77306 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

1The Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Public Law 111–203, 124 

Stat. 1376 (2010). 

2See Public Law 111–203, Preamble. 

3Section 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 redesignated 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). 

4See Public Law 111–203, § 763(a) (adding 

Exchange Act Section 3C). 

5See Public Law 111–203, § 763(c) (adding 

Exchange Act Section 3D). 

6See Public Law 111–203, §§ 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. 

7See Public Law 111–203, § 763(i) (adding 

Exchange Act Sections 13(n)(7)(D)(i) and 13(n)(9)). 

8Section 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 

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. 

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 securitybased 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 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/proposed.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number S7–53–10 on the subject line; 

or 

• Use the Federal eRulemaking Portal 

(http://www.regulations.gov). Follow the 

instructions for submitting comments. 

Paper Comments 

• 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 DoddFrank 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. 

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

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, 

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Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 77307 

(‘‘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, 

§ 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, § 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. 

9See Exchange Act Release No. 63346 (Nov. 19, 

2010) (‘‘Regulation SBSR Release’’). 

10Public Law 111–203, § 763(i) (adding Exchange 

Act Section 13(m)(1)). 

11See Regulation SBSR Release, supra note 9. 

12The 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/cgibin/ruling-comments?ruling=df-title-vii-swap-datarepositories&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%20

Protection%20Act. 

13See 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.’’). 

14See Letter from DTCC to Chairmen Mary 

Schapiro and Gary Gensler (Nov. 15, 2010) 

(available at http://www.sec.gov/comments/df-titlevii/swap-data-repositories/swapdatarepositories13.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 realtime reporting from swap execution facilities and 

derivatives clearinghouses.’’) 

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. 

A separate release issued by the 

Commission today proposes Regulation 

SBSR, which, among other things, 

implements the provisions of the DoddFrank 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

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. 

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

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

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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77308 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

15For 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). 

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. 

Request for Comment 

The Commission also requests 

comment on the following specific 

issues: 

• 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? 

• Do the Commission’s proposed 

rules favor or discourage one business 

model over another? If so, identify 

which rule(s) and explain. 

• Should the Commission’s rules 

favor or discourage one business model 

over another? If so, which models 

should be favored or discouraged and 

why? 

• What factors determine whether an 

entity decides to operate as an SDR? 

• 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? 

• 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? 

• 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? 

• 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 

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Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 77309 

16Public Law 111–203, § 761 (adding Exchange 

Act Section 3(a)(75)). 

17Public Law 111–203, § 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. 

18See id. (adding Exchange Act Section 13(n)(3)). 

19See id. (adding Exchange Act Section 13(n)(6)). 

20See 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. 

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. 

22The 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. 

23See proposed Rule 13n–1(b). 

24The 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. 

26See 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). 

requirements should be added or 

removed and why? Which requirements, 

if any, in combination or alone, would 

be unduly burdensome on SDRs? 

• 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? 

• 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? 

• 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 DoddFrank 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

A. Proposed Rule Regarding Registration 

of SDRs 21

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. 

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 machinereadable 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 

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27See proposed Rule 13n–1(b). 

28See 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). 

29Under Exchange Act Section 13(n)(2), an SDR 

is subject to inspection and examination by the 

Commission. See Public Law 111–203, § 763(i). 

30See 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). 

31More 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 

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. 

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

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 brokerdealers (i.e., Forms SIP, ADV, and 

BD).28

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 nonresident 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. 

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 

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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 securitiesrelated business or a restriction of such person’s 

activities. 

32For 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. 

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. 

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. 

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, nonprofessional, 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. 

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 

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34See Regulation SBSR Release, supra note 9. 

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

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: 

• Are the instructions in proposed 

Form SDR sufficiently clear? If not, 

identify any instructions that should be 

clarified and, if possible, offer 

alternatives. 

• 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? 

• 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? 

• Do SDRs anticipate any burdens of 

filing Form SDR electronically that the 

Commission should consider? 

• 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? 

• Which information in Form SDR, 

including exhibits, should be subject to 

the proposed data tagging requirements? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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 whollyowned subsidiaries, entities in which an 

SDR has at least a 25% interest, entities 

that have at least a 25% interest in the 

SDR)? 

• 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. 

• 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? 

• 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. 

• Is the Commission’s request for 

information on the specified policies 

and procedures of an SDR appropriate? 

If not, explain. 

• Would any of the requested 

information on proposed Form SDR be 

difficult for an SDR to supply? If so, 

explain. 

• Should the Commission require any 

additional information on proposed 

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35See Regulation SBSR Release (proposed Rule 

909), supra note 9. 

36Proposed Rule 13n–1(c). 

37 Id. 

38 Id. 

39Proposed Rule 13n–1(c)(3). 

40 Id. 

41See 15 U.S.C. 78k–1(b)(3), 78o(b), 78o–7(2), and 

78s(a). 

Form SDR? If so, what information and 

why? 

• Are there any items on proposed 

Form SDR that the Commission should 

not request? If so, which items and 

why? 

• 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? 

• 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? 

• 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

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

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

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: 

• Is the Commission’s proposed 

registration process appropriate and 

sufficiently clear? If not, why not and 

what would be a better alternative? 

• Are the timeframes in the proposed 

registration process appropriate? If not, 

why not and what would be more 

appropriate timeframes? 

• 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? 

• 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? 

• Should the Commission consider 

any other factors relating to a nonresident SDR with respect to the 

Commission’s registration rules or in 

general? 

• 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? 

• 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? 

• 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 

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42Proposed Rule 13n–1(d). 43See Public Law 111–203, § 774. 

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. 

• 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? 

• 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? 

• 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. 

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 DoddFrank 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. 

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: 

• 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)? 

• Is the Commission’s proposed rule 

for temporary registration sufficiently 

clear? If not, how can it be clarified? 

• 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? 

• 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? 

• 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? 

• Are there any other reasons not 

specified in this release upon which a 

temporary registration should be denied 

or rescinded? 

• 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 

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44Proposed Rule 13n–1(e). 

45See 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. 46See proposed Rule 13n–1(e). 

47Exchange 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 

Continued 

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. 

Request for Comment 

The Commission requests comment 

on the following specific issues: 

• 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? 

• Is the proposed timeframe to file an 

amendment on Form SDR appropriate? 

If not, should the timeframe be shorter 

or longer? 

• 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? 

• 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? 

• Should interim amendments be 

required under any other circumstances 

not specified? 

• 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? 

• 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? 

• 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. 

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: 

• 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? 

• 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? 

• 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 nonresident SDR applying for registration as 

an SDR? 

• Are there any factors that the 

Commission should take into 

consideration to ensure that a nonresident 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? 

• 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? 

• 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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77316 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

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). 

48The term ‘‘person associated with a securitybased 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). 

49Proposed Rule 13n–2(b). 

50 Id. 51Proposed Rule 13n–2(e). 

52See Registration of Successors to BrokerDealers and Investment Advisers, Exchange Act 

Release No. 31661 (Dec. 28, 1992), 58 FR 7 (Jan. 4, 

1993). 

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 SDR48 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. 

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. 

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

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: 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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

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 

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53Proposed Rule 13n–3(a). 

54See Public Law 111–203, § 763(i). The 

legislation also authorizes the Commission to 

establish additional requirements for SDRs by rule 

or regulation. 

55See 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. 

56The 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/. 

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) 

Continued 

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. 

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: 

• Is there a sufficient likelihood of 

successors to registered SDRs to warrant 

a successor rule? 

• Is the Commission’s proposed 

successor rule appropriate and 

sufficiently clear? If not, why not and 

what would be a better alternative? 

• Are the 30-day and 90-day 

timeframes in the proposed successor 

rule appropriate? If not, what would be 

more appropriate timeframes and why? 

• 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? 

• 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? 

• 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? 

• 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. 

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. 

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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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. 

58Exchange Act Section 13(m) pertains to the 

public availability of SBS data. See Public Law 

111–203, § 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. 

59Section 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, 

§ 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). 

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, § 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, § 721(a)(17) (adding Section 1a(39) of 

the CEA, 7 U.S.C. 1a(39)). 

61Subject 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. 

62See proposed Rule 13n–4(a)(5). 

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 enduser clearing exemption claims. Any comments 

regarding the end-user clearing exemption proposed 

rules should be submitted in connection with that 

proposal. 

64See Public Law 111–203, § 763(i) (adding 

Exchange Act Section 13(n)(5)(G)). 

(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

(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; 

(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

(ii) The Financial Stability Oversight 

Council; 

(iii) The CFTC; 

(iv) The Department of Justice; and 

(v) The FDIC61 and any other person 

that the Commission determines to be 

appropriate, including, but not limited 

to— 

(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. 

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

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. 

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 

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65See 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.’’). 

66Under 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. 

67Exchange 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). 68See Regulation SBSR Release, supra note 9. 

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. 

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

Request for Comment 

The Commission requests comment 

on the following specific issues: 

• Is the Commission’s proposed rule 

incorporating the enumerated duties 

appropriate and sufficiently clear? If 

not, what would be a better alternative? 

• 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? 

• Is the Commission’s proposed 

definition of ‘‘direct electronic access’’ 

appropriate and sufficiently clear? If 

not, how can the Commission clarify 

this definition? 

• 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)? 

• 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? 

• 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? 

• What would be the most feasible 

and cost-effective method for an SDR to 

provide direct electronic access to the 

Commission or its designee? 

• Are there other methods of 

providing direct electronic access to the 

Commission or its designee that the 

Commission should consider? 

• 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? 

• 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? 

• 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? 

• 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? 

• Are there any other reports or sets 

of data that the Commission should 

consider obtaining from SDRs? 

• 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? 

• 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)? 

• Are there alternative ways that the 

Commission could address the 

indemnification provision while being 

consistent with Exchange Act Section 

13(n)(5)(H)? 

• 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? 

• 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? 

• 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 

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69Although 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.’’ 

70The 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, § 763(i). 

71The 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). 

72The 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). 

73See Regulation of Market Information Fees and 

Revenues, Exchange Act Release No. 42208 (Dec. 

17, 1999). 

74See 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.’’). 

described in Exchange Act Section 

13(n)(5)(G) to obtain data maintained by 

an SDR? 

• 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)? 

• Should any additional duties 

imposed on SDRs depend on the asset 

class of SBSs that the SDR is collecting 

and maintaining? If so, clarify. 

• 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? 

• 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? 

• 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 

SDR69 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. 

a. First Core Principle: Market Access to 

Services and Data 70

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. 

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. 

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 

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75See CPSS–IOSCO, supra note 55. 

76 Id. 

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. 

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 anticompetitive practices such as product 

tying, contracts with non-compete and/ 

or exclusivity clauses, overly restrictive 

terms of use and anti-competitive price 

discrimination.’’ 76

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: 

• 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? 

• 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? 

• Would the proposed rules relating 

to fees provide sufficient flexibility to 

SDRs such that they can operate in a 

commercially viable manner? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• Are there any other requirements 

that the Commission should impose on 

an SDR that would promote 

competition? 

• 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? 

• 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? 

• Are there any other factors not 

mentioned that the Commission should 

take into consideration with respect to 

requiring the unbundling of services 

and fees? 

• 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? 

• 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? 

• Should the Commission prescribe 

specific criteria for fair, open, and not 

unreasonably discriminatory access and 

participation? If so, what should the 

criteria be? 

• In what instances (besides riskrelated reasons) would it be reasonable 

for an SDR to deny access to its services 

and data? 

• 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? 

• 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? 

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77322 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

77Proposed Rule 13n-4(c)(2)(ii). 

78Exchange 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). 

79The 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). 

80Proposed Rule 13n–4(c)(2)(iii). 

81Proposed Rule 13–4(c)(2)(iv). 

82See CPSS–IOSCO, supra note 55. 

83See, 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). 

84The 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. 

85The 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. 

86The term ‘‘beneficial ownership’’ (including the 

terms ‘‘beneficially owns’’ or any variation thereof) 

• 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? 

• 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? 

• 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? 

• How might the evolution of the SBS 

market over time affect SDRs or impact 

the Commission’s proposed rule? 

• 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. 

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. 

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. 

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 

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Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 77323 

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. 

87See Exchange Act Release No. 63107 (Oct. 14, 

2010), 75 FR 65882 (Oct. 26, 2010). 

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

Request for Comment 

• 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? 

• 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? 

• Is the proposed definition of ‘‘enduser’’ appropriate and sufficiently clear? 

If not, why not and how should it be 

defined? 

• 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? 

• Is requiring an SDR’s management 

to meet certain minimum standards 

appropriate? If not, what would be a 

better alternative? 

• 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? 

• 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? 

• 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? 

• How might the evolution of the SBS 

market over time affect SDRs or impact 

the Commission’s proposed rule? 

• 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)? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• Should the Commission require an 

SDR to establish any other committee? 

If so, what would be the responsibilities 

of such committee? 

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77324 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

88See Public Law 111–203, § 763(i) (adding 

Exchange Act Section 13(n)(7)(C)). 

89See 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 

* * *.’’). 

90See, 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’’). 

91See, 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’’). 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• Are there other methods for 

mitigating any tensions between 

commercial interests and statutory goals 

without placing any voting and 

ownership limitations? 

• Are there potential ways to more 

narrowly target voting and ownership 

limitations while effectively mitigating 

any tensions between commercial 

interests and statutory goals? 

• 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? 

• 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? 

• 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? 

• 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

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 

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92See, 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’’). 

93See Reval Response Letter, supra note 91 

(‘‘Preferential treatment in services provided by an 

SDR could also occur * * *.’’). 

94See 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.’’). 

95See 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.’’). 

96See 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.’’). 

97The 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). 

98See Public Law 111–203, § 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.’’ 

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. 

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

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: 

• Is the Commission’s proposed 

definition of ‘‘nonaffiliated third party’’ 

appropriate and sufficiently clear? If 

not, why not and how should it be 

defined? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• Is the Commission’s proposed 

requirement relating to an SDR’s noncommercial and commercial use of data 

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99Proposed 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, 

§ 763(i). 

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. 

101A definition of ‘‘life cycle event’’ is being 

proposed in proposed Regulation SBSR. See 

Regulation SBSR Release (proposed Rule 900), 

supra note 9. 

102For 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. 

103See Public Law 111–203, § 763(i) (adding 

Exchange Act Section 13(n)(5)(G)); see also 

proposed Rule 13n–4(b)(9). 

104The 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 securitybased 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, § 763(h). 

appropriate and sufficiently clear? If 

not, why not and what would be a better 

alternative? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• Would an SDR need to use data that 

it receives for commercial purposes in 

order to be a viable business? If so, 

explain. 

• 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

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

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. 

Proposed Rule 13n–5(a)(3) would 

define ‘‘asset class’’ as ‘‘those securitybased 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. 

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105See 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, § 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. 

107An 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. 

108See also proposed Rule 13n–4(b)(3). 

109See, 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). 

110Proposed 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.’’ 

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: 

• 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’’? 

• Is the proposed definition of 

‘‘position’’ sufficiently precise? 

• Are there other attributes of SBSs 

for which the Commission should 

specifically require SDRs to calculate 

positions? 

• 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? 

• 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? 

• 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

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. 

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 

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111The 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 nonreporting counterparties to substantiate the 

accuracy of the transaction data without having to 

incur significant systems or technology costs. 

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. 

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. 

114See, 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.’’). 

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. 

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

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. 

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

Request for Comment 

The Commission requests comment 

on the following specific issues: 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• Should the Commission impose 

other requirements that may increase 

access to an SDR, including: 

Æ 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 

Æ 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? 

• Should the Commission require an 

SDR itself to substantiate the accuracy 

of the transaction data that has been 

submitted to the SDR? 

• Should the Commission require an 

SDR to have any particular substantive 

requirements in its policies and 

procedures relating to these rules? 

• 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? 

• Where an SDR relies on a third 

party to provide confirmations, should 

the Commission give more guidance as 

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Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 77329 

115See 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 securitybased 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. 

117See, 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.’’). 

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? 

• 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? 

• 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? 

• 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? 

• 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’’? 

• 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

Request for Comment 

The Commission requests comment 

on the following specific issues: 

• Should the Commission specify 

particular standards or procedures for 

calculating positions? 

• What information will an SDR need 

to obtain in order to calculate positions 

and how difficult will it be to obtain? 

• 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? 

• 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? 

• 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: 

Æ What would be the benefits and 

burdens of such a requirement? 

Æ 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? 

Æ Should ‘‘market value’’ be defined, 

and if so, how? 

Æ 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? 

Æ 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? 

Æ How frequently should such 

valuations be performed? Would daily 

valuation be too onerous for SDRs? 

What about weekly or monthly 

valuation? 

Æ 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? 

Æ 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 

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77330 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

118See Section II, Role, Regulation, and Business 

Models of SDRs, of this release. 

119See, e.g., ISDA Operations Committee, Process 

Working Group, Recommended Practices for 

Portfolio Reconciliation, version 4.7 (Feb. 2006) 

(describing recommended practices for portfolio 

reconciliation). 

120See 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, § 763(c) (for SB SEFs). 

121See Exchange Act Rule 17a–1, 17 CFR 

240.17a–1 (requiring clearing agencies to retain data 

for five years). 

122An 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. 

123See 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). 

124Records 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. 

125The 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). 

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

Request for Comment 

The Commission requests comment 

on the following specific issues: 

• Should the Commission specify 

particular standards or procedures for 

maintaining accurate data, such as 

portfolio reconciliation and payment 

reconciliation? 

• 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? 

• 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? 

• 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

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

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 brokerdealer records.123 This proposed 

requirement would prevent the 

maintained information from being 

modified or removed without 

detection.124

Request for Comment 

The Commission requests comment 

on the following specific issues: 

• 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? 

• 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? 

• 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? 

• Should the Commission have 

additional requirements regarding 

access to the transaction data and 

positions, such as requiring such 

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Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 77331 

126These requirements are consistent with the 

broker-dealer retention requirements. See Exchange 

Act Rule 17a–4(f), 17 CFR 240.17a–4(f). 

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. 

information be maintained on a server 

in the United States? 

• 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? 

• 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? 

• 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? 

• Should the Commission require that 

SDRs establish and maintain effective 

interoperability and interconnectivity 

with other SDRs, market infrastructures, 

and venues? 

• 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? 

• 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? 

• 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

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: 

• Should the Commission establish 

more specific requirements to avoid 

contract invalidation by an SDR? 

• What is the practical effect of this 

proposed requirement? 

• Are such modifications actually 

occurring? 

• 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? 

• 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. 

Request for Comment 

The Commission requests comment 

on the following specific issues: 

• Should the Commission require an 

SDR to have any particular requirements 

in its dispute resolution procedures 

under this rule? 

• Is dispute resolution a necessary 

service that must be provided by an 

SDR? 

• 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? 

• 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) 

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77332 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

128This 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. 

129Proposed 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, 

§ 763(i). 

130See 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’’). 

131See 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). 

132See 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’’). 

133Clearing 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, § 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. 

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. 

Request for Comment 

The Commission requests comment 

on the following specific issues: 

• 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? 

• 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: 

• 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? 

• To what extent does this 

requirement provide additional 

protections beyond those of proposed 

Rule 13n–5(b)(7)? 

• 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? 

• 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

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 

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Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 77333 

134See 17 CFR 242.301(b)(6). 

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. 

136Use of such appropriate units of measure is 

required in proposed Form SDR Item 31. See also 

Form SIP, Item #27 for SIPs. 17 CFR 249.1001. 

137See ARP II Release, 56 FR 22490, supra note 

130. 

138Proposed 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. 

139See ARP II Release, 56 FR 22490, supra note 

130. 

140Such 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’’). 

141See ARP II Release, 56 FR 22490, supra note 

130. 

142See id. 

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. 

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

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. 

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

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. 

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

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, 

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77334 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

143A 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. 

144Proposed 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. 

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. 

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 

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145See ARP II Release, 56 FR 22490, supra note 

130. 

146The 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. 

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

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 securitybased 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. 

The Commission preliminarily 

believes that the proposed thirty 

calendar day requirement regarding preimplementation 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: 

• 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. 

• Are there factors specific to SBS 

transactions that would make applying 

a system that is traditionally used in the 

equity markets inappropriate? 

• 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? 

• 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? 

• Should the Commission expressly 

require by rule: 

Æ An SDR’s contingency and disaster 

recovery plans (required in proposed 

paragraph (b)(1)(v)) to be tested 

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77336 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

147This 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). 

148These 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’’). 

149For 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.’’ 

150See, 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’’). 

151See, 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.’’). 

152See ARP II Release, 56 FR 22490, supra note 

130. 

periodically to assure their effectiveness 

and adequacy? 147

Æ An SDR’s contingency and disaster 

recovery plans (required in proposed 

paragraph (b)(1)(v)) to cover at a 

minimum: 

• 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? 

• 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? 

• Immediate availability of software 

modifications, detailed procedures, 

organizational charts, job descriptions, 

and personnel for the conduct of 

operations under a variety of possible 

contingencies? 

• Emergency mechanisms for 

establishing and maintaining 

communications with participants, 

regulators and other entities 

involved? 148

Æ 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? 

Æ 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? 

Æ 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? 

Æ 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

Æ 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

Æ 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 

Æ 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? 

• 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. 

• 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

• 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. 

• 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? 

• 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? 

• 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? 

• 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 

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153 17 CFR 240.17a–25. 

154 17 CFR 240.19b–4. 155 5 U.S.C. 552(b)(4). 

156 5 U.S.C. 552(b)(8). 

157 17 CFR 200.80(b)(8). 

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 Selfregulatory Organizations).154

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: 

• Are there specific provisions in 

proposed Rule 13n–6(c) that should be 

eliminated or refined? If so, please 

explain your reasoning. 

• 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. 

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

Request for Comment 

The Commission requests comment 

on the following specific issues: 

• Are there specific provisions in 

proposed Rule 13n–6(d) that should be 

eliminated or refined? If so, please 

explain your reasoning. 

• 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 

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158 17 CFR 240.17a–3(a)(21) and (22). 

159Exchange Act Section 13(n)(2), Public Law 

111–203, § 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). 

160 17 CFR 240.17a–1. 

161See also proposed Rule 13n–4(b)(1). 

162This 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. 

163See also proposed Rule 13n–4(b)(1). 

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. 

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. 

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 brokerdealer recordkeeping rules because the 

broker-dealer recordkeeping rules are 

specifically tailored for the business of 

broker-dealers. 

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. 

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: 

• Should the Commission 

recommend a rule similar to Exchange 

Act Rule 17a–6 for SDRs? 164

• 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? 

• Should the Commission require 

records retained under this section to be 

retained electronically or furnished to 

the Commission electronically? 

• 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? 

• 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 

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166See Public Law 111–203, § 763(i) (adding 

Exchange Act Section 13(n)(5)). 

167Proposed Rule 13n–9(b)(1). 

168Under 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). 

169Proposed Rule 13n–9(b)(2). 

170 Id. 

171See, 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.). 

172See 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 

* * * ’’). 

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. 

Request for Comment 

The Commission requests comment 

on the following specific issues: 

• 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? 

• 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’’? 

• 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? 

• 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 DoddFrank 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

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

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 

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77340 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

173See Public Law 111–203, § 763(i). 

174See proposed Rule 13n–10(b). 

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: 

• 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? 

• Are the Commission’s privacy 

requirements appropriate and 

sufficiently clear? If not, why not and 

what would be a better alternative? 

• 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)? 

• What other examples of 

confidential information, material, 

nonpublic information, and intellectual 

property should be protected by an 

SDR? 

• Should the Commission require 

anything else to be protected in an 

SDR’s privacy policies and procedures? 

• Should the Commission prescribe 

any other preventive measures that an 

SDR must include in its privacy policies 

and procedures? 

• 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 noncommercial 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

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: 

• Are the proposed disclosure 

requirements to market participants 

appropriate and sufficiently clear? If 

not, why not and what would be a better 

alternative? 

• Should the Commission require 

SDRs to make the proposed disclosure 

to market participants in any other 

instances? 

• Should the Commission not require 

disclosure of any of the information 

specified in this proposed rule? If so, 

what and why? 

• 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? 

• Should the Commission require 

disclosure of any other information? If 

so, what and why? 

• 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)? 

• 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? 

• 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? 

• 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 

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Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 77341 

175See Public Law 111–203, § 763(i) (adding 

Exchange Act Section 13(n)(6)). 

176Proposed Rule 13n–11(a). 

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. 

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. 

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: 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• Are there other measures that 

would further enhance the 

independence and effectiveness of a 

CCO and that should be prescribed in a 

rule? 

• 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? 

• Should the Commission provide 

guidance in its proposed rules about the 

CCO’s procedures for the remediation of 

noncompliance issues? 

• 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? 

• 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? 

• 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? 

• 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 

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77342 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

177See Public Law 111–203, § 763(i). 

178The 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). 

179The 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). 

180See proposed Rule 13n 11(d)(2). 

181See 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. 

182Proposed Rule 13n 11(e). 

183Proposed Rule 13n–11(f)(1). 

184The 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 SarbanesOxley 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. 

185Proposed Rule 13n–11(f)(2). 

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 matters179

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. 

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

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. 

Request for Comment 

The Commission requests comment 

on the following specific issues: 

• 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? 

• Are the proposed definitions of 

‘‘material change’’ and ‘‘material 

compliance matter’’ appropriate? If not, 

are they over-inclusive or underinclusive and how should they be 

defined? 

• 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)? 

• 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? 

• 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? 

• 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? 

• Should the Commission require any 

other disclosure in the CCO’s annual 

report? 

• 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? 

• 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? 

• Are there any disadvantages to 

keeping the CCO’s compliance report 

confidential? How could the 

Commission address any such 

disadvantage? 

• Would making the CCO’s 

compliance report public be useful to 

the public or other regulators? 

• 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? 

• 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? 

• 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.185Each financial 

report would be required to include a 

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Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 77343 

186Proposed Rules 13n–11(f)(3). 

187 17 CFR 240.17a–5. 

188Proposed Rule 13n–11(f)(4). 

189 Id. 

190 Id. 

191 Id. 

192 Id. 

193See 17 CFR 210.9–06. 

194See 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). 

195Proposed Rule 13n–11(g). 

196See, e.g., Exchange Act Rule 17a–5(d), 17 CFR 

240.17a–5(d). 

197See Public Law 111–203, § 763(i) (adding 

Exchange Act Section 13(m)(1)(G)). 

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

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

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. 

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

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. 

Request for Comment 

The Commission requests comment 

on the following specific issues: 

• 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? 

• 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? 

• 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)? 

• 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? 

• 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)? 

• Would an SDR’s financial report be 

useful to the public or other regulators? 

If so, explain. 

• 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? 

• 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? 

• 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? 

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77344 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

198 44 U.S.C. 3501 et seq. 

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 DoddFrank 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. 

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 nonresident 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), 

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Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 77345 

199See Regulation SBSR Release, supra note 9. 200See also proposed Rule 13n–4(a)(6) (defining 

‘‘direct electronic access’’). 201The 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. 202SDRs 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). 

203Transaction data is defined in proposed Rule 

13n–5(a)(1). 

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. 

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. 

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. 

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 

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77346 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

204See, e.g., proposed Rules 13n–4(b)(1) and 13n– 

7(b)(3). 

205See 17 CFR 232.301. 

206See 17 CFR 232.405. 

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

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 noncommercial 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

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

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 

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Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 77347 

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. 

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). 

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– 

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77348 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

208The 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. 

209Exchange 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. 

210The 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. 

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. 

214The 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). 

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. 

Under proposed Rule 13n–1(g) a nonresident 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 nonresident SDRs to comply with proposed 

Rule 13n–1(g) of 9 hours and $2700.210

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. 

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 

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215This 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. 

216Proposed Rule 13n–5(b)(7). 

217Proposed Rule 13n–5(b)(8). 

218This 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). 

219As 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. 

220This 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. 

221The 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). 

222Exchange Act Release No. 51808 (June 9, 

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

Commission based these estimates on those for nonSRO 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. 

223The 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). 

224Under the Commission’s ARP inspection 

program of SROs and certain alternative trading 

systems (‘‘ATS’’), the Commission staff conducts onsite 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. 

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

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. 

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. 

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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226This 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). 

228See 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)). 

229Under the proposal, this obligation would 

continue even if the SDR withdraws from 

registration or ceases doing business. Proposed Rule 

13n–7(c). 

230See Exchange Act Release No. 59342 (Feb. 2, 

2009); 74 FR 6456 (Feb. 9, 2009). 

231Further, 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. 

232The 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). 

233See Investment Advisers Act Release No. 3060 

(Aug. 12, 2010); 75 FR 49234 (Aug. 12, 2010). 

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. 

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. 

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. 

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. 

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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234See Exchange Act Release No. 51808 (June 9, 

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

235The 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). 

237See Investment Company Act Release No. 

25925 (Feb. 5, 2003); 68 FR 7038 (Feb. 11, 2003). 

238See 17 CFR 232.301. 

239See 17 CFR 232.405. 

240See Exchange Act Release No. 51808 (June 9, 

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

241This figure is the result of an estimated $400 

an hour cost for outside legal services (as noted 

above) times 50 hours, for 10 respondents. 

242These 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. 

243These 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. 

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. 

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. 

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. 

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. 

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. 

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 

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244See Exchange Act Release No. 51808 (June 9, 

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

245This figure is the result of an estimated $400 

an hour cost for outside legal services (as noted 

above) times 50 hours, for 10 respondents. 

246See Exchange Act Release No. 51808 (June 9, 

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

247The 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). 

248This $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). 

249This 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. 

250This 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. 

251These 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. 

252See Exchange Act Release No. 51808 (June 9, 

2005); 70 FR 37496 (June 29, 2005). 253The 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). 

254This $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). 

255See Exchange Act Release No. 51808 (June 9, 

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

256This figure is the result of an estimated $400 

an hour cost for outside legal services (as noted 

above) times 50 hours, for 10 respondents. 

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. 

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

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. 

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

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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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. 

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

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 

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77354 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

258With 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. 

259See, 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.’’). 

260Reporting of Security-Based Swap Transaction 

Data, Exchange Act Release No. 63094 (Oct. 13, 

2010), 75 FR 64643 (Oct. 20, 2010). 

261See, 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.’’). 

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. 

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. 

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

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 DoddFrank 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 

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262See supra Sections III.A—III.C. 

263See Public Law 111–203, § 763(i) (adding 

Exchange Act Section 13(n)(1)). 

264See supra Section V.D.1. 

265The 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 workyear 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) 

× (10 registrants) = $584,000. 

266The 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 workyear 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) × (10 registrants) = $49,080. 

267See supra Section V.C.1. 268The 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 workyear 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)) 

× (3 non-resident registrants) = $5,544. 

269The 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. 

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. 

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. 

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 registrationrelated 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. 

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 onetime estimated dollar cost would be 

$5,544.268

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

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 

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77356 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

270See supra Section III.D—III.F. 

271See Public Law 111–203, § 763(i) (adding 

Exchange Act Section 13(n)(5)(D)(i)). 

272See Public Law 111–203, § 763(i) (adding 

Exchange Act Sections 13(n)(4) and (5)). 273See Regulation SBSR Release, supra note 9. 

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

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. 

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 DoddFrank 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. 

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. 

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 

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274See Regulation SBSR Release, supra note 9. 

275See id. 

276See supra Section V.D.2. 277The 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)) × 10 registrants = 

$200,020,000. 

278The 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)) × 10 registrants = 

$120,012,000. 

279See supra Section V.D.2. 

280 $1,600 for outside legal services × 10 

registrants = $16,000. 

281The 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 workyear 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) × 10 registrants = $9,480. 

282See supra Section V.D.2. 

283The 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)) × 10 registrants = $3,926,250. 

284The 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, 

Continued 

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 

SBSR274 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. 

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. 

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. 

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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77358 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

calculated as follows: ((Compliance Manager at 

$294 per hour for 180 hours) + (Attorney at $316 

per hour for 120 hours)) × 10 registrants = $908,400. 

285See supra Section V.D.2. 

286The 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 workyear 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)) × 10 registrants = $368,965. 287See supra Section III.G. 

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

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

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 

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288See supra Section V.D.3. 289The 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)) × 10 registrants = $1,015,460. 

290The 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) × 10 registrants = $820,760. 

291See supra Section III.F. 

292See supra Section III.H. 

293See Public Law 111–203, § 763(i) (adding 

Exchange Act Section 13(n)). 

294The Commission understands some currentlyexisting 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. 

295See supra Section V.D.4. 

296The 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, 

Continued 

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. 

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

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. 

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

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

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77360 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

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)) 

× 10 registrants = $2,845,750. 

297See supra Section V.D.4. 

298The 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) × 10 registrants = $2,340. 

299See supra Section III.J. 

300See supra Section V.D.5. 

301The 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 workyear 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)) × 10 registrants = $266,087.50. 

302The 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 workyear 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)) × 10 registrants = $1,765. 

303See supra Sections III.D and III.K. 

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

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 noncommercial 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. 

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. 

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 

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304See 17 CFR 232.301. 

305See 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). 

306See Public Law 111–203, § 763(i) (adding 

Exchange Act Section 13(n)(6)). 

307See 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. 

309The 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)) × 10 

registrants = $1,622,200. 

310The 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)) × 10 registrants = 

$7,387,200. 

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

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. 

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. 

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) 

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311See supra Section V.D.6. 

312The 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) 

× 10 registrants = $14,550. 

313See supra Section V.D.6. 

314The 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)) × 10 registrants = $5,915,000. 

315See supra Section V.D.6. 

316The 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)) × 10 registrants = $363,260. 

317See 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. 

318See supra Section III.I. 

319See supra Section III.D. 

320See supra Section III.E. 

321See Public Law 111–203, § 763(i) (adding 

Exchange Act Sections 13(n)(5)(F)–(H) and (7)(A)– 

(C)). 

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

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

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

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

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. 

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 

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322See supra Section V.D.7. 

323The 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)) × 10 registrants = 

$1,374,800. 

324The 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)) × 10 registrants = 

$294,070. 

325See supra Section V.D.7. 

326The 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)) × 10 

registrants = $811,100. 

327The 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) × 10 registrants = $174,600. 

328See supra Section V.D.7. 

329The 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)) × 10 

registrants = $1,622,200. 

330The 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) × 10 registrants = $349,200. 

331See supra Section V.D.7. 

332The Commission estimates that an SDR will 

assign these responsibilities to a Compliance 

Attorney. Data from SIFMA’s Management & 

Professional Earnings in the Securities Industry 

Continued 

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. 

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. 

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. 

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 

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77364 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

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)) × 10 

registrants = $1,216,650. 

333The 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) × 10 registrants = $261,900. 

334See supra Section V.D.7. 

335The 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)) × 10 

registrants = $2,433,300. 

336The 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) × 10 registrants = $523,800. 

337The 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. 

338The 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. 

339See Regulation SBSR Release, supra note 9. 

340The 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. 

341The 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. 

342 15 U.S.C. 78w(a). 

343 15 U.S.C. 77b(b). 

344 15 U.S.C. 78c(f). 

the aggregate ongoing estimated dollar 

cost per year would be $261,900 333 to 

comply with the proposed rule. 

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. 

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

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 DoddFrank 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. 

The economic effects of the proposed 

rules were discussed in detail in the 

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Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 77365 

345 5 U.S.C. 603(a). 

346 5 U.S.C. 605(b). 

347 17 CFR 230.157. See also 17 CFR 240.0–10(a). 

348Commission 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. 

349Public 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). 

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 nonresident 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

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. 

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. 

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 

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77366 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

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 securitybased 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. 

§ 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 securitybased 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 securitybased 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 securitybased 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. 

§ 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: 

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(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 securitybased 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 securitybased swap data repository; or 

(iii) Any employee of such securitybased 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 securitybased 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 securitybased 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. 

§ 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 securitybased 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 securitybased 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. 

§ 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 securitybased 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 securitybased 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: 

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(i) The security-based swap data 

repository, 

(ii) Any affiliate of the security-based 

swap data repository, or 

(iii) A person employed by a securitybased 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 securitybased 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 securitybased swap data repository; or 

(iii) Any employee of such securitybased swap data repository. 

(b) Duties. To be registered, and 

maintain registration, as a securitybased swap data repository, a securitybased 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 similarlysituated 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 securitybased 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 

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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 securitybased 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 securitybased 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 decisionmaking 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 securitybased swap transaction information that 

it receives from a market participant, 

any registered entity, or any other 

person. 

Note to § 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. 

§ 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 securitybased swaps in a particular broad 

category, including, but not limited to, 

credit derivatives, equity derivatives, 

and loan-based derivatives. 

(b) Requirements. Every securitybased 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 nonrewriteable 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 

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designee (including another registered 

security-based swap data repository). 

§ 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 nearterm 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 securitybased 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 securitybased 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 securitybased 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. 

§ 240.13n–7 Recordkeeping of securitybased 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 

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that are reasonably designed to ensure 

compliance with the Act and the rules 

and regulations thereunder. 

(b) Recordkeeping rule for securitybased 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. 

§ 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. 

§ 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 securitybased 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 securitybased 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 securitybased 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 securitybased swap data repository; or 

(iii) Any employee of such securitybased 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 securitybased swap data repository for their 

personal benefit or the benefit of others, 

and 

(C) Adequate oversight to ensure 

compliance with this subparagraph. 

§ 240.13n–10 Disclosure requirements of 

security-based swap data repository. 

(a) Definition. For purposes of this 

section— 

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(1) Market participant means any 

person participating in the over-thecounter 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 securitybased 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 securitybased 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 securitybased 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 noncommercial 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 securitybased 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. 

§ 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 securitybased 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 securitybased 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 

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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 securitybased 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 securitybased swap data repository’s long-term 

obligations, mandatory dividend or 

redemption requirements of redeemable 

stocks, and guarantees of the securitybased 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 § 249.1500 

is added to read as follows: 

Subpart P—Form for Registration of 

Security-Based Swap Data 

Repositories 

§ 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)). 

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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 

lllllllllllllllllll

(Exact Name of Applicant as Specified 

in Charter) 

lllllllllllllllllll

(Address of Principal Executive Offices) 

If this is an APPLICATION for 

registration, complete in full and check 

here b 

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 b 

lllllllllllllllllll

lllllllllllllllllll

lllllllllllllllllll

GENERAL INFORMATION 

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

herein: lllllllllllllll

lllllllllllllllllll

2. If name of business is amended, state 

previous business name: lllllll

lllllllllllllllllll

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

lllllllllllllllllll

(Number and Street) 

lllllllllllllllllll

(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 llllllll

b. Full name and address of predecessor 

security-based swap data repository 

lllllllllllllllllll

(Name) 

lllllllllllllllllll

(Number and Street) 

lllllllllllllllllll

(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. 

lllllllllllllllllll

lllllllllllllllllll

7. Furnish a description of the function(s) that the applicant performs or 

proposes to perform. llllllll

lllllllllllllllllll

lllllllllllllllllll

lllllllllllllllllll

BUSINESS ORGANIZATION 

8. Applicant is a: 

b Corporation 

b Partnership 

b Other Form of Organization 

(Specify) llllllllllllll

9. If applicant is a corporation: 

a. Date of incorporation lllllll

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

10. If Applicant is a partnership: 

a. Date of filing of partnership 

articles lllllllllllllll

b. Place where partnership agreement 

was filed llllllllllllll

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) lllll

(Name of Applicant or Applicable 

Entity) lllllllllllllll

(Number and Street) lllllllll

(City) (State) (Zip Code) lllllll

(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 llllday 

of lllllllll,ll. 

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 nonresident 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 securitybased 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) lllllllll

(Signature of General Partner, Managing 

Agent or Principal Officer) llllll

(Title) lllllllllllllll

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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 selfregulatory 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 selfregulatory 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 

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77376 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Proposed Rules 

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 securitybased 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 securitybased 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 securitybased 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, nonprofessional, 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 

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