibility to determine 
whether a SBS transaction does not accurately reflect the market or 
would not enhance price discovery if disseminated? If so, how should 
the registered SDR exercise such flexibility? What criteria should it 
use? What are examples of transactions that commenters believe should 
be reported to a registered SDR but should not be publicly 
disseminated? Why should they not be publicly disseminated?
    154. Multi-lateral netting and portfolio compression are post-trade 
processes designed to reduce gross exposure and leave only net 
exposure. These processes typically entail the termination of open 
contracts and the establishment of new contracts representing only the 
net position. How, if at all, should SBSs related to multi-lateral 
netting and portfolio compression be reported to and disseminated by a 
registered SDR? What if the netting involves a payment that is 
determined by market value?
    155. How should a registered SDR's policies and procedures address 
the use of UICs assigned under the auspices of a voluntary consensus 
standards body?
    156. What are the costs for registered SDRs to adopt and implement 
the proposed policies and procedures? What are the benefits of 
requiring registered SDRs to adopt and implement these policies and 
procedures?
    157. Should a data repository seeking to register with the 
Commission be

[[Page 75239]]

required to provide the policies and procedures required by proposed 
Rule 907 as part of its Form SDR submission?

VII. Policies and Procedures of SBS Dealers and Major SBS Participants

    For the proposed SBS reporting requirements established by the 
Dodd-Frank Act to achieve the objective of enhancing price transparency 
and providing regulators with access to data to help carry out their 
oversight responsibilities, the information that participants provide 
to registered SDRs must be reliable. Accordingly, proposed Rule 906(c) 
would require a participant that is a SBS dealer or major SBS 
participant to establish, maintain, and enforce written policies and 
procedures that are reasonably designed to ensure compliance with the 
SBS transaction reporting obligations set forth in proposed Regulation 
SBSR and the policies and procedures of any registered SDR in which it 
is a participant. Such policies and procedures are intended to provide 
a system of controls that facilitate complete and accurate reporting of 
SBS information by these participants, consistent with their 
obligations under the Dodd-Frank Act and proposed Regulation SBSR.
    The Commission believes that proposed Rule 906(c) should result in 
greater accuracy and completeness of reported SBS transaction data. 
Without written policies and procedures, compliance with reporting 
obligations may depend too heavily on key individuals or unreliable 
processes. The Commission believes that requiring participants that are 
SBS dealers or major SBS participants to establish written policies and 
procedures should promote clear, reliable reporting that can continue 
independent of any specific individuals. The Commission further 
believes that requiring such participants to adopt and maintain 
policies and procedures relevant to their reporting responsibilities, 
as required under proposed Rule 906(c), would help to improve the 
degree and quality of overall compliance with the reporting 
requirements set out in proposed Regulation SBSR.
    The policies and procedures required by proposed Rule 906(c) should 
be designed to foster compliance with the real-time reporting 
requirements specified in proposed Rule 901(c), as well as the 
additional reporting requirements specified in proposed Rules 901(d) 
and (e). These policies and procedures, among other things, should 
address: (1) The reporting process and designation of responsibility 
for reporting SBS transactions; (2) the process for systematizing 
orally negotiated SBS transactions; (3) OMS outages or malfunctions, 
and when and how backup systems are to be used in connection with 
required reporting; (4) verification and validation of all information 
relating to SBS transactions reported to a registered SDR; (5) a 
training program for employees responsible for SBS transaction 
reporting; (6) control procedures relating to SBS transaction reporting 
and designation of personnel responsible for testing and verifying such 
policies and procedures; and (7) reviewing and assessing the 
performance and operational capability of any third party that carries 
out any duty required by proposed Regulation SBSR on behalf of the 
entity.\129\
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    \129\ See supra Section II.B (noting that proposed Rule 901 
would not prohibit a reporting party from having a third-party agent 
carry out reporting duties on its behalf).
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    Each participant that is a SBS dealer or major SBS participant also 
would be required to review and, as needed, update its policies and 
procedures at least annually.\130\ Periodic review should help ensure 
that a participant's policies and procedures remain well functioning 
over time.
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    \130\ See proposed Rule 906(c).
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    The value of requiring policies and procedures in promoting 
regulatory compliance is well-established. For example, internal 
control systems have long been used to strengthen the integrity of 
financial reporting. Congress recognized the importance of internal 
control systems in the Foreign Corrupt Practices Act, which requires 
public companies to maintain a system of internal accounting 
controls.\131\ Broker-dealers also must maintain policies and 
procedures for various purposes.\132\ The Commission preliminarily 
believes that requiring participants that are SBS dealers or major SBS 
participants to adopt and maintain policies and procedures designed to 
promote compliance with proposed Regulation SBSR and the policies and 
procedures of any registered SDR of which it is a participant would be 
consistent with Congress's goals in adopting the Dodd-Frank Act.
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    \131\ See 15 U.S.C. 78m(b)(2)(B).
    \132\ See, e.g., FINRA Conduct Rule 3010(b) (requiring FINRA 
member broker-dealers to establish and maintain written procedures 
''that are reasonably designed to achieve compliance with applicable 
securities laws and regulations, and the applicable Rules of [the 
NASD]''; FINRA Conduct Rule 3012 (requiring FINRA member broker-
dealers to establish and maintain written supervisory procedures to 
ensure that internal policies and procedures are followed and 
achieve their intended objectives).
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Request for Comment

    The Commission requests comment on all aspects of the proposed 
requirement that participants that are SBS dealers or major SBS 
participants establish policies and procedures.
    158. Do commenters think proposed Rule 906(c) is necessary? Would 
SBS dealers and major SBS participants otherwise implement written 
policies and procedures to ensure compliance with the reporting 
obligations in proposed Regulation SBSR?
    159. Should proposed Rule 906(c) specify elements to be included in 
the required policies and procedures, such as those discussed above? If 
so, what elements should be included in the proposed rule, and why?

VIII. Jurisdictional Matters

    Proposed Rule 908 is designed to clarify the application of 
proposed Regulation SBSR to cross-border SBS transactions and to non-
U.S. persons.\133\
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    \133\ See proposed Rule 900 (defining ``U.S. person'' to mean a 
natural person that is a U.S. citizen or U.S. resident or a legal 
person that is organized under the corporate laws of any part of the 
United States or has its principal place of business in the United 
States).
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A. When is a SBS subject to Regulation SBSR?

    Proposed Rule 908(a) would require a SBS to be reported if the SBS: 
(1) Has at least one counterparty that is a U.S. person; (2) was 
executed in the United States or through any means of interstate 
commerce; or (3) was cleared through a registered clearing agency 
having its principal place of business in the United States. In 
addition, any SBS that is required to be reported to a registered SDR 
pursuant to proposed Rule 908(a) also would be required to be publicly 
disseminated by the registered SDR. The Commission preliminarily 
believes that, if there are sufficient jurisdictional ties to the 
United States to warrant reporting of the SBS, other market 
participants should have knowledge of the SBS transaction.
    The Commission preliminarily believes that, if a U.S. person 
executes a SBS anywhere in the world, that SBS should be reported to a 
registered SDR, pursuant to proposed Regulation SBSR. Because the U.S. 
person is assuming risk, U.S. regulators have an interest in ensuring 
that they have appropriate knowledge of the transaction. The Commission 
notes that it is proposing to define ``U.S. person'' in proposed Rule 
900 to mean ``a natural person that is a U.S. citizen or U.S. resident 
or a legal person that is organized under the corporate laws of any 
part of the United States or has its principal place of

[[Page 75240]]

business in the United States.'' The Commission intends for this 
proposed definition to include branches and offices of U.S. persons. 
Because a branch or office has no separate legal existence under 
corporate law, the branch or office would be an integral part of the 
U.S. person itself.
    A SBS also would have to be reported if the SBS were executed in 
the United States or through any means of interstate commerce. For 
example, even if both counterparties are not U.S. persons, U.S. 
regulators have a strong interest in having knowledge of and being able 
to regulate any activity conducted within the United States or through 
any means of interstate commerce.
    Under proposed Rule 908(a)(3), a SBS would have to be reported 
pursuant to proposed Regulation SBSR--even if both counterparties are 
not U.S. persons--if the SBS were cleared through a clearing agency 
having its principal place of business in the United States. It is 
possible that two counterparties, neither of whom is a U.S. person, 
could execute a SBS outside the United States, but clear the SBS 
through a clearing agency having its principal place of business in the 
United States. The Commission preliminarily believes that such SBS 
should be reported to a registered SDR. If a SBS is cleared by a 
clearing agency having its principal place of business in the United 
States, U.S. regulators should have access to information regarding the 
SBS through a registered SDR.\134\ Moreover, if non-U.S. persons 
determined to clear a SBS through a clearing agency having its 
principal place of business in the United States, this suggests that 
the clearing agency has made the SBS eligible for clearing because at 
least some U.S. counterparties might wish to trade the SBS as well. 
Requiring the SBS to be reported to a registered SDR also would cause a 
transaction report of the SBS to be publicly disseminated, thus 
promoting price discovery for market participants in the United States 
and elsewhere.
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    \134\ While U.S. regulators also would have access to 
information about the SBS through the U.S. clearing agency, 
requiring the SBS to be reported to a registered SDR would reduce 
the fragmentation of the regulatory data.
---------------------------------------------------------------------------

    It is possible that there could be a clearing agency registered 
with the Commission under Section 17A of the Exchange Act \135\ but 
having its principal place of business outside the United States. 
Although that clearing agency might service U.S. persons, it also would 
likely provide clearing services to many non-U.S. persons. The 
Commission does not intend for proposed Regulation SBSR to apply to 
such non-U.S. persons solely because they clear a SBS through a 
clearing agency registered with the Commission but not having its 
principal place of business in the United States.\136\ However, 
proposed Regulation SBSR would apply with respect to that SBS if either 
counterparty were a U.S. person, or if the SBS had been executed in the 
United States or through any means of interstate commerce (including by 
clearing through a clearing agency having its principal place of 
business in the United States).
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    \135\ 15 U.S.C. 78q-1.
    \136\ For example, assume that Clearing Agency A has its 
principal place of business in an E.U. member state, but is also 
registered as a clearing agency in the United States under Section 
17A of the Exchange Act because it has sufficient contacts with U.S. 
participants to require registration under Section 17A. Assume 
further that Counterparty X executes a SBS with Counterparty Y, both 
X and Y are each domiciled in an E.U. member state, the SBS is 
executed in an E.U. member state and does not involve any means of 
interstate commerce in the United States. Under proposed Rule 908, 
this SBS would not be required to be reported to a registered SDR 
solely because it was cleared by a clearing agency registered under 
Section 17A.
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    It should be noted that a registered SDR could receive reports of 
foreign SBS transactions that are not required to be reported pursuant 
to proposed Rule 908(a). The registered SDR may determine to publicly 
disseminate reports of such foreign SBS transactions, but would not be 
required to do so by proposed Regulation SBSR.

B. When is a counterparty to a SBS subject to Regulation SBSR?

    Proposed Rule 908(b) would provide that, notwithstanding any other 
provision of Regulation SBSR, no counterparty to a SBS would incur any 
obligation under Regulation SBSR unless it is: (1) A U.S. person; (2) a 
counterparty to a SBS executed in the United States or through any 
means of interstate commerce; or (3) a counterparty to a SBS cleared 
through a clearing agency having its principal place of business in the 
United States. For the reasons discussed above, the Commission 
preliminarily believes that, if a U.S. person executes a SBS anywhere 
in the world, that U.S. person should become subject to Regulation 
SBSR.
    Non-U.S. persons who are counterparties to U.S. persons could, 
therefore, have SBSs to which they are counterparties reported to and 
held by a registered SDR. If none of these SBSs were executed in the 
United States or through any means of interstate commerce, however, the 
non-U.S. person would not become a ``participant'' of the registered 
SDR and would not become subject to proposed Regulation SBSR.\137\ 
Thus, the non-U.S. person would not have to provide any UICs pursuant 
to proposed Rule 906(a) or parent and affiliate information to a 
registered SDR pursuant to proposed Rule 906(b).
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    \137\ See proposed Rule 900 (defining ``participant'' as (1) A 
U.S. person that is a counterparty to an SBS that is required to be 
reported to a registered SDR; or (2) A non-U.S. person that is a 
counterparty to an SBS that is (i) required to be reported to a 
registered SDR; and (ii) that is executed in the United States or 
through any means of interstate commerce, or cleared through a 
clearing agency having its principal place of business in the United 
States).
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C. An Example

    Assume that X (a U.S. bank) enters into an SBS with Y (a Japanese 
bank). The SBS is effected in Japan, involves no means of interstate 
commerce, and is not cleared by a clearing agency having its principal 
place of business in the United States. Because the SBS has at least 
one counterparty that is a U.S. person, proposed Rule 908(a)--which 
describes when an SBS is not required to be reported because it is 
outside the jurisdiction of the Exchange Act--would not apply. 
Therefore, the SBS must be reported to a registered SDR. X would be the 
reporting party, as proposed Rule 901(a)(1) provides that, where only 
one counterparty to an SBS is a U.S. person, the U.S. person shall be 
the reporting party. X also would be a participant because it is a U.S. 
person that is a counterparty to an SBS that is required to be reported 
to a registered SDR. However, Y would not be a participant under 
proposed Rule 900, and would incur no obligations under proposed 
Regulation SBSR. Although the SBS is required to be reported to a 
registered SDR, the SBS was not executed in the United States or 
through any means of interstate commerce, or cleared through a clearing 
agency having its principal place of business in the United States. 
Thus, the Commission anticipates that there would be some SBSs reported 
to and captured by a registered SDR where only one counterparty of the 
SBS is a participant.

IX. Fair and Non-Discriminatory Access to SBS Market Data

A. SBS Market Data Disseminated by Registered SDRs

    As noted above, the Commission preliminarily believes that post-
trade transparency could spur significant improvements in the SBS 
market. Some of the benefits could include greater price competition, 
lower transaction

[[Page 75241]]

costs, enhanced liquidity, and improved ability of market participants 
to value their positions. Therefore, fair access to last-sale data 
appears critical--particularly since registered SDRs would collectively 
have data on all SBSs executed in the market. The Commission 
preliminarily believes that market observers should not be forced to 
pay excessive fees or be subject to unfair usage restrictions imposed 
by registered SDRs. The Commission therefore seeks to ensure that these 
data feeds would be available to all market observers on terms that are 
fair and reasonable and not unreasonably discriminatory.
    In a separate rulemaking proposal regarding the registration and 
regulation of SDRs being issued today, the Commission is proposing 
rules that would require SDRs to comply with certain core principles. 
To comply with these core principles, an SDR would be required, among 
other things, to establish and enforce clearly stated and objective 
criteria that would permit fair, open, and not unreasonably 
discriminatory access to services offered and data that would be 
disseminated by the SDR, as well as fair, open, and not unreasonably 
discriminatory participation by market participants, market 
infrastructures, venues from which data could be submitted to the SDR, 
and third-party service providers that seek to connect or link with the 
SDR.\138\ In addition, an SDR would be required to establish policies 
and procedures for reviewing any prohibition or limitation of any 
person's access to services offered, directly or indirectly, or data 
maintained and disseminated by the SDR, and--if it finds that the 
person has been discriminated against unfairly--granting to such person 
access to its services or data.\139\
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    \138\ See proposed Rule 13n-4(c)(1)(iv) under the Exchange Act.
    \139\ See proposed Rule 13n-4(c)(1)(v) under the Exchange Act.
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    A registered SDR also would become subject to certain provisions of 
Section 11A of the Exchange Act\140\ because it would be a SIP, as 
defined by Section 3(a)(22)(A) of the Exchange Act.\141\ Section 
11A(c)(1) of the Exchange Act \142\ provides that the Commission may 
prescribe rules applying to SIPs (among other entities) that would 
require them (among other things) to assure ``the fairness and 
usefulness of the form and content'' of the information that they 
disseminate,\143\ and to assure ``all other persons may obtain on terms 
which are not unreasonably discriminatory'' the transaction information 
published or distributed by SIPs.\144\ Section 11A(c)(1) applies 
regardless of whether a SIP is registered with the Commission as such.
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    \140\ 15 U.S.C. 78k-1.
    \141\ 15 U.S.C. 78c(a)(22)(A) (defining SIP as ``any person 
engaged in the business of (i) collecting, processing, or preparing 
for distribution or publication, or assisting, participating in, or 
coordinating the distribution or publication of, information with 
respect to transactions in or quotations for any security (other 
than an exempted security) or (ii) distributing or publishing 
(whether by means of a ticker tape, a communications network, a 
terminal display device, or otherwise) on a current and continuing 
basis, information with respect to such transactions or 
quotations''). SBSs are securities under the Exchange Act. See 15 
U.S.C. 78c(a)(10). Further, pursuant to proposed Regulation SBSR, a 
registered SDR would collect SBS transaction reports from 
participants and participate in the distribution of such reports 
and, thus, would be a SIP for purposes of the Exchange Act.
    \142\ 15 U.S.C. 78k-1(c)(1).
    \143\ 15 U.S.C. 78k-1(c)(1)(B).
    \144\ 15 U.S.C. 78k-1(c)(1)(D).
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    Section 11A(b)(1) of the Exchange Act \145\ provides that a SIP not 
acting as the ``exclusive processor'' \146\ of any information with 
respect to quotations for or transactions in securities is exempt from 
the requirement to register with the Commission as a SIP unless the 
Commission, by rule or order, determines that the registration of such 
SIP ``is necessary or appropriate in the public interest, for the 
protection of investors, or for the achievement of the purposes of 
[Section 11A].'' Requiring a registered SDR to register with the 
Commission as a SIP would subject that entity to Section 11A(b)(5) of 
the Exchange Act,\147\ which provides that a registered SIP must notify 
the Commission whenever it prohibits or limits any person's access to 
its services. Upon its own motion or upon application by any aggrieved 
person, the Commission could review the registered SIP's action.\148\ 
If the Commission finds that the person has been discriminated against 
unfairly, it could require the SIP to provide access to that 
person.\149\ Section 11A(b)(6) of the Exchange Act also provides the 
Commission authority to take certain regulatory action as may be 
necessary or appropriate against a registered SIP.\150\
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    \145\ 15 U.S.C. 78k-1(b)(1).
    \146\ 15 U.S.C. 78c(a)(22)(B) (defining ``exclusive processor'' 
as any securities information processor or self-regulatory 
organization which, directly or indirectly, engages on an exclusive 
basis on behalf of any national securities exchange or registered 
securities association, or any national securities exchange or 
registered securities association which engages on an exclusive 
basis on its own behalf, in collecting, processing, or preparing for 
distribution or publication any information with respect to (1) 
transactions or quotations on or effected or made by means of any 
facility of such exchange or (2) quotations distributed or published 
by means of any electronic system operated or controlled by such 
association).
    \147\ 15 U.S.C. 78k-1(b)(5).
    \148\ See 15 U.S.C. 78k-1(b)(5)(A).
    \149\ See 15 U.S.C. 78k-1(b)(5)(B).
    \150\ See 15 U.S.C. 78k-1(b)(6) (providing that the Commission, 
by order, may censure or place limitations upon the activities, 
functions, or operations of any registered SIP or suspend for a 
period not exceeding 12 months or revoke the registration of any 
such processor, if the Commission finds, on the record after notice 
and opportunity for hearing, that such censure, placing of 
limitations, suspension, or revocation is in the public interest, 
necessary or appropriate for the protection of investors or to 
assure the prompt, accurate, or reliable performance of the 
functions of such SIP, and that such SIP has violated or is unable 
to comply with any provision of this title or the rules or 
regulations thereunder).
---------------------------------------------------------------------------

    The Commission preliminarily believes that the additional authority 
over a registered SDR/SIP provided by Sections 11A(b)(5) and 11A(b)(6) 
of the Exchange Act would help ensure that these entities offer their 
SBS market data on terms that the Commission believes would be fair and 
reasonable and not unreasonably discriminatory. Therefore, the 
Commission preliminarily believes that the registration of SDRs as SIPs 
would be necessary or appropriate in the public interest, for the 
protection of investors, or for the achievement of the purposes of 
Section 11A of the Exchange Act. Section 11A of the Exchange Act 
establishes broad goals for the development of the securities markets 
and charges the Commission with establishing rules and policies that 
are designed to further these objectives. Section 11A(a) states, among 
other things, that it is in the public interest and appropriate for the 
protection of investors and the maintenance of fair and orderly markets 
to assure economically efficient execution of securities transactions; 
the availability to brokers, dealers, and investors of information with 
respect to quotations for and transactions in securities; and an 
opportunity for investors' orders to be executed without the 
participation of a dealer. SIP registration could assist in achieving 
these objectives in the still-developing SBS market. Therefore, the 
Commission preliminarily believes that the registration of SDRs as SIPs 
would be necessary or appropriate in the public interest, for the 
protection of investors, or for the achievement of the purposes of 
Section 11A. Accordingly, the Commission is proposing Rule 909, which 
would require a registered SDR to register with the Commission as a 
SIP.\151\
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    \151\ A registered SDR would register as a SIP by filing 
(existing) Form SIP with the Commission.
---------------------------------------------------------------------------

B. SBS Market Data Disseminated by Other Market Participants

    The measures described above are designed to ensure that SBS market 
data

[[Page 75242]]

disseminated by registered SDRs is available to the public on terms 
that are fair and reasonable and not unreasonably discriminatory. This 
is particularly important since all SBS must be reported to a 
registered SDR,\152\ and registered SDRs exclusively would have the 
responsibility under proposed Regulation SBSR to publicly disseminate 
SBS transaction data to the public.
---------------------------------------------------------------------------

    \152\ See 15 U.S.C. 78m(m)(1)(G).
---------------------------------------------------------------------------

    Nevertheless, other private sources of market data reflecting 
subsets of the SBS market could arise.\153\ Differences in access to 
that market data--for example, if some market participants could obtain 
the data sooner than others--could create an unfair competitive 
landscape. Therefore, the Commission is proposing Rule 902(d), which 
would impose a partial and temporary restriction on sources of SBS 
market data other than registered SDRs. Proposed Rule 902(d) would 
provide that no person (other than a registered SDR) shall make 
available to one or more persons (other than a counterparty) a 
transaction report of a SBS before the earlier of: (1) 15 minutes after 
execution of the SBS; or (2) the time that a registered SDR publicly 
disseminates a report of that SBS.
---------------------------------------------------------------------------

    \153\ For example, a SB SEF would have information about SBSs 
executed on its systems and could find that commercial opportunities 
exist to sell such information.
---------------------------------------------------------------------------

    Under proposed Rule 902(d), the temporary restriction on other 
market participants that may wish to disseminate information relating 
to a SBS transaction would last no longer than 15 minutes. Under 
proposed Regulation SBSR, a transaction report of a SBS would be 
expected to be publicly disseminated within 15 minutes of execution. 
The Commission preliminarily believes that it is not necessary or 
appropriate to require other sources of market data to withhold 
dissemination of a transaction report beyond 15 minutes if a registered 
SDR is not able to do so in a timely fashion. Proposed Rule 902(d) 
would, however, permit the transfer of information of a SBS before 
dissemination by a registered SDR to a counterparty to that SBS. 
Therefore, one counterparty would be permitted to pass details of the 
SBS to the other counterparty, or a SB SEF on which the SBS was 
executed could pass details of the SBS to either or both of the 
counterparties.
    By proposing Rule 902(d), the Commission seeks to balance the goal 
of promoting robust and fair competition among all market 
participants--by allowing them to view the same comprehensive source of 
SBS market data at the same time--with that of allowing market 
participants to devise new value-added market data products.

Request for Comment

    The Commission requests comment on all aspects of its proposal 
relating to fair and non-discriminatory access to SBS market data. In 
particular:
    160. Do commenters have any potential concerns with market 
participants' access to data disseminated by registered SDRs? If so, 
what steps should the Commission do to address them?
    161. Do commenters agree with the proposal to require registered 
SDRs to register with the Commission as SIPs? Why or why not?
    162. Would SIP registration entail costs and burdens that are 
unreasonable or unnecessary in light of the requirements associated 
with SDR registration? What additional burdens, if any, would be 
associated with SIP registration?
    163. In the SDR Registration Proposing Release, the Commission is 
proposing a Form SDR that is similar to but separate from existing Form 
SIP. Should the Commission combine Forms SIP and Form SDR such that an 
SDR would register as a SIP and SDR using only one form? Or should the 
elements necessary for registration as an SDR be a supplement to Form 
SIP? Are there any specific items on Form SIP that should be added to 
Form SDR that would help to facilitate the registration process?
    164. Would it be beneficial for aggrieved persons to have the 
ability to request that the Commission review a registered SDR's 
prohibition or limitation on access its services, as contemplated by 
Section 11A(b)(5) of the Exchange Act? Are there any concerns with 
applying Section 11A(b)(5) to registered SDRs?
    165. Are there additional means by which the Commission can or 
should attempt to ensure that the market data fees and usage 
restrictions imposed by registered SDRs are fair and reasonable and not 
unreasonably discriminatory? If so, please describe.
    166. Should market participants other than a registered SDR be 
prohibited from distributing their SBS market data before transactions 
are disseminated by a registered SDR? Why or why not?
    167. Do commenters anticipate that market participants other than 
registered SDRs will seek to sell SBS market data? Do commenters have a 
view as to whether those additional market data products would compete 
with or complement the required market data feed from registered SDRs?
    168. Would proposed Rule 902(d) unnecessarily inhibit competition 
and innovation in the provision of value-added market data services or 
products? Please be specific in your response.
    169. Are there alternative means to better ensure that all market 
participants have full and fair access to SBS market data other than 
placing a restriction on sources other than the registered SDRs? If so, 
what are they and why would they be preferable to the proposal?
    170. Would competitive forces act to ensure that all market 
participants have full and fair access to SBS market data?
    171. If commenters agree with proposed Rule 902(d), is 15 minutes 
an appropriate length to restrict market participants other than 
registered SDRs from disseminating SBS transaction data? Do commenters 
think that period is too long or too short? Please be specific in your 
response.
    172. Should market participants other than registered SDRs that 
publicly disseminate SBS transaction information be subject to the same 
requirements regarding dissemination of block trades as registered 
SDRs?

X. Implementation Timeframes

    Proposed Rule 910 is designed to provide clarity as to SBS 
reporting and dissemination timelines and to establish a phased-in 
compliance schedule for those subject to proposed Regulation SBSR. The 
Commission acknowledges that the system for reporting and dissemination 
described in proposed Regulation SBSR would take a significant amount 
of time and resources to implement effectively. While the Commission is 
committed to fully implementing Congress's directive to require real-
time public reporting of all SBSs, market participants will need a 
reasonable period in which to acquire or configure the necessary 
systems, engage and train the necessary staff, and develop and 
implement the necessary policies and procedures to implement the 
proposed rules. The Commission preliminarily believes that the proposed 
compliance timeframes described below should provide sufficient time 
for reporting parties and SDRs to make the necessary technological and 
other preparations needed to begin reporting and disseminating SBS 
information, respectively, as required under proposed Regulation SBSR.

A. Compliance Schedule

    The Commission is proposing a phased-in compliance schedule, with 
respect to a SDR that registers with the Commission, as follows:

[[Page 75243]]

    <bullet> Reporting of pre-enactment SBSs, no later than January 12, 
2012.
    Proposed Rule 910(a) would require reporting parties to report to a 
registered SDR any pre-enactment SBSs subject to reporting under 
proposed Rule 901(i) no later than January 12, 2012 (180 days after the 
effective date of the Dodd-Frank Act).\154\ Proposed Rule 900 would 
define pre-enactment SBS to mean any SBS executed before July 21, 2010 
(the date of enactment of the Dodd-Frank Act), the terms of which had 
not expired as of that date. The Commission notes that Section 3C(e)(1) 
of the Exchange Act \155\ requires SBSs entered into before the date of 
enactment of Section 3C to be reported to a registered SDR or the 
Commission no later than 180 days after the effective date of Section 
3C (i.e., no later than January 12, 2012). The proposed timeframe would 
help the Commission obtain relevant information about SBS transactions 
necessary to prepare reports required by the Dodd-Frank Act. Further, 
proposed Rule 910 would help promote timely implementation of 
Regulation SBSR, and thereby facilitate achievement of the goals 
articulated in the Dodd-Frank Act.
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    \154\ See supra Section IV.F (discussing reporting requirements 
for pre-enactment SBSs).
    \155\ 15 U.S.C. 78c-3(e)(1).
---------------------------------------------------------------------------

    <bullet> Phase 1, six months after the registration date (i.e., the 
effective reporting date): \156\ Reporting parties shall begin 
reporting, pursuant to proposed Rule 901, all SBS transactions executed 
on or after the effective reporting date; reporting parties also shall 
report to the registered SDR any transitional SBSs; \157\ SBS dealers 
and major SBS participants shall comply with proposed Rule 906(c); 
\158\ participants and the registered SDR must comply with proposed 
Rule 905 \159\ (except with respect to dissemination) and proposed 
Rules 906(a) and (b).\160\
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    \156\ See proposed Rule 900 (defining ``registration date,'' 
with respect to a SDR, as the date on which the Commission registers 
the SDR, or, if the Commission registers the SDR before the 
effective date of proposed Regulation SBSR, the effective date of 
proposed Regulation SBSR; and ``effective reporting date,'' with 
respect to a SDR, as the date six months after the registration 
date).
    \157\ See supra Section IV.F (discussing reporting requirements 
for transitional SBSs).
    \158\ Proposed Rule 906(c) would require each SBS dealer and 
major SBS participant to establish, maintain, and enforce written 
policies and procedures that are reasonably designed to ensure that 
it complies with any reporting obligations under proposed Regulation 
SBSR.
    \159\ Proposed Rule 905, among other things, would require a 
registered SDR to correct erroneous information with respect to 
SBSs.
    \160\ Proposed Rule 906(a) would require a registered SDR to 
notify participants at least once a day of SBSs for which the 
registered SDR lacks a participant ID, broker ID, desk ID, or trader 
ID. Proposed Rule 906(b) would require participants to provide to 
the registered SDR information sufficient to identify its ultimate 
parent(s) and any affiliate(s) of the participant that also are 
participants of the registered SDR.
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    The Commission preliminarily believes that, before reporting 
parties and other participants could be expected to comply with 
proposed Regulation SBSR, they must first know the policies and 
procedures of the registered SDR that would receive and hold 
transaction information regarding their SBSs.\161\ Phase 1 would 
provide time for SBS dealers and major SBS participants to establish 
their own policies and procedures, and implement necessary systems 
changes, for complying with proposed Regulation SBSR and the policies 
and procedures of the registered SDR. On the effective reporting date, 
participants would be required to begin reporting SBSs to the 
registered SDR in a manner consistent with proposed Rule 901, including 
providing the real-time reports required by proposed Rule 901(c) and 
the additional, regulatory SBS information required by proposed Rule 
901(d). At that time, however, the registered SDR would not yet 
publicly disseminate any transaction reports.
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    \161\ As discussed in the SDR Registration Proposing Release, a 
data repository seeking to register with the Commission would have 
to provide the policies and procedures required by proposed Rule 907 
as part of its application for registration. See SDR Registration 
Proposing Release, supra note 6.
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    Also on the effective reporting date, the registered SDR would be 
required to begin preparing reports to each participant of any missing 
UICs, and any participant receiving such a report would have to begin 
providing the missing UICs to the registered SDR. The registered SDR 
and its participants also would become subject to the error correction 
requirements of proposed Rule 905 at this time, except that the 
registered SDR would not yet be required to publicly disseminate any 
corrected transaction reports (since it would not have disseminated a 
report of the initial transaction).
    Finally, the Commission notes that proposed Rules 901(i) 
(establishing reporting requirements for pre-enactment and transitional 
SBSs), 910(a) (requiring the reporting of pre-enactment SBSs by January 
12, 2012), and 910(b)(2)(i) (requiring the reporting of transitional 
SBSs by the effective reporting date) are together designed to assure 
that a registered SDR would obtain a complete view of each 
participant's open SBS positions by the time that the registered SDR is 
about to both receive and publicly disseminate transaction reports of 
SBSs.
    <bullet> Phase 2, nine months after the registration date: Wave 1 
of public dissemination; the registered SDR would be required to comply 
with proposed Rules 902 and 905 (with respect to dissemination of 
corrected transaction reports) for 50 SBS instruments.
    Nine months after the registration date and three months after the 
effective reporting date, the registered SDR would be required to begin 
disseminating transaction reports as follows: The registered SDR, in 
consultation with the Commission's staff, would select 50 SBS 
instruments for which it receives and holds transaction data. Beginning 
on the date nine months after the registration date and continuing 
every day thereafter, the registered SDR would be required to publicly 
disseminate transaction reports in real time for those 50 SBS 
instruments, including with respect to block trades. The three-month 
period between the beginning of Phase 2 and the beginning of Phase 3 
would allow the registered SDR a sufficient number of days to calculate 
and publish the block trade levels for those 50 SBS instruments. Also 
in Phase 2, the registered SDR would be required to begin disseminating 
any corrected reports required by proposed Rule 905 for those 50 SBS 
instruments. The Commission preliminarily believes, based on its 
experience implementing aspects of Regulation NMS, that the public 
dissemination of transaction reports for 50 SBS instruments is 
appropriate in Phase 2.
    <bullet> Phase 3, 12 months after the registration date: Wave 2 of 
public dissemination; the registered SDR must comply with proposed 
Rules 902 and 905 (with respect to dissemination of corrected 
transaction reports) for an additional 200 SBS instruments.
    Twelve months after the registration date and six months after the 
effective reporting date, the registered SDR would be required, in 
consultation with the Commission's staff, to select an additional 200 
SBS instruments for which to publicly disseminate transaction reports 
in real time, apply the block trade exception with respect to those 250 
SBS instruments, and disseminate any corrected transaction reports 
required by proposed Rule 905 for those 250 SBS instruments. The 
Commission preliminarily believes, based on its experience implementing 
aspects of Regulation NMS, that the public dissemination of transaction 
reports for 250 SBS instruments is appropriate in Phase 3.

[[Page 75244]]

    <bullet> Phase 4, 18 months after the registration date: Wave 3 of 
public dissemination; All SBSs reported to the registered SDR shall be 
subject to real-time public dissemination as specified in Rule 902.
    Eighteen months after the registration date, proposed Regulation 
SBSR would become operative with respect to every SBS transaction 
reported to and held by the registered SDR. The Commission 
preliminarily believes, based on its experience implementing aspects of 
Regulation NMS, that requiring public dissemination of all SBSs 
reported to the registered SDR is appropriate in Phase 4.

B. Prohibition During Phase-In Period

    Proposed Rule 911 is designed to prevent evasion of the post-trade 
transparency rules. The rule would provide that a reporting party shall 
not report a SBS to a registered SDR in a phase-in period described in 
proposed Rule 910 during which the registered SDR is not yet required 
to publicly disseminate transaction reports for that SBS instrument 
unless: (1) The SBS also is reported to a registered SDR that is 
disseminating transaction reports for that SBS instrument, consistent 
with proposed Rule 902; or (2) no other registered SDR is able to 
receive, hold, and publicly disseminate transaction reports regarding 
that SBS instrument.
    The Commission is concerned that the development of new SDRs not be 
used to undermine the goal of post-trade transparency for SBSs. This 
could occur, for example, if a SDR were registered with the Commission, 
and--pursuant to proposed Rule 910--the SDR were in a phase-in period 
when it was not yet required to publicly disseminate transactions. 
Participants in an existing registered SDR could seek to report their 
SBSs to the second instead of the first registered SDR during the 
former's phase-in period, to avoid having their SBS transactions 
publicly disseminated in real time.
    Under proposed Rule 911, counterparties would be permitted to 
report any SBS to the first registered SDR, even though the first 
registered SDR was in a phase-in period and not yet publicly 
disseminating transaction reports, because no other registered SDR 
could do so, either. However, if a later SDR registers and enters a 
phase-in period, participants would not be permitted to report SBSs 
exclusively to the subsequent registered SDR before it is required or 
able under proposed Rule 910 to disseminate transaction reports, if an 
earlier registered SDR could receive, hold, and publicly disseminate 
transaction reports for that SBS. Thus, a participant could report the 
SBS to both registered SDRs: To the newer one, to assist with 
operational testing; and to the operating one, to ensure that a trade 
report for that SBS was publicly disseminated in real time.

Request for Comment

    The Commission requests comment on all aspects of the proposed 
rules relating to the proposed implementation of proposed Regulation 
SBSR, as provided in proposed Rules 910 and 911.
    173. Are the proposed timeframes for reporting with respect to pre-
enactment SBSs sufficiently clear?
    174. Are the obligations applicable to registered SDRs, 
counterparties, and participants in each phase of the proposed phase-in 
schedule sufficiently clear? If not, what obligations are unclear? 
Please be specific in your response.
    175. Do commenters generally agree with the proposed phase-in 
approach to implementation of the reporting timeframes contained in 
proposed Rule 910? Is the proposed phase-in schedule generally 
appropriate to allow reporting parties and registered SDRs sufficient 
time to implement the requirements of proposed Regulation SBSR? If not, 
why not? What period of time would be sufficient?
    176. Do commenters believe that registered SDRs would be able to 
meet the requirements of proposed Phase 1? Why or why not? If three 
months after the SDR's registration date is not a sufficient amount of 
time to comply with proposed Rule 907, what amount of time would be 
sufficient? Do commenters believe that registered SDRs would need 
additional time to develop and implement certain policies and 
procedures that would be required under proposed Rule 907? If so, why, 
and which policies and procedures would require additional time to 
develop and implement?
    177. Do commenters believe that registered SDRs, reporting parties, 
and participants would be able to satisfy their respective obligations 
under proposed Phase 2 within the proposed time frame? Why or why not? 
Would SBS counterparties and participants be able to comply, 
respectively, with proposed Rules 901 and 906(b) and (c) within the 
time frame specified in Phase 2? Why or why not? If not, what amount of 
time would be sufficient? Would counterparties or participants require 
additional time to comply with certain requirements in proposed Phase 
2? If so, which requirement(s), and what additional amount of time 
would be necessary? Would counterparties and participants have adequate 
time to make any necessary systems changes to comply with the 
requirements in proposed Phase 2?
    178. Would registered SDRs be able to correct erroneous information 
and notify counterparties of missing UICs within the time frame 
specified in Phase 2? Why or why not? If not, what amount of time would 
be adequate?
    179. Do commenters believe that registered SDRs would be able to 
begin publicly disseminating SBS information, including corrected 
reports, and publicizing block trade levels, as would be required in 
proposed Phase 3? Why or why not? Would any specific requirement in 
proposed Phase 3 require additional time to implement? If so, which 
requirement(s), and what amount of time would be sufficient?
    180. Do commenters believe that real-time public dissemination of 
SBS transaction reports should be required to commence for 50 SBS 
instruments nine months after the registration date? Should that period 
be longer or shorter? For example, should it be 12 months after the 
registration date? If so, why? Should the first wave of public 
dissemination be for more SBS instruments--perhaps 100? 200? Why or why 
not?
    181. Do commenters generally agree with the proposed implementation 
schedule that would require public dissemination of SBSs in three 
Waves, as provided in proposed Phases 3, 4, and 5? Why or why not? If 
not, what approach would be more appropriate?
    182. Should there be longer periods between Waves? If so, how long?
    183. Is 50 SBSs an appropriate number of SBSs to include in 
proposed Phase 3? Why or why not? If not, what number would be 
appropriate?
    184. Is it appropriate to require public dissemination of an 
additional 200 SBSs in proposed Phase 4? Why or why not?
    185. What criteria should be used to choose the first 50 and second 
200 SBSs be publically disseminated?
    186. Do commenters believe that registered SDRs would be able to 
begin publicly disseminating all SBSs reported to the SDR 18 months 
after registration, as would be required under proposed Phase 5? Why or 
why not? If 18 months is not a sufficient amount of time, what amount 
of time would be sufficient?
    187. Do commenters agree with the objective of proposed Rule 911? 
Why or why not?
    188. Do commenters agree with the requirements of proposed Rule 
911? Why or why not? Please be specific in your response. Do commenters 
believe that the Commission should take a

[[Page 75245]]

different approach to preventing potential evasions of the post-trade 
transparency rules? If so, what approach would be more appropriate? 
Please be specific in your response.
    189. Under proposed Rule 910, the Commission would require a newly 
registered SDR to begin publicly disseminating trade reports for 50 SBS 
instruments beginning nine months after its registration date, and for 
an additional 200 SBS instruments beginning 12 months after its 
registration date. The registered SDR would be required at those times 
to calculate block trade thresholds in accordance with proposed Rule 
907(b) and to disseminate reports of block trades in accordance with 
proposed Rule 902(b) with respect to those initial 50 and subsequent 
200 instruments. Under proposed Rule 902(b), the registered SDR would 
be required to publicly disseminate a transaction report of the block 
trade with all transaction details other than notional size, and to 
disseminate the full trade report (including the notional size) at a 
later time. Should the Commission instead, during the phase-in period, 
provide for different approaches to publicly disseminating block trades 
in order to measure their associated cost to market participants? The 
Commission could require--at least for the phase-in period, but perhaps 
beyond--that different SBS instruments or transactions be subject to 
different block trade dissemination rules, to provide the Commission 
and market participants the opportunity to assess the relative costs 
and benefits of different approaches. For example, one group of SBS 
instruments or transactions could be subject to block trade 
dissemination mechanism described in proposed Rule 902(b). A second 
group could be subject to a regime where the full details of the 
transaction (including notional size) were disseminated, but with a 
one-hour delay, a third group could be subject to a regime where the 
full details were disseminated with a three-hour delay, and so on. 
Would commentators support or oppose such an approach? Why? Are there 
other approaches that should be considered in order to evaluate the 
impact of different post-trade transparency regimes for block trades on 
market quality? How long should each portion of the phase-in continue 
and what variation in the number and type of SBS instruments or 
transactions would be needed in each group to support a statistical 
analysis to distinguish between the potentially different effects on 
the markets resulting from distinct post-trade dissemination 
requirements?

XI. Section 31 Fees

    Section 31(c) of the Exchange Act \162\ provides that a national 
securities association must pay fees based on the ``aggregate dollar 
amount of sales transacted by or through any member of such association 
otherwise than on a national securities exchange of securities * * * 
registered on a national securities exchange or subject to prompt last 
sale reporting pursuant to the rules of the Commission or a registered 
national securities association.'' Pursuant to Section 761(a) of the 
Dodd-Frank Act,\163\ SBSs are securities.\164\ When proposed Regulation 
SBSR becomes effective, SBSs will be subject to prompt last-sale 
reporting pursuant to the rules of the Commission because they will be 
subject to real-time public dissemination. Therefore, a national 
securities association the members of which effect SBS sales other than 
on an exchange (including on a SB SEF) would be liable for Section 31 
fees for any such sales.\165\ A national securities association 
typically obtains funds to pay its Section 31 fees by imposing on its 
members an offsetting fee on covered sales, and would likely take the 
same approach with respect to SBSs.
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    \162\ 15 U.S.C. 78ee(c).
    \163\ 15 U.S.C. 78c(a).
    \164\ See 15 U.S.C. 78c(a)(10).
    \165\ National securities exchanges also would be liable for 
fees in connection with transactions in SBSs that they execute. See 
15 U.S.C. 78ee(b).
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    Under the Exchange Act, brokers and dealers are required to join a 
national securities association.\166\ The Dodd-Frank Act also provides 
for the registration of SBS dealers \167\ and correspondingly amends 
the definition of ``dealer'' under the Exchange Act to exempt from the 
definition of dealer any person engaged in the business of buying and 
selling SBSs, other than SBSs with or for persons that are not eligible 
contract participants.\168\ Under the new definition of ``dealer,'' a 
SBS dealer that buys and sells SBSs--other than with or for persons 
that are not eligible contract participants--would not be required to 
register as a dealer under the Exchange Act and thus would not be 
required to join a national securities association.
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    \166\ See 15 U.S.C. 78o(b)(8) (``It shall be unlawful for any 
registered broker or dealer to effect any transaction in, or induce 
or attempt to induce the purchase or sale of, any security (other 
than or [sic] commercial paper, bankers' acceptances, or commercial 
bills), unless such broker or dealer is a member of a securities 
association registered pursuant to section 78o-3 of this title or 
effects transactions in securities solely on a national securities 
exchange of which it is a member.''). In addition, Rule 15b9-1(a) 
under the Exchange Act, 17 CFR 240.15b9-1(a), provides that any 
broker or dealer required by Section 15(b)(8) of the Exchange Act to 
become a member of a registered national securities association 
shall be exempt from such requirement if it (1) is a member of a 
national securities exchange, (2) carries no customer accounts, and 
(3) has annual gross income derived from purchases and sales of 
securities otherwise than on a national exchange of which it is a 
member in an amount no greater than $1,000. The gross income 
limitation does not apply to income derived from transactions (1) 
for the dealer's own account with or through another registered 
broker or dealer, or (2) through the Intermarket Trading System. See 
17 CFR 240.15b9-1(b).
    \167\ See 15 U.S.C. 78o-8 (``The term `dealer' means any person 
engaged in the business of buying and selling securities (not 
including security-based swaps, other than security-based swaps with 
or for persons that are not eligible contract participants) for such 
person's own account through a broker or otherwise''); 15 U.S.C. 
78c(71) (defining a security-based swap dealer ``any person who--(i) 
holds themself out as a dealer in security-based swaps; (ii) makes a 
market in security-based swaps; (iii) regularly enters into 
security-based swaps with counterparties as an ordinary course of 
business for its own account; or (iv) engages in any activity 
causing it to be commonly known in the trade as a dealer or market 
maker in security-based swaps'').
    \168\ See 15 U.S.C. 78c(a)(5).
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    Because the Dodd-Frank Act did not make corresponding changes for 
SBS brokers, a SBS broker would be considered a broker for purposes of 
the Exchange Act.\169\ Thus, brokers that buy or sell SBSs, SBS dealers 
that buy and sell SBSs with or for persons that are not eligible 
contract participants, and SBS dealers that buy and sell securities 
other than SBSs would be required to join a national securities 
association. However, SBS dealers that buy and sell only securities 
that are SBSs would not be required to register as dealers under the 
Exchange Act and thus would not be required to join a national 
securities association.
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    \169\ See 15 U.S.C. 78c(a)(4).
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    The Commission is proposing to exempt SBSs from the calculation of 
Section 31 fees.\170\ This exemption is designed to provide a more 
level playing field among SBS market participants. A national 
securities association would be able to collect funds to pay its 
Section 31 fees only from SBS market participants that are required to 
register with it. It would be unable to collect such member fees from 
SBS dealers that are not required to register with it. Thus, absent an 
exemption for all SBSs, the burden of indirectly paying the Section 31 
fees would fall on some SBS market participants but not others.
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    \170\ 15 U.S.C. 78ee(f) (``The Commission, by rule, may exempt 
any sale of securities or any class of sales of securities from any 
fee or assessment imposed by this section, if the Commission finds 
that such exemption is consistent with the public interest, the 
equal regulation of markets and brokers and dealers, and the 
development of a national market system.'').

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[[Page 75246]]

    In addition, the Commission proposes to revise Rule 31(a)(10)(ii) 
under the Exchange Act \171\ to conform the definition of ``due date'' 
in that rule to Section 31(e)(2) of the Exchange Act, as amended by 
Section 991 of the Dodd-Frank Act. This amendment provides that certain 
fees and assessments required under Section 31 will be required to be 
paid by September 25, rather than September 30.\172\ The Commission 
proposes to make a corresponding amendment to the definition of ``due 
date'' in Rule 31(a)(10)(ii) under the Exchange Act by replacing the 
reference to ``September 30'' in that rule with a reference to 
``September 25.''
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    \171\ 17 CFR 240.31(a)(10)(ii).
    \172\ Section 991 of the Dodd-Frank Act provides, in relevant 
part: ``(1) AMENDMENTS.--Section 31 of the Securities Exchange Act 
of 1934 (15 U.S.C. 78ee) is amended * * * in subsection (e)(2), by 
striking `September 30' and inserting `September 25'.''
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Request for Comment

    190. Do commenters agree with the proposal to exempt SBSs from 
Section 31 fees? Why or why not?
    191. How much transaction volume in SBSs would the Commission be 
exempting from Section 31 fees on an annual basis?
    192. If the Commission did not exempt SBSs from Section 31 fees, 
how would a national securities association obtain funds to pay the 
fees? Would the offsetting fees imposed on members of the national 
securities association be fairly distributed?
    193. Do commenters agree that the proposed exemption would create a 
more level playing field among SBS market participants? Why or why not?
    194. Absent the proposed exemption from Section 31 fees for SBSs, 
would there be difficulties in collecting Section 31 fees for mixed 
swaps (which are included with the definition of ``security-based 
swap'' and are thus securities)?

XII. General Request for Comment

    Title VII of the Dodd-Frank Act requires the SEC to consult and 
coordinate to the extent possible with the CFTC for the purposes of 
assuring regulatory consistency and comparability, to the extent 
possible,\173\ and states that in adopting rules, the CFTC and SEC 
shall treat functionally or economically similar products or entities 
in a similar manner.\174\
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    \173\ See Section 712(a)(2) of the Dodd-Frank Act.
    \174\ See Section 712(a)(7) of the Dodd-Frank Act.
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    The CFTC is adopting rules related to the reporting of swaps and 
the public dissemination of swap transaction, pricing, and volume data, 
as required under Sections 723, 727, and 729 of the Dodd-Frank Act. 
Understanding that the Commission and the CFTC regulate different 
products and markets and, as such, appropriately may be proposing 
alternative regulatory requirements, the Commission requests comment on 
the impact of any differences between the Commission and CFTC 
approaches to the regulation of the reporting of swaps and SBSs and the 
public dissemination of swap and SBS transaction, pricing, and volume 
information.
    In addition, legislatures and regulators in other jurisdictions are 
undertaking efforts to improve regulation in the market for OTC 
derivatives, including security-based swaps. The Commission requests 
comment generally on the impact of any differences between the 
Commission's proposed approach to the reporting and public 
dissemination of SBSs and that of any relevant foreign jurisdictions.
    195. Would the regulatory approaches under the Commission's 
proposed rulemaking pursuant to Sections 763 and 766 of the Dodd-Frank 
Act and the CFTC's proposed rulemaking pursuant to Sections 723, 727, 
and 729 of the Dodd-Frank Act result in duplicative or inconsistent 
efforts on the part of market participants subject to both regulatory 
regimes or result in gaps between those regimes? If so, in what ways do 
commenters believe that such duplication, inconsistencies, or gaps 
should be minimized?
    196. Do commenters believe the approaches proposed by the 
Commission and the CFTC to regulate the reporting of swaps and SBSs, 
and the public dissemination of swap and SBS transaction, volume, and 
pricing information, are comparable? If not, why not?
    197. Do commenters believe there are approaches that would make the 
regulation of swap and SBS reporting and the public dissemination of 
swap and SBS transaction, volume, and pricing information more 
comparable? If so, what?
    198. Do commenters believe that it would be appropriate for the 
Commission to adopt an approach proposed by the CFTC that differs from 
our proposal? Is so, which one(s)? We request commenters to provide 
data, to the extent possible, supporting any such suggested approaches.
    199. If registered SDRs would also be assuming real-time reporting 
obligations under the CEA, should the phase-in schedules for reporting 
obligations for swaps and SBSs be coordinated?
    200. How will proposed Regulation SBSR interact with reporting and 
public dissemination regimes in other jurisdictions? Will there be 
significant differences? If so, would those differences result in 
regulatory arbitrage? If so, what steps, if any, should the Commission 
take to minimize opportunities for regulatory arbitrage?

XIII. Paperwork Reduction Act

    Certain provisions of the proposed reporting rules proposed in this 
release contain ``collection of information requirements'' within the 
meaning of the Paperwork Reduction Act of 1995 (``PRA'').\175\ The 
Commission is therefore submitting relevant information to the Office 
of Management and Budget (``OMB'') for review in accordance with 44 
U.S.C. 3507 and 5 CFR 1320.11. Compliance with the collection of 
information requirements would be mandatory. An agency may not conduct 
or sponsor, and a person is not required to respond to, a collection of 
information unless it displays a currently valid control number. 
Specific collections of information are discussed further below.
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    \175\ 44 U.S.C. 3501 et seq.
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A. Definitions--Rule 900

    Proposed Rule 900 of Regulation SBSR contains only definitions of 
relevant terms and, thus, would not be a ``collection of information'' 
within the meaning of the PRA.

B. Reporting Obligations--Rule 901 of Regulation SBSR

    Proposed Rule 901 of Regulation SBSR contains ``collection of 
information requirements'' within the meaning of the PRA. The title of 
this collection is ``Rule 901--Reporting Obligations.''
1. Summary of Collection of Information
    The Dodd-Frank Act amended the Exchange Act to require the 
reporting of SBS transactions. Accordingly, the Commission is proposing 
Rule 901 under the Exchange Act to implement this requirement. Proposed 
Rule 901 would specify who reports SBS transactions, where such 
transactions are to be reported, what information is to be reported, 
and in what format. Counterparties to a SBS would be responsible for 
reporting the SBS to a registered SDR, or, if there is no registered 
SDR that would accept the SBS, to the Commission. Proposed Rule 901 
generally would divide the SBS information that must be reported into 
three categories: (1) Information that must be reported in real time 
pursuant

[[Page 75247]]

to proposed Rule 901(c); \176\ (2) additional information that must be 
reported pursuant to proposed Rule 901(d) within specified timeframes; 
\177\ and (3) life cycle events that must be reported pursuant to 
proposed Rule 901(e).\178\
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    \176\ Proposed Rule 901(c) would provide that, for each SBS for 
which it is the reporting party, the reporting party shall report 
the following information in real time: (1) The asset class of the 
SBS and, if the SBS is an equity derivative whether it is a total 
return swap or is otherwise designed to offer risks and returns 
proportional to a position in the equity security or securities on 
which the SBS is based; (2) information that identifies the SBS 
instrument and the specific asset(s) or issuer of a security on 
which the SBS is based; (3) the notional amount(s), and the 
currenc(ies) in which the notional amount(s) is expressed; (4) the 
date and time, to the second, of execution, expressed using UTC; (5) 
the effective date; (6) the scheduled termination date; (7) the 
price; (8) the terms of any fixed or floating rate payments, and the 
frequency of any payments; (9) whether or not the SBS will be 
cleared by a clearing agency; (10) if both counterparties to a SBS 
are SBS dealers, an indication to that effect; (11) if applicable, 
an indication that the transaction does not accurately reflect the 
market; and (12) if the SBS is customized to the extent that the 
information provided in items (1) through (11) does not provide all 
of the material information necessary to identify such customized 
SBS or does not contain the data elements necessary to calculate the 
price, an indication to that effect. See supra Section III.B.
    \177\ Proposed Rule 901(d)(1) would provide that, in addition to 
the information required under proposed Rule 901(c), for each SBS 
for which it is the reporting party, the reporting party shall 
report: (1) The participant ID of each counterparty; (2) as 
applicable, the broker ID, desk ID, and trader ID of the reporting 
party; (3) the amount(s) and currenc(ies) of any up-front payment(s) 
and a description of the payment streams of each counterparty; (4) 
the title of any master agreement, or any other agreement governing 
the transaction (including the title of any document governing the 
satisfaction of margin obligations), incorporated by reference and 
the date of any such agreement; (5) the data elements necessary for 
a person to determine the market value of the transaction; (6) if 
the SBS will be cleared, the name of the clearing agency; (7) if the 
SBS is not cleared, whether the exception in Section 3C(g) of the 
Exchange Act was invoked; (8) if the SBS is not cleared, a 
description of the settlement terms, including whether the SBS is 
cash-settled or physically settled, and the method for determining 
the settlement value; and (9) the venue where the SBS was executed. 
Under proposed Rule 901(d)(2), any information required to be 
reported pursuant to paragraph (d)(1) must be reported promptly, but 
in no event later than: (1) 15 minutes after the time of execution 
for a SBS that is traded and confirmed electronically; (2) 30 
minutes after the time of execution for a SBS that is confirmed 
electronically but not traded electronically; or (3) 24 hours after 
execution for a SBS that is not executed or confirmed 
electronically. See supra Sections IV.B. and C.
    \178\ Proposed Rule 901(e) would require that, for any life 
cycle event, and any adjustment due to a life cycle event, that 
results in a change to information previously reported pursuant to 
proposed Rule 901(c) or (d), the reporting party shall promptly 
provide updated information reflecting such change to the entity to 
which it reported the original transaction, using the transaction 
ID, subject to two enumerated exceptions. However, if a reporting 
party ceases to be a counterparty to a SBS due to an assignment or 
novation, the new counterparty shall be the reporting party 
following such assignment or novation, if the new counterparty is a 
U.S. person. If, following an assignment or novation, the new 
counterparty is not a U.S. person, the counterparty that is a U.S. 
person shall be the reporting party. See supra Section IV.D.
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    Proposed Rule 901(i) would require the reporting of all of the 
information required by proposed Rules 901(c) and (d) for any pre-
enactment SBSs or transitional SBSs, to the extent such information is 
available.
    Proposed Rule 901 also would impose certain duties on a registered 
SDR that receives SBS transaction data. Proposed Rule 901(f) would 
require a registered SDR to time stamp, to the second, its receipt of 
any information submitted to it pursuant to proposed Rule 901(c), (d), 
or (e). Proposed Rule 901(g) would require a registered SDR to assign a 
transaction ID to each SBS reported by a reporting party.
2. Proposed Use of Information
    The SBS transaction information required to be reported pursuant to 
proposed Rule 901 would be used by registered SDRs, market 
participants, the Commission, and other regulators. The information 
reported by reporting parties pursuant to proposed Rule 901 would be 
used by registered SDRs to publicly disseminate real-time reports of 
SBS transactions, as well as to offer a resource for regulators to 
obtain detailed information about the SBS market. Market participants 
would use the public market data feed to assess the current market for 
SBSs and for valuation purposes. The Commission and other regulators 
would use information about SBS transactions reported to and held by 
registered SDRs for prudential oversight and to monitor potential 
systemic risks, as well as to examine for improper behavior and to take 
enforcement actions, as appropriate.
    The transaction ID would be used on any subsequent transaction 
report or information submitted by a reporting party regarding that SBS 
(e.g., on an error report to identify the original transaction to which 
the error report pertains).
3. Respondents
    Proposed Rule 901 would apply to reporting parties.\179\ The 
Commission preliminarily believes that up to 1,000 entities could be 
reporting parties under proposed Rule 901(a), and that it is reasonable 
to use the figure of 1,000 respondents for estimating collection of 
information burdens under the PRA. The Commission preliminarily 
believes, based on information currently available to it, that there 
are and would continue to be approximately 1,000 entities regularly 
engaged in the CDS marketplace, and that most of these entities are 
likely to regularly participate in other SBS markets.\180\ Accordingly, 
the Commission preliminarily believes that an estimate of 1,000 
respondents (i.e., reporting parties) is appropriate.
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    \179\ See proposed Rule 900 (defining ``reporting party'' as the 
counterparty to an SBS with the duty to report information in 
accordance with proposed Regulation SBSR to a registered SDR, or if 
there is no registered SDR that would receive the information, to 
the Commission).
    \180\ The Commission includes in its estimate of reporting 
parties clearing agencies, which under proposed Rule 901(e)(i) could 
become the reporting parties for SBS transactions where the original 
reporting party ceases to be a counterparty to the SBS following a 
novation of the transaction. See supra Section IV.D.
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    Proposed Rule 901 also would impose certain duties on registered 
SDRs. Pursuant to Section 13(n) of the Exchange Act, an SDR must 
register with the Commission.\181\ The Commission preliminarily 
believes that the number of SDRs seeking to register would not exceed 
ten. Accordingly, for purposes of estimating collection of information 
burdens under proposed Regulation SBSR, including proposed Rule 901, 
the Commission believes that it is reasonable to use ten as an estimate 
of the number of registered SDRs.
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    \181\ See 15 U.S.C. 78m(n). The Commission today is separately 
proposing several rules to implement this requirement. See SDR 
Registration Proposing Release, supra note 6.
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4. Total Initial and Annual Reporting and Recordkeeping Burdens
a. For Reporting Parties
    Pursuant to proposed Rule 901, all SBS transactions must be 
reported to a registered SDR or to the Commission. Together, sections 
(a), (b), (c), (d), (e) and (h) of proposed Rule 901 set forth the 
parameters that market participants must follow to report SBS 
transactions. Proposed Rule 901(i) addresses the reporting of pre-
enactment SBSs. The proposed SBS reporting requirements would impose 
initial and ongoing burdens on reporting parties. The Commission 
preliminarily believes that these burdens would be a function of, among 
other things, the number of reportable SBS transactions and the data 
elements required to be reported for each SBS transaction.
    Based on publicly available information and consultation with 
industry sources, the Commission preliminarily believes that even the 
most active participants in the SBS market do not enter into a large 
number of new SBSs on a daily basis. Rather, most regularly active SBS 
market

[[Page 75248]]

participants enter into only a small number of new SBSs during any 
given time period, while a few larger dealers participate in the 
majority of SBS transactions. The Commission has sought available 
information in an effort to quantify the number of aggregate SBS 
transactions on an annual basis. According to publicly available data 
from DTCC, recently, there have been an average of approximately 36,000 
CDS transactions per day,\182\ corresponding to a total number of CDS 
transactions of approximately 13,140,000 per year. The Commission 
preliminarily believes that CDSs represent 85% of all SBS 
transactions.\183\ Accordingly, and to the extent that historical 
market activity is a reasonable predictor of future activity,\184\ the 
Commission preliminarily estimates that the total number of SBS 
transactions that would be subject to proposed Rule 901 on an annual 
basis would be approximately 15,460,000, which is an average of 
approximately 42 per reporting party per day.\185\
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    \182\ See, e.g., http://www.dtcc.com/products/derivserv/data_table_iii.php (weekly data as updated by DTCC).
    \183\ The Commission's estimate is based on internal analysis of 
available SBS market data. The Commission is seeking comment about 
the overall size of the SBS market.
    \184\ The Commission notes that regulation of the SBS markets, 
including by means of proposed Regulation SBSR, could impact market 
participant behavior.
    \185\ These figures are based on the following: [13,140,000/
0.85] = 15,458,824. [((15,458,824 estimated SBS transactions)/(1,000 
estimated reporting parties))/(365 days/year)] = 42.35, or 
approximately 42 transactions per day. The Commission understands 
that many of these transactions may arise from previously executed 
SBS transactions.
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    The Commission believes that reporting parties would face three 
categories of burdens to comply with proposed Rule 901 of Regulation 
SBSR. First, each reporting party would likely need to develop an 
internal order and trade management system (``OMS'') capable of 
capturing relevant SBS transaction information. The OMS would have to 
include or be connected to a system designed to store SBS transaction 
information. The Commission understands that it is current industry 
practice, in many cases, to add SBS transaction details to the 
transaction record post-execution in a process known as ``enrichment.'' 
Accordingly, the OMS would likely need to link both to the trade desk--
to permit real-time transaction reporting under proposed Rule 901(c)--
and to the back office--to facilitate reporting of complete 
transactions as required under proposed Rule 901(d).
    Second, each reporting party would have to implement a reporting 
mechanism. This would include a system that ``packages'' SBS 
transaction information from the reporting party's OMS, sends such 
information, and tracks it. The reporting mechanism would also include 
necessary data transmission lines to the appropriate registered SDR.
    Third, each reporting party would have to establish an appropriate 
compliance program and support for the operation of the OMS and 
reporting mechanism. Relevant elements of the compliance program would 
include transaction verification and validation protocols; the ability 
to identify and correct erroneous transaction reports; and necessary 
technical, administrative, and legal support. Additional operational 
support would include new product development, systems upgrades, and 
ongoing maintenance.
    Internal Order Management. To comply with their reporting 
obligations, reporting parties would likely need to develop and 
maintain an internal OMS that can capture relevant SBS data. The 
Commission preliminarily estimates that capturing SBS data in a manner 
sufficient to comply with proposed Rule 901 would impose an initial 
one-time aggregate burden of approximately 355,000 burden hours, which 
corresponds to a burden of 355 hours for each reporting party.\186\ 
This estimate includes an estimate of the number of potential burden 
hours required to amend internal procedures, design or reprogram 
systems, and implement processes to ensure that SBS transaction data 
are captured and preserved. The Commission further preliminarily 
estimates that capturing SBS data in a manner sufficient to comply with 
proposed Rule 901 would impose an annual aggregate burden of 
approximately 436,000 burden hours, 436 burden hours for each reporting 
party.\187\ This figure would include day-to-day support of the OMS, as 
well as an estimate of the amortized annual burden associated with 
system upgrades and periodic ``re-platforming'' (i.e., implementing 
significant updates based on new technology). The Commission 
preliminarily estimates that, to capture and maintain relevant 
information and documents, reporting parties could incur aggregate 
annual dollar cost burden (first-year and ongoing) of $1,000,000, which 
corresponds to $1,000 for each participant.\188\ The figure is an 
estimate of the hardware and associated maintenance costs for 
sufficient memory to capture and store SBS transactions, including 
redundant back-up systems.
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    \186\ This figure is based on discussions of Commission staff 
with various market participants and is calculated as follows: 
[((Sr. Programmer at 160 hours) + (Sr. Systems Analyst at 160 hours) 
+ (Compliance Manager at 10 hours) + (Director of Compliance at 5 
hours) + (Compliance Attorney at 20 hours)) x (1,000 reporting 
parties)] = 355,000 burden hours, which is 355 hours per reporting 
party (assuming 1,000 reporting parties). The Commission 
preliminarily believes that information on SBS transactions is 
currently being retained by many market participants in the ordinary 
course of business. This may result in lesser burdens for those 
parties.
    \187\ This figure is based on discussions of Commission staff 
with various market participants and is calculated as follows: 
[((Sr. Programmer at 32 hours) + (Sr. Systems Analyst at 32 hours) + 
(Compliance Manager at 60 hours) + (Compliance Clerk at 240 hours) + 
(Director of Compliance at 24 hours) + (Compliance Attorney at 48 
hours)) x (1,000 reporting parties)] = 436,000 burden hours, which 
is 436 hours per reporting party.
    \188\ This estimate is based on discussions of Commission staff 
with various market participants and is calculated as follows: 
[($250/gigabyte of storage capacity) x (4 gigabytes of storage) x 
(1,000 reporting parties)] = $1,000,000. The Commission 
preliminarily believes that storage costs associated with saving 
relevant SBS information and documents would not vary significantly 
between the first year and subsequent years. Accordingly, the 
Commission has preliminarily estimated the initial and ongoing 
storage costs to be the same. Moreover, the per-entity annual data 
storage figure of $1,000 is an average. Some parties may face higher 
costs, while others would simply use existing storage resources.
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    Summing these burdens, the Commission preliminarily estimates that 
the initial (i.e., first-year) aggregate annualized burden on reporting 
parties for internal order management under proposed Rule 901 would be 
791,000 burden hours, which corresponds to 791 burden hours for each 
reporting party.\189\ The Commission preliminarily estimates that the 
initial aggregate annualized dollar cost burden would be $1,000,000, 
which would correspond to $1,000 for each reporting party.\190\ The 
Commission further preliminarily estimates that the ongoing aggregate 
annualized burden on reporting parties for internal order management 
under proposed Rule 901 would be 436,000 burden hours, which 
corresponds to 436 burden hours for each reporting party.\191\ The 
Commission preliminarily estimates that the ongoing aggregate 
annualized dollar cost burden would be $1,000,000, which corresponds to 
$1,000 for each reporting party.\192\
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    \189\ This estimate is based on the following: [((355 one-time 
burden hours for systems development) + (436 burden hours for annual 
costs)) x (1,000 reporting parties)] = 791,000 burden hours, which 
corresponds to 791 burden hours per reporting party.
    \190\ See supra note 188.
    \191\ See supra note 187.
    \192\ See supra note 188.
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    SBS Reporting Mechanism. Reporting parties would be required to 
incur

[[Page 75249]]

initial one-time costs to establish connectivity to a registered SDR to 
report SBS transactions. Depending on the number of SBS asset classes 
that a reporting party transacts in, and which registered SDRs accept 
the resulting SBS transaction reports, multiple connections to 
different registered SDRs could be necessary. For purposes of 
estimating relevant burdens, the Commission preliminarily estimates 
that, on average, each reporting party would require connections to two 
registered SDRs. The Commission bases this estimate on discussions with 
market participants. We recognize that, in light of the developing SBS 
market and regulatory structure, the actual average number of SDR 
connections maintained by each reporting party may be different.
    This estimate is based on the following factors. First, based on 
discussions with SBS market participants, the Commission understands 
that the majority of SBSs are comprised of CDS and equity-based swaps. 
Accordingly, the Commission preliminarily believes that transactions in 
these two asset classes would predominate. Moreover, the Commission 
preliminarily believes that SBS market participants may not all 
transact in each asset class. Thus, even if each registered SDR 
accepted transaction reports only for a single SBS asset class, the 
total number of connections needed by many reporting parties would 
likely be limited. Next, the Commission also preliminarily believes 
that, for operational efficiency, a reporting party would seek to use 
only one registered SDR per asset class for repository services. 
Accordingly, to the extent that a single registered SDR accepted SBSs 
in multiple asset classes, a reporting party would need fewer 
connections. Finally, a reporting party that required a significant 
number of connections to registered SDRs could engage a third party--
for example, a dealer or connectivity services provider--instead of 
independently establishing its own connections. Accordingly, the 
Commission preliminarily believes that one connection may suffice for 
many reporting parties.
    On this basis, the Commission preliminarily estimates that the cost 
to establish and maintain connectivity to a registered SDR to 
facilitate the reporting required by proposed Rule 901 would impose an 
annual dollar cost burden of approximately $200,000,000, which 
corresponds to a dollar cost burden of $200,000 for each reporting 
party.\193\
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    \193\ This estimate is based on discussions of Commission staff 
with various market participants, as well as the Commission's 
experience regarding connectivity between securities market 
participants for data reporting purposes. The Commission derived the 
total estimated expense from the following: [($100,000 hardware- and 
software-related expenses, including necessary back-up and 
redundancy, per SDR connection) x (2 SDR connections per reporting 
party) x (1,000 reporting parties)] = $200,000,000. The Commission 
understands that many reporting parties already have established 
linkages to entities that may register as SDRs, which could 
significantly reduce the out-of-pocket costs associated with this 
establishing the reporting function contemplated by proposed Rule 
901.
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    Moreover, the Commission believes that establishing a reporting 
mechanism for SBS transactions would impose internal burdens on each 
reporting party, including the development of systems necessary to 
capture and send information from the entity's OMS to the relevant 
registered SDR, as well as corresponding testing and support. The 
Commission preliminarily estimates an initial one-time aggregate burden 
of 172,000 burden hours, which corresponds to a burden of 172 burden 
hours for each reporting party.\194\ In addition, the Commission 
preliminarily estimates that reporting specific SBS transactions to a 
registered SDR as required by proposed Rule 901 would impose an ongoing 
aggregate burden of 77,300 burden hours, which corresponds to a burden 
of approximately 80 burden hours for each reporting party.\195\
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    \194\ This figure is based on discussions with various market 
participants as follows: [((Sr. Programmer at 80 hours) + (Sr. 
Systems Analyst at 80 hours) + (Compliance Manager at 5 hours) + 
(Director of Compliance at 2 hours) + (Compliance Attorney at 5 
hours)) x (1,000 reporting parties)] = 172,000 burden hours, which 
is 172 hours per reporting party. The Commission preliminarily 
believes that many dealers and major market participants already are 
reporting SBS data to some extent in the ordinary course of 
business. Thus, as a practical matter, these parties may face 
substantially lower burdens.
    \195\ This figure is based on discussions of Commission staff 
with various market participants, as well as the Commission's 
experience regarding connectivity between securities market 
participants, including alternative trading systems and self-
regulatory organizations for data reporting purposes. The Commission 
derived the total estimated initial burden from the following: 
[(15,460,000 estimated total annual SBS transactions) x (0.005 
hours/transaction)] = 77,300 burden hours, which is 77.3 burden 
hours per reporting party.
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    Thus, the Commission preliminarily estimates that the initial 
(first-year) aggregate annualized burden on reporting parties for 
reporting under proposed Rule 901 would be 249,300 burden hours, which 
corresponds to approximately 250 burden hours for each reporting 
party.\196\ The Commission preliminarily estimates that the initial 
aggregate annualized dollar cost burden would be $200,000,000, which 
corresponds to $200,000 for each reporting party.\197\ In addition, the 
Commission preliminarily estimates that the ongoing aggregate 
annualized burden on reporting parties under proposed Rule 901 would be 
77,300 burden hours, which corresponds to approximately 80 burden hours 
for each reporting party.\198\ The Commission preliminarily estimates 
that the ongoing aggregate annualized dollar cost burden would be 
$200,000,000, which corresponds to $200,000 for each reporting 
party.\199\
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    \196\ This estimate is based on the following: [((172 one-time 
burden hours) + (77.3 burden hours for ongoing costs)) x (1,000 
reporting parties)] = 249,300 burden hours, which corresponds to 
249.3 burden hours per reporting party.
    \197\ See supra note 193.
    \198\ See supra note 195.
    \199\ See supra note 193.
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    Compliance and Ongoing Support. As stated above, in complying with 
proposed Rule 901, each reporting party also would need to establish 
and maintain an appropriate compliance program and support for the 
operation of the OMS and reporting mechanism, which would include 
transaction verification and validation protocols, and necessary 
technical, administrative, and legal support. Additional operational 
support would include new product development, systems upgrades, and 
ongoing maintenance. The Commission preliminarily believes that initial 
burdens associated with this aspect of proposed Rule 901--i.e., the 
establishment of relevant compliance capability--would in significant 
part involve the development of appropriate policies and procedures, 
which, for those participants who are SBS dealers or major SBS 
participants, is addressed in connection with proposed Rule 
906(c).\200\ A reporting party also would need to design its OMS to 
include tools to ensure accurate, complete reporting. On an ongoing 
basis, a reporting party would need to employ appropriate technical and 
compliance staff to maintain and support the operation of its order 
management and reporting systems over time.
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    \200\ See infra Section XIII.G.
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    The Commission preliminarily estimates that designing and 
implementing an appropriate compliance and support program would impose 
an initial, one-time aggregate burden of approximately 180,000 burden 
hours, which corresponds to a

[[Page 75250]]

burden of 180 burden hours for each reporting party.\201\
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    \201\ This figure is based on discussions with various market 
participants and is calculated as follows: [((Sr. Programmer at 100 
hours) + (Sr. Systems Analyst at 40 hours) + (Compliance Manager at 
20 hours) + (Director of Compliance at 10 hours) + (Compliance 
Attorney at 10 hours)) x (1,000 reporting parties)] = 180,000 burden 
hours, which corresponds to 180 hours per reporting party.
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    The Commission further preliminarily estimates that maintaining a 
reporting party's compliance and support program would impose an 
ongoing aggregate burden of approximately 218,000 burden hours, which 
corresponds to a burden of 218 burden hours for each reporting 
party.\202\ This figure includes day-to-day support of the OMS, as well 
as an estimate of the amortized annual burden associated with system 
upgrades and periodic re-platforming (i.e., implementing significant 
updates based on new technology).
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    \202\ This figure is based on discussions with various market 
participants and is calculated as follows: [((Sr. Programmer at 16 
hours) + (Sr. Systems Analyst at 16 hours) + (Compliance Manager at 
30 hours) + (Compliance Clerk at 120 hours) + (Director of 
Compliance at 12 hours) + (Compliance Attorney at 24 hours)) x 
(1,000 reporting parties)] = 218,000 burden hours, which is 218 
hours per reporting party.
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    Therefore, the Commission preliminarily estimates the initial 
aggregate annualized burden on reporting parties for compliance and 
ongoing support under proposed Rule 901 would be 398,000 burden hours, 
which corresponds to 398 burden hours for each reporting party.\203\ 
The Commission further preliminarily estimates that the ongoing 
aggregate annualized burden on reporting parties for compliance and 
ongoing support under proposed Rule 901 would be 218,000 burden hours, 
which corresponds to 218 burden hours for each reporting party.\204\
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    \203\ This estimate is based on the following: [((180 one-time 
burden hours) + (218 annual burden hours)) x (1,000 reporting 
parties)] = 398,000 burden hours, which corresponds to 398 burden 
hours per reporting party.
    \204\ See supra note 202.
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    Aggregate Burdens. Thus, the Commission estimates that the total 
first-year burden--the initial aggregate annualized burden--on 
reporting parties associated with proposed Rule 901 would be 1,438,300 
burden hours, which corresponds to approximately 1,438 burden hours per 
reporting party.\205\ In addition, the Commission preliminarily 
estimates that the initial aggregate annualized dollar cost burden on 
reporting parties associated with proposed Rule 901 would be 
$301,000,000, which corresponds to a dollar cost burden of $301,000 per 
reporting party.\206\
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    \205\ This figure is based on summing the initial aggregate 
annualized burdens for reporting parties under proposed Rule 901: 
[(791,000) + (249,300) + (398,000)] = 1,438,300 burden hours.
    \206\ This figure is based on summing the estimated first-year 
aggregate annualized dollar cost burdens as follows: [($300,000,000) 
+ ($1,000,000)] = $301,000,000.
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    Likewise, the Commission estimates that the ongoing aggregate 
annual burdens on reporting parties associated with proposed Rule 901 
would be 731,300 burden hours, which corresponds to 731 burden hours 
per reporting party.\207\ In addition, the Commission preliminarily 
estimates that the ongoing, aggregate annualized dollar cost burden on 
reporting parties associated with proposed Rule 901 would be 
$301,000,000, which corresponds to a dollar cost burden of $301,000 per 
reporting party.\208\
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    \207\ This figure is based on summing estimated ongoing annual 
aggregate burdens as follows: [(436,000) + (77,300) + (218,000)] = 
731,300 burden hours.
    \208\ This figure is based on summing the estimated first-year 
aggregate annualized dollar cost burdens as follows: [($300,000,000) 
+ ($1,000,000)] = $301,000,000.
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b. For Registered SDRs
    Proposed Rule 901(f) would require a registered SDR to time-stamp 
information that it receives. Proposed Rule 901(g) would require a 
registered SDR to assign a unique transaction ID to each SBS it 
receives. The Commission preliminarily believes that a registered SDR 
would need to design its systems to include these capabilities, but 
that such design elements would not pose additional significant burdens 
to incorporate in the context of designing and building the 
technological framework that would be required of a SDR to become 
registered.\209\ Therefore, the Commission preliminarily estimates that 
proposed Rules 901(f) and (g) would impose an initial one-time 
aggregate burden of 1,200 burden hours, which corresponds to 120 burden 
hours per registered SDR.\210\ This figure is based on an estimate of 
ten registered SDRs. Once operational, these elements of each 
registered SDR's system would have to be supported and maintained. 
Accordingly, the Commission estimates that proposed Rule 901(f) and (g) 
would impose an annual aggregate burden of 1,520 burden hours, which 
corresponds to 152 burden hours per registered SDR.\211\ This figure 
represents an estimate of the burden for a registered SDR for support 
and maintenance costs for the registered SDR's systems to time stamp 
incoming submissions and assign transaction IDs.
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    \209\ The Commission is proposing Rules 13n-4(b), 13n-5, and 
13n-6 under the Exchange Act, which would relate to the duties, data 
collection and maintenance, and automated systems requirements for 
SDRs. See SDR Registration Proposing Release, supra note 6.
    \210\ This figure is based on discussions with various market 
participants and is calculated as follows: [((Sr. Programmer at 80 
hours) + (Sr. Systems Analyst at 20 hours) + (Compliance Manager at 
8 hours) + (Director of Compliance at 4 hours) + (Compliance 
Attorney at 8 hours)) x (10 registered SDRs)] = 1,200 burden hours, 
which is 120 hours per registered SDR.
    \211\ This figure is based on discussions with various market 
participants as follows: [((Sr. Programmer at 60 hours) + (Sr. 
Systems Analyst at 48 hours) + (Compliance Manager at 24 hours) + 
(Director of Compliance at 12 hours) + (Compliance Attorney at 8 
hours)) x (10 SDRs)] = 1,520 burden hours, which is 152 hours per 
registered SDR.
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    Thus, the Commission preliminarily estimates that the first-year 
aggregate annualized burden associated with proposed Rules 901(f) and 
(g) would be 2,820 burden hours, which corresponds to 282 burden hours 
per registered SDR.\212\ Correspondingly, the Commission preliminarily 
estimates that the ongoing aggregate annualized burden associated with 
proposed Rules 901(f) and (g) would be 1,520 burden hours, which 
corresponds to 152 burden hours per registered SDR.\213\
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    \212\ This figure is based on the following: [(1,200) + (1,520)] 
= 2,720 burden hours, which corresponds to 272 burden hours per 
registered SDR.
    \213\ See supra note 211.
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5. Recordkeeping Requirements
    Concurrently with proposed Regulation SBSR, the Commission is 
issuing the SDR Registration Proposing Release, which includes 
recordkeeping requirements for SBS transaction data received by a 
registered SDR pursuant to proposed Regulation SBSR. Specifically, 
proposed Rule 13n-5(b)(4) would require a registered SDR to maintain 
the transaction data that it collects for not less than five years 
after the applicable SBS expires, and historical positions and 
historical market values for not less than five years.\214\ 
Accordingly, SBS transaction reports received by a registered SDR 
pursuant to proposed Rule 901 would be required to be retained by the 
SDR for not less than five years.
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    \214\ See SDR Registration Proposing Release, supra note 6.
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6. Collection of Information is Mandatory
    Each collection of information discussed above would be a mandatory 
collection of information.
7. Confidentiality of Responses to Collection of Information
    Information collected pursuant to proposed Rule 901(c) would be 
widely available to the public to the extent it is incorporated into 
SBS transaction reports that are publicly disseminated by a registered 
SDR pursuant to

[[Page 75251]]

proposed Rule 902. A registered SDR would be under an obligation to 
maintain the confidentiality of any information collected pursuant to 
proposed Rule 901(d), pursuant to Sections 13(n)(5) of the Exchange Act 
and proposed Rule 13n-9 thereunder.\215\ To the extent that the 
Commission receives confidential information pursuant this collection 
of information, such information would be kept confidential, subject to 
the provisions of the Freedom of Information Act.
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    \215\ See id.
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8. Request for Comment
    The Commission requests public comment on its burden estimates. The 
Commission also solicits comment as follows:
    201. Is the proposed collection of information necessary for the 
performance of the functions of the agency? Would the information have 
practical utility?
    202. How accurate are the Commission's preliminary estimates of the 
burdens of the proposed collection of information associated with 
proposed Rule 901? In particular, how many entities would incur 
collection of information burdens pursuant to proposed Rule 901?
    203. Would covered entities incur any initial burdens associated 
with systems design, programming, expanding systems capacity, and 
establishing compliance programs pursuant to proposed Rule 901?
    204. Would there be different or additional burdens associated with 
the collection of information under proposed Rule 901 that a covered 
entity would not undertake in the ordinary course of business?
    205. Are there additional burdens that the Commission has not 
addressed in its preliminary burden estimates?
    206. Can you suggest any ways to enhance the quality, utility, and 
clarity of the information to be collected?
    207. Can you suggest any ways to minimize the burden of collection 
of information on those who would be required to respond, including 
through the use of automated collection techniques or other forms of 
information technology?
    208. What entities may be subject to proposed Rule 901, whether 
specific classes of entities may be impacted, how many entities may be 
impacted, and will any such entity or class of entities be impacted 
differently than others? In addition, the Commission seeks comment on 
the accuracy of its estimates as to the number of participants in the 
SBS market that would be required to report information pursuant to 
proposed Rule 901.

C. Public Dissemination of Transaction Reports--Rule 902 of Regulation 
SBSR

    Certain provisions of proposed Rule 902 of Regulation SBSR contain 
``collection of information requirements'' within the meaning of the 
PRA. The title of this collection is ``Rule 902--Public Dissemination 
of Transaction Reports.''
1. Summary of Collection of Information
    Proposed Rule 902(a) generally would require that a registered SDR 
publicly disseminate a transaction report for each SBS transaction 
immediately upon receipt of information about the SBS submitted by a 
reporting party pursuant to proposed Rule 901(c), along with any 
indicator(s) contemplated by the registered SDR's policies and 
procedures.\216\ If its systems are unavailable for publicly 
disseminating transaction data immediately upon receipt, the registered 
SDR would be required to disseminate the transaction data immediately 
upon re-opening.
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    \216\ See proposed Rule 907(a)(4).
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    Pursuant to Rule 902(b), a registered SDR would be required to 
publicly disseminate a transaction report of a SBS that constitutes a 
block trade immediately upon receipt of information about the block 
trade from the reporting party. The transaction report would consist of 
all the information reported by the reporting party pursuant to 
proposed Rule 901(c), except for the notional size, plus the 
transaction ID and an indicator that the report represents a block 
trade. The registered SDR would be required to publicly disseminate a 
complete transaction report for such block trade (including the 
transaction ID and the full notional size) at a later time.
    Proposed Rule 902(c) would prohibit a registered SDR from 
disseminating: (1) the identity of either counterparty to a SBS; (2) 
with respect to a SBS that is not cleared at a registered clearing 
agency and that is reported to a registered SDR, any information 
disclosing the business transactions and market positions of any 
person; (3) any information regarding a SBS reported pursuant to 
proposed Rule 901(i).
2. Proposed Use of Information
    The real-time public dissemination requirement contained in 
proposed Rule 902 would provide post-trade transparency for SBS 
transactions, as required by the Dodd-Frank Act. Publicly disseminated 
reports of SBS transactions that are not block trades would include the 
full notional size. Publicly disseminated reports of SBS transactions 
that are block trades would occur pursuant to a two-step process. 
First, a real-time report would be disseminated without the notional 
size, but with an indication that the trade is a block trade as well as 
a transaction ID. At a later time, a follow-on report would be 
disseminated, including the notional size, with the transaction ID used 
to connect the second report to the first report.
3. Respondents
    The collection of information associated with the proposed Rule 902 
would apply to registered SDRs. As noted above, the Commission 
preliminarily believes that an estimate of ten registered SDRs is 
reasonable for purposes of its analysis of potential burdens under the 
PRA.
4. Total Initial and Annual Reporting and Recordkeeping Burdens
    Although proposed Rule 902 would not prescribe a manner of public 
dissemination, the Commission anticipates that a registered SDR would 
establish a mechanism functionally similar to one established by TRACE, 
which is a system operated by FINRA for collecting and disseminating to 
the public reports of trades in corporate and agency debt securities.
    Simultaneously with this proposal, the Commission is proposing new 
Rules 13n-1 through 13n-11 under the Exchange Act relating to the SDR 
registration process, the duties of SDRs, and their core 
principles.\217\ The SDR Registration Proposing Release covers 
anticipated collections of information with respect to various aspects 
of establishing and operating an SDR, including its start-up and 
ongoing operations. Proposed Rule 13n-5(b)(1) would set forth 
parameters each registered SDR would be required to follow with regard 
to collecting and maintaining transaction data. Every SDR would be 
required to (i) establish, maintain, and enforce written policies and 
procedures for the reporting of transaction data to the SDR and shall 
accept all transaction data that is reported in accordance with such 
policies and procedures; (ii) accept all SBSs in any asset class that 
are reported to it in accordance with its policies and procedures to 
the extent that it accepts any SBS in a particular asset class; (iii) 
establish, maintain, and enforce written policies and procedures to 
verify the accuracy of the transaction data that has been submitted to 
the SDR, including

[[Page 75252]]

clearly identifying the source for each trade side and the pairing 
method (if any) for each transaction in order to identify the level of 
quality of the transaction data; and (iv) promptly record the 
transaction data it receives. The SDR Registration Proposing Release 
describes the relevant burdens and costs that complying with proposed 
Rule 13n-5(b)(1) would entail.
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    \217\ See SDR Registration Proposing Release, supra note 6.
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    The Commission preliminarily believes that a registered SDR would 
be able to integrate the capability to publicly disseminate real-time 
SBS transaction reports required under proposed Rule 902 as part of its 
overall system development for transaction data. Accordingly, the 
Commission believes that the burdens associated with enabling and 
maintaining compliance with proposed Rule 902 would, as a practical 
matter, represent a portion of a registered SDR's overall systems 
development budget and process. Based on discussions with industry 
participants, the Commission preliminarily estimates that to implement 
and comply with the real-time public dissemination requirement of 
proposed Rule 902, each registered SDR would incur a burden equal to an 
additional 20% of the first-year and ongoing burdens discussed in the 
SDR Registration Proposing Release.\218\
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    \218\ See Section IV.D.2 (SDR Duties, Data Collection and 
Maintenance, Automated Systems, and Direct Electronic Access) of the 
SDR Registration Proposing Release. This estimate is based on 
discussions with industry members and market participants, including 
potential SDRs who would be required to register as SDRs under the 
Dodd-Frank Act, and includes time necessary to design and program a 
registered SDR's system to calculate and disseminate initial and 
subsequent trade reports as well as annual costs associated with 
systems testing and maintenance necessary for the special handling 
of block trades. These figures do not include the development of 
policies and procedures necessary to calculate block trade levels 
pursuant to proposed Rule 907(b).
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    On this basis, the Commission preliminarily estimates that the 
initial one-time aggregate burden imposed by the proposed Rule 902 for 
development and implementation of the systems needed to disseminate the 
required transaction information, including the necessary software and 
hardware, would be approximately 84,000 hours and a dollar cost of $20 
million, which would correspond to a burden of 8,400 hours and a dollar 
cost of $2 million for each registered SDR.\219\ In addition, the 
Commission preliminarily estimates that annual aggregate burden 
(initial and ongoing) imposed by the proposed Rule 902 would constitute 
approximately 50,400 hours and a dollar cost of $12 million, which 
would correspond to a burden of 5,040 hours and a dollar cost of $1.2 
million for each registered SDR.\220\ Thus, the Commission 
preliminarily estimates that the total first-year (initial) aggregate 
annualized burden on registered SDRs associated with real-time public 
dissemination requirement under proposed Rule 902 would be 
approximately 134,400 hours and a dollar cost of $32 million, which 
would correspond to a burden of 13,440 hours and a dollar cost of $3.2 
million for each registered SDR.\221\
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    \219\ See SDR Registration Proposing Release, supra note 6 for 
the total burden associated with establishing SDR technology 
systems. The Commission derived this estimated burden from the 
following: [((Attorney at 1,400 hours) + (Compliance Manager at 
1,600 hours) + (Programmer Analyst at 4,000 hours) + (Senior 
Business Analyst at 1,400 hours)) x (10 registered SDRs)] = 84,000 
burden hours, which corresponds to 8,400 hours per registered SDR.
    \220\ See SDR Registration Proposing Release, supra note 6 for 
the total ongoing annual burdens associated with operating and 
maintaining SDR technology systems. The Commission derived this 
estimated burden from the following: [((Attorney at 840 hours) + 
(Compliance Manager at 960 hours) + (Programmer Analyst at 2,400 
hours) + (Senior Business Analyst at 840 hours)) x (10 registered 
SDRs)] = 50,400 burden hours, which corresponds to 5,040 hours per 
registered SDR.
    \221\ These estimates are based on the following: [(84,000 one-
time burden hours) + (50,400 annual burden hours)] = 134,400 burden 
hours, which corresponds to 13,440 hours per registered SDR; [($20 
million one-time dollar cost burden) + ([$12] million annual dollar 
cost burden) = $32 million cost burden, which corresponds to $3.2 
million per registered SDR.
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5. Recordkeeping Requirements
    Pursuant to proposed Rule 13n-7(b) under the Exchange Act,\222\ a 
registered SDR would be required to keep and preserve at least one copy 
of all documents, including all documents and policies and procedures 
required by the Exchange Act and the rules or regulations thereunder, 
for a period of not less than five years, the first two years in a 
place that is immediately available to the staff of the Commission for 
inspection and examination. This requirement would encompass real-time 
SBS transaction reports disseminated by the registered SDR. 
Accordingly, SBS transaction reports disseminated by a registered SDR 
pursuant to proposed Rule 902 would be required to be retained for not 
less than five years.
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    \222\ See SDR Registration Proposing Release, supra note 6.
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6. Collection of Information Is Mandatory
    Each collection of information discussed above would be a mandatory 
collection of information.
7. Confidentiality of Responses to Collection of Information
    Information collected pursuant to proposed Rule 902 would be widely 
available to the extent that it is incorporated into SBS transaction 
reports that are publicly disseminated by a registered SDR pursuant to 
proposed Rules 902(a) and (b). However, a registered SDR would be under 
an obligation to maintain the confidentiality of any information that 
is not subject to public dissemination. To the extent that the 
Commission receives confidential information pursuant to this 
collection of information, such information would be kept confidential, 
subject to the provisions of the Freedom of Information Act.
8. Request for Comment
    The Commission requests public comment on its burden estimates. The 
Commission also solicits comment as follows:
    209. Is the proposed collection of information necessary for the 
performance of the functions of the agency? Would the information have 
practical utility?
    210. How accurate are the Commission's preliminary estimates of the 
burdens of the proposed collection of information associated with 
proposed Rule 902? In particular, how many entities would incur 
collection of information burdens pursuant to proposed Rule 902?
    211. Would registered SDRs incur any initial burdens associated 
with systems design, programming, expanding systems capacity, and 
establishing compliance programs pursuant to proposed Rule 902?
    212. Would there be different or additional burdens associated with 
the collection of information under proposed Rule 902 that a registered 
SDR would not undertake in the ordinary course of business?
    213. Are there additional burdens that the Commission has not 
addressed in its preliminary burden estimates?
    214. Can you suggest any ways to enhance the quality, utility, and 
clarity of the information to be collected?
    215. Can you suggest any ways to minimize the burden of collection 
of information on those who would be required to respond, including 
through the use of automated collection techniques or other forms of 
information technology?

D. Coded Information--Rule 903 of Regulation SBSR

    The Commission does not believe that proposed Rule 903 would be a 
``collection of information'' within the meaning of the PRA because the 
rule would merely permit reporting parties and registered SDRs to use 
codes in place of certain data elements, subject to

[[Page 75253]]

certain conditions. The rule would offer subject entities greater 
flexibility in meeting the obligations specified elsewhere in proposed 
Regulation SBSR related to the reporting of SBS transactions.

E. Operating Hours of Registered Security-Based Swap Data 
Repositories--Rule 904 of Regulation SBSR

    Certain provisions of proposed Rule 904 contain ``collection of 
information requirements'' within the meaning of the PRA. The title of 
this collection is ``Rule 904--Operating Hours of Registered Security-
Based Swap Data Repositories.''
1. Summary of Collection of Information
    Proposed Rule 904 would require a registered SDR to operate 
continuously, subject to two exceptions. First, a registered SDR could 
establish normal closing hours during periods when, in its estimation, 
the U.S. market and major foreign markets are inactive. A registered 
SDR would be required to provide reasonable advance notice to 
participants and to the public of its normal closing hours. Second, a 
registered SDR could declare, on an ad hoc basis, special closing hours 
to perform system maintenance that cannot wait until normal closing 
hours. A registered SDR would, to the extent reasonably possible under 
the circumstances, be required to avoid scheduling special closing 
hours during when, in its estimation, the U.S. market and major foreign 
markets are most active; and provide reasonable advance notice of its 
special closing hours to participants and to the public.
    Paragraphs (c) and (e) of proposed Rule 904 would specify 
requirements for handling and disseminating reported data during a 
registered SDR's normal and special closing hours. First, during normal 
closing hours and, to the extent reasonably practicable, during special 
closing hours, a registered SDR would be required to have the 
capability to receive and hold in queue transaction data it 
receives.\223\ Second, if a registered SDR could not hold in queue 
transaction data to be reported, it would be required, immediately upon 
resuming normal operations, to send a notice to all participants that 
it has resumed normal operations and to immediately disseminate the 
transaction data required to be reported under proposed Rule 901(c) and 
received from the participants following the notice.\224\
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    \223\ See proposed Rule 904(c).
    \224\ See proposed Rule 904(e).
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    Two of the requirements contained in Rule 904 constitute 
requirements already contained in other proposed rules. First, the 
requirement in Rule 904(d) that, immediately upon system re-opening, a 
registered SDR would be required to publicly disseminate any 
transaction data required to be reported under proposed Rule 901(c) and 
held in queue, is also contained in the proposed Rule 902(a). Second, 
the requirement in proposed Rule 904(e) that, if a reporting party that 
has an obligation to report transaction data could not to do so because 
a registered SDR's system was unavailable, it would be required to 
submit that information immediately after it receives a notice that it 
is possible to do so, is already implicitly contained in proposed Rule 
901.
2. Proposed Use of Information
    The information that would be provided pursuant to proposed Rule 
904 is necessary to allow participants and the public to know the 
normal and special closing hours of the registered SDR, and to allow 
participants to take appropriate action in the event that the 
registered SDR cannot accept SBS transaction reports from participants.
3. Respondents
    Proposed Rule 904 would apply to all registered SDRs. As noted 
above, the Commission preliminarily estimates that there would be ten 
registered SDRs.
4. Total Initial and Annual Reporting and Recordkeeping Burdens
    The Commission preliminarily estimates that that the one-time, 
initial burden, as well as ongoing annualized burden for each 
registered SDR associated with proposed Rule 904 would be minimal, 
because registered SDRs would already have undertaken necessary steps 
in compliance with other proposed rules. First, simultaneously with 
this proposal, the Commission is proposing the SDR Registration 
Proposed Rules, including proposed Rules 13n-1 through 240-13n-11.\225\ 
The SDR Registration Proposed Rules cover collections of information 
with respect to various aspects of establishing and operating a 
registered SDR, including, implicitly, its hours of operation.\226\
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    \225\ See SDR Registration Proposing Release, supra note 6.
    \226\ The requirement in proposed Rule 904(e) for the 
participants to report information to the registered SDR upon 
receiving a notice that the registered SDR resumed its normal 
operations is already part of the participant's reporting 
obligations under proposed Rule 901 and is already contained in the 
burden estimate for the proposed Rule 901.
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    The Commission preliminarily believes that the requirements for a 
registered SDR to provide reasonable advance notice to participants and 
to the public of its normal and special closing hours, as well as to 
provide a notice to participants that it is possible to report 
transaction data to a registered SDR after its system was unavailable, 
would entail a minor burden. On this basis, the Commission 
preliminarily estimates that the annual aggregate burden (first-year 
and ongoing) imposed by proposed Rule 904 would be 360 hours, which 
corresponds to 36 hours per registered SDR.\227\
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    \227\ This figure is based on the Commission's experience as 
follows: [(Operations Specialist at 3 hours/month) x (12 months/
year) x (10 registered SDRs)] = 360 burden hours.
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5. Recordkeeping Requirements
    Concurrently with proposed Regulation SBSR, the Commission is 
proposing the SDR Registration Proposed Rules.\228\ Proposed Rule 13n-
7(b) would require a registered SDR to keep and preserve at least one 
copy of all documents, including all documents and policies and 
procedures required by the Exchange Act and the rules or regulations 
thereunder, for a period of not less than five years, the first two 
years in a place that is immediately available to the staff of the 
Commission for inspection and examination.\229\ This requirement would 
encompass notices issued by a registered SDR to participants under 
proposed Rule 904.
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    \228\ See SDR Registration Proposing Release, supra note 6.
    \229\ See id., proposed Rule 13n-7(b) under the Exchange Act.
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6. Collection of Information is Mandatory
    Each collection of information discussed above would be a mandatory 
collection of information.
7. Confidentiality of Responses to Collection of Information
    The Commission anticipates that any notices issued by a registered 
SDR to its participants would be publicly available.
8. Request for Comment
    The Commission requests public comment on its burden estimates. The 
Commission also solicits comment as follows:
    216. Is the proposed collection of information necessary for the 
performance of the functions of the agency? Would the information have 
practical utility?
    217. How accurate are the Commission's preliminary estimates of the 
burdens of the proposed collection of information associated with 
proposed Rule 904? In particular, how many

[[Page 75254]]

entities would incur collection of information burdens pursuant to 
proposed Rule 904?
    218. Would the burdens imposed under proposed Rule 904 be different 
or additional to those that a registered SDR would undertake in the 
ordinary course of business?
    219. Are there additional burdens that the Commission has not 
addressed in its preliminary burden estimates?
    220. Can you suggest any ways to enhance the quality, utility, and 
clarity of the information to be collected?
    221. Can you suggest any ways to minimize the burden of collection 
of information on those who would be required to respond, including 
through the use of automated collection techniques or other forms of 
information technology?

F. Correction of Errors in Security-Based Swap Information--Rule 905 of 
Regulation SBSR

    Certain provisions of proposed Rule 905 of Regulation SBSR contain 
``collection of information requirements'' within the meaning of the 
PRA. The title of this collection is ``Rule 905--Correction of Errors 
in Security-Based Swap Information.''
1. Summary of Collection of Information
    Proposed Rule 905 would establish duties for SBS counterparties and 
registered SDRs to correct errors in information that previously has 
been reported.
    Counterparty Reporting Error. Under proposed Rule 905(a)(1), where 
a counterparty that was not the reporting party for a SBS discovers an 
error in the information reported with respect to such SBS, the 
counterparty shall promptly notify the reporting party of the error. 
Under proposed Rule 905(a)(2), where a reporting party for a SBS 
transaction discovers an error in the information reported with respect 
to a SBS, or receives notification from its counterparty of an error, 
the reporting party shall promptly submit to the entity to which the 
SBS was originally reported an amended report pertaining to the 
original transaction report. The reporting party would submit an 
amended report to the registered SDR in a manner consistent with the 
policies and procedures of the registered SDR required pursuant to 
proposed Rule 907(a)(3).
    Duty of Registered SDR to Correct. Proposed Rule 905(b) would set 
forth the duties of a registered SDR relating to corrections. If the 
registered SDR either discovers an error in a transaction on its system 
or receives notice of an error from a counterparty, proposed Rule 
905(b)(1) would require the registered SDR to verify the accuracy of 
the terms of the SBS and, following such verification, promptly correct 
the erroneous information contained in its system. Proposed Rule 
905(b)(2) would further require that, if the erroneous transaction 
information contained any data that fall into the categories enumerated 
in proposed Rule 901(c) as information required to be reported in real 
time, the registered SDR would be required to publicly disseminate a 
corrected transaction report of the SBS promptly following verification 
of the SBS by the counterparties to the SBS, with an indication that 
the report relates to a previously disseminated transaction.
2. Proposed Use of Information
    The SBS transaction information required to be reported pursuant to 
proposed Rule 905 would be used by registered SDRs, participants, the 
Commission, and other regulators. Participants would be able to use 
such information to evaluate and manage their own risk positions and 
satisfy their duties to report corrected information to a registered 
SDR. A registered SDR would need the required information to correct 
its own records, in order to maintain an accurate record of a 
participant's positions as well as to disseminate corrected 
information. The Commission and other regulators would need the 
corrected information to have an accurate understanding of the market 
for surveillance and oversight purposes.
3. Respondents
    Proposed Rule 905 would apply to participants of a registered SDR. 
As noted above, the Commission has estimated that there may be 1,000 
entities regularly engaged in the CDS marketplace. In addition, the 
Commission estimates that there may be up to 4,000 SBS counterparties 
that transact SBSs much less frequently. The Commission preliminarily 
believes that these SBS counterparties would not be reporting parties. 
However, these additional 4,000 counterparties would be 
``participants'' as defined by proposed Rule 900. Accordingly, with 
respect to burdens applicable to all SBS counterparties, the Commission 
preliminarily believes that it is reasonable to use the estimate of 
5,000 respondents for purposes of estimating collection of information 
burdens under the PRA.
    Proposed Rule 905 also would apply to registered SDRs. As noted 
above, the Commission preliminarily estimates there would be ten 
registered SDRs.
4. Total Initial and Annual Reporting and Recordkeeping Burdens
    The Commission preliminarily believes that promptly submitting an 
amended transaction report to the appropriate registered SDR after 
discovery of an error as required under proposed Rule 905(a)(2) would 
impose a burden on reporting parties. Likewise, the Commission 
preliminarily believes that promptly notifying the relevant reporting 
party after discovery of an error as required under proposed Rule 
905(a)(1) would impose a burden on non-reporting-party participants.
    With respect to reporting parties, the Commission preliminarily 
believes that proposed Rule 905(a) would impose an initial, one-time 
burden associated with designing and building the reporting party's 
reporting system to be capable of submitting amended SBS transactions 
to a registered SDR. In addition, reporting parties would be required 
to support and maintain the error reporting function.\230\
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    \230\ The Commission preliminarily believes that the actual 
submission of amended transaction reports required under proposed 
Rule 905(a)(2) would not result in a material burden because this 
would be done electronically though the reporting system that the 
reporting party must develop and maintain to comply with proposed 
Rule 901. The burdens associated with such a reporting system are 
addressed in the Commission's analysis of proposed Rule 901. See 
supra Section XIII.B.4.a and notes 193-195.
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    The Commission preliminarily believes that designing and building 
appropriate reporting system functionality to comply with proposed Rule 
905(a)(2) would be a component of, and represent an incremental ``add-
on'' to, the cost to build a reporting system and develop a compliance 
function as required under proposed Rule 901. Based on discussions with 
industry participants, the Commission preliminarily estimates this 
incremental burden to be equal to 5% of the one-time and annual burdens 
associated with designing and building a reporting system that is in 
compliance with proposed Rule 901,\231\ plus 10% of the corresponding 
one-time and annual burdens associated with developing the reporting 
party's overall compliance program required under proposed Rule 
901.\232\ Thus, for reporting parties, the Commission preliminarily 
estimates that proposed Rule 905(a) would impose an initial (first-
year) aggregate burden of 52,400 hours, which is 52.4 burden hours per 
reporting party,\233\ and an

[[Page 75255]]

ongoing aggregate annualized burden of 25,800 hours, which is 25.8 
burden hours per reporting party.\234\
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    \231\ See supra notes 194 and 198.
    \232\ See supra notes 201 and 202.
    \233\ This figure is calculated as follows: [(((172 burden hours 
one-time development of reporting system) x (0.05)) + ((80 burden 
hours annual maintenance of reporting system) x (0.05)) + ((180 
burden hours one-time compliance program development) x (0.1)) + 
((218 burden hours annual support of compliance program) x (0.1))) x 
(1,000 reporting parties)] = 52,400 burden hours, which is 52.4 
burden hours per reporting party.
    \234\ This figure is calculated as follows: [(((80 burden hours 
annual maintenance of reporting system) x (0.05)) + ((218 burden 
hours annual support of compliance program) x (0.1))) x (1,000 
reporting parties)] = 25,800 burden hours, which is 25.8 burden 
hours per reporting party.
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    With regard to non-reporting-party participants, the Commission 
preliminarily believes that proposed Rule 905(a) would impose an 
initial and ongoing burden associated with promptly notifying the 
relevant reporting party after discovery of an error as required under 
proposed Rule 905(a)(1). The Commission preliminarily estimates that 
the annual burden would be 2,920,000 hours, which corresponds to 730 
burden hours per non-reporting-party participant.\235\ This figure is 
based on the Commission's preliminary estimates of (1) 4,000 non-
reporting-party participants; (2) 11 transactions per day per non-
reporting-party participant; \236\ and (3) an error rate of one-third 
(33%),\237\ or approximately 4 transactions per day per non-reporting-
party participant.
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    \235\ This figure is based on the following: [(4 error 
notifications per non-reporting-party participant per day) x (365 
days/year) x (Compliance Clerk at 0.5 hours/report) x (4,000 non-
reporting-party participants)] = 2,920,000 burden hours, which 
corresponds to 730 burden hours per non-reporting-party participant. 
The Commission preliminarily believes that participants already 
monitor their SBS transactions and positions in the ordinary course 
of business. Thus, the Commission preliminarily believes that, as a 
practical matter, proposed Rule 905 would not result in any 
significant new burdens for these participants.
    \236\ This figure is based on the following: [((15,458,824 
estimated annual SBS transactions)/(4,000 estimated non-reporting-
party participants))/(365 days/year)] = 10.58, or approximately 11 
transactions per day. See supra note 185. The Commission understands 
that many of these transactions may arise from previously executed 
SBS transactions.
    \237\ In other words, the Commission is estimating that one-
third of all SBS transactions will require an amended report to be 
submitted to the registered SDR pursuant to proposed Rule 905(a). 
For purposes of its PRA analysis, the Commission is further assuming 
that the both the non-reporting-party participant and the reporting 
party discover all errors. The Commission recognizes that, as a 
practical matter, there may be instances where one party fails to 
detect an error.
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    Proposed Rule 905(b) would require a registered SDR to develop 
protocols regarding the reporting and correction of erroneous 
information. The Commission preliminarily believes, however, that this 
duty would represent only a minor extension of other duties for which 
the Commission is estimating burdens, and consequently, would not 
impose substantial additional burdens on a registered SDR. A registered 
SDR would be required to have the ability to collect and maintain SBS 
transaction reports and update relevant records under the SDR 
Registration Proposing Release.\238\ Likewise, a registered SDR would 
have the capacity to disseminate additional, corrected SBS transaction 
reports under proposed Rule 902. The Commission preliminarily believes 
that the burdens associated with proposed Rule 905--including systems 
development, support, and maintenance--are addressed in the 
Commission's analysis of those other rules. Thus, the Commission 
preliminarily believes that proposed Rule 905(b) would impose only an 
incremental additional burden on registered SDRs. The Commission 
preliminarily estimates that to develop and publicly provide the 
necessary protocols would impose on each registered SDR an initial one-
time burden of approximately 730 burden hours.\239\ The Commission 
estimates that to review and update such protocols on an ongoing basis 
would impose an annual burden on each SDR of approximately 1,460 burden 
hours.\240\
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    \238\ See supra note 6.
    \239\ This figure is based on the following: [(Sr. Programmer at 
80 hours) + (Compliance Manager at 160 hours) + (Compliance Attorney 
at 250 hours) + (Compliance Clerk at 120 hours) + (Sr. System 
Analyst at 80 hours) + (Director of Compliance at 40 hours)] = 730 
burden hours.
    \240\ This figure is based on the following: [(Sr. Programmer at 
160 hours) + (Compliance Manager at 320 hours) + (Compliance 
Attorney at 500 hours) + (Compliance Clerk at 240 hours) + (Sr. 
System Analyst at 160 hours) + (Director of Compliance at 80 hours)] 
= 1,460 burden hours.
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    Accordingly, the Commission preliminarily estimates that the 
initial (first-year) aggregate annualized burden on registered SDRs 
under proposed Rule 905 would be 21,900 burden hours, which corresponds 
to 2,190 burden hours for each registered SDR.\241\ The Commission 
further preliminarily estimates that the ongoing aggregate annualized 
burden on registered SDRs under proposed Rule 905 would be 14,600 
burden hours, which corresponds to 1,460 burden hours for each 
registered SDR.\242\
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    \241\ This figure is based on the following: [(730 burden hours 
to develop protocols) + (1,460 burden hours annual support)) x (10 
registered SDRs)] = 21,900 burden hours, which corresponds to 2,190 
burden hours per registered SDR.
    \242\ This figure is based on the following: [(1,460 burden 
hours annual support) x (10 registered SDRs)] = 14,600 burden hours, 
which corresponds to 1,460 burden hours per registered SDR.
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5. Recordkeeping Requirements
    Concurrently with proposed Regulation SBSR, the Commission is 
proposing the SDR Registration Proposed Rules, which would include 
recordkeeping requirements for SBS transaction data received by a 
registered SDR pursuant to proposed Regulation SBSR.\243\ Specifically, 
proposed Rule 13n-5(b)(5) under the Exchange Act would require a 
registered SDR to maintain the transaction data for not less than five 
years after the applicable SBS expires and historical positions and 
historical market values for not less than five years. Accordingly, SBS 
transaction reports received by a registered SDR pursuant to proposed 
Rule 905 would be required to be retained for not less than five years.
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    \243\ See SDR Registration Proposing Release, supra note 6.
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    With respect to information disseminated by a registered SDR in 
compliance with proposed Rule 905(b)(2), proposed Rule 13n-7(b) under 
the Exchange Act would require a registered SDR to keep and preserve at 
least one copy of all documents, including all policies and procedures 
required by the Exchange Act and the rules or regulations thereunder 
for a period of not less than five years, the first two years in a 
place that is immediately available to the staff of the Commission for 
inspection and examination.\244\ This requirement would encompass 
amended real-time SBS transaction reports disseminated by the 
registered SDR. Accordingly, SBS transaction reports disseminated by a 
registered SDR pursuant to proposed Rule 905(b)(2) would be required to 
be retained for not less than five years.
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    \244\ See id.
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6. Collection of Information Is Mandatory
    Each collection of information discussed above would be a mandatory 
collection of information.
7. Confidentiality of Responses to Collection of Information
    Information collected pursuant to proposed Rule 905 would be widely 
available to the extent that it corrects information previously 
reported pursuant to proposed Rule 901(c) and incorporated into SBS 
transaction reports that are publicly disseminated by a registered SDR 
pursuant to proposed Rule 902. Generally, however, a registered SDR 
would be under an obligation to maintain the confidentiality of any 
information collected pursuant to proposed Rule 901, pursuant to 
Sections 13(n)(5) of the Exchange Act and proposed Rule 13n-9 
thereunder.\245\ To the extent that the Commission receives 
confidential information pursuant this collection of

[[Page 75256]]

information, such information would be kept confidential, subject to 
the provisions of the Freedom of Information Act.
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    \245\ See SDR Registration Proposing Release, supra note 6.
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8. Request for Comment
    The Commission requests public comment on its burden estimates. The 
Commission also solicits comment as follows:
    222. Is the proposed collection of information necessary for the 
performance of the functions of the agency? Would the information have 
practical utility?
    223. How accurate are the Commission's preliminary estimates of the 
burdens of the proposed collection of information associated with 
proposed Rule 905? In particular, how many entities would incur 
collection of information burdens pursuant to proposed Rule 905?
    224. Would covered entities incur any initial burdens associated 
with systems design, programming, expanding systems capacity, and 
establishing compliance programs pursuant to proposed Rule 905?
    225. What entities may be subject to proposed Rule 905? In what 
ways would these entities be impacted? Would any such entity or class 
of entities be impacted differently than others?
    226. How many entities might be impacted by proposed Rule 905? Are 
the Commission's preliminary estimates as to the number of participants 
in the SBS market that would be required to report and retain 
information pursuant to the proposed rule accurate?
    227. Are there additional burdens that the Commission has not 
addressed in its preliminary burden estimates?
    228. Can you suggest any ways to enhance the quality, utility, and 
clarity of the information to be collected?
    229. Can you suggest any ways to minimize the burden of collection 
of information on those who would be required to respond, including 
through the use of automated collection techniques or other forms of 
information technology?

G. Other Duties of Participants--Rule 906 of Regulation SBSR

    Certain provisions of proposed Rule 906 of Regulation SBSR contain 
``collection of information requirements'' within the meaning of the 
PRA. The title of this collection is ``Rule 906--Duties of All 
Participants.''
1. Summary of Collection of Information
    Proposed Rule 906(a) would set forth a procedure designed to ensure 
that a registered SDR obtains relevant ID information for both 
counterparties to a SBS, not just the IDs of the reporting party. 
Proposed Rule 906(a) would require a registered SDR to identify any SBS 
reported to it for which it does not have participant ID and (if 
applicable) broker ID, desk ID, and trader ID of each counterparty. 
Proposed Rule 906(a) would further require the registered SDR, once a 
day, to send a report to each participant identifying, for each SBS to 
which that participant is a counterparty, the SBS(s) for which the 
registered SDR lacks participant ID and (if applicable) broker ID, desk 
ID, and trader ID. Additionally, under proposed Rule 906(a), a 
participant that receives such a report would be required to provide 
the missing ID information to the registered SDR within 24 hours.
    Proposed Rule 906(b) would require a participant to provide a 
registered SDR with information identifying the participant's ultimate 
parent(s) and affiliate(s) that may also be participants of the 
registered SDR. Additionally, under proposed Rule 906(b), the 
participant would be required to promptly notify the registered SDR of 
any changes to the information provided.
    Proposed Rule 906(c) would require each participant that is a SBS 
dealer or major SBS participant to establish, maintain, and enforce 
written policies and procedures that are reasonably designed to ensure 
compliance with any SBS transaction reporting obligations in a manner 
consistent with proposed Regulation SBSR and the registered SDR's 
applicable policies and procedures. In addition, proposed Rule 906(c) 
would require each such participant to review and update its policies 
and procedures at least annually.
2. Proposed Use of Information
    The information required to be provided by participants pursuant to 
proposed Rule 906(a) would complete missing elements of SBS transaction 
reports so that the registered SDR would have, and could make available 
to regulators, accurate and complete records for reported SBS.
    Similarly, proposed Rule 906(b) would be used to ensure that the 
registered SDR would have, and could make available to regulators, 
accurate and complete records for reported SBS regarding participant 
parents and affiliates. The Commission would use this information in 
its ongoing efforts to monitor and enforce compliance with the federal 
securities laws, including proposed Regulation SBSR.
    The policies and procedures required under proposed Rule 906(c) 
would be used by participants to aid in their compliance with proposed 
Regulation SBSR, and also used by the Commission as part of its ongoing 
efforts to monitor and enforce compliance with the federal securities 
laws, including proposed Regulation SBSR.
3. Respondents
    Proposed Rules 906(a) and (b) would apply to all participants of 
registered SDRs. Based on the information currently available to the 
Commission, the Commission preliminarily estimates that there may be up 
to 5,000 participants. Proposed Rule 906(c) would apply to participants 
that are SBS dealers or major SBS participants. The Commission believes 
that such entities would constitute the majority of reporting parties, 
so that it is reasonable to use the figure of 1,000 respondents for 
purposes of estimating collection of information burdens under the PRA.
    Proposed Rule 906 also imposes certain duties on registered SDRs. 
As noted above, the Commission is preliminarily estimating that there 
would be ten registered SDRs.
4. Total Initial and Annual Reporting and Recordkeeping Burdens
    Proposed Rule 906(a) would require a registered SDR, once a day, to 
send a report to each participant identifying, for each SBS to which 
that participant is a counterparty, the SBS(s) for which the registered 
SDR lacks participant ID and (if applicable) broker ID, desk ID, and 
trader ID. The Commission preliminarily estimates that there would be a 
one-time, initial burden of 112 burden hours for a registered SDR to 
create a report template and develop the necessary systems and 
processes to produce a daily report required by proposed Rule 
906(a).\246\ Further, the Commission preliminarily estimates that there 
would be an ongoing annualized burden of 308 burden hours for a 
registered SDR to generate and issue the daily reports, and to enter 
into its systems the ID information supplied by participants in 
response to the daily reports.\247\
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    \246\ The Commission has derived the total estimated burdens 
based on the following estimates, which are based on the information 
provided to the Commission: (Senior Systems Analyst at 40 hours) + 
(Sr. Programmer at 40 hours) + (Compliance Manager at 16 hours) + 
(Director of Compliance at 8 hours) + (Compliance Attorney at 8 
hours) = 112 burden hours.
    \247\ The Commission has derived the total estimated burdens 
based on the following estimates, which are based on the information 
provided to the Commission: (Senior Systems Analyst at 24 hours) + 
(Sr. Programmer at 24 hours) + (Compliance Clerk at 260 hours) = 308 
burden hours.
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    Accordingly, the Commission preliminarily estimates that the 
initial

[[Page 75257]]

aggregate annualized burden for registered SDRs under proposed Rule 
906(a) would be 4,200 burden hours, which corresponds to 420 burden 
hours per registered SDR.\248\ The Commission preliminarily estimates 
that the ongoing aggregate annualized burden for registered SDRs under 
proposed Rule 906(a) would be 3,080 burden hours, which corresponds to 
308 burden hours per registered SDR.\249\
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    \248\ The Commission derived its estimate from the following: 
[(112 + 308 burden hours) x (10 registered SDRs)] = 4,200 burden 
hours, which corresponds to 420 burden hours per registered SDR.
    \249\ The Commission derived its estimate from the following: 
[(308 burden hours) x (10 registered SDRs)] = 3,080 burden hours, 
which corresponds to 308 burden hours per registered SDR.
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    In addition, proposed Rule 906(a) would require any participant 
that receives a daily report from a registered SDR to provide the 
missing UICs to the registered SDR within 24 hours. The Commission 
preliminarily estimates participants that are reporting parties would 
bear no initial or ongoing burdens under proposed Rule 906(a). This 
estimate is based on the Commission's preliminary belief that a 
reporting party would structure its reporting program to be in 
compliance with proposed Regulation SBSR, and consequently, would send 
complete information as relates to itself for each SBS transaction 
submitted to a registered SDR. The Commission further preliminarily 
estimates that the initial and ongoing annualized burden under proposed 
Rule 906(a) to participants that are not reporting parties would be 
1,277,500 burden hours, which corresponds to 255.5 burden hours per 
participant.\250\ This figure is based on the Commission's preliminary 
estimates of (1) 5,000 participants; (2) 9 transactions per day per 
participant; \251\ and (3) a missing information rate of 80%,\252\ or 
approximately 7 transactions per day per participant.
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    \250\ This figure is based on the following: [(7 missing 
information reports per non-reporting-party participant per day) x 
(365 days/year) x (Compliance Clerk at 0.1 hours/report) x (5,000 
participants)] = 1,277,500 burden hours, which corresponds to 255.5 
burden hours per participant.
    \251\ This figure is based on the following: [((15,458,824 
estimated annual SBS transactions)/5,000 estimated participants))/
(365 days/year)] = 8.47, or approximately 9 transactions per day. 
See supra note 185. The Commission understands that many of these 
transactions may arise from previously executed SBS transactions.
    \252\ In other words, the Commission is estimating that 80% of 
the time the reporting party would not know and thus would not be 
able to report the necessary UICs of its counterparty. Therefore, a 
registered SDR would have to obtain the missing UICs through the 
process described in proposed Rule 906(a).
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    Proposed Rule 906(b) would require every participant to provide the 
registered SDR an initial parent/affiliate report and subsequent 
reports, as needed. The Commission preliminarily estimates that each 
participant would submit two reports each year.\253\ In addition, the 
Commission preliminarily estimates that there would be 5,000 
participants and that each one may connect to two registered SDRs. 
Accordingly, the Commission preliminarily estimates that the initial 
and ongoing aggregate annualized burden associated with proposed Rule 
906(b) would be 10,000 burden hours, which corresponds to 2 burden 
hours per participant.\254\
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    \253\ During the first year, the Commission preliminarily 
estimates each participant would submit its initial report and one 
update report. In subsequent years, the Commission preliminarily 
estimates that each participant would submit two update reports.
    \254\ This figure is based on the following: [(Compliance Clerk 
at 0.5 hours per report) x (2 reports/year/SDR connection) x (2 SDR 
connections/participant) x (5,000 participants)] = 10,000 burden 
hours, which corresponds to 2 burden hours per participant.
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    Proposed Rule 906(c) would require each participant that is a SBS 
dealer or major SBS participant to establish, maintain, and enforce 
written policies and procedures that are reasonably designed to ensure 
compliance with any SBS transaction reporting obligations in a manner 
consistent with proposed Regulation SBSR and the registered SDR's 
applicable policies and procedures. Proposed Rule 906(c) would also 
require the review and updating of such policies and procedures at 
least annually. The Commission preliminary estimates that the one-time, 
initial burden for each covered participant to adopt written policies 
and procedures as required under proposed Rule 906(c) would be 
approximately 216 burden hours.\255\ Drawing on the Commission's 
experience with other rules that require entities to establish and 
maintain policies and procedures,\256\ this figure is based on the 
estimated number of hours to develop a set of written policies and 
procedures, program systems, implement internal controls and oversight, 
train relevant employees, and perform necessary testing.
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    \255\ This figure is based on the following: [(Sr. Programmer at 
40 hours) + (Compliance Manager at 40 hours) + (Compliance Attorney 
at 40 hours) + (Compliance Clerk at 40 hours) + (Sr. Systems Analyst 
at 32 hours) + (Director of Compliance at 24 hours)] = 216 burden 
hours per covered participant.
    \256\ See Securities Exchange Act Release Nos. 62174 (May 26, 
2010), 75 FR 32556 (June 8, 2010) (proposing Rule 613 of Regulation 
NMS); 61908 (April 14, 2010), 75 FR 21456 (proposing large trader 
reporting system).
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    In addition, the Commission preliminarily estimates the burden of 
maintaining such policies and procedures, including a full review at 
least annually, as required by proposed Rule 906(c), would be 
approximately 120 burden hours for each covered participant.\257\ This 
figure includes an estimate of hours related to reviewing existing 
policies and procedures, making necessary updates, conducting ongoing 
training, maintaining internal controls systems, and performing 
necessary testing. Accordingly, the Commission preliminarily estimates 
that the initial aggregate annualized burden associated with proposed 
Rule 906(c) would be 336,000 burden hours, which corresponds to 336 
burden hours per covered participant.\258\ The Commission preliminarily 
estimates that the ongoing aggregate annualized burden associated with 
proposed Rule 906(c) would be 120,000 burden hours, which corresponds 
to 120 burden hours per covered participant.\259\
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    \257\ This figure is based on the following: [(Sr. Programmer at 
8 hours) + (Compliance Manager at 24 hours) + (Compliance Attorney 
at 24 hours) + (Compliance Clerk at 24 hours) + (Sr. Systems Analyst 
at 16 hours) + (Director of Compliance at 24 hours)] = 120 burden 
hours per covered participant.
    \258\ This figure is based on the following: [(216 + 120 burden 
hours) x (1,000 covered participants)] = 336,000 burden hours.
    \259\ This figure is based on the following: [(120 burden hours) 
x (1,000 covered participants)] = 120,000 burden hours.
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    Therefore, the Commission preliminarily estimates that the initial 
aggregate annualized burden associated with proposed Rule 906 would be 
1,518,200 burden hours,\260\ and the ongoing aggregate annualized 
burden would be 1,301,080 burden hours for all covered entities.\261\
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    \260\ This figure is based on the following: [(4,200 burden 
hours for registered SDRs under proposed Rule 906(a)) + (1,277,500 
burden hours for non-reporting-party participants under proposed 
Rule 906(a)) + (10,000 burden hours for participants under proposed 
Rule 906(b)) + (336,000 burden hours for covered participants under 
proposed Rule 906(c))] = 1,627,700 burden hours.
    \261\ This figure is based on the following: [(3,080 burden 
hours for registered SDRs under proposed Rule 906(a)) + (1,277,500 
burden hours for non-reporting-party participants under proposed 
Rule 906(a)) + (10,000 burden hours for participants under proposed 
Rule 906(b)) + (120,000 burden hours for covered participants under 
proposed Rule 906(c))] = 1,410,580 burden hours.
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5. Recordkeeping Requirements
    Concurrently with proposed Regulation SBSR, the Commission is 
issuing the SDR Registration Proposing Release, which would include 
recordkeeping requirements for SBS transaction data received by a 
registered SDR pursuant to proposed Regulation SBSR.\262\ Specifically, 
proposed Rule 13n-5(b)(5) under the Exchange Act would require a 
registered SDR to

[[Page 75258]]

maintain the transaction data for not less than five years after the 
applicable SBS expires and historical positions and historical market 
values for not less than five years.
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    \262\ See supra note 6.
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    With regard to other information that a registered SDR may receive 
from participants pursuant to proposed Rule 906, proposed Rule 13n-7(b) 
would require a registered SDR to keep and preserve at least one copy 
of all documents, including all documents and policies and procedures 
required by the Exchange Act and the rules or regulations thereunder 
for a period of not less than five years, the first two years in a 
place that is immediately available to the staff of the Commission for 
inspection and examination.\263\ This requirement would encompass 
materials received by a registered SDR from participants pursuant to 
proposed Rule 906.
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    \263\ See id.
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6. Collection of Information Is Mandatory
    Each collection of information discussed above would be a mandatory 
collection of information.
7. Confidentiality of Responses to Collection of Information
    A registered SDR would be under an obligation to maintain the 
confidentiality of any information collected pursuant to proposed Rule 
906. To the extent that the Commission receives confidential 
information pursuant this collection of information, such information 
would be kept confidential, subject to the provisions of the Freedom of 
Information Act.
8. Request for Comment
    The Commission requests public comment on its burden estimates. The 
Commission also solicits comment as follows:
    230. Is the proposed collection of information necessary for the 
performance of the functions of the agency? Would the information have 
practical utility?
    231. In what ways would entities covered by Rule 906 be impacted? 
Would any such entity or class of entities be impacted differently than 
others?
    232. What would be the burdens on participants to provide to a 
registered SDR and keep updated information about their ultimate 
parents and affiliates that are also participants?
    233. How many entities might be impacted by proposed Rule 906? Are 
the Commission's preliminary estimates as to the number of participants 
in the SBS market that would be required to report and retain 
information pursuant to the proposed rule accurate?
    234. Can you suggest any ways to enhance the quality, utility, and 
clarity of the information to be collected?
    235. Can you suggest any ways to minimize the burden of collection 
of information on those who would be required to respond, including 
through the use of automated collection techniques or other forms of 
information technology?
    236. Would proposed Rule 906 create any additional burdens not 
discussed here? If so, please identify and quantify these burdens.

H. Policies and Procedures of Registered Security-Based Swap Data 
Repositories--Rule 907 of Regulation SBSR

    Certain provisions of proposed Rule 907 of Regulation SBSR contain 
``collection of information requirements'' within the meaning of the 
PRA. The title of this collection is ``Rule 907--Policies and 
Procedures of Registered Security-Based Swap Data Repositories.'' The 
Commission is applying for a new OMB Control Number for this collection 
in accordance with 44 U.S.C. 3507(j) and 5 CFR 1320.13.
1. Summary of Collection of Information
    Proposed Rule 907 would require a registered SDR to establish and 
maintain compliance with written policies and procedures: (1) That 
enumerate the specific data elements of a SBS or a life cycle event 
that a reporting party would report; (2) that specify data formats, 
connectivity requirements, and other protocols for submitting 
information; (3) for specifying how reporting parties are to report 
corrections to previously submitted information, making corrections to 
information in its records that is subsequently discovered to be 
erroneous, and applying an appropriate indicator to any transaction 
report required to be disseminated by proposed Rule 905(b)(2), which 
would denote that the report relates to a previously disseminated 
transaction; (4) describing how reporting parties shall report and, 
consistent with the enhancement of price discovery, how the registered 
SDR shall publicly disseminate, reports of, and adjustments due to, 
life cycle events; SBS transactions that do not involve an opportunity 
to negotiate any material terms, other than the counterparty; and any 
other SBS transactions that, in the estimation of the registered SDR, 
do not accurately reflect the market; (5) for assigning transaction IDs 
and UICs related to its participants; and (6) for periodically 
obtaining from each participant information that identifies the 
participant's ultimate parent(s) and any other participant(s) with 
which the counterparty is affiliated, using applicable UICs.
    In addition, proposed Rule 907(b)(1) would require a registered SDR 
to establish and maintain written policies and procedures for 
calculating and publicizing block trade thresholds for all SBS 
instruments reported to the registered SDR in accordance with the 
criteria and formula for determining block size as specified by the 
Commission.
    Under proposed Rules 907(c) and (d), a registered SDR would be 
required to make its policies and procedures publicly available on its 
website, and review, and update as necessary, its policies and 
procedures at least annually, indicating the date on which they were 
last reviewed. Finally, proposed Rule 907(e) would require a registered 
SDR to have the capacity to provide to the Commission, upon request, 
information or reports related to the timeliness, accuracy, and 
completeness of data reported to it pursuant to proposed Regulation 
SBSR and the registered SDR's policies and procedures thereunder.
2. Proposed Use of Information
    The policies and procedures required under proposed Rule 907 would 
be used by registered SDRs to aid in their compliance with Regulation 
SBSR, and also used by the Commission as part of its ongoing efforts to 
monitor and enforce compliance with the federal securities laws, 
including proposed Regulation SBSR. These policies and procedures also 
would be used by participants of a registered SDR to understand the 
specific data elements of SBS transactions that they must report, the 
specific data formats they would be required to use, and for 
understanding what constitutes a block trade in a SBS instrument. 
Furthermore, market participants would use the information about block 
trades calculated and publicized by a registered SDR to understand the 
block trade thresholds for specific SBS instruments, and for 
understanding the registered SDR's dissemination protocols generally. 
Finally, any information or reports provided to the Commission pursuant 
to proposed Rule 907(e) would be used by the Commission to assess the 
timeliness, accuracy, and completeness of data reported pursuant to 
proposed Regulation SBSR and as part of its general oversight of the 
SBS markets.

[[Page 75259]]

3. Respondents
    As noted above, the Commission preliminarily estimates that ten 
registered SDRs would be subject to proposed Rule 907.
4. Total Initial and Annual Reporting and Recordkeeping Burdens
    The Commission preliminarily estimates that the one-time, initial 
burden for a registered SDR to adopt written policies and procedures as 
required under proposed Rule 907 would be approximately 15,000 
hours.\264\ Drawing on the Commission's experience with other rules 
that require entities to establish and maintain policies and 
procedures,\265\ this figure is based on the estimated number of hours 
to develop a set of written policies and procedures, program systems, 
implement internal controls and oversight, train relevant employees, 
and perform necessary testing.\266\ In addition, the Commission 
preliminarily estimates the annual burden of maintaining such policies 
and procedures, including a full review at least annually, making 
available its policies and procedures on the registered SDR's website, 
and compiling statistics on non-compliance, as required under proposed 
Rule 907, would be approximately 30,000 hours for each registered 
SDR.\267\ This figure includes an estimate of hours related to 
reviewing existing policies and procedures, making necessary updates, 
conducting ongoing training, maintaining relevant systems and internal 
controls systems, calculating and publishing block trade thresholds, 
performing necessary testing, monitoring participants, and compiling 
data.
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    \264\ This figure is based on the following: [(Sr. Programmer at 
1,667 hours) + (Compliance Manager at 3,333 hours) + (Compliance 
Attorney at 5,000 hours) + (Compliance Clerk at 2,500 hours) + (Sr. 
System Analyst at 1,667 hours) + (Director of Compliance at 833 
hours)] = 15,000 burden hours per registered SDR.
    \265\ See infra at note 256.
    \266\ This figure includes time necessary to design and program 
systems and implement policies and procedures to calculate and 
publish block trade thresholds for all SBS instruments reported to 
the registered SDR, as would be required by proposed Rule 907(b). It 
also includes time necessary to design and program systems and 
implement policies and procedures to determine which reported trades 
would not be considered block trades. This figure also includes time 
necessary to design and program systems and implement policies and 
procedures to assign certain IDs, as would be required by proposed 
Rule 907(a)(5).
    \267\ This figure is based on the following: [(Sr. Programmer at 
3,333 hours) + (Compliance Manager at 6,667 hours) + (Compliance 
Attorney at 10,000 hours) + (Compliance Clerk at 5,000 hours) + (Sr. 
System Analyst at 3,333 hours) + (Director of Compliance at 1,667 
hours)] = 30,000 burden hours per registered SDR.
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    The Commission preliminarily believes that, as part of its core 
functions, a registered SDR would have the capacity to provide to the 
Commission, upon request, information or reports related to the 
timeliness, accuracy, and completeness of data reported to it pursuant 
to proposed Regulation SBSR and the registered SDR's policies and 
procedures. Proposed Rule 13n-5(b) would require a registered SDR to 
establish, maintain, and enforce written policies and procedures to 
satisfy itself by reasonable means that the transaction data that has 
been submitted to the security-based swap data repository is accurate, 
and also to ensure that the transaction data and positions that it 
maintains are accurate.\268\ The Commission preliminarily believes that 
these capabilities would enable a registered SDR to provide the 
Commission information or reports as may be requested pursuant to 
proposed Rule 907(e). Thus, the Commission does not believe that 
proposed Rule 907(e) would impose any additional burdens on a 
registered SDR.
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    \268\ See SDR Registration Proposing Release, supra note 6, 
proposed Rules 13n-5(b)(1)(iii) and 13n-5(b)(3) under the Exchange 
Act.
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    Based on the Commission's experience and input from self-regulatory 
organizations, the Commission preliminarily believes that a registered 
SDR would need to hire 15 full-time staff to fulfill the obligations 
outlined in proposed Rule 907. Accordingly, the Commission 
preliminarily estimates that the initial annualized burden associated 
with proposed Rule 907 would be approximately 45,000 hours per 
registered SDR, which corresponds to an initial annualized aggregate 
burden of approximately 450,000 hours.\269\ The Commission 
preliminarily estimates that the ongoing annualized burden associated 
with proposed Rule 907 would be approximately 30,000 hours per 
registered SDR,\270\ which corresponds to an ongoing annualized 
aggregate burden of approximately 300,000 hours.\271\
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    \269\ This figure is based on the following: [((15,000 burden 
hours per registered SDR) + (30,000 burden hours per registered 
SDR)) x (10 registered SDRs)] = 450,000 initial annualized aggregate 
burden hours during the first year.
    \270\ This figure is based on the following: [(Sr. Programmer at 
3,333 hours) + (Compliance Manager at 6,667 hours) + (Compliance 
Attorney at 10,000 hours) + (Compliance Clerk at 5,000 hours) + (Sr. 
System Analyst at 3,333 hours) + (Director of Compliance at 1,667 
hours)] = 30,000 burden hours per registered SDR.
    \271\ This figure is based on the following: [(30,000 burden 
hours per registered SDR) x (10 registered SDRs)] = 300,000 ongoing, 
annualized aggregate burden hours.
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5. Recordkeeping Requirements
    Concurrently with proposed Regulation SBSR, the Commission is 
proposing the SDR Proposed Rules.\272\ Specifically, proposed Rule 13n-
7(b) would require a registered SDR to keep and preserve at least one 
copy of all documents, including all documents and policies and 
procedures required by the Exchange Act and the rules or regulations 
thereunder, for a period of not less than five years, the first two 
years in a place that is immediately available to the staff of the 
Commission for inspection and examination.\273\ This requirement would 
encompass policies and procedures established by a registered SDR 
pursuant to proposed Rule 907. This requirement would also encompass 
any information or reports provided to the Commission pursuant to 
proposed Rule 907(e).
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    \272\ See SDR Registration Proposing Release, supra note 6.
    \273\ See id., proposed Rule 13n-7(b) under the Exchange Act.
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6. Collection of Information Is Mandatory
    Each collection of information discussed above would be a mandatory 
collection of information.
7. Confidentiality of Responses to Collection of Information
    All of the policies and procedures required by proposed Rule 907 
would have to be made available by a registered SDR on its website and 
would not, therefore, be confidential. Any information obtained by the 
Commission from a registered SDR pursuant to proposed Rule 907(e) 
relating to the timeliness, accuracy, and completeness of data reported 
to the registered SDR would be for regulatory purposes and would be 
kept confidential.
8. Request for Comment
    The Commission requests public comment on its burden estimates. The 
Commission also solicits comment as follows:
    1. Is the proposed collection of information necessary for the 
performance of the functions of the agency? Would the information have 
practical utility?
    2. How many entities might be impacted by proposed Rule 907? Are 
the Commission's preliminary estimates as to the number of registered 
SDRs that would be subject to proposed Rule 907 accurate?
    3. How accurate are the Commission's preliminary estimates of the 
burdens of

[[Page 75260]]

the proposed collection of information associated with proposed Rule 
907?
    4. Can you suggest any ways to enhance the quality, utility, and 
clarity of the information to be collected?
    5. Does the Commission's proposed Rule 907 minimize burdens by 
reserving to registered SDRs the flexibility to develop and implement 
tailored policies and procedures, or would more specificity in the rule 
text better minimize associated burdens?
    6. Can you suggest any ways to minimize the burden of collection of 
information on those who would be required to respond, including 
through the use of automated collection techniques or other forms of 
information technology?
    7. Would proposed Rule 907 create any additional burdens not 
discussed here? If so, please identify and quantify these burdens.

I. Jurisdictional Matters--Rule 908 of Regulation SBSR

    The Commission preliminarily does not believe that proposed Rule 
908 would be a ``collection of information'' within the meaning of the 
PRA, as the rule would merely describe the jurisdictional reach of 
proposed Regulation SBSR. The Commission requests comment on this 
preliminary assessment of proposed Rule 908. Would proposed Rule 908 
impose any collection of information requirements that the Commission 
has not considered?

J. Registration of Security-Based Swap Data Repository as Securities 
Information Processor--Rule 909 of Regulation SBSR

    Certain provisions of proposed Rule 909 contain ``collection of 
information requirements'' within the meaning of the PRA. The title of 
this collection is ``Rule 909--Registration of Security-Based Swap Data 
Repository as Securities Information Processor.''
1. Summary of Collection of Information
    Proposed Rule 909 would require a registered SDR to register with 
the Commission as a SIP. To comply with this requirement, a registered 
SDR would need to submit a Form SIP.\274\ As a registered SIP, a 
registered SDR would be required to keep its Form SIP current, and 
submit amendments as required by Rule 609(b) of Regulation NMS under 
the Exchange Act.\275\
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    \274\ 17 CFR 249.1001.
    \275\ 17 CFR 242.609(b).
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2. Proposed Use of Information
    The information required by proposed Rule 909 would permit the 
Commission to register a registered SDR as a SIP, and to maintain 
updated information about the registered SDR/SIP over time.
3. Respondents
    The Commission preliminarily estimates that there would be ten 
registered SDRs. Thus, the Commission preliminarily estimates that ten 
entities would have to register as SIPs as required by proposed Rule 
909.
4. Total Initial and Annual Reporting and Recordkeeping Burdens
    As described in the SDR Registration Proposing Release,\276\ an 
entity wishing to register with the Commission as a registered SDR 
would have to submit proposed Form SDR, which is modeled after existing 
Form SIP. The Commission has estimated the burden for completing Form 
SIP to be 400 hours. Therefore, the Commission also has estimated the 
burden for completing proposed Form SDR to be 400 hours (specifically, 
150 hours of legal compliance work and 250 hours of clerical compliance 
work).\277\ Any entity that is required to complete proposed Form SDR 
also would have to complete Form SIP. Because of the substantial 
overlap in the forms, much of the burden for completing Form SIP would 
be subsumed in completing proposed Form SDR. Therefore, the Commission 
preliminarily estimates that, having completed a proposed Form SDR, an 
entity would need only one-quarter of the time to then complete Form 
SIP, or 100 hours (specifically, 37.5 hours of legal compliance work 
and 62.5 hours of clerical compliance work). Accordingly, the 
Commission is preliminarily estimating that the one-time initial 
registration burden for all registered SDR/SIPs would be 1,000 
hours.\278\
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    \276\ See supra note 6.
    \277\ This figure is based on the following: [(Compliance 
Attorney at 150 hours) + (Compliance Clerk at 250 hours)] = 400 
burden hours per SDR. See SDR Registration Proposing Release, supra 
note 6 at notes 183 and 234.
    \278\ This figure is based on the following: [(Compliance 
Attorney at 37.5 hours) + (Compliance Clerk at 62.5 hours) x (10 
registrants)] = 400 burden hours.
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    With regard to ongoing burdens, the Commission preliminarily 
estimates that the aggregate annualized burden for providing amendments 
to Form SIP would be one-tenth of the burden to complete the initial 
form or 400 burden hours, which corresponds to 40 burden hours for each 
registered SDR. This figure is based on a preliminary estimate that 
each of ten registered SDRs would submit one amendment on Form SIP each 
year. SIP registration also would require a registered SDR to provide 
notice to the Commission of prohibitions or limitations on access to 
its services. The Commission preliminarily believes that the notice 
would be a simple form, and that prohibitions or limitations on access 
to information provided by a registered SDR would be not be prevalent. 
Thus, the Commission does not believe that providing such notice would 
result in any material burden. The Commission solicits comments as to 
the accuracy of these estimates.
5. Recordkeeping Requirements
    Pursuant to proposed Rule 13n-7(b) under the Exchange Act,\279\ a 
registered SDR would be required to keep and preserve at least one copy 
of all documents, including all documents and policies and procedures 
required by the Exchange Act and the rules or regulations thereunder, 
for a period of not less than five years, the first two years in a 
place that is immediately available to the staff of the Commission for 
inspection and examination. This requirement would encompass any 
regulatory documents and related work papers completed by the 
registered SDR as part of its business, including Form SIP as required 
by proposed Rule 909.
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    \279\ See SDR Registration Proposing Release, supra note 6.
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6. Collection of Information Is Mandatory
    Each collection of information discussed above would be a mandatory 
collection of information.
7. Confidentiality of Responses to Collection of Information
    Form SIP is not confidential.
8. Request for Comment
    The Commission requests public comment on its burden estimates. The 
Commission also solicits comment as follows:
    8. How many entities might be impacted by proposed Rule 909? Are 
the Commission's preliminary estimates as to the number of registered 
SDRs that would be subject to proposed Rule 909 accurate?
    9. How accurate are the Commission's preliminary estimates of the 
burdens of the proposed collection of information associated with 
proposed Rule 909? Given that a SDR would be required to complete Form 
SDR to register with the Commission, how long would it take to also 
complete Form SIP?
    10. How many amendments per year would a registered SDR/SIP have to 
file to Form SIP? What would be the average burden per amendment?

[[Page 75261]]

    11. Can you suggest any ways to enhance the quality, utility, and 
clarity of the information to be collected?
    12. Can you suggest any ways to minimize the burden of collection 
of information on those who would be required to respond, including 
through the use of automated collection techniques or other forms of 
information technology?
    13. Would proposed Rule 909 or SIP registration create burdens for 
registered SDRs or other entities not contemplated here? If so, please 
identify and quantify these burdens.

K. Phase-In Period--Rule 910 of Regulation SBSR

    The Commission preliminarily does not believe that proposed Rule 
910 would be a ``collection of information'' within the meaning of the 
PRA. Proposed Rule 910 merely describes when a registered SDR and its 
participants would be required to comply with the various parts of 
proposed Regulation SBSR, and would not create any additional 
collection of information requirements. The Commission requests public 
comment on its burden estimates. The Commission also solicits comment 
whether proposed Rule 910 imposes any collection of information 
requirements that the Commission has not considered.

L. Prohibition During Phase-In Period--Rule 911 of Regulation SBSR

    The Commission preliminarily does not believe that proposed Rule 
911 would be a ''collection of information'' within the meaning of the 
PRA. Proposed Rule 911 would restrict the ability of a reporting party 
to report a SBS to one registered SDR rather than another, but would 
not otherwise create any duties or impose any collection of information 
requirements beyond those already required by proposed Rule 901. The 
Commission requests public comment on its burden estimates. The 
Commission also solicits comment whether proposed Rule 911 imposes any 
collection of information requirements that the Commission has not 
considered.

M. Amendments to Rule 31

    The proposed amendments to Rule 31 under the Exchange Act do not 
contain any ``collection of information requirements'' within the 
meaning of the PRA. Rule 31(a)(11) sets forth a list of ``exempt 
sales'' to which Section 31 fees do not apply. The proposed amendment 
of Rule 31 would add ``security-based swaps'' to the list of ``exempt 
sales,'' and thereby exempt SBSs from Section 31 fees. The proposed 
amendment would require no collection of information, nor would it 
impose any burden on parties to SBS transactions. The Commission 
requests public comment on its burden estimates. The Commission also 
solicits comment whether the proposed amendment to Rule 31 imposes any 
collection of information requirements that the Commission has not 
considered.

XIV. Cost-Benefit Analysis

    On July 21, 2010, the President signed the Dodd-Frank Act into law. 
The Dodd-Frank Act was enacted to, among other things, promote the 
financial stability of the United States by improving accountability 
and transparency in the financial system.\280\ Subtitle B of Title VII 
designates the Commission to oversee the SBS markets and develop 
appropriate regulations.
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    \280\ See Public Law 111-203 Preamble.
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    The OTC derivatives markets, which have been described as 
opaque,\281\ have grown exponentially in recent years \282\ and are 
capable of affecting significant sectors of the U.S. economy. One of 
the primary goals of Title VII is to increase the transparency and 
efficiency of the OTC derivatives market and to reduce the potential 
for counterparty and systemic risk.\283\
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    \281\ With respect to CDSs, for example, the Government 
Accountability Office found that ``comprehensive and consistent data 
on the overall market have not been readily available,'' that 
``authoritative information about the actual size of the CDS market 
is generally not available,'' and that regulators currently are 
unable ``to monitor activities across the market.'' Government 
Accountability Office, ``Systemic Risk: Regulatory Oversight and 
Recent Initiatives to Address Risk Posed by Credit Default Swaps,'' 
GAO-09-397T (March 2009), at 2, 5, 27. See Robert E. Litan, ``The 
Derivatives Dealers' Club and Derivatives Market Reform,'' Brookings 
Institution (April 7, 2010) at 15-20; Michael Mackenzie, Era of an 
opaque swaps market ends, Fin. Times (June 25, 2010).
    \282\ The BIS semi-annual reports on the swap markets summarizes 
developments in the OTC derivatives markets. The report breaks down 
trading volumes and other statistics for various classes of 
derivatives, including CDS, interest rate and foreign exchange 
derivatives, and equity and commodity derivatives. The report covers 
derivatives trading within the G10 countries. The most recent 
report, available at http://www.bis.org/statistics/derstats.htm, 
covers the period through the last quarter of 2009.
    \283\ See ``Financial Regulatory Reform--A New Foundation: 
Rebuilding Financial Supervision and Regulation,'' U.S. Department 
of the Treasury, at 47-48 (June 17, 2009).
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    The Dodd-Frank Act amends the Exchange Act to require the 
Commission to adopt rules providing for, among other things: (1) The 
reporting of SBS to a registered SDR or to the Commission; and (2) 
real-time public dissemination of SBS transaction, volume, and pricing 
information. To accomplish this mandate, the Commission today is 
proposing Regulation SBSR, a set of reporting and related rules for SBS 
transactions.
    In general, proposed Regulation SBSR would provide for the 
reporting of SBS information that falls into three broad categories: 
(1) Information that must be reported in real time pursuant to proposed 
Rule 901(c); (2) additional information that must be reported pursuant 
to proposed Rule 901(d) within specified timeframes, depending on 
whether the transaction is traded or confirmed electronically or 
manually; and (3) life cycle events that must be reported pursuant to 
proposed Rule 901(e). Proposed Regulation SBSR would require registered 
SDRs to publicly disseminate certain SBS information in real time. 
Proposed Regulation SBSR would identify the SBS information that would 
be required to be reported, establish reporting obligations, and 
specify the timeframes for reporting and disseminating information. 
Proposed Regulation SBSR would require SBS market participants and 
registered SDRs to establish appropriate policies and procedures 
governing the transaction reporting process. In addition, proposed 
Regulation SBSR would require each registered SDR to register with the 
Commission as a SIP. Together, Regulation SBSR is designed to provide a 
more transparent market for SBSs.
    Broadly, the Commission anticipates that Regulation SBSR may have 
several overarching benefits to the SBS markets. These include the 
following:
    Improvements in Market Quality. The Commission's rules on reporting 
and public dissemination of SBS transaction data could have very 
significant benefits to the SBS market. Comprehensive, timely, and 
accurate reporting should allow for better regulation of the SBS 
market, which should promote greater confidence and participation in 
the market. Post-trade transparency could result in lower transaction 
costs, greater price competition, and greater participation in the 
market. These benefits could extend beyond the SBS market to the 
securities markets more generally, which are increasingly 
interconnected.
    Improved Risk Management. As SBS market participants implement 
transaction reporting programs, they would be required to review their 
current positions in SBSs and report those open positions to a 
registered SDR. Incorporating all positions into an OMS sufficient to 
permit ongoing reporting as required under proposed Regulation SBSR 
could result in a direct and immediate benefit to market

[[Page 75262]]

participants by potentially reducing the risk associated with current 
open positions. Further, because proposed Regulation SBSR would require 
market participants to inventory their positions in SBS to determine 
what needs to be reported, the proposal should enable more robust risk 
monitoring and management going forward.
    Economies and Greater Efficiency. Automation and systems 
development associated with SBS transaction reporting required by 
proposed Regulation SBSR could provide market participants new tools to 
process transactions at a lower expense per transaction. Such increased 
efficiency would enable participants to handle increased volumes of 
SBSs with less marginal expense, or existing volumes of SBSs with 
greater efficiency. In addition, proposed Regulation SBSR is designed 
to further the development of internationally recognized standards for 
establishing reference identifiers in the financial services industry. 
A common set of reference identifiers for participants and products 
could yield significant efficiencies in both the public and private 
sectors. Information about financial firms operating in different 
functional areas and different jurisdictions could more readily be 
identified by regulators. In addition, financial firms could eliminate 
the use of multiple proprietary reference systems and move to a single, 
widely accepted system.
    Improved Commission Oversight. SBS transaction reporting under 
proposed Regulation SBSR would provide a means for the Commission to 
gain a better understanding of the SBS market--including aggregate 
positions both in specific SBS instruments and positions taken by 
individual entities or groups--by requiring transaction data both on 
newly executed SBS and unexpired pre-enactment SBS to be reported to a 
registered SDR. The reporting of SBS transactions should thus provide 
the Commission and other regulators a better understanding of the 
current risks in the SBS market. For example, having such data 
available would help Commission staff to analyze the SBS market as a 
whole in a manner that is not possible currently. In this way, 
Regulation SBSR would support the Commission's supervisory function 
over the SBS market, as required by Congress in the Dodd-Frank Act.
    Further, proposed Regulation SBSR should facilitate completing the 
reports the Commission is required to provide to Congress on SBSs and 
the SBS marketplace.\284\
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    \284\ See Section 719 of the Dodd-Frank Act.
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    While the Commission believes that proposed Regulation SBSR would 
result in significant benefits to SBS market participants, the 
Commission is cognizant that the proposed rules would entail costs, as 
more fully discussed below. The proposed rules could, for example, 
require market participants to begin retaining additional data related 
to SBS transactions. The rules also could require market participants 
to modify existing internal processes and systems. The Commission 
estimates that the rules comprising proposed Regulation SBSR could 
affect 5,000 participants, including 1,000 reporting parties, and 
several million SBSs annually.
    The Commission is sensitive to the costs and benefits associated 
with proposed Regulation SBSR. The Commission requests comment on the 
costs and benefits associated with the individual rules, and its cost-
benefit analysis thereof, including identification and assessments of 
any costs and benefits not discussed in this analysis. The Commission 
also seeks comment on the accuracy of any of the benefits identified 
and also welcomes comments on the accuracy of any of the cost 
estimates. Finally, the Commission encourages commenters to identify, 
discuss, analyze, and supply relevant data, information, or statistics 
regarding any such costs or benefits.

A. Definitions--Rule 900 of Regulation SBSR

1. Benefits
    By defining key terms, proposed Rule 900 would provide increased 
clarity about the scope and application of proposed Regulation SBSR. 
This should help market participants subject to the proposal understand 
their obligations and make appropriate compliance plans. Clearly 
defined terms should also help the Commission in its oversight 
responsibilities.
2. Costs
    The Commission preliminarily believes that proposed Rule 900 would 
not entail any material costs to market participants. Proposed Rule 900 
would define terms used in Regulation SBSR. The rule would not impose 
any obligation or duty.
3. Request for Comment
    The Commission requests comment on the costs and benefits of 
proposed Rule 900 discussed above, as well as any costs and benefits 
not already described that could result. The Commission also requests 
data to quantify any potential costs or benefits. In addition, the 
Commission requests comment on the following:
    248. How can the Commission more accurately estimate the costs and 
benefits of proposed Rule 900?
    249. Would proposed Rule 900 create any additional costs or 
benefits not discussed here?

B. Reporting Obligations--Rule 901 of Regulation SBSR

    Pursuant to proposed Rule 901, all SBS transactions must be 
reported. Together, sections (a), (b), (c), (d), (e), (h), and (i) of 
proposed Rule 901 set forth the parameters that SBS counterparties must 
follow to report SBS transactions to a registered SDR or, if there is 
no registered SDR that would accept the information, to the Commission. 
Proposed Rule 901(a) would specify which counterparty would be the 
``reporting party'' for a SBS transaction. Proposed Rule 901(b) would 
require a reporting party to report the information required under 
proposed Rule 901 to a registered SDR or, if there is no registered SDR 
that would accept the information, to the Commission. Proposed Rule 901 
divides the SBS information that would be required to be reported into 
three broad categories: (1) Information that would be required to be 
reported in real time pursuant to proposed Rule 901(c) and publicly 
disseminated pursuant to proposed Rule 902; (2) additional information 
that would be required to be reported pursuant to proposed Rule 
901(d)(1) within the timeframes specified in proposed Rule 901(d)(2); 
and (3) life cycle events that must be reported pursuant to proposed 
Rule 901(e), the timeframes for which would vary depending on whether 
the transaction was executed and confirmed electronically or manually. 
The information that would be reported under proposed Rule 901(d)(1) 
would not be publicly disseminated. Proposed Rule 901(i) would require 
the reporting of the information detailed in proposed Rules 901(c) and 
(d), to the extent such information is available, for pre-enactment 
SBSs and transitional SBSs.
    Proposed Rule 901(f) would require a registered SDR to time stamp, 
to the second, its receipt of any information submitted to it pursuant 
to proposed Rules 901(c), (d), or (e). Proposed Rule 901(g) would 
require a registered SDR to assign a transaction ID to each SBS 
reported by a reporting party.
1. Benefits
    The SBS transaction information required to be reported pursuant to 
proposed Rule 901 would benefit market participants and the SBS

[[Page 75263]]

marketplace. First, the Commission preliminarily believes that, by 
setting out the requirements for the reporting of each SBS transaction 
to a registered SDR, proposed Rule 901 would provide the registered SDR 
with the SBS transaction information necessary to support public 
dissemination, as required by proposed Rule 902. Additionally, by 
requiring real-time reporting of certain SBS transaction data, proposed 
Rule 901, together with proposed Rule 902, would provide the necessary 
framework to enable public dissemination of SBS transactions in real 
time as required under proposed Rule 902. Together, proposed Rules 901 
and 902 will enable market participants and regulatory authorities to 
know the current state of the SBS markets and track it over time.
    To comply with proposed Rule 901, reporting parties--which are the 
largest and most actively engaged participants in the SBS market--would 
likely need to establish and maintain OMSs capable of supporting real-
time and additional reporting. The Commission anticipates that proposed 
Rule 901 would have the effect of promoting efforts by reporting 
parties to inventory their positions in SBSs, as each determines what 
information needs to be reported. This effect could encourage 
management review of internal procedures and controls by these 
reporting parties.
    In addition, proposed Rule 901 would provide a means for the 
Commission to gain a better understanding of the SBS market, including 
the size and scope of that market, as the Commission would have access 
to data held by a registered SDR.\285\ Having such data available 
should help Commission staff to analyze the SBS market as a whole and 
identify risks. In this way, proposed Rule 901 would support the 
Commission's supervisory function over the SBS market as required by 
Congress in the Dodd-Frank Act. Proposed Rule 901 also could facilitate 
the reports the Commission is required to provide to Congress on SBS 
and the SBS marketplace.\286\
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    \285\ See, e.g., 15 U.S.C. 78m(n)(5)(D) (requiring a registered 
SDR to provide the Commission with direct electronic access to its 
data).
    \286\ See Section 719 of the Dodd-Frank Act.
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    The information reported by reporting parties pursuant to proposed 
Rule 901 would be used by registered SDRs to publicly disseminate real-
time reports of SBS transactions, and to retain SBS transaction and 
position information for use by regulators. The reporting requirements 
of proposed Rule 901 are designed to ensure that important information 
about SBSs is reported and, ultimately available to market 
participants, through the market data feed disseminated by a registered 
SDR.
    The Commission further preliminarily believes that the time stamp 
and transaction ID required to be added by the registered SDR under 
proposed Rules 901(f) and (g) would facilitate data management by the 
registered SDR, as well as market supervision and oversight by the 
Commission and other regulatory authorities.
    Generally, the availability of additional market information, along 
with the ability of the Commission and other regulators to use 
information about SBS transactions reported to and held by registered 
SDRs, would result in more robust prudential and systemic regulation. 
The Commission and other regulators would use information about SBS 
transactions reported to and held by registered SDRs to conduct both 
prudential and systemic regulation, as well as to examine for improper 
behavior and to take enforcement actions, as appropriate. Specifying 
general types of information to be reported and publicly disseminated 
could increase the efficiency and level of standardization in the SBS 
market.
    Proposed Rule 901 would prescribe only broad categories of SBS data 
to be reported. However, proposed Rule 907(a)(1) would require each 
registered SDR to enumerate specific data elements to be reported, and 
to specify acceptable data formats. This approach would provide for the 
efficient accommodation of evolving industry conventions in the 
reporting of SBS data. The requirement that all trades be reported to a 
registered SDR for public dissemination, regardless of trading venue, 
would reduce the coordination costs that would exist if numerous 
parties were independently disseminating SBS data. In this way, 
proposed Rule 901 would increase the uniformity in the SBS data that is 
disseminated under proposed Rule 902.
    Proposed Rule 901(i) would also provide important benefits. By 
requiring reporting of pre-enactment and transitional SBS transactions, 
proposed Rule 901(i) would provide the Commission with insight as to 
outstanding notional size, number of transactions, and number and type 
of participants in the SBS market. This would provide a starting 
benchmark against which to assess the development of the SBS market 
over time and, thus, represents a first step toward a more transparent 
and well regulated market for SBSs. The data reported pursuant to 
proposed Rule 901(i) also could help the Commission prepare the reports 
that it is required to provide to Congress. Further, proposed Rule 
901(i) would require market participants to inventory their positions 
in SBS to determine what information needs to be reported, which could 
benefit market participants by encouraging management review of their 
internal procedures and controls.
    The transaction ID required by proposed Rule 901(g) also would 
provide an important benefit by facilitating the reporting of 
subsequent, related SBS transactions that may be submitted to a 
registered SDR (e.g., a transaction report regarding a SBS life cycle 
event, or report to correct an error in a previously submitted report). 
Regulators also would benefit by having an easy way to refer to 
specific prior transactions.
    Proposed Rule 901 would require reporting parties, to the extent 
they do not already possess systems for electronically capturing and 
transmitting data about their SBS transactions, to build or otherwise 
obtain such systems. Such systems would be necessary to report data 
within the timeframes set forth in proposed Rules 901(c) and (d), 
because it is unlikely that manual processes could capture and report 
in real time the numerous data elements relating to a SBS. There could 
be substantial benefits in the form of reduced operational risk in 
requiring all reporting parties to have such capability. Systematizing 
all SBS transaction information more quickly would support effective 
risk management, as counterparties, registered SDRs, clearing agencies 
(in some cases), and regulators would obtain accurate knowledge of new 
SBS transactions more quickly. Reporting parties that obtain such 
systems could see additional benefits in being able to process and risk 
manage their existing positions more effectively, or use their expanded 
capability to participate further in the SBS market.
    Finally, proposed Rule 901 could result in significant benefits by 
encouraging the creation and widespread use of generally accepted 
standards for reference information. Proposed Rule 901 would require 
the reporting of a participant ID of each counterparty and, as 
applicable, the broker ID, desk ID, and trader ID of the reporting 
party or its broker. The Commission preliminarily believes that 
reporting of this information would help ensure effective oversight, 
enforcement, and surveillance of the SBS market by the Commission and 
other regulators. For example, activity could be tracked by a 
particular participant, a particular desk, or a particular trader. 
Regulators could observe patterns and connections in trading activity, 
or examine whether

[[Page 75264]]

a trader had engaged in questionable trading activity across different 
SBS instruments. These identifiers also would facilitate aggregation 
and monitoring of the positions of SBS counterparties, which could be 
of significant benefit for prudential oversight and systemic risk 
management.
    The Commission understands that some efforts have been undertaken--
in both the private and public sectors, both domestically and 
internationally--to establish a comprehensive and widely accepted 
system for identifying entities that participate not just in the SBS 
market, but in the financial markets generally. Such a system would be 
of significant benefit to regulators worldwide, as each market 
participant could readily be identified using a single reference code 
regardless of the jurisdiction or product market in which the market 
participant was engaging. Such a system also could be of significant 
benefit to the private sector, as market participants would have a 
common identification system for all counterparties and reference 
entities, and would no longer have to use multiple proprietary 
nomenclature systems. The enactment of the Dodd-Frank Act and the 
establishment of a comprehensive system for reporting and dissemination 
of SBSs--and for reporting and dissemination of swaps, under 
jurisdiction of the CFTC--offer a unique opportunity to facilitate the 
establishment of a comprehensive and widely accepted system for 
identifying entities that participate not just in the SBS market, but 
in the financial markets generally.
2. Costs
a. For Reporting Parties
    The proposed SBS reporting requirements would impose initial and 
ongoing costs on reporting parties. The Commission preliminarily 
believes that these costs would be a function of, among other things, 
the number of reportable SBS transactions and the data elements 
required to be collected for each SBS transaction.
    The Commission obtained information from publicly available sources 
and consulted with industry participants in an effort to quantify the 
number of aggregate SBS transactions on an annual basis. According to 
publicly available data from DTCC, recently, there have been an average 
of approximately 36,000 CDS transactions per day,\287\ corresponding to 
a total number of CDS transactions of approximately 13,140,000 per 
year. The Commission preliminarily believes that CDSs represent 85% of 
all SBS transactions.\288\ Accordingly, and to the extent that 
historical market activity is a reasonable predictor of future 
activity,\289\ the Commission preliminarily estimates that the total 
number of SBS transactions that would be subject to proposed Rule 901 
on an annual basis would be approximately 15,460,000, which is an 
average of approximately 42 per reporting party per day.\290\
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    \287\ See, e.g., http://www.dtcc.com/products/derivserv/data_table_iii.php (weekly data as updated by DTCC).
    \288\ The Commission's estimate is based on internal analysis of 
available SBS market data. The Commission is seeking comment about 
the overall size of the SBS market.
    \289\ The Commission notes that regulation of the SBS markets, 
including by means of proposed Regulation SBSR, could impact market 
participant behavior.
    \290\ These figures are based on the following: [13,140,000/
0.85] = 15,458,824. [((15,458,824 estimated SBS transactions)/(1,000 
estimated reporting parties))/(365 days/year)] = 42.35, or 
approximately 42 transactions per day. The Commission understands 
that many of these transactions may arise from previously executed 
SBS transactions.
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    The Commission believes that SBS market participants would face 
three categories of costs to comply with proposed Rule 901. First, each 
market participant would have to develop an internal OMS capable of 
capturing relevant SBS transaction information so that it can be 
reported. The Commission understands that, because of the manner in 
which participants transact certain SBSs with certain transaction 
details being added post-execution, an OMS would likely need to link 
both to a market participant's trade desk--to permit real-time 
transaction reporting--and to the market participant's back office--to 
facilitate reporting of complete transactions as required under 
proposed Rule 901. The OMS would also have to include or be connected 
to a system designed to store SBS transaction information.
    Second, each reporting party would have to implement a reporting 
mechanism. This would include a system that ``packages'' SBS 
transaction information from the entity's OMS, sends the information, 
and tracks it. The reporting mechanism would also include necessary 
data transmission lines to the appropriate registered SDR.
    Third, each reporting party would have to establish an appropriate 
compliance program and support for the operation of the OMS and 
reporting mechanism. Relevant elements of the compliance program would 
include transaction verification and validation protocols, the ability 
to identify and correct erroneous transaction reports, necessary 
technical, administrative, and legal support. Additional operational 
support would include new product development, systems upgrades, and 
ongoing maintenance.
    Based on conversations with industry participants, the Commission 
preliminarily believes that the reporting timeframes mandated by 
proposed Rules 901(c), (d), and (e) may be costly to achieve for 
reporting parties that do not currently have the capabilities to 
perform those functions in those time frames, requiring additional 
expenditure of resources to satisfy these requirements. For example, 
reporting parties that do not currently have the capability to capture 
SBS trade information and provide it to a registered SDR in real time 
would be required by proposed Regulation SBSR to obtain such 
capability.
    Proposed Rule 901 would not provide an explicit list of data 
elements. Instead, proposed Regulation SBS would provide a registered 
SDR with flexibility to determine the specifics of the form and format 
for data to be reported under proposed Rule 901. Thus, to the extent 
reported and disseminated SBS transaction data are not uniform, market 
participants and regulators could face a cost to standardize and 
interpret them.
    Internal Order Management. To comply with their reporting 
obligations, reporting parties would be required to develop and 
maintain an internal OMS that can capture relevant SBS data. The 
Commission preliminarily estimates that, to capture SBS data in a 
manner sufficient to facilitate reporting under proposed Rule 901 would 
impose an initial one-time aggregate cost of approximately $96,650,000, 
which corresponds to $96,650 for each reporting party.\291\ This 
estimate includes an estimate of the costs required to amend internal 
procedures, design or reprogram systems, and implement processes to 
ensure that SBS transaction data are captured and preserved. The 
Commission further preliminarily estimates that capturing SBS data in a 
manner sufficient to facilitate reporting under proposed Rule 901 would 
impose an ongoing annual aggregate cost of approximately $73,144,000, 
which corresponds to

[[Page 75265]]

$73,144 for each reporting party.\292\ This figure would include day-
to-day support of the OMS, as well as an estimate of the amortized 
annual cost associated with system upgrades and periodic ``re-
platforming'' (i.e., implementing significant updates based on new 
technology). In addition, to capture and maintain relevant information 
and documents, the Commission preliminarily estimates that all 
reporting parties could incur an initial and ongoing aggregate 
annualized cost of $1,000,000, which corresponds to $1,000 for each 
reporting party.\293\ The figure is an estimate of the hardware and 
associated maintenance costs for sufficient memory to capture and store 
SBS transactions, including redundant back-up systems.
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    \291\ This estimate is based on the following: [((Sr. Programmer 
(160 hours) at $285 per hour) + (Sr. Systems Analyst (160 hours) at 
$251 per hour) + (Compliance Manager (10 hours) at $294 per hour) + 
(Director of Compliance (5 hours) at $426 per hour) + (Compliance 
Attorney (20 hours) at $291 per hour) x (1,000 reporting parties)] = 
$96,650,000. The Commission preliminarily believes that information 
on SBS transactions is currently being retained by counterparties in 
the ordinary course of business, and as a practical matter should 
not result in any significant new burdens.
    \292\ This estimate is based on the following: [((Sr. Programmer 
(32 hours) at $285 per hour) + (Sr. Systems Analyst (32 hours) at 
$251 per hour) + (Compliance Manager (60 hours) at $294 per hour) + 
(Compliance Clerk (240 hours) at $59 per hour) + (Director of 
Compliance (24 hours) at $426 per hour + (Compliance Attorney (48 
hours) at $291 per hour) x (1,000 reporting parties)] = $73,144,000.
    \293\ This estimate is based on discussions of Commission staff 
with various market participants and is calculated as follows: 
[$250/gigabyte of storage capacity x (4 gigabytes of storage) x 
(1,000 participants)] = $1,000,000. The Commission preliminarily 
believes that storage costs associated with saving relevant SBS 
information and documents would not vary significantly between the 
first year and subsequent years. Accordingly, the Commission has 
preliminarily estimated the initial and ongoing storage costs to be 
the same. Moreover, the Commission believes the per-entity annual 
data storage figure of $1,000 to be a reasonable average. Some 
reporting parties may face higher costs, while others would simply 
use existing storage resources.
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    Summing these costs, the Commission preliminarily estimates the 
initial aggregate annualized cost for reporting parties for internal 
order management under proposed Rule 901 would be $170,794,000, which 
corresponds to $170,794 for each reporting party.\294\ The Commission 
further preliminarily estimates that the ongoing aggregate annualized 
costs on reporting parties for internal order management under proposed 
Rule 901 would be $74,144,000, which corresponds to $74,144 for each 
reporting party.\295\
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    \294\ This estimate is based on the following: [(($96,650 + 
$73,144 + $1,000) x (1,000 reporting parties)] = $170,794,000, which 
corresponds to $170,794 burden hours per reporting party.
    \295\ This is estimate is based on the following: (($73,144 + 
$1,000) x 1,000 reporting parties) = $74,144,000.
---------------------------------------------------------------------------

    SBS Reporting Mechanism. Each reporting party would incur initial 
one-time costs to establish connectivity with and report SBS 
transactions to a registered SDR. Depending on the number of SBS asset 
classes that a reporting party transacts in and which registered SDRs 
accept the resulting SBS transaction reports, multiple connections to 
different registered SDRs could be necessary. For purposes of 
estimating relevant costs, the Commission preliminarily estimates that, 
on average, each reporting party would require connections to two 
registered SDRs.\296\
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    \296\ The Commission derived this estimate as follows. First, 
the Commission believes that initially there would be only a limited 
number of registered SDRs, and that the number would not exceed ten. 
Many reporting parties might transact in only some classes of SBSs. 
Thus, even if each registered SDR accepted transaction reports only 
for a single SBS asset class, the total number of connections needed 
by many reporting parties would likely be limited. The Commission 
also preliminarily believes that, for operational efficiency, a 
participant would seek to use only one registered SDR per asset 
class to obtain repository services. Next, reporting parties that 
required a significant number of connections to registered SDRs 
could engage a third party--a dealer or connectivity services 
provider--instead of independently establishing their own 
connections. Accordingly, the Commission preliminarily believes that 
one connection may suffice for many reporting parties.
---------------------------------------------------------------------------

    On this basis, the Commission preliminarily estimates that the cost 
to establish and maintain connectivity to a registered SDR to 
facilitate the reporting required by proposed Rule 901 would impose an 
annual (first-year and ongoing) aggregate cost of approximately 
$200,000,000, which corresponds to $200,000 for each reporting 
party.\297\ The Commission understands that many reporting parties 
already have established linkages to entities that may register as 
SDRs, which could significantly reduce the out-of-pocket costs 
associated with this establishing the reporting function contemplated 
by proposed Rule 901.
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    \297\ This estimate is based on discussions of Commission staff 
with various market participants, as well as the Commission's 
experience regarding connectivity between securities market 
participants for data reporting purposes. The Commission derived the 
total estimated expense from the following: ($100,000 hardware- and 
software-related expenses, including necessary backup and 
redundancy, per SDR connection) x (2 SDR connections per reporting 
party) x (1,000 reporting parties) = $200,000,000.
---------------------------------------------------------------------------

    Moreover, the Commission believes that establishing a reporting 
mechanism for SBS transactions would impose internal costs on each 
reporting party, including the development of systems necessary to 
capture and send information from the entity's OMS to the relevant 
registered SDR, as well as corresponding testing and support. The 
Commission preliminarily estimates an initial one-time aggregate cost 
of $46,657,000, which corresponds to an initial one-time cost of 
$46,657 for each reporting party.\298\ In addition, the Commission 
preliminarily estimates that reporting specific SBS transactions to a 
registered SDR as required by proposed Rule 901 would impose an annual 
aggregate cost (first-year and ongoing) of approximately $5,400,000, 
which corresponds to approximately $5,400 for each reporting 
party.\299\
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    \298\ This figure is based on discussions with various market 
participants and is calculated as follows: [((Sr. Programmer (80 
hours) at $285 per hour) + (Sr. Systems Analyst (80 hours) at $251 
per hour) + (Compliance Manager (5 hours) at $294 per hour) + 
(Director of Compliance (2 hours) at $426 per hour) + (Compliance 
Attorney (5 hours) at $291 per hour) x (1,000 reporting parties)] = 
$46,657,000. The Commission preliminarily believes that information 
on SBS transactions is currently being retained by market 
participants in the ordinary course of business, and as a practical 
matter should not result in any significant new costs.
    \299\ The Commission preliminarily believes that the costs of 
having an operational reporting system capable of effectively 
processing these transactions are covered in the cost estimates for 
a compliance and ongoing support system. See infra notes 302 to 305. 
The Commission preliminarily believes that the actual reporting of 
transactions represents an incremental additional cost. The 
referenced figure is based on discussions with various market 
participants and is calculated as follows: [(Compliance Clerk (40 
hours) at $59 per hour) + (Sr. Computer Operator (40 hours) at $76 
per hour)) x (1,000 reporting parties)] = $5,400,000.
---------------------------------------------------------------------------

    Thus, the Commission preliminarily estimates the initial, aggregate 
annualized cost for reporting parties submitting SBS transaction 
reports under proposed Rule 901 would be $252,057,000, which 
corresponds to $252,057 for each reporting party.\300\ The Commission 
further preliminarily estimates that the ongoing, aggregate annualized 
cost on reporting parties for submitting SBS transaction reports under 
proposed Rule 901 would be $205,400,000, which corresponds to $205,400 
for each reporting party.\301\
---------------------------------------------------------------------------

    \300\ This estimate is based on the following: (($46,657 + 
$5,400 + $200,000) x (1,000 reporting parties)) = $252,057,000, 
which corresponds to $252,057 per reporting party.
    \301\ This estimate is based on the following: (($5,400 + 
$200,000) x (1,000 reporting parties)) = $205,400,000, which 
corresponds to $205,400 per reporting party.
---------------------------------------------------------------------------

    Compliance and Ongoing Support. As stated above, in complying with 
proposed Rule 901, each reporting party also would need to establish 
and maintain an appropriate compliance program and support for the 
operation of the OMS and reporting mechanism, which would include 
transaction verification and validation protocols and necessary 
technical, administrative, and legal support. Additional operational 
support would include new product development, systems upgrades, and 
ongoing maintenance. The Commission preliminarily believes that initial 
costs associated with this aspect of proposed Rule 901--i.e., the 
establishment of relevant compliance capability--would also involve in 
significant part the development of

[[Page 75266]]

appropriate policies and procedures, which, for those participants who 
are SBS dealers or major SBS participants, is addressed in connection 
with proposed Rule 906(c). A reporting party would need to design its 
OMS to include tools to ensure accurate, complete reporting and employ 
appropriate technical and compliance staff to maintain and support the 
operation of its OMS on an ongoing basis.
    The Commission preliminarily estimates that designing and 
implementing an appropriate compliance and support program would impose 
an initial one-time aggregate cost of approximately $51,590,000, which 
corresponds to a cost of $51,590 for each reporting party.\302\ The 
Commission further preliminarily estimates that maintaining its 
compliance and support program would impose an ongoing annual aggregate 
cost of approximately $36,572,000, which corresponds to a cost of 
$36,572 for each reporting party.\303\ This figure includes day-to-day 
support of the OMS, as well as an estimate of the amortized annual cost 
associated with system upgrades and periodic ``re-platforming.''
---------------------------------------------------------------------------

    \302\ This figure is based on discussions with various market 
participants and is calculated as follows: [((Sr. Programmer (100 
hours) at $285 per hour) + (Sr. Systems Analyst (40 hours) at $251 
per hour) + (Compliance Manager (20 hours) at $294 per hour) + 
(Director of Compliance (10 hours) at $426 per hour) + (Compliance 
Attorney (10 hours) at $291 per hour) x (1,000 reporting parties)] = 
$51,590,000.
    \303\ This figure is based on discussions with various market 
participants and is calculated as follows: [((Sr. Programmer (16 
hours) at $285 per hour) + (Sr. Systems Analyst (16 hours) at $251 
per hour) + (Compliance Manager (30 hours) at $294 per hour) + 
(Compliance Clerk (120 hours) at $59 per hour) + (Director of 
Compliance (12 hours) at $426 per hour) + (Compliance Attorney (24 
hours) at $291 per hour) x (1,000 reporting parties)] = $36,572,000.
---------------------------------------------------------------------------

    Therefore, the Commission preliminarily estimates the initial 
aggregate annualized costs to reporting parties for compliance and 
ongoing support under proposed Rule 901 would be $88,162,000, which 
corresponds to $88,162 for each reporting party.\304\ The Commission 
further preliminarily estimates that the ongoing aggregate annualized 
cost on reporting parties for compliance and ongoing support under 
proposed Rule 901 would be $36,572,000, which corresponds to $36,572 
for each reporting party.\305\
---------------------------------------------------------------------------

    \304\ This estimate is based on the following: (($51,590 + 
$36,572) x (1,000 reporting parties)] = $88,162,000, which 
corresponds to $88,162 per reporting party.
    \305\ See supra note 303.
---------------------------------------------------------------------------

    Summing these costs, the Commission preliminarily estimates that 
the initial, aggregate annualized costs associated with proposed Rule 
901 would be $511,013,000, which corresponds to $511,013 per reporting 
party.\306\ The Commission preliminarily estimates that the ongoing 
aggregate annualized costs associated with proposed Rule 901 would be 
$316,116,000, which corresponds to $316,116 per reporting party.\307\
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    \306\ This estimate is based on the following: (($170,794 + 
$252,057 + $88,162) x (1,000 reporting parties)) = $511,013,000, 
which corresponds to $511,013 per reporting party.
    \307\ This estimate is based on the following: (($74,144 + 
$205,400 + $36,572) x (1,000 reporting parties)) = $316,116,000, 
which corresponds to $316,116 per reporting party.
---------------------------------------------------------------------------

    Finally, the Commission notes that it is possible that the costs 
associated with required reporting pursuant to proposed Regulation SBSR 
could represent a barrier to entry for new, smaller firms that might 
not have the ability or desire to comply with these reporting 
requirements. To the extent that proposed Regulation SBSR causes new 
firms not to enter the SBS market, this would be a cost of the 
proposal. Nevertheless, the Commission preliminarily believes that 
firms would be able to contract with third-party service providers, 
which could facilitate their compliance with proposed Regulation SBSR. 
Accordingly, the Commission preliminarily does not believe it likely 
that proposed Rule 901 would, as a practical matter, act as a barrier 
to new entrants. The Commission requests comment on this issue.
    Reference information. The Commission, in proposed Regulation SBSR, 
is not requiring the development of internationally recognized 
standards for reference information that could be used across the 
financial services industry. Therefore, the Commission believes that 
the costs of developing and sustaining such a system should not be 
considered costs of proposed Regulation SBSR. However, proposed 
Regulation SBSR would require a registered SDR and its participants to 
use UICs generated by such a system, if such system is able to generate 
such UICs. Although the Commission believes there would be long-term 
benefits for using UICs generated by such a system, there could be 
short-term costs imposed on reporting parties to convert to such a 
system. In addition, under these internationally recognized standards, 
users of the reference information could have to pay reasonable fees to 
support the system. These fees also would represent costs of proposed 
Rule 901. The Commission requests comment on this issue and any 
potential costs associated with the potential future use of 
internationally recognized standards.
b. For Registered SDRs
    Proposed Rule 901(f) would require a registered SDR to time stamp, 
to the second, its receipt of any information submitted to it pursuant 
to proposed Rules 901(c), (d), or (e). Proposed Rule 901(g) would 
require a registered SDR to assign a transaction ID to each SBS 
reported by a reporting party. The Commission preliminarily believes 
that these requirements would not be significant in the context of 
designing and building the technological framework that would be 
required of an SDR to become registered.\308\ Therefore, the Commission 
preliminarily estimates that proposed Rules 901(f) and (g) would impose 
an initial aggregate one-time cost of $342,040, which corresponds to 
$34,204 per registered SDR.\309\ This figure is based on an estimate of 
ten registered SDRs. With regard to ongoing costs, the Commission 
preliminarily estimates that proposed Rules 901(f) and (g) would impose 
an ongoing aggregate annual cost of $436,440, which corresponds to 
$43,644 per registered SDR.\310\ This figure represents an estimate of 
the support and maintenance costs for the time stamp and transaction ID 
assignment elements of a registered SDR's systems.
---------------------------------------------------------------------------

    \308\ See SDR Registration Proposing Release, supra note 6.
    \309\ This figure is based on discussions with various market 
participants and is calculated follows: [(Sr. Programmer (80 hours) 
at $285 per hour) + (Sr. Systems Analyst (20 hours) at $251 per 
hour) + (Compliance Manager (8 hours) at $294 per hour) + (Director 
of Compliance (4 hours) at $426 per hour) + (Compliance Attorney (8 
hours) at $291 per hour) x (10 registered SDRs)] = $342,040.
    \310\ This figure is based on discussions with various market 
participants and is calculated as follows: [(Sr. Programmer (60 
hours) at $285 per hour) + (Sr. Systems Analyst (48 hours) at $251 
per hour) + (Compliance Manager (24 hours) at $294 per hour) + 
(Director of Compliance (12 hours) at $426 per hour) + (Compliance 
Attorney (8 hours) at $291 per hour) x (10 registered SDRs)] = 
$436,440.
---------------------------------------------------------------------------

    Thus, the Commission preliminarily estimates that the initial 
aggregate annualized cost associated with proposed Rules 901(f) and (g) 
would be $778,480, which corresponds to $77,848 per registered 
SDR.\311\ Correspondingly, the Commission preliminarily estimates that 
the ongoing aggregate annualized cost associated with proposed Rules 
901(f) and (g) would be $436,440, which corresponds to $43,644 per 
registered SDR.\312\
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    \311\ This figure is based on the following: ($34,016 + $42,240) 
x (10 registered SDRs) = $778,480, which corresponds to $77,848 per 
registered SDR.
    \312\ See supra note 310.

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[[Page 75267]]

3. Request for Comment
    The Commission requests comment on the costs and benefits of 
proposed Rule 901 discussed above, as well as any costs and benefits 
not already described that could result. The Commission also requests 
data to quantify any potential costs or benefits. In addition, the 
Commission requests comment on the following:
    250. How can the Commission more accurately estimate the costs and 
benefits?
    251. What are the costs currently borne by entities covered by 
proposed Rule 901 with respect to the retention of records of SBS 
transactions?
    252. How many entities would be affected by the proposed rule? How 
many transactions would be subject to the proposed rule?
    253. Are there additional costs involved in complying with the rule 
that have not been identified? What are the types, and amounts, of the 
costs?
    254. Would the obligations imposed on reporting parties by proposed 
Rule 901 be a significant enough barrier to entry to cause some firms 
not to enter the SBS market? If so, how many firms might decline to 
enter the market? How can the cost of their not entering the market be 
tabulated? How should the Commission weigh such costs, if any, against 
the anticipated benefits from increased transparency to the SBS market 
from the proposal, as discussed above?
    255. Can commenters assess the benefits of having comprehensive and 
accurate reporting of SBS transactions to registered SDRs, which would 
provide access to such information to the Commission and other 
regulators? What would have been the benefits to the SBS market if such 
regulatory oversight had been in place sooner?
    256. What benefits and costs would there be to converting to a 
reference identification system established by or on behalf of an IRSB? 
What fees might be charged to support such a system? How much would 
those fees be? Who would have to pay them?
    257. Would there be additional benefits from the proposed rule that 
have not been identified?

C. Public Dissemination of Transaction Reports--Rule 902 of Regulation 
SBSR

    Generally, proposed Rule 902 would require the public dissemination 
of SBS transaction information. Proposed Rule 902(a) would set out the 
core requirement that a registered SDR, immediately upon receipt of a 
SBS transaction report of a SBS, must publicly disseminate information 
about the SBS, except in the case of a block trade, that must consist 
of all the information reported by the reporting party pursuant to 
proposed Rule 901, plus any indicator or indicators contemplated by the 
registered SDR's policies and procedures that are required by proposed 
Rule 907.\313\
---------------------------------------------------------------------------

    \313\ In the circumstances necessitating a registered SDR's 
systems to be unavailable for publicly disseminating transaction 
data, the registered SDR would have to disseminate the transaction 
data immediately upon its re-opening. Proposed Rule 902(c) would 
prohibit the dissemination of certain information. See supra note 
100 and accompanying text.
---------------------------------------------------------------------------

    Proposed Rule 902(b) would require a registered SDR to publicly 
disseminate a transaction report of a block trade immediately upon 
receipt of information about the block trade from the reporting party. 
The transaction report would consist of all the information reported by 
the reporting party pursuant to proposed Rule 901(c), except for the 
notional size, plus the transaction ID and an indicator that the report 
represents a block trade. The registered SDR would be required to 
publicly disseminate a complete transaction report for such block trade 
(including the transaction ID and the full notional size) at a later 
time.
1. Benefits
    By reducing information asymmetries, post-trade transparency has 
the potential to lower transaction costs, improve confidence in the 
market, encourage participation by a larger number of market 
participants, and increase liquidity in the SBS market. The current 
market is opaque. Market participants, even dealers, lack an effective 
mechanism to learn the prices at which other market participants 
transact. In the absence of post-trade transparency, market 
participants do not know whether the prices they are paying or would 
pay are higher or lower than what others are paying for the same SBS 
instruments. Currently, market participants resort to ``screen-
scraping'' e-mails containing indicative quotation information to 
develop a sense of the market. Supplementing that effort with prompt 
last-sale information would provide all market participants with more 
extensive and more accurate information on which to make trading and 
valuation determinations.
    SBSs are complex derivative instruments, and there exists no single 
accepted way to model a SBS for pricing purposes. Post-trade pricing 
and volume information could allow valuation models to be adjusted to 
reflect how SBS counterparties have valued a SBS instrument at a 
specific moment in time. Public, real-time dissemination of last-sale 
information also could aid dealers in deriving better quotations, 
because they would know the prices at which other market participants 
have recently traded. This information could aid end users in 
evaluating current quotations, because they could inquire from dealers 
why the quotations that the dealers are providing them differ from the 
prices of recently executed transactions. Furthermore, end users would 
be afforded the means of testing whether quotations offered by dealers 
before the last sale were close to the price at which the last sale was 
executed. In this manner, post-trade transparency could promote price 
competition and more efficient price discovery, and ultimately lower 
transaction costs in the SBS market.
    Post-trade transparency of SBSs, as required by proposed Rule 902, 
could benefit the financial markets generally by improving market 
participants' ability to value SBSs, particularly if the trade 
information is used as an input to, rather than as a substitute for, 
independent valuations and pricing decisions by other market 
participants. In transparent markets with sufficient liquidity, 
valuations generally can be derived from recent quotations and/or last-
sale prices. However, in opaque markets or markets with low liquidity, 
recent quotations or last-sale prices may not exist or, if they do 
exist, may not be widely available. Therefore, market participants 
holding assets that trade in opaque markets or markets with low 
liquidity frequently rely instead on pricing models. These models might 
be based on assumptions subject to the evaluator's discretion, and can 
be imprecise. Thus, market participants holding the same asset but 
using different valuation models might arrive at significantly 
different values for the same asset.
    Valuation models could be improved to the extent that they consider 
last-sale reports of the asset to be valued, reports of related assets, 
or reports of benchmark products that include the asset to be valued or 
closely related assets, even if those reports are dated. There is 
evidence to suggest that post-trade transparency helps reduce the range 
of valuations of assets that trade in illiquid markets.\314\ Thus, 
post-trade transparency in the SBS market could result in more accurate 
valuations of SBSs generally--particularly if trade information is used 
as an input to,

[[Page 75268]]

rather than a substitute for, independent valuations by other market 
participants--as it would allow all market participants to know how SBS 
counterparties priced the SBS at a specific point in time. Especially 
with complex instruments, investment decisions generally are predicated 
a significant amount of due diligence to value the instruments 
properly. A post-trade transparency system permits other market 
participants to derive at least some informational benefit from 
obtaining the views of the two counterparties who did a particular 
trade.
---------------------------------------------------------------------------

    \314\ See Gjergji Cici, Scott Gibson, John J. Merrick, Jr., 
``Missing the Marks? Dispersion in Corporate Bond Valuations Across 
Mutual Funds,'' draft paper available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1104508.
---------------------------------------------------------------------------

    Furthermore, better valuations could create a benefit in the form 
of more efficient capital allocation, which is premised on accurate 
knowledge of asset prices. Asset prices that are too high could result 
in a misallocation of capital, as investors demand more of an asset 
that cannot deliver an economic risk-adjusted return. By the same 
token, assets that are inappropriately undervalued could represent 
investment opportunities that will likely not receive enough capital 
because investors do not realize that a good risk-adjusted return is 
available. To the extent that post-trade transparency of SBS 
transactions enables asset valuations to move closer to their 
fundamental value, capital could be more efficiently allocated.
    Better valuations resulting from post-trade transparency of SBSs 
also could reduce prudential and systemic risks. Some financial 
institutions, including many of the most systemically important 
financial institutions, have large portfolios of SBSs. The financial 
system could benefit if the portfolios of these institutions were more 
accurately valued. To the extent that post-trade transparency affirms 
the valuation of an institution's portfolio, regulators, the individual 
firm, and the market as a whole could be more certain as to whether the 
firm would or would not pose prudential or systemic risks. In some 
cases, however, post-trade transparency in the SBS market might cause 
an individual firm to revalue its positions and lower the overall value 
of its portfolio. The sooner that accurate valuations can be made, the 
more quickly that regulators and the individual firm could take 
appropriate steps to minimize the firm's prudential risk profile, and 
the more quickly that regulators and other market participants could 
take appropriate steps to address any systemic risk concerns raised by 
that firm.
    In addition, proposed Rule 902 is designed to maximize the 
availability of information regarding SBS transactions to all market 
participants in a way that the Commission preliminarily believes 
``take[s] into account whether the public disclosure will materially 
reduce market liquidity.'' \315\ Post-trade transparency, as 
contemplated by proposed Rule 902, could reduce information asymmetries 
among SBS market participants and thereby benefit market liquidity in 
at least two ways. First, it could reduce the informational asymmetries 
between market participants, allowing dealers to set quotes using 
information beyond their own order flow. This could help smaller 
dealers or other market participants to enter the market by reducing 
the informational advantage and bargaining power of large dealers. 
Second, investors with hedging needs who are at an informational 
disadvantage to dealers and would have more information as to trade 
prices. Such investors also could more accurately price the trade, 
which would encourage their participation in the SBS market. Better 
informed market participation by both dealers and investors--through 
greater fairness in access to relevant pricing information--could 
result in benefits in the form of an increase in overall market 
liquidity.
---------------------------------------------------------------------------

    \315\ 15 U.S.C. 78m(m)(1)(E)(iv).
---------------------------------------------------------------------------

    Finally, real-time public dissemination of SBS transaction reports 
could have effects on the overall volume of the SBS market, which could 
have certain benefits. Greater transparency could result in greater 
confidence in the SBS market, resulting in more market participants 
being willing to trade, or the same number of market participants being 
willing to trade more often. These additional transactions could result 
in better allocation of risk across the financial system. On the other 
hand, there could be a benefit even if fewer SBS transactions occur 
because of proposed Regulation SBSR. This could be the case if market 
participants that are unable or unwilling to properly manage the 
attendant risks of participation in the SBS market are deterred from 
participating, or if there were a reduction in the number of SBS 
transactions where there is a significant information asymmetry between 
the counterparties. In the latter case, there could be a benefit if 
uninformed parties are deterred from unwittingly taking on imprudent 
positions in SBSs.
2. Costs
    A potential cost of post-trade transparency that is often cited by 
market participants, particularly dealers, is that it increases 
inventory risks. Dealers often enter trades with their customers as a 
liquidity supplier. A potential consequence of post-trade transparency 
is that dealers trying to hedge inventory following a trade are put in 
a weaker bargaining position relative to subsequent counterparties, and 
will either raise the liquidity fee charged to their clients or refuse 
to accommodate such trades. Such behavior could lead to lower trading 
volume and reduce the ability of market participants to manage risk, 
both of which could have a negative welfare effect on all market 
participants.
    In an opaque market, market participants have to rely primarily on 
their understanding of the market's fundamentals to arrive at a price 
at which they would be willing to assume risk. With immediate real-time 
public dissemination of a block trade, however, market participants who 
might be willing to offset that risk--i.e., other dealers and natural 
shorts--could extract rents from a dealer that takes a large risk 
position from a counterparty. Because the initial dealer would not 
internalize those higher costs, it would most likely seek to pass those 
costs on to the counterparty in the form of a higher price for the 
initial SBS. This could lead to less liquidity in the SBS market, and 
thus lower trading volume and less ability for market participants to 
manage risk. It also might be argued that increased post-trade 
transparency could drive large trades to other markets that offer the 
opacity desired by traders, creating fragmentation and harming price 
efficiency and liquidity. This possibility is consistent with the 
argument that large, informed traders may prefer a less transparent 
trading environment that allows them to minimize the price impact of 
their trades. Real-time public dissemination of SBS transaction 
information, therefore, could cause certain market participants to 
trade less frequently or to exit the market completely. It would be 
difficult at this stage to estimate the likelihood of this occurring 
and, if does occur, what the costs would be. The Commission invites 
comment on this issue.
    Another potential cost of post-trade transparency in the SBS 
market, as contemplated by proposed Rule 902, is that last-sale prints, 
particularly in infrequently traded products, could be the result of 
unusual conditions that do not reflect the economic fundamentals of the 
SBS instrument. For instance, if a large market participant failed 
resulting in the liquidation of its portfolio, fire sale prices could 
have the effect of requiring other market participants to unduly mark 
down the value of their portfolios. This could cause additional market 
stress,

[[Page 75269]]

particularly through the triggering of additional margin calls. In 
these circumstances, independent evaluations and decision-making that 
incorporates post-trade information can be important to stabilizing the 
markets.
    Simultaneously with this proposal, the Commission is proposing new 
Rules 13n-1 through 13n-11 under the Exchange Act relating to the SDR 
registration process, the duties of SDRs, and their core 
principles.\316\ The SDR Registration Proposing Release covers 
anticipated collections of information with respect to various aspects 
of establishing and operating an SDR, including its start-up and 
ongoing operations, and describes the costs that complying with the 
proposed rules would entail. The Commission preliminarily believes that 
a registered SDR would be able to integrate the functions outlined in 
new Rules 13n-1 through 13n-11 with the capability to publicly 
disseminate real-time SBS transaction reports required under proposed 
Rule 902 as part of its overall system development. Accordingly, the 
Commission believes that the costs associated with enabling and 
maintaining compliance with proposed Rule 902 would, as a practical 
matter, represent a portion of the SDR's overall systems development 
budget and process. For purposes of the PRA, the Commission 
preliminarily estimated that implementing and complying with the real-
time public dissemination requirement of proposed Rule 902 would add an 
additional 20% to the start-up and ongoing operational expenses that 
would otherwise be required of a registered SDR.\317\
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    \316\ See SDR Registration Proposing Release, supra note 6.
    \317\ See Section V.D.2 (SDR Duties, Data Collection and 
Maintenance, Automated Systems, and Direct Electronic Access) of the 
SDR Registration Proposing Release. This estimate is based on the 
input from potential SDRs and includes time necessary to design and 
program a registered SDR's system to calculate and disseminate 
initial and end of day block trade reports as well as annual costs 
associated with systems testing and maintenance necessary for the 
special handling of block trades. These figures do not include the 
development of policies and procedures necessary to calculate block 
trade thresholds pursuant to proposed Rule 907(b).
---------------------------------------------------------------------------

    On this basis, the Commission preliminarily estimates that the 
initial one-time aggregate costs associated with real-time public 
dissemination for development and implementation of the systems needed 
to disseminate the required transaction information and for necessary 
software and hardware would be $40,004,000 million, which corresponds 
to $4,000,400 per registered SDR.\318\ In addition, the Commission 
preliminarily estimates that aggregate annual costs for systems and 
connectivity upgrades associated with real-time public dissemination 
would be $24,002,400 million, which corresponds to $2,400,240 per 
registered SDR.\319\ Thus, the initial aggregate costs associated with 
proposed Rule 902 would be $64,006,400, which corresponds to $6,400,640 
per registered SDR.\320\
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    \318\ The Commission derived this estimate from the following: [ 
(Attorney (1,400 hours) at $316 per hour) + (Compliance Manager 
(1,600 hours) at $294 per hour) + (Programmer Analyst (4,000 hours) 
at $190 per hour) + (Senior Business Analyst (1,400 hours) at $234 
per hour) x (10 registered SDRs)) + ($2,000,000 for necessary 
hardware and software)] = $40,004,000. See SDR Registration 
Proposing Release, supra note 6 at Section VI.B.2 (estimating the 
total cost associated with establishing SDR technology systems).
    \319\ The Commission derived this estimate from the following: 
[(Attorney (840 hours) at $316 per hour) + (Compliance Manager (960 
hours) at $294 per hour) + (Programmer Analyst (2,400 hours) at $190 
per hour) + (Senior Business Analyst (840 hours) at $234 per hour) x 
(10 registered SDRs)) + ($1,200,000 for necessary hardware and 
software upgrades)] = $24,002,400. See SDR Registration Proposing 
Release, supra note 6, at Section VI.B.2 (estimating the annual 
ongoing cost associated with operating and maintaining SDR 
technology systems).
    \320\ This estimate is based on the following: [(($4,000,400) + 
($2,400,240)) x (10 registered SDRs)] = $64,006,400, which 
corresponds to $6,400,640 per registered SDR.
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    The SDR Registration Proposed Rules also address additional costs 
on registered SDRs that are not included here.\321\
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    \321\ See SDR Registration Proposing Release, supra at note 6.
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3. Request for Comment
    The Commission requests comment on the costs and benefits of 
proposed Rule 902 discussed above, as well as any costs and benefits 
not already described that could result. The Commission also requests 
data to quantify any potential costs or benefits. In addition, the 
Commission requests comment on the following:
    258. What would be the costs and benefits of post-trade 
transparency in the SBS market, both in the long and the short term? 
How would post-trade transparency alter the existing market structure?
    259. How would post-trade transparency in the SBS market affect the 
ability to hedge? Would hedging become more costly or less costly over 
time? Why?
    260. Would post-trade transparency have the same costs and benefits 
on the SBS market similar as on other securities markets? Why or why 
not?
    261. The SBS market is currently almost wholly institutional. Would 
this characteristic impact the costs and benefits of post-trade 
transparency on the SBS market? If so, how and how much? Are the needs 
of market participants in the SBS market for access to transaction 
information different than the needs of market participants in other 
securities markets for access to transaction information?
    262. A significant amount of trading in the SBS market is currently 
carried out by only a limited number of market participants. Would this 
characteristic impact the costs and benefits of post-trade transparency 
on the SBS market? If so, how and how much? For example, is there a 
concern that it would be easier to determine the identity of the 
counterparties to a SBS transaction in certain instances based on the 
real-time transaction report? If so, what would be the harm, if any, of 
such knowledge? Would the answer differ depending upon the liquidity of 
the SBS instrument, or whether it was a customized SBS or not?
    263. The SBS market is generally more illiquid than other 
securities markets that have post-trade transparency regimes. How would 
this characteristic impact, if at all, the effect the costs and 
benefits of post-trade transparency on the SBS market? Do commenters 
believe that post-trade transparency could materially reduce market 
liquidity in the SBS market, or particular subsets thereof? Why and 
how? Please be specific in your response and provide data to the extent 
possible.
    264. How would a post-trade transparency regime in SBSs affect the 
costs of trading in the underlying securities? For example, how, if at 
all, would the post-trade transparency regime affect liquidity in the 
corporate bond market?
    265. Academic studies of other securities markets generally have 
found that post-trade transparency reduces transaction costs and has 
not reduced market liquidity. How do those markets differ or compare to 
the SBS market? How would those similarities or differences affect 
post-trade transparency in the SBS market?
    266. Do commenters believe that post-trade transparency could 
materially reduce market liquidity in the SBS market, or particular 
subsets thereof? Why and how?
    267. Would proposed Rule 902 create any additional costs or 
benefits not discussed here?
    268. Are there any ways that the Commission can study the costs and 
benefits of the dissemination delay for the size of a block trade by 
creating different initial requirements by entities

[[Page 75270]]

or assets classes as part of the phase-in of the rule?

D. Coded Information--Rule 903 of Regulation SBSR

    To facilitate the reporting and dissemination of SBS transactions, 
as would be required under proposed Rules 901 and 902, the Commission 
understands that there may--or could be developed--industry conventions 
for identifying SBSs or reference entities on which SBS are based 
through readily available reference codes. Proposed Rule 903 addresses 
this possibility. Specifically, proposed Rule 903 would provide that a 
reporting party could provide information to a registered SDR pursuant 
to proposed Rule 901, and a registered SDR could publicly disseminate 
information pursuant to proposed Rule 902, using codes in place of 
certain data elements, provided that the information necessary to 
interpret such codes is widely available on a non-fee basis.
1. Benefits
    The use of such codes by a registered SDR and its participants 
could give rise to significant potential benefits. First, the use of 
codes could greatly improve the efficiency and accuracy of the trade 
reporting system by streamlining the provision of data to the 
registered SDR. Reporting just the code could replace several data 
elements that otherwise would have to be reported separately. Second, 
the development of a public coding system could also support greater 
transparency. Coded transaction reports with key identifying 
information for SBS transactions could facilitate the aggregation of 
market transactions, particularly when the records are dispersed across 
different registered SDRs. Third, the aggregation of SBS transaction 
data through codes would also facilitate more efficient market analysis 
studies, surveillance activities, and system risk monitoring by 
regulators by streamlining the presentation of the SBS transaction 
data. Without robust, common identifying information, the process of 
aggregating market data across asset classes and entities could be 
impaired, increasing the effort required for market analysis 
activities.
2. Costs
    Proposed Rule 903 could impose certain costs on current SBS market 
participants. Some SBS market participants have developed private 
coding systems.\322\ To the extent that these systems are not widely 
available, proposed Rule 903 would prohibit their adoption for use by 
registered SDRs and their participants in connection with the reporting 
and dissemination of SBS transactions required under proposed 
Regulation SBSR. Consequently, the owners of these systems may no 
longer be able to market and generate income (i.e., licensing fees) 
from these systems, or recover development costs associated with their 
systems.
---------------------------------------------------------------------------

    \322\ The Commission is aware of one such product identification 
system that involves six-digit reference entity identifiers and 
three-digit reference obligations identifiers as well as a standard 
three-digit maturity identifier.
---------------------------------------------------------------------------

    The Commission preliminarily believes that proposed Rule 903 would 
not impose any material costs on registered SDRs or their participants. 
The development and use of a coding system that is widely available on 
a non-fee basis would instead likely reduce the costs associated with 
reporting and disseminating SBS transactions as required under proposed 
Rules 901 and 902, as market participants would not have to incur any 
fees to use codes.
3. Request for Comment
    The Commission requests comment on the costs and benefits of 
proposed Rule 903 discussed above, as well as any costs and benefits 
not already described that could result. The Commission also requests 
data to quantify any potential costs or benefits. In addition, the 
Commission requests comment on the following:
    269. How can the Commission more accurately estimate the costs and 
benefits?
    270. Would proposed Rule 903 entail any benefits or costs not 
considered by the Commission?
    271. Are there costs the Commission has not considered with respect 
to the use of coding systems that are widely available on a non-fee 
basis? Would the use of these coding systems in fact reduce the costs 
associated with the obligations under proposed Rules 901 and 902?
    272. Are there coding systems that are widely available on a non-
fee basis? What, if any, costs may be associated with requiring the use 
of a coding system that is widely available on a non-fee basis?
    273. What would be the costs and benefits of permitting the use of 
codes that are available for a fee? Could allowing the use of such 
codes create a regulatory monopoly in favor of the owner of the code's 
intellectual property?

E. Operating Hours of Registered SDRs--Rule 904 of Regulation SBSR

    Proposed Rule 904 would require a registered SDR to design its 
systems to allow for continuous receipt and dissemination of SBS data, 
except that a registered SDR would be permitted to establish ``normal 
closing hours.'' Such normal closing hours may occur only when, in the 
estimation of the registered SDR, the U.S. markets and other major 
markets are inactive. In addition, a registered SDR would be permitted 
to declare, on an ad hoc basis, special closing hours to perform 
routine system maintenance, subject to certain requirements.
1. Benefits
    The Commission preliminarily believes that it would be beneficial 
to require a registered SDR to continuously receive and disseminate SBS 
transaction information. The market for SBS is global, and the 
Commission believes the public interest would be served by requiring 
continuous real-time dissemination of any SBS transactions (with a 
sufficient nexus to the United States to require reporting into a 
registered SDR), no matter when they are executed. Thus, if U.S. 
participants execute SBSs in Japan while the U.S. markets are closed, 
market participants around the word would still be able to view real-
time reports of such transactions. Further, the Commission believes a 
continuous dissemination regime would eliminate the temptation for 
market participants to defer execution of SBS transactions until after 
regular business hours to avoid real-time post-trade transparency.
    Paragraphs (c) to (e) of proposed Rule 904 would specify 
requirements for handling and disseminating reported data during a 
registered SDR's normal and special closing hours. The Commission 
believes that these provisions would provide benefits in that they 
clarify how SBSs executed while a registered SDR is in normal or 
special closing hours would be reported and disseminated.
2. Costs
    The Commission believes that a registered SDR would not incur 
significant costs in connection with proposed Rule 904. The Commission 
today is also proposing Rules 13n-1 through 13n-11 under the Exchange 
Act that would deal with SDR registration, duties, data collection and 
maintenance, automated systems and other issues.\323\ That proposal 
covers expenses with

[[Page 75271]]

respect to many aspects of establishing and operating an SDR, 
including, implicitly, its hours of operation.
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    \323\ See SDR Registration Proposing Release, supra note 6.
---------------------------------------------------------------------------

    The requirement for a registered SDR to provide reasonable advance 
notice to participants and to the public of its normal and special 
closing hours, and to provide notice to participants that the SDR is 
available to accept transaction data after its system was unavailable 
would likely entail a only a modest annual cost. The Commission 
preliminarily estimates that the initial and ongoing aggregate annual 
cost would be $27,360, which corresponds to $2,736 per registered 
SDR.\324\
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    \324\ The Commission derived this number as follows: 
[(Operations Specialist (24 hours) at $114 per hour) x (10 potential 
registered SDRs)] = $27,360, which corresponds to $2,736 per 
registered SDR.
---------------------------------------------------------------------------

    There would be additional costs, but these costs are subsumed in 
the costs associated with proposed Rules 901 and 902. For example, the 
requirement for reporting parties to report information to the 
registered SDR upon receiving a notice that the registered SDR has 
resumed its normal operations would be part of the reporting parties' 
reporting obligations under proposed Rule 901. The requirement to 
disseminate transaction reports held in queue should not present any 
costs in addition to those already contained in proposed Rule 902.
3. Request for Comment
    The Commission requests comment on the costs and benefits of 
proposed Rule 904 discussed above, as well as any costs and benefits 
not already described. The Commission also requests data to quantify 
any potential costs or benefits. In addition, the Commission requests 
comment on the following:
    274. How can the Commission more accurately estimate the costs and 
benefits for handling and disseminating reported SBS transaction data 
during a registered SDR's normal and special closing hours?
    275. Would proposed Rule 904 create any additional costs or 
benefits not discussed here?

F. Correction of Errors in Security-Based Swap Information--Rule 905 of 
Regulation SBSR

    Proposed Rule 905(a) would establish procedures for correcting 
errors in reported and disseminated SBS information, recognizing that 
that any system for transaction reporting must accommodate for the 
possibility that certain data elements may be incorrectly reported. 
Proposed Rule 905(b) would set forth the duties of a registered SDR to 
verify disputed information and make necessary corrections. If the 
registered SDR either discovers an error in a transaction on its system 
or receives notice of an error from a counterparty, proposed Rule 
905(b)(1) would require the registered SDR to verify the accuracy of 
the terms of the SBS and, following such verification, promptly correct 
the erroneous information contained in its system. Proposed Rule 
905(b)(2) would further require that, if the erroneous transaction 
information contained any data that fall into the categories enumerated 
in proposed Rule 901(c) as information required to be reported in real 
time, the registered SDR would be required to publicly disseminate a 
corrected transaction report of the SBS promptly following verification 
of the trade by the counterparties to the SBS.
1. Benefits
    The Commission preliminarily believes that proposed Rule 905 would 
enhance the overall reliability of SBS transaction data that would be 
required to be reported. Requiring participants to promptly correct 
erroneous transaction information should help ensure the timeliness, 
accuracy, and completeness of reported transaction information. 
Providing more accurate SBS transaction data to a registered SDR could 
benefit participants by helping them ensure that their books are marked 
accurately and reduce operational risks that arise when counterparties 
do not have the same understanding of the details of a SBS transaction. 
Furthermore, requiring corrected SBS transaction information be 
reported to a registered SDR helps ensure that the Commission and other 
regulars have an accurate view of the prudential and systemic risks in 
the SBS market.
2. Costs
    The Commission preliminarily believes that promptly submitting an 
amended transaction report to the appropriate registered SDR after 
discovery of an error as required under proposed Rule 905(a)(2) would 
impose costs on reporting parties. Likewise, the Commission 
preliminarily believes that promptly notifying the relevant reporting 
party after discovery of an error as required under proposed Rule 
905(a)(1) would impose costs on non-reporting-party participants.
    With respect to reporting parties, the Commission preliminarily 
believes that proposed Rule 905(a) would impose an initial, one-time 
cost associated with designing and building the reporting party's 
reporting system to be capable of submitting amended SBS transactions 
to a registered SDR. In addition, reporting parties would face ongoing 
costs associated with supporting and maintaining the error reporting 
function.\325\
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    \325\ The Commission preliminarily believes that the actual 
submission of amended transaction reports required under proposed 
Rule 905(a)(2) would not result in material, independent costs 
because this would be done electronically though the reporting 
system that the reporting party must develop and maintain to comply 
with proposed Rule 901. The costs associated with such a reporting 
system are addressed in the Commission's analysis of proposed Rule 
901. See supra Section XIV.B.2 and notes 298-301.
---------------------------------------------------------------------------

    The Commission preliminarily believes that designing and building 
appropriate reporting system functionality to comply with proposed Rule 
905(a)(2) would be a component of, and represent an incremental ``add-
on'' to, the cost to build a reporting system and develop a compliance 
function as required under proposed Rule 901.
    Based on discussions with industry participants, the Commission 
preliminarily estimates this incremental burden to be equal to 5% of 
the one-time and annual costs associated with designing and building a 
reporting system that is in compliance with proposed Rule 901,\326\ 
plus 10% of the corresponding one-time and annual costs associated with 
developing the reporting party's overall compliance program required 
under proposed Rule 901.\327\ Thus, for reporting parties, the 
Commission preliminarily estimates that proposed Rule 905(a) would 
impose an initial (first-year) aggregate cost of $11,419,000, which is 
$11,419 per reporting party,\328\ and an ongoing aggregate annualized 
burden of $3,927,000, which is $3,927 per reporting party.\329\
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    \326\ See supra notes 298 and 299.
    \327\ See supra notes 302 and 303.
    \328\ This figure is calculated as follows: [((($46,657 one-time 
development of reporting system) x (0.05)) + (($5,400 annual 
maintenance of reporting system) x (0.05)) + (($51,590 one-time 
compliance program development) x (0.1)) + (($36,572 annual support 
of compliance program) x (0.1))) x (1,000 reporting parties)] = 
$11,419,000, which is $11,419 per reporting party.
    \329\ This figure is calculated as follows: [((($5,400 annual 
maintenance of reporting system) x (0.05)) + (($36,572 annual 
support of compliance program) x (0.1))) x (1,000 reporting 
parties)] = $3,927,000, which is $3,927 per reporting party.
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    With regard to non-reporting-party participants, the Commission 
preliminarily believes that proposed Rule 905(a) would impose an 
initial and ongoing cost associated with promptly notifying the 
relevant reporting party after discovery of an error as required under 
proposed Rule 905(a)(1). The Commission preliminarily estimates that 
such annual cost would be $172,280,000, which corresponds to $43,070 
per non-reporting-party

[[Page 75272]]

participant.\330\ This figure is based on the Commission's preliminary 
estimates of (1) 4,000 non-reporting-party participants; (2) 11 
transactions per day per non-reporting-party participant;\331\ and (3) 
an error rate of one-third (33%),\332\ or approximately 4 transactions 
per day per non-reporting-party participant.
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    \330\ This figure is based on the following: [(4 error 
notifications per non-reporting-party participant per day) x (365 
days/year) x (Compliance Clerk (0.5 hours/report) at $59 per hour) x 
(4,000 non-reporting-party participants)] = $172,280,000, which 
corresponds to $43,070 per non-reporting-party participant. The 
Commission preliminarily believes that participants already monitor 
their SBS transactions and positions in the ordinary course of 
business. Thus, the Commission preliminary believes that, as a 
practical matter, proposed Rule 905 would not result in any 
significant new burdens for these participants.
    \331\ This figure is based on the following: [((15,458,824 
estimated annual SBS transactions)/(4,000 estimated non-reporting-
party participants))/(365 days/year)] = 10.58, or approximately 11 
transactions per day. See supra note 185. The Commission understands 
that many of these transactions may arise from previously executed 
SBS transactions.
    \332\ In other words, the Commission is estimating that one-
third of all SBS transactions will require an amended report to be 
submitted to the registered SDR pursuant to proposed Rule 905(a). 
For purposes of its PRA analysis, the Commission is further assuming 
that both the non-reporting-party participant and the reporting 
party discover all errors. The Commission recognizes that, as a 
practical matter, there may be instances where one party fails to 
detect an error.
---------------------------------------------------------------------------

    For registered SDRs, the ability to verify disputed information, 
process a transaction report cancellation, accept a new SBS transaction 
report, and update relevant records are all capabilities that the 
registered SDR would have to implement to comply with its obligations 
under proposed Regulation SDR.\333\ Likewise, a registered SDR would be 
required to have the capacity to re-disseminate SBS transaction reports 
pursuant to proposed Rule 902. The Commission preliminarily believes 
that the costs associated with establishing these capabilities, 
including systems development, support, and maintenance, are largely 
addressed in the Commission's analysis of those rules.\334\ The 
Commission preliminarily estimates that to develop and publicly provide 
the necessary protocols for carrying out these functions would impose 
on each registered SDR a cost of $186,790.\335\ The Commission 
estimates that to review and update such protocols would impose an 
annualized cost on each registered SDR of $373,580.\336\
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    \333\ See SDR Registration Proposing Release, supra note 6.
    \334\ See id.
    \335\ This figure is based on the following: [(Sr. Programmer 
(80 hours) at $285 per hour) + (Compliance Manager (160 hours) at 
$294 per hour) + (Compliance Attorney (250 hours) at $291 per hour) 
+ (Compliance Clerk (120 hours) at $59 per hour) + (Sr. Systems 
Analyst (80 hours) at $251 per hour) + (Director of Compliance (40 
hours) at $426 per hour) = $186,790.
    \336\ This figure is based on the following: [(Sr. Programmer 
(160 hours) at $285 per hour) + (Compliance Manager (320 hours) at 
$294 per hour) + (Compliance Attorney (500 hours) at $291 per hour) 
+ (Compliance Clerk (240 hours) at $59 per hour) + (Sr. Systems 
Analyst (160 hours) at $251 per hour) + (Director of Compliance (80 
hours) at $426 per hour)] = $373,580.
---------------------------------------------------------------------------

    Accordingly, the Commission preliminarily estimates that the 
initial aggregate annualized cost on registered SDRs under proposed 
Rule 905 would be $5,603,700, which corresponds to $560,370 for each 
registered SDR.\337\ The Commission further preliminarily estimates 
that the ongoing aggregate annualized cost on registered SDRs under 
proposed Rule 905 would be $3,735,800, which corresponds to $373,580 
for each registered SDR.\338\
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    \337\ This figure is based on the following: [($186,790 to 
develop protocols) + ($373,580 for annual support)) x (10 registered 
SDRs)] = $5,603,700, which corresponds to $560,370 per registered 
SDR.
    \338\ This figure is based on the following: [($373,580 for 
annual support per registered SDR) x (10 registered SDRs)] = 
$3,735,800, which corresponds to $373,580 per registered SDR.
---------------------------------------------------------------------------

3. Request for Comment
    The Commission requests comment on the costs and benefits of 
proposed Rule 905 discussed above, as well as any costs and benefits 
not already described that could result. The Commission also requests 
data to quantify any potential costs or benefits. In addition, the 
Commission requests comment on the following:
    276. How can the Commission more accurately estimate the costs and 
benefits related to correcting errors in reported and disseminated SBS 
information?
    277. Would proposed Rule 905 create any additional costs or 
benefits not discussed here?

G. Other Duties of Participants--Rule 906 of Regulation SBSR

    Proposed Rule 906(a) would set forth a procedure designed to ensure 
that a registered SDR obtains relevant ID information for both 
counterparties to a SBS, not just the IDs of the reporting party. 
Proposed Rule 906(a) would require a registered SDR to identify any SBS 
reported to it for which it does not have participant ID and (if 
applicable) broker ID, desk ID, and trader ID of each counterparty. For 
such transactions, the registered SDR would be required to send a 
report, once a day, to each participant seeking the missing 
information. Under proposed Rule 906(a), a participant that receives 
such a report would be required to provide the missing ID information 
to the registered SDR within 24 hours.
    Proposed Rule 906(b) would require participants to provide a 
registered SDR with information identifying the participant's 
affiliate(s) that may also be participants of the registered SDR, as 
well as its ultimate parent(s). Additionally, under proposed Rule 
906(b) participants would be required to promptly notify the registered 
SDR of any changes to the information previously provided.
    Proposed Rule 906(c) would require a participant that is a SBS 
dealer or major SBS participant to establish, maintain, and enforce 
written policies and procedures that are reasonably designed to ensure 
compliance with any SBS transaction reporting obligations in a manner 
consistent with proposed Regulation SBSR and the registered SDR's 
applicable policies and procedures. In addition, proposed Rule 906(c) 
would require each such participant to review and update its policies 
and procedures at least annually.
1. Benefits
    The Commission preliminarily believes that proposed Rule 906(a) 
would enable each registered SDR to obtain more complete records, 
consistent with the goals of the Dodd-Frank Act. Also, proposed Rule 
906(a) would provide regulators with a more comprehensive picture of 
SBS transactions, thus enabling more robust surveillance and 
supervision of the SBS markets. More complete SBS records would provide 
the Commission necessary information to investigate specific 
transactions and respond effectively when issues arise in the SBS 
markets.
    Proposed Rule 906(b) is designed to enhance the Commission's 
ability to monitor and surveil the SBS markets. Obtaining this ultimate 
parent(s) and affiliate(s) information would be helpful for 
understanding the risk profile of not only individual counterparties, 
but for large financial groups. The Commission further preliminarily 
believes that it is important that the participants promptly notify the 
registered SDR of any changes to the information regarding ultimate 
parent(s) and affiliate(s), as this would impact the value of the data 
that the registered SDR would be retaining for regulatory purposes.
    Furthermore, proposed Rule 906(b) could result in significant 
benefits by encouraging the creation and widespread use of generally 
accepted standards for reference information. The Commission 
understands that some efforts have been undertaken--in both

[[Page 75273]]

the private and public sectors, both domestically and internationally--
to establish a comprehensive and widely accepted system for identifying 
entities that participate not just in the SBS market, but in the 
financial markets generally. Such a system would be of significant 
benefit to regulators worldwide, as each market participant could 
readily be identified using a single reference code regardless of the 
jurisdiction or product market in which the market participant was 
engaging. Such a system also could be of significant benefit to the 
private sector, as market participants would have a common 
identification system for all counterparties and reference entities, 
and would no longer have to use multiple proprietary nomenclature 
systems. The enactment of the Dodd-Frank Act and the establishment of a 
comprehensive system for reporting and dissemination of SBSs--and for 
reporting and dissemination of swaps, under jurisdiction of the CFTC--
offer a unique opportunity to facilitate the establishment of a 
comprehensive and widely accepted system for identifying entities that 
participate not just in the SBS market, but in the financial markets 
generally.
    The Commission preliminarily believes that proposed Rule 906(c) 
could provide benefits to SBS market participants and the market as a 
whole. Proposed Rule 906(c) would enhance the overall reliability SBS 
transaction data that is required to be reported to a registered SDR 
pursuant to proposed Rule 901. Requiring SBS dealers and major SBS 
participants to adopt and maintain written policies and procedures 
addressing compliance with proposed Regulations SBSR should result in 
more reliable reporting of SBS transaction data. More reliable 
reporting would benefit counterparties to SBS transactions, and the 
market more generally, by increasing the usefulness of the disseminated 
data, and would benefit regulators using and analyzing the reported 
data. In addition, requiring participants that are SBS dealers or major 
SBS participants--the entities that engage in the most SBS 
transactions--to implement policies and procedures could reduce the 
incidence of outages, reporting system malfunctions, or interruptions 
by addressing how they may be prevented and, in the event one occurs, 
how it could be resolved with the least negative impact.
    The Commission preliminarily believes that requiring each 
participant that is a SBS dealer or major SBS participant to adopt and 
maintain written policies and procedures related to the reporting of 
SBS transactions may have additional benefits. Proposed Rule 906(c) 
should foster compliance efforts more generally among participants. 
With written policies and procedures, a participant's compliance with 
its reporting obligations would not be overly dependent on any specific 
individual. Higher quality reporting of SBS transaction data should 
generate greater confidence among SBS market participants and benefit 
the market as a whole. Over time, participants and the Commission also 
would be able to compare different approaches and develop best 
practices for the reporting of SBS transactions. Best practices would 
be valuable to the participants, the Commission, and market as a whole 
by supporting more complete and accurate SBS transaction reporting. 
Comparing the written policies and procedures adopted and maintained by 
covered participants would also support Commission supervision and 
oversight of SBS transaction reporting. For example, the failure of a 
SBS dealer or major SBS participant to adopt and maintain appropriate 
policies and procedures as required under proposed Rule 906(c) could 
serve as an important indicator of other compliance issues. Proposed 
Rule 906(c) could thus provide the Commission a means to address such 
concerns proactively.
2. Costs
    Proposed Rule 906(a) would require a registered SDR, once a day, to 
send a report to each participant identifying, for each SBS to which 
that participant is a counterparty, the SBS(s) for which the registered 
SDR lacks participant ID and (if applicable) broker ID, desk ID, and 
trader ID. The Commission preliminarily estimates that each registered 
SDR would face a one-time, initial cost of $30,832 to create a report 
template and develop the necessary systems and processes to produce a 
daily report required by proposed Rule 906(a).\339\ The Commission 
further preliminarily believes that there would be an ongoing annual 
cost for a registered SDR to generate and issue the daily reports, and 
to enter into its systems the ID information supplied by participants 
in response to the daily reports, of approximately $29,244.\340\
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    \339\ The Commission derived its estimate from the following: 
[(Senior Systems Analyst (40 hours) at $251 per hour) + (Sr. 
Programmer (40 hours) at $285 per hour) + (Compliance Manager (16 
hours) at $294 per hour) + (Director of Compliance (8 hours) at $426 
per hour) + (Compliance Attorney (8 hours) at $291)] = $30,832.
    \340\ The Commission derived its estimate from the following: 
[(Senior Systems Analyst (24 hours) at $251 per hour) + (Sr. 
Programmer (24 hours) at $285 per hour) + (Compliance Clerk (260 
hours) at $59 per hour)] = $29,244.
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    Accordingly, the Commission preliminarily estimates that the 
initial aggregate annualized cost for registered SDRs associated with 
proposed Rule 906(a) would be approximately $600,760, which corresponds 
to $60,076 per registered SDR.\341\ The Commission preliminarily 
estimates that the ongoing aggregate annualized cost for registered 
SDRs associated with proposed Rule 906(a) would be approximately 
$292,440, which corresponds to $29,244 per for registered SDR.\342\
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    \341\ The Commission derived its estimate from the following: 
[($30,832 + $29,244) x (10 registered SDRs)] = $600,760, which 
corresponds to $60,076 per registered SDR.
    \342\ The Commission derived its estimate from the following: 
[($29,244) x (10 registered SDRs)] = $292,440, which corresponds to 
$29,244 per registered SDR.
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    Proposed Rule 906(a) would require a participant that receives a 
daily report from a registered SDR to provide the missing UICs to the 
registered SDR within 24 hours. Proposed Rule 906(a) would impose 
initial and ongoing costs on participants to complete and return the 
reports received from a registered SDR. The Commission preliminarily 
estimates that proposed Rule 906(a) would not result in any initial or 
ongoing costs for participants that are reporting parties. This 
estimate is based on the Commission's preliminary belief that a 
reporting party would structure its reporting program to be in 
compliance with proposed Regulation SBSR, and consequently, would send 
complete information as relates to itself for each SBS transaction 
submitted to a registered SDR. The Commission further preliminarily 
estimates that proposed Rule 906(a) would result in an initial and 
ongoing aggregate annualized cost for participants of approximately 
$75,372,500, which corresponds to a cost of approximately $15,100 per 
participant.\343\ This figure is based on the Commission's preliminary 
estimates of (1) 5,000 participants; (2) 9 transactions per day per 
participant; \344\ and (3) a missing information rate of

[[Page 75274]]

80%,\345\ or approximately 7 transactions per day per participant.
---------------------------------------------------------------------------

    \343\ This figure is based on the following: [(7 missing 
information reports per participant per day) x (365 days/year) x 
(Compliance Clerk (0.1 hours) at $59 per hour) x (5,000 
participants)] = $75,372,500, which corresponds to $15,074.50 per 
participant.
    \344\ This figure is based on the following: [((15,458,824 
estimated annual SBS transactions)/(5,000 estimated participants))/
(365 days/year)] = 8.47, or approximately 9 transactions per day. 
See supra note 290. The Commission understands that many of these 
transactions may arise from previously executed SBS transactions.
    \345\ In other words, the Commission is estimating that 80% of 
the time the reporting party would not know and thus would not be 
able to report the necessary UICs of its counterparty. Therefore, a 
registered SDR would have to obtain the missing UICs through the 
process described in proposed Rule 906(a).
---------------------------------------------------------------------------

    Proposed Rule 906(b) would require every participant to provide a 
registered SDR an initial parent/affiliate report, using ultimate 
parent IDs and participant IDs, and updating that information, as 
necessary. The Commission preliminarily estimates that the cost for 
each participant to submit an initial or update report would be 
$29.50.\346\ The Commission preliminarily estimates that each 
participant would submit two reports each year.\347\ In addition, the 
Commission preliminarily estimates that there may be 5,000 SBS 
participants and that each one may connect to two registered SDRs. 
Accordingly, the Commission preliminarily estimates that the initial 
and ongoing aggregate annualized cost associated with proposed Rule 
906(b) would be $590,000, which corresponds to $118 per 
participant.\348\
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    \346\ This figure is based on the following: [(Compliance Clerk 
(0.5 hours) at $59 per hour) x (1 report)] = $29.50.
    \347\ During the first year, the Commission preliminarily 
believes each participant would submit its initial report and one 
update report. In subsequent years, the Commission preliminarily 
estimates that each participant would submit two update reports.
    \348\ This figure is based on the following: [($29.50/report) x 
(2 reports/year/SDR connection) x (2 SDR connections/participant) x 
(5,000 participants)] = $590,000, which corresponds to $118 per 
participant.
---------------------------------------------------------------------------

    The Commission, in proposed Regulation SBSR, is not requiring the 
development of internationally recognized standards for reference 
information (such participant IDs or ultimate parent IDs) that could be 
used across the financial service industry. Therefore, the Commission 
believes that the costs of developing and sustaining such a system 
should not be considered costs of proposed Regulation SBSR. However, 
proposed Regulation SBSR would require a registered SDR and its 
participants to use UICs generated by such a system, if such system 
were able to generate such UICs. Although the Commission believes there 
would be long-term benefits for using UICs generated by such a system, 
there could be short-term costs imposed on reporting parties to convert 
to such a system. In addition, under these internationally recognized 
standards, users of the reference information could have to pay 
reasonable fees to support the system. These fees also would represent 
costs of proposed Rule 901. The Commission requests comment on this 
issue and any potential costs associated with the potential future use 
of internationally recognized standards.
    Proposed Rule 906(c) would require each participant that is a SBS 
dealer or major SBS participant to establish, maintain, and enforce 
written policies and procedures that are reasonably designed to ensure 
compliance with any SBS transaction reporting obligations in a manner 
consistent with proposed Regulation SBSR and the registered SDR's 
applicable policies and procedures. Proposed Rule 906(c) would also 
require the review and updating of such policies and procedures at 
least annually. The Commission preliminarily estimates that developing 
and implementing written policies and procedures as required under the 
proposed rule could result in a one-time initial cost to each covered 
participant of approximately $52,440.\349\ Drawing on the Commission's 
experience with other rules that require entities to establish and 
maintain policies and procedures,\350\ this figure includes the 
estimated cost to develop a set of written policies and procedures, 
program systems, implement internal controls and oversight, train 
relevant employees, and perform necessary testing. In addition, the 
Commission preliminarily estimates that the annualized cost to maintain 
such policies and procedures, including a full review at least 
annually, as required under the proposed rule, would be approximately 
$29,736 for each covered participant.\351\ This figure is based on an 
estimate of the cost to review existing policies and procedures, make 
any necessary updates, conduct ongoing training, maintain relevant 
systems and internal controls systems, and perform necessary testing.
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    \349\ The Commission derived its estimate from the following: 
[(Sr. Programmer (40 hours) at $285 per hour) + (Compliance Manager 
(40 hours) at $294 per hour) + (Compliance Attorney (40 hours) at 
$291 per hour) + (Compliance Clerk (40 hours) at $59 per hour) + 
(Sr. Systems Analyst (32 hours) at $251 per hour) + (Director of 
Compliance (24 hours) at $426 per hour)] = $52,440 per covered 
participant.
    \350\ See supra note 256.
    \351\ The Commission derived its estimate from the following: 
[(Sr. Programmer (8 hours) at $285 per hour) + (Compliance Manager 
(24 hours) at $294 per hour) + (Compliance Attorney (24 hours) at 
$291 per hour) + (Compliance Clerk (24 hours) at $59 per hour) + 
(Sr. Systems Analyst (16 hours) at $251 per hour) + (Director of 
Compliance (24 hours) at $426 per hour)] = $29,736 per participant.
---------------------------------------------------------------------------

    Accordingly, the Commission preliminarily estimates that the 
initial aggregate annualized cost associated with proposed Rule 906(c) 
would be approximately $82,176,000, which corresponds to $82,176 per 
covered participant.\352\ The Commission preliminarily estimates that 
the ongoing aggregate annualized cost associated with proposed Rule 
906(c) would be approximately $29,736,000, which corresponds to $29,736 
per covered participant.\353\
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    \352\ The Commission derived its estimate from the following: 
[($52,440 + $29,736) x (1,000 covered participants)] = $82,176,000.
    \353\ The Commission derived its estimate from the following: 
[($29,736) x (1,000 covered participants)] = $29,736,000.
---------------------------------------------------------------------------

    In total, the Commission preliminarily believes that proposed Rule 
906 would result in an initial, aggregate annualized cost of 
$159,094,260,\354\ and an ongoing, aggregate annualized cost of 
$106,350,860 for all covered entities.\355\
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    \354\ This figure is based on the following: [($600,760 for 
registered SDRs under proposed Rule 906(a)) + ($75,372,500 for non-
reporting-party participants under proposed Rule 906(a)) + ($945,000 
for participants under proposed Rule 906(b)) + ($82,176,000 for 
covered participants under proposed Rule 906(c))] = $159,094,260.
    \355\ This figure is based on the following: [($297,360 for 
registered SDRs under proposed Rule 906(a)) + ($75,372,500 for non-
reporting-party participants under proposed Rule 906(a)) + ($945,000 
for participants under proposed Rule 906(b)) + ($29,736,000 for 
covered participants under proposed Rule 906(c))] = $106,350,860.
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3. Request for Comment
    The Commission requests comment on the costs and benefits of 
proposed Rule 906 discussed above, as well as any costs and benefits 
not already described that could result. The Commission also requests 
data to quantify any potential costs or benefits. In addition, the 
Commission requests comment on the following:
    278. How can the Commission more accurately estimate the costs and 
benefits?
    279. Would proposed Rule 906 create any additional costs or 
benefits not discussed here?
    280. What would be the costs and benefits of having reference 
identifiers established under the auspices of an IRSB--for 
participants? For registered SDRs? What fees might be charged to 
support such a system? How much would those fees be? Who would have to 
pay them?
    281. What would be the costs to verify ultimate parent and 
affiliate information under the auspices of an IRSB and maintain it 
over time? What would be the benefits of having such information 
verified and maintained?
    282. To what extent do participants already have policies and 
procedures in place for reporting information to an SDR? To what extent 
would proposed Rule 906(c) impose costs on covered

[[Page 75275]]

participants that they have not already incurred?

H. Policies and Procedures of Registered SDRs--Rule 907 of Regulation 
SBSR

    Proposed Rule 907 would require a registered SDR to establish and 
maintain compliance with written policies and procedures: (1) That 
enumerate the specific data elements of an SBS or a life cycle event 
that a reporting party would report; (2) that specify data formats, 
connectivity requirements, and other protocols for submitting 
information; (3) for specifying how reporting parties are to report 
corrections to previously submitted information, making corrections to 
information in its records that is subsequently discovered to be 
erroneous, and applying an appropriate indicator to any transaction 
report required to be disseminated by proposed Rule 905(b)(2), which 
would denote that the report relates to a previously disseminated 
transaction; (4) describing how reporting parties shall report and, 
consistent with the enhancement of price discovery, how the registered 
SDR shall publicly disseminate, reports of, and adjustments due to, 
life cycle events; SBS transactions that do not involve an opportunity 
to negotiate any material terms, other than the counterparty; and any 
other SBS transactions that, in the estimation of the registered SDR, 
do not accurately reflect the market; (5) for assigning transaction IDs 
and UICs related to its participants; and (6) for periodically 
obtaining from each participant information that identifies the 
participant's ultimate parent(s) and any other participant(s) with 
which the counterparty is affiliated, using applicable UICs.
    In addition, proposed Rule 907(b) would require a registered SDR to 
establish and maintain written policies and procedures for calculating 
and publicizing block trade thresholds for all SBS instruments reported 
to the registered SDR in accordance with the criteria and formula for 
determining block size as specified by the Commission.
    Under proposed Rules 907(c) and (d), a registered SDR would be 
required to make its policies and procedures publicly available on its 
Web site, and review, and update as necessary, its policies and 
procedures at least annually, indicating the date on which they were 
last reviewed. Finally, proposed Rule 907(e) would require a registered 
SDR to have the capacity to provide to the Commission, upon request, 
information or reports related to the timeliness, accuracy, and 
completeness of data reported to it pursuant to proposed Regulation 
SBSR and the registered SDR's policies and procedures thereunder.
1. Benefits
    In proposed Regulation SBSR, the Commission is establishing a 
number of broad policy goals for implementing Title VII of the Dodd-
Frank Act. Proposed Rule 907 would permit a registered SDR some 
flexibility regarding how to meet those goals. In many cases, there 
could be many ways that that these goals could be carried out 
effectively, and it may not be necessary or appropriate in all cases to 
establish one particular way by rule. By requiring a registered SDR, in 
proposed Rule 907, to develop policies and procedures for completing 
many of the details of an SBS transaction reporting and dissemination 
system, the Commission seeks to harness the knowledge and experience of 
registered SDRs and harness market incentives to develop the policies 
and procedures that are most effective in meeting the policy goals in 
an efficient manner. The Commission expects that, over time, registered 
SDRs, participants, and the Commission could identify best practices 
for the reporting and dissemination of SBS transactions.
    Proposed Rules 907(a)(1) and (2) would require a registered SDR to 
develop and maintain policies and procedures to specify the data 
elements of a SBS or a life cycle event that a reporting party must 
report, as well as the data formats, connectivity requirements, and 
other protocols for submitting information. The Commission 
preliminarily believes that assigning this responsibility to a 
registered SDR would provide a level of flexibility and transparency 
that is necessary in this developing market. Furthermore, this approach 
would allow registered SDRs (perhaps, but not necessarily, after 
consultation with their participants) to quickly identify and address 
potential weaknesses in the SBS transaction reporting process as set 
out under proposed Regulation SBSR.
    Proposed Rule 907(a)(3) would require a registered SDR to establish 
and maintain compliance with policies and procedures for specifying how 
reporting parties are to report corrections to previously submitted 
information, making corrections to information in its records that is 
subsequently discovered to be erroneous, and applying an appropriate 
indicator to any transaction report required to be disseminated by 
proposed Rule 905(b)(2), which would denote that the report relates to 
a previously disseminated transaction. The Commission preliminarily 
believes that a registered SDR is in the best position to determine how 
these corrections are submitted, and believes that a consistent regime 
for the submission of correction by participants would benefit all 
market participants.
    Proposed Rule 907(a)(4) would require a registered SDR to develop 
and maintain policies and procedures that describe how reporting 
parties would report and, consistent with the enhancement of price 
discovery, how the registered SDR would publicly disseminate reports 
of, and adjustments to, life cycle events; SBS transactions that do not 
involve an opportunity to negotiate any material terms, other than the 
counterparty; and any other SBS transactions that, in the estimation of 
the registered SDR, do not accurately reflect the market. The 
Commission believes that the entire SBS market could benefit if a 
registered SDR, using its knowledge of the market, would develop 
consistent and transparent standards when certain SBS might have 
characteristics that reduce or eliminate entirely their price discovery 
value. For example, while an inter-affiliate SBS transaction would be 
required to be reported (so that the registered SDR obtains information 
about the legal owner), it could be disseminated with indication that 
the transaction was not at arm's length.
    Proposed Rule 907(a)(5) would require a registered SDR to establish 
and maintain compliance with policies and procedures for assigning a 
transaction ID to each SBS that is reported to it, and for assigning 
UICs, including participant IDs, ultimate parent IDs, desk IDs, broker 
IDs, and trader IDs. As noted above, all such UICs would have to be 
assigned by or on behalf of an IRSB (or, if no standards-setting body 
meet the required criteria or the IRSB has not assigned a UIC to a 
particular person or unit thereof, by the registered SDR). Proposed 
Rule 906 could result in significant benefits by encouraging the 
creation and widespread use of internationally recognized standards for 
reference information. The Commission preliminarily believes that 
reporting of information using UICs would promote effective oversight, 
enforcement, and surveillance of the SBS market by the Commission and 
other regulators. For example, activity could be tracked by a 
particular participant, a particular desk, or a particular trader. 
Regulators could observe patterns and connections in trading activity, 
or examine whether a trader had engaged in questionable trading 
activity across different SBS instruments. UICs also could facilitate 
aggregation and monitoring of the positions of SBS counterparties, 
which

[[Page 75276]]

could be of significant benefit for prudential and systemic risk 
management.
    The Commission understands that some efforts have been undertaken--
in both the private and public sectors, both domestically and 
internationally--to establish a comprehensive and widely accepted 
system for identifying entities that participate not just in the SBS 
market, but in the financial markets generally. Such a system would be 
of significant benefit to regulators worldwide, as each market 
participant could readily be identified using a single reference code 
regardless of the jurisdiction or product market in which the market 
participant was engaging. Such a system also could be of significant 
benefit to the private sector, as market participants would have a 
common identification system for all counterparties and reference 
entities, and would no longer have to use multiple identification 
systems. The enactment of the Dodd-Frank Act and the establishment of a 
comprehensive system for reporting and dissemination of SBSs--and for 
reporting and dissemination of swaps, under the jurisdiction of the 
CFTC--offer a unique opportunity to facilitate the establishment of a 
comprehensive and widely accepted system for identifying entities that 
participate not just in the SBS market, but in the financial markets 
generally.
    Furthermore, requiring a registered SDR to establish and maintain 
compliance with written policies and procedures could result in more 
accurate reporting by reporting parties, and thus more reliable 
dissemination of SBS transaction data. Higher quality reporting and 
dissemination of SBS transaction data should generate greater 
confidence among registered SDRs, market participants, and regulators, 
thus strengthening the SBS market the market as a whole.
    The Commission preliminarily believes that requiring a registered 
SDR to calculate and publish block trade thresholds pursuant to 
proposed Rule 907(b) should help market participants, the Commission, 
and other regulators monitor block trade thresholds and track changes 
in the market for particular SBS instruments over time. The Commission 
preliminarily believes that a registered SDR is best placed to deliver 
these benefits, because an SDR has access to the necessary data and the 
ability to calculate and publicize the block trade thresholds 
efficiently.
    The Commission preliminarily believes that requiring a registered 
SDR to make publicly available on its Web site the policies and 
procedures required by proposed Regulation SBSR, pursuant to proposed 
Rule 907(c), would promote greater understanding of and compliance with 
such policies and procedures. Periodic review of the policies and 
procedures would also ensure that they are up-to-date.
    Finally, proposed Rule 907(e) would require a registered SDR to 
have the capacity to provide to the Commission, upon request, 
information or reports related to the timeliness, accuracy, and 
completeness of data reported to it pursuant to proposed Regulation 
SBSR and the registered SDR's policies and procedures thereunder. There 
could be benefits in obtaining information from each registered SDR 
related to the timeliness, accuracy, and completeness of data reported 
to the registered SDR. Required data submissions that are untimely, 
inaccurate, or incomplete could compromise the regulatory data that the 
Commission would utilize to carry out its oversight responsibilities. 
Furthermore, required data submissions that are untimely, inaccurate, 
or incomplete could diminish the value of publicly disseminated reports 
that promote transparency and price discovery. Information or reports 
provided to the Commission by a registered SDR related to the 
timeliness, accuracy, and completeness of data could assist the 
Commission in examining for compliance with proposed Regulation SBS and 
in bringing enforcement or other administrative actions as necessary 
and appropriate.
2. Costs
    The Commission preliminarily estimates that ten registered SDRs 
would be subject to proposed Rule 907, and that developing and 
implementing written policies and procedures as required under proposed 
Rule 907 could result in an initial, one-time cost to each registered 
SDR of approximately $3,831,000.\356\ This figure includes the 
estimated cost to develop a set of written policies and procedures, 
program systems, implement internal controls and oversight, train 
relevant employees, perform necessary testing, monitor participants, 
and compile data.\357\ In addition, the Commission preliminarily 
estimates that the annualized cost to maintain such policies and 
procedures, including a full review at least annually; making its 
policies and procedures publicly available on its Web site; and 
developing the capacity to provide the Commission information or 
reports related to the timeliness, accuracy, and completeness of data 
reported to it pursuant to proposed Regulation SBSR and the registered 
SDR's policies and procedures would be approximately $7,662,000 for 
each registered SDR.\358\ This figure is based on an estimate of the 
cost to review existing policies and procedures, make necessary 
updates, conduct ongoing training, maintain relevant systems and 
internal controls systems, calculate and publish block trade 
thresholds, perform necessary testing, monitor participants, and 
collect data. Accordingly, the Commission preliminarily estimates that 
the initial annualized cost associated with proposed Rule 907 would be 
approximately $11,492,500 per registered SDR, which corresponds to an 
initial annualized aggregate cost of approximately $114,924,500.\359\ 
The Commission preliminarily estimates that the ongoing annualized cost 
associated with proposed Rule 907 would be approximately $7,662,000 per 
registered SDR, which corresponds to an ongoing annualized aggregate 
cost of approximately $76,617,000.\360\ These figures are based, in 
part, on the

[[Page 75277]]

Commission's experience with other rules that require entities to 
establish and maintain compliance with policies and procedures.\361\
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    \356\ The Commission derived its estimate from the following: 
[(Sr. Programmer (1,667 hours) at $285 per hour) + (Compliance 
Manager (3,333 hours) at $294 per hour) + (Compliance Attorney 
(5,000 hours) at $291 per hour) + (Compliance Clerk (2500 hours) at 
$59 per hour) + (Sr. Systems Analyst (1,667 hours) at $251 per hour) 
+ (Director of Compliance (833 hours) at $426 per hour)] = 
$3,830,722 per SDR. The Commission preliminarily believes that 
potential SDRs that have similar policies and procedures in place 
may find that these costs would be lower, while potential SDRs that 
do not have similar policies and procedures in place may find that 
the potential costs would be higher.
    \357\ This figure includes time necessary to design and program 
systems and implement policies and procedures to calculate and 
publish block trade thresholds for all SBS instruments reported to 
the registered SDR as required by proposed Rule 907(b). It also 
includes time necessary to design and program systems and implement 
policies and procedures to determine which reported trades would not 
be considered block trades pursuant to proposed Rule 907(b). This 
figure also includes time necessary to design and program systems 
and implement policies and procedures to assign certain IDs, as 
required by proposed Rule 907(a)(5).
    \358\ The Commission derived its estimate from the following: 
[Sr. Programmer (3,333 hours) at $285 per hour) + (Compliance 
Manager (6,667 hours) at $294 per hour) + (Compliance Attorney 
(10,000 hours) at $291 per hour) + (Compliance Clerk (5,000 hours) 
at $59 per hour) + (Sr. Systems Analyst (3,333 hours) at $251 per 
hour) + (Director of Compliance (1,667 hours) at $426 per hour)] = 
$7,661,728 per registered SDR. The Commission preliminarily believes 
that potential SDRs that have similar policies and procedures in 
place may find that these costs would be lower, while potential SDRs 
that do not have similar policies and procedures in place may find 
that the potential costs would be higher.
    \359\ The Commission derived its estimate from the following: 
[((3,830,722) + ($7,661,728)) x (10 registered SDRs)] = 
$114,924,500.
    \360\ The Commission derived its estimate from the following: 
[($7,661,728) x (10 registered SDRs)] = $76,617,280.
    \361\ See supra note 256.
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    In addition, proposed Rule 907(a)(5) could impose certain costs on 
registered SDRs in connection with the use of internationally 
recognized standards for reference information. The Commission, in 
proposed Regulation SBSR, is not requiring the development of such 
standards that could be used across the financial service industry. 
Therefore, the Commission believes that the costs of developing and 
sustaining such a system should not be considered costs of proposed 
Regulation SBSR. However, proposed Regulation SBSR would require a 
registered SDR to use UICs generated by such a system, if such system 
is able to generate such UICs. Although the Commission believes there 
would be long-term benefits for using UICs generated by such a system, 
there could be short-term costs imposed on registered SDRs to convert 
to such a system. In addition, under these internationally recognized 
standards, users of the reference information could have to pay 
reasonable fees to support the system. These fees also would represent 
costs of proposed Rule 901. The Commission requests comment on this 
issue and any potential costs associated with the potential future use 
of internationally recognized standards.
    There could be a potential cost of proposed Rule 907 in that 
registered SDRs would retain flexibility to shape the details of a SBS 
trade reporting and dissemination system. It could be that such 
flexibility could result in varying approaches by each registered SDR 
and, thus, complicate the reporting of SBS transactions, impede the use 
of SBS transaction information that is publicly disseminated, or make 
market oversight more difficult. These potential costs could be avoided 
were the Commission to implement more of the details through 
rulemaking. The Commission requests comment on the costs, if any, 
associated with providing a registered SDR a certain amount of 
flexibility, and how those costs should be balance with the potential 
benefits as discussed above of providing the registered SDRS with 
flexibility.
    Finally, with respect to proposed Rule 907(e), the Commission 
preliminarily believes that, as part of its core functions, a 
registered SDR would have the capacity to provide to the Commission, 
upon request, information or reports related to the timeliness, 
accuracy, and completeness of data reported to it pursuant to proposed 
Regulation SBSR and the registered SDR's policies and procedures. 
Proposed Rule 13n-5(b) would require a registered SDR to establish, 
maintain, and enforce written policies and procedures to satisfy itself 
by reasonable means that the transaction data that has been submitted 
to the security-based swap data repository is accurate, and also to 
ensure that the transaction data and positions that it maintains are 
accurate.\362\ The Commission preliminarily believes that these 
capabilities would enable a registered SDR to provide the Commission 
information or reports as may be requested pursuant to proposed Rule 
907(e). Thus, the Commission does not believe that proposed Rule 907(e) 
would impose any additional costs on a registered SDR.
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    \362\ See SDR Registration Proposing Release, supra note 6, 
proposed Rules 13n-5(b)(1)(iii) and 13n-5(b)(3) under the Exchange 
Act.
---------------------------------------------------------------------------

3. Request for Comment
    The Commission requests comment on the costs and benefits of 
proposed Rule 907 discussed above, as well as any costs and benefits 
not already described that could result. The Commission also requests 
data to quantify any potential costs or benefits. In addition, the 
Commission requests comment on the following:
    283. How can the Commission more accurately estimate the costs and 
benefits?
    284. Would proposed Rule 907 create any additional costs or 
benefits not discussed here?
    285. Is it a potential cost that the policies and procedures 
sufficiently detailed such that participants would be able to know what 
is required of them?
    286. What are the costs and benefits of allowing a registered SDR 
some flexibility to determine whether certain SBSs may not have price 
discovery value and to use certain indicators to that effect in the 
publicly disseminated transaction reports?
    287. What costs would be imposed on a registered SDR to use UICs 
that had been established by or on behalf of an IRSB? Would the 
registered SDR have to pay fees to support the system? To whom? How 
much would the fees be? What would be the costs of transitioning to 
such a system? How would these overall costs compare to the costs that 
would be incurred by a registered SDR to assign UICs using its own 
methodology?
    288. What are the costs of allowing registered SDRs flexibility to 
shape many of the details of a SBS trade reporting and dissemination 
system? What are the benefits?

I. Jurisdictional Matters--Rule 908 of Regulation SBSR

1. Benefits
    The Commission believes that, in proposing Rule 908, the Commission 
has no discretion about which entities or SBSs are subject to the 
Exchange Act, as amended by the Dodd-Frank Act. A federal agency does 
not have the power to expand or circumscribe the reach of U.S. law. 
Therefore, because the Commission has no discretion in the matter, 
there are no benefits to proposed Rule 908 other than those inherent in 
the Exchange Act, as amended by the Dodd-Frank Act.
2. Costs
    Similarly, because the Commission has no discretion in the matter, 
there are no costs to proposed Rule 908 other than those inherent in 
the Exchange Act, as amended by the Dodd-Frank Act.

J. Registration of Security-Based Swap Data Repository as Securities 
Information Processor--Rule 909 of Regulation SBSR

    Proposed Rule 909 would require each registered SDR also to 
register with the Commission as a SIP on existing Form SIP.
1. Benefits
    The Commission preliminarily believes that SIP registration of a 
registered SDR would help ensure fair access to important SBS 
transaction data reported to and publicly disseminated by the 
registered SDR. Requiring a registered SDR to register with the 
Commission as a SIP would subject it to Section 11A(b)(5) of the 
Exchange Act,\363\ which provides that a registered SIP must notify the 
Commission whenever it prohibits or limits any person's access to its 
services. Upon its own motion or upon application by any aggrieved 
person, the Commission could review the SIP's action.\364\ If the 
Commission finds that the person has been discriminated against 
unfairly, it could require the SIP to provide access to that 
person.\365\ Section 11A(b)(6) of the Exchange Act \366\ also provides 
the Commission authority to take certain regulatory action as may be 
necessary or appropriate against a registered SIP.\367\

[[Page 75278]]

The Commission preliminarily believes that potential consumers of SBS 
market data would benefit from the Commission having the additional 
authority over a registered SDR/SIP provided by Sections 11A(b)(5) and 
11A(b)(6) of the Exchange Act to help ensure that these entities offer 
their SBS market data on terms that are fair and reasonable and not 
unreasonably discriminatory.
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    \363\ 15 U.S.C. 78k-1(b)(5).
    \364\ See 15 U.S.C. 78k-1(b)(5)(A).
    \365\ See 15 U.S.C. 78k-1(b)(5)(B).
    \366\ 15 U.S.C. 78k-1(b)(6).
    \367\ Section 11A(b)(6) of the Exchange Act provides that the 
Commission, by order, may censure or place limitations upon the 
activities, functions, or operations of any registered SIP or 
suspend for a period not exceeding 12 months or revoke the 
registration of any such processor, if the Commission finds, on the 
record after notice and opportunity for hearing, that such censure, 
placing of limitations, suspension, or revocation is in the public 
interest, necessary or appropriate for the protection of investors, 
or to assure the prompt, accurate, or reliable performance of the 
functions of such SIP, and that such SIP has violated or is unable 
to comply with any provision of this title or the rules or 
regulations thereunder.
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2. Costs
    The Commission preliminarily believes that the costs of proposed 
Rule 909 would be minimal. As noted above, proposed Rule 909 would 
impose an initial one-time cost on each registered SDR associated with 
the submission of Form SIP.\368\ The Commission notes that Form SDR, 
which all SDRs would be required to complete and submit to the 
Commission pursuant to proposed Rule 13n-1 under the Exchange Act,\369\ 
and Form SIP are similar in many respects. Thus, the Commission 
preliminarily believes that a registered SDR, which must complete Form 
SDR, would be able to complete Form SIP more easily and with less cost 
than otherwise would be the case. The Commission preliminarily 
estimates that the one-time cost to each SDR to complete Form SIP would 
be about one-quarter the cost of completing proposed Form SDR, or 
approximately $14,600.\370\ In addition, the Commission preliminarily 
estimates that each SDR would incur approximately one half of the 
ongoing annual costs--corresponding to an average of six months of 
operations--during the first year. The Commission preliminarily 
estimates this cost would be approximately $730 per SDR/SIP.\371\
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    \368\ See supra Section XII.J.
    \369\ See SDR Registration Proposing Release, supra note 6.
    \370\ The Commission derived its estimate from the following: 
[(Compliance Attorney (37.5 hours) at $291 per hour) + (Compliance 
Clerk (62.5 hours) at $59 per hour)] = $14,600. See Section XII(J) 
supra; SDR Registration Proposing Release, supra note 6.
    \371\ The Commission derived its estimate from the following: 
[($1,460/2)] = $730. See infra note 372.
---------------------------------------------------------------------------

    With regard to ongoing costs, the Commission preliminarily 
estimates that the aggregate annualized cost for providing amendments 
to Form SIP would be one-tenth of the cost to complete the initial Form 
SIP, or approximately $1,460 per SDR/SIP.\372\ This figure is based on 
a preliminary estimate that each registered SDR would submit one 
amendment on Form SIP each year. SIP registration also would require a 
registered SDR to provide notice to the Commission of prohibitions or 
limitations on access to its services. The Commission preliminarily 
believes that the notice would be a simple form, and that prohibitions 
or limitations on access to information provided by a registered SDR 
would be not be prevalent. Thus, the Commission does not believe that 
providing such notice would result in economically significant costs.
---------------------------------------------------------------------------

    \372\ The Commission derived its estimate from the following: 
[($14,600) x (0.1)] = $1,460. See supra note 370.
---------------------------------------------------------------------------

    Accordingly, the Commission preliminarily estimates that the 
initial aggregate annualized costs associated with proposed Rule 909 
would be approximately $153,300, which corresponds to $15,330 per 
registered SDR.\373\ The Commission further preliminary estimates that 
the ongoing aggregate annualized costs associated with proposed Rule 
909 would be approximately $14,600, or an ongoing annual cost of 
approximately $1,460 for each registered SDR/SIP.\374\ The Commission 
solicits comments as to the accuracy of these estimates.
---------------------------------------------------------------------------

    \373\ The Commission derived its estimate from the following: 
[(($14,600) + ($730)) x (10 registered SDRs)] = $153,300. See supra 
notes 370 and 371.
    \374\ The Commission derived its estimate from the following: 
[($1,460) x (10 registered SDRs)] = $14,600. See supra notes 372.
---------------------------------------------------------------------------

3. Request for Comment
    The Commission requests comment on the costs and benefits of 
proposed Rule 909 discussed above, as well as any costs and benefits 
not already described that could result. The Commission also requests 
data to quantify any potential costs or benefits. In addition, the 
Commission requests comment on the following:
    289. How can the Commission more accurately estimate the costs and 
benefits?
    290. Would proposed Rule 909 create any additional costs or 
benefits not discussed here?
    291. Are the Commission's preliminary estimates reasonable?
    292. Is SIP registration likely to impose costs not addressed? If 
so, what are they?

K. Implementation of Security-Based Swap Reporting and Dissemination--
Rule 910 of Regulation SBSR

1. Benefits
    Proposed Rule 910 addresses implementation of the obligations 
imposed by proposed Regulation SBSR. Proposed Rule 910(a) would require 
a reporting party to report to a registered SDR any pre-enactment SBSs 
subject to reporting under proposed Rule 901(i) no later than January 
12, 2012 (180 days after the effective date of the Dodd-Frank Act). The 
proposed timeframe would help ensure that the Commission has relevant 
information about SBS transactions necessary to prepare reports 
required by the Dodd-Frank Act.\375\ Further, proposed Rule 910 would 
help ensure timely implementation of Regulation SBSR, and thereby 
facilitate achievement of the goals articulated in the Dodd-Frank Act.
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    \375\ See Section 719 of the Dodd-Frank Act.
---------------------------------------------------------------------------

    Proposed Rule 910(b) would establish a phase-in period for each SDR 
that registers with the Commission, as well as its participants. The 
phase-in period would give both the registered SDR and its participants 
a reasonable period in which to acquire or configure the necessary 
systems, engage and train the necessary staff, and develop and 
implement the necessary policies and procedures to implement the 
proposed rules. In the absence of the measured and incremental approach 
specified in proposed Rule 910(b), market participants might not 
evaluate and develop their systems, processes, and procedures with 
sufficient care and analysis. Furthermore, without the phase-in period 
afforded by proposed Rule 910(b), registered SDRs and their 
participants could be forced to devote an undue amount of capital and 
resources to becoming compliant with proposed Regulation SBSR, thus 
diverting capital and resources from other productive endeavors.
2. Costs
    The Commission preliminarily believes that proposed Rule 910(a) 
would not require reporting parties to materially change their current 
practices or operations with respect to recordkeeping for the pre-
enactment SBSs or transitional SBSs. Any reporting party, as part of 
its regular business operations, would already maintain records 
covering most if not all of the data elements associated with a SBS. 
Furthermore, proposed Rule 910(a) would not require reporting parties 
to report any data elements (such as the

[[Page 75279]]

time of execution) that were not already available. Therefore, proposed 
Rule 910(a) would not require reporting parties to search for or 
reconstruct any missing data elements.
    To comply with the reporting obligations of proposed Rule 910(a), 
reporting parties likely would incur many of the costs that they 
otherwise would incur in order to comply with proposed Rule 901.\376\ 
Because of the substantial overlap between the costs necessitated by 
proposed Rule 910 and proposed Rule 901 (for reporting parties) and 
proposed Rule 902, the Commission preliminarily estimates that that the 
initial annualized, cost for each reporting party associated with 
proposed Rule 910 would be de minimis.
---------------------------------------------------------------------------

    \376\ See supra Section XIV.B.2.
---------------------------------------------------------------------------

    The Commission preliminarily estimates two types of costs 
associated with proposed Rule 910(b): One stemming from the possibility 
that the phase-in period is too long and the other stemming from the 
possibility that the phase-in period is too short. If the phase-in 
period were too long, the benefits from better recordkeeping and 
regulatory information, as well as from post-trade transparency in the 
SBS market, would be inappropriately delayed. However, if the phase-in 
period were too short, market participants might not have enough time 
to develop appropriate systems and procedures to effectively implement 
proposed Regulation SBSR. In proposing Rule 910(b), the Commission 
seeks an appropriate balance between these two considerations.
3. Request for Comment
    The Commission requests comment on the costs and benefits of 
proposed Rule 910 discussed above, as well as any costs and benefits 
not already described that could result. The Commission also requests 
data to quantify any potential costs or benefits. In addition, the 
Commission requests comment on the following:
    293. How can the Commission more accurately estimate the costs and 
benefits?
    294. Would proposed Rule 910 create any additional costs or 
benefits not discussed here?
    295. How many entities would be affected by the rule?
    296. Are there additional costs involved in complying with the 
proposed rule that have not been identified? What are the types, and 
amounts, of the costs?
    297. Are there additional benefits from the rule that have not been 
identified? If so, please identify and quantify to the extent feasible.

L. Prohibition During Phase-In Period--Rule 911 of Regulation SBSR

    Proposed Rule 911 would provide that a reporting party to a SBS 
would not report a SBS to a registered SDR in a phase-in period 
described in proposed Rule 910 during which the registered SDR is not 
yet required to publicly disseminate transaction reports for that SBS 
instrument unless: (1) The SBS is also reported to an registered SDR 
that is disseminating transaction reports for that SBS instrument 
consistent with proposed Rule 902; or (b) No other registered SDR is 
able to receive, hold, and publicly disseminate transaction reports 
regarding that SBS instrument.
1. Benefits
    The Commission preliminarily believes that proposed Rule 911 would 
have two clear benefits to the marketplace. First, it is meant to 
preserve the goal of post-trade transparency for SBSs, as codified in 
the Dodd-Frank Act, even as new SDRs are phased in, as specified in 
proposed Rule 910, during which time they may have no obligation or 
only a limited obligation to publicly disseminate SBS data. Second, the 
proposed rule would prevent reporting parties from engaging in 
regulatory arbitrage by avoiding reporting SBS data to an existing 
registered SDR that is publicly disseminating SBS transaction reports 
and instead reporting only to a new SDR subject to a phase-in period, 
in an effort to avoid having their SBS transactions publicly 
disseminated in real time. Proposed Rule 911 would prohibit such 
conduct.
2. Costs
    The Commission believes that the costs imposed by proposed Rule 911 
on reporting parties and registered SDRs would be minimal, as the rule 
would restrict the ability of a reporting party to report a SBS to one 
registered SDR rather than another, but would not otherwise create any 
quantifiable costs beyond those already required by proposed Rule 901. 
To the extent there are costs, they may include the following. First, 
proposed Rule 911 potentially could dampen competition among those 
entities considering registering as SDRs. Potential SDR registrants 
could perceive the proposed rule as a barrier to entry to the 
marketplace insofar as their business may be limited during the phase-
in period. Second, as a result of proposed Rule 911, there may be some 
costs associated with double-reporting of SBS information--both to an 
existing SDR as well as to a new SDR in a phase-in period. Indeed, 
proposed Rule 911 contemplates the potential of such double-reporting. 
This could result require regulators to incur costs to accurately 
identify double-counted transactions, where the same SBS transaction is 
captured by two different registered SDRs.
3. Request for Comment
    The Commission requests comment on the costs and benefits of 
proposed Rule 911 discussed above, as well as any costs and benefits 
not already described that could result. The Commission also requests 
data to quantify any potential costs or benefits. In addition, the 
Commission requests comment on the following:
    298. How can the Commission more accurately estimate the costs and 
benefits?
    299. Would proposed Rule 911 create any additional costs or 
benefits not discussed here?

M. Amendments to Rule 31

    Rule 31 under the Exchange Act \377\ sets forth a procedure for the 
calculation and collection of fees payable under Section 31 of the 
Exchange Act.\378\ The Dodd-Frank Act classifies SBSs as 
securities,\379\ thereby subjecting them to Section 31 fees. The 
proposed amendment to Rule 31 would add ``security-based swaps'' to the 
list of ``exempt sales,'' and thereby exempt SBSs from Section 31 
fees.\380\
---------------------------------------------------------------------------

    \377\ 17 CFR 240.31.
    \378\ 15 U.S.C. 78ee.
    \379\ See 15 U.S.C. 78c(a)(10).
    \380\ The Commission is also proposing to make a technical 
correction to Rule 31(a)(10)(ii), to correct a date (from 
``September 30'' to ``September 25''), as required by the Dodd-Frank 
Act. The Commission does not believe there are any material costs or 
benefits to this change.
---------------------------------------------------------------------------

    The Commission preliminarily believes that the proposed amendments 
to Rule 31 would have a neutral effect on existing costs and benefits. 
It would not impose any additional costs or impact the transaction fees 
currently paid on other securities transactions. Likewise, because 
market participants have never monitored or collected fees on SBS 
transactions, there would be no benefit to exempting these transactions 
from Section 31 fees other than that affected entities would not have 
to take any steps to pay fees on SBS transactions.
    However, eliminating Section 31 fee for SBS transactions 
theoretically could result in slightly higher fees on transactions in 
other securities that would not benefit from a Section 31

[[Page 75280]]

exemption. Section 31 requires the Commission to adjust Section 31 fees 
so that such rates are reasonably likely to produce aggregate fee 
collections that equal amounts prescribed under Section 31.\381\ Thus, 
although the Commission may exempt certain securities from Section 31, 
it cannot reduce the total amount of fees that it is required to 
collect under Section 31. An exemption granted to certain securities 
could, therefore, result in a higher rate paid on transactions in the 
other, non-exempted securities.
---------------------------------------------------------------------------

    \381\ See 15 U.S.C. 78ee(j).
---------------------------------------------------------------------------

    The Commission requests comment on the costs and benefits of the 
proposed amendments to Rule 31, as well as any costs and benefits not 
already described that could result. The Commission also requests data 
to quantify any potential costs or benefits.

N. Aggregate Total Costs

    Based on the foregoing, the Commission preliminarily estimates that 
proposed Regulation SBSR would impose an aggregate total first-year 
cost of approximately $1,038,947,500 on all covered entities.\382\ This 
amount includes an estimated total first-year cost of approximately 
$852,850,500 on participants (reporting parties and non-reporting 
parties), and approximately $186,097,000 on registered SDRs. The 
Commission preliminarily estimates that proposed Regulation SBSR would 
impose a total ongoing annualized aggregate cost of approximately 
$703,147,540 for all covered entities.\383\ This amount includes an 
estimated total ongoing annualized cost of approximately $598,021,500 
on participants (reporting parties and non-reporting parties), and 
approximately $105,126,040 on registered SDRs.
---------------------------------------------------------------------------

    \382\ The Commission derived its estimate from the following: 
[($511,013,000 proposed Rule 901 first-year costs on reporting 
parties) + ($778,480 proposed Rule 901 first-year costs on 
registered SDRs) + ($64,006,400 proposed Rule 902 first-year costs 
on registered SDRs) + ($27,360 proposed Rule 904 first-year costs on 
registered SDRs) + ($11,419,000 proposed Rule 905 first-year costs 
on reporting parties) + ($5,603,700 proposed Rule 905 first-year 
costs on registered SDRs) + ($172,280,000 proposed Rule 905 first-
year costs on non-reporting parties) + ($82,176,000 proposed Rule 
906 first-year costs on reporting parties) + ($600,760 proposed Rule 
906 first-year costs on registered SDRs) + ($75,962,500 proposed 
Rule 906 first-year costs on all SDR participants) + ($114,927,000 
proposed Rule 907 first-year costs on registered SDRs) + ($153,300 
proposed Rule 909 first-year costs on registered SDRs)] = 
$1,038,947,500.
    \383\ The Commission derived its estimate from the following: 
[($316,116,000 proposed Rule 901 ongoing annual costs on reporting 
parties) + ($436,440 proposed Rule 901 ongoing annual costs on 
registered SDRs) + ($24,002,400 proposed Rule 902 ongoing annual 
costs on registered SDRs) + ($27,360 proposed Rule 904 ongoing 
annual costs on registered SDRs) + ($3,927,000 proposed Rule 905 
ongoing annual costs on reporting parties) + ($3,735,800 proposed 
Rule 905 ongoing annual costs on registered SDRs) + ($172,280,000 
proposed Rule 905 ongoing annual costs on non-reporting parties) + 
($29,736,000 proposed Rule 906 ongoing annual costs on reporting 
parties) + ($292,440 proposed Rule 906 ongoing annual costs on 
registered SDRs) + ($75,962,500 proposed Rule 906 ongoing annual 
costs on all SDR participants) + ($76,617,000 proposed Rule 907 
ongoing annual costs on registered SDRs) + ($14,600 proposed Rule 
909 ongoing annual costs on registered SDRs)] = $703,147,540.
---------------------------------------------------------------------------

    With regard to registered SDRs, the Commission preliminarily 
estimates that proposed Regulation SBSR would impose an initial 
aggregate one-time cost of approximately $80,978,260,\384\ and an 
ongoing aggregate annual cost of $105,126,400.\385\ The Commission 
further preliminarily estimates that the proposed SDR registration 
rules would impose an initial aggregate one-time cost of approximately 
$214,913,592,\386\ and an ongoing aggregate annual cost of 
approximately $140,302,120 on registered SDRs.\387\ Summing these 
estimates, proposed Regulation SBSR and the proposed SDR registration 
rules would impose initial costs on registered SDRs of approximately 
$295,891,852,\388\ and ongoing annualized costs on registered SDRs of 
approximately $245,428,520.\389\
---------------------------------------------------------------------------

    \384\ The Commission derived its estimate from the following: 
[($342,040 proposed Rule 901 one-time costs on registered SDRs) + 
($40,004,000 proposed Rule 902 one-time costs on registered SDRs) + 
($1,867,900 proposed Rule 905 one-time costs on registered SDRs) + 
($308,320 proposed Rule 906 one-time costs on registered SDRs) + 
($38,310,000 proposed Rule 907 one-time costs on registered SDRs) + 
($146,000 proposed Rule 909 one-time costs on registered SDRs)] = 
$80,978,260.
    \385\ The Commission derived its estimate from the following: 
[($436,440 proposed Rule 901 ongoing annual costs on registered 
SDRs) + ($24,002,400 proposed Rule 902 ongoing annual costs on 
registered SDRs) + ($27,360 proposed Rule 904 ongoing annual costs 
on registered SDRs) + ($3,735,800 proposed Rule 905 ongoing annual 
costs on registered SDRs) + ($292,440 proposed Rule 906 ongoing 
annual costs on registered SDRs) + ($76,617,000 proposed Rule 907 
ongoing annual costs on registered SDRs) + ($14,600 proposed Rule 
909 ongoing annual costs on registered SDRs)] = $105,126,400.
    \386\ See SDR Registration Proposing Release, supra note 6.
    \387\ See id.
    \388\ The Commission derived its estimate from the following: 
[($80,978,260) + ($214,913,592)] = $295,891,852.
    \389\ The Commission derived its estimate from the following: 
[($105,126,400) + ($140,302,120)] = $245,428,520.
---------------------------------------------------------------------------

XV. Consideration of Burden on Competition and Promotion of Efficiency, 
Competition, and Capital Formation

    Section 3(f) of the Exchange Act \390\ requires the Commission, 
whenever it engages in rulemaking and is required to consider or 
determine whether an action is necessary or appropriate in the public 
interest, to consider whether the action would promote efficiency, 
competition, and capital formation. In addition, Section 23(a)(2) of 
the Exchange Act \391\ requires the Commission, when making rules under 
the Exchange Act, to consider the impact of such rules on competition. 
Section 23(a)(2) also prohibits the Commission from adopting any rule 
that would impose a burden on competition not necessary or appropriate 
in furtherance of the purposes of the Exchange Act.
---------------------------------------------------------------------------

    \390\ 15 U.S.C. 78c(f).
    \391\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

A. Analysis of Proposed Regulation SBSR

    The Commission preliminarily believes that public availability of 
transaction and pricing data for SBSs, as required by the Dodd-Frank 
Act and implemented by proposed Regulation SBSR, would promote 
efficiency, competition, and capital formation by reducing information 
asymmetries, lowering transaction costs, and encouraging market 
participation from a larger number of firms. Public, real-time 
dissemination of last-sale information aids dealers in deriving 
appropriate quotations, and aids investors in evaluating current 
quotations--thus furthering efficient price discovery. Increased 
transparency ultimately should provide the opportunity for increased 
competition among market participants and thus contribute to a more 
efficient market. The Commission believes that knowledge that all 
market participants are subject to the same reporting rules and can see 
the same price information creates certainty, fosters investor 
confidence, and promotes participation in the markets.
    The Commission's experience with other asset classes is that post-
trade transparency reduces transaction costs. For example, a number of 
studies have found that post-trade transparency in the corporate bond 
market, resulting from the introduction of TRACE, has reduced 
transaction costs.\392\ Post-trade transparency could have the same 
effect in the SBS market, although the Commission acknowledges that the 
differences between the SBS market and other securities markets might 
be sufficiently great that post-trade transparency might not have the 
same effects in the SBS market. The Commission requests comment on 
whether post-trade transparency would have a similar effect on the SBS 
market as it has in other securities markets--and if not, why not. To 
the extent that post-trade transparency in the SBS

[[Page 75281]]

market would lower transaction costs, this would be evidence of greater 
competition and efficiency. Furthermore, money saved in transaction 
costs can assist in additional capital formation.
---------------------------------------------------------------------------

    \392\ See supra note 88.
---------------------------------------------------------------------------

    The proposed rules on block trades of SBSs are designed to minimize 
any adverse impact on efficiency, competition, and capital formation. 
Though temporarily withholding the full size of a block trade may have 
some immediate adverse effect on efficiency, as other market 
participants would lack complete real-time information about large 
transactions, the Commission's approach is designed to promote 
efficiency in the longer-term, by allowing SBS market participants to 
engage in large transactions without the risk of other market 
participants using this information in ways that promote artificial and 
adverse short-term price movements. Encouraging such market 
participants to continue to execute in large size is designed to 
promote efficiency, competition, and capital formation. The Commission 
requests comment on the effect of its proposed block trade rules on 
these considerations.
    Proposed Regulation SBSR is designed to provide the Commission and 
other regulators with detailed, up-to-date information about both 
positions of particular entities and financial groups as well as 
positions by multiple market participants in particular instruments. A 
well-regulated SBS market--where the Commission and other regulators 
have access to information about all SBS transactions captured and 
retained in the registered SDRs--could increase the confidence in the 
soundness and fairness of the market, potentially drawing additional 
participants and thereby increasing efficiency. The Commission and 
other regulators also would have greater information with which to 
surveil the SBS market and bring appropriate enforcement actions. 
Together, these regulatory factors should have a positive impact on 
efficiency, competition, and capital formation.
    The Commission preliminarily believes that post-trade transparency 
in the SBS market could improve market participants' ability to value 
SBSs. In transparent markets with sufficient liquidity, valuations 
generally can be derived from recent quotations and/or last-sale 
prices. However, in opaque markets or markets with low liquidity, 
recent quotations or last-sale prices may not exist or, if they do 
exist, may not be widely available. Therefore, market participants 
holding assets that trade in opaque markets or markets with low 
liquidity frequently rely instead on pricing models. These models might 
be based on assumptions subject to the evaluator's discretion, and can 
be imprecise. Thus, market participants holding the same asset but 
using different valuation models might arrive at significantly 
different values for the same asset.
    The Commission preliminarily believes that post-trade transparency, 
even in relatively illiquid markets--such as corporate bonds or SBSs--
could represent an improvement over relying on valuation models alone, 
particularly if post-trade information is used as an input to, rather 
than a substitute for, independent valuation and pricing decisions by 
other market participants. Market participants might devise means to 
consider last-sale reports of the asset to be valued, reports of 
related assets, or reports of benchmark products that include the asset 
to be valued or closely related assets. There is evidence to suggest 
that post-trade transparency helps reduce the range of valuations of 
assets that trade in illiquid markets.\393\ The Commission 
preliminarily believes that post-trade transparency in the SBS market 
could result in more accurate valuations of SBSs generally, as all 
market participants would have the benefit of knowing how 
counterparties to an SBS valued the SBS at a specific moment in time. 
Especially with complex instruments, investment decisions generally are 
predicated on a significant amount of due diligence to value the 
instrument properly. A post-trade transparency system permits other 
market participants to derive at least some informational benefit from 
obtaining the views of the two counterparties who traded that 
instrument.
---------------------------------------------------------------------------

    \393\ See supra note 314.
---------------------------------------------------------------------------

    Better valuations could have a significant impact on efficiency and 
capital allocation. Efficient allocation of capital is premised on 
accurate knowledge of asset prices. Overvaluing asset prices could 
result in a misallocation of capital, as investors seek to obtain more 
of an asset that cannot deliver the anticipated risk-adjusted return. 
By the same token, assets that are inappropriately undervalued 
represent investment opportunities that might go unpursued, because 
investors do not realize that a good risk-adjusted return is available. 
To the extent that post-trade transparency enables asset valuations to 
move closer to their fundamental values, capital may be more 
efficiently allocated.
    Better valuations resulting from post-trade transparency also could 
reduce prudential and systemic risks. Some financial institutions, 
including many of the most systemically important financial 
institutions, have large portfolios of SBSs. The financial system would 
benefit greatly if the assets of these institutions were more 
accurately valued. To the extent that post-trade transparency affirms 
the valuation of an institution's portfolio, regulators, the individual 
firm, and the market as a whole would have more certainty as to whether 
the firm would or would not pose prudential or systemic risks. In some 
cases, however, post-trade transparency in the SBS market might cause 
an individual firm to revalue its positions and lower the overall value 
of its portfolio. The sooner that accurate valuations can be made, the 
more quickly that regulators and the individual firm can take 
appropriate steps to minimize the firm's prudential risk profile, and 
the more quickly that regulators and other market participants can take 
appropriate steps to address any systemic risk concerns raised by that 
firm.
    Finally, the Commission has considered how proposed Regulation SBSR 
could affect market participation generally, measured by both the 
number of market participants and the number of SBSs executed. The 
regulatory environment created by proposed Regulation SBSR would permit 
all market participants to see last-sale prices in real time, and could 
thereby incentivize more market participants to enter the market, trade 
more frequently, and compete with large dealers on price. Reducing 
information asymmetries is pro-competitive, because it reduces the 
competitive advantage that certain market participants have solely 
because they have access to more or better information about the 
market. Reducing information asymmetries also reduces the likelihood 
that a less-informed market participant would enter into a trade at an 
imprudent price. To the extent that fewer such trades occur, efficiency 
and capital formation could be improved. Moreover, proposed Regulation 
SBSR could result in greater confidence in the market generally, which 
could have a beneficial impact on efficiency, competition, and capital 
formation.
    It is also possible that implementing post-trade transparency in 
the SBS market and the costs of complying with proposed Regulation SBSR 
could cause some market participants to execute fewer SBSs or to exit 
the market completely. This could result in a detrimental impact on 
efficiency,

[[Page 75282]]

competition, and capital formation. For example, certain market 
participants that are currently active in the SBS market might find the 
costs of complying with proposed Regulation SBSR too high. If these 
market participants respond by reducing their trading activity or 
exiting the market completely, competition could suffer because there 
would be fewer participants competing in the market. Moreover, 
efficiency could suffer because risk that otherwise might have been 
allocated to the market participant optimally suited to manage it 
would, if that participant has left the market, necessarily have to 
reside at a suboptimal location. Moreover, capital formation could be 
negatively impacted if market participants with risks to hedge find it 
more difficult or costly to find a counterparty with which to transact 
and instead reserve more capital against the risk of loss.
    On the other hand, the possibility exists that, in certain 
circumstances, efficiency, competition, and capital formation would be 
positively impacted even if fewer SBS transactions occur because of 
proposed Regulation SBSR. This could be the case if market participants 
that are unable or unwilling to properly manage the attendant risks of 
participation in the SBS market are deterred from participating, or if 
there were a reduction in the number of SBS transactions where there is 
a significant information asymmetry between the counterparties. In the 
latter case, efficiency, competition, and capital formation could 
benefit if uninformed parties are deterred from unwittingly taking on 
imprudent positions in the SBS market.
    It is difficult at this stage to ascertain how proposed Regulation 
SBSR and other measures to implement the Dodd-Frank Act might increase 
or decrease participation in the SBS market, and what impacts such an 
increase or decrease might have on efficiency, competition, and capital 
formation. However, the Commission requests comment on those impacts.

B. Analysis of Amendments to Rule 31 Under the Exchange Act

    The Commission preliminarily believes that the proposed amendments 
to Rule 31 under the Exchange Act would have no significant impact on 
efficiency, competition, and capital formation. Exempting SBSs from 
Section 31 fees should have little or no impact on the overall amount 
of fees collected by the Commission, as the Commission is required to 
adjust the fee rate to a level that is reasonably likely to produce the 
aggregate fee collections stipulated in Section 31(d).\394\ Exempting 
SBSs from Section 31 fees would result in other classes of securities 
that remain subject to Section 31 fees continuing to bear the burden of 
meeting the aggregate fee collection. Allowing SBSs to become subject 
to Section 31 fees, however, could result in a competitive imbalance 
between brokers and SBS dealers. Specifically, the burden for funding 
Section 31 fees would fall on brokers, rather than SBS dealers. 
Exempting SBSs from Section 31 fees, therefore, would avoid this 
concern and any impact it might have on the development of the SBS 
market.
---------------------------------------------------------------------------

    \394\ See 15 U.S.C. 78ee(j).
---------------------------------------------------------------------------

    The Commission requests comment on all aspects of this analysis 
and, in particular, on whether proposed Regulation SBSR and the 
proposed amendments to Rule 31 under the Exchange Act would place a 
burden on competition, as well as the effect of the proposal on 
efficiency, competition, and capital formation. Commenters are 
requested to provide empirical data and other factual support for their 
views, if possible.

XVI. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (``SBREFA'') \395\ the Commission must advise the OMB 
whether the proposed regulation constitutes a ``major'' rule. Under 
SBREFA, a rule is considered ``major'' where, if adopted, it results or 
is likely to result in: (1) An annual effect on the economy of $100 
million or more (either in the form of an increase or a decrease); (2) 
a major increase in costs or prices for consumers or individual 
industries; or (3) significant adverse effect on competition, 
investment or innovation. If a rule is ``major,'' its effectiveness 
will generally be delayed for 60 days pending Congressional review.
---------------------------------------------------------------------------

    \395\ Public Law 104-121, Title II, 110 Stat. 857 (1996) 
(codified in various sections of 5 U.S.C., 15 U.S.C. and as a note 
to 5 U.S.C. 601).
---------------------------------------------------------------------------

    The Commission requests comment on the potential impact of proposed 
Regulation SBSR on the economy on an annual basis, on the costs or 
prices for consumers or individual industries, and on competition, 
investment, or innovation. Commenters are requested to provide 
empirical data and other factual support for their view to the extent 
possible.

XVII. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act (``RFA'') \396\ requires federal 
agencies, in promulgating rules, to consider the impact of those rules 
on small entities. Section 603(a) of the Administrative Procedure 
Act,\397\ as amended by the RFA, generally requires the Commission to 
undertake a regulatory flexibility analysis of all proposed rules, or 
proposed rule amendments, to determine the impact of such rulemaking on 
``small entities.'' \398\ Section 605(b) of the RFA \399\ states that 
this requirement shall not apply to any proposed rule or proposed rule 
amendment which, if adopted, would not have a significant economic 
impact on a substantial number of small entities.
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    \396\ 5 U.S.C. 601 et seq.
    \397\ 5 U.S.C. 603(a).
    \398\ Although Section 601(b) of the RFA defines the term 
``small entity,'' the statute permits agencies to formulate their 
own definitions. The Commission has adopted definitions for the term 
``small entity'' for the purposes of Commission rulemaking in 
accordance with the RFA. Those definitions, as relevant to this 
proposed rulemaking, are set forth in Rule 0-10 under the Exchange 
Act, 17 CFR 240.0-10. See Securities Exchange Act Release No. 18451 
(January 28, 1982), 47 FR 5215 (February 4, 1982) (File No. AS-305).
    \399\ 5 U.S.C. 605(b).
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    For purposes of Commission rulemaking in connection with the RFA, a 
small entity includes: (1) When used with reference to an ``issuer'' or 
a ``person,'' other than an investment company, an ``issuer'' or 
``person'' that, on the last day of its most recent fiscal year, had 
total assets of $5 million or less; \400\ or (2) a broker-dealer with 
total capital (net worth plus subordinated liabilities) of less than 
$500,000 on the date in the prior fiscal year as of which its audited 
financial statements were prepared pursuant to Rule 17a-5(d) under the 
Exchange Act,\401\ or, if not required to file such statements, a 
broker-dealer with total capital (net worth plus subordinated 
liabilities) of less than $500,000 on the last day of the preceding 
fiscal year (or in the time that it has been in business, if shorter); 
and is not affiliated with any person (other than a natural person) 
that is not a small business or small organization.\402\
---------------------------------------------------------------------------

    \400\ See 17 CFR 240.0-10(a).
    \401\ 17 CFR 240.17a-5(d).
    \402\ See 17 CFR 240.0-10(c).
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    Based on input from SBS market participants and its own 
information, the Commission preliminarily believes that the majority of 
SBS transactions have at least one counterparty that is either as SBS 
dealer or major SBS participant, and that these entities--whether 
registered broker-dealers or not--would exceed the thresholds defining 
``small entities'' set out above. Accordingly, neither of these types 
of entities would likely qualify as small entities for purposes of the 
RFA.

[[Page 75283]]

Moreover, even in cases where one of the counterparties to an SBS is 
not covered by these definitions, the Commission preliminarily does not 
believe that any such entities would be ``small entities'' as defined 
in Commission Rule 0-10. Feedback from industry participants and the 
Commission's own information about the SBS market indicate that only 
persons or entities with assets significantly in excess of $5 million 
participate in the SBS market. For example, as revealed in a current 
survey conducted by Office of the Comptroller of the Currency, 99.9% of 
CDS positions by U.S. Commercial Banks and Trusts are held by those 
with assets over $10 billion.\403\ Given the magnitude of this figure, 
and the fact that it so far exceeds $5 million, the Commission 
preliminarily believes that the vast majority of, if not all, SBS 
transactions are between large entities for purposes of the RFA.
---------------------------------------------------------------------------

    \403\ See Office of the Comptroller of the Currency, ``Quarterly 
Report on Bank Trading and Derivatives Activities Second Quarter 
2010'' (2010).
---------------------------------------------------------------------------

    In addition, the Commission preliminarily believes that the 
entities likely to register as SDRs would not be small entities. Based 
on input from SBS market participants and its own information, the 
Commission preliminarily believes that most if not all the registered 
SDRs would be part of large business entities, and that all registered 
SDRs would have assets exceeding $5 million and total capital exceeding 
$500,000. Therefore, the Commission preliminarily believes that none of 
the registered SDRs would be small entities.
    On this basis, the Commission preliminarily believes that the 
number of SBS transactions involving a small entity as that term is 
defined for purposes of the RFA would be de minimis. Moreover, the 
Commission does not believe that any aspect of proposed Regulation SBSR 
would be likely to alter the type of counterparties presently engaging 
in SBS transactions. Therefore, the Commission preliminarily does not 
believe that proposed Regulation SBSR would impact any small entities.
    For the foregoing reasons, the Commission certifies that Regulation 
SBSR would not have a significant economic impact on a substantial 
number of small entities for purposes of the RFA. The Commission 
encourages written comments regarding this certification. The 
Commission requests that commenters describe the nature of any impact 
on small entities, indicate whether they believe that participants and 
registered SDRs are unlikely to be small entities, and provide 
empirical data to support their responses.

XVIII. Statutory Basis and Text of Proposed Rule

    The Commission is proposing to adopt Regulation SBSR, and Rule 900-
911 thereunder, pursuant to the Exchange Act.

List of Subjects in 17 CFR Parts 240 and 242

    Brokers, Reporting and recordkeeping requirements, Securities.

    In accordance with the foregoing, Title 17, Chapter II of the Code 
of Federal Regulations is amended as follows.

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    1. The authority citation for part 240 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 
78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 
80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless otherwise 
noted.
* * * * *
    2. Amend Sec.  240.31 by:
    a. Removing ``September 30'' at the beginning of paragraph 
(a)(10)(ii) and adding in its place ``September 25'';
    b. Removing the ``and'' at the end of paragraph (a)(11)(vii);
    c. Removing the period at the end of paragraph (a)(11)(viii) and 
adding in its place ``; and'';
    d. Adding paragraph (a)(11)(ix); and
    e. Adding new paragraph (a)(19) to read as follows:


Sec.  240.31  Section 31 transaction fees.

    (a) * * *
    (11) * * *
    (ix) Any sale of a security-based swap.
* * * * *
    (19) The term security-based swap has the same definition as 
provided in Section 3(a)(68) of the Act (15 U.S.C. 78c(a)(68)).
* * * * *

PART 242--REGULATIONS M, SHO, ATS, AC, NMS, AND SBSR AND CUSTOMER 
MARGIN REQUIREMENTS FOR SECURITY FUTURES

    3. The authority citation for part 242 continues to read as 
follows:

    Authority: 15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78g(c)(2), 
78i(a), 78j, 78k-l(c), 78l, 78m, 78n, 78o(b), 78o(c), 78o(g), 
78q(a), 78q(b), 78q(h), 78w(a), 78dd-1, 78mm, 80a-23, 80a-29, and 
80a-37, unless otherwise noted.

    4. The part heading for part 242 is revised as set forth above.
    5. Add Sec. Sec.  242.900, 242.901, 242.902, 242.903, 242.904, 
242.905, 242.906, 242.907, 242.908, 242.909, 242.910, and 242.911 to 
read as follows:


Sec.  242.900  Definitions.

    Terms used in this Regulation SBSR (Sec. Sec.  242.900 through 
242.911) that appear in Section 3 of the Exchange Act (15 U.S.C. 78c) 
have the same meaning as in Section 3 of the Exchange Act (15 U.S.C. 
78c) and the rules or regulations thereunder. In addition, the 
following definitions shall apply:
    Affiliate means any person that, directly or indirectly, controls, 
is controlled by, or is under common control with, a person.
    Asset class means those security-based swaps in a particular broad 
category, including, but not limited to, credit derivatives, equity 
derivatives, and loan-based derivatives.
    Block trade means a large notional security-based swap transaction 
that meets the criteria set forth in Sec.  242.907(b).
    Broker ID means the UIC assigned to a person acting as a broker for 
a participant.
    Confirm means the production of a confirmation that is agreed to by 
the parties to be definitive and complete and that has been manually, 
electronically, or, by some other legally equivalent means, signed.
    Control means, for purposes of Sec. Sec.  242.900 through 242.911, 
the possession, direct or indirect, of the power to direct or cause the 
direction of the management and policies of a person, whether through 
the ownership of voting securities, by contract, or otherwise. A person 
is presumed to control another person if the person:
    (1) Is a director, general partner or officer exercising executive 
responsibility (or having similar status or functions);
    (2) Directly or indirectly has the right to vote 25 percent or more 
of a class of voting securities or has the power to sell or direct the 
sale of 25 percent or more of a class of voting securities; or
    (3) In the case of a partnership, has the right to receive, upon 
dissolution, or has contributed, 25 percent or more of the capital.
    Derivatives clearing organization means the same as provided under 
the Commodity Exchange Act.
    Desk ID means the UIC assigned to the trading desk of a participant 
or of a broker of a participant.

[[Page 75284]]

    Effective reporting date, with respect to a security-based swap 
data repository, means the date six months after the registration date.
    Exchange Act means the Securities Exchange Act of 1934 (15 U.S.C. 
78a, et seq.), as amended.
    Life cycle event means, with respect to a security-based swap, any 
event that would result in a change in the information reported to a 
registered security-based swap data repository under Sec.  242.901, 
including a counterparty change resulting from an assignment or 
novation; a partial or full termination of the security-based swap; a 
change in the cash flows originally reported; for a security-based swap 
that is not cleared, any change to the collateral agreement; or a 
corporate action affecting a security or securities on which the 
security-based swap is based (e.g., a merger, dividend, stock split, or 
bankruptcy). Notwithstanding the above, a life cycle event shall not 
include the scheduled expiration of the security-based swap, a 
previously described and anticipated interest rate adjustment (such as 
a quarterly interest rate adjustment), or other event that does not 
result in any change to the contractual terms of the security-based 
swap.
    Parent means a legal person that controls a participant.
    Participant means:
    (1) A U.S. person that is a counterparty to a security-based swap 
that is required to be reported to a registered security-based swap 
data repository; or
    (2) A non-U.S. person that is a counterparty to a security-based 
swap that is:
    (i) Required to be reported to a registered security-based swap 
data repository; and
    (ii) Executed in the United States or through any means of 
interstate commerce, or cleared through a clearing agency that has its 
principal place of business in the United States.
    Participant ID means the UIC assigned to a participant.
    Phase-in period means the period immediately after a security-based 
swap data repository has registered with the Commission during which it 
is not required to disseminate security-based swap data pursuant to an 
implementation schedule, as provided in Sec.  242.910.
    Pre-enactment security-based swap means any security-based swap 
executed before July 21, 2010 (the date of enactment of the Dodd-Frank 
Act (Pub. L. 111-203, H.R. 4173)), the terms of which had not expired 
as of that date.
    Price means the price of a security-based swap transaction, 
expressed in terms of the commercial conventions used in that asset 
class.
    Product ID means the UIC assigned to a security-based swap 
instrument.
    Publicly disseminate means to make available through the Internet 
or other electronic data feed that is widely accessible and in machine-
readable electronic format.
    Real time means, with respect to the reporting of security-based 
swap information, as soon as technologically practicable, but in no 
event later than 15 minutes after the time of execution of the 
security-based swap transaction.
    Registered security-based swap data repository means a security-
based swap data repository that is registered with the Commission 
pursuant to Section 13(n) of the Exchange Act (15 U.S.C. 78m(n)) and 
any rules or regulations thereunder.
    Registration date, with respect to a security-based swap data 
repository, means the date on which the Commission registers the 
security-based swap data repository, or, if the Commission registers 
the security-based swap data repository before the effective date of 
Sec. Sec.  242.900 through 242.911.
    Reporting party means the counterparty to a security-based swap 
with the duty to report information in accordance with Sec. Sec.  
242.900 through 242.911 to a registered security-based swap data 
repository, or if there is no registered security-based swap data 
repository that would receive the information, to the Commission.
    Security-based swap instrument means each security-based swap in 
the same asset class, with the same underlying reference asset, 
reference issuer, or reference index.
    Time of execution means the point at which the counterparties to a 
security-based swap become irrevocably bound under applicable law.
    Trader ID means the UIC assigned to a natural person who executes 
security-based swaps.
    Transaction ID means the unique identification code assigned by a 
registered security-based swap data repository to a specific security-
based swap.
    Transitional security-based swap means a security-based swap 
executed on or after July 21, 2010, and before the effective reporting 
date.
    Ultimate parent means a legal person that controls a participant 
and that itself has no parent.
    Ultimate parent ID means the UIC assigned to an ultimate parent of 
a participant.
    Unique Identification Code or UIC means the unique identification 
code assigned to a person, unit of a person, or product by or on behalf 
of an internationally recognized standards-setting body that imposes 
fees and usage restrictions that are fair and reasonable and not 
unreasonably discriminatory. If no standards-setting body meets these 
criteria, a registered security-based swap data repository shall assign 
all necessary UICs using its own methodology. If a standards-setting 
body meets these criteria but has not assigned a UIC to a particular 
person, unit of a person, or product, a registered security-based swap 
data repository shall assign a UIC to that person, unit of a person, or 
product using its own methodology.
    U.S. person means a natural person that is a U.S. citizen or U.S. 
resident or a legal person that is organized under the corporate laws 
of any part of the United States or has its principal place of business 
in the United States.


Sec.  242.901  Reporting obligations.

    (a) Reporting party. The reporting party shall be as follows:
    (1) Where only one counterparty to a security-based swap is a U.S. 
person, the U.S. person shall be the reporting party;
    (2) Where both counterparties to a security-based swap are U.S. 
persons:
    (i) With respect to a security-based swap in which only one 
counterparty is a security-based swap dealer or major security-based 
swap participant, the security-based swap dealer or major security-
based swap participant shall be the reporting party;
    (ii) With respect to a security-based swap in which one 
counterparty is a security-based swap dealer and the other a major 
security-based swap participant, the security-based swap dealer shall 
be the reporting party; and
    (iii) With respect to any other security-based swap not described 
in paragraphs (a)(2)(i) and (ii) of this section, the counterparties to 
the security-based swap shall select a counterparty to be the reporting 
party.
    (3) If neither counterparty is a U.S. person but the security-based 
swap meets the criteria of Sec.  242.908(a)(2) or (a)(3), the 
counterparties to the security-based swap shall select a counterparty 
to be the reporting party.
    (b) Recipient of security-based swap information. For each 
security-based swap for which it is the reporting party, the reporting 
party shall provide the information required by Sec. Sec.  242.900 
through 242.911 to a registered security-based swap data repository or, 
if there is no registered security-based swap

[[Page 75285]]

data repository that would accept the information, to the Commission.
    (c) Information to be reported in real time. For each security-
based swap for which it is the reporting party, the reporting party 
shall report the following information in real time:
    (1) The asset class of the security-based swap and, if the 
security-based swap is an equity derivative, whether it is a total 
return swap or is otherwise designed to offer risks and returns 
proportional to a position in the equity security or securities on 
which the security-based swap is based;
    (2) Information that identifies the security-based swap instrument 
and the specific asset(s) or issuer(s) of any security on which the 
security-based swap is based;
    (3) The notional amount(s), and the currency(ies) in which the 
notional amount(s) is expressed;
    (4) The date and time, to the second, of execution, expressed using 
Coordinated Universal Time (UTC);
    (5) The effective date;
    (6) The scheduled termination date;
    (7) The price;
    (8) The terms of any fixed or floating rate payments, and the 
frequency of any payments;
    (9) Whether or not the security-based swap will be cleared by a 
clearing agency;
    (10) If both counterparties to a security-based swap are security-
based swap dealers, an indication to that effect;
    (11) If applicable, an indication that the transaction does not 
accurately reflect the market; and
    (12) If the security-based swap is customized to the extent that 
the information provided in paragraphs (c)(1) through (11) of this 
section does not provide all of the material information necessary to 
identify such customized security-based swap or does not contain the 
data elements necessary to calculate the price, an indication to that 
effect.
    (d) Additional information that must be reported. (1) In addition 
to the information required under paragraph (c) of this section, for 
each security-based swap for which it is the reporting party, the 
reporting party shall report:
    (i) The participant ID of each counterparty;
    (ii) As applicable, the broker ID, desk ID, and trader ID of the 
reporting party;
    (iii) The amount(s) and currency(ies) of any up-front payment(s) 
and a description of the terms and contingencies of the payment streams 
of each counterparty to the other;
    (iv) The title of any master agreement, or any other agreement 
governing the transaction (including the title of any document 
governing the satisfaction of margin obligations), incorporated by 
reference and the date of any such agreement;
    (v) The data elements necessary for a person to determine the 
market value of the transaction;
    (vi) If the security-based swap will be cleared, the name of the 
clearing agency;
    (vii) If the security-based swap is not cleared, whether the 
exception in Section 3C(g) of the Exchange Act was invoked;
    (viii) If the security-based swap is not cleared, a description of 
the settlement terms, including whether the security-based swap is 
cash-settled or physically settled, and the method for determining the 
settlement value; and
    (ix) The venue where the security-based swap was executed.
    (2) Any information required to be reported pursuant to paragraph 
(d)(1) of this section must be reported promptly, but in no event later 
than:
    (i) Fifteen minutes after the time of execution for a security-
based swap that is executed and confirmed electronically;
    (ii) Thirty minutes after the time of execution for a security-
based swap that is confirmed electronically but not executed 
electronically; or
    (iii) Twenty-four hours after the time of execution for a security-
based swap that is not executed or confirmed electronically.
    (e) Duty to report any life cycle event of a security-based swap. 
For any life cycle event, and any adjustment due to a life cycle event, 
that results in a change to information previously reported pursuant to 
paragraph (c), (d), or (i) of this section, the reporting party shall 
promptly provide updated information reflecting such change to the 
entity to which it reported the original transaction, using the 
transaction ID, subject to the following exceptions:
    (1) If a reporting party ceases to be a counterparty to a security-
based swap due to an assignment or novation, the new counterparty shall 
be the reporting party following such assignment or novation, if the 
new counterparty is a U.S. person.
    (2) If, following an assignment or novation, the new counterparty 
is not a U.S. person, the counterparty that is a U.S. person shall be 
the reporting party following such assignment or novation.
    (f) Time stamping incoming information. A registered security-based 
swap data repository shall time stamp, to the second, its receipt of 
any information submitted to it pursuant to paragraph (c), (d), or (e) 
of this section.
    (g) Assigning transaction ID. A registered security-based swap data 
repository shall assign a transaction ID to each security-based swap 
reported by a reporting party.
    (h) Format of reported information. The reporting party shall 
electronically transmit the information required under this section in 
a format required by the registered security-based data repository, and 
in accordance with any applicable policies and procedures of the 
registered security-based swap data repository.
    (i) Reporting of pre-enactment and transitional security-based 
swaps. With respect to any pre-enactment security-based swap or 
transitional security-based swap, the reporting party shall report all 
of the information required by paragraphs (c) and (d) of this section, 
to the extent such information is available.


Sec.  242.902  Public dissemination of transaction reports.

    (a) Dissemination of transaction reports. Except in the case of a 
block trade, a registered security-based swap data repository shall 
publicly disseminate a transaction report of a security-based swap 
immediately upon receipt of information about the security-based swap 
from a reporting party, or upon re-opening following a period when the 
registered security-based swap data repository was closed. The 
transaction report shall consist of all the information reported by the 
reporting party pursuant to Sec.  242.901, plus any indicator or 
indicators contemplated by the registered security-based swap data 
repository's policies and procedures that are required by Sec.  
242.907.
    (b) Dissemination of block trades. A registered security-based swap 
data repository shall publicly disseminate a transaction report of a 
security-based swap that constitutes a block trade immediately upon 
receipt of information about the block trade from the reporting party. 
The transaction report shall consist of all the information reported by 
the reporting party pursuant to Sec.  242.901(c), except for the 
notional size, plus the transaction ID and an indicator that the report 
represents a block trade. The registered security-based swap data 
repository shall publicly disseminate a complete transaction report for 
such block trade (including the transaction ID and the full notional 
size) as follows:
    (1) If the security-based swap was executed on or after 05:00 UTC 
and before 23:00 UTC of the same day, the transaction report (including 
the transaction ID and the full notional size)

[[Page 75286]]

shall be disseminated at 07:00 UTC of the following day.
    (2) If the security-based swap was executed on or after 23:00 UTC 
and up to 05:00 UTC of the following day, the transaction report 
(including the transaction ID and the full notional size) shall be 
disseminated at 13:00 UTC of that following day.
    (3) Notwithstanding the foregoing, if a registered security-based 
swap data repository is in normal closing hours or special closing 
hours at a time when it would be required to disseminate information 
about a block trade pursuant to this section, the registered security-
based swap data repository shall instead disseminate information about 
the block trade immediately upon re-opening.
    (c) Non-disseminated information. A security-based swap data 
repository shall not disseminate:
    (1) The identity of either counterparty to a security-based swap;
    (2) With respect to a security-based swap that is not cleared at a 
registered clearing agency and that is reported to a registered 
security-based swap data repository, any information disclosing the 
business transactions and market positions of any person; or
    (3) Any information regarding a security-based swap reported 
pursuant to Sec.  242.901(i).
    (d) Temporary restriction on other market data sources. No person 
other than a registered security-based swap data repository shall make 
available to one or more persons (other than a counterparty) 
transaction information relating to a security-based swap before the 
earlier of 15 minutes after the time of execution of the security-based 
swap; or the time that a registered security-based swap data repository 
publicly disseminates a report of that security-based swap.


Sec.  242.903  Coded information.

    A reporting party may provide information to a registered security-
based swap data repository pursuant to Sec.  242.901 and a registered 
security-based swap data repository may publicly disseminate 
information pursuant to Sec.  242.902 using codes in place of certain 
data elements, provided that the information necessary to interpret 
such codes is widely available on a non-fee basis.


Sec.  242.904  Operating hours of registered security-based swap data 
repositories.

    A registered security-based swap data repository shall have systems 
in place to continuously receive and disseminate information regarding 
security-based swaps pursuant to Sec. Sec.  242.900 through 242.911, 
subject to the following exceptions:
    (a) A registered security-based swap data repository may establish 
normal closing hours during periods when, in its estimation, the U.S. 
market and major foreign markets are inactive. A registered security-
based swap data repository shall provide reasonable advance notice to 
participants and to the public of its normal closing hours.
    (b) A registered security-based swap data repository may declare, 
on an ad hoc basis, special closing hours to perform system maintenance 
that cannot wait until normal closing hours. A registered security-
based swap data repository shall: to the extent reasonably possible 
under the circumstances, avoid scheduling special closing hours during 
when, in its estimation, the U.S. market and major foreign markets are 
most active; and provide reasonable advance notice of its special 
closing hours to participants and to the public.
    (c) During normal closing hours, and to the extent reasonably 
practicable during special closing hours, a registered security-based 
swap data repository shall have the capability to receive and hold in 
queue information regarding security-based swaps that has been reported 
pursuant to Sec. Sec.  242.900 through 242.911.
    (d) When a registered security-based swap data repository re-opens 
following normal closing hours or special closing hours, it shall 
disseminate transaction reports of security-based swaps held in queue, 
in accordance with the requirements of Sec.  242.902.
    (e) If a registered security-based swap data repository could not 
receive and hold in queue transaction information that was required to 
be reported pursuant to Sec. Sec.  242.900 through 242.911, it must 
immediately upon re-opening send a message to all participants that it 
has resumed normal operations. Thereafter, any participant that had an 
obligation to report information to the registered security-based swap 
data repository pursuant to Sec. Sec.  242.900 through 242.911, but 
could not do so because of the registered security-based swap data 
repository's inability to receive and hold in queue data, must 
immediately report the information to the registered security-based 
swap data repository.


Sec.  242.905  Correction of errors in security-based swap information.

    (a) Duty of counterparties to correct. Any counterparty to a 
security-based swap that discovers an error in information previously 
reported pursuant to Sec. Sec.  242.900 through 242.911 shall correct 
such error in accordance with the following procedures:
    (1) If a counterparty that was not the reporting party for a 
security-based swap discovers an error in the information reported with 
respect to such security-based swap, the counterparty shall promptly 
notify the reporting party of the error; and
    (2) If the reporting party for a security-based swap transaction 
discovers an error in the information reported with respect to a 
security-based swap, or receives notification from its counterparty of 
an error, the reporting party shall promptly submit to the entity to 
which the security-based swap was originally reported an amended report 
pertaining to the original transaction report. If the reporting party 
reported the initial transaction to a registered security-based swap 
data repository, the reporting party shall submit an amended report to 
the registered security-based swap data repository in a manner 
consistent with the policies and procedures contemplated by Sec.  
242.907(a)(3).
    (b) Duty of registered security-based swap data repository to 
correct. A registered security-based swap data repository shall:
    (1) Upon discovery of the error or receipt of a notice of the error 
from a reporting party, verify the accuracy of the terms of the 
security-based swap and, following such verification, promptly correct 
the erroneous information regarding such security-based swap contained 
in its system; and
    (2) If such erroneous information falls into any of the categories 
of information enumerated in Sec.  242.901(c), publicly disseminate a 
corrected transaction report of the security-based swap promptly 
following verification of the trade by the parties to the security-
based swap, with an indication that the report relates to a previously 
disseminated transaction.


Sec.  242.906  Other duties of participants.

    (a) Reporting by non-reporting-party counterparty. A registered 
security-based swap data repository shall identify any security-based 
swap reported to it for which the registered security-based swap data 
repository does not have the participant ID and (if applicable) the 
broker ID, desk ID, and trader ID of each counterparty. Once a day, a 
registered security-based swap data repository shall send a report to 
each participant identifying, for each security-based swap to which 
that participant is a counterparty, the security-based swap(s) for 
which the registered security-based swap data repository lacks 
participant ID and (if

[[Page 75287]]

applicable) broker ID, desk ID, and trader ID. A participant that 
receives such a report shall provide the missing information to the 
registered security-based swap data repository within 24 hours.
    (b) Duty to provide ultimate parent and affiliate information. Each 
participant of a registered security-based swap data repository shall 
provide to the registered security-based swap data repository 
information sufficient to identify its ultimate parent(s) and any 
affiliate(s) of the participant that also are participants of the 
registered security-based swap data repository, using ultimate parent 
IDs and participant IDs. A participant shall promptly notify the 
registered security-based swap data repository of any changes to that 
information.
    (c) Policies and procedures of security-based swap dealers and 
major security-based swap participants. Each participant that is a 
security-based swap dealer or major security-based swap participant 
shall establish, maintain, and enforce written policies and procedures 
that are reasonably designed to ensure that it complies with any 
obligations to report information to a registered security-based swap 
data repository in a manner consistent with Sec. Sec.  242.900 through 
242.911 and the registered security-based swap data repository's 
applicable policies and procedures. Each such participant shall review 
and update its policies and procedures at least annually.


Sec.  242.907  Policies and procedures of registered security-based 
swap data repositories.

    (a) General policies and procedures. With respect to the receipt, 
reporting, and dissemination of data pursuant to Sec. Sec.  242.900 
through 242.911, a registered security-based swap data repository shall 
establish and maintain written policies and procedures:
    (1) That enumerate the specific data elements of a security-based 
swap or a life cycle event that a reporting party must report, which 
shall include, at a minimum, the data elements specified in Sec.  
242.901(c) and (d);
    (2) That specify one or more acceptable data formats (each of which 
must be an open-source structured data format that is widely used by 
participants), connectivity requirements, and other protocols for 
submitting information;
    (3) For specifying how reporting parties are to report corrections 
to previously submitted information, making corrections to information 
in its records that is subsequently discovered to be erroneous, and 
applying an appropriate indicator to any transaction report required to 
be disseminated by Sec.  242.905(b)(2) that the report relates to a 
previously disseminated transaction;
    (4) Describing how reporting parties shall report and, consistent 
with the enhancement of price discovery, how the registered security-
based swap depository shall publicly disseminate, reports of, and 
adjustments due to, life cycle events; security-based swap transactions 
that do not involve an opportunity to negotiate any material terms, 
other than the counterparty; and any other security-based swap 
transactions that, in the estimation of the registered security-based 
swap data repository, do not accurately reflect the market;
    (5) For assigning:
    (i) A transaction ID to each security-based swap that is reported 
to it; and
    (ii) UICs established by or on behalf of an internationally 
recognized standards-setting body that imposes fees and usage 
restrictions that are fair and reasonable and not unreasonably 
discriminatory (or, if no standards-setting body meets these criteria 
or a standards-setting body meets these criteria but has not assigned a 
UIC to a particular person, unit of a person, or product, using its own 
methodology).
    (6) For periodically obtaining from each participant information 
that identifies the participant's ultimate parent(s) and any other 
participant(s) with which the counterparty is affiliated, using 
ultimate parent IDs and participant IDs.
    (b) Policies and procedures regarding block trades. (1) A 
registered security-based swap data repository shall establish and 
maintain written policies and procedures for calculating and 
publicizing block trade thresholds for all security-based swap 
instruments reported to the registered security-based swap data 
repository in accordance with the criteria and formula for determining 
block size as specified by the Commission.
    (2) Exceptions. Notwithstanding the above, a registered security-
based swap data repository shall not designate as a block trade any 
security-based swap:
    (i) That is an equity total return swap or is otherwise designed to 
offer risks and returns proportional to a position in the equity 
security or securities on which the security-based swap is based; or
    (ii) Contemplated by Section 13(m)(1)(C)(iv) of the Exchange Act 
(15 U.S.C. 78m(m)(1)(C)(iv)).
    (c) Public availability of policies and procedures. A registered 
security-based swap data repository shall make the policies and 
procedures required by Sec. Sec.  242.900 through 242.911 publicly 
available on its Web site.
    (d) Updating of policies and procedures. A registered security-
based swap data repository shall review, and update as necessary, the 
policies and procedures required by Sec. Sec.  242.900 through 242.911 
at least annually. Such policies and procedures shall indicate the date 
on which they were last reviewed.
    (e) A registered security-based swap data repository shall have the 
capacity to provide to the Commission, upon request, information or 
reports related to the timeliness, accuracy, and completeness of data 
reported to it pursuant to Sec. Sec.  242.900 through 242.911 and the 
registered security-based swap data repository's policies and 
procedures thereunder.


Sec.  242.908  Jurisdictional matters.

    (a) Notwithstanding any other provision of Sec. Sec.  242.900 
through 242.911, no security-based swap is required to be reported to a 
registered security-based swap data repository, and no registered 
security-based swap data repository is required to publicly disseminate 
a report of a security-based swap, unless the security-based swap:
    (1) Has at least one counterparty that is a U.S. person;
    (2) Was executed in the United States or through any means of 
interstate commerce; or
    (3) Was cleared through a clearing agency having its principal 
place of business in the United States.
    (b) Notwithstanding any other provision of Sec. Sec.  242.900 
through 242.911, a counterparty to a security-based swap shall not 
incur any obligation under Sec. Sec.  242.900 through 242.911 unless it 
is:
    (1) A U.S. person;
    (2) A counterparty to a security-based swap executed in the United 
States or through any means of interstate commerce; or
    (3) A counterparty to a security-based swap cleared through a 
clearing agency having its principal place of business in the United 
States.


Sec.  242.909  Registration of security-based swap data repository as a 
securities information processor.

    A registered security-based swap data repository shall also 
register with the Commission as a securities information processor on 
Form SIP (Sec.  249.1001 of this chapter).


Sec.  242.910  Implementation of security-based swap reporting and 
dissemination.

    (a) Reporting of pre-enactment security-based swaps. The reporting 
party shall report to a registered

[[Page 75288]]

security-based swap data repository any pre-enactment security-based 
swaps no later than January 12, 2012 (180 days after the effective date 
of the Dodd-Frank Act (Pub. L. 111-203, 124 Stat. 1376)).
    (b) Phase-in of compliance dates. A registered security-based swap 
data repository and its participants shall be subject to the following 
phased-in compliance schedule:
    (1) Phase 1, six months after the registration date (i.e., the 
effective reporting date):
    (i) Reporting parties shall report to the registered security-based 
swap data repository any transitional security-based swaps.
    (ii) With respect to any security-based swap executed on or after 
the effective reporting date, reporting parties shall comply with 
Sec. Sec.  242.901.
    (iii) Participants and the registered security-based swap data 
repository shall comply with Sec.  242.905 (except with respect to 
dissemination) and Sec.  242.906(a) and (b).
    (iv) Participants that are SBS dealers or major SBS participants 
shall comply with Sec.  242.906(c).
    (2) Phase 2, nine months after the registration date: Wave 1 of 
public dissemination--The registered security-based swap data 
repository shall comply with Sec.  242.902 and 242.905 (with respect to 
dissemination of corrected transaction reports) for 50 security-based 
swap instruments.
    (3) Phase 3, 12 months after the registration date: Wave 2 of 
public dissemination The registered security-based swap data repository 
shall comply with Sec.  242.902 and 242.905 (with respect to 
dissemination of corrected transaction reports) for an additional 200 
security-based swap instruments.
    (4) Phase 4, 18 months after the registration date: Wave 3 of 
public dissemination--All security-based swaps reported to the 
registered security-based swap data repository shall be subject to 
real-time public dissemination as specified in Sec.  242.902.


Sec.  242.911  Prohibition during phase-in period.

    A reporting party shall not report a security-based swap to a 
registered security-based swap data repository in a phase-in period 
described in Sec.  242.910 during which the registered security-based 
swap data repository is not yet required or able to publicly 
disseminate transaction reports for that security-based swap instrument 
unless:
    (a) The security-based swap is also reported to a registered 
security-based swap data repository that is disseminating transaction 
reports for that security-based swap instrument consistent with Sec.  
242.902; or
    (b) No other registered security-based swap data repository is able 
to receive, hold, and publicly disseminate transaction reports 
regarding that security-based swap instrument.

    By the Commission.

    Dated: November 19, 2010.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-29710 Filed 12-1-10; 8:45 am]
BILLING CODE 8011-01-P


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