76666 Federal Register / Vol. 75, No. 236 / Thursday, December 9, 2010 / Proposed Rules 

b. The Types of Information BIS Seeks 

Regarding the How Items on the CCL 

Could Be Tiered 

As described above, there are two 

primary aspects to determining how an 

item on the CCL should be tiered—(i) 

the degree to which the item provides 

a military or intelligence advantage to 

the United States and (ii) its availability 

outside of certain groups of countries. 

i. Request for Comments on How Items 

on the CCL Could Be Described Based 

on the Tier Criteria 

BIS seeks public comments on 

whether items on the CCL that are 

controlled for other than solely AntiTerrorism (AT) or Crime Control (CC) 

reasons provide a ‘‘critical,’’ 

‘‘substantial,’’ or ‘‘significant’’ military or 

intelligence advantage to the United 

States, as these terms are defined above. 

This includes a request for comments on 

how existing ECCNs, down to the 

subparagraph level, could be further 

divided so that their descriptions are 

divided by technical or other objective 

characteristics consistent with the 

‘‘critical,’’ ‘‘substantial,’’ and ‘‘significant’’ 

criteria. The U.S. Government will make 

the final decisions on what types of 

CCL-listed items are within the scope of 

any of the three tiers and, thus, may or 

may not accept suggestions regarding 

how items should be tiered. 

Nonetheless, BIS is interested in the 

public’s comments on the issue of how 

CCL-listed items can be described so 

that they are distinguished even within 

ECCNs by tier. 

ii. Request for Comments on the 

Availability of Items on the CCL 

BIS also seeks public comments on 

whether items with the capabilities and 

characteristics described on the CCL, 

and controlled for other than solely antiterrorism (AT) reasons or Crime Control 

(CC) reasons, are indigenously 

developed, produced, or enhanced (a) 

almost exclusively in the United States 

or (b) in destinations other than 

Argentina, Australia, Austria, Belgium, 

Bulgaria, Canada, Croatia, the Czech 

Republic, Denmark, Estonia, Finland, 

France, Germany, Greece, Hungary, 

Iceland, Ireland, Italy, Japan, Latvia, 

Lithuania, Luxembourg, Netherlands, 

New Zealand, Norway, Poland, 

Portugal, Romania, Slovakia, Slovenia, 

South Korea, Spain, Sweden, 

Switzerland, Turkey, Ukraine, or the 

United Kingdom. For purposes of this 

notice, ‘‘enhanced’’ means that (a) the 

basic characteristics, such as accuracy, 

capability, performance, or productivity 

of the item listed on the CCL are 

improved to provide greater 

functionality, and (b) the enhancement 

is effected in destinations outside the 

above-listed destinations. Information 

about the availability of these CCL-listed 

items will help BIS and the other 

relevant U.S. Government agencies 

determine the appropriate tier for these 

items. 

Public comments should do more 

than merely state that specific items are 

available outside the United States or 

this group of countries. Rather, they 

should include specific, objectively 

verifiable information regarding the 

availability—that is, the indigenous 

development, production, or 

enhancement of the CCL-listed items. 

The types of availability information 

that will be most useful to BIS include, 

for example, those set out in EAR 

section 768.6, which are evidence that 

the item is (i) available-in-fact, (ii) from 

a non-U.S. source, (iii) in sufficient 

quantity, and (iv) of comparable quality. 

For example, a public comment 

identifying a CCL-listed item as being 

manufactured outside the above-listed 

countries should ideally include (a) 

information about its foreign 

manufacturer(s), (b) relevant company 

catalogues or print-outs from company 

websites that describe the item’s 

technical capabilities and parameters, 

and (c) a detailed, documented 

explanation of why these parameters 

equal or exceed those contained in the 

relevant ECCN entry. Company claims 

that are made in catalogues or Web sites 

that are based on accepted international 

standards or other internationally 

recognized certification authorities are 

more likely to be useful to BIS than 

claims that are more difficult to 

objectively verify. 

3. Comments That Are Outside the 

Scope of This Notice 

As a separate regulatory initiative, BIS 

and the State Department are planning 

to coordinate on the parallel publishing 

of proposed rules in the Federal 

Register that would create a definition 

of the term ‘‘specially designed’’ that 

would be common within the CCL and 

that would replace the definition of 

‘‘specifically designed’’ in the ITAR. 

Accordingly, this notice of inquiry does 

not solicit comments pertaining to the 

use of this term. In addition, this notice 

does not seek public comment on 

whether an item should or should not 

be controlled on the CCL, whether the 

United States should ask any of the four 

export control regimes to change the 

controls on an item, or whether an item 

should be controlled differently for 

export and reexport to different 

countries. General comments on the 

overall reform process or the other 

aspects of current export controls are 

similarly outside the scope of this 

inquiry. 

Comments should be submitted to BIS 

as described in the ADDRESSES section of 

this notice by February 7, 2011. 

Dated: December 6, 2010. 

Kevin J. Wolf, 

Assistant Secretary of Commerce for Export 

Administration. 

[FR Doc. 2010–30966 Filed 12–8–10; 8:45 am] 

BILLING CODE 3510–33–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 23 

RIN 3038–AC96 

Reporting, Recordkeeping, and Daily 

Trading Records Requirements for 

Swap Dealers and Major Swap 

Participants 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Commodity Futures 

Trading Commission (Commission or 

CFTC) is proposing regulations to 

implement new statutory provisions 

established under Title VII of the DoddFrank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act). 

Section 731 of the Dodd-Frank Act 

added new sections 4s(f) and (g) to the 

Commodity Exchange Act (CEA), which 

set forth reporting and recordkeeping 

requirements and daily trading records 

requirements for swap dealers and 

major swap participants. The proposed 

rules would establish the regulatory 

standards for compliance with these 

new sections of the CEA. 

DATES: Submit comments on or before 

February 7, 2011. 

ADDRESSES: You may submit comments, 

identified by RIN number 3038–AC96 

and Reporting, Recordkeeping, and 

Daily Trading Records Requirements for 

Swap Dealers and Major Swap 

Participants, by any of the following 

methods: 

• Agency Web site, via its Comments 

Online process: http:// 

comments.cftc.gov. Follow the 

instructions for submitting comments 

through the Web site. 

• Mail: David A. Stawick, Secretary of 

the Commission, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street, NW., 

Washington, DC 20581. 

• Hand Delivery/Courier: Same as 

mail above. 


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Federal Register / Vol. 75, No. 236 / Thursday, December 9, 2010 / Proposed Rules 76667 

1See Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Public Law 111–203, 124 

Stat. 1376 (2010). The text of the Dodd-Frank Act 

may be accessed at http://www.cftc.gov/ 

LawRegulation/OTCDERIVATIVES/index.htm. 

2Pursuant to Section 701 of the Dodd-Frank Act, 

Title VII may be cited as the ‘‘Wall Street 

Transparency and Accountability Act of 2010.’’ 

3 7 U.S.C. 1 et seq. 

4Recordkeeping related to the swap dealer’s or 

major swap participant’s financial condition reports 

will be prescribed in separate rulemaking proposals 

and are not included in the proposed rules below. 

5Section 8a(5) of the CEA authorizes the 

Commission to promulgate such regulations as, in 

the judgment of the Commission, are reasonably 

necessary to effectuate any of the provisions or to 

accomplish any of the purposes of the CEA. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

Please submit your comments using 

only one method. 

All comments must be submitted in 

English, or if not, accompanied by an 

English translation. Comments will be 

posted as received to http:// 

www.cftc.gov. You should submit only 

information that you wish to make 

available publicly. If you wish the 

Commission to consider information 

that may be exempt from disclosure 

under the Freedom of Information Act, 

a petition for confidential treatment of 

the exempt information may be 

submitted according to the established 

procedures in § 145.9 of the 

Commissions regulations, 17 CFR 145.9. 

The Commission reserves the right, 

but shall have no obligation, to review, 

pre-screen, filter, redact, refuse or 

remove any or all of your submission 

from http://www.cftc.gov that it may 

deem to be inappropriate for 

publication, such as obscene language. 

All submissions that have been redacted 

or removed that contain comments on 

the merits of the rulemaking will be 

retained in the public comment file and 

will be considered as required under the 

Administrative Procedure Act and other 

applicable laws, and may be accessible 

under the Freedom of Information Act. 

FOR FURTHER INFORMATION CONTACT: 

Sarah E. Josephson, Associate Director, 

202–418–5684, sjosephson@cftc.gov; 

Frank N. Fisanich, Special Counsel, 

202–418–5949, ffisanich@cftc.gov; or 

Christopher Hower, Attorney Advisor, 

202–418–6703, chower@cftc.gov; 

Division of Clearing and Intermediary 

Oversight, Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On July 21, 2010, President Obama 

signed the Dodd-Frank Act.1 Title VII of 

the Dodd-Frank Act 2 amended the 

Commodity Exchange Act (CEA) 3 to 

establish a comprehensive regulatory 

framework to reduce risk, increase 

transparency, and promote market 

integrity within the financial system by, 

among other things: (1) Providing for the 

registration and comprehensive 

regulation of swap dealers and major 

swap participants; (2) imposing clearing 

and trade execution requirements on 

standardized derivative products; (3) 

creating rigorous recordkeeping and 

real-time reporting regimes; and (4) 

enhancing the Commission’s 

rulemaking and enforcement authorities 

with respect to all registered entities 

and intermediaries subject to the 

Commission’s oversight. 

Section 731 of the Dodd-Frank Act 

amends the CEA by adding a new 

Section 4s, which sets forth a number of 

requirements for swap dealers and 

major swap participants. Specifically, 

sections 4s(f) and 4s(g) of the CEA 

establish reporting and recordkeeping 

requirements and daily trading records 

requirements for swap dealers and 

major swap participants. 

Section 4s(f)(1) requires swap dealers 

and major swap participants to ‘‘make 

such reports as are required by the 

Commission by rule or regulation 

regarding the transactions and positions 

and financial condition of the registered 

swap dealer or major swap 

participant.’’ 4 Under sections 

4s(f)(1)(B)(i) and (ii), the Commission is 

authorized to prescribe the books and 

records requirements of ‘‘all activities 

related to the business of swap dealers 

or major swap participants,’’ regardless 

of whether or not the entity has a 

prudential regulator. All books and 

records shall be open to inspection and 

examination by any representative of 

the Commission, and under section 

4s(f)(1)(D), books and records relating to 

security-based swap agreements also 

must be open to inspection and 

examination by the Securities and 

Exchange Commission. 

Section 4s(g)(1) requires that swap 

dealers and major swap participants 

‘‘maintain daily trading records of the 

swaps of the registered swap dealer and 

major swap participant and all related 

records (including related cash and 

forward transactions) and recorded 

communications, including electronic 

mail, instant messages, and recordings 

of telephone calls.’’ Section 4s(g)(3) 

requires that daily trading records for 

each swap transaction be identifiable by 

counterparty, and section 4s(g)(4) 

specifies that swap dealers and major 

swap participants maintain a ‘‘complete 

audit trail for conducting 

comprehensive and accurate trade 

reconstructions.’’ 

The Commission would adopt the 

regulations discussed below pursuant to 

authority granted under sections 

4s(h)(1)(D), 4s(h)(3)(D), 4s(f), 4s(g), and 

8a(5) of the CEA.5 The Dodd-Frank Act 

requires the Commission to promulgate 

these provisions by July 15, 2011. 

The proposed regulations reflect 

consultation with staff of the following 

agencies: (i) The Securities and 

Exchange Commission; (ii) the Board of 

Governors of the Federal Reserve 

System; (iii) the Office of the 

Comptroller of the Currency; and 

(iv) the Federal Deposit Insurance 

Corporation. Staff from each of these 

agencies has had the opportunity to 

provide oral and/or written comments 

to the proposal, and the proposed 

regulations incorporate elements of the 

comments provided. 

The Commission requests comment 

on all aspects of the proposed 

regulations, as well as comment on the 

specific provisions and issues 

highlighted in the discussion below. 

The Commission further requests 

comment on an appropriate effective 

date for final regulations, including 

comment on whether it would be 

appropriate to have staggered or delayed 

effective dates for some regulations 

based on the nature or characteristics of 

the activities or entities to which they 

apply. Moreover, the Commission 

recognizes that there will be differences 

in the size and scope of the business of 

particular swap dealers and major swap 

participants. Therefore, comments are 

solicited on whether certain provisions 

of the proposed regulations should be 

modified or adjusted to reflect the 

differences among swap dealers and 

major swap participants. 

II. Proposed Regulations 

A. General Records Requirements 

Section 4s(f)(1)(B) of the CEA requires 

registered swap dealers and major swap 

participants to keep records of all 

activities related to their business. 

Section 4s(f)(2) directs the Commission 

to adopt rules governing recordkeeping 

for swap dealers and major swap 

participants. 

Proposed § 23.201 sets forth the 

records swap dealers and major swap 

participants must maintain. The records 

required under the proposed rule would 

include full and complete swap 

transaction information, including all 

documents on which swap information 

is originally recorded. Under proposed 

§ 23.201(a)(1), such records would be 

required to be maintained in a manner 


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76668 Federal Register / Vol. 75, No. 236 / Thursday, December 9, 2010 / Proposed Rules 

6Financial condition reporting, including 

reporting for compliance with capital rules, will be 

proposed in a separate rulemaking. 

7A complaint is defined in proposed rule 23.200 

as any formal or informal complaint, grievance, 

criticism, or concern communicated to the swap 

dealer or major swap participant in any format 

relating to, arising from, or in connection with, any 

trading conduct or behavior or with the swap dealer 

or major swap participant’s performance (or failure 

to perform) any of its regulatory obligations, and 

includes any and all observations, comments, 

remarks, interpretations, clarifications, notes, and 

examinations as to such conduct or behavior 

communicated or documented by the complainant, 

swap dealer, or major swap participant. 

8The proposed real-time reporting rules under 

part 43 are available on the Commission’s Web site 

at http://www.cftc.gov. 

9Financial Services Authority, ‘‘Policy Statement: 

Telephone Recording: recording of voice 

conversations and electronic communications,’’ 

(March 2008). 

that is identifiable and searchable by 

transaction and by counterparty. The 

rule would require retention of all 

documents customarily generated in 

accordance with market practice that 

demonstrate the existence and nature of 

the transaction. 

Proposed § 23.201(a)(2) would require 

retention of records of each position 

held by the swap dealer or major swap 

participant, identified by product and 

counterparty. Position records would be 

required to be linked to transaction 

records in a manner that permitted 

identification of the transaction that 

established the position. Position 

information would be retained in 

accordance with Commission 

regulations under part 45, which 

provides for unique product identifiers 

and unique counterparty identifiers. 

Proposed § 23.201(a)(3) would require 

swap dealers and major swap 

participants to maintain records for 

transactions executed on a swap 

execution facility (SEF) or designated 

contract market (DCM) or cleared by a 

derivatives clearing organization (DCO). 

It should be noted, that for transactions 

that are executed on a SEF or DCM, or 

cleared on a DCO, many of the 

requirements of the daily trading record 

rule, described below, would be easily 

achieved through procedures 

established by the SEF, DCM, or DCO 

(e.g., confirming the transaction, valuing 

the transaction, or margining the 

position). 

Proposed § 23.201(b) would require 

that swap dealers and major swap 

participants keep basic business 

records, including, among other things, 

minutes from meetings of the entity’s 

governing body, organizational charts, 

and documentation of audits conducted. 

Additionally, certain financial records,6

records of complaints 7 against 

personnel, and marketing materials 

would be required to be kept. Under 

proposed § 23.201(c), swap dealers and 

major swap participants would be 

required to maintain records of 

information required to be submitted to 

a swap data repository. 

Finally, under proposed § 23.201(d) 

swap dealers and major swap 

participants would be required to 

maintain records of information 

required to be reported on a real-time 

public basis and records of information 

relating to large notional swaps in 

accordance with proposed part 43 and 

CEA section 2(a)(13).8 Specifically, with 

regard to large notional swaps, swap 

dealers and major swap participants 

should retain a record of the rationale 

for determining that the swap is a large 

notional swap in accordance with new 

part 43 of the Commission regulations. 

Additionally, for the purposes of realtime reporting under part 43, if less 

specific information relating to a 

required data field is reported to protect 

the identities of the parties to a swap 

(e.g., underlying asset or tenor), a swap 

dealer or major swap participant must 

retain a record of the rationale for why 

reporting less specific information is 

necessary to protect the anonymity of 

the parties to the swap. 

The Commission requests comment 

on all aspects of proposed § 23.201. In 

particular, the Commission solicits 

comment on the following questions: 

• Should the Commission provide 

greater specificity on the requirement 

that transaction records be kept in a 

form and manner identifiable and 

searchable by transaction and 

counterparty? 

• Are there additional types of 

records that should be required to be 

kept by swap dealers and major swap 

participants? For example, should drafts 

of documents be kept? 

B. Daily Trading Records 

Section 4s(g)(1) of the CEA requires 

that swap dealers and major swap 

participants maintain daily trading 

records of their swaps and ‘‘all related 

records (including related cash and 

forward transactions).’’ This section also 

requires that swap dealers and major 

swap participants maintain recorded 

communications, including electronic 

mail, instant messages, and recordings 

of telephone calls. Section 4s(g)(2) 

provides that the daily trading records 

shall include such information as the 

Commission shall require by rule or 

regulation. Section 4s(g)(3) requires that 

daily trading records for each swap 

transaction be identifiable by 

counterparty, and section 4s(g)(4) 

specifies that swap dealers and major 

swap participants maintain a ‘‘complete 

audit trail for conducting 

comprehensive and accurate trade 

reconstructions.’’ 

Proposed § 23.202 would prescribe 

daily trading record requirements, 

which would include trade information 

related to pre-execution, execution, and 

post-execution data. Proposed 

§ 23.202(a) would require swap dealers 

and major swap participants to ensure 

(1) that they preserve all information 

necessary to conduct a comprehensive 

and accurate trade reconstruction for 

each swap, and (2) that they maintain 

each transaction record as a separate 

electronic file identifiable and 

searchable by transaction and 

counterparty. 

Proposed § 23.202(a)(1) would require 

registrants to keep pre-execution trade 

information. This would include 

records of all oral and written 

communications that lead to the 

execution of a swap, whether 

communicated by telephone, voicemail, 

facsimile, instant messaging, chat 

rooms, electronic mail, mobile device, 

or other digital or electronic media. This 

rule would require swap dealers and 

major swap participants to maintain 

recordings of telephone calls and other 

communications created in the normal 

course of its business, but would not 

establish an affirmative new 

requirement to create recordings of all 

telephone conversations if the complete 

audit trail requirement can be met 

through other means, such as electronic 

messaging or trading. 

Significant technological 

advancements in recent years, 

particularly with respect to the cost of 

capturing and retaining copies of 

electronic material, including telephone 

communications, have made the 

prospect of establishing recordkeeping 

requirements for digital and electronic 

communications more economically 

feasible and systemically prudent. 

Evidence of these trends was examined 

in March 2008 by the United Kingdom’s 

Financial Services Authority (‘‘FSA’’), 

which studied the issue of mandating 

the recording and retention of voice 

conversations and electronic 

communications.9 The FSA issued a 

Policy Statement detailing its findings 

and ultimately implemented rules 

relating to the recording and retention of 

such communications, including a 

recent determination that all financial 

service firms will be required to record 

any relevant communication by 


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Federal Register / Vol. 75, No. 236 / Thursday, December 9, 2010 / Proposed Rules 76669 

10 Julia Werdigier, ‘‘Britain to Tape Traders’ Cell 

Phones to Fight Fraud,’’ New York Times (Nov. 12, 

2010). 

11Code of Conduct for Persons Licensed by or 

Registered with the Securities and Futures 

Commission para. 3.9 (2010) (H.K.). 

12 General Regulation of the Autorite ́ des Marche ́s 

Financiers art. 313–51 (2010) (Fr.). 

13Press Release, International Organization of 

Securities Commissions, ‘‘IOSCO Publishes 

Recommendations to Enhance Commodity Futures 

Markets Oversight,’’ (Mar. 5, 2009), http:// 

www.iosco.org/news/pdf/IOSCONEWS137.pdf. The 

IOSCO members on the committee formulating the 

recommendations included Brazil, Canada (Ontario 

and Quebec), Dubai, France, Germany, Hong Kong, 

Italy, Japan, Norway, Switzerland, the United 

Kingdom, and the United States. 

14A copy of the advisory, titled ‘‘Advisory for 

Futures Commission Merchants, Introducing 

Brokers, and Members of a Contract Market over 

Compliance with Recordkeeping Requirements,’’ is 

available on the Commission’s Web site at http:// 

www.cftc.gov. 

15The proposed rules under part 45 are available 

on the Commission’s Web site at http:// 

www.cftc.gov. 

employees on their work cell phones.10

Similar rules that mandate recording of 

certain voice and/or telephone 

conversations have been promulgated 

by the Hong Kong Securities and 

Futures Commission 11 and by the 

Autorite ́ des Marche ́s Financiers in 

France,12 and have been recommended 

by the International Organization of 

Securities Commissions (IOSCO).13

While technological advancements 

have made capturing and retaining such 

material more economically feasible, 

modern technologies likewise have 

altered the methods by which market 

participants conduct their business, 

especially the means through which 

such persons communicate solicitations, 

bids, offers, orders, instructions, trading, 

and prices. 

On February 5, 2009, the 

Commission’s Division of Market 

Oversight (DMO) issued an advisory, 

which made clear that the existing 

language of § 1.35 of the Commission’s 

regulations ‘‘appl[ies] to records that are 

created or retained in an electronic 

format, including e-mail, instant 

messages, and other forms of 

communication created or transmitted 

electronically for all trading.’’ 14 The 

advisory, which specifically addresses 

the Commission’s recordkeeping 

requirements as applicable to futures 

commission merchants, introducing 

brokers, and DCM members, states that 

‘‘[t]he Commission’s recordkeeping 

regulations, by their terms, do not 

distinguish between whatever medium 

is used to record the information 

covered by the regulations, including 

e-mails, instant messages, and any other 

form of communication created or 

transmitted electronically.’’ 

It is also noteworthy that the 

Commission’s enforcement success in 

cases involving market manipulation 

and false reporting often has correlated 

directly with the existence of highquality recordings of voice 

communications and of electronic 

communications between the persons 

involved. Conversely, the Commission’s 

enforcement capabilities have been 

limited in cases where such voice 

recordings and copies of electronic 

communications were not available. 

Accordingly, the Commission is 

proposing § 23.202(a)(1), which would 

require swap dealers and major swap 

participants to maintain records of all 

communications provided or received 

concerning information that leads to the 

execution of a swap, whether conveyed 

by telephone, voicemail, facsimile, 

instant messaging, chat rooms, 

electronic mail, mobile device, or other 

digital or electronic media. As noted 

above, the proposed § 23.202(a) would 

require that each recorded 

communication be maintained as a 

separate electronic file identifiable and 

searchable by transaction and 

counterparty. 

The Commission solicits comments 

on the potential costs and effects of 

requiring that all pre-execution 

communications be recorded. 

Additionally, the Commission requests 

comment on whether it should require 

a record of the source of quotations, 

including the source of any input if the 

quotation is generated by a formula or 

model. Comments also are requested 

regarding whether the retention period 

for pre-execution communications 

should be shorter than the retention 

period applicable to other business 

records. 

Proposed § 23.202(a)(2) would require 

the recording of execution information, 

including all terms of each swap and the 

date and time, to the nearest minute, 

that the swap was executed. Postexecution data, such as records of all 

confirmations, reconciliations, and 

margining of swaps would be required 

under proposed § 23.202(a)(3). The 

collateralization of risk exposure 

resulting from the business of the swap 

dealer or major swap participant would 

be recorded under § 23.202(a)(4). 

Proposed § 23.202(b) would require 

that swap dealers and major swap 

participants retain information of cash 

or forward transactions that are related 

to swaps as required by section 4s(g)(1). 

Proposed § 23.200 defines a related cash 

or forward transaction as ‘‘a purchase or 

sale for immediate or deferred physical 

shipment or delivery of an asset related 

to a swap where the swap and the 

related cash or forward transaction are 

used to hedge, mitigate the risk of, or 

offset one another.’’ The recordkeeping 

requirements for related cash and 

forward transactions generally track the 

same requirements as swaps. The 

Commission believes that requiring one 

approach to recordkeeping will be 

simpler for swap dealers and major 

swap participants to implement and 

will provide the Commission with 

information necessary for its regulatory 

oversight. 

The Commission requests comment 

on all aspects of proposed § 23.202. 

With respect to records regarding 

related cash and forward transactions, 

the Commission solicits comment upon 

whether the Commission has provided 

sufficient clarity concerning what type 

of information would be required to be 

retained. The Commission also requests 

comment on whether it should require 

swap dealers and major swap 

participants to keep records related to 

high frequency trading, and what the 

nature of those records should be. 

C. Retention and Inspection of Records 

Proposed § 23.203 prescribes the form 

and manner in which records shall be 

retained, and prescribes the period of 

time for which maintenance of records 

is required. Generally speaking, § 23.203 

corresponds to the recordkeeping 

requirements of § 1.31 insofar as records 

are required to be kept for a period of 

at least 5 years, and shall be readily 

accessible for the first two years of that 

period. 

Proposed § 23.203(a) would require 

that records be kept at the principal 

place of business of the swap dealer or 

major swap participant. If the principal 

place of business is outside of the 

United States, then the swap dealer or 

major swap participant must provide 

the requested records at a place 

designated by a representative of the 

Commission within 72 hours of 

receiving the request. 

Proposed § 23.203(b) would require 

that all records be maintained in 

accordance with § 1.31 of the 

Commission’s regulations, except that 

records of, or related to, each swap 

transaction be retained until the 

termination, maturity, expiration, 

transfer, assignment, or novation of the 

swap, and for five years after such time. 

In other words, the swap dealer or major 

swap participant must maintain records 

for the life of the swap or the period in 

which the entity holds the position on 

its books (whichever is shorter), plus 

five additional years. Additionally, 

records of any swap data must be 

maintained in accordance with 

requirements under part 45, which was 

recently proposed by the Commission.15


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76670 Federal Register / Vol. 75, No. 236 / Thursday, December 9, 2010 / Proposed Rules 

16 In a recent release of proposed Part 43 and 

pursuant to CEA section 2(a)(13)(A), reporting 

parties, for the purposes of real-time public 

reporting, will be obligated to report certain data 

fields relating to swaps ‘‘as soon as technologically 

practicable’’ following the execution of a swap. 

17 5 U.S.C. 601 et seq. 

18 47 FR 18618, Apr. 30, 1982. 

19 Id. at 18619. 

20 Id. 

21 Id. at 18620. 22 44 U.S.C. 3501 et seq. 

In addition to any other comments on 

retention and inspection requirements, 

the Commission requests comment on 

the approach it has proposed for the 

retention of swap data. 

D. Reports to Swap Data Repositories 

and Real-time Public Reporting 

Section 4(s)(f)(1)(A) of the CEA 

requires each registered swap dealer and 

major swap participant to make such 

reports as are required by the 

Commission by rule or regulation 

regarding the transactions and positions 

and financial condition of the registered 

swap dealer or major swap participant. 

Proposed § 23.204 implements the 

reporting requirements of Commission 

rules to be prescribed under CEA 

section 4r(a) related to reporting of 

swaps to a swap data repository. 

Proposed § 23.205 implements the 

reporting requirements of Commission 

rules to be prescribed under CEA 

section 2(a)(13) related to real-time 

public reporting of swap transactions 

and pricing data.16 Each of the reports 

required under the proposed rules 

would assist the Commission to monitor 

the swap markets and the operations of 

swap dealers and major swap 

participants and to enforce their 

compliance with the Commission’s 

rules. 

III. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(RFA) 17 requires that agencies consider 

whether the rules they propose will 

have a significant economic impact on 

a substantial number of small entities. 

The Commission previously has 

established certain definitions of ‘‘small 

entities’’ to be used in evaluating the 

impact of its regulations on small 

entities in accordance with the RFA.18

The proposed rules would affect swap 

dealers and major swap participants. 

Swap dealers and major swap 

participants are new categories of 

registrants. Accordingly, the 

Commission has not previously 

addressed the question of whether such 

persons are, in fact, small entities for 

purposes of the RFA. The Commission 

previously has determined, however, 

that futures commission merchants are 

not small entities for purposes of the 

RFA.19 The Commission’s 

determination was based, in part, upon 

the obligation of futures commission 

merchants to meet the minimum 

financial requirements established by 

the Commission to enhance the 

protection of customers’ segregated 

funds and protect the financial 

condition of futures commission 

merchants generally.20 Like futures 

commission merchants, swap dealers 

will be subject to minimum capital and 

margin requirements and are expected 

to comprise the largest global financial 

firms. In addition, the Commission is 

required to exempt from swap dealer 

designation any entities that engage in 

a de minimis level of swaps dealing in 

connection with transactions with or on 

behalf of customers. The Commission 

anticipates that this exemption would 

exclude small entities from registration. 

For essentially the same reasons that 

futures commission merchants have 

previously been determined not to be 

small entities and in light of the 

exemption from the definition of swap 

dealer for those engaging in a de 

minimus level of swap dealing, the 

Commission is hereby proposing that 

swap dealers not be considered ‘‘small 

entities’’ for purposes of the RFA for this 

rulemaking. 

The Commission also has determined 

previously that large traders are not 

‘‘small entities’’ for RFA purposes.21 In 

that determination, the Commission 

considered that a large trading position 

was indicative of the size of the 

business. Major swap participants, by 

statutory definition, maintain 

substantial positions in swaps or 

maintain outstanding swap positions 

that create substantial counterparty 

exposure that could have serious 

adverse effects on the financial stability 

of the United States banking system or 

financial markets. Accordingly, for 

purposes of the RFA for this 

rulemaking, the Commission is hereby 

proposing that major swap participants 

not be considered ‘‘small entities’’ for 

essentially the same reasons that large 

traders have previously been 

determined not to be small entities. 

Moreover, the Commission is carrying 

out Congressional mandates by 

proposing this regulation. Specifically, 

the Commission is proposing these 

regulations to comply with the DoddFrank Act, the aim of which is to reduce 

systemic risks presented by swap 

dealers and swap market participants 

through comprehensive regulation. The 

Commission does not believe that there 

are regulatory alternatives to those being 

proposed that would be consistent with 

the statutory mandate. Accordingly, the 

Chairman, on behalf of the Commission, 

hereby certifies pursuant to 5 U.S.C. 

605(b) that the proposed rules will not 

have a significant economic impact on 

a substantial number of small entities. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act 

(PRA) 22 imposes certain requirements 

on Federal agencies (including the 

Commission) in connection with their 

conducting or sponsoring any collection 

of information as defined by the PRA. 

This proposed rulemaking would result 

in new collection of information 

requirements within the meaning of the 

PRA. The Commission therefore is 

submitting this proposal to the Office of 

Management and Budget (OMB) for 

review in accordance with 44 U.S.C. 

3507(d) and 5 CFR 1320.11. The title for 

this collection of information is 

‘‘Reporting, Recordkeeping, and Daily 

Trading Records Requirements for Swap 

Dealers and Major Swap Participants.’’ 

An agency may not conduct or sponsor, 

and a person is not required to respond 

to, a collection of information unless it 

displays a currently valid control 

number. The OMB has not yet assigned 

this collection a control number. 

The collection of information under 

these proposed regulations is necessary 

to implement certain provisions of the 

CEA, as amended by the Dodd-Frank 

Act. Specifically, it is essential to 

ensuring that each swap dealer and 

major swap participant maintains 

records of all the activities related to its 

business including, but not limited to, 

daily trading records and transaction 

reporting as required by section 4s(f) of 

the Act. The recordkeeping requirement 

also is necessary for a complete audit 

trail to conduct comprehensive and 

accurate trade reconstructions. 

Commission staff would use the 

information required to be preserved or 

reported when conducting the 

Commission’s examination and 

oversight program with respect to the 

applicable registrants. 

If the proposed regulations are 

adopted, responses to this collection of 

information would be mandatory. The 

Commission will protect proprietary 

information according to the Freedom of 

Information Act and 17 CFR part 145, 

‘‘Commission Records and Information.’’ 

In addition, section 8(a)(1) of the CEA 

strictly prohibits the Commission, 

unless specifically authorized by the 

CEA, from making public ‘‘data and 

information that would separately 

disclose the business transactions or 

market positions of any person and 


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23The proposed rules are available on the 

Commission’s Web site at http://www.cftc.gov. The 

Commission has estimated the average hour burden 

incurred by swap dealers and major swap 

participants in connection with reporting to swap 

data repositories to be 2,080 hours. This estimate 

was based upon the assumption that a significant 

number of swap dealers and major swap 

participants would dedicate the equivalent of at 

least one full time employee to ensuring 

compliance with the relevant reporting obligations 

(2,080 hours = 52 weeks × 5 days × 8 hours). The 

Commission noted that it believed this assumption 

to be reasonable due to the volume of swap 

transactions to be processed by such entities, the 

information required by proposed regulations and 

the frequency with which reports would be made. 

The Commission also estimated the cost of the 

obligation to report a unique swap identifier to 

other registered entities and swap participants to be 

6 annual burden hours per entity and the estimated 

cost of reporting their ownership and affiliation 

information into a confidential database to be 

2 hours per entity. 

24The Commission has estimated that swap 

dealers and major swap participants will incur 

2,080 annual burden hours in connection with the 

real-time reporting requirements. 

trade secrets or names of customers.’’ 

The Commission is also required to 

protect certain information contained in 

a government system of records 

according to the Privacy Act of 1974, 

5 U.S.C. 552a. 

1. Information Provided by Reporting 

Entities/Persons 

Swap dealers and major swap 

participants would be required to 

comply with the recordkeeping 

requirements of §§ 23.201, 23.202, and 

23.203 and the reporting requirements 

of §§ 23.204 and 23.205. The proposed 

regulations generally would require 

swap dealers and major swap 

participants to keep transaction and 

position records of their swaps 

(including daily trading records of 

swaps and related cash and forward 

transactions); to maintain specified 

business records (including records 

related to the swap dealer’s or major 

swap participant’s governance, financial 

status, and complaints); to report certain 

swap transaction data to swap data 

repositories; to satisfy certain real time 

public reporting requirements; and to 

maintain records of information 

reported to swap data repositories and 

for real time public reporting purposes. 

The annual burden associated with 

these proposed regulations is estimated 

to be 2,096 hours, at an annual cost of 

$209,600 for each swap dealer and 

major swap participant. Burden means 

the total time, effort, or financial 

resources expended by persons to 

generate, maintain, retain, disclose, or 

provide information to or for a federal 

agency. This hourly burden primarily 

results from the recordkeeping 

obligations that would be imposed by 

proposed §§ 23.201 and 23.202. 

Specifically, the Commission 

anticipates that swap dealers and major 

swap participants will spend 

approximately eight hours per trading 

day (2,016 hours per year) compiling 

and maintaining transaction records, 

including daily trading records. The 

Commission believes that swap dealers 

and major swap participants already 

maintain the vast majority of the 

required transaction records 

(particularly execution and postexecution records) as part of their 

customary and usual business practices 

and that any additional expenditure 

generally would be limited to the costs 

associated with developing and 

preserving certain pre-execution data 

and communications set forth in 

proposed § 23.202, which currently may 

not be kept by affected registrants (for 

example, records of oral and written 

communications and records related to 

quotes, bids, and offers) as well as the 

time required to input any unique 

transaction terms into electronic 

recordkeeping systems. The 

Commission believes that registrants 

will expend an additional 63 hours per 

year compiling daily records of their 

positions, identified by product and 

counterparty, as required by proposed 

§ 23.201. 

The Commission estimates that each 

swap dealer and major swap participant 

will spend 5 hours per year compiling 

the complaint records required by the 

proposed regulations. This 

approximation is based on the belief 

that the affected registrants primarily 

engage in principal to principal 

transactions, which are less likely to 

generate complaints than transactions 

conducted on an agency basis. It also 

assumes that most registrants possess 

pre-existing complaint recordkeeping 

systems and thus, any hourly burden 

imposed would be limited to the time 

required to document and retain the 

specific complaint information 

mandated by the rule that is not already 

kept. Finally, the Commission estimates 

the hourly burden associated with 

compliance with the marketing 

communication recordkeeping 

requirement to be approximately 12 

hours per year. The Commission expects 

that swap dealers and market 

participants presently maintain records 

of most of their marketing presentations, 

advertisements, sales literature, and 

marketing communications as part of 

their customary business practices and, 

thus, any new hourly burden is limited 

to the requirement to maintain a record 

of compliance with relevant marketing 

regulations. 

The Commission believes that several 

aspects of the rule would not result in 

any additional hourly burdens upon 

affected registrants. For example, the 

required records of transactions 

executed on a swap execution facility or 

designated contract market or 

transactions cleared by a designated 

clearing organization would be the same 

transaction and daily trading records 

accounted for previously and, therefore, 

have not been assigned an extra hourly 

burden. The Commission also expects 

that swap dealers and major swap 

participants currently make and/or 

maintain their meeting minutes; 

organizational charts; the resumes of 

relevant managers; records of their 

assets, liabilities, income, and expenses; 

and other governance or financial 

records in the ordinary course of their 

businesses. 

Finally, the Commission does not 

anticipate that the requirements to 

report swap transactions to swap data 

repositories in accordance with 

proposed § 23.204, to engage in real 

time public reporting of swap 

transaction and pricing data in 

accordance with proposed § 23.205, and 

to maintain the electronic systems and 

procedures necessary to report 

transactions and data in the manner 

required by the regulations would result 

in any additional hourly burdens or 

costs to swap dealers and major swap 

participants other than those set forth in 

the recently proposed part 45 

regulations for swap data recordkeeping 

and reporting 23 and in the recently 

proposed part 43 regulations governing 

real-time public reporting of swap 

transaction data 24 promulgated as part 

of the Commission’s implementation of 

the Dodd-Frank Act. 

It is not currently known how many 

swap dealers and major swap 

participants will become subject to 

these rules, and this will not be known 

to the Commission until the registration 

requirements for these entities become 

effective after July 16, 2011, the date on 

which the Dodd-Frank Act becomes 

effective. The Commission believes that 

there are likely to be approximately 200 

swap dealers and 50 major swap 

participants that would be required to 

register with the Commission. It has 

chosen to take a more conservative 

approach for PRA purposes, however, 

and has estimated that there will be a 

combined number of 300 swap dealers 

and major swap participants who will 

be required to comply with the 

recordkeeping and reporting obligations 

imposed by the proposed regulations. 

The Commission estimated the number 

of affected entities based on industry 

data. 

According to recent Bureau of Labor 

Statistics, the mean hourly wage of an 


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25http://www.bls.gov/oes/current/oes113031.htm. 26http://www.bls.gov/oes/current/oes113031.htm. 

27The Commission notes that, because it has not 

regulated swap dealers, swap market participants, 

or the swaps market in the past, it has not 

previously collected data on the number of 

particular swap market participants or the average 

number of daily transactions in which particular 

types of swaps market participants engage. 

28 7 U.S.C. 19(a). 

employee under occupation code 11– 

3031, ‘‘Financial Managers,’’ (which 

includes operations managers) that is 

employed by the ‘‘Securities and 

Commodity Contracts Intermediation 

and Brokerage’’ industry is $74.41.25

Because swap dealers and major swap 

participants include large financial 

institutions whose operations 

management employees’ salaries may 

exceed the mean wage, the Commission 

has estimated the cost burden of these 

proposed regulations based upon an 

average salary of $100 per hour. 

Accordingly, the estimated hour 

burden was calculated as follows: 

Recordkeeping: Transaction Records 

(including Daily Trading Records) 

Number of registrants: 300. 

Frequency of collection: Daily. 

Estimated number of responses per 

registrant: 252 [252 trading days]. 

Estimated aggregate number of 

responses: 75,600 [300 registrants × 252 

trading days]. 

Estimated annual burden per 

registrant: 2,016 hours [252 trading days 

× 8 hours per trading day]. 

Estimated aggregate annual hour 

burden: 604,800 hours [300 registrants × 

252 trading days × 8 hours per trading 

day]. 

Recordkeeping: Position Records 

Number of registrants: 300. 

Frequency of collection: Daily. 

Estimated number of responses per 

registrant: 252 [252 trading days]. 

Estimated aggregate number of 

responses: 75,600 [300 registrants × 252 

trading days]. 

Estimated annual burden per 

registrant: 63 hours [252 trading days × 

.25 hours per record]. 

Estimated aggregate annual hour 

burden: 18,900 hours [300 registrants × 

252 trading days × .25 hours per record]. 

Recordkeeping: Complaints 

Number of registrants: 300. 

Frequency of collection: As needed. 

Estimated number of responses per 

registrant: 5. 

Estimated aggregate number of 

responses: 1,500 [300 registrants × 5 

complaints per registrant]. 

Estimated annual burden per 

registrant: 5. 

Estimated aggregate annual hour 

burden: 1,500 [300 registrants × 5 

complaints per registrant]. 

Recordkeeping: Marketing 

Communications 

Number of registrants: 300. 

Frequency of collection: As needed. 

Estimated number of responses per 

registrant: 12 (monthly compilation of 

records). 

Estimated aggregate number of 

responses: 3,600 [300 registrants × 12 

monthly compilations]. 

Estimated annual burden per 

registrant: 12 hours [1 hour × 12 

months]. 

Estimated aggregated annual hour 

burden: 3,600 [300 registrants × 12 

monthly compilations]. 

Based upon the above, the aggregate 

hour burden cost for all registrants is 

628,800 burden hours and $62,880,000 

[628,800 × $100 per hour]. 

In addition to the per hour burden 

discussed above, the Commission 

anticipates that swap dealers and major 

swap participants may incur certain 

start-up costs in connection with the 

proposed recordkeeping obligations. 

Such costs would include the 

expenditures related to developing and 

installing new technology or reprogramming or updating existing 

recordkeeping technology and systems 

to enable the swap dealer or major swap 

participant to collect, capture, process, 

maintain, and re-produce any newly 

required records. The Commission 

believes that swap dealers and major 

swap participants generally could adapt 

their current infrastructure to 

accommodate the new or amended 

technology and thus no significant 

infrastructure expenditures would be 

needed. The Commission estimates the 

programming burden hours associated 

with technology improvements to be 

160 hours. 

According to recent Bureau of Labor 

Statistics, the mean hourly wages of 

computer programmers under 

occupation code 15–1021 and computer 

software engineers under program codes 

15–1031 and 1032 are between $34.10 

and $44.94.26 Because swap dealers and 

major swap participants generally will 

be large entities that may engage 

employees with wages above the mean, 

the Commission has conservatively 

chosen to use a mean hourly 

programming wage of $60 per hour. 

Accordingly, the start-up burden 

associated with the required 

technological improvements would be 

$9,600 [$60 × 160 hours] per affected 

registrant or $2,880,000 in the aggregate. 

2. Information Collection Comments 

The Commission invites the public 

and other federal agencies to comment 

on any aspect of the recordkeeping 

burdens discussed above. The 

Commission specifically request 

comment upon its determination that 

certain of the proposed recordkeeping 

requirements would not impose any 

additional information collection 

burdens upon affected registrants and 

the appropriateness of the burden hours 

attributed to other recordkeeping 

obligations.27 Pursuant to 44 U.S.C. 

3506(c)(2)(B), the Commission solicits 

comments in order to: (i) Evaluate 

whether the proposed collection of 

information is necessary for the proper 

performance of the functions of the 

Commission, including whether the 

information will have practical utility; 

(ii) evaluate the accuracy of the 

Commission’s estimate of the burden of 

the proposed collection of information; 

(iii) determine whether there are ways 

to enhance the quality, utility, and 

clarity of the information to be 

collected; and (iv) minimize the burden 

of the collection of information on those 

who are to respond, including through 

the use of automated collection 

techniques or other forms of information 

technology. 

Comments may be submitted directly 

to the Office of Information and 

Regulatory Affairs, by fax at (202) 395– 

6566 or by e-mail at 

OIRAsubmissions@omb.eop.gov. Please 

provide the Commission with a copy of 

submitted comments so that all 

comments can be summarized and 

addressed in the final rule preamble. 

Refer to the ADDRESSES section of this 

notice of proposed rulemaking for 

comment submission instructions to the 

Commission. A copy of the supporting 

statements for the collections of 

information discussed above may be 

obtained by visiting RegInfo.gov. OMB 

is required to make a decision 

concerning the collection of information 

between 30 and 60 days after 

publication of this document in the 

Federal Register. Therefore, a comment 

is best assured of having its full effect 

if OMB receives it within 30 days of 

publication. 

C. Cost-Benefit Analysis 

Section 15(a) of the CEA 28 requires 

the Commission to consider the costs 

and benefits of its actions before issuing 

a rulemaking under the CEA. By its 

terms, section 15(a) does not require the 

Commission to quantify the costs and 

benefits of a new regulation or to 

determine whether the benefits of the 

rule outweigh its costs; rather, it 

requires that the Commission ‘‘consider’’ 

the costs and benefits of its actions. 


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29As discussed previously, the cost burdens 

associated with the reporting requirements 

contained in proposed regulation 23.204 and 23.205 

are addressed in separately proposed rulemakings. 

Section 15(a) further specifies that 

costs and benefits of a proposed 

rulemaking shall be evaluated in light of 

five broad areas of market and public 

concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness, and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

Commission may, in its discretion, give 

greater weight to any one of the five 

enumerated considerations and could, 

in its discretion, determine that, 

notwithstanding its costs, a particular 

regulation was necessary or appropriate 

to protect the public interest or to 

effectuate any of the provisions or to 

accomplish any of the purposes of the 

CEA. 

Summary of proposed requirements. 

The proposed regulations would 

implement certain provisions of section 

731 of the Dodd-Frank Act, which adds 

new sections 4s(f) and 4s(g) to the 

Commodity Exchange Act. The 

proposed regulations would set forth 

certain duties imposed upon swap 

dealers and major swap participants 

registered with the Commission with 

regard to recordkeeping and reporting of 

information and data in connection with 

such entities’ activities in the swap 

market. 

Costs. With respect to costs, the 

Commission has determined that for 

swap dealers and major swap 

participants, costs to institute 

recordkeeping and reporting systems 

and personnel in order to satisfy the 

new regulatory requirements are far 

outweighed by the benefits to the 

financial system as a whole. As 

described above, it is expected that the 

any additional cost imposed by the 

recordkeeping requirements of proposed 

regulations 23.201, 23.202, and 

23.203 29 would be minimal because the 

information and data required to be 

recorded is information and data a 

prudent swap dealer or major swap 

participant would already maintain 

during the ordinary course of its 

business. Moreover, most swap dealers 

and major swap participants have 

adequate, existing resources and 

recordkeeping structures that are 

capable of adjusting to the new 

regulatory framework without material 

diversion of resources away from 

commercial operations. 

Benefits. With respect to benefits, the 

Commission has determined that the 

proposed regulations would require a 

swap dealer or major swap participant 

to keep records and make reports that 

will result in reduced risk and greater 

market integrity in the swap market. 

Reporting to swap data repositories 

under 23.204 will provide regulators 

with a more transparent view of the 

swap market when such data is 

aggregated. Such reporting would 

further the goal of avoiding market 

disruptions and financial losses to 

market participants and the general 

public. Therefore, the Commission 

believes it is prudent to prescribe 

recordkeeping and reporting 

requirements for swap dealers and 

major swap participants. 

The proposed regulations also would 

promote appropriate back office data 

management, thereby fostering better 

risk management. The proposed 

regulations also would reward 

efficiency insofar as swap dealers and 

major swap participants that operate 

efficiently would have lower operating 

costs and thus would require fewer 

resources to comply with the 

regulations. Finally, the proposed 

regulations are designed to ensure that 

swap dealers and major swap 

participants can sustain their market 

operations and meet their financial 

obligations to market participants, thus 

contributing to the integrity of the 

financial markets. Therefore, the 

Commission believes it is prudent to 

require risk management requirements 

for swap dealers and major swap 

participants. 

Public Comment. The Commission 

invites public comment on its costbenefit considerations. Commentators 

are also invited to submit any data or 

other information that they may have 

quantifying or qualifying the costs and 

benefits of the proposed rules with their 

comment letters. 

List of Subjects in 17 CFR Part 23 

Antitrust, Commodity futures, 

Conduct standards, Conflict of Interests, 

Major swap participants, Reporting and 

recordkeeping, Swap dealers, Swaps. 

For the reasons stated in this release, 

the Commission proposes to amend 17 

CFR part 23 as proposed to be added by 

FR Doc. 2010–29024, published on 

November 23, 2010 (75 FR 71379) as 

follows: 

PART 23—SWAP DEALERS AND 

MAJOR SWAP PARTICIPANTS 

1. The authority citation for part 23 to 

read as follows: 

Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b– 

1, 6c, 6p, 6r, 6s, 6t, 9, 9a, 12, 12a, 13b, 13c, 

16a, 18, 19, 21. 

2. Subpart F, (consisting of §§ 23.200, 

23.201, 23.202, 23.203, 23.204 and 

23.205) is added to read as follows: 

Subpart F—Reporting, Recordkeeping, and 

Daily Trading Records Requirements for 

Swap Dealers and Major Swap Participants 

Sec. 

23.200 Definitions. 

23.201 Required records. 

23.202 Daily trading records. 

23.203 Records; retention and inspection. 

23.204 Reporting to swap data repositories. 

23.205 Real-time public reporting. 

Subpart F—Reporting, Recordkeeping, 

and Daily Trading Records 

Requirements for Swap Dealers and 

Major Swap Participants 

§ 23.200 Definitions. 

For purposes of subpart F, the 

following terms shall be defined as 

provided. 

(a) Business trading unit means any 

department, division, group, or 

personnel of a swap dealer or major 

swap participant or any of its affiliates, 

whether or not identified as such, that 

performs or is involved in any pricing, 

trading, sales, purchasing, marketing, 

advertising, solicitation, structuring, or 

brokerage activities on behalf of a 

registrant. 

(b) Clearing unit means any 

department, division, group, or 

personnel of a registrant or any of its 

affiliates, whether or not identified as 

such, that performs any proprietary or 

customer clearing activities on behalf of 

a registrant. 

(c) Complaint means any formal or 

informal complaint, grievance, 

criticism, or concern communicated to 

the swap dealer or major swap 

participant in any format relating to, 

arising from, or in connection with, any 

trading conduct or behavior or with the 

swap dealer or major swap participant’s 

performance (or failure to perform) any 

of its regulatory obligations, and 

includes any and all observations, 

comments, remarks, interpretations, 

clarifications, notes, and examinations 

as to such conduct or behavior 

communicated or documented by the 

complainant, swap dealer, or major 

swap participant. 

(d) Counterparty means any party to 

a derivative. When referring to a 

derivative between a swap dealer or 

major swap participant and any other 

person, ‘‘counterparty’’ means such 

other person. 

(e) Executed means the completion of 

the execution process. 

(f) Execution means, with respect to a 

swap, an agreement by the parties 

(whether orally, in writing, 


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electronically, or otherwise) to the terms 

of a swap that legally binds the parties 

to such swap terms under applicable 

law. 

(g) Governing body typically means, 

with respect to: 

(1) A sole proprietorship, the 

proprietor; 

(2) A corporation, its board of 

directors; 

(3) A partnership, any general partner; 

(4) A limited liability company or 

limited liability partnership, the 

manager, managing member or those 

members vested with management 

authority; and 

(5) Any other person, the body or 

person with ultimate decision-making 

authority over the activities of such 

person. 

(h) Prudential regulator has the 

meaning given to such term in section 

1a(39) of the Commodity Exchange Act 

and includes the Board of Governors of 

the Federal Reserve System, the Office 

of the Comptroller of the Currency, the 

Federal Deposit Insurance Corporation, 

the Farm Credit Association, and the 

Federal Housing Finance Agency, as 

applicable to the swap dealer or major 

swap participant. The term also 

includes the Federal Deposit Insurance 

Corporation, with respect to any 

financial company as defined in section 

201 of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act or 

any insured depository institution 

under the Federal Deposit Insurance 

Act, and with respect to each affiliate of 

any such company or institution. 

(i) Registered entity has the meaning 

given to such term in section 1a(40) of 

the Commodity Exchange Act, and 

includes boards of trade designated as 

contract markets, derivatives clearing 

organizations, swap execution facilities, 

and swap data repositories. 

(j) Related cash or forward transaction 

means a purchase or sale for immediate 

or deferred physical shipment or 

delivery of an asset related to a swap 

where the swap and the related cash or 

forward transaction are used to hedge, 

mitigate the risk of, or offset one 

another. 

(k) Swap confirmation means the 

consummation (electronically or 

otherwise) of legally binding 

documentation (electronic or otherwise) 

that memorializes the agreement of the 

parties to all the terms of the swap. A 

confirmation must be in writing 

(whether electronic or otherwise) and 

must legally supersede any previous 

agreement (electronically or otherwise). 

§ 23.201 Required records. 

(a) Transaction and position records. 

Each swap dealer and major swap 

participant shall keep full, complete, 

and systematic records, together with all 

pertinent data and memoranda, of all its 

swaps activities. Such records shall 

include: 

(1) Transaction records. Records of 

each transaction, including all 

documents on which transaction 

information is originally recorded. Such 

records shall be kept in a form and 

manner identifiable and searchable by 

transaction and by counterparty, and 

shall include: 

(i) All documents customarily 

generated in accordance with market 

practice that demonstrate the existence 

and nature of an order or transaction, 

including, but not limited to, records of 

all orders (filled, unfilled, or cancelled); 

correspondence; journals; memoranda; 

ledgers; confirmations; risk disclosure 

documents; statements of purchase and 

sale; contracts; invoices; warehouse 

receipts; documents of title; and 

(ii) The daily trading records required 

to be kept in accordance with § 23.202. 

(2) Position records. Records of each 

position held by each swap dealer and 

major swap participant, identified by 

product and counterparty, including 

records reflecting whether each position 

is ‘‘long’’ or ‘‘short’’ and whether the 

position is cleared. Position records 

shall be linked to transaction records in 

a manner that permits identification of 

the transactions that established the 

position. 

(3) Records of transactions executed 

on a swap execution facility or 

designated contract market or cleared 

by a derivatives clearing organization. 

Records of each transaction executed on 

a swap execution facility or designated 

contract market or cleared by a 

derivatives clearing organization 

maintained in compliance with the Act 

and Commission regulations. 

(b) Business records. Each swap 

dealer and major swap participant shall 

keep full, complete, and systematic 

records of all activities related to its 

business as a swap dealer or major swap 

participant, including but not limited to: 

(1) Governance. 

(i) Minutes of meetings of the 

governing body and relevant committee 

minutes, including handouts and 

presentation materials; 

(ii) Organizational charts for its 

governing body and relevant 

committees, business trading unit, 

clearing unit, risk management unit, and 

all other relevant units or divisions; 

(iii) Biographies or resumes of 

managers, senior supervisors, officers, 

and directors; 

(iv) Job descriptions for manager, 

senior supervisor, officer, and director 

positions, including job responsibilities 

and scope of authority; 

(v) Internal and external audit, risk 

management, compliance, and 

consultant reports (including 

management responses); and 

(vi) Business and strategic plans for 

the business trading unit. 

(2) Financial records. 

(i) Records reflecting all assets and 

liabilities, income and expenses, and 

capital accounts as required by the Act 

and Commission regulations; and 

(ii) All other financial records 

required to be kept under the Act and 

Commission regulations. 

(3) Complaints. 

(i) A record of each complaint 

received by the swap dealer or major 

swap participant concerning any 

partner, member, officer, employee, or 

agent. The record shall include the 

complainant’s name, address, and 

account number; the date the complaint 

was received; the name of all persons 

identified in the complaint; a 

description of the nature of the 

complaint; the disposition of the 

complaint, and the date the complaint 

was resolved. 

(ii) A record indicating that each 

counterparty of the swap dealer or major 

swap participant has been provided 

with a notice containing the physical 

address, email or other widely available 

electronic address, and telephone 

number of the department of the swap 

dealer or major swap participant to 

which any complaints may be directed. 

(4) Marketing and sales materials. All 

marketing and sales presentations, 

advertisements, literature, and 

communications, and a record 

documenting that the swap dealer or 

major swap participant has complied 

with, or adopted policies and 

procedures reasonably designed to 

establish compliance with, all 

applicable federal requirements, 

Commission regulations, and the rules 

of any self-regulatory organization of 

which the swap dealer or major swap 

participant is a member. 

(c) Records of data reported to a swap 

data repository. With respect to each 

swap, each swap dealer and major swap 

participant shall identify, retain, and 

produce for inspection all information 

and data required to be reported in 

accordance with part 45 of this chapter, 

along with a record of the date and time 

the swap dealer or major swap 

participant made the report. 

(d) Records of real-time reporting 

data. 

(1) Each swap dealer and major swap 

participant shall identify, retain, and 

produce for inspection all information 

and data required to be reported in 


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Federal Register / Vol. 75, No. 236 / Thursday, December 9, 2010 / Proposed Rules 76675 

accordance with part 43 of this chapter, 

along with a record of the date and time 

the swap dealer or major swap 

participant made the report. 

(2) When the swap dealer or major 

swap participant reports a less specific 

data field in accordance with part 43 of 

this chapter in order to protect the 

anonymity of the participants to such 

swap as permitted under part 43 of this 

chapter, the record shall contain the 

rationale for reporting a less specific 

data field. 

(3) Each swap dealer and major swap 

participant shall identify and retain a 

record of any determination that any 

swap is a block trade or large notional 

swap, as defined in part 43 of this 

chapter. When the swap dealer or major 

swap participant enters into such a 

swap, the record shall contain the 

rationale for determining that the swap 

is a large notional swap, in accordance 

with part 43 of this chapter. 

§ 23.202 Daily trading records. 

(a) Daily trading records for swaps. 

Each swap dealer and major swap 

participant shall make and keep daily 

trading records of all swaps it executes, 

including all documents on which 

transaction information is originally 

recorded. Each swap dealer and major 

swap participant shall ensure that its 

records include all information 

necessary to conduct a comprehensive 

and accurate trade reconstruction for 

each swap. Each swap dealer and major 

swap participant shall maintain each 

transaction record as a separate 

electronic file identifiable and 

searchable by transaction and 

counterparty. 

(1) Pre-execution trade information. 

Each swap dealer and major swap 

participant shall make and keep preexecution trade information, including, 

at a minimum, records of all oral and 

written communications provided or 

received concerning quotes, 

solicitations, bids, offers, instructions, 

trading, and prices, that lead to the 

execution of a swap, whether 

communicated by telephone, voicemail, 

facsimile, instant messaging, chat 

rooms, electronic mail, mobile device or 

other digital or electronic media. Such 

records shall include, but are not 

limited to: 

(i) Reliable timing data for the 

initiation of the trade that would permit 

complete and accurate trade 

reconstruction; and 

(ii) A record of the date and time, to 

the nearest minute, using Coordinated 

Universal Time (UTC), by timestamp or 

other timing device, for each quotation 

provided to, or received from, the 

counterparty prior to execution. 

(2) Execution trade information. Each 

swap dealer and major swap participant 

shall make and keep trade execution 

records, including: 

(i) All terms of each swap, including 

all terms regarding payment or 

settlement instructions, initial and 

variation margin requirements, option 

premiums, payment dates, and any 

other cash flows; 

(ii) The trade ticket for each swap 

(which, together with the time of 

execution of each swap, shall be 

immediately recorded electronically for 

further processing); 

(iii) The unique swap identifier, as 

required by § 45.4(a) of this chapter, for 

each swap; 

(iv) A record of the date and time of 

execution of each swap, to the nearest 

minute, using Coordinated Universal 

Time (UTC), by timestamp or other 

timing device; 

(v) The name of the counterparty with 

which each such swap was executed, 

including its unique counterparty 

identifier, as required by § 45.4(b) of this 

chapter; 

(vi) The date and title of the 

agreement to which each swap is 

subject, including but not limited to, 

any master swap netting agreement or 

swap credit support agreement; 

(vii) The product name of each swap, 

including its unique product identifier, 

as required by § 45.4(c) of this chapter; 

(viii) The price at which the swap was 

executed; 

(ix) Fees or commissions and other 

expenses, identified by transaction; and 

(x) Any other information relevant to 

the swap. 

(3) Post-execution trade information. 

Each swap dealer and major swap 

participant shall make and keep records 

of post-execution trade information 

containing an itemized record of all 

relevant post-trade processing and 

events. 

(i) Records of post-trade processing 

and events shall include all of the 

following, as applicable: 

(A) Confirmation; 

(B) Termination; 

(C) Novation; 

(D) Amendment; 

(E) Assignment; 

(F) Netting; 

(G) Compression; 

(H) Reconciliation; 

(I) Valuation; 

(J) Margining; 

(K) Collateralization; and 

(L) Central clearing. 

(ii) Each swap dealer and major swap 

participant shall make and keep a 

record of all swap confirmations, along 

with the date and time, to the nearest 

minute, using Coordinated Universal 

Time (UTC), by timestamp or other 

timing device; and 

(iii) Each swap dealer and major swap 

participant shall make and keep a 

record of each swap portfolio 

reconciliation, including the number of 

portfolio reconciliation discrepancies 

and the number of swap valuation 

disputes (including the time-toresolution of each valuation dispute and 

the age of outstanding valuation 

disputes, categorized by transaction and 

counterparty); 

(iv) Each swap dealer and major swap 

participant shall make and keep a 

record of each swap portfolio 

compression exercise in which it 

participates, including the dates of the 

compression, the swaps included in the 

compression, the identity of the 

counterparties participating in the 

exercise, the results of the compression, 

and the name of the third-party entity 

performing the compression, if any; and 

(v) Each swap dealer and major swap 

participant shall make and keep a 

record of each swap that it centrally 

clears, categorized by transaction and 

counterparty. 

(4) Ledgers. Each swap dealer and 

major swap participant shall make and 

keep ledgers (or other records) reflecting 

the following: 

(i) Payments and interest received; 

(ii) Moneys borrowed and moneys 

loaned; 

(iii) The daily calculation of the value 

of each outstanding swap; 

(iv) The daily calculation of current 

and potential future exposure for each 

counterparty; 

(v) The daily calculation of initial 

margin to be posted by the swap dealer 

or major swap participant for each 

counterparty and the daily calculation 

of initial margin to be posted by each 

counterparty; 

(vi) The daily calculation of variation 

margin payable to or receivable from 

each counterparty; 

(vii) The daily calculation of the value 

of all collateral, before and after 

haircuts, held by or posted by the swap 

dealer or major swap participant; 

(viii) All transfers of collateral, 

including any substitutions of collateral, 

identifying in sufficient detail the 

amounts and types of collateral 

transferred; and 

(ix) All charges against and credits to 

each counterparty’s account, including 

funds deposited, withdrawn, or 

transferred, and charges or credits 

resulting from losses or gains on 

transactions. 

(b) Daily trading records for related 

cash and forward transactions. Each 

swap dealer and major swap participant 

shall make and keep daily trading 


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76676 Federal Register / Vol. 75, No. 236 / Thursday, December 9, 2010 / Proposed Rules 

records of all related cash or forward 

transactions it executes, including all 

documents on which the related cash or 

forward transaction information is 

originally recorded. Each swap dealer 

and major swap participant shall ensure 

that its records include all information 

necessary to conduct a comprehensive 

and accurate trade reconstruction for 

each related cash or forward transaction. 

Each swap dealer and major swap 

participant shall maintain each 

transaction record as a separate 

electronic file identifiable and 

searchable by transaction and by 

counterparty. Such records shall 

include, but are not limited to: 

(1) A record of all oral and written 

communications provided or received 

concerning quotes, solicitations, bids, 

offers, instructions, trading, and prices, 

that lead to the conclusion of a related 

cash or forward transaction, whether 

communicated by telephone, voicemail, 

facsimile, instant messaging, chat 

rooms, electronic mail, mobile device or 

other digital or electronic media; 

(2) Reliable timing data for the 

initiation of the transaction that would 

permit complete and accurate trade 

reconstruction; 

(3) A record of the date and time, to 

the nearest minute, using Coordinated 

Universal Time (UTC), by timestamp or 

other timing device, for each quotation 

provided to, or received from, the 

counterparty prior to execution; 

(4) A record of the date and time of 

execution of each related cash or 

forward transaction, to the nearest 

minute, using Coordinated Universal 

Time (UTC), by timestamp or other 

timing device; 

(5) All terms of each related cash or 

forward transaction; 

(6) The price at which the related cash 

or forward transaction was executed; 

and 

(7) A record of the daily calculation 

of the value of the related cash or 

forward transaction and any other 

relevant financial information. 

§ 23.203 Records; retention and 

inspection. 

(a) Location of records. (1) All records 

required to be kept by a swap dealer or 

major swap participant by the Act and 

by Commission regulations shall be kept 

at the principal place of business of the 

swap dealer or major swap participant 

or such other principal office as shall be 

designated by the swap dealer or major 

swap participant. If the principal place 

of business is outside of the United 

States, its territories or possessions, then 

upon the request of a Commission 

representative, the swap dealer or major 

swap participant must provide such 

records as requested at the place in the 

United States, its territories, or 

possessions designated by the 

representative within 72 hours after 

receiving the request. 

(2) Contact information. Each swap 

dealer and major swap participant shall 

maintain for each of its offices a listing, 

by name or title, of each person at that 

office who, without delay, can explain 

the types of records the swap dealer or 

major swap participant maintains at that 

office and the information contained in 

those records. 

(b) Record retention. (1) The records 

required to be maintained by this 

chapter shall be maintained in 

accordance with the provisions of 

§ 1.31, except as provided in paragraphs 

(b)(2) and (3) of this section. All records 

required to be kept by the Act and by 

Commission regulations shall be kept 

for a period of five years from the date 

the record was made and shall be 

readily accessible during the first two 

(2) years of the five-year period. All 

such records shall be open to inspection 

by any representative of the 

Commission, the United States 

Department of Justice, or any applicable 

prudential regulator. Records relating to 

swaps defined in section 1a(47)(A)(v) 

shall be open to inspection by any 

representative of the Commission, the 

United States Department of Justice, the 

Securities and Exchange Commission, 

or any applicable prudential regulator. 

(2) Records of any swap or related 

cash or forward transaction shall be kept 

until the termination, maturity, 

expiration, transfer, assignment, or 

novation date of the transaction, and for 

a period of five years after such date. 

Such records shall be readily accessible 

until the termination, maturity, 

expiration, transfer, assignment, or 

novation date of the transaction and 

during the first two years of the 5-year 

period following such date. All such 

records shall be open to inspection by 

any representative of the Commission, 

the United States Department of Justice, 

or any applicable prudential regulator. 

Records relating to swaps defined in 

section 1a(47)(A)(v) shall be open to 

inspection by any representative of the 

Commission, the United States 

Department of Justice, the Securities 

and Exchange Commission, or any 

applicable prudential regulator. 

(3) Records of any swap data reported 

in accordance with part 45 of this 

chapter shall be maintained in 

accordance with the requirements of 

§ 45.2 of this chapter. 

§ 23.204 Reports to swap data 

repositories. 

(a) Reporting of swap transaction data 

to swap data repositories. Each swap 

dealer and major swap participant shall 

report all information and data in 

accordance with part 45 of this chapter. 

(b) Electronic reporting of swap 

transaction data. Each swap dealer and 

major swap participant shall have the 

electronic systems and procedures 

necessary to transmit electronically all 

information and data required to be 

reported in accordance with part 45 of 

this chapter. 

§ 23.205 Real-time public reporting. 

(a) Real-time public reporting of swap 

transaction and pricing data. Each swap 

dealer and major swap participant shall 

report all information and swap 

transaction and pricing data required to 

be reported in accordance with the realtime public recording requirements in 

part 43 of this chapter. 

(b) Electronic reporting of swap 

transaction data. Each swap dealer and 

major swap participant shall have the 

electronic systems and procedures 

necessary to transmit electronically all 

information and data required to be 

reported in accordance with part 43 of 

this chapter. 

Issued in Washington, DC, on December 1, 

2010, by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

Appendices to Reporting, 

Recordkeeping, and Daily Trading 

Records Requirements for Swap 

Dealers and Major Swap Participants— 

Commission Voting Summary and 

Statements of Commissioners 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Gensler and 

Commissioners Dunn, Sommers, Chilton and 

O’Malia voted in the affirmative. 

Appendix 2—Statement of Chairman 

Gary Gensler 

I support the proposed rule regarding 

reporting, recordkeeping and daily trading 

records for swap dealers and major swap 

participants. The rule establishes the records 

to be maintained by swap dealers and major 

swap participants and the required reporting 

by such entities. This proposal will help 

increase transparency and promote market 

integrity. The proposed rules are consistent 

with the Congressional requirement that 

swap dealers and major swap participants 


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Federal Register / Vol. 75, No. 236 / Thursday, December 9, 2010 / Proposed Rules 76677 

1 ‘‘Bank Secrecy Act’’ is the name that has come 

to be applied to the Currency and Foreign 

Transactions Reporting Act (Titles I and II of Pub. 

L. 91–508), its amendments, and the other statutes 

referring to the subject matter of that Act. These 

statutes are codified at 12 U.S.C. 1829b, 12 U.S.C. 

1951–1959, and 31 U.S.C. 5311–5314 and 5316– 

5332, and notes thereto. 

2 31 U.S.C. 5311. 

3 31 U.S.C. 5318(h). 

4See Treasury Order 180–01 (Sept. 26, 2002). 

5 31 U.S.C. 5318(h). 

6Public Law 107–56 § 352(c), 115 Stat. § 322, 

codified at 31 U.S.C. 5318 note. Public Law 107– 

56 is the Uniting and Strengthening America by 

Providing Appropriate Tools Required to Intercept 

and Obstruct Terrorism Act of 2001 (‘‘USA 

PATRIOT Act’’). 

7 31 U.S.C. 5312(a)(2)(P). 

8See 31 CFR 103.170; 67 FR 21113 (Apr. 29, 

2002), as amended at 67 FR 67549 (Nov. 6, 2002) 

and corrected at 67 FR 68935 (Nov. 14, 2002). 

9See 31 CFR 103.120. 

10 31 U.S.C. 5318(g) was added to the BSA by 

section 1517 of the Annunzio-Wylie Anti-Money 

Laundering Act, Title XV of the Housing and 

Community Development Act of 1992, Public Law 

102–550; it was expanded by section 403 of the 

Money Laundering Suppression Act of 1994 (the 

Money Laundering Suppression Act), Title IV of the 

Riegle Community Development and Regulatory 

Improvement Act of 1994, Public Law 103–325, to 

require designation of a single government recipient 

for reports of suspicious transactions. 

comply with rigorous recordkeeping and 

real-time reporting regimes. 

[FR Doc. 2010–30884 Filed 12–8–10; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF THE TREASURY 

31 CFR Part 103 

RIN 1506–AB02 

Financial Crimes Enforcement 

Network: Anti-Money Laundering 

Program and Suspicious Activity 

Report Filing Requirements for 

Residential Mortgage Lenders and 

Originators 

AGENCY: Financial Crimes Enforcement 

Network (‘‘FinCEN’’), Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: FinCEN, a bureau of the 

Department of the Treasury 

(‘‘Treasury’’), is issuing proposed rules 

defining non-bank residential mortgage 

lenders and originators as loan or 

finance companies for the purpose of 

requiring them to establish anti-money 

laundering programs and report 

suspicious activities under the Bank 

Secrecy Act. 

DATES: Written comments on this notice 

of proposed rulemaking (‘‘NPRM’’) must 

be submitted on or before February 7, 

2011. 

ADDRESSES: 

FinCEN: You may submit comments, 

identified by Regulatory Identification 

Number (RIN) 1506–AB02, by any of the 

following methods: 

• Federal E-rulemaking Portal: 

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

instructions for submitting comments. 

Include 1506–AB02 in the submission. 

Refer to Docket Number FINCEN–2010– 

0001. 

• Mail: FinCEN, P.O. Box 39, Vienna, 

VA 22183. Include 1506–AB02 in the 

body of the text. Please submit 

comments by one method only. 

Comments submitted in response to this 

NPRM will become a matter of public 

record. Therefore, you should submit 

only information that you wish to make 

publicly available. 

Inspection of comments: Public 

comments received electronically or 

through the U.S. Postal Service sent in 

response to a notice and request for 

comment will be made available for 

public review as soon as possible on 

http://www.regulations.gov. Comments 

received may be physically inspected in 

the FinCEN reading room located in 

Vienna, Virginia. Reading room 

appointments are available weekdays 

(excluding holidays) between 10 a.m. 

and 3 p.m., by calling the Disclosure 

Officer at (703) 905–5034 (not a toll-free 

call). 

FOR FURTHER INFORMATION CONTACT: The 

FinCEN regulatory helpline at (800) 

949–2732 and select Option 6. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The Bank Secrecy Act (‘‘BSA’’) 1

authorizes the Secretary of the Treasury 

(the ‘‘Secretary’’) to issue regulations 

requiring financial institutions to keep 

records and file reports that the 

Secretary determines ‘‘have a high 

degree of usefulness in criminal, tax, or 

regulatory investigations or proceedings, 

or in the conduct of intelligence or 

counterintelligence activities, including 

analysis, to protect against international 

terrorism.’’ 2 In addition, the Secretary is 

authorized to impose anti-money 

laundering program requirements on 

financial institutions.3 The authority of 

the Secretary to administer the BSA has 

been delegated to the Director of 

FinCEN.4

A. Anti-Money Laundering Programs 

Financial institutions are required to 

establish anti-money laundering 

(‘‘AML’’) programs that include, at a 

minimum: (1) The development of 

internal policies, procedures, and 

controls; (2) the designation of a 

compliance officer; (3) an ongoing 

employee training program; and (4) an 

independent audit function to test 

programs.5 When prescribing minimum 

standards for AML programs, FinCEN 

must ‘‘consider the extent to which the 

requirements imposed under [the AML 

program requirement] are 

commensurate with the size, location, 

and activities of the financial 

institutions to which such regulations 

apply.’’ 6

The BSA defines the term ‘‘financial 

institution’’ to include, in part, ‘‘a loan 

or finance company.’’ 7 On April 29, 

2002, and again on November 6, 2002, 

FinCEN temporarily exempted this 

category of financial institution, among 

others, from the requirement to establish 

an AML program.8 The purpose of the 

temporary exemption was to enable 

Treasury and FinCEN to study the 

exempted categories of institutions and 

to consider the extent to which AML 

requirements should be applied to them, 

taking into account their specific 

characteristics and money laundering 

vulnerabilities. 

The statutory mandate that all 

financial institutions establish an antimoney laundering program is a key 

element in the national effort to prevent 

and detect money laundering and the 

financing of terrorism. This NPRM 

proposes to apply the AML program 

requirement to companies performing 

specified services in connection with 

residential mortgages. This would put 

these institutions on par with 

depository institutions performing such 

services in this respect.9

B. Suspicious Activity Reporting 

Programs 

With the enactment of 31 U.S.C. 

5318(g) in 1992,10 Congress authorized 

the Secretary to require financial 

institutions to report suspicious 

transactions. As amended by the USA 

PATRIOT Act, subsection (g)(1) states: 

The Secretary may require any financial 

institution, and any director, officer, 

employee, or agent of any financial 

institution, to report any suspicious 

transaction relevant to a possible violation of 

law or regulation. 

There has been a regulatory gap 

between the BSA’s coverage of 

depository institutions and residential 

mortgage lenders and originators in that 

the latter are currently not subject to 

BSA requirements, the Suspicious 

Activity Report (‘‘SAR’’) foremost among 

them. Imposing a SAR requirement 

would address this regulatory gap. 

Moreover, a SAR requirement would 

potentially expand the kinds of 

activities being reported to FinCEN’s 

BSA database, thereby giving our 

regulatory and law enforcement partners 

a more complete picture, both on a 

systemic and case-specific level, of 


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