[Federal Register Volume 75, Number 237 (Friday, December 10, 2010)]
[Proposed Rules]
[Pages 77306-77377]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-29719]



[[Page 77305]]

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Part IV





Securities and Exchange Commission





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17 CFR Parts 240 and 249



Security-Based Swap Data Repository Registration, Duties, and Core 
Principles; Proposed Rule

Federal Register / Vol. 75 , No. 237 / Friday, December 10, 2010 / 
Proposed Rules

[[Page 77306]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249

[Release No. 34-63347; File No. S7-35-10]
RIN 3235-AK79


Security-Based Swap Data Repository Registration, Duties, and 
Core Principles

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: In accordance with Section 763(i) of Title VII (``Title VII'') 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 
2010 (``Dodd-Frank Act''), the Securities and Exchange Commission 
(``Commission'') is proposing new rules under the Securities Exchange 
Act of 1934 (``Exchange Act'') governing the security-based swap data 
repository (``SDR'') registration process, duties, and core principles.

DATES: Comments should be submitted on or before January 24, 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/proposed.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#0371766f662e606c6e6e666d7770437066602d646c75"><span class="__cf_email__" data-cfemail="f280879e97df919d9f9f979c8681b2819791dc959d84">[email protected]</span></a>. Please include 
File Number S7-53-10 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 M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549.

All submissions should refer to File Number S7-53-10. 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: John Ramsay, Deputy Director; Jo Anne 
Swindler, Assistant Director; Richard Vorosmarti, Special Counsel; 
Angie Le, Special Counsel; Miles Treakle, Staff Attorney; or Bradley 
Gude, Special Counsel, Division of Trading and Markets, at (202) 551-
5777, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is proposing Rules 13n-1 to 
13n-11 under the Exchange Act governing SDRs. The Commission is 
soliciting comment on all aspects of the proposed rules and will 
carefully consider any comments received.

I. Introduction

    On July 21, 2010, President Barack Obama signed the Dodd-Frank Act 
into law.\1\ 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.\2\ 
Specifically, 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 of the OTC derivatives market. The Dodd-Frank Act 
is intended to strengthen the existing regulatory structure and to 
provide the Commission and the CFTC with effective regulatory tools to 
oversee the OTC derivatives market, which has grown exponentially in 
recent years and is capable of affecting significant sectors of the 
U.S. economy.
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    \1\ The Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010).
    \2\ See Public Law 111-203, Preamble.
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    The Dodd-Frank Act provides the CFTC with authority to regulate 
``swaps,'' the Commission with authority to regulate ``security-based 
swaps'' (``SBSs''), and both the CFTC and the Commission with authority 
to regulate ``mixed swaps.'' \3\ The Dodd-Frank Act amends the Exchange 
Act to require the following with respect to transactions in SBSs 
regulated by the Commission: (1) Transactions in SBSs must be cleared 
through a clearing agency if they are of a type that the Commission 
determines must be cleared, unless an exemption applies; \4\ (2) if an 
SBS is subject to the clearing requirement, then it must be traded on a 
registered trading platform, i.e., a security-based swap execution 
facility (``SB SEF'') or SBS exchange, unless no facility makes such 
SBS available for trading; \5\ and (3) transactions in SBSs (whether 
cleared or uncleared) must be reported to a registered SDR or the 
Commission.\6\
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    \3\ 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 permits 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. 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 are 
currently seeking comments from interested parties. See Exchange Act 
Release No. 62717 (Aug. 13, 2010), 75 FR 51429 (Aug. 20, 2010) (File 
No. S7-16-10) (advance joint notice of proposed rulemaking regarding 
definitions contained in Title VII).
    \4\ See Public Law 111-203, Sec.  763(a) (adding Exchange Act 
Section 3C).
    \5\ See Public Law 111-203, Sec.  763(c) (adding Exchange Act 
Section 3D).
    \6\ See Public Law 111-203, Sec. Sec.  763(i) and 766(a) (adding 
Exchange Act Sections 13(m)(1)(G) and 13A(A)(1), respectively). The 
Dodd-Frank Act amends the CEA to provide for a similar regulatory 
framework with respect to transactions in swaps regulated by the 
CFTC.
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    The Dodd-Frank Act provides the Commission with broad authority to 
adopt rules governing SDRs and to develop additional duties applicable 
to SDRs.\7\ Today, the Commission is proposing in this release new 
Rules 13n-1 to 13n-11 under the Exchange Act governing SDR registration 
process, duties, and core principles, including duties related to data 
maintenance and access by relevant authorities and those seeking to use 
the SDR's repository services.\8\ Pursuant to the legislation,

[[Page 77307]]

SDRs are required to collect and maintain accurate SBS transaction data 
so that relevant authorities can access and analyze the data from 
secure, central locations to better monitor for systemic risk and 
potential market abuse.
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    \7\ See Public Law 111-203, Sec.  763(i) (adding Exchange Act 
Sections 13(n)(7)(D)(i) and 13(n)(9)).
    \8\ Section 712(a)(2) of the Dodd-Frank Act provides that, 
before commencing any rulemaking regarding SBSs, security-based swap 
dealers (``SBS dealers''), major security-based swap participants 
(``major SBS participants''), SDRs, SBS clearing agencies, persons 
associated with an SBS dealer or major SBS participant, eligible 
contract participants with regard to SBSs, or SB SEFs pursuant to 
Subtitle B of Title VII, the Commission must consult and coordinate 
with the CFTC and other prudential regulators for the purposes of 
assuring regulatory consistency and comparability, to the extent 
possible. See Public Law 111-203, Sec.  712(a)(2). Any person that 
is required to be registered as an SDR under Exchange Act Section 
13(n) must register with the Commission, regardless of whether that 
person is also registered under the CEA as a swap data repository. 
Public Law 111-203, Sec.  763(i) (adding Exchange Act Section 
13(n)(8)). The Commission preliminarily believes that an entity that 
registers with the Commission as an SDR is likely to register also 
with the CFTC as a swap data repository. As a result, the Commission 
staff and the CFTC staff have consulted and coordinated with one 
another regarding their respective Commissions' proposed rules 
regarding SDRs and swap data repositories as mandated by Sections 
763 and 728 of the Dodd-Frank Act, respectively. The Commission 
staff has also consulted and coordinated with other prudential 
regulators.
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    A separate release issued by the Commission today proposes 
Regulation SBSR, which, among other things, implements the provisions 
of the Dodd-Frank Act for reporting SBS transactions to SDRs, including 
standards for the data elements that must be provided.\9\ In addition, 
the Dodd-Frank Act requires the Commission to engage in rulemaking for 
the public dissemination of SBS transaction, volume, and pricing 
data,\10\ and provides the Commission with discretion to determine an 
appropriate approach to implement this important function. In 
Regulation SBSR, the Commission proposes to require SDRs to undertake 
this role.\11\
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    \9\ See Exchange Act Release No. 63346 (Nov. 19, 2010) 
(``Regulation SBSR Release'').
    \10\ Public Law 111-203, Sec.  763(i) (adding Exchange Act 
Section 13(m)(1)).
    \11\ See Regulation SBSR Release, supra note 9.
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    Taken together, the rules that the Commission proposes today seek 
to provide improved transparency to regulators and the markets through 
comprehensive regulations for SBS transaction data and SDRs. The 
proposed rules would require SBS transaction information to be (1) 
provided to SDRs in accordance with uniform data standards; (2) 
verified and maintained by SDRs, which serve as secure, centralized 
recordkeeping facilities that are accessible by relevant authorities; 
and (3) publicly disseminated in a timely fashion by SDRs. In 
combination, these proposed rules represent a significant step forward 
in providing a regulatory framework that promotes transparency and 
efficiency in the OTC derivatives markets and creates important 
infrastructure to assist relevant authorities in performing their 
market oversight functions.
    In preparation for the rulemakings related to SDRs, Commission and 
CFTC staff held a joint public roundtable (the ``Data Roundtable'') on 
September 14, 2010 to gain further insight into many of the issues 
addressed in this proposal.\12\ The rules proposed today take into 
account the views expressed at the Data Roundtable, as well as the 
comments received.
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    \12\ The Commission and the CFTC solicited comments on the Data 
Roundtable. See Exchange Act Release No. 62863 (Sept. 8, 2010), 75 
FR 55575 (Sept. 13, 2010). Comments received by the Commission are 
available at http://www.sec.gov/cgi-bin/ruling-comments?ruling=df-title-vii-swap-data-repositories&rule_path=/comments/df-title-vii/swap-data-repositories&file_num=DF%20Title%20VII%20-%20Swap%20Data%20Repositories&action=Show_Form&title=Swap%20Data%20Repositories%20-%20Title%20VII%20Provisions%20of%20the%20Dodd-Frank%20Wall%20Street%20Reform%20and%20Consumer%20Protection%20Act.
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    This proposed rulemaking is among the first that the Commission has 
considered in connection with its mandates under the Dodd-Frank Act, 
and the Commission is mindful of the considerations raised by this 
timing. The Commission notes that the SBS market is in a nascent stage 
of regulatory development compared to the markets for equity securities 
and listed options and that the SBS market could develop further as the 
Dodd-Frank Act is fully implemented and these transactions move to 
central clearing and trading on organized markets. Accordingly, the 
Commission urges all interested parties to comment on all aspects of 
this proposed rulemaking, including whether this proposal, taken as a 
whole, appropriately advances the objectives of the Dodd-Frank Act in a 
manner that adequately takes into account the characteristics of the 
relevant markets.

II. Role, Regulation, and Business Models of SDRs

    Under the Dodd-Frank Act, SDRs are intended to play a key role in 
enhancing transparency in the SBS market by retaining complete records 
of SBS transactions, maintaining the integrity of those records, and 
providing effective access to those records to relevant authorities and 
the public in line with their respective information needs. The 
enhanced transparency provided by an SDR is important to help 
regulators and others monitor the build-up and concentration of risk 
exposures in the SBS market. Without an SDR, data on SBS transactions 
is dispersed and not readily available to regulators and others. SDRs 
may be especially critical during times of market turmoil, both by 
giving relevant authorities information to help limit systemic risk and 
by promoting stability through enhanced transparency. By enhancing 
stability in the SBS market, SDRs may also indirectly enhance stability 
across markets, including equities and bond markets.\13\
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    \13\ See Darrell Duffie, Ada Li, and Theo Lubke, Policy 
Perspectives of OTC Derivatives Market Infrastructure, Federal 
Reserve Bank of New York Staff Report No. 424, dated January 2010, 
as revised March 2010 (``Transparency can have a calming influence 
on trading patterns at the onset of a potential financial crisis, 
and thus act as a source of market stability to a wider range of 
markets, including those for equities and bonds.'').
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    In addition, SDRs have the potential to reduce operational risk and 
enhance operational efficiency in the SBS market. By maintaining 
transaction records that are accessible by both counterparties to an 
SBS, SDRs will provide a mechanism for counterparties to ensure that 
their records reconcile on all of the key economic details, which may 
decrease the likelihood of disputes. The Dodd-Frank Act's requirement 
of having all SBSs reported to an SDR encourages standardization of 
data elements, which promotes operational and market efficiency.
    The data maintained by an SDR may also assist regulators in (i) 
preventing market manipulation, fraud, and other market abuses; (ii) 
performing market surveillance, prudential supervision, and 
macroprudential (systemic risk) supervision; and (iii) resolving issues 
and positions after an institution fails.\14\
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    \14\ See Letter from DTCC to Chairmen Mary Schapiro and Gary 
Gensler (Nov. 15, 2010) (available at http://www.sec.gov/comments/df-title-vii/swap-data-repositories/swapdatarepositories-13.pdf) 
(``A registered SDR should be able to provide (i) enforcement agents 
with necessary information on trading activity; (ii) regulatory 
agencies with counterparty-specific information about systemic risk 
based on trading activity; (iii) aggregate trade information for 
publication on market-wide activity; and (iv) a framework for real-
time reporting from swap execution facilities and derivatives 
clearinghouses.'')
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    SDRs themselves are, however, subject to certain operational risks. 
The inability of an SDR to protect the accuracy and integrity of the 
data that it maintains or the inability of an SDR to make such data 
available to regulators, market participants, and others in a timely 
manner could have a significant negative impact on the SBS market. 
Failure to maintain privacy of such data could lead to market abuse and 
subsequent loss of liquidity. Therefore, it is important that SDRs are 
well-run and effectively regulated.

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    The Commission is cognizant that the proposed rules discussed 
herein, as well as other proposals that the Commission may consider in 
the coming months to implement the Dodd-Frank Act, if adopted, could 
significantly affect--and be significantly affected by--the nature and 
scope of the SBS market in a number of ways. For example, the 
Commission recognizes that if the measures that are adopted are too 
onerous for new entrants, they could discourage competition and 
formation of SDRs. On the other hand, if the Commission adopts rules 
that are too permissive, SDRs might be prone to deficiencies such as 
limited access to their services or potential lack of data integrity. 
The Commission is also mindful that further development of the SBS 
market may alter the calculus for future regulation of SDRs. As 
commenters review this release, they are urged to consider generally 
the role that regulation may play in fostering or limiting development 
of the SBS market (or, vice versa, the role that market developments 
may play in changing the nature and implications of regulation) and to 
focus specifically on this issue with respect to the proposals 
regarding SDRs that are discussed below.
    The Commission is also aware that the regulatory framework for SDRs 
being developed by the Commission must take into account the commercial 
viability of SDRs, because realizing the benefits of SDRs requires that 
entities seek to engage in the business of being an SDR. In this 
regard, the Commission, which has limited experience with data 
repositories, seeks to understand the potential revenue streams and 
operating costs for SDRs. Based on our understanding of existing data 
repositories and discussions with industry representatives, it appears 
that SDRs might operate under any one of a number of business models. 
For example, an SDR could provide basic services and access to data on 
an at-cost utility model basis. Alternatively, an SDR might seek to 
earn a profit from fees charged to participants for reporting SBS 
transaction data to the SDR or for providing raw data to participants 
or others. In either of these two models, the SDR could also offer to 
participants additional or ancilliary services related to the SBS data 
that is reported to the SDR, such as calculating quarterly coupon and 
other payments (e.g., upfront fees or credit event payments) due 
between counterparties of an SBS; providing bilateral netting 
calculations; and providing automated life cycle processing for 
successor events such as reorganizations and renaming of corporate 
entities, and credit events such as bankruptcies, restructurings, and 
insolvencies. Further, an entity that already offers post-trade 
processing or matching and confirmation services might seek to expand 
its business to include acting as a data repository. Finally, any of 
these models could involve the sale of enhanced data or tools derived 
from the use and analysis of data reported to the repository.
    The SDR regulatory regime set forth in the Dodd-Frank Act and any 
rules that the Commission may adopt to implement the Act will likely 
affect an entity's decision over which business model to adopt. An 
entity likely will remain in or enter into the SBS market as a 
registered SDR based upon the interplay between the business model that 
it selects and the regulatory requirements that the Commission imposes 
under the Dodd-Frank Act.
    The Commission recognizes the importance of promoting the 
development of SDRs to collect, maintain, and make available accurate 
SBS data to relevant authorities and the public. The rules that the 
Commission proposes in this release today reflect its preliminary views 
on potentially appropriate regulatory requirements to implement the 
Dodd-Frank Act with respect to SDRs. In this regard, the Commission has 
considered its experience in regulating the securities market and has 
sought to propose rules that take into account the obligations the 
Commission has imposed on other registrants.\15\ At the same time, the 
Commission is interested in gathering additional information regarding 
the business models that the industry may utilize to operate registered 
SDRs, views on the potential areas of competition among SDRs, and the 
interplay between the commercial viability of various SDR business 
models and any rules implemented under the Dodd-Frank Act. The 
Commission does not intend by the requirements imposed on an SDR to 
mandate any particular business model, and it solicits comment on the 
effect of the proposed rules on business models that SDRs would adopt, 
and the consequences for market integrity, transparency, and 
efficiency.
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    \15\ For example, proposed Rule 13n-6 would require SDRs to 
comply with obligations related to their automated systems' 
capacity, resiliency, and security that are comparable to the 
standards applicable to self-regulatory organizations, including 
clearing agencies, and other registrants pursuant to the 
Commission's Automation Review Policy standards. And, the 
requirement in proposed Rule 13n-4 for an SDR to ensure that any 
dues, fees, or any other charges imposed by, and any discounts or 
rebates offered by, an SDR be fair and reasonable and not 
unreasonably discriminatory is similar to obligations imposed by the 
Exchange Act on other registrants. See, e.g., Exchange Act Section 
6(b)(4) (``The rules of the exchange [shall] provide for the 
equitable allocation of reasonable dues, fees, and other charges 
among its members and issuers and other persons using its 
facilities''); Exchange Act Section 17A(b)(3)(D) (``The rules of the 
clearing agency [shall] provide for the equitable allocation of 
reasonable dues, fees and other charges among its participants''); 
see also Exchange Act Sections 11A(c)(1)(C) and (D) (providing that 
the Commission may prescribe rules to assure that all securities 
information processors (``SIPs'') may, ``for purposes of 
distribution and publication, obtain on fair and reasonable terms 
such information'' and to assure that ``all other persons may obtain 
on terms which are not unreasonably discriminatory'' the transaction 
information published or distributed by SIPs).
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Request for Comment

    The Commission also requests comment on the following specific 
issues:
    <bullet> Are there business models other than those described above 
that an SDR may want to adopt? What are the business models, and what 
are their benefits and drawbacks for SDRs and for the integrity, 
transparency, and efficiency of the SBS market?
    <bullet> Do the Commission's proposed rules favor or discourage one 
business model over another? If so, identify which rule(s) and explain.
    <bullet> Should the Commission's rules favor or discourage one 
business model over another? If so, which models should be favored or 
discouraged and why?
    <bullet> What factors determine whether an entity decides to 
operate as an SDR?
    <bullet> Who are the likely investors in or sources of capital for 
new SDRs? What are the key sources of risk or uncertainty facing such 
persons? How would the rules being proposed by the Commission, taken as 
a whole or individually, facilitate or discourage the investment of 
capital in SDRs?
    <bullet> What are the revenue sources available to SDRs? How would 
the rules proposed or that may be adopted affect potential revenue 
sources for SDRs, and their commercial viability? Could repositories be 
commercially viable if the only permissible sources of revenue derived 
from receiving and generating and providing aggregated data? Which 
revenue sources are expected to be most important from the standpoint 
of commercial viability?
    <bullet> Would there be advantages or disadvantages to the market 
if SDRs were required to provide basic services on an at-cost or 
utility model basis?
    <bullet> Do the rules proposed by the Commission in this release, 
taken as a whole, reflect an appropriate regulatory burden on SDRs, 
considering the statutory mandates and policy goals of the Dodd-Frank 
Act? Should the Commission impose additional or fewer requirements on 
SDRs? Which

[[Page 77309]]

requirements should be added or removed and why? Which requirements, if 
any, in combination or alone, would be unduly burdensome on SDRs?
    <bullet> With respect to entities that currently perform repository 
services for SBSs or other instruments, how do current practices 
compare to the practices that the Commission proposes to require in 
these rules? What are the incremental costs to potential SDRs in 
connection with adding to or revising their current practices in order 
to implement these proposed rules?
    <bullet> How many SDRs are likely to register with the Commission? 
Will there likely be more than one SDR for each asset class of SBSs? If 
there will likely be only one SDR for each asset class, will that be 
due to the inherent nature of the market and of the SDR business model; 
will that be due to the rules proposed by the Commission; or will that 
be due to other factors? Should the Commission impose additional 
regulatory requirements to mitigate any potential detrimental impact on 
the SBS market related to a single, dominant SDR for each asset class? 
Or should the Commission instead seek to encourage more competition 
among SDRs by modifying or eliminating certain aspects of its proposed 
rules to facilitate new entrants into the market?
    <bullet> Exchange Act Section 13(n)(5) requires an SDR to ``provide 
direct electronic access to the Commission (or any designee of the 
Commission, including another registered entity).'' Under this 
provision, should the Commission designate one SDR as the recipient of 
the information of other SDRs, through direct electronic access to the 
SBS data at the other SDRs, in order to provide the Commission and 
relevant authorities with a consolidated location for SBS data? If so, 
should the consolidation of data from SDRs be by asset class of SBSs or 
across all asset classes? What would be the costs and benefits of 
requiring SDRs to report transaction data to another registered SDR 
that would consolidate the information? If the Commission were to 
designate one SDR to be the consolidator of SBS data in an asset class 
or for all SBS data, are there requirements that should be imposed on 
such an entity that are different than those imposed on other SDRs? Are 
there specific criteria that the Commission should consider in 
selecting an SDR to be a consolidator of SBS data?

III. Discussion of Proposed Rules Governing SDRs

    Exchange Act Section 3(a)(75), enacted in Section 761 of the Dodd-
Frank Act, defines a ``security-based swap data repository'' to mean 
``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 by third parties for the purpose of 
providing a centralized recordkeeping facility for security-based 
swaps.'' \16\ Exchange Act Section 13(n), enacted in Section 763(i) of 
the Dodd-Frank Act, makes it ``unlawful for any person, unless 
registered with the Commission, directly or indirectly, to make use of 
the mails or any means or instrumentality of interstate commerce to 
perform the functions of a security-based swap data repository.'' \17\ 
To be registered and maintain such registration, each SDR is required 
to comply with the requirements and core principles described in 
Exchange Act Section 13(n), as well as with any requirements that the 
Commission adopts by rule or regulation.\18\ The Dodd-Frank Act also 
requires each SDR to appoint a chief compliance officer (``CCO'') and 
specifies the CCO's duties.\19\ In addition, the Dodd-Frank Act grants 
the Commission authority to inspect and examine any registered SDR and 
to prescribe data standards for SDRs.\20\
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    \16\ Public Law 111-203, Sec.  761 (adding Exchange Act Section 
3(a)(75)).
    \17\ Public Law 111-203, Sec.  763(i) (adding Exchange Act 
Section 13(n)(1)). Any person that is required to be registered as 
an SDR under Exchange Act Section 13(n) must register with the 
Commission, regardless of whether that person is also registered 
under the CEA as a swap data repository. Id. (adding Exchange Act 
Section 13(n)(8)). Under the legislation, a clearing agency may 
register as an SDR. Id. (adding Exchange Act Section 13(m)(1)(H)). 
In addition, any person that is required to register as an SDR 
pursuant to this section must register with the Commission 
regardless of whether that person is also registered as an SB SEF.
    \18\ See id. (adding Exchange Act Section 13(n)(3)).
    \19\ See id. (adding Exchange Act Section 13(n)(6)).
    \20\ See id. (adding Exchange Act Sections 13(n)(2) and 
13(n)(4)). In a separate proposal, the Commission is proposing rules 
prescribing the data elements that an SDR is required to accept for 
each SBS in association with requirements under Section 763(i), 
adding Exchange Act Section 13(n)(4)(A) relating to standard setting 
and data identification. See Regulation SBSR Release (proposed Rule 
901), supra note 9. Any comments regarding the data elements should 
be submitted in connection with that proposal.
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A. Proposed Rule Regarding Registration of SDRs \21\
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    \21\ In separate proposals, the Commission is proposing rules 
requiring each SDR to register as a SIP, as defined in Exchange Act 
Section 3(a)(22), on Form SIP based on additional requirements 
proposed in those rules and to register as a clearing agency, 
depending on an SDR's services. See, e.g., Regulation SBSR Release 
(proposed Rule 909), supra note 9. Any comments regarding such 
registrations should be submitted in connection with these 
proposals.
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    The Commission is proposing Rule 13n-1, which establishes the 
procedures by which an SDR may apply to the Commission for 
registration. The proposed rule would provide that an application for 
the registration of an SDR must be filed electronically in a tagged 
\22\ data format on proposed new Form SDR with the Commission in 
accordance with the instructions contained in the form.\23\ The 
Commission anticipates developing an online filing system through which 
an SDR would be able to file and update Form SDR.\24\ The information 
filed would be available on the Commission's Web site.\25\ The 
Commission preliminarily believes that filing Form SDR in an electronic 
format would be less burdensome and more efficient for both the SDRs 
and the Commission.
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    \22\ The term ``tag'' (including the term ``tagged'') would be 
defined as an identifier that highlights specific information 
submitted to the Commission that is in the format required by the 
Electronic Data Gathering, Analysis, and Retrieval System 
(``EDGAR'') Filer Manual, as described in Rule 301 of Regulation S-
T. See proposed Rule 13n-1(a)(3); see also 17 CFR 232.301. The term 
``EDGAR Filer Manual'' would have the same meaning as set forth in 
Rule 11 of Regulation S-T (defining ``EDGAR Filer Manual'' as ``the 
current version of the manual prepared by the Commission setting out 
the technical format requirements for an electronic submission''). 
See Proposed Rule 13n-1(a)(1); see also 17 CFR 232.11.
    \23\ See proposed Rule 13n-1(b).
    \24\ The Commission anticipates that SDR filings will be 
submitted through EDGAR, in which case the electronic filing 
requirements of Regulation S-T would apply. See generally 17 CFR 232 
(governing the electronic submission of documents filed with the 
Commission).
    \25\ If the Commission adopts the rule as proposed, it is 
possible that SDRs might be required to file Form SDR in paper until 
such time as an electronic filing system is operational and capable 
of receiving the form. SDRs would be notified as soon as the 
electronic system can accept filing of Form SDR. At such time, the 
Commission may require each SDR to promptly re-file electronically 
Form SDR and any amendments to the form.
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    As part of the Commission's longstanding efforts to increase 
transparency and the usefulness of information, the Commission has been 
implementing data-tagging of information contained in electronic 
filings to improve the accuracy of financial information and facilitate 
its analysis.\26\ Data becomes machine-readable when it is labeled, or 
tagged, using a computer markup language that can be processed by 
software programs for analysis. Such computer markup languages use 
standard sets of definitions, or ``taxonomies,'' that translate text-
based information in

[[Page 77310]]

Commission filings into structured data that can be retrieved, 
searched, and analyzed through automated means. Requiring the 
information to be tagged in a machine-readable format using a data 
standard that is freely available, consistent, and compatible with the 
tagged data formats already in use for Commission filings would enable 
the Commission to review and analyze effectively Form SDR submissions.
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    \26\ See Regulation S-T, 17 CFR 232. See also Securities Act 
Release No. 8891 (Feb. 6, 2008), 73 FR 10592 (Feb. 27, 2008); 
Securities Act Release No. 9002 (Jan. 30, 2009), 74 FR 6776 (Feb. 
10, 2009); Securities Act Release No. 9006 (Feb. 11, 2009), 74 FR 
7748 (Feb. 19, 2009); Exchange Act Release No. 61050 (Nov. 23, 
2009), 74 FR 63832 (Dec. 4, 2009); Investment Company Release No. 
29132 (Feb. 23, 2010), 75 FR 10060 (Mar. 4, 2010).
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1. Proposed New Form SDR
    Proposed Form SDR includes a set of instructions for its proper 
completion and submission. These instructions are attached to this 
release, together with proposed Form SDR. The instructions would 
require an SDR to indicate the purpose for which it is submitting the 
form (i.e., application for registration, or amendment to an 
application or to an effective registration) and then to provide 
information in seven categories: (1) General information, (2) business 
organization, (3) financial information, (4) operational capability, 
(5) access to services and data, (6) other policies and procedures, and 
(7) legal opinion. As part of the application process, each SDR would 
be required to provide additional information to the Commission upon 
request.\27\
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    \27\ See proposed Rule 13n-1(b).
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    The Commission preliminarily believes that permitting an SDR to 
provide information in narrative form would allow the SDR greater 
flexibility and opportunity for meaningful disclosure of relevant 
information. The Commission also preliminarily believes that it is 
necessary to obtain the requested information in proposed Form SDR to 
enable the Commission to determine whether to grant or deny an 
application for registration. Specifically, the information would 
assist the Commission in understanding the basis for registration as 
well as an SDR's overall business structure, financial condition, track 
record in providing access to its services and data, technological 
reliability, and policies and procedures to comply with its statutory 
obligations. The information would also be useful to the Commission in 
tailoring any requests for additional information that it may ask an 
SDR to provide. Furthermore, the required information would assist the 
Commission in the preparation of its inspection and examination of an 
SDR.
    General Information. Proposed Form SDR would require an SDR to 
provide contact information, information concerning successor entities 
(if applicable), a list of asset classes of SBSs for which the SDR is 
collecting and maintaining data or for which it proposes to collect and 
maintain data, and a description of the functions that it performs or 
proposes to perform. This information would assist the Commission and 
its staff in evaluating the applications and overseeing registered 
SDRs.
    An SDR would be required to consent that any notice or service of 
process, pleadings, or other documents in connection with any action or 
proceeding against the SDR may be effectuated by certified mail to an 
officer or person specified by the SDR at a given U.S. address. The 
Commission preliminarily believes that this consent is important to 
minimize any logistical obstacles (e.g., locating defendants or 
respondents abroad) that the Commission may encounter when attempting 
to provide notice to an SDR or to effect service, including service 
overseas.
    Form SDR must be signed by a person who is duly authorized to act 
on behalf of the SDR. The signer would be required to certify that all 
information contained in the application, including the required items 
and exhibits, is true, current, and complete. This certification is 
consistent with the certification provisions in the registration forms 
for SIPs, investment advisers, and broker-dealers (i.e., Forms SIP, 
ADV, and BD).\28\
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    \28\ See 17 CFR 249.1001 (Form SIP, for application for 
registration as a securities information processor or to amend such 
an application or registration); Form ADV (available at http://www.sec.gov/about/forms/formadv.pdf); and Form BD (available at 
http://www.sec.gov/about/forms/formbd.pdf).
---------------------------------------------------------------------------

    If an applicant is a non-resident SDR, then the signer of Form SDR 
would also be required to certify that the SDR can, as a matter of law, 
provide the Commission with prompt access to the SDR's books and 
records and that the SDR can, as a matter of law, submit to onsite 
inspection and examination by the Commission.\29\ For purposes of the 
certification, the term ``non-resident security-based swap data 
repository'' would mean (i) in the case of an individual, one who 
resides in or has his principal place of business in any place not in 
the United States; (ii) in the case of a corporation, one incorporated 
in or having its principal place of business in any place not in the 
United States; or (iii) in the case of a partnership or other 
unincorporated organization or association, one having its principal 
place of business in any place not in the United States.\30\ Certain 
foreign jurisdictions may have laws that complicate the ability of 
financial institutions such as SDRs located in their jurisdictions from 
sharing and/or transferring certain information, including personal 
financial data of individuals that the financial institutions come to 
possess from third persons (e.g., personal data relating to the 
identity of market participants or their customers). The Commission 
preliminarily believes that the non-resident SDR certification is 
important to confirm that each SDR located overseas has taken the 
necessary steps to be in the position to provide the Commission with 
prompt access to its books and records and to be subject to onsite 
inspection and examination by the Commission. Failure to make this 
certification may be a basis for the Commission to deny an application 
for registration. If a registered non-resident SDR becomes unable to 
comply with this certification, then this may be a basis for the 
Commission to revoke the SDR's registration.
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    \29\ Under Exchange Act Section 13(n)(2), an SDR is subject to 
inspection and examination by the Commission. See Public Law 111-
203, Sec.  763(i).
    \30\ See also proposed Rule 13n-1(a)(2). This definition is 
substantially similar to the definition of ``non-resident broker or 
dealer'' in Exchange Act Rule 17a-7(d)(3). See 17 CFR 240.17a-
7(d)(3).
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    Business Organization. Proposed Form SDR would require each SDR to 
provide information regarding its business organization, including 
information about (1) any person who owns 10 percent or more of the 
SDR's stock or who, either directly or indirectly, through agreement or 
otherwise, in any other manner, may control or direct the SDR's 
management or policies, (2) the business experience, qualifications, 
and disciplinary history of its designated CCOs, officers, directors, 
governors, and persons performing functions similar to any of the 
foregoing, and the members of all standing committees,\31\ (3) its

[[Page 77311]]

governance arrangements, (4) the SDR's constitution, articles of 
incorporation or association with all amendments to them, existing by-
laws, rules, procedures, and instruments corresponding to them, (5) the 
SDR's organizational structure, (6) its affiliates,\32\ (7) any 
material pending legal proceedings to which the SDR or its affiliate is 
a party or to which any of its property is the subject, (8) the SDR's 
material contracts with any SB SEF, clearing agency, central 
counterparty, and third party service provider, and (9) the SDR's 
policies and procedures to minimize conflicts of interest in its 
decision-making process and to resolve any such conflicts of interest. 
Obtaining this information would assist the Commission in understanding 
an SDR's overall business structure, governance arrangements, and 
operations, all of which would assist the Commission in its inspection 
and examination of the SDR.
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    \31\ More specifically, proposed Form SDR would require an SDR 
to disclose the following information regarding its designated CCOs, 
officers, directors, governors, and persons performing functions 
similar to any of the foregoing, and the members of all standing 
committees: (a) Name, (b) title, (c) date of commencement and, if 
appropriate, termination of present term of position, (d) length of 
time such person has held the same position, (e) brief account of 
the business experience of such person over the last five years, (f) 
any other business affiliations in the securities industry or OTC 
derivatives industry, and (g) a description of: (1) Any order of the 
Commission with respect to such person pursuant to Exchange Act 
Sections 15(b)(4), 15(b)(6), 19(h)(2), or 19(h)(3); (2) any 
conviction or injunction of a type described in Exchange Act 
Sections 15(b)(4)(B) or (C) within the past ten years; (3) any 
action of a self-regulatory organization with respect to such person 
imposing a final disciplinary sanction pursuant to Exchange Act 
Sections 6(b)(6), 15A(b)(7), or 17A(b)(3)(G); (4) any final action 
by a self-regulatory organization with respect to such person 
constituting a denial, bar, prohibition, or limitation of 
membership, participation, or association with a member, or of 
access to services offered by, such organization of a member 
thereof; and (5) any final action by another federal regulatory 
agency, including the CFTC, any state regulatory agency, or any 
foreign financial regulatory authority resulting in: (i) A finding 
that such person has made a false statement or omission, or has been 
dishonest, unfair, or unethical; (ii) a finding that such person has 
been involved in a violation of any securities-related regulations 
or statutes; (iii) a finding that such person has been a cause of a 
business having its authorization to do business denied, suspended, 
revoked, or restricted; (iv) an order entered, in the past ten 
years, against such person in connection with a securities-related 
activity; or (v) any disciplinary sanction, including a denial, 
suspension, or revocation of such person's registration or license 
or otherwise, by order, a prevention from associating with a 
securities-related business or a restriction of such person's 
activities.
    \32\ For purposes of proposed Form SDR, an ``affiliate'' of an 
SDR would be defined as a person that, directly or indirectly, 
controls, is controlled by, or is under common control with the SDR. 
See also proposed Rule 13n-4(a)(1). This proposed definition of 
``affiliate'' is designed to allow the Commission to collect 
comprehensive identifying information relating to an SDR.
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    Financial Information. Each SDR would be required to disclose as 
exhibits to proposed Form SDR certain financial and related 
information, including (1) its balance sheet, statement of income and 
expenses, statement of sources and application of revenues, and all 
notes or schedules thereto, as of the most recent fiscal year of the 
SDR, or, alternatively, a financial report, as discussed further in 
Section III.K.3 of this release, (2) a balance sheet and statement of 
income and expense for each affiliate of the SDR as of the end of the 
most recent fiscal year of each such affiliate, or, alternatively, 
identification of the most recently filed annual report on Form 10-K of 
the SDR's affiliate, if available, (3) the SDR's schedule of dues, 
fees, and other charges imposed, or to be imposed, for its services as 
well as any discounts and rebates offered, or to be offered, and (4) a 
description of any differentiations in such dues, fees, other charges, 
discounts, and rebates.
    Operational Capability. Proposed Form SDR would also require each 
SDR to provide information on its operational capability, including (1) 
its functions and services, (2) the computer hardware that it uses to 
perform its functions, (3) personnel qualifications for each category 
of professional, non-professional, and supervisory employees employed 
by the SDR or the division, subdivision, or other segregable entity 
within the SDR, (4) the SDR's measures or procedures to provide for the 
security of any system employed to perform its functions, including any 
physical and operational safeguards designed to prevent unauthorized 
access to the system, (5) any circumstances within the past year in 
which such security measures or safeguards failed to prevent any such 
unauthorized access to the system and any measures taken to prevent a 
reoccurrence, (6) any measures used to satisfy itself that the 
information received or disseminated by the system is accurate, (7) the 
SDR's backup systems or subsystems that are designed to prevent 
interruptions in the performance of any SDR functions, (8) limitations 
on the SDR's capacity to receive (or collect), process, store, or 
display its data and factors that account for such limitations, and (9) 
the priorities of assignment of capacity between functions of the SDR 
and any other uses and methods used to divert capacity between such 
functions and other uses. Obtaining this information would assist the 
Commission in determining, among other things, whether an SDR is able 
to comply with proposed Rule 13n-6, as discussed further in Section 
III.F of this release.
    Access to Services and Data. Proposed Form SDR would further 
require an SDR to provide information regarding access to its services 
and data, including (1) the number of persons who presently subscribe, 
or who have notified the SDR of their intention to subscribe, to its 
services, (2) instances in which the SDR has prohibited or limited any 
person with respect to access to services offered or data maintained by 
the SDR,\33\ (3) the storage media of any service furnished in machine-
readable form and the data elements of such service, (4) copies of the 
contracts governing the terms by which persons may subscribe to the 
SDR's services, including ancillary services, (5) any specifications, 
qualifications, and criteria that limit, are interpreted to limit, or 
have the effect of limiting access to or use of any services offered or 
data maintained by the SDR, (6) any specifications, qualifications, or 
other criteria required of persons who supply SBS information to the 
SDR for collection and maintenance or of persons who seek to connect to 
or link with the SDR, (7) any specifications, qualifications, or other 
criteria required of any person who requests access to data maintained 
by the SDR, and (8) the SDR's policies and procedures to review any 
prohibition or limitation of any person with respect to access to 
services offered or data maintained by the SDR and to determine whether 
any person who has been denied access has been discriminated against 
unfairly. Obtaining this information would assist the Commission in 
determining, among other things, whether an SDR can comply with 
proposed Rule 13n-4(c)(1), as discussed further in Section III.D.2.a in 
this release.
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    \33\ If the Commission adopts proposed Rule 909 of Regulation 
SBSR, which would require each SDR to register as a SIP, then 
Exchange Act Section 11A(b)(5) would govern denials of access to all 
SDRs' services. See Regulation SBSR Release (proposed Rule 909), 
supra note 9.
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    Other Policies and Procedures. Proposed Form SDR would require each 
SDR to submit as exhibits: (1) The SDR's policies and procedures to 
protect the privacy of any and all SBS transaction information that the 
SDR receives from a market participant or any registered entity, (2) a 
description of the SDR's safeguards, policies, and procedures to 
prevent the misappropriation or misuse of (a) any confidential 
information received by the SDR, including, but not limited to, trade 
data, position data, and any nonpublic personal information about a 
market participant or any of its customers; (b) material, nonpublic 
information; and/or (c) intellectual property by the SDR or any person 
associated with the SDR for their personal benefit or for the benefit 
of others, (3) the SDR's policies and procedures regarding its use of 
the SBS transaction information that it receives from a market 
participant, any registered entity, or any other person for non-
commercial and/or commercial purposes, (4) the SDR's procedures and a 
description of its facilities for resolving disputes over the accuracy 
of the transaction data and positions that are recorded in the SDR, (5) 
the SDR's policies and procedures relating to its calculation of 
positions, (6) the SDR's policies and procedures to prevent any 
provision in a valid SBS from being invalidated or modified through the

[[Page 77312]]

procedures or operations of the SDR, and (7) a plan to ensure that the 
transaction data and position data that are recorded in the SDR 
continue to be maintained after the SDR withdraws from registration, 
which shall include procedures for transferring transaction data and 
position data to the Commission or its designee (including another 
registered SDR). As discussed further below, the Commission is 
proposing to require each SDR to establish, maintain, and enforce these 
seven policies and procedures. In addition, an SDR would be required to 
submit as exhibits to Form SDR all of the policies and procedures set 
forth in Regulation SBSR.\34\
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    \34\ See Regulation SBSR Release, supra note 9.
---------------------------------------------------------------------------

    Legal Opinion. Finally, Form SDR would require each non-resident 
SDR to provide an opinion of counsel that the SDR can, as a matter of 
law, provide the Commission with prompt access to the books and records 
of such SDR and that the SDR can, as a matter of law, submit to onsite 
inspection and examination by the Commission. Each jurisdiction may 
have a different legal framework with respect to its laws (e.g., 
privacy laws) that may limit or restrict the Commission's ability to 
receive information from an SDR. Providing an opinion of counsel that 
an SDR can provide prompt access to books and records and can be 
subject to onsite inspection and examination will allow the Commission 
to better evaluate an SDR's ability to meet the requirements of 
registration and ongoing supervision. Failure to provide an opinion of 
counsel may be a basis for the Commission to deny an application for 
registration.

Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Are the instructions in proposed Form SDR sufficiently 
clear? If not, identify any instructions that should be clarified and, 
if possible, offer alternatives.
    <bullet> Are the Commission's proposed definitions of 
``affiliate,'' ``non-resident security-based swap data repository,'' 
and ``tag'' appropriate and sufficiently clear? If not, why not and how 
should they be defined?
    <bullet> Should the Commission implement an electronic filing 
system for receipt of Form SDR, and, if so, what particular features 
should be incorporated into the system?
    <bullet> Do SDRs anticipate any burdens of filing Form SDR 
electronically that the Commission should consider?
    <bullet> In the event that there is a delay in the full 
implementation of the Commission's electronic filing system for 
receiving Form SDR, should the Commission require each SDR to promptly 
re-file electronically Form SDR and any amendments to the form after 
the system is operational? If so, what would be a reasonable timeframe 
to allow such re-filing (e.g., 30 days, 60 days)? Would the re-filing 
be unduly burdensome for SDRs?
    <bullet> Which information in Form SDR, including exhibits, should 
be subject to the proposed data tagging requirements?
    <bullet> Regarding the format of tagged data, as discussed in 
Section III.K.3 of this release, the Commission is proposing that an 
SDR's financial reports be submitted in eXtensible Business Reporting 
Language (``XBRL'') format. Should the Commission require a specific 
format for tagging other information in proposed Form SDR (e.g., 
financial information that is not a financial report as described in 
proposed Rule 13n-11(f), operational capability, access to services and 
data, and other policies and procedures)? If so, which format (e.g., 
XML, XBRL) would be best suited to such information?
    <bullet> Would it be useful for the Commission to provide any 
additional instructions or define any additional terms in proposed Form 
SDR? If so, what are they?
    <bullet> Is the consent relating to notice and service of process 
on proposed Form SDR appropriate and sufficiently clear? If not, why 
not and what would be a better alternative to obtaining such consent?
    <bullet> Are there other factors that the Commission should 
consider, in addition to an opinion of counsel, that address whether 
the Commission can legally, under applicable foreign law, obtain prompt 
access to an SDR's books and records and conduct onsite inspection or 
examination of the SDR?
    <bullet> Are the representations that would be required to be made 
by the person who signs Form SDR appropriate and sufficiently clear? 
Should the Commission require any additional or alternative 
representations?
    <bullet> Should the Commission require SDRs to provide information 
on persons who own ten percent or more of the SDR's stock or who may 
control or direct the management or policies of the SDR? Would a 
different ownership or control threshold be more appropriate? If so, 
why?
    <bullet> Are the suggested timeframes of the business experience, 
qualifications, and disciplinary history of an SDR's designated CCOs, 
officers, directors, governors, and persons performing functions 
similar to any of the foregoing, and members of all standing committees 
appropriate? If not, what should the timeframes be?
    <bullet> Should the suggested timeframe relating to any conviction 
or injunction of a type described in Exchange Act Sections 15(b)(4)(B) 
or (C) be ten years as proposed? If not, should it be longer, shorter, 
or indefinite? Should it be consistent with other forms (e.g., Form BD) 
or with Section 15(b)(4)(B) itself?
    <bullet> Is the financial information that the Commission is 
requesting on proposed Form SDR appropriate? If not, identify any items 
that are not appropriate, explain why, and, if possible, offer 
alternatives. For example, should the Commission request financial 
information of all affiliates of an SDR or only specific affiliates 
(e.g., an SDR's parent company, an SDR's wholly-owned subsidiaries, 
entities in which an SDR has at least a 25% interest, entities that 
have at least a 25% interest in the SDR)?
    <bullet> Is the information relating to an SDR's operational 
capability that the Commission is requesting on proposed Form SDR 
appropriate? If not, identify any items that are not appropriate, 
explain why, and, if possible, offer alternatives.
    <bullet> Should the Commission require on Form SDR a narrative 
description of any interruption in an SDR's functions performed by 
automated facilities or systems that has lasted for more than thirty 
minutes within the preceding six months of filing Form SDR, including 
the date of each interruption, the cause and duration of each 
interruption, and the total number of interruptions that have lasted 
thirty minutes or less? If not, why not? Should the timeframes be 
longer or shorter? Would this request be necessary in light of the 
Commission's proposed Rule 13n-6(b)(3)'s requirement that an SDR notify 
the Commission in writing of material systems outages, as discussed 
further in Section III.F.1.c. of this release?
    <bullet> Is the information relating to access to an SDR's services 
and data that the Commission is requesting on proposed Form SDR 
appropriate? If not, identify any items that are not appropriate, 
explain why, and, if possible, offer alternatives.
    <bullet> Is the Commission's request for information on the 
specified policies and procedures of an SDR appropriate? If not, 
explain.
    <bullet> Would any of the requested information on proposed Form 
SDR be difficult for an SDR to supply? If so, explain.
    <bullet> Should the Commission require any additional information 
on proposed

[[Page 77313]]

Form SDR? If so, what information and why?
    <bullet> Are there any items on proposed Form SDR that the 
Commission should not request? If so, which items and why?
    <bullet> Under proposed Regulation SBSR, an SDR would be required 
to register with the Commission as a SIP on Form SIP.\35\ Should the 
Commission combine Form SDR and Form SIP such that an SDR would 
register as an SDR and SIP using only one form? For example, should the 
Commission add item 28c from Form SIP to Form SDR? Are there other 
items from Form SIP that should be added to Form SDR that would help 
facilitate the registration process?
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    \35\ See Regulation SBSR Release (proposed Rule 909), supra note 
9.
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    <bullet> Should the policies and procedures required under proposed 
Regulation SBSR be filed with the Commission as exhibits to Form SDR or 
attachments to a separate schedule to Form SDR?
    <bullet> What is the likely impact of the Commission's proposed 
rule on the SBS market? Would the proposed rule potentially promote or 
impede the establishment of SDRs?
2. Factors for Approval of Registration and Procedural Process for 
Review
    Proposed Rule 13n-1(c) would provide that within 90 days of the 
date of the filing of Form SDR (or within such longer period as to 
which the SDR consents), the Commission shall either grant the 
registration by order or institute proceedings to determine whether 
registration should be denied. The 90-day period would not begin to run 
until a complete Form SDR has been filed by an SDR with the Commission. 
Proceedings instituted pursuant to this proposed rule shall include 
notice of the grounds for denial under consideration and opportunity 
for hearing on the record and shall be concluded not later than 180 
days after the date on which the application for registration is filed 
with the Commission under proposed Rule 13n-1(b).\36\ At the conclusion 
of such proceedings, the Commission, by order, shall grant or deny such 
registration.\37\ The Commission may extend the time for conclusion of 
such proceedings for up to 90 days if it finds good cause for such 
extension and publishes its reasons for so finding or for such longer 
period as to which the SDR consents.\38\
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    \36\ Proposed Rule 13n-1(c).
    \37\ Id.
    \38\ Id.
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    The proposed rule would further provide that the Commission shall 
grant the registration of an SDR if the Commission finds that such SDR 
is so organized, and has the capacity, to be able to assure the prompt, 
accurate, and reliable performance of its functions as an SDR, comply 
with any applicable provision of the Federal securities laws and the 
rules and regulations thereunder, and carry out its functions in a 
manner consistent with the purposes of Exchange Act Section 13(n) and 
the rules and regulations thereunder.\39\ The Commission shall deny the 
registration of an SDR if the Commission does not make any such 
finding.\40\
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    \39\ Proposed Rule 13n-1(c)(3).
    \40\ Id.
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    The Commission preliminarily believes that its proposed timeframes 
for reviewing applications for registration as an SDR are appropriate 
to allow the Commission staff sufficient time to ask questions and, as 
needed, to require amendments or changes to address legal or regulatory 
concerns before the Commission approves an application for 
registration. In addition, the registration provides a mechanism for an 
SDR to demonstrate that it can comply with the federal securities laws 
and the rules and regulations thereunder. The proposed procedural 
process for reviewing applications for registration as an SDR is 
consistent with the procedural process for reviewing applications of 
other registrants by the Commission (e.g., SIPs, broker-dealers, 
nationally recognized statistical ratings organizations, national 
securities exchanges, registered securities associations, clearing 
agencies) although the timeframes for review vary.\41\
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    \41\ See 15 U.S.C. 78k-1(b)(3), 78o(b), 78o-7(2), and 78s(a).
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    In order to form a more complete and informed basis on which to 
determine whether to grant, deny, or revoke an SDR's registration, the 
Commission is considering whether to adopt a requirement that an SDR 
file with the Commission, as a condition of registration or continued 
registration, a review relating to the SDR's operational capacity and 
ability to meet its regulatory obligations. The Commission could 
require such a review to be in the form of a report conducted by the 
SDR, an independent third party, or both. This review could be required 
as an exhibit to Form SDR at the time of registration or as an 
amendment to Form SDR at a later date (e.g., one year after the 
registration becomes effective) to allow the review to evaluate the 
SDR's capabilities after some operational experience following 
registration.

Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Is the Commission's proposed registration process 
appropriate and sufficiently clear? If not, why not and what would be a 
better alternative?
    <bullet> Are the timeframes in the proposed registration process 
appropriate? If not, why not and what would be more appropriate 
timeframes?
    <bullet> Are the proposed factors in determining whether the 
Commission should grant or deny an application for registration 
appropriate and sufficiently clear? If not, why not? Should the 
Commission take into consideration any other factors in determining 
whether to grant or deny an SDR's application for registration?
    <bullet> If a non-resident SDR is registered as an SDR in a foreign 
jurisdiction, should the registration process for the non-resident SDR 
be any different than the Commission's proposed registration process? 
For example, should the registration process be more streamlined for 
such non-resident SDR? Should the process instead require more 
information from a non-resident SDR? What would be the reasons to 
provide for a different registration process or, on the other hand, to 
require a uniform process?
    <bullet> Should the Commission consider any other factors relating 
to a non-resident SDR with respect to the Commission's registration 
rules or in general?
    <bullet> What is the likely impact of the Commission's proposed 
rule on the SBS market? Would the proposed rule potentially promote or 
impede the establishment of SDRs?
    <bullet> Should the Commission require an SDR to conduct or obtain 
a review relating to the SDR's operational capacity and ability to meet 
its regulatory obligations? If not, why not? If so, how should the 
Commission define the nature and scope of this review? Should the 
Commission identify a specific framework for SDRs or independent third 
parties to follow when conducting a review? If so, what would the 
critical components of the framework include? Are existing frameworks 
available that are suitable for this purpose and, if so, which ones 
would be considered appropriate? Should the review resemble a report, 
audit, or something else?
    <bullet> Should the Commission require the SDR, an independent 
third party, or some other entity to conduct the review? What are 
examples of such a review? Should the Commission require a review on a 
case-by-case basis or for

[[Page 77314]]

all SDRs? Should the Commission require that the review be filed with 
the Commission? If not, why not? If so, should it be required to be 
filed with the Commission as a condition of registration pursuant to 
proposed Rule 13n-1? If not, why not? When should the Commission 
require the filing of any review? Would conducting or obtaining a 
review, or filing such review with the Commission, impose impracticable 
burdens and costs on SDRs? Please explain the burdens and quantify the 
costs of such a review.
    <bullet> If the Commission were to adopt a rule requiring a review 
by an independent third party, should the rule specify some minimum 
standard of review or the types of review that should be performed? If 
so, what should the standards be? Should there be minimum qualification 
standards for the independent third party? Are there any particular 
types of third party service providers that should not be permitted to 
conduct a review of an SDR?
    <bullet> Should the Commission also require that an SDR certify the 
accuracy of the review and provide disclosure regarding the nature of 
the review, findings, and conclusions? To what extent should an SDR be 
permitted to rely on a third party that it hired to perform the review? 
Should the Commission condition the ability of an SDR to rely on a 
third party's review?
    <bullet> Would a review by an independent third party be necessary 
in light of the CCO's annual compliance report or proposed Rule 13n-6, 
as discussed further below?
3. Temporary Registration
    Proposed Rule 13n-1(d) would provide a method for SDRs to register 
temporarily with the Commission. Specifically, the Commission, upon the 
request of an SDR, may grant temporary registration of the SDR that 
shall expire on the earlier of: (1) The date that the Commission grants 
or denies registration of the SDR, or (2) the date that the Commission 
rescinds the temporary registration of the SDR.\42\ The reasons that 
the Commission may rescind such temporary registration would be the 
same as those set forth in proposed Rule 13n-2(c), discussed below, for 
revoking or cancelling a registration of an SDR--e.g., if the 
Commission finds that an SDR has made any false and misleading 
statements with respect to any material fact on its Form SDR, is no 
longer in existence, has ceased to do business in the capacity 
specified in its application for registration, or has violated or 
failed to comply with any provision of the federal securities laws or 
the rules or regulations thereunder. In addition, the Commission would 
expect that SDRs registered on a temporary registration basis 
demonstrate that they have the capacity and resources to comply with 
their regulatory obligations on an ongoing basis as their business 
evolves.
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    \42\ Proposed Rule 13n-1(d).
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    The proposed temporary registration would enable an SDR to comply 
with the Dodd-Frank Act upon its effective date (i.e., the later of 360 
days after the date of its enactment or 60 days after publication of 
the final rule implementing Exchange Act Section 13(n)) \43\ regardless 
of any unexpected contingencies that may arise in connection with the 
filing of Form SDR. The temporary registration would also allow the 
Commission to implement the registration requirements of the Dodd-Frank 
Act for SDRs while still giving the Commission sufficient time to 
review fully the application of an SDR after it becomes operational, 
but before granting a registration that is not limited in duration. An 
SDR that is temporarily registered with the Commission would be subject 
to Exchange Act Section 13(n) and the rules and regulations thereunder 
during the period in which the Commission is reviewing the SDR's 
application of registration.
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    \43\ See Public Law 111-203, Sec.  774.
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    Notwithstanding the potential for temporary registration, the 
Commission encourages each SDR to apply for registration as soon as 
possible, following the Commission's adoption of final Rules 13n-1 
through 13n-11, to permit sufficient time for an SDR to answer any 
questions that the Commission staff may have and to provide additional 
information or documentation, if necessary. The Commission will review 
applications in the order in which they are received. Applications 
received close to the effective date of the SDR registration 
requirement may not be reviewed and approved by the effective date.

Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Is the Commission's proposed rule regarding temporary 
registration appropriate? If not, why not? For example, should the 
temporary registration be time-limited (e.g., eighteen months from the 
date the registration is made effective)?
    <bullet> Is the Commission's proposed rule for temporary 
registration sufficiently clear? If not, how can it be clarified?
    <bullet> What conditions should apply to the granting of a 
temporary registration? For example, should a temporary registration be 
granted provided that an SDR's completed Form SDR suggests that it can 
comply with Exchange Act Section 13(n) and the rules and regulations 
thereunder?
    <bullet> Is it feasible for an SDR to comply with Exchange Act 
Section 13(n) and the rules thereunder upon the effective date of the 
final rules applicable to SDRs? If not, which requirement(s) would be 
difficult for an SDR to comply with upon the effective date? Should 
such requirement(s) be imposed on an incremental, phased-in approach? 
If so, what would be an appropriate timeframe for such requirement(s) 
to be met?
    <bullet> Are there specific requirements that the Commission should 
consider not requiring an SDR to comply with during the temporary 
registration period for reasons other than feasibility? If so, what 
requirements and for what reasons?
    <bullet> Are there any other reasons not specified in this release 
upon which a temporary registration should be denied or rescinded?
    <bullet> What is the likely impact of the Commission's proposed 
rule on the SBS market? Would the proposed rule potentially promote or 
impede the establishment of SDRs?
4. Amendment on Form SDR
    Under proposed Rule 13n-1(e), if any information reported in items 
1 through 16, 25, and 44 of Form SDR or in any amendment thereto is or 
becomes inaccurate for any reason, whether before or after the 
registration has been granted, an SDR shall promptly file an amendment 
on Form SDR updating such information (``interim amendment''). 
Generally, an SDR would be required to file an amendment within 30 days 
from the time such information becomes inaccurate.
    For example, a non-resident SDR should file an amendment promptly 
after any changes in the legal or regulatory framework that would 
impact its ability or the manner in which it provides the Commission 
with prompt access to its books and records or impacts the Commission's 
ability to inspect and examine the SDR onsite. The amendment should 
include a revised opinion of counsel describing how, as a matter of 
law, the SDR will continue to meet its obligations to provide the 
Commission with prompt access to the SDR's books and records and to be 
subject to the Commission's onsite inspection and examination under the 
new regulatory regime. As noted in Section III.A.1.a of this release, 
if a registered non-resident SDR

[[Page 77315]]

becomes unable to comply with this requirement, because of legal or 
regulatory changes, or otherwise, then this may be a basis for the 
Commission to revoke the SDR's registration.
    In addition to the proposed interim amendments, an SDR would be 
required to file an annual amendment on Form SDR, including all items 
subject to interim amendments, within 60 days after the end of its 
fiscal year.\44\ Proposed Rule 13n-1(e) is consistent with the 
Commission's requirements for other registrants (e.g., national 
securities exchanges, SIPs, broker-dealers) to file updated and annual 
amendments with the Commission.\45\ The Commission believes that such 
amendments are important to obtain updated information on each SDR, 
which would assist the Commission in determining whether each SDR 
continues to be in compliance with the federal securities laws and the 
rules and regulations thereunder. Obtaining updated information would 
also assist the Commission in its inspection and examination of an SDR.
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    \44\ Proposed Rule 13n-1(e).
    \45\ See Exchange Act Rules 6a-2 and 15b3-1, 17 CFR 240.6a-2 and 
240.15b3-1, respectively. See also 17 CFR 249.1001, supra note 28.
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Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Is the Commission's proposed rule for interim amendments 
on Form SDR appropriate and sufficiently clear? If not, why not and 
what would be a better alternative?
    <bullet> Is the proposed timeframe to file an amendment on Form SDR 
appropriate? If not, should the timeframe be shorter or longer?
    <bullet> Should an SDR be required to file an interim amendment for 
any other items on Form SDR other than items 1 through 16, 25, and 44? 
If so, which item(s) and why?
    <bullet> Should any of the items 1 through 16, 25, and 44 not be 
required to be amended in the interim? If so, which item(s) and why?
    <bullet> Should interim amendments be required under any other 
circumstances not specified?
    <bullet> Is the Commission's proposed rule requiring SDRs to file 
annual amendments on Form SDR appropriate and sufficiently clear? If 
not, why not and what would be a better alternative?
    <bullet> Is an annual filing requirement redundant, in light of the 
requirement to update promptly the form, or should the annual filing be 
sufficient to obviate the need for prompt updates?
    <bullet> Is the proposed timeframe to file an annual amendment on 
Form SDR appropriate? If not, should the timeframe be shorter or 
longer? Should the Commission permit the SDR to request an extension to 
file an annual amendment on Form SDR (e.g., due to substantial, undue 
hardship)?
5. Service of Process and Non-Resident SDRs
    The Commission is proposing Rule 13n-1(f) to require each SDR to 
designate and authorize on Form SDR an agent in the United States, 
other than a Commission member, official, or employee, to accept any 
notice or service of process, pleadings, or other documents in any 
action or proceedings against the SDR to enforce the Federal securities 
laws and the rules and regulations thereunder. If an SDR appoints 
another agent to accept such notice or service of process, then the SDR 
would be required to file promptly an amendment on Form SDR updating 
this information.\46\ Proposed Rule 13n-1(f) is intended to conserve 
the Commission's resources and to minimize any logistical obstacles 
(e.g., locating defendants or respondents abroad) that the Commission 
may encounter when attempting to effect service. For instance, by 
prohibiting an SDR from designating a Commission member, official, or 
employee as its agent for service of process, the proposed rule would 
reduce a significant resource burden on the Commission, including 
resources to locate agents of registrants overseas and keep track of 
their whereabouts.
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    \46\ See proposed Rule 13n-1(e).
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    Proposed Rule 13n-1(g) would further require any non-resident SDR 
applying for registration pursuant to this rule to certify on Form SDR 
and provide an opinion of counsel that the SDR can, as a matter of law, 
provide the Commission with prompt access to the books and records of 
such SDR and that the SDR can, as a matter of law, submit to onsite 
inspection and examination by the Commission. For the reasons stated in 
Section III.A.1.a above, the Commission preliminarily believes that 
before granting registration to a non-resident SDR, it is appropriate 
to obtain assurance and an opinion of counsel that such person has 
taken the necessary steps to be in the position to provide legally the 
Commission with prompt access to the SDR's books and records and to be 
subject to onsite inspection and examination by the Commission.

Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Is the Commission's proposed rule regarding service of 
process appropriate and sufficiently clear? If not, why not and what 
would be a better alternative?
    <bullet> Should the Commission impose any minimum requirements on 
the agent whom a non-resident SDR designates to accept any notice or 
request for service of process?
    <bullet> Are there any factors or alternatives that the Commission 
should take into consideration to ensure that there could be effective 
service of process on a non-resident SDR applying for registration as 
an SDR?
    <bullet> Are there any factors that the Commission should take into 
consideration to ensure that a non-resident SDR seeking to register as 
an SDR can, in compliance with applicable foreign laws, provide the 
Commission with access to the SDR's books and records that are required 
pursuant to proposed Rule 13n-7(b), as discussed below, and submit to 
onsite inspection and examination by the Commission?
    <bullet> Are any other documents or information necessary to 
establish a non-resident SDR's ability to comply with the federal 
securities laws and the rules and regulations thereunder?
    <bullet> What is the likely impact of the Commission's proposed 
rule on the SBS market? Would the proposed rule potentially promote or 
impede the establishment of SDRs?
6. Definition of ``Report''
    Proposed Rule 13n-1(h) would provide that ``[a]n application for 
registration or any amendment thereto that is filed pursuant to this 
[rule] shall be considered a `report' filed with the Commission for 
purposes of Sections 18(a) and 32(a) of the [Exchange] Act and the 
rules and regulations thereunder and other applicable provisions of the 
United States Code and the rules and regulations thereunder.'' Exchange 
Act Sections 18(a) and 32(a) set forth the potential liability for a 
person who makes, or causes to be made, any false or misleading 
statement in any ``report'' filed with the Commission (e.g., Form 
SDR).\47\
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    \47\ Exchange Act Section 18(a) provides, in part, that ``[a]ny 
person who shall make or cause to be made any statement in any * * * 
report * * * which statement was at the time and in the light of the 
circumstances under which it was made false or misleading with 
respect to any material fact, shall be liable to any person (not 
knowing that such statement was false or misleading) who, in 
reliance upon such statement, shall have purchased or sold a 
security at a price which was affected by such statement, for 
damages caused by such reliance, unless the person sued shall prove 
that he acted in good faith and had no knowledge that such statement 
was false or misleading.'' 15 U.S.C. 78r(a). Exchange Act Section 
32(a) provides, in part, that ``[a]ny person who willfully and 
knowingly makes, or causes to be made, any statement in any * * * 
report * * * which statement was false or misleading with respect to 
any material fact, shall upon conviction be fined not more than 
$5,000,000, or imprisoned not more than 20 years, or both, except 
that when such person is a person other than a natural person, a 
fine not exceeding $25,000,000 may be imposed.'' 15 U.S.C. 78ff(a).

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[[Page 77316]]

B. Proposed Rule Regarding Withdrawal From Registration

    Proposed Rule 13n-2(b) would permit a registered SDR to withdraw 
from registration by filing a notice of withdrawal with the Commission. 
An SDR would be required to designate on its notice of withdrawal a 
person associated with the SDR \48\ to serve as the custodian of the 
SDR's books and records.\49\ The purpose of this requirement is to 
ensure that the books and records of an SDR are maintained and 
available to the Commission and other regulators after the SDR 
withdraws from registration, and to assist the Commission in enforcing 
proposed Rules 13n-5(b)(7) and 13n-7(c), as discussed below.
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    \48\ The term ``person associated with a security-based swap 
data repository'' would be defined as (i) any partner, officer, or 
director of such SDR (or any person occupying a similar status or 
performing similar functions), (ii) any person directly or 
indirectly controlling, controlled by, or under common control with 
such SDR, or (iii) any employee of such SDR. Proposed Rule 13n-
2(a)(2). The term ``control'' (including the terms ``controlled by'' 
and ``under common control with'') would be defined 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. Under the proposed rules, a person is presumed to control 
another person if the person: (i) Is a director, general partner, or 
officer exercising executive responsibility (or having similar 
status or functions); (ii) 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 (iii) in the case of a partnership, has the 
right to receive, upon dissolution, or has contributed, 25 percent 
or more of the capital. Proposed Rule 13n-2(a)(1).
    \49\ Proposed Rule 13n-2(b).
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    Prior to filing a notice of withdrawal, an SDR would be required to 
file an amended Form SDR to update any inaccurate information.\50\ If 
there is no inaccurate information to update, then an SDR should 
include a confirmation to that effect in its notice of withdrawal. The 
Commission anticipates developing an online filing system through which 
an SDR can file its notice of withdrawal. The information filed would 
be available on the Commission's website. The Commission preliminarily 
believes that filing a notice of withdrawal in an electronic format 
would be less burdensome and more efficient for both the SDRs and the 
Commission.
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    \50\ Id.
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    Proposed Rule 13n-2(c) would provide that a notice of withdrawal 
from registration filed by an SDR shall become effective for all 
matters (except as provided in Rule 13n-2(c)) on the 60th day after the 
filing thereof with the Commission, within such longer period of time 
as to which such SDR consents or which the Commission, by order, may 
determine as necessary or appropriate in the public interest or for the 
protection of investors, or within such shorter period of time as the 
Commission may determine. Proposed Rule 13n-2(d) would provide that a 
notice of withdrawal that is filed pursuant to this rule shall be 
considered a ``report'' filed with the Commission for purposes of 
Exchange Act Sections 18(a) and 32(a) and the rules and regulations 
thereunder and other applicable provisions of the United States Code 
and the rules and regulations thereunder.
    Under proposed Rule 13n-2(e), if the Commission finds, on the 
record after notice and opportunity for hearing, that any registered 
SDR has obtained its registration by making any false and misleading 
statements with respect to any material fact or has violated or failed 
to comply with any provision of the federal securities laws and the 
rules and regulations thereunder, the Commission, by order, may revoke 
the registration. The proposed rule would further provide that pending 
final determination of whether any registration shall be revoked, the 
Commission, by order, may suspend such registration, if such suspension 
appears to the Commission, after notice and opportunity for hearing on 
the record, to be necessary or appropriate in the public interest or 
for the protection of investors.\51\
---------------------------------------------------------------------------

    \51\ Proposed Rule 13n-2(e).
---------------------------------------------------------------------------

    Finally, proposed Rule 13n-2(f) would provide that if the 
Commission finds that a registered SDR is no longer in existence or has 
ceased to do business in the capacity specified in its application for 
registration, the Commission, by order, may cancel the registration.
    This proposed rule is similar to Exchange Act Rule 15b6-1, which 
relates to withdrawal from registration as a broker-dealer. The 
Commission believes that implicit in its authority to register an SDR 
is its authority to revoke or cancel such registration.

Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Is the Commission's proposed rule regarding withdrawal 
from registration appropriate and sufficiently clear? If not, why not 
and what would be a better alternative?
    <bullet> Are the proposed definitions of ``person associated with a 
security-based swap data repository'' and ``control'' appropriate and 
sufficiently clear? If not, why not and how should they be defined?
    <bullet> Should the Commission require an SDR to designate on its 
notice of withdrawal a custodian of the SDR's books and records? If 
not, why not and what would be a better alternative?
    <bullet> Are there any other instances not specified in this 
proposed rule in which the Commission should have the authority to 
revoke or cancel an SDR's registration?
    <bullet> Is the proposed effective date of 60 days from the filing 
of the notice of withdrawal with the Commission appropriate? If not, 
would an earlier or later date be more appropriate?
    <bullet> What is the likely impact of the Commission's proposed 
rule on the SBS market? Would the proposed rule potentially promote or 
impede the establishment of SDRs?

C. Proposed Rule Regarding Registration of Successor to Registered SDR

1. Succession by Application
    Proposed Rule 13n-3 would govern the registration of a successor to 
a registered SDR. Because this proposed rule is substantially similar 
to Exchange Act Rule 15b1-3, which governs the registration of a 
successor to a registered broker-dealer, the Commission is proposing to 
incorporate the concepts that the Commission explained when it adopted 
amendments to Rule 15b1-3.\52\
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    \52\ See Registration of Successors to Broker-Dealers and 
Investment Advisers, Exchange Act Release No. 31661 (Dec. 28, 1992), 
58 FR 7 (Jan. 4, 1993).
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    Specifically, proposed Rule 13n-3(a) would provide that in the 
event that an SDR succeeds to and continues the business of an SDR 
registered pursuant to Exchange Act Section 13(n), the registration of 
the predecessor shall be deemed to remain effective as the registration 
of the successor if, within 30 days after such succession, the 
successor files an application for registration on Form SDR, and the 
predecessor files a notice of withdrawal from registration with the 
Commission. A successor would not be permitted to ``lock in'' the 30-
day window period by submitting an application that is incomplete in 
material respects.
    The proposed rule would further provide that the registration of 
the

[[Page 77317]]

predecessor SDR shall cease to be effective 90 days after the 
application for registration on Form SDR is filed by the successor 
SDR.\53\ In other words, the 90-day period would not begin to run until 
a complete Form SDR has been filed by the successor with the 
Commission. This 90-day period is consistent with proposed Rule 13n-1, 
pursuant to which the Commission would have 90 days to grant a 
registration or institute proceedings to determine if a registration 
should be denied.
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    \53\ Proposed Rule 13n-3(a).
---------------------------------------------------------------------------

    The following are examples of the types of successions that would 
be required to be completed by filing an application: (1) An 
acquisition, through which an unregistered entity purchases or assumes 
substantially all of the assets and liabilities of the SDR and then 
operates the business of the SDR, (2) a consolidation of two or more 
registered entities, resulting in their conducting business through a 
new unregistered entity, which assumes substantially all of the assets 
and liabilities of the predecessor entities, and (3) dual successions, 
through which one registered entity subdivides its business into two or 
more new unregistered entities.
2. Succession by Amendment
    Proposed Rule 13n-3(b) would further provide that notwithstanding 
Rule 13n-3(a), if an SDR succeeds to and continues the business of a 
registered predecessor SDR, and the succession is based solely on a 
change in the predecessor's date or state of incorporation, form of 
organization, or composition of a partnership, the successor may, 
within 30 days after the succession, amend the registration of the 
predecessor SDR on Form SDR to reflect these changes. Such amendment 
shall be deemed an application for registration filed by the 
predecessor and adopted by the successor. In all three types of 
successions, the predecessor must cease operating as an SDR. The 
Commission preliminarily believes that it is appropriate to allow a 
successor to file an amendment to the predecessor's Form SDR in these 
types of successions.
3. Scope and Applicability of Proposed Rule 13n-3
    The purpose of proposed Rule 13n-3 is to enable a successor SDR to 
operate without an interruption of business by relying for a limited 
period of time on the registration of the predecessor SDR until the 
successor's own registration becomes effective. The proposed rule is 
intended to facilitate the legitimate transfer of business between two 
or more SDRs and to be used only where there is a direct and 
substantial business nexus between the predecessor and the successor 
SDR. The proposed rule would not allow a registered SDR to sell its 
registration, eliminate substantial liabilities, spin off personnel, or 
facilitate the transfer of the registration of a ``shell'' organization 
that does not conduct any business. No entity would be permitted to 
rely on proposed Rule 13n-3 unless it is acquiring or assuming 
substantially all of the assets and liabilities of the predecessor's 
SDR business.
    Proposed Rule 13n-3 would not apply to reorganizations that involve 
only registered SDRs. In those situations, the registered SDRs need not 
use the rule because they can continue to rely on their existing 
registrations. The proposed rule would also not apply to situations in 
which the predecessor intends to continue to engage in SDR activities. 
Otherwise, confusion may result as to the identities and registration 
statuses of the parties.

Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Is there a sufficient likelihood of successors to 
registered SDRs to warrant a successor rule?
    <bullet> Is the Commission's proposed successor rule appropriate 
and sufficiently clear? If not, why not and what would be a better 
alternative?
    <bullet> Are the 30-day and 90-day timeframes in the proposed 
successor rule appropriate? If not, what would be more appropriate 
timeframes and why?
    <bullet> Are there any other instances not specified in the 
proposed rule in which a successor should be permitted to file an 
amendment to the predecessor's Form SDR for registration?
    <bullet> Are there any reasons not to allow a successor to rely on 
its predecessor's registration by filing an amendment to the 
predecessor's Form SDR in the specified circumstances?
    <bullet> What is the likely impact of the Commission's proposed 
rule on the SBS market? Would the proposed rule potentially promote or 
impede the establishment of SDRs?
    <bullet> Are there any factors not specified that the Commission 
should consider with respect to this proposed successor rule?

D. Proposed Rule Regarding Duties and Core Principles of SDRs

    Section 763(i) of the Dodd-Frank Act requires an SDR to comply with 
the requirements and core principles described in Exchange Act Section 
13(n) as well as any requirement that the Commission prescribes by rule 
or regulation in order to be registered and maintain registration as an 
SDR with the Commission.\54\ The Commission is proposing Rule 13n-4, 
which would implement the enumerated duties and core principles and 
establish additional requirements by rule.
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    \54\ See Public Law 111-203, Sec.  763(i). The legislation also 
authorizes the Commission to establish additional requirements for 
SDRs by rule or regulation.
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    In May 2010, the Committee on Payment and Settlement Systems 
(``CPSS'') and the Technical Committee of the International 
Organization of Securities Commissions (``IOSCO'') issued a 
consultative report that presented a set of factors for trade 
repositories in the OTC derivatives markets to consider in designing 
and operating their services (``CPSS-IOSCO consultative report'').\55\ 
The OTC Derivatives Regulators' Forum \56\ (``ODRF'') has also made 
general recommendations relating to the functionality of trade 
repositories. The Commission's proposed rules draw from recommendations 
made by CPSS-IOSCO and the ODRF.
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    \55\ See Considerations for Trade Repositories in OTC 
Derivatives Markets, CPSS-IOSCO (May 2010) (available at http://www.bis.org/press/p100512.htm). CPSS is a forum for central banks to 
monitor and analyze developments in payment and settlement 
arrangements as well as in cross-border and multicurrency settlement 
schemes. See Press Release, CPSS-IOSCO, CPSS and IOSCO Consult on 
Policy Guidance for Central Counterparties and Trade Repositories in 
the OTC Derivatives Market (May 12, 2010) (available at http://www.bis.org/press/p100512.htm). IOSCO is an international policy 
forum for securities regulators. The objective of the Technical 
Committee, a specialized working group established by IOSCO's 
Executive Committee, is to review major regulatory issues related to 
international securities and futures transactions and to coordinate 
practical responses to these concerns. See id.
    \56\ The OTC Derivatives Regulators' Forum is comprised of 
international financial regulators, including central banks, banking 
supervisors, and market regulators, resolution authorities, and 
other governmental authorities that either have direct authority 
over OTC derivatives market infrastructure providers or major OTC 
derivatives market participants or that consider OTC derivative 
market matters more broadly. See OTC Derivatives Regulators' Forum 
Overview, http://www.otcdrf.org/.
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1. Enumerated Duties
    Under Exchange Act Sections 13(n)(2), 13(n)(5), and 13(n)(6), each 
SDR is required to:
    (1) Subject itself to inspection and examination by the Commission;
    (2) Accept data as prescribed by the Commission for each SBS; \57\
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    \57\ In a separate proposal, the Commission is proposing rules 
prescribing the data elements that an SDR is required to accept for 
each SBS in association with requirements under Section 763(i) of 
the Dodd-Frank Act (adding Exchange Act Section 13(n)(4)(A) relating 
to standard setting and data identification). See Regulation SBSR 
Release (proposed Rule 901), supra note 9. Any comments regarding 
the data elements should be submitted in connection with that 
proposal.

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[[Page 77318]]

    (3) Confirm with both counterparties to the SBS the accuracy of the 
data that was submitted, as discussed further in Section III.E.2.a of 
this release;
    (4) Maintain the data in such form, in such manner, and for such 
period as prescribed by the Commission, as discussed further in Section 
III.E.2 of this release;
    (5) Provide direct electronic access to the Commission (or any 
designee of the Commission), including another registered entity;
    (6) Provide such information in such form and at such frequency as 
the Commission may require to comply with requirements set forth in 
Exchange Act Section 13(m) and the rules and regulations thereunder; 
\58\
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    \58\ Exchange Act Section 13(m) pertains to the public 
availability of SBS data. See Public Law 111-203, Sec.  763(i). In a 
separate proposal relating to implementation of Section 763(i) of 
the Dodd-Frank Act (adding Exchange Act Section 13(m)), the 
Commission is proposing rules that would impose various duties on 
SDRs in connection with the reporting and real-time public 
dissemination of SBS transaction information. See Regulation SBSR 
Release, supra note 9. Any comments regarding Exchange Act Section 
13(m) should be submitted in connection with that proposal.
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    (7) At such time and in such manner as may be directed by the 
Commission, establish automated systems for monitoring, screening, and 
analyzing data;
    (8) Maintain the privacy of any and all SBS transaction information 
that the SDR receives from an SBS dealer,\59\ counterparty, or any 
registered entity, as discussed further in Section III.I of this 
release;
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    \59\ Section 761 of the Dodd-Frank Act codified the term 
``security-based swap dealer'' at Exchange Act Section 3(a)(71) to 
generally mean any person that holds itself out as a dealer in SBSs, 
makes a market in SBSs, regularly enters into SBSs with 
counterparties as an ordinary course of business for its own 
account, or engages in any activity causing it to be commonly known 
in the trade as a dealer or market maker in SBSs. See Public Law 
111-203, Sec.  761; see also Definitions Contained in Title VII of 
Dodd-Frank Wall Street Reform and Consumer Protection Act, Exchange 
Act Release No. 62717 (Aug. 13, 2010), 75 FR 51429 (Aug. 20, 2010).
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    (9) On a confidential basis pursuant to Exchange Act Section 24 and 
the rules and regulations thereunder, upon request, and after notifying 
the Commission of the request, make available all data obtained by the 
SDR, including individual counterparty trade and position data, to the 
following:
    (i) Each appropriate prudential regulator; \60\
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    \60\ ``Prudential regulator'' is defined in Exchange Act Section 
3(a)(74) to have the same meaning as in the CEA. See Public Law 111-
203, Sec.  761. The CEA identifies the Federal Reserve Board, the 
Office of the Comptroller of the Currency, the Federal Deposit 
Insurance Corporation (``FDIC''), the Farm Credit Administration, 
and the Federal Housing Finance Agency as prudential regulators. See 
Public Law 111-203, Sec.  721(a)(17) (adding Section 1a(39) of the 
CEA, 7 U.S.C. 1a(39)).
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    (ii) The Financial Stability Oversight Council;
    (iii) The CFTC;
    (iv) The Department of Justice; and
    (v) The FDIC \61\ and any other person that the Commission 
determines to be appropriate, including, but not limited to--
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    \61\ Subject to the statutory requirements of Sections 
13(n)(5)(G) and (H), the FDIC, for example, would have access to all 
data maintained by an SDR, including in connection with its 
resolution authority under Title II of the Dodd-Frank Act or the 
Federal Deposit Insurance Act and with respect to SBS data in the 
SDR related to all counterparties to SBS transactions.
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    (i) Foreign financial supervisors (including foreign futures 
authorities);
    (ii) Foreign central banks; and
    (iii) Foreign ministries.
    (10) Before sharing information with any entity described in 
Exchange Act Section 13(n)(5)(G), obtain a written agreement from each 
entity stating that the entity shall abide by the confidentiality 
requirements described in Exchange Act Section 24 and the rules and 
regulations thereunder relating to the information on SBS transactions 
that is provided, and each entity shall agree to indemnify the SDR and 
the Commission for any expenses arising from litigation relating to the 
information provided under Exchange Act Section 24 and the rules and 
regulations thereunder (``indemnification provision''); and
    (11) Designate a CCO who must comply with the duties set forth in 
Exchange Act Section 13(n)(6).
    With respect to the SDR's duty to provide direct electronic access 
to the Commission or any designee of the Commission, the Commission is 
proposing to define ``direct electronic access'' to mean access, which 
shall be acceptable to the Commission, to data stored by an SDR in an 
electronic format and updated at the same time as the SDR's data is 
updated so as to provide the Commission or any of its designees with 
the ability to query or analyze the data in the same manner that the 
SDR can query or analyze the data.\62\ The Commission may specify the 
form and manner in which an SDR provides direct electronic access. The 
Commission is considering different--and possibly multiple--ways in 
which an SDR may be required or permitted to provide direct electronic 
access, including, but not limited to, (1) a direct streaming of the 
data maintained by the SDR to the Commission or any of its designees, 
(2) a user interface that provides the Commission or any of its 
designees with direct access to the data maintained by the SDR and that 
provides the Commission or any of its designees with the ability to 
query or analyze the data in the same manner that is available to the 
SDR, or (3) another mechanism that provides a mirror copy of the data 
maintained by the SDR, which is in an electronic form that is 
downloadable by the Commission or any of its designees and is in a 
format that provides the ability to query or analyze the data in the 
same manner that is available to the SDR.
---------------------------------------------------------------------------

    \62\ See proposed Rule 13n-4(a)(5).
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    The Commission is not proposing in this release that an SDR 
establish automated systems for monitoring, screening, and analyzing 
SBS data. The Commission believes that a measured approach to 
addressing this provision of the Dodd-Frank Act is appropriate. The 
market infrastructure of the SBS market is in its infancy. The Dodd-
Frank Act and the rules and regulations that the Commission will 
promulgate over the next year will direct further development and 
refinement of this market. As the infrastructure for the SBS market 
continues to develop and the Commission gains experience in regulating 
this market, the Commission will consider further steps to implement 
this statutory provision.\63\
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    \63\ In a separate proposal relating to implementation of 
Section 763(i) of the Dodd-Frank Act (adding Exchange Act Section 
13(n)(5)(E)), the Commission is considering proposing rules that 
would require SDRs to collect data related to monitoring the 
compliance and frequency of end-user clearing exemption claims. Any 
comments regarding the end-user clearing exemption proposed rules 
should be submitted in connection with that proposal.
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    With respect to an SDR's duty to notify the Commission when any 
entity described in Exchange Act Section 13(n)(5)(G) requests directly 
from the SDR access to data obtained by the SDR, the SDR must keep such 
notifications and any related requests confidential.\64\ Failure by an 
SDR to treat such notifications and requests confidential could render 
ineffective or could have adverse effects on the underlying basis for 
the requests. If, for example, a regulatory use of the data is 
improperly disclosed, such disclosure could possibly signal a pending 
investigation or enforcement action, which could have detrimental 
effects.
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    \64\ See Public Law 111-203, Sec.  763(i) (adding Exchange Act 
Section 13(n)(5)(G)).
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    With respect to the indemnification provision, the Commission 
understands that regulators may be legally prohibited or otherwise 
restricted from agreeing to indemnify third parties, including SDRs

[[Page 77319]]

as well as the Commission. The indemnification provision could chill 
requests for access to data obtained by SDRs, thereby hindering the 
ability of others to fulfill their regulatory mandates and 
responsibilities. The Commission preliminarily believes that by having 
access to such data, however, regulators would be in a better position 
to, among other things, monitor risk exposures of individual 
counterparties to swap and SBS transactions, monitor concentrations of 
risk exposures, and evaluate systemic risks.\65\ As such, the 
Commission expects that an SDR would not go beyond the minimum 
requirements of the statute so as not to preclude entities described in 
Exchange Act Section 13(n)(5)(G) from obtaining the data maintained by 
an SDR.
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    \65\ See Duffie et al., supra note 13 (Regulators can ``explore 
the sizes and depths of the markets, as well as the nature of the 
products being traded. With this information, regulators are better 
able to identify and control risky market practices, and are better 
positioned to anticipate large market movements.'').
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    The Commission notes that, pursuant to Exchange Act Section 24 and 
Rule 24c-1 thereunder, the Commission may share nonpublic information 
\66\ in its possession with, among others, ``federal, state, local, or 
foreign government, or any political subdivision, authority, agency or 
instrumentality of such government * * * [or] a foreign financial 
regulatory authority.'' Pursuant to Exchange Act Section 21(a), the 
Commission also may assist a foreign securities authority in 
investigating whether any person has violated, is violating, or is 
about to violate any laws or rules relating to securities matters that 
the requesting authority administers or enforces.\67\
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    \66\ Under Rule 24c-1, the term ``nonpublic information'' means 
``records, as defined in Section 24(a) of the [Exchange] Act, and 
other information in the Commission's possession, which are not 
available for public inspection and copying.'' 17 CFR 240.24c-1.
    \67\ Exchange Act Section 21(a)(2) provides: ``On request from a 
foreign securities authority, the Commission may provide assistance 
in accordance with this paragraph if the requesting authority states 
that the requesting authority is conducting an investigation which 
it deems necessary to determine whether any person has violated, is 
violating, or is about to violate any laws or rules relating to 
securities matters that the requesting authority administers or 
enforces. The Commission may, in its discretion, conduct such 
investigation as the Commission deems necessary to collect 
information and evidence pertinent to the request for assistance. 
Such assistance may be provided without regard to whether the facts 
stated in the request would also constitute a violation of the laws 
of the United States. In deciding whether to provide such 
assistance, the Commission shall consider whether (A) the requesting 
authority has agreed to provide reciprocal assistance in securities 
matters to the Commission; and (B) compliance with the request would 
prejudice the public interest of the United States.'' 15 U.S.C. 
78u(a)(2). Exchange Act Section 3(a)(50) defines ``foreign 
securities authority'' to mean ``any foreign government, or any 
governmental body or regulatory organization empowered by a foreign 
government to administer or enforce its laws as they relate to 
securities matter.'' 15 U.S.C. 78c(a)(50).
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Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Is the Commission's proposed rule incorporating the 
enumerated duties appropriate and sufficiently clear? If not, what 
would be a better alternative?
    <bullet> Under Exchange Act Section 13(n)(2), an SDR shall be 
subject to inspection and examination by any representative of the 
Commission. Should the Commission specify in its rule or clarify when 
the Commission anticipates inspecting prospective or newly registered 
SDRs?
    <bullet> Is the Commission's proposed definition of ``direct 
electronic access'' appropriate and sufficiently clear? If not, how can 
the Commission clarify this definition?
    <bullet> What are the advantages and disadvantages of requiring 
SDRs to provide a direct streaming of data to the Commission or its 
designee? Should the Commission require periodic electronic transfer of 
data as an alternative? If so, how often should such transfer occur 
(e.g., hourly, a few times a day, every few days, once a week)?
    <bullet> What are the advantages and disadvantages of requiring 
SDRs to provide a user interface that provides the Commission or any of 
its designees access to the data maintained by the SDR and that 
provides the Commission or its designee with the ability to query or 
analyze the data in the same manner that is available to the SDR?
    <bullet> What are the advantages and disadvantages of requiring 
SDRs to provide a mirror copy of its data, which is in an electronic 
form that is downloadable and is in a format that provides the ability 
to query or analyze the data in the same manner that is available to 
the SDR?
    <bullet> What would be the most feasible and cost-effective method 
for an SDR to provide direct electronic access to the Commission or its 
designee?
    <bullet> Are there other methods of providing direct electronic 
access to the Commission or its designee that the Commission should 
consider?
    <bullet> Are there any other factors that the Commission should 
take into consideration when requiring SDRs to provide the Commission 
or its designee with direct electronic access?
    <bullet> What would be the advantages and disadvantages of the 
Commission appointing as its designee for direct electronic access 
another registered SDR, to which SDRs would grant direct electronic 
access and which would consolidate the data that would then be provided 
to the Commission?
    <bullet> Are there specific reports or sets of data that the 
Commission should consider obtaining from SDRs to monitor risk 
exposures of individual counterparties to SBS transactions, to monitor 
concentrations of risk exposures, or for other purposes that would help 
encourage the transparency and open trading of SBSs?
    <bullet> In addition to the data already subject to the 
Commission's request,\68\ are there additional reports or sets of data 
that the Commission should consider obtaining from SDRs to evaluate 
systemic risk or that could be used for prudential supervision?
---------------------------------------------------------------------------

    \68\ See Regulation SBSR Release, supra note 9.
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    <bullet> Are there any other reports or sets of data that the 
Commission should consider obtaining from SDRs?
    <bullet> Should the Commission require SDRs to establish automated 
systems for monitoring, screening, and analyzing SBS data or provide 
the data for the Commission to perform these functions? Should the 
Commission require SDRs to monitor, screen, and analyze all SBS data in 
their possession in such a manner as the Commission may require, 
including in connection with ad hoc requests by the Commission?
    <bullet> Besides the FDIC, should the Commission specify in its 
rules any other appropriate person to have access to all data 
maintained by an SDR (e.g., the Federal Reserve Bank of New York)?
    <bullet> Are there alternative ways that the Commission could 
address the indemnification provision while being consistent with 
Exchange Act Section 13(n)(5)(H)?
    <bullet> Should the Commission provide in its rules specific 
indemnification language that an SDR would be required to use when 
requesting indemnification from entities described in Exchange Act 
Section 13(n)(5)(G)? If so, what indemnification language would address 
the requirements of the statute and the needs of information users?
    <bullet> Alternatively, should the Commission explicitly require 
that the indemnification agreement be fair and not unreasonably 
discriminatory so as not to preclude entities described in Exchange Act 
Section 13(n)(5)(G) from obtaining the data maintained by an SDR?
    <bullet> Should the Commission limit the amount of indemnification 
to an SDR and the Commission? If so, what should the limit be? For 
example, should it be limited to only reasonable litigation expenses 
(and not any damages) in order to facilitate the ability of entities

[[Page 77320]]

described in Exchange Act Section 13(n)(5)(G) to obtain data maintained 
by an SDR?
    <bullet> Should the Commission impose any additional duties on 
SDRs? For example, should SDRs be required to provide downstream 
processing services or ancillary services (e.g., managing life cycle 
events and asset servicing)?
    <bullet> Should any additional duties imposed on SDRs depend on the 
asset class of SBSs that the SDR is collecting and maintaining? If so, 
clarify.
    <bullet> What is the likely impact of the Commission's proposed 
rule on the SBS market? Would the proposed rule potentially promote or 
impede the establishment of SDRs?
    <bullet> With respect to entities that currently perform repository 
services for SBSs or other instruments, how do current practices 
compare to the practices that the Commission proposes to require in 
this rule? What are the incremental costs to potential SDRs in 
connection with adding to or revising their current practices in order 
to implement the Commission's proposed rule?
    <bullet> How might the evolution of the SBS market over time affect 
SDRs or impact the Commission's proposed rule?
2. Implementation of Core Principles
    Each SDR is required, under Exchange Act Section 13(n)(7), to 
comply with core principles relating to (1) market access to services 
and data, (2) governance arrangements, and (3) conflicts of interest. 
Specifically, unless necessary or appropriate to achieve the purposes 
of the Exchange Act and the rules and regulations thereunder, an SDR 
\69\ is prohibited from adopting any policies and procedures or taking 
any action that results in any unreasonable restraint of trade or 
imposing any material anticompetitive burden on the trading, clearing, 
or reporting of transactions. In addition, each SDR must establish 
governance arrangements that are transparent to fulfill the public 
interest requirements under the Exchange Act and the rules and 
regulations thereunder; to carry out functions consistent with the 
Exchange Act, the rules and regulations thereunder, and the purposes of 
the Exchange Act; and to support the objectives of the federal 
government, owners of the SDR, and market participants. Moreover, each 
SDR must establish and enforce written policies and procedures 
reasonably designed to minimize conflicts of interest in the SDR's 
decision-making process and to establish a process for resolving any 
such conflicts of interest. Proposed Rule 13n-4(c) incorporates and 
implements these three core principles.
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    \69\ Although Exchange Act Section 13(n)(7)(A) refers to ``swap 
data repository,'' the Commission believes that the Congress 
intended it to refer to ``security-based swap data repository.''
---------------------------------------------------------------------------

a. First Core Principle: Market Access to Services and Data \70\
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    \70\ The Dodd-Frank Act refers to the first core principle as 
``antitrust considerations,'' which the Commission believes include 
market access to services offered by and data maintained by SDRs. 
See Public Law 111-203, Sec.  763(i).
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    In implementing the first core principle, the Commission is 
proposing rules that are intended to protect investors and to maintain 
a fair, orderly, and efficient SBS market. These proposed rules would 
protect investors by, for example, fostering transparency in the 
services that an SDR provides and its pricing for such services as well 
as promoting competition in the SBS market. As discussed more fully 
below, when administering these rules, the Commission would generally 
expect to apply the principles and procedures it has developed in other 
areas in which it monitors analogous services, such as clearing 
agencies.
    First, proposed Rule 13n-4(c)(1)(i) would require each SDR to 
ensure that any dues, fees, or other charges it imposes, and any 
discounts or rebates it offers, are fair and reasonable and not 
unreasonably discriminatory.\71\ Such dues, fees, other charges, 
discounts, or rebates shall be applied consistently across all 
similarly situated users of the SDR's services, including, but not 
limited to, market participants,\72\ market infrastructures (including 
central counterparties), venues from which data can be submitted to the 
SDR (including exchanges, SB SEFs, electronic trading venues, and 
matching and confirmation platforms), and third party service 
providers.
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    \71\ The Exchange Act applies a similar standard for other 
registrants. See, e.g., Exchange Act Section 6(b)(4) (``The rules of 
the exchange [shall] provide for the equitable allocation of 
reasonable dues, fees, and other charges among its members and 
issuers and other persons using its facilities''); Exchange Act 
Section 17A(b)(3)(D) (``The rules of the clearing agency [shall] 
provide for the equitable allocation of reasonable dues, fees and 
other charges among its participants''); see also Exchange Act 
Sections 11A(c)(1)(C) and (D) (providing that the Commission may 
prescribe rules to assure that all SIPs may, ``for purposes of 
distribution and publication, obtain on fair and reasonable terms 
such information'' and to assure that ``all other persons may obtain 
on terms which are not unreasonably discriminatory'' the transaction 
information published or distributed by SIPs).
    \72\ The term ``market participant'' would be defined as any 
person participating in the SBS market, including, but not limited 
to, SBS dealers, major SBS participants, and any other 
counterparties to an SBS transaction. Proposed Rule 13n-4(a)(7).
---------------------------------------------------------------------------

    The terms ``fair'' and ``reasonable'' often need standards to guide 
their application in practice. One factor commonly taken into 
consideration to evaluate the fairness and reasonableness of fees, 
particularly those of a monopolistic provider of a service, is the cost 
incurred to provide the service.\73\ The Commission does not, however, 
intend to establish fees or rates, or to dictate formulas by which fees 
or rates are determined. Based on our experience with other 
registrants, the Commission would need to take a flexible approach and 
evaluate the fairness and reasonableness of an SDR's charges on a case-
by-case basis. The Commission recognizes that there may be instances in 
which an SDR would charge different users different prices for the same 
or similar services. Such differences, however, cannot be unreasonably 
discriminatory. For example, if an SDR's policies and procedures 
provide that it may accept an electronic confirmation as reasonable 
documentation that the data submitted by both counterparties to an SBS 
is accurate, then an SDR may charge a smaller fee to a market 
participant that is expected to send a large volume of data that is all 
electronically confirmed. If, on the other hand, an SDR requires 
greater resources to contact a counterparty to reasonably satisfy 
itself that the data that was submitted to the SDR is accurate, then 
higher fees may be appropriate. The Commission preliminarily believes 
that an SDR should make reasonable accommodations, including 
consideration of any cost burdens, on a non-reporting counterparty of 
an SBS transaction in connection with any follow-up by the SDR 
regarding the accuracy of the SBS transaction data.
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    \73\ See Regulation of Market Information Fees and Revenues, 
Exchange Act Release No. 42208 (Dec. 17, 1999).
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    Second, proposed Rule 13n-4(c)(1)(ii) would require each SDR to 
permit market participants to access specific services offered by the 
SDR separately. Although an SDR would be allowed to bundle its 
services, including any ancillary services, this proposed rule would 
require the SDR to also provide market participants with the option of 
using its services separately.\74\ For instance, if an SDR or its 
affiliate

[[Page 77321]]

provides an ancillary matching and confirmation service, then the SDR 
would be prohibited from requiring a market participant to use and pay 
for that matching and confirmation service as a condition of using the 
SDR's data collection service. In evaluating the fairness and 
reasonableness of fees that an SDR charges for bundled and unbundled 
services, the Commission would take into consideration the cost to the 
SDR of making those services available on a bundled or unbundled basis, 
as the case may be.
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    \74\ See also CPSS-IOSCO, supra note 55 (``To the extent a 
[trade repository] provides complementary post-trade processing 
services, these should be available independently from its 
recordkeeping function so that users can selectively utilise the 
services they require from the suite of services a [trade 
repository] may offer.'').
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    Third, proposed Rule 13n-4(c)(1)(iii) would require each SDR to 
establish, monitor on an ongoing basis, and enforce clearly stated 
objective criteria that would permit fair, open, and not unreasonably 
discriminatory access to services offered and data maintained by the 
SDR as well as fair, open, and not unreasonably discriminatory 
participation by market participants, market infrastructures, venues 
from which data can be submitted to the SDR, and third party service 
providers that seek to connect to or link with the SDR. The Commission 
is concerned, among other things, that an SDR, controlled or influenced 
by a market participant, may limit the level of access to the services 
offered or data maintained by the SDR as a means to impede competition 
from other market participants or third party service providers. To 
satisfy the requirements of this proposed rule, an SDR should seek to 
ensure that its practices and procedures do not stifle innovation and 
competition in the provision of post-trade processing services. The 
Commission concurs with the CPSS-IOSCO consultative report's 
recommendation that ``[r]equirements that limit access and 
participation on grounds other than risks should be avoided'' and that 
``[d]enials of access should only be based on risk-related criteria'' 
\75\ (e.g., risks related to the security or functioning of the SDR). 
Moreover, ``[m]arket infrastructures and service providers that may or 
may not offer potentially competing services should not be subject to 
anti-competitive practices such as product tying, contracts with non-
compete and/or exclusivity clauses, overly restrictive terms of use and 
anti-competitive price discrimination.'' \76\
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    \75\ See CPSS-IOSCO, supra note 55.
    \76\ Id.
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    Finally, proposed Rule 13n-4(c)(1)(iv) would require each SDR to 
establish, maintain, and enforce written policies and procedures 
reasonably designed to review any prohibition or limitation of any 
person with respect to access to services offered, directly or 
indirectly, or data maintained by the SDR and to grant such person 
access to such services or data if such person has been discriminated 
against unfairly. The Commission preliminarily believes that for any 
such policies and procedures to be reasonable, at a minimum, those 
involved in the decision-making process of prohibiting or limiting a 
person from access to an SDR's services or data cannot be involved in 
the review of whether the prohibition or limitation was appropriate. 
Otherwise, the purpose of the review process would be undermined. An 
SDR should consider whether its internal review process is best 
delegated to the SDR's board of directors, a body performing a function 
similar to the board of directors (collectively, ``board''), or an 
executive committee.

Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Are the Commission's proposed rules implementing the first 
core principle appropriate and sufficiently clear? If not, why not and 
what would be better alternatives?
    <bullet> Is the Commission's proposed definition of ``market 
participant'' appropriate? If not, is it over-inclusive or under-
inclusive and how should it be defined?
    <bullet> Would the proposed rules relating to fees provide 
sufficient flexibility to SDRs such that they can operate in a 
commercially viable manner?
    <bullet> Besides an SDR's costs of providing its services, what 
other factors should the Commission consider in determining whether the 
SDR's fees, dues, other charges, rebates, or discounts for such 
services are fair and reasonable?
    <bullet> Are there circumstances in which it would be fair or 
reasonable for an SDR to charge a reporting or non-reporting 
counterparty to an SBS a fee or require that a counterparty invest in 
certain technologies to satisfy the SDR that the SBS data submitted to 
the SDR is accurate? Under what circumstances and for what purposes 
might allowing SDRs to charge higher fees or requiring counterparties 
to invest in certain technologies be appropriate?
    <bullet> Is the Commission's proposed rule requiring an SDR's fees 
to be fair, reasonable, and non-discriminatory appropriate and 
sufficiently clear? If not, why not and what would be a better 
alternative?
    <bullet> Are there circumstances in which it would be fair and 
reasonable for an SDR to charge a counterparty to an SBS a fee to 
satisfy itself that the SBS data submitted to the SDR by the other 
counterparty to the SBS is accurate?
    <bullet> In what instances would an SDR differentiate among its 
users with respect to fees, dues, other charges, discounts, and 
rebates? Should any of those instances be explicitly prohibited or 
restricted?
    <bullet> Are there any other requirements that the Commission 
should impose on an SDR that would promote competition?
    <bullet> Is the Commission's proposed rule requiring an SDR to 
permit market participants to access specific SDR services separately 
appropriate and sufficiently clear? If not, why not?
    <bullet> Are there instances in which permitting an SDR to offer 
bundled services that are not provided separately would be better for 
market participants or the SBS market as a whole? For example, would 
bundling certain services improve data quality or promote efficiency? 
If so, what services should be permitted to be bundled?
    <bullet> Are there any other factors not mentioned that the 
Commission should take into consideration with respect to requiring the 
unbundling of services and fees?
    <bullet> Should the Commission require an SDR to notify the 
Commission about the outcome of the SDR's internal review of any 
prohibition or limitation of access to its services or data? If so, 
should the Commission specify a timeframe in which an SDR must notify 
the Commission? What should the timeframe be?
    <bullet> Are the Commission's proposed rules regarding an SDR's 
criteria relating to access to services and data and participation 
appropriate and sufficiently clear? If not, why not and what would be a 
better alternative?
    <bullet> Should the Commission prescribe specific criteria for 
fair, open, and not unreasonably discriminatory access and 
participation? If so, what should the criteria be?
    <bullet> In what instances (besides risk-related reasons) would it 
be reasonable for an SDR to deny access to its services and data?
    <bullet> Is the Commission's proposed rule requiring an SDR to 
review its denials of access appropriate and sufficiently clear? If 
not, why not and what would be a better alternative?
    <bullet> Are there any measures that the Commission can require 
that would result in a more meaningful internal review process? For 
example, should the Commission explicitly require that the board review 
all denials of access? If so, within what timeframe should the review 
be completed?

[[Page 77322]]

    <bullet> Should the Commission require an SDR to promptly file 
notice with the Commission if the SDR, in its capacity as an SDR rather 
than a SIP, prohibits or limits any person's access to services offered 
or data maintained by the SDR? If not, why not and what would be a 
better approach?
    <bullet> What is the likely impact of the Commission's proposed 
rule on the SBS market? Would the proposed rule potentially promote or 
impede the establishment of SDRs?
    <bullet> With respect to entities that currently perform repository 
services for SBSs or other instruments, how do current practices 
compare to the practices that the Commission proposes to require in 
this rule? What are the incremental costs to potential SDRs in 
connection with adding to or revising their current practices in order 
to implement the Commission's proposed rule?
    <bullet> How might the evolution of the SBS market over time affect 
SDRs or impact the Commission's proposed rule?
    <bullet> What is the likely impact of the Commission's proposed 
rule on the development and use of different technologies for reporting 
SBS transaction information to SDRs and for accessing the services 
offered and data maintained by SDRs?

b. Second Core Principle: Governance Arrangements

    To implement the second core principle, proposed Rule 13n-4(c)(2) 
would require each SDR to establish governance arrangements that are 
well defined and include a clear organizational structure with 
effective internal controls. The proposed rule would also require an 
SDR's governance arrangements to provide for fair representation of 
market participants.\77\ This requirement is similar to requirements 
imposed on exchanges.\78\ Additionally, an SDR would be required to 
provide representatives of market participants, including end-
users,\79\ who are on the board with the opportunity to participate in 
the process for nominating directors and with the right to petition for 
alternative candidates.\80\ The Commission notes that directors of an 
SDR owe a fiduciary duty to the SDR and all of its shareholders, and 
that the board as a whole is ultimately responsible for overseeing the 
SDR's compliance with the SDR's statutory obligations.
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    \77\ Proposed Rule 13n-4(c)(2)(ii).
    \78\ Exchange Act Section 6(b)(3) requires that the rules of an 
exchange assure a fair representation of its members in the 
selection of its directors and administration of its affairs, and 
must provide that one or more directors be representative of issuers 
and investors and not be associated with a member of the exchange, 
broker, or dealer. See 15 U.S.C. 78f(b)(3).
    \79\ The term ``end-user'' would be defined as any counterparty 
that is described in Exchange Act Section 3C(g)(1) and the rules and 
regulations thereunder. Proposed Rule 13n-4(a)(6).
    \80\ Proposed Rule 13n-4(c)(2)(iii).
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    The proposed rule would further require each SDR to establish, 
maintain, and enforce written policies and procedures reasonably 
designed to ensure that the SDR's senior management and each member of 
the board or committee that has the authority to act on behalf of the 
board possess requisite skills and expertise to fulfill their 
responsibilities in the management and governance of the SDR, to have a 
clear understanding of their responsibilities, and to exercise sound 
judgment about the SDR's affairs.\81\ This proposed requirement is 
based on a recommendation in the CPSS-IOSCO consultative report.\82\ 
Given an SDR's unique role in an SBS market, the Commission 
preliminarily believes that it is particularly important that those who 
are managing and overseeing an SDR's activities are qualified to do so. 
An SDR's failure to comply with its statutory obligations, for example, 
could impact the SBS market as a whole.
---------------------------------------------------------------------------

    \81\ Proposed Rule 13-4(c)(2)(iv).
    \82\ See CPSS-IOSCO, supra note 55.
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    As part of its consideration of governance issues as they pertain 
to SDRs, the Commission is considering whether potential conflicts 
between commercial incentives of owners of an SDR and statutory 
objectives would warrant prescriptive rules relating to governance, 
particularly in light of the Commission's general oversight authority 
and the other specific rules proposed in this release intended to 
minimize conflicts and ensure that SDRs meet core principles.\83\ As 
discussed further below, the owners of an SDR may have an interest in 
maximizing the potential commercial value of the information reported 
to the SDR, which depends on the extent to which the SDR and its 
affiliates are permitted to use such information for commercial 
purposes. The Commission is not at this time proposing to preclude an 
SDR or its affiliates from making commercial use of the transaction 
data, e.g., by developing analytical reports or tools that are derived 
from aggregate transaction reports. This commercial interest may 
conflict with the statutory objective of protecting data privacy and 
providing for fair and open access to the data maintained by the SDR. 
For example, an SDR might attempt to restrict access to parties who 
would seek to use the data for their own commercial purposes.
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    \83\ See, e.g., proposed Rule 13n-4(c)(1) (implementing core 
principle relating to market access to SDRs' services and data), 
supra Section III.D.2.a; proposed Rule 13n-4(c)(3) (implementing 
core principle relating to conflicts of interest), infra Section 
III.D.2.c; and proposed Rule 13n-5 (requiring an SDR to accept all 
SBSs in a given asset class if it accepts any SBS in that asset 
class), infra Section III.E.2.a. See also Item 32 of proposed Form 
SDR (requiring disclosure of instances in which an SDR has 
prohibited or limited a person with respect to access to the SDR's 
services or data).
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    In order to address this issue, the Commission could choose to 
prescribe minimum requirements pertaining to board composition or 
impose ownership restrictions. For example, the Commission could 
require each SDR to establish a governance arrangement with a certain 
percentage of independent directors \84\ (e.g., majority of independent 
directors, 35% independent directors) on its board and any committee 
that has the delegated authority to act on behalf of the board so as 
not to undermine the effect of the former requirement. The Commission 
could also require each SDR to establish a nominating committee that is 
composed of a certain percentage of independent directors (e.g., 
majority or solely composed of independent directors). Additionally, 
the Commission could require each SDR to establish governance 
arrangements that would restrict any SDR participant and its related 
persons or any person and its related persons \85\ from (1) 
beneficially owning,\86\ directly or indirectly, any

[[Page 77323]]

interest in the SDR that exceeds a certain percentage (e.g., 20 percent 
for any SDR participant and its related persons, 40 percent for any 
person and its related persons) of any class of securities, or other 
ownership interest, entitled to vote of such SDR, or (2) directly or 
indirectly voting, causing the voting of, or giving any consent or 
proxy with respect to the voting of, any interest in the SDR that 
exceeds a certain percentage (e.g., 20 percent) of the voting power of 
any class of securities or other ownership interest of such SDR. The 
Commission recently has proposed similar requirements for SBS clearing 
agencies and SB SEFs, which pose a different set of competing 
interests.\87\
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    \84\ The term ``independent director'' may generally be defined 
as a director who has no material relationship with the SDR, any 
affiliate of the SDR, an SDR participant, or any affiliate of an SDR 
participant. The term ``material relationship'' may be defined as a 
relationship, whether compensatory or otherwise, that reasonably 
could affect the independent judgment or decision-making of the 
director. The term ``participant'' when used with respect to an SDR 
may be defined as any person who uses an SDR's services. Such term 
would not include a person whose only use of an SDR is through 
another person who is a participant.
    \85\ The term ``related person'' may be defined as (i) any 
affiliate of an SDR participant; (ii) any person associated with an 
SDR participant; (iii) any immediate family member of an SDR 
participant who is a natural person, or any immediate family member 
of the spouse of such person, who, in each case, has the same home 
as the SDR participant, or who is a director or officer of the SDR, 
or any of its parents or subsidiaries; or (iv) any immediate family 
member of a person associated with an SDR participant who is a 
natural person, or any immediate family member of the spouse of such 
person, who, in each case, has the same home as the person 
associated with the SDR participant or who is a director or officer 
of the SDR, or any of its parents or subsidiaries. The term 
``immediate family member'' may be defined as a person's spouse, 
parents, children, and siblings, whether by blood, marriage, or 
adoption, or anyone residing in such person's home.
    \86\ The term ``beneficial ownership'' (including the terms 
``beneficially owns'' or any variation thereof) may have the same 
meaning, with respect to any security or other ownership interest, 
as set forth in Exchange Act Rule 13d-3(a), as if such security or 
other ownership interest were a voting equity security registered 
under Exchange Act Section 12; provided that to the extent any 
person is a member of a group within the meaning of Exchange Act 
Section 13(d)(3), such person shall not be deemed to beneficially 
own such security or other ownership interest for purposes of this 
section, unless such person has the power to direct the vote of such 
security or other ownership interest.
    \87\ See Exchange Act Release No. 63107 (Oct. 14, 2010), 75 FR 
65882 (Oct. 26, 2010).
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Request for Comment

    <bullet> Should the Commission's proposed rule regarding fair 
representation of market participants include fair representation of 
others (e.g., public representation)? What are the advantages and 
disadvantages of including others?
    <bullet> What requirements, if any, should be in place with respect 
to the duties owed by the board to mitigate tensions between commercial 
interests and statutory goals? What types of tensions might exist and 
how do they compare in severity and consequences to those that exist in 
clearing agencies or exchanges?
    <bullet> Is the proposed definition of ``end-user'' appropriate and 
sufficiently clear? If not, why not and how should it be defined?
    <bullet> Should end-users or any other group be given guaranteed 
rights of participation in an SDR's governance? Alternatively, should 
the Commission require an SDR to establish governance arrangements 
whereby certain market participants, including end-users, may consult 
with the board on matters of concern?
    <bullet> Is requiring an SDR's management to meet certain minimum 
standards appropriate? If not, what would be a better alternative?
    <bullet> Is requiring the members of an SDR's board or committee(s) 
to meet certain minimum standards appropriate? Does the answer depend 
upon whether the Commission requires that a certain percentage of the 
SDR's board be independent? If so, in what way? Would minimum standards 
have a significant effect on the experience and efficiency of an SDR's 
board?
    <bullet> What is the likely impact of the Commission's proposed 
rule on the SBS market? Would the proposed rule encourage or impede 
competition and the establishment of a greater number of SDRs?
    <bullet> With respect to entities that currently perform repository 
services for SBSs or other instruments, how do current practices 
compare with the practices that the Commission proposes to require in 
this rule? What are the incremental costs to potential SDRs in 
connection with adding to or revising their current practices in order 
to implement the Commission's proposed rule?
    <bullet> How might the evolution of the SBS market over time affect 
SDRs or impact the Commission's proposed rule?
    <bullet> Should the Commission require an SDR to have independent 
directors on its board and board committees? If not, why not and what 
would be a better alternative to improve governance and mitigate any 
tensions between commercial interests and statutory goals? If so, what 
should be the required composition of the board and each board 
committee? How should the terms ``independent director'' and ``related 
person'' be defined? Should the Commission rely on definitions from 
existing rules (e.g., Exchange Act Rule 10A-3(b)(1)(ii)(A) or 
Instruction 1 to Item 404(a) of Regulation S-K)?
    <bullet> Would requiring the board and each board committee to be 
composed of at least 35% independent directors improve governance of 
the SDR or effectively address concerns pertaining to conflicting 
interests of SDR owners? What potential benefits or drawbacks might 
result from requiring at least 35% of an SDR's board and each board 
committee to be independent directors? Would 35% be sufficient to give 
independent directors a meaningful voice within the board and board 
committees? If not, would a higher or lower level be appropriate?
    <bullet> Should the Commission require that a majority of an SDR's 
board and each board committee be independent directors? What potential 
benefits or drawbacks might result from such a requirement? Would a 
majority independent board be likely to enhance an SDR's management of 
any tensions between commercial interests and statutory goals or to 
enhance its compliance with the proposed rules? Would a majority 
independent board be necessary to ensure that an SDR appropriately 
manages any tensions between commercial interests and statutory goals?
    <bullet> Should there be a minimum requirement on the number of 
independent directors on the board or each board committee? If so, what 
should the minimum requirement be and why? For example, would a minimum 
requirement of two independent directors be sufficient?
    <bullet> How are independent directors likely to affect the 
activities of the SDR? What are their incentives to assure open and 
fair access to the services offered and data maintained by the SDR? Do 
independent directors have any conflicts of interest that would affect 
their ability to facilitate this objective?
    <bullet> Would participant owners of an SDR be able to exercise 
undue influence over an SDR even if at least 35% of the board consists 
of independent directors? Would the requirement of at least 35% 
independent board effectively insulate an SDR from undue influence by 
its participant owners?
    <bullet> Would participant owners of an SDR be able to exercise 
undue influence over an SDR even if the majority of the board consists 
of independent directors? Would the requirement of a majority 
independent board effectively insulate an SDR from undue influence by 
its participant owners?
    <bullet> Should the Commission require each SDR to establish a 
nominating committee? If not, why not and what would be a better 
approach? If so, what should be the required composition of the 
nominating committee? Would 51 percent, 100 percent, or some other 
percentage be sufficient to avoid undue influence by participants? What 
is the potential impact of requiring the nominating committee to be 
composed of a majority of independent directors? What is the potential 
impact of requiring the nominating committee to be solely composed of 
independent directors? What is the likely impact of requiring the 
nominating committee to be composed of another percentage of 
independent directors? Should the Commission require that all or a 
majority of the nominating committee be independent even if it does not 
establish requirements for independent directors on an SDR's board? Why 
or why not? What are the benefits or drawbacks of composition 
requirements directed specifically to an SDR's nominating committee?
    <bullet> Should the Commission require an SDR to establish any 
other committee? If so, what would be the responsibilities of such 
committee?

[[Page 77324]]

    <bullet> Should the Commission impose any ownership and voting 
limitations on SDR participants and others? If not, why not and what 
would be a better alternative to minimize any tensions between 
commercial interests and statutory goals? If so, what should the 
required ownership and voting limitations be? For example, would 20% 
ownership and voting limitations on an SDR participant and its related 
persons be sufficient to limit the ability of a market participant or a 
group of participants from exercising undue influence or control over 
the governance of the SDR? Should the 20% limitations be higher or 
lower given the existing concentration of the industry in a small 
number of large dealers? Would a 40% ownership limitation for any 
person and its related persons be sufficient to limit anyone from 
exercising undue influence or control over the governance of the SDR? 
Should the 40% ownership limitation be higher or lower given the 
existing concentration of the industry in a small number of large 
dealers?
    <bullet> Would requirements related to the governance arrangements 
(i.e., independent directors, nominating committee) of an SDR be more 
or less effective than ownership or voting limitations at addressing 
any tensions between commercial interests and statutory goals? Could 
restrictions regarding the governance arrangements of an SDR, on their 
own, be sufficient to effectively address concerns pertaining to undue 
influence (assuming that such restrictions are necessary for this 
purpose)? Would it be appropriate or necessary to require both 
governance arrangements and ownership or voting limitations in order to 
effectively address these concerns?
    <bullet> If the Commission were to require ownership and voting 
interest limitations, should the Commission permit an SDR's board to 
waive the limitations for a person who is not an SDR participant and 
its related persons provided that certain conditions are met? If so, 
under what conditions (e.g., waiver is consistent with the SDR's 
statutory obligations, waiver would not impair the Commission's ability 
to enforce the Federal securities laws and the rules and regulations 
thereunder, such person and its related persons can comply with the 
Federal securities laws and the rules and regulations thereunder, such 
person and its related persons irrevocably submit to the jurisdiction 
of the United States federal courts and Commission, such person's books 
and records related to an SDR's activities would be subject at all 
times to the Commission's inspection and examination, the Commission 
would have access to such person's books and records at all times)? 
Should the waiver be subject to the Commission's review?
    <bullet> If the Commission were to impose ownership and voting 
interest limitations, should limitations be phased in for SDRs to 
provide a grace period for those entities that would not meet the 
limits at the outset, but that could potentially meet them at a later 
date, e.g., one year after the registration of an SDR with the 
Commission?
    <bullet> If the Commission were to impose ownership and voting 
interest limitations, should the Commission specifically require 
remediation by any SDR when any person and its related persons exceed 
the ownership or voting limitations? For example, should the Commission 
explicitly require that an SDR's policies and procedures provide a 
mechanism to divest any interest owned or not give effect to any voting 
interest held by any person and its related persons in excess of the 
proposed limitations?
    <bullet> Are there other methods for mitigating any tensions 
between commercial interests and statutory goals without placing any 
voting and ownership limitations?
    <bullet> Are there potential ways to more narrowly target voting 
and ownership limitations while effectively mitigating any tensions 
between commercial interests and statutory goals?
    <bullet> How do potential tensions between commercial interests and 
statutory goals for SDRs differ from tensions for clearing agencies and 
SEFs? Is there a qualitative difference? Are potential tensions more or 
less attenuated for SDRs?
    <bullet> How are potential tensions between commercial interests 
and statutory goals for SDRs similar to potential tensions for clearing 
agencies and SEFs? Would such similarities warrant similar restrictions 
regarding their governance arrangements and/or voting and ownership 
limitations?
    <bullet> Are there any other restrictions or measures that the 
Commission should impose on SDRs to improve governance and mitigate any 
tensions between commercial interests and statutory goals at SDRs?
    <bullet> Is it important that the Commission and the CFTC adopt 
compatible provisions regarding governance for SDRs? To what degree are 
SDRs registered with the Commission also likely to register as swap 
data repositories with the CFTC? Would incompatible or conflicting 
governance provisions provide significant difficulties for SDRs?
c. Third Core Principle: Rules and Procedures for Minimizing and 
Resolving Conflicts of Interest
    As mentioned above, each SDR is statutorily required to establish 
and enforce written policies and procedures reasonably designed to 
minimize conflicts of interest in the SDR's decisionmaking process and 
to establish a process for resolving any such conflicts of 
interest.\88\ Based on information provided by industry representatives 
regarding how SDRs will likely operate, the Commission preliminarily 
believes that a small number of dealers could control SDRs, which may 
require SDR owners to balance competing interests.\89\ Owners of an SDR 
could derive greater revenues from their non-repository activities in 
the SBS market than they would from sharing in the profits of the SDR 
in which they hold a financial interest. In addition, there may be a 
tension between an SDR's statutory obligations (e.g., maintaining the 
privacy of data reported to the SDR) and its own commercial interests 
or those of its owners.\90\
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    \88\ See Public Law 111-203, Sec.  763(i) (adding Exchange Act 
Section 13(n)(7)(C)).
    \89\ See Office of the Comptroller of the Currency, Quarterly 
Report on Bank Trading and Derivatives Activities, First Quarter 
2010 (``Derivatives activity in the U.S. banking system continues to 
be dominated by a small group of large financial institutions. Five 
large commercial banks represent 97% of the total banking industry 
notional amounts * * *.'').
    \90\ See, e.g., CPSS-IOSCO consultative report, supra note 55 
(noting the conflicts of interest ``between the unique public role 
of the [SDR] and its own commercial interests particularly if the 
[SDR] offers services other than recordkeeping or between commercial 
interests relating to different participants and linked market 
infrastructures and service providers'').
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    A few entities that presently provide or anticipate providing 
repository services have identified conflicts of interest that could 
arise at an SDR. First, owners of an SDR could have commercial 
incentives to exert undue influence to control the level of access to 
the services offered and data maintained by the SDR and to implement 
policies and procedures that would further their self-interests to the 
detriment of others.\91\ Specifically, owners of an SDR could exert 
their influence and control to prohibit or limit access to the services 
offered and data maintained by the SDR in order to

[[Page 77325]]

impede competition.\92\ Second, an SDR could favor certain market 
participants over others with respect to the SDR's services and pricing 
for such services.\93\ Third, an SDR could require that services be 
purchased on a ``bundled'' basis, as discussed above.\94\ Finally, an 
SDR or a person associated with the SDR could misuse or misappropriate 
data reported to the SDR for financial gain.\95\ As one repository 
noted, ``SDR data is extremely valuable and could be sold either stand 
alone or enhanced with other market data and analysis. The use of this 
data in this matter would present competitive problems'' as well as 
conflicts of interest issues.\96\ Because these conflicts have been 
identified by only a few potential SDRs, the Commission recognizes that 
this information may not reflect all business models for SDRs. The 
Commission invites comment on this issue.
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    \91\ See, e.g., Reval, Responses to the CFTC's Questions on the 
SDR Requirements (available at http://www.cftc.gov/ucm/groups/public/@swaps/documents/file/derivative9sub100110-reval.pdf) 
(stating that an SDR with any ownership or revenue sharing 
arrangements directly or indirectly with a dealer would be an 
obvious conflict of interest) (``Reval Response Letter'').
    \92\ See, e.g., Warehouse Trust Company, Draft Response to CFTC 
re: CFTC Request for Information regarding SDR Governance (available 
at http://www.cftc.gov/ucm/groups/public/@swaps/documents/file/derivative9sub100510-wt.pdf) (stating that ``ownership of an SDR 
could lead to access restrictions on non-owners.'') (``Warehouse 
Trust Response Letter'').
    \93\ See Reval Response Letter, supra note 91 (``Preferential 
treatment in services provided by an SDR could also occur * * *.'').
    \94\ See Warehouse Trust Letter, supra note 92 (``The issue of 
vertical bundling could arise where [SEFs and clearing agencies] 
have preferred access or servicing arrangements with SDRs primarily 
due to ownership overlaps.'').
    \95\ See Reval Response Letter, supra note 91 (``There will 
always be an underlying conflict to ensure that the position 
information or client activity does not get into the hands of 
investors or an SDR business partner who could benefit from that 
information.'').
    \96\ See Warehouse Trust Letter, supra note 92; see also Reval 
Response Letter, supra note 91 (``[I]f only one SDR is created for 
an asset class and that SDR is held by a market participant that 
could gain by having an edge on when the information is received, it 
could have a trading edge.'').
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    Proposed Rule 13n-4(c)(3) would provide general examples of 
conflicts of interest that should be considered by an SDR, including, 
but not limited to: (1) Conflicts between the commercial interests of 
an SDR and its statutory responsibilities, (2) conflicts in connection 
with the commercial interests of certain market participants or linked 
market infrastructures, third party service providers, and others, (3) 
conflicts between, among, or with persons associated with the SDR, 
market participants, affiliates of the SDR, and nonaffiliated third 
parties,\97\ and (4) misuse of confidential information, material, 
nonpublic information, and/or intellectual property. Such conflicts of 
interest could limit the benefits of an SDR and undermine the mandatory 
reporting requirement in Exchange Act Section 13(m)(G), thereby 
impacting efficiency in the SBS market.\98\
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    \97\ The term ``nonaffiliated third party'' of an SDR would be 
defined as any person except (1) the SDR, (2) an SDR's affiliate, or 
(3) a person employed by an SDR and any entity that is not the SDR's 
affiliate (and ``nonaffiliated third party'' includes such entity 
that jointly employs the person). See proposed Rule 13n-4(a)(8).
    \98\ See Public Law 111-203, Sec.  763(i). Exchange Act Section 
13(m)(G) imposes a mandatory reporting requirement, which provides 
that ``[e]ach security-based swap (whether cleared or uncleared) 
shall be reported to a registered security-based swap data 
repository.''
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    Proposed Rule 13n-4(c)(3)(i) would require each SDR to establish, 
maintain, and enforce written policies and procedures reasonably 
designed to identify and mitigate potential and existing conflicts of 
interest in the SDR's decisionmaking process on an ongoing basis. The 
Commission preliminarily believes that requiring an SDR to conduct 
ongoing identification and mitigation of conflicts of interest is 
important because such conflicts can arise gradually over time or 
unexpectedly. Furthermore, a situation that is acceptable one day may 
present a conflict of interest the next. In order to identify and 
address potential conflicts that may arise over time, the Commission 
believes that, in general, an SDR's procedures should provide a means 
for regular review of conflicts as they impact the SDR's decisionmaking 
processes.
    Proposed Rule 13n-4(c)(3)(ii) would require an SDR to recuse any 
person involved in a conflict of interest from the decisionmaking 
process for resolving any conflicts of interest. The Commission 
preliminarily believes that such recusal is necessary to eliminate an 
apparent conflict of interest in an SDR's decisionmaking process. 
Additionally, recusal would increase confidence in the SDR's 
decisionmaking process and avoid an appearance of impropriety.
    Finally, proposed Rule 13n-4(c)(3)(iii) would require an SDR to 
establish, maintain, and enforce reasonable written policies and 
procedures regarding the SDR's non-commercial and/or commercial use of 
the SBS transaction information that it receives from a market 
participant, any registered entity, or any other person. The Commission 
recognizes that an SDR may have commercial incentives to operate as an 
SDR. To the extent that an SDR uses data that it receives from others 
for commercial purposes, the Commission preliminarily believes that 
such uses should be clearly defined and disclosed to market 
participants. If, for example, a market participant agrees to waive 
confidentiality of the data that it provides to an SDR, then, at the 
very least, the market participant should understand how an SDR is 
going to use that data and the scope of the market participant's 
waiver.

Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Is the Commission's proposed definition of ``nonaffiliated 
third party'' appropriate and sufficiently clear? If not, why not and 
how should it be defined?
    <bullet> Are the Commission's proposed rules implementing the third 
core principle appropriate and sufficiently clear? If not, why not and 
what would be a better alternative?
    <bullet> Are the Commission's examples of potential conflicts of 
interest in its proposed rules adequate? If not, are there other 
examples of conflicts that the Commission should identify in its rule?
    <bullet> Do commenters agree with the potential conflict concerns 
that the Commission has identified in this release? How might conflicts 
of interest change as SDRs become more established? How might 
competitive forces within the SBS market affect or change current 
conflicts of interest? What potential new conflicts of interest could 
arise that the Commission should consider? Will competition potentially 
create different or additional conflicts of interest that the 
Commission should consider? Will competition potentially mitigate 
conflicts of interest?
    <bullet> What is the likely impact of the Commission's proposed 
rule on the SBS market? Would the proposed rule potentially promote or 
impede the establishment of SDRs?
    <bullet> With respect to entities that currently perform repository 
services for SBSs or other instruments, how do current practices 
compare to the practices that the Commission proposes to require in 
this rule? What are the incremental costs to potential SDRs in 
connection with adding to or revising their current practices in order 
to implement the Commission's proposed rule?
    <bullet> Should the Commission require an SDR to identify and 
mitigate conflicts of interest in an SDR's governance arrangements 
periodically rather than on an ongoing basis? Should the proposed 
requirement extend to any other circumstances?
    <bullet> Is the Commission's proposed rule requiring recusal of any 
person involved in a conflict of interest appropriate and sufficiently 
clear? If not, what would be a better alternative?
    <bullet> Is the Commission's proposed requirement relating to an 
SDR's non-commercial and commercial use of data

[[Page 77326]]

appropriate and sufficiently clear? If not, why not and what would be a 
better alternative?
    <bullet> Are there conflicts of interest specific to the commercial 
use of data by an SDR that the Commission should address? What are 
these conflicts? Can they be mitigated? If so, by what means?
    <bullet> Should the Commission restrict or prohibit an SDR's use of 
data for commercial purposes? If so, in what way? For example, should 
the Commission prohibit an SDR's use of data for commercial purposes 
unless an SDR obtains express written consent from the market 
participants submitting such data? Should the Commission require that 
an SDR's policies and procedures require it to obtain consent from 
market participants before the SDR uses the data for any purpose or 
transmits such data to other parties other than regulators? Should the 
Commission require that an SDR's policies and procedures require it to 
obtain consent from market participants before the SDR provides 
aggregated SBS transaction data to the public without charge?
    <bullet> If some commercial use of data is permitted, should 
particular commercial uses of data by an SDR nonetheless be prohibited? 
If so, which uses should be prohibited and why? Should certain 
potential uses of data, or the use of particular types of data, pose 
particular concern to the Commission? Which uses or data types are 
they, and how should the Commission respond?
    <bullet> Should an SDR's affiliates be subject to any or all of the 
restrictions on commercial use that are imposed on an SDR? Should the 
Commission restrict the ability of an SDR to share data with any of its 
affiliates? For example, should an SDR be prohibited from sharing data 
with an affiliate unless the same data is also made available at the 
same time and on reasonable terms to market participants that are not 
affiliates? Should an SDR be prohibited from sharing certain types of 
data with an affiliate that trades SBSs?
    <bullet> Would full disclosure by an SDR of its commercial use of 
data provide meaningful protection for market participants? Are market 
participants likely to have a meaningful choice to preclude the 
commercial use of their transaction data by choosing to report 
transactions to an SDR that does not make commercial use of the data? 
If commercial use of data is permitted, is it likely that any SDR would 
refrain from such use?
    <bullet> What are the possible consequences of restricting or 
prohibiting an SDR's use of the data that it receives for commercial 
purposes? For example, would it deter persons from registering as SDRs? 
Would it result in existing SDRs to cease operating as such? Would 
prohibiting an SDR from making commercial use of data reported to it 
have positive benefits, such as enhancing the confidence of market 
participants that their trade or position information will not leak 
into the market?
    <bullet> Would an SDR need to use data that it receives for 
commercial purposes in order to be a viable business? If so, explain.
    <bullet> Are there any additional requirements that the Commission 
should impose to implement the third core principle?

E. Proposed Rule Regarding Data Collection and Maintenance

    The Commission is proposing Rule 13n-5 under the Exchange Act to 
specify the data collection and maintenance requirements applicable to 
SDRs.\99\
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    \99\ Proposed Rule 13n-5 is being promulgated under Exchange Act 
Sections 13(n)(4)(B), 13(n)(7)(D), and 13(n)(9). See Public Law 111-
203, Sec.  763(i).
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1. Definitions
    Proposed Rule 13n-5(a) would define terms used in the proposed 
rule. Proposed Rule 13n-5(a)(1) would define ``transaction data'' to 
mean all the information reported to the SDR pursuant to the Exchange 
Act and the rules and regulations thereunder.\100\ This would include 
all information, including life cycle events, required to be reported 
to the SDR under Rule 901 of proposed Regulation SBSR.\101\
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    \100\ In a separate proposal relating to implementation of 
Section 763(i) of the Dodd-Frank Act (adding Exchange Act Section 
13(m)), the Commission is considering rules requiring an SDR to 
publicly disseminate certain SBS data that has been affirmed by the 
parties but has not necessarily been confirmed. See Regulation SBSR 
Release (proposed Rule 902), supra note 9. Any comments regarding 
the public dissemination proposed rules should be submitted in 
connection with that proposal. In another separate proposal relating 
to implementation of Section 763(i) of the Dodd-Frank Act (adding 
Exchange Act Section 13(n)(5)(E)), the Commission is considering 
rules that would require SDRs to collect data related to monitoring 
the compliance and frequency of end-user clearing exemption claims. 
Any comments regarding the end-user clearing exemption proposed 
rules should be submitted in connection with that proposal.
    \101\ A definition of ``life cycle event'' is being proposed in 
proposed Regulation SBSR. See Regulation SBSR Release (proposed Rule 
900), supra note 9.
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    Proposed Rule 13n-5(a)(2) would define ``position'' as the gross 
and net notional amounts of open SBS transactions aggregated by one or 
more attributes, including, but not limited to, the (i) underlying 
instrument, index, or reference entity; (ii) counterparty; (iii) asset 
class; (iv) long risk of the underlying instrument, index, or reference 
entity; and (v) short risk of the underlying instrument, index, or 
reference entity.\102\ Position data is required to be provided by SDRs 
to certain entities pursuant to Exchange Act Section 13(n)(5)(G).\103\ 
Therefore, the Commission proposes defining the term, and has designed 
this definition to reflect the way the term is currently used in the 
industry.\104\ The proposed term is designed to be sufficiently 
specific so that SDRs are aware of the types of position calculations 
that regulators may require an SDR to provide, while at the same time, 
provide enough flexibility to encompass the types of position 
calculations that regulators and the industry will find important as 
new types of SBS are developed.
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    \102\ For purposes of this definition, positions aggregated by 
long risk would be only for the aggregate notional amount of SBSs in 
which a market participant has long risk of the underlying 
instrument, index, or reference entity. Similarly, positions 
aggregated by short risk would be only for the aggregate notional 
amount of SBSs in which a market participant has short risk of the 
underlying instrument, index, or reference entity. For SBSs other 
than credit default swaps, a counterparty has long risk where the 
counterparty profits from an increase in the price of the underlying 
instrument or index, and a counterparty has short risk where the 
counterparty profits from a decrease in the price of the underlying 
instrument or index. For credit default swaps, a counterparty has 
long risk where the counterparty profits from a decrease in the 
price of the credit risk of the underlying index or reference 
entity, and a counterparty has short risk where the counterparty 
profits from an increase in the price of the credit risk of the 
underlying index or reference entity. As market events require, the 
Commission may request that an SDR calculate positions in another 
manner and to provide those positions to the Commission on a 
confidential basis.
    \103\ See Public Law 111-203, Sec.  763(i) (adding Exchange Act 
Section 13(n)(5)(G)); see also proposed Rule 13n-4(b)(9).
    \104\ The Commission notes that Section 763(h) of the Dodd-Frank 
Act adds Exchange Act Section 10B, which provides, among other 
things, for the establishment of position limits for any person that 
holds SBSs. Specifically, Section 10B(a) provides that ``[a]s a 
means reasonably designed to prevent fraud and manipulation, the 
Commission shall, by rule or regulation, as necessary or appropriate 
in the public interest or for the protection of investors, establish 
limits (including related hedge exemption provisions) on the size of 
positions in any security-based swap that may be held by any 
person.'' In addition, Exchange Act Section 10B(d) provides that the 
Commission may establish position reporting requirements for any 
person that effects transactions in SBSs, whether cleared or 
uncleared. See Public Law 111-203, Sec.  763(h).
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    Proposed Rule 13n-5(a)(3) would define ``asset class'' as ``those 
security-based swaps in a particular broad category, including, but not 
limited to, credit derivatives, equity derivatives, and loan-based 
derivatives.'' The Commission is proposing this definition in order to 
implement proposed Rule 13n-5(b)(1)(ii), discussed below.

[[Page 77327]]

Proposed Rule 13n-5(b)(1)(ii) would require an SDR, if it accepts any 
SBS in a given asset class, to accept all SBSs in that asset class.

Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Are these proposed definitions over-inclusive or under-
inclusive? Is there some data that is captured by the term 
``transaction data'' that should not be subject to the collection and 
maintenance requirements described below? Is there data that should be 
subject to these requirements that is not included in the proposed 
definition of ``transaction data''?
    <bullet> Is the proposed definition of ``position'' sufficiently 
precise?
    <bullet> Are there other attributes of SBSs for which the 
Commission should specifically require SDRs to calculate positions?
    <bullet> Exchange Act Section 10B authorizes the Commission to 
establish limits on the size of positions in any SBS that may be held 
by any person. Would the definition of ``position'' in proposed Rule 
13n-5(a)(2) be appropriate for purposes of any rules the Commission 
might propose with regard to position limits?
    <bullet> Is the proposed definition of ``asset class'' sufficiently 
precise? Is there another definition of ``asset class'' that better 
describes the broad categories of SBSs commonly referred to as credit 
derivatives, equity derivatives, and loan-based derivatives, but 
excluding those that are not SBSs?
    <bullet> Should each SDR be allowed to define the ``asset class'' 
for which it will accept SBS transaction data under proposed Rule 13n-
5(b)(1)(ii)?
2. Requirements
a. Transaction Data
    Proposed Rule 13n-5(b)(1)(i) would require every SDR to establish, 
maintain, and enforce written policies and procedures reasonably 
designed for the reporting of transaction data to the SDR, and would 
require the SDR to accept all transaction data that is reported to the 
SDR in accordance with such policies and procedures. A fundamental goal 
of Title VII is to have all SBSs reported to SDRs.\105\ This proposed 
requirement would prevent SDRs from rejecting SBSs for arbitrary or 
anti-competitive reasons, minimize the number of SBSs that are not 
accepted by an SDR, and to the extent that the SDR's policies and 
procedures make clear what SBSs the SDR will accept, make it easier for 
market participants to determine whether there is an SDR that will 
accept a particular SBS.\106\
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    \105\ See Exchange Act Section 13(m)(1)(G) requiring ``[e]ach 
security-based swap (whether cleared or uncleared)'' to be reported 
to a registered SDR. Public Law 111-203, Sec.  763(i).
    \106\ In a separate proposal relating to implementation of 
Section 763(i) of the Dodd-Frank Act, the Commission is considering 
additional rules requiring an SDR to have policies and procedures 
relating to the reporting of SBS data to the SDR. See Regulation 
SBSR Release (proposed Rule 907), supra note 9. Any comments 
regarding the proposed reporting rules should be submitted in 
connection with that proposal.
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    Proposed Rule 13n-5(b)(1)(ii) would require an SDR, if it accepts 
any SBS in a given asset class, to accept all SBSs in that asset class 
that are reported to it in accordance with its policies and procedures 
required by paragraph (b)(1) of the proposed rule. This proposed 
requirement is designed to maximize the number of SBSs that are 
accepted by an SDR. The Commission preliminarily believes that if 
certain SBSs are not accepted by any SDR and are reported to the 
Commission instead, the purpose of the Dodd-Frank Act to have 
centralized data on SBSs for regulators and others to access could be 
undermined. Without this requirement, the transaction costs for the 
Commission and other regulators to gather complete information on the 
SBS market could be higher. In addition, the Commission preliminarily 
believes that this proposed requirement would make it easier for market 
participants to determine whether there is an SDR that will accept a 
particular SBS.
    However, an SDR would be required to accept only those SBSs from 
the asset class that are reported in accordance with the SDR's policies 
and procedures required by paragraph (b)(1) of this proposed rule.\107\ 
For example, an SDR's policies and procedures could prescribe the 
necessary security and connectivity protocols that market participants 
must have in place prior to transmitting transaction data to the SDR. 
An SDR would not be required to accept transaction data from market 
participants that did not comply with these protocols; otherwise the 
transmission of the transaction data could compromise the SDR's 
automated systems.
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    \107\ An SDR would be required to disclose to market 
participants its criteria for providing others with access to 
services offered and data maintained by the SDR pursuant to proposed 
Rule 13n-10(b)(1), as discussed in Section III.J of this release. 
Therefore, market participants would be aware of an SDR's policies 
and procedures for reporting data.
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    To the extent that an SDR already has systems in place to accept 
and maintain SBSs in a particular asset class, the Commission 
preliminarily believes that the requirement of proposed Rule 13n-
5(b)(1)(ii) would not add a material incremental financial or 
regulatory burden to SDRs. The Commission preliminarily believes that 
SDRs may have commercial incentives to limit SBSs for which they 
receive reports to those with relatively standardized terms, for 
operational reasons and because standardized instruments lend 
themselves more readily to aggregation of information that would have 
commercial value (to the extent that SDRs are entitled under the rules 
the Commission adopts to use such information for commercial purposes). 
Given these incentives, the requirement that, if an SDR accepts any SBS 
in a given asset class, it must accept all SBSs in that asset class, is 
meant to facilitate the aggregation of and access to SBS transaction 
data.
    Proposed Rule 13n-5(b)(1)(iii) would require every SDR to 
establish, maintain, and enforce written policies and procedures 
reasonably designed to satisfy itself by reasonable means that the 
transaction data that has been submitted to the SDR is accurate. This 
proposed rule would also require SDRs to clearly identify the source 
for each trade side and the pairing method (if any) for each 
transaction in order to identify the level of quality of that 
transaction data.
    Exchange Act Section 13(n)(5)(B) requires an SDR to ``confirm with 
both counterparties to the security-based swap the accuracy of the data 
that was submitted.'' \108\ This requirement is based on the premise 
that an SDR is useful only insofar as the data it retains is 
accurate.\109\ SBS data that is not trusted does not enhance 
transparency. In order to ensure that the data submitted to an SDR is 
accurate and agreed to by both counterparties, the SDR must 
substantiate the accuracy of the data submitted with the 
counterparties. The Commission understands that with respect to certain 
asset classes, current market practice is for third party service 
providers to provide electronic confirmations prior to the SBS data 
reaching an SDR. The Commission preliminarily believes that an SDR 
would be able to fulfill its responsibilities under Exchange Act 
Section 13(n)(5)(B), proposed Rule 13n-4(b)(3),\110\ and this proposed 
rule by

[[Page 77328]]

developing reasonable policies and procedures that rely on 
confirmations completed by another entity, such as an SB SEF, clearing 
agency, or third party vendor, as long as such reliance is reasonable. 
The SDR would have a continuing responsibility to oversee and supervise 
the performance of the third party confirmation provider. This could 
include having policies and procedures in place to monitor the third 
party confirmation provider's compliance with the terms of any 
agreements and to assess the third party confirmation provider's 
continued fitness and ability to perform the confirmations.
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    \108\ See also proposed Rule 13n-4(b)(3).
    \109\ See, e.g., CPSS-IOSCO, supra note 55 (the primary public 
policy benefit of an SDR is facilitated by the integrity of the 
information maintained by an SDR).
    \110\ Proposed Rule 13n-4(b)(3) would require SDRs to 
``[c]onfirm, as prescribed in Rule 13n-5, with both counterparties 
to the security-based swap the accuracy of the data that was 
submitted.''
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    For example, if an SBS is traded on an SB SEF, that SB SEF would 
confirm the accuracy of the transaction data with both counterparties, 
and the SBS would then be reported to the SDR by the SB SEF. The SDR 
would not need to further substantiate the accuracy of the transaction 
data, as long as the SDR had a reasonable belief that the SB SEF had 
performed an accurate confirmation. However, the SDR would not comply 
with Exchange Act Section 13(n)(5)(B), proposed Rule 13n-4(b)(3), and 
this proposed rule if the confirmation proves to be inaccurate and the 
SDR had reason to know that its reliance on the SB SEF for providing 
accurate confirmations was unreasonable. If an SBS is transacted by two 
commercial end-users and is not electronically traded or cleared, and 
is reported to the SDR by one of those end-users, the SDR may not have 
any other entity that it can reasonably rely on, and may have to 
contact each of the counterparties itself to substantiate the accuracy 
of the transaction data.\111\
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    \111\ The Commission preliminarily believes that an SDR should 
make reasonable accommodations, including consideration of any cost 
burdens, for a non-reporting counterparty of an SBS transaction in 
connection with any follow-up by the SDR regarding the accuracy of 
the counterparty's SBS transaction. These accommodations could, for 
example, include providing means for non-reporting counterparties to 
substantiate the accuracy of the transaction data without having to 
incur significant systems or technology costs.
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    Transaction data may vary in terms of reliability. Some transaction 
data may have been affirmed by counterparties to an SBS, but not 
confirmed.\112\ Some transaction data may have been confirmed 
informally by the back-offices of the counterparties, but not be 
considered authoritative. Other transaction data may have gone through 
an electronic confirmation process and be considered authoritative by 
the counterparties. In order for regulators to determine whether an SDR 
has reasonable policies and procedures for satisfying itself that the 
transaction data that has been submitted to the SDR is accurate, the 
SDR must document the processes used by third parties to substantiate 
the accuracy of the transaction data.
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    \112\ In a separate proposal relating to implementation of 
Section 763(i) of the Dodd-Frank Act (adding Exchange Act Section 
13(m)), the Commission is considering rules requiring an SDR to 
publicly disseminate certain SBS data that has been affirmed by the 
parties but has not necessarily been confirmed. See Regulation SBSR 
Release (proposed Rule 902), supra note 9. Any comments regarding 
the public dissemination proposed rules should be submitted in 
connection with that proposal.
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    Proposed Rule 13n-5(b)(1)(iv) would require SDRs to record promptly 
the transaction data that it receives.\113\ It is important that SDRs 
keep up-to-date records so that regulators and parties to SBSs will 
have access to accurate and current information.\114\
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    \113\ In a separate proposal, the Commission is proposing rules 
prescribing the data elements that an SDR is required to accept for 
each SBS in association with requirements under Section 763(i) of 
the Dodd-Frank Act, adding Exchange Act Section 13(n)(4)(A), 
relating to standard setting and data identification. See Regulation 
SBSR Release (proposed Rule 901), supra note 9. Any comments 
regarding the data elements should be submitted in connection with 
that proposal.
    \114\ See, e.g., CPSS-IOSCO, supra note 55 (``A [trade 
repository] should promptly record the trade information it receives 
from its participants. * * * Ideally, a [trade repository] should 
record to its central registry information it receives from its 
participants in real-time, and at a minimum, within one business 
day.'').
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Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> What is the likely impact of these requirements on the SBS 
market, including the impact on the incentives and behaviors of SDRs, 
the willingness of persons to register as SDRs, and the technologies 
used for reporting SBSs to the SDR?
    <bullet> With respect to entities that currently perform repository 
services for SBSs or other instruments, how do current practices 
compare to the practices that the Commission proposes to require in 
this rule? What are the incremental costs to potential SDRs in 
connection with adding to or revising their current practices in order 
to implement the Commission's proposed rule?
    <bullet> Should the Commission require an SDR to have any 
particular substantive requirements in its policies and procedures, 
such as requirements pertaining to robust passwords for persons 
reporting transaction data?
    <bullet> Does the definition of ``asset class'' in proposed Rule 
13n-5(a)(3) provide sufficient guidance and clarity to entities that 
may register as SDRs and to other market participants?
    <bullet> Should the Commission require an SDR to accept all SBSs of 
a given asset class? If not, what other mechanism should the Commission 
use to prevent ``orphaned'' SBSs? How should the Commission address 
SBSs that do not clearly belong to a particular asset class or that 
could arguably belong to more than one asset class? Should the 
Commission allow an SDR that accepts SBSs in one asset class to accept 
an SBS that arguably belongs to that asset class, but which could also 
belong to a second asset class, without requiring the SDR to then 
accept all SBSs in the second asset class?
    <bullet> Will the requirement of proposed Rule 13n-5(b)(1)(ii) 
materially add to the costs of SDRs? How does this proposed requirement 
affect the possible business models under which an SDR may operate or 
the commercial viability of SDRs in general? Does it make any 
particular business model more or less attractive?
    <bullet> Should the Commission impose other requirements that may 
increase access to an SDR, including:
    [cir] Any other requirements that may prevent an SDR from rejecting 
those SBSs that are customized to such a degree that they are not in 
the SDR's economic interest to accept them because the SDR will not be 
able to perform downstream processing on the SBSs and may incur costs 
in obtaining the information to calculate positions; and
    [cir] Requiring an SDR to employ technologies that accommodate a 
wide range of technological capabilities among persons that desire to 
report data to the SDR or other requirements that may prevent an SDR 
from rejecting SBSs from less sophisticated persons that do not engage 
in the volume of SBSs necessary to make it economically practicable to 
invest in technologies that are industry standards?
    <bullet> Should the Commission require an SDR itself to 
substantiate the accuracy of the transaction data that has been 
submitted to the SDR?
    <bullet> Should the Commission require an SDR to have any 
particular substantive requirements in its policies and procedures 
relating to these rules?
    <bullet> Should the Commission give more guidance as to what 
constitutes reasonable reliance on a third party? For example, would it 
be reasonable to rely on documents provided by the party to an SBS that 
reports the SBS to an SDR? What if that party is a clearing agency that 
became a party to the SBS as the central counterparty?
    <bullet> Where an SDR relies on a third party to provide 
confirmations, should the Commission give more guidance as

[[Page 77329]]

to the oversight by the SDR of the third party? For example, how often 
should the SDR review the third party's confirmation procedures? Would 
annually be sufficient?
    <bullet> Where an SDR is unable to reasonably satisfy itself that 
the transaction data is accurate, should the SDR reject the SBS? Should 
that SBS instead be reported to the Commission pursuant to Exchange Act 
Section 13A(a)(1)(B) and the rules and regulations promulgated 
thereunder?
    <bullet> Should the Commission give more guidance as to whether an 
SDR (or the entity that it reasonably relies on) needs to get an 
affirmative response from both counterparties when it attempts to 
satisfy itself that the transaction data is accurate? Alternatively, 
should the SDR submit the transaction data to a counterparty, and 
require a response only if the counterparty disagrees with the 
transaction data? Would this answer change if the SBS is cleared or if 
the counterparty is an end-user?
    <bullet> Should the Commission give more guidance as to whether 
receipt by an SDR of a confirmation under Exchange Act Section 
15F(i)(2) and the rules promulgated thereunder would be sufficient to 
fulfill the SDR's duties under Exchange Act Section 13(n)(5)(B), 
proposed Rule 13n-4(b)(3), and this proposed rule?
    <bullet> Should the term ``promptly'' be defined or should the 
Commission use another term such as ``as soon as technologically 
practicable after the time at which the data has been submitted''?
    <bullet> Should an SDR be required to record transaction data 
promptly after execution of a transaction or promptly after 
confirmation of the transaction?
b. Positions
    Proposed Rule 13n-5(b)(2) would require every SDR to establish, 
maintain, and enforce written policies and procedures reasonably 
designed to calculate positions for all persons with open SBSs for 
which the SDR maintains records. Position data is required to be 
provided by an SDR to certain entities pursuant to Exchange Act Section 
13(n)(5)(G).\115\ Position information is important to regulators for 
risk, enforcement, and examination purposes. In addition, having a 
readily available source of position information can be useful to 
counterparties themselves in evaluating their own risk. While much of 
the information necessary for an SDR to calculate positions (as defined 
in subsection (a)(2) of this proposed rule) will be reported to the SDR 
as transaction data, some information may not. For example, credit 
events for credit default swaps or events that result in the 
termination or adjustment to an equity swap may not be reported.\116\ 
In order to meet its obligation to calculate positions, an SDR could 
require reporting parties to report such events or it could have a 
system that will monitor for and collect such information. In order for 
the positions to be calculated accurately, the SDR will need to 
promptly incorporate recently reported transaction data and collected 
unreported data. It is important that the SDR keep up-to-date records 
so that relevant authorities and parties to the SBS will have access to 
accurate and current information.\117\
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    \115\ See also proposed Rule 13n-4(b)(9).
    \116\ In a separate proposal, the Commission is proposing rules 
prescribing the data elements that an SDR is required to accept for 
each SBS in association with requirements under Section 763(i) of 
the Dodd-Frank Act, adding Exchange Act Section 13(n)(4)(A), 
relating to standard setting and data identification. See Regulation 
SBSR Release (proposed Rule 901), supra note 9. The proposed 
definition of ``life cycle event'' in proposed Regulation SBSR 
states, ``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.'' See Regulation SBSR Release (proposed Rule 900), supra 
note 9. In order to calculate positions, SDRs may need this 
information, which would not be required to be reported to it. Any 
comments regarding the data elements should be submitted in 
connection with that proposal.
    \117\ See, e.g., CPSS-IOSCO, supra note 55 (``Ideally, a [trade 
repository] should record to its central registry information it 
receives from its participants in real-time, and at a minimum, 
within one business day.'').
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Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Should the Commission specify particular standards or 
procedures for calculating positions?
    <bullet> What information will an SDR need to obtain in order to 
calculate positions and how difficult will it be to obtain?
    <bullet> What is the likely impact of this requirement on the SBS 
market, including the impact on the incentives and behaviors of SDRs, 
the willingness of persons to register as SDRs, and the technologies 
used for reporting SBSs to the SDR?
    <bullet> With respect to entities that currently perform repository 
services for SBSs or other instruments, how do current practices 
compare to the practices that the Commission proposes to require in 
this rule? What are the incremental costs to potential SDRs in 
connection with adding to or revising their current practices in order 
to implement the Commission's proposed rule?
    <bullet> The Commission understands that clearing agencies 
typically produce market values on cleared SBSs. However, many types of 
SBSs may not be cleared in the near term. Should the Commission require 
SDRs to calculate market values of each position at least daily and 
provide them to the Commission? In your comment, please consider the 
following:
    [cir] What would be the benefits and burdens of such a requirement?
    [cir] Should the requirement to calculate market values of 
positions be limited to certain types of SBSs, such as SBSs for which 
the counterparties have agreed that the transaction information 
maintained by the SDR is the primary record of the trade to the 
exclusion of any records held by the counterparties?
    [cir] Should ``market value'' be defined, and if so, how?
    [cir] Will the information necessary for calculating market values 
of the positions already be at the SDR? What information besides 
transaction data and positions will be required for the SDR to 
calculate the market values of positions? Would SDRs be able to obtain 
the necessary information to calculate market values? Why or why not? 
How could the SDR obtain the necessary information?
    [cir] To the extent that other entities, such as SB SEFs, SBS 
dealers, or clearing agencies, already perform such calculations, would 
it be sufficient for the SDR to obtain the market values from such 
entity?
    [cir] How frequently should such valuations be performed? Would 
daily valuation be too onerous for SDRs? What about weekly or monthly 
valuation?
    [cir] Would market values be meaningful in assessing risk without 
knowing the margin calls and collateral posted? Should SDRs also be 
required to maintain margin call and collateral information?
    [cir] How long should the SDR be required to maintain such market 
values? Would five years be adequate? What about the same time period 
as the Commission requires for positions?
c. Maintain Accurate Data
    Proposed Rule 13n-5(b)(3) would require every SDR to establish, 
maintain, and enforce written policies and procedures reasonably 
designed to ensure that the transaction data and positions that it 
maintains are accurate. Maintaining accurate records is a core

[[Page 77330]]

function of an SDR.\118\ Maintaining accurate records requires 
diligence on the part of an SDR; SBSs can be amended, assigned, or 
terminated and positions change upon the occurrence of new events (such 
as corporate actions). Therefore, it is important that an SDR has 
policies and procedures to ensure reasonably the accuracy of the 
transaction data and positions that it maintains. These policies and 
procedures could include portfolio reconciliation.\119\
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    \118\ See Section II, Role, Regulation, and Business Models of 
SDRs, of this release.
    \119\ See, e.g., ISDA Operations Committee, Process Working 
Group, Recommended Practices for Portfolio Reconciliation, version 
4.7 (Feb. 2006) (describing recommended practices for portfolio 
reconciliation).
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Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Should the Commission specify particular standards or 
procedures for maintaining accurate data, such as portfolio 
reconciliation and payment reconciliation?
    <bullet> What is the likely impact of this requirement on the SBS 
market, including the impact on the incentives and behaviors of SDRs, 
the willingness of persons to register as SDRs, and the technologies 
used for maintaining SBSs at the SDR?
    <bullet> With respect to entities that currently perform repository 
services for SBSs or other instruments, how do current practices 
compare to the practices that the Commission proposes to require in 
this rule? What are the incremental costs to potential SDRs in 
connection with adding to or revising their current practices in order 
to implement the Commission's proposed rule?
    <bullet> If portfolio reconciliation and/or payment reconciliation 
is required, how often would it be done, and what should it entail? 
Would the following definition of portfolio reconciliation be 
sufficient: ``a means of ensuring that the SDR's record of security-
based swaps are synchronized with those of a person with open security-
based swaps maintained by the SDR''? If not, how should the term be 
defined?
d. Data Retention
    Proposed Rule 13n-5(b)(4) would require SDRs to maintain the 
transaction data for not less than five years after the applicable SBS 
expires and historical positions for not less than five years (i) in a 
place and format that is readily accessible to the Commission and other 
persons with authority to access or view such information; and (ii) in 
an electronic format that is non-rewriteable and non-erasable. A five-
year retention period is the current requirement for the records of 
clearing agencies and other registered entities, and is the statutory 
requirement for SB SEFs.\120\ Since an SBS transaction is ongoing, the 
transaction data should be maintained for the duration of the SBS and 
for five years after it expires. Positions are not tied to any 
particular SBS transaction; therefore, the Commission proposes to 
require positions, as required to be calculated pursuant to proposed 
Rule 13n-5(b)(2), to be maintained for five years, similar to the 
record retention requirement for clearing agencies.\121\
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    \120\ See Exchange Act Rule 17a-1, 17 CFR 240.17a-1 (for 
national securities exchanges, national securities associations, 
clearing agencies and the MSRB); Exchange Act Section 3D(d)(9), 
Public Law 111-203, Sec.  763(c) (for SB SEFs).
    \121\ See Exchange Act Rule 17a-1, 17 CFR 240.17a-1 (requiring 
clearing agencies to retain data for five years).
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    Alternatively, the Commission is considering requiring SDRs to 
``maintain transaction data for not less than five years after the 
applicable security-based swap expires or ten years after the 
applicable security-based swap is executed, whichever is greater, and 
historical positions for not less than five years.'' Some SBSs are, in 
practice, of very short duration due to various reasons, including 
being novated upon being submitted for clearing or being terminated 
through portfolio compression. By requiring SDRs to retain data of all 
SBSs for at least ten years after execution, regulators would be able 
to use the data of the SBSs for analytical studies.
    The Commission proposes that the transaction data and positions be 
in a place and format that is readily accessible to the Commission and 
other persons with authority to access or view such information. The 
Commission preliminarily believes that this proposed requirement would 
ensure that SDRs maintain the information in an organized and 
accessible manner so that users can easily obtain the data that they 
need. The Commission also preliminarily believes that this proposed 
requirement would ensure that the information is maintained in a common 
and easily accessible format, such as a language commonly used in 
financial markets.\122\
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    \122\ An example of such a format is Financial products Markup 
Language (``FpML''). FpML is based on XML (eXtensible Markup 
Language), the standard meta-language for describing data shared 
between applications.
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    The proposed requirement for information to be in an electronic 
format that is non-rewriteable and non-erasable is consistent with the 
record retention format applicable to electronic broker-dealer 
records.\123\ This proposed requirement would prevent the maintained 
information from being modified or removed without detection.\124\
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    \123\ See Exchange Act Rule 17a-4(f)(2)(ii)(A), 17 CFR 240.17a-
4(f)(2)(ii)(A). In Exchange Act Release No. 47806 (May 7, 2003), 68 
FR 25281 (May 12, 2003), the Commission stated, among other things, 
that a broker-dealer would not violate Exchange Act Rule 17a-
4(f)(2)(ii)(A) ``if it used an electronic storage system that 
prevents the overwriting, erasing or otherwise altering of a record 
during its required retention period through the use of integrated 
hardware and software control codes.'' The Commission is proposing 
to incorporate this interpretation into proposed Rule 13n-5(b)(4).
    \124\ Records made or kept by an SDR, other than transaction 
data and positions, will be governed by proposed Rule 13n-7, as 
discussed in Section III.G of this release.
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Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Is the appropriate time period for the Commission to 
require an SDR to maintain transaction data at least five years after 
the applicable SBS expires and for positions at least five years? For 
transaction data, would ten years after expiration of the applicable 
SBS be more appropriate and why? \125\ What would be the benefits and 
burdens associated with each of these time periods? Are there other 
retention periods that would be more appropriate?
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    \125\ The European Commission has recently proposed that trade 
repositories maintain reported data ``for at least ten years 
following the termination of the relevant contracts.'' See European 
Commission, Proposal for a regulation of the European Parliament and 
of the Council on OTC derivatives, central counterparties and trade 
repositories (2010) (available at http://ec.europa.eu/internal_market/financial-markets/docs/derivatives/20100915_proposallowbar;en.pdf).
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    <bullet> Should the Commission require SDRs to maintain transaction 
data for five years after the applicable SBS expires or ten years after 
the applicable SBS is executed, whichever is greater? What if the 
Commission required SDRs to maintain transaction data for five years 
after the applicable SBS expires or eight years after the applicable 
SBS is executed, whichever is greater? What would be the benefits and 
burdens associated with each of these time periods?
    <bullet> Should the Commission instead require an SDR to maintain 
the transaction data and positions for an indefinite period? What would 
be the benefits and burdens of requiring an SDR to maintain such 
information indefinitely?
    <bullet> Should the Commission have additional requirements 
regarding access to the transaction data and positions, such as 
requiring such

[[Page 77331]]

information be maintained on a server in the United States?
    <bullet> What is the likely impact of these requirements on the SBS 
market, including the impact on the incentives and behaviors of SDRs, 
the willingness of persons to register as SDRs, and the technologies 
used for reporting and maintaining transaction data?
    <bullet> With respect to entities that currently perform repository 
services for SBSs or other instruments, how do current practices 
compare to the practices that the Commission proposes to require in 
this rule? What are the incremental costs to potential SDRs in 
connection with adding to or revising their current practices in order 
to implement the Commission's proposed rule?
    <bullet> Should the Commission require such information be kept in 
a particular format that is accessible to the Commission, such as in 
FpML? Alternatively, if the Commission does not want to specify a 
particular technology, should it require such information be maintained 
in ``a global standard for data modeling'' or other standard? Should 
the Commission require that all SDRs maintain such information in the 
same format?
    <bullet> Should the Commission require that SDRs establish and 
maintain effective interoperability and interconnectivity with other 
SDRs, market infrastructures, and venues?
    <bullet> Should the Commission specifically require the SDR to 
organize and index accurately the transaction data and positions so 
that the Commission and other users of such information are easily able 
to obtain the specific information that they require?
    <bullet> Is the proposed requirement that transaction data and 
positions be kept in a non-rewriteable and non-erasable format too 
restrictive? Are there other alternatives for protecting the accuracy 
of such information over the time period that such information is 
required to be maintained?
    <bullet> Should the Commission require SDRs to verify automatically 
the quality and accuracy of the storage media recording process? Should 
the Commission require SDRs to serialize the original and, if 
applicable, duplicate units of storage media, and time-date for the 
required period of retention the information placed on such electronic 
storage media? Should the Commission require SDRs to have in place an 
audit system providing for accountability regarding inputting of 
records required to be maintained and preserved pursuant to this 
section and inputting of any changes made to every original and 
duplicate record maintained and preserved thereby? \126\
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    \126\ These requirements are consistent with the broker-dealer 
retention requirements. See Exchange Act Rule 17a-4(f), 17 CFR 
240.17a-4(f).
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e. Controls To Prevent Invalidation
    Proposed Rule 13n-5(b)(5) would require every SDR to establish, 
maintain, and enforce written policies and procedures reasonably 
designed to prevent any provision in a valid SBS from being invalidated 
or modified through the procedures or operations of the SDR. Based on 
staff discussions with market participants, the Commission understands 
that SDRs, through their process of substantiating the accuracy of the 
data or in their user agreements, may, and without the knowledge of the 
counterparties, cause the modification of terms of an SBS. SBSs can be 
highly negotiated between the counterparties, and the Commission 
preliminarily believes these terms should not be modified or 
invalidated without the full consent of the counterparties.

Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Should the Commission establish more specific requirements 
to avoid contract invalidation by an SDR?
    <bullet> What is the practical effect of this proposed requirement?
    <bullet> Are such modifications actually occurring?
    <bullet> What is the likely impact of this requirement on the SBS 
market, including the impact on the incentives and behaviors of SDRs 
and the willingness of persons to register as SDRs?
    <bullet> With respect to entities that currently perform repository 
services for SBSs or other instruments, how do current practices 
compare to the practices that the Commission proposes to require in 
this rule? What are the incremental costs to potential SDRs in 
connection with adding to or revising their current practices in order 
to implement the Commission's proposed rule?
f. Dispute Resolution Procedures
    Proposed Rule 13n-5(b)(6) would require every SDR to establish 
procedures and provide facilities reasonably designed to effectively 
resolve disputes over the accuracy of the transaction data and 
positions maintained by the SDR.\127\ The data maintained by the SDR 
will be used by regulators to make assessments about counterparties, 
such as whether the counterparty is a major SBS participant. The 
counterparties also will use this data, and in some cases the data 
maintained by the SDR may be considered by the counterparties to be the 
legal record of the SBS. Counterparties, therefore, should have the 
ability to dispute the accuracy of the data regarding their SBSs held 
at the SDR. Providing the means to resolve such disputes should enhance 
data quality and integrity.
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    \127\ In a separate proposal, the Commission is proposing rules 
regarding the correction of errors in SBS information maintained by 
an SDR in association with requirements under Section 763(i) of the 
Dodd-Frank Act. See Regulation SBSR Release (proposed Rules 905 and 
907(a)(3)), supra note 9. Any comments regarding those proposed 
rules should be submitted in connection with that proposal.
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Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Should the Commission require an SDR to have any 
particular requirements in its dispute resolution procedures under this 
rule?
    <bullet> Is dispute resolution a necessary service that must be 
provided by an SDR?
    <bullet> What is the likely impact of this requirement on the SBS 
market, including the impact on the incentives and behaviors of SDRs 
and the willingness of persons to register as SDRs?
    <bullet> With respect to entities that currently perform repository 
services for SBSs or other instruments, how do current practices 
compare to the practices that the Commission proposes to require in 
this rule? What are the incremental costs to potential SDRs in 
connection with adding to or revising their current practices in order 
to implement the Commission's proposed rule?
g. Data Preservation After an SDR Ceases To Do Business
    Proposed Rule 13n-5(b)(7) would require an SDR, if it ceases to do 
business, or ceases to be registered pursuant to Exchange Act Section 
13(n) and the rules and regulations thereunder, to continue to 
preserve, maintain, and make accessible the transaction data and 
historical positions required to be collected, maintained, and 
preserved by the rule in the manner required by the Exchange Act and 
the rules and regulations thereunder (including in a place and format 
that is readily accessible to the Commission and other persons with 
authority to access or view such information, in an electronic format 
that is non-rewriteable and non-erasable, and in a manner that protects 
confidentiality and accuracy)

[[Page 77332]]

for the remainder of the period required by this rule (that is, not 
less than five years after the applicable SBS expires for transaction 
data and not less than five years for historical positions).\128\ Given 
the importance of the records maintained by an SDR to the functioning 
of the SBS market, if an SDR ceases to do business, this could cause 
serious disruptions in the market should the information it maintains 
become unavailable.
---------------------------------------------------------------------------

    \128\ This proposed requirement is based on Exchange Act Rule 
17a-4(g), 17 CFR 240.17a-4(g), which applies to broker-dealer books 
and records.
---------------------------------------------------------------------------

Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Should the Commission propose other requirements that 
might be necessary or useful in protecting the information maintained 
by an SDR if the SDR ceases to do business?
    <bullet> What is the likely impact of this requirement on the SBS 
market, including the impact on the incentives and behaviors of SDRs, 
the willingness of persons to register as SDRs, and the technologies 
used for maintaining SBS data at the SDR?
h. Plan for Data Preservation
    Proposed Rule 13n-5(b)(8) would require an SDR to make and keep 
current a plan to ensure that the transaction data and positions that 
are recorded in the SDR continue to be maintained in accordance with 
proposed Rule 13n-5(b)(7), which shall include procedures for 
transferring the transaction data and positions to the Commission or 
its designee (including another registered SDR). Given the importance 
of the records maintained by an SDR to the functioning of the SBS 
market, if an SDR ceases to do business, the absence of a plan to 
transfer information could cause serious disruptions. The Commission 
preliminarily expects that an SDR's plan would establish procedures and 
mechanisms so that another entity would be in the position to maintain 
this information after the SDR ceases to do business.

Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Should the Commission propose other requirements that 
might be necessary or useful in protecting the information maintained 
by an SDR if the SDR ceases to do business?
    <bullet> To what extent does this requirement provide additional 
protections beyond those of proposed Rule 13n-5(b)(7)?
    <bullet> What is the likely impact of this requirement on the SBS 
market, including the impact on the incentives and behaviors of SDRs, 
the willingness of persons to register as SDRs, and the technologies 
used for maintaining SBS data at the SDR?
    <bullet> With respect to entities that currently perform repository 
services for SBSs or other instruments, how do current practices 
compare to the practices that the Commission proposes to require in 
this rule? What are the incremental costs to potential SDRs in 
connection with adding to or revising their current practices in order 
to implement the Commission's proposed rule?

F. Proposed Rule Regarding Automated Systems

    The Commission is proposing Rule 13n-6 under the Exchange Act to 
provide standards for SDRs with regard to their automated systems' 
capacity, resiliency, and security.\129\ The standards being proposed 
under this rule are comparable to the standards applicable to self-
regulatory organizations (``SROs''), including exchanges and clearing 
agencies,\130\ and certain other entities, including significant-volume 
alternative trading systems (``ATSs'') \131\ and market information 
dissemination systems,\132\ pursuant to the Commission's Automation 
Review Policy (``ARP'') standards. To promote the maintenance of a 
stable and orderly SBS market, the Commission preliminarily believes 
that SDRs should be required to meet the same capacity, resiliency, and 
security standards applicable to SROs and certain other entities under 
the Commission's current ARP program.\133\
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    \129\ Proposed Rule 13n-6 is being promulgated under Exchange 
Act Sections 13(n)(4)(B), 13(n)(7)(D), and 13(n)(9). See Public Law 
111-203, Sec.  763(i).
    \130\ See Exchange Act Release No. 27445 (Nov. 16, 1989), 54 FR 
48703 (Nov. 24, 1989) (``ARP I Release''); Exchange Act Release No. 
29185 (May 9, 1991), 56 FR 22490 (May 15, 1991) (``ARP II 
Release'').
    \131\ See Rule 301(b)(6) of Regulation ATS, 17 CFR 
242.301(b)(6); Exchange Act Release No. 40760 (Dec. 8, 1998), 63 FR 
70844 (Dec. 22, 1998).
    \132\ See ARP II Release, 56 FR 22490, supra note 130 (the 
Commission's ARP policies ``encompass SRO systems that disseminate 
transaction and quotation information''); See also ARP I Release, 54 
FR 48703, supra note 130 (discussing that ``the SROs have developed 
and continue to enhance automated systems for the dissemination of 
transaction and quotation information'').
    \133\ Clearing agencies are SROs and are therefore subject to 
the Commission's Automation Review Policies. The Dodd-Frank Act 
requires that the data maintenance standards of SDRs ``shall be 
comparable to the data standards imposed by the Commission on 
clearing agencies in connection with their clearing of security-
based swaps.'' Exchange Act Section 13(n)(4)(C), Public Law 111-203, 
Sec.  763(i). Proposed Rule 13n-6 will impose data maintenance 
standards on SDRs that are comparable to those imposed by the 
Commission on clearing agencies by applying the ARP standards to 
them.
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    Systems failures can limit access to data, call into question the 
integrity of data, and prevent market participants from being able to 
report transaction data, and thereby have a large impact on market 
confidence, risk exposure, and market efficiency. Proposed Rule 13n-6 
would require an SDR to establish, maintain, and enforce written 
policies and procedures reasonably designed to ensure that its systems 
provide adequate levels of capacity, resiliency, and security; and 
submit to the Commission annual reviews of its automated systems, 
systems outage notices, and prior notices of planned system changes.
    These proposed requirements essentially codify and parallel the ARP 
requirements that have been in place for almost twenty years. The staff 
has found these standards to be effective in overseeing the capacity, 
resiliency, and security of major automated systems in use in the 
securities markets. These proposed requirements as applied to the SBS 
market are designed to prevent and minimize the impact of systems 
failures that might negatively impact the stability of the SBS market.
1. Requirements for SDRs' Automated Systems
a. Policies and Procedures
    Proposed Rule 13n-6(b)(1) would require an SDR to ``establish, 
maintain, and enforce written policies and procedures reasonably 
designed to ensure that its systems provide adequate levels of 
capacity, resiliency, and security. Such policies and procedures shall, 
at a minimum:
    (i) Establish reasonable current and future capacity estimates;
    (ii) Conduct periodic capacity stress tests of critical systems to 
determine such systems' ability to process transactions in an accurate, 
timely, and efficient manner;
    (iii) Develop and implement reasonable procedures to review and 
keep current its system development and testing methodology;
    (iv) Review the vulnerability of its systems and data center 
computer operations to internal and external threats, physical hazards, 
and natural disasters; and
    (v) Establish adequate contingency and disaster recovery plans.''
    This list of proposed requirements is based on existing ARP 
requirements applied to significant-volume ATSs

[[Page 77333]]

under Rule 301(b)(6) of Regulation ATS.\134\ In addition, the 
Commission has applied these requirements to SROs and other entities in 
the securities markets for a number of years in the context of its ARP 
inspection program.
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    \134\ See 17 CFR 242.301(b)(6).
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    As a general matter, the Commission preliminarily believes that, if 
an SDR's policies and procedures satisfy industry best practices 
standards, then these policies and procedures would be adequate for 
purposes of proposed Rule 13n-6(b)(1). However, in the unlikely event 
that industry best practices standards of widely recognized 
professional organizations are not consistent with the public interest, 
protection of investors, or the maintenance of fair and orderly 
markets, the Commission staff would have flexibility to establish such 
standards.\135\
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    \135\ Industry best practices standards currently are 
established by organizations such as: The Information Systems Audit 
and Control Foundation (``ISACF''); the Federal Financial 
Institutions Examination Council's (``FFIEC''); the Institute of 
Internal Auditors (``IIA''); and the SANS Institute.
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    The proposed rule would require an SDR to quantify, in appropriate 
units of measure the limits of the SDR's capacity to receive (or 
collect), process, store, or display the data elements included within 
each function, and identify the factors (mechanical, electronic, or 
other) that account for the current limitations.\136\ This will make it 
easier for the Commission to detect any potential capacity constraints 
of an SDR, which, if left unaddressed, could compromise the ability of 
an SDR to collect and maintain SBS data. An SDR's failure to clearly 
understand and have procedures to address its capacity limits would 
increase the likelihood that it would experience a loss or disruption 
of system operations.
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    \136\ Use of such appropriate units of measure is required in 
proposed Form SDR Item 31. See also Form SIP, Item <greek-i>27 for 
SIPs. 17 CFR 249.1001.
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b. Objective Review of Automated Systems
    Proposed Rule 13n-6(b)(2) would require an SDR to submit an 
objective review of its systems that support or are integrally related 
to the performance of its activities to the Commission, on an annual 
basis, within thirty calendar days of completion. This proposed 
requirement is drawn from the ARP II Release.\137\ This proposed 
requirement is critical to help ensure that SDRs have adequate 
capacity, resiliency, and security and that their automated systems are 
not subject to critical vulnerabilities. Proposed Rule 13n-6(a)(3) 
would define ``objective review'' as ``an internal or external review, 
performed by competent, objective personnel following established 
procedures and standards, and containing a risk assessment conducted 
pursuant to a review schedule.'' \138\ The proposed definition of 
``objective review'' in proposed Rule 13n-6(a)(3) is based on the 
standard for the review of automated systems set forth in the ARP II 
Release.\139\
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    \137\ See ARP II Release, 56 FR 22490, supra note 130.
    \138\ Proposed Rule 13n-6(a)(4) would define ``competent, 
objective personnel'' as ``a recognized information technology firm 
or a qualified internal department knowledgeable of information 
technology systems.'' This proposed definition is based on the 
standard for reviewers of automated systems set forth in the ARP II 
Release. See ARP II Release, 56 FR 22490, supra note 130. Proposed 
Rule 13n-6(a)(5) would define ``review schedule'' as ``a schedule in 
which each element contained in subsection (b)(1) of this Rule 13n-6 
would be assessed at specific, regular intervals.'' This proposed 
definition codifies the Commission's policy set forth in the ARP II 
Release. See ARP II Release, 56 FR 22490, supra note 130.
    \139\ See ARP II Release, 56 FR 22490, supra note 130.
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    As in the current ARP program, the Commission staff preliminarily 
believes that a reasonable basis for determining that a review is 
objective for purposes of proposed Rule 13n-6 is if the level of 
objectivity of an SDR's reviewers complied with standards set by widely 
recognized professional organizations.\140\ However, in the unlikely 
event that industry best practices standards of widely recognized 
professional organizations are not consistent with the public interest, 
protection of investors, or the maintenance of fair and orderly 
markets, the Commission staff would have flexibility to establish such 
standards.
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    \140\ Such standards are currently established by organizations 
such as the IIA, the Information Systems Audit and Control 
Association (``ISACA'') (formerly the Electronic Data Processing 
Auditors Association (``EDPAA'')), and the American Institute of 
Certified Public Accountants (``AICPA'').
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    The decision on which type of reviewer, an internal department or 
an external firm, should perform the review is a decision for each SDR 
to make. The Commission preliminarily believes that, as long as the 
reviewer has the competence, knowledge, consistency, and objectivity 
sufficient to perform the role, the review can be performed by either 
recognized information technology firms or by a qualified internal 
department knowledgeable of information technology systems.
    Proposed Rule 13n-6(b)(2) would further require that, where the 
objective review is performed by an internal department, an objective, 
external firm must assess the internal department's objectivity, 
competency, and work performance with respect to the review performed 
by the internal department. Proposed Rule 13n-6(b)(2) would require 
that the external firm issue a report of that review, which the SDR 
must submit to the Commission on an annual basis, within thirty 
calendar days of completion of the review.
    The proposed requirement in proposed Rule 13n-6(b)(2) that an SDR 
submit an annual objective review to the Commission is drawn from the 
ARP II Release.\141\ In addition, the proposed requirement in proposed 
Rule 13n-6(b)(2) that, where the objective review is performed by an 
internal department, an objective, external firm must assess the 
internal department's objectivity, competency, and work performance, is 
similarly drawn from the ARP II Release.\142\
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    \141\ See ARP II Release, 56 FR 22490, supra note 130.
    \142\ See id.
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    The proposed annual review would not be required to address each 
element contained in proposed subsections (i)-(v) of Rule 13n-6(b)(1) 
every year. Rather, using its own risk assessment, an SDR's reviewer 
would review each element on a ``review schedule,'' as defined in 
proposed Rule 13n-6(a)(5), in which each element would be assessed at 
specific, regular intervals, thus facilitating systematic and timely 
review of each element. This should provide a reasonable and cost-
effective level of assurance that automated systems of SDRs are being 
adequately developed and managed with respect to capacity, security, 
development, and contingency planning concerns.
    The proposed requirement to submit an objective review within 
thirty days of completion assures the Commission will have timely 
notice of the information required. The Commission has found through 
its experience with the current ARP program for SROs and other entities 
in the securities market that an entity generally requires 
approximately thirty calendar days after completion of the review to 
complete the internal review process necessary to submit an annual 
review to the Commission. A shorter timeframe might not provide an SDR 
with sufficient time to complete its internal review of the document; a 
longer timeframe might serve to encourage unnecessary delays.
c. Material Systems Outages
    Under proposed subsection (3) of Rule 13n-6(b), an SDR would be 
required to promptly notify the Commission of material systems outages 
and any remedial measures that have been implemented or are 
contemplated,

[[Page 77334]]

including (i) immediately notifying the Commission when a material 
systems outage is detected; (ii) immediately notifying the Commission 
when remedial measures are selected to address the material systems 
outage; (iii) immediately notifying the Commission when the material 
systems outage is addressed; and (iv) submitting to the Commission 
within five business days of when the material systems outage occurred 
a detailed written description and analysis of the outage and any 
remedial measures that have been implemented or are contemplated.
    This subsection would codify the procedures followed by SROs and 
certain other entities under the Commission's current ARP program in 
providing the staff with notification of material system outages. In 
particular, proposed subsection (3) would clarify that the Commission 
expects to receive immediate notification that an outage has been 
detected, that remedial measures have been selected to address the 
outage, and that the outage has been addressed. Proposed subsection (3) 
would also clarify that an SDR should submit a detailed written 
description and analysis of the outage within five business days of the 
occurrence of the outage.
    The Commission preliminarily believes that the proposed rule would 
assist the Commission in assuring that an SDR has diagnosed and is 
taking steps to correct system disruptions, so that systems of the SDR 
are reasonably equipped to accept and securely maintain transaction 
data. The Commission preliminarily believes that requiring an SDR to 
submit notifications of material system outages to the Commission is 
essential to help ensure that the Commission can continue to 
effectively oversee the SDR.
    Proposed Rule 13n-6(a)(1) would define ``material systems outage'' 
as an unauthorized intrusion into any system, or an event at an SDR 
involving systems or procedures that results in (i) a failure to 
maintain service level agreements or constraints;\143\ (ii) a 
disruption of normal operations, including switchover to back-up 
equipment with no possibility of near-term recovery of primary 
hardware; (iii) a loss of use of any system; (iv) a loss of 
transactions; (v) excessive back-ups or delays in processing; (vi) a 
loss of ability to disseminate transaction data, or positions;\144\ 
(vii) a communication of an outage situation to other external 
entities; (viii) a report or referral of an event to the SDR's board or 
senior management; (ix) a serious threat to systems operations even 
though systems operations were not disrupted; (x) a queuing of data 
between system components or queuing of messages to or from customers 
of such duration that a customer's normal service delivery is affected; 
or (xi) a failure to maintain the integrity of systems that results in 
the entry of erroneous or inaccurate transaction data or other 
information in the SDR or the securities markets.
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    \143\ A service level agreement is a contract between a third 
party that manages and distributes software-based services and a 
customer, which commits the third party to a required level of 
service. A service level agreement should contain a specified level 
of service, support options, enforcement or penalty provisions for 
services not provided, a guaranteed level of system performance 
regarding downtime or uptime, a specified level of customer support, 
and indicate what software or hardware will be provided and for what 
fee.
    \144\ Proposed Rule 13n-6(a)(6) would give the term 
``transaction data'' the same meaning as in proposed Rule 13n-
5(a)(1). Proposed Rule 13n-6(a)(7) would give the term ``position'' 
the same meaning as in proposed Rule 13n-5(a)(2). See Section 
III.E.1 of this release for the discussion of these definitions.
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    Based on its experience in requiring SROs and other entities to 
report material systems outages in the context of the current ARP 
program, the Commission preliminarily believes that this definition is 
appropriate for SDRs. The Commission preliminarily believes that each 
of the events listed in paragraphs (i) through (xii) of proposed Rule 
13n-6(a)(1) are significant events that warrant reporting to the 
Commission because such material systems outages could negatively 
impact the stability of the SBS market. The application of the proposed 
definition is relatively straightforward, and it focuses on the types 
of events that the Commission preliminarily believes should require 
notification to the Commission under proposed Rule 13n-6(b)(3), so that 
the Commission can respond appropriately to the event that caused the 
loss or disruption.
    Specifically, the Commission preliminarily believes that proposed 
subsections (i), (ii), (iii), (iv), and (v) address events that cause a 
significant loss or disruption of normal system operations sufficient 
to warrant notification to the Commission. In addition, the Commission 
preliminarily believes that proposed subsection (vi) addresses a type 
of event that impairs transparency or accurate and timely regulatory 
reporting.
    The Commission also preliminarily believes that proposed 
subsections (vii) and (viii) are appropriate because communications of 
an outage to entities outside of the SDR, the board, or senior 
management are indicia of a significant system outage sufficient to 
warrant notification to the Commission. Specifically, proposed 
subsection (viii)'s reference to ``a report or referral of an event * * 
* '' seeks to address situations in which an SDR might seek to apply an 
overly narrow definition of an ``outage situation'' in proposed 
subsection (vii), in order to avoid reporting a problem that 
nevertheless has a significant impact on the performance of the SDR's 
systems and therefore warrants reporting to the Commission. For 
example, where an SDR experiences a slowing, but not a stoppage, of its 
ability to accept transaction data, and that slowing of data acceptance 
is sufficiently significant to have been reported or referred to the 
SDR's board or senior management, the Commission preliminarily believes 
that this situation would constitute a material system outage under 
proposed subsection (viii) that must be reported to the Commission. By 
including proposed subsection (viii) in the definition of ``material 
system outage,'' the Commission seeks to ensure that it is informed of 
events that most entities subject to current ARP standards would 
already understand should be covered under the current program. This 
should permit the Commission to effectively monitor the operation of 
SDRs' automated systems. The Commission preliminarily believes that 
proposed subsections (ix) and (x) are appropriate because threats to 
system operations and queuing of data are events that may result in a 
significant disruption of normal system operations warranting 
notification to the Commission.
    Subsection (xi) covers a failure to maintain the integrity of 
systems that results in the entry of erroneous or inaccurate 
transaction data or other information in an SDR or to market 
participants. This subsection is designed to address the unique role of 
SDRs in the SBS market. In particular, it is intended to cover such 
events as breakdowns in an SDR's internal controls that result in the 
entry of erroneous orders into the market. For example, it is possible 
that an SDR could, while in the process of testing its systems, 
inadvertently retain ``test'' data in its database. This, in turn, 
could result in erroneous reporting of SBSs to the Commission, other 
regulators, and counterparties. Counterparties may become uncertain of 
their positions, leading to market disruptions. This, in turn, could 
erode investor confidence in the integrity of the SBS market, damaging 
liquidity and impeding the capital formation process. Accordingly, the 
Commission preliminarily believes that this type of breakdown in an 
SDR's

[[Page 77335]]

systems controls should be reported to the Commission.
    By including proposed subsection (xi) in the definition of 
``material system outage,'' the Commission is seeking to ensure that it 
is informed of events that could negatively impact the integrity of 
systems that result in the entry of erroneous or inaccurate transaction 
data or other information in an SDR or the securities markets. This 
should permit the Commission to monitor effectively the operation of 
each SDR's automated systems.
    The definition of material systems outage also includes an 
unauthorized intrusion by outside persons, insiders, or unknown 
persons, into any system. The Commission preliminarily believes that 
this provision would permit the Commission to effectively monitor the 
operation of SDR's automated systems by requiring SDRs to notify the 
Commission of unauthorized intrusions into systems or networks. SDRs 
would need to immediately report unauthorized intrusions regardless of 
whether the intrusions were part of a cyber attack; potential criminal 
activity; other unauthorized attempts to retrieve, manipulate, or 
destroy data or to disrupt or destroy systems or networks; or any other 
malicious activity affecting data, systems, or networks. If 
unauthorized intrusions were successful in breaching systems or 
networks, SDRs would need to report these intrusions even if the 
parties conducting the unauthorized intrusion were unsuccessful in 
achieving their apparent goals (such as the introduction of malware or 
other means of disrupting or manipulating data, systems, or networks). 
SDRs would need to supplement their initial reports by sending the 
Commission updates on any harm to data, systems, or networks as well as 
any remedial measures that the SDRs are contemplating or undertaking to 
address the unauthorized intrusions. SDRs, however, would not need to 
report unsuccessful attempts at unauthorized intrusions that did not 
breach systems or networks.
    The Commission preliminarily believes that the proposed five 
business day requirement regarding submission of a written description 
of material system outages is an appropriate time period. In the 
Commission's experience with the current ARP program for SROs and other 
entities in the securities market, an entity generally requires 
approximately five business days after the occurrence of a material 
system outage to gather all the relevant details regarding the scope 
and cause of the outage. A shorter timeframe might not provide 
sufficient time for the SDR to gather all relevant details surrounding 
the outage and describe them in a written submission; a longer 
timeframe might encourage unnecessary delays.
d. Material Systems Changes
    Under proposed subsection (4) of Rule 13n-6(b), an SDR would be 
required to notify the Commission in writing at least thirty calendar 
days before implementation of any planned material systems changes. 
This proposed requirement is drawn from the ARP II Release.\145\
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    \145\ See ARP II Release, 56 FR 22490, supra note 130.
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    Proposed Rule 13n-6(a)(2) would define ``material systems change'' 
as ``a change to automated systems that: (i) Significantly affects 
existing capacity or security; (ii) in itself, raises significant 
capacity or security issues, even if it does not affect other existing 
systems; (iii) relies upon substantially new or different technology; 
(iv) is designed to provide a new service or function; or (v) otherwise 
significantly affects the operations of the security-based swap data 
repository.'' Based on its experience in requiring SROs and other 
entities to report material systems changes in the context of the 
current ARP program, the Commission preliminarily believes that this 
definition is appropriate for SDRs. Each of the events listed in 
paragraphs (i) through (v) are significant events that warrant 
reporting to the Commission because any of those events can lead to a 
material systems outage that could negatively affect the stability of 
the SBS market. The application of the proposed definition is 
relatively straightforward, and it focuses on the types of events that 
should require notification to the Commission under proposed Rule 13n-
6(b)(2). Specifically, the proposed subsections (i)--(iv) are events 
that concern the adequacy of capacity estimates, testing, and security 
measures taken by an SDR, and thus are sufficiently significant to 
warrant notification to the Commission. Proposed subsection (v) 
covering a change that ``otherwise significantly affects the operations 
of the security-based swap data repository'' is more open-ended in 
order to require notification of other major systems changes. Examples 
of changes that fall within proposed subsection (v) include, but are 
not limited to: major systems architectural changes; reconfigurations 
of systems that cause a variance greater than five percent in 
throughput or storage;\146\ introduction of new business functions or 
services; material changes in systems; changes to external interfaces; 
changes that could increase susceptibility to major outages; changes 
that could increase risks to data security; changes that were, or will 
be, reported to or referred to an SDR's board or senior management; and 
changes that may require allocation or use of significant resources.
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    \146\ The Commission has identified the five percent threshold 
as triggering the definition of ``material systems change'' in 
proposed Rule 13n-6(a)(2) because, based on experience in 
administrating the ARP program in the equities markets for almost 
twenty years, it believes that reconfigurations that exceed five 
percent in throughput or storage typically have the greatest 
potential to cause significant disruptions to automated systems.
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    The Commission preliminarily believes that the proposed thirty 
calendar day requirement regarding pre-implementation written 
notification to the Commission of planned material systems changes is 
an appropriate time period. The Commission has found through its 
experience with the current ARP program that this amount of time is 
necessary for the Commission staff to evaluate the issues raised by a 
planned material systems change. A shorter timeframe might not provide 
sufficient time for the Commission staff to analyze the issues raised 
by the systems change; a longer timeframe might unnecessarily delay the 
covered entity in implementing the change.

Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Should the Commission consider imposing other requirements 
or standards? Should any of the proposed requirements be eliminated or 
refined? If so, please explain your reasoning.
    <bullet> Are there factors specific to SBS transactions that would 
make applying a system that is traditionally used in the equity markets 
inappropriate?
    <bullet> What is the likely impact of these requirements on the SBS 
market, including the impact on the incentives and behaviors of SDRs, 
the willingness of persons to register as SDRs, and the technologies 
used for maintaining SBS data at the SDR?
    <bullet> With respect to entities that currently perform repository 
services for SBSs or other instruments, how do current practices 
compare to the practices that the Commission proposes to require in 
this rule? What are the incremental costs to potential SDRs in 
connection with adding to or revising their current practices in order 
to implement the Commission's proposed rule?
    <bullet> Should the Commission expressly require by rule:
    [cir] An SDR's contingency and disaster recovery plans (required in 
proposed paragraph (b)(1)(v)) to be tested

[[Page 77336]]

periodically to assure their effectiveness and adequacy? \147\
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    \147\ This requirement would be similar to what is required of 
clearing agencies. See Exchange Act Release No. 16900 (June 17, 
1980), 45 FR 41920 (June 20, 1980).
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    [cir] An SDR's contingency and disaster recovery plans (required in 
proposed paragraph (b)(1)(v)) to cover at a minimum:
    <bullet> Preparation for contingencies through such devices as 
appropriate remote and on-site hardware back-up and periodic 
duplication and off-site storage of data files?
    <bullet> Off-site storage of up-to-date, duplicative software, 
files and critical forms and supplies need for processing operations, 
including a geographically diverse back-up site that does not rely on 
same infrastructure components (e.g., transportation, 
telecommunications, water supply, and electric power) as the SDR 
primary operations center?
    <bullet> Immediate availability of software modifications, detailed 
procedures, organizational charts, job descriptions, and personnel for 
the conduct of operations under a variety of possible contingencies?
    <bullet> Emergency mechanisms for establishing and maintaining 
communications with participants, regulators and other entities 
involved? \148\
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    \148\ These requirements are similar to requirements related to 
disaster recovery plans of clearing agencies. See id. The 
requirement for geographical diversity is currently applicable to 
securities firms. See Exchange Act Release No. 47638 (April 7, 
2003), 68 FR 17809 (April 11, 2003) (the ``BCP Whitepaper'').
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    [cir] An SDR's contingency and disaster recovery plans (required in 
proposed paragraph (b)(1)(v)) to include resources, emergency 
procedures, and backup facilities sufficient to enable timely recovery 
and resumption of its operations and resumption of its ongoing 
fulfillment of its duties and obligations as an SDR, including, without 
limitation, the duties set forth in Rule 13n-4, following any 
disruption of its operations? \149\ If so, what should the recovery 
time objective be? Should the SDR's contingency and disaster plans 
(required in proposed paragraph (b)(1)(v)) and resources generally 
enable resumption of the SDR's operations and resumption of ongoing 
fulfillment of the SDR's duties and obligations during the next 
business day following the disruption?
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    \149\ For example, the BCP Whitepaper requires clearing and 
settlement organizations to have a recovery time objective of 
``within the business day on which the disruption occurs with the 
overall goal of achieving recovery and resumption with two hours 
after an event.''
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    [cir] An SDR, to the extent practicable, to coordinate its 
contingency and disaster recovery plans (required in proposed paragraph 
(b)(1)(v)) with those of the SB SEFs, SBS markets, clearing agencies, 
SBS dealers, and major SBS participants who report transaction data to 
the SDR, and with those of regulators identified in Exchange Act 
Section 13(n)(5)(G), with a view to enabling effective resumption of 
the SDR's operations, including programs for periodic, synchronized 
testing of these plans?
    [cir] An SDR, in developing its contingency and disaster recovery 
plans, to take into account the business continuity-disaster recovery 
plans of its telecommunications, power, water, and other essential 
service providers?
    [cir] An SDR, if it offers services in addition to acting as a SDR, 
to establish, maintain, and enforce written policies and procedures 
reasonably designed to assure that the additional services do not 
adversely impact the operational reliability of its core function as an 
SDR? \150\
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    \150\ See, e.g., CPSS-IOSCO, supra note 55 (``Where a [trade 
repository] offers services in addition to its record keeping 
function, or considers doing so, it should ensure that it has 
adequate resources to do so effectively and that the additional 
service will not adversely impact the operational reliability of its 
core function of record keeping'').
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    [cir] An SDR to identify the potential risks that can arise as a 
result of interoperability and/or interconnectivity with other market 
infrastructures and venues from which data can be submitted to the SDR 
(such as exchanges, SB SEFs, clearing agencies, SBS dealers, and major 
SBS participants) and service providers and how the SDR mitigates such 
risks? \151\
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    \151\ See, e.g., id. (Trade repositories ``should evaluate the 
potential sources of risks that can arise, and ensure that the risks 
that can arise in the design and operation of [domestic or cross-
border links with other trade repositories, market infrastructures 
or service providers] are managed prudently on an ongoing basis.'').
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    [cir] An SDR to abide by substantive requirements (in addition to, 
or in place of, the policies and procedures approach of proposed Rule 
13n-6(b)(1)), such as (i) having robust system controls and safeguards 
to protect the data from loss and information leakage, (ii) having 
high-quality safeguards and controls regarding the transmission, 
handling, and protection of data to ensure the accuracy, integrity, and 
confidentiality of the trade information recorded in the SDR, or (iii) 
having reliable and secure systems and having adequate, scalable 
capacity? and
    [cir] An SDR to establish, maintain, and enforce written policies 
and procedures reasonably designed to ensure that the transaction data 
that it accepts is from the entity it purports to be from, such as 
requiring robust passwords?
    <bullet> Are the time periods specified in proposed Rule 13n-
6(b)(2)-(4) with respect to submission of annual reviews and written 
notices of material system outages and material systems changes the 
correct time periods to use? Should any of the proposed time periods be 
shortened or lengthened? Should the time periods be replaced with less 
specific requirements, such as ``promptly'' or ``timely''? If so, 
please explain your reasoning.
    <bullet> Should the Commission require the notification required by 
proposed Rule 13n-6(b)(4) to be sufficiently detailed to explain the 
new system development process, the new configuration of the system, 
its relationship to other systems, the timeframes or schedule for 
installation, any testing performed or planned, and an explanation on 
the impact of the change on the SDR's capacity estimates, contingency 
protocols and vulnerability estimates? \152\
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    \152\ See ARP II Release, 56 FR 22490, supra note 130.
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    <bullet> Are there specific provisions in the proposed definitions 
that should be eliminated or refined? Are there some events which 
should be included in the definitions of ``material systems outage'' 
and ``material systems change'' that are not, or events that should not 
be included in these definitions but are? If so, please explain your 
reasoning.
    <bullet> Should the Commission require the use of a specific 
framework by outside or inside parties for evaluating whether SDRs have 
adequate capacity, resiliency, and security and that their automated 
systems are not subject to critical vulnerabilities? If so, what would 
the critical components of the framework include? Are existing 
frameworks available that are suitable for this purpose and, if so, 
which ones would be considered appropriate?
    <bullet> Are the definitions ``objective review'' and ``competent, 
objective personnel'' parallel to the requirements for SROs and other 
entities in the securities markets in the context of the current ARP 
program?
    <bullet> Should the objective review required in proposed Rule 13n-
6(b)(2) be done on a regular, periodic basis, rather than on an annual 
basis?
    <bullet> Is the requirement in proposed Rule 13n-6(b)(2) for an 
objective, external firm to assess the objectivity, competency, and 
work performance of an internal department that performed an objective 
review necessary or appropriate? If the objective review is done by an 
internal department, should the Commission require that it be done by a 
department or persons other than

[[Page 77337]]

those responsible for the development or operation of the systems being 
tested?
2. Electronic Filing
    Proposed Rule 13n-6(c) would require that every notification, 
review, or description and analysis required to be submitted to the 
Commission under proposed Rule 13n-6 (other than those required under 
proposed Rule 13n-6(b)(3)(i), (ii), and (iii), which can be verbal) be 
submitted in an appropriate electronic format to the Office of Market 
Operations at the Division of Trading and Markets at the Commission's 
principal office in Washington, DC. This proposed requirement is 
intended to make proposed Rule 13n-6 consistent with electronic-
reporting standards set forth in other Commission rules under the 
Exchange Act, such as Rule 17a-25 (Electronic Submission of Securities 
Transaction Information by Exchange Members, Brokers, and Dealers) 
\153\ and Rule 19b-4 (Filings with respect to Proposed Rule Changes by 
Self-regulatory Organizations).\154\
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    \153\ 17 CFR 240.17a-25.
    \154\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    The Commission preliminarily believes that the proposed provision 
would benefit SDRs by automating the process by which they submit 
notifications, reviews, and descriptions and analyses under proposed 
Rule 13n-6 to the Commission. The Commission currently receives this 
type of information from SROs and other entities in the securities 
market in electronic format. Moreover, as noted above, this provision 
is intended to be consistent with other Commission rules.
    Proposed Rule 13n-6(c) would require submission of notifications, 
reviews, and descriptions and analyses in an ``appropriate electronic 
format.'' The Commission anticipates that, if the provision is adopted, 
the staff would work with SDRs to determine appropriate electronic 
formats that could be used.

Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Are there specific provisions in proposed Rule 13n-6(c) 
that should be eliminated or refined? If so, please explain your 
reasoning.
    <bullet> What is the likely impact of this requirement on the SBS 
market, including the impact on the incentives and behaviors of SDRs, 
the willingness of persons to register as SDRs, and the technologies 
used for reporting information to the Commission?
3. Confidential Treatment
    Proposed Rule 13n-6(d) would provide that a person who submits a 
notification, review, or description and analysis pursuant to this rule 
for which he or she seeks confidential treatment should clearly mark 
each page or segregable portion of each page with the words 
``Confidential Treatment Requested.'' Proposed Rule 13n-6(d) would 
state that ``[a] notification, review, or description and analysis 
submitted pursuant to this [rule] will be accorded confidential 
treatment to the extent permitted by law.''
    The Commission would use the information collected under proposed 
Rule13n-6 to evaluate whether SDRs are reasonably equipped to handle 
market demand. For this reason, requiring SDRs to submit this 
information would be critical to the Commission's ability to 
effectively oversee SDRs.
    Much of the information that the Commission expects to receive from 
SDRs is, by its nature, competitively sensitive. If the Commission were 
unable to afford confidential protection to the information that it 
expects to receive, then the SDRs may hesitate to submit the required 
information to the Commission. This result could potentially undermine 
the Commission's ability effectively to oversee SDRs, which, in turn, 
could undermine investor confidence in the SBS market.
    The Freedom of Information Act (``FOIA'') provides at least two 
exemptions under which the Commission has authority to grant 
confidential treatment for the information submitted under proposed 
Rule 13n-6. First, FOIA Exemption 4 provides an exemption for ``trade 
secrets and commercial or financial information obtained from a person 
and privileged or confidential.'' \155\ As specified in proposed Rule 
13n-6(d), ``a notification, review, or description and analysis 
submitted pursuant to this [rule] will be accorded confidential 
treatment to the extent permitted by law.'' The information required to 
be submitted to the Commission under proposed Rule 13n-6 may contain 
proprietary information regarding automated systems that is privileged 
or confidential and thus subject to protection from disclosure under 
Exemption 4 of the FOIA.
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    \155\ 5 U.S.C. 552(b)(4).
---------------------------------------------------------------------------

    Second, FOIA Exemption 8 provides an exemption for matters that are 
``contained in or related to examination, operating, or condition 
reports prepared by, on behalf of, or for the use of an agency 
responsible for the regulation or supervision of financial 
institutions.'' \156\ Similarly, Commission Rule 80(b)(8), Commission 
Records and Information, implementing Exemption 8, states that the 
Commission generally will not publish or make available to any person 
matters that are ``[c]ontained in, or related to, any examination, 
operating, or condition report prepared by, on behalf of, or for the 
use of, the Commission, any other Federal, state, local, or foreign 
governmental authority or foreign securities authority, or any 
securities industry self-regulatory organization, responsible for the 
regulation or supervision of financial institutions.'' \157\
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    \156\ 5 U.S.C. 552(b)(8).
    \157\ 17 CFR 200.80(b)(8).
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Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Are there specific provisions in proposed Rule 13n-6(d) 
that should be eliminated or refined? If so, please explain your 
reasoning.
    <bullet> What is the likely impact of this requirement on the SBS 
market, including the impact on the incentives and behaviors of SDRs 
and the willingness of persons to register as SDRs?

G. Proposed Rule Regarding SDR Recordkeeping

    The Commission is proposing Rule 13n-7 under the Exchange Act to 
specify the books and records requirements applicable to SDRs. Proposed 
Rule 13n-7's requirements are discussed below.
1. Records to be Made by SDRs
    Proposed Rule 13n-7(a) would require SDRs to make and keep current 
certain books and records relating to its business. Proposed Rule 13n-
7(a)(1) would require SDRs to make and keep current ``a record for each 
office listing, by name or title, each person at that office who, 
without delay, can explain the types of records the security-based swap 
data repository maintains at that office and the information contained 
in those records.'' SDR recordkeeping practices may vary in ways 
ranging from format and presentation to the name of a record. 
Therefore, each SDR must be able to promptly explain how it makes, 
keeps, and titles its records. To comply with this proposed rule, an 
SDR may identify more than one person and list which records each 
person is able to explain. Because it may be burdensome for an SDR to 
keep this record current if it lists each person by name, a firm

[[Page 77338]]

may satisfy this proposed requirement by recording the persons capable 
of explaining the firm's records by either name or title.
    Proposed Rule 13n-7(a)(2) would require SDRs to make and keep 
current ``a record listing each officer, manager, or person performing 
similar functions of the security-based swap data repository 
responsible for establishing policies and procedures that are 
reasonably designed to ensure compliance with the [Exchange] Act and 
the rules and regulations thereunder.'' This proposed rule is intended 
to assist securities regulators by identifying individuals responsible 
for designing an SDR's compliance procedures and managing the SDR.
    These two proposed requirements are based on Exchange Act Rules 
17a-3(a)(21) and (22), respectively, which are applicable to broker-
dealers.\158\ The purpose of these rules is to assist the Commission in 
its inspection and examination function.\159\ It is important for the 
Commission's examiners to have the ability to find quickly what records 
are maintained in a particular office and who is responsible for 
establishing particular policies and procedures of the SDR. These 
proposed requirements are designed to assist in obtaining this 
information. Based on the Commission's experience in conducting 
examinations of broker-dealers, we believe that requiring SDRs to 
comply with these two rules will facilitate the Commission's 
inspections and examinations of SDRs.
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    \158\ 17 CFR 240.17a-3(a)(21) and (22).
    \159\ Exchange Act Section 13(n)(2), Public Law 111-203, Sec.  
763(i), states that ``[e]ach registered security-based swap data 
repository shall be subject to inspection and examination by any 
representative of the Commission.'' See also proposed Rule 13n-
4(b)(1).
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2. Records To Be Preserved by SDRs
    Proposed Rule 13n-7(b)(1) would require SDRs 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 
and regulations thereunder, correspondence, memoranda, papers, books, 
notices, accounts, and other such records as shall be made or received 
by it in the course of its business as such.'' This proposed rule is 
designed to include all electronic documents and correspondence such as 
emails and instant messages. Proposed Rule 13n-7(b)(2) would require 
SDRs to ``keep all such documents 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.'' Proposed Rule 13n-7(b)(3) 
would require SDRs to, ``upon request of any representative of the 
Commission, promptly furnish to the possession of such representative 
copies of any documents required to be kept and preserved by it 
pursuant to sections (a) and (b) of this Rule.''
    Proposed Rule 13n-7(b) is based on Exchange Act Rule 17a-1, which 
is the recordkeeping rule for national securities exchanges, national 
securities associations, registered clearing agencies, and the 
Municipal Securities Rulemaking Board (``MSRB'').\160\ Proposed Rule 
13n-7(b) is intended to set forth the recordkeeping obligation of SDRs 
and thereby facilitate implementation of the broad inspection authority 
given to the Commission in Exchange Act Section 13(n)(2).\161\ The 
Commission believes that Exchange Act Rule 17a-1 is better suited as a 
basis for SDR recordkeeping than the broker-dealer recordkeeping rules 
because the broker-dealer recordkeeping rules are specifically tailored 
for the business of broker-dealers.
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    \160\ 17 CFR 240.17a-1.
    \161\ See also proposed Rule 13n-4(b)(1).
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3. Recordkeeping After an SDR Ceases To Do Business
    Proposed Rule 13n-7(c) would require an SDR, if the SDR ceases 
doing business, or ceases to be registered pursuant to Exchange Act 
Section 13(n) and the rules and regulations thereunder, to continue to 
preserve, maintain, and make accessible the records/data required to be 
collected, maintained, and preserved by Rule 13n-7 in the manner 
required by this rule and for the remainder of the period required by 
this rule.\162\ This proposed requirement is intended to allow the 
Commission to perform effective inspections and examinations of the 
SDRs pursuant to Exchange Act Section 13(n)(2).\163\ The Commission 
preliminarily expects that an SDR would need to establish contingency 
plans so that another entity would be in the position to maintain this 
information after the SDR ceases to do business.
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    \162\ This proposed requirement is based on Exchange Act Rule 
17a-4(g), 17 CFR 240.17a-4(g), which applies to broker-dealer books 
and records.
    \163\ See also proposed Rule 13n-4(b)(1).
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4. Applicability
    Proposed Rule 13n-7(d) states that ``this section does not apply to 
data collected and maintained pursuant to Rule 13n-5.'' This is to 
clarify that the requirements under proposed Rule 13n-7 are designed to 
capture those records of an SDR other than the transaction data, 
positions, and market data that would be required to be maintained in 
accordance with proposed Rule 13n-5, as discussed in Section III.E of 
this release.

Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Should the Commission recommend a rule similar to Exchange 
Act Rule 17a-6 for SDRs? \164\
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    \164\ 17 CFR 240.17a-6. Exchange Act Rule 17a-6 applies to 
national securities exchanges, national securities associations, 
registered clearing agencies, and the MSRB. Exchange Act Rule 17a-6 
allows for the destruction or disposal of records by these entities 
prior to the 5-year retention period of Exchange Act Rule 17a-1 if 
done according to a plan for destruction or disposal that is filed 
with and approved by the Commission.
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    <bullet> Should the Commission recommend other requirements that 
might be necessary or useful in protecting the records of an SDR upon 
the failure of such entity?
    <bullet> Should the Commission require records retained under this 
section to be retained electronically or furnished to the Commission 
electronically?
    <bullet> What is the likely impact of these requirements on the SBS 
market, including the impact on the incentives and behaviors of SDRs, 
the willingness of persons to register as SDRs, and the technologies 
used for maintaining records at the SDR?
    <bullet> With respect to entities that currently perform repository 
services for SBSs or other instruments, how do current practices 
compare to the practices that the Commission proposes to require in 
this rule? What are the incremental costs to potential SDRs in 
connection with adding to or revising their current practices in order 
to implement the Commission's proposed rule?

H. Proposed Rule Regarding Reports To Be Provided to the Commission

    The Commission is proposing Rule 13n-8 under the Exchange Act to 
specify certain reports that the SDR would have to provide to the 
Commission. Proposed Rule 13n-8 would require an 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 to perform the duties of 
the Commission under the [Exchange] Act and the rules and regulations 
thereunder.'' While the Commission has ``direct electronic access'' to 
the SBS transaction information maintained by the SDR,\165\

[[Page 77339]]

there may be times when a report may be more useful to Commission staff 
in fulfilling their duties. For example, the Commission may request a 
report on the number of complaints the SDR has received pertaining to 
data integrity.
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    \165\ See Public Law 111-203 (adding Exchange Act Section 
13(n)(5)(D)(i)).
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Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> What are the benefits and burdens of this requirement? 
Should any limitations be put on the types or frequency of reports 
requested by the Commission?
    <bullet> Should the term ``promptly'' be defined or should the 
Commission use another term such as ``as soon as technologically 
practicable after the time at which the request has been submitted''?
    <bullet> What is the likely impact of this requirement on the SBS 
market, including the impact on the incentives and behaviors of SDRs, 
the willingness of persons to register as SDRs, and the technologies 
used for maintaining SBS data at the SDR?
    <bullet> With respect to entities that currently perform repository 
services for SBSs or other instruments, how do current practices 
compare to the practices that the Commission proposes to require in 
this rule? What are the incremental costs to potential SDRs in 
connection with adding to or revising their current practices in order 
to implement the Commission's proposed rule?

I. Proposed Rule Regarding Privacy of SBS Transaction Information

    The Commission is proposing Rule 13n-9 to require each SDR to 
establish, maintain, and enforce written policies and procedures 
reasonably designed to protect the privacy of any and all SBS 
transaction information that the SDR receives from an SBS dealer, 
counterparty, or any registered entity. As mentioned above, this 
requirement is specifically enumerated in the Dodd-Frank Act.\166\ The 
proposed rule would further provide that such policies and procedures 
shall include, but are not limited to, policies and procedures to 
protect the privacy of any and all SBS transaction information that the 
SDR shares with affiliates and nonaffiliated third parties.\167\
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    \166\ See Public Law 111-203, Sec.  763(i) (adding Exchange Act 
Section 13(n)(5)).
    \167\ Proposed Rule 13n-9(b)(1).
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    The proposed rule would also require each SDR to establish and 
maintain safeguards, policies, and procedures reasonably designed to 
prevent the misappropriation or misuse, directly or indirectly, of: (1) 
Any confidential information received by the SDR, including, but not 
limited to, trade data, position data, and any nonpublic personal 
information about a market participant or any of its customers; \168\ 
(2) material, nonpublic information; and/or (3) intellectual property, 
such as trading strategies or portfolio positions, by the SDR or any 
person associated with the SDR for their personal benefit or the 
benefit of others.\169\ Such safeguards, policies, and procedures shall 
address, without limitation, (1) limiting access to such confidential 
information, material, nonpublic information, and intellectual 
property, (2) standards pertaining to the trading by persons associated 
with the SDR for their personal benefit or the benefit of others, and 
(3) adequate oversight to ensure compliance of this provision.\170\ 
This particular requirement incorporates current requirements regarding 
the treatment of proprietary information of clearing members, which are 
contained in exemptive orders issued to SBS clearing agencies,\171\ and 
draws from Exchange Act Section 15(g), which requires broker-dealers to 
establish, maintain, and enforce written policies and procedures 
reasonably designed to prevent the misuse of material, nonpublic 
information by such broker or dealer or any person associated with such 
broker or dealer.\172\
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    \168\ Under the proposed rule, the term ``nonpublic personal 
information'' would be defined as (1) personally identifiable 
information and (2) any list, description, or other grouping of 
market participants (and publicly available information pertaining 
to them) that is derived using personally identifiable information 
that is not publicly available information. Proposed Rule 13n-
9(a)(5). The term ``personally identifiable information'' would be 
defined as any information (i) a market participant provides to an 
SDR to obtain service from the SDR, (ii) about a market participant 
resulting from any transaction involving a service between the SDR 
and the market participant, or (iii) the SDR obtains about a market 
participant in connection with providing a service to that market 
participant. Proposed Rule 13n-9(a)(6).
    \169\ Proposed Rule 13n-9(b)(2).
    \170\ Id.
    \171\ See, e.g., ICE Trust Order stating ``ICE Trust shall 
establish and maintain adequate safeguards and procedures to protect 
clearing members' confidential trading information. Such safeguards 
and procedures shall include: (A) limiting access to the 
confidential trading information of clearing members to those 
employees of ICE Trust who are operating the system or responsible 
for its compliance with this exemption or any other applicable 
rules; and (B) establishing and maintaining standards controlling 
employees of ICE Trust trading for their own accounts. ICE Trust 
must establish and maintain adequate oversight procedures to ensure 
that the safeguards and procedures established pursuant to this 
condition are followed.'' Exchange Act Release No. 59527 (Mar. 6, 
2009), 74 FR 10791 (Mar. 12, 2009), Exchange Act Release No. 61119 
(Dec. 4, 2009), 74 FR 65554 (Dec. 10, 2009), and Exchange Act 
Release No. 61662 (Mar. 5, 2010), 75 FR 11589 (Mar. 11, 2010) 
(temporary exemptions in connection with CDS clearing by ICE Trust 
US LLC). See also Exchange Act Release No. 60372 (July 23, 2009), 74 
FR 37748 (July 29, 2009) and Exchange Act Release No. 61973 (Apr. 
23, 2010), 75 FR 22656 (Apr. 29, 2010) (temporary exemptions in 
connection with CDS clearing by ICE Clear Europe Limited); Exchange 
Act Release No. 60373 (July 23, 2009), 74 FR 37740 (July 29, 2009) 
and Exchange Act Release No. 61975 (Apr. 23, 2010), 75 FR 22641 
(Apr. 29, 2010) (temporary exemptions in connection with CDS 
clearing by Eurex Clearing AG); Exchange Act Release No. 59578 (Mar. 
13, 2009), 74 FR 11781 (Mar. 19, 2009), Exchange Act Release No. 
61164 (Dec. 14, 2009), 74 FR 67258 (Dec. 18, 2009) and Exchange Act 
Release No. 61803 (Mar. 30, 2010), 75 FR 17181 (Apr. 5, 2010) 
(temporary exemptions in connection with CDS clearing by Chicago 
Mercantile Exchange Inc.).
    \172\ See 15 U.S.C. 78o(g). See also Public Law 111-203 (adding 
Exchange Act Section 15F(j)(5) (requiring SBS dealers and major SBS 
participants to ``establish structural and institutional safeguards 
to ensure that the activities of any person within the firm relating 
to research or analysis of the price or market for any security-
based swap or acting in a role of providing clearing activities or 
making determinations as to accepting clearing customers are 
separated by appropriate informational partitions with the firm from 
the review, pressure, or oversight of persons whose involvement in 
pricing, trading, or clearing activities might potentially bias 
their judgment or supervision and contravene the [enumerated] core 
principles of open access and the business conduct standards * * * 
'').
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    The Commission anticipates that as a central recordkeeper of SBS 
transactions, each SDR will receive proprietary and highly sensitive 
information, which could disclose, for instance, a market participant's 
trade information, trading strategy, or nonpublic personal information. 
Proposed Rule 13n-9 is designed to ensure that an SDR has reasonable 
safeguards, policies, and procedures in place to protect such 
information from being misappropriated or misused by the SDR or any 
person associated with the SDR. The Commission preliminarily believes 
that an SDR's governance arrangements should have adequate internal 
controls to protect against such misappropriation or misuse. For 
instance, an SDR should limit access to the proprietary and sensitive 
information by creating informational, technological, and physical 
barriers. The Commission also preliminarily believes that an SDR should 
limit access to the data that it maintains to only those officers, 
directors, employees, and agents who need to know the data to perform 
their job responsibilities; such access should not necessarily be 
granted on an all-or-nothing basis. An SDR should also have controls to 
prevent unauthorized or unintentional access to its data.
    Additionally, an SDR should consider restricting the trading 
activities of individuals who have access to proprietary or sensitive 
information maintained by the SDR or implementing

[[Page 77340]]

firm-wide restrictions on trading certain SBSs, as well as underlying 
or related investment instruments. Such restrictions could include, for 
example, a pre-trade clearance requirement. An SDR should also have 
systems in place to prevent and detect insider trading by the SDR or 
persons associated with the SDR. Such systems could include a mechanism 
to monitor such persons' access to the SDR's data, their trading 
activities, and their e-mails.
    The Commission preliminarily believes that to the extent that an 
SDR or any person associated with the SDR shares information with a 
nonaffiliated third party, an SDR's policies and procedures should 
ensure the privacy of the information shared. For instance, an SDR 
should consider requiring the nonaffiliated party to consent to being 
subject to the SDR's privacy policies and procedures as a condition of 
receiving any sensitive information from the SDR.

Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Are the Commission's proposed definitions of ``nonpublic 
personal information'' and ``personally identifiable information'' 
appropriate and sufficiently clear? If not, what specific modifications 
are appropriate or necessary?
    <bullet> Are the Commission's privacy requirements appropriate and 
sufficiently clear? If not, why not and what would be a better 
alternative?
    <bullet> Should the proposed SDR's protection of privacy extend to 
any other person (e.g., third party service providers, market 
infrastructures, or venues from which data can be submitted to the 
SDR)?
    <bullet> What other examples of confidential information, material, 
nonpublic information, and intellectual property should be protected by 
an SDR?
    <bullet> Should the Commission require anything else to be 
protected in an SDR's privacy policies and procedures?
    <bullet> Should the Commission prescribe any other preventive 
measures that an SDR must include in its privacy policies and 
procedures?
    <bullet> With respect to entities that currently perform repository 
services for SBSs or other entities, how do current practices compare 
to the practices that the Commission proposes to require in this rule? 
What are the incremental costs to potential SDRs in connection with 
adding to or revising their current practices in order to implement the 
Commission's proposed rule?

J. Proposed Rule Regarding Disclosure to Market Participants

    Pursuant to the Commission's authority under Exchange Act Sections 
13(n)(3), 13(n)(7)(D)(i), and 13(n)(9),\173\ the Commission is 
proposing Rule 13n-10 to enhance transparency in the SBS market, 
bolster market efficiency, promote standardization, and foster 
competition. Specifically, the proposed rule would provide that before 
accepting any SBS data from a market participant or upon a market 
participant's request, each SDR shall furnish to the market participant 
a disclosure document that contains the following written information, 
which must reasonably enable the market participant to identify and 
evaluate accurately the risks and costs associated with using the SDR's 
services: (1) The SDR's criteria for providing others with access to 
services offered and data maintained by the SDR, (2) the SDR's criteria 
for those seeking to connect to or link with the SDR, (3) a description 
of the SDR's policies and procedures regarding its safeguarding of data 
and operational reliability to protect the confidentiality and security 
of such data, (4) a description of the SDR's policies and procedures 
reasonably designed to protect the privacy of any and all SBS 
transaction information that the SDR receives from an SBS dealer, 
counterparty, or any registered entity, (5) a description of the SDR's 
policies and procedures regarding its non-commercial and/or commercial 
use of the SBS transaction information that it receives from a market 
participant, any registered entity, or any other person, (6) a 
description of the SDR's dispute resolution procedures involving market 
participants, (7) a description of all the SDR's services, including 
any ancillary services, (8) the SDR's updated schedule of any dues; 
unbundled prices, rates, or other fees for all of its services, 
including any ancillary services; any discounts or rebates offered; and 
the criteria to benefit from such discounts or rebates, and (9) a 
description of the SDR's governance arrangements.\174\
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    \173\ See Public Law 111-203, Sec.  763(i).
    \174\ See proposed Rule 13n-10(b).
---------------------------------------------------------------------------

    These proposed disclosure requirements are intended to promote 
competition and foster service transparency by enabling market 
participants to identify the range of services that each SDR offers and 
to evaluate the risks and costs associated with using such services. 
The Commission also preliminarily believes that service transparency is 
particularly important in light of the complexity of OTC derivatives 
products and their markets, and that greater service transparency could 
improve market participants' confidence in an SDR and result in greater 
use of the SDR, which would ultimately increase market efficiency.

Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Are the proposed disclosure requirements to market 
participants appropriate and sufficiently clear? If not, why not and 
what would be a better alternative?
    <bullet> Should the Commission require SDRs to make the proposed 
disclosure to market participants in any other instances?
    <bullet> Should the Commission not require disclosure of any of the 
information specified in this proposed rule? If so, what and why?
    <bullet> Should the Commission require disclosure of the specified 
information only upon request and not necessarily before an SDR accepts 
SBS data from a market participant?
    <bullet> Should the Commission require disclosure of any other 
information? If so, what and why?
    <bullet> Should the Commission require SDRs to provide market 
participants with updated disclosure documents? If so, how often (e.g., 
annually, when there are material changes to an SDR's disclosed 
policies and procedures)?
    <bullet> Should the Commission require disclosure of the proposed 
information to anyone else besides market participants? If so, to whom 
and why? Should the disclosure be the same or vary depending on the 
recipient?
    <bullet> Should the Commission permit disclosure of the proposed 
information on an SDR's Web site? If so, would such disclosure be as 
meaningful? How should the Commission address the problem of the 
disclosure possibly being embedded in an SDR's Web site so as to make 
it difficult for market participates to navigate their way to find the 
disclosure? Would a disclosure on an SDR's Web site be equally 
effective, less effective, or more effective than a disclosure document 
furnished to market participants? Should the Commission prescribe any 
restrictions regarding disclosure on an SDR's Web site?
    <bullet> With respect to entities that currently perform repository 
services for SBSs or other instruments, how do current practices 
compare to the practices that the Commission proposes to require in 
this rule? What are the incremental costs to potential SDRs in 
connection with adding to or revising

[[Page 77341]]

their current practices in order to implement the Commission's proposed 
rule?

K. Proposed Rule Regarding Chief Compliance Officer of Each SDR

    The Commission is proposing Rule 13n-11, which would incorporate 
the duties of an SDR's CCO that are enumerated in Exchange Act Section 
13(n)(6) \175\ and impose additional requirements.
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    \175\ See Public Law 111-203, Sec.  763(i) (adding Exchange Act 
Section 13(n)(6)).
---------------------------------------------------------------------------

1. Enumerated Duties of Chief Compliance Officer
    Specifically, proposed Rule 13n-11(a) would require each SDR to 
identify on Form SDR a person who has been designated by the board to 
serve as a CCO of the SDR. The proposed rule would also provide that 
the compensation and removal of the CCO shall require the approval of a 
majority of the SDR's board.\176\ This proposed requirement is intended 
to promote the independence and effectiveness of the CCO.
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    \176\ Proposed Rule 13n-11(a).
---------------------------------------------------------------------------

    Under proposed Rule 13n-11(c), each CCO shall: (1) Report directly 
to the board or to the chief executive officer of the SDR, (2) review 
the compliance of the SDR with respect to the requirements and core 
principles described in Exchange Act Section 13(n) and the rules and 
regulations thereunder, (3) in consultation with the board or the SDR's 
chief executive officer, resolve any conflicts of interest that may 
arise, (4) be responsible for administering each policy and procedure 
that is required to be established pursuant to Exchange Act Section 13 
and the rules and regulations thereunder, (5) ensure compliance with 
the Exchange Act and the rules and regulations thereunder relating to 
SBSs, including each rule prescribed by the Commission under Exchange 
Act Section 13, (6) establish procedures for the remediation of 
noncompliance issues identified by the CCO through any (a) compliance 
office review, (b) look-back, (c) internal or external audit finding, 
(d) self-reported error, or (e) validated complaint, and (7) establish 
and follow appropriate procedures for the handling, management 
response, remediation, retesting, and closing of noncompliance issues.
    The Commission notes that an SDR would not be required to hire an 
additional person to serve as its CCO. Instead, an SDR can designate an 
individual already employed with the SDR as its CCO. The CCO would be 
responsible for, among other things, keeping the board or the SDR's 
chief executive officer apprised of significant compliance issues and 
advising the board or chief executive officer of needed changes in the 
SDR's policies and procedures. Given the critical role that a CCO is 
intended to play in ensuring an SDR's compliance with the Exchange Act 
and the rules and regulations thereunder, the Commission believes that 
an SDR's CCO should be competent and knowledgeable regarding the 
federal securities laws and should be empowered with full 
responsibility and authority to develop and enforce appropriate 
policies and procedures for the SDR. To meet his statutory obligations, 
a CCO should also have a position of sufficient seniority and authority 
within the SDR to compel others to adhere to the SDR's policies and 
procedures.
    The Commission is concerned that an SDR's commercial interests 
might discourage its CCO from making forthright disclosure to the board 
or chief executive officer about any compliance failures. To mitigate 
this potential conflict of interest, the Commission preliminarily 
believes that an SDR's CCO should be independent from its management so 
as not to be conflicted in reporting or addressing any compliance 
failures. As mentioned, each CCO of an SDR is statutorily required to 
report directly to the board or its chief executive officer, but only 
the board would be able to discharge the CCO from his or her 
responsibilities and would be able to approve the CCO's compensation.

Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Are there any terms in the proposed rule incorporating the 
duties of a CCO that need to be clarified or modified (e.g., ``look-
back,'' ``self-reported error,'' ``validated complaint'')? If so, which 
terms and how should they be defined?
    <bullet> Should the Commission require a CCO of an SDR to report to 
any other senior officer besides its chief executive officer? If so, to 
whom and why?
    <bullet> Is the Commission's proposed requirement regarding an 
SDR's board approval of a CCO's compensation and a CCO's removal 
appropriate? If not, why and what would be a better alternative to 
promote the independence and effectiveness of the CCO? Should the 
required percentage of board approval be lower or higher?
    <bullet> Should the Commission prohibit a CCO of an SDR from being 
a member of the SDR's legal department or the SDR's general counsel?
    <bullet> Should the Commission prohibit any officers, directors, or 
employees of an SDR from, directly or indirectly, taking any action to 
coerce, manipulate, mislead, or fraudulently influence the SDR's CCO in 
the performance of his responsibilities?
    <bullet> Should the Commission prohibit an SDR's board from 
requiring its CCO to make any changes to his annual compliance report? 
Would such a prohibition be necessary in light of the CCO's statutory 
requirement to certify that the compliance report is accurate and 
complete?
    <bullet> Are there other measures that would further enhance the 
independence and effectiveness of a CCO and that should be prescribed 
in a rule?
    <bullet> Should the Commission impose any additional duties on a 
CCO of an SDR that are not already enumerated in the legislation and 
incorporated in the proposed rule?
    <bullet> Should the Commission provide guidance in its proposed 
rules about the CCO's procedures for the remediation of noncompliance 
issues?
    <bullet> Should the Commission provide guidance in its proposed 
rules on what would be considered ``appropriate procedures'' for the 
handling, management response, remediation, retesting, and closing of 
noncompliance issues? If so, what factors should the Commission take 
into consideration?
    <bullet> What is the likely impact of the Commission's proposed 
rule on the SBS market? Would the proposed rule potentially promote or 
impede the establishment of SDRs?
    <bullet> With respect to entities that currently perform repository 
services for SBSs or other instruments, how do current practices 
compare to the practices that the Commission proposes to require in 
this rule? What are the incremental costs to potential SDRs in 
connection with adding to or revising their current practices in order 
to implement the Commission's proposed rule?
    <bullet> How might the evolution of the SBS market over time affect 
SDRs or impact the Commission's proposed rule?
2. Annual Reports
    A CCO of an SDR is required, under Exchange Act Section 
13(n)(6)(C)(i), to annually prepare and sign a report that contains a 
description of the compliance of the SDR with respect to the Exchange 
Act and the rules and regulations thereunder and each policy and 
procedure of the SDR (including the code of ethics and conflicts of 
interest

[[Page 77342]]

policies of the SDR).\177\ The Commission is proposing Rule 13n-11(d) 
to require each annual compliance report to contain, at a minimum, a 
description of: (1) The SDR's enforcement of its policies and 
procedures, (2) any material changes \178\ to the policies and 
procedures since the date of the preceding compliance report, (3) any 
recommendation for material changes to the policies and procedures as a 
result of the annual review, the rationale for such recommendation, and 
whether such policies and procedures were or will be modified by the 
SDR to incorporate such recommendation, and (4) any material compliance 
matters\179\ identified since the date of the preceding compliance 
report. The Commission notes that individual compliance matters may not 
be material when viewed in isolation, but may collectively suggest a 
material compliance matter.
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    \177\ See Public Law 111-203, Sec.  763(i).
    \178\ The term ``material change'' would be defined as a change 
that a CCO would reasonably need to know in order to oversee 
compliance of the SDR. See proposed Rule 13n-11(b)(5).
    \179\ The term ``material compliance matter'' would be defined 
as any compliance matter that the board would reasonably need to 
know to oversee the compliance of the SDR and that involves, without 
limitation: (1) A violation of the federal securities laws by the 
SDR, its officers, directors, employees, or agents; (2) a violation 
of the policies and procedures of the SDR, its officers, directors, 
employees, or agents; or (3) a weakness in the design or 
implementation of the SDR's policies and procedures. See proposed 
Rule 13n-11(b)(6).
---------------------------------------------------------------------------

    Although the proposed rule would require only annual reviews, CCOs 
should consider the need for interim reviews in response to significant 
compliance events, changes in business arrangements, and regulatory 
developments. For example, if there is an organizational restructuring 
of an SDR, then its CCO should evaluate whether its policies and 
procedures are adequate to guard against potential conflicts of 
interest. Additionally, if a new rule regarding SDRs is adopted by the 
Commission, then a CCO should review its policies and procedures to 
ensure compliance with the rule. Furthermore, a CCO should review, on 
an ongoing basis, the SDR's service levels, costs, pricing, and 
operational reliability, with the view to preventing anticompetitive 
practices and discrimination, and encouraging innovation and the use of 
the SDR.
    Under the proposed rule, an SDR would be required to file with the 
Commission a financial report, as discussed further in Section III.K.3 
below, along with a compliance report, which must include a 
certification that, under penalty of law, the compliance report is 
accurate and complete.\180\ The compliance report would also be 
required to be filed in a tagged data format in accordance with 
instructions contained in the EDGAR Filer Manual, as described in Rule 
301 of Regulation S-T.\181\
---------------------------------------------------------------------------

    \180\ See proposed Rule 13n 11(d)(2).
    \181\ See id.; see also 17 CFR 232.301. The information in each 
compliance report would be tagged using an appropriate machine-
readable, data tagging format to enable the efficient analysis and 
review of the information contained in the report.
---------------------------------------------------------------------------

    In addition, a CCO would be required to submit the annual 
compliance report to the board for its review prior to the submission 
of the report to the Commission under proposed Rule 13n-11(d)(2).\182\ 
The Commission notes that a CCO should promptly bring serious 
compliance issues to the board's attention rather than wait until an 
annual report is prepared.
---------------------------------------------------------------------------

    \182\ Proposed Rule 13n 11(e).
---------------------------------------------------------------------------

Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Are the Commission's proposed rules regarding annual 
compliance reports appropriate and sufficiently clear? If not, why not 
and what would be a better approach?
    <bullet> Are the proposed definitions of ``material change'' and 
``material compliance matter'' appropriate? If not, are they over-
inclusive or under-inclusive and how should they be defined?
    <bullet> Is the Commission's proposed timeframe for a CCO to submit 
his annual report to the board appropriate? If not, should the 
timeframe be shorter or longer? Should the Commission permit the SDR to 
request an extension to file an annual report (e.g., due to 
substantial, undue hardship)?
    <bullet> If a CCO reports to the chief executive officer of the SDR 
rather than its board, should the Commission permit the CCO to submit 
his annual report to the chief executive officer rather than the board, 
in addition to the board, or only when an SDR does not have a board? 
Would any of these alternatives lessen the independence of the CCO in 
any way?
    <bullet> If the Commission were to require an SDR to have 
independent directors, should the Commission require a CCO to meet 
separately with the independent directors at least annually? If not, 
why not and what would be a better alternative?
    <bullet> Are the Commission's proposed minimum disclosure 
requirements in the CCO's annual report appropriate? If not, why not 
and what would be a better alternative?
    <bullet> Should the Commission require any other disclosure in the 
CCO's annual report?
    <bullet> Should the CCO's compliance reports be deemed 
confidential, by rule, or should an SDR simply rely on the FOIA 
exemptions discussed in Section III.F.3 of this release?
    <bullet> Would keeping the compliance reports confidential 
encourage the CCO to be more forthcoming about sensitive compliance 
issues or would it likely not have any impact on the disclosure of such 
issues?
    <bullet> Are there any disadvantages to keeping the CCO's 
compliance report confidential? How could the Commission address any 
such disadvantage?
    <bullet> Would making the CCO's compliance report public be useful 
to the public or other regulators?
    <bullet> What is the likely impact of the Commission's proposed 
rule on the SBS market? Would the proposed rule potentially promote or 
impede the establishment of SDRs?
    <bullet> With respect to entities that currently perform repository 
services for SBSs or other instruments, how do current practices 
compare to the practices that the Commission proposes to require in 
this rule? What are the incremental costs to potential SDRs in 
connection with adding to or revising their current practices in order 
to implement the Commission's proposed rule?
    <bullet> How might the evolution of the SBS market impact the SDRs 
or the Commission's proposed rule?
3. Financial Reports
    The Commission is proposing Rule 13n-11(f) to require each 
financial report to be a complete set of financial statements of the 
SDR that are prepared in conformity with U.S. generally accepted 
accounting principles (``GAAP'') for the most recent two fiscal years 
of the SDR.\183\ Additionally, the proposed rule would provide that 
each financial report shall be audited in accordance with the standards 
of the Public Company Accounting Oversight Board (``PCAOB'') by a 
registered public accounting firm \184\ that is qualified and 
independent in accordance with Rule 2-01 of Regulation S-X.\185\Each 
financial report would be required to include a

[[Page 77343]]

report of the registered accounting firm that complies with paragraphs 
(a) through (d) of Rule 2-01 of Regulation S-X.\186\ This proposed rule 
is drawn from Exchange Act Rule 17a-5.\187\
---------------------------------------------------------------------------

    \183\ Proposed Rule 13n-11(f)(1).
    \184\ The term ``registered public accounting firm'' is defined 
in Exchange Act Section 3(a)(59) to have the same meaning as in 
Section 2 of the Sarbanes-Oxley Act of 2002. See 15 U.S.C. 
78c(a)(59). Section 2 of the Sarbanes-Oxley Act defines ``registered 
public accounting firm'' as a public accounting firm registered with 
the PCAOB in accordance with the Sarbanes-Oxley Act.
    \185\ Proposed Rule 13n-11(f)(2).
    \186\ Proposed Rules 13n-11(f)(3).
    \187\ 17 CFR 240.17a-5.
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    If an SDR's financial statements contain consolidated information 
of a subsidiary of the SDR, then the SDR's financial statements must 
provide condensed financial information, in a financial statement 
footnote, as to the financial position, changes in financial position 
and results of operations of the SDR, as of the same dates and for the 
same periods for which audited consolidated financial statements are 
required.\188\ Such financial information need not be presented in 
greater detail than is required for condensed statements by Rules 10-
01(a)(2), (3), and (4) of Regulation S-X.\189\ Detailed footnote 
disclosure that would normally be included with complete financial 
statements may be omitted with the exception of disclosures regarding 
material contingencies, long-term obligations, and guarantees.\190\ 
Descriptions of significant provisions of the SDR's long-term 
obligations, mandatory dividend or redemption requirements of 
redeemable stocks, and guarantees of the SDR shall be provided along 
with a five-year schedule of maturities of debt.\191\ If the material 
contingencies, long-term obligations, redeemable stock requirements, 
and guarantees of the SDR have been separately disclosed in the 
consolidated statements, then they need not be repeated in this 
schedule.\192\ This proposed requirement is substantially similar to 
Rule 12-04 of Regulation S-X, which pertains to condensed financial 
information of registrants.\193\
---------------------------------------------------------------------------

    \188\ Proposed Rule 13n-11(f)(4).
    \189\ Id.
    \190\ Id.
    \191\ Id.
    \192\ Id.
    \193\ See 17 CFR 210.9-06.
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    Proposed Rule 13n-11(f) would also require an SDR's financial 
reports to be provided in XBRL consistent with Rules 405(a)(1), (a)(3), 
(b), (c), (d), and (e) of Regulation S-T.\194\ Specifically, 
information in an SDR's financial report would be required to be tagged 
using XBRL to allow the Commission to assess and analyze effectively 
the SDR's financial and operational condition.
---------------------------------------------------------------------------

    \194\ See 17 CFR 232.405 (imposing content, format, submission, 
and Web site posting requirements for an interactive data file, as 
defined in Rule 11 of Regulation S-T).
---------------------------------------------------------------------------

    Finally, annual compliance reports and financial reports filed 
pursuant to proposed Rule 13n-11 would be required to be filed within 
60 days after the end of the fiscal year covered by such reports.\195\
---------------------------------------------------------------------------

    \195\ Proposed Rule 13n-11(g).
---------------------------------------------------------------------------

    The Commission notes that with respect to its other registrants, 
the Commission has required, at a minimum, the proposed financial 
information and, in some instances, significantly more 
information.\196\ The Commission believes that it is necessary to 
obtain an audited annual financial report from each registered SDR to 
understand the SDR's financial and operational condition, particularly 
because SDRs are intended to play a pivotal role in improving the 
transparency and efficiency of the SBS market and because SBSs (whether 
cleared or uncleared) are required to be reported to a registered 
SDR.\197\ Among other things, the Commission would need to know whether 
an SDR has adequate financial resources to comply with its statutory 
obligations or is having financial difficulties. If an SDR ultimately 
ceases doing business, it could create a significant disruption in the 
OTC derivatives market.
---------------------------------------------------------------------------

    \196\ See, e.g., Exchange Act Rule 17a-5(d), 17 CFR 240.17a-
5(d).
    \197\ See Public Law 111-203, Sec.  763(i) (adding Exchange Act 
Section 13(m)(1)(G)).
---------------------------------------------------------------------------

Request for Comment

    The Commission requests comment on the following specific issues:
    <bullet> Is the Commission's proposed rule regarding an SDR's 
financial report appropriate and sufficiently clear? If not, why not 
and what would be a better alternative?
    <bullet> Should the Commission permit a financial report to be in 
compliance with International Financial Reporting Standards as an 
alternative to GAAP? If so, are there any disadvantages to permitting 
this?
    <bullet> Is the Commission's proposed rule requiring financial 
reports to cover the most recent two fiscal years of an SDR 
appropriate? If not, should the timeframe be shorter or longer (e.g., 
the most recent three fiscal years)?
    <bullet> Is the Commission's proposed requirement regarding an 
SDR's condensed financial information appropriate and sufficiently 
clear? If not, why not and what would be a better alternative?
    <bullet> Is the Commission's proposed 60-day timeframe for an SDR 
to file the financial report appropriate? If not, should the timeframe 
be shorter or longer (e.g., 90 days)?
    <bullet> Would an SDR's financial report be useful to the public or 
other regulators? If so, explain.
    <bullet> Are there any terms in the Commission's proposed rule 
regarding an SDR's financial report that need to be defined or 
clarified? If so, which terms?
    <bullet> What is the likely impact of the Commission's proposed 
rule on the SBS market? Would the proposed rule potentially promote or 
impede the establishment of SDRs?
    <bullet> How might the evolution of the SBS market over time impact 
the SDRs or affect the Commission's proposed rule?

IV. General Request for Comment

    The Commission is requesting comment from all members of the 
public. The Commission particularly requests comments from the point of 
view of entities that plan to register as SDRs; entities operating 
platforms that currently trade or clear SBSs; SBS dealers, broker-
dealers, financial institutions, major SBS participants, and other 
persons that trade SBSs; and investors generally. The Commission will 
carefully consider the comments that it receives. The Commission seeks 
comment generally on all aspects of the proposed rules. In addition, 
the Commission seeks comment on the following:
    1. Should the Commission clarify or modify any of the definitions 
included in the proposed rules? If so, which definitions and what 
specific modifications are appropriate or necessary?
    2. Are the obligations in the proposed rules sufficiently clear? Is 
additional guidance from the Commission necessary?
    3. What documents and data are typically and currently kept by 
entities that may register as SDRs? In what format? How long are such 
records currently maintained by SDRs?
    4. What types of documents and data should be retained by SDRs 
pursuant to the proposed rules? What burdens or costs would the 
retention of such information entail?
    5. What are the technological or administrative burdens of 
maintaining the information specified in the proposed rules?
    6. Is there an industry standard format for information and records 
regarding SBSs? Are there different standard formats depending on the 
type or class of SBS? Please answer with specificity.
    7. Are the burdens of any of the requirements in the proposed rules 
greater than the benefits that would be attained by such requirement?
    8. Should the Commission implement substantive requirements in 
addition to, or in place of, the policies and procedures required in 
the proposed rules?

[[Page 77344]]

    9. The role of SDRs is still developing and may change 
significantly as the SBS market develops. In particular, the new 
provisions in the Dodd-Frank Act relating to SDRs are not yet 
effective. Once they become effective, SDRs will be subject to 
substantially more regulation. How will the incentives and behavior of 
market participants be likely to change as the reporting of SBSs to 
SDRs becomes more established? How will potential changes in the 
trading of SBSs affect SDRs? How might competition issues affect or 
change existing SDRs and new SDRs?
    10. With respect to entities that currently perform repository 
services for SBSs or other instruments, how do current practices 
compare to the practices that the Commission proposes to require in 
these rules? What are the incremental costs to potential SDRs in 
connection with adding to or revising their current practices in order 
to implement the Commission's proposed rules?
    In addition, the Commission seeks commenters' views regarding any 
potential impact of the proposals on users of any SDRs, other market 
participants, and the public generally. The Commission seeks comment on 
the proposal as a whole, including its interaction with the other 
provisions of the Dodd-Frank Act. The Commission seeks comment on 
whether the proposal would help achieve the broader goals of increasing 
transparency and accountability in the SBS market.
    The Commission requests comment generally on whether the rules 
proposed today to govern the SDR registration process, duties, and core 
principles are necessary or appropriate for those purposes. If 
commenters do not believe one or all such rules are necessary and 
appropriate, why not? What would be the preferred action?
    Title VII 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, and states that 
in adopting rules, the CFTC and SEC shall treat functionally or 
economically similar products or entities in a similar manner.
    The CFTC is adopting rules related to swap data repositories as 
required under Section 728 of the Dodd-Frank Act. Understanding that 
the Commission and the CFTC regulate different products and markets, 
and as such, may appropriately be proposing alternative regulatory 
requirements, we request comment on the impact of any differences 
between the Commission and CFTC's approaches to the regulation of SDRs 
and swap data repositories, respectively. Specifically, do the 
regulatory approaches under the Commission's proposed rulemaking 
pursuant to Section 763(i) of the Dodd-Frank Act and the CFTC's 
proposed rulemaking pursuant to Section 728 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? Do 
commenters believe that the approaches proposed by the Commission and 
the CFTC to regulate SDRs and swap data repositories, respectively, are 
comparable? If not, why? Do commenters believe there are approaches 
that would make the regulation of swap data repositories and SDRs more 
comparable? If so, what? Do commenters believe that it would be 
appropriate for us to adopt an approach proposed by the CFTC that 
differs from our proposal? If so, which one?
    Commenters should, when possible, provide the Commission with 
empirical data to support their views. Commenters suggesting 
alternative approaches should provide comprehensive proposals, 
including any conditions or limitations that they believe should apply, 
the reasons for their suggested approaches, and their analysis 
regarding why their suggested approaches would satisfy the statutory 
mandate contained in Section 763(i) of the Dodd-Frank Act governing 
SDRs.

V. Paperwork Reduction Act

    Certain provisions of the proposed rules would impose new 
``collection of information'' requirements within the meaning of the 
Paperwork Reduction Act of 1995 (``PRA'').\198\ The Commission has 
submitted them to the Office of Management and Budget (``OMB'') for 
review in accordance with 44 U.S.C. 3507 and 5 CFR 1320.11. The title 
of the new collection of information is ``Form SDR and Security-Based 
Swap Data Repository Registration, Duties, and Core Principles.'' 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 OMB control number. OMB has not yet assigned a control number to 
the new collection of information.
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    \198\ 44 U.S.C. 3501 et seq.
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A. Summary of Collection of Information

1. Registration Requirements and Form SDR
    Proposed Rule 13n-1(b) would require an SDR to apply for 
registration with the Commission by filing electronically in tagged 
data format on Form SDR in accordance with the instructions contained 
therein. Under Proposed Rule 13n-1(f), SDRs would be required to both 
designate and authorize on Form SDR an agent in the United States, 
other than a Commission member, official, or employee, to accept notice 
or service of process, pleadings, or other documents in any action or 
proceedings brought against the SDR to enforce the federal securities 
laws and the rules and regulations thereunder. Under proposed Rule 13n-
1(g) a non-resident SDR must certify on Form SDR and provide an opinion 
of counsel that the SDR can, as a matter of law, provide the Commission 
with prompt access to the books and records of such SDR and can, as a 
matter of law, submit to onsite inspection and examination by the 
Commission. Under proposed Rule 13n-3(a), in the event that an SDR 
succeeds to and continues the business of a registered SDR, the 
successor SDR would be required to file an application for registration 
on Form SDR within 30 days after such succession in order for the 
registration of the predecessor to be deemed to remain effective as the 
registration of the successor. Also, under proposed Rule 13n-11(a), 
SDRs would be required to identify on Form SDR a person who has been 
designated by the board to serve as CCO of the SDR.
    Proposed Rule 13n-1(e) would require SDRs to file an amendment on 
Form SDR annually as well as when updating any information provided in 
items 1 through 16, 25, and 44 on Form SDR if any information contained 
in those items is or becomes inaccurate for any reason. Under proposed 
Rule 13n-3(b), if an SDR succeeds to and continues the business of a 
registered SDR and the succession is based solely on a change in the 
predecessor's date or state of incorporation, form of organization, or 
composition of a partnership, the successor SDR would be permitted, 
within 30 days after such succession, to amend the registration of the 
predecessor SDR to reflect these changes.
2. SDR Duties, Data Collection and Maintenance, Automated Systems, and 
Direct Electronic Access
    Proposed Rule 13n-4(b) sets out a number of duties for SDRs. Under 
proposed Rule 13n-4(b)(2) and (4),

[[Page 77345]]

SDRs would be required to accept data as prescribed in proposed 
Regulation SBSR,\199\ and maintain such data as required in proposed 
Rule 13n-5 for each SBS reported to the SDRs. SDRs would be required, 
pursuant to proposed Rule 13n-4(b)(5), to provide direct electronic 
access to the Commission or its designees.\200\ The Commission has 
reserved the ability to specify the form and manner in which an SDR 
provides this direct electronic access. SDRs would be required, 
pursuant to Rule 13n-4(b)(6), to provide this data in such form and at 
such frequency as required by proposed Regulation SBSR.
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    \199\ See Regulation SBSR Release, supra note 9.
    \200\ See also proposed Rule 13n-4(a)(6) (defining ``direct 
electronic access'').
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    SDRs would have an obligation under proposed Rule 13n-4(b)(3) to 
confirm with both counterparties the accuracy of the information 
submitted to the SDR. Under proposed Rule 13n-4(b)(7), at such time and 
in such manner as may be directed by the Commission, an SDR would be 
required to establish automated systems for monitoring, screening, and 
analyzing SBS data.\201\ Under proposed Rule 13n-4(b)(9), SDRs would be 
required to, on a confidential basis and after notification to the 
Commission, make available all data obtained by the SDR upon the 
request of certain government bodies such as the CFTC and the 
Department of Justice.\202\ Under proposed Rule 13n-4(b)(10), before 
sharing information with any entity described in proposed Rule 13n-
4(b)(9), the SDR must obtain a written agreement from each entity 
stating that the entity shall abide by the confidentiality requirements 
of Exchange Act Section 24 as well as indemnify the SDR and the 
Commission for any expenses arising from litigation relating to the 
information provided.
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    \201\ The Commission is not making any such direction in this 
release. See supra Section III.D.I. Should the Commission do so, the 
collection of information would be amended to reflect the change.
    \202\ SDRs would also be required under proposed Rule 13n-
4(b)(9) to make all data available to ``any other person that the 
Commission determines to be appropriate,'' including such entities 
as foreign financial supervisors, provided that the SDR obtains a 
written agreement as set forth in proposed Rule 13n-4(b)(10).
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    Proposed Rule 13n-5 would establish rules regarding SDR data 
collection and maintenance. Proposed Rule 13n-5(b)(1) would require 
that SDRs establish, maintain, and enforce written policies and 
procedures reasonably designed for the reporting of transaction data to 
the SDR,\203\ to accept all transaction data reported to it in 
accordance with these policies and procedures, to accept all data 
provided to it regarding all SBSs in an asset class if the SDR accepts 
data on any SBS in that particular asset class, and to satisfy itself 
by reasonable means that the transaction data that has been submitted 
to the SDR is accurate, including 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. An 
SDR would also be required under proposed Rule 13n-5(b)(1)(iv) to 
promptly record transaction data it receives.
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    \203\ Transaction data is defined in proposed Rule 13n-5(a)(1).
---------------------------------------------------------------------------

    Proposed Rule 13n-5(b) would also require that SDRs establish, 
maintain, and enforce written policies and procedures reasonably 
designed (1) to calculate positions for all persons with open SBSs for 
which the SDR maintains records; (2) to ensure that the transaction 
data and positions that it maintains are accurate; and (3) to prevent 
any provision in a valid SBS from being invalidated or modified through 
the procedures or operations of the SDR.
    Proposed Rule 13n-5(b)(4) would require that SDRs maintain the 
transaction data for not less than five years after the applicable SBS 
expires and historical positions for not less than five years. This 
data would be required to be maintained in a place and format that is 
readily accessible to the Commission and other persons with authority 
to access or view the information and would also be required to be 
maintained in an electronic format that is non-rewritable and non-
erasable. Under proposed Rule 13n-5(b)(7), the SDR's recordkeeping 
obligation would extend to the periods required under these rules even 
if the SDR ceases to do business or to be registered pursuant to 
Section 13(n) of the Act. Proposed Rule 15n-5(b)(8) would require SDRs 
to make and keep current a plan to ensure that the transaction data and 
positions that are recorded in the SDR continue to be maintained in 
accordance with Rule 13n-5(b)(7), including procedures for transferring 
the transaction data and positions to the Commission or its designee 
(including another registered SDR).
    Proposed Rule 13n-6 would establish rules regarding SDR automated 
systems. As detailed above, proposed Rule 13n-6(b)(1) would require 
that SDRs establish, maintain, and enforce written policies and 
procedures reasonably designed to ensure that the SDR's systems provide 
adequate levels of capacity, resiliency, and security and such policies 
and procedures shall include, among other elements, reasonable capacity 
limits, periodic capacity stress testing, and review of vulnerabilities 
of the SDR's systems.
    Proposed Rule 13n-6(b)(3) would require that the SDR promptly 
notify the Commission of any material systems outages and submit to the 
Commission within five business days of when the outage occurred a 
written description and analysis of the outage and any remedial 
measures implemented or contemplated. The definition of ``material 
system outage'' in proposed Rule 13n-6(a)(1) refers to a number of 
documents that would trigger such an event, such as a communication of 
an outage situation to other external entities and a report or referral 
of an event to the SDR's board or senior management. Proposed Rule 13n-
6(b)(4) would require that the SDR notify the Commission in writing at 
least thirty days before implementation of a planned material systems 
change. Pursuant to proposed Rule 13n-6(c), these notifications and 
description and analysis would be required to be submitted to the 
Division of Trading and Markets in an appropriate electronic format. 
Pursuant to proposed Rule 13n-6(d), these notifications and description 
and analysis can be afforded confidential treatment, to the extent 
permitted by law, if the requestor marks each page or segregable 
portion of each page with a notation.
3. Recordkeeping
    Proposed Rule 13n-7(d) would require that the SDR keep records, in 
addition to those required under proposed Rule 13n-5. SDRs would be 
required, under proposed Rule 13n-7(a)(1), to make and keep current a 
record for each office listing, by name or title, each person at that 
office who, without delay, can explain the types of records the SDR 
maintains at that office and the information contained in those 
records. SDRs would also be required, under proposed Rule 13n-7(a)(2), 
to make and keep current a record listing each officer, manager, or 
person performing similar functions of the SDR responsible for 
establishing policies and procedures that are reasonably designed to 
ensure compliance with the Exchange Act and the rules and regulations 
thereunder. Proposed Rule 13n-7(b) would require every SDR to keep and 
preserve at least one copy of all documents as shall be made or 
received by it in the course of its business as such. These records 
would be required to be kept for a period of not less than five years, 
the first two years in a place immediately available to Commission 
staff for inspection and examination. Upon the request of any 
representative of the Commission, an SDR would be

[[Page 77346]]

required to furnish promptly to such representative copies of any 
documents required to be kept and preserved by the SDR pursuant to 
proposed Rule 13n-7(a) or (b). Under proposed Rule 13n-7(c), the SDR's 
recordkeeping obligation would extend to the periods required under 
these rules even if the SDR ceases to do business or to be registered 
pursuant to Section 13(n) of the Act.
    SDRs would also be required to make available the books and records 
required by proposed Rules 13n-1 through 13n-11 upon request by 
representatives from the Commission for examination and 
inspection.\204\
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    \204\ See, e.g., proposed Rules 13n-4(b)(1) and 13n-7(b)(3).
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4. Reports and Reviews
    The proposed rules would require that a number of reports or 
reviews be submitted to the Commission. Under proposed Rule 13n-
6(b)(2), SDRs would be required to submit to the Commission an annual 
objective review with respect to those systems that support or are 
integrally related to the performance of the SDR's activities. If the 
objective review is performed by an internal department, an objective 
external firm would be required to assess the internal department's 
objectivity, competency, and work performance.
    Under proposed Rule 13n-8, SDRs would be required to promptly 
report to the Commission, in a form and manner acceptable to the 
Commission, such information as the Commission determines necessary or 
appropriate for the Commission to perform the duties of the Commission.
5. Disclosure
    Proposed Rule 13n-10 describes disclosures that SDRs would be 
required to provide to a market participant before accepting any SBS 
data from that market participant or upon a market participant's 
request. The information required in the disclosure document would be 
(1) the SDR's criteria for providing others with access to services 
offered and data maintained by the SDR; (2) the SDR's criteria for 
those seeking to connect to or link with the SDR; (3) a description of 
the SDR's policies and procedures regarding its safeguarding of data 
and operational reliability to protect the confidentiality and security 
of such data (as described in proposed Rule 13n-6); (4) the SDR's 
policies and procedures required by proposed Rule 13n-9(b)(1); (5) the 
SDR's policies and procedures regarding its non-commercial and 
commercial use of the transaction information that it receives; (6) the 
SDR's dispute resolution procedures required by proposed Rule 13n-
5(b)(6); (7) a description of all of the SDR's services, including any 
ancillary services; (8) an updated schedule of the SDR's dues, 
unbundled prices, rates or other fees of all its services, as well as 
any discounts or rebates offered and the criteria to benefit from those 
discounts or rebates; and (9) a description of the SDR's governance 
arrangements.
6. Chief Compliance Officer
    Proposed Rules 13n-4(b)(11) and 13n-11(a) would require the board 
of an SDR to designate a CCO to perform the duties identified in 
proposed Rule 13n-11. Under proposed Rule 13n-11(c)(6) and (7), the CCO 
would be responsible for, among other things, establishing procedures 
for the remediation of noncompliance issues identified by the CCO and 
establishing and following appropriate procedures for the handling, 
management response, remediation, retesting, and closing of 
noncompliance issues.
    The CCO would also be required under proposed Rule 13n-11(d) and 
(g) to prepare and submit annual compliance reports to the Commission 
and the SDR's board containing, at a minimum, the SDR's enforcement of 
its policies, any material changes to the policies and procedures since 
the date of the preceding compliance report, any recommendation for 
material changes to the policies and procedures, and any material 
compliance matters identified since the date of the preceding 
compliance report. This report must be filed in a tagged data format in 
accordance with the instructions contained in the EDGAR Filer 
Manual.\205\
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    \205\ See 17 CFR 232.301.
---------------------------------------------------------------------------

    Proposed Rule 13n-11(f) and (g) would require that annual financial 
reports be prepared and submitted to the Commission. These financial 
reports must, among other things, be prepared in conformity with GAAP 
for the most recent two fiscal years of the SDR, audited by a 
registered public accounting firm that is qualified and independent in 
accordance with Rule 2-01 of Regulation S-X, and are in accordance with 
standards of the Public Company Accounting Oversight Board. This report 
must be provided in XBRL as required in Rules 405(a)(1), (a)(3), (b), 
(c), (d), and (e) of Regulation S-T.\206\
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    \206\ See 17 CFR 232.405.
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7. Other Provisions Relevant to the Collection of Information
    Proposed Rule 13n-4(c)(1) sets forth the proposed requirements 
related to market access to services and data. Among these are 
requirements that the SDR (1) establish, monitor on an ongoing basis, 
and enforce clearly stated objective criteria that would permit fair, 
open, and not unreasonably discriminatory access to services offered 
and data maintained by the SDR, as well as fair, open, and not 
unreasonably discriminatory participation by those seeking to connect 
or link with the SDR and (2) establish, maintain, and enforce written 
policies and procedures reasonably designed to review any prohibition 
or limitation of any person with respect to services offered or data 
maintained by the SDR and to grant such person access to such services 
or data if such person has been discriminated against unfairly.
    Proposed Rule 13n-4(c)(2)(iv) would require that SDRs establish, 
maintain, and enforce written policies and procedures reasonably 
designed to ensure that the SDR's senior management and each member of 
the board or committee that has the authority to act on behalf of the 
board possess requisite skills and expertise to fulfill their 
responsibilities in the management and governance of the SDR, to have a 
clear understanding of their responsibilities, and to exercise sound 
judgment about the SDR's affairs.
    Proposed Rule 13n-4(c)(3) sets forth the proposed conflicts of 
interest controls that would be required of SDRs. SDRs would be 
required to establish and enforce written policies and procedures 
reasonably designed to minimize conflicts of interest, including 
establishing, maintaining, and enforcing written policies and 
procedures reasonably designed to identify and mitigate potential and 
existing conflicts of interest in the SDR's decision-making process on 
an on-going basis and regarding the SDR's non-commercial and commercial 
use of the SBS transaction information that it receives.
    Proposed Rule 13n-5(b)(6) would require that SDRs establish 
procedures and provide facilities reasonably designed to effectively 
resolve disputes over the accuracy of the transaction data and 
positions that are recorded in the SDR.
    Proposed Rule 13n-9 relates to the privacy requirements that would 
be required of SDRs. Proposed Rule 13n-9(b)(1) would require SDRs to 
establish, maintain, and enforce written policies and procedures 
reasonably designed to protect the privacy of any and all SBS

[[Page 77347]]

transaction information that the SDR receives from any SBS dealer, 
counterparty, or any registered entity. Proposed Rule 13n-9(b)(2) would 
require SDRs to establish and maintain safeguards, policies, and 
procedures reasonably designed to prevent the misappropriation or 
misuse of any confidential information received by the SDR, material, 
nonpublic information, or intellectual property. At a minimum, such 
policies and procedures must limit access to such information, include 
standards that control persons associated with the SDR in trading for 
their personal benefit or the benefit of others, and adequate 
oversight.

B. Proposed Use of Information

1. Registration Requirements and Form SDR
    As discussed above, proposed Rules 13n-1 and 13n-3 would require 
SDRs to register on Form SDR and make amendments to Form SDR. Certain 
additional information would be required on Form SDR, including agent 
for service of process and identification of the SDR's CCO pursuant to 
proposed Rule 13n-11(a). The information collected in these provisions 
would be used to enhance the ability of the Commission to monitor SDRs 
and ensure compliance with the Exchange Act and the rules and 
regulations thereunder by helping the Commission identify SDRs, as well 
as understand their operations and organizational structure.
2. SDR Duties, Data Collection and Maintenance, Automated Systems, and 
Direct Electronic Access
    As discussed above, proposed Rules 13n-4(b), 13n-5, and 13n-6 would 
require that SDRs comply with specified duties, collect specific data 
that is provided to certain entities in specific ways as well as 
maintain that data in specific ways, and establish certain oversight 
programs over its automated systems. The information that would be 
collected under these provisions would help ensure an orderly and 
transparent SBS market as well as provide the Commission and other 
parties with tools to help oversee this market.
3. Recordkeeping
    As discussed above, proposed Rule 13n-7 would require an SDR to 
make and keep records associated with all the proposed rules except for 
the data collected and maintained pursuant to proposed Rule 13n-5 for a 
prescribed period. The information that would be collected under these 
provisions would be necessary for the Commission to conduct its 
inspection and examination programs regarding SDRs.
4. Reports and Reviews
    As discussed above, proposed Rules 13n-6(b)(2) and 13n-8 would 
require certain reports or reviews be provided to the Commission. The 
information that would be collected under these provisions would be 
used by the Commission to assist in its oversight of SDRs, including 
ensuring an orderly and transparent SBS market.
5. Disclosure
    As discussed above, proposed Rule 13n-10 would require that SDRs 
provide certain specific disclosures to a market participant before 
accepting any data from that market participant. These disclosures 
would help market participants understand the risks and protections 
available to them.
6. Chief Compliance Officer
    As discussed above, proposed Rule 13n-11 would require that an 
SDR's CCO establish certain policies relating to noncompliance issues 
as well as prepare and submit to the Commission an annual compliance 
report. Proposed Rule 13n-11 would also require that an annual 
financial report be prepared and filed with the Commission. The 
information that would be collected under this rule would help ensure 
compliance by SDRs of the provisions of the Exchange Act and the rules 
and regulations thereunder as well as assist the Commission in ensuring 
such compliance.
7. Other Provisions Relevant to the Collection of Information
    As discussed above, (1) proposed Rule 13n-4(c)(1) would require 
SDRs to comply with certain requirements relating to market access to 
services and data including establishment of certain policies and 
procedures or clearly stated objective criteria; (2) proposed Rule 13n-
4(c)(2)(iv) would require SDRs to establish policies and procedures 
regarding the skills and expertise of an SDR's senior management and 
members of the board or committee that has the authority to act on 
behalf of the board; (3) proposed Rule 13n-4(c)(3) would require SDRs 
to establish and enforce written conflict of interest policies and 
procedures as well as require ongoing identification and mitigation of 
conflicts and to establish written policies and procedures regarding 
their noncommercial and commercial use of transaction information; (4) 
proposed Rule 13n-5(b)(6) would require that SDRs establish dispute 
resolution procedures and facilities reasonably designed to effectively 
resolve disputes regarding the accuracy of the transaction data and 
positions that are recorded in the SDR; and (5) proposed Rule 13n-9 
would require SDRs to establish policies, procedures, and safeguards 
regarding privacy and misappropriation or misuse of certain 
information. The information that would be collected pursuant to these 
provisions would help ensure a transparent and orderly marketplace for 
SBSs, protect users' privacy, and enable Commission oversight of these 
programs.

C. Respondents

1. Registration Requirements and Form SDR
    The registration requirements of proposed Rules 13n-1, 13n-3, 13n-
11(a), and Form SDR would apply to every SDR. The Dodd-Frank Act does 
not limit the number of persons that may register as SDRs. Commission 
staff is aware of five persons that have indicated the ability and/or 
interest in providing SDR services for SBS. For PRA purposes, the 
Commission believes that it is reasonable to expect that, at most, ten 
persons may register with the Commission as SDRs.\207\ Furthermore, for 
PRA purposes, the Commission preliminarily estimates that three such 
persons may be ``non-resident'' SDRs subject to the additional 
requirements of proposed Rule 13n-1(g).
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    \207\ In order to withdraw from registration, SDRs would be 
required to file a notice of withdrawal with the Commission and 
update any inaccurate information by filing an amended Form SDR with 
the Commission prior to the withdrawal. However, since the 
Commission expects a total of only 10 SDRs to register, we estimate 
that there would be fewer than 10 potential respondents for this 
requirement and therefore this requirement also would not constitute 
part of the collection of information.
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2. SDR Duties, Data Collection and Maintenance, Automated Systems, and 
Direct Electronic Access
    The duties, data collection and maintenance, and automated systems 
requirements of proposed Rules 13n-4(b), 13n-5, and 13n-6 would, as a 
general matter, apply to all SDRs. Thus, for these provisions, the 
Commission estimates that there will be 10 respondents.
3. Recordkeeping
    The recordkeeping requirements of proposed Rule 13n-7 would apply 
to all SDRs. Thus, for these provisions, the Commission estimates that 
there will be 10 respondents.
4. Reports and Reviews
    The reports and review requirements of proposed Rules 13n-6(b)(2) 
and 13n-

[[Page 77348]]

8 would apply to all SDRs. Thus, for these provisions, the Commission 
estimates that there will be 10 respondents.
5. Disclosure
    The disclosure requirements of proposed Rule 13n-10 would apply to 
all SDRs. Thus, for these provisions, the Commission estimates that 
there will be 10 respondents.
6. Chief Compliance Officer
    The provisions regarding CCOs set forth in proposed Rule 13n-11 
would apply to all SDRs. Thus, for these provisions, the Commission 
estimates that there will be 10 respondents.
7. Other Provisions Relevant to the Collection of Information
    The remaining requirements of the proposed rules relevant to the 
collection of information, specifically proposed Rules 13n-4(c), 13n-
5(b)(6) and 13n-9, would apply to all SDRs. Thus, for these provisions, 
the Commission estimates that there will be 10 respondents.
    The Commission seeks comment regarding the accuracy of any of the 
above figures.

D. Total Annual Reporting and Recordkeeping Burden

1. Registration Requirements and Form SDR
    Proposed Rules 13n-1(b) and 13n-3(a), relating to successor SDRs as 
described above, would require SDRs to apply for registration using 
Form SDR and file such form electronically in tagged data format with 
the Commission in accordance with the instructions contained therein. 
Further, proposed Rule 13n-1(f) would require SDRs to designate an 
agent for service of process on Form SDR, and proposed Rule 13n-11(a) 
would require SDRs to identify its CCO on Form SDR. For purposes of the 
PRA, the Commission estimates that it would take an SDR approximately 
400 hours to complete the initial Form SDR with the information 
required and in compliance with these proposals. The Commission bases 
this estimate on the number of hours necessary to complete Form 
SIP.\208\ As noted above, the Commission currently estimates that 10 
entities will be subject to this burden. Accordingly, the Commission 
estimates that the one-time initial registration burden for all SDRs 
would be approximately 4000 burden hours. The Commission believes that 
SDRs will prepare Form SDR internally, but the Commission solicits 
comment as to whether SDRs will do so or outsource this requirement.
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    \208\ The Commission calculated in 2008 that Form SIP takes 400 
hours to complete. 73 FR 34060 (June 16, 2008) (outlining the most 
recent Commission calculations regarding the PRA burdens for Form 
SIP). While the requirements of Form SIP and Form SDR are not 
identical, the Commission believes that there is sufficient 
similarity for PRA purposes that the burden would be roughly 
equivalent.
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    Under proposed Rule 13n-1(g) a non-resident SDR must certify on 
Form SDR and provide an opinion of counsel that the SDR can, as a 
matter of law, provide the Commission with access to the books and 
records of such SDR and can, as a matter of law, submit to onsite 
inspection and examination by the Commission. This creates additional 
burdens for non-resident SDRs. We estimate, based on the similar 
requirements of Form 20-F, that this additional burden will add 3 hours 
and $900 in outside legal costs per respondent.\209\ As stated above, 
the Commission believes that there will be three respondents to this 
collection, for a total additional burden for non-resident SDRs to 
comply with proposed Rule 13n-1(g) of 9 hours and $2700.\210\
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    \209\ Exchange Act Release No. 49616 (Apr. 26, 2004); 69 FR 
24016 (Apr. 30, 2004). The $900 figure is based on an estimate of 
$400 an hour for legal services.
    \210\ The base burden of 4000 hours includes resident and non-
resident SDRs. The 9 hour and $2700 figures are the additional costs 
as a result of proposed 13n-1(g) for non-resident SDRs not already 
accounted for in the 4000 hour figure.
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    SDRs would also be required to amend Form SDR pursuant to proposed 
Rule 13n-1(e) annually as well as when information in certain 
enumerated items is or becomes inaccurate. Amendments are also required 
in certain situations involving successor SDRs outlined above pursuant 
to proposed Rule 13n-3(b). For purposes of Form SIP, the Commission 
considered amendments to be part of the 400 hours of the annual 
burden.\211\ However, the Commission believes that Form SDR will have 
different initial burden as compared to the ongoing annual amendments. 
When amendments to Form ADV were proposed in 2008, the Commission 
estimated that the hours burden for amendments to be roughly 3% of the 
initial burden.\212\ The Commission believes that this ratio would be 
the same for filers of Form SDR. Thus, the Commission estimates that 
the ongoing annualized burden for complying with these registration 
amendment requirements would be approximately 12 burden hours for each 
SDR per amendment and approximately 120 burden hours for all SDRs per 
amendment. Proposed Rule 13n-1(e) would require one annual compulsory 
amendment on Form SDR as well as interim amendments on Form SDR when 
reported information thereto is or becomes inaccurate or, under 
proposed Rule 13n-3(b), in certain circumstances involving successor 
SDRs detailed above. When Form ADV was amended earlier this year, the 
Commission estimated that there were 2 amendments per year for that 
form.\213\ The Commission believes that would be a reasonable estimate 
for the number of amendments per year to correct inaccurate information 
or in situations involving successor SDRs. Including the required 
annual amendment, the Commission estimates that respondents will be 
required to file on average 3 amendments per year. Therefore, the 
Commission estimates that each respondent will have an average annual 
burden of 36 hours for a total estimated average annual burden of 360 
hours.\214\ The Commission believes, based on discussions with industry 
participants, that this work will be conducted internally. The 
Commission solicits comment as to the accuracy of this information.
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    \211\ ``This annual reporting and recordkeeping burden does not 
include the burden hours or cost of amending a Form SIP because the 
Commission has already overstated the compliance burdens by assuming 
that the Commission will receive one initial registration pursuant 
to Rule 609 on Form SIP a year.'' Id.
    \212\ Investment Advisors Act Release No. 2711 (Mar. 3, 2008); 
73 FR 13958 (Mar. 14, 2008). In that proposal, the initial burden 
was calculated to be 22.25 hours per respondent and 0.75 hours per 
respondent for amendments.
    \213\ Investment Advisors Act Release No. 3060 (July 28, 2010); 
75 FR 49234 (Aug. 12, 2010). Although this information is based upon 
investment advisor statistics, the Commission believes that for 
these purposes the differences between investment advisors and SDRs 
are minimal.
    \214\ The 36 hours figure is the result of the estimated burden 
per SDR per amendment (12) times the estimated number of amendments 
per year (3). The 360 hour figure is the result of the estimated 
burden per SDR (36) times the number of SDRs (10).
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2. SDR Duties, Data Collection and Maintenance, Automated Systems, and 
Direct Electronic Access
    As outlined above, under proposed Rules 13n-4(b)(2) and (4) and 
13n-5, SDRs would be required to accept and maintain data received from 
third parties including transaction data and to calculate and maintain 
position information. SDRs would be required, pursuant to proposed Rule 
13n-4(b)(5), to provide direct electronic access to the Commission or 
its designees and, pursuant to proposed Rule 13n-4(b)(9), make 
available data obtained by the SDR to other parties, including certain 
government bodies. SDRs would also have an obligation under proposed 
Rules 13n-4(b)(3) and 13n-5(b)(1)(iii) to

[[Page 77349]]

establish and maintain written policies and procedures reasonably 
designed to confirm and to satisfy itself by reasonable means that the 
transaction data that has been submitted to the SDR is accurate. Also, 
proposed Rule 13n-5(b)(4) would require that SDRs maintain the 
transaction data for not less than five years after the applicable SBS 
expires and historical positions for not less than five years.\215\ 
Under the proposal, this obligation would continue even if an SDR 
withdraws from registration or ceases doing business.\216\ SDRs would 
be required to make and keep current a plan to ensure compliance with 
this requirement.\217\
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    \215\ This data would be required to be maintained in a place 
and format that is readily accessible to the Commission and other 
persons with authority to access or view the information and would 
also be required to be maintained in an electronic format that is 
non-rewritable and non-erasable.
    \216\ Proposed Rule 13n-5(b)(7).
    \217\ Proposed Rule 13n-5(b)(8).
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    The Commission estimates that the average one-time start-up burden 
per SDR of establishing systems compliant with all of these 
requirements, including the recordkeeping requirements of proposed 
Rules 13n-5(b)(4), (7), and (8), would be 42,000 hours and $10 million 
in information technology costs. This estimate is based on the 
Commission's discussions with market participants. Based on the 
expected number of respondents, the Commission estimates a total start-
up cost of 420,000 hours and $100 million in information technology 
costs. Based on discussions with potential respondents, the Commission 
further estimates that the average ongoing annual costs of these 
systems to be 25,200 hours and $6 million per respondent or a total of 
252,000 hours and $60 million for a total ongoing annual burden. The 
Commission solicits comment as to the accuracy of this information.
    Under proposed Rule 13n-4(b)(10), before sharing information with 
any entity described in new Exchange Act Section 13(n)(5)(G), an SDR 
must obtain written confidentiality and indemnification agreements. The 
Commission estimates that these agreements will require four hours per 
respondent in outside legal costs to create for an initial outside cost 
of $1600 per respondent.\218\ As outlined above, the Commission 
estimates a total of 10 respondents to this requirement. Therefore, the 
Commission estimates the initial burden for this requirement would be 
$16,000. The Commission estimates, for PRA purposes only, that SDRs 
will need to enter into these agreements on an average of at most 1 
time per year.\219\ The Commission further estimates that each such 
agreement, subsequent to the initial one, will require an average of 3 
hours to draft. Thus, the Commission estimates an average annual burden 
of 30 hours. The Commission believes that in light of the nature of the 
parties involved, these agreements will be created internally at the 
parties entering into them after the initial agreement is drafted or 
reviewed by outside counsel. The Commission solicits comment as to the 
accuracy of this information.
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    \218\ This is based on an estimated $400 an hour cost for 
outside legal services. This is the same estimate used by the 
Commission for these services in the proposed consolidated audit 
trail rule. Exchange Act Release No. 62174 (May 26, 2010); 75 FR 
32556 (June 8, 2010).
    \219\ As noted above, there are other avenues available to the 
Commission to share this information with appropriate entities. As a 
result, for PRA purposes, the Commission believes that SDRs will 
enter into only a few confidentiality and indemnification 
agreements.
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    Each SDR would also be required to establish, maintain, and enforce 
written policies and procedures, specifically (1) under proposed Rule 
13n-5(b)(1), reasonably designed for the reporting of transaction data 
to the SDR and to satisfy itself of the accuracy of such information; 
(2) under proposed Rule 13n-5(b)(2), reasonably designed to calculate 
positions for all persons with open SBSs for which the SDR maintains 
records; (3) under proposed Rule 13n-5(b)(3), reasonably designed to 
ensure data and calculations are accurate; (4) under proposed Rule 13n-
5(b)(5), reasonably designed to prevent any provision in an SBS from 
being invalidated; and (5) under proposed Rule 13n-6(b)(1), reasonably 
designed to ensure that the SDR's systems provide adequate levels of 
capacity, resiliency, and security. While these policies and procedures 
will vary in exact cost, the Commission estimates that such policies 
and procedures would require an average of 210 hours per respondent per 
policy and procedure to prepare and implement. The Commission further 
estimates that these policies and procedures would require $100,000 for 
outside legal costs.\220\ In sum, the Commission estimates the initial 
burden for all respondents to be 10,500 hours and $1,000,000 for 
outside legal costs.\221\ The Commission based these estimates upon 
those estimates we used with regards to establishing policies and 
procedures regarding Regulation NMS.\222\ Once these policies and 
procedures are established, the Commission estimates that it will take 
on average 60 hours annually to maintain each of these policies and 
procedures per respondent, with a total estimated average annual burden 
of 3,000 hours.\223\ The Commission believes that this maintenance work 
will be conducted internally. The Commission solicits comment as to the 
accuracy of this information.
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    \220\ This figure is the result of an estimated $400 an hour 
cost for outside legal services (as noted above) times 50 hours of 
outside legal consulting per policy and procedure, times 5 policies 
and procedures.
    \221\ The 10,500 hour figure is the result of the number of 
hours per policy and procedure (210) times the number of policies 
and procedures required by these provisions (5), times the number of 
respondents (10). The $1,000,000 figure is the result of the outside 
dollar cost per respondent ($100,000) times the number of 
respondents (10).
    \222\ Exchange Act Release No. 51808 (June 9, 2005); 70 FR 37496 
(June 29, 2005). The Commission based these estimates on those for 
non-SRO trading centers rather than for SRO trading centers because 
we believe that for these purposes non-SRO trading center burdens 
are more like those that SDRs would face under the proposals.
    \223\ The 3,000 hour figure is the result of the estimated 
average hourly burden to maintain each policy and procedure (60), 
times the total number of policies and procedures required under 
this requirement (5), times the total number of SDRs (10).
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    For each material systems outage, SDRs would be required under 
proposed Rule 13n-6(b)(3) to promptly notify the Commission and submit 
to the Commission, after the outage, a written description and analysis 
of the outage and any remedial measures implemented or contemplated. 
Also, the definition of ``material system outage'' refers to a number 
of documents that would trigger such an event, such as a communication 
of an outage situation to other external entities and a report or 
referral of an event to the SDR's board or senior management. The 
Commission estimates, based on our experience with the ARP 
program,\224\ that the burden imposed by these requirements would be 
15.4 hours on average per respondent per year, for a total estimated 
burden of 154 hours per year.\225\ The Commission believes that this 
work will be conducted internally. The Commission solicits comment as 
to the accuracy of this information.
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    \224\ Under the Commission's ARP inspection program of SROs and 
certain alternative trading systems (``ATS''), the Commission staff 
conducts on-site inspections and attends periodic technology 
briefings presented by SRO and ATS staff to the Commission staff, 
generally covering systems capacity and testing, review of system 
vulnerability, review of planned system development, and business 
continuity planning. Under the ARP inspection program, the 
Commission staff also monitors system failures and planned system 
changes on a daily basis.
    \225\ Included in this burden is the time to mark these 
documents confidential under proposed Rule 13n-6(d), as the 
Commission believes it is likely that an SDR will mark all documents 
in this manner.

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[[Page 77350]]

    Proposed Rule 13n-6(b)(4) would require an SDR to notify the 
Commission in writing at least thirty days before implementation of a 
planned material systems change. Based on our discussions with market 
participants, the Commission estimates that there would be an average 
of 60 such events per respondent per year.\226\ Based on the 
Commission's experience with the ARP program, we estimate that each of 
these notices would require an average of 2 hours for a total burden 
for all respondents of 1200 hours annually.\227\ The Commission 
believes that this work will be conducted internally. The Commission 
solicits comment as to the accuracy of this information.
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    \226\ This would account for weekly maintenance that would rise 
to the standard of a ``material systems change'' as well as possible 
planned software upgrades, throughout the year, that would also rise 
to this level.
    \227\ Included in this burden is the time to mark these 
documents confidential under proposed Rule 13n-6(d), as the 
Commission believes it is likely that an SDR will mark all documents 
in this manner. The 1200 hour figure is the result of the number of 
events per year (60), times the estimated average burden hours per 
notice (2), times the number of SDRs (10).
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3. Recordkeeping
    SDRs would be required, under proposed Rule 13n-7(a)(1), to make 
and keep current a record of persons at each office of the SDR that can 
assist with explaining the SDR's records as well as, under proposed 
Rule 13n-7(a)(2), to make and keep current a record listing officers, 
managers, or persons performing similar functions with responsibility 
for the policies and procedures of the SDR to ensure compliance with 
the Exchange Act and the rules and regulations thereunder. The 
Commission estimates that these records would create an initial burden, 
at a maximum, of 1 hour per respondent, for a total initial burden of 
10 hours. The Commission estimates that the ongoing annual burden would 
be 0.17 hours (10 minutes) per respondent to keep these records current 
and to store these documents based on our estimates for similar 
requirements for broker-dealers.\228\ This results in a total ongoing 
annual burden of 1.7 hours. The Commission believes that this work will 
be conducted internally. The Commission solicits comment as to the 
accuracy of this information.
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    \228\ See Exchange Act Release No. 44992 (Oct. 26, 2001); 66 FR 
55818 (Nov. 2, 2001) (regarding the collection of information 
pursuant to Rule 17a-3(a)(21) and (22)).
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    Proposed Rule 13n-7(b) would require each SDR to keep and preserve 
at least one copy of all documents as shall be made or received by it 
in the course of its business as such, other than the data collected 
and maintained pursuant to proposed Rule 13n-5. These records would be 
required to be kept for a period of not less than five years, the first 
two years in a place immediately available to Commission staff for 
inspection and examination.\229\ Upon the request of any representative 
of the Commission, an SDR would be required to furnish promptly 
documents kept and preserved by it pursuant to proposed Rule 13n-7(a) 
or (b) to such a representative. Based on the Commission's experience 
with recordkeeping costs and consistent with prior burden estimates for 
similar provisions,\230\ the Commission estimates that this storage 
requirement would create an initial burden of 345 hours and $1800 in 
information technology costs per respondent, for a total initial burden 
of 3450 hours and $18,000. The Commission further estimates that the 
ongoing annual burden would be 279 hours per respondent and per 
respondent for a total ongoing annual burden of 2790 hours. The 
Commission solicits comment as to the accuracy of this information.
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    \229\ Under the proposal, this obligation would continue even if 
the SDR withdraws from registration or ceases doing business. 
Proposed Rule 13n-7(c).
    \230\ See Exchange Act Release No. 59342 (Feb. 2, 2009); 74 FR 
6456 (Feb. 9, 2009).
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4. Reports and Reviews
    Proposed Rule 13n-6(b)(2) would require SDRs to submit to the 
Commission an annual objective review with respect to those systems 
that support or are integrally related to the performance of the SDR's 
activities. If the objective review is performed by an internal 
department, an objective, external firm would be required to assess the 
internal department's objectivity, competency, and work performance. 
Based on its experience with the ARP program, the Commission believes 
that the annual burden per respondent of conducting an internal audit 
is approximately 625 hours.\231\ As a result, the Commission estimates 
the total average annual burden to be 8250 hours for all respondents in 
total for the collection.\232\ In addition, based on its experience 
with the ARP program, the Commission estimates that the annual cost to 
hire an objective, external firm to be approximately $90,000 per 
respondent annually. For this reason, the Commission estimates that the 
average annual cost of complying with proposed Rule 13n-6(b)(2) for all 
respondents is approximately $900,000.
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    \231\ Further, the Commission's experience with the ARP program 
has indicated that an additional 200 hours per respondent per year 
would be required on average to oversee and establish the 
independent review of these audits.
    \232\ The 8250 hour figure is the result of the estimate of 
annual burden per respondent to conduct the internal audit (625), 
plus the estimate of the annual burden per respondent to oversee and 
establish the independent review of these audits (200), times the 
number of SDRs (10).
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    Under proposed Rule 13n-8, SDRs would be required to report 
promptly to the Commission, in a form and manner acceptable to the 
Commission, such information as the Commission determines necessary or 
appropriate for the Commission to perform the duties of the Commission. 
For PRA purposes only, the Commission estimates that it will request 
these reports at a maximum of once per year, per respondent. For PRA 
purposes only, the Commission estimates that these reports would be 
limited to information already compiled under these proposed rules and 
thus would require only 1 hour per response to compile and transmit. 
Thus, the Commission estimates, for PRA purposes only, that the total 
annual burden for these reports to be 10 hours. The Commission believes 
that this work, should it be required, will be conducted internally. 
The Commission solicits comment as to the accuracy of this information.
5. Disclosure
    As detailed above, pursuant to proposed Rule 13n-10, SDRs would be 
required to provide certain disclosures to a market participant. The 
Commission estimates that the average one-time start-up burden per SDR 
of preparing this disclosure document is 97.5 hours and $4,400 of 
external legal costs and $5,000 of external compliance consulting 
costs, resulting in a total initial burden of 975 hours and $94,000. 
This estimate reflects the Commission's experience with and burden 
estimates for similar disclosure document requirements imposed on 
entities with 1000 or fewer employees and as a result of our 
discussions with market participants.\233\ The Commission expects that 
this requirement will result in an average annual burden, after the 
initial creation of the disclosure document, of 1 hour per respondent, 
with a total annual burden of 10 hours. The Commission believes that 
this ongoing annual work will be conducted internally. The Commission 
solicits comment as to the accuracy of this information.
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    \233\ See Investment Advisers Act Release No. 3060 (Aug. 12, 
2010); 75 FR 49234 (Aug. 12, 2010).

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[[Page 77351]]

6. Chief Compliance Officer
    Under proposed Rule 13n-11(c)(6) and (7), an SDR's CCO would be 
responsible for, among other things, establishing procedures for the 
remediation of noncompliance issues identified by the CCO, and 
establishing and following appropriate procedures for the handling, 
management response, remediation, retesting, and closing of 
noncompliance issues. As outlined above, the Commission estimates a 
total of 10 respondents for this requirement. Based on the Commission's 
estimates regarding Regulation NMS,\234\ it estimates that on average 
these two requirements will require 420 hours to create and 120 hours 
to administer per year per respondent, for a total burden of 4200 hours 
initially and 1200 hours on average, annually.\235\ Also based on the 
estimates regarding Regulation NMS, the Commission estimates that a 
total of $40,000 in initial outside legal costs will be incurred as a 
result of this burden per respondent, for a total outside cost burden 
of $400,000.\236\ The Commission solicits comment regarding the 
accuracy of this information.
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    \234\ See Exchange Act Release No. 51808 (June 9, 2005); 70 FR 
37496 (June 29, 2005).
    \235\ The 420 hour figure is the result of the estimated average 
hour burden to create one policy and procedure (210) times the 2 
policies and procedures required by these provisions. The 120 hour 
figure is the result of the estimated average hour burden to 
administer one policy and procedure (60) times the 2 policies and 
procedures required by these provisions. The 4200 hour figure is the 
result of the estimated average hour burden per respondent to create 
these policies and procedures (420) times the number of SDRs (10). 
The 1200 hour figure is the result of the estimated average hour 
burden per respondent to maintain these policies and procedures 
(120) times the number of SDRs (10).
    \236\ $400,000 figure is the result of an estimated $400 an hour 
cost for outside legal services (as noted above) times 50 hours, 
times 2 policies and procedures, times the number of SDRs (10).
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    A CCO would also be required under proposed Rule 13n-11(d) and (h) 
to prepare and submit annual compliance reports to the Commission and 
the SDR's board. Based upon the Commission's estimates for similar 
annual reviews by CCOs of investment companies,\237\ the Commission 
estimates that these reports will require on average 5 hours per 
respondent per year. Thus, the Commission estimates a total annual 
burden of 50 hours. Because the report will be submitted by an internal 
CCO, the Commission does not expect any external costs. The Commission 
solicits comment as to the accuracy of this information.
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    \237\ See Investment Company Act Release No. 25925 (Feb. 5, 
2003); 68 FR 7038 (Feb. 11, 2003).
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    Proposed Rule 13n-11(f) and (g) would require that annual financial 
reports be prepared and filed with the Commission. The Commission 
estimates, based on its experience with entities of similar size to the 
respondents to this collection, that these reports will generally 
require on average 500 hours per respondent and cost $500,000 for 
independent public accounting services. Thus, the Commission estimates 
a total annual burden of 5000 hours and $5,000,000. The Commission 
solicits comment as to the accuracy of this information.
    The compliance and financial reports submitted to the Commission 
would be required to be ``tagged'' pursuant to the requirements of 
proposed Rule 13n-11. The compliance reports must be filed in a tagged 
data format in accordance with the instructions contained in the EDGAR 
Filer Manual,\238\ and the financial reports must be provided in XBRL 
as required in Rules 405(a)(1), (a)(3), (b), (c), (d), and (e) of 
Regulation S-T.\239\ These requirements would create an additional 
burden on respondents beyond the preparation of these reports. The 
Commission preliminarily estimates, based on our experience with other 
data tagging initiatives, that these requirements would add an 
additional burden of an average of 54 hours and $22,772 in outside 
software and other costs per respondent per year, creating an estimated 
total annual burden of 540 hours and $227,720 to tag the data for both 
the compliance and financial reports that would be required under 
proposed Rule 13n-11. The Commission solicits comment as to the 
accuracy of this information.
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    \238\ See 17 CFR 232.301.
    \239\ See 17 CFR 232.405.
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7. Other Provisions Relevant to the Collection of Information
    Proposed Rule 13n-4(c)(1)(v) would require SDRs to establish, 
maintain, and enforce certain policies and procedures reasonably 
designed to review any prohibition or limitation of any person with 
respect to access to services offered or data maintained by the SDR and 
to grant such person access to such services or data if such person has 
been discriminated against unfairly. As outlined above, the Commission 
estimates a total of 10 respondents for this requirement. Based on the 
Commission's estimates regarding Regulation NMS,\240\ it estimates 
that, on average, this requirement will require 210 hours to create and 
60 hours to administer per year per respondent, for a total burden of 
2100 hours initially and 600 hours on average, annually. The Commission 
also estimates, based on this earlier estimate, that a total of $20,000 
in initial outside legal costs will be incurred as a result of this 
burden per respondent for a total outside cost burden of $200,000.\241\ 
The Commission solicits comment as to the accuracy of this information.
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    \240\ See Exchange Act Release No. 51808 (June 9, 2005); 70 FR 
37496 (June 29, 2005).
    \241\ This figure is the result of an estimated $400 an hour 
cost for outside legal services (as noted above) times 50 hours, for 
10 respondents.
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    Proposed Rule 13n-4(c)(1) also would require SDRs to establish, 
monitor on an ongoing basis, and enforce clearly stated objective 
criteria that would permit fair, open, and not unreasonably 
discriminatory access to services offered and data maintained by the 
SDR. For PRA purposes only, the Commission believes that this should be 
a lesser burden than for written policies and procedures. Thus, the 
Commission estimates that this requirement will require 157.5 hours to 
create, with an associated outside legal cost of $15,000.\242\ This 
would result in an estimate of an initial burden for this requirement 
for all respondents of 1575 hours and $150,000. The Commission 
estimates that the average annual burden would be 45 hours each, for a 
total estimated average annual burden of 450 hours.\243\ The Commission 
believes that this work will be conducted internally. The Commission 
solicits comment as to the accuracy of this information.
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    \242\ These numbers are based on 75% of the 210 hour and $20,000 
(50 hours of outside legal costs at $400 an hour) estimates to 
create one set of written policies and procedures under Regulation 
NMS for non-SRO trading centers. See Exchange Act Release No. 51808 
(June 9, 2005); 70 FR 37496 (June 29, 2005). This is based on an 
estimate that this requirement will create 75% of the burden of 
creating written policies and procedures under Regulation NMS.
    \243\ These numbers are 75% of the 60 hour estimates of the 
ongoing burden regarding one set of written policies and procedures 
under Regulation NMS for non-SRO trading centers. See Exchange Act 
Release No. 51808 (June 9, 2005); 70 FR 37496 (June 29, 2005). This 
is based on an estimate that this requirement will create 75% of the 
ongoing burden of written policies and procedures under Regulation 
NMS.
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    Proposed Rule 13n-4(c)(2)(iv) would require SDRs to establish, 
maintain, and enforce written policies and procedures reasonably 
designed to ensure that the SDR's senior management and each member of 
the board or committee that has the authority to act on behalf of the 
board possess requisite skills and expertise to fulfill their 
responsibilities in the management and governance of the SDR, to have a 
clear understanding of their responsibilities, and to exercise sound 
judgment about the SDR's affairs. As outlined above, the Commission 
estimates a total of 10 respondents for

[[Page 77352]]

this requirement. Based on the Commission's estimates regarding similar 
requirements in Regulation NMS,\244\ it estimates that, on average, 
this requirement will require 210 hours to create and 60 hours to 
administer per year per respondent, for a total burden of 2100 hours 
initially and 600 hours on average, annually. The Commission also 
estimates, based on this earlier estimate, that a total of $20,000 in 
outside legal costs will be incurred as a result of this burden per 
respondent for a total outside cost burden of $200,000.\245\ The 
Commission solicits comment as to the accuracy of this information.
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    \244\ See Exchange Act Release No. 51808 (June 9, 2005); 70 FR 
37496 (June 29, 2005).
    \245\ This figure is the result of an estimated $400 an hour 
cost for outside legal services (as noted above) times 50 hours, for 
10 respondents.
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    Proposed Rule 13n-4(c)(3) outlines the proposed conflicts of 
interest controls that would be required of SDRs. SDRs would be 
required to establish and enforce written policies and procedures 
reasonably designed to minimize conflicts of interest, including 
establishing, maintaining, and enforcing written policies and 
procedures reasonably designed to identify and mitigate potential and 
existing conflicts of interest in the SDR's decision-making process on 
an on-going basis and regarding the SDR's non-commercial and commercial 
use of the SBS transaction information that it receives. As outlined 
above, the Commission estimates a total of 10 respondents for this 
requirement. Based on the Commission's estimates regarding Regulation 
NMS,\246\ it estimates that on average these two requirements will 
require 420 hours to create and 120 hours to administer per year per 
respondent, for a total burden of 4200 hours initially and 1200 hours 
on average annually.\247\ Also based on the Regulation NMS estimates, 
the Commission estimates that a total of $40,000 in initial outside 
legal costs will be incurred as a result of this burden per respondent 
for a total outside cost burden of $400,000.\248\
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    \246\ See Exchange Act Release No. 51808 (June 9, 2005); 70 FR 
37496 (June 29, 2005).
    \247\ The 420 hour figure is the result of the estimated average 
hour burden to create one policy and procedure (210) times the 2 
policies and procedures required by these provisions. The 120 hour 
figure is the result of the estimated average hour burden to 
administer one policy and procedure (60) times the 2 policies and 
procedures required by these provisions. The 4200 hour figure is the 
result of the estimated average hour burden per respondent to create 
these policies and procedures (420) times the number of SDRs (10). 
The 1200 hour figure is the result of the estimated average hour 
burden per respondent to maintain these policies and procedures 
(120) times the number of SDRs (10).
    \248\ This $400,000 figure is the result of an estimated $400 an 
hour cost for outside legal services (as noted above) times 50 
hours, times 2 policies and procedures, times the number of SDRs 
(10).
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    Proposed Rule 13n-5(b)(6) would require that SDRs establish 
procedures and provide facilities reasonably designed to effectively 
resolve disputes over the accuracy of the transaction data and 
positions that are recorded in the SDR. For PRA purposes only, the 
Commission believes that this would be a greater burden than that for 
written policies and procedures alone. Thus, the Commission estimates 
that this requirement will require 315 hours to create.\249\ There 
would likely be a need for a respondent to consult with outside legal 
counsel which the Commission estimates to cost $30,000 per 
respondent.\250\ In total, the Commission estimates an initial burden 
for all respondents of 3150 hours and $300,000 in outside costs. The 
Commission estimates the ongoing average annual burden of this 
requirement to be 90 hours per respondent for a total of 900 hours for 
the estimated total annual burden for all respondents.\251\ The 
Commission believes that this ongoing work will be conducted 
internally. The Commission solicits comment as to the accuracy of this 
information.
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    \249\ This number is 150% of the 210 hour estimate to create one 
set of written policies and procedures under Regulation NMS for non-
SRO trading centers. See Exchange Act Release No. 51808 (June 9, 
2005); 70 FR 37496 (June 29, 2005). This is based on an estimate 
that this requirement will create 150% of the burden of creating 
written policies and procedures under Regulation NMS.
    \250\ This number is 150% of the estimate of outside legal costs 
(50 hours) to create one set of written policies and procedures 
under Regulation NMS for non-SRO trading centers, at an estimate of 
$400 per hour. See Exchange Act Release No. 51808 (June 9, 2005); 70 
FR 37496 (June 29, 2005). This is based on an estimate that this 
requirement will create 150% of the burden of creating written 
policies and procedures under Regulation NMS.
    \251\ These numbers are based on 150% of the 60 hour estimate of 
the ongoing burden regarding one set of written policies and 
procedures under Regulation NMS for non-SRO trading centers. See 
Exchange Act Release No. 51808 (June 9, 2005); 70 FR 37496 (June 29, 
2005). This is based on an estimate that this requirement will 
create 150% of the ongoing burden of written policies and procedures 
under Regulation NMS.
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    Proposed Rule 13n-9 relates to the privacy requirements that would 
be required of SDRs. Proposed Rule 13n-9(b)(1) would require SDRs to 
establish, maintain, and enforce written policies and procedures 
reasonably designed to protect the privacy of any and all SBS 
transaction information that the SDR receives from any SBS dealer, 
counterparty, or any registered entity. As outlined above, the 
Commission estimates a total of 10 respondents for this requirement. 
Based on the Commission's estimates regarding Regulation NMS,\252\ it 
estimates that on average these two requirements will require 420 hours 
to create and 120 hours to administer per year per respondent, for a 
total burden of 4200 hours initially and 1200 hours on average, 
annually.\253\ Also based on the Regulation NMS estimates, the 
Commission estimates that a total of $40,000 in initial outside legal 
costs will be incurred as a result of this burden per respondent for a 
total outside cost burden of $400,000.\254\
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    \252\ See Exchange Act Release No. 51808 (June 9, 2005); 70 FR 
37496 (June 29, 2005).
    \253\ The 420 hour figure is the result of the estimated average 
hour burden to create one policy and procedure (210) times the 2 
policies and procedures required by these provisions. The 120 hour 
figure is the result of the estimated average hour burden to 
administer one policy and procedure (60) times the 2 policies and 
procedures required by these provisions. The 4200 hour figure is the 
result of the estimated average hour burden per respondent to create 
these policies and procedures (420) times the number of SDRs (10). 
The 1200 hour figure is the result of the estimated average hour 
burden per respondent to maintain these policies and procedures 
(120) times the number of SDRs (10).
    \254\ This $400,000 figure is the result of an estimated $400 an 
hour cost for outside legal services (as noted above) times 50 
hours, times 2 policies and procedures, times the number of SDRs 
(10).
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    Proposed Rule 13n-9(b)(2) would require SDRs to establish and 
maintain safeguards, policies, and procedures reasonably designed to 
prevent the misappropriation or misuse of any confidential data 
received by the SDR, material, nonpublic information, or intellectual 
property. At a minimum, this program must limit access to such 
information, include standards that control persons associated with the 
SDR in trading for their personal benefit or the benefit of others, and 
adequate oversight. As outlined above, the Commission estimates a total 
of 10 respondents for this requirement. Based on the Commission's 
estimates regarding Regulation NMS,\255\ it estimates that on average 
this requirement will require 210 hours to create and 60 hours to 
administer per year per respondent, for a total burden of 2100 hours 
initially and 600 hours on average, annually. Also based on the 
Regulation NMS estimates, the Commission estimates that a total of 
$20,000 in initial outside legal costs will be incurred as a result of 
this burden per respondent for a total outside cost burden of 
$200,000.\256\
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    \255\ See Exchange Act Release No. 51808 (June 9, 2005); 70 FR 
37496 (June 29, 2005).
    \256\ This figure is the result of an estimated $400 an hour 
cost for outside legal services (as noted above) times 50 hours, for 
10 respondents.

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[[Page 77353]]

E. Collection of Information Is Mandatory

1. Registration Requirements and Form SDR
    The collection of information relating to registration requirements 
and Form SDR is mandatory for all SDRs when registering with the 
Commission or amending their registration.
2. SDR Duties, Data Collection and Maintenance, Automated Systems, and 
Direct Electronic Access
    The collection of information relating to SDR duties, data 
collection and maintenance, automated systems, and direct electronic 
access is mandatory for all SDRs.
3. Recordkeeping
    The collection of information relating to recordkeeping is 
mandatory for all SDRs.
4. Reports and Reviews
    The collection of information relating to reports and reviews is 
mandatory for all SDRs.
5. Disclosure
    The collection of information relating to disclosure is mandatory 
for all SDRs.
6. Chief Compliance Officers
    The collection of information relating to CCOs is mandatory for all 
SDRs.
7. Other Provisions Relevant to the Collection of Information
    The collection of information relating to other relevant provisions 
is mandatory for all SDRs.

F. Confidentiality

1. Registration Requirements and Form SDR
    The collection of information relating to registration requirements 
and Form SDR, including attachments thereto, would generally not be 
kept confidential. However, confidential treatment can be requested by 
the applicant pursuant to the FOIA and the rules of the Commission 
thereunder.\257\
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    \257\ ``The information will be used for the principal purpose 
of determining whether the Commission should grant or deny 
registration to an applicant. Except in cases where confidential 
treatment is requested by the applicant and granted by the 
Commission pursuant to the Freedom of Information Act and the rules 
of the Commission thereunder, information supplied on this form will 
be included routinely in the public files of the Commission and will 
be available for inspection by any interested person.'' General 
instruction 5 of Form SDR.
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2. SDR Duties, Data Collection and Maintenance, Automated Systems, and 
Direct Electronic Access
    Under the Commission's proposed rules, SDRs would provide 
participants access to their own SBS data submitted to SDRs. The 
policies and procedures required under proposed Rules 13n-5(b)(1), (2), 
(3), and (5) would be made publicly available, as attachments to Form 
SDR, unless confidential treatment is requested, as explained above. A 
description of the SDR's policies and procedures regarding its 
safeguarding of data and operational reliability to protect the 
confidentiality and security of such data, as described in proposed 
Rule 13n-6, would be required to be disclosed to a market participant 
by the SDR pursuant to proposed Rule 13n-10(b)(3) and would be made 
publicly available, as exhibits to Form SDR, unless confidential 
treatment is requested, as explained above.
    Upon the request of certain entities described in Exchange Act 
Section 13(n)(5)(G), information would be made available upon request 
if the entity making the request agrees to keep that information 
confidential. Pursuant to proposed Rule 13n-6(d), SDRs may request 
confidential treatment in connection with the documents provided to the 
Commission pursuant to proposed Rule 13n-6, and the Commission will 
accord confidential treatment to those documents to the extent 
permitted by law. Other than these items, all elements to the 
collection of data identified above relating to SDR duties, data 
collection and maintenance, automated systems, and direct electronic 
access may be provided to Commission staff, but would not be subject to 
public availability.
3. Recordkeeping
    The collection of information relating to recordkeeping would be 
provided to Commission staff, but not subject to public availability.
4. Reports and Reviews
    The collection of information relating to reports and reviews would 
be provided to Commission staff, but not subject to public 
availability.
5. Disclosure
    The collection of information relating to disclosure would be 
provided to the party entitled to the disclosure and to Commission 
staff, but not subject to public availability.
6. Chief Compliance Officer
    The financial report required to be provided to the Commission 
pursuant to proposed Rules 13n-11(f) and (g) may be provided as an 
exhibit to Form SDR. If this is done, that report would be made 
publicly available, as an attachment to Form SDR, unless confidential 
treatment is requested, as explained above. Regarding all other 
elements of the collection of information relating to the CCO, the 
collection of information would not be confidential and would be made 
publicly available.
7. Other Provisions Relevant to the Collection of Information
    A list of instances of prohibiting or limiting access to the 
services of the SDR or the data maintained by an SDR would be required 
as an exhibit to Form SDR and, as such, would be made publicly 
available unless confidential treatment is requested as explained 
above. The policies and procedures that must be reasonably designed to 
review any prohibition or limitation of any person with respect to 
access to services offered or data maintained by the SDR as would be 
required in proposed Rule 13n-4(c)(1)(vi) would be made publicly 
available, as attachments to Form SDR, unless confidential treatment is 
requested, as explained above.
    The policies and procedures regarding skills and expertise of 
senior management and certain board or committee members that would be 
required under proposed Rule 13n-4(c)(2)(iv), conflicts of interest 
that would be required under proposed Rule 13n-4(c)(3), and privacy 
under proposed Rule 13n-9(b)(1) would be made publicly available as 
attachments to Form SDR unless confidential treatment is requested, as 
explained above. The procedures and a description of the facilities of 
the SDR for resolving disputes, which would be required pursuant to 
proposed Rule 13n-5(b)(6), would be made publicly available, as 
exhibits to Form SDR, unless confidential treatment is requested, as 
explained above. A description of the SDR's policies relating to misuse 
of information, which would be required pursuant to proposed Rule 13n-
9(b)(2), would be made publicly available, as an exhibit to Form SDR, 
unless confidential treatment is requested, as explained above. 
Pursuant to proposed Rule 13n-10(b), the SDR would disclose to market 
participants its policies and procedures described in proposed Rules 
13n-5(b)(6) and 13n-9(b)(1).
    Regarding all other elements of the collection of information 
relating to

[[Page 77354]]

other relevant provisions, the collection of information would be 
provided to Commission staff, but not subject to public availability.

G. Retention Period of Recordkeeping Requirements

    With regards to proposed Rule 13n-5, proposed Rule 13n-5(b)(4) 
would require that SDRs maintain the transaction data for not less than 
five years after the applicable SBS expires and historical positions 
for not less than five years. This data would be required to be 
maintained in a place and format that is readily accessible to the 
Commission and other persons with authority to access or view the 
information and would also be required to be maintained in an 
electronic format that is non-rewritable and non-erasable.
    Pursuant to proposed Rule 13n-7(b) an SDR would be required to 
preserve at least one copy of all documents as shall be made by it in 
the course of its business as such, including all records that would be 
required under the Exchange Act and the rules and regulations 
thereunder. These records would be required to be kept for a period of 
not less than five years, the first two years in a place immediately 
available to Commission staff for inspection and examination.

H. Request for Comment

    The Commission invites comment on these estimates. Pursuant to 44 
U.S.C. 3506(c)(2)(B), the Commission requests comment in order to: (a) 
Evaluate whether the collection of information is necessary for the 
proper performance of our functions, including whether the information 
will have practical utility; (b) evaluate the accuracy of our estimate 
of the burden of the collection of information; (c) determine whether 
there are ways to enhance the quality, utility, and clarity of the 
information to be collected; and (d) evaluate whether there are ways to 
minimize the burden of the collection of information on those who 
respond, including through the use of automated collection techniques 
or other forms of information technology.
    Persons submitting comments on the collection of information 
requirements should direct them to the Office of Management and Budget, 
Attention: Desk Officer for the Securities and Exchange Commission, 
Office of Information and Regulatory Affairs, Washington, DC 20503, and 
should also send a copy of their comments to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090, with reference to File No. S7-35-10. 
Requests for materials submitted to OMB by the Commission with regard 
to this collection of information should be in writing, with reference 
to File No. S7-35-10, and be submitted to the Securities and Exchange 
Commission, Records Management, Office of Filings and Information 
Services, 100 F Street, NE., Washington, DC 20549-1090. As OMB is 
required to make a decision concerning the collections of information 
between 30 and 60 days after publication, a comment to OMB is best 
assured of having its full effect if OMB receives it within 30 days of 
publication.

VI. Consideration of Costs and Benefits

    Earlier this year, Congress passed the Dodd-Frank Act in response 
to the recent financial crisis. Among other things, the Dodd-Frank Act 
is designed to strengthen oversight, improve consumer protections, and 
reduce systemic risks throughout the financial system. Title VII of the 
Dodd-Frank Act specifically addresses the OTC derivatives markets, 
including the market for SBSs. Pursuant to Subtitle B of Title VII, the 
Commission is the designated regulator for SBSs.
    The swap markets have been described as being opaque \258\ and 
transaction-level data is not publicly available. One of the purposes 
of the Dodd-Frank Act is to improve the transparency of the OTC 
derivatives market.\259\ In order to shed light on the SBS market, 
Title VII requires the Commission to undertake a number of rulemakings 
to implement the regulatory framework for SBSs that is set forth in the 
legislation, including the reporting of SBS transactions.
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    \258\ With respect to CDS, 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. See also Michael Mackenzie, 
June 25, 2010, Era of an opaque swaps market ends, Fin. Times, June 
25, 2010.
    \259\ See, e.g., 156 Cong. Rec. S5915 (daily ed. July 15, 2010) 
(statement of Sen. Reed) (``A major problem with derivatives is that 
they have not been regulated nor well-understood by even those 
buying and selling them. The legislation changes that and brings 
transparency to the marketplace for swaps * * * by requiring the 
reporting of the terms of these contracts to regulators and market 
participants.'').
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    The Commission views the process of implementing SBS data reporting 
as incremental. On October 13, 2010, the Commission adopted an interim 
final temporary rule that requires certain SBS dealers and other 
parties to report any SBSs entered into prior to the July 21 passage of 
the Dodd-Frank Act as the first step in that process.\260\ The interim 
final temporary rule provides for the reporting of pre-enactment SBSs 
and enables the Commission to obtain data on pre-enactment SBSs until 
registered SDRs are operating and able to accept the reports.
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    \260\ Reporting of Security-Based Swap Transaction Data, 
Exchange Act Release No. 63094 (Oct. 13, 2010), 75 FR 64643 (Oct. 
20, 2010).
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    Today, the Commission is proposing new rules and a new form that 
provide for the registration of SDRs and establish and expand upon the 
core principles and duties applicable to registered SDRs. SDRs are 
intended to play a critical role in enhancing transparency in the SBS 
market, bolstering market efficiency and liquidity, promoting 
standardization, and reducing systemic risks. In conjunction with 
recordkeeping and reporting rules to be proposed with respect to other 
SBS market entities, such as SB SEFs, SBS exchanges, SBS dealers, and 
major SBS participants, the proposed SDR rules will lead to a more 
robust, transparent environment for the market for SBSs.\261\
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    \261\ See, e.g., 156 Cong. Rec. S5920 (daily ed. July 15, 2010) 
(statement of Sen. Lincoln) (``These new `data repositories' will be 
required to register with the CFTC and the SEC and be subject to the 
statutory duties and core principles which will assist the CFTC and 
the SEC in their oversight and market regulation 
responsibilities.'').
---------------------------------------------------------------------------

    Proposed Rules 13n-1 through 13n-3 and proposed Form SDR establish 
the mechanism by which entities meeting the definition of a ``security-
based swap data repository'' must register as such pursuant to Exchange 
Act Section 13(n). Proposed Rules 13n-4 through 13n-10 prescribe the 
duties and core principles for SDRs and provide further guidance with 
respect to compliance with such duties and core principles. Finally, 
proposed Rule 13n-11 provides for the designation of and imposes 
obligations on SDR CCOs.
    The Commission is sensitive to the costs and benefits imposed by 
its rules, and it has identified the following costs and benefits. In 
particular, the Commission focuses our discussion below on the costs 
and benefits of the decisions made by the Commission to fulfill the 
mandates of the Dodd-Frank Act within the permitted discretion, rather 
than the mandates of the Dodd-Frank Act. However, to the extent that 
the Commission's discretion is aligned to take full advantage of the 
benefits intended by the Dodd-Frank Act, the

[[Page 77355]]

two types of benefits are not entirely separable. The Commission 
requests that commenters provide data and any other information or 
statistics that the commenters relied on to reach any conclusions on 
such estimates.

A. Registration Requirements and Form SDR

    The Commission is proposing Rule 13n-1 to set forth the information 
that must be submitted by a person on new Form SDR to register as an 
SDR and also provides for amendments to Form SDR, including interim 
amendments and required annual amendments that must be filed within 60 
days after the end of each fiscal year. Each non-resident SDR would be 
required to certify on Form SDR and provide an opinion of counsel that 
the SDR can, as a matter of law, provide the Commission with access to 
the books and records of such SDR and can submit to onsite inspection 
and examination by the Commission. Proposed Rule 13n-2 sets forth the 
process by which a registered SDR would withdraw its registration and 
proposed Rule 13n-3 sets forth the process for a succession of 
registration for SDRs.\262\ The proposed rules and form are in response 
to the mandate of the Dodd-Frank Act, which, among other things, 
requires the Commission to prescribe, by rule, the process for 
registration to be used by SDRs. The proposed rules and form prescribe 
information and documents to be submitted by SDRs in order to register 
with the Commission.
---------------------------------------------------------------------------

    \262\ See supra Sections III.A--III.C.
---------------------------------------------------------------------------

1. Benefits
    The proposed rules and form described in this section provide for 
the registration of SDRs, and the withdrawal from registration and/or 
successor registration of SDRs. Congress enacted the new registration 
requirements as part of the Dodd-Frank Act in order to bring 
transparency to the SBS market. The registration process is intended to 
assist the Commission in overseeing and regulating the SBS market. The 
requirement that a non-resident SDR certify and provide an opinion of 
counsel that it can provide the Commission with access to its books and 
records and submit to inspection and examination will allow the 
Commission to better evaluate an SDR's ability to meet the requirements 
for registration and ongoing supervision.
    The proposed rules and form described in this section would be 
issued pursuant to specific grants of rulemaking authority in the Dodd-
Frank Act \263\ and are designed to further the legislation's goals by 
enhancing the Commission's ability to oversee the marketplace for SBSs, 
which is critical to the continued integrity of our markets. The 
information to be provided in Form SDR is necessary in order to enable 
the Commission to assess whether an applicant has the capacity to 
perform the duties of an SDR and to comply with the duties, core 
principles, and other requirements imposed on registered SDRs pursuant 
to Exchange Act Section 13(n) and the rules and regulations promulgated 
thereunder.
---------------------------------------------------------------------------

    \263\ See Public Law 111-203, Sec.  763(i) (adding Exchange Act 
Section 13(n)(1)).
---------------------------------------------------------------------------

    The Commission solicits comment on the benefits associated with the 
registration-related rules and new Form SDR. The Commission 
specifically requests comment on whether it should require different 
and/or additional information to be provided on the form and the 
frequency with which routine amendments should be filed. Please 
describe and, to the extent practicable, quantify the benefits 
associated with any comments that are submitted.
2. Costs
    The Commission preliminarily anticipates that the primary costs to 
SDRs from the proposed registration-related rules and form result from 
the requirement to complete Form SDR and any amendments thereto.
    As discussed above, the Commission estimates that the average 
initial paperwork cost of SDR registration would be 400 hours per SDR 
and the average ongoing paperwork cost of interim and annual updated 
Form SDR would be 36 hours for each registered SDR.\264\ Assuming a 
maximum of ten SDRs, the aggregate one-time estimated dollar cost would 
be $584,000 \265\ and the aggregate ongoing estimated dollar cost per 
year would be $49,080 \266\ to comply with the proposed rule.
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    \264\ See supra Section V.D.1.
    \265\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney and a Compliance Clerk. 
Data from SIFMA's Management & Professional Earnings in the 
Securities Industry 2009, modified by Commission staff to account 
for an 1800-hour work-year and multiplied by 5.35 to account for 
bonuses, firm size, employee benefits, and overhead, suggest that 
the cost of a Compliance Attorney is $291 per hour and the cost of a 
Compliance Clerk is $59 per hour. Thus, the total one-time estimated 
dollar cost of complying with the initial registration-related 
requirements is $58,400 per SDR and $584,000 for all SDRs, 
calculated as follows: (Compliance Attorney at $291 per hour for 150 
hours) + (Compliance Clerk at $59 per hour for 250 hours) x (10 
registrants) = $584,000.
    \266\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney and a Compliance Clerk. 
Data from SIFMA's Management & Professional Earnings in the 
Securities Industry 2009, modified by Commission staff to account 
for an 1800-hour work-year and multiplied by 5.35 to account for 
bonuses, firm size, employee benefits, and overhead, suggest that 
the cost of a Compliance Attorney is $291 per hour and the cost of a 
Compliance Clerk is $59 per hour. Thus, the total ongoing estimated 
dollar cost of complying with the registration amendment 
requirements is $4,908 per year per SDR and $49,080 per year for all 
SDRs, calculated as follows: (Compliance Attorney at $291 per hour 
for 12 hours) + (Compliance Clerk at $59 per hour for 24 hours) x 
(10 registrants) = $49,080.
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    As discussed above, the Commission estimates that the average 
initial paperwork cost for each non-resident SDR to provide an opinion 
of counsel that the SDR can, as a matter of law, provide the Commission 
with prompt access to its books and records and submit to onsite 
inspection and examination would be 3 hours and $900 per SDR. Assuming 
a maximum of three non-resident SDRs,\267\ the aggregate one-time 
estimated dollar cost would be $5,544.\268\
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    \267\ See supra Section V.C.1.
    \268\ The Commission estimates that an SDR will assign these 
responsibilities to an Attorney. Data from SIFMA's Management & 
Professional Earnings in the Securities Industry 2009, modified by 
Commission staff to account for an 1800-hour work-year and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of an Attorney is $316 
per hour. Thus, the total ongoing estimated dollar cost of complying 
with the registration amendment requirements is $1,848 per year per 
SDR and $5,544 per year for all SDRs, calculated as follows: ($900 
for outside legal services + (Attorney at $316 per hour for 3 
hours)) x (3 non-resident registrants) = $5,544.
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    The Commission solicits comment on the costs associated with the 
registration-related rules and new Form SDR. The Commission 
specifically requests comment on the estimated number of respondents 
that would be filing proposed Form SDR and the initial costs associated 
with completing the registration form and the ongoing annual costs of 
completing the required annual amendments. Please describe and, to the 
extent practicable, quantify the costs associated with any comments 
that are submitted.
    The Commission does not expect these initial costs to have any 
significant effect on how SDRs conduct business because such costs 
would not be so large as to result in a change in how such SDRs conduct 
business, create a barrier to entry, or otherwise alter the competitive 
landscape among SDRs.\269\
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    \269\ The Commission notes that industry representatives have 
indicated that, based on their knowledge of existing SEC 
registration forms for other types of registrants, such as clearing 
agencies, they do not believe that completion of registration forms 
would impose a significant cost.
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B. SDR Duties, Data Collection and Maintenance, Automated Systems, and 
Direct Electronic Access

    Proposed Rules 13n-4(b)(2)--(7), (9), and (10), 13n-5, and 13n-6 
include

[[Page 77356]]

various requirements relating to SDRs' information technology systems. 
Proposed Rules 13n-4(b)(2)--(7), 13n-5, and 13n-6 are intended to 
codify and elucidate the statutorily mandated duties and core 
principles relating to an SDR's collection, maintenance, and analysis 
of transaction data and other records, including upon an SDR's 
cessation of business.\270\
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    \270\ See supra Section III.D--III.F.
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    Under proposed Rule 13n-4(b)(2) and (4), an SDR would be required 
to accept and maintain transaction data as required by proposed Rule 
13n-5.\271\ Proposed Rule 13n-4(b)(5) states that each SDR must provide 
direct electronic access to the Commission or any designee of the 
Commission. Proposed Rule 13n-4(b)(9) would require an SDR to make 
available all data obtained by the SDR upon the request of certain 
government bodies, such as the CFTC and the Department of Justice, on a 
confidential basis and after notification to the Commission.
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    \271\ See Public Law 111-203, Sec.  763(i) (adding Exchange Act 
Section 13(n)(5)(D)(i)).
---------------------------------------------------------------------------

    Proposed Rule 13n-5 would establish requirements for transaction 
data collection and maintenance. Proposed Rule 13n-5(b), among other 
things, would require an SDR to promptly record transaction data, and 
to establish, maintain, and enforce written policies and procedures (1) 
reasonably designed to calculate positions for all persons with open 
SBSs for which the SDR maintains records; (2) reasonably designed to 
ensure that the transaction data and positions that it maintains are 
accurate; and (3) reasonably designed to prevent any provision in a 
valid SBS from being invalidated or modified through the procedures or 
operations of the SDR. Proposed Rule 13n-5(b)(4) would establish 
requirements related to the time periods for which an SDR must 
preserve, maintain, and make accessible transaction data. Proposed Rule 
13n-5(b)(7) would require an SDR that ceases doing business to 
preserve, maintain, and make accessible the data and records described 
above for the remainder of the time period required by proposed Rule 
13n-5. Proposed Rule 13n-5(b)(8) would require SDRs to make and keep 
current a plan to ensure that the transaction data and positions that 
are recorded in the SDR continue to be maintained in accordance with 
proposed Rule 13n-5(b)(7).
    Proposed Rule 13n-6(b) would require SDRs to establish policies and 
procedures relating to the SDRs' system capacity, resiliency, and 
security. Such policies and procedures must include periodic capacity 
stress tests, reviews of system vulnerability, and adequate contingency 
and disaster recovery plans. SDRs would be required to promptly notify 
the Commission of material systems outages and submit a description and 
analysis of the outages within five business days, and notify the 
Commission in writing at least thirty calendar days before planned 
material systems changes.
1. Benefits
    The SDR provisions in the Dodd-Frank Act depend on the accuracy of 
the data maintained by registered SDRs. Exchange Act Section 13(n) 
specifically instructs the Commission to ``prescribe data collection 
and maintenance standards for'' SDRs. The proposed rules related to an 
SDR's information technology and related policies and procedures are 
designed to facilitate accurate data collection and retention with 
respect to SBSs in order to promote transparency with respect to the 
market for SBSs, as well as facilitate orderly execution and 
confirmation of SBS transactions and standardization of such 
transactions.
    The proposed rules discussed in this section would be issued 
pursuant to specific grants of rulemaking authority in the Dodd-Frank 
Act \272\ and are designed to further the legislation's goals by 
enhancing the Commission's ability to oversee the marketplace for SBSs, 
which is critical to the continued integrity of our markets. The 
ability of the Commission and other regulators to monitor risk and 
detect fraudulent activity depends on having access to market data. In 
particular, the direct electronic access requirement described in 
proposed Rule 13n-4(b)(5) will permit the Commission, its designees, 
and other regulators to carry out these responsibilities in an 
effective and efficient manner. The proposed requirement that each SDR 
make and keep current a plan to ensure that SBS data recorded in such 
SDR continues to be maintained is essential to ensure that regulators 
will continue to have access to and the ability to analyze SBS data in 
the event that the SDR ceases to do business. The proposed provisions 
relating to material systems outages are important to ensure that the 
Commission is apprised when an SDR's ability to accept, maintain, and 
provide access to regulators and market participants to accurate and 
timely transaction data may be impaired.
---------------------------------------------------------------------------

    \272\ See Public Law 111-203, Sec.  763(i) (adding Exchange Act 
Sections 13(n)(4) and (5)).
---------------------------------------------------------------------------

    The requirements in the proposed rules are likely to create various 
benefits including increased transparency and reduction of systemic 
risk by providing the Commission and other regulators to access SBS 
market information. In addition, this data will enhance the 
Commission's ability to detect and deter fraudulent and manipulative 
activity and other trading abuses in connection with the derivatives 
markets, conduct inspections and examinations to monitor the financial 
responsibility and soundness of market participants, and verify 
compliance with the statutory requirements and duties of SDRs. For 
systemic risk monitoring, it is necessary that the Commission and other 
regulators have access to information regarding all cleared and 
uncleared trades of market participants and their positions. Pursuant 
to the proposed rules, in conjunction with Regulation SBSR,\273\ SDRs 
will receive and maintain systemically important information from 
multiple trade execution facilities, SBS clearing agencies, and other 
market participants. The resulting benefit will derive from the 
increased transparency on where exposures to risk reside in financial 
markets, which will allow regulators to monitor and act before the 
risks become systematically relevant. Therefor, SDRs will help achieve 
systemic risk monitoring.
---------------------------------------------------------------------------

    \273\ See Regulation SBSR Release, supra note 9.
---------------------------------------------------------------------------

    Benefits also may accrue from the Commission's and other 
regulators' ability to use SBS data in order to oversee the SBS market 
for illegal conduct. Proposed Rule 13n-5 requires SDRs to satisfy 
itself of the accuracy of transaction data and preserve such data for a 
sufficient period so that transaction level data is available to assist 
regulators in analyzing data to detect market abuse. The proposed rule 
also requires SDRs to accept data regarding all SBSs in an asset class 
if the SDR accepts data on any SBS in that particular asset class. 
These requirements may help the Commission and other regulators to 
identify fraudulent or other predatory market activity.
    The richness of data collected by SDRs also will facilitate market 
analysis studies by regulators. Periodic reviews of market behavior 
through the study of SBS transactions will help identify the costs and 
benefits of Commission rules that can be used to evaluate the overall 
efficiency of market regulation. Such studies can inform the Commission 
and other regulators on potential changes to the rules to improve their 
efficiency.
    Central repositories of information also may create benefits from 
non-core duties, such as facilitating the reporting of life cycle 
events, asset servicing, or payment calculations. These activities

[[Page 77357]]

may be less costly to perform when SBS market transaction data is 
centrally located and accessible.
    Since Exchange Act Section 13(n) and the rules and regulations 
promulgated thereunder allow for multiple SDRs to register with the 
Commission, potentially within the same asset class, with each 
collecting data from a subset of market participants, proposed Rule 
13n-4(b)(2) requires all SDRs to accept data as prescribed by 
Regulation SBSR \274\ and proposed Rule 13n-5(b)(1) requires all SDRs 
to maintain the transaction data in a format that is readily accessible 
to the Commission and other persons with authority to access or view 
such information. The effect of these provisions, in conjunction with 
the requirements of Regulation SBSR,\275\ is that the same transaction 
data will be accepted across SBS market entities (including exchanges, 
SB SEFs, clearing agencies, SBS dealers, and major SBS participants) 
and service providers and each SDR will maintain the transaction data 
in a manner that allows the Commission and others with authority to 
access and view such data. Thus, the rule both attempts to maintain 
benefits of competition and allow proper aggregation of market-wide SBS 
data.
---------------------------------------------------------------------------

    \274\ See Regulation SBSR Release, supra note 9.
    \275\ See id.
---------------------------------------------------------------------------

    The reliability of the aggregation of market-wide SBS data depends 
upon data integrity and consistent structuring across all service 
providers. The proposed rule requires an SDR to create policies and 
procedures such that all transactions are recorded accurately. 
Aggregating data across SDRs by regulators and other users of such data 
will benefit to the extent that policies and procedures result in more 
accurate data reporting.
    The Commission solicits comment on the benefits related to Rules 
13n-4(b)(2)--(7), (9), and (10), 13n-5, and 13n-6. The Commission 
specifically requests comment on whether any additional benefits would 
accrue if the Commission imposed further, more specific technology-
related requirements. Are there alternatives that the Commission should 
consider? Please describe and, to the extent practicable, quantify the 
benefits associated with any comments that are submitted.
2. Costs
    The Commission anticipates that the primary costs to SDRs from the 
proposed rules described in this section would relate to the cost of 
developing and maintaining systems to collect and store SBS transaction 
data. Registered SDRs also would need to develop, maintain, and ensure 
compliance with related policies and procedures and provide applicable 
training.
    As discussed above, the Commission estimates that the average 
initial paperwork cost associated with creating the SDR information 
technology systems would be 42,000 hours and $10,000,000 for each SDR 
and the average ongoing paperwork cost would be 25,200 hours and 
$6,000,000 per year for each SDR.\276\ Assuming a maximum of ten SDRs, 
the aggregate one-time estimated dollar cost would be $200,020,000 
\277\ and the aggregate ongoing estimated dollar cost per year would be 
$120,012,000 \278\ to comply with the proposed rules. Based on 
conversations with industry representatives, the Commission estimates 
that the cost imposed on SDRs to provide direct electronic access to 
the Commission should be minimal as SDRs likely have or will establish 
comparable electronic access mechanisms to enable market participants 
to provide data to SDRs and review transactions to which such 
participants are parties.
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    \276\ See supra Section V.D.2.
    \277\ The Commission estimates that an SDR will assign these 
responsibilities to an Attorney, a Compliance Manager, a Programmer 
Analyst, and a Senior Business Analyst. Data from SIFMA's Management 
& Professional Earnings in the Securities Industry 2009, modified by 
Commission staff to account for an 1800-hour work-year and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of an Attorney is $316 
per hour, a Compliance Manager is $294 per hour, a Programmer 
Analyst is $190 per hour, and a Senior Business Analyst is $234 per 
hour. Thus, the total initial estimated dollar cost would be 
$20,002,000 per SDR and $200,020,000 for all SDRs, calculated as 
follows: ($10,000,000 for information technology systems + (Attorney 
at $316 per hour for 7,000 hours) + (Compliance Manager at $294 per 
hour for 8,000 hours) + (Programmer Analyst at $190 per hour for 
20,000 hours) + (Senior Business Analyst at $234 per hour for 7,000 
hours)) x 10 registrants = $200,020,000.
    \278\ The Commission estimates that an SDR will assign these 
responsibilities to an Attorney, a Compliance Manager, a Programmer 
Analyst, and a Senior Business Analyst. Data from SIFMA's Management 
& Professional Earnings in the Securities Industry 2009, modified by 
Commission staff to account for an 1800-hour work-year and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of an Attorney is $316 
per hour, a Compliance Manager is $294 per hour, a Programmer 
Analyst is $190 per hour, and a Senior Business Analyst is $234 per 
hour. Thus, the total ongoing estimated dollar cost would be 
$12,001,200 per SDR and $120,012,000 for all SDRs, calculated as 
follows: ($6,000,000 for information technology systems + (Attorney 
at $316 per hour for 4,200 hours) + (Compliance Manager at $294 per 
hour for 4,800 hours) + (Programmer Analyst at $190 per hour for 
12,000 hours) + (Senior Business Analyst at $234 per hour for 4,200 
hours)) x 10 registrants = $120,012,000.
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    As discussed above, the Commission estimates that the average 
initial paperwork cost associated with proposed Rule 13n-4(b)(10) would 
be $1,600 for each SDR and the average ongoing paperwork cost would be 
3 hours for each SDR.\279\ Assuming a maximum of ten SDRs, the 
aggregate one-time estimated dollar cost would be $16,000 \280\ and the 
aggregate ongoing estimated dollar cost per year would be $9,480 \281\ 
to comply with the proposed rule.
---------------------------------------------------------------------------

    \279\ See supra Section V.D.2.
    \280\ $1,600 for outside legal services x 10 registrants = 
$16,000.
    \281\ The Commission estimates that an SDR will assign these 
responsibilities to an Attorney. Data from SIFMA's Management & 
Professional Earnings in the Securities Industry 2009, modified by 
Commission staff to account for an 1800-hour work-year and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of an Attorney is $316 
per hour. Thus, the total ongoing estimated dollar cost would be 
$948 per SDR and $9,480 for all SDRs, calculated as follows: 
(Compliance Attorney at $316 per hour for 3 hours) x 10 registrants 
= $9,480.
---------------------------------------------------------------------------

    As discussed above, the Commission estimates that the average 
initial paperwork cost associated with developing policies and 
procedures necessary to comply with Rules 13n-5(b)(1), (2), (3), and 
(5) and 13n-6(b)(1) would be 1,050 hours and $100,000 for each SDR and 
the average ongoing paperwork cost would be 300 hours per year for each 
SDR.\282\ Assuming a maximum of ten SDRs, the aggregate one-time 
estimated dollar cost would be $3,926,250 \283\ and the aggregate 
ongoing estimated dollar cost per year would be $908,400 \284\ to 
comply with the proposed rules.
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    \282\ See supra Section V.D.2.
    \283\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Manager, an Attorney, a Senior 
Systems Analyst, and an Operations Specialist. Data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2009, 
modified by Commission staff to account for an 1800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Compliance 
Manager is $294 per hour, the cost of an Attorney is $316 per hour, 
the cost of a Senior Systems Analyst is $251 per hour, and the cost 
of an Operation Specialist is $114 per hour. Thus, the total initial 
estimated dollar cost would be $392,625 per SDR and $3,926,250 for 
all SDRs, calculated as follows: ($100,000 for outside legal 
services + (Compliance Manager at $294 per hour for 385 hours) + 
(Attorney at $316 per hour for 435 hours) + (Senior Systems Analyst 
at $251 per hour for 115 hours) + (Operations Specialist at $114 per 
hour for 115 hours)) x 10 registrants = $3,926,250.
    \284\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Manager and an Attorney. Data from 
SIFMA's Management & Professional Earnings in the Securities 
Industry 2009, modified by Commission staff to account for an 1800-
hour work-year and multiplied by 5.35 to account for bonuses, firm 
size, employee benefits, and overhead, suggest that the cost of a 
Compliance Manager is $294 per hour and the cost of an Attorney is 
$216 per hour. Thus, the total ongoing estimated dollar cost would 
be $90,840 per SDR and $908,400 for all SDRs, calculated as follows: 
((Compliance Manager at $294 per hour for 180 hours) + (Attorney at 
$316 per hour for 120 hours)) x 10 registrants = $908,400.

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[[Page 77358]]

    As discussed above, the Commission estimates that the average 
ongoing paperwork cost associated with the proposed Rules 13n-6(b)(3) 
and (4) would be 135.4 hours for each SDR.\285\ Assuming a maximum of 
ten SDRs, the aggregate ongoing estimated dollar cost per year would be 
$368,965 to comply with the proposed rules.\286\
---------------------------------------------------------------------------

    \285\ See supra Section V.D.2.
    \286\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Manager and a Senior Systems 
Analyst. Data from SIFMA's Management & Professional Earnings in the 
Securities Industry 2009, modified by Commission staff to account 
for an 1800-hour work-year and multiplied by 5.35 to account for 
bonuses, firm size, employee benefits, and overhead, suggest that 
the cost of a Compliance Manager is $294 per hour and the cost of a 
Senior Systems Analyst is $251 per hour. Thus, the total ongoing 
estimated dollar cost would be $36,896.50 per SDR and $368,965 for 
all SDRs, calculated as follows: ((Compliance Manager at $294 per 
hour for 67.7 hours) + (Senior Systems Analyst at $251 per hour for 
67.7 hours)) x 10 registrants = $368,965.
---------------------------------------------------------------------------

    The Commission believes that persons currently operating as SDRs 
may have developed and implemented aspects of the proposed rules 
already. However, such persons currently are not subject to regulation 
by the Commission and may not be subject to regulation or oversight by 
other regulatory bodies and may need to enhance their information 
technology systems and related policies and procedures to comply with 
the proposed rules. However, the Commission does not believe that the 
one-time cost of such changes will be significant. The ongoing annual 
costs for persons currently operating as SDRs likely will be consistent 
with the estimates provided above.
    Exchange Act Section 13(n) and the proposed rules and regulations 
promulgated thereunder allow for multiple SDRs to register with the 
Commission, potentially within the same asset class, with each SDR 
collecting data from a subset of market participants. While multiple 
SDRs per asset class will allow for market competition to decide how 
data is collected, it may hinder market-wide data aggregation due to 
coordination costs, particularly if market participants adopt 
incompatible reporting standards and practices. The proposed rules do 
not specify a particular reporting format or structure, which may 
create the possibility that entities reporting to SDRs, and regulators 
or other market participants accessing transaction data, will have to 
accommodate different data standards and develop different systems to 
accommodate each. This may result in increased costs for reporting 
entities and users of transaction data.
    The costs associated with aggregating data across multiple SDRs by 
regulators and other users of such data will increase to the extent 
that SDRs choose to use different identifying information for 
transactions, counterparties, and products. Data aggregation costs also 
could accrue to the extent that there is variation in the quality of 
data maintained across SDRs. Each SDR has discretion over how to 
implement its policies and procedures in the recording of reportable 
data, and variations in quality may result. Since aggregated data used 
for surveillance and risk monitoring requires that the underlying 
components are provided with the same level of accuracy, variations in 
the quality of data could be costly if subsequent interpretations of 
analysis based on the data suffer from issues of integrity. To the 
extent that market competition among SDRs impacts profit margins and 
the level of resources devoted to collecting and maintaining 
transaction data, there is an increased likelihood of variations in the 
quality of reported data and aggregation of data across multiple SDRs 
may be difficult.
    The Commission solicits comment on the costs related to proposed 
Rules 13n-4(b)(2)--(7), (9), and (10), 13n-5, and 13n-6. The Commission 
specifically requests comment on the initial and ongoing costs 
associated with establishing and maintaining the technology systems and 
related policies and procedures. Are there additional costs to creating 
an SDR that the Commission should consider? Are there alternatives that 
the Commission should consider? Do the estimates accurately reflect the 
cost of storing data in a convenient and usable electronic format for 
the required retention period? Please describe and, to the extent 
practicable, quantify the costs associated with any comments that are 
submitted.
    The Commission does not expect the initial and ongoing costs 
necessary to comply with these proposed rules to have any significant 
effect on how SDRs conduct business because such costs would not be so 
large as to result in a change in how such SDRs conduct business, 
create a barrier to entry, or otherwise alter the competitive landscape 
among SDRs.

C. Recordkeeping

    Proposed Rule 13n-7 would require an SDR to make and keep certain 
records relating to its business and retain a copy of records made by 
the SDR in the course of its business 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. The proposed rule also would require an SDR that ceases 
doing business to preserve, maintain, and make accessible the records 
required to be made and kept pursuant to the rule for the remainder of 
the time period required by proposed Rule 13n-7.\287\
---------------------------------------------------------------------------

    \287\ See supra Section III.G.
---------------------------------------------------------------------------

1. Benefits
    The rule discussed in this section is designed to further the Dodd-
Frank Act's goals by enhancing the Commission's ability to oversee 
SDRs, which are critical components of the new regulatory scheme 
governing SBS. The proposed rule will assist the Commission in 
monitoring whether an SDR is complying with Exchange Act Section 13(n) 
and the rules and regulations promulgated thereunder. In addition, the 
rule is designed to reduce systemic risks by requiring the making and 
keeping of records pertaining to the day-to-day business of SDRs. 
Finally, the legislative goals of Title VII depend on the ongoing 
operation of SDRs as the source for transaction data, and the 
recordkeeping requirements contained in the proposed rule will enhance 
the ability of the Commission and other regulators to monitor the 
financial responsibility and soundness of SDRs.
    To the extent that the proposed rule standardizes the business 
recordkeeping practices of SDRs, regulators will benefit by being able 
to perform more efficient, targeted inspections and examinations with 
an increased likelihood of identifying improper conduct at earlier 
stages in the inspection or examination. In addition, SDRs should 
benefit from standardized recordkeeping requirements by having their 
operations interrupted by inspections or examinations for shorter time 
periods. Both regulators and SDRs should benefit from standardized 
recordkeeping requirements to the extent that uniform records will 
enable regulators and SDRs to know what records the SDRs should have on 
hand.
    The Commission solicits comment on the benefits related to proposed 
Rule 13n-7. Would additional benefits accrue if the Commission imposed 
different or additional recordkeeping requirements and, if so, what 
would these requirements entail? Please describe and, to the extent 
practicable, quantify the benefits associated with any comments that 
are submitted.
2. Costs
    The Commission anticipates that the primary costs to SDRs from 
proposed

[[Page 77359]]

Rule 13n-7 would relate to the cost of making and keeping current a 
list of officers, managers, or persons performing similar functions who 
are responsible for policies and procedures and developing and 
maintaining information technology systems to collect and store the 
various records created in the course of an SDR's business.
    As discussed above, the Commission estimates that the average 
initial paperwork cost associated with making and keeping a list of 
responsible officer, manager, or persons performing similar functions 
and developing and maintaining information technology systems to ensure 
compliance with the proposed recordkeeping requirements would be 346 
hours and $1,800 for each SDR and the average ongoing paperwork cost 
associated with developing policies and procedures to ensure compliance 
with the proposed recordkeeping requirements would be 279.17 hours per 
year for each SDR.\288\ Assuming a maximum of ten SDRs, the aggregate 
one-time estimated dollar cost would be $1,015,460 \289\ and the 
aggregate ongoing estimated dollar cost per year would be $820,760 
\290\ to comply with the proposed rule.
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    \288\ See supra Section V.D.3.
    \289\ The Commission estimates that an SDR will assign these 
responsibilities primarily to a Compliance Manager as well as a 
Senior Systems Analyst. Data from SIFMA's Management & Professional 
Earnings in the Securities Industry 2009, modified by Commission 
staff to account for an 1800-hour work-year and multiplied by 5.35 
to account for bonuses, firm size, employee benefits, and overhead, 
suggest that the cost of a Compliance Manager is $294 per hour and 
the cost of a Senior Systems Analyst is $251 per hour. Thus, the 
total initial estimated dollar cost would be $101,546 per SDR and 
$1,015,460 for all SDRs, calculated as follows: ($1,800 in 
information technology costs + (Compliance Manager at $294 per hour 
for 300 hours) + (Senior Systems Analyst at $251 per hour for 46 
hours)) x 10 registrants = $1,015,460.
    \290\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Manager. Data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2009, 
modified by Commission staff to account for an 1800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Compliance 
Manager is $294 per hour. Thus, the total ongoing estimated dollar 
cost would be $82,076 per SDR and $820,760 for all SDRs, calculated 
as follows: (Compliance Manager at $294 per hour for 279.17 hours) x 
10 registrants = $820,760.
---------------------------------------------------------------------------

    The Commission does not believe that persons currently operating as 
SDRs will be subject to significant additional recordkeeping costs as a 
result of proposed Rule 13n-7 because such persons already maintain 
business records as part of their day-to-day operations. However, the 
proposed rule provides specific parameters relating to the retention 
and maintenance of these records and the proposed requirements may be 
more extensive than current market practices.
    The Commission solicits comment on the costs related to proposed 
Rule 13n-7. The Commission specifically requests comment on the initial 
and ongoing costs associated with establishing and maintaining the 
recordkeeping systems and related policies and procedures, including 
whether currently-operating SDRs would incur different recordkeeping 
costs. Are there additional costs related to recordkeeping that the 
Commission should consider? Are there alternatives that the Commission 
should consider? Please describe and, to the extent practicable, 
quantify the costs associated with any comments that are submitted.
    The Commission does not expect the initial and ongoing costs 
necessary to comply with the proposed rule to have any significant 
effect on how SDRs conduct business because such costs would not be so 
large as to result in a change in how such SDRs conduct business, 
create a barrier to entry, or otherwise alter the competitive landscape 
among SDRs.

D. Reports and Reviews

    Proposed Rule 13n-6(b)(2) would require an SDR to submit an annual 
review of its systems that support or integrally relate to its 
performance as an SDR to the Commission.\291\ Proposed Rule 13n-8 would 
require an SDR to comply with certain reporting requirements, including 
promptly providing reports or information upon request by the 
Commission.\292\
---------------------------------------------------------------------------

    \291\ See supra Section III.F.
    \292\ See supra Section III.H.
---------------------------------------------------------------------------

1. Benefits
    Title VII of the Dodd-Frank Act establishes a regulatory framework 
for the OTC derivatives market that depends on the Commission's and 
other regulators' access to information regarding the current and 
historical operation of the SBS market to verify compliance with the 
statute and effective monitoring for market risk and abuse. In 
addition, specific provisions of Title VII require routine, targeted 
monitoring of certain types of events. The rules discussed in this 
section would be issued pursuant to specific grants of rulemaking 
authority in the Dodd-Frank Act \293\ and are designed to further the 
legislation's goals by (a) ensuring that each SDR's systems provide 
adequate levels of capacity, resiliency, and security, and (b) 
facilitating access by the Commission and other regulators to 
information necessary to achieve their legislative mandates and to 
establish mechanisms by which SDRs will provide routine reports to the 
Commission. Access to such information will enhance regulators' ability 
to oversee the SBS market, which is critical to the continued integrity 
of our markets, and detect and deter fraudulent and manipulative 
activity and other trading abuses in connection with the derivatives 
markets.
---------------------------------------------------------------------------

    \293\ See Public Law 111-203, Sec.  763(i) (adding Exchange Act 
Section 13(n)).
---------------------------------------------------------------------------

    The Commission solicits comment on the benefits related to the 
requirements contained in proposed Rules 13n-6(b)(2) and 13n-8. Please 
describe and, to the extent practicable, quantify the benefits 
associated with any comments that are submitted.
2. Costs
    The Commission anticipates that the primary costs to an SDR from 
proposed Rule 13n-6(b)(2) would relate to the cost of conducting an 
annual review of the SDR's systems and, if the review is performed by 
an internal department, the cost associated with hiring an objective, 
external firm to assess the internal department's objectivity, 
competency, and work performance. The Commission anticipates that the 
primary costs to SDRs from proposed Rule 13n-8 would relate to the cost 
of developing and maintaining systems to respond to requests for 
information and provide the necessary reports and establishing related 
policies and procedures. In addition, SDRs will need to maintain staff 
to respond to the requests and provide the reports required under the 
proposed rules.\294\
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    \294\ The Commission understands some currently-existing SDRs 
may have dedicated personnel who are responsible for responding to 
and providing ad hoc report requests from regulators, including the 
Commission. To the extent that proposed Rule 13n-8 may result in 
more automated reporting, the need for such dedicated personnel 
resources may be reduced.
---------------------------------------------------------------------------

    As discussed above, the Commission estimates that the average 
ongoing paperwork cost associated with proposed Rule 13n-6(b)(2) would 
be 825 hours and $90,000.\295\ Assuming a maximum of ten SDRs, the 
aggregate ongoing estimated dollar cost per year would be $2,845,750 to 
comply with the proposed rule.\296\
---------------------------------------------------------------------------

    \295\ See supra Section V.D.4.
    \296\ The Commission estimates that an SDR will assign these 
responsibilities to an Attorney, a Manager Internal Audit, and a 
Senior Internal Auditor. Data from SIFMA's Management & Professional 
Earnings in the Securities Industry 2009, modified by Commission 
staff to account for an 1800-hour work-year and multiplied by 5.35 
to account for bonuses, firm size, employee benefits, and overhead, 
suggest that the cost of an Attorney is $316 per hour, the cost of a 
Manager Internal Audit is $291 per hour, and the cost of a Senior 
Internal Auditor is $195 per hour. Thus, the total ongoing estimated 
dollar cost would be $284,575 per SDR and $2,845,750 for all SDRs, 
calculated as follows: ($90,000 for external audit firm + (Attorney 
at $316 per hour for 100 hours) + (Manager Internal Auditor at $291 
per hour for 225 hours) + (Senior Systems Analyst at $251 per hour 
for 500 hours)) x 10 registrants = $2,845,750.

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[[Page 77360]]

    As discussed above, the Commission estimates that the average 
ongoing paperwork cost associated with proposed Rule 13n-8 would be 1 
hour per year for each SDR.\297\ Assuming a maximum of ten SDRs, the 
aggregate ongoing estimated dollar cost per year would be $2,340 to 
comply with the proposed rule.\298\
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    \297\ See supra Section V.D.4.
    \298\ The Commission estimates that an SDR will assign these 
responsibilities to a Senior Business Analyst. Data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2009, 
modified by Commission staff to account for an 1800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Senior Business 
Analyst is $234 per hour. Thus, the total ongoing estimated dollar 
cost would be $234 per SDR and $2,340 for all SDRs, calculated as 
follows: (Senior Business Analyst at $234 per hour for 1 hour) x 10 
registrants = $2,340.
---------------------------------------------------------------------------

    The Commission solicits comment on the costs related to proposed 
Rules 13n-6(b)(2) and 13n-8. The Commission specifically requests 
comment on the initial and ongoing costs associated with establishing 
and providing the reports required under the proposed rules. Are there 
additional costs associated with supplying the required reports that 
the Commission should consider? Are there alternatives that the 
Commission should consider? Please describe and, to the extent 
practicable, quantify the costs associated with any comments that are 
submitted.
    The Commission does not expect the initial and ongoing costs 
necessary to comply with proposed Rules 13n-6(b)(2) and 13n-8 to have 
any significant effect on how SDRs conduct business because such costs 
would not be so large as to result in a change in how such SDRs conduct 
business, create a barrier to entry, or otherwise alter the competitive 
landscape among SDRs.

E. Disclosure

    Under proposed Rule 13n-10, before collecting any transaction data 
from a market participant or upon the market participant's request, 
each SDR would be required to furnish the market participant a 
disclosure document containing certain information that reasonably will 
enable the market participant to identify and evaluate the risks and 
costs associated with using the services of the SDR.\299\ An SDR's 
disclosure document must include, among other things, the SDR's 
criteria for providing others with access to services offered and data 
maintained by the SDR; the SDR's criteria for those seeking to connect 
to or link with the SDR; a description of the SDR's policies and 
procedures regarding safeguarding of data and operational reliability, 
and privacy; the SDR's policies and procedures regarding its non-
commercial and/or commercial use of transaction data; dispute 
resolution procedures; description of all services, including ancillary 
services; schedule of dues, unbundled prices, and discounts or rebates; 
and a description of the SDR's governance arrangements.
---------------------------------------------------------------------------

    \299\ See supra Section III.J.
---------------------------------------------------------------------------

1. Benefits
    Proposed Rule 13n-10 is intended to provide certain information 
regarding an SDR to market participants prior to entering into an 
agreement to provide transaction data to the SDR. Although the 
Commission anticipates that there may be only one SDR for any given 
asset class, to the extent that multiple SDRs accept data for the same 
asset class, the disclosure document would enable market participants 
to make an informed choice among SDRs. Even if only one SDR serves a 
given asset class, the disclosure document is necessary to inform 
market participants of the nature of the services provided by the SDR 
and the conditions and obligations that are imposed on market 
participants in order for the participants to submit data to the SDR.
    The rule discussed in this section is designed to further the Dodd-
Frank Act's goals by providing market participants with applicable 
information regarding the operation of SDRs. The Commission solicits 
comment on the benefits related to proposed Rule 13n-10. Should the 
Commission narrow or broaden the scope of the information to be 
included in the disclosure document? Should the Commission adjust the 
frequency with which the disclosure document is provided to market 
participants? Please describe and, to the extent practicable, quantify 
the benefits associated with any comments that are submitted.
2. Costs
    As discussed above, the Commission estimates that the average 
initial paperwork cost associated with developing the disclosure 
document and related policies and procedures would be 97.5 hours and 
$9,400 for each SDR and the average ongoing paperwork cost would be 1 
hour per year for each SDR.\300\ Assuming a maximum of ten registered 
SDRs, the aggregate one-time estimated dollar cost would be $266,087.50 
\301\ and the aggregate ongoing estimated dollar cost per year would be 
$1,765 \302\ to comply with the proposed rule.
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    \300\ See supra Section V.D.5.
    \301\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Manager and a Compliance Clerk. 
Data from SIFMA's Management & Professional Earnings in the 
Securities Industry 2009, modified by Commission staff to account 
for an 1800-hour work-year and multiplied by 5.35 to account for 
bonuses, firm size, employee benefits, and overhead, suggest that 
the cost of a Compliance Manager is $294 per hour and a Compliance 
Clerk is 59 per hour. Thus, the total initial estimated dollar cost 
would be $26,608.75 per SDR and $266,087.50 for all SDRs, calculated 
as follows: ($4,400 for external legal costs + $5,000 for external 
compliance consulting costs + (Compliance Manager at $294 per hour 
for 48.75 hours) + (Compliance Clerk at $59 per hour for 48.75 
hours)) x 10 registrants = $266,087.50.
    \302\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Manager and a Compliance Clerk. 
Data from SIFMA's Management & Professional Earnings in the 
Securities Industry 2009, modified by Commission staff to account 
for an 1800-hour work-year and multiplied by 5.35 to account for 
bonuses, firm size, employee benefits, and overhead, suggest that 
the cost of a Compliance Manager is $294 per hour and a Compliance 
Clerk is 59 per hour. Thus, the total ongoing estimated dollar cost 
would be $176.50 per SDR and $1,765 for all SDRs, calculated as 
follows: ((Compliance Manager at $294 per hour for 0.5 hours) + 
(Compliance Clerk at $59 per hour for 0.5 hours)) x 10 registrants = 
$1,765.
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    The Commission solicits comment on the costs related to proposed 
Rule 13n-10. The Commission specifically requests comment on the 
initial and ongoing costs associated with drafting, reviewing, 
printing, and providing the required disclosure document. Are there 
alternatives that the Commission should consider? Please describe and, 
to the extent practicable, quantify the costs associated with any 
comments that are submitted.
    The Commission does not expect the initial and ongoing costs 
necessary to comply with proposed Rule 13n-10 to have any significant 
effect on how SDRs conduct business because such costs would not be so 
large as to result in a change in how such SDRs conduct business, 
create a barrier to entry, or otherwise alter the competitive landscape 
among SDRs.

F. Chief Compliance Officer and Compliance Functions

    Proposed Rules 13n-4(b)(11) and 13n-11 would require each 
registered SDR to designate on Form SDR a CCO whose duties include 
preparing an annual compliance report, which would be submitted to the 
Commission annually along with an annual financial report.\303\ The CCO 
would be appointed

[[Page 77361]]

by the SDR's board and would report directly to the chief executive 
officer of the SDR or the board. The CCO would be responsible for 
reviewing the compliance of the SDR with the duties and core principles 
contained in Exchange Act Section 13(n) and the rules promulgated 
thereunder and reviewing and administering, and ensuring compliance 
with, the SDR's policies and procedures reasonably designed to achieve 
compliance with the federal securities laws. The CCO also would resolve 
any conflicts of interest, in consultation with the board or the SDR's 
chief executive officer, and establish procedures for the remediation 
of noncompliance issues. The CCO would be required to prepare and sign 
an annual compliance report and submit the report to the board for its 
review prior to the submission of the report to the Commission. 
Finally, the annual compliance report must be included with the annual 
financial report that must be prepared and filed with the Commission 
pursuant to the requirements of proposed Rule 13n-11(f). The compliance 
report must be filed in a tagged data format in accordance with the 
instructions contained in the EDGAR Filer Manual,\304\ and the 
financial report must be provided in XBRL as required in Rules 
405(a)(1), (a)(3), (b), (c), (d), and (e) of Regulation S-T.\305\
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    \303\ See supra Sections III.D and III.K.
    \304\ See 17 CFR 232.301.
    \305\ See 17 CFR 232.405 (imposing content, format, submission 
and Web site posting requirements for an interactive data file, as 
defined in Rule 11 of Regulation S-T).
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1. Benefits
    Proposed Rules 13n-4(b)(11) and 13n-11 would be issued pursuant to 
specific grants of rulemaking authority in the Dodd-Frank Act \306\ and 
are designed to further the legislation's goals by enhancing the 
Commission's ability to oversee the marketplace for SBS, which is 
critical to the continued integrity of our markets. The proposed rules 
are designed to ensure that SDRs comply with the Federal securities 
laws, including Exchange Act Section 13(n) and the rules and 
regulations promulgated thereunder. Although persons currently 
operating as SDRs already may have CCOs in place, the proposed rules 
would make this standard practice for all registered SDRs, as mandated 
by the Dodd-Frank Act.
---------------------------------------------------------------------------

    \306\ See Public Law 111-203, Sec.  763(i) (adding Exchange Act 
Section 13(n)(6)).
---------------------------------------------------------------------------

    The reliability of the aggregation of market-wide transaction data 
depends upon data integrity and consistent structuring across all 
service providers. As a result of the proposed rule, the accuracy, 
reliability, integrity, and consistency of data and other records 
maintained by each SDR would be less likely to be harmed by violations 
of the securities laws because experience has shown that strong 
internal compliance programs lower the likelihood of securities laws 
violations and enhance the likelihood that any violations that do occur 
will be detected and corrected. The designation of a CCO, who will, 
among other things, monitor the application of the rules proposed 
herein and the relevant SDR policies and procedures, will help ensure 
that each SDR complies with the policies and procedures that it adopts. 
The ability of regulators and other users of transaction data to 
aggregate such data across SDRs will improve to the extent that 
compliance with applicable policies and procedures result in more 
accurate data reporting.
    Proposed Rule 13n-11(f) would require SDRs to submit annual 
financial reports to the Commission. This rule would enhance Commission 
oversight by facilitating the Commission's monitoring of an SDR's 
financial and managerial resources. The financial reports also would 
assist the Commission in monitoring potential conflicts of interests of 
a financial nature arising from the operation of an SDR.
    Benefits also will accrue from requiring SDRs to submit the filings 
required by the proposed rules using the interactive data format. This 
requirement would enable regulators to analyze the reported information 
more quickly, more accurately, and at a lower cost. In particular, the 
tagged data will make it easier to aggregate information collected from 
SDRs and compare across entities and over time, which the Commission 
believes is important for regulators to perform their duties under the 
Dodd-Frank Act.
    The Commission solicits comment on the benefits related to Rules 
13n-4(b)(11) and 13n-11. The Commission specifically requests comment 
on the benefits that would accrue from designating a CCO who would be 
responsible for preparing and certifying as accurate an annual 
compliance report and reporting annually to the board. Are there 
alternative reporting structures that could be established? Should the 
Commission consider additional provisions related to the annual 
compliance report? The Commission also requests comment on the benefits 
associated with the annual financial reports. Please describe and, to 
the extent practicable, quantify the benefits associated with any 
comments that are submitted.
2. Costs
    The establishment of a designated CCO and compliance with the 
accompanying responsibilities of a CCO would impose certain costs on 
registered SDRs. As discussed above, the Commission estimates that the 
average initial paperwork cost associated with establishing procedures 
for the remediation of noncompliance issues identified by the CCO and 
establishing and following appropriate procedures for the handling, 
management response, remediation, retesting, and closing of 
noncompliance issues would be 420 hours and $40,000 for each registered 
SDR and the average ongoing paperwork cost would be 120 hours for each 
registered SDR.\307\ In addition, each SDR would be required to hire a 
CCO in order to comply with the proposed rules, at an annual cost of 
$703,800.\308\ Assuming a maximum of ten SDRs, the aggregate initial 
estimated dollar cost per year would be $1,622,200 \309\ and the 
aggregate ongoing estimated dollar cost per year would be $7,387,200 
\310\ to comply with the proposed rules.
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    \307\ See supra Section V.D.6.
    \308\ Data from SIFMA's Management & Professional Earnings in 
the Securities Industry 2009, modified by Commission staff to 
account for an 1800-hour work-year and multiplied by 5.35 to account 
for bonuses, firm size, employee benefits, and overhead, suggest 
that the cost of a CCO is $391 per hour.
    \309\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2009, 
modified by Commission staff to account for an 1800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Compliance 
Attorney is $291 per hour. Thus, the total initial estimated dollar 
cost would be $162,220 per SDR and $1,622,200 for all SDRs, 
calculated as follows: ($40,000 for outside legal services + 
(Compliance Attorney at $291 per hour for 420 hours)) x 10 
registrants = $1,622,200.
    \310\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2009, 
modified by Commission staff to account for an 1800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Compliance 
Attorney is $291 per hour. Thus, the total ongoing estimated dollar 
cost would be $738,720 per SDR and $7,387,200 for all SDRs, 
calculated as follows: ($703,800 for a CCO + (Compliance Attorney at 
$291 per hour for 120 hours)) x 10 registrants = $7,387,200.
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    As discussed above, the Commission estimates that the average 
ongoing paperwork cost associated with preparing and submitting annual 
compliance reports to the SDR's board pursuant to proposed Rule 13n-
11(d)

[[Page 77362]]

and (g) would be 5 hours.\311\ Assuming a maximum of ten SDRs, the 
aggregate ongoing estimated dollar cost per year would be $14,550 to 
comply with the proposed rule.\312\
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    \311\ See supra Section V.D.6.
    \312\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2009, 
modified by Commission staff to account for an 1800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Compliance 
Attorney is $291 per hour. Thus, the total ongoing estimated dollar 
cost would be $1,455 per SDR and $14,550 for all SDRs, calculated as 
follows: (Compliance Attorney at $291 per hour for 5 hours) x 10 
registrants = $14,550.
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    As discussed above, the Commission estimates that the average 
ongoing paperwork cost associated with preparing annual financial 
reports pursuant to proposed Rule 13n-11(f) and (g) would be 500 hours 
and $500,000 for each registered SDR.\313\ Assuming a maximum of ten 
SDRs, the aggregate ongoing estimated dollar cost per year would be 
$5,915,000 to comply with the proposed rules.\314\
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    \313\ See supra Section V.D.6.
    \314\ The Commission estimates that an SDR will assign these 
responsibilities to a Senior Accountant. Data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2009, 
modified by Commission staff to account for an 1800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Senior Accountant 
is $183 per hour. Thus, the total ongoing estimated dollar cost 
would be $591,500 per SDR and $5,915,000 for all SDRs, calculated as 
follows: ($500,000 for independent public accounting services 
(Senior Accountant at $183 per hour for 500 hours)) x 10 registrants 
= $5,915,000.
---------------------------------------------------------------------------

    As discussed above, the Commission estimates that the average 
ongoing paperwork cost associated with submitting annual compliance and 
financial reports to the Commission pursuant to proposed Rule 13n-
11(d), (f), and (g) would be 54 hours and $22,772 for each registered 
SDR.\315\ Assuming a maximum of ten SDRs, the aggregate ongoing 
estimated dollar cost per year would be $363,260 to comply with the 
proposed rules.\316\
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    \315\ See supra Section V.D.6.
    \316\ The Commission estimates that an SDR will assign these 
responsibilities to a Senior Systems Analyst. Data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2009, 
modified by Commission staff to account for an 1800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Senior Systems 
Analyst is $251 per hour. Thus, the total ongoing estimated dollar 
cost would be $36,236 per SDR and $363,260 for all SDRs, calculated 
as follows: ($22,772 for information technology services (Senior 
Systems Analyst at $251 per hour for 54 hours)) x 10 registrants = 
$363,260.
---------------------------------------------------------------------------

    The Commission believes that currently-existing SDRs already 
maintain compliance programs that are overseen by a CCO or an 
individual who effectively serves as a CCO. In addition, such SDRs may 
prepare compliance reports presented to senior management and/or the 
SDRs' boards as part of their current business practice. Therefore, the 
Commission expects that SDRs with substantial commitments to compliance 
would incur only minimal costs in connection with the adoption of the 
proposed rule. However, the preparation of annual compliance and 
financial reports and implementation of related policies and procedures 
may require a staff beyond just a CCO, and therefore the proposed rules 
may result in additional direct costs to entities that register as 
SDRs.
    The Commission believes that currently-existing SDRs already 
prepare financial reports similar to those that would be prepared in 
accordance with proposed Rule 13n-1(f). Therefore, the Commission 
expects that most SDRs would incur only minimal costs in connection 
with the adoption of the proposed financial reporting requirement.
    The Commission solicits comment on the costs related to Rules 13n-
4(b)(11) and 13n-11. The Commission specifically requests comment on 
the initial and ongoing costs associated with designating a CCO and the 
costs associated with any personnel that may be necessary to support 
the CCO and create the annual compliance and financial reports. Are 
there additional costs that the Commission should consider? Are there 
alternatives that the Commission should consider? Do the estimates 
accurately reflect the cost of preparing annual compliance and 
financial reports? Please describe and, to the extent practicable, 
quantify the costs associated with any comments that are submitted.
    The Commission does not expect the costs necessary to comply with 
proposed Rules 13n-4(b)(11) and 13n-11 to have any significant effect 
on how SDRs conduct business because such costs would not be so large 
as to result in a change in how such SDRs conduct business, create a 
barrier to entry, or otherwise alter the competitive landscape among 
SDRs.

G. Other Policies and Procedures Relating to an SDR's Business

    The proposed rules explicitly and implicitly will require 
registered SDRs to develop and maintain various policies and 
procedures.\317\ Proposed Rule 13n-9 will require each SDR to comply 
with certain duties and core principles pertaining to confidentiality, 
disclosure, and use of information.\318\ Proposed Rule 13n-4(c) would 
require each SDR to comply with certain core principles pertaining to 
market access to services and data, governance arrangements, and 
conflicts of interest, including developing policies and procedures 
related to fees, operational reliability, and objective access and 
participation criteria.\319\ Proposed Rule 13n-5(b)(6) would require 
SDRs to develop dispute resolution mechanisms.\320\
---------------------------------------------------------------------------

    \317\ See supra Section VI.B for a discussion of the cost and 
benefits associated with the policies and procedures SDRs must 
develop and maintain with respect to their information systems.
    \318\ See supra Section III.I.
    \319\ See supra Section III.D.
    \320\ See supra Section III.E.
---------------------------------------------------------------------------

1. Benefits
    The proposed rules described in this section would be issued 
pursuant to specific grants of rulemaking authority in the Dodd-Frank 
Act \321\ and are designed to further the legislation's goals by 
specifying the obligations of registered SDRs necessary to comply with 
the goals of the Dodd-Frank Act. The proposed privacy requirement is 
intended to safeguard transaction data provided to SDRs by market 
participants. Privacy is necessary in order to ensure that market 
participants will utilize the services of registered SDRs.
---------------------------------------------------------------------------

    \321\ See Public Law 111-203, Sec.  763(i) (adding Exchange Act 
Sections 13(n)(5)(F)-(H) and (7)(A)-(C)).
---------------------------------------------------------------------------

    The proposed rule relating to market access to services and data is 
designed to further the legislation's goals by ensuring that SDRs 
impose fair, reasonable, and consistently applied fees and maintain 
objective access and participation criteria. As with the privacy 
requirement, this rule would encourage market participants to make use 
of SDRs' services.
    The proposed governance requirements are designed to reduce the 
conflicts of interest relating to SDRs. In addition, by requiring fair 
representation of market participants on the board with the opportunity 
to participate in the process for nominating directors and the right to 
petition for alternative candidates, the proposed rule will help reduce 
the likelihood that an incumbent SBS market participant could exert 
undue influence on the board.
    While the above requirements will serve to prevent and constrain 
potential conflicts of interest, proposed Rule 13n-4(c)(3) directly 
addresses conflicts of interest through targeted policies and 
procedures and an obligation to establish a process for resolving 
conflicts of interest. This rule would

[[Page 77363]]

help mitigate the possibility that SDRs' business practices and 
internal structures might disadvantage market participants and provide 
a mechanism through which conflicts may be resolved once identified.
    The proposed dispute resolution requirements also serve the 
legislative purpose of maintaining accurate records relating to SDRs. 
In addition to ensuring the accuracy of data contained in SDRs, the 
dispute resolution requirement would provide a forum in which market 
participants could correct inaccuracies in transaction data regarding 
transactions to which they are parties, thereby fostering increased 
confidence from market participants in SDRs and the transaction records 
such SDRs maintain.
    Collectively, the rules described in this section would help ensure 
that SDRs operate consistently with the objectives set forth in the 
Exchange Act by providing fair, open, and not unreasonably 
discriminatory access to all market participants without taking 
advantage of the SDRs' access to transaction data that market 
participants are required to submit to the SDRs.
    The Commission solicits comment on the benefits related to Rules 
13n-4(c), 13n-5(b)(6), and 13n-9. Would additional benefits accrue if 
the Commission imposed further requirements related to the policies and 
procedures that SDRs must maintain and, if so, what would these 
additional requirements be? Please describe and, to the extent 
practicable, quantify the benefits associated with any comments that 
are submitted.
2. Costs
    The Commission anticipates that the primary costs to SDRs from 
proposed Rules 13n-4(c), 13n-5(b)(6), and 13n-9 will derive from 
developing, maintaining, and ensuring compliance with the required 
policies and procedures.
    The governance requirements could impose costs resulting from 
educating senior management and each director about SBS trading and 
reporting and the new regulatory structure that will govern SBS, which 
could slow management or board processes at least initially.
    The dispute resolution requirement also would impose costs on 
registered SDRs because SDRs would be required to develop and implement 
processes through which market participants could challenge the 
validity of the transaction data relating to agreements to which such 
participant is a counterparty.
    As discussed above, the Commission estimates that the average 
initial paperwork cost associated with proposed Rule 13n-4(c)(1) would 
be 367.5 hours and $35,000 and the average ongoing cost would be 105 
hours per year for each SDR.\322\ Assuming a maximum of ten SDRs, the 
aggregate one-time estimated dollar cost would be $1,374,800 \323\ and 
the aggregate ongoing estimated dollar cost per year would be $294,070 
\324\ to comply with the proposed rule.
---------------------------------------------------------------------------

    \322\ See supra Section V.D.7.
    \323\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Manager, an Attorney, a Senior 
Systems Analyst, and an Operations Specialist. Data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2009, 
modified by Commission staff to account for an 1800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Compliance 
Manager is $294 per hour, the cost of an Attorney is $316 per hour, 
the cost of a Senior Systems Analyst is $251 per hour, and the cost 
of an Operation Specialist is $114 per hour. Thus, the total initial 
estimated dollar cost would be $137,480 per SDR and $1,374,800 for 
all SDRs, calculated as follows: ($35,000 for outside legal services 
+ (Compliance Manager at $294 per hour for 135 hours) + (Attorney at 
$316 per hour for 152.5 hours) + (Senior Systems Analyst at $251 per 
hour for 40 hours) + (Operations Specialist at $114 per hour for 40 
hours)) x 10 registrants = $1,374,800.
    \324\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Manager, an Attorney, a Senior 
Systems Analyst, and an Operations Specialist. Data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2009, 
modified by Commission staff to account for an 1800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Compliance 
Manager is $294 per hour, the cost of an Attorney is $316 per hour, 
the cost of a Senior Systems Analyst is $251 per hour, and the cost 
of an Operation Specialist is $114 per hour. Thus, the total ongoing 
estimated dollar cost would be $29,407 per SDR and $294,070 for all 
SDRs, calculated as follows: ((Compliance Manager at $294 per hour 
for 38 hours) + (Attorney at $316 per hour for 45 hours) + (Senior 
Systems Analyst at $251 per hour for 11 hours) + (Operations 
Specialist at $114 per hour for 11 hours)) x 10 registrants = 
$294,070.
---------------------------------------------------------------------------

    As discussed above, the Commission estimates that the average 
initial paperwork cost associated with proposed Rule 13n-4(c)(2) would 
be 210 hours and $20,000 for each SDR and the average ongoing paperwork 
cost would be 60 hours per year for each SDR.\325\ Assuming a maximum 
of ten SDRs, the aggregate one-time estimated dollar cost would be 
$811,100 \326\ and the aggregate ongoing estimated dollar cost per year 
would be $174,600 \327\ to comply with the proposed rule.
---------------------------------------------------------------------------

    \325\ See supra Section V.D.7.
    \326\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2009, 
modified by Commission staff to account for an 1800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Compliance 
Attorney is $291 per hour. Thus, the total initial estimated dollar 
cost would be $81,110 per SDR and $811,100 for all SDRs, calculated 
as follows: ($20,000 for outside legal services + (Compliance 
Attorney at $291 per hour for 210 hours)) x 10 registrants = 
$811,100.
    \327\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2009, 
modified by Commission staff to account for an 1800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Compliance 
Attorney is $291 per hour. Thus, the total ongoing estimated dollar 
cost would be $17,460 per SDR and $174,600 for all SDRs, calculated 
as follows: (Compliance Attorney at $291 per hour for 120 hours) x 
10 registrants = $174,600.
---------------------------------------------------------------------------

    As discussed above, the Commission estimates that the average 
initial paperwork cost associated with proposed Rule 13n-4(c)(3) would 
be 420 hours and $40,000 for each SDR and the average ongoing paperwork 
cost would be 120 hours per year for each SDR.\328\ Assuming a maximum 
of ten SDRs, the aggregate one-time estimated dollar cost would be 
$1,622,200 \329\ and the aggregate ongoing estimated dollar cost per 
year would be $349,200 \330\ to comply with the proposed rule.
---------------------------------------------------------------------------

    \328\ See supra Section V.D.7.
    \329\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2009, 
modified by Commission staff to account for an 1800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Compliance 
Attorney is $291 per hour. Thus, the total initial estimated dollar 
cost would be $162,220 per SDR and $1,622,200 for all SDRs, 
calculated as follows: ($40,000 for outside legal services + 
(Compliance Attorney at $291 per hour for 420 hours)) x 10 
registrants = $1,622,200.
    \330\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2009, 
modified by Commission staff to account for an 1800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Compliance 
Attorney is $291 per hour. Thus, the total ongoing estimated dollar 
cost would be $34,920 per SDR and $349,200 for all SDRs, calculated 
as follows: (Compliance Attorney at $291 per hour for 120 hours) x 
10 registrants = $349,200.
---------------------------------------------------------------------------

    As discussed above, the Commission estimates that the average 
initial paperwork cost associated with proposed Rule 13n-5(b)(6) would 
be 315 hours and $30,000 for each SDR and the average ongoing paperwork 
cost would be 90 hours per year for each SDR.\331\ Assuming a maximum 
of ten SDRs, the aggregate one-time estimated dollar cost would be 
$1,216,650 \332\ and

[[Page 77364]]

the aggregate ongoing estimated dollar cost per year would be $261,900 
\333\ to comply with the proposed rule.
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    \331\ See supra Section V.D.7.
    \332\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2009, 
modified by Commission staff to account for an 1800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Compliance 
Attorney is $291 per hour. Thus, the total initial estimated dollar 
cost would be $121,665 per SDR and $1,216,650 for all SDRs, 
calculated as follows: ($30,000 for outside legal services + 
(Compliance Attorney at $291 per hour for 315 hours)) x 10 
registrants = $1,216,650.
    \333\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2009, 
modified by Commission staff to account for an 1800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Compliance 
Attorney is $291 per hour. Thus, the total initial estimated dollar 
cost would be $26,190 per SDR and $261,900 for all SDRs, calculated 
as follows: (Compliance Attorney at $291 per hour for 90 hours) x 10 
registrants = $261,900.
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    As discussed above, the Commission estimates that the average 
initial paperwork cost associated with proposed Rule 13n-9 would be 630 
hours and $60,000 for each SDR and the average ongoing paperwork cost 
would be 180 hours per year for each SDR.\334\ Assuming a maximum of 
ten SDRs, the aggregate one-time estimated dollar cost would be 
$2,433,300 \335\ and the aggregate ongoing estimated dollar cost per 
year would be $523,800 \336\ to comply with the proposed rule.
---------------------------------------------------------------------------

    \334\ See supra Section V.D.7.
    \335\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2009, 
modified by Commission staff to account for an 1800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Compliance 
Attorney is $291 per hour. Thus, the total initial estimated dollar 
cost would be $243,330 per SDR and $2,433,300 for all SDRs, 
calculated as follows: ($60,000 for outside legal services + 
(Compliance Attorney at $291 per hour for 630 hours)) x 10 
registrants = $2,433,300.
    \336\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2009, 
modified by Commission staff to account for an 1800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Compliance 
Attorney is $291 per hour. Thus, the total ongoing estimated dollar 
cost would be $52,380 per SDR and $523,800 for all SDRs, calculated 
as follows: (Compliance Attorney at $291 per hour for 180 hours) x 
10 registrants = $523,800.
---------------------------------------------------------------------------

    The Commission solicits comment on the costs related to proposed 
Rules 13n-4(c), 13n-5(b)(6), and 13n-9. The Commission specifically 
requests comment on the initial and ongoing costs associated with 
establishing and maintaining the policies and procedures required by 
the proposed rules, particularly as the costs apply to entities 
currently operating as SDRs. Are there additional costs implicated by 
the proposed rules related to policies and procedures that the 
Commission should consider? Are there alternatives that the Commission 
should consider? Do the estimates accurately reflect the cost of 
maintaining, implementing, and revising the required policies and 
procedures? Please describe and, to the extent practicable, quantify 
the costs associated with any comments that are submitted.
    The Commission does not expect the initial and ongoing costs 
necessary to comply with the rules relating to policies and procedures 
to have any significant effect on how SDRs conduct business because 
such costs would not be so large as to result in a change in how such 
SDRs conduct business, create a barrier to entry, or otherwise alter 
the competitive landscape among SDRs.

H. Total Costs

    Based on the analyses described above, the Commission preliminarily 
estimates that proposed Rules 13n-1 through 13n-11 and proposed Form 
SDR would impose on registered SDRs an aggregate total initial one-time 
estimated dollar cost of approximately $214,913,592.\337\ The 
Commission further preliminarily estimates that proposed Rules 13n-1 
through 13n-11 and proposed Form SDR would impose on registered SDRs a 
total ongoing annualized aggregate dollar cost of approximately 
$140,302,120.\338\ Altogether, the Commission preliminarily estimates 
that proposed Rules 13n-1 through 13n-11, proposed Form SDR, and 
proposed Regulation SBSR \339\ would impose on registered SDRs 
aggregate initial estimated dollar costs of approximately $295,891,852 
\340\ and aggregate ongoing annualized dollar costs of approximately 
$245,428,520.\341\
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    \337\ The Commission derived its estimate from the following: 
($589,544 ($584,000 + $5,544) for Registration Requirements and Form 
SDR) + ($203,962,250 ($200,020,000 + $16,000 + $3,926,250) for SDR 
Duties, Data Collection and Maintenance, Automated Systems, and 
Direct Electronic Access) + ($1,015,460 for Recordkeeping) + 
($266,088 for Disclosure) + ($1,622,200 for Chief Compliance Officer 
and Compliance Functions) + ($7,458,050 ($1,374,800 + $811,100 + 
$1,622,200 + $1,216,650 + $2,433,300) for Other Policies and 
Procedures Relating to an SDR's Business) = $214,913,592.
    \338\ The Commission derived its estimate from the following: 
($49,080 for Registration Requirements and Form SDR) + ($121,298,845 
($120,012,000 + $9,480 + $908,400 + $368,965) for SDR Duties, Data 
Collection and Maintenance, Automated Systems, and Direct Electronic 
Access) + ($820,760 for Recordkeeping) + ($2,848,090 ($2,845,750 + 
$2,340) for Reports and Reviews) + ($1,765 for Disclosure) + 
($13,680,010 ($7,387,200 + $14,550 + $5,915,000 + $363,260) for 
Chief Compliance Officer and Compliance Functions) + ($1,603,570 
($294,070 + $174,600 + $349,200 + $261,900 + $523,800) for Other 
Policies and Procedures Relating to an SDR's Business) = 
$140,302,120.
    \339\ See Regulation SBSR Release, supra note 9.
    \340\ The Commission derived its estimate from the following: 
($214,913,592 for proposed Rules 13n-1 through 13n-11 and proposed 
Form SDR) + ($80,978,260 for proposed Regulation SBSR) = 
$295,891,852.
    \341\ The Commission derived its estimate from the following: 
($140,302,120 for proposed Rules 13n-1 through 13n-11 and proposed 
Form SDR) + ($105,126,400 for proposed Regulation SBSR) = 
$245,428,520.
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I. Request for Comment

    The Commission requests data to quantify the costs and the value of 
the benefits above. The Commission seeks estimates of these costs and 
benefits, as well as any costs and benefits not already defined, which 
may result from the adoption of the proposed rules and Form SDR. 
Commenters should provide analysis and empirical data to support their 
views on the costs and benefits associated with the proposals.

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

    Exchange Act Section 23(a) \342\ requires the Commission, when 
making rules and regulations under the Exchange Act, to consider the 
impact a new rule would have on competition. Exchange Act Section 
23(a)(2) 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. Securities Act Section 
2(b) \343\ and Exchange Act Section 3(f) \344\ require the Commission, 
when engaging in rulemaking that requires it to consider whether an 
action is necessary or appropriate in the public interest, to consider, 
in addition to the protection of investors, whether the action would 
promote efficiency, competition, and capital formation. Below, the 
Commission addresses these issues for the proposed rules regarding data 
collection and maintenance and recordkeeping by SDRs and books and 
records relating to SBS. The Commission focuses on the effects of the 
discretion used by the Commission rather than the mandates of the Dodd-
Frank Act. However, to the extent that the discretion is used to take 
full advantage of the benefits intended by the Dodd-Frank Act, the two 
types of benefits are not entirely separable.
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    \342\ 15 U.S.C. 78w(a).
    \343\ 15 U.S.C. 77b(b).
    \344\ 15 U.S.C. 78c(f).
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    The economic effects of the proposed rules were discussed in detail 
in the

[[Page 77365]]

costs and benefits section. These economic benefits encompassed effects 
on economic efficiency, competition, and capital formation.
    To reiterate, by allowing multiple SDRs to provide data collection, 
maintenance, and recordkeeping services, the rules are intended to 
promote competition among SDRs. We do not preliminarily believe that 
the provisions would give undue market influence to any potential 
market participants. We believe that non-resident SDRs generally can 
take steps to comply with their home country requirements and the 
Commission's supervisory requirements, and therefore can register with 
the Commission. We recognize that there potentially could be instances 
in which a non-resident SDR is unable to register because, for example, 
they cannot make the certification or provide the opinion of counsel 
required by proposed Rule 13n-1(g). We believe, however, that these 
requirements are necessary and appropriate in furtherance of the 
purpose of the Exchange Act.
    However, by allowing multiple SDRs, the proposed rules may result 
in inefficiencies as explained in the benefits and costs section of 
this release. In particular, the potential reporting of transaction 
data to multiple SDRs would create a need to aggregate those data by 
regulators and other interested parties. From a systemic risk 
perspective, monitoring costs increase if identifiers or data field 
definitions used by different SDRs are not compatible with each other 
and aggregation is difficult. The complications associated with 
aggregation could be particularly costly when aggregation is required 
across the same asset class and different legs of the same transaction 
reside in different SDRs. However, the current market structure 
essentially consists of only one SDR per asset class, and it is likely 
that the market would, under competitive forces, ultimately converge to 
an efficient outcome that does not present compatibility problems or 
that entails fewer, rather than many, SDRs.
    The Commission believes that the proposed rules use the discretion 
that the Dodd-Frank Act permits the Commission to use to promote data 
collection, maintenance, and recordkeeping according to existing best 
practices that are used in similar capital market institutions. This is 
likely to positively affect transparency in credit markets. Therefore, 
the proposed rules would help capital formation in the broader capital 
markets whose participants rely on SBS markets to meet their hedging 
objectives.
    The practices that are proposed in the rules would also help 
regulators perform their supervisory functions in an effective manner. 
The resulting increase in market integrity is likely to affect capital 
formation in our capital markets positively. In addition, regulators 
would be better equipped to perform their duties in the management and 
mitigation of systemic risk.

VIII. Initial Regulatory Flexibility Act Certification

    Section 603(a) of the Regulatory Flexibility Act \345\ (``RFA'') 
requires the Commission to undertake an initial regulatory flexibility 
analysis of the impact of proposed Rules 13n-1 through 13n-11 on small 
entities, unless the Commission certifies that the proposed rules, if 
adopted, would not have significant economic impact on a substantial 
number of small entities.\346\
---------------------------------------------------------------------------

    \345\ 5 U.S.C. 603(a).
    \346\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

A. SDRs

    Proposed Rules 13n-1 through 13n-11 would apply to all SDRs. In the 
Dodd-Frank Act, Congress defined for the first time what activity would 
constitute an SDR and mandated the registration of these new entities. 
The Commission does not know exactly how many entities may seek to 
register as SDRs and become subject to the requirements of the proposed 
rules. However, based on its understanding of the market and 
conversations with industry sources, the Commission preliminarily 
believes that likely no more than ten SDRs could be subject to the 
requirements of proposed Rules 13n-1 through 13n-11.
    For purposes of Commission rulemaking in connection with the RFA, 
an issuer or person, other than an investment company, is a small 
business if its total assets on the last day of its most recent fiscal 
year were $5 million or less.\347\ The Commission preliminarily 
believes that the entities likely to register as SDRs will not be 
considered small entities. The Commission preliminarily believes that 
most, if not all, of the SDRs will be part of large business entities, 
and that all SDRs will have assets in excess of $5 million and total 
capital in excess of $500,000.\348\ Therefore, the Commission 
preliminarily believes that none of the SDRs will be considered small 
entities.
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    \347\ 17 CFR 230.157. See also 17 CFR 240.0-10(a).
    \348\ Commission staff based this determination on its review of 
public sources of financial information about the current 
repositories that are providing services in the OTC derivatives 
market.
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B. Certification

    In the Commission's preliminary view, the proposed rules would not 
have a significant economic impact on a substantial number of small 
entities, including national securities exchanges, clearing agencies, 
or other small businesses or small organizations. For the above 
reasons, the Commission certifies that the proposed rules would not 
have a significant economic impact on a substantial number of small 
entities. The Commission requests comment regarding this certification. 
The Commission requests that commenters describe the nature of any 
impact on small entities, including national securities exchanges, 
clearing agencies, or other small businesses or small organizations 
that may register as SDRs, and provide empirical data to support the 
extent of the impact.

IX. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996, or ``SBREFA,'' \349\ the Commission must advise the OMB as 
to whether the proposed regulations constitute 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.
---------------------------------------------------------------------------

    \349\ 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 the 
proposed rules 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 views to the extent 
possible.

X. Statutory Authority

    Pursuant to the Exchange Act, and particularly Sections 13(n) and 
23(a) thereof, 15 U.S.C. 78m(n) and 78w(a), the Commission proposes new 
Rules 13n-1 to 13n-11, which would govern SDRs.

List of Subjects in 17 CFR Parts 240 and 249

    Reporting and recordkeeping requirements, Securities.

    In accordance with the foregoing, Title 17, Chapter II of the Code 
of

[[Page 77366]]

Federal Regulations is proposed to be 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.; 18 U.S.C. 1350; and 12 U.S.C. 5221(e)(3), 
unless otherwise noted.

* * * * *
    2. Sections 240.13n-1 through 240-13n-11 are added to read as 
follows:

Sec.
240.13n-1 Registration of security-based swap data repository.
240.13n-2 Withdrawal from registration.
240.13n-3 Registration of successor to registered security-based 
swap data repository.
240.13n-4 Duties and core principles of security-based swap data 
repository.
240.13n-5 Data collection and maintenance.
240.13n-6 Automated systems.
240.13n-7 Recordkeeping of security-based swap data repository.
240.13n-8 Reports to be provided to the Commission.
240.13n-9 Privacy requirements of security-based swap data 
repository.
240.13n-10 Disclosure requirements of security-based swap data 
repository.
240.13n-11 Designation of chief compliance officer of security-based 
swap data repository.


Sec.  240.13n-1  Registration of security-based swap data repository.

    (a) Definition. For purposes of this section--
    (1) EDGAR Filer Manual has the same meaning as set forth in Rule 11 
of Regulation S-T (17 CFR 232).
    (2) Non-resident security-based swap data repository means:
    (i) In the case of an individual, one who resides in or has his 
principal place of business in any place not in the United States;
    (ii) In the case of a corporation, one incorporated in or having 
its principal place of business in any place not in the United States; 
or
    (iii) In the case of a partnership or other unincorporated 
organization or association, one having its principal place of business 
in any place not in the United States.
    (3) Tag (including the term tagged) means an identifier that 
highlights specific information submitted to the Commission that is in 
the format required by the EDGAR Filer Manual, as described in Rule 301 
of Regulation S-T (17 CFR 232.301).
    (b) An application for the registration of a security-based swap 
data repository shall be filed electronically in a tagged data format 
on Form SDR (17 CFR 249.1500) with the Commission in accordance with 
the instructions contained therein. As part of the application process, 
each SDR shall provide additional information to the Commission upon 
request.
    (c) Within 90 days of the date of the filing of such application 
(or within such longer period as to which the applicant consents), the 
Commission shall--
    (1) By order grant registration, or
    (2) Institute proceedings to determine whether registration should 
be denied. Such proceedings shall include notice of the grounds for 
denial under consideration and opportunity for hearing on the record 
and shall be concluded not later than 180 days after the date on which 
the application for registration is filed with the Commission under 
paragraph (b) of this section. At the conclusion of such proceedings, 
the Commission, by order, shall grant or deny such registration. The 
Commission may extend the time for conclusion of such proceedings for 
up to 90 days if it finds good cause for such extension and publishes 
its reasons for so finding or for such longer period as to which the 
applicant consents.
    (3) The Commission shall grant the registration of a security-based 
swap data repository if the Commission finds that such security-based 
swap data repository is so organized, and has the capacity, to be able 
to assure the prompt, accurate, and reliable performance of its 
functions as a security-based swap data repository, comply with any 
applicable provision of the federal securities laws and the rules and 
regulations thereunder, and carry out its functions in a manner 
consistent with the purposes of Section 13(n) of the Act (15 U.S.C. 
78m(n)) and the rules and regulations thereunder. The Commission shall 
deny the registration of a security-based swap data repository if it 
does not make any such finding.
    (d) For any application of registration as a security-based swap 
data repository, the Commission, upon the request of a security-based 
swap data repository, may grant temporary registration of the security-
based swap data repository that shall expire on the earlier of:
    (1) The date that the Commission grants or denies registration of 
the security-based swap data repository; or
    (2) The date that the Commission rescinds the temporary 
registration of the security-based swap data repository.
    (e) If any information reported in items 1 through 16, 25, and 44 
of Form SDR (17 CFR 249.1500) or in any amendment thereto is or becomes 
inaccurate for any reason, whether before or after the registration has 
been granted, the security-based swap data repository shall promptly 
file an amendment on Form SDR updating such information. In addition, 
the security-based swap data repository shall annually file an 
amendment on Form SDR within 60 days after the end of each fiscal year 
of such security-based swap data repository.
    (f) Each security-based swap data repository shall designate and 
authorize on Form SDR an agent in the United States, other than a 
Commission member, official, or employee, who shall accept any notice 
or service of process, pleadings, or other documents in any action or 
proceedings brought against the security-based swap data repository to 
enforce the Federal securities laws and the rules and regulations 
thereunder.
    (g) Any non-resident security-based swap data repository applying 
for registration pursuant to this section shall certify on Form SDR and 
provide an opinion of counsel that the security-based swap data 
repository can, as a matter of law, provide the Commission with prompt 
access to the books and records of such security-based swap data 
repository and that the security-based swap data repository can, as a 
matter of law, submit to onsite inspection and examination by the 
Commission.
    (h) An application for registration or any amendment thereto that 
is filed pursuant to this section shall be considered a ``report'' 
filed with the Commission for purposes of Sections 18(a) and 32(a) of 
the Act (15 U.S.C. 78r(a) and 78ff(a)) and the rules and regulations 
thereunder and other applicable provisions of the United States Code 
and the rules and regulations thereunder.


Sec.  240.13n-2  Withdrawal from registration.

    (a) Definitions. For purposes of this section--
    (1) Control (including the terms controlled by and under common 
control with) means 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:

[[Page 77367]]

    (i) Is a director, general partner, or officer exercising executive 
responsibility (or having similar status or functions);
    (ii) Directly or indirectly has the right to vote 25 percent of 
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
    (iii) In the case of a partnership, has the right to receive, upon 
dissolution, or has contributed, 25 percent or more of the capital.
    (2) Person associated with a security-based swap data repository 
means:
    (i) Any partner, officer, or director of such security-based swap 
data repository (or any person occupying a similar status or performing 
similar functions);
    (ii) Any person directly or indirectly controlling, controlled by, 
or under common control with such security-based swap data repository; 
or
    (iii) Any employee of such security-based swap data repository.
    (b) A registered security-based swap data repository may withdraw 
from registration by filing a notice of withdrawal with the Commission. 
The security-based swap data repository shall designate on its notice 
of withdrawal a person associated with the security-based swap data 
repository to serve as the custodian of the security-based swap data 
repository's books and records. Prior to filing a notice of withdrawal, 
a security-based swap data repository shall file an amended Form SDR 
(17 CFR 249.1500) to update any inaccurate information.
    (c) A notice of withdrawal from registration filed by a security-
based swap data repository shall become effective for all matters 
(except as provided in this paragraph (c)) on the 60th day after the 
filing thereof with the Commission, within such longer period of time 
as to which such security-based swap data repository consents or which 
the Commission, by order, may determine as necessary or appropriate in 
the public interest or for the protection of investors, or within such 
shorter period of time as the Commission may determine.
    (d) A notice of withdrawal that is filed pursuant to this section 
shall be considered a ``report'' filed with the Commission for purposes 
of Sections 18(a) and 32(a) of the Act (15 U.S.C. 78r(a) and 78ff(a)) 
and the rules and regulations thereunder and other applicable 
provisions of the United States Code and the rules and regulations 
thereunder.
    (e) If the Commission finds, on the record after notice and 
opportunity for hearing, that any registered security-based swap data 
repository has obtained its registration by making any false and 
misleading statements with respect to any material fact or has violated 
or failed to comply with any provision of the federal securities laws 
and the rules and regulations thereunder, the Commission, by order, may 
revoke the registration. Pending final determination of whether any 
registration shall be revoked, the Commission, by order, may suspend 
such registration, if such suspension appears to the Commission, after 
notice and opportunity for hearing on the record, to be necessary or 
appropriate in the public interest or for the protection of investors.
    (f) If the Commission finds that a registered security-based swap 
data repository is no longer in existence or has ceased to do business 
in the capacity specified in its application for registration, the 
Commission, by order, may cancel the registration.


Sec.  240.13n-3  Registration of successor to registered security-based 
swap data repository.

    (a) In the event that a security-based swap data repository 
succeeds to and continues the business of a security-based swap data 
repository registered pursuant to Section 13(n) of the Act (15 U.S.C. 
78m(n)), the registration of the predecessor shall be deemed to remain 
effective as the registration of the successor if, within 30 days after 
such succession, the successor files an application for registration on 
Form SDR (17 CFR 249.1500), and the predecessor files a notice of 
withdrawal from registration with the Commission; provided, however, 
that the registration of the predecessor security-based swap data 
repository shall cease to be effective 90 days after the application 
for registration on Form SDR is filed by the successor security-based 
swap data repository.
    (b) Notwithstanding paragraph (a) of this section, if a security-
based swap data repository succeeds to and continues the business of a 
registered predecessor security-based swap data repository, and the 
succession is based solely on a change in the predecessor's date or 
state of incorporation, form of organization, or composition of a 
partnership, the successor may, within 30 days after the succession, 
amend the registration of the predecessor security-based swap data 
repository on Form SDR to reflect these changes. This amendment shall 
be deemed an application for registration filed by the predecessor and 
adopted by the successor.


Sec.  240.13n-4  Duties and core principles of security-based swap data 
repository.

    (a) Definitions. For purposes of this section--
    (1) Affiliate of a security-based swap data repository means a 
person that, directly or indirectly, controls, is controlled by, or is 
under common control with the security-based swap data repository.
    (2) Board means the board of directors of the security-based swap 
data repository or a body performing a function similar to the board of 
directors of the security-based swap data repository.
    (3) Control (including the terms controlled by and under common 
control with) means 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:
    (i) Is a director, general partner, or officer exercising executive 
responsibility (or having similar status or functions);
    (ii) Directly or indirectly has the right to vote 25 percent of 
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
    (iii) In the case of a partnership, has the right to receive, upon 
dissolution, or has contributed, 25 percent or more of the capital.
    (4) Director means any member of the board.
    (5) Direct electronic access means access, which shall be in a form 
and manner acceptable to the Commission, to data stored by a security-
based swap data repository in an electronic format and updated at the 
same time as the security-based swap data repository's data is updated 
so as to provide the Commission or any of its designees with the 
ability to query or analyze the data in the same manner that the 
security-based swap data repository can query or analyze the data.
    (6) End-user means any counterparty to a security-based swap that 
is described in Section 3C(g)(1) of the Act (15 U.S.C. 78c-3(g)(1)) and 
the rules and regulations thereunder.
    (7) Market participant means any person participating in the 
security-based swap market, including, but not limited to, security-
based swap dealers, major security-based swap participants, and any 
other counterparties to a security-based swap transaction.
    (8) Nonaffiliated third party of a security-based swap data 
repository means any person except:

[[Page 77368]]

    (i) The security-based swap data repository,
    (ii) Any affiliate of the security-based swap data repository, or
    (iii) A person employed by a security-based swap data repository 
and any entity that is not the security-based swap data repository's 
affiliate (and ``nonaffiliated third party'' includes such entity that 
jointly employs the person).
    (9) Person associated with a security-based swap data repository 
means:
    (i) Any partner, officer, or director of such security-based swap 
data repository (or any person occupying a similar status or performing 
similar functions);
    (ii) Any person directly or indirectly controlling, controlled by, 
or under common control with such security-based swap data repository; 
or
    (iii) Any employee of such security-based swap data repository.
    (b) Duties. To be registered, and maintain registration, as a 
security-based swap data repository, a security-based swap data 
repository shall:
    (1) Subject itself to inspection and examination by the Commission;
    (2) Accept data as prescribed in Regulation SBSR for each security-
based swap;
    (3) Confirm, as prescribed in Rule 13n-5, with both counterparties 
to the security-based swap the accuracy of the data that was submitted;
    (4) Maintain, as prescribed in Rule 13n-5, the data described in 
Regulation SBSR in such form, in such manner, and for such period as 
provided therein and in the Act and the rules and regulations 
thereunder;
    (5) Provide direct electronic access to the Commission (or any 
designee of the Commission, including another registered entity);
    (6) Provide the information described in Regulation SBSR in such 
form and at such frequency as prescribed in Regulation SBSR to comply 
with the public reporting requirements set forth in Section 13(m) of 
the Act (15 U.S.C. 78m(m)) and the rules and regulations thereunder;
    (7) At such time and in such manner as may be directed by the 
Commission, establish automated systems for monitoring, screening, and 
analyzing security-based swap data;
    (8) Maintain the privacy of any and all security-based swap 
transaction information that the security-based swap data repository 
receives from a security-based swap dealer, counterparty, or any 
registered entity as prescribed in Rule 13n-9;
    (9) On a confidential basis, pursuant to Section 24 of the Act (15 
U.S.C. 78x) and the rules and regulations thereunder, upon request, and 
after notifying the Commission of the request, make available all data 
obtained by the security-based swap data repository, including 
individual counterparty trade and position data, to the following:
    (i) Each appropriate prudential regulator, as defined in Section 
3(a)(74) of the Act (15 U.S.C. 78c(a)(74));
    (ii) The Financial Stability Oversight Council;
    (iii) The Commodity Futures Trading Commission;
    (iv) The Department of Justice; and
    (v) The Federal Deposit Insurance Corporation and any other person 
that the Commission determines to be appropriate, including, but not 
limited to--
    (A) Foreign financial supervisors (including foreign futures 
authorities);
    (B) Foreign central banks; and
    (C) Foreign ministries;
    (10) Before sharing information with any entity described in 
paragraph (b)(9) of this section, obtain a written agreement from each 
entity stating that the entity shall abide by the confidentiality 
requirements described in Section 24 of the Act (15 U.S.C. 78x) and the 
rules and regulations thereunder relating to the information on 
security-based swap transactions that is provided, and each entity 
shall agree to indemnify the security-based swap data repository and 
the Commission for any expenses arising from litigation relating to the 
information provided under Section 24 of the Act (15 U.S.C. 78x) and 
the rules and regulations thereunder; and
    (11) Designate an individual to serve as a chief compliance officer 
who shall comply with Rule 13n-11.
    (c) Compliance with core principles. A security-based swap data 
repository shall comply with the core principles as described in this 
paragraph.
    (1) Market Access to Services and Data. Unless necessary or 
appropriate to achieve the purposes of the Act and the rules and 
regulations thereunder, the security-based swap data repository shall 
not adopt any policies and procedures or take any action that results 
in an unreasonable restraint of trade or impose any material 
anticompetitive burden on the trading, clearing, or reporting of 
transactions. To comply with this core principle, each security-based 
swap data repository shall:
    (i) Ensure that any dues, fees, or other charges imposed by, and 
any discounts or rebates offered by, a security-based swap data 
repository are fair and reasonable and not unreasonably discriminatory. 
Such dues, fees, other charges, discounts, or rebates shall be applied 
consistently across all similarly-situated users of such security-based 
swap data repository's services, including, but not limited to, market 
participants, market infrastructures (including central 
counterparties), venues from which data can be submitted to the 
security-based swap data repository (including exchanges, security-
based swap execution facilities, electronic trading venues, and 
matching and confirmation platforms), and third party service 
providers;
    (ii) Permit market participants to access specific services offered 
by the security-based swap data repository separately;
    (iii) Establish, monitor on an ongoing basis, and enforce clearly 
stated objective criteria that would permit fair, open, and not 
unreasonably discriminatory access to services offered and data 
maintained by the security-based swap data repository as well as fair, 
open, and not unreasonably discriminatory participation by market 
participants, market infrastructures, venues from which data can be 
submitted to the security-based swap data repository, and third party 
service providers that seek to connect to or link with the security-
based swap data repository; and
    (iv) Establish, maintain, and enforce written policies and 
procedures reasonably designed to review any prohibition or limitation 
of any person with respect to access to services offered, directly or 
indirectly, or data maintained by the security-based swap data 
repository and to grant such person access to such services or data if 
such person has been discriminated against unfairly.
    (2) Governance arrangements. Each security-based swap data 
repository shall establish governance arrangements that are transparent 
to fulfill public interest requirements under the Act and the rules and 
regulations thereunder; to carry out functions consistent with the Act, 
the rules and regulations thereunder, and the purposes of the Act; and 
to support the objectives of the Federal Government, owners, and 
participants. To comply with this core principle, each security-based 
swap data repository shall:
    (i) Establish governance arrangements that are well defined and 
include a clear organizational structure with effective internal 
controls;
    (ii) Establish governance arrangements that provide for fair 
representation of market participants;
    (iii) Provide representatives of market participants, including 
end-users, with the opportunity to participate in the process for 
nominating directors and

[[Page 77369]]

with the right to petition for alternative candidates; and
    (iv) Establish, maintain, and enforce written policies and 
procedures reasonably designed to ensure that the security-based swap 
data repository's senior management and each member of the board or 
committee that has the authority to act on behalf of the board possess 
requisite skills and expertise to fulfill their responsibilities in the 
management and governance of the security-based swap data repository, 
to have a clear understanding of their responsibilities, and to 
exercise sound judgment about the security-based swap data repository's 
affairs.
    (3) Conflicts of interest. Each security-based swap data repository 
shall establish and enforce written policies and procedures reasonably 
designed to minimize conflicts of interest in the decision-making 
process of the security-based swap data repository and establish a 
process for resolving any such conflicts of interest. Such conflicts of 
interest include, but are not limited to: conflicts between the 
commercial interests of a security-based swap data repository and its 
statutory responsibilities; conflicts in connection with the commercial 
interests of certain market participants or linked market 
infrastructures, third party service providers, and others; conflicts 
between, among, or with persons associated with the security-based swap 
data repository, market participants, affiliates of the security-based 
swap data repository, and nonaffiliated third parties; and misuse of 
confidential information, material, nonpublic information, and/or 
intellectual property. To comply with this core principle, each 
security-based swap data repository shall:
    (i) Establish, maintain, and enforce written policies and 
procedures reasonably designed to identify and mitigate potential and 
existing conflicts of interest in the security-based swap data 
repository's decision-making process on an ongoing basis;
    (ii) With respect to the decision-making process for resolving any 
conflicts of interest, require the recusal of any person involved in 
such conflict from such decision-making; and
    (iii) Establish, maintain, and enforce reasonable written policies 
and procedures regarding the security-based swap data repository's non-
commercial and/or commercial use of the security-based swap transaction 
information that it receives from a market participant, any registered 
entity, or any other person.

    Note to Sec.  240.13n-4: This rule is not intended to limit, or 
restrict, the applicability of other provisions of the Federal 
securities laws, including, but not limited to, Section 13(m) of the 
Act (15 U.S.C. 78m(m)) and the rules and regulations thereunder.

Sec.  240.13n-5  Data collection and maintenance.

    (a) Definitions. For purposes of this section--
    (1) Transaction data means all information reported to a security-
based swap data repository pursuant to the Act and the rules and 
regulations thereunder.
    (2) Position means the gross and net notional amounts of open 
security-based swap transactions aggregated by one or more attributes, 
including, but not limited to, the:
    (i) Underlying instrument, index, or reference entity;
    (ii) Counterparty;
    (iii) Asset class;
    (iv) Long risk of the underlying instrument, index, or reference 
entity; and
    (v) Short risk of the underlying instrument, index, or reference 
entity.
    (3) 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.
    (b) Requirements. Every security-based swap data repository 
registered with the Commission shall comply with the following data 
collection and data maintenance standards:
    (1) Transaction data.
    (i) Every security-based swap data repository shall establish, 
maintain, and enforce written policies and procedures reasonably 
designed for the reporting of transaction data to the security-based 
swap data repository and shall accept all transaction data that is 
reported in accordance with such policies and procedures.
    (ii) If a security-based swap data repository accepts any security-
based swap in a particular asset class, the security-based swap data 
repository shall accept all security-based swaps in that asset class 
that are reported to it in accordance with its policies and procedures 
required by paragraph (b)(1) of this section.
    (iii) Every security-based swap data repository shall establish, 
maintain, and enforce written policies and procedures reasonably 
designed to satisfy itself by reasonable means that the transaction 
data that has been submitted to the security-based swap data repository 
is accurate, including 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.
    (iv) Every security-based swap data repository shall promptly 
record the transaction data it receives.
    (2) Positions. Every security-based swap data repository shall 
establish, maintain, and enforce written policies and procedures 
reasonably designed to calculate positions for all persons with open 
security-based swaps for which the security-based swap data repository 
maintains records.
    (3) Every security-based swap data repository shall establish, 
maintain, and enforce written policies and procedures reasonably 
designed to ensure that the transaction data and positions that it 
maintains are accurate.
    (4) Every security-based swap data repository shall maintain 
transaction data for not less than five years after the applicable 
security-based swap expires and historical positions for not less than 
five years:
    (i) In a place and format that is readily accessible to the 
Commission and other persons with authority to access or view such 
information; and
    (ii) In an electronic format that is non-rewriteable and non-
erasable.
    (5) Every security-based swap data repository shall establish, 
maintain, and enforce written policies and procedures reasonably 
designed to prevent any provision in a valid security-based swap from 
being invalidated or modified through the procedures or operations of 
the security-based swap data repository.
    (6) Every security-based swap data repository shall establish 
procedures and provide facilities reasonably designed to effectively 
resolve disputes over the accuracy of the transaction data and 
positions that are recorded in the security-based swap data repository.
    (7) If a security-based swap data repository ceases doing business, 
or ceases to be registered pursuant to Section 13(n) of the Act (15 
U.S.C. 78m(n)) and the rules and regulations thereunder, it must 
continue to preserve, maintain and make accessible the transaction data 
and historical positions required to be collected, maintained and 
preserved by this section in the manner required by the Act and the 
rules and regulations thereunder and for the remainder of the period 
required by this section.
    (8) Every security-based swap data repository shall make and keep 
current a plan to ensure that the transaction data and positions that 
are recorded in the security-based swap data repository continue to be 
maintained in accordance with Rule 13n-5(b)(7), which shall include 
procedures for transferring the transaction data and positions to the 
Commission or its

[[Page 77370]]

designee (including another registered security-based swap data 
repository).


Sec.  240.13n-6  Automated systems.

    (a) Definitions. For purposes of this section--
    (1) Material system outage means an unauthorized intrusion into any 
system, or an event at a security-based swap data repository that 
causes a problem in its systems or procedures that results in:
    (i) A failure to maintain service level agreements or constraints;
    (ii) A disruption of normal operations, including switchover to 
back-up equipment with no possibility of near-term recovery of primary 
hardware;
    (iii) A loss of use of any system;
    (iv) A loss of transactions;
    (v) Excessive back-ups or delays in processing;
    (vi) A loss of ability to disseminate transaction data and 
positions;
    (vii) A communication of an outage situation to other external 
entities;
    (viii) A report or referral of an event to the security-based swap 
data repository's board of directors, a body performing a function 
similar to the board of the directors, or senior management;
    (ix) A serious threat to its systems operations even though its 
systems operations were not disrupted;
    (x) A queuing of data between system components or queuing of 
messages to or from customers of such duration that a customer's normal 
service delivery is affected; or
    (xi) A failure to maintain the integrity of its systems that 
results in the entry of erroneous or inaccurate transaction data or 
other information in the security-based swap data repository or the 
securities markets.
    (2) Material systems change means a change to automated systems of 
a security-based swap data repository that:
    (i) Significantly affects its existing capacity or security;
    (ii) In itself, raises significant capacity or security issues, 
even if it does not affect other existing systems;
    (iii) Relies upon substantially new or different technology;
    (iv) Is designed to provide a new service or function; or
    (v) Otherwise significantly affects the operations of the security-
based swap data repository.
    (3) Objective review means an internal or external review, 
performed by competent, objective personnel following established 
procedures and standards, and containing a risk assessment conducted 
pursuant to a review schedule.
    (4) Competent, objective personnel means a recognized information 
technology firm or a qualified internal department knowledgeable of 
information technology systems.
    (5) Review schedule means a schedule in which each element 
contained in paragraph (b)(1) of this section would be assessed at 
specific, regular intervals.
    (6) Transaction data has the same meaning as in Rule 13n-5(a)(1).
    (7) Position has the same meaning as in Rule 13n-5(a)(2).
    (b) Requirements for security-based swap data repositories. Every 
security-based swap data repository, with respect to those systems that 
support or are integrally related to the performance of its activities, 
shall:
    (1) Establish, maintain, and enforce written policies and 
procedures reasonably designed to ensure that its systems provide 
adequate levels of capacity, resiliency, and security. These policies 
and procedures shall, at a minimum:
    (i) Establish reasonable current and future capacity estimates;
    (ii) Conduct periodic capacity stress tests of critical systems to 
determine such systems' ability to process transactions in an accurate, 
timely, and efficient manner;
    (iii) Develop and implement reasonable procedures to review and 
keep current its system development and testing methodology;
    (iv) Review the vulnerability of its systems and data center 
computer operations to internal and external threats, physical hazards, 
and natural disasters; and
    (v) Establish adequate contingency and disaster recovery plans.
    (2) On an annual basis, submit an objective review to the 
Commission within thirty calendar days of its completion. Where the 
objective review is performed by an internal department, an objective, 
external firm shall assess the internal department's objectivity, 
competency, and work performance with respect to the review performed 
by the internal department. The external firm must issue a report of 
the objective review, which the security-based swap data repository 
must submit to the Commission on an annual basis, within 30 calendar 
days of completion of the review;
    (3) Promptly notify the Commission of material systems outages and 
any remedial measures that have been implemented or are contemplated. 
Prompt notification includes the following:
    (i) Immediately notify the Commission when a material systems 
outage is detected;
    (ii) Immediately notify the Commission when remedial measures are 
selected to address the material systems outage;
    (iii) Immediately notify the Commission when the material systems 
outage is addressed; and
    (iv) Submit to the Commission within five business days of the 
occurrence of the material systems outage a detailed written 
description and analysis of the outage and any remedial measures that 
have been implemented or are contemplated; and
    (4) Notify the Commission in writing at least thirty calendar days 
before implementation of any planned material systems changes.
    (c) Electronic filing. Every security-based swap data repository 
shall submit every notification, review, or description and analysis 
that is required to be submitted to the Commission pursuant to this 
section (other than the notifications pursuant to paragraph (b)(3)(i), 
(ii), or (iii) of this section) in an appropriate electronic format. 
Every such notification, review, or description and analysis shall be 
submitted to the Division of Trading and Markets, Office of Market 
Operations, at the principal office of the Commission in Washington, 
DC. Every such notification, review, or description and analysis shall 
be considered submitted when an electronic version is received at the 
Division of Trading and Markets, Office of Market Operations, at the 
principal office of the Commission in Washington, DC.
    (d) Confidential treatment. A person who submits a notification, 
review, or description and analysis pursuant to this section for which 
he or she seeks confidential treatment shall clearly mark each page or 
segregable portion of each page with the words ``Confidential Treatment 
Requested.'' A notification, review, or description and analysis 
submitted pursuant to this section will be accorded confidential 
treatment to the extent permitted by law.


Sec.  240.13n-7  Recordkeeping of security-based swap data repository.

    (a) Every security-based swap data repository shall make and keep 
current the following books and records relating to its business:
    (1) A record for each office listing, by name or title, each person 
at that office who, without delay, can explain the types of records the 
security-based swap data repository maintains at that office and the 
information contained in those records; and
    (2) A record listing each officer, manager, or person performing 
similar functions of the security-based swap data repository 
responsible for establishing policies and procedures

[[Page 77371]]

that are reasonably designed to ensure compliance with the Act and the 
rules and regulations thereunder.
    (b) Recordkeeping rule for security-based swap data repositories.
    (1) Every security-based swap data repository shall keep and 
preserve at least one copy of all documents, including all documents 
and policies and procedures required by the Act and the rules and 
regulations thereunder, correspondence, memoranda, papers, books, 
notices, accounts, and other such records as shall be made or received 
by it in the course of its business as such.
    (2) Every security-based swap data repository shall keep all such 
documents 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.
    (3) Every security-based swap data repository shall, upon request 
of any representative of the Commission, promptly furnish to the 
possession of such representative copies of any documents required to 
be kept and preserved by it pursuant to paragraphs (a) and (b) of this 
section.
    (c) If a security-based swap data repository ceases doing business, 
or ceases to be registered pursuant to Section 13(n) of the Act (15 
U.S.C. 78m(n)) and the rules and regulations thereunder, it must 
continue to preserve, maintain, and make accessible the records/data 
required to be collected, maintained and preserved by this section in 
the manner required by this section and for the remainder of the period 
required by this section.
    (d) This section does not apply to data collected and maintained 
pursuant to Rule 13n-5.


Sec.  240.13n-8  Reports to be provided to the Commission.

    Every security-based swap data repository shall 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 to perform the duties of the Commission under the 
Act and the rules and regulations thereunder.


Sec.  240.13n-9  Privacy requirements of security-based swap data 
repository.

    (a) Definitions. For purposes of this section--
    (1) Affiliate of a security-based swap data repository means a 
person that, directly or indirectly, controls, is controlled by, or is 
under common control with the security-based swap data repository.
    (2) Control (including the terms controlled by and under common 
control with) means 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:
    (i) Is a director, general partner, or officer exercising executive 
responsibility (or having similar status or functions);
    (ii) Directly or indirectly has the right to vote 25 percent of 
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
    (iii) In the case of a partnership, has the right to receive, upon 
dissolution, or has contributed, 25 percent or more of the capital.
    (3) Market participant means any person participating in the 
security-based swap market, including, but not limited to, security-
based swap dealers, major security-based swap participants, and any 
other counterparties to a security-based swap transaction.
    (4) Nonaffiliated third party of a security-based swap data 
repository means any person except:
    (i) The security-based swap data repository,
    (ii) The security-based swap data repository's affiliate, or
    (iii) A person employed by a security-based swap data repository 
and any entity that is not the security-based swap data repository's 
affiliate (and nonaffiliated third party includes such entity that 
jointly employs the person).
    (5) Nonpublic personal information means:
    (i) Personally identifiable information and
    (ii) Any list, description, or other grouping of market 
participants (and publicly available information pertaining to them) 
that is derived using personally identifiable information that is not 
publicly available information.
    (6) Personally identifiable information means any information:
    (i) A market participant provides to a security-based swap data 
repository to obtain service from the security-based swap data 
repository,
    (ii) About a market participant resulting from any transaction 
involving a service between the security-based swap data repository and 
the market participant, or
    (iii) The security-based swap data repository obtains about a 
market participant in connection with providing a service to that 
market participant.
    (7) Person associated with a security-based swap data repository 
means:
    (i) Any partner, officer, or director of such security-based swap 
data repository (or any person occupying a similar status or performing 
similar functions);
    (ii) Any person directly or indirectly controlling, controlled by, 
or under common control with such security-based swap data repository; 
or
    (iii) Any employee of such security-based swap data repository.
    (b) Each security-based swap data repository shall:
    (1) Establish, maintain, and enforce written policies and 
procedures reasonably designed to protect the privacy of any and all 
security-based swap transaction information that the security-based 
swap data repository receives from a security-based swap dealer, 
counterparty, or any registered entity. Such policies and procedures 
shall include, but are not limited to, policies and procedures to 
protect the privacy of any and all security-based swap transaction 
information that the security-based swap data repository shares with 
affiliates and nonaffiliated third parties; and
    (2) Establish and maintain safeguards, policies, and procedures 
reasonably designed to prevent the misappropriation or misuse, directly 
or indirectly, of:
    (i) Any confidential information received by the security-based 
swap data repository, including, but not limited to, trade data, 
position data, and any nonpublic personal information about a market 
participant or any of its customers;
    (ii) Material, nonpublic information; and/or
    (iii) Intellectual property, such as trading strategies or 
portfolio positions, by the security-based swap data repository or any 
person associated with the security-based swap data repository for 
their personal benefit or the benefit of others. Such safeguards, 
policies, and procedures shall address, without limitation,
    (A) Limiting access to such confidential information, material, 
nonpublic information, and intellectual property,
    (B) Standards pertaining to the trading by persons associated with 
the security-based swap data repository for their personal benefit or 
the benefit of others, and
    (C) Adequate oversight to ensure compliance with this subparagraph.


Sec.  240.13n-10  Disclosure requirements of security-based swap data 
repository.

    (a) Definition. For purposes of this section--

[[Page 77372]]

    (1) Market participant means any person participating in the over-
the-counter derivatives market, including, but not limited to, 
security-based swap dealers, major security-based swap participants, 
and any other counterparties to a security-based swap transaction.
    (b) Before accepting any security-based swap data from a market 
participant or upon a market participant's request, a security-based 
swap data repository shall furnish to the market participant a 
disclosure document that contains the following written information, 
which must reasonably enable the market participant to identify and 
evaluate accurately the risks and costs associated with using the 
services of the security-based swap data repository:
    (1) The security-based swap data repository's criteria for 
providing others with access to services offered and data maintained by 
the security-based swap data repository;
    (2) The security-based swap data repository's criteria for those 
seeking to connect to or link with the security-based swap data 
repository;
    (3) A description of the security-based swap data repository's 
policies and procedures regarding its safeguarding of data and 
operational reliability to protect the confidentiality and security of 
such data, as described in Rule 13n-6;
    (4) A description of the security-based swap data repository's 
policies and procedures reasonably designed to protect the privacy of 
any and all security-based swap transaction information that the 
security-based swap data repository receives from a security-based swap 
dealer, counterparty, or any registered entity, as described in Rule 
13n-9(b)(1);
    (5) A description of the security-based swap data repository's 
policies and procedures regarding its non-commercial and/or commercial 
use of the security-based swap transaction information that it receives 
from a market participant, any registered entity, or any other person;
    (6) A description of the security-based swap data repository's 
dispute resolution procedures involving market participants, as 
described in Rule 13n-5(b)(6);
    (7) A description of all the security-based swap data repository's 
services, including any ancillary services;
    (8) The security-based swap data repository's updated schedule of 
any dues; unbundled prices, rates, or other fees for all of its 
services, including any ancillary services; any discounts or rebates 
offered; and the criteria to benefit from such discounts or rebates; 
and
    (9) A description of the security-based swap data repository's 
governance arrangements.


Sec.  240.13n-11  Designation of chief compliance officer of security-
based swap data repository.

    (a) In general. Each security-based swap data repository shall 
identify on Form SDR (17 CFR 249.1500) a person who has been designated 
by the board to serve as a chief compliance officer of the security-
based swap data repository. The compensation and removal of the chief 
compliance officer shall require the approval of a majority of the 
security-based swap data repository's board.
    (b) Definitions. For purposes of this section--
    (1) Affiliate of a security-based swap data repository means a 
person that, directly or indirectly, controls, is controlled by, or is 
under common control with the security-based swap data repository.
    (2) Board means the board of directors of the security-based swap 
data repository or a body performing a function similar to the board of 
directors of the security-based swap data repository.
    (3) Director means any member of the board.
    (4) EDGAR Filer Manual has the same meaning as set forth in Rule 11 
of Regulation S-T (17 CFR 232.11).
    (5) Material change means a change that a chief compliance officer 
would reasonably need to know in order to oversee compliance of the 
security-based swap data repository.
    (6) Material compliance matter means any compliance matter that the 
board would reasonably need to know to oversee the compliance of the 
security-based swap data repository and that involves, without 
limitation:
    (i) A violation of the Federal securities laws by the security-
based swap data repository, its officers, directors, employees, or 
agents;
    (ii) A violation of the policies and procedures of the security-
based swap data repository by the security-based swap data repository, 
its officers, directors, employees, or agents; or
    (iii) A weakness in the design or implementation of the policies 
and procedures of the security-based swap data repository.
    (7) Tag (including the term tagged) means an identifier that 
highlights specific information submitted to the Commission that is in 
the format required by the EDGAR Filer Manual, as described in Rule 301 
of Regulation S-T (17 CFR 232.301).
    (c) Duties. Each chief compliance officer of a security-based swap 
data repository shall:
    (1) Report directly to the board or to the chief executive officer 
of the security-based swap data repository;
    (2) Review the compliance of the security-based swap data 
repository with respect to the requirements and core principles 
described in Section 13(n) of the Act (15 U.S.C. 78m(n)) and the rules 
and regulations thereunder;
    (3) In consultation with the board or the chief executive officer 
of the security-based swap data repository, resolve any conflicts of 
interest that may arise;
    (4) Be responsible for administering each policy and procedure that 
is required to be established pursuant to Section 13 of the Act (15 
U.S.C. 78m) and the rules and regulations thereunder;
    (5) Ensure compliance with the Act and the rules and regulations 
thereunder relating to security-based swaps, including each rule 
prescribed by the Commission under Section 13 of the Act (15 U.S.C. 
78m);
    (6) Establish procedures for the remediation of noncompliance 
issues identified by the chief compliance officer through any--
    (i) Compliance office review;
    (ii) Look-back;
    (iii) Internal or external audit finding;
    (iv) Self-reported error; or
    (v) Validated complaint; and
    (7) Establish and follow appropriate procedures for the handling, 
management response, remediation, retesting, and closing of 
noncompliance issues.
    (d) Annual reports.
    (1) In general. The chief compliance officer shall annually prepare 
and sign a report that contains a description of the compliance of the 
security-based swap data repository with respect to the Act and the 
rules and regulations thereunder and each policy and procedure of the 
security-based swap data repository (including the code of ethics and 
conflicts of interest policies of the security-based swap data 
repository). Each compliance report shall also contain, at a minimum, a 
description of:
    (i) The security-based swap data repository's enforcement of its 
policies and procedures;
    (ii) Any material changes to the policies and procedures since the 
date of the preceding compliance report;
    (iii) Any recommendation for material changes to the policies and 
procedures as a result of the annual review, the rationale for such 
recommendation, and whether such policies and procedures

[[Page 77373]]

were or will be modified by the security-based swap data repository to 
incorporate such recommendation; and
    (iv) Any material compliance matters identified since the date of 
the preceding compliance report.
    (2) Requirements. A financial report of the security-based swap 
data repository shall be filed with the Commission as described in 
paragraph (f) of this section and shall accompany a compliance report 
as described in paragraph (d)(1) of this section. The compliance report 
shall include a certification that, under penalty of law, the 
compliance report is accurate and complete. The compliance report shall 
also be filed in a tagged data format in accordance with the 
instructions contained in the EDGAR Filer Manual, as described in Rule 
301 of Regulation S-T (17 CFR 232.301).
    (e) The chief compliance officer shall submit the annual compliance 
report to the board for its review prior to the submission of the 
report to the Commission.
    (f) Financial report. Each financial report filed with a compliance 
report shall:
    (1) Be a complete set of financial statements of the security-based 
swap data repository that are prepared in accordance with U.S. 
generally accepted accounting principles for the most recent two fiscal 
years of the security-based swap data repository;
    (2) Be audited in accordance with the standards of the Public 
Company Accounting Oversight Board by a registered public accounting 
firm that is qualified and independent in accordance with Rule 2-01 of 
Regulation S-X (17 CFR 210.2-01);
    (3) Include a report of the registered public accounting firm that 
complies with paragraphs (a) through (d) of Rule 2-02 of Regulation S-X 
(17 CFR 210.2-02);
    (4) If the security-based swap data repository's financial 
statements contain consolidated information of a subsidiary of the 
security-based swap data repository, provide condensed financial 
information, in a financial statement footnote, as to the financial 
position, changes in financial position and results of operations of 
the security-based swap data repository, as of the same dates and for 
the same periods for which audited consolidated financial statements 
are required. Such financial information need not be presented in 
greater detail than is required for condensed statements by Rules 10-
01(a)(2), (3), and (4) of Regulation S-X (17 CFR 210.10-01). Detailed 
footnote disclosure that would normally be included with complete 
financial statements may be omitted with the exception of disclosures 
regarding material contingencies, long-term obligations, and 
guarantees. Descriptions of significant provisions of the security-
based swap data repository's long-term obligations, mandatory dividend 
or redemption requirements of redeemable stocks, and guarantees of the 
security-based swap data repository shall be provided along with a 
five-year schedule of maturities of debt. If the material 
contingencies, long-term obligations, redeemable stock requirements, 
and guarantees of the security-based swap data repository have been 
separately disclosed in the consolidated statements, then they need not 
be repeated in this schedule; and
    (5) Be provided in eXtensible Business Reporting Language 
consistent with Rules 405 (a)(1), (a)(3), (b), (c), (d), and (e) of 
Regulation S-T (17 CFR 232.405).
    (g) Reports filed pursuant to paragraphs (d) and (f) of this 
section shall be filed within 60 days after the end of the fiscal year 
covered by such reports.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

    3. The authority citation for part 249 continues to read in part as 
follows:

    Authority:  15 U.S.C. 78a et seq. and 7201; and 18 U.S.C. et 
seq. unless otherwise noted.

    4. Subpart P consisting of Sec.  249.1500 is added to read as 
follows:

Subpart P--Form for Registration of Security-Based Swap Data 
Repositories


Sec.  249.1500  Form SDR, application for registration as a security-
based swap data repository.


    [Note: The text of Form SDR does not, and the amendments will 
not, appear in the Code of Federal Regulations.]


    The form shall be used for registration as a security-based swap 
data repository, and for the amendments to, such registration pursuant 
to Section 13(n) of the Exchange Act (15 U.S.C. 78m(n)).

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM SDR

APPLICATION OR AMENDMENT TO APPLICATION FOR REGISTRATION AS SECURITY-
BASED SWAP DATA REPOSITORY UNDER THE SECURITIES EXCHANGE ACT OF 1934
GENERAL INSTRUCTIONS FOR PREPARING AND FILING FORM SDR
    1. Form SDR and Exhibits thereto are to be filed electronically in 
a tagged data format with the Securities and Exchange Commission by an 
applicant for registration as a security-based swap data repository, or 
by a registered security-based swap data repository amending its 
registration, pursuant to Section 13(n) of the Securities Exchange Act 
of 1934 (``Exchange Act'') and Rule 13n-1 thereunder. No application 
for registration shall be effective unless the Commission grants such 
registration.
    2. Individuals' names shall be given in full (last name, first 
name, middle name).
    3. Form SDR shall be signed by a person who is duly authorized to 
act on behalf of the security-based swap data repository.
    4. If Form SDR is being filed as an application for registration, 
all applicable items must be answered in full. If any item is not 
applicable, indicate by ``none'' or ``N/A'' as appropriate.
    5. Disclosure of the information specified on this form is 
mandatory prior to processing of an application for registration as a 
security-based swap data repository. The information will be used for 
the principal purpose of determining whether the Commission should 
grant or deny registration to an applicant. Except in cases where 
confidential treatment is requested by the applicant and granted by the 
Commission pursuant to the Freedom of Information Act and the rules of 
the Commission thereunder, information supplied on this form will be 
included routinely in the public files of the Commission and will be 
available for inspection by any interested person. A form that is not 
prepared and executed in compliance with applicable requirements may be 
deemed as not acceptable for filing. Acceptance of this form, however, 
shall not constitute any finding that it has been filed as required or 
that the information submitted is true, current, or complete. 
Intentional misstatements or omissions of fact constitute federal 
criminal violations (see 18 U.S.C. 1001 and 15 U.S.C. 78ff(a)).

[[Page 77374]]

    6. Rule 13n-1(e) under the Exchange Act requires a security-based 
swap data repository to amend promptly Form SDR if any information 
contained in items 1 through 16, 25, and 44 of this application, or any 
supplement or amendment thereto, is or becomes inaccurate for any 
reason.
    7. For the purposes of this form, the term ``applicant'' includes 
any applicant for registration as a security-based swap data repository 
or any registered security-based swap data repository that is amending 
Form SDR.
    8. Applicants filing Form SDR as an amendment (other than an annual 
amendment) need file only the cover page (items 1 through 3), the 
signature page (item 12), and any pages on which an answer is being 
amended, together with such exhibits as are being amended. An applicant 
submitting an amendment represents that all unamended items and 
exhibits remain true, current, and complete as previously filed.
    DEFINITIONS: Unless the context requires otherwise, all terms used 
in this form have the same meaning as in the Exchange Act, as amended, 
and in the rules and regulations of the Commission thereunder.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM SDR

APPLICATION OR AMENDMENT TO APPLICATION FOR REGISTRATION AS SECURITY-
BASED SWAP DATA REPOSITORY UNDER THE SECURITIES EXCHANGE ACT OF 1934
-----------------------------------------------------------------------
(Exact Name of Applicant as Specified in Charter)

-----------------------------------------------------------------------
(Address of Principal Executive Offices)

    If this is an APPLICATION for registration, complete in full and 
check here [ballot]
    If this is an AMENDMENT to an application, or to an effective 
registration (including an annual amendment), list all items that are 
amended and check here [ballot]
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------

GENERAL INFORMATION

1. Name under which business is conducted, if different than name 
specified herein:------------------------------------------------------

-----------------------------------------------------------------------

2. If name of business is amended, state previous business name:-------

-----------------------------------------------------------------------

3. Mailing address, if different than address specified herein:--------

-----------------------------------------------------------------------
(Number and Street)

-----------------------------------------------------------------------
(City) (State) (Zip Code)

4. List of principal office(s) and address(es) where security-based 
swap data repository activities are conducted:

 
                  Office                               Address
 
                                            ............................
------------------------------------------------------------------------
                                            ............................
------------------------------------------------------------------------
                                            ............................
------------------------------------------------------------------------
                                            ............................
------------------------------------------------------------------------
 

5. If the applicant is a successor (within the definition of Rule 12b-2 
under the Exchange Act) to a previously registered security-based swap 
data repository, please complete the following:

a. Date of succession--------------------------------------------------

b. Full name and address of predecessor security-based swap data 
repository

-----------------------------------------------------------------------
(Name)

-----------------------------------------------------------------------
(Number and Street)

-----------------------------------------------------------------------
(City) (State) (Zip Code)

6. List all asset classes of security-based swaps for which the 
applicant is collecting and maintaining or for which it proposes to 
collect and maintain.
-----------------------------------------------------------------------
-----------------------------------------------------------------------

7. Furnish a description of the function(s) that the applicant performs 
or proposes to perform.------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------

BUSINESS ORGANIZATION

8. Applicant is a:
[ballot] Corporation
[ballot] Partnership
[ballot] Other Form of Organization (Specify)--------------------------
9. If applicant is a corporation:
a. Date of incorporation-----------------------------------------------

b. Place of incorporation or state/country of formation----------------

10. If Applicant is a partnership:

a. Date of filing of partnership articles------------------------------
b. Place where partnership agreement was filed-------------------------
11. Applicant understands and consents that any notice or service of 
process, pleadings, or other documents in connection with any action or 
proceeding against the applicant may be effectuated by certified mail 
to the officer specified or person named below at the U.S. address 
given. Such officer or person cannot be a Commission member, official, 
or employee.
(Name of Person or, if Applicant is a Corporation, Title of Officer)---

(Name of Applicant or Applicable Entity)-------------------------------

(Number and Street)----------------------------------------------------

(City) (State) (Zip Code)----------------------------------------------

(Area Code) (Telephone Number)

12. SIGNATURES: Applicant has duly caused this application or amendment 
to be signed on its behalf by the undersigned, hereunto duly 
authorized, this --------day of ------------------,----. Applicant and 
the undersigned hereby represent that all information contained herein 
is true, current, and complete. It is understood that all required 
items and exhibits are considered integral parts of this form and that 
the submission of any amendment represents that all unamended items and 
Exhibits remain true, current, and complete as previously filed. If the 
applicant is a non-resident security-based swap data repository, 
Applicant and the undersigned further represent that the applicant can, 
as a matter of law, provide the Commission with prompt access to the 
applicant's books and records and that the applicant can submit to an 
onsite inspection and examination by the Commission. For purposes of 
this certification, ``non-resident security-based swap data 
repository'' means (i) in the case of an individual, one who resides in 
or has his principal place of business in any place not in the United 
States; (ii) in the case of a corporation, one incorporated in or 
having its principal place of business in any place not in the United 
States; or (iii) in the case of a partnership or other unincorporated 
organization or association, one having its principal place of business 
in any place not in the United States.

(Name of Applicant)----------------------------------------------------

(Signature of General Partner, Managing Agent or Principal Officer)----

(Title)----------------------------------------------------------------

EXHIBITS--BUSINESS ORGANIZATION

13. List as Exhibit A any person as defined in Section 3(a)(9) of the

[[Page 77375]]

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

[[Page 77376]]

instruments corresponding thereto, of the applicant.
18. Attach as Exhibit F a narrative and/or graphic description of the 
organizational structure of the applicant. Note: If the security-based 
swap data repository activities of the applicant are conducted 
primarily by a division, subdivision, or other segregable entity within 
the applicant's corporation or organization, describe the relationship 
of such entity within the overall organizational structure and attach 
as Exhibit F the description that applies to the segregable entity.
19. Attach as Exhibit G a list of all affiliates of the security-based 
swap data repository and indicate the general nature of the 
affiliation. For purposes of this application, an ``affiliate'' of a 
security-based swap data repository means a person that, directly or 
indirectly, controls, is controlled by, or is under common control with 
the security-based swap data repository.
20. Attach as Exhibit H a brief description of any material pending 
legal proceeding(s), other than ordinary and routine litigation 
incidental to the business, to which the applicant or any of its 
affiliates is a party or to which any of its property is the subject. 
Include the name of the court or agency in which the proceeding(s) are 
pending, the date(s) instituted, the principal parties to the 
proceeding, a description of the factual basis alleged to underlie the 
proceeding(s) and the relief sought. Include similar information as to 
any such proceeding(s) known to be contemplated by any governmental 
agencies.
21. Attach as Exhibit I copies of all material contracts with any 
security-based swap execution facility, clearing agency, central 
counterparty, or third party service provider. To the extent that form 
contracts are used by the applicant, submit a sample of each type of 
form contract used. In addition, include a list of security-based swap 
execution facilities, clearing agencies, central counterparties, and 
third party service providers with whom the applicant has entered into 
material contracts.
22. Attach as Exhibit J procedures implemented by the applicant to 
minimize conflicts of interest in the decision-making process of the 
security-based swap data repository and to resolve any such conflicts 
of interest.

EXHIBITS--FINANCIAL INFORMATION

23. Attach as Exhibit K a balance sheet, statement of income and 
expenses, statement of sources and application of revenues and all 
notes or schedules thereto, as of the most recent fiscal year of the 
applicant. If a balance sheet and statements certified by an 
independent public accountant are available, such balance sheet and 
statement shall be submitted as Exhibit K. Alternatively, a financial 
report, as described in Rule 13n-11(f) under the Exchange Act, may be 
filed as Exhibit K.
24. Attach as Exhibit L a balance sheet and statement of income and 
expenses for each affiliate of the security-based swap data repository 
as of the end of the most recent fiscal year of each such affiliate. 
Alternatively, identify, if available, the most recently filed Annual 
Report on Form 10-K under the Exchange Act for any such affiliate as 
Exhibit L.
25. Attach as Exhibit M the following:
    a. A complete list of all dues, fees, and other charges imposed, or 
to be imposed, as well as all discounts or rebates offered, or to be 
offered, by or on behalf of the applicant for its services, including 
the security-based swap data repository's services and any ancillary 
services, and identify the service(s) provided for each such due, fee, 
other charge, discount, or rebate;
    b. A description of the basis and methods used in determining at 
least annually the level and structure of the services as well as the 
dues, fees, other charges, discounts, or rebates listed in paragraph a 
of this item; and
    c. If the applicant differentiates, or proposes to differentiate, 
among its customers, or classes of customers in the amount of any dues, 
fees, or other charges imposed or any discount or rebate offered for 
the same or similar services, then state and indicate the amount of 
each differential. In addition, identify and describe any differences 
in the cost of providing such services, and any other factors, that 
account for such differences.

EXHIBITS--OPERATIONAL CAPABILITY

26. Attach as Exhibit N a narrative description, or the functional 
specifications, of each service or function listed in item 7 and 
performed as a security-based swap data repository. Include a 
description of all procedures utilized for the collection and 
maintenance of information or records with respect to transactions or 
positions in, or the terms and conditions of, security-based swaps 
entered into by market participants.
27. Attach as Exhibit O a list of all computer hardware utilized by the 
applicant to perform the security-based swap data repository functions 
listed in item 7, indicating:
    a. Name of manufacturer and manufacturer's equipment identification 
number;
    b. Whether such hardware is purchased or leased (If leased, state 
from whom leased, duration of lease, and any provisions for purchase or 
renewal); and
    c. Where such equipment (exclusive of terminals and other access 
devices) is physically located.
28. Attach as Exhibit P a description of the personnel qualifications 
for each category of professional, non-professional, and supervisory 
employees employed by the security-based swap data repository or the 
division, subdivision, or other segregable entity within the security-
based swap data repository as described in item 18.
29. Attach as Exhibit Q a description of the measures or procedures 
implemented by the applicant to provide for the security of any system 
employed to perform the functions of the security-based swap data 
repository. Include a general description of any physical and 
operational safeguards designed to prevent unauthorized access (whether 
by input or retrieval) to the system. Describe any circumstances within 
the past year in which the described security measures or safeguards 
failed to prevent any such unauthorized access to the system and any 
measures taken to prevent a reoccurrence. Describe any measures used by 
the applicant to satisfy itself that the information received or 
disseminated by the system is accurate.
30. Where security-based swap data repository functions are performed 
by automated facilities or systems, attach as Exhibit R a description 
of all backup systems or subsystems that are designed to prevent 
interruptions in the performance of any such function as a result of 
technical malfunctions or otherwise in the system itself, in any 
permitted input or output system

[[Page 77377]]

connection, or as a result of any independent source.
31. Attach as Exhibit S the following:
    a. For each of the security-based swap data repository functions 
described in item 7:
    (1) quantify in appropriate units of measure the limits on the 
security-based swap data repository's capacity to receive (or collect), 
process, store, or display the data elements included within each 
function; and
    (2) identify the factors (mechanical, electronic or other) that 
account for the current limitations reported in answer to (1) on the 
security-based swap data repository's capacity to receive (or collect), 
process, store, or display the data elements included within each 
function.
    b. If the applicant is able to employ, or presently employs, its 
system(s) for any use other than for performing the functions of a 
security-based swap data repository, state the priorities of assignment 
of capacity between such functions and such other uses, and state the 
methods used or able to be used to divert capacity between such 
functions and other uses.

EXHIBITS--ACCESS TO SERVICES AND DATA

32. Attach as Exhibit T the following:
    a. State the number of persons who subscribe, or who have notified 
the applicant of their intention to subscribe, to the security-based 
swap data repository's services.
    b. For each instance during the past year in which any person has 
been prohibited or limited with respect to access to services offered 
or data maintained by the applicant, indicate the name of each such 
person and the reason for the prohibition or limitation.
    c. For each service that is furnished in machine-readable form, 
state the storage media of any service furnished and define the data 
elements of such service.
33. Attach as Exhibit U copies of all contracts governing the terms by 
which persons may subscribe to the security-based swap data repository 
services and any ancillary services provided by the applicant. To the 
extent that form contracts are used by the applicant, submit a sample 
of each type of form contract used.
34. Attach as Exhibit V a description of any specifications, 
qualifications, or other criteria that limit, are interpreted to limit, 
or have the effect of limiting access to or use of any security-based 
swap data repository services offered or data maintained by the 
applicant and state the reasons for imposing such specifications, 
qualifications, or other criteria.
35. Attach as Exhibit W any specifications, qualifications, or other 
criteria required of persons who supply security-based swap information 
to the applicant for collection and maintenance by the applicant or of 
persons who seek to connect to or link with the applicant.
36. Attach as Exhibit X any specifications, qualifications, or other 
criteria required of any person, including, but not limited to, 
regulators, market participants, market infrastructures, venues from 
which data could be submitted to the applicant, and third party service 
providers who request access to data maintained by the applicant.
37. Attach as Exhibit Y policies and procedures implemented by the 
applicant to review any prohibition or limitation of any person with 
respect to access to services offered or data maintained by the 
applicant and to grant such person access to such services or data if 
such person has been discriminated against unfairly.

EXHIBITS--OTHER POLICIES AND PROCEDURES

38. Attach as Exhibit Z policies and procedures implemented by the 
applicant to protect the privacy of any and all security-based swap 
transaction information that the security-based swap data repository 
receives from a market participant or any registered entity.
39. Attach as Exhibit AA a description of safeguards, policies, and 
procedures implemented by the applicant to prevent the misappropriation 
or misuse of (a) any confidential information received by the 
applicant, including, but not limited to, trade data, position data, 
and any nonpublic personal information about a market participant or 
any of its customers; (b) material, nonpublic information; and/or (c) 
intellectual property by applicant or any person associated with the 
applicant for their personal benefit or the benefit of others.
40. Attach as Exhibit BB policies and procedures implemented by the 
applicant regarding its use of the security-based swap transaction 
information that it receives from a market participant, any registered 
entity, or any person for non-commercial and/or commercial purposes.
41. Attach as Exhibit CC procedures and a description of facilities of 
the applicant for effectively resolving disputes over the accuracy of 
the transaction data and positions that are recorded in the security-
based swap data repository.
42. Attach as Exhibit DD policies and procedures relating to the 
applicant's calculation of positions.
43. Attach as Exhibit EE policies and procedures implemented by the 
applicant to prevent any provision in a valid security-based swap from 
being invalidated or modified through the procedures or operations of 
the applicant.
44. Attach as Exhibit FF a plan to ensure that the transaction data and 
position data that are recorded in the applicant continue to be 
maintained after the applicant withdraws from registration as a 
security-based swap data repository, which shall include procedures for 
transferring the transaction data and position data to the Commission 
or its designee (including another registered security-based swap data 
repository).
45. Attach as Exhibit GG all of the policies and procedures required 
under Regulation SBSR.

EXHIBIT--LEGAL OPINION

46. If the applicant is a non-resident security-based swap data 
repository, then attach as Exhibit HH an opinion of counsel that the 
security-based swap data repository can, as a matter of law, provide 
the Commission with prompt access to the books and records of such 
security-based swap data repository and that the security-based swap 
data repository can, as a matter of law, submit to onsite inspection 
and examination by the Commission.

    By the Commission.

    Dated: November 19, 2010.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-29719 Filed 12-9-10; 8:45 am]
BILLING CODE 8011-01-P


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