87156 Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Rules and Regulations 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 200, 201, 232, 240, 242, 

and 249 

[Release No. 34–98845; File No. S7–14–22] 

RIN 3235–AK93 

Security-Based Swap Execution and 

Registration and Regulation of 

Security-Based Swap Execution 

Facilities 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Final rule. 

SUMMARY: The Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

is adopting a set of rules and forms 

under the Securities Exchange Act of 

1934 (‘‘SEA’’) that would create a 

regime for the registration and 

regulation of security-based swap 

execution facilities (‘‘SBSEFs’’) and 

address other issues relating to securitybased swap (‘‘SBS’’) execution 

generally. One of the rules being 

adopted implements an element of the 

Dodd-Frank Act that is intended to 

mitigate conflicts of interest at SBSEFs 

and national securities exchanges that 

trade SBS (‘‘SBS exchanges’’). Other 

rules being adopted address the crossborder application of the SEA’s trading 

venue registration requirements and the 

trade execution requirement for SBS. In 

addition, the Commission is amending 

an existing rule to exempt, from the SEA 

definition of ‘‘exchange,’’ certain 

registered clearing agencies, as well as 

registered SBSEFs that provide a market 

place only for SBS. The Commission is 

also adopting a new rule that, while 

affirming that an SBSEF would be a 

broker under the SEA, exempts a 

registered SBSEF from certain broker 

requirements. Further, the Commission 

is adopting certain new rules and 

amendments to its Rules of Practice to 

allow persons who are aggrieved by 

certain actions by an SBSEF to apply for 

review by the Commission. Finally, the 

Commission is delegating new authority 

to the Director of the Division of 

Trading and Markets and to the General 

Counsel to take actions necessary to 

carry out the rules being adopted. 

DATES: 

Effective date: February 13, 2024. 

Compliance dates: See section XVI 

(Compliance Schedule). 

FOR FURTHER INFORMATION CONTACT: 

Michael E. Coe, Assistant Director; 

David Liu, Special Counsel; Leah 

Mesfin, Special Counsel; Michou 

Nguyen, Special Counsel; or Geoffrey 

Pemble, Special Counsel, at (202) 551– 

5000, Office of Market Supervision, 

Division of Trading and Markets, 

Securities and Exchange Commission, 

100 F Street NE, Washington, DC 20549. 

SUPPLEMENTARY INFORMATION: The 

Commission is adopting new 17 CFR 

242.800 through 242.835 (‘‘Regulation 

SE’’) to create a regime for the 

registration and regulation of SBSEFs 

and to address other issues relating to 

SBS execution generally. Regulation SE 

consists of 17 CFR 242.800 through 

242.835 (Rules 800 through 835). Key 

rules within Regulation SE include Rule 

803, which establishes a process for 

SBSEF registration; Rules 804 to 810, 

which establish procedures for rule and 

product filings by SBSEFs; Rule 815, 

which establishes permissible execution 

methods for SBS that are subject to the 

SEA’s trade execution requirement; Rule 

816, which sets out a procedure for 

SBSEFs to make an SBS available to 

trade and establish certain exemptions 

from the trade execution requirement; 

Rules 818 to 831, which implement the 

14 Core Principles for SBSEFs set forth 

in section 3D(d) of the SEA; Rules 832 

to 833, which address cross-border 

matters; and Rule 834, which imposes 

requirements addressing conflicts of 

interest involving SBSEFs and SBS 

exchanges, as required by section 765 of 

the Dodd-Frank Act. 

In addition to the rules described 

above, the Commission is also adopting 

17 CFR 249.1701 (Form SBSEF), which 

is the form that an entity will use to 

register with the Commission as an 

SBSEF; 17 CFR 249.1702 (a submission 

cover sheet), which will be required to 

accompany filings with the Commission 

made by SBSEFs for rule and rule 

amendments and for product listings; 

adopting amendments to 17 CFR 

232.405 (Rule 405 of Regulation S–T) to 

require various SBSEF filings to be 

provided in Inline eXtensible Business 

Reporting Language (‘‘Inline XBRL’’), a 

structured data language; adopting 

amendments to 17 CFR 240.3a1–1 (Rule 

3a1–1) to exempt from the SEA 

definition of ‘‘exchange’’ certain 

registered clearing agencies, as well as 

registered SBSEFs that provide a market 

place only for SBS; adopting 17 CFR 

240.15a–12 (Rule 15a–12), which, while 

affirming that an SBSEF would also be 

a broker under the SEA, exempts a 

registered SBSEF from certain broker 

requirements; providing for the sunset 

of existing temporary exemptions from 

the requirement to register as a clearing 

agency that, among other things, applies 

to an entity performing the functions of 

an SBSEF but that is not yet registered 

as such, and from the requirement to 

register as an SBSEF or a national 

securities exchange for entities that 

meet the statutory definition of SBSEF; 

adopting certain new rules and 

amendments to 17 CFR part 201 (Rules 

of Practice) to allow persons who are 

aggrieved by certain actions by an 

SBSEF to apply for review by the 

Commission; and adopting amendments 

to 17 CFR 200.30–3 and 17 CFR 200.30– 

14 regarding delegations of authority to 

the Director of the Division of Trading 

and Markets and to the General Counsel. 

Table of Contents 

I. Background 

II. Introductory Provisions of Regulation SE 

A. Rule 800—Scope 

B. Rule 801—Applicable Provisions 

C. Rule 802—Definitions 

III. Registration of SBSEFs 

A. Rule 803—Requirements and 

Procedures for Registration 

B. Form SBSEF 

IV. Rule and Product Filings by SBSEFs 

A. Rule 804—Listing Products for Trading 

by Certification 

B. Rule 805—Voluntary Submission of 

New Products for Commission Review 

and Approval 

C. Rule 806—Voluntary Submission of 

Rules for Commission Review and 

Approval 

D. Rule 807—Self-Certification of Rules 

E. Submission Cover Sheet and 

Instructions 

F. Rule 808—Availability of Public 

Information 

G. Rule 809—Staying of Certification and 

Tolling of Review Period Pending 

Jurisdictional Determination 

H. Rule 810—Product Filings by SBSEFs 

That Are Not Yet Registered and by 

Dormant SBSEFs 

V. Miscellaneous Requirements 

A. Rule 811—Information Relating to 

SBSEF Compliance 

B. Rule 812—Enforceability 

C. Rule 813—Prohibited Use of Data 

Collected for Regulatory Purposes 

D. Rule 814—Entity Operating Both a 

National Securities Exchange and an 

SBSEF 

E. Rule 815—Methods of Execution for 

Required and Permitted Transactions 

F. Rule 816—Trade Execution Requirement 

and Exemptions Therefrom 

G. Rule 817—Trade Execution Compliance 

Schedule 

VI. Implementation of Core Principles 

A. Rule 818—Core Principle 1— 

Compliance With Core Principles 

B. Rule 819—Core Principle 2— 

Compliance With Rules 

C. Rule 820—Core Principle 3—SBS Not 

Readily Susceptible to Manipulation 

D. Rule 821—Core Principle 4—Monitoring 

of Trading and Trade Processing 

E. Rule 822—Core Principle 5—Ability To 

Obtain Information 

F. Rule 823—Core Principle 6—Financial 

Integrity of Transactions 

G. Rule 824—Core Principle 7—Emergency 

Authority 

H. Rule 825—Core Principle 8—Timely 

Publication of Trading Information 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Rules and Regulations 87157 

1The Commission proposed Regulation SE on 

Apr. 6, 2022. See Rules Relating to Security-Based 

Swap Execution and Registration and Regulation of 

Security-Based Swap Execution Facilities (Proposed 

Rule), SEA Release No. 94615 (Apr. 6, 2022), 87 FR 

28872 (May 11, 2022) (‘‘Proposing Release’’). 

2 15 U.S.C. 78c–4. In this release, the Commission 

is defining the Securities Exchange Act as the 

‘‘SEA’’ to distinguish it from the Commodity 

Exchange Act (‘‘CEA’’). 

3Public Law 111–203, H.R. 4173, sec. 763(c). 

4See Public Law 111–203 Preamble. 

5See infra section VI (listing the Core Principles). 

6See Proposing Release, supra note 1. In 2011, 

the Commission published for comment proposed 

Regulation SBSEF relating to, among other things, 

the registration and regulation of SBSEFs. 

Registration and Regulation of Security-Based Swap 

Execution Facilities, SEA Release No. 63825 (Feb. 

2, 2011), 76 FR 10948 (Feb. 28, 2011) (‘‘2011 SBSEF 

Proposal’’). The Proposing Release, which contains 

a more detailed discussion of that and related 

proposals, withdrew the 2011 SBSEF Proposal. See 

Proposing Release, 87 FR at 28874. 

7See Proposing Release, supra note 1, 87 FR at 

28874. However, Rule 834 of proposed Regulation 

SE would implement section 765 only with respect 

to SBSEFs and SBS exchanges. See infra section 

VIII. 

8 In adopting Regulation SE, the Commission has 

consulted and coordinated with the CFTC and the 

prudential regulators, in accordance with the 

consultation mandate of the Dodd-Frank Act. 

Section 712(a)(2) of the Dodd-Frank Act provides in 

relevant part that the Commission shall ‘‘consult 

and coordinate to the extent possible with the 

Commodity Futures Trading Commission and the 

prudential regulators for the purposes of assuring 

regulatory consistency and comparability, to the 

extent possible.’’ In addition, section 752(a) of the 

Dodd-Frank Act provides in relevant part that ‘‘[i]n 

order to promote effective and consistent global 

regulation of swaps and security-based swaps, the 

Commodity Futures Trading Commission, the 

Securities and Exchange Commission, and the 

prudential regulators . . . as appropriate, shall 

consult and coordinate with foreign regulatory 

authorities on the establishment of consistent 

international standards with respect to the 

regulation (including fees) of swaps.’’ The term 

‘‘prudential regulator’’ is defined in section 1a(39) 

of the CEA, 7 U.S.C. 1a(39), and that definition is 

incorporated by reference in section 3(a)(74) of the 

SEA, 15 U.S.C. 78c(a)(74). 

9See CFTC, Core Principles and Other 

Requirements for Swap Execution Facilities, 78 FR 

33476 (June 4, 2013) (‘‘2013 CFTC Final SEF Rules 

Release’’); CFTC, Process for a Designated Contract 

Market or Swap Execution Facility To Make a Swap 

Available to Trade, Swap Transaction Compliance 

and Implementation Schedule, and Trade Execution 

Requirement Under the Commodity Exchange Act, 

78 FR 33606 (June 4, 2013) (‘‘2013 CFTC Final MAT 

Rules Release’’). 

10 In 2018, the CFTC proposed to make 

fundamental changes to the SEF regulatory 

structure. See CFTC, Swap Execution Facilities and 

Trade Execution Requirement, 83 FR 61946 (Nov. 

Continued 

I. Rule 826—Core Principle 9— 

Recordkeeping and Reporting 

J. Rule 827—Core Principle 10—Antitrust 

Considerations 

K. Rule 828—Core Principle 11—Conflicts 

of Interest 

L. Rule 829—Core Principle 12—Financial 

Resources 

M. Rule 830—Core Principle 13—System 

Safeguards 

N. Rule 831—Core Principle 14— 

Designation of Chief Compliance Officer 

VII. Cross-Border Rules 

A. Rule 832—Cross-Border Mandatory 

Trade Execution 

B. Rule 833—Cross-Border Exemptions for 

Foreign Trading Venues and Relating to 

the Trade Execution Requirement 

VIII. Rule 834—Implementation of Section 

765 of the Dodd-Frank Act and 

Governance of SBSEFs and SBS 

Exchanges 

A. Rule 834(a) 

B. Rule 834(b) 

C. Rule 834(c) 

D. Rule 834(d) 

E. Rule 834(e) 

F. Rule 834(f) 

G. Rule 834(g) 

H. Rule 834(h) 

IX. Rule 835—Notice to Commission by 

SBSEF of Final Disciplinary Action, 

Denial or Conditioning of Membership, 

or Denial or Limitation of Access 

X. Amendments to Existing Rule 3a1–1 

Under the SEA-Exemptions From the 

Definition of ‘‘Exchange’’ 

XI. Rule 15a–12—SBSEFs as Registered 

Brokers; Relief From Certain Broker 

Requirements 

XII. Termination of Temporary Exemptions 

XIII. Electronic Filings Under Regulation SE 

A. Use of Electronic Filing Systems and 

Structured Data 

B. Use of Identifiers 

XIV. Amendments to Commission’s Rules of 

Practice for Appeals of SBSEF Actions 

A. Amendment to Rule 101 

B. Amendment to Rule 202 

C. Amendment to Rule 210 

D. Amendment to Rule 401 

E. Rule 442—Right To Appeal 

F. Rule 443—Sua sponte Review by 

Commission 

G. Amendment to Rule 450 

H. Amendment to Rule 460 

XV. Amendments to Delegations of Authority 

in Rule 30–3 and Rule 30–14 

A. Delegated Authority Related to SBSEF 

Registration and Form SBSEF 

B. Delegated Authority Related to New 

Products Proposed by an SBSEF 

C. Delegated Authority Related to New 

Rules or Rule Amendments Proposed by 

an SBSEF 

D. Delegated Authority Related To Request 

for Joint Interpretation 

E. Delegated Authority Related to SBSEF 

Submissions Contemplated by Rule 811 

F. Delegated Authority Related to 

Information Sharing 

G. Delegated Authority Related to 

Commission Review Proceedings 

XVI. Compliance Schedule 

XVII. Economic Analysis 

A. Introduction 

B. Economic Baseline 

C. Benefits and Costs 

D. Effects on Efficiency, Competition, and 

Capital Formation 

E. Reasonable Alternatives 

XVIII. Paperwork Reduction Act 

A. Summary of Collection of Information 

B. Proposed Use of Information 

C. Respondents 

D. Total Annual Reporting and 

Recordkeeping Burden 

E. Collection of Information is Mandatory 

F. Responses To Collection of Information 

Will Not Be Confidential 

G. Retention Period of Recordkeeping 

Requirements 

XIX. Regulatory Flexibility Certification 

A. SBSEFs 

B. Persons Requesting an Exemption Order 

Pursuant to Rule 833 

C. SBS Exchanges 

D. Certification 

XX. Other Matters 

I. Background 

The Commission is adopting 

Regulation SE,1 which governs the 

registration and regulation of SBSEFs, as 

required by section 3D of the SEA.2

Section 3D was enacted as part of Title 

VII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(‘‘Dodd-Frank Act’’).3 The Dodd-Frank 

Act was enacted, among other reasons, 

to promote the financial stability of the 

United States by improving 

accountability and transparency in the 

financial system.4 The 2008 financial 

crisis highlighted significant issues in 

the over-the-counter (‘‘OTC’’) 

derivatives markets, which experienced 

dramatic growth in the years leading up 

to the financial crisis and are capable of 

affecting significant sectors of the U.S. 

economy. 

Section 3D(a)(1) of the SEA provides 

that no person may operate a facility for 

the trading or processing of SBS unless 

the facility is registered as an SBSEF or 

as a national securities exchange. 

Section 3D(d) enumerates 14 Core 

Principles with which SBSEFs must 

comply.5 And section 3D(f) requires the 

Commission to prescribe rules 

governing the regulation of SBSEFs. In 

addition, section 765 of the Dodd-Frank 

Act directs the Commission to adopt 

rules to mitigate conflicts of interest 

with respect to clearing agencies that 

clear SBS (‘‘SBS clearing agencies’’), 

SBSEFs, and national securities 

exchanges that post or make available 

for trading SBS (‘‘SBS exchanges’’). 

On April 6, 2022, the Commission 

proposed Regulation SE, relating to the 

registration and regulation of SBSEFs 

and to SBS execution generally.6 As 

discussed in the Proposing Release, the 

proposed rules superseded previous 

Commission proposals on these 

subjects.7

The SBS market is closely related to 

the swaps market, which is regulated by 

the Commodity Futures Trading 

Commission (‘‘CFTC’’).8 In June 2013, 

the CFTC adopted rules (in 17 CFR 

chapter I) under Title VII of the DoddFrank Act for swap execution facilities 

(‘‘SEFs’’).9 The swaps market has grown 

and matured within the framework 

established by the CFTC’s rules.10 As 


ddrumheller on DSK120RN23PROD with RULES2
87158 Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Rules and Regulations 

30, 2018) (‘‘2018 SEF Proposal’’). In 2021, the CFTC 

ultimately declined to finalize the 2018 SEF 

Proposal and elected instead ‘‘to improve the SEF 

framework through targeted rulemakings that 

address distinct issues.’’ Accordingly, the CFTC 

withdrew the unadopted portions of its 2018 

proposal. See CFTC, Swap Execution Facilities and 

Trade Execution Requirement—Proposed rule; 

partial withdrawal, 86 FR 9304, 9304 (Feb. 12, 

2021). 

11See Proposing Release, supra note 1, 87 FR at 

28874–76. 

12See Report on Security-Based Swaps (Mar. 20, 

2023), available at https://www.sec.gov/files/reportsecurity-based-swaps-032023.pdf. See also infra 

note 815 and accompanying text (discussing 

security-based swap transactions data in the credit, 

equity, and interest rate derivatives asset classes 

reported by registered SBSDRs). 

13See CFTC Swaps Report, available at https:// 

www.cftc.gov/MarketReports/SwapsReports/ 

L3Grossexp.html (accessed on Sept. 27, 2023). 

14See Proposing Release, supra note 1, 87 FR at 

28875. 

15See Proposing Release, supra note 1, 87 FR at 

28875. 

16The comment letters are available at https://

www.sec.gov/comments/s7-14-22/s71422.htm. The 

Commission also received comments on topics 

outside the scope of the proposal that are not 

addressed in this release. See, e.g., Letter from 

Anonymous (Apr. 27, 2022) (discussing CFTC 

oversight and transparency); Letter from 

Anonymous (Apr. 20, 2022) (discussing securities 

financial transactions). 

17See Letter from Robert McLaughlin (Apr. 7, 

2022). 18See, e.g., Letter from Robert Laorno, General 

Counsel, ICE Swap Trade, LLC, to Vanessa A. 

Countryman, Secretary, Commission, at 1–2 (June 

20, 2022) (‘‘ICE Letter’’); Letter from Stephen W. 

Hall, Legal Director and Securities Specialist, and 

Jason Grimes, Senior Counsel, Better Markets, Inc., 

to Vanessa A. Countryman, Secretary, Commission, 

at 9–11 (June 10, 2022) (‘‘Better Markets Letter’’); 

Letter from Derek J. Kleinbauer, Vice-President, 

Bloomberg SEF LLC, and Benjamin MacDonald, 

Global Head Enterprise Products, Bloomberg L.P., to 

Vanessa A. Countryman, Secretary, Commission, at 

1–2 (June 10, 2022) (‘‘Bloomberg Letter’’); Letter 

from Bella Rosenberg, Senior Counsel and Head of 

Legal and Regulatory Practice Group, International 

Swaps and Derivatives Association, Inc., and Kyla 

Brandon, Managing Director, Head of Derivatives 

Policy, Securities Industry and Financial Markets 

Association, to Vanessa Countryman, Secretary, 

Commission, at 1–2 (June 10, 2022) (‘‘ISDA–SIFMA 

Letter’’); Letter from Sarah A. Bessin Associate 

General Counsel, and Nicholas Valderrama, 

Counsel, Investment Company Institute, at 1–2 

(June 10, 2022) (‘‘ICI Letter’’); Letter from Elizabeth 

Kirby, Head of U.S. Market Structure, Tradeweb 

Markets Inc., to Vanessa A. Countryman, Secretary, 

Commission, at 1–2 (June 10, 2022) (‘‘Tradeweb 

Letter’’); Letter from Williams Shields, Chairman, 

Wholesale Markets Brokers’ Association, Americas, 

to Vanessa A. Countryman, Secretary, Commission, 

at 1–2 (June 10, 2022) (‘‘WMBAA Letter’’); Letter 

from Lindsey Weber Keljo, Head of SIFMA Asset 

Management Group, and William Thun, Associate 

General Counsel, SIFMA Asset Management Group, 

to Vanessa A. Countryman, Secretary, Commission, 

at 1–2 (June 10, 2022) (‘‘SIFMA AMG Letter’’); 

Letter from Jennifer W. Han, Chief Counsel & Head 

of Regulatory Affairs, Managed Funds Association, 

at 1–2 (June 10, 2022) (‘‘MFA Letter’’); Letter from 

Stephen John Berger, Global Head of Government 

& Regulatory Policy, Citadel and Citadel Securities 

(June 10, 2022) (‘‘Citadel Letter’’). While these 

commenters support the Commission’s general 

harmonization approach, they also provide specific 

recommendations on changes to the Commission’s 

Regulation SE proposal that they believe would 

improve the rules, as described in detail below in 

the sections discussing these individual rules. See 

infra sections II through XVII. 

19See, e.g., ICE Letter, supra note 18, at 1–2; 

ISDA–SIFMA Letter, supra note 18, at 1–2; ICI 

Letter, supra note 18, at 1–2; Tradeweb Letter, 

supra note 18, at 1–2; WMBAA Letter, supra note 

18, at 1–2; MFA Letter, supra note 18, at 1. 

20See, e.g., ISDA–SIFMA Letter, supra note 18, at 

1–2; SIFMA AMG Letter, supra note 18, at 1–2. 

21Ownership Limitations and Governance 

Requirements for Security-Based Swap Clearing 

Agencies, Security-Based Swap Execution 

Facilities, and National Securities Exchanges With 

Respect to Security-Based Swaps Under Regulation 

MC, SEA Release No. 63107 (Oct. 14, 2010), 75 FR 

65882 (Oct. 26, 2010) (‘‘Regulation MC Proposal’’). 

22See Bloomberg Letter, supra note 18, at 2. 

discussed in the Proposing Release, the 

SBS market is a small fraction of the 

overall swaps market, and the swaps 

market provides greater opportunities 

for revenue capture from swap 

execution as compared to SBS 

execution.11 For example, as of 

November 25, 2022, the gross notional 

amount outstanding in the SBS market 

was approximately $8.5 trillion across 

the credit, equity, and interest rate asset 

classes,12 while the gross notional 

amount outstanding in the swaps 

market was approximately $352 trillion 

across the interest rate, credit, and 

foreign-exchange asset classes.13 The 

Commission was sensitive in the 

Proposing Release to the economic 

impact its proposed SBSEF rules could 

have.14

In addition, the Commission 

recognized that the entities that are most 

likely to register with the Commission 

as SBSEFs are existing, CFTC-registered 

SEFs, which have already made 

substantial investments in systems, 

policies, and procedures to comply with 

and adapt to the regulatory system 

developed by the CFTC. Harmonization 

between the Commission’s SBSEF rules 

and the CFTC’s SEF rules could 

facilitate the ability of entities to dually 

register and minimize costs by allowing 

incumbent SEFs to use their existing 

systems, policies, and procedures to 

comply with the Commission’s SBSEF 

rules.15

Thus, in proposing Regulation SE, the 

Commission took the general approach 

of harmonizing closely with analogous 

CFTC SEF rules, except where 

differences in the SEC’s statutory 

authority relative to the CFTC’s 

statutory authority, or differences in the 

SBS market relative to the swaps 

market, necessitated differences 

between the Commission’s rules and the 

CFTC’s, or where the benefits of 

deviating from the CFTC’s rules would 

otherwise justify the burdens and costs 

associated with imposing different or 

additional requirements than the 

corresponding CFTC rule. And the 

Commission sought public comment on 

this approach.16

One commenter opposes this 

harmonization approach, and argues 

that it does not make sense to 

harmonize with the ‘‘looser’’ rules of 

SEFs, which he believes would allow 

‘‘more fraud and false narratives to 

creep into the market,’’ and instead 

advocates that the Commission start 

from scratch with new rules.17 Many 

other commenters, however, generally 

support this harmonization approach.18

Many of these commenters echo the 

Commission’s rationale for harmonizing 

with the CFTC’s SEF rules, and state 

that such harmonization would 

minimize the compliance burden for 

dually registered entities.19 Two of these 

commenters also state that the CFTC’s 

regulatory framework has been in place 

for almost a decade and has functioned 

well.20 One commenter also supports 

the Commission’s decision and rationale 

in withdrawing proposed Regulation 

MC 21 and the Commission’s 2011 

SBSEF Proposal.22

The Commission disagrees with the 

comment that harmonizing with the 

CFTC approach would allow for more 

fraud and false narratives in the SBS 

markets. Standing up a formal 

regulatory framework for SBSEFs where 

none yet exists will provide greater 

accountability and oversight for the SBS 

market and should, contrary to this 

commenter’s views, serve to detect and 

deter abusive and manipulative trading 

practices by providing for a set of 

Commission rules that SBSEFs must 

adhere to in operating their platforms 

and by requiring SBSEFs to make filings 

with the Commission regarding the 

operation of their platforms and to make 

their rules publicly available, as 

described in detail in sections II through 

XVII below. 

Given the relative size of the SBS 

market as compared to the swaps 

market, the fact that the CFTC’s SEF 

regulation has been in place for many 

years now, and the cost efficiencies and 

reduced burdens that would result from 

harmonized rules for dually registered 

SEFs/SBSEFs, it is appropriate to 

generally harmonize the Commission’s 

SBSEF regulatory framework with the 

CFTC’s SEF regulatory framework. At 

the same time, where appropriate, 

adopted Regulation SE differs in certain 

targeted respects from the CFTC’s 

regulatory framework for SEFs. This 

includes areas where differences in the 

Commission’s statutory authority 

relative to the CFTC’s statutory 

authority or differences in the SBS 

market relative to the swaps market 

necessitate differences between the 


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Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Rules and Regulations 87159 

23See infra section V.E.1(c). 

24See infra section V.E.4. 

25See infra section V.E.7. 

26See infra section VI.B.5. 

27See infra section VI.H. 

28See infra section VIII.B. 

29See infra section XIV.E. 

30See infra section XIII. 

31See infra note 32. 

32 In several instances, here and as noted below, 

the Commission has made technical modifications 

to the proposed regulatory text to conform crossreferences in the regulatory text to the CFR to the 

required style, as well as to correct simple 

typographical errors. Here, the Commission has 

modified Rule 800 to change a reference from ‘‘[t]he 

provisions of this section’’ to ‘‘[t]he provisions of 

§§ 242.800 through 242.835.’’ In other instances, the 

Commission has added the words ‘‘of this section’’ 

to a CFR cross-reference to conform to the required 

form of citation. Other types of technical 

modifications, and any substantive modifications, 

are described below with respect to specific 

instances. 

33See id. 

34 15 U.S.C. 78c. 

35 15 U.S.C. 78c(a)(77). 

36 15 U.S.C. 78q–1. 

37See Proposing Release, supra note 1, 87 FR at 

28878. This provision codifies a series of 

exemptions granted by the Commission to SBS 

clearing agencies that operate ‘‘forced trading’’ 

sessions. See, e.g., Order Granting Temporary 

Exemptions Under the Securities Exchange Act of 

1934 in Connection With Request on Behalf of ICE 

U.S. Trust LLC Related to Central Clearing of Credit 

Default Swaps, and Request for Comments, SEA 

Release No. 59527 (Mar. 6, 2009), 74 FR 10791, 

10796 (Mar. 12, 2009) (providing, among other 

things, an exemption from sections 5 and 6 of the 

SEA because ‘‘ICE Trust will periodically require 

ICE Trust Participants to execute certain CDS trades 

at the applicable end-of-day settlement price. 

Requiring ICE Trust Participants to trade CDS 

periodically in this manner is designed to help 

ensure that such submitted prices reflect each ICE 

Trust Participant’s best assessment of the value of 

each of its open positions in Cleared CDS on a daily 

basis, thereby reducing risk by allowing ICE Trust 

to impose appropriate margin requirements’’); 

Order Extending and Modifying Temporary 

Exemptions Under the Securities Exchange Act of 

1934 in Connection With Request of Chicago 

Mercantile Exchange Inc. Related to Central 

Clearing of Credit Default Swaps, and Request for 

Comments, SEA Release No. 61164 (Dec. 14, 2009), 

74 FR 67258, 67262 (Dec. 18, 2009) (providing, 

among other things, an exemption from sections 5 

and 6 of the SEA because, ‘‘[a]s part of the CDS 

clearing process, CME will periodically require CDS 

clearing members to trade at prices generated by 

their indicative settlement prices where those 

indicative settlement prices generate crossed bids 

and offers, pursuant to CME’s price quality auction 

methodology’’). 38 15 U.S.C. 78c(a)(77). 

39Because this exception for certain clearing 

agencies specifies ‘‘an entity that is registered with 

the Commission as a clearing agency pursuant to 

section 17A of the [SEA]’’ and meets other specified 

conditions, the exception would not be available to 

any exempt clearing agency. 

Commission’s rules and the CFTC’s, or 

where the benefits of deviating from the 

CFTC’s rules would otherwise justify 

the burdens and costs associated with 

imposing different or additional 

requirements than the corresponding 

CFTC rule. The specific approach to 

harmonization that the Commission has 

pursued, along with differences from 

CFTC’s regime for SEFs, are described 

in detail in sections II through XVII 

below. 

As discussed below, the Commission 

is modifying the proposed provisions of 

Regulation SE regarding the definition 

of ‘‘block trade,’’ 23 the treatment of 

package transactions,24 the treatment of 

SBS transactions that are intended to be 

cleared but are not accepted for clearing 

by a registered clearing agency,25

permitting SBSEFs to contract with 

designated contract markets (‘‘DCMs’’) 

to provide services to assist in 

complying with the SEA and 

Commission rules thereunder,26 the 

content and timing of the Daily Market 

Data Report,27 an exception to 

ownership and voting restrictions for 

SBSEFs,28 the application of deadlines 

and standard of review for Commission 

review of SBSEF actions,29 and the 

applicability of electronic filing and 

structured-data requirements with 

respect to specific SBSEF filings.30

Otherwise, the rules of Regulation SE 

are generally being adopted as 

proposed, in some instances with minor 

or technical modifications, which are 

described in more detail below.31

II. Introductory Provisions of 

Regulation SE 

A. Rule 800—Scope 

Proposed Rule 800 is based on 17 CFR 

37.1, which provides that part 37 of the 

CFTC’s regulations applies to every SEF 

that is registered or applying to become 

registered as a SEF under section 5h of 

the CEA. Proposed Rule 800 would 

provide that the provisions of 

Regulation SE apply to every SBSEF 

that is registered or is applying to 

become registered as an SBSEF under 

section 3D of the SEA. 

The Commission received no 

comments on Proposed Rule 800 and is 

adopting Rule 800 as proposed, with 

minor technical modifications,32 for the 

reasons stated in the Proposing Release. 

B. Rule 801—Applicable Provisions 

Proposed Rule 801 is based on § 37.2 

of the CFTC’s rules, which provides that 

a SEF shall comply with the 

requirements of part 37 and all other 

applicable CFTC regulations, including 

17 CFR 1.60 and part 9, and including 

any related definitions and crossreferenced sections. Proposed Rule 801 

would require an SBSEF to comply with 

the requirements of Regulation SE and 

all other applicable Commission rules, 

including any related definitions and 

cross-referenced sections. 

The Commission did not receive any 

comments on Proposed Rule 801 and is 

adopting Rule 801 as proposed, with 

minor technical modifications.33

C. Rule 802—Definitions 

Proposed Rule 802 would set forth the 

definitions of terms that are used in 

multiple rules in proposed Regulation 

SE. The majority of these terms were 

adapted from the CFTC’s swaps rules. 

Other terms were taken from section 3 

of the SEA 34 or from a Commission rule 

under the SEA. In particular, Proposed 

Rule 802 would define the term 

‘‘security-based swap execution facility’’ 

by cross-referencing the definition of 

that term provided in section 3(a)(77) of 

the SEA,35 but with one carve-out. An 

entity that is registered with the 

Commission as a clearing agency 

pursuant to section 17A of the SEA 36

and limits its SBSEF functions to 

operation of a trading session that is 

designed to further the accuracy of endof-day valuations—i.e., a ‘‘forced trading 

session’’—would be exempt from the 

definition of ‘‘security-based swap 

execution facility.’’ 37

Although the Commission received 

comments regarding the proper 

application of the proposed definitions 

with respect to registration 

requirements, discussed below in 

section III.A.2, and the proposed 

amendments to Rule 3a1–1, discussed 

below in section X, the Commission did 

not receive comments suggesting a 

modification of the definitions 

themselves. The term ‘‘security-based 

swap execution facility’’ is defined 

directly in section 3(a)(77) of the SEA as 

‘‘a trading system or platform in which 

multiple participants have the ability to 

execute or trade security-based swaps 

by accepting bids and offers made by 

multiple participants in the facility or 

system. . . ,’’ 38 and it is appropriate to 

adopt the same definition in Rule 802, 

with a narrow exception to address 

certain activities of registered clearing 

agencies in furthering the accuracy of 

end-of-day valuations.39

Specifically, it is necessary or 

appropriate in the public interest, and is 

consistent with the protection of 

investors, to exempt a registered 

clearing agency that utilizes a forced 

trading functionality for SBS from the 

definition of ‘‘security-based swap 

execution facility.’’ Such an entity will 

continue to be registered as a clearing 

agency and subject to the requirements 

of section 17A of the SEA. Furthermore, 

a registered clearing agency is a selfregulatory organization (‘‘SRO’’); 

therefore, all of its rules—including 


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40See Proposing Release, supra note 1, 87 FR at 

28896, 28975. 

41Additionally, as discussed below, the 

Commission is removing the term ‘‘block trade’’ 

from the text of certain rules other than Rule 815(a), 

see infra sections VI.B.1 (Rule 819(a)(3)), V.B (Rule 

812(b)), VI.B.4 (Rule 819(d)(1)), VI.H (Rule 

825(c)(1)(i) and (ii)), and is adding language 

regarding future definition of ‘‘block trade’’ in Rule 

825(c)(1)(iii). See infra section VI.H. 

42See supra note 32. The Commission has also 

replaced the term ‘‘SBSEF’’ with ‘‘security-based 

swap execution facility,’’ defined ‘‘SBS exchange’’ 

when the term is first used, added the words ‘‘of 

this definition of trading facility’’ to paragraph 

(2)(C)(ii) of the definition of ‘‘trading facility,’’ and 

moved the definition of ‘‘dormant security-based 

swap execution facility’’ so that it appears in 

alphabetical order. 

43 15 U.S.C. 78c–4(a)(1). 

44The term ‘‘security-based swap’’ is defined in 

section 3(a)(68) of the SEA, 15 U.S.C. 78c(a)(68), to 

include, among other things, a swap that is based 

on a single security or loan, including any interest 

therein or on the value thereof. A single security 

could include, for example, a cash equity, a crypto/ 

digital asset security, or a security option. 

45 15 U.S.C. 78mm(a)(1). 

46See SEA Release No. 64678 (June 15, 2011), 76 

FR 36287 (June 22, 2011) (temporarily exempting 

entities that meet the definition of ‘‘security-based 

swap execution facility’’ from the requirement to 

register with the Commission as an SBSEF) (‘‘June 

2011 Exemptive Order’’); SEA Release No. 64795 

(July 1, 2011), 76 FR 39927 (July 7, 2011) 

(temporarily exempting entities that meet the 

definition of ‘‘security-based swap execution 

facility’’ from the restrictions and requirements of 

sections 5 and 6 of the SEA) (‘‘July 2011 Exemptive 

Order’’). An entity that meets the definition of 

‘‘security-based swap execution facility’’ is required 

to register as an SBSEF under section 3D of the SEA 

or as an exchange under section 6 of the SEA. But 

because the Commission has not previously 

adopted final rules relating to SBSEFs, such entities 

have been unable to register with the Commission 

as SBSEFs. The Temporary SBSEF Exemptions have 

allowed such entities to continue trading SBS 

without needing to register either as SBSEFs or 

national securities exchanges before the compliance 

date of the SBSEF registration rules. 

47See June 2011 Exemptive Order, supra note 46, 

76 FR at 36293, 36306; July 2011 Exemptive Order, 

supra note 46, 76 FR at 39934, 39939. The July 2011 

Exemptive Order also provided an exemption from 

the broker registration requirements of section 

15(a)(1) of the SEA, 15 U.S.C. 78o(a)(1), and other 

requirements of the SEA and the Commission’s 

rules thereunder that apply to a broker, solely in 

connection with broker activities involving SBS 

(‘‘Broker Exemptions’’). The Broker Exemptions 

generally expired on Oct. 6, 2021; however, because 

an entity that meets the definition of ‘‘securitybased swap execution facility’’ also would also 

meet the definition of ‘‘broker’’ in section 3(a)(4) of 

the SEA, 15 U.S.C. 78c(a)(4), the Commission 

extended the Broker Exemptions solely for persons 

acting as an SBSEF until the expiration of the 

Temporary SBSEF Exemptions (i.e., the earliest 

compliance date set forth in any of the 

Commission’s final rules regarding registration of 

SBSEFs). See SEA Release No. 87005 (Sept. 19, 

2019), 84 FR 68550, 68602 (Dec. 16, 2019). 

48A person that registers with the Commission as 

a national securities exchange pursuant to section 

6 of the SEA does not fall within the statutory 

definition of ‘‘security-based swap execution 

facility,’’ see sec. 3(a)(77) of the SEA, 15 U.S.C. 

78c(a)(77), and thus does not need to register as an 

SBSEF under Rule 803. Furthermore, as discussed 

below, see infra section X (discussing proposed 

paragraph (a)(4) of SEA Rule 3a1–1), a person that 

registers as an SBSEF under Rule 803 and provides 

a market place for no securities other than SBS is 

exempt from the definition of ‘‘exchange’’ and does 

not need to register as such pursuant to section 6 

of the SEA. 15 U.S.C. 78c(a)(1) (defining 

‘‘exchange’’ as ‘‘any organization, association, or 

group of persons, whether incorporated or 

unincorporated, which constitutes, maintains, or 

provides a market place or facilities for bringing 

together purchasers and sellers of securities or for 

otherwise performing with respect to securities the 

functions commonly performed by a stock exchange 

as that term is generally understood, and includes 

the market place and the market facilities 

maintained by such exchange’’). 

49Section 37.3(a)(3) defines ‘‘trading facility’’ and 

‘‘electronic trading facility’’ by cross-referencing 

definitions of those terms in the CEA. Rather than 

cross-referencing the CEA, the Commission adapted 

the CEA definitions of those terms directly into 

Rule 802. See Proposed Rule 802 (defining ‘‘trading 

facility’’ and ‘‘electronic trading facility’’). 

50As discussed below in section V.E.1(a), the 

Commission is incorporating into Regulation SE the 

concepts of ‘‘Required Transaction’’ and ‘‘Permitted 

Transaction’’ in a manner closely modeled on the 

CFTC’s use of those terms. A Required Transaction 

would be a transaction involving an SBS that is 

subject to the trade execution requirement. Section 

37.3 of the CFTC’s rules requires an order book as 

a minimum trading functionality for all SEFs and 

is not limited to provision of an order book only 

for Required Transactions. 

those governing the forced trading 

session—have to be submitted to the 

Commission pursuant to section 19 of 

the SEA. Therefore, codification of the 

exemption from the definitions of 

‘‘exchange’’ and ‘‘security-based swap 

execution facility’’ preserves the status 

quo and eliminates a largely duplicative 

and unnecessary set of regulatory 

requirements. This exemption covers 

only the forced-trading functionality of 

an SBS clearing agency; any other 

exchange or SBSEF activity in which a 

clearing agency might engage could 

subject the clearing agency to the SEA 

provisions and the Commission’s rules 

thereunder applying to exchanges or 

SBSEFs. 

Proposed Rule 802 would have 

defined the term ‘‘block trade’’ to be an 

SBS transaction that, among other 

requirements, is an SBS based on a 

single credit instrument (or issuer of 

credit instruments) or a narrow-based 

index of credit instruments (or issuers of 

credit instruments) having a notional 

size of $5 million or greater.40 The 

Commission received a number of 

comments on the proposed definition of 

‘‘block trade.’’ These comments are 

discussed below in section V.E.1(c) 

relating to Rule 815(a), which specifies 

mandatory methods of execution for a 

Required Transaction that is not a block 

trade. As discussed in detail below in 

section V.E.1(c), the Commission is not 

adopting the proposed definition of 

‘‘block trade.41

Therefore, the Commission is 

adopting Rule 802 as proposed, except 

for the definition of ‘‘block trade,’’ 

which it is reserving, and minor 

technical modifications.42

III. Registration of SBSEFS 

Section 3D(a)(1) of the SEA 43

provides that no person may operate a 

facility for the trading or processing of 

SBS 44 unless the facility is registered as 

an SBSEF or as a national securities 

exchange. After issuing the 2011 SBSEF 

Proposal, the Commission granted 

temporary exemptions pursuant to 

section 36(a)(1) of the SEA 45 to entities 

that meet the definition of ‘‘securitybased swap execution facility’’ from 

having to register with the Commission 

as an SBSEF or national securities 

exchange (‘‘Temporary SBSEF 

Exemptions’’).46 According to their 

terms, the Temporary SBSEF 

Exemptions expire upon the earliest 

compliance date for the Commission’s 

final rules regarding SBSEF 

registration.47

A. Rule 803—Requirements and 

Procedures for Registration 

1. Summary of Proposed Rule 803 

Proposed Rule 803 of Regulation SE is 

closely modeled on § 37.3 of the CFTC’s 

rules and would set forth a process for 

registration with the Commission as an 

SBSEF. 

Paragraph (a)(1) of Proposed Rule 803 

would track the language of § 37.3(a)(1) 

closely, and would provide that any 

person operating a facility that offers a 

trading system or platform in which 

more than one market participant has 

the ability to execute or trade securitybased swaps with more than one other 

market participant on the system or 

platform shall register the facility as a 

security-based swap execution facility 

under this section or as a national 

securities exchange pursuant to section 

6 of the SEA.48

Paragraph (a)(2) of Rule 803, like 

§ 37.3(a)(2), would require an SBSEF, at 

a minimum, to offer an order book, 

which would be defined in Rule 802 to 

mean an electronic trading facility, a 

trading facility, or a trading system or 

platform in which all market 

participants in the trading system or 

platform have the ability to enter 

multiple bids and offers, observe or 

receive bids and offers entered by other 

market participants, and transact on 

such bids and offers.49

Paragraph (a)(3) of Rule 803 is closely 

modeled on § 37.3(a)(4) and would 

provide a narrow exception to the 

requirement to provide an order book 

for a Required Transaction 50 to allow an 

SBSEF not to offer an order book for the 

SBS component(s) of a package 

transaction that contains a mix of 

products, with some parts of the 


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51See 17 CFR 240.24b–2 (setting forth the 

procedures for identifying and redacting the portion 

of a submission under the SEA for which 

confidential treatment is requested). As the 

Commission stated in the Proposing Release, it is 

not necessary or appropriate to establish and utilize 

one set of procedures to handle confidential 

treatment requests made by SBSEFs while utilizing 

a different set of procedures for other persons who 

request confidential treatment from the Commission 

under the SEA. See Proposing Release, supra note 

1, 87 FR at 28880 n.50. 

52See Proposed Rule 802 (defining ‘‘dormant 

security-based swap execution facility’’ to mean ‘‘a 

security-based swap execution facility on which no 

trading has occurred for the previous 12 

consecutive calendar months; provided, however, 

that no security-based swap execution facility shall 

be considered to be a dormant security-based swap 

execution facility if its initial and original 

Commission order of registration was issued within 

the preceding 36 consecutive calendar months’’). 

This definition is modeled on the definition of 

‘‘dormant swap execution facility’’ found in 

§ 40.1(f). 

53See Proposing Release, supra note 1, 87 FR at 

28880–81. 

54 17 CFR 232.405. The proposed electronic filing 

requirement discussed above does not appear in the 

CFTC version of this provision. The Commission is 

adding this specification to implement the Inline 

XBRL and EDGAR electronic filing requirements for 

certain documents required by Regulation SE. See 

infra section XIII.A. 

package being subject to a trade 

execution requirement and some not. 

Paragraph (b) of Proposed Rule 803 is 

closely modeled on § 37.3(b) and would 

set out procedures for full registration of 

an SBSEF. Paragraph (b)(1), like 

§ 37.3(b)(1), would provide that an 

applicant requesting registration must 

file electronically a complete Form 

SBSEF or any successor forms, and all 

information and documentation 

described in such forms with the 

Commission using the Electronic Data 

Gathering, Analysis, and Retrieval 

(‘‘EDGAR’’) system as an Interactive 

Data File in accordance with Rule 405 

of Regulation S–T, and must provide to 

the Commission, upon the 

Commission’s request, any additional 

information and documentation 

necessary to review an application. 

Paragraph (b)(2) of Proposed Rule 803, 

like § 37.3(b)(2), would provide that an 

applicant requesting registration as an 

SBSEF must identify with particularity 

any information in the application that 

will be subject to a request for 

confidential treatment pursuant to Rule 

24b–2 under the SEA.51 Paragraph (b)(2) 

would also provide that, as set forth in 

Rule 808, certain information provided 

in an application shall be made publicly 

available. 

Paragraph (b)(3) of Proposed Rule 803 

would address amendments to the 

SBSEF registration application. Like 

§ 37.3(b)(3), Rule 803(b)(3) would 

provide that an applicant amending a 

pending application or requesting an 

amendment to an order of registration 

shall file an amended application 

electronically with the Commission 

using the EDGAR system as an 

Interactive Data File in accordance with 

Rule 405 of Regulation S–T. Subsequent 

to being registered, an SBSEF would be 

required to submit rule and product 

filings under Rule 806 or Rule 807, as 

well as provide other updates as may be 

required pursuant to other rules for 

SBSEFs. 

Paragraph (b)(4) of Proposed Rule 803 

would address the effect of an 

incomplete application. Like 

§ 37.3(b)(4), Proposed Rule 803(b)(4) 

would provide that, if an application is 

incomplete, the Commission shall notify 

the applicant that its application will 

not be deemed to have been submitted 

for purposes of the Commission’s 

review. 

Paragraph (b)(5) of Proposed Rule 803 

would establish the Commission review 

period for an application to register as 

an SBSEF. Proposed Rule 803(b)(5) is 

closely modeled on § 37.3(b)(5) and 

would require the Commission to 

approve or deny an application for 

registration as an SBSEF within 180 

days of the filing of the application. 

Proposed Rule 803(b)(5) would further 

provide that, if the Commission notifies 

the person that its application is 

materially incomplete and specifies the 

deficiencies in the application, the 

running of the 180-day period would be 

stayed from the time of that notification 

until the application is resubmitted in 

completed form. In such a case, the 

Commission would have not less than 

60 days to approve or deny the 

application from the time the 

application is resubmitted in completed 

form. 

Paragraph (b)(6)(i) of Proposed Rule 

803, like § 37.3(b)(6)(i), would provide 

that the Commission shall issue an 

order granting registration upon a 

Commission determination, in its 

discretion, that the applicant has 

demonstrated compliance with the SEA 

and the Commission’s rules applicable 

to SBSEFs. Paragraph (b)(6)(i) would 

allow the Commission to issue an order 

granting registration, subject to 

conditions. Paragraph (b)(6)(ii) of 

Proposed Rule 803, modeled on 

§ 37.3(b)(6)(ii), would provide that the 

Commission may issue an order denying 

registration upon a Commission 

determination, in its own discretion, 

that the applicant has not demonstrated 

compliance with the SEA and the 

Commission’s rules applicable to 

SBSEFs. If the Commission denies an 

application under Rule 803(b)(6)(ii), it 

would be required to specify the 

grounds for the denial. 

Paragraph (c) of Proposed Rule 803, 

like § 37.3(d), would address 

reinstatement of a dormant registration. 

Proposed Rule 803(c) would provide 

that a dormant SBSEF 52 may reinstate 

its registration under the procedures of 

Rule 803(b). Proposed Rule 803(c) 

would further provide that the applicant 

may rely upon previously submitted 

materials if such materials accurately 

describe the dormant SBSEF’s 

conditions at the time that it applies for 

reinstatement of its registration. 

Paragraph (d) of Proposed Rule 803, 

like § 37.3(e), would set out procedures 

for an SBSEF to request a transfer of 

registration. Paragraph (d)(1), which is 

closely modeled on § 37.3(e)(1), would 

provide that an SBSEF seeking to 

transfer its registration from its current 

legal entity to a new legal entity as a 

result of a corporate change shall file a 

request for approval to transfer such 

registration with the Commission in the 

form and manner specified by the 

Commission. Paragraph (d)(2), modeled 

on § 37.3(e)(2), would provide that a 

request for transfer of registration shall 

be filed no later than three months prior 

to the anticipated corporate change; or 

in the event that the SBSEF could not 

have known of the anticipated change 

three months prior to the anticipated 

change, as soon as it knows of that 

change. 

Paragraph (d)(3) of Proposed Rule 

803, like § 37.3(e)(3), would require an 

SBSEF’s request for a transfer of 

registration to include the underlying 

agreement governing the corporate 

change, a description of the corporate 

change, a discussion of the transferee’s 

ability to comply with the SEA, the 

governing documents of the transferee, 

the transferee’s rules marked to show 

changes from the rules of the SBSEF, 

and specified representations by the 

transferee.53

Paragraph (d)(4) of Proposed Rule 

803, modeled on § 37.3(e)(4), would 

provide that, upon review of a request 

for transfer of registration, the 

Commission, as soon as practicable, 

shall issue an order either approving or 

denying the request. 

Paragraph (e) of Proposed Rule 803, 

like § 37.3(f), would provide that an 

applicant for registration as an SBSEF 

may withdraw its application by filing 

a withdrawal request electronically with 

the Commission using the EDGAR 

system as an Interactive Data File in 

accordance with Rule 405 of Regulation 

S–T.54 Proposed Rule 803(e) would 

further provide that withdrawal of an 

application for registration shall not 

affect any action taken or to be taken by 


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55See SIFMA AMG Letter, supra note 18, at 5; see 

also Bloomberg Letter, supra note 18, at 11. 

56See Citadel Letter, supra note 18, at 9 (‘‘[A] 

security-based swap transaction executed via a fully 

electronic multilateral RFQ protocol should be 

subject to the same regulations as one executed by 

voice with the assistance of a voice broker (who 

may or may not be employed by the SBSEF)’’). 

57As discussed above, see supra note 38 and 

accompanying text, the statutory definition of 

SBSEF provides in relevant part that an SBSEF is 

‘‘a trading system platform in which multiple 

participants have the ability to execute or trade 

security-based swaps by accepting bids and offers 

made by multiple participants. . . .’’ SEA section 

3(a)(77), 15 U.S.C. 78c(a)(77) (emphasis added). 

This is sometimes referred to as ‘‘multiple-tomultiple trading.’’ 

58See Better Markets Letter, supra note 18, at 11– 

13. 

59See MFA Letter, supra note 18, at 3. 60See CFTC Staff Advisory on Swap Execution 

Facility Registration Requirement, Letter No. 21–19 

(Sept. 29, 2021), available at https://www.cftc.gov/ 

node/238336. 61See MFA Letter, supra note 18, at 3 (quoting 

CFTC Staff Letter No. 21–19, supra note 60 

(emphasis in original)). 62MFA Letter, supra note 18, at 3–4 (internal 

quotations omitted). 63SEA section 3(a)(77), 15 U.S.C. 78c(a)(77) 

(emphasis added). 

64SEA section 3D(a)(1), 15 U.S.C. 78c–4(a)(1). 

65See SEA section 3(a)(77), 15 U.S.C. 78c(a)(77) 

(defining SBSEF in relevant part as ‘‘a trading 

system or platform in which multiple participants 

have the ability to execute or trade security-based 

swaps by accepting bids and offers made by 

multiple participants in the facility or system 

. . .’’); SEA section 3(a)(1), 15 U.S.C. 78c(a)(1) 

(defining an exchange in relevant part as ‘‘any 

organization, association, or group of persons, 

whether incorporated or unincorporated, which 

constitutes, maintains, or provides a market place 

or facilities for bringing together purchasers and 

sellers of securities’’) (emphasis added). 

66See supra notes 59–62 and accompanying text. 

the Commission based upon actions, 

activities, or events occurring during the 

time that the application was pending 

with the Commission. 

Paragraph (f) of Proposed Rule 803, 

like § 37.3(g), would provide that an 

SBSEF may request that its registration 

be vacated by filing a vacation request 

electronically with the Commission 

using the EDGAR system and must be 

provided as an Interactive Data File in 

accordance with Rule 405 of Regulation 

S–T at least 90 days prior to the date 

that the vacation is requested to take 

effect. 

2. Comments and Analysis 

(a) Registration Requirements, Generally 

Two commenters support the 

proposed SBSEF registration 

requirements under Rule 803 being 

modeled on the CFTC’s rules and state 

that, as market participants are familiar 

with CFTC’s requirements, they 

appreciate the Commission’s attempts to 

minimize registration burdens and 

expedite the establishment of the SBSEF 

regime.55

One commenter states that the 

Commission should ensure that all 

multilateral trading venues for SBS are 

required to register as an SBSEF, 

regardless of the specific trading 

protocol used.56 Another commenter 

argues that section 3D(a)(1) of the SEA 

requires the registration of any ‘‘facility 

for the trading or processing of SBS,’’ 

not just those that meet the statutory 

definition of SBSEF, which includes 

multiple-to-multiple trading.57

Accordingly, this commenter states that 

single-dealer platforms should be 

required to register as SBSEFs and to 

change their operations to offer 

multiple-to-multiple trading, consistent 

with the definition of SBSEF.58

One commenter asks the Commission 

to ‘‘make clear that the SBSEF 

registration requirement applies only to 

these types of platforms that are within 

the statutory and proposed regulatory 

definition and does not include any 

broader CFTC staff interpretations 

purporting to expand the SEF 

definition.’’ 59 This commenter states 

that CFTC Staff Letter 21–19 60

maintains that platforms can be required 

to register as SEFs ‘‘(i) even where 

multiple participants cannot 

simultaneously request, make, or accept 

bids and offers from market 

participants; or (ii) where multiple 

participants can initiate a one-to-many 

communication.’’ 61 The commenter 

states that extending the definition of 

SBSEF to include ‘‘facilities offering 

one-to-many or bilateral 

communications if more than one 

participant is able to submit an RFQ on 

the platform’’ would ‘‘contradict 

Congress’ express intent’’ to limit the 

scope of SBSEF registration 

requirements to multiple-to-multiple 

platforms; that the Commission should 

make clear that the CFTC staff guidance 

is inapplicable to SBSEFs; and that the 

Commission should confirm that it is 

not adopting or incorporating, explicitly 

or implicitly, similar guidance.62

The Commission agrees with the 

comment that the definition of SBSEF 

applies to multilateral trading facilities 

regardless of the specific trading 

protocol used. As the statutory 

definition of SBSEF makes clear, a 

trading facility would fall under the 

definition of SBSEF if it offers ‘‘multiple 

participants the ability to execute or 

trade security-based swaps by accepting 

bids and offers made by multiple 

participants in the facility or system, 

through any means of interstate 

commerce. . . .’’ 63 Whether a specific 

instance or practice of brokering in fact 

offers multiple participants the ability to 

accept the bids or offers made by 

multiple participants, though, will 

depend on the attendant facts and 

circumstances of that instance or 

practice. The Commission does not, 

however, agree with the comment that 

the language of SEA section 3D(a)(1) 

means that single-dealer platforms for 

trading SBS must register as SBSEFs 

and, consistent with the statutory 

definition of SBSEF, change their 

operations to provide multiple-tomultiple trading. SEA section 3D is 

titled ‘‘Security-based swap execution 

facilities,’’ and section 3D(a)(1) states, in 

full, ‘‘No person may operate a facility 

for the trading or processing of securitybased swaps, unless the facility is 

registered as a security-based swap 

execution facility or as a national 

securities exchange under this 

section.’’ 64 The Commission is not 

persuaded that the phrase ‘‘facility for 

the trading or processing of securitybased swaps’’ in this context can 

reasonably be read to apply more 

broadly to encompass anything other 

than an SBSEF or an SBS exchange. 

Since the definitions of both SBSEF and 

exchange include the concept of 

multiple-to-multiple trading,65 singledealer ‘‘one-to-many’’ trading platforms 

that do not offer multiple-to-multiple 

trading are outside the scope of the 

provisions of section 3D(a)(1). 

It is not necessary to incorporate the 

guidance in CFTC Staff Letter 21–19 

into this release, because the CFTC staff 

letter in large part refers to fact-specific 

circumstances that the Commission has 

yet to encounter since Reg SE is not yet 

effective and the application of the 

SBSEF definition depends on the 

particular facts and circumstances of a 

platform’s structure and operations. For 

the same reason, it would be premature 

to reject the possibility of taking a 

position similar to that of the CFTC 

guidance with regard to SBSEFs, as one 

commenter suggested.66 Moreover, 

because the statutory definition of 

SBSEF does not include the word 

‘‘simultaneous,’’ the Commission 

declines to issue its own guidance to 

reflect a requirement for simultaneity 

here. Where operators of SBS trading 

platforms have questions about the facts 

and circumstances particular to their 

situations, they can discuss their 

particular circumstances with 

Commission staff. 

(b) Abbreviated Registration Procedures 

for CFTC-Registered SEFs 

Several commenters state that the 

Commission should use its exemptive 

authority to provide a streamlined 

registration process for SBSEFs that are 

already registered with the CFTC as 


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67See SIFMA AMG Letter, supra note 18, at 5; 

Bloomberg Letter, supra note 18, at 11; WMBAA 

Letter, supra note 18, at 3; ICE Letter, supra note 

18, at 5. 

68See SIFMA AMG Letter, supra note 18, at 5. 

69See Bloomberg Letter, supra note 18, at 11. 

70See WMBAA Letter, supra note 18, at 3. 

71See WMBAA Letter, supra note 18, at 3–4. 

72See ICE Letter, supra note 18, at 5. 

73Letter from J. T. at 1 (May 26, 2022). 

74 Id. 

75 Id. 

76 15 U.S.C. 78mm(a)(1). 

77See Proposing Release, supra note 1, 87 FR at 

28882. 

78See supra note 75 and accompanying text. 

79 In the Proposing Release, the Commission 

stated that it was ‘‘preliminarily considering’’ that 

it would exercise exemptive authority under section 

36(a)(1) of the Act, 15 U.S.C. 78mm(a)(1), ‘‘to relax 

or eliminate entirely certain of the registration 

requirements for entities that are already registered 

as SEFs with the CFTC.’’ Proposing Release, supra 

note 1, 87 FR at 28882. 

80See supra note 32. The Commission is also 

deleting the header text ‘‘Minimum trading 

functionality’’ from paragraph (a)(3), and is adding 

the header text ‘‘Request to register’’ to paragraph 

(b)(1), in order to maintain consistency of style in 

the regulatory text. Additionally, the Commission is 

removing the requirement to use an Interactive Data 

File for filing requests to withdraw or vacate an 

application for registration pursuant to Rules 803(e) 

and 803(f). See infra section XIII.A. 

SEFs.67 One commenter states that, 

because many entities will likely be 

registering with both the Commission 

and the CFTC, a streamlined SBSEF 

registration process will ease the burden 

of new requirements imposed on 

potential dual-registrants.68 This 

commenter further states that allowing 

currently registered CFTC SEFs to 

become SEC-registered SBSEFs would 

be more efficient and would more 

quickly kick-start the Commission’s SBS 

regime. This commenter thus supports 

the use of exemptive authority for SEFs 

that are currently registered, provided 

that the Commission’s approach to 

exemptive authority does not disrupt 

the existing market structure and the 

relationships between venues and 

participants. Another commenter states 

that a streamlined registration process 

for SEFs currently registered and in 

good standing with the CFTC would 

have the potential to lower the costs of 

registration and encourage the entry of 

market participants.69

One commenter that supports a 

streamlined SBSEF registration process 

for SEFs states that a prolonged 

registration process, particularly for 

venues already registered with the 

CFTC, only further delays the 

introduction of regulated price 

discovery, liquidity formation, and trade 

execution for SBS.70 This commenter 

also states that SBSEF registration also 

further expedites SBS data reporting to 

the extent SBSEFs will report trades to 

an SBS swap data repository under the 

Commission’s Regulation SBSR, as this 

service cannot be provided until 

SBSEFs are registered and operational. 

If the Commission were not to retain the 

exemptive authority within Rule 803, 

this commenter supports a process that 

gives deference to existing CFTC SEFs 

and provides a more streamlined 

process for such registrants. The 

commenter states that, as the 

Commission observed in the proposing 

release, most of the SBS liquidity will 

likely be centralized around a few 

facilities, with most (if not all) of them 

already operating CFTC-regulated 

SEFs.71

Another commenter states that SEFs 

that are currently registered and in good 

standing with the CFTC should be 

permitted to register with the 

Commission utilizing their current 

documentation filed pursuant to the 

requirements of Form SEF.72 This 

commenter states that CFTC registered 

SEFs are required to keep their Form 

SEF and its exhibits current through 

post-registration amendments and that, 

as the Commission is modeling 

proposed Form SBSEF on the CFTC’s 

Form SEF, substituting the forms should 

not be problematic for the Commission 

to review. The commenter states that the 

Commission should permit registered 

SEFs seeking to register as an SBSEF to 

submit their Form SEF and exhibits, 

with an accompanying addendum 

reflecting only those changes necessary 

to fulfill the specific requirements of 

proposed Regulation SE, in lieu of filing 

a new Form SBSEF. 

One commenter, however, stated that 

‘‘relaxing or eliminating any registration 

requirements would be highly 

inappropriate,’’ and argued that the 

Commission must be ‘‘rigorous in 

reviewing and approving SBSEFs 

applicants while upholding complete 

impartiality.’’ 73 This commenter further 

states that both active SEFs and nonSEFs seeking to register SBSEFs ‘‘must 

be held under the same standard to 

avoid any conflict of interests.’’ 74

Therefore, this commenter states that 

the Commission should not use 

exemptive authority under SEA section 

36(a)(1) to adopt an abbreviated 

procedure for SEFs seeking to register as 

SBSEFs, because doing so would rely on 

the ‘‘CFTC’s biased judgment’’ and 

would not permit an ‘‘unprejudiced 

determination’’ by the Commission.75

In the Proposing Release, the 

Commission stated that it was 

considering that, after adopting final 

rules establishing a registration process 

for SBSEFs, it could exercise its 

exemptive authority under section 

36(a)(1) of the SEA 76 to relax or 

eliminate entirely certain of the 

registration requirements for entities 

that are already registered as SEFs with 

the CFTC.77 The Commission recognizes 

that many of the entities that will seek 

registration with the Commission as 

SBSEFs are already registered with the 

CFTC as SEFs. Entities that seek dual 

registration presumably see efficiencies 

in utilizing the same systems, policies, 

and procedures to trade both swaps and 

SBS. As noted throughout this release, 

the Commission has sought to 

harmonize the SBSEF regulatory regime 

as closely as practicable with the 

CFTC’s SEF regulatory regime, 

achieving similar regulatory benefits as 

the CFTC regime while minimizing 

costs so as to impose only marginal 

costs on dually registered SEF/SBSEFs 

and their members. As a result of these 

harmonized regimes, SEFs that seek 

dual registration with the SEC would 

likely need to make only minor 

adjustments to their rules and trading 

procedures to support trading of SBS in 

addition to the trading of swaps. 

While one commenter states that it 

would be inappropriate to relax or 

eliminate any SBSEF registration 

requirements for CFTC-registered 

SEFs,78 an entity’s status as a registered 

SEF in good standing with the CFTC is 

relevant when considering its 

application to register as an SBSEF and 

that reducing the registration burden for 

CFTC-registered SEFs, where possible, 

is appropriate. However, granting 

exemptive relief under section 36(a)(1), 

which this commenter opposes, or 

providing for a formally abbreviated 

SBSEF registration regime for CFTCregistered SEFs is not necessary to 

accomplish expedited registration and 

reduced registration burdens.79

Requiring all applicants to submit Form 

SBSEF will support consistency in the 

review by the Commission and its staff 

of applications for registration of 

SBSEFs, which will include a review of 

the proposed rules for the SBSEFs. The 

Commission expects that prospective 

SBSEFs will be able to use the 

information in their SEF applications to 

complete their SBSEF applications, as 

discussed below. 

For the reasons discussed above, the 

Commission is adopting Rule 803 as 

proposed, with minor technical 

modifications.80

B. Form SBSEF 

The Commission proposed new 

§ 249.2001 to require that entities use 

Form SBSEF to register with the 

Commission as an SBSEF. Form SBSEF 

would also be used for submitting any 


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81See Bloomberg Letter, supra note 18, at 11. 

82See 2013 CFTC Final SEF Rules Release, supra 

note 9. 

83See infra section VI.K. 

84The Commission is correcting the text in 

Instruction 20 to Form SBSEF to read ‘‘a list with 

the name(s) of the clearing agency(ies)’’ instead of 

‘‘a list of the name of the clearing organization(s).’’ 

85 15 U.S.C. 78s(b). 86 15 U.S.C. 78c–4. 87See 15 U.S.C. 78c–4(d)(1)(A)(ii) (requiring an 

SBSEF, in order to be registered and to maintain 

registration, to comply with any requirement that 

the Commission may impose by rule or regulation); 

15 U.S.C. 78c–4(f) (directing the Commission to 

prescribe rules governing the regulation of SBSEFs). 

updates, corrections, or supplemental 

information to a pending application for 

registration. Form SBSEF is closely 

modeled on the CFTC’s Form SEF for 

entities that seek to register with the 

CFTC as SEFs, with only minor changes 

to remove from the form the concept of 

post-registration amendments, as the 

proposed rule would not require any 

amendments to Form SBSEF postregistration. The exhibits that were 

proposed along with Form SBSEF are 

very similar to the exhibits in Form SEF. 

As with Form SEF, each applicant 

submitting a Form SBSEF would be 

required to provide the Commission 

with documents and descriptions 

pertaining to its business organization, 

financial resources, and compliance 

program, including various documents 

describing the applicant’s legal and 

financial status. An applicant would be 

required to disclose any affiliates, 

provide a brief description of the nature 

of the affiliation, and submit copies of 

any agreements between the SBSEF and 

third parties that would assist the 

applicant in complying with its duties 

under the SEA. In addition, an applicant 

would be required to demonstrate 

operational capability through 

documentation, including technical 

manuals and third-party service 

provider agreements. 

Under Rule 803(b)(1), an applicant for 

SBSEF registration would be required to 

complete Form SBSEF and provide, 

upon the Commission’s request, any 

additional necessary information and 

documentation in order review the 

application. The determination as to 

when an application submission is 

complete would be at the sole discretion 

of the Commission. The Commission 

would review Form SBSEF and, at the 

conclusion of its review, by order either: 

(i) grant registration; (ii) deny the 

application for registration; or (iii) grant 

registration subject to certain 

conditions. After an applicant is granted 

registration, any updates or 

amendments to the information 

contained in its Form SBSEF by an 

active SBSEF would be required to be 

submitted as rules or rule amendments 

under Rule 806 or Rule 807 or as may 

be required by other rules in Regulation 

SE. 

One commenter states that the 

Commission should closely harmonize 

the rules for SBSEF registration with the 

CFTC’s rules, with the exception of 

Exhibits D and H of Form SBSEF, which 

require: (a) a list of all affiliates and a 

description of any material pending 

legal proceedings of such affiliates, and 

(b) the financial statements of the 

affiliates. This commenter states that the 

information required by these exhibits is 

‘‘burdensome and not fit for purpose’’ 

and should not be required unless the 

affiliate provides support services to the 

SBSEF or the legal proceedings are 

expected to have a material effect on the 

applicant or the operation of its 

proposed SBSEF.81 As discussed above, 

several commenters expressed support 

for the Commission providing an 

expedited process for CFTC-registered 

SEFs that wish to register as SBSEFs. 

The CFTC adopted rules for the 

registration and regulation of SEFs in 

2013,82 and the CFTC’s process for 

registering SEFs appears to be well 

understood by the industry and well 

designed for being adapted to the SBS 

market. Therefore, the Commission has 

used the CFTC’s process as a basis for 

its own process for registering SBSEFs, 

and information about SBSEF affiliates 

is relevant to the Commission’s 

oversight of SBSEFs and, in particular, 

oversight of SBSEF compliance with 

Rule 828 (conflicts of interest).83 In 

addition, we assume that most if not all 

SBSEFs will be dually registered as 

SEFs. 

However, while the content and 

exhibits of Form SBSEF closely match 

the form and content of Form SEF, 

exhibits to Form SEF are provided to the 

CFTC as unstructured documents, 

whereas most exhibits to Form SBSEF 

will be provided to the Commission as 

structured, machine-readable 

documents. Permitting SBSEFs to 

provide copies of Form SEF exhibits in 

lieu of Form SBSEF exhibits, while 

likely resulting in an expedited 

registration process for most SBSEFs, 

would also potentially result in a much 

higher volume of unstructured data, 

making the Form SBSEF disclosures 

more difficult for market participants 

and the Commission to analyze in an 

efficient manner. Thus, notwithstanding 

some commenters’ support for an 

expedited registration process, the final 

rules do not permit SBSEFs to provide 

copies of Form SEF exhibits in lieu of 

Form SBSEF exhibits. The Commission 

is therefore adopting 17 CFR 249.2001 

as proposed, but is renumbering it as 17 

CFR 249.1701 under new subpart R 

(‘‘Forms for Registration of, and Filings 

by, Security-Based Swap Execution 

Facilities’’) and is making a minor 

technical correction.84

IV. Rule and Product Filings by SBSEFs 

Unlike section 19(b) of the SEA,85

which sets out a process whereby 

national securities exchanges and other 

SROs submit filings to the Commission 

to add, delete, or amend rules 

(including rules to list products), 

section 3D of the SEA 86 does not set out 

an equivalent process for SBSEFs, 

which are not SROs. It can be expected, 

however, that an SBSEF will seek to 

change its rules over time in order, for 

example, to implement new trading 

methodologies and to expand its 

product offerings to make its market 

more attractive to participants, and 

adopting rules for filings related to these 

changes will promote public 

transparency regarding the changes, as 

well as consistent handling of those 

filings by the Commission. 

An appropriate review process is 

necessary to assess whether changes to 

an SBSEF’s rules and product offerings 

are consistent with section 3D of the 

SEA and the Commission’s rules 

thereunder, and the CFTC’s filing 

procedures are an appropriate model on 

which to base the Commission’s own 

filing procedures. Furthermore, because 

of the likelihood that most if not all 

SBSEFs will be dually registered with 

the CFTC as SEFs, and that many rule 

changes for a dual registrant will affect 

both its SBS and swap trading 

businesses, close harmonization with 

the CFTC’s filing procedures would 

allow a dual registrant to make a similar 

filing to each agency, allowing each 

agency to carry out its oversight 

functions while minimizing the burdens 

on dual registrants. 

Parts 37 and 40 of the CFTC’s rules set 

out processes whereby SEFs may 

establish or amend rules and list 

products. These processes allow a SEF 

to voluntarily submit a rule, rule 

amendment, or new product for CFTC 

review and approval, or to ‘‘self-certify’’ 

that a rule, rule amendment, or new 

product meets applicable standards 

under the CEA and the CFTC’s rules 

thereunder without obtaining CFTC 

approval, although the CFTC retains the 

ability, in certain circumstances, to stay 

the self-certification for further review 

before it may become effective. Using its 

general authority to impose any 

requirement on SBSEFs and to prescribe 

rules governing the regulation of 

SBSEFs,87 the Commission proposed to 


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88The CFTC has proposed to amend the rules that 

govern how CFTC-registered entities submit selfcertifications and requests for approval of their 

rules, rule amendments, and new products for 

trading and clearing, as well as the CFTC’s review 

and processing of such submissions. See CFTC, 

Provisions Common to Registered Entities (Notice 

of Proposed Rulemaking), 88 FR 61432 (Sept. 9, 

2023). The CFTC’s proposing release states that the 

proposed amendments ‘‘are intended to clarify, 

simplify and enhance the utility of those 

regulations for market participants and the [CFTC].’’ 

Id. at 61432. The CFTC has not yet taken action on 

this proposal. 

89By contrast, the parallel provision in § 40.2(a) 

provides that a DCM or SEF must file the selfcertification only one business day before listing the 

product. See § 40.2(a)(2) (one of the conditions for 

a valid self-certification of a product is that the 

CFTC has received the submission by the open of 

business on the business day preceding the 

product’s listing). 

90The Commission proposed, in new § 249.2002, 

a submission cover sheet (with instructions) that is 

closely modeled on the CFTC’s submission cover 

sheet. 

91Under Rule 804(a)(3)(vi), information that the 

SBSEF seeks to keep confidential can be redacted 

from the documents published on the SBSEF’s 

website but would have to be republished 

consistent with any determination made pursuant 

to SEA Rule 24b–2. 

92Section 40.2(a)(3) instructs filers to make any 

request for confidential treatment pursuant to § 40.8 

of the CFTC’s rules, which in turn cross-references 

17 CFR 145.9. The Commission proposed instead to 

direct filers to make any request for confidential 

treatment pursuant to existing SEA Rule 24b–2. See 

supra note 51. 

93Rule 807(c) is based on § 40.2(c), which 

provides that the CFTC may stay the listing of a 

contract pursuant to paragraph (a) of this section 

during the pendency of CFTC proceedings for filing 

a false certification or during the pendency of a 

petition to alter or amend the contract terms and 

conditions pursuant to section 8a(7) of the CEA. 

The SEA does not include the CEA’s provisions 

regarding altering or amending the terms and 

conditions of an SBS listed by an SBSEF like the 

authority granted to the CFTC with respect to 

products listed by SEFs, such that the Commission 

would be able to stay the listing of an SBS that it 

believes may be inconsistent with the SEA, pending 

proceedings to exercise that authority. Nor are 

proceedings for false certification of an SBS 

contemplated by the SEA. For this reason, in lieu 

of harmonizing with § 40.2(c), the Commission 

proposed, in Rule 804(c), a provision that would 

allow the Commission to stay the certification of a 

new product in the same manner that Rule 807(c) 

would allow the Commission to stay the selfcertification of a new rule or rule amendment. 

94See Better Markets Letter, supra note 18, at 13. 95See Better Markets Letter, supra note 18, at 13– 

14; see also Letter from Bryce Keeney (Apr. 27, 

2022) (‘‘Keeney Letter’’) (stating that ‘‘[d]erivatives 

are not the purpose of the market’’ and that the 

Commission should ‘‘align rules to focus on the 

primary purpose, not to support tertiary aspects that 

result in systemic risk and systemic abuse’’); Letter 

from Kevin (Apr. 20, 2023) (‘‘Kevin Letter’’) (stating 

that the proposed rules do not protect retail 

investors and that ‘‘[c]reating a self governing 

regime, allowing easier swaps trading across 

borders, exemption exchanges and registered 

brokers . . . sound like a terrible recipe for disaster 

in a multi-trillion marketplace’’). 

establish similar filing processes for 

registered SBSEFs in Rules 804 to 810 

of Regulation SE.88

A. Rule 804—Listing Products for 

Trading by Certification 

1. Summary of the Proposed Rule 

Proposed Rule 804 is modeled on 17 

CFR 40.2 of the CFTC’s rules and would 

set forth procedures by which an SBSEF 

may list a product via certification. 

Paragraph (a)(1) of Proposed Rule 804 

would require an SBSEF to file its 

submission electronically with the 

Commission using the EDGAR system as 

an Interactive Data File in accordance 

with Rule 405 of Regulation S–T. 

Paragraph (a)(2) of Proposed Rule 804 

would provide that the Commission 

must receive the submission by the 

open of business on the business day 

that is 10 business days preceding the 

product’s listing.89

Paragraph (a)(3) of Proposed Rule 804 

would require a self-certification to 

include a copy of the submission cover 

sheet; 90 a copy of the product’s rules, 

including all rules related to its terms 

and conditions; the intended listing 

date; a certification by the SBSEF that 

the product to be listed complies with 

the SEA and the Commission’s rules 

thereunder; a concise explanation and 

analysis of the product and its 

compliance with applicable provisions 

of the SEA, including the Core 

Principles, and the Commission’s rules 

thereunder; a certification that the 

SBSEF posted a notice of pending 

product certification with the 

Commission and a copy of the 

submission, concurrent with the filing 

of a submission with the Commission, 

on the SBSEF’s website; 91 and a request 

for confidential treatment, if 

appropriate, as permitted pursuant to 

SEA Rule 24b–2.92

Paragraph (b) of Proposed Rule 804, 

modeled on § 40.2(b), would provide 

that, if requested by Commission staff, 

an SBSEF shall provide any additional 

evidence, information, or data that 

demonstrates that the SBS meets, 

initially or on a continuing basis, the 

requirements of the SEA or the 

Commission’s rules or policies 

thereunder. 

Paragraph (c)(1) of Proposed Rule 804 

would provide that the Commission 

may stay the certification of a new 

product by issuing a notification 

informing the SBSEF that the 

Commission is staying the certification 

on the grounds that the product presents 

novel or complex issues that require 

additional time to analyze, is 

accompanied by an inadequate 

explanation, or is potentially 

inconsistent with the SEA or the 

Commission’s rules thereunder.93 Under 

paragraph (c)(1), the Commission would 

have an additional 90 days from the 

date of the notification to conduct the 

review. 

Paragraph (c)(2) would require the 

Commission to provide a 30-day 

comment period during that 90-day 

period, and to publish a notice of the 

30-day comment period on the 

Commission’s website. Comments from 

the public could be submitted as 

specified in that notice. 

Paragraph (c)(3) would provide that 

the product that had been stayed would 

become effective, pursuant to the 

certification, at the expiration of the 90- 

day review period, unless the 

Commission withdraws the stay prior to 

that time, or the Commission notifies 

the SBSEF during the 90-day time 

period that it objects to the proposed 

certification on the grounds that the 

proposed product is inconsistent with 

the SEA or the Commission’s rules. 

2. Comments and Analysis 

One commenter states that, while the 

proposed self-certification process does 

include improvements to the CFTC’s 

self-certification process, including 

extending the initial review period from 

one business day to 10 business days 

and expanding the scope of reasons for 

staying the self-certification, it is still 

fundamentally flawed. This commenter 

states that the CFTC’s self-certification 

process is mandated by statute and that, 

in the absence of any statutory mandate 

analogous to that applicable to the 

CFTC, the Commission must, at the very 

least, provide a coherent policy 

justification for its proposed selfcertification process.94

This commenter states that it is not 

clear why it is necessary or desirable for 

SBSEFs to be able to bring new products 

to the market ‘‘speedily’’ and that selfcertification turns the regulatory process 

on its head, creating in effect a 

presumption of regulatory compliance 

and putting the onus on the agency, 

under a predetermined timeline, to fully 

evaluate a proposed product that may 

threaten significant harm to investors 

and market stability.95 This is especially 

the case, the commenter states, 

considering the context in which the 

SEC was given comprehensive authority 

to regulate and oversee the SBS market, 

i.e., a financial crisis caused in large 

part by SBS and other novel financial 

products whose risks regulators and 

market participants thought were well 

understood, but in fact were not. Given 

this context, the commenter states, it 

‘‘makes little policy sense to establish a 

regime whereby an SBSEF could 

introduce a new potentially dangerous 

product to the financial system without 

an affirmative, independent SEC 


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96Better Markets Letter, supra note 18, at 13–14. 

97See supra note 96 and accompanying text. 

98Section IV.D, infra, discusses the process for 

self-certification of rule changes, including the 

Commission’s ability to stay the effectiveness of 

such a filing, which would lead to a public 

comment period and the opportunity for the 

Commission to object to the certification. 

99See Registration Process for Security-Based 

Swap Dealers and Major Security-Based Swap 

Participants, SEA Release No. 75611 (Aug. 5, 2015), 

80 FR 48963 (Aug. 14, 2015) (‘‘SBSD and MSBSP 

Registration Release’’). 

100See Capital, Margin, and Segregation 

Requirements for Security-Based Swap Dealers and 

Major Security-Based Swap Participants and Capital 

and Segregation Requirements for Broker-Dealers, 

SEA Release No. 86175 (June 21, 2019), 84 FR 

43872 (Aug. 22, 2019) (‘‘Capital, Margin, and 

Segregation Release’’). 

101See Business Conduct Standards for SecurityBased Swap Dealers and Major Security-Based 

Swap Participants, SEA Release No. 77617 (Apr. 14, 

2016), 81 FR 29959 (May 13, 2016) (‘‘Business 

Conduct Standards Release’’). 

102See Regulation SBSR—Reporting and 

Dissemination of Security-Based Swap Information, 

SEA Release No, 78321 (July 14, 2016), 81 FR 53546 

(Aug. 12, 2016) (‘‘Regulation SBSR Release’’). 

103The Commission’s rules for SBSEFs do not 

directly affect retail investors. Only eligible contract 

participants (‘‘ECPs’’) are eligible to trade on an 

SBSEF, see section 6(l) of the SEA, 15 U.S.C. 78f(l), 

and retail investors would have access to an SBS 

only after an SBS exchange has filed a proposed 

rule change with the Commission under Rule 19b– 

4, 17 CFR 240.19b–4, to amend its rules to permit 

the listing of a registered SBS, with that proposed 

rule change being published for public comment. 

104See WMBAA Letter, supra note 18, at 4; ICE 

Letter, supra note 18, at 2. 

105See WMBAA Letter, supra note 18, at 4; ICE 

Letter, supra note 18, at 2. 

106See WMBAA Letter, supra note 18, at 4. 

107See id. 

108See id. 

109See ICE Letter, supra note 18, at 3. 

110See id. 

111See infra sections XV.D and XV.E (delegating 

authority to the Director of the Division of Trading 

and Markets to stay the effectiveness of a selfdetermination that such product not 

only complies with the SBSEF Core 

Principles and other requirements, but 

also that it does not pose an 

unwarranted danger to investors, the 

financial system, and the broader 

economy.’’ 96

For several reasons the Commission 

does not agree with the objections raised 

by this commenter. First, the 

Commission does not agree that the selfcertification process of Rule 804 either 

‘‘turns the regulatory process on its 

head’’ or would deny the Commission 

the opportunity to ‘‘fully evaluate a 

proposed product that may threaten 

significant harm to investors and market 

stability.’’ 97 The ability of the 

Commission to stay the effectiveness of 

any product self-certification, to seek 

public comment on that selfcertification, and to object to (i.e., 

effectively disapprove) the proposed 

certification on the grounds that the 

product is inconsistent with the SEA or 

the Commission’s rules will provide the 

Commission with sufficient opportunity 

(including the opportunity to seek 

public comment) to consider the selfcertified rules and take steps to protect 

investors and maintain fair, orderly, and 

efficient markets. Further, the selfcertification process does not create a 

‘‘presumption of compliance,’’ because: 

(a) Rule 804(b) requires an SBSEF to 

provide, at Commission request, any 

‘‘additional evidence, information, or 

data that demonstrates that the SBS 

meets, initially or on a continuing basis, 

the requirements of the SEA or the 

Commission’s rules or policies 

thereunder’’; (b) Rule 804(c)(1) permits 

the Commission to suspend a new 

product certification because ‘‘the 

product presents novel or complex 

issues that require additional time to 

analyze, is accompanied by an 

inadequate explanation, or is potentially 

inconsistent with the SEA or the 

Commission’s rules thereunder’’ 

(emphasis added); and (c) Rule 804(c)(3) 

does not create a presumption of 

compliance but instead provides the 

Commission a mechanism by which to 

object to a proposed certification ‘‘on 

the grounds that the proposed product 

is inconsistent with the SEA or the 

Commission’s rules.’’ 98

Second, given the relationship 

between the swaps market and the SBS 

market, as well as the likelihood that 

most or all entities seeking to register as 

SBSEFs will be CFTC-registered SEFs, 

harmonization with the CFTC filing 

procedures for new products should 

facilitate the ability of entities to dually 

register and minimize costs by allowing 

incumbent SEFs to use their existing 

systems, policies, and procedures to 

comply with the Commission’s SBSEF 

rules. The aim of the rule is, however, 

not merely to allow SBSEFs to bring 

products to market ‘‘speedily,’’ or at 

minimal cost, and, as discussed below 

in this section, it is appropriate for its 

rules to provide for a longer review 

period than the CFTC’s rules. 

And third, the Commission disagrees 

with this commenter’s view that the 

self-certification process ‘‘would pose 

an unwarranted danger to investors, the 

financial system, and the broader 

economy.’’ The new-product provisions 

of Regulation SE must be read in the 

context of the other relevant provisions 

of Title VII of the Dodd-Frank Act and 

the Commission’s rules thereunder, 

which include, among other things, 

rules governing the registration and 

regulation of Security-Based Swap 

Dealers (‘‘SBSDs’’) and Major SecurityBased Swap Participants (‘‘MSBSPs’’); 99

capital, margin, and segregation 

requirements for SBSDs and 

MSBSPs; 100 business conduct standards 

and chief compliance officer 

requirements for SBSDs and 

MSBSPs; 101 and post-trade reporting 

and public dissemination of SBS 

transactions.102 Because of the 

significant role these other rules play in 

addressing potential risks posed by SBS, 

the Commission’s ability to require 

SBSEFs to provide any evidence, 

information, or data demonstrating that 

the SBS meets, initially or on a 

continuing basis, the requirements of 

the SEA or the Commission’s rules or 

policies thereunder, and the 

Commission’s ability to suspend and 

ultimately object to SBSEF selfcertifications, are appropriate to protect 

investors, the financial system, and the 

broader economy with respect to new 

SBSEF products and rules.103 Thus, the 

self-certification process in this context 

is appropriate for the underlying aims of 

the Dodd-Frank Act. 

Two commenters state that the 

relatively low volume of SBS products 

expected to be self-certified supports a 

shorter review period than the proposed 

ten-business-day Commission review 

period.104 Both commenters recommend 

a shorter review period of one day to 

harmonize with the CFTC’s 

approach.105 Alternatively, one of the 

commenters suggests a two-day review 

period.106 This commenter suggests that 

a shorter review period would be 

beneficial to allow market operators to 

meet participants’ demands to transact 

on regulated platforms in a reasonable 

period of time.107 The commenter also 

states that a shorter review period 

would accommodate participants’ needs 

to hedge risk in a timely manner.108 The 

other commenter states that a longer 

review period would reduce the 

competitive benefit to SBSEFs that 

develop new products because a 10-day 

review period would enable competitors 

to list similar products.109 This 

commenter also suggests varying from 

the one-day review period in certain 

limited circumstances, such as when an 

SBSEF submits an SBS for a madeavailable-to-trade determination.110

While a ten-day review period differs 

from the CFTC’s one-day review period, 

one business day would not provide the 

SEC staff sufficient time to review a new 

product filing for error or 

incompleteness, let alone review a new 

product for compliance with the SEA or 

Regulation SE. Further, if a product 

does warrant a stay, the Commission 

would also need sufficient time to go 

through the administrative steps of 

formally issuing the stay.111 The 


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certification and to extend the period for 

consideration of a new product). 

112See § 40.6(a)(3) (one of the conditions for a 

valid self-certification of a rule or rule amendment 

is that the CFTC has received the submission not 

later than the open of business on the business day 

that is 10 business days prior to the registered 

entity’s implementation of the rule or rule 

amendment). 

113See infra section IV.D. 

114Cf. ICI Letter, supra note 18, at 9 n.29 

(discussing ‘‘first mover’’ advantage in the context 

of an SBSEF that has made an SBS available to 

trade). 

115See WMBAA Letter, supra note 18, at 4. 

116By contrast, paragraph (d) of § 40.2 provides 

that a DCM or SEF may submit a class certification 

of swaps based on an ‘‘excluded commodity,’’ 

subject to certain conditions. See section 1a(19) of 

the CEA, 7 U.S.C. 1a(19) (defining ‘‘excluded 

commodity’’). 

117Rule 804(a)(3)(v). 

118For example, a submission might cover a 

single-name total return SBS on any of the 

components of a given index, provided that the 

submission explains why the minimum criteria for 

inclusion in that index are sufficient to ensure that 

the proposed SBS are consistent with the 

requirements of the SEA and the rules thereunder, 

including Regulation SE. 

119See supra note 32. As described in further 

detail in the discussion of electronic filing systems 

and structured data, the Commission will require 

all rule and product filings required by Rules 804 

through 807 and 816 to be filed in unstructured 

format through EFFS, rather than in Inline XBRL 

through EDGAR. See infra section XIII.A. 

120Paragraph (a) of Rule 805 omits two provisions 

in § 40.3(a). First, § 40.3(a)(6) requires the 

submitting entity to include the certifications 

required in 17 CFR 41.22 for product approval of 

a commodity that is a security future or a security 

futures product, as defined in sections 1a(44) or 

1a(45) of the CEA, respectively. The Commission 

did not propose to adapt this provision into 

proposed Regulation SE because it pertains to 

security futures and security futures products, not 

to swaps or SBS. Second, § 40.3(a)(8) requires the 

submitting entity to include a filing fee. The 

Commission is not proposing to charge SBSEFs 

filing fees for submitting new product proposals. 

121This explanation and analysis would have to 

either be accompanied by the documentation relied 

upon to establish the basis for compliance with the 

applicable law, or incorporate information 

contained in such documentation, with appropriate 

citations to data sources. 

proposed ten-business-day review 

period for self-certified products also 

accords with the CFTC’s ten-businessday review period for self-certified 

rules,112 which the Commission is 

replicating in Rule 807(a)(3).113

Further, while a shorter review period 

may allow SBS to trade on an SBSEF 

more quickly, failing to provide the 

Commission with a meaningful period 

for review of a new product would 

hamper the Commission’s ability to 

protect market participants and 

maintain fair, orderly, and efficient SBS 

markets. A ten-day review period would 

still permit market participants to trade 

SBS on regulated platforms within a 

‘‘reasonable period’’ and would provide 

the Commission the time it needs to 

review submissions. The Commission 

also disagrees with the comment that a 

shorter review period is necessary to 

accommodate market participants’ need 

to hedge risk in a timely manner. During 

the relatively brief and time-limited 

period for Commission review of an 

SBSEF new-product filings, market 

participants would remain able to hedge 

that risk in other ways, such as in the 

OTC SBS market or other related 

securities markets, depending on the 

risk to be managed. Finally, while the 

10-day review period might reduce the 

first-to-market competitive advantage of 

an SBSEF that first lists a given SBS,114

the extent of such an advantage may 

vary considerably based on other factors 

in the SBSEF market, and that, in any 

event, the need for the Commission to 

have sufficient time to review a new 

product before it is listed justifies the 

potential competitive effect. 

Thus, a ten-business-day review 

period strikes an appropriate balance 

between allowing SBSEFs to list new 

products quickly and affording 

Commission staff a sufficient time 

period in which to assess those products 

prior to listing. 

One commenter asks the Commission 

to confirm that it does not expect 

SBSEFs to self-certify for every security 

for which there may exist a related 

SBS.115 This commenter states that, for 

example, while an SBSEF may publish 

‘‘terms and conditions’’ relevant for an 

instrument (like a single-name total 

return SBS) under Rule 804, the 

Commission might receive thousands of 

underlying national market system 

equity stocks from each SBSEF, 

exponentially increasing the number of 

products the Commission would need to 

review. The commenter also states that, 

given the potential 10-day review period 

(compared to the CFTC’s shorter 

timeframe), SBSEFs will be forced to 

proactively self-certify every potential 

SBS in an attempt to meet all potential 

participant demand without a two-week 

delay, only increasing the volume of 

self-certifications the Commission may 

receive. This commenter states that 

listing the instrument, and not each 

equity that may be linked to the 

instrument, is an appropriate approach 

to balance the SBSEFs and the 

Commission’s resources with respect to 

product self-certification. 

The Commission is conscious of the 

large number of individual SBS that 

may constitute a ‘‘class’’ of SBS, such as 

single-name, total return SBS given as 

an example by the commenter. While an 

SBSEF should not necessarily be 

required to make an individual filing for 

each of the securities underlying a 

single such class of SBS, a filing for a 

simple class certification that merely 

described the parameters of the SBS 

covered by the certification would not 

necessarily provide sufficient 

information for the Commission to 

determine whether all the potential 

products covered by the class are 

consistent with the SEA and the rules 

thereunder, including Regulation SE. 

Therefore, while the Commission is not 

providing for ‘‘class certifications’’ of 

SBS, the Commission will not 

necessarily require separate submissions 

for each underlying security.116 The 

Commission will consider submissions 

for an SBS that might overlie one or 

more of a list of securities, provided that 

those potential underlying securities are 

specifically identified and that the 

submission addresses, as part of the 

requirement in Rule 804 to submit ‘‘a 

concise explanation and analysis of the 

product and its compliance with 

applicable provisions of the Act, 

including core principles, and the 

Commission’s rules thereunder,’’ 117

why all included underlying securities 

meet the applicable provisions of the 

SEA and the Commission’s rules 

thereunder.118

Accordingly, for the reasons 

discussed above, the Commission is 

adopting Rule 804 as proposed, with the 

exception of the proposed Inline XBRL 

and EDGAR filing requirements, and 

with minor technical modifications.119

B. Rule 805—Voluntary Submission of 

New Products for Commission Review 

and Approval 

Proposed Rule 805 is closely modeled 

on § 40.3 of the CFTC’s rules and would 

set forth procedures by which an SBSEF 

may voluntarily submit new SBS 

products for Commission review and 

approval. 

Paragraph (a) of Proposed Rule 805 

would adapt these requirements for 

SBSEFs.120 First, an SBSEF would be 

required to file its submission 

electronically with the Commission 

using the EDGAR system as an 

Interactive Data File in accordance with 

Rule 405 of Regulation S–T. The filing 

would also have to include a copy of the 

submission cover sheet, a copy of the 

rules that set forth the terms and 

conditions of the SBS to be listed, and 

an explanation and analysis of the 

product and its compliance with 

applicable provisions of the SEA, 

including the Core Principles and the 

Commission’s rules thereunder.121 The 

submission would also have to describe 

any agreements or contracts entered into 


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122Section 40.3(a), like § 40.2(a)(3), instructs 

filers to make any request for confidential treatment 

pursuant to § 40.8 of the CFTC’s rules, which in 

turn cross-references § 145.9. As noted previously, 

the Commission proposes instead to direct filers to 

make any request for confidential treatment 

pursuant to SEA Rule 24b–2. See supra note 51. 

123 Information that the SBSEF seeks to keep 

confidential could be redacted from the documents 

published on the SBSEF’s website but would have 

to be republished consistent with any 

determination made pursuant to SEA Rule 24b–2. 

124As stated in the Proposing Release, the 

Commission does not discount the possibility that 

an entity might elect to register as an SBSEF with 

the SEC but not as a SEF with the CFTC. In such 

case, the SEC-only registrant would not have any 

familiarity with the CFTC’s rules and filing 

procedures. Nevertheless, because most if not all 

entities that will seek SBSEF registration with the 

SEC are or will also be registered as SEFs with the 

CFTC, such dual registrants would benefit from 

harmonized rules. Furthermore, because the 

Commission is adopting these procedures 

substantially as proposed, is unnecessary to 

establish and apply one set of procedures for dual 

registrants and a different set for SEC-only SBSEFs. 

See Proposing Release, supra note 1, 87 FR at 28956 

(stating that if the Commission ‘‘establishe[d] 

different or additive requirements, dually registered 

entities and their market participants might need to 

incur costs and burdens to modify their systems, 

policies, and procedures to comply with the SECspecific rules’’). See also Bloomberg Letter, supra 

note 18, at 10 (‘‘[A] harmonized framework has the 

potential to lower compliance costs by allowing 

SBSEFs and market participants to integrate with 

existing operational and compliance frameworks. 

Any potential differences would require SBSEF 

registrants to devote resources toward assessing the 

potential gaps and consequences of regulatory 

divergence.’’). 

125See supra note 32. As described in further 

detail in the discussion of electronic filing systems 

and structured data, the Commission will require 

all rule and product filings required by Rules 804 

through 807 and 816 to be filed in unstructured 

format through EFFS, rather than in Inline XBRL 

through EDGAR. See infra section XIII.A. 

with other parties that enable the SBSEF 

to carry out its responsibilities. 

Furthermore, paragraph (a) of 

Proposed Rule 805, modeled on 

§ 40.3(a), would require the SBSEF to 

include, if requested by Commission 

staff, additional evidence, information, 

or data demonstrating that the SBS 

meets, initially or on a continuing basis, 

the requirements of the SEA, or other 

requirement for registration under the 

SEA, or the Commission’s rules or 

policies thereunder. The SBSEF would 

be required to submit the requested 

information by the open of business on 

the date that is two business days from 

the date of request by Commission staff, 

or at the conclusion of such extended 

period agreed to by Commission staff 

after timely receipt of a written request 

from the SBSEF. Paragraph (a) of 

Proposed Rule 805, like § 40.3(a), would 

permit the submitting SBSEF to include 

a request for confidential treatment.122

Finally, paragraph (a) of Proposed Rule 

805, like § 40.3(a), would require the 

SBSEF to certify that it posted a notice 

of its request for Commission approval 

of the new product and a copy of the 

submission, concurrent with the filing 

of a submission with the Commission, 

on the SBSEF’s website.123

Paragraph (b) of Proposed Rule 805, 

like § 40.3(b), would provide that the 

Commission shall approve a new 

product unless the terms and conditions 

of the product violate the SEA or the 

Commission’s rules thereunder. 

Paragraph (c) of Proposed Rule 805, 

modeled on § 40.3(c), would provide 

that a product submitted for 

Commission approval under Rule 805 

shall be deemed approved by the 

Commission 45 days after receipt by the 

Commission, or at the conclusion of an 

extended period as provided under Rule 

805(d), unless notified otherwise within 

the applicable period, if the submission 

complies with the requirements of Rule 

805(a) and the SBSEF does not amend 

the terms or conditions of the product 

or supplement the request for approval, 

except as requested by the Commission 

or for correction of typographical errors, 

renumbering, or other non-substantive 

revisions, during that period. Paragraph 

(c) would also provide that any 

voluntary, substantive amendment by 

the SBSEF would be treated as a new 

submission under Rule 805. 

Paragraph (d) of Proposed Rule 805, 

modeled on § 40.3(d), would provide 

that the Commission may extend the 45- 

day review period in paragraph (c) for 

an additional 45 days, if the product 

raises novel or complex issues that 

require additional time to analyze, in 

which case the Commission shall notify 

the SBSEF within the initial 45-day 

review period and briefly describe the 

nature of the specific issue(s) for which 

additional time for review is required. 

Paragraph (d) would also provide that 

the Commission may extend the 45-day 

review period for any length of time to 

which the SBSEF agrees in writing. 

Paragraph (e) of Proposed Rule 805 

would provide that the Commission 

may, at any time during its review, 

notify the SBSEF that it will not, or is 

unable to, approve the product. This 

notification would have to briefly 

specify the nature of the issues raised 

and the specific provision of the SEA or 

the Commission’s rules thereunder, 

including the form or content 

requirements of Rule 805(a), that the 

product violates, appears to violate, or 

potentially violates but which cannot be 

ascertained from the submission. 

Paragraph (f) of Proposed Rule 805, 

like § 40.3(f), would provide that a 

notification of the Commission’s 

determination not to approve a product 

does not prejudice the SBSEF from 

subsequently submitting a revised 

version of the product for Commission 

approval, or from submitting the 

product as initially proposed pursuant 

to a supplemented submission. 

Furthermore, the notification would be 

presumptive evidence that the entity 

may not truthfully certify under Rule 

804 that the same, or substantially the 

same, product does not violate the SEA 

or the Commission’s rules thereunder. 

The Commission did not receive any 

comments on this proposed rule. It is 

reasonable and appropriate to 

supplement the product certification 

procedures in Rule 804 by also 

including in Regulation SE, as Rule 805, 

procedures for voluntary submission of 

new products for Commission review 

and approval. Providing this approval 

process, as the CFTC does, can be 

valuable to an SBSEF seeking the 

Commission’s concurrence that a new 

product does not violate the SEA or the 

Commission’s rules thereunder prior to 

listing it. The CFTC’s procedures in this 

regard are well articulated and well 

understood by SEFs, and that closely 

harmonizing with these procedures 

would yield comparable regulatory 

benefits while minimizing burdens on 

SBSEFs.124 Therefore, the Commission 

is adopting Rule 805 as proposed, with 

the exception of the proposed Inline 

XBRL and EDGAR filing requirements, 

and with minor technical 

modifications.125

C. Rule 806—Voluntary Submission of 

Rules for Commission Review and 

Approval 

Proposed Rule 806 is closely modeled 

on § 40.5 of the CFTC’s rules and would 

set forth procedures by which an SBSEF 

may voluntarily submit rules, rule 

amendments, or dormant rules for 

Commission review and approval. 

Paragraph (a) of Proposed Rule 806 

would provide that an SBSEF may 

request that the Commission approve a 

new rule, rule amendment, or dormant 

rule prior to implementation of the rule. 

First, an SBSEF must file its submission 

electronically with the Commission 

using the EDGAR system as an 

Interactive Data File in accordance with 

Rule 405 of Regulation S–T. The filing 

would be required to include a copy of 

the submission cover sheet and to set 

forth the text of the rule or rule 

amendment (in the case of a rule 

amendment, deletions and additions 

must be indicated). Further, the SBSEF 

would be required to describe the 

proposed effective date of the rule or 

rule amendment and any action taken or 

anticipated to be taken to adopt the 

proposed rule by the SBSEF or by its 

governing board or by any committee 


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126 Information that the SBSEF seeks to keep 

confidential could be redacted from the documents 

published on the SBSEF’s website but would have 

to be republished consistent with any 

determination made pursuant to SEA Rule 24b–2. 

127See supra note 32. As described in further 

detail in the discussion of electronic filing systems 

and structured data, the Commission will require 

all rule and product filings required by Rules 804 

through 807 and 816 to be filed in unstructured 

format through EFFS, rather than in Inline XBRL 

through EDGAR. See infra section XIII.A. 

128Also, like § 40.6(a), Proposed Rule 807(a) 

would include an exception that would allow an 

SBSEF to implement a certain kind of rule without 

having to comply with the full set of conditions set 

forth in paragraphs (a)(1) through (8) of Rule 807, 

the details of which are discussed below. 

Specifically, the exception would provide that, 

when submitting a rule delisting or withdrawing 

the certification of a product with no open interest, 

an SBSEF would only be required to meet the 

conditions of paragraphs (a)(1), (a)(2), and (a)(6) of 

Rule 807. The introductory language in paragraph 

(a) of Proposed Rule 807 would generally track the 

language of § 40.6(a), with slight changes for clarity. 

However, Proposed Rule 807(a) would not include 

Continued 

thereof, and to cite the rules of the 

SBSEF that authorize the adoption of 

the proposed rule. The SBSEF would be 

required to provide an explanation and 

analysis of the operation, purpose, and 

effect of the proposed rule or rule 

amendment and its compliance with 

applicable provisions of the SEA, 

including the Core Principles relating to 

SBSEFs and the Commission’s rules 

thereunder, and, as applicable, a 

description of the anticipated benefits to 

market participants or others, any 

potential anticompetitive effects on 

market participants or others, and how 

the rule fits into the SBSEF’s framework 

of regulation. 

Additionally, if a proposed rule 

affects, directly or indirectly, the 

application of any other rule of the 

SBSEF, the pertinent text of any such 

rule would be required to be set forth 

and the anticipated effect described. 

The SBSEF would also be required to 

provide a brief explanation of any 

substantive opposing views expressed to 

the SBSEF by governing board or 

committee members, members of the 

SBSEF, or market participants that were 

not incorporated into the rule, or a 

statement that no such opposing views 

were expressed. 

The SBSEF could, as appropriate, 

include a request for confidential 

treatment as permitted under SEA Rule 

24b–2. Finally, the SBSEF would be 

required to certify that it posted a notice 

of the pending rule with the 

Commission and a copy of the 

submission, concurrent with the filing 

of a submission with the Commission, 

on the SBSEF’s website.126

Paragraph (b) of Proposed Rule 806, 

modeled on § 40.5(b), would provide 

that the Commission shall approve a 

new rule or rule amendment unless the 

rule or rule amendment is inconsistent 

with the SEA or the Commission’s rules 

thereunder. Paragraph (c) of Proposed 

Rule 806, like § 40.5(c), would provide 

that a rule or rule amendment submitted 

for Commission approval under Rule 

806 shall be deemed approved by the 

Commission 45 days after receipt by the 

Commission, or at the conclusion of 

such extended period as provided under 

paragraph (d) of this section, unless the 

SBSEF is notified otherwise within the 

applicable period, if the submission 

complies with the requirements of Rule 

806(a) and the SBSEF does not amend 

the proposed rule or supplement the 

submission, except as requested by the 

Commission, during the pendency of 

the review period, other than for 

correction of typographical errors, 

renumbering, or other non-substantive 

revisions. Paragraph (c) would also 

provide that any amendment or 

supplementation not requested by the 

Commission would be treated as the 

submission of a new filing under Rule 

806. 

Paragraph (d) of Proposed Rule 806, 

modeled on § 40.5(d), would provide 

that the Commission may further extend 

the review period in paragraph (c) for an 

additional 45 days, if the proposed rule 

or rule amendment raises novel or 

complex issues that require additional 

time for review or is of major economic 

significance, the submission is 

incomplete, or the requestor does not 

respond completely to Commission 

questions in a timely manner, in which 

case the Commission shall notify the 

submitting SBSEF within the initial 45- 

day review period and shall briefly 

describe the nature of the specific issues 

for which additional time for review 

shall be required. Paragraph (d) would 

also allow an extension to which the 

SBSEF agrees in writing. 

Paragraph (e) of Proposed Rule 806, 

like § 40.5(e), would provide that, at any 

time during its review, the Commission 

may notify the SBSEF that it will not, 

or is unable to, approve the new rule or 

rule amendment. This notification 

would have to briefly specify the nature 

of the issues raised and the specific 

provision of the SEA or the 

Commission’s rules thereunder, 

including the form or content 

requirements of Proposed Rule 806, 

with which the new rule or rule 

amendment is inconsistent or appears to 

be inconsistent with the SEA or the 

Commission’s rules thereunder. 

Paragraph (f) of Proposed Rule 806, 

like § 40.5(f), would provide that such a 

notification to an SBSEF would not 

prevent the SBSEF from subsequently 

submitting a revised version of the 

proposed rule or rule amendment for 

Commission review and approval or 

from submitting the new rule or rule 

amendment as initially proposed in a 

supplemented submission. Paragraph (f) 

would further provide that the revised 

submission would be reviewed without 

prejudice. Finally, paragraph (f) would 

provide that such a notification to an 

SBSEF of the Commission’s 

determination not to approve a 

proposed rule or rule amendment shall 

be presumptive evidence that the SBSEF 

may not truthfully certify the same, or 

substantially the same, proposed rule or 

rule amendment under Rule 807(a). 

Paragraph (g) of Proposed Rule 806, 

like § 40.5(g), would provide that, 

notwithstanding Rule 806(c), changes to 

a proposed rule or a rule amendment, 

including changes to terms and 

conditions of a product that are 

consistent with the SEA and the 

Commission’s rules thereunder, may be 

approved by the Commission at such 

time and under such conditions as the 

Commission shall specify in the written 

notification; provided, however, that the 

Commission may, at any time, alter or 

revoke the applicability of such a notice 

to any particular product or rule 

amendment. 

The Commission received no 

comments on Proposed Rule 806 and 

the Commission is adopting Rule 806 as 

proposed, with the exception of the 

proposed Inline XBRL and EDGAR 

filing requirements, and with minor 

technical modifications, for the reasons 

stated in the Proposing Release.127

D. Rule 807—Self-Certification of Rules 

Proposed Rule 807 is closely modeled 

on § 40.6 of the CFTC’s rules and would 

set forth procedures by which an SBSEF 

may self-certify changes to its rules. 

Paragraph (a) of Proposed Rule 807, 

modeled on § 40.6(a), would set forth 

the conditions that an SBSEF must 

comply with before implementing a rule 

or rule amendment via self-certification. 

Like § 40.6(a), Proposed Rule 807(a) 

would permit an SBSEF to implement a 

rule or rule amendment without 

obtaining the Commission’s prior 

approval under Rule 806, but only if it 

‘‘self-certifies’’ the rule or rule 

amendment in compliance with the 

conditions set forth in Rule 807. 

Proposed Rule 807(a) would also permit 

an SBSEF to self-certify a rule or rule 

amendment that the Commission had 

previously approved under Rule 806, or 

that the SBSEF had previously selfcertified under Rule 807, but that in the 

interim had become a dormant rule (i.e., 

unimplemented for 12 consecutive 

calendar months).128


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an equivalent of the reference in § 40.6(a) to 

submissions under § 40.10, which concerns only 

systemically important derivatives clearing 

organizations and thus is not relevant to SBSEFs. 

129 Information that the SBSEF seeks to keep 

confidential could be redacted from the documents 

published on the SBSEF’s website but must be 

republished consistent with any determination 

made pursuant to SEA Rule 24b–2. 

130See § 40.1(h) (defining ‘‘emergency’’ as ‘‘any 

occurrence or circumstance that, in the opinion of 

the governing board of a registered entity, or a 

person or persons duly authorized to issue such an 

opinion on behalf of the governing board of a 

registered entity under circumstances and pursuant 

to procedures that are specified by rule, requires 

immediate action and threatens or may threaten 

such things as the fair and orderly trading in, or the 

liquidation of or delivery pursuant to, any 

agreements, contracts, swaps or transactions or the 

timely collection and payment of funds in 

connection with clearing and settlement by a 

derivatives clearing organization’’). The definition 

goes on to list a series of circumstances that are 

deemed emergencies under the definition. The 

Commission is adopting a definition of 

‘‘emergency’’ in Rule 802 that is adapted from 

§ 40.1(h). 

131Section 40.6(a)(7)(vii) directs the submitting 

entity to follow the procedures in § 40.8 when 

making a request for confidential treatment, which 

in turn cross-references § 145.9. As noted 

previously, the Commission proposes instead to 

direct filers to make any request for confidential 

treatment pursuant to SEA Rule 24b–2. See supra 

note 51. 

Paragraph (a)(1) of Proposed Rule 807 

would require the SBSEF to file its 

submission electronically with the 

Commission using the EDGAR system as 

an Interactive Data File in accordance 

with Rule 405 of Regulation S–T. 

Paragraph (a)(2) would require the 

SBSEF to provide a certification that the 

SBSEF posted a notice of the selfcertification with the Commission and a 

copy of the submission, concurrent with 

the filing of a submission with the 

Commission, on the SBSEF’s website.129

Paragraph (a)(3) would provide that the 

Commission must have received the 

submission not later than the open of 

business on the business day that is 10 

business days before the SBSEF’s 

implementation of the rule or rule 

amendment. Paragraph (a)(4) would 

provide that the SBSEF may not 

implement the rule or rule amendment 

if the Commission has stayed it 

pursuant to Rule 807(c). 

Paragraph (a)(5) of Proposed Rule 807 

would set out procedures for emergency 

rule certifications. Paragraph (a)(5)(i) 

would require a new rule or rule 

amendment that establishes standards 

for responding to an emergency 130 to be 

submitted pursuant to Rule 807(a). 

Paragraph (a)(5)(ii) would provide that a 

rule or rule amendment implemented 

under procedures of the governing 

board to respond to an emergency shall, 

if practicable, be filed with the 

Commission prior to implementation or, 

if not practicable, be filed with the 

Commission at the earliest possible time 

after implementation, but in no event 

more than 24 hours after 

implementation. In addition, paragraph 

(a)(5)(ii) would provide that any such 

submission be subject to the 

certification and stay provisions of 

Rules 807(b) and (c), described below. 

Paragraph (a)(6) of Proposed Rule 807, 

modeled on § 40.6(a)(7), would set out 

the required elements for a rule 

submission under Rule 807. These 

requirements would include a copy of 

the submission cover sheet (in the case 

of a rule or rule amendment that 

responds to an emergency, ‘‘Emergency 

Rule Certification’’ should be noted in 

the description section of the 

submission cover sheet); the text of the 

rule (in the case of a rule amendment, 

deletions and additions must be 

indicated); the date of intended 

implementation; a certification by the 

SBSEF that the rule complies with the 

SEA and the Commission’s rules 

thereunder; a concise explanation and 

analysis of the operation, purpose, and 

effect of the proposed rule or rule 

amendment and its compliance with 

applicable provisions of the SEA, 

including the Core Principles relating to 

SBSEFs and the Commission’s rules 

thereunder; and a brief explanation of 

any substantive opposing views 

expressed to the SBSEF by governing 

board or committee members, members 

of the SBSEF, or market participants, 

that were not incorporated into the rule, 

or a statement that no such opposing 

views were expressed. Paragraph 

(a)(6)(vii) would also permit the SBSEF 

to include, as appropriate, a request for 

confidential treatment pursuant to the 

procedures provided in Rule 240.24b– 

2.131

Paragraph (a)(7) of Proposed Rule 807, 

like § 40.6(a)(8), would require an 

SBSEF to provide, if requested by 

Commission staff, additional evidence, 

information, or data that may be 

beneficial to the Commission in 

conducting a due diligence assessment 

of the filing and the SBSEF’s 

compliance with any of the 

requirements of the SEA or the 

Commission’s rules or policies 

thereunder. 

Paragraph (b) of Proposed Rule 807, 

modeled on § 40.6(b), would provide the 

Commission 10 business days to review 

the new rule or rule amendment before 

it is deemed certified and can be made 

effective, unless the Commission 

notifies the SBSEF during that tenbusiness-day review period that it 

intends to issue a stay of the 

certification under Rule 807(c). 

Paragraph (c)(1) of Proposed Rule 807, 

modeled on § 40.6(c)(1), would provide 

that the Commission may stay the 

certification of a new rule or rule 

amendment by issuing a notification 

informing the SBSEF that the 

Commission is staying the certification 

on the grounds that it presents novel or 

complex issues that require additional 

time to analyze, is accompanied by an 

inadequate explanation, or is potentially 

inconsistent with the SEA or the 

Commission’s rules thereunder. In 

addition, paragraph (c)(1) affords the 

Commission an additional 90 days from 

the date of the notification to conduct 

the review. 

Paragraph (c)(2) of Proposed Rule 807, 

modeled on § 40.6(c)(2), would require 

the Commission to provide a 30-day 

comment period within the 90-day 

period in which the stay is in effect. The 

Commission would be required to 

publish a notice of the 30-day comment 

period on the Commission’s internet 

website, and comments from the public 

could be submitted as specified in that 

notice. 

Paragraph (c)(3) of Proposed Rule 807, 

modeled on § 40.6(c)(3), would provide 

that the new rule or rule amendment 

subject to the stay shall become 

effective, pursuant to the certification, at 

the expiration of the 90-day review 

period, unless the Commission 

withdraws the stay prior to that time, or 

the Commission notifies the SBSEF 

during the 90-day period that it objects 

to the proposed certification on the 

grounds that the proposed rule or rule 

amendment is inconsistent with the 

SEA or the Commission’s rules 

thereunder. 

Paragraph (d) of Proposed Rule 807, 

modeled on § 40.6(d), would provide 

that certain kinds of rules or rule 

amendments may be put into effect by 

an SBSEF without certification to the 

Commission if similar enumerated 

conditions are met. Some would be 

subject to a Weekly Notification of Rule 

Amendments, which is closely modeled 

on the CFTC notification; others would 

not be subject to any notification 

requirement. 

Under paragraph (d)(2) of Proposed 

Rule 807, the following types of rules 

could be put into effect by an SBSEF 

without self-certification, so long as 

they are disclosed on the Weekly 

Notification of Rule Amendments: 

• Non-substantive revisions. 

Corrections of typographical errors, 

renumbering, periodic routine updates 

to identifying information about the 

SBSEF, and other such non-substantive 

revisions of a product’s terms and 

conditions that have no effect on the 

economic characteristics of the product; 


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132See SIFMA AMG Letter, supra note 18, at 5– 

6. Another commenter raised questions specifically 

about self-certification in the context of a 

determination by an SBSEF that an SBS has been 

‘‘made available to trade.’’ See MFA Letter, supra 

note 18, at 6. This comment is discussed below in 

the context of made-available-to-trade 

determinations under Rule 816(a). See infra section 

V.F.2. 

133See SIFMA AMG Letter, supra note 18, at 5– 

6. 

134See supra note 32. The Commission has also 

moved the word ‘‘and’’ from the end of paragraph 

(d)(3)(D) to the end of paragraph (d)(3)(E)(2). As 

described in further detail in the discussion of 

electronic filing systems and structured data, the 

Continued 

• Fees. Fees or fee changes, other 

than fees or fee changes associated with 

market making or trading incentive 

programs, that total $1.00 or more per 

contract, and are established by an 

independent third party or are unrelated 

to delivery, trading, clearing, or dispute 

resolution. 

• Survey lists. Changes to lists of 

banks, brokers, dealers, or other entities 

that provide price or cash market 

information to an independent third 

party and that are incorporated by 

reference as product terms; 

• Approved brands. Changes in lists 

of approved brands or markings 

pursuant to previously certified or 

Commission approved standards or 

criteria; 

• Trading months. The initial listing 

of trading months, which may qualify 

for implementation without notice, 

within the currently established cycle of 

trading months; or 

• Minimum tick. Reductions in the 

minimum price fluctuation (or ‘‘tick’’). 

Under paragraph (d)(3)(ii) of Rule 807, 

the following types of rules can be put 

into effect by an SBSEF without selfcertification and without having to be 

disclosed on the Weekly Notification of 

Rule Amendments: 

• Transfer of membership or 

ownership. Procedures and forms for the 

purchase, sale, or transfer of 

membership or ownership, but not 

including qualifications for membership 

or ownership, any right or obligation of 

membership or ownership, or dues or 

assessments; 

• Administrative procedures. The 

organization and administrative 

procedures of governing bodies such as 

a governing board, officers, and 

committees, but not voting 

requirements, governing board, or 

committee composition requirements or 

procedures, decision-making 

procedures, use or disclosure of material 

non-public information gained through 

the performance of official duties, or 

requirements relating to conflicts of 

interest; 

• Administration. The routine daily 

administration, direction, and control of 

employees, requirements relating to 

gratuity and similar funds, but not 

guaranty, reserves, or similar funds; 

declaration of holidays; and changes to 

facilities housing the market, trading 

floor, or trading area; 

• Standards of decorum. Standards of 

decorum or attire or similar provisions 

relating to admission to the floor, 

badges, or visitors, but not the 

establishment of penalties for violations 

of such rules; 

• Fees. Fees or fee changes, other 

than fees or fee changes associated with 

market making or trading incentive 

programs that are less than $1.00 or 

relate to matters such as dues, badges, 

telecommunication services, booth 

space, real-time quotations, historical 

information, publications, software 

licenses, or other matters that are 

administrative in nature. 

• Trading months. The initial listing 

of trading months which are within the 

currently established cycle of trading 

months. 

One commenter states that the CFTC’s 

self-certification process has been relied 

upon by CFTC registrants for most 

submissions, leaving little that is 

reviewed or capable of challenge by 

market participants or the CFTC unless 

it is inconsistent with the statute or 

CFTC regulation.132 This commenter 

states that rulebook or contractual 

changes can alter protections within 

Commission-regulated markets and that 

the Commission should be able to object 

to any such change it deems 

inconsistent with Commission policy, 

including considerations of compliance 

costs and the impact on consumer 

protections, all of which would be best 

informed by a requirement for public 

comment prior to certification. Under 

the CFTC regime, the commenter states, 

there is no formal process to allow 

market participants to object to a 

submission for changes that are 

submitted for certification. Decisions to 

adopt or modify rules by selfcertification are typically made by the 

registrant’s board of directors or a board 

committee, this commenter states, with 

market participants only learning of the 

rule after the registrant has self-certified 

the rule or amendment. This commenter 

supports an alternative approach in 

which the Commission can review all 

material rule and contractual changes by 

SBSEFs, clearing agencies, SBS data 

depositories, and exchanges. This 

commenter also recommends that the 

Commission adopt a requirement for 

public comment for such changes. 

Regulation SE will afford the 

Commission a sufficient mechanism to 

assess new SBSEF rules and rule 

amendments for consistency with 

section 3D of the SEA, while also 

permitting SBSEFs to submit new rules 

and rule amendments using a selfcertification process closely aligned 

with § 40.6. The CFTC’s procedures are 

well articulated and well understood by 

SEFs, and closely harmonizing with 

these procedures should yield 

comparable regulatory benefits while 

minimizing burdens on SBSEFs. It is 

likely that certain rules of dually 

registered SEF/SBSEFs will apply to 

member behavior generally—and not to 

one product market (e.g., swaps or SBS) 

exclusively—and that these rules will 

thus have to be filed with both the SEC 

and CFTC. Adding a default comment 

period or otherwise altering the 

standard so that the Commission 

reviews all material rule or contractual 

changes by SBSEFs, as requested by one 

commenter,133 would significantly alter 

the timing of self-certified SBSEF rules 

compared to their SEF equivalents. By 

contrast, closely harmonizing the SEC’s 

filing procedures and standards of 

review with the CFTC’s would allow 

dually registered entities to submit the 

same (or substantially the same) filing to 

both agencies for review. Moreover, if 

the Commission exercises its authority 

to stay the effectiveness of a selfcertified rule and seek public 

comment—i.e., with respect to a rule 

that is novel, complex, inadequately 

explained, or potentially inconsistent 

with the SEA or the regulations 

thereunder, including Regulation SE— 

market participants would be able to 

convey their concerns regarding that 

rule to the Commission. 

The specified types of SBSEF rules or 

rule amendments that may be put into 

effect under Rule 807(d) without 

certification to the Commission are 

appropriate because they are limited to 

the types of rule changes described 

earlier in this section (e.g., 

administration), which do not implicate 

significant protections to market 

participants, including compliance costs 

and customer protection. Therefore, the 

Commission has harmonized Rule 

807(d) with § 40.6(d) to allow such 

filings to be made without selfcertification or Commission review. 

Thus, it is not necessary to require 

SBSEFs to make a substantially different 

type of filing to the SEC than to the 

CFTC for the same underlying rule. For 

the reasons discussed above, the 

Commission is adopting Rule 807 as 

proposed, with the exception of the 

proposed Inline XBRL and EDGAR 

filing requirements, and with minor 

technical modifications.134


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Commission will require all rule and product filings 

required by Rules 804 through 807 and 816 to be 

filed in unstructured format through EFFS, rather 

than in Inline XBRL through EDGAR. See infra 

section XIII.A. 

135The CFTC cover sheet and instructions, found 

in appendix D to part 40 of the CFTC’s rules, are 

designed for rule and product filings from a wider 

range of registered entities than just SEFs, and thus 

include entries that are omitted from the 

Commission’s proposed adaptation. 

136Rule 809 provides that a product filing will be 

stayed or tolled, as applicable, if such a request for 

a joint interpretation is made by the SBSEF, the 

SEC, or the CFTC. See infra section IV.G. 

137Rule 809 provides that a product filing will be 

stayed or tolled, as applicable, if such a request for 

a joint interpretation is made by the SBSEF, the 

SEC, or the CFTC. See infra section IV.G. 

138See supra note 128. 

139The Electronic Form Filing System (EFFS) is 

a secure, web-based system used for filing Forms 

19b–4, 19b–7, and SCI. The system also supports 

pre-filings of certain types of Form 19b–4 filings. 

EFFS is used for form filing by SROs, including 

national securities exchanges, national securities 

associations, clearing agencies, and Systems 

Compliance Integrity (SCI) entities, including SCI 

SROs, SCI alternative trading systems, plan 

processors, and exempt clearing agencies subject to 

Automation Review Policy. See https://

www.sec.gov/tm/electronic-form-filing-systemresources. 

140 ‘‘Platform ID’’ is a term utilized in Regulation 

SBSR, 17 CFR 242.900 et seq., and means the 

unique identification code assigned to a platform on 

which an SBS is executed. See 17 CFR 242.900(w). 

The term ‘‘platform’’ includes an SBSEF. See Rule 

900(v), 17 CFR 242.900(v). A registered SBSEF is 

required by Rule 903(a) of Regulation SBSR, 17 CFR 

242.903(a), to use as its platform ID an identifier 

issued by an internationally recognized standardssetting system (‘‘IRSS’’) if the IRSS meets 

enumerated criteria and has therefore been 

recognized by the Commission pursuant to Rule 

903(a). This identification requirement stems from 

a registered SBSEF’s status as a ‘‘participant’’ of a 

registered SBSDR under Rule 900(u), 17 CFR 

242.900(u), because the term ‘‘participant’’ includes 

a ‘‘platform,’’ as defined in Rule 900(v), 17 CFR 

242.900(v), that incurs reporting duties under Rule 

901(a), 17 CFR 242.901(a). Currently, the Global 

Legal Entity Identifier System (‘‘GLEIS’’) is the only 

IRSS that has been recognized by the Commission 

under Rule 903(a). See Regulation SBSR—Reporting 

and Dissemination of Security-Based Swap 

Information, SEA Release No. 74244 (Feb. 11, 2015), 

80 FR 14563, 14631–32 (Mar. 19, 2015) 

(‘‘Regulation SBSR Adopting Release I’’). Therefore, 

Legal Entity Identifiers (‘‘LEIs’’) issued through the 

GLEIS are currently the only allowable platform IDs 

that may be used by registered SBSEFs. 

141See Letter from J.T. (May 26, 2022). In section 

XIII.B, infra, the Commission discusses the use of 

identifiers, such as the LEI. 

142Below in section XIII.A, the Commission 

addresses the requirements to use the EDGAR 

system and Inline XBRL for submissions. 

E. Submission Cover Sheet and 

Instructions 

In proposed new § 249.2002, the 

Commission proposed to require that an 

SBSEF use a submission cover sheet in 

conjunction with filings submitted 

pursuant to Rules 804 through 807, 809, 

and 816. The cover sheet and the 

instructions therein are modeled on the 

cover sheet and instructions used by 

SEFs in conjunction with their 

analogous filings with the CFTC.135

The same cover sheet and instructions 

would be used for a new rule, rule 

amendment, or new product filing, with 

the SBSEF checking the appropriate box 

to indicate which of these types the 

filing represents. The SBSEF would also 

be required to check boxes to indicate 

whether the submission was seeking 

approval by the Commission or whether 

it was being filed as a certification by 

the SBSEF; and to identify the specific 

provision in the Commission’s rules 

pursuant to which the filing was being 

submitted. The submission cover sheet 

also includes a box that the SBSEF 

would check if it intends to submit a 

request for a joint interpretation from 

the Commission and the CFTC regarding 

whether the product is a swap, an SBS, 

or mixed swap pursuant to SEA Rule 

3a68–2.136 Finally, the cover sheet 

includes a check box by which an 

SBSEF can indicate that it is requesting 

confidential treatment of materials in 

the submission. 

The cover sheet divides the rule and 

rule amendment filings into two 

categories: one for general rules of the 

SBSEF and the other for rules relating 

to the terms and conditions of a 

product. Additional boxes would need 

to be checked if a filing under the termsand-conditions category concerned 

specifically a determination by the 

SBSEF that a particular SBS was now to 

be considered ‘‘made available to trade’’ 

(or ‘‘MAT’’); 137 or if the filing 

concerned the delisting of an SBS with 

no open interest.138 The cover sheet 

would need to be used in conjunction 

with the weekly notifications that 

SBSEFs would be required to file 

pursuant to Rule 807(d) for certain 

changes that do not need to be approved 

or certified, as discussed above. 

Paragraph (a) of the submission cover 

sheet instructions provides that a 

properly completed submission cover 

sheet must accompany all rule and 

product submissions filed electronically 

with the Commission by an SBSEF 

using the Electronic Form Filing System 

(EFFS).139 Per paragraph (a), a properly 

completed submission cover sheet 

would include: (1) the name and 

platform ID of the SBSEF; 140 (2) the 

date of the filing; (3) an indication as to 

whether the filing is a new rule, rule 

amendment, or new product; (4) for rule 

filings, the rule number(s) being 

adopted or, in the case of rule 

amendments, the number of the rule(s) 

being modified; and (4) for rule or rule 

amendment filings, a description of the 

new rule or rule amendment, including 

a discussion of its expected impact on 

the SBSEF, its members, and the overall 

market. The instructions state that the 

narrative should describe the substance 

of the submission with enough 

specificity to characterize all material 

aspects of the filing. 

Paragraph (b) of the submission cover 

sheet instructions states that a 

submission must comply with all 

applicable filing requirements for 

proposed rules, rule amendments, or 

products, and that the filing of the 

submission cover sheet does not obviate 

the SBSEF’s responsibility to comply 

with applicable filing requirements. 

Paragraph (c) of the submission cover 

sheet states that checking the box 

marked ‘‘confidential treatment 

requested’’ does not obviate the 

submitter’s responsibility to comply 

with all applicable requirements for 

requesting confidential treatment under 

SEA Rule 24b–2 and does not substitute 

for notice or full compliance with such 

requirements. 

One commenter states that the 

submission cover sheet and instructions 

for SBSEF filings should harmonize 

with those of the CFTC.141 This 

commenter states that entities currently 

registered with the CFTC as SEFs will 

be able to seamlessly enact the 

necessary steps for required SEC filings 

because of their familiarity with the 

CFTC’s filing process. This commenter 

also states that any identifiers regarded 

as necessary should be included on the 

cover sheet. 

The Commission agrees that the use of 

a submission cover sheet that is 

harmonized with that required for CFTC 

filings by SEFs is likely to facilitate the 

filing process for SBSEFs that are also 

registered as SEFs. For this reason, the 

proposed submission coversheet is 

harmonized with the CFTC’s, with 

differences only in the details specific to 

the rules and processes of the SEC. The 

Commission contemplates providing for 

electronic completion (as well as 

submission) of the cover sheet and 

attachment of the submissions required 

by Rules 804, 805, 806, 807, and 809, 

and intends to advise affected persons 

regarding its use by public 

announcement in advance of the 

effective date of these rules.142

For the reasons discussed above, the 

Commission is adopting 17 CFR 

249.2002 as proposed, but is 

renumbering it as 17 CFR 249.1702 

under new subpart R (‘‘Forms for 

Registration of, and Filings by, SecurityBased Swap Execution Facilities’’), and 

is also adopting the submission cover 

sheet and instructions as proposed with 

the exception of the proposed Inline 


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143See id. 

144Section 40.8 of the CFTC’s rules is entitled 

‘‘Availability of public information.’’ 

145Section 40.8(a) does not provide a list of the 

exhibits required to be made public, but rather 

refers to a general description of items required to 

be made public. For purposes of clarity and ease of 

reference, however, the Commission proposed to 

list the specific corresponding exhibits in Rule 808 

that would be made publicly available. Exhibit C 

would require a narrative that sets forth the fitness 

standards for the governing board and its 

composition; Exhibit G would require a copy of the 

corporate governance documents for the applicant; 

Exhibit L would require a narrative and any other 

form of documentation that describes the manner in 

which the applicant is able to comply with each 

core principle; and Exhibit M would require a copy 

of the applicant’s proposed rules and any technical 

manuals, guides, or other instructions for members. 

146An application for confidential treatment shall 

contain, among other things, a statement of the 

grounds of objection referring to, and containing an 

analysis of, the applicable exemption(s) from 

disclosure under the Freedom of Information Act, 

and a justification of the period of time for which 

confidential treatment is sought. See 17 CFR 

240.24b–2(b)(2)(ii). 

147See Keeney Letter, supra note 95. 

148Proposing Release, supra note 1, 87 FR at 

28880 n.50. 

149Section 40.12 of the CFTC’s rules is entitled 

‘‘Staying of certification and tolling of review 

period pending jurisdictional determination’’ and 

reflects the process described in section 718 of the 

Dodd-Frank Act. Section 40.12 provides that if a 

SEF (among other registered entities) certifies, 

submits for approval, or otherwise files a proposal 

to list or trade such a novel derivative product, the 

product certification shall be stayed or the approval 

review period shall be tolled until a final 

determination order is issued under section 718. 

150As noted in the Proposing Release, an SBSEF 

might seek to list a product where it is unclear 

whether the product is a swap or an SBS. See 

Proposing Release, supra note 1, 87 FR at 28890. 

151 17 CFR 240.3a68–2. 

152The objective of Rule 809 is consistent with 

the objective of § 40.12: to provide for a stay or 

tolling of a product filing where it is unclear 

whether the product is under the jurisdiction of the 

SEC or the CFTC. 

XBRL and EDGAR filing 

requirements.143

F. Rule 808—Availability of Public 

Information 

Proposed Rule 808 is closely modeled 

on § 40.8 of the CFTC’s rules.144

Proposed Rule 808(a) would provide 

that certain parts of an application to 

register as an SBSEF would be made 

publicly available on the Commission’s 

website, unless confidential treatment is 

obtained pursuant to SEA Rule 24b–2. 

Specifically, Proposed Rule 808(a) 

would make the following parts of a 

Form SBSEF publicly available: the (i) 

transmittal letter and first part of the 

application cover sheet; (ii) Exhibit C; 

(iii) Exhibit G; (iv) Exhibit L; and (v) 

Exhibit M.145

Paragraph (b) of Proposed Rule 808, 

adapted from § 40.8(c), would provide 

that the Commission shall make 

publicly available on its website, unless 

confidential treatment is obtained 

pursuant to SEA Rule 24b–2,146 an 

SBSEF’s filing of new products pursuant 

to the self-certification procedures of 

Rule 804, new products for Commission 

review and approval pursuant to Rule 

805, new rules and rule amendments for 

Commission review and approval 

pursuant to Rule 806, and new rules and 

rule amendments pursuant to the selfcertification procedures of Rule 807. 

Paragraph (c), adapted from § 40.8(d), 

would provide that the terms and 

conditions of a product submitted to the 

Commission pursuant to any of Rules 

804 through 807 shall be made publicly 

available at the time of submission 

unless confidential treatment is 

obtained pursuant to SEA Rule 24b–2. 

The Commission received one 

comment on Proposed Rule 808. This 

commenter states that the Commission 

should not allow requests for 

confidential treatment and that these 

requests are currently abused and result 

in little information being made 

available to the public.147 A blanket 

prohibition on requesting confidential 

treatment would not be appropriate, 

however, because each request for 

confidential treatment should be 

addressed on its particular facts and 

circumstances. Moreover, as the 

Commission stated in the Proposing 

Release, ‘‘it is not necessary or 

appropriate to establish and utilize one 

set of procedures to handle confidential 

treatment requests made by SBSEFs 

while utilizing a different set of 

procedures for other persons who 

request confidential treatment from the 

Commission under the SEA.’’ 148 The 

Commission anticipates that while 

SBSEFs may request confidential 

treatment for their filings pursuant to 

existing SEA Rule 24–2, the items 

enumerated in Rule 808 are not of the 

type that typically would constitute 

confidential information. Finally, it is 

appropriate to adopt a rule that is 

adapted from § 40.8, because Rule 808 

will apply to submissions made under 

Rules 804–807, which are, as discussed 

above, also based on provisions of the 

CFTC’s rules for SEFs. Therefore, the 

Commission is adopting Rule 808 as 

proposed. 

G. Rule 809—Staying of Certification 

and Tolling of Review Period Pending 

Jurisdictional Determination 

Section 718 of the Dodd-Frank Act, 

entitled ‘‘Determining Status of Novel 

Derivative Products,’’ sets forth a 

mechanism for addressing a situation in 

which a person wishes to list or trade 

a novel derivative product that may 

have elements of both securities and 

contracts of sale of a commodity for 

future delivery (or options on such 

contracts or options on commodities)— 

i.e., a situation in which it is unclear 

whether the product in question is a 

security under the jurisdiction of the 

SEC or a future under the jurisdiction of 

the CFTC. Section 718(a) provides that 

the SEC or the CFTC may request that 

the other agency issue a determination 

as to the classification of that product, 

and section 718(b) provides that the 

CFTC and SEC may petition for judicial 

review of any such determination.149

As described in the Proposing 

Release, Proposed Rule 809 is loosely 

modeled on § 40.12, but modified to 

focus on the products and jurisdictional 

issues that are more likely to be relevant 

to SBSEFs.150 Paragraph (a) of Proposed 

Rule 809, modeled on § 40.12(b), would 

provide that a product certification 

made by an SBSEF pursuant to Rule 804 

shall be stayed, or the review period for 

a product that has been submitted for 

Commission approval by an SBSEF 

pursuant to Rule 805 shall be tolled, 

upon request for a joint interpretation of 

whether the product is a swap, SBS, or 

mixed swap made pursuant to Rule 

3a68–2 under the SEA 151 by the SBSEF, 

the SEC, or the CFTC. Paragraph (b) is 

modeled on § 40.12(b)(1) and would 

require the SEC to provide the SBSEF 

with a written notice of the stay or 

tolling pending issuance of a joint 

interpretation by the SEC and CFTC. 

Paragraph (c) is modeled on 

§ 40.12(b)(2) and would provide that the 

stay shall be withdrawn, or the approval 

review period shall resume, if a joint 

interpretation finding that the SEC has 

jurisdiction over the product is issued. 

The Commission did not receive any 

comments on Proposed Rule 809. While 

section 718 of the Dodd-Frank Act 

addresses situations where it is unclear 

whether a product is a security or a 

future, the SEC and the CFTC have 

adopted separate rules—SEA Rule 

3a68–2 and 17 CFR 1.8, respectively— 

governing requests for interpretation 

regarding a product that might be an 

SBS, a swap, or a mixed swap. It is 

appropriate for Regulation SE to include 

a mechanism for the staying or tolling 

of a filing by an SBSEF when it is 

unclear whether the product is a swap 

or an SBS, and it would be appropriate 

for Rule 809 to reflect the process set 

forth in SEA Rule 3a68–2. Tailoring, as 

proposed, the scope of Rule 809, in 

relation to § 40.12, appropriately 

addresses the jurisdictional questions 

that are likely to arise from a product 

listed by an SBSEF.152 Therefore, the 

Commission is adopting Rule 809 as 

proposed. 


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153Section 1.60 requires a SEF (among other 

entities) to provide the CFTC with copies of any 

legal proceeding to which it is a party, or to which 

its property or assets is subject. Paragraph (d) of 

Rule 811 would adapt paragraphs (a), (c), and (e) 

of § 1.60 to apply to SBSEFs. Paragraphs (b) and (d) 

of § 1.60 apply to futures commission merchants 

and do not appear germane to SEFs or SBSEFs. 

Therefore, the Commission is not adapting these 

paragraphs into Rule 811(d). 

H. Rule 810—Product Filings by SBSEFs 

That Are Not Yet Registered and by 

Dormant SBSEFs 

Proposed Rule 810 is closely modeled 

on § 37.4 of the CFTC’s rules and would 

provide a process whereby a not-yetregistered SBSEF or a dormant SBSEF 

could submit product filings. 

Specifically, Proposed Rule 810 would 

provide that an applicant for registration 

as an SBSEF may submit an SBS’s terms 

and conditions prior to listing the 

product as part of its application for 

registration and that any such terms and 

conditions or rules submitted as part of 

an SBSEF’s application for registration 

shall be considered for approval by the 

Commission at the time the Commission 

issues the SBSEF’s order of registration. 

Similarly, any SBS terms and conditions 

or rules submitted as part of an 

application to reinstate the registration 

of a dormant SBSEF would be 

considered for approval by the 

Commission at the time the Commission 

approves the reinstatement of 

registration of the dormant SBSEF. 

The Commission did not receive any 

comments on Proposed Rule 810 and is 

adopting Rule 810 as proposed, for the 

reasons stated in the Proposing Release. 

V. Miscellaneous Requirements 

Sections 37.5 to 37.12 of the CFTC’s 

rules impose miscellaneous 

requirements on SEFs, and the 

Commission proposed to impose similar 

requirements on SBSEFs in Rules 811 to 

817 of Regulation SE. 

A. Rule 811—Information Relating to 

SBSEF Compliance 

1. Harmonization With § 37.5 

Paragraphs (a) to (c) of Proposed Rule 

811 are modeled on § 37.5, which is 

entitled ‘‘Information regarding swap 

execution facility compliance.’’ 

Paragraph (a) of Proposed Rule 811 is 

closely modeled on § 37.5(a) and would 

provide that, upon the Commission’s 

request, an SBSEF shall file with the 

Commission information related to its 

business as an SBSEF in the form and 

manner, and within the timeframe, 

specified by the Commission. Paragraph 

(b) is closely modeled on § 37.5(b) and 

would provide that, upon the 

Commission’s request, an SBSEF shall 

file with the Commission a written 

demonstration, containing supporting 

data, information, and documents, that 

it is in compliance with one or more 

Core Principles or with its other 

obligations under the SEA or the 

Commission’s rules thereunder, as the 

Commission specifies in its request. 

Also, under Proposed Rule 811(b), the 

SBSEF would be required to file such 

written demonstration in the form and 

manner, and within the timeframe, 

specified by the Commission. 

Paragraph (c)(1) of Proposed Rule 811 

is closely modeled on § 37.5(c)(1) and 

would provide that an SBSEF shall file 

with the Commission a notification of 

any transaction involving the direct or 

indirect transfer of 50% or more of the 

equity interest in the SBSEF. Also, 

under Proposed Rule 811(c)(1), the 

Commission could, upon receiving such 

a notification, request supporting 

documentation of the transaction. 

Paragraph (c)(2) is closely modeled on 

§ 37.5(c)(2) and would provide that the 

equity interest transfer notice shall be 

filed with the Commission in a form and 

manner specified by the Commission at 

the earliest possible time, but in no 

event later than the open of business 10 

business days following the date upon 

which the SBSEF enters into a firm 

obligation to transfer the equity Interest. 

Paragraph (c)(3) is closely modeled on 

§ 37.5(c)(3) and would provide that, 

notwithstanding the foregoing, if any 

aspect of an equity interest transfer 

requires an SBSEF to file a rule, the 

SBSEF shall comply with the applicable 

rule filing requirements of Rule 806 or 

Rule 807. 

Paragraph (c)(4) of Proposed Rule 811 

is closely modeled on § 37.5(c)(4) and 

would provide that, upon a transfer of 

an equity interest of 50% or more in an 

SBSEF, the SBSEF shall file with the 

Commission, in a form and manner 

specified by the Commission, a 

certification that the SBSEF meets all of 

the requirements of section 3D of the 

SEA and the Commission rules 

thereunder, no later than two business 

days following the date on which the 

equity interest of 50% or more was 

acquired. 

The Commission did not receive any 

comments on Rule 811(a) to (c). It is 

appropriate for Regulation SE to include 

provisions requiring an SBSEF to 

provide the Commission with the 

information described above. 

Information about an SBSEF’s business 

as an SBSEF and transfers of 50% or 

more of its equity would promote 

understanding of its operations and 

ownership, which should facilitate 

oversight of the SBSEF. Therefore, the 

Commission is clarifying, as proposed, 

that, similar to the CFTC, it may request 

such information from an SBSEF. In 

addition, as anticipated in the Proposing 

Release, should questions about 

compliance arise, the Commission 

should be able to obtain from an SBSEF 

supporting data, information, and 

documents that the SBSEF is in 

compliance with relevant obligations 

under the SEA, and the rule provides for 

this. By modeling its proposed 

requirements on existing CFTC rules, 

the Commission seeks to obtain 

comparable regulatory benefits while 

imposing only marginal additional 

burdens on dually registered entities 

that are already subject to similar 

obligations. 

The Commission is changing the 

phrase ‘‘a transfer of an equity interest 

of 50 percent or more in a securitybased swap execution facility’’ in 

paragraph (c)(4) to ‘‘an equity transfer 

described in paragraph (c)(1) of this 

section’’ because the text of paragraph 

(c)(4) should be modified to parallel the 

text of paragraphs (c)(2) and (c)(3). For 

these reasons, the Commission is 

adopting Rule 811(a) to (c) as proposed, 

with the change described to paragraph 

(c)(4). 

2. Harmonization With § 1.60 

Paragraph (d) of Proposed Rule 811 is 

not modeled on § 37.5, but rather on 

§ 1.60 of the CFTC’s rules, which is 

entitled ‘‘Pending legal proceedings.’’ 

Because it is conceptually similar to 

§ 37.5 in that it would require another 

type of information relevant to the 

regulatory oversight of a SEF, the 

Commission proposed to adapt this 

provision into Rule 811.153

Paragraph (d)(1) of Proposed Rule 811 

is closely modeled on § 1.60(a) and 

would provide that an SBSEF shall 

submit to the Commission a copy of the 

complaint, any dispositive or partially 

dispositive decision, any notice of 

appeal filed concerning such decision, 

and such further documents as the 

Commission may thereafter request filed 

in any material legal proceeding to 

which the SBSEF is a party or to which 

its property or assets are subject. 

Paragraph (d)(2) is closely modeled on 

§ 1.60(c) and would provide that an 

SBSEF shall submit to the Commission 

a copy of the complaint, any dispositive 

or partially dispositive decision, any 

notice of appeal filed concerning such 

decision, and such further documents as 

the Commission may thereafter request 

filed in any material legal proceeding 

instituted against any officer, director, 

or other official of the SBSEF from 

conduct in such person’s capacity as an 

official of the SBSEF and alleging 

violations of the SEA or any rule, 

regulation, or order thereunder; the 


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154The Commission is not adapting into Rule 812 

paragraphs (a)(2) and (a)(3) of § 37.6, which provide 

that a transaction on a SEF may not be invalidated 

by CFTC proceedings that alter or supplement SEF 

rules, terms, and conditions, because the 

Commission has no authority in the SEA analogous 

to the CFTC’s authority under section 8a(7) of the 

CEA to conduct such proceedings. See supra note 

93 and accompanying text. See also Proposing 

Release, supra note 1, 87 FR at 28893 n.90. 

155Furthermore, under § 37.6(b), the confirmation 

of all terms of the transaction must take place at the 

same time as execution, provided that specific 

customer identifiers for accounts included in 

bunched orders need not be included in 

confirmations if certain conditions are met. 

156See Bloomberg Letter, supra note 18, at 4, 12– 

13. 

157See infra section VI.F (discussing, among 

other things, straight-through processing). 

158See CFTC Division of Clearing and Risk, 

Division of Market Oversight, and Division of Swap 

Dealer and Intermediary Oversight, Guidance on 

Application of Certain Commission Regulations to 

Swap Execution Facilities (Nov. 14, 2013), available 

at https://www.cftc.gov/sites/default/files/idc/ 

groups/public/@newsroom/documents/file/ 

dmostaffguidance111413.pdf. 

159See Bloomberg Letter, supra note 18, at 4, 12– 

13. 

160See ICE Letter, supra note 18, at 5. 

161See id. (citing CFTC Division of Market 

Oversight, Staff No-Action Position Regarding SEF 

Confirmations and Recordkeeping Requirements 

under Certain Provisions Included in Regulations 

37.6(b) and 45.2, Letter No. 14–108 (Aug. 18, 2014), 

available at https://www.cftc.gov/csl/14-108/ 

download). 

162Section 37.6(b) requires a SEF to provide a 

written record of ‘‘all of the terms of the transaction 

which shall legally supersede any previous 

agreement and serve as a confirmation of the 

transaction.’’ In the adopting release for the final 

part 37 rules, the CFTC explained that, with respect 

to uncleared swaps, a SEF could satisfy this 

requirement by incorporating by reference terms set 

forth in agreements previously negotiated by the 

counterparties, provided that such agreements had 

been submitted to the SEF ahead of execution. See 

2013 CFTC Final SEF Rules Release, supra note 9, 

78 FR at 33491 n.195. The CFTC staff has taken a 

no-action position with respect to the confirmation 

requirements for uncleared swaps in response to 

assertions by industry participants that it is 

impracticable for a SEF to satisfy the written 

confirmation requirements by incorporating by 

reference terms from previously negotiated 

agreements between the counterparties if the SEF 

must receive copies of such agreements prior to 

execution. See CFTC No Action Letter 17–17 (Mar. 

24, 2017) (issued by the CFTC’s Division of Market 

Oversight). In the no-action letter, the CFTC staff 

stated that it was continuing to assess confirmation 

requirements, including establishing a permanent 

solution to the issues raised. Given these 

circumstances, it is appropriate to require an SBSEF 

Continued 

constitution, bylaws, or rules of the 

SBSEF; or the applicable provisions of 

state law relating to the duties of 

officers, directors, or other officials of 

business organizations. 

Paragraph (d)(3) of Proposed Rule 811 

is loosely modeled on § 1.60(e) and 

would provide that documents required 

by Rule 811(d) to be submitted to the 

Commission shall be submitted 

electronically in a form and manner 

specified by the Commission within 10 

days after the initiation of the legal 

proceedings to which they relate, after 

the date of issuance, or after receipt by 

the SBSEF of the notice of appeal, as the 

case may be. 

Paragraph (d)(4) of Proposed Rule 811 

is closely modeled on the final two 

sentences of § 1.60(e) and would 

provide that, for purposes of Rule 

811(d), a ‘‘material legal proceeding’’ 

includes but is not limited to actions 

involving alleged violations of the SEA 

or the Commission rules thereunder, 

and that a legal proceeding is not 

‘‘material’’ for the purposes of Rule 811 

if the proceeding is not in a Federal or 

State court or if the Commission is a 

party. 

The Commission did not receive any 

comments on Proposed Rule 811(d) and 

is adopting Rule 811(d) as proposed, for 

the reasons stated in the Proposing 

Release. 

B. Rule 812—Enforceability 

Proposed Rule 812 generally is 

modeled on § 37.6. Paragraph (a) of Rule 

812, which is based on § 37.6(a)(1), and 

would provide that a transaction on or 

pursuant to the rules of an SBSEF 

cannot be invalidated as a result of a 

violation by the SBSEF of section 3D of 

the SEA or the Commission’s rules 

thereunder.154 An SBS executed on an 

SBSEF should not be invalidated by the 

SBSEF’s violation of any of the 

securities laws, given that swaps 

executed on SEFs are afforded the same 

legal certainty under § 37.6(a). 

Paragraph (b) of Proposed Rule 812 is 

modeled on the first sentence of 

§ 37.6(b), which requires a SEF to 

provide each counterparty to a 

transaction that is entered into on or 

pursuant to the rules of the SEF with a 

written record of all of the terms of the 

transaction which shall legally 

supersede any previous agreement.155

Proposed Rule 812(b) differs, however, 

in that it would provide that an SBSEF 

shall, as soon as technologically 

practicable after the time of execution of 

a transaction entered into on or 

pursuant to the rules of the facility, 

provide a written record to each 

counterparty of all of the terms of the 

transaction that were agreed to on the 

facility, which shall legally supersede 

any previous agreement regarding such 

terms. 

One commenter agrees that Rule 812 

should be modeled on § 37.6 and states 

that, like § 37.6, Rule 812 should require 

the SBSEF to confirm ‘‘all the terms of 

the transaction,’’ rather than being 

limited, as proposed, to ‘‘all of the terms 

that were agreed to on the facility.’’ 156

This commenter states that Rule 812 as 

proposed may cause issues with 

clearing SBS because SBS clearing 

agencies will likely require SBSEFs to 

represent that any transaction executed 

on the SBSEF is final and irrevocable (as 

CFTC-registered clearing agencies 

require for SEFs). Since Rule 812 only 

requires an SBSEF confirmation to be 

limited in scope to ‘‘all of the terms that 

were agreed to on the facility,’’ this 

commenter states the SBSEF would not 

necessarily know any terms agreed upon 

by counterparties outside the SBSEF, 

and therefore could not represent to the 

clearing agency that the transaction is 

‘‘final and irrevocable,’’ which would be 

a roadblock for straight-through 

processing and full adoption of clearing 

for SBS.157 This commenter states that, 

to address this issue, SBSEFs should 

have the ability to prohibit trading 

relationship documentation or 

enablements for cleared SBS 

transactions executed on an SBSEF, 

which are prohibited for CFTCregistered SEFs in accordance with the 

CFTC’s 2013 Staff Impartial Access 

Guidance,158 and that Rule 812 should 

require that the SBSEF confirm ‘‘all of 

the terms of the transaction.’’ 159

Another commenter, however, states 

that it is not practical or cost effective 

for an SBSEF to collect, review, and 

store each free-standing agreement 

underlying an SBS transaction entered 

into between numerous 

counterparties.160 This commenter 

states that the CFTC has not required 

SEFs to comply with the requirements 

of 37.6(b) since 2014, when staff noaction relief was issued due to the 

impracticability of compliance.161 Thus, 

this commenter supports the proposal in 

Rule 812 to require an SBSEF to provide 

a written record of all the terms of the 

transaction that were agreed to on an 

SBSEF, which shall legally supersede 

any previous agreement regarding such 

terms. 

It is appropriate to require an SBSEF 

to inform counterparties as soon as 

technologically practicable after they 

have effected a trade on or pursuant to 

the rules of the SBSEF, and to provide 

them with a written record of the terms 

to which they have agreed to on the 

SBSEF. With respect to uncleared SBS, 

it would be impractical for an SBSEF to 

be aware of, or responsible for, 

confirming terms of an SBS that were 

agreed to off the SBSEF’s trading 

platform, such as terms contained in a 

credit support agreement between the 

two counterparties to an uncleared SBS. 

Thus, the Commission is not including 

in Rule 812 a requirement that the 

SBSEF provide a written record of any 

such terms.162


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to provide counterparties with a written record of 

only those terms that are agreed to on the SBSEF. 

Additionally, the CFTC recently issued a notice of 

proposed rulemaking to adopt a rule codifying the 

no-action position, which would enable SEFs to 

incorporate such terms by reference in an uncleared 

swap confirmation without being required to obtain 

the underlying, previously negotiated agreements. 

See CFTC, Swap Confirmation Requirements for 

Swap Execution Facilities (Notice of Proposed 

Rulemaking), 88 FR 58145, 58147 (Aug. 25, 2023). 

The CFTC has not yet taken action on this proposal. 

163See infra section VI.B.3 (discussing the 

impartial access requirements of Rule 819(c)). 

164 15 U.S.C. 78c–4(c). 

165See Citadel Letter, supra note 18, at 17; MFA 

Letter, supra note 18, at 14. 

166See Citadel Letter, supra note 18, at 17. 

167See Keeney Letter, supra note 95. 

168See 15 U.S.C. 78c–3(a)(1) (mandatory clearing 

for SBS) and 78c–3(h) (trade execution for SBS). See 

also infra section V.F.3 (discussing the six factors 

that an SBSEF shall consider, as appropriate, before 

making an SBS ‘‘available to trade’’). 

In response to the comment that 

Proposed Rule 812 may cause issues 

with clearing because the rule requires 

SBSEFs to confirm only the terms of an 

SBS transaction ‘‘that were agreed to on 

the facility,’’ additional terms in trading 

relationship documents or enablements 

are unlikely to hinder the acceptance by 

a clearing agency of SBS that are 

intended to be cleared or might inhibit 

impartial access to trading of cleared 

SBS on an SBSEF. First, a cleared SBS 

would be a standardized product, the 

complete terms of which would be 

known to the SBSEF, agreed to by the 

counterparties trading that SBS on the 

SBSEF, and capable of being confirmed 

to the parties in writing by the SBSEF, 

as well as represented to the clearing 

agency by the SBSEF as ‘‘final and 

irrevocable.’’ Thus, all the terms of the 

cleared transaction are confirmed when 

executed on the SBSEF. And second, 

Proposed Rule 819(c) would require that 

an SBSEF provide impartial access to its 

market and market services,163 and it 

would not be consistent with an 

SBSEF’s impartial access obligations to 

permit members to incorporate 

additional terms for a cleared SBS in 

trading relationship documentation, 

enablement documentation, or 

elsewhere, or to otherwise permit 

improper discrimination with respect to 

trading in cleared SBS against SBSEF 

members who have a direct or indirect 

clearing relationship with the clearing 

agency for a given SBS. 

Therefore, for the foregoing reasons, 

the Commission is adopting Rule 812 as 

proposed. 

C. Rule 813—Prohibited Use of Data 

Collected for Regulatory Purposes 

Proposed Rule 813 is modeled on 

§ 37.7, and would provide that an 

SBSEF shall not use, for business or 

marketing purposes, any proprietary 

data or personal information that it 

collects or receives from or on behalf of 

any person for the purpose of fulfilling 

its regulatory obligations. An SBSEF 

would be able to use such data or 

information for business or marketing 

purposes if the person consents, but the 

SBSEF would not be able to condition 

access to the SBSEF on the person’s 

providing such consent. Finally, 

Proposed Rule 813 would provide that 

an SBSEF, where necessary for 

regulatory purposes, may share such 

data or information with another SBSEF 

or a national securities exchange. 

The Commission did not receive any 

comments on Proposed Rule 813 and is 

adopting Rule 813 as proposed, for the 

reasons stated in the Proposing Release. 

D. Rule 814—Entity Operating Both a 

National Securities Exchange and an 

SBSEF 

Proposed Rule 814 is modeled on 

§ 37.8. Paragraph (a) of Proposed Rule 

814 would provide that an entity 

intending to operate both a national 

securities exchange and an SBSEF shall 

separately register the two facilities 

pursuant to section 6 of the SEA and 

Rule 803 under the SEA. Paragraph (b), 

although consistent with § 37.8(b), 

draws its specific language from section 

3D(c) of the SEA,164 which 

contemplates that a single entity may 

operate both a national securities 

exchange and an SBSEF. Paragraph (b) 

of Proposed Rule 814 would provide 

that a national securities exchange shall, 

to the extent that the exchange also 

operates an SBSEF and uses the same 

electronic trade execution system for 

listing and executing trades of SBS on 

or through the exchange and the facility, 

identify whether electronic trading of 

SBS is taking place on or through the 

national securities exchange or the 

SBSEF. 

Two commenters state that the key 

requirements applicable to SBSEFs 

should also apply to SBS exchanges to 

create a level regulatory environment 

and avoid encouraging regulatory 

arbitrage.165 One of the commenters 

specifically identifies trading protocols, 

impartial access, limits on pre-execution 

communication, and straight-through 

processing as important aspects of 

SBSEF regulation that should also apply 

to SBS exchanges.166 Another 

commenter states that more detailed 

rules are needed to address the 

separation of SBSEFs from SBS 

exchanges in order to avoid the 

aggregation of power in the financial 

markets and to clearly separate the roles 

of an entity operating both an SBSEF 

and an SBS exchange.167

The comment suggesting that 

requirements for SBSEFs should be 

applied to SBS exchanges is outside the 

scope of this rulemaking, which is 

designed to set forth requirements for 

SBSEFs, not exchanges. 

Additionally, more detailed rules are 

not necessary to separate the roles of an 

entity operating both an SBSEF and an 

SBS exchange. Each entity would be 

required to make rule or new product 

submissions to the Commission under a 

separate set of rules—Rules 804 to 807 

for SBSEFs, and Rule 19b–4 for national 

securities exchanges—making it clear 

which rules will apply on which 

platform. Also, Rule 814(b)—which 

requires that a national securities 

exchange that also operates an SBSEF 

identify the platform on which an SBS 

transaction occurs—will provide further 

clarity to the market about the roles of 

an entity operating both an SBSEF and 

an SBS exchange. Further, the ability of 

an entity to operate both an SBSEF and 

an SBS exchange is unlikely to lead to 

the aggregation of power in the financial 

markets, because allowing for a variety 

of SBS trading platforms and ownership 

models should promote competition in 

the market for SBS trading. 

It is appropriate for proposed 

Regulation SE to include a rule that 

clarifies the registration status of an 

entity that operates both an exchange 

and an SBSEF, and that broadly 

parallels § 37.8. Therefore, for the 

reasons discussed above, the 

Commission is adopting Rule 814 as 

proposed. 

E. Rule 815—Methods of Execution for 

Required and Permitted Transactions 

1. Rule 815(a) 

(a) Background 

The Dodd-Frank Act provides that if 

the Commission makes a mandatory 

clearing determination regarding an 

SBS, such SBS becomes subject to 

mandatory trade execution if at least 

one exchange or SBSEF makes the 

product ‘‘available to trade.’’ 168 The 

Dodd-Frank Act does not require, 

however, that all SBS be subject to 

mandatory clearing or mandatory trade 

execution, and it does not impose any 

execution requirements for transactions 

in an SBS unless the SBS is subject to 

mandatory clearing and it has been 

made available to trade. Section 37.9 of 

the CFTC’s rules addresses these issues 

for SEFs using the concepts of 

‘‘Required Transactions’’ and 

‘‘Permitted Transactions,’’ and the 

Commission proposed Rule 815 of 

Regulation SE to adapt § 37.9 for 


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169See infra section V.E.3. 

170Proposed Rule 815(a)(2)(ii) would provide that 

any means of interstate commerce includes, but is 

not limited to, the mail, internet, email, and 

telephone, provided that the chosen execution 

method satisfies the requirements for order books 

in 17 CFR 242.800(x) or in paragraph (a)(3) of Rule 

815. 

171See ISDA–SIFMA Letter, supra note 18, at 5– 

6; SIFMA AMG Letter, supra note 18, at 8–9. 

172See SIFMA AMG Letter, supra note 18, at 8. 

173See id. at 9. 

174See ISDA–SIFMA Letter, supra note 18, at 5– 

6. 

175 Id. at 6. 

176 ‘‘DTCC’’ refers to the Depository Trust and 

Clearing Corporation. 

177See ISDA–SIFMA Letter, supra note 18, at 6. 

178The commenter also stipulates that at the 

onset of the relationship, clients will negotiate a 

grid with dealers where certain short/long 

benchmarks and spreads are agreed for equity 

issuers on a jurisdictional or other basis. See ISDA– 

SIFMA Letter, supra note 18, at 6. 

179 Id. 

180 Id. 

SBSEFs. Rule 815(a)(1) defines 

‘‘Required Transaction’’ as ‘‘any 

transaction involving a security-based 

swap that is subject to the trade 

execution requirement in section 3C(h) 

of the Act.’’ 

(b) Methods of Execution for Required 

Transactions 

(i) Background 

Proposed Rule 815(a)(2) would 

require that, except for block trades or 

the exceptions described in paragraph 

(d) or (e) of the rule and discussed 

below,169 the mandatory execution 

methods for a Required Transaction 

would be either: (a) an order book or (b) 

an RFQ system in conjunction with an 

order book, and the rule permits the 

SBSEF to use any means of interstate 

commerce for providing these execution 

methods.170

Proposed Rule 815(a)(3) would define 

an RFQ system as ‘‘a trading system or 

platform in which a market participant 

transmits a request for a quote to buy or 

sell a specific instrument to no less than 

three market participants in the trading 

system or platform, to which all such 

market participants may respond’’ and 

would specify other requirements for an 

RFQ system to be recognized as such 

under the rule. The three market 

participants to which the RFQ is 

addressed could not be affiliates of or 

controlled by the requester and cannot 

be affiliates of or controlled by each 

other. The proposed rule would also 

provide that an SBSEF that offers an 

RFQ system in connection with a 

Required Transaction must have the 

following functionalities: (i) at the same 

time that the requester receives the first 

responsive bid or offer, the SBSEF must 

communicate to the requester any firm 

bid or offer pertaining to the same SBS 

resting on any of the SBSEF’s order 

books; (ii) the SBSEF must provide the 

requester with the ability to execute 

against those firm resting bids or offers 

along with any responsive orders; and 

(iii) the SBSEF must ensure that its 

trading protocols provide each of its 

members with equal priority in 

receiving requests for quotes and in 

transmitting and displaying for 

execution responsive orders. The 

requirements of Proposed Rule 815(a)(3) 

are referred to as the ‘‘RFQ-to-3 

requirement.’’ 

(ii) Comments on the RFQ-to-3 

Requirement 

The Commission received comments 

on the proposed RFQ-to-3 requirement 

in Proposed Rule 815(a)(3).171 One 

commenter suggests that the 

Commission expand the permitted 

modes of SBS execution for swaps 

mandated for trading on SBSEFs in 

order to provide for a less prescriptive, 

more principles-based approach that 

balances transparency, competition, and 

liquidity through a flexible set of rules 

and states that any means of execution 

that provides sufficient pre-trade price 

transparency and preserves competition 

should be available.172 This commenter, 

while supporting general harmonization 

between the Commission’s and the 

CFTC’s rules on trading protocols and 

methods of execution, argues that the 

Commission’s rule also needs to balance 

harmonization with the need to reflect 

the unique and sensitive liquidity 

conditions that exist in SBS markets. 

Stating that an RFQ-to-3 requirement 

for Required Transactions that are SBSs 

means something completely different 

than for swaps, this commenter urges 

the Commission to consider a lower 

RFQ threshold given the nature of the 

SBS market. This commenter states that, 

in some cases, for an asset manager to 

seek three quotes would effectively 

require the asset manager to contact 

many of the primary price makers in the 

SBS market, as there simply are not the 

same number of liquidity providers, 

particularly for less liquid, more thinly 

traded SBSs, as the number of 

participants, the trading volume, and 

the depth of market liquidity are very 

different in the SBS market. The 

commenter suggests that requesting 

quotes from two participants, for 

example, would allow the asset manager 

to retain some control over the 

information disseminated about its 

interest to the market while preserving 

the statute’s ‘‘multiple to multiple’’ 

definition requirement.173

Another commenter also urges the 

Commission to consider an alternative 

approach to the proposed RFQ-to-3 

requirement, and to provide a ‘‘phasedin compliance’’ with the required 

methods of execution, whereby a MAT 

SBS product may be executed on an 

SBSEF via any method of execution 

until such time as it is determined 

through notice and comment that an 

appropriate level of liquidity exists to 

enable an order book or RFQ-to-3 

system.174 This commenter states that, 

considering the lack of liquidity in SBS 

products, pre-trade transparency via the 

proposed RFQ-to-3 requirement could 

negatively impact liquidity provision for 

end-users. The commenter states that, if 

clients are required to ‘‘show their hand 

to three liquidity providers,’’ it may lead 

to information leakage and an inability 

to hedge the clients’ risks through the 

SBS markets.175 The commenter asserts 

that this is particularly so given that 

there are a relatively small number of 

active dealers for many SBS products, 

stating that, based on DTCC 176 data on 

credit SBS for the top 700 issuers, there 

are on average 2.7 dealers, and 400 of 

the top 700 issuers have fewer than 

three active dealers per month.177

This commenter further argues that an 

RFQ-to-3 requirement would be 

problematic for SBS equities, where the 

current execution processes are very 

different from their swaps counterpart. 

The commenter states that clients in 

SBSs typically ask their preferred dealer 

to execute shares in SBS at market price 

(or some other pricing structure), the 

dealer then purchases the shares 

directly for hedging purposes, and the 

dealer then executes the swap at the end 

of the day with the client at an average 

market price.178 The commenter states 

that, in this case, the dealer’s interaction 

is more akin to a broker than a dealer 

counterparty, and that these trading 

practices would not be possible on an 

RFQ-to-3 or order book system. In 

addition, the commenter states that it 

has ‘‘compared the credit swaps activity 

that occurred on-venue back in 2012 

before the CFTC trade execution 

requirement kicked in, with the credit 

SBS activity that occurs on-venue 

today’’ and asserts that the results 

suggest ‘‘that the swaps market was 

much more ready for the 

implementation of the trade execution 

requirement than the SBS market is 

today.’’ 179 This commenter states that, 

‘‘[a]bsent a phased-in implementation 

approach, the SBS market could suffer 

from significant disruptions.’’ 180

While the Commission acknowledges 

that there are differences between the 

liquidity in the SBS market and the 


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181See SEA section 3C(b)(4)(i), 15 U.S.C. 78c– 

3(b)(4)(i). See also SEA section 3C(b)(4)(ii) through 

(v), 15 U.S.C. 78c–3(b)(4)(ii) through (v) (discussing 

other factors that the Commission would be 

required to take into account when making a 

mandatory clearing determination). 

182See infra section V.F.2. 

183See supra sections IV.A and B. 

184 17 CFR 240.19b–4. 

185See Section 6(b)(5) and (8) of the SEA, 15 

U.S.C. 78f(b)(5) and (8). 

186See Citadel Letter, supra note 18, at 13–14; 

MFA Letter, supra note 18, at 8. 

187See Citadel Letter, supra note 18, at 13; MFA 

Letter, supra note 18, at 8. Rule 813(a)(3)(i) requires 

an SBSEF to communicate to the requester any firm 

bid or offer pertaining to the same instrument 

resting on any of the SBSEF’s order books. 

188See Citadel Letter, supra note 18, at 13; see 

also MFA Letter, supra note 18, at 8 (also 

referencing the request-for-stream protocol). 

189See Citadel Letter, supra note 18, at 13–14. 

190See id. at 14. 

191See MFA Letter, supra note 18, at 8. 

192See supra section I. 

swaps market, the process required 

before the execution requirement would 

apply to an SBS will reduce the risk of 

‘‘substantial disruptions.’’ The required 

methods of execution would be applied 

to an SBS only to the extent that it is 

subject to the clearing mandate and has 

been ‘‘made available to trade.’’ Before 

making an SBS subject to the clearing 

mandate, the Commission would be able 

to take into account a number of factors, 

including the existence of significant 

outstanding notional exposures, trading 

liquidity, and the adequacy of pricing 

data.181

Further, to make an SBS ‘‘available to 

trade,’’ an SBSEF would, under 

Proposed Rule 816(a)(1),182 have to 

make a filing with the Commission 

under Rule 806 or Rule 807—both of 

which would allow the Commission to 

find that a filing was not consistent with 

the requirements of the SEA or 

Regulation SE.183 Moreover, the 

SBSEF’s filing would, under Proposed 

Rule 816(b), have to address, as 

appropriate, a number of relevant 

factors, including whether there are 

ready and willing buyers and sellers; the 

frequency or size of transactions; the 

trading volume; the number and types 

of market participants; the bid/ask 

spread; and the usual number of resting 

firm or indicative bids and offers. 

Similarly, a national securities exchange 

that wished to make an SBS ‘‘available 

to trade’’ would have to file a rule 

change under Rule 19b–4,184 and that 

proposed rule change would be subject 

to Commission review for compliance 

with the requirements of the SEA, 

which requires that the rules of a 

national securities exchange, among 

other things, promote just and equitable 

principles of trade, remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, protect 

investors and the public interest, and 

not impose a burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the SEA.185 Thus, 

before an SBS becomes subject to the 

trade execution requirement, the 

Commission would have had multiple 

opportunities to consider the trading 

characteristics of that SBS. 

Additionally, most, if not all, SBSEFs 

are likely to be dually registered with 

the CFTC as SEFs, and that most, if not 

all, market participants in the SBS 

market will be participants in the swaps 

market. The Commission remains 

concerned that different or additive 

requirements—particularly for the key 

concept of a ‘‘Required Transaction’’— 

could introduce complexity and 

confusion if one set of trading protocols 

applied to Required Transactions for 

swaps but different protocols—different 

from ones that have been understood 

and utilized for many years—applied to 

Required Transactions for SBS 

transactions. 

Thus, it is not appropriate to modify 

the requirement that a qualifying RFQ 

system under Proposed Rule 815(c) 

transmit a request for a quote to no 

fewer than three market participants in 

the trading system or platform. The 

question whether sufficient liquidity 

exists in the market for a given SBS to 

trade RFQ-to-3 can be addressed when 

the SBS is subject to the clearing 

mandate and when a national securities 

exchange or SBSEF seeks to make that 

SBS available to trade. Until that time, 

SBSs would be Permitted Transactions 

on SBSEFs and thus could be traded 

using other methods of execution, thus 

avoiding any potential disruptions to 

liquidity in the SBS markets. 

(iii) RFQ Functionalities 

The Commission also received two 

comment letters on the functionalities 

required for RFQ systems under 

Proposed Rule 815(a)(3).186 Both 

commenters suggest that the proposed 

rule be amended to require an SBSEF to 

communicate any firm bid or offer 

pertaining to the same instrument 

resting on any of the SBSEF’s trading 

systems or protocols, not just firm bids 

or offers on the SBSEF’s order book.187

One of the commenters argues that, in 

practice, order books continue to be 

infrequently used on SEFs that offer 

RFQ systems and that, therefore, the 

same interaction requirement on SEFs 

has had little impact.188 The commenter 

cites, for example, that ‘‘request for 

stream’’ trading protocols, which allow 

liquidity providers to stream firm 

prices, are not required to be 

communicated to clients sending an 

RFQ. 

This commenter also suggests that the 

proposed rule should be modified to 

ensure that the RFQ requester has the 

ability to execute against all of the 

prices provided in connection with an 

RFQ on the same screen. The 

commenter argues that this will prevent 

an SBSEF from requiring the RFQ 

requester to click through multiple 

screens in order to execute against firm 

prices, which, the commenter argues, 

serves to disadvantage those prices 

versus other prices provided in response 

to an RFQ.189 Finally, the commenter 

recommends that the requirements of 

Rule 815(a)(3) be modified to apply to 

all SBS transactions on an SBSEF, not 

solely Required Transactions, as they 

argued that this will help ensure that 

market participants transacting on 

SBSEFs are always provided with the 

necessary transparency to achieve the 

most favorable execution possible.190

The other commenter also urges the 

Commission to modify the requirement 

to ensure that the SBSEF communicates 

to the requester any firm prices 

available on the SBSEF, in addition to 

resting firm bids or quotes on the 

SBSEFs order book(s), and that they 

make this functionality available for 

Permitted Transactions as well.191 In the 

commenter’s view, this approach is 

necessary in order to ensure the 

availability of quotes for SBS 

transactions that will be essential to 

maintaining liquidity and promoting 

open and equitable participation in the 

markets. 

As previously noted, given that most 

if not all SBSEFs will be dually 

registered as SEFs, there is a public 

interest in harmonizing its requirements 

for trading protocols with those of the 

CFTC.192 The commenters’ suggestions 

to apply the proposed interaction 

requirement to all trading systems and 

protocols on the SBSEF would be a 

deviation from the CFTC’s requirements 

for SEFs that would likely introduce 

operational and compliance challenges 

created by having different standards. 

This would undercut the Commission’s 

goal of minimizing operational and 

compliance burdens by seeking to 

harmonize requirements between SEFs 

and SBSEFs. For instance, the 

commenters’ suggestions to apply the 

order interaction requirement to all 

transactions on the SBSEF, not only 

Required Transactions, or to require that 

firm interest outside the SBSEF’s order 


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193See supra note 175 and accompanying text. 194See infra section VI.B.3. 195 15 U.S.C. 78c–4(d)(2)(C); 7 U.S.C. 7b– 

3(f)(2)(C). 

196That rule cross-references § 43.2, which 

defines the term ‘‘block trade’’ for purposes of 

public dissemination of swap transactions. 

197See Proposed Rule 815(a)(2)(i) (emphasis 

added). 

198See Bloomberg Letter, supra note 18, at 14; 

Citadel Letter, supra note 18, at 9–10, ICI Letter, 

supra note 18, at 10–13; SIFMA AMG Letter, supra 

note 18, at 9–10; ISDA–SIFMA Letter, supra note 

18, at 7–9; MFA Letter, supra note 18, at 5–6. Many 

of these commenters raised questions about the 

proposed size of the block-trade threshold. See infra 

section V.E.1(c). 

199See SIFMA AMG Letter, supra note 18, at 10. 

200See MFA Letter, supra note 18, at 5–6. 

201See ICI Letter, supra note 18, at 10. 

202See Bloomberg Letter, supra note 18, at 14. 

book be communicated in response to 

RFQs, would be a significant deviation 

from the CFTC’s method-of-execution 

requirements and would have wide 

ramifications for the SBS markets, 

particularly in view of the liquidity and 

information leakage concerns that other 

commenters expressed elsewhere 

regarding the less liquid and thinly 

traded SBS products that may trade on 

an SBSEF.193 As a result, applying such 

requirements to Permitted Transactions, 

which the CFTC does not do, would be 

likely to have the undesirable effect of 

discouraging market participants from 

voluntarily executing Permitted 

Transactions on SBSEFs, which would 

lessen market transparency and would 

not provide greater opportunities for 

market participants to interact with 

trading interest not subject to the trade 

execution requirement. Further, it is not 

necessary for the Commission to 

mandate the technical details of how the 

SBSEF displays responses to RFQs to its 

members. Rule 819(c), discussed 

below,194 requires SBSEFs to provide all 

ECPs and independent software vendors 

with impartial access market and market 

services, and this requirement is 

sufficient to address a situation in 

which an SBSEF designed its RFQ 

responses to systematically 

disadvantage certain market participants 

or types of market participants. 

(c) Block-Trade Exception 

(i) General Treatment of Block Trades 

Under both the CEA and SEA, Core 

Principle 2 requires a SEF/SBSEF to 

specify trading procedures to be used in 

entering and executing orders on the 

facility, including block trades.195 The 

CFTC implemented this provision by 

excepting block trades from the required 

execution methods in § 37.9(a)(2).196

Proposed Rule 815(a)(2) would also 

exclude block trades from the required 

execution methods using language 

closely modeled on § 37.9(a)(2). 

Specifically, Proposed Rule 815(a)(2)(i) 

would apply required methods of 

execution to ‘‘[e]ach Required 

Transaction that is not a block 

trade.’’ 197

Thus, the Commission’s proposal to 

include an exception from the required 

methods of execution for block trades in 

Regulation SE is consistent with the 

approach taken by the CFTC. The 

purpose of having a block-trade 

exception to the required methods of 

execution is to balance the promotion of 

price competition and all-to-all trading 

against the potential costs to market 

participants who wish to trade large 

orders. Forcing a market participant 

who seeks liquidity to expose a large 

order to an order book or to utilize RFQto-3 could cause the market to move 

against the liquidity requester before it 

can obtain an execution. Under the 

CFTC’s rules, a block trade in a product 

that is subject to mandatory trade 

execution may be traded on-SEF using 

flexible means of execution on the SEF’s 

non-order-book trading system or 

platform, or away from a SEF’s trading 

system or platform, provided that it is 

executed pursuant to the SEF’s rules 

and procedures. As noted above, the 

Commission proposed a similar 

approach for block trades on SBSEFs, 

excepting block trades from the required 

execution methods of Proposed Rule 

815(a)(2). 

The Commission received a number 

of comments on its proposal for a block 

trade exception. Commenters generally 

support the inclusion of a block trade 

exception from the Required 

Transaction requirement in Rule 

815(a)(2).198

One commenter, supporting the 

Commission’s harmonization with the 

CFTC’s approach to block trades by 

providing an exception for those trades, 

states that a flexible block execution 

regime permits trading of larger-sized 

transactions in a manner that 

incentivizes dealers to provide liquidity 

and capital without creating market 

distortions.199 Another commenter 

asserts that exempting block trades from 

order book and RFQ execution 

requirements is critical to the 

functioning of the SBS markets, 

particularly to execute large trades 

without affecting price.200 This 

commenter expresses concerns that, 

absent such an exception, market 

participants would have difficulty 

executing, or would be unable to 

execute, large bona fide trades, since 

they would be required to do so only 

through the order book. This would 

increase the cost of trading and hedging, 

the commenter says, which could 

reduce participation in certain markets, 

resulting in less liquidity and increased 

volatility. 

Another commenter states that the 

proposed exception for block trades 

would provide important flexibility for 

market participants executing SBS 

transactions of a significantly large size, 

and that rules that facilitate swap block 

trades allow market participants, such 

as regulated funds, to engage in large 

transactions while mitigating the risks 

of information leakage and impairment 

of market liquidity.201 Another 

commenter also supports the 

Commission’s proposal to align closely 

its approach to block trades with the 

approach taken by the CFTC.202 This 

commenter agrees with the Proposing 

Release’s assessment that the block 

exception to the required methods of 

execution balances the promotion of 

price competition and all-to-all trading 

against the potential costs to the market 

participants who wish to trade large 

orders, the importance of which they 

note is more acute in the SBS market, 

which is a smaller and less liquid 

market than the swaps market. 

The Commission agrees with these 

commenters that a block-trade exception 

is appropriate, not only to maintain 

harmonization with the CFTC regime for 

swaps but also to facilitate trading of 

SBS. This approach, which is consistent 

with the approach of the CFTC for 

swaps, will be especially important in 

the smaller, less liquid SBS markets if 

and when a clearing determination has 

been made for one or more SBS. A 

block-trade exception for SBSs subject 

to the trade-execution requirement, 

provided that ‘‘block trade’’ is 

appropriately defined for those SBSs, 

can help ensure that large trades are not 

significantly more difficult and costly to 

execute because of the risks posed by 

information leakage and the potential 

for adverse price movement, which 

could significantly impair liquidity in 

the markets for those SBSs. Therefore, 

the Commission is adopting Rule 815(a) 

as proposed, but is, as discussed 

immediately below, modifying the 

proposal with respect to the definition 

of ‘‘block trade’’ in Rule 802. 

(ii) Block-Trade Definition for Credit 

SBS 

The Commission also proposed to 

align the regulatory text defining ‘‘block 

trade’’ in proposed Regulation SE with 

the CFTC’s definition. The proposed 

definition in Rule 802 of Regulation SE 

was based on the four-pronged 

definition found in § 43.2(a), but with 

one modification. The third prong of the 


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203Appendix F to the CFTC’s part 43 divides 

swap asset classes into a number of categories and 

sets forth a minimum block size threshold to each 

category. SBSs are not within the CFTC’s 

jurisdiction, so the CFTC had not considered what 

an appropriate minimum block size threshold 

would be for any SBS asset class. In this respect, 

there was no CFTC-defined threshold for the 

Commission to harmonize with, so the Commission 

proposed to establish a threshold tailored 

specifically for the SBS market, see Proposing 

Release, supra note 1, 87 FR at 28956, as discussed 

below. 

204See Proposing Release, supra note 1, 87 FR at 

28896. 

205See id. at 28944. 

206See id. at 28944 n.369. 

207See Citadel Letter, supra note 18, at 9; ICI 

Letter, supra note 18, at 10–12; MFA Letter, supra 

note 18, at 5–8; SIFMA AMG Letter, supra note 18, 

at 10; ISDA–SIFMA Letter, supra note 18, at 7–9. 

208See ISDA–SIFMA Letter, supra note 18, at 7– 

9. 209See id. 

210 Id. at 9 n.23. 

211See MFA Letter, supra note 18, at 7; ICI Letter, 

supra note 18, at 11; SIFMA AMG Letter, supra note 

18, at 10. 

212See ICI Letter, supra note 18, at 11–12. 

213 Id. at 11. 

CFTC definition characterizes a block 

trade in a particular swap as having ‘‘a 

notional or principal amount at or above 

the appropriate minimum block size 

applicable to such swap.’’ 203

For the third prong of the ‘‘block 

trade’’ definition, the Commission 

proposed that the SBS be based on a 

single credit instrument (or issuer of 

credit instruments) or a narrow-based 

index of credit instruments (or issuers of 

credit instruments) having a notional 

size of $5 million or greater,204

considered the distribution of 

transactions in the single-name CDS 

market 205 and took into consideration 

that FINRA applies a $5 million cap 

when disseminating transaction reports 

of economically similar cash debt 

securities.206

A number of commenters question the 

basis for the proposed $5 million block 

threshold size and advocate a variety of 

different approaches to establishing the 

block size threshold for SBS products, 

as alternatives to the proposed $5 

million notional size block trade 

threshold.207

One commenter presents data that it 

argues supports its assertion that the 

block threshold for credit SBS should be 

recalibrated.208 The commenter 

recommends that the Commission first 

establish an appropriate methodology to 

determine block thresholds based on 

current market-wide data. This 

commenter states that, otherwise, the 

already illiquid SBS market will be 

required to comply with an arbitrary, 

‘‘one-size-fits-all’’ threshold amount that 

fails to consider the unique levels of 

market liquidity and risk sensitivity of 

various instruments. The commenter 

suggests that average daily volume 

(‘‘ADV’’) is an appropriate indicator of 

liquidity levels because it represents a 

measure of how much trading occurs in 

a given issuer across the market as a 

whole, and that the lower the ADV, the 

lower the liquidity of the product. Based 

on its analysis of ADV data for credit 

default swaps (‘‘CDS’’), which it 

retrieved from the DTCC Trade 

Information Warehouse, the commenter 

posits that liquidity in single-name CDS 

is significantly lower than in broadbased CDS. Thus, the commenter 

argues, it is not appropriate to mirror 

the block threshold for credit SBS to the 

threshold for debt securities, when there 

are clear differences in liquidity levels 

within the CDS market itself. 

This commenter also asserts that the 

data reveal that liquidity in single-name 

CDS is disproportionately concentrated 

in the most actively traded issuers, 

which, the commenter contends, 

corroborates its assertion that block 

thresholds should be calibrated at a 

more granular level in order to reflect 

the different liquidity levels of credit 

SBS products. The commenter cautions 

that, absent a data-based approach to 

setting block thresholds for credit SBS 

instruments, the proposal runs the risk 

that $5 million may be an 

inappropriately high threshold for those 

products, which may widen bid/offer 

spreads, further reduce liquidity, and 

force large-sized transactions to be 

publicly reported with their full size, 

leaving the dealer that ‘‘wins’’ in the 

position of risking the market moving 

against the dealer before the dealer is 

able to adequately lay-off its exposure. 

This risk to the dealer, the commenter 

asserts, could increase the costs of 

transacting with immediacy 

substantially, leading to overall 

increased costs and time delays in 

executing hedges, and adding to or 

taking down positions, which would 

have a direct impact on clients and endusers, who will ultimately bear the 

increased costs and inefficiencies when 

forced to split large trades into smaller 

sizes for liquidity purposes. The 

commenter states that these clients, endusers, and liquidity providers may 

decide that it is more economical to exit 

the market entirely, given that most of 

them do not trade in large volumes of 

SBS.209

The same commenter also states that, 

because ‘‘the appropriate block 

threshold depends on factors such as 

liquidity and risk sensitivity[,] which 

can change over time, . . . the rules 

should provide a formal adjustment 

mechanism that would allow market 

participants to petition the Commission 

to temporarily change block thresholds 

based on observed market conditions, or 

enable the Commission’s staff to do so, 

subject to a public comment 

process.’’ 210

Several commenters argue for 

establishing a range of block trade 

threshold sizes, based on the product.211

One commenter recommends that the 

Commission delay implementation of 

the required execution methods until it 

considers its approach to block trades 

more comprehensively.212 This 

commenter argues that calibrating 

appropriate block threshold sizes for 

SBSs has significant implications for 

market participants from both a pre- and 

a post-trade transparency perspective. 

With respect to pre-trade transparency, 

the commenter states that requiring a 

fund to disclose its trading interest in an 

SBS of a large notional size to multiple 

participants—via an order book or an 

RFQ system—would ‘‘enable 

opportunistic market participants to 

piece together information about the 

fund’s holdings or investment strategy 

and lead to frontrunning of those 

potential trades.’’ 213 With respect to 

post-trade transparency, the commenter 

states that setting a block trade 

threshold that is too high would 

unnecessarily limit the ability to report 

large-sized SBS transactions on a delay, 

which would make it difficult for 

liquidity providers to hedge such 

positions, leading to higher trading costs 

and less efficient trading for funds and 

other market participants. The 

commenter also states that the 

magnitude of these risks depends on, 

among other factors, an SBS’s liquidity 

profile. The commenter also states that 

having a single threshold—across all 

applicable SBSs with respect to SBSEF 

trading and for any additional future 

rulemaking related to post-trade public 

reporting—does not adequately account 

for varying levels of liquidity across 

different categories or types of SBSs. 

The commenter recommends that, given 

the differences in liquidity across 

different SBSs, the Commission should 

base its thresholds on more 

comprehensive transaction data 

obtained pursuant to Regulation SBSR. 

The commenter asserts that taking such 

a data-driven approach would allow the 

Commission to assess the liquidity of 

different SBSs based on, for example, 

swap term, underlying security, and 

other characteristics. The commenter 

also argues that this would enable the 

Commission, similar to the CFTC, to 

formulate different types or categories of 


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214See MFA Letter, supra note 18, at 7. 

215See Citadel Letter, supra note 18, at 9. 

216See id. at 10. 

217See SIFMA AMG Letter, supra note 18, at 10. 

218See 2019 Cross-Border Application of Certain 

Security-Based Swap Requirements, SEA Release 

No. 87780 (Dec. 18, 2019), 85 FR 6270, 6347 (Feb. 

4, 2020) (‘‘2019 Cross-Border Adopting Release’’). 

219 In adopting Regulation SBSR, the Commission 

directed its staff to make reports in connection with 

the determination of block thresholds and reporting 

delays for security-based swap transaction data. See 

17 CFR 242.901 (Appendix) (discussing the studies 

for the determination of block thresholds and 

reporting delays); see also Regulation SBSR 

Adopting Release I, supra note 140, 80 FR at 14625. 

The Commission stated that it intends to use these 

reports to inform its specification of the criteria for 

determining what constitutes a large notional SBS 

transaction (i.e., block trade) for particular markets 

and contracts; and the appropriate time delay for 

reporting large notional SBS transactions to the 

public. See 17 CFR 242.901 (Appendix). The reports 

for each asset class are to be completed no later 

than two years following the initiation of public 

dissemination of security-based swap transaction 

data by the first registered SDR in that asset class— 

in other words, the reports are anticipated to be 

complete by Feb. 14, 2024—and then published for 

comment in the Federal Register. See id. 

220Because the Commission is not adopting a 

definition of ‘‘block trade’’ at this time, it is also 

modifying other rules within Regulation SE that 

reference block trades. See supra note 41. 

221The Commission has corrected a crossreference from 242.800(x) to 242.802. 

222As discussed in the Proposing Release, 

appendix F to part 43 of the CFTC’s rules does not 

define a block trade for equity swaps, and 

accordingly, no equity swap transaction could 

qualify for the exception to the required means of 

execution for block trades under § 37.9(a)(2). See 

Proposing Release, supra note 1, 87 FR at 28896. 

SBSs and propose differing block trade 

sizes that are more appropriately 

tailored to the liquidity characteristics 

of each type or group. 

Another commenter states that the 

CFTC sets different minimum block 

sizes for different categories of swaps 

and argues that the Commission should 

similarly develop a more structured and 

tailored approach.214 The commenter 

expresses concerns that setting a 

miscalibrated block size will likely limit 

the utility of the block trade exception, 

thereby preventing many market 

participants from executing transactions 

on SBSEFs. Another commenter 

recommends that the Commission adopt 

the CFTC’s approach for block trades 

based on a ‘‘67 percent notional amount 

calculation.’’ 215 That commenter also 

recommends that the Commission 

reserve the ability to update block 

thresholds on a regular basis to ensure 

they remain representative of current 

market conditions.216 Another 

commenter states that the proposed 

block threshold is not a result of any 

empirical analysis on the market 

conditions for credit SBSs and 

suggested that, as the SBS market 

develops and grows, it may become 

more appropriate for amendments to the 

credit SBS threshold.217

The Commission has considered the 

comments received and has determined, 

for the reasons discussed below, not to 

adopt a definition of ‘‘block trade.’’ 

While the Commission had proposed 

the single block threshold for credit SBS 

based on its preliminary view that the 

block-trade threshold applicable to an 

SBS trade should be consistent with any 

reporting cap for that SBS trade, and 

any reporting cap applicable to the cash 

markets for the securities,218 the 

Commission acknowledges commenters’ 

concerns that the proposed $5 million 

block-trade threshold for all credit SBSs 

would not be sufficiently tailored to the 

unique and varying trading and risk 

characteristics of the full range of credit 

SBS, creating the potential for the 

adverse market risks that commenters 

point out may arise from having a onesize-fits-all block threshold. 

Further, unless and until the 

Commission has made a clearing 

determination for a given SBS and an 

SBSEF or a national securities exchange 

has made that SBS ‘‘available to trade,’’ 

all transactions in that SBS will be 

Permitted Transactions. On the effective 

date of Regulation SE, and until the 

Commission has made a clearing 

determination for an SBS, no SBSEF or 

national securities exchange will be able 

to make that SBS ‘‘available to trade.’’ 

Consequently, there could be no 

mandatory trading requirement and thus 

there are no transactions to be excepted. 

Without a mandatory trading 

requirement, a block-trade threshold, 

therefore, has no effect on the ability of 

market participants to choose their 

preferred means of execution for trades 

in that SBS. Unless and until the 

Commission has made a mandatory 

clearing determination regarding an 

SBS, it is not necessary to define a 

block-trade threshold for SBS, and it 

would be appropriate for the 

Commission to identify a block-trade 

threshold in the future after considering 

credit SBS transaction data and credit 

SBS markets at that time. In addition, 

the Commission agrees with 

commenters that additional 

consideration of credit SBS transaction 

data, including data reported under 

Regulation SBSR, would help the 

Commission determine the appropriate 

block threshold for credit SBS products, 

including whether different thresholds 

should apply to different types or 

groups of SBS. The Commission also 

agrees with commenters that the credit 

SBS markets are likely to evolve over 

time and that analysis of market data 

continues to be an important aspect of 

setting appropriate thresholds for both 

block trades and credit SBS public trade 

reporting.219

Therefore, the Commission is not 

adopting the proposed definition of 

‘‘block trade’’ under Proposed Rule 802, 

or any other block-trade threshold.220 In 

conjunction with any mandatory 

clearing determination by the 

Commission for SBS, or with any 

Commission proposal to specify the 

criteria for determining what constitutes 

a large notional SBS transaction for 

particular markets and contracts with 

respect to trade reporting, the 

Commission will have the opportunity 

to engage in rulemaking to propose a 

definition of ‘‘block trade’’ for purposes 

of Regulation SE—and to solicit public 

comment on Commission’s proposal 

and its economic analysis of the 

proposed definition—before it considers 

adopting a definition. 

In response to the comment that the 

Commission should delay 

implementation of the trade execution 

requirement until it has considered 

block trades more comprehensively, 

unless and until the Commission has 

made a clearing determination for a 

given SBS and an SBSEF or a national 

securities exchange has made that SBS 

‘‘available to trade,’’ all transactions in 

that SBS will be Permitted Transactions. 

Thus, it is not necessary to formally 

delay the implementation of the trade 

execution requirement, because the 

Commission will have the opportunity 

if and when it makes a clearing 

determination for SBS—i.e., before any 

SBS transaction becomes a Required 

Transaction—to address whether a 

block-trade threshold should be set; 

what methodology should be used to 

determine that threshold; and what that 

threshold would be. At that time, 

because amending Rule 802 to define 

‘‘block trade’’ would entail notice-andcomment rulemaking, market 

participants would have the opportunity 

to comment on the Commission’s 

proposed action. 

For the reasons discussed above, the 

Commission is not adopting the 

definition of ‘‘block trade’’ in Rule 802 

as proposed but is instead adding a note 

to Rule 802 informing stakeholders the 

Commission has not yet adopted a 

definition of ‘‘block trade.’’ 221

(iii) Block-Trade Definition for Equity 

SBS 

In the Proposing Release, the 

Commission did not propose a 

definition of ‘‘block trade’’ applicable to 

equity SBS. Accordingly, no equity SBS 

would qualify for the exception to 

required means of execution for block 

trades in Proposed Rule 815(a)(2).222


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223See MFA Letter, supra note 18, at 6–7; ICI 

Letter, supra note 18, at 12–13; ISDA–SIFMA Letter, 

supra note 18, at 9; SIFMA AMG Letter, supra note 

18, at 10. 224See MFA Letter, supra note 18, at 6–7. 

225 Id. at 6. 

226See MFA Letter, supra note 18, at 6–7. 

227See ICI Letter, supra note 18, at 12–13. 

228See SIFMA AMG Letter, supra note 18, at 10. 

229See ISDA–SIFMA Letter, supra note 18, at 9. 

230See Proposing Release, supra note, 87 FR at 

28894 (‘‘The legislative history of the Dodd-Frank 

Act indicates that exchange trading is a mechanism 

to ‘provide pre- and post-trade transparency for end 

users, market participants, and regulators.’ ’’ S. Rep. 

No. 111–176, at 34 (2010)). 

231See supra section V.E.1(c)(ii). 

Several commenters submitted 

comment letters on the proposal to 

exclude equity swaps from the proposed 

block-trade exception.223 One 

commenter states that, in its view, the 

use of block trades for equity SBS is at 

least as necessary as for credit SBS, due 

to the need to customize the size of 

transactions and to obtain timely and 

efficient executions.224 This commenter 

asserts that requiring equity SBS trades 

to be executed only through the order 

book or RFQ system could result in 

these trades having ‘‘significant price 

impact’’ on SBSEF products, which 

would ultimately inhibit the ability of 

market participants to efficiently 

arrange and execute large, customized 

trades that are essential for market 

participants’ risk management 

activities.225 The commenter also asserts 

that this would disincentivize market 

participants from using equity SBS for 

their legitimate business purposes, 

including hedging, which could 

increase volatility and reduce liquidity 

in equity SBS markets (as well as 

underlying equity markets). The 

commenter also argues that excluding 

equity SBS block trades would 

ultimately inhibit capital formation as 

an inability to execute blocks in equity 

SBS would make it riskier, more 

expensive, and more difficult to hedge, 

which would in turn inhibit market 

participants from participating in 

offerings. 

This commenter further states that 

equity SBS are quite distinct from CFTC 

equity swaps in ways that make it more 

critical to allow block trades in equity 

SBS. Specifically, the commenter states 

that since CFTC-regulated equity swaps 

are based on broad-based equity indices, 

which reflect markets and not 

individual issuers, they are used to 

assume or hedge exposure to the 

relevant market or sector generally. By 

contrast, the commenter posits that 

equity SBS may reference a single name 

and are therefore a preferred tool for 

hedging exposure to specific equities, 

which makes them essential to capital 

formation. The commenter also argues 

that markets for SBS on individual 

equities will, in many cases, be less 

liquid than the markets for broad-based 

equity index swaps, further 

necessitating the opportunity for block 

trades.226

Another commenter also recommends 

that the Commission conduct further 

analysis before determining block 

treatment for equity SBSs.227 That 

commenter states that it previously 

disagreed with CFTC’s similar approach 

with respect to equity swaps. The 

commenter argues that the Commission 

should undertake additional analysis to 

demonstrate that the CFTC’s 

justifications for its approach apply 

equally to the categories or types of 

equity-based swaps specifically under 

its jurisdiction, which include, for 

example, total return swaps based on a 

single security or loan, or a narrowbased security index. The commenter 

also recommends that the Commission 

determine whether block treatment 

would be appropriate for equity-based 

SBSs in the pre-trade transparency 

context. The commenter argues that 

similar to other categories or types of 

large-sized SBSs that would qualify for 

block treatment, flexible execution with 

respect to large-sized, equity-based SBSs 

is important to avoid information 

leakage regarding a market participant’s 

investment strategies. 

One commenter suggests that, if there 

is the ability to have fungible, singlename total return swaps in equity 

products, and they become subject to 

mandatory clearing in the future, that 

the commenter would expect there to be 

appropriately calibrated block size 

thresholds that are applied to those 

equity-based swaps.228 Another 

commenter suggests that if an equity 

SBS product becomes subject to 

mandatory trade execution, there should 

be an appropriate methodology for 

establishing equity block thresholds.229

While the Commission acknowledges 

commenters’ concerns, the general 

concerns expressed about the need for 

equity blocks lack specificity or analysis 

regarding a particular definition of 

‘‘block trade’’ for equity SBS—whether 

a specific threshold or a methodology— 

that the Commission could adopt. 

Commenters’ concerns focus on the 

need to customize the size of equity SBS 

transactions, to obtain timely and 

efficient executions, and to avoid 

information leakage. And commenters 

state that the lack of a block-trade 

exception could result in significant 

price impact and inhibit the large, 

customized trades essential for risk 

management and hedging, which would 

discourage hedging, increase volatility 

and reduce liquidity in equity SBS 

markets (as well as underlying equity 

markets), and ultimately inhibit capital 

formation and participation in offerings. 

With respect to the stated need for 

certain parties to use an equity SBS 

block-trade exception, a relevant 

consideration for the Commission in 

determining whether to establish a 

block-size threshold for equity SBSs, if 

and when it makes a clearing 

determination for those SBSs, is 

whether establishing that block-trade 

threshold would have the potential to 

create a situation where SBSEFs provide 

less transparency than exists in the 

underlying cash equity markets or the 

listed options markets. An inappropriate 

block-trade threshold for equity SBSs 

could create incentives for market 

participants to favor equity SBS markets 

over cash equities or listed options 

markets, either of which may be used, 

in many cases, to achieve economically 

equivalent trading objectives as 

strategies using equity SBS, and neither 

of which provides for block-trade 

reporting delays. If transactions were to 

migrate from cash equities or listed 

options markets to the SBS market, this 

could lead to decreased market 

transparency and could potentially 

undercut the goal of the Dodd-Frank Act 

to bring transparency to the trading of 

SBS.230

Additionally, as a general matter, it is 

important to harmonize the treatment of 

equity SBS with the treatment of equity 

swaps. There is no block-trade 

exception for equity swaps in the 

CFTC’s rules, and the Commission does 

not wish to create incentives for market 

participants to trade equity SBS over 

swaps. And while a commenter states 

that equity SBS are quite distinct from 

equity swaps, the treatment of equity 

SBS transactions should be broadly 

consistent with the treatment of 

transactions in the cash equities 

underlying them to avoid, as discussed 

above, creating incentives for market 

participants to trade equity SBS instead 

of the underlying cash instruments. 

For these reasons and those discussed 

above regarding credit SBS,231 the 

Commission has determined not to 

adopt a definition of ‘‘block trade’’ in 

Rule 802. Thus, with respect to 

commenters’ concerns, until the 

Commission has made a clearing 

determination with respect to equity 

SBS, equity SBS will be able to trade 

OTC, just as their underlying cash 

equities can trade OTC. Moreover, 

before making a clearing determination 

for an equity SBS—which would create 


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Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Rules and Regulations 87183 

232The Commission has modified the text of Rule 

815(b)(1) to specify that the requirements in this 

provision only apply with regards to Required 

Transactions. 

233See Citadel Letter, supra note 18, at 14–15; ICI 

Letter, supra note 18, at 13–14. 

234See ICI Letter, supra note 18, at 13–14. 

235See Citadel Letter, supra note 18, at 15. 

236See ICI Letter, supra note 18, at 13–14. 

237See 2013 CFTC Final SEF Rules Release, supra 

note 9, 78 FR at 33503. 

238See id. 

239See infra section VI.B.3. 

240See 2013 CFTC Final SEF Rules Release, supra 

note 9, 78 FR at 33504. 

241See id. 

the circumstances in which equity SBS 

might be MAT and therefore subject to 

the trade-execution requirement—the 

Commission would have the 

opportunity to solicit and consider 

additional public comment on the effect 

of such a determination, including 

comment with respect to the concerns 

commenters have raised to date 

regarding, among other things, timely 

and efficient executions, hedging, and 

capital formation. 

2. Rule 815(b) 

Paragraph (b) of Proposed Rule 815 

would require a time delay for certain 

orders being entered by a broker or 

dealer on an SBSEF’s order book. This 

provision would only apply to 

situations in which the broker or dealer 

is seeking to trade against a customer 

order (a ‘‘facilitation cross’’) or to cross 

two customer orders (a ‘‘customer 

cross’’), following some form of prearrangement or pre-negotiation of such 

orders, and where the transaction is a 

Required Transaction.232 Under 

Proposed Rule 815(b)(1), an SBSEF 

would require that the broker or dealer 

must expose one of the two orders in 

this transaction on the SBSEF order 

book for a minimum time period of 15 

seconds so that other market 

participants have the opportunity to 

offer a better price than the broker or 

dealer had intended for the cross. 

Proposed Rule 815(b)(2) would permit 

the SBSEF to adjust the time period of 

the required delay based on the SBS’s 

liquidity or other product-specific 

considerations, provided that the time 

delay is a sufficient period of time so 

that an order is exposed to the market 

and other market participants have a 

meaningful opportunity to execute 

against the order. 

The Commission received comments 

on the provisions regarding the 

prearrangement or pre-negotiation of 

trades in Proposed Rule 815(b).233 One 

commenter requests that the 

Commission address the extent to which 

market participants may utilize ‘‘preexecution communications’’ when 

trading on an SBSEF, noting that the 

CFTC has specified that such 

communications may occur pursuant to 

a SEF’s rules that have been certified or 

approved by the CFTC.234 This 

commenter urges the Commission to 

align its rules to those of the CFTC in 

this respect, given that pre-execution 

communication is a standard market 

practice that investment advisers use to 

guard against information leakage and 

obtain fair pricing for large-sized trades 

and packaged transactions, among other 

types of transactions, on behalf of funds 

and other clients. 

Another commenter, arguing that the 

Proposing Release and the CFTC rules 

are silent with respect to the 

permissibility of pre-arrangement on 

RFQ systems, urges the Commission to 

require SBSEF rulebooks to prohibit the 

pre-arrangement of Required 

Transactions, arguing that it is 

important that pre-trade transparency 

and the RFQ-to-3 requirement not be 

undermined through bilateral prearrangement of a Required Transaction 

followed by a directed RFQ that merely 

formalizes the transaction.235

The Commission agrees with the 

comment that it should view preexecution communications in a way that 

is consistent with CFTC guidance on 

this matter.236 The CFTC has viewed 

pre-execution communications as 

communications between market 

participants to discern interest in the 

execution of a transaction prior to the 

exposure of the market participants’ 

orders (e.g., price, size, and other terms) 

to the market and has stated that such 

communications include discussion of 

the size, side of market, or price of an 

SBS order or a potentially forthcoming 

order.237 Consistent with the CFTC’s 

approach, the Commission is generally 

of the view that the terms ‘‘prenegotiation’’ and ‘‘pre-arrangement’’ 

within the meaning of Rule 802(b) 

should ordinarily be understood to 

include all communications between 

market participants to discern interest 

in the execution of a transaction prior to 

the exposure of the market participants’ 

orders (e.g., price, size, and other terms) 

to the market, including discussion of 

the size, side of market, or price of an 

SBS order, or a potentially forthcoming 

order. 

Additionally, while the CFTC has 

acknowledged that pre-execution 

communications may be permitted by a 

SEF, it has stated that any SEF that 

allows pre-execution communications 

must adopt rules regarding such 

communications that have been 

certified to or approved by the CFTC.238

Consistent with this view, the rulebook 

of an SBSEF generally should address, 

with clarity, the application of the terms 

‘‘pre-arrangement’’ and ‘‘prenegotiation’’ in Rule 802(b) so that 

market participants will know what 

types of pre-execution communications 

are covered by the rule. An SBSEF’s 

rules in this regard must, of course, also 

comply with the other provisions of the 

SEA and the rules thereunder, including 

the impartial access requirement of Rule 

819(c).239

With respect to the comment that the 

Commission should ban prearrangement or pre-negotiation of RFQ 

trades on an SBSEF, while the CFTC 

regulation is silent regarding the 

permissibility of pre-arrangement on 

RFQ systems, the CFTC’s adopting 

release with respect to its SEF rules 

expressly contemplates the permissible 

pre-arrangement of trades executed via 

RFQ.240 Moreover, the CFTC explained 

in its adopting release that it refrained 

from requiring a time delay for Required 

Transactions entered into RFQ systems 

because the requirement to send an RFQ 

to three other market participants 

already provides pre-trade price 

transparency.241 Thus, the CFTC has 

acknowledged that pre-arranged 

Required Transactions may be 

submitted into a SEF’s RFQ system, and 

without a time delay. 

The Commission recognizes that, as 

one of the commenters also states, preexecution communications are a 

standard practice for many participants 

in the SBS market, and that to prohibit 

them entirely would be a major 

departure from the CFTC’s approach 

and could have significant negative 

ramifications on the ability of market 

participants to effect their SBS 

transactions. Accordingly, and to 

maintain harmonization with the 

CFTC’s treatment of pre-arrangement 

and pre-negotiation of swaps 

transactions, the Commission is not 

modifying Rule 815(b) to prohibit the 

use of pre-arrangement or prenegotiation with respect to SBS 

transactions via RFQ or to impose a time 

delay before any such SBS can be 

executed via RFQ. 

One of the commenters also requests 

that the Commission require SBSEFs to 

provide periodic regulatory reporting 

around pre-arranged trading on their 

platforms, including reporting the 

percentage of pre-arranged orders for 

which other SBSEF participants step in 

to join the trade, and that it also require 

an SBSEF to demonstrate that it offers 

a bona fide order book in order for the 

SBSEF to permit the execution of prearranged orders (such as a minimum 


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87184 Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Rules and Regulations 

242See Citadel Letter, supra note 18, at 14–15. 

243The heading of the proposed rule text already 

indicated that it was a ‘‘Time delay requirement for 

Required Transactions on an order book.’’ The rule 

text has been modified only to add ‘‘With regard to 

Required Transactions,’’ at the beginning of the rule 

text, to reiterate the parameters indicated in the title 

and to clarify its application. 

244As discussed above, one commenter 

recommends that the requirements of Rule 815(a)(3) 

be modified to apply to all SBS transactions on an 

SBSEF, which would include Permitted 

Transactions. See supra note 190 and 

accompanying text (describing and discussing that 

comment). 

245See Bloomberg Letter, supra note 18, at 14, 

Citadel Letter, supra note 18, at 12–13, and ISDA– 

SIFMA Letter, supra note 18, at 9–10. 

246See Bloomberg Letter, supra note 18, at 14 and 

ISDA–SIFMA Letter, supra note 18, at 9–10. 

247See Citadel Letter, supra note 18, at 12–13. 

248See id. 

249See ISDA–SIFMA Letter, supra note 18, at 9– 

10. 

level of trading activity on the order 

book or a minimum percentage of prearranged orders where pricing is 

improved as a result of other SBSEF 

participants stepping in).242

The suggested reporting requirements 

or ‘‘bona fide order book’’ standard, 

however, would exceed what SEFs are 

required to do under the CFTC rules. 

The Commission is concerned that 

different or additive requirements to the 

key concept of an order book, such as 

whether that order book is ‘‘bona fide,’’ 

could introduce complexity and 

confusion if one set of trading protocols 

applied to Required Transactions for 

swaps but different protocols—different 

from ones that have been understood 

and utilized for many years—applied to 

Required Transactions for SBS 

transactions. Moreover, the commenter’s 

proposed reporting requirements—such 

as a minimum percentage of prearranged orders where pricing is 

improved as a result of other SBSEF 

participants stepping in—appear to be 

primarily relevant to an evaluation of a 

particular SBSEF has met the standard 

for having a ‘‘bona fide’’ order book. 

Accordingly, because the added 

complexity and costs associated with 

imposing the ‘‘bona fide’’ order book 

standard have not been justified, it is 

not appropriate to adopt the proposed 

regulatory reporting requirement 

suggested by the commenter with 

respect to cross-trading. 

For the reasons discussed above, the 

Commission is adopting Rule 815(b) as 

proposed, with a clarifying change to 

the rule text to reiterate that the 

requirement applies only to Required 

Transactions.243

3. Rule 815(c) 

Proposed Rule 815(c) is modeled on 

§ 37.9(c) of the CFTC’s rules and would 

define a ‘‘Permitted Transaction’’ as a 

transaction not involving an SBS that is 

subject to the mandatory trade 

execution requirement. This rule 

provides that an SBSEF may offer any 

method of execution for Permitted 

Transactions. 

The Commission did not receive any 

comments on the definition of Permitted 

Transactions 244 and is adopting Rule 

815(c) as proposed, for the reasons 

discussed in the Proposing Release. 

4. Rule 815(d) 

Paragraph (d) of § 37.9 provides an 

exception for package transactions that 

allows for flexible methods of execution 

for what would otherwise be Required 

Transactions. The Commission 

proposed to include similar exceptions 

in Proposed Rule 815(d). Proposed Rule 

815(d)(1) would define ‘‘package 

transaction’’ as two or more component 

transactions executed between two or 

more counterparties where at least one 

component is a Required Transaction, 

execution of each component is 

contingent upon the execution of all 

other components, and the component 

transactions are priced or quoted 

together as one economic transaction 

with simultaneous (or nearsimultaneous) execution of all 

components. Proposed Rule 815(d)(2) 

would provide that a Required 

Transaction that is executed as a 

component of a package transaction that 

includes a component SBS that is 

subject exclusively to the Commission’s 

jurisdiction, but is not subject to 

mandatory clearing, may be executed on 

an SBSEF using any method of 

execution as if it were a Permitted 

Transaction. 

Proposed Rule 815(d)(3) would 

provide that a Required Transaction that 

is executed as a component of a package 

transaction that includes a component 

that is not an SBS may be executed on 

an SBSEF using any method of 

execution as if it were a Permitted 

Transaction. Proposed Rule 815(d)(3) 

would further state that this general 

exception, which allows flexible means 

of execution for certain package 

transactions, shall not apply to a 

Required Transaction that is executed as 

a component of a package transaction in 

which all other non-SBS components 

are U.S. Treasury securities; a Required 

Transaction that is executed as a 

component of a package transaction in 

which all other non-SBS components 

are contracts for the purchase or sale of 

a commodity for future delivery; a 

Required Transaction that is executed as 

a component of a package transaction in 

which all other non-SBS components 

are agency mortgage-backed securities; 

or a Required Transaction that is 

executed as a component of a package 

transaction that includes a component 

transaction that is the issuance of a 

bond in a primary market. 

The Commission received comments 

on the proposed exception for packaged 

transactions.245 Several commenters 

support the Commission’s proposal.246

One commenter supports the proposal 

to harmonize with the CFTC rules, but 

suggested modifications to the proposed 

rule text.247 First, the commenter 

suggests that Rule 815(d)(2) be modified 

so that the package-transaction 

exception is not available if the other 

SBS in the package is either subject to 

the clearing requirement or intended to 

be cleared. This commenter states that, 

because the scope of any future clearing 

requirement for SBSs is unclear, there 

may be significant trading activity in 

packages containing SBSs that are 

intended to be cleared, but not subject 

to the clearing requirement, and the 

commenter states that, for purposes of 

the package transaction exception, SBS 

that are cleared, whether by mandate or 

intention, should be treated the same. 

This commenter also recommends that 

Rule 815(d)(3) be modified to clarify 

that the exception would not apply to 

package transactions where all of the 

other components are swaps subject to 

the CFTC’s trade execution requirement. 

The commenter states that this 

modification would prevent evasion for 

packages containing only SBSs and 

swaps that are subject to trade execution 

requirements on the Commission and 

the CFTC side, respectively.248

Another commenter, while agreeing 

that it is appropriate to treat package 

transactions differently from outright, 

single-legged transactions, suggests that 

the Commission take a different 

approach from that of the CFTC, stating 

that the current state of the CFTC’s rules 

reflect the culmination of a phased 

implementation approach developed 

over time via no-action letters.249 That 

commenter argues that it would be 

better for the Commission to tailor its 

rules for packaged transactions to 

address the particular market dynamics 

relevant to the SBS market instead of 

the swaps market. The commenter 

recommends that the Commission build 

into the MAT determination process a 

framework for identifying what types of 

package transactions exist for 

prospectively MAT SBS and then 

develop tailored rules around the 

execution of such transactions. 

Rule 815(d) is closely modeled on 

§ 37.9(d) and is designed to balance the 

goal of promoting transparency in the 


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250To the extent that counterparties may be 

facilitating a package transaction that involves a 

‘‘swap,’’ as defined in section 1(a)(47) of the CEA, 

7 U.S.C. 1a(47), or any contract for the purchase or 

sale of a commodity for future delivery (or option 

on such a contract), or any component agreement, 

contract, or transaction over which the Commission 

does not have exclusive jurisdiction, the 

Commission does not opine on whether such 

activity complies with other applicable law and 

regulations. 

251See Proposing Release, supra note 1, 87 FR at 

28896. 

252See Proposed Rule 802 (defining ‘‘correcting 

trade’’ as a trade executed and submitted for 

clearing to a registered clearing agency with the 

same terms and conditions as an error trade other 

than any corrections to any operational or clerical 

error and the time of execution); Proposed Rule 802 

(defining ‘‘error trade’’ as any trade executed on or 

subject to the rules of an SBSEF that contains an 

operational or clerical error); Proposed Rule 802 

(defining ‘‘offsetting trade’’ as a trade executed and 

submitted for clearing to a registered clearing 

agency with terms and conditions that 

economically reverse an error trade that was 

accepted for clearing). These definitions are 

modeled on the definitions of the same terms in 

§ 37.9(e)(1). 

253See Bloomberg Letter, supra note 18, at 3, 14. 

254See id. 

255See Bloomberg Letter, supra note 18, at 14–15, 

Citadel Letter, supra note 18, at 10–12, SIFMA 

AMG Letter, supra note 18, at 10–12, WMBAA 

Letter, supra note 18, at 5. 

SBS market through required methods 

of execution against the market 

efficiency of allowing multiple 

instruments to trade as a package using 

flexible methods of execution.250 As 

noted in the Proposing Release, a rule 

that was too lenient could subvert the 

goal of promoting transparency and 

competition through all-to-all trading, 

while a rule that was too strict could 

cause market participants to break the 

package into its individual components, 

thereby increasing transaction costs and 

reducing the economic purpose and 

efficiency of the package transaction.251

The Commission agrees with a 

commenter’s suggestions that Proposed 

Rule 815(d)(2) and (3) should be 

modified to narrow the scope of the 

package-transaction exception. 

Accordingly, the Commission is 

modifying these rules so that neither an 

SBS that is intended to be cleared (even 

if it is not required to be cleared) nor a 

swap subject to a CFTC trade execution 

requirement would create an exception 

from required methods of execution for 

a Required Transaction that is part of 

the same package. For purposes of 

exempting a Required Transaction in a 

package transaction from the required 

means of execution, there is no reason 

to distinguish mandatorily cleared SBS 

from voluntarily cleared SBS, or cleared 

swaps from cleared SBS. Therefore, the 

Commission is adding the words ‘‘and 

is not intended to be cleared’’ to Rule 

815(d)(2) so that it covers only a 

Required Transaction that is executed as 

a component of a package transaction 

that includes a component securitybased swap that is subject exclusively to 

the Commission’s jurisdiction but is not 

subject to the clearing requirement 

under section 3C of the SEA and is not 

intended to be cleared. And the 

Commission is adding new subsection 

(iv) to Rule 815(d)(3) to provide that a 

Required Transaction in a package 

transaction is ineligible to be treated as 

a Permitted Transaction if it is ‘‘[a] 

Required Transaction that is executed as 

a component of a package transaction in 

which all other non-SBS components 

are swaps that are subject to a trade 

execution requirement under the 

CFTC’s rules.’’ 

With respect to the suggestion that the 

Commission take a different approach 

from that of the CFTC and develop 

tailored rules for SBS, the packagetransaction rule is not the appropriate 

place to recognize the differences 

between the swaps and the SBS market. 

Rather, the clearing determinations and 

MAT determinations will necessarily 

consider the trading characteristics of a 

given SBS, and both these 

determinations will have to be made 

before the package transaction exception 

would ever potentially be relevant to a 

transaction in that SBS. 

For the foregoing reasons, the 

Commission is adopting Rule 815(d) 

with the modifications to paragraph 

(d)(2) and (d)(3), as described above. 

5. Rule 815(e) 

Proposed Rule 815(e) is modeled on 

§ 37.9(e), which requires SEFs to 

maintain rules and procedures for 

resolution of operational and clerical 

error trades, which could be for swaps 

that otherwise would be subject to 

required methods of execution. 

Proposed Rule 815(e) would also require 

an SBSEF to maintain rules and 

procedures that facilitate the resolution 

of error trades and sets forth certain 

requirements designed to promote 

resolution in a fair, transparent, and 

consistent manner. Definitions of the 

terms ‘‘correcting trade,’’ ‘‘error trade,’’ 

and ‘‘offsetting trade’’ would be 

included in Rule 802 rather than in Rule 

815(e).252

The Commission received one 

comment letter on this provision.253 The 

commenter states that, with respect to a 

cleared SBS, correcting an error trade 

that was rejected by a clearing agency is 

not feasible unless the rejected error 

trade is declared by the SBSEF void ab 

initio. Otherwise, the commenter states, 

the parties might be encumbered by 

unresolved obligations related to the 

rejected SBS trade, and this might 

further prevent a timely and efficient 

resolution of the error. For this reason, 

the commenter recommends that the 

SBSEF should be able to declare void ab 

initio any trade rejected by a clearing 

agency.254

The CFTC’s rules for addressing error 

trades are well articulated and well 

understood by the market, and they 

continue to serve as an appropriate 

model for the Commission’s rules. 

Furthermore, because most if not all 

SBSEFs also will be registered with the 

CFTC as SEFs, close harmonization in 

this regard would allow dually 

registered entities to employ the same 

procedures for addressing error trades, 

whether they arise in the context of 

swap trading or SBS trading. Therefore, 

the rules for addressing error trades 

should not differ between the SBS 

regime and the swaps regime. While the 

Commission appreciates the difficulties 

that might arise in trying to correct an 

error trade that has been rejected by a 

clearing agency, under Proposed Rule 

815(e), an SBSEF would be required to 

adopt rules and procedures for 

addressing such situations, which it 

could do by, among other things, 

declaring trades rejected by a clearing 

agency as void ab initio, as it would be 

required to do for non-error trades that 

are rejected for clearing under Rule 

815(g). For the foregoing reasons, the 

Commission is adopting Rule 815(e) as 

proposed. 

6. Rule 815(f) 

Rule 815(f) is modeled on § 37.9(f), 

which addresses counterparty 

anonymity and is widely referred to as 

the prohibition on ‘‘post-trade name 

give-up’’ (‘‘PTNGU’’). Proposed Rule 

815(f) would generally prohibit any 

person, directly or indirectly (including 

through a third-party service provider), 

from disclosing the identity of a 

counterparty to an SBS that is executed 

anonymously on an SBSEF and 

intended to be cleared and requires the 

SBSEF to establish and maintain rules 

to that effect. Furthermore, it provides 

that ‘‘executed anonymously’’ as used in 

the rule includes an SBS that is prearranged or pre-negotiated 

anonymously, including by an SBSEF 

participant. Finally, Rule 815(f) 

provides that, for a package transaction 

that includes a component SBS that is 

not intended to be cleared, disclosing 

the identity of a counterparty would not 

violate the rule. 

The Commission received several 

comments on Proposed Rule 815(f).255

Most of the commenters support the 


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256See Bloomberg Letter, supra note 18, at 14–15, 

Citadel Letter, supra note 18, at 10–12, SIFMA 

AMG Letter, supra note 18, at 10–12. 257See Citadel Letter, supra note 18, at 10; SIFMA 

AMG Letter, supra note 18, at 10. 258See Citadel Letter, supra note 18, at 10. 259See Citadel Letter, supra note 18, at 11. This 

commenter also cites news articles relating the 

accounts of buy-side firms of dealers contacting 

them to get them not to join SEF platforms. See id. 

at 11 n.20. 

260Rule 815(f)(3) provides that SBSs that are 

‘‘executed anonymously’’ include SBSs that are prearranged or pre-negotiated anonymously, which 

would include voice broker trades. 

261See SIFMA AMG Letter, supra note 18, at 10 

(stating that PTNGU for anonymously traded 

cleared SBSs is unnecessary and does not provide 

any advantages to clients, but rather leads to 

uncontrolled information leakage); Bloomberg 

Letter, supra note 18, at 15 (stating that prohibiting 

PTNGU facilitates and promotes trading on SBSEFs 

and promotes pre-trade price transparency by 

encouraging more participants to bid anonymously, 

whereas the practice of requiring disclosure of one 

counterparty’s name to the other counterparty 

increases the risk of information leakage and can 

deter participation by liquidity seekers on SBSEFs). 

262See SIFMA AMG Letter, supra note 18, at 10. 

263See id. at 11. 

264See Bloomberg Letter, supra note 18, at 15. 

265See Bloomberg Letter, supra note 18, at 15, 

Citadel Letter, supra note 18, at 11, WMBAA Letter, 

supra note 18, at 5. 

266Rule 815(f)(4) provides that, for a package 

transaction that includes a component transaction 

that is not an SBS intended to be cleared, disclosing 

the identity of a counterparty shall not violate the 

other provisions in the rule that prohibit the 

disclosure of the identity of a counterparty for SBSs 

executed anonymously. 

267See Citadel Letter, supra note 18, at 11. 

268See WMBAA Letter, supra note 18, at 5. 

269See Bloomberg Letter, supra note 18, at 15. 

rule.256 Several commenters state that 

they strongly support the proposal 

harmonizing with the CFTC rules to 

prohibit PTNGU for SBSs executed 

anonymously on SBSEFs and that are 

intended to be cleared.257 One 

commenter asserts that PTNGU has no 

legitimate purpose for centrally cleared 

financial instruments, since trading 

counterparties face the central 

clearinghouse and do not have any 

credit, operational, or legal exposure to 

each other post-trade.258 This 

commenter states that PTNGU functions 

as a source of uncontrolled information 

leakage since a market participant has 

no control over who it will be matched 

with when executing through a pretrade anonymous trading protocol, such 

as an order book. Accordingly, a buyside firm must be comfortable 

potentially sharing its trading activity 

with every other participant on the 

trading venue, including other buy-side 

firms before using an anonymous order 

book with PTNGU. The commenter 

considers this an unattractive 

proposition for buy-side firms that 

completely undermines the anonymous 

nature of the trading protocol and deters 

access and participation. The 

commenter also argues that PTNGU is a 

discriminatory practice that impedes 

market participant access to trading 

venues by allowing dealers to monitor 

whether buy-side firms have started to 

transact in anonymous order books and 

use this information as a policing 

mechanism to deter buy-side access and 

participation.259 The commenter also 

states that Rule 815(f)(3) 260 is drafted to 

prevent evasion by voice brokers. Other 

commenters express similar views.261

Another commenter states that if the 

Commission prohibits PTNGU, its 

policy would mirror the CFTC’s 

approach and that certain traders would 

be more likely to participate on venues 

that offer anonymous execution, 

including order book functionality.262

This, in turn, the commenter argues, 

could result in deeper liquidity pools on 

SBSEFs and promote the development, 

innovation, and growth of the SBS 

market.263 The commenter asserts that 

the Commission’s rules should be 

designed to better promote the 

development, innovation, and growth of 

the swaps market, with the intent of 

attracting liquidity formation onto 

SBSEFs, in a manner that adds to 

efficiency for the market and market 

participants. 

One commenter also states that 

PTNGU was a more important feature of 

the market when few swaps were 

centrally cleared and market 

participants needed to know their 

counterparty’s identity to manage the 

associated credit risk; however, with the 

prevalence of central clearing, the need 

for PTNGU is diminished for cleared 

swaps.264

A few commenters, while generally 

supportive of the rule, suggest some 

modifications to it.265 One commenter 

argues that Rule 815(f)(4) 266 is 

overbroad and may significantly limit 

the scope of the prohibition.267

Specifically, this commenter states that 

many security-based swaps are 

transacted as part of a package 

transaction with other instruments (e.g., 

single-name CDS and index CDS). The 

commenter argues that, at a minimum, 

any exception for package transactions 

should only apply to packages that 

include a component that is not an SBS 

intended to be cleared or a swap that is 

intended to be cleared. The commenter 

expresses concern that the current 

language would appear to exempt 

packages containing CFTC-regulated 

swaps, even if those instruments should 

be subject to an equivalent prohibition 

(notwithstanding the working of the 

corresponding CFTC exception for 

packages). The commenter encourages 

the Commission to work with the CFTC 

to avoid creating a loophole for common 

packages containing swaps and securitybased swaps that are all intended to be 

cleared. Furthermore, the commenter 

questions the need for Rule 815(f)(4) at 

all. The commenter states that, as 

proposed, the prohibition on PTNGU 

applies only to security-based swaps 

that are executed anonymously and 

intended to be cleared. The commenter 

argues that PTNGU could still be used 

for the uncleared security-based swap 

leg of a package transaction containing 

both a cleared security-based swap and 

an uncleared security-based swap, even 

without Rule 815(f)(4). 

One commenter argues that the 

Commission should take an 

evolutionary approach to the 

prohibition on name give-up, which 

initially should apply only to Required 

Transactions, and not Permitted 

Transactions on an SBSEF where 

clearing may not be certain leading up 

to or at the time of trade execution.268

This commenter believes that this 

approach would encourage liquidity 

formation and further development of 

less liquid SBSs where an SBSEF 

trading mandate is not required. 

One commenter suggests that the 

Commission augment the rule with a 

prohibition on trade-relationship 

documentation for SBS that are 

intended to be cleared and grant the 

SBSEF the ability to void ab initio 

trades rejected from clearing to avoid 

the necessity of post-trade name 

disclosure in case of an error trade.269

The Commission agrees with 

commenters that prohibiting post-trade 

name give-up for cleared trades is 

reasonably necessary to facilitate and 

promote trading on SBSEFs, and 

Proposed Rule 815(f) would accomplish 

these goals. 

The Commission disagrees with the 

comment that Rule 815(f)(4) is 

overbroad and unnecessary. The 

Commission finds that Rule 815(f)(4) is 

necessary and important to provide 

clarity about the application of the 

PTNGU prohibition to package 

transactions and also to provide 

consistency with the CFTC’s approach. 

Narrowing the exception in Rule 

815(f)(4) as suggested by one commenter 

so that it would not apply if a 

component of a package transaction 

were a cleared swap would cause the 

Commission’s approach to PTNGU to 

differ from that of the CFTC and create 

the potential for different PTNGU rules 

to apply to different components of the 

same package transaction. That is, if the 

Commission modified Rule 815(f)(4) as 

the commenter suggests, in the case of 

a package transaction comprising an 


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270Section 37.9(f)(4) provides, in relevant part, 

that ‘‘[f]or a package transaction that includes a 

component transaction that is not a swap intended 

to be cleared, disclosing the identity of a 

counterparty shall not violate’’ the prohibition 

against PTNGU. 17 CFR 37.9(f)(4). 

271The Commission has corrected a reference in 

paragraph (f)(2) to a ‘‘security-based swap execution 

facility’’ to refer instead to a ‘‘security-based swap.’’ 

The Commission has also changed first instance of 

the word ‘‘paragraph’’ in paragraph (f)(4) to 

‘‘paragraphs.’’ 

272See Bloomberg Letter, supra note 18, at 14–15. 

See also Citadel Letter, supra note 18, at 5 (stating 

that the CFTC guidance regarding trades that are 

void ab initio has eased trading of cleared swaps on 

SEFs and ‘‘facilitated the entry of new liquidity 

providers that do not have legacy bilateral trading 

documentation in place with clients’’). 

273See CFTC, Division of Clearing and Risk and 

Division of Market Oversight Staff Guidance on 

Swaps Straight-Through Processing (Sept. 26, 

2013), available at https://www.cftc.gov/sites/ 

default/files/idc/groups/public/@newsroom/ 

documents/file/stpguidance.pdf (‘‘CFTC 2013 STP 

Guidance’’). 

274See also infra section VI.B.3. 

275See supra note 271. 

276 15 U.S.C. 78c–3. 

277See Bloomberg Letter, supra note 18, at 15–16; 

ISDA–SIFMA Letter, supra note 18, at 5. 

278See Bloomberg Letter, supra note 18, at 15–16. 

SBS that is intended to be cleared and 

a swap that is intended to be cleared, 

Rule 815(f)(4) would prohibit PTNGU, 

but § 37.9(f)(4) would permit PTNGU.270

To avoid this situation, the Commission 

declines to modify Rule 815(f)(4) as 

suggested. 

Further, the Commission disagrees 

with the comment that the prohibition 

on PTNGU should initially apply only 

to Required Transactions. The 

prohibition on PTNGU is designed to 

promote pre-trade price transparency by 

encouraging a greater number, and a 

more diverse set, of market participants 

to anonymously post bids and offers on 

regulated markets, and it does so by 

preventing the sharing of the names of 

counterparties where such sharing is 

unnecessary—namely, when a 

transaction is cleared. Whether clearing 

the transaction is required or voluntary 

is not relevant to the purposes of 

prohibiting PTNGU. With regards to 

trades rejected from clearing, the 

prohibition on PTNGU would apply to 

all trades that are intended to be cleared, 

not just those that are successfully 

cleared, so that prohibition would also 

apply to a trade that is submitted but 

then rejected for clearing. For the 

foregoing reasons, the Commission is 

adopting Rule 815(f), as proposed, with 

minor technical modifications.271

7. Rule 815(g) 

One commenter states that in order to 

protect counterparty anonymity in the 

event of an SBS that is executed 

anonymously and intended to be 

cleared, but is nonetheless rejected for 

clearing, the SBSEF should declare the 

trade void ab initio.272 The commenter 

suggests that the Commission augment 

the rule to prohibit trade relationship 

documentation for SBS that are 

intended to be cleared and to grant 

SBSEFs the ability to declare trades 

rejected from clearing void ab initio in 

order to avoid post-trade name 

disclosure in the case of a rejected trade. 

The Commission agrees that declaring 

such trades void ab initio, which helps 

prevent trades rejected from clearing 

from effectively becoming bilateral 

transactions where the identity of 

counterparties might be disclosed. This 

approach is also consistent with 

practices in the swaps market with 

respect to such trades.273 Therefore, the 

Commission is amending Rule 815 to 

add a new paragraph (g), which 

specifies that SBSEFs shall establish 

and enforce rules that provide that a 

security-based swap that is intended to 

be cleared at the time of the transaction, 

but is not accepted for clearing at a 

registered clearing agency, shall be void 

ab initio. In light of new paragraph (g), 

the Commission is generally of the view 

that it would not be consistent with the 

impartial-access requirements of Rule 

819(c) for an SBSEF to permit its 

members to require bilateral 

relationship documentation from their 

counterparties with respect to SBS that 

are intended to be cleared.274

Consequently, the Commission finds 

that it is not necessary to include a 

prohibition on trade relationship 

documentation in Rule 815 for SBS that 

are intended to be cleared. 

For the foregoing reasons, the 

Commission adopting Rule 815(f)(1) 

through (4), with minor technical 

modifications,275 and is also adding a 

new paragraph (g), as discussed above. 

F. Rule 816—Trade Execution 

Requirement and Exemptions 

Therefrom 

Section 3C of the SEA 276 sets out a 

procedure whereby an SBS becomes 

subject to mandatory clearing. Section 

3C(h) of the SEA provides that, if a 

transaction involving an SBS is subject 

to the mandatory clearing requirement, 

the counterparties shall execute the 

transaction on an exchange, on an 

SBSEF registered under section 3D of 

the SEA, or on an SBSEF that is exempt 

from registration under section 3D(e) of 

the SEA, unless no national securities 

exchange or SBSEF makes the SBS 

available to trade or the SBS transaction 

is subject to an exception from the 

clearing requirement under section 

3C(g) of the SEA. This obligation under 

section 3C(h) is commonly referred to as 

the ‘‘trade execution requirement.’’ 

Proposed Rule 816 of Regulation SE 

establishes procedures for an SBSEF to 

make an SBS ‘‘available to trade’’ 

(assuming it is also subject to the 

clearing requirement), thereby activating 

the trade execution requirement with 

respect to that SBS. Rule 816 also 

includes three proposed exemptions 

from the trade execution requirement. 

Paragraphs (a) through (d) of Rule 816 

are modeled on § 37.10 of the CFTC’s 

rules and establish a process whereby 

an SBS product is MAT by an SBSEF. 

An SBSEF may list an SBS that is 

subject to mandatory clearing, but 

listing the product does not by itself 

subject the product to the trade 

execution requirement in section 3C(h) 

of the SEA. Only if a product that is 

subject to mandatory clearing is listed 

and a MAT determination has been 

made would the SBS then become 

subject to the trade execution 

requirement. A MAT determination 

would have to be made and filed by an 

SBSEF pursuant to Rule 816 to trigger 

the trade execution requirement, similar 

to the MAT process of § 37.10. 

1. General Comments on Harmonization 

With CFTC MAT Process 

Several commenters cite efforts by the 

CFTC to review its MAT process as an 

indication that the Commission should 

take a different approach for making 

MAT determinations rather than align 

with the CFTC’s current rule.277 One 

commenter cites to the findings of the 

Market Risk Advisory Committee 

(‘‘MRAC’’), an advisory committee that 

provided recommendations to the 

CFTC, and states that the MRAC and the 

CFTC raised concerns regarding the 

current MAT process for swaps.278 This 

commenter states that reforming the 

MAT process was included as an agenda 

item in the CFTC 2021 fall rulemaking 

agenda and that, for this reason, the 

Commission should align the MAT 

process for SBS with the 

recommendations made by the MRAC 

or, in the alternative, coordinate with 

the CFTC to ensure that the MAT 

process is aligned and conducted in a 

manner that allows input from a variety 

of stakeholders and the Commission. 

Another commenter also urges the 

Commission to review the CFTC 

MRAC’s recommendations with an eye 

towards adopting a more flexible regime 

given the unique characteristics of the 


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279See ISDA–SIFMA Letter, supra note 18, at 5. 

280See ICI Letter, supra note 18, at 5. 

281See supra sections IV.C (discussing Rule 806) 

and IV.D (discussing Rule 807). 

282See Bloomberg Letter, supra note 18, at 15–16; 

Citadel Letter, supra note 18, at 15–16; ICI Letter, 

supra note 18, at 4–10; ISDA–SIFMA Letter, supra 

note 18, at 4–5; MFA Letter, supra note 18, at 9; 

SIFMA AMG Letter, supra note 18, at 6–8; WMBAA 

Letter, supra note 18, at 5; Tradeweb Letter, supra 

note 18, at 3–4. 

283See Citadel Letter, supra note 18, at 15–16; see 

Bloomberg Letter, supra note 18, at 15–16; ICI 

Letter, supra note 18, at 5–8; ISDA–SIFMA Letter, 

supra note 18, at 4–5. 

284See Citadel Letter, supra note 18, at 15–16. 

285See WMBAA Letter, supra note 18, at 5. 

286See Tradeweb Letter, supra note 18, at 3–4. 

287See SIFMA AMG Letter, supra note 18, at 7; 

MFA Letter, supra note 18, at 9; ICI Letter, supra 

note 18, at 5, 7–8.WMBAA Letter, supra note 18, 

at 5. 288See SIFMA AMG Letter, supra note 18, at 7. 

289See id. 

290See WMBAA Letter, supra note 18, at 5. 

SBS market.279 One commenter strongly 

recommends that the Commission 

refrain from adopting a MAT 

determination process that is based on 

the existing CFTC process, but rather 

coordinate with the CFTC as it 

considers potential reforms to improve 

its MAT process.280

It is appropriate for Regulation SE to 

establish a MAT SBS process that aligns 

with the CFTC’s process as closely as 

possible. While commenters state that 

the CFTC may be considering changes to 

its MAT process, the CFTC has not yet 

proposed any such changes, so it is not 

certain that the CFTC would adopt the 

recommendations of the MRAC, either 

in whole or in part, or with 

modification, or when the CFTC might 

act if it does make changes to its MAT 

process. Additionally, because no MAT 

determination can be made with respect 

to an SBS unless and until the 

Commission has made a mandatory 

clearing determination as to that SBS, 

the Commission would have the 

opportunity, if and when it makes a 

mandatory clearing determination with 

respect to an SBS, or category of SBS, 

to consider whether changes to the 

process for a MAT determination with 

respect to that SBS would be 

appropriate. Further, in the event that 

the CFTC does move forward with 

changes to its MAT process, the 

Commission will have the opportunity 

to reassess its own MAT process and to 

consider further harmonization with the 

CFTC regime, as appropriate. For the 

present, the CFTC’s procedures are well 

articulated and well understood by SBS 

markets, so closely harmonizing with 

these procedures would yield 

comparable regulatory benefits while 

minimizing burdens on SBSEFs. In 

particular, even though the SEF and 

SBSEF markets differ in ways that are 

relevant to the application of the criteria 

for MAT determinations, the criteria 

themselves are equally applicable to the 

SEF and SBSEF markets. Thus, the 

Commission is adopting the rule as 

proposed, without any different or 

additional criteria that would have to be 

considered by an SBSEF in order to 

MAT an SBS product. 

2. Rule 816(a) 

Paragraph (a)(1) of Rule 816 provides 

that an SBSEF that makes an SBS 

available to trade in accordance with 

paragraph (b) of the rule must submit to 

the Commission its determination with 

respect to that SBS, pursuant to the 

procedures under Rule 806 (voluntary 

submission for Commission review and 

approval) or Rule 807 (selfcertification).281 Paragraph (a)(2) 

provides that an SBSEF that makes an 

SBS available to trade must demonstrate 

that it lists or offers that SBS for trading 

on its trading system or platform. 

The Commission received a number 

of comments on Rule 816(a).282 Many 

commenters raise concerns about an 

SBSEF having the sole ability to make 

a MAT determination and generally 

advocate that the Commission and other 

market participants have a greater role 

in making MAT determinations.283 One 

commenter states that experience with 

the existing CFTC regime suggests that 

the scope of the trade execution 

requirement should not be determined 

solely by the SBSEFs.284 This 

commenter states that the trade 

execution requirement is a key pillar of 

the G20 post-crisis reforms and 

recommends that the Commission also 

be able to propose MAT determinations 

for public comment, based on its 

independent assessment of the criteria 

set forth in Rule 816(b). One commenter 

asserts that it has long believed that a 

MAT determination should not rest 

solely with a single SBSEF.285 This 

commenter states that such an approach 

risks introducing commercial and other 

motives beyond an objective assessment 

of the factors set forth in the rule. 

Another commenter states that it does 

not believe that a trading venue should 

be solely responsible for identifying the 

types of products that should be subject 

to a trade execution requirement.286

Instead, the commenter states that a 

Commission-led process is more 

appropriate. The commenter argues that 

a Commission-led process would ensure 

that the views of all relevant market 

participants (including SBSEFs) are 

considered in making a MAT 

determination. In addition, the 

commenter asserts that the Commission 

is likely to have better access to data 

regarding the overall SBS market than 

any individual trading venue will have. 

The commenter requests that the 

Commission provide in Regulation SE 

that MAT determinations are to be made 

by the Commission following a notice 

and comment rulemaking process that 

takes into account the views of SBSEFs 

and other market participants. 

Because no MAT determination can 

be made for an SBS until the 

Commission has made a mandatory 

clearing determination for that SBS, the 

MAT-determination process is, in that 

sense, inherently a Commission-led 

process. Moreover, because the SBSEFs 

will have direct experience with the 

trading of SBSs on SBSEFs, they will be 

best positioned make the initial decision 

as to whether it is appropriate to submit 

a MAT determination for an SBS. 

However, the Commission would still 

play a primary role in the MAT process, 

as it will have the opportunity to review 

all SBSEF MAT determinations, 

whether they are self-certified or 

voluntarily filed for Commission 

approval, to determine whether those 

determinations are adequately 

supported by evidence and consistent 

with the SEA and the rules thereunder, 

including the six factors to be 

considered for MAT determinations 

under Rule 816(b), which are discussed 

below. In the absence of such evidence, 

the Commission can decline to approve 

or can stay and then object to a MAT 

petition, which will ultimately allow 

the Commission to prevent an 

inappropriate MAT determination from 

taking effect. 

Some commenters also recommend 

that the MAT process provide other 

market participants the ability to 

provide comment on any MAT 

proposal.287 One commenter proposes 

that market participants have a 

meaningful opportunity to review and 

opine on a petitioning SBSEF’s 

proposed MAT determination.288 This 

commenter argues that the MAT factors 

are intended to measure trading 

liquidity that is available and that this 

assessment should include the 

perspectives of market participants.289

Another commenter also states that it 

has long believed that market 

participants should have the ability or a 

forum to comment on proposed MAT 

determinations.290 One commenter 

recommends that, in order to support 

the MAT process and to guard against 

inappropriate MAT determinations, the 

Commission permit market participants 

and other interested parties to 

participate in the MAT analysis by 

introducing a public notice and 


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291See MFA Letter, supra note 18, at 9. 

292See ISDA–SIFMA Letter, supra note 18, at 4– 

5. 

293See ICI Letter, supra note 18, at 5, 7–8. 

294See id. at 9–10. 

295See id. 

296See Bloomberg Letter, supra note 18, at 15–16. 

297See SIFMA AMG Letter, supra note 18, at 6; 

ICI Letter, supra note 18, at 6–7. 

298See SIFMA AMG Letter, supra note 18, at 6. 

299See ICI Letter, supra note 18, at 5–8. 

comment period into the MAT 

assessment timeline.291 This commenter 

states that this would provide market 

participants, who would be those most 

affected by a MAT determination, with 

the opportunity to identify specific 

aspects of individual SBS products that 

may limit their liquidity, which would 

help ensure each MAT determination is 

appropriate for the relevant SBS 

product. Another commenter states that 

one of the shortcomings of the MAT 

process is that it puts too much 

responsibility in the hands of the 

trading platform and does not require, 

or even consider, input from market 

participants.292 This commenter states 

that the implications of this outcome are 

even more evident in the context of an 

SBS MAT determination, as such a 

determination would only be relevant to 

a small segment of the global SBS 

market, which the commenter states is 

much smaller and less liquid than its 

swaps counterpart. 

One commenter also states that the 

proposed approach will give SBSEFs the 

sole ability to dictate the scope of 

SBSEF trading for market participants 

based on the commercial interests of 

SBSEFs.293 This commenter 

recommends that the Commission 

require a 30-day public comment period 

for all MAT determinations. The 

commenter expresses concern that, 

under the proposal, it would be possible 

for a MAT determination to become 

effective without an opportunity for 

public comment and that the MAT 

process would be controlled almost 

entirely by one segment of the SBS 

markets, the SBSEFs. The commenter 

states that market participants can 

provide the Commission with 

invaluable commentary, insights, and 

data on the potential effects of proposed 

rules, as well as help to ensure that 

rules are implemented in a fair and 

orderly manner. The commenter asserts 

that, because MAT determinations are 

data intensive, 30 days would give 

market participants sufficient time to 

analyze the data presented by the 

SBSEF, prepare their own data and 

analyses, and comment effectively on 

operational and technological 

implications. This commenter also 

recommends that the Commission 

consider creating an advisory board to 

provide recommendations both to the 

Commission and to SBSEFs on SBSs 

that should be added to or removed 

from the list of SBSs that are subject to 

the trade execution requirements.294

The commenter states that the advisory 

board should have appropriate expertise 

and balanced representation, including 

from the buy side, sell side, and other 

stakeholders. The commenter asserts 

that this would help further address 

some of their concerns about the MAT 

process and ensure that the SBSs made 

subject to the trade execution 

requirement are only the most liquid. 

Furthermore, the commenter argues that 

the advisory board could also help the 

Commission assess the functioning of 

the MAT determination process and of 

the overall SBS regulatory framework 

and provide recommendations for 

improvement.295

Another commenter states that the 

process for MAT determinations should 

include input from both market 

participants and the Commission.296

The commenter states that market 

participants may trade on multiple 

venues and in multiple jurisdictions 

and have a greater or different 

perspective from the SBSEF making the 

MAT determination. Additionally, the 

commenter states that the Commission’s 

input should be considered as well. 

The Commission will have sufficient 

opportunity to assess self-certified MAT 

determinations for consistency with the 

criteria of Rule 816(b), as well as with 

the SEA and the other regulations 

thereunder, while also permitting 

SBSEFs to use a self-certification 

process closely aligned with § 40.6. The 

CFTC’s procedures are well articulated 

and well understood by SEFs, and 

closely harmonizing with these 

procedures should yield comparable 

regulatory benefits while minimizing 

burdens on SBSEFs. Certain MAT 

determinations of dually registered SEF/ 

SBSEFs may apply to SBSs and swaps 

that are related and that related MAT 

determinations will thus have to be filed 

with both the SEC and CFTC. Adding a 

default comment period or otherwise 

altering the standard so that the 

Commission reviews all MAT 

determinations by SBSEFs, as 

commenters requested, would 

significantly alter the timing of selfcertified SBSEF MAT determinations 

compared to their SEF equivalents. By 

contrast, closely harmonizing the SEC’s 

filing procedures and standards of 

review with the CFTC’s would allow 

dually registered entities to submit 

related MAT determinations to both 

agencies for review. Moreover, if the 

Commission exercises its authority to 

stay the effectiveness of a self-certified 

MAT determination and seek public 

comment—i.e., with respect to a rule 

that is novel, complex, inadequately 

explained, or potentially inconsistent 

with the SEA or the regulations 

thereunder, including Regulation SE— 

market participants would be able to 

convey their concerns regarding that 

rule to the Commission. 

For SBS MAT determinations 

submitted under the Rule 806 process 

that present novel or complex issues or 

meet other criteria under Rule 806(d), 

the initial 45-day review period for rule 

approval submissions may be extended 

for an additional 45 days. The 

Commission recognizes the importance 

of public input regarding any MAT 

determination, and not only does Rule 

808(b) provide that the Commission 

make publicly available on its website 

Rule 806 filings, such as an SBSEF’s 

MAT filing, but the Commission is also, 

as discussed below, delegating to its 

staff the authority to make filings under 

Rule 806 available on the Commission’s 

website, which will expedite the 

process of providing interested persons 

with the ability to review a MATdetermination filing so that they can 

communicate their views to the 

Commission. Thus, in either process, if 

MAT petitions present novel or complex 

issues, the Commission will have 

sufficient time to receive and consider 

public comment for those submissions. 

Further, accepting public comment from 

all interested market participants in the 

context of a specific MAT determination 

would more efficiently aid the 

Commission’s review of SBSEF MATdetermination filings than forming a 

formal advisory board to offer opinions 

on adding or removing SBS from the list 

of products that have been MAT. 

Several commenters question the 

extent of the Commission’s role in the 

MAT determination process.297 One 

commenter cites the lack of Commission 

authority to delay or decline an SBSEF 

submission for a MAT determination, 

particularly without comment from 

market participants, as the basis for its 

concerns about the proposed MAT 

process.298 Another commenter 

recommends that the Commission 

enhance its oversight by ensuring that it 

has a more meaningful ability to review 

and reject MAT determinations, as well 

as the ability to initiate determinations 

itself as appropriate.299 This commenter 

also expresses concern that the 

Commission would not have adequate 

time to consider, or authority to 


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300See SIFMA AMG Letter, supra note 18, at 6– 

8; ICI Letter, supra note 18, at 5; MFA Letter, supra 

note 18, at 9; WMBAA Letter, supra note 18, at 5. 

301See SIFMA AMG Letter, supra note 18, at 7– 

8; ICI Letter, supra note 18, at 5; WMBAA Letter, 

supra note 18, at 5. 

302See SIFMA AMG Letter, supra note 18, at 6– 

8. 

303See ICI Letter, supra note 18, at 5–6. 

304See 2013 CFTC Final MAT Rules Release, 

supra note 9, 78 FR at 33613. 

challenge, the basis for a MAT 

determination. The Commission, 

however, does have the authority to 

prevent an SBSEF MAT determination 

under either Rule 806 or Rule 807 from 

taking effect. As noted above, under 

Rule 806, the Commission has a 45-day 

period to consider a submission under 

Rule 806, which could be extended for 

another 45 days. The Commission can, 

if it finds the determination to be 

inconsistent with the SEA or the rules 

thereunder, notify the SBSEF that it will 

not, or is unable to, approve the new 

rule or rule amendment. Under Rule 

807, MAT determinations cannot go into 

effect for at least 10 business days, 

during which the Commission has the 

opportunity to determine whether the 

determination presents novel or 

complex issues, if it is inadequately 

explained, or if it is potentially 

inconsistent with the SEA or the rules 

thereunder. If the Commission 

determines that any of these concerns is 

present, the Commission can stay the 

MAT determination for a 90-day period 

for further review. Within those 90 days, 

the Commission will have the 

opportunity to object to the proposed 

certification on the grounds that the 

proposed rule or rule amendment is 

inconsistent with the SEA or the 

Commission’s rules thereunder, thereby 

preventing the self-certified MAT 

determination from going into effect. 

Therefore, the processes for submitting 

MAT determinations do afford the 

Commission sufficient time and 

authority to review and, where 

appropriate, decline to approve, or 

object to, MAT determinations. 

For the reasons discussed above, the 

Commission is adopting Rule 816(a) as 

proposed. 

3. Rule 816(b) 

Paragraph (b) of Rule 816 sets forth 

six factors that an SBSEF shall consider, 

as appropriate, when making a MAT 

determination for an SBS product, 

which are the same six factors 

enumerated in the CFTC rule. Those 

factors are: (1) whether there are ready 

and willing buyers and sellers; (2) the 

frequency or size of transactions; (3) the 

trading volume; (4) the number and 

types of market participants; (5) the bid/ 

ask spread; and (6) the usual number of 

resting firm or indicative bids and 

offers. 

The Commission received several 

comments on the factors for making a 

MAT determination described in Rule 

816(b).300 Several commenters express 

concern that the factors for 

consideration enumerated in Rule 

816(b) are not mandatory.301 One 

commenter states that the rule requires 

that an SBSEF’s submission consider 

the factors in the rule, as appropriate, 

when making a MAT determination.302

This commenter proposes that all of the 

MAT factors must be considered for 

mandatory SBSEF trading. This 

commenter also urges the Commission 

to assess the MAT factors on the basis 

of the current trading activity of the 

relevant SBSs on the SBSEF against 

stringent standards, and in the 

aggregate, in order to determine whether 

there is proven liquidity on SBSEFs to 

support mandatory SBSEF trading. The 

commenter also proposes that the 

Commission expand the MAT factors to 

require evidence demonstrating that the 

SBSEF has the requisite infrastructure to 

support mandatory SBSEF trading by: 

(a) adding an assessment of 

technological readiness, and (b) 

requiring threshold numbers of SBSEFs 

as well as liquidity providers on the 

SBSEF transacting in the relevant SBS. 

The commenter argues that, while the 

expansion of MAT factors may be 

viewed as requiring more intervention 

and resources by the Commission, the 

revised approach will ultimately lead to 

a streamlined process, while at the same 

time avoiding a potential sacrifice of 

liquidity if a particular SBS is mandated 

for SBSEF trading prematurely. 

One commenter also expresses 

concern that the factors in Rule 816(b) 

are neither mandatory nor based on 

calculated thresholds, and that they 

would permit SBSEFs to assert that an 

SBS should be MAT even absent 

objective evidence of a sufficiently 

liquid trading market.303 This 

commenter states that this could have 

negative consequences for buy-side 

participants such as funds—requiring 

SBSs with insufficient liquidity to be 

traded via order book or an RFQ system, 

which would raise a significant risk of 

revealing advisers’ sensitive portfolio 

management strategies. This commenter 

also states that, without requiring 

SBSEFs to consider any objective factors 

(e.g., threshold levels), it is not clear 

how the Commission could ever find 

that a MAT determination is 

inconsistent with the SEA or the 

Commission’s rules. This commenter 

recommends that the Commission 

enhance the MAT determination factors 

by: clarifying that all factors must be 

evaluated, rather than just one or a 

subset; adding as a factor the number of 

SBSEFs that list the SBS; requiring that 

at least two SBSEFs list the SBS; and 

requiring a minimum amount of trading 

history (e.g., that an SBS has been listed 

for at least 90 days). The commenter 

also recommends that the Commission 

make the MAT determination factors 

more robust by establishing at least 

some objective mandatory criteria. The 

commenter argues that adopting these 

recommendations would provide the 

Commission with greater authority to 

reject a MAT determination and would 

address the conflict raised by an 

SBSEF’s commercial incentive to make 

an SBS MAT, as well as ensure that 

there is enough liquidity in an SBS 

before it is subject to a MAT 

determination. The commenter urges 

that a more robust MAT determination 

process is critical to bring consistency to 

the SBS market over time, as having 

objective standards would avoid MAT 

determinations based on subjective 

assessments of liquidity that may 

change over time. 

The Commission’s approach of 

requiring the MAT factors to be 

considered as appropriate, rather than 

mandating the consideration of all the 

factors, is consistent with the approach 

the CFTC has taken. The CFTC adopted 

its approach to provide more flexibility 

so that its markets could accommodate 

swaps with different trading 

characteristics that can be supported in 

a centralized trading environment.304

And a similarly flexible approach is 

appropriate for the different SBSs that 

would be traded on its SBSEFs, as the 

appropriate thresholds on any of the 

factors may vary depending on the SBS 

and over time. Adopting specific 

thresholds would create excessive 

rigidity at the outset. MAT submissions, 

under Rules 806(a)(5) and 807(a)(6), 

would be required to contain an 

explanation and analysis of the SBSEF’s 

determination, including a discussion of 

the factors enumerated in the rule, and 

how it complies with the SEA and the 

Commission’s regulations thereunder. 

Rule 816(b) requires SBSEFs to consider 

all the factors enumerated in the rule, as 

appropriate. However, such 

consideration, to be meaningful, 

generally should discuss the factors in 

the context of the general market, 

relative to some outside benchmark. 

And the SBSEF would have the burden 

of providing support for any assertions 

it makes regarding the adequacy of any 

of the factors it considers, with 


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305See SIFMA AMG Letter, supra note 18, at 6– 

7. 306See MFA Letter, supra note 18, at 9. 

307An SBS exchange, like all national securities 

exchanges, must submit any rule change—including 

a rule change to list a new derivative securities 

product and/or to MAT an SBS product—pursuant 

to SEA Rule 19b–4, 17 CFR 240.19b–4. The 

proposed rule text did not establish a new 

procedure for SBS exchanges to list or MAT SBS 

products. See Proposing Release, 87 FR at 28898 

n.107. 

reference to some external, objective 

standard. The explanations and analyses 

provided by the SBSEF generally should 

provide adequate justification as to how 

all the factors considered apply to the 

SBS MAT determination, as well as to 

why any factors enumerated in Rule 

816(b) that are not addressed are not 

relevant. A failure, on the part of the 

SBSEF, to address any factors that are 

relevant or to adequately support its 

assertions would be a basis for the 

Commission to find that a MAT 

determination is inconsistent with the 

SEA and its rules. 

One commenter, while supporting 

harmonization with the CFTC’s MAT 

standards, expresses concern with the 

current framework for determining 

whether mandatorily cleared SBS 

should also be mandated for SBSEF 

trading through the MAT process. This 

commenter urges that there be a 

substantive analysis of whether an SBS 

has sufficient liquidity available to 

market participants on the SBSEF. The 

commenter states that, absent a robust 

MAT process requiring the SBSEF to 

demonstrate that voluntary exchange 

trading has met minimum liquidity and 

other standards, an absence of liquidity 

for the newly MAT-ed product on the 

SBSEF could shut out asset managers 

from accessing liquidity for their clients 

once OTC trading is prohibited. To this 

end, the commenter recommends that 

the Commission specify that the MAT 

standards are not synonymous with the 

clearing requirement standards. The 

commenter asserts that its assessment 

reflects the fact that necessary market 

conditions that make central clearing 

appropriate are different from the 

necessary market conditions that make 

mandatory SBSEF execution 

appropriate.305

Another commenter, while generally 

supporting the Commission’s approach 

to MAT determinations and the six 

factors enumerated in the rule, urges the 

Commission to take a cautious approach 

in its assessment of whether a MAT 

determination is appropriate. 

Specifically, the commenter 

recommends that the Commission 

carefully consider each factor, 

individually and collectively, in 

assessing whether a particular SBS has 

sufficient liquidity to support 

mandatory SBSEF trading. The 

commenter also cautions that the 

Commission should avoid broad MAT 

categorizations for specific types of SBS 

when individual SBS products within 

each category may be more or less 

suitable for a MAT designation.306

From the factors enumerated in Rule 

816(b), it is clear that additional factors, 

beyond the fact that a product is subject 

to mandatory clearing, will need to be 

considered in determining whether an 

SBS is suitable to be MAT, and these 

factors are directly relevant to the 

liquidity of trading in a given SBS: 

whether there are willing buyers and 

sellers, the frequency and size of 

transactions, the trading volume, the 

number and types of market 

participants, the bid/ask spread, and the 

usual number of resting firm or 

indicative bids and offers. Adopting 

specific thresholds, however, would be 

too rigid an approach to accommodate 

the different kinds of SBSs that may be 

traded on an SBSEF, particularly at this 

early stage. As stated above, the 

Commission or its staff will review SBS 

products on a case-by-case basis, and for 

SBS products presenting novel or 

complex issues there will be an 

extended period for the Commission to 

review the submission and consider 

public comments on the 

appropriateness of a MAT 

determination on a case-by-case basis, 

taking into account the facts and 

circumstances of the SBS subject to the 

determination, including when a filing 

seeks to include a broad category of SBS 

within a MAT determination. 

The Commission has carefully 

considered the concerns raised by 

commenters regarding the 

determination of when an SBS is 

appropriate for a MAT determination by 

an SBSEF, and the Commission is 

adopting Rule 816(b) as proposed. The 

Commission appreciates that a MAT 

determination for an SBS will be 

consequential for market participants, 

and that the enumerated factors in Rule 

816(b) are important components of an 

analysis of whether an SBS is 

appropriate for a MAT determination. 

Rule 816(b) will require SBSEFs to 

consider each of the factors enumerated 

in Rule 816(b), as appropriate. As noted 

above, a flexible approach to the 

enumerated factors will accommodate 

the different kinds of SBSs that will be 

traded on SBSEFs. While the rule does 

not require that every factor be 

considered in every case, to the extent 

that a factor is relevant and an SBSEF’s 

MAT determination submission fails to 

sufficiently address that factor, the 

Commission would be in a position to 

either disapprove the submission, if 

made under Rule 806, or stay and 

ultimately object to the submission, if 

self-certified under Rule 807. 

Furthermore, the rules for filing MAT 

determinations require SBSEFs to 

provide, among other things, an 

explanation and analysis of the 

proposed MAT determination, 

including a discussion of its compliance 

with the SEA, the Core Principles for 

SBSEFs, and the Commission’s rules 

thereunder. In the case of a MAT 

determination, the SBSEF generally 

should do more than simply state that 

it is consistent with the SEA and the 

Commission’s rules thereunder, but 

should also provide supporting analysis, 

and supporting documentation as 

appropriate, for its conclusion. If an 

SBSEF fails to provide adequate 

explanation or analyses of the MAT 

determination, it would be difficult for 

the Commission to find that the 

determination is consistent with the 

SEA and the Commission’s rules 

thereunder. Thus, MAT determination 

filings generally should be accompanied 

with adequate discussion and support 

for a MAT determination based on all 

relevant factors in Rule 816(b), 

including discussion supporting a 

conclusion that the SBS product subject 

to the MAT determination achieves the 

appropriate thresholds for that category 

of products. Furthermore, for MAT 

determinations presenting novel or 

complex issues, there will be an 

extended period for the Commission to 

solicit and consider public comments 

on, among other things, the 

appropriateness of the factors 

considered. 

For the reasons discussed above, the 

Commission is adopting Rule 816(b) as 

proposed. 

4. Rule 816(c) 

Paragraph (c) of Rule 816 provides 

that, upon a determination that an SBS 

has been MAT on an SBSEF or SBS 

exchange,307 all other SBSEFs and SBS 

exchanges shall comply with the 

requirements of section 3C(h) of the 

SEA in listing or offering that SBS for 

trading. 

The Commission received no 

comments on Rule 816(c) and the 

Commission is adopting Rule 816(c) as 

proposed for the reasons stated in the 

Proposing Release. 

5. Rule 816(d) 

Paragraph (d) of Rule 816 provides 

that the Commission may issue a 


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308See ICI Letter, supra note 18, at 9. 

309See id. 

310See 15 U.S.C. 78mm. 

311Section 3C(g) of the SEA is entitled 

‘‘Exceptions,’’ not ‘‘Exemptions.’’ 

312As with section 2(h)(8) of the CEA, section 

3C(h) of the SEA provides that the trade execution 

requirement does not apply to SBS that are 

excepted from the clearing requirement pursuant to 

section 3C(g) of the SEA. However, the Commission 

could, like the CFTC, grant exemptions from the 

clearing requirement pursuant to other statutory 

authority, such as section 36 of the SEA. 

313Section 36.1(c) provides that section 2(h)(8) of 

the CEA does not apply to a swap transaction that 

is executed between counterparties that have 

eligible affiliate counterparty status pursuant to 

paragraph (a) of § 50.52 of the CFTC’s rules, which 

provides an exception from the clearing 

requirement for inter-affiliate swaps, subject to 

conditions. Counterparties to a swap that have 

eligible affiliate counterparty status may rely on the 

§ 36.1(c) even if they clear the swap transaction. 

Since the Commission does not have an equivalent 

to § 50.52 to reference, the Commission is instead 

defining the term ‘‘eligible affiliate counterparties’’ 

directly in Rule 816(e)(3). These definitions are 

closely modeled on the equivalent definitions used 

in § 50.52, which are incorporated into § 36.1(c). 

314See ISDA–SIFMA Letter, supra note 18, at 9– 

10; SIFMA AMG Letter, supra note 18, at 6. 

315See SIFMA AMG Letter, supra note 18, at 6. 

determination that an SBS is no longer 

MAT upon determining that no SBSEF 

or SBS exchange lists that SBS for 

trading. 

The Commission received one 

comment on Rule 816(d).308 This 

commenter recommends that the 

Commission modify its proposed 

approach to removing an SBS from the 

trade execution requirement. The 

commenter states that the proposed 

approach raises a significant risk that an 

SBS may be required to be traded on an 

SBSEF merely because it is listed on one 

SBSEF, even if there is no liquidity to 

sustain trading in that SBS, which could 

be detrimental for both buy-side and 

sell-side market participants. To ensure 

that there is adequate liquidity in MAT 

SBSs, the commenter recommends that 

the Commission adopt a process for 

removing an SBS from the MAT scope 

that is similar to the process for making 

a MAT determination. The commenter 

also urges the Commission, given the 

industry’s recent experience with the 

COVID–19 crisis, and consistent with 

the MRAC Report, to consider the 

implications that a temporary outage at 

one or more SBSEFs or a major market 

disruption would have for SBSs subject 

to the trade execution requirement. For 

this reason, the commenter recommends 

that the Commission consider the 

circumstances under which it would 

allow for a temporary suspension of the 

trade execution requirement and any 

possible terms for such a suspension, as 

well as any other relief measures the 

Commission may be able to provide.309

The commenter’s concern that an SBS 

may be required to be traded on an 

SBSEF merely because a single SBSEF 

has listed that SBS, even if there is no 

liquidity to sustain trading in that SBS, 

is addressed by the requirements in 

Rule 816(b) that must be met by an 

SBSEF before it submits a MAT 

determination under Rule 806 or Rule 

807, as well as by the Commission’s 

ability to disapprove, or stay and then 

object to, any MAT determination by an 

SBSEF. In considering an SBSEF’s MAT 

submission, the Commission will 

generally consider how many SBSEFs 

list and trade a given SBS, as well as the 

liquidity and trading characteristics of 

that SBS. Further, to the extent market 

circumstances change to make a 

previous MAT determination unsuitable 

for then-prevailing market conditions, 

and if the SBSEF that has made a MAT 

determination is unwilling to withdraw 

that determination, the Commission 

would be able to grant exemptive relief 

(including on an emergency basis) 

pursuant to its authority in section 36 of 

the SEA in order to address that 

situation.310 For these reasons, the 

Commission would have the ability to 

address market circumstances that 

disrupt the ability of market participants 

to trade SBS in compliance with the 

trade execution requirement. 

Therefore, the Commission is 

adopting Rule 816(d) as proposed. 

6. Rule 816(e) 

Paragraph (e) of Proposed Rule 816 

has no analog in § 37.10, but instead is 

adapted from 17 CFR 36.1 of the CFTC’s 

rules, which sets out certain exemptions 

from the trade execution requirement. 

The exemptions incorporated into § 36.1 

result from the CFTC’s many years of 

experience in administering the CEA’s 

trade execution requirement. 

Paragraph (e)(1) of Rule 816 provides 

that an SBS transaction that is executed 

as a component of a package transaction 

and that also includes a component 

transaction that is the issuance of a 

bond in a primary market is exempt 

from the trade execution requirement in 

section 3C(h) of the SEA. In addition, 

paragraph (e)(1) provides that, for 

purposes of paragraph (e), a package 

transaction consists of two or more 

component transactions executed 

between two or more counterparties 

where: at least one component 

transaction is subject to the trade 

execution requirement in section 3C(h) 

of the SEA; execution of each 

component transaction is contingent 

upon the execution of all other 

component transactions; and the 

component transactions are priced or 

quoted together as one economic 

transaction with simultaneous or nearsimultaneous execution of all 

components. 

Paragraph (e)(2) of Rule 816, which is 

adapted from § 36.1(b), provides that 

section 3C(h) of the SEA does not apply 

to an SBS transaction that qualifies for 

an exception 311 under section 3C(g) of 

the SEA, or any exemption from the 

clearing requirement that is granted by 

the Commission, for which the 

associated requirements are met.312

Unlike the CFTC, the Commission does 

not have a specific rule to cite to 

regarding exemptions from the clearing 

requirement, so Rule 816(e)(2) would 

refer only generally to such exemptions. 

Paragraph (e)(3) of Rule 816, which is 

adapted from § 36.1(c), provides that 

section 3C(h) of the SEA does not apply 

to an SBS transaction that is executed 

between counterparties that qualify as 

‘‘eligible affiliate counterparties.’’ 313

Counterparties would be ‘‘eligible 

affiliate counterparties’’ for purposes of 

Rule 816(e)(3) if: (i) one counterparty, 

directly or indirectly, holds a majority 

ownership interest in the other 

counterparty, and the counterparty that 

holds the majority interest in the other 

counterparty reports its financial 

statements on a consolidated basis 

under Generally Accepted Accounting 

Principles (‘‘GAAP’’) or International 

Financial Reporting Standards (‘‘IFRS’’), 

and such consolidated financial 

statements include the financial results 

of the majority-owned counterparty; or 

(ii) a third party, directly or indirectly, 

holds a majority ownership interest in 

both counterparties, and the third party 

reports its financial statements on a 

consolidated basis under GAAP or IFRS, 

and such consolidated financial 

statements include the financial results 

of both of the counterparties. In 

addition, for purposes of Rule 816(e)(3), 

a counterparty or third party directly or 

indirectly would hold a majority 

ownership interest if it directly or 

indirectly holds a majority of the equity 

securities of an entity, or the right to 

receive upon dissolution, or the 

contribution of, a majority of the capital 

of a partnership. 

The Commission received comments 

on Rule 816(e).314 One commenter 

supports the proposed carve-out for 

package transactions.315 Another 

commenter, however, states that the 

CFTC’s rules for package transactions 

were ‘‘developed by the CFTC, initially 

via staff no-action relief, after SEFs had 

adopted various MAT determinations 

and market participants had provided 

input to the CFTC regarding the 

particular types of package transactions 


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316 ISDA–SIFMA Letter, supra note 18, at 9. 

317See ISDA–SIFMA Letter, supra note 18, at 9– 

10. 

318Rule 3Ca–1 under the SEA provides that the 

Commission may determine, following a 

submission from a clearing agency, that an SBS (or 

a group, category, type, or class of SBS) must be 

cleared. This determination could follow a stay of 

the clearing requirement for additional review. 17 

CFR 240.3Ca–1. 

319See Bloomberg Letter, supra note 18, at 16; ICI 

Letter, supra note 18, at 8–9; ISDA–SIFMA Letter, 

supra note 18, at 5, SIFMA AMG Letter, supra note 

18, at 7; WMBAA Letter, supra note 18, at 5. 

320See SIFMA AMG Letter, supra note 18, at 7. 

321See WMBAA Letter, supra note 18, at 5. 

322See Bloomberg Letter, supra note 18, at 16; ICI 

Letter, supra note 18, at 8; ISDA–SIFMA Letter, 

supra note 18, at 5. 

323See Bloomberg Letter, supra note 18, at 16. 

324See ISDA–SIFMA Letter, supra note 18, at 5. 

325See ICI Letter, supra note 18, at 3, 8. 

common in the market for the relevant 

types of MAT swaps.’’ 316 The 

commenter states that it is for this 

reason that particular types of package 

transactions addressed by the CFTC 

generally focus on transactions common 

in the interest-rate swaps market, which 

make up the majority of MAT swaps. In 

addition, the commenter asserts that the 

current state of the CFTC’s rules in this 

area reflect the culmination of a phased 

implementation approach developed 

over time via no-action letters. The 

commenter argues that, in light of this, 

it would be better for the Commission 

to tailor its rules for package 

transactions to address the particular 

market dynamics relevant to the SBS 

market instead of those in the swaps 

market. The commenter recommends 

that the Commission build into the 

MAT determination process a 

framework for identifying what types of 

package transactions exist for 

prospective MAT SBS and then develop 

tailored rules around the execution of 

such transactions.317

The Commission does not agree that 

it is necessary to tailor the 

Commission’s rules for package 

transactions to address the particular 

market dynamics relevant to the SBS 

market, because no MAT determinations 

for SBS have been made, and no MAT 

determinations can yet be made because 

no SBS are required to be cleared. 

Moreover, the Commission does not yet 

have a sufficient basis on which to tailor 

the rules for package transactions to 

address SBS market dynamics, because 

the market dynamics relevant to trading 

of SBS on SBSEFs have yet to develop. 

It would be preferable to address those 

dynamics with respect to package 

transactions if and when it becomes 

necessary or appropriate to do so, 

because, at that point, the Commission 

and commenters would be better 

informed about the nature of trading 

various SBS on SBSEFs. In the 

meantime, it is desirable for Rule 816(e) 

to be harmonized with § 36.1 of the 

CFTC’s rules to promote similar 

treatment of package trades, whether 

they involve SBS or swaps, as this will 

facilitate the participation of current 

SEF participants on SBSEFs. If, after 

SBSEFs have become operational and 

MAT determinations have been made, 

the Commission observes that the rules 

for package transactions are no longer 

suitable for the SBS market, the 

Commission could consider amending 

Rule 816(e) at that time. 

For the reasons discussed above, the 

Commission is adopting Rule 816(e) as 

proposed. 

G. Rule 817—Trade Execution 

Compliance Schedule 

Proposed Rule 817 is modeled on 

§ 37.12 of the CFTC’s rules, which is 

designed to inform market participants 

of the precise date on which the trade 

execution requirement for a particular 

product commences.318 Accordingly, 

paragraph (a) of Rule 817 provides that 

an SBS transaction shall be subject to 

the requirements of section 3C(h) of the 

SEA upon the later of (1) a 

determination by the Commission that 

the SBS is required to be cleared as set 

forth in section 3C(a) or any later 

compliance date that the Commission 

may establish as a term or condition of 

such determination or following a stay 

and review of such determination 

pursuant to section 3C(c) of the SEA and 

Rule 3Ca–1 thereunder; and (2) 30 days 

after the available-to-trade 

determination submission or 

certification for that SBS is, 

respectively, deemed approved under 

Rule 806 or deemed certified under Rule 

807. Paragraph (b) of Rule 817 also 

provides that a counterparty may 

voluntarily comply with the trade 

execution requirement sooner than 

required by paragraph (a). 

The Commission received several 

comment letters about the sufficiency of 

the time period allotted for compliance 

with a MAT determination.319 One 

commenter encourages the Commission 

to provide an extended duration of time 

until any MAT determination becomes 

effective so that asset managers and 

other market participants have adequate 

time to make the necessary operational 

and market structure arrangements to 

accommodate the trade execution 

requirement.320 Another commenter 

urges the Commission to ensure that all 

SBSEFs and market participants have 

adequate time to prepare for the 

operational and market conditions that 

come along with a MAT 

determination.321

Some commenters recommend that a 

MAT determination not be effective for 

at least 90 days.322 One commenter 

emphasizes that, after a MAT 

determination, market participants 

should be provided with sufficient time 

to comply with any new trade execution 

requirement, and that commenter 

believes that market participants would 

benefit from 90 days to comply.323

Another commenter, citing its 

experience with the MAT requirement, 

states that it has observed that 30 days 

provides insufficient time to adjust 

trading protocols and ensure a smooth 

transition to trading on SEFs.324 In this 

regard, the commenter asks the 

Commission to extend the time between 

when a MAT determination is made and 

when it becomes effective from the 

proposed 30 days to 90 days. The 

commenter also asserts that this is 

consistent with the recommendations of 

the CFTC MRAC report that examined 

the appropriateness, efficacy, and 

sustainability of the MAT process. 

Another commenter also cites the 

CFTC MRAC’s report in recommending 

that the Commission provide 90 days 

after a MAT determination is final 

before it becomes effective. This 

commenter emphasizes that market 

participants will need an adequate 

compliance period after a mandatory 

clearing determination is made and after 

the SBS is first made available to trade 

on an SBSEF to prepare. The commenter 

expresses concern that, under the 

proposed approach, if an SBS is made 

available to trade fewer than 30 days 

before a mandatory clearing 

determination, then the SBS would be 

subject to mandatory trading on an 

SBEF with a less than 30-day 

compliance period. This commenter 

urges the Commission to clarify that the 

scope of eligible SBS for MAT 

determination is limited to only those 

that have already been determined to be 

subject to mandatory clearing. This 

commenter also asserts that, even when 

an SBS is already subject to mandatory 

clearing, the proposed 30-day 

compliance period would still be 

inadequate given the complex 

operational and technological steps that 

must be taken to trade a new SBS on an 

SBSEF. The commenter states that 

market participants such as regulated 

funds will need time to onboard to an 

SBSEF if necessary, and to further 

update their systems, processes, and 

procedures to transact via an SBSEF’s 

order book or RFQ system.325


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326See supra section V.F.3. 327See supra section V.F.2. 328 15 U.S.C. 78c–4(d). 329Compare 7 U.S.C. 7b–3(f) (enumerating 15 

Core Principles for SEFs), with 15 U.S.C. 78c–4(d) 

(enumerating 14 Core Principles for SBSEFs). CEA 

Core Principle 6 for SEFs (Position Limits or 

Accountability) has no analog in the SEA, so the 

numbering of the subsequent Core Principles 

between the two statutes differs by one. 

330 17 CFR appendix-B-to-part-37 1. 

331Section 3D(d)(1) of the SEA, 15 U.S.C. 78c– 

4(d)(1). 

332CEA Core Principle 1 is substantively 

identical. See 7 U.S.C. 7b–3(f)(1). 

333Section 3D(d)(2) of the SEA, 15 U.S.C. 78c– 

4(d)(2). 

The Commission has considered 

commenters’ requests for an extended 

compliance period for the mandatory 

trading requirement once a MAT 

determination has been made with 

respect to an SBS. The presence of ready 

and willing buyers and sellers and the 

number and types of market 

participants, among other things, are 

relevant factors in a MAT determination 

under Rule 816(b).326 As noted above, 

the extent to which a MAT 

determination is likely to be disruptive 

to the market for a given SBS is best 

addressed in the context of making the 

MAT determination, which, as 

discussed above, allows for the 

Commission oversight of the 

determination through its review and 

approval or disapproval of a filing under 

Rule 806, or through staying and 

seeking public comment on a selfcertification under Rule 807.327 Further, 

with respect to the suggestion that the 

Commission clarify that the scope of 

eligible SBS for MAT determination is 

limited to only those that have already 

been determined to be subject to 

mandatory clearing, a MAT 

determination filing would not have any 

relevance until there are any SBSs 

subject to the clearing requirement. 

It is not necessary to revise the 30-day 

period for compliance with a MAT 

determination, because the readiness of 

the market to comply with a MAT 

determination for a particular SBS 

would be relevant to the MAT 

determination itself, including the 

analysis of the six factors enumerated in 

Rule 816(b), and because an analysis of 

that readiness would best be undertaken 

based on the facts and circumstances 

attending a specific MAT determination. 

For the reasons discussed above, the 

Commission is adopting Rule 817 as 

proposed. 

VI. Implementation of Core Principles 

Section 3D(d) of the SEA 328 sets forth 

14 Core Principles with which SBSEFs 

must comply. These provisions, with 

one exception, correspond to the 15 

Core Principles for SEFs set forth in 

section 5h(f) of the CEA.329

Core principle title CEA # SEA # 

Compliance with Core Principles ............................................................................................................................. 1 1 

Compliance with Rules ............................................................................................................................................ 2 2 

(Security-Based) Swaps Not Readily Susceptible to Manipulation ......................................................................... 3 3 

Monitoring of Trading and Trade Processing .......................................................................................................... 4 4 

Ability to Obtain Information .................................................................................................................................... 5 5 

Position Limits or Accountability .............................................................................................................................. 6 n/a 

Financial Integrity of Transactions ........................................................................................................................... 7 6 

Emergency Authority ............................................................................................................................................... 8 7 

Timely Publication of Trading Information ............................................................................................................... 9 8 

Recordkeeping and Reporting ................................................................................................................................. 10 9 

Antitrust Considerations ........................................................................................................................................... 11 10 

Conflicts of Interest .................................................................................................................................................. 12 11 

Financial Resources ................................................................................................................................................ 13 12 

System Safeguards ................................................................................................................................................. 14 13 

Designation of Chief Compliance Officer ................................................................................................................ 15 14 

It continues to be appropriate to 

closely harmonize with the CFTC rules 

that implement the SEF Core Principles, 

although there are some instances where 

close harmonization is not practicable. 

Where there are substantive differences 

between an existing CFTC rule and the 

SEC rule being adopted, the discussion 

below addresses those differences. The 

discussion below will also address 

where there is not, or at least there is not 

intended to be, a difference between the 

SEC rule and the analogous existing 

CFTC rule. 

Part 37 of the CFTC’s rules includes 

an appendix B, setting forth ‘‘Guidance 

on, and Acceptable Practices in, 

Compliance with Core Principles.’’ The 

introduction to appendix B provides 

that the guidance for the Core Principle 

is illustrative only and ‘‘is not intended 

to be used as a mandatory checklist.’’ 330

Where the CFTC has included guidance 

and/or accepted practices pertaining to 

a Core Principle for SEFs, the discussion 

below addresses how (if at all) the 

Commission has incorporated the 

substance of these statements into 

Regulation SE. 

A. Rule 818—Core Principle 1— 

Compliance With Core Principles 

Core Principle 1 331 requires an 

SBSEF, to be registered and maintain 

registration as an SBSEF, and to comply 

with the Core Principles and any 

requirement that the Commission may 

impose by rule or regulation. Core 

Principle 1 also provides that an SBSEF 

shall have reasonable discretion in 

establishing the manner in which it 

complies with the Core Principles.332

Proposed Rule 818, like § 37.100 of the 

CFTC’s rules, repeats the relevant 

statutory text of the Core Principle. 

The Commission received no 

comments on Proposed Rule 818 and is 

adopting Rule 818 as proposed for the 

reasons stated in the Proposing Release. 

B. Rule 819—Core Principle 2— 

Compliance With Rules 

Core Principle 2 requires an SBSEF to 

establish and enforce compliance with 

any rule that is established by the 

SBSEF, including the terms and 

conditions of the SBS that it trades or 

processes, and any limitation on access 

to the SBSEF.333 It further requires the 

SBSEF to establish and enforce trading, 

trade processing, and participation rules 

that will deter abuses, and to have the 

capacity to detect, investigate, and 

enforce those rules, including the means 

to provide market participants with 

impartial access to the market and to 

capture information that may be used in 

establishing whether rule violations 

have occurred. Finally, Core Principle 2 

requires an SBSEF to establish rules 

governing the operation of the facility, 

including rules specifying trading 

procedures to be used in entering and 

executing orders traded or posted on the 


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334 7 U.S.C. 7b–3(f)(2). 

335See 7 U.S.C. 7b–3(f)(2)(D). 

336See Proposing Release, supra note 1, 87 FR at 

28901–05. 

337See id. at 28905–09. 

338 17 CFR 37.200; see also Proposing Release, 

supra note 1, 87 FR at 28901. 

339See Proposing Release, supra note 1, 87 FR at 

28902. 

340See supra section V.E.1(c). 

341 17 CFR 37.201; see also Proposing Release, 

supra note 1, 87 FR at 28901. 

342See Proposing Release, supra note 1, 87 FR at 

28902. 

343See supra section V.E.1(c). 

344 17 CFR 37.202; see also Proposing Release, 

supra note 1, 87 FR at 28901. 

345 15 U.S.C. 78c–4(d)(2)(B)(i) (‘‘a security-based 

swap execution facility shall . . . establish and 

enforce trading, trade processing, and participation 

rules that will deter abuses and have the capacity 

to detect, investigate, and enforcement those rules, 

including means . . . to provide market 

participants with impartial access to the market’’). 

346See Citadel Letter, supra note 18, at 6–7; 

SIFMA AMG Letter, supra note 18, at 4; MFA 

Letter, supra note 18, at 10. 

347See MFA Letter, supra note 18, at 10. 

348See Citadel Letter, supra note 18, at 6–7. 

349See Citadel Letter, supra note 18, at 6–7. 

350See id. 

351See MFA Letter, supra note 18, at 10. 

facility, including block trades. Core 

Principle 2 for SEFs 334 is substantively 

identical, except that it includes an 

additional paragraph requiring a SEF to 

provide in its rules that, when a swap 

dealer or major swap participant enters 

into or facilitates a swap that is subject 

to the mandatory clearing requirement, 

the swap dealer or major swap 

participant shall be responsible for 

compliance with the trade execution 

requirement.335

As described in the Proposing 

Release, the Commission modeled Rules 

819 (a) through (g) on subpart C of part 

37 of the CFTC’s rules,336 and Rules 819 

(h) through (k) on other parts of the 

CFTC’s rules.337

1. Rule 819(a)—General 

Paragraph (a) of Proposed Rule 819, 

like § 37.200 of the CFTC’s rules,338

would repeat the statutory text of Core 

Principle 2.339 The Commission did not 

receive any comments on Proposed Rule 

819(a). It is appropriate to repeat the 

statutory text of Core Principle 2 in Rule 

819(a) and is adopting Rule 819(a) as 

proposed, except that it is deleting the 

words ‘‘including block trades,’’ in light 

of its decision not to adopt a definition 

of ‘‘block trade.’’ 340

2. Rule 819(b)—Operation of SecurityBased Swap Execution Facility and 

Compliance With Rules 

Paragraph (b) of Proposed Rule 819 is 

closely modeled on § 37.201 of the 

CFTC’s rules,341 and would require an 

SBSEF to specify trading procedures 

(including for block trades, if offered) 

and to establish and impartially enforce 

compliance with the rules of the 

SBSEF.342 The Commission did not 

receive any comments on Proposed Rule 

819(b). It is appropriate for an SBSEF to 

specify trading procedures and to 

establish and impartially enforce 

compliance with its rules, and the 

Commission is adopting Rule 819(b) as 

proposed, except that it is deleting the 

words ‘‘including block trades, if 

offered,’’ in light of its decision not to 

adopt a definition of ‘‘block trade,’’ 343

which will have no effect on the 

requirement as compared to the 

proposed rule. 

3. Rule 819(c)—Access Requirements 

Paragraph (c) of Proposed Rule 819 is 

closely modeled on § 37.202 of the 

CFTC’s rules,344 and would require an 

SBSEF, consistent with section 

3D(d)(2)(B)(i) of the SEA,345 to provide 

any ECP and any independent software 

vendor with impartial access to its 

market(s) and market services, including 

any indicative quote screens or any 

similar pricing data displays. An SBSEF 

will also be required to establish 

nondiscriminatory fee structures for 

ECPs and independent software vendors 

based on the level of access to or 

services provided by the SBSEF. Rule 

819 further requires an SBSEF to 

establish and impartially enforce rules 

governing any decision to allow, deny, 

suspend, or permanently bar an ECP’s 

access to the SBSEF, including when a 

decision is made as part of a 

disciplinary or emergency action taken 

by the SBSEF. 

Several commenters express general 

support for the adoption of impartial 

access standards for SBSEFs.346 One 

commenter specifically supports the 

Commission’s close harmonization with 

CFTC rules.347

One commenter expresses support for 

Proposed Rule 819(c), but states that the 

Commission’s proposal does not 

provide market participants with 

sufficient clarity regarding how 

Proposed Rule 819(c) will be interpreted 

and applied in practice, and the 

commenter encourages the Commission 

to provide in the final rule that access 

to SBSEFs should be based on 

‘‘objective, pre-established’’ criteria, and 

that any ECP should be able to 

demonstrate financial soundness by 

showing that it is a clearing member or 

that it has clearing arrangements in 

place with a clearing member.348

This commenter states that the CFTC 

has provided market participants with 

extensive guidance regarding impartial 

access and encourages the Commission 

to provide similar clarity when 

finalizing the SBSEF rules, including 

guidance with respect to membership 

criteria, trading protocols and 

functionality, and fee arrangements. 

Specifically, this commenter urges the 

Commission to provide in the final rule 

that an SBSEF may not limit 

membership to (i) self-clearing 

members; (ii) registered security-based 

swap dealers; (iii) banks or liquidity 

providers with a minimum amount of 

Tier 1 capital; (iv) liquidity providers 

that have been ‘‘enabled’’ by, or have 

bilateral documentation with, a 

minimum number of other liquidity 

providers; or (v) liquidity providers 

with a minimum amount of transaction 

volume.349

This commenter also states that 

SBSEFs should not be permitted to 

apply trading protocols in a manner that 

results in impermissible discrimination 

among market participants. Specifically, 

the commenter states that SBSEFs 

should not allow participants to 

selectively restrict their trading with 

other SBSEF participants through 

‘‘enablement mechanisms’’; that market 

participants should be permitted to act 

as both liquidity providers and liquidity 

takers on an SBSEF; that all SBSEF 

participants should be permitted to both 

send and receive RFQs (instead of only 

designated liquidity providers being 

eligible to receive RFQs); and that 

SBSEFs should not be permitted to 

require participants to have bilateral 

documentation in place to trade cleared 

security-based swaps, as this could 

provide a pretext for some participants 

to restrict trading with other 

participants. This commenter further 

states that SBSEFs should not be 

permitted to use fee arrangements to 

effect otherwise impermissible 

discrimination with respect to access.350

Another commenter also urges the 

Commission to incorporate the CFTC’s 

impartial access requirement guidance 

with respect to SBSEFs, which would 

assist market participants in interpreting 

how the impartial access rules should 

work. Coordination of impartial access 

‘‘not only affects an entity operating 

both an SEF and SBSEF but also their 

clients, many of whom use the same 

individual traders to trade both 

instrument types.351 One commenter 

specifically encourages the Commission 

to address the potential use of restrictive 

requirements to obtain access to SBSEFs 

and to make clear that an SBSEF’s 

reasonable discretion in establishing 

access criteria must be impartial, 


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352See SIFMA AMG Letter, supra note 18, at 4. 

353See Bloomberg Letter, supra note 18, at 3–4. 

354See Proposing Release, supra note 1, 87 FR at 

28876. 

355See Rule 819(c)(4). The Commission is 

adopting Rule 819(c) with the addition of paragraph 

(c)(4). The Commission notes that the CFTC has a 

standard of review applicable to its process. See 17 

CFR 9.2(c); 17 CFR 9.33(c). 

356See Division of Clearing and Risk, Division of 

Market Oversight and Division of Swap Dealer and 

Intermediary Oversight Guidance on Application of 

Certain Commission Regulations to Swap Execution 

Facilities, CFTC (Nov. 14, 2013), available at 

https://www.cftc.gov/sites/default/files/idc/groups/ 

public/@newsroom/documents/file/ 

dmostaffguidance111413.pdf. 

357See Citadel Letter, supra note 18, at 6. 

Membership requirements based on any 

combination of these factors would similarly be 

inconsistent with providing impartial access. 

358See 2013 CFTC Final SEF Rules Release, supra 

note 9, at 78 FR at 33598 (discussing ‘‘impartial 

access’’ to swap execution facilities). 

359See id. Similarly, it is not consistent with 

impartial access for an SBSEF to require that an 

ECP have clearing arrangements in order to trade 

security-based swaps that are not intended to be 

cleared. In such a case, the SBSEF’s standards of 

financial soundness should be objective and 

impartial and should have a relevant relationship 

to trading on the SBSEF. 360See supra note 357 and accompanying text. 

transparent, and applied in a fair and 

nondiscriminatory manner.352

One commenter states that the trading 

documentation requirement of Rule 

15Fi-5 may at times conflict with the 

impartial access requirement of 

Proposed Rule 819(c) because it is 

unlikely that all SBSEF members 

trading cleared swaps will have trading 

relationship documentation with all 

other members trading cleared SBS.353

This commenter encourages the 

Commission to adopt the CFTC 

guidance regarding enablement 

mechanisms and states that such 

mechanisms were historically used to 

eliminate credit risk, but that no such 

risk exists if an SBSEF intended to be 

cleared is void ab initio if rejected for 

clearing. 

The Commission agrees with 

commenters that impartial access to an 

SBSEF encompasses both impartial 

access to membership in an SBSEF and 

the ability to fully interact on the 

SBSEF’s order book or RFQ system, and 

that an SBSEF’s rules must incorporate 

impartial criteria for this access. The 

Commission expects that most, if not 

all, entities that will seek SBSEF 

registration with the SEC are or will also 

be registered as SEFs with the CFTC and 

that ensuring consistency of access to 

SBSEFs and SEFs will provide market 

participants with greater certainty about 

permissible practices regarding access to 

these platforms.354 Efforts to undermine 

the principle of impartial access may 

take myriad forms over time. The text of 

Rule 819(c) is consistent with the text of 

§ 37.202 of the CFTC’s regulations and 

emphasizes the general principal that 

access to an SBSEF and its services 

must be impartial. The Commission 

does not find it necessary to describe 

within 819(c) specific practices that 

would violate its requirements. For the 

purposes of the Commission’s review 

process for a denial or limitation of 

access or membership that is 

inconsistent with Rule 918(c), the 

Commission will apply a standard of 

review consistent with standards of 

review that the Commission uses in 

similar contexts.355

The Commission is aware of the CFTC 

staff guidance on impartial access 

related to § 37.202 of the CFTC’s 

regulations.356 The Commission finds it 

is appropriate to similarly provide 

guidance as to certain criteria or 

practices that are inconsistent with Rule 

819(c)’s requirement to provide 

impartial access. The Commission 

agrees that it is inconsistent with 

providing impartial access for an SBSEF 

to limit membership based on an ECP’s 

status, such as by limiting membership 

to (1) self-clearing members; (2) 

registered security-based swap dealers; 

(3) banks or liquidity providers with a 

minimum amount of Tier 1 capital; (4) 

liquidity providers that have been 

‘‘enabled’’ by, or have bilateral 

documentation with, a minimum 

number of other liquidity providers; or 

(5) liquidity providers with a minimum 

amount of transaction volume.357

Access to an SBSEF generally should be 

determined, for example, on an SBSEF’s 

‘‘impartial evaluation of an applicant’s 

disciplinary history and financial and 

operational soundness against objective, 

pre-established criteria.’’ 358 As one 

example of such criteria, any ECP 

should be able to demonstrate financial 

soundness either by showing that it is 

a clearing member of a clearing agency 

that clears products traded on that 

SBSEF or by showing that it has clearing 

arrangements in place with such a 

clearing member.359

Further, providing impartial access as 

required by Proposed Rule 819(c) means 

providing all of an SBSEF’s market 

participants—dealers and non-dealers 

alike—with the ability to fully interact 

on the order book or RFQ system as 

liquidity providers, liquidity takers, or 

both, including viewing, placing, or 

responding to all indicative or firm bids 

and offers and to place, receive, and 

respond to RFQs. Therefore, it would be 

incompatible with impartial access for 

an SBSEF’s rules to permit mechanisms, 

schemes, functionalities, counterparty 

filters, or other arrangements that 

prevent an SBSEF participant from 

interacting or trading with, or viewing 

the bids and offers (firm or indicative) 

displayed by, any other market 

participant on that SBSEF, whether by 

means of any condition or restriction on 

its ability or authority to display a quote 

to any other market participant or to 

respond to any quote issued by any 

other market participant on that SBSEF 

with respect to security-based swap 

transactions that are intended to be 

cleared. 

It is also inconsistent with impartial 

access for an SBSEF’s rules to require 

bilateral documentation or to permit 

bilateral enablements in order to trade 

security-based swaps that are intended 

to be cleared, because providing for 

such documentation or enablements 

solely to address occasional trade 

rejections by a clearing agency would 

undercut the ability of all ECPs to post 

or interact with interest on securitybased swaps that are intended to be 

cleared, and because such 

documentation or enablements are 

unnecessary in light of the provisions of 

Rule 815(g), which, as discussed supra 

section V.E.7, would require an SBSEF’s 

rules to provide that a trade that is 

intended to be cleared at the time of the 

transaction, but is not accepted for 

clearing by a registered clearing agency, 

is void ab initio. Providing that such 

trades are void ab initio also reflects the 

economic reality that an uncleared 

transaction is significantly different 

from a cleared transaction in terms of 

the credit risk faced by the 

counterparties. Lastly, it is inconsistent 

with impartial access for an SBSEF to 

employ fee structures that would have 

a disproportionate or adverse effect on 

certain market participants based on 

their status, as described above,360 with 

respect to the ability to fully interact on 

the order book or RFQ system as 

liquidity providers, liquidity takers, or 

both, including viewing, placing, or 

responding to all indicative or firm bids 

and offers and to place, receive, and 

respond to RFQs. 

With respect to the comment that the 

documentation requirements of Rule 

15Fi–5 may, at times, conflict with the 

impartial access requirement of 

Proposed Rule 819(c), no such conflict 

exists, because Rule 15Fi–5(a)(1)(ii) 

provides that the rule does not apply to 

cleared swaps, and Rule 15Fi(a)(1)(iii) 

further provides that the rule does not 

apply to security-based swap 

transactions executed anonymously on 

an SBSEF or a national securities 


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361See 17 CFR 240.15Fi–5(a)(1)(ii) and (iii). Rule 

15Fi–5(a)(1)(iii) provides in part that SBSs executed 

anonymously on an SEF or a national securities 

exchange are exempt from the provisions of Rule 

15Fi–5, provided that: (1) the SBSs are intended to 

be cleared and are actually submitted for clearing 

to a clearing agency; (2) all terms of the SBSs 

conform to the rules of the clearing agency; and (3) 

upon acceptance of such an SBS by the clearing 

agency the original SBS is extinguished; the original 

SBS is replaced by equal and opposite SBS with the 

clearing agency; and all terms of the SBS conform 

to the product specifications of the cleared SBS 

established under the clearing agency’s rules. See 

17 CFR 240.15Fi–5(a)(1)(iii). 

362To promote uniformity throughout proposed 

Regulation SE, it is appropriate to denote all 

persons who have a right to participate in an 

SBSEF’s market as ‘‘members.’’ 

363Rule 819(d)(6)(v) provides that the rules of an 

SBSEF may authorize its compliance staff to issue 

a warning letter to a person or entity under 

investigation or to recommend that a disciplinary 

panel take such an action, and that no more than 

one warning letter could be issued to the same 

person or entity found to have committed the same 

rule violation within a rolling 12-month period. 

364See supra section V.E.1(c). 

365See Bloomberg Letter, supra note 18, at 16. 

366See ICE Letter, supra note 18, at 3. 367See id. at 3–4 (also stating that, for example, 

ICE Futures U.S., Inc. is a DCM that provides 

regulatory services to SEFs). 

368Specifically, the Commission is adding to Rule 

819(e) the language ‘‘a board of trade designated as 

a contract market (under section 5 of the 

Commodity Exchange Act)’’—in other words, a 

DCM—to the list of entities with which an SBSEF 

may enter into a contract for the provision of 

regulatory services. 

exchange, provided that certain 

conditions are met.361

4. Rule 819(d)—Rule Enforcement 

Program 

Paragraph (d) of Proposed Rule 819 is 

closely modeled on § 37.203. Paragraph 

(d)(1) of Proposed Rule 819 would 

require an SBSEF to prohibit abusive 

trading practices generally, enumerating 

certain practices in particular.362

Paragraph (d)(2) would require an 

SBSEF to have arrangements and 

resources for effective enforcement of its 

rules, including the authority to collect 

information and documents on both a 

routine and non-routine basis and to 

supervise its market to determine 

whether a rule violation has occurred. 

Paragraph (d)(3) would require an 

SBSEF to establish and maintain 

sufficient compliance staff and 

resources to ensure that it can conduct 

effective audit trail reviews, trade 

practice surveillance, market 

surveillance, and real-time market 

monitoring. Paragraph (d)(4) would 

require an SBSEF to maintain an 

automated trade surveillance system 

that meets certain criteria. Paragraph 

(d)(5) would require real-time market 

monitoring of all trading activity on the 

SBSEF. The SBSEF would also be 

required to have the authority to adjust 

trade prices or cancel trades when 

necessary to mitigate market disrupting 

events caused by malfunctions in its 

system(s) or platform(s) or errors in 

orders submitted by members. 

Paragraph (d)(6) is modeled on 

§ 37.203(f), again using the same 

structure and rule text. Like § 37.203(f), 

Rule 819(d)(6) addresses investigations 

and investigation reports and includes 

provisions relating to procedures, 

timeliness, the reporting requirements 

when a reasonable basis does or does 

not exist for finding a violation, and 

warning letters.363

The Commission did not receive any 

comments on Rule 819(d) and is 

adopting Rule 819(d) as proposed, 

except that, in light of its decision not 

to adopt a definition of ‘‘block 

trade,’’ 364 the Commission is deleting 

the words ‘‘block trades or other types 

of’’ from the phrase ‘‘pre-arranged 

trading (except for block trades or other 

types of transactions approved by or 

certified to the Commission pursuant to 

§ 242.806 or § 242.807, respectively).’’ 

While the deletion of this text would 

remove an automatic exemption for 

block trades from the prohibition 

against pre-arranged trading that an 

SBSEF’s rules would be required to 

include, it is appropriate given that a 

definition of block trade has not been 

adopted. At such time as the 

Commission adopts a definition of block 

trade, an SBSEF could submit a rule 

change under Rule 806 or Rule 807 to 

address trades that meet the definition 

of block trade. 

5. Rule 819(e)—Regulatory Services 

Provided by a Third Party 

Paragraph (e) of Proposed Rule 819 is 

modeled on § 37.204 and would allow 

an SBSEF to contract with a regulatory 

services provider. If it does so, the 

SBSEF would have to ensure that such 

provider has the capacity and resources 

necessary to provide timely and 

effective regulatory services, retain 

sufficient compliance staff to supervise 

the quality and effectiveness of the 

regulatory services provided on its 

behalf, hold regular meetings with the 

regulatory service provider, and conduct 

periodic reviews of the adequacy and 

effectiveness of services provided on its 

behalf. The SBSEF would at all times 

remain responsible for the performance 

of any regulatory services received and 

retain exclusive authority in all 

substantive decisions made by its 

regulatory service provider. 

One commenter states that SBSEFs 

should be able to use regulatory service 

providers and that the types of 

regulatory service providers permitted 

under Proposed Rule 819(e)(1) are 

appropriate.365 Another commenter also 

supports the use of regulatory service 

providers but believes that the 

Commission should include DCMs 

among the types of entities permitted to 

act as regulatory service providers, as 

they are ‘‘uniquely qualified’’ and are 

permitted to act as regulatory service 

provider under the CFTC SEF regime.366

This commenter states that DCMs have 

well-established regulatory protocols 

and are subject to CFTC oversight, 

conduct regulatory activities similar to 

registered futures associations, have 

developed expertise in securities 

markets, and are permitted to list 

futures on individual stocks and to list 

swap contracts for trading.367

The Commission agrees that SBSEFs 

should be able to contract with DCMS 

for the provision of regulatory services. 

As the commenter states, DCMs have 

well-established regulatory protocols 

and are subject to CFTC oversight, and 

they are permitted to act as regulatory 

service providers for SEFs. 

Additionally, permitting an SBSEF to 

use the same regulatory service provider 

as an affiliated SEF may create 

efficiencies for both the SBSEF and SEF, 

while maintaining regulatory oversight 

of the entity that is providing the 

regulatory services. While the CFTC’s 

regulation for SEFs does not contain a 

reciprocal provision permitting national 

securities exchanges to perform 

regulatory services for SEFs, 

harmonization in practical terms with 

this aspect of the CFTC regime—i.e., so 

that DCMs can perform regulatory 

services for both SBSEFs and SEFs—is 

appropriate in light of the relative size 

of the SBSEF market compared to the 

swaps market and because most if not 

all entities that will seek to register as 

SBSEFs are already registered as SEFs. 

Significantly, regardless of the type of 

entity acting as regulatory service 

provider for an SBSEF, the SBSEF will 

at all times remain responsible for the 

performance of any regulatory services 

received and retain exclusive authority 

in all substantive decisions made by its 

regulatory service provider. 

Accordingly, the Commission is 

adopting Rule 819(e) as amended to 

permit SBSEFs to contract with DCMs 

for the provision of services to assist in 

complying with the SEA and 

Commission rules thereunder, as 

approved by the Commission.368

6. Rule 819(f)—Audit Trail 

Paragraph (f) of Proposed Rule 819 is 

modeled on § 37.205, using the same 

paragraph structure and rule text. 

Paragraph (f) would require an SBSEF to 


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369The Commission has corrected a reference to 

Core Principle 9 and corrected the phrase 

‘‘account(s) owner(s)’’ to read ‘‘account’s owner(s).’’ 

370 In this bullet and the next bullet, the word 

used in the corresponding CFTC guidance was 

‘‘should,’’ but the Commission proposed to replace 

‘‘should’’ with ‘‘shall’’ in both places to convert the 

guidance into an enforceable rule. 

371Proposed Rule 834(d) would require each 

SBSEF and SBS exchange to ensure that its 

disciplinary processes preclude any member, or 

group or class of its members, from dominating or 

exercising disproportionate influence on the 

disciplinary process, and that each major 

disciplinary committee or hearing panel include 

sufficient different groups or classes of its members 

so as to ensure fairness and to prevent special 

treatment or preference for any person or member 

in the conduct of the responsibilities of the 

committee or panel. See infra section VIII. 

372The CFTC’s guidance in appendix B that is 

adapted into paragraphs (g)(9)(ii) through (vi) of 

Proposed Rule 819 uses the word ‘‘should’’ here 

and in other similar instances. The Commission 

uses the word ‘‘shall’’ in such instances instead. 

capture and retain all audit trail data 

necessary to detect, investigate, and 

prevent customer and market abuses, 

and imposes other requirements on the 

SBSEF’s audit trail pertaining to the 

records that must be kept, electronic 

analysis capability, safe-storage 

capability, and enforcement of the audit 

trail requirements. 

The Commission did not receive any 

comments on Proposed Rule 819(f). An 

audit trail is a crucial component of a 

trading venue’s ability to ensure 

compliance with its rules. These 

requirements should be modeled on the 

parallel CFTC regulations regarding 

SEFs, as most, if not all, entities that 

will register as SBSEFs will be SEFs 

registered with the CFTC, and that 

consistent requirements will promote a 

consistent approach to compliance. 

Accordingly, the Commission is 

adopting Rule 819(f) as proposed, with 

minor technical modifications.369

7. Rule 819(g)—Disciplinary Procedures 

and Sanctions 

Paragraph (g) of Proposed Rule 819 is 

based on § 37.206 of the CFTC’s rules 

and generally tracks all of its rule text 

but would include additional language 

derived from guidance in appendix B of 

part 37 of the CFTC’s rules. Converting 

the guidance to rule text, and thus 

grouping conceptually related items 

together, yields the most coherent and 

readable ruleset, instead of 

incorporating the guidance into a standalone section of the rules. Accordingly, 

paragraph (g)(1)(i) of Proposed Rule 819 

is taken from § 37.206(a) and would 

require an SBSEF to establish and 

maintain sufficient enforcement staff 

and resources to effectively and 

promptly prosecute possible rule 

violations within the disciplinary 

jurisdiction of the SBSEF. Paragraphs 

(g)(1)(ii) through (iv) are taken from the 

appendix B guidance and would 

provide, respectively, that: 

• The enforcement staff of an SBSEF 

shall 370 not include members or other 

persons whose interests conflict with 

their enforcement duties. 

• A member of the enforcement staff 

shall not operate under the direction or 

control of any person or persons with 

trading privileges at the SBSEF. 

• The enforcement staff of an SBSEF 

may operate as part of the SBSEF’s 

compliance department. 

Paragraph (g)(2) of Rule 819 is 

modeled on § 37.206(b) and would 

require an SBSEF to establish one or 

more disciplinary panels that are 

authorized to fulfill their obligations 

under Proposed Rule 819. Section 

37.206(b) provides that disciplinary 

panels must meet the composition 

requirements of part 40. To help ensure 

fairness and prevent special treatment 

or preference of any person or member 

and to provide for consistency in the 

makeup of members of SBSEF major 

disciplinary committees and hearing 

panels, the Commission proposed 

instead to require the disciplinary 

panels established under Proposed Rule 

819(g)(2) to meet the composition 

requirements of Rule 834(d), which 

apply to each major disciplinary 

committee and hearing panel of an 

SBSEF.371

Paragraphs (g)(3) through (8) of 

Proposed Rule 819 have no parallel in 

§ 37.206 itself but derive from the 

guidance in appendix B pertaining to 

§ 37.206, following the paragraph 

structure and wording of the guidance 

closely. Paragraph (g)(3) would impose 

procedural requirements relating to the 

notice of charges made to a respondent. 

Paragraph (g)(4) would provide that a 

respondent has a right to representation. 

Paragraph (g)(5) would provide that a 

respondent must be given adequate time 

to respond to any charges. Paragraph 

(g)(6) would state that the rules of an 

SBSEF may provide that, if a respondent 

admits or fails to deny any of the 

charges, a disciplinary panel may find 

that the violations alleged in the notice 

of charges have been committed. 

Paragraph (g)(6) would further state that, 

if the SBSEF’s rules so provide, then: (i) 

The disciplinary panel may impose a 

sanction for each violation found to 

have been committed; (ii) The 

disciplinary panel shall promptly notify 

the respondent in writing of any 

sanction to be imposed and shall advise 

the respondent that the respondent may 

request a hearing on such sanction 

within the period of time, which shall 

be stated in the notice; and (iii) The 

rules of the SBSEF may provide that, if 

a respondent fails to request a hearing 

within the period of time stated in the 

notice, the respondent will be deemed 

to have accepted the sanction. 

Paragraph (g)(7) of Proposed Rule 819 

would provide that, where a respondent 

has requested a hearing on a charge that 

is denied, or on a sanction set by the 

disciplinary panel, the respondent shall 

be given an opportunity for a hearing in 

accordance with the rules of the SBSEF. 

Paragraph (g)(8) would address 

settlement offers. 

Paragraph (g)(9) of Proposed Rule 819 

returns to the text of § 37.206(c) for 

provisions regarding hearings. 

Paragraph (g)(9)(i) is modeled on 

§ 37.206(c)(1) and would require an 

SBSEF to have rules requiring a hearing 

to be fair, conducted before members of 

the disciplinary panel, and promptly 

convened after reasonable notice to the 

respondent. The Commission proposed 

an additional provision, which derives 

from the guidance, that an SBSEF need 

not apply the formal rules of evidence 

for a hearing; nevertheless, the 

procedures for the hearing may not be 

so informal as to deny a fair hearing. 

Paragraphs (g)(9)(ii) through (vi) of 

Proposed Rule 819 are also adapted 

from the guidance in appendix B of part 

37. Paragraph (g)(9)(ii) would bar a 

member of the disciplinary panel for the 

hearing from having a financial, 

personal, or other direct interest in the 

matter under consideration. Paragraph 

(g)(9)(iii) would address the 

respondent’s access to evidence in the 

SBSEF’s possession. Paragraph (g)(9)(iv) 

would provide that the SBSEF’s 

enforcement and compliance staffs 

shall 372 be parties to the hearing, and 

the enforcement staff shall present their 

case on those charges and sanctions that 

are the subject of the hearing. Paragraph 

(g)(9)(v) would provide that the 

respondent shall be entitled to appear 

personally at the hearing, to crossexamine any persons appearing as 

witnesses at the hearing, to call 

witnesses, and to present such evidence 

as may be relevant to the charges. 

Paragraph (g)(9)(vi) would provide that 

the SBSEF shall require persons within 

its jurisdiction who are called as 

witnesses to participate in the hearing 

and produce evidence. 

Paragraph (g)(9)(vii) of Proposed Rule 

819 is modeled on the text of 

§ 37.206(c)(2) and would require that, if 

the respondent has requested a hearing, 

a copy of the hearing shall be made and 

shall become a part of the record of the 

proceeding. Paragraph (g)(9)(vii) would 

not require the record to be transcribed 


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373See infra section XIV.E (discussing Rule 442, 

which establishes the right to appeal to the 

Commission certain actions taken by an SBSEF and 

sets out certain procedural matters relating to any 

such appeal). 

374Compare Proposed Rule 819(g)(11)(i) 

(allowing an SBSEF to impose a sanction, including 

suspension, or take other summary action against a 

person or entity subject to its jurisdiction upon a 

reasonable belief that such immediate action is 

necessary to protect the best interest of the market 

place), with Proposed Rule 819(g)(11)(ii)(A) 

(providing that, if practicable, a respondent should 

be served with a notice before the action is taken, 

or otherwise at the earliest possible opportunity). 

375Neither § 37.206 nor the associated guidance 

from appendix B requires a SEF to allow appeals. 

The guidance states, rather, that a SEF’s rules ‘‘may 

permit’’ appeals and includes certain procedural 

requirements only if the rules of a swap execution 

facility permit appeals. The Commission adhered to 

this permissive approach in the proposal but sought 

comment on whether the final rules should require 

an SBSEF to create an appeals procedure. 

376See infra section VIII.D. 

377See Rule 819(g)(14); see also supra note 355. 

378See supra note 377 and accompanying text. 

379The single-name CDS market, in particular, is 

a market for assessing the creditworthiness of 

particular issuers. Non-public information derived 

from activity on the SBSEF pertaining to the 

market’s assessment of an issuer’s creditworthiness 

is likely to be material to the markets for that 

issuer’s cash securities as well as to markets for 

derivatives based on the issuer’s cash securities 

(e.g., single-stock options). 

unless the transcript is requested by 

Commission staff or the respondent, the 

decision is appealed pursuant to the 

rules of the SBSEF, or the decision is 

reviewed by the Commission pursuant 

to § 201.442.373 In all other instances, a 

summary record of a hearing is 

permitted. 

Paragraph (g)(10) of Proposed Rule 

819 is modeled on § 37.206(d) and 

would provide that, promptly following 

a hearing conducted in accordance with 

the rules of the SBSEF, the disciplinary 

panel shall render a written decision 

based upon the weight of the evidence 

contained in the record of the 

proceeding and shall provide a copy to 

the respondent. The written decision 

must include six enumerated elements, 

all of which are closely modeled on 

those in § 37.206(d). 

Paragraph (g)(11) of Proposed Rule 

819 would address emergency 

disciplinary actions and is drawn from 

the guidance in appendix B of part 37. 

It would provide that an SBSEF may 

impose a sanction, including 

suspension, or take other summary 

action against a person or entity subject 

to its jurisdiction upon a reasonable 

belief that such immediate action is 

necessary to protect the best interest of 

the market place. Furthermore, any 

emergency disciplinary action would 

have to be taken in accordance with an 

SBSEF’s procedures that provide for 

notice (if practicable), rights for 

representation in all proceedings, an 

opportunity for a hearing as soon as 

reasonably practicable, and the 

rendering of a written decision 

promptly following the hearing based 

upon the weight of the evidence 

contained in the record. Proposed Rule 

819(g)(11) would seek to balance the 

need to allow an SBSEF to take 

summary action against the need to 

afford due process to respondents.374

Paragraph (g)(12) of Proposed Rule 

819 also is drawn from the appendix B 

guidance and would provide that, if the 

rules of the SBSEF permit appeals,375

the SBSEF shall establish an appellate 

panel that is authorized to hear appeals. 

The composition of the panel would 

have to be consistent with Rule 

834(d) 376 and could not include any 

members of the SBSEF’s compliance 

staff or any person involved in 

adjudicating any other stage of the same 

proceeding. Promptly following the 

appeal or review proceeding, the 

appellate panel would be required to 

issue a written decision and to provide 

a copy to the respondent. As to the 

Commission’s process of reviewing 

disciplinary actions, the Commission 

will apply a standard of review 

consistent with standards of review that 

the Commission uses in similar 

contexts.377

Paragraph (g)(13) of Proposed Rule 

819 is adapted partly from § 37.206(e) 

and partly from the appendix B 

guidance. Paragraph (g)(13)(i) is drawn 

from § 37.206(e) and would provide that 

all disciplinary sanctions imposed by an 

SBSEF or its disciplinary panels shall be 

commensurate with the violations 

committed and shall be clearly 

sufficient to deter recidivism or similar 

violations by other members. All 

disciplinary sanctions, including 

sanctions imposed pursuant to an 

accepted settlement offer, would have to 

take into account the respondent’s 

disciplinary history. In the event of 

demonstrated customer harm, any 

disciplinary sanction would have to 

include full customer restitution, except 

where the amount of restitution or to 

whom it should be provided cannot be 

reasonably determined. Paragraph 

(g)(13)(i) is adapted from the appendix 

B guidance and would allow an SBSEF 

to adopt a summary fine schedule for 

violations of rules relating to the failure 

to timely submit accurate records 

required for clearing or verifying each 

day’s transactions. 

The Commission received no 

comments on Proposed Rule 819(g) and, 

apart from the addition of paragraph 

(g)(14) regarding Commission review,378

is adopting Rule 819(g) as proposed for 

the reasons stated in the Proposing 

Release. 

8. Rule 819(h)—Activities of SecurityBased Swap Execution Facility’s 

Employees, Governing Board Members, 

Committee Members, and Consultants 

Paragraph (h) of Proposed Rule 819 

would generally prohibit persons who 

are employees of an SBSEF, or who 

otherwise might have access to 

confidential information because of 

their role with the SBSEF, from 

improperly utilizing that information. 

Proposed Rule 819(h) is modeled on 

§ 1.59 of the CFTC’s rules, which 

requires a SEF (among other CFTCregulated entities) to place restrictions 

on trading by its governing board 

members, committee members, 

consultants, and employees and to 

prohibit any such person from 

disclosing any material, non-public 

information obtained as a result of their 

official duties with the SRO. 

Paragraph (h)(2)(i) of Proposed Rule 

819 would require an SBSEF to 

maintain in effect rules that, at a 

minimum, prohibit an employee of the 

SBSEF from trading, directly or 

indirectly, any ‘‘covered interest.’’ 

Proposed Rule 819(h)(1)(i) would define 

‘‘covered interest’’ to mean, with respect 

to an SBSEF: an SBS that trades on the 

SBSEF; a security of an issuer that has 

issued a security that underlies an SBS 

that is listed on the SBSEF; or a 

derivative based on a security that falls 

within the immediately preceding 

prong. The opportunity to observe order 

submission and trading in an SBS on an 

SBSEF could yield material non-public 

information about the future 

performance not just of that SBS, but of 

all securities issued by that entity.379

Paragraph (h)(2)(ii), modeled on 

§ 1.59(b)(1)(ii), would prohibit an 

SBSEF employee from disclosing to any 

other person any material non-public 

information that the employee obtains 

as a result of their employment at the 

SBSEF, and where the employee has or 

should have a reasonable expectation 

that the information disclosed may 

assist another person in trading any 

covered interest. In addition, paragraph 

(h)(2)(ii), like § 1.59(b)(1)(ii), would 

provide an exception for disclosures 

made in the course of an employee’s 

duties, or disclosures made to another 

SBSEF, court of competent jurisdiction, 

or representative of any agency or 

department of the Federal or State 


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380The first and the fourth carve-outs listed above 

are comparable to those listed in § 1.59(b)(2). The 

Commission proposed to include the second and 

third carve-outs to permit an SBSEF employee to 

trade derivatives that provide indirect exposure to 

a covered interest where the exposure to the 

covered interest is sufficiently diluted. In such 

cases, it would be unlikely that the employee would 

be using material non-public information about the 

covered interest to gain an unfair advantage when 

trading the derivative. 

381See Proposing Release, supra note 1, 87 FR at 

28905. 

382See § 1.59(a)(10) (defining ‘‘pooled investment 

vehicle’’ to mean ‘‘a trading vehicle organized and 

operated as a commodity pool within the meaning 

of § 4.10(d) of this chapter, and whose units of 

participation have been registered under the 

Securities Act of 1933, or a trading vehicle for 

which § 4.5 of this chapter makes available relief 

from regulation as a commodity pool operator, i.e., 

registered investment companies, insurance 

company separate accounts, bank trust funds, and 

certain pension plans’’). 

383See supra note 32. 

384Section 1.63(b), in relevant part, requires a 

SEF to maintain rules that have been submitted to 

the CFTC pursuant to section 5c(c) of the CEA and 

part 40 of the CFTC’s rules. As noted above, the 

Commission proposed to adapt §§ 40.5 (Voluntary 

submission of rules for Commission review and 

approval) and 40.6 (Self-certification of rules) into 

Proposed Rules 806 and 807, respectively. 

Therefore, Proposed Rule 819(i)(1) would require an 

SBSEF to maintain in effect rules that have been 

submitted to the Commission pursuant to Rule 806 

or Rule 807. 

385Proposed Rule 802 would define ‘‘disciplinary 

committee’’ as any person or committee of persons, 

or any subcommittee thereof, that is authorized by 

an SBSEF or SBS exchange to issue disciplinary 

charges, to conduct disciplinary proceedings, to 

settle disciplinary charges, to impose disciplinary 

sanctions, or to hear appeals thereof in cases 

involving any violation of the rules of the SBSEF 

or SBS exchange, except those cases where the 

person or committee is authorized summarily to 

impose minor penalties for violating rules regarding 

decorum, attire, the timely submission of accurate 

records for clearing or verifying each day’s 

transactions, or other similar activities. The CFTC 

rules contain two slightly different definitions of 

‘‘disciplinary committee’’ that appear in § 1.63(a)(2) 

and § 1.69(a)(1), respectively. Because the definition 

in § 1.69(a)(1) is more comprehensive, the 

Commission has modeled its definition of 

‘‘disciplinary committee’’ on § 1.69(a)(1) rather than 

on § 1.63(a)(2). The Commission is locating the 

government acting in their official 

capacity. 

Paragraph (h)(3) of Proposed Rule 

819, modeled on § 1.59(b)(2), would 

allow an SBSEF to adopt rules setting 

forth circumstances under which 

exemptions from the employee trading 

prohibition may be granted. In 

particular, paragraph (h)(3) would 

include the following possible carveouts from the employee trading 

prohibition: (1) participation by an 

employee in a ‘‘pooled investment 

vehicle’’ where the employee has no 

direct or indirect control with respect to 

transactions executed for or on behalf of 

such vehicle; (2) trading by an employee 

in a derivative based on such a pooled 

investment vehicle; (3) trading by an 

employee in a derivative based on an 

index in which no covered interest 

constitutes more than 10% of the index; 

and (4) trading by an employee under 

circumstances enumerated in rules 

which the SBSEF determines are not 

contrary to applicable law, the public 

interest, or just and equitable principles 

of trade.380

The first and the fourth carve-outs 

listed above are comparable to those 

listed in § 1.59(b)(2). The Commission 

proposed to include the second and 

third carve-outs to permit an SBSEF 

employee to trade derivatives that 

provide indirect exposure to a covered 

interest where the exposure to the 

covered interest is sufficiently 

diluted.381 In such cases, it would be 

unlikely that the employee would be 

using material non-public information 

about the covered interest to gain an 

unfair advantage when trading the 

derivative. The Commission proposed to 

depart from the CFTC definition of 

‘‘pooled investment vehicle’’ 382 to 

adapt it for the SBS and securities 

markets. Rule (h)(1)(ii) defines ‘‘pooled 

investment vehicle’’ to mean an 

investment company registered under 

the Investment Company Act of 1940 in 

which no covered interest constitutes 

more than 10% of the investment 

company’s assets. Thus, under this 

definition, if an SBSEF were to list a 

single-name CDS on company XYZ, a 

‘‘pooled investment vehicle’’ would 

include a broad-based mutual fund or 

ETF that contains a security issued by 

company XYZ, assuming that the XYZ 

security does not exceed 10% of the 

fund’s holdings. The 10% limit on a 

covered interest’s composition of the 

fund is designed to permit SBSEF 

employees to trade most index-based 

mutual funds and ETFs that contain 

covered interests, except those where a 

component of the fund becomes 

sufficiently large that material nonpublic information about an issuer 

derived from activity on the SBSEF 

could provide an unfair advantage to an 

SBSEF employee when trading that 

fund. 

Finally, under Proposed Rule 

819(h)(3)—as with § 1.59(b)(2)—the 

exemptions from the trading restrictions 

would not be automatically available to 

SBSEF employees. Proposed Rule 

819(h)(3) would still require the SBSEF 

to adopt rules that set forth 

circumstances under which exemptions 

from the trading prohibition may be 

granted. Furthermore, Proposed Rule 

819(h)(3), which is modeled on 

§ 1.59(b)(2), would state that any 

exemption must be administered by the 

SBSEF ‘‘on a case-by-case basis.’’ 

Paragraph (h)(4) of Proposed Rule 

819, like § 1.59(d), would address 

prohibited conduct not just by 

employees of an SBSEF, but also of 

governing board members, committee 

members, and consultants of the SBSEF. 

Paragraph (h)(4)(i)(A) is modeled on 

§ 1.59(d)(1)(i) and would prohibit any 

employee, governing board member, 

committee member, or consultant of the 

SBSEF from trading for their own 

account, or for or on behalf of any other 

account, in any covered interest on the 

basis of any material, non-public 

information obtained through special 

access related to the performance of 

their official duties as an employee, 

governing board member, committee 

member, or consultant. Paragraph 

(h)(4)(i)(B), modeled on § 1.59(d)(1)(ii), 

would prohibit any employee, 

governing board member, committee 

member, or consultant of the SBSEF 

from disclosing for any purpose 

inconsistent with the performance of 

their official duties as an employee, 

governing board member, committee 

member, or consultant any material, 

non-public information obtained 

through special access related to the 

performance of those duties. Paragraph 

(h)(4)(ii), modeled on § 1.59(d)(2), 

would provide that no person shall 

trade for their own account, or for or on 

behalf of any other account, in any 

covered interest on the basis of any 

material, non-public information that 

the person knows was obtained in 

violation of paragraph (h)(4) of this 

section from an employee, governing 

board member, committee member, or 

consultant. 

The Commission received no 

comments on Proposed Rule 819(h) and 

is adopting Rule 819(h) as proposed, 

with minor technical modifications,383

for the reasons stated in the Proposing 

Release. 

9. Rule 819(i)—Service on SecurityBased Swap Execution Facility Boards 

or Committees by Persons With 

Disciplinary Histories 

Paragraph (i) of Proposed Rule 819 

would bar persons with specified 

disciplinary histories from serving on 

the governing board or committees of an 

SBSEF and would impose certain other 

duties on the SBSEF associated with 

that fundamental requirement. Rule 

819(i) is modeled on § 1.63 of the 

CFTC’s rules, which imposes similar 

requirements in connection with SEFs 

and certain other entities. 

Paragraph (i) of Proposed Rule 819 is 

closely modeled on § 1.63. Paragraph 

(i)(1), like § 1.63(b), would require an 

SBSEF to maintain rules 384 that render 

a person ineligible to serve on its 

disciplinary committees,385 arbitration 


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definition in Rule 802, since the term is used by 

multiple rules in Regulation SE. 

386Proposed Rule 802 would define ‘‘oversight 

panel’’ as any panel, or any subcommittee thereof, 

authorized by an SBSEF or SBS exchange to 

recommend or establish policies or procedures with 

respect to the surveillance, compliance, rule 

enforcement, or disciplinary responsibilities of the 

SBSEF or SBS exchange. The CFTC’s definitions of 

‘‘oversight panel’’ are contained in § 1.63(a)(4) and 

§ 1.69(a)(4), respectively. Because the definition in 

§ 1.69(a)(4) is more comprehensive, the Commission 

has modeled its definition of ‘‘oversight panel’’ on 

§ 1.69(a)(4) rather than on § 1.63(a)(4). As with the 

definition of ‘‘disciplinary committee,’’ the 

Commission is locating the definition of ‘‘oversight 

panel’’ in Rule 802, since the term is used by 

multiple rules in Regulation SE. 

387Section 1.63(b)(5) provides that one criterion 

for the bar would be that the person in question is 

subject to or has had imposed on him within the 

prior three years a CFTC registration revocation or 

suspension in any capacity for any reason, or has 

been convicted within the prior three years of any 

of the felonies listed in section 8a(2)(D)(ii) through 

(iv) of the CEA. Since the SEC is not subject to the 

CEA and cannot cross-reference those provisions, 

the Commission proposed for the equivalent 

criterion in Rule 819(i)(1)(v) that a person would be 

barred for having been convicted within the prior 

three years of any felony, without limitation on the 

type of felony. See Proposing Release, supra note 

1, 87 FR at 28907 n.145. 

388Proposed Rule 819(i)(6)(i) would define 

‘‘arbitration panel’’ as any person or panel 

empowered by an SBSEF to arbitrate disputes 

involving the SBSEF’s members or their customers. 

Rule 819(i)(6)(ii) defines ‘‘disciplinary offense’’ as: 

any violation of the rules of an SBSEF, except a 

violation resulting in fines aggregating to less than 

$5000 within a calendar year involving decorum or 

attire, financial requirements, or reporting or 

recordkeeping; any rule violation which involves 

fraud, deceit, or conversion or results in a 

suspension or expulsion; any violation of the SEA 

or the Commission’s rules thereunder; or any failure 

to exercise supervisory responsibility when such 

failure is itself a violation of either the rules of the 

SBSEF, the SEA, or the Commission’s rules 

thereunder. Proposed Rule 819(i)(6)(iii) would 

define ‘‘final decision’’ as a decision of an SBSEF 

which cannot be further appealed within the 

SBSEF, is not subject to the stay of the Commission 

or a court of competent jurisdiction, and has not 

been reversed by the Commission or any court of 

competent jurisdiction; or any decision by an 

administrative law judge, a court of competent 

jurisdiction, or the Commission which has not been 

stayed or reversed. 

389Since these terms are used only in Proposed 

Rule 819(i) and not elsewhere in Regulation SE, the 

Commission has defined them in Proposed Rule 

819(i) and not the omnibus definitions rule in 

Regulation SE (Proposed Rule 802). 

390See supra note 32. 

391The provision on which Proposed Rule 

819(j)(1)(i)(B) is based, § 1.67(b)(1)(ii), requires a 

futures commission merchant or other registrant 

that receives such a notice to forward it to the 

injured customer. Because of differences in the 

respective agencies’ statutory authority, the 

Commission proposed to require the SBSEF to 

establish a rule that requires the relevant member 

to forward the notice, not to propose a Commission 

rule that would impose such a duty on the member 

directly. 

392See Proposed Rule 819(j)(3)(ii) (defining ‘‘final 

disciplinary action’’ as any decision by or 

settlement with an SBSEF in a disciplinary matter 

that cannot be further appealed at the SBSEF, is not 

subject to the stay of the Commission or a court of 

competent jurisdiction, and has not been reversed 

by the Commission or any court of competent 

jurisdiction). 

393The definitions of ‘‘customer’’ and ‘‘final 

disciplinary action’’ would apply only within 

Proposed Rule 819(j), so the Commission has not 

included them in the omnibus definitions rule for 

proposed Regulation SE (Proposed Rule 802). 

394See supra note 32. 

panels, oversight panels,386 or governing 

boards if that person falls into any of six 

enumerated criteria, all of which are 

modeled closely on the criteria in 

§ 1.63(b).387 Paragraph (i)(2), modeled 

on § 1.63(c), would impose a direct bar 

on any person from serving on a 

disciplinary committee, arbitration 

panel, oversight panel, or governing 

board of an SBSEF if that person meets 

any of the six criteria enumerated in 

Rule 819(i)(1). Paragraph (i)(3), modeled 

on § 1.63(d), would require an SBSEF to 

submit to the Commission a schedule 

listing the rule violations that constitute 

disciplinary offenses that would trigger 

the bar and, to the extent necessary to 

reflect revisions, would have to submit 

an amended schedule within 30 days of 

the end of each calendar year. The 

SBSEF would be required to maintain 

and keep current this schedule and post 

it on its website so that it is in a public 

place designed to provide notice to 

members and otherwise ensure its 

availability to the general public. 

Paragraph (i)(4), like § 1.63(e), would 

require an SBSEF to submit to the 

Commission within 30 days of the end 

of each calendar year a certified list of 

any persons who have been removed 

from its disciplinary committees, 

arbitration panels, oversight panels, or 

governing board pursuant to Rule 819(i) 

during the prior year. Paragraph (i)(5), 

modeled on § 1.63(f), would provide 

that, whenever an SBSEF finds by final 

decision that a person has committed a 

disciplinary offense and that finding 

makes the person ineligible to serve on 

that SBSEF’s disciplinary committees, 

arbitration panels, oversight panels, or 

governing board, the SBSEF shall 

inform the Commission of that finding 

and the length of the ineligibility, in a 

form and manner specified by the 

Commission. 

Paragraph (i)(6) of Proposed Rule 819 

would define the terms ‘‘arbitration 

panel,’’ ‘‘disciplinary offense,’’ and 

‘‘final decision’’ that are used in Rule 

819(i).388 These definitions are closely 

modeled on those provided in 

§ 1.63(a).389

The Commission received no 

comments on Proposed Rule 819(i) and 

is adopting Rule 819(i) as proposed, 

with minor technical modifications,390

for the reasons stated in the Proposing 

Release. 

10. Rule 819(j)—Notification of Final 

Disciplinary Action Involving Financial 

Harm to a Customer 

Paragraph (j) of Proposed Rule 819 is 

a modified version of § 1.67 of the 

CFTC’s rules. Paragraph (j)(1) of 

Proposed Rule 819 would be designed 

to replicate for SBSEFs the fundamental 

duty of § 1.67 and provides that, upon 

any final disciplinary action in which 

an SBSEF finds that a member has 

committed a rule violation that involved 

a transaction for a customer, whether 

executed or not, and that resulted in 

financial harm to the customer, the 

SBSEF must promptly provide written 

notice of the disciplinary action to the 

member. In addition, the SBSEF would 

be required to have established a rule 

pursuant to Rule 806 or Rule 807 that 

requires a member that receives such a 

notice to promptly provide that notice 

to the customer, as disclosed on the 

member’s books and records.391

Paragraph (j)(2) would provide that the 

written notice must include the 

principal facts of the disciplinary action 

and a statement that the SBSEF has 

found that the member has committed a 

rule violation that involved a 

transaction for the customer, whether 

executed or not, and that resulted in 

financial harm to the customer. 

Paragraph (j)(3) of Proposed Rule 819 

would provide definitions for two terms 

used in Rule 819(j). The definition of 

‘‘final disciplinary action’’ is closely 

modeled on the CFTC’s definition in 

§ 1.67(a).392 The definition of 

‘‘customer’’ is only loosely modeled on 

the definition of ‘‘customer’’ provided 

in § 1.3, which includes complexities 

deriving from the CEA that are not 

necessary or appropriate to adapt into a 

rule that applies to SBSEFs.393 The 

Commission proposed to define 

‘‘customer’’ in Rule 819(j)(3)(i) as a 

person that utilizes an agent in 

connection with trading on an SBSEF. 

The Commission received no 

comments on Proposed Rule 819(j) and 

is adopting Rule 819(j) as proposed, 

with minor technical modifications,394

for the reasons stated in the Proposing 

Release. 

11. Rule 819(k)—Designation of Agent 

for Non-U.S. Member 

Paragraph (k) of Proposed Rule 819 

would require non-U.S. persons who 

trade on an SBSEF to have an agent for 

service of process, which could be an 

agent of its own choosing or, by default, 

the SBSEF. Proposed Rule 819(k) is 

modeled on § 15.05(i) of the CFTC’s 

rules, which concerns the designation of 

agents for foreign persons participating 


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395A ‘‘reporting market’’ is defined in § 15.00(q) 

to mean a DCM or registered entity under section 

1a(40) of the CEA. The term ‘‘registered entity’’ as 

defined in section 1a(40) of the CEA includes SEFs, 

among other entities. 

396 ‘‘Non-U.S. member’’ is a defined term in Rule 

819(k) that does not appear in § 15.05 of the CFTC’s 

rules but which appropriately conveys the meaning 

of the CFTC rule for purposes of SBSEFs in 

Proposed Rule 819(k). A foreign trader that executes 

contracts on a trading platform such as an SBSEF 

must be a member of that platform. Therefore, to 

promote uniformity throughout Regulation SE, the 

Commission is using the term ‘‘member’’ for this 

concept. Furthermore, the Commission has defined 

the term ‘‘U.S. person’’ for purposes of the crossborder application of its Title VII rules, see Rule 

3a71–3(a)(4), § 240.3a71–3(a)(4), and has thus 

defined ‘‘non-U.S. member’’ in Rule 802 as ‘‘a 

member of a security-based swap execution facility 

that is not a U.S. person.’’ 

397Section 3D(d)(3) of the SEA, 15 U.S.C. 78c– 

4(d)(3). 

398See Section 5h(f)(3) of the CEA, 7 U.S.C. 7b– 

3(f)(3). 

399Section 3D(d)(4) of the SEA, 15 U.S.C. 78c– 

4(d)(4). 

400Section 5h(f)(4) of the CEA, 7 U.S.C. 7b– 

3(f)(4). 

401See Proposing Release, supra note 1, 87 FR at 

28910–11. 

402Section 3D(d)(5) of the SEA, 15 U.S.C. 78c– 

4(d)(5). 

403Section 5h(f)(5) of the CEA, 7 U.S.C. 7b– 

3(f)(5). 

on ‘‘reporting markets,’’ a category in 

the CFTC’s rules that includes SEFs.395

Paragraph (k)(1) of Proposed Rule 819 

is modeled on § 15.05(i) and would 

provide that an SBSEF that admits a 

non-U.S. person as a member shall be 

deemed to be the agent of the ‘‘non-U.S. 

member’’ 396 with respect to any SBS 

executed by the non-U.S. member. 

Under Proposed Rule 819(k)(1), service 

or delivery of any communication 

issued by or on behalf of the 

Commission to the SBSEF would 

constitute valid and effective service 

upon the non-U.S. member. If an SBSEF 

is served with a communication issued 

by or on behalf of the Commission to a 

non-U.S. member, the SBSEF would be 

required to transmit the communication 

to the non-U.S. member. Paragraph 

(k)(2) of Proposed Rule 819 is modeled 

on § 15.05(i)(1) and would provide that 

it shall be unlawful for an SBSEF to 

permit a non-U.S. member to execute 

SBS transactions on the facility unless 

the SBSEF informs the non-U.S. 

member in writing of the requirements 

of Rule 819(k). 

Paragraph (k)(3) of Proposed Rule 819 

is modeled on § 15.05(i)(2) and would 

permit a non-U.S. member of an SBSEF 

to utilize an agent for service of process 

other than the SBSEF. The non-U.S. 

member would have to provide a copy 

of its agreement with the alternate agent 

to the SBSEF, and the SBSEF would 

then have to file the agreement with the 

Commission, before executing any 

transaction on the SBSEF. Paragraph 

(k)(4) of Proposed Rule 819, modeled on 

§ 15.05(i)(3), would require the non-U.S. 

member to notify the Commission if the 

agency agreement is no longer in effect. 

For an SBSEF to have an effective 

regulatory program and thereby comply 

with Core Principle 2 (Compliance with 

Rules), the SBSEF must have 

jurisdiction over all of its members, 

including members who are not U.S. 

persons. Proposed Rule 819(k) would 

further an SBSEF’s ability to ensure 

compliance by its non-U.S. members 

with its rules by requiring each non-U.S. 

member of the SBSEF to have an agent 

for service of process, whether an agent 

of its own choosing that has been 

disclosed to the SBSEF and the 

Commission or, as a default, the SBSEF 

itself. This would eliminate any 

question of how to provide valid notice 

to a non-U.S. member of any 

proceedings involving potential rule 

violations. 

The Commission received no 

comments on Proposed Rule 819(k) and 

is adopting Rule 819(k) as proposed for 

the reasons stated in the Proposing 

Release. 

C. Rule 820—Core Principle 3—SBS Not 

Readily Susceptible to Manipulation 

Core Principle 3 397 provides that an 

SBSEF may permit trading only in SBS 

that are not readily susceptible to 

manipulation. CEA Core Principle 3 for 

SEFs is substantively identical.398

Proposed Rule 820 is modeled after 

§ 37.300 of the CFTC’s rules and would 

implement Core Principle 3. 

The Commission received no 

comments on Proposed Rule 820, and is 

adopting Rule 820 as proposed for the 

reasons stated in the Proposing Release. 

D. Rule 821—Core Principle 4— 

Monitoring of Trading and Trade 

Processing 

Core Principle 4 399 requires an SBSEF 

to establish and enforce rules or terms 

and conditions defining or 

specifications detailing: (1) trading 

procedures to be used in entering and 

executing orders traded on or through 

the facilities of the SBSEF; and (2) 

procedures for trade processing of SBS 

on or through the facilities of the 

SBSEF. Core Principle 4 also requires an 

SBSEF to monitor trading in SBS to 

prevent manipulation, price distortion, 

and disruptions of the delivery or cash 

settlement process through surveillance, 

compliance, and disciplinary practices 

and procedures, including methods for 

conducting real-time monitoring of 

trading and comprehensive and accurate 

trade reconstructions. CEA Core 

Principle 4 for SEFs 400 is substantively 

identical. 

Proposed Rule 821 would implement 

Core Principle 4 and is closely modeled 

on the rules in subpart E of part 37 and 

the CFTC’s guidance and acceptable 

practices in appendix B to part 37. As 

explained in the Proposing Release, 

paragraph (a) of Proposed Rule 821, like 

§ 37.400 of the CFTC’s rules, 

incorporates the requirements of Core 

Principle 4 described above, and the 

remaining paragraphs of Proposed Rule 

821 are modeled on §§ 37.401 to 37.408 

of the CFTC’s rules and also incorporate 

guidance and acceptable practices from 

appendix B to part 37.401

Paragraph (b) of Proposed Rule 821 

would specify an SBSEF’s marketoversight obligations. Paragraph (c) of 

Proposed Rule 821 would specify 

requirements for an SBSEF’s monitoring 

of physical-delivery SBS. Paragraph (d) 

of Proposed Rule 821 would specify 

additional requirements for cash-settled 

SBS. Paragraph (e) of Proposed Rule 821 

would specify requirements for an 

SBSEF’s ability to obtain information. 

Paragraph (f) of Proposed Rule 821 

would require an SBSEF to establish 

and maintain risk control mechanisms 

to prevent and reduce the potential risk 

of market disruptions. Paragraph (g) of 

Proposed Rule 821 would require an 

SBSEF to have the ability to 

comprehensively and accurately 

reconstruct all trading on its facility and 

requires an SBSEF to make all audittrail data and reconstructions available 

to the Commission. And paragraph (h) 

of Proposed Rule 821 would provide 

that an SBSEF shall comply with the 

rules in this section through a dedicated 

regulatory department or by contracting 

with a regulatory service provider 

pursuant to Rule 819(e). 

The Commission received no 

comments on Proposed Rule 821 and is 

adopting Rule 821 as proposed for the 

reasons stated in the Proposing Release. 

E. Rule 822—Core Principle 5—Ability 

To Obtain Information 

Core Principle 5 402 requires an SBSEF 

to establish and enforce rules that will 

allow the SBSEF to obtain any necessary 

information to perform any of the 

functions described in the Core 

Principles, provide the information to 

the Commission on request, and have 

the capacity to carry out such 

international information-sharing 

agreements as the Commission may 

require. CEA Core Principle 5 for 

SEFs 403 is substantively identical. 

Proposed Rule 822 implements Core 

Principle 5 and is substantively 

identical to subpart F of part 37. 

Paragraph (a) of Proposed Rule 822 


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404While § 37.502 of subpart F uses the term 

‘‘market participant,’’ Proposed Rule 822 would 

substitute the term ‘‘member’’ in these places, since 

the rule pertains to market participants who are 

acting as members of the SEF/SBSEF. See supra 

note 362. 

405Section 3D(d)(6)(A) of the SEA, 15 U.S.C. 78c– 

4(d)(6). 

406 15 U.S.C. 78c–3(a)(1). See supra note 168 and 

accompanying text (discussing mandatory clearing 

provisions). 

407See Proposing Release, supra note 1, 87 FR at 

28912. 

408Section 5h(f)(7) of the CEA, 7 U.S.C. 7b– 

3(f)(7). 

409 17 CFR 37.700; see also Proposing Release, 

supra note 1, 87 FR at 28912. 

410Section 5h(f)(7) of the CEA, 7 U.S.C. 7b– 

3(f)(7). 

411 15 U.S.C. 78c–3(a)(1). 

412 17 CFR 37.701; see also Proposing Release, 

supra note 1, 87 FR at 28912. 

413 17 CFR 37.702; see also Proposing Release, 

supra note 1, 87 FR at 28912. 

414See Citadel Letter, supra note 18, at 4–6. 

415See id. 

would repeat the statutory text of Core 

Principle 5. Paragraph (b), modeled on 

§ 37.501, would require that an SBSEF 

establish and enforce rules that will 

allow the SBSEF to have the ability and 

authority to obtain sufficient 

information to allow it to fully perform 

its operational, risk management, 

governance, and regulatory functions 

and any requirements under Regulation 

SE. Paragraph (c), like § 37.502, would 

require an SBSEF to have rules that 

allow it to collect information on a 

routine basis, allow for the collection of 

non-routine data from its members, and 

allow for its examination of books and 

records kept by members on its 

facility.404 Paragraph (d), like § 37.503, 

would require that an SBSEF provide 

information in its possession to the 

Commission upon request, in a form 

and manner specified by the 

Commission. Finally, paragraph (e), like 

§ 37.504, would require an SBSEF to 

share information with other regulatory 

organizations, data repositories, and 

third-party data reporting services as 

required by the Commission or as 

otherwise necessary and appropriate to 

fulfill its regulatory and reporting 

responsibilities, and that appropriate 

information-sharing agreements can be 

established with such entities, or the 

Commission can act in conjunction with 

the SBSEF to carry out such information 

sharing. 

The Commission received no 

comments on Proposed Rule 822 and is 

adopting Rule 822 as proposed for the 

reasons stated in the Proposing Release. 

F. Rule 823—Core Principle 6— 

Financial Integrity of Transactions 

Core Principle 6 sets forth 

requirements related to the financial 

integrity of transactions that are entered 

on or through the facilities of an 

SBSEF.405 Specifically, paragraph (a) of 

Proposed Rule 823 would require an 

SBSEF to establish and enforce rules 

and procedures for ensuring the 

financial integrity of SBS entered on or 

through the facilities of the SBSEF, 

including the clearance and settlement 

of SBS pursuant to section 3C(a)(1) of 

the SEA.406 Paragraph (b) would 

provide that transactions required to be 

cleared or voluntarily cleared must be 

cleared through a registered clearing 

agency (or an exempt clearing agency). 

Paragraph (c) addresses the manner in 

which an SBSEF shall provide for the 

financial integrity of transactions. 

Finally, paragraph (d) would require an 

SBSEF to monitor its members to ensure 

that they continue to qualify as eligible 

contract participants. As described in 

the Proposing Release, the Commission 

modeled Rule 823 on subpart H of part 

37 of the CFTC’s rules,407 which 

implements CEA Core Principle 7 for 

SEFs.408

1. Rule 823(a)—General 

Paragraph (a) of Proposed Rule 823 

would repeat the statutory text of SEA 

Core Principle 6 in the same manner 

that § 37.700 of the CFTC’s rules 409

repeats the statutory language of CEA 

Core Principle 7 for SEFs.410 Proposed 

Rule 823(a) would require an SBSEF to 

establish and enforce rules and 

procedures for ensuring the financial 

integrity of SBS entered on or through 

the facilities of the SBSEF, including the 

clearance and settlement of SBS 

pursuant to section 3C(a)(1) of the 

SEA.411 The Commission did not 

receive any comments on Proposed Rule 

823(a) and is adopting Rule 823(a) as 

proposed for the reasons stated in the 

Proposing Release. 

2. Rule 823(b)—Required Clearing 

Paragraph (b) of Proposed Rule 823 is 

closely modeled on § 37.701 of the 

CFTC’s rules,412 and it would provide 

that transactions executed on or through 

an SBSEF that are required to be cleared 

under section 3C(a)(1) of the SEA or are 

voluntarily cleared by the 

counterparties shall be cleared through 

a registered clearing agency or a clearing 

agency that has obtained an exemption 

from clearing agency registration to 

provide central counterparty services for 

SBS. The Commission did not receive 

any comments on Proposed Rule 823(b) 

and is adopting Rule 823(b) as proposed 

for the reasons stated in the Proposing 

Release. 

3. Rule 823(c)—General Financial 

Integrity 

Paragraph (c) of Proposed Rule 823 is 

closely modeled on § 37.702 of the 

CFTC’s rules,413 and would require an 

SBSEF to provide for the financial 

integrity of transactions by establishing 

minimum financial standards for its 

members, which shall at a minimum 

require members to be ECPs. Proposed 

Rule 823(c) would further require an 

SBSEF to provide for the financial 

integrity of transactions by ensuring that 

the SBSEF, for transactions cleared by a 

registered clearing agency, has the 

capacity to route transactions to the 

registered clearing agency in a manner 

acceptable to the clearing agency, and 

by coordinating with each registered 

clearing agency to which it submits 

transactions for clearing in the 

development of rules and procedures to 

facilitate prompt and efficient 

transaction processing. 

One commenter characterizes the 

CFTC regime as providing detailed 

straight-through-processing (‘‘STP’’) 

standards for swaps executed on SEFs 

that are intended to be cleared but 

believes that the Commission’s proposal 

lacks such standards.414 The commenter 

observes that there is a lack of market 

consistency regarding the execution-toclearing workflow for SBS that are 

intended to be cleared, which 

complicates the trading of cleared SBS. 

The commenter highlights ‘‘clearing 

submission timeframes’’ and ‘‘clearing 

certainty’’ as key issues and discusses 

the manner in which the CFTC has 

addressed these issues in its rules and 

guidance. The commenter states that the 

CFTC’s STP standards, including ‘‘preexecution credit checks’’ and ‘‘welldefined submission timeframes,’’ have 

been successfully implemented by the 

industry since 2013, enhancing the SEF 

trading environment. The commenter 

argues that the timeframes minimize 

delays between execution and clearing 

acceptance and increase pre-trade 

clearing certainty, decreasing market, 

credit, and operational risks for market 

participants and clearing agencies, and 

broadens the range of trading 

counterparties. For these reasons, the 

commenter recommends harmonizing 

with the CFTC by establishing STP 

standards, incorporating relevant CFTC 

guidance, and prohibiting breakage 

agreements for SBS that are intended to 

be cleared.415

Another commenter agrees that 

applying the CFTC’s approach to STP 

would further harmonize SBSEFs with 

SEFs and would provide greater 

certainty of execution and clearing, 

encourage more clearing, facilitate 


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416See MFA Letter, supra note 18, at 12. 

417See SIFMA AMG Letter, supra note 18, at 9. 

418See id. 

419See Form SBSEF (Exhibits Instructions, 

Instruction No. 20, Exhibit T); see also supra note 

84. 

420See supra section VI.B.3 (discussing the 

impartial access requirements of Proposed Rule 

819(c)). For example, if an SBSEF purposefully 

delayed clearing submission of only certain market 

participants that the SBSEF favors, that would be 

contrary to the requirement of Proposed Rule 819(c) 

of providing impartial access to market services. 

421While one commenter suggests that the 

Commission incorporate guidance from appendix B 

to part 37 of the CFTC rules, the appendix does not 

contain any guidance or acceptable practices under 

Core Principle 7 of section 5h of the CEA— 

Financial Integrity of Transactions. 

422 17 CFR 37.703; see also Proposing Release, 

supra note 1, 87 FR at 28912. 

423Section 3D(d)(7) of the SEA, 15 U.S.C. 78c– 

4(d)(7). 

424Section 5h(f)(8) of the CEA, 7 U.S.C. 7b– 

3(f)(8). 

electronic trading, and promote 

accessible, competitive markets and 

access to best execution.416 Lastly, a 

third commenter supports 

harmonization and encourages the 

Commission to both codify the guidance 

in appendix B to part 37 of the CFTC 

regulations and the CFTC’s staff 

guidance regarding STP.417 The 

commenter believes that the STP 

requirements have been successfully 

implemented by market participants for 

nearly a decade, and modifying them 

now would introduce significant 

market, operational, and credit risk, 

along with additional complexity and 

cost for market participants.418

As previously stated, harmonization 

with the CFTC regime for SEFs is an 

important consideration for the 

Commission, given that it expects most 

registered SBSEFs to also be registered 

SEFs. Consistent with this view, 

Proposed Rule 823 is largely based on 

subpart H of part 37, and the key 

language of Rule 823(c)(2) relevant to 

STP is substantively identical to 

§ 37.702(b). Both provisions require an 

SBSEF or SEF to (i) ensure that it has 

the capacity to route transactions to the 

relevant clearing agency in a manner 

acceptable to the clearing agency for 

purposes of clearing; and (ii) coordinate 

with each relevant clearing agency to 

which it submits transactions for 

clearing, in the development of rules 

and procedures to facilitate prompt and 

efficient transaction processing. Rule 

249.1701, Exhibit T further requires 

SBSEFs to provide ‘‘the name(s) of the 

clearing agency(ies) that will clear the 

Applicant’s trades, and a representation 

that clearing members of that 

organization will be guaranteeing such 

trades.’’ 419

The Commission generally expects an 

SBSEF’s rules and procedures to 

demonstrate compliance with these 

requirements with respect to SBS that 

are intended to be cleared or that would 

become subject to a mandatory clearing 

requirement in the future. Since SBSEFs 

are required to establish rules and 

procedures for clearing in coordination 

with each relevant clearing agency to 

which it submits trades, SBSEFs should 

be able to route executed trades to 

relevant clearing agencies promptly, 

particularly if fully automated systems 

are used. Furthermore, if an SBSEF were 

to act to purposefully delay clearing 

submission in order to favor certain 

market participants over others, that 

type of action could be addressed under 

the impartial access requirements of 

Rule 819(c).420 Lastly, as noted 

previously, the Commission is adopting 

Rule 815(g), which specifies that 

SBSEFs shall establish and enforce rules 

that provide that a security-based swap 

that is intended to be cleared at the time 

of the transaction, but is not accepted 

for clearing at a registered clearing 

agency, shall be void ab initio. Together, 

these provisions should help ensure that 

SBSEFs will process trades promptly 

and efficiently. These provisions are 

also consistent with the CFTC’s staff 

guidance related to SEFs. The CFTC 

staff guidance also addressed regulatory 

requirements related to intermediaries 

and clearing organizations that are 

beyond the scope of this rulemaking. 

For the reasons stated above, the 

Commission is adopting Rule 823(c) as 

proposed.421

4. Rule 823(d)—Monitoring for 

Financial Soundness 

Paragraph (d) of Proposed Rule 823 is 

closely modeled on § 37.703 of the 

CFTC’s rules,422 and it would require an 

SBSEF to monitor its members to ensure 

that they continue to qualify as ECPs. 

The Commission did not receive any 

comments on Rule 823(d) and is 

adopting Rule 823(d) as proposed for 

the reasons stated in the Proposing 

Release. 

G. Rule 824—Core Principle 7— 

Emergency Authority 

SEA Core Principle 7 423 requires an 

SBSEF to adopt rules to provide for the 

exercise of emergency authority, in 

consultation or cooperation with the 

Commission, as is necessary and 

appropriate, including the authority to 

liquidate or transfer open positions in 

any SBS or to suspend or curtail trading 

in an SBS. CEA Core Principle 8 for 

SEFs 424 is substantively identical, and 

the CFTC implemented Core Principle 8 

for SEFs in subpart I of part 37. Section 

37.800 of subpart I repeats the statutory 

text of the Core Principle. Section 

37.801 provides that a SEF ‘‘may refer’’ 

to the guidance in appendix B to part 37 

‘‘to demonstrate to the Commission 

compliance with [Core Principle 8].’’ 

Proposed Rule 824 would implement 

SEA Core Principle 7 and is closely 

modeled on subpart I of part 37 and the 

guidance for CEA Core Principle 8 in 

appendix B to part 37. Paragraph (a) of 

Proposed Rule 824 would repeat the 

statutory text of the Core Principle. 

Paragraph (b) of Proposed Rule 824 

would incorporate much of the language 

in paragraph (a)(1) of the CFTC’s 

guidance on CEA Core Principle 8. 

Under paragraph (b), an SBSEF would 

be required to adopt rules that are 

reasonably designed to: 

(1) Allow the SBSEF to intervene as 

necessary to maintain markets with fair 

and orderly trading and to prevent or 

address manipulation or disruptive 

trading practices, whether the need for 

intervention arises exclusively from the 

SBSEF’s market or as part of a 

coordinated, cross-market intervention; 

(2) Have the flexibility and 

independence to address market 

emergencies in an effective and timely 

manner consistent with the nature of the 

emergency, as long as all such actions 

taken by the SBSEF are made in good 

faith to protect the integrity of the 

markets; 

(3) Take market actions as may be 

directed by the Commission, including, 

in situations where an SBS is traded on 

more than one platform, emergency 

action to liquidate or transfer open 

interest as directed, or agreed to, by the 

Commission or the Commission’s staff; 

(4) Include procedures and guidelines 

for decision-making and 

implementation of emergency 

intervention that avoid conflicts of 

interest; 

(5) Include alternate lines of 

communication and approval 

procedures to address emergencies 

associated with real-time events; 

(6) Allow the SBSEF, to address 

perceived market threats, to impose or 

modify position limits, impose or 

modify price limits, impose or modify 

intraday market restrictions, impose 

special margin requirements, order the 

liquidation or transfer of open positions 

in any contract, order the fixing of a 

settlement price, extend or shorten the 

expiration date or the trading hours, 

suspend or curtail trading in any 

contract, transfer customer contracts 

and the margin, or alter any contract’s 

settlement terms or conditions, or, if 

applicable, provide for the carrying out 

of such actions through its agreements 


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425The Commission has corrected a reference to 

‘‘exercise of emergency action’’ to read ‘‘exercise of 

emergency authority.’’ The Commission has also 

made two non-substantive corrections to the text of 

Proposed Rule 824. The Commission has replaced 

a period with a semicolon at the end of paragraph 

(b)(3) and has added the word ‘‘and’’ to the end of 

paragraph (b)(5). 

426Section 3D(d)(8) of the SEA, 15 U.S.C. 78c– 

4(d)(8). 

427Section 5h(f)(9) of the CEA, 7 U.S.C. 7b– 

3(f)(9). 

428Section 13(m)(1) of the SEA, 15 U.S.C. 

78m(m)(1), authorizes the Commission to make SBS 

transaction, volume, and pricing data available to 

the public in such form and at such times as the 

Commission determines appropriate to enhance 

price discovery. The Commission has adopted rules 

relating to the reporting and public dissemination 

of SBS transaction and pricing data as Regulation 

SBSR. Rule 901(a)(1) of Regulation SBSR, 17 CFR 

242.901(a)(1), imposes certain reporting duties on 

SBSEFs. 

429Each of these terms is defined in Proposed 

Rule 802 and also used in Proposed Rule 815. 

430The presence of any such waiver requirements 

on a click-through screen could chill use of the 

Daily Market Data Report, because the user would 

be compelled to agree to the waiver even to view 

the report. The Commission recognizes that 

individual users may not have the time or the 

incentive to contest the appropriateness of any such 

waiver provisions in order to secure access. 

Proposed Rule 825(c)(3)(iv) is designed to assure 

such users that, even if an SBSEF were to insist on 

the waiver click-through as a condition of access, 

users would not in fact be sacrificing their ability 

to use the data free of charges and usage restrictions 

because the waiver would be null and void. 

431See MFA Letter, supra note 18, at 13; WMBAA 

Letter, supra note 18, at 5–6; ISDA–SIFMA Letter, 

supra note 18, at 10; Bloomberg Letter, supra note 

18, at 5, 17. Eleven commenters supported general 

transparency in markets but did not address the 

Daily Market Data Report specifically. See, e.g., 

Letter from David Mounts (Oct. 29, 2022); Letter 

from Katie K. (Apr. 7, 2022). 

with its third-party provider of clearing 

or regulatory services. 

Paragraph (c) of Proposed Rule 824 is 

based on paragraph (a)(2) of the CFTC’s 

guidance on CEA Core Principle 8 and 

would require an SBSEF to promptly 

notify the Commission of its exercise of 

emergency action, explaining its 

decision-making process, the reasons for 

using its emergency authority, and how 

conflicts of interest were minimized, 

including the extent to which the 

SBSEF considered the effect of its 

emergency action on the underlying 

markets and on markets that are linked 

or referenced to the contracts traded on 

its facility, including similar markets on 

other trading venues. In addition, 

Proposed Rule 824(c) would require 

information on all regulatory actions 

carried out pursuant to an SBSEF’s 

emergency authority to be included in a 

timely submission of a certified rule 

pursuant to Rule 807. 

The Commission received no 

comments on Proposed Rule 824 and is 

adopting Rule 824 as proposed, with 

minor technical modifications,425 for 

the reasons stated in the Proposing 

Release. 

H. Rule 825—Core Principle 8—Timely 

Publication of Trading Information 

SEA Core Principle 8 426 requires an 

SBSEF to make public timely 

information on price, trading volume, 

and other trading data on SBS to the 

extent prescribed by the Commission, 

and to have the capacity to 

electronically capture and transmit and 

disseminate trade information with 

respect to transactions executed on or 

through the facility. CEA Core Principle 

9 427 is substantively identical to SEA 

Core Principle 8, and the CFTC 

implemented CEA Core Principle 9 in 

subpart J of part 37. 

Proposed Rule 825 would implement 

SEA Core Principle 8 and is closely 

modeled on subpart J of part 37. 

Paragraph (a) of Proposed Rule 825, like 

§ 37.900, would repeat the statutory 

language of the Core Principle. While 

§ 37.901 provides that a SEF shall report 

swap transaction data pursuant to parts 

43 and 45 of the CFTC’s rules, 

paragraph (b) of Proposed Rule 825 

would direct SBSEFs to report SBS 

transaction data in a manner specified 

in the SEC’s Regulation SBSR.428

Paragraph (c) of Proposed Rule 825 

would require the publication, on an 

SBSEF’s website, of a ‘‘Daily Market 

Data Report.’’ The data fields that the 

Commission proposed to require for the 

Daily Market Data Report approximated, 

although they were not the same as, 

those required by part 16. Under 

Proposed Rule 825(c)(1), the Daily 

Market Data Report for a business day 

would be required to contain the 

following information for each tenor of 

each SBS traded on that SBSEF during 

that business day: 

(i) The trade count (including block 

trades but excluding error trades, 

correcting trades, and offsetting trades); 

(ii) The total notional amount traded 

(including block trades but excluding 

error trades, correcting trades, and 

offsetting trades 429); 

(iii) The number of block trades; 

(iv) The total notional amount of 

block trades; 

(v) The opening and closing price; 

(vi) The price that is used for 

settlement purposes, if different from 

the closing price; and 

(vii) The lowest price of a sale or 

offer, whichever is lower, and the 

highest price of a sale or bid, whichever 

is higher, that the SBSEF reasonably 

determines accurately reflects market 

conditions. Bids and offers vacated or 

withdrawn shall not be used in making 

this determination. A bid is vacated if 

followed by a higher bid or price and an 

offer is vacated if followed by a lower 

offer or price. 

Paragraph (c)(2) of Proposed Rule 825 

would require an SBSEF to provide 

certain explanatory information 

regarding data presented on the Daily 

Market Data Report: 

(i) The method used by the SBSEF in 

determining nominal prices and 

settlement prices; and 

(ii) If discretion is used by the SBSEF 

in determining the opening and/or 

closing ranges or the settlement prices, 

an explanation that certain discretion 

may be employed by the SBSEF and a 

description of the manner in which that 

discretion may be employed. 

Discretionary authority would have to 

be noted explicitly in each case in 

which it is applied (for example, by use 

of an asterisk or footnote). 

Paragraph (c)(3) of Proposed Rule 825 

would set out various requirements 

regarding the form and manner by 

which an SBSEF makes available its 

Daily Market Data Report. Paragraph 

(c)(3)(i) would require the SBSEF to post 

on its website its Daily Market Data 

Report in a downloadable and machinereadable format using the most recent 

versions of the associated XML schema 

and PDF renderer as published on the 

Commission’s website. Paragraph 

(c)(3)(ii) would require the SBSEF to 

make available its Daily Market Data 

Report without fees or other charges. 

Paragraph (c)(3)(iii) would prohibit the 

SBSEF from imposing any 

encumbrances on access or usage 

restrictions with respect to the Daily 

Market Data Report. Paragraph (c)(3)(iv) 

would prohibit the SBSEF from 

requiring a user to agree to any terms 

before being allowed to view or 

download the Daily Market Data Report, 

such as by waiving any requirements of 

Rule 825(c)(3). Paragraph (c)(3)(iv) 

would further provide that any such 

waiver agreed to by a user would be null 

and void.430

Paragraph (c)(4) of Proposed Rule 825 

would require the SBSEF to publish the 

Daily Market Data Report on its website 

no later than the SBSEF’s 

commencement of trading on the next 

business day after the day to which the 

information pertains. Finally, paragraph 

(c)(5) would require the SBSEF to keep 

each Daily Market Data Report available 

on its website in the same location as all 

other Daily Market Data Reports for no 

less than one year after the date of first 

publication. 

Several commenters criticized the 

Daily Market Data Report required by 

Proposed Rule 825.431 One commenter 

states that the Daily Market Report 

would require inappropriate and 


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432See MFA Letter, supra note 18, at 13. 

433See id. Regulation SE does not address any 

exemption from clearing requirements. 

434See WMBAA Letter, supra note 18, at 5–6. 435See ISDA–SIFMA Letter, supra note 18, at 10. 

436See id. 

437See Bloomberg Letter, supra note 18, at 5, 17. 

438Compare Proposed Rule 825(c)(1)(i) (trade 

count, including block trades but excluding error 

trades, correcting trades, and offsetting trades), with 

17 CFR 16.01(a)(1)(iii) (trading volume and open 

contracts by product type term life of the swap). 

439Compare Proposed Rule 825(c)(1)(ii) (total 

notional amount traded, including block trades but 

excluding error trades, correcting trades, and 

offsetting trades), with 17 CFR 16.01(a)(2)(iv) (total 

trading volume in terms of the number of contracts 

traded for standard-sized contract or in terms of 

notional value for non-standard-sized contracts). 

440Compare Proposed Rule 825(c)(1)(iv) (total 

notional amount of block trades), with 17 CFR 

16.01(a)(2)(vi) (total volume of block trades 

included in the total volume of trading). 

441See Proposed Rule 825(c)(1)(v); 17 CFR 

16.01(b)(2)(i). 

detrimental disclosures that would 

undermine the Commission’s goal of 

fostering a competitive and efficient 

market for SBS trading.432 This 

commenter states that there are 

significant differences in the 

information required to be reported 

under the SEC and CFTC regimes. The 

commenter states that Proposed Rule 

825(c)(1) increases the burden on 

SBSEFs compared to SEFs by requiring 

additional information regarding sale 

and offer prices, as well as qualitative 

descriptions of certain data that are 

reported. 

This commenter further states that the 

Commission’s proposal does not address 

why the CFTC’s approach would not be 

acceptable in the context of SBSEFs and 

does not justify the increased 

operational costs to SBSEFs (which will 

ultimately be passed on to members). 

The commenter also states that the 

Commission has not considered the 

costs and potential for duplicative 

requirements in the context of 

Regulation SBSR reporting 

requirements. The commenter 

concludes that, in sum, the Daily Market 

Data Report is overly granular and 

duplicative, is unnecessary for 

transparency purposes, and could 

negatively impact the market and 

market participants. The commenter 

states that the Commission should 

therefore remove the Daily Market Data 

Report in favor of harmonizing with the 

analogous CFTC rules and that, if the 

Commission does not eliminate the 

Daily Market Data Report requirement 

altogether, it should adopt additional 

masking protections for trades, 

specifically with respect to block trades. 

Failure to do so, the commenter states, 

would cause inappropriate and 

detrimental disclosures and would 

‘‘negate the benefits that the rule 

purports to achieve by exempting block 

trades from clearing [sic] 

requirements.’’ 433

Another commenter states that the 

requirement for a Daily Market Data 

Report is a departure from the otherwise 

generally harmonized rule proposal and 

risks overly complicating the SBSEF 

regime for limited benefit, particularly 

with SBS reporting and dissemination 

in place through Regulation SBSR.434

The commenter states that the Daily 

Market Data Report serves as a 

duplicative source of information that 

fails to improve price discovery or 

liquidity formation, and that the Daily 

Market Data Report could negatively 

impact conditions, particularly for block 

trades, especially given the relatively 

illiquid SBS market, which has a 

relatively small number participants. 

This commenter encourages the 

Commission to remove the proposed 

Daily Market Data Report and review 

this issue with the benefit of several 

years’ experience with these rules, 

particularly once Regulation SBSR is 

fully operational. 

One commenter states that the Daily 

Market Report is not necessary because 

the CFTC SEF regulatory framework, 

which does not impose such a 

requirement, provides sufficient price 

transparency.435 This commenter states 

that the Commission has not pointed to 

any observable issues with the SEF 

transparency framework to justify a 

need for these reports, and the 

commenter states that the daily 

publication of information related to 

block trade numbers and block notional 

amounts, coupled with aggregate pricing 

information, would magnify the 

problems associated with the ‘‘winner’s 

curse.’’ This is particularly concerning, 

the commenter states, where a dealer is 

unable to fully lay-off its risk from a 

block trade within the course of a single 

day—a scenario that is extremely likely 

considering the thin nature of SBS 

markets. Based on the information 

published in the report as proposed, the 

commenter states, SBSEF participants 

may be able to identify a particular 

block trade and the likely price point, 

and then use that information to upcharge the dealer who is seeking to lay 

off the rest of its risk, thus frustrating 

the key objective of block trading. 

This commenter further states that the 

issues it has identified are amplified 

even further if the Daily Market Report 

does not follow the cap requirements 

that apply in the public price 

dissemination of data under the 

Commission’s trade reporting rule and 

related Commission no-action relief. 

The commenter states that publication 

of uncapped trade sizes could, in certain 

cases, reveal the exact notional amount 

of a trade to the public, which is not 

permitted under the Commission’s SBS 

trade reporting rules. The commenter 

states that this is especially concerning 

given that the proposed Daily Market 

Report provides detailed information by 

SBS product and tenor. The commenter 

states that the Commission should 

abandon its proposed Daily Market 

Report or, if it does not, require 

publication of the proposed report on a 

monthly or quarterly basis and make it 

subject to the cap size requirements 

imposed on SBSDRs. This, the 

commenter states, would ensure that the 

report does not conflict with the 

protections afforded to market 

participants per the cap size 

requirements and under the 

Commission’s SBS trade reporting rules 

and related relief for SBS.436

Another commenter states that, in its 

experience with the reports required 

under CFTC part 16, which requires the 

compilation of similar information as 

the proposed Daily Market Data Report, 

the timeline for publication proposed 

under Rule 825(c)(4) would be 

impractical, if not technologically 

impossible.437 This commenter states 

that it operates a SEF with trading hours 

that run from 00:01 hours to 24:00 

hours, Sunday through Friday. The 

commenter envisions SBS trading to be 

permitted during the same trading hours 

and states that the break between the 

end of trading one day and the 

beginning of trading the next day—one 

minute—means that it would likely not 

be possible to compile the required 

report ‘‘no later than the SBSEF’s 

commencement of trading on the next 

business day.’’ This commenter 

proposes synchronizing Rule 825(c)(4) 

with CFTC Rule 16.01(d)(2) to allow 

additional time for the publication of 

the Daily Market Data Report. With 

regard to the content of the report, this 

commenter states that the settlement 

price required under Rule 825(c)(1) 

should be included in the report only to 

the extent it is calculated by an SBSEF. 

Many of the reporting requirements of 

the Daily Market Data Report under 

Proposed Rule 825 are closely aligned 

with the data required to be disclosed 

on a daily basis by SEFs under § 16.01 

of the CFTC’s rules. Both rules require 

the daily disclosure of: (1) a measure of 

trading volume in terms of trades or 

contracts; 438 (2) the total notional 

volume traded; 439 (3) the notional 

amount of block trades; 440 (4) the 

opening and closing prices; 441 (5) the 

price used for settlement, if different 


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442See Proposed Rule 825(c)(1)(vi); 17 CFR 

16.01(b)(2)(ii). 443See Proposed Rule 825(c)(1)(vii); 17 CFR 

16.01(b)(2)(iii). 

444See Proposed Rule 825(c)(2)(i); 17 CFR 

16.01(b)(4)(i). 

445See Proposed Rule 825(c)(2)(ii); 17 CFR 

16.01(b)(4)(ii). 

446See Proposed Rule 825(c)(1)(iii). 

447See Proposed Rule 825(c)(4). 

448See 17 CFR 16.01(e). The Commission views 

the requirement to keep each Daily Market Data 

Report on an SBSEF’s website for one year, see 

Proposed Rule 825(c)(5), as a small additional 

burden for an SBSEF and does not view it as a 

significant departure from harmonization with the 

CFTC’s SEF regime. 

449See supra notes 433–436 and accompanying 

text. 

450See supra section V.E.1(c)(ii). 

451The Commission is also correcting the form of 

a cross-reference in paragraph (b) to ‘‘Regulation 

SBSR’’ to read ‘‘§§ 242.900 through 242.909 

(Regulation SBSR).’’ 

452See 17 CFR 16.01(e). The Commission views 

the requirement to keep each Daily Market Data 

Report on an SBSEF’s website for one year, see 

Proposed Rule 825(c)(5), as a small additional 

burden for an SBSEF and does not view it as a 

significant departure from harmonization with the 

CFTC’s SEF regime. 

453See 17 CFR 242.900 et seq. 

454See 2019 Cross-Border Adopting Release, 

supra note 218, 85 FR at 6347 (providing no-action 

relief with respect to Rule 902 of Regulation SBSR, 

17 CFR 242.902, for reports of credit SBS 

transaction disseminated with a capped size of $5 

million). 

455See Proposed Rule 825(c)(1)(vi) (emphasis 

added). 

from the closing price; 442 (6) the lowest 

price of a sale or offer, whichever is 

lower, and the highest price of a sale or 

bid, whichever is higher, that the 

facility reasonably determines 

accurately reflects market conditions; 443

(7) the method used by the facility in 

determining nominal prices and 

settlement prices, and if discretion is 

used in determining the opening or 

closing ranges or the settlement prices, 

an explanation that certain discretion 

may be employed and a description of 

the manner in which that discretion 

may be employed; 444 and (8) in each 

instance in which such discretion was 

applied, an explicit notation that 

discretion was applied.445

Further, the Commission is modifying 

Proposed Rule 825 to resolve the two 

differences between the proposed Daily 

Market Data Report and the existing 

CFTC reporting scheme under § 16.01: 

(1) that the Daily Market Data Report 

would include the number of block 

trades executed; 446 and (2) that the 

Daily Market Data Report would be 

posted on the SBSEF’s website no later 

than the beginning of trading on the 

next business day,447 while the 

information required by § 16.01 must be 

made public no later than the next 

business day.448

A number of commenters raised 

specific concerns that the disclosures in 

the Daily Market Data Report would 

hamper the efficient trading of block 

trades.449 The Commission agrees that 

the additional disclosed data element 

for SBSEFs—the number of block 

trades—could lead to additional 

information leakage while a dealer that 

facilitated a block trade might still be 

laying off the risk it undertook in 

facilitating that trade. Therefore, 

consistent with the CFTC’s disclosure 

elements under § 16.01, the Commission 

is modifying Rule 825(c)(1) as proposed 

to delete paragraph (c)(1)(iii), which 

requires the disclosure of the number of 

block trades, and to renumber the 

following paragraphs accordingly. The 

Commission is also, pursuant to its 

determination not to adopt a definition 

of ‘‘block trade,’’ 450 deleting the words 

‘‘including block trades but’’ from the 

text of paragraph (c)(i) and (ii) of Rule 

825, and is adding the words ‘‘after such 

time as the Commission adopts a 

definition of ‘block trade’ ’’ to paragraph 

(c)(iii) of Rule 825 (formerly paragraph 

(c)(iv) of Proposed Rule 825 451), which 

will have no effect on the requirement 

as compared to the proposed rule. 

The Commission is also modifying 

Proposed Rule 825 to address the 

comment that an SBSEF that operates 

nearly 24 hours a day might not be able 

to comply with the requirement to 

publish the Daily Market Data Report 

before the beginning of trading on the 

next business day. Accordingly, the 

Commission is modifying Proposed 

Rule 825(c)(4) to require the publication 

of the Daily Market Data Report ‘‘as 

soon as reasonably practicable on the 

next business day after the day to which 

the information pertains, but in no event 

later than 7 a.m. on the next business 

day.’’ This modified requirement, while 

less stringent than the requirement as 

proposed, would differ slightly from the 

CFTC’s requirement that such 

information must be made public ‘‘no 

later than the next business day.’’ 452

Making each trading day’s information 

available to market participants before 

the beginning of the next trading is 

reasonably designed to foster 

transparency and efficiency in the 

market for SBS. 

With these modifications, the 

proposed Daily Market Data Report for 

SBSEFs is consistent with the required 

daily disclosures for SEFs. While one 

commenter states that Proposed Rule 

825(c)(1) increases the burden on 

SBSEFs compared to SEFs, including by 

calling for qualitative descriptions of 

certain data, the data called for by Rule 

825(c)(1), as modified, does not differ 

materially from that required to be 

published daily under § 16.01. Thus, the 

Commission does not agree with the 

commenter that the data required under 

the Commission approach differs 

materially from that required under the 

CFTC approach or that the Daily Market 

Data Report will result in an unjustified 

increase in operational costs. 

Further, the Commission does not 

agree with commenters that the Daily 

Market Data Report would serve as a 

duplicative source of information to 

reporting under Regulation SBSR and 

therefore risks overly complicating the 

SBSEF regime for limited benefit, 

without benefit to price improvement or 

liquidity formation. Regulation SBSR 

requires the reporting and public 

dissemination of SBS transactions,453

but because the transaction reports for 

credit SBS are permitted to be capped 

at a notional volume of $5 million,454

market participants would be unable to 

glean the information provided by the 

Daily Market Data Report—which 

would publish daily total notional 

volumes based on uncapped transaction 

amounts—from the individual reports of 

SBS transactions under Regulation 

SBSR. Thus, the Daily Market Data 

Report would provide market 

participants with information about 

pricing and trading volume for SBS on 

SBSEFs that goes beyond the 

information that could be obtained from 

SBS transaction reports that are publicly 

disseminated pursuant to Regulation 

SBSR. And because individual trades 

would not be reported—and, with the 

modification the Commission is making, 

the number of block trades would also 

not be reported—a size cap on reporting 

volume used to provide summary data 

to the market is not necessary or 

appropriate. Additionally, with the 

respect to the comment that the 

settlement price required under 

Proposed Rule 825(c)(1) should be 

included in the report only to the extent 

it is calculated by an SBSEF, the 

language of the requirement—‘‘[t]he 

price that is used for 

settlement. . .’’ 455—means that if no 

settlement price is calculated for a given 

SBS, that data element does not need to 

be reported. 

With respect to the means of 

publication of the information, while 

the means of publishing the Daily 

Market Data Report varies from that 

specified under the CFTC regime, the 

difference is not material. The 

Commission proposed that this 

information be posted on an SBSEF’s 

website in the most recent XML schema 

and PDF renderer, without fees or 

charges, without any encumbrances on 

access or usage, and without requiring 


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456See Proposed Rule 825(c)(3). 

457 17 CFR 16.01(e). 

458See Proposing Release, supra note 1, 87 FR at 

28915. 

459See supra note 32. 

460Section 3D(d)(9) of the SEA, 15 U.S.C. 78c– 

4(d)(9). 

461As discussed below in this section, the 

Commission is adopting Rule 826 to require an 

SBSEF to maintain records of all activities relating 

to the business of the SBSEF for a period of not less 

than five years. Similarly, Rule 17a–1 under the 

SEA, 17 CFR 240.17a–1, requires a clearing agency 

to keep and preserve one copy of all documents 

made or received in the course of its business and 

conduct of its self-regulatory activities for a period 

of not less than five years. In addition, Rule 13n– 

7(b) under the SEA, 17 CFR 240.13n–7(b), requires 

an SBS data repository to keep and preserve a copy 

of all documents made or received by it in the 

course of its business for at least five years. 

462CEA Core Principle 10 includes a clause 

stating that a SEF shall keep any records relating 

to certain swaps open to inspection and 

examination by the SEC. See 7 U.S.C. 7b3(f)(10)(A)(iii). 

463Section 1.31 imposes on ‘‘records entities’’ 

(which term includes SEFs) various requirements 

relating to record retention and production. Section 

45.2 imposes various recordkeeping, retention, and 

retrieval requirements applicable to SEFs (among 

others) to support trade reporting. 

464See infra section XI (discussing in the context 

of Proposed Rule 15a–12 that an SBSEF registered 

with the Commission is also a registered broker 

and, as such, is subject to the SEA’s recordkeeping 

and reporting requirements applicable to brokers). 

465While § 1.31(a) defines the terms ‘‘regulatory 

records’’ and ‘‘electronic regulatory records’’ and 

utilizes them throughout § 1.31, the Commission is 

utilizing instead the term ‘‘records,’’ which is 

defined in section 3(a)(37) of the SEA, 15 U.S.C. 

78c(a)(37). In doing so, the Commission seeks to 

avoid any ambiguities or inconsistencies that could 

arise by using variants of a term that is defined in 

the Commission’s governing statute. The 

Commission has included a definition of ‘‘records’’ 

in Rule 802 that cross-references section 3(a)(37) of 

the SEA. 

466See 15 U.S.C. 78c–4(d)(9)(A)(i) (requiring an 

SBSEF to ‘‘maintain records of all activities relating 

to the business of the facility, including a complete 

audit trail, in a form and manner acceptable to the 

Commission, for a period of five years’’) (emphasis 

added). 

467See Rule 17a–4(b) under the SEA, 17 CFR 

240.17a–4(b). 

468 In this context, ‘‘prompt’’ or ‘‘promptly’’ 

means making reasonable efforts to produce records 

that are requested by the staff during an 

examination without delay. In many cases, it is 

likely that an SBSEF could furnish records 

immediately or within a few hours of a request, and 

it would therefore be required to do so. An SBSEF 

generally should produce records within 24 hours 

unless there are unusual circumstances. 

a user to agree to any terms before 

viewing or downloading the report.456

And the CFTC, in addition to requiring 

that this information be provided to the 

CFTC, requires it be made available to 

news media and the general public ‘‘in 

a format that readily enables the 

consideration of such data.’’ 457

Proposed Rule 825(c)(3) is designed to 

promote wide use of the SBS trading 

information contained in the Daily 

Market Data Report by prohibiting an 

SBSEF from imposing any financial, 

legal, or operational burdens on that 

use, and, as the Commission stated in 

the Proposing Release, the prohibition 

against an SBSEF imposing any usage 

restrictions on its Daily Market Data 

Report would necessarily encompass a 

prohibition on bulk redistribution of the 

Daily Market Data Report or any 

information contained therein.458 The 

Commission seeks to encourage market 

observers to access the Daily Market 

Data Report and scrub, reconfigure, 

aggregate, analyze, repurpose, or 

otherwise add value to the information 

contained in the report as they see fit. 

For the reasons discussed above, the 

Commission is adopting Rule 825 as 

modified.459

I. Rule 826—Core Principle 9— 

Recordkeeping and Reporting 

SEA Core Principle 9 460 sets forth 

recordkeeping and reporting obligations 

for SBSEFs. Core Principle 9 requires an 

SBSEF to maintain records of all 

activities relating to the business of the 

facility, including a complete audit trail, 

in a form and manner acceptable to the 

Commission for a period of five years. 

The Core Principle further requires an 

SBSEF to 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 its duties. Finally, under Core 

Principle 9, the Commission must adopt 

data collection and reporting 

requirements for SBSEFs that are 

comparable to requirements for clearing 

agencies and SBS data repositories.461

CEA Core Principle 10 for SEFs, 

although it includes an additional 

clause not present in the equivalent SEA 

Core Principle 9,462 is substantively 

identical. 

To implement SEA Core Principle 9, 

the Commission proposed Rule 826, 

which roughly approximates §§ 1.31 

and 45.2 of the CFTC’s rules,463 while 

also drawing on concepts from the 

books and records requirements 

applicable to brokers, SEC-registered 

SROs, and other SEC-registered 

entities.464

Paragraph (a) of Proposed Rule 826 

would repeat the statutory text of the 

Core Principle. Paragraph (b) would 

require an SBSEF to keep full, complete, 

and systematic records,465 together with 

all pertinent data and memoranda, of all 

activities relating to its business with 

respect to SBS. Under paragraph (b), 

such records would be required to 

include, without limitation, the audit 

trail information required under Rule 

819(f) and all other records that an 

SBSEF is required to create or obtain 

under Regulation SE. 

Paragraph (c) of Proposed Rule 826 

would require an SBSEF to keep records 

of any SBS from the date of execution 

until the termination, maturity, 

expiration, transfer, assignment, or 

novation date of the transaction, and for 

a period of not less than five years, the 

first two years in an easily accessible 

place, after such date. Paragraph (c) also 

would require an SBSEF to keep each 

record (other than a record of an SBS 

noted in the previous sentence) for a 

period of not less than five years, the 

first two years in an easily accessible 

place, from the date on which the record 

was created. The five-year retention 

requirements would be consistent with 

section 3D(d) of the SEA 466 and are 

modeled on the requirements for SEFs 

in §§ 1.31 and 45.2. The proposed 

requirement that the records be kept ‘‘in 

an easily accessible place’’ for the first 

two years derives from an analogous 

requirement in the Commission’s 

principal books and records rule for 

exchange members, brokers, and 

dealers.467

Paragraph (d)(1) of Proposed Rule 826 

would require an SBSEF to retain all 

records in a form and manner that 

ensures the authenticity and reliability 

of such records in accordance with the 

SEA and the Commission’s rules 

thereunder. Paragraph (d)(2) would 

require an SBSEF, upon request of any 

representative of the Commission, to 

promptly 468 furnish to the 

representative legible, true, complete, 

and current copies of any records 

required to be kept and preserved under 

Rule 826. Paragraph (d)(3) would 

provide that an electronic record shall 

be retained in a form and manner that 

allows for prompt production at the 

request of any representative of the 

Commission. Paragraph (d)(3) would 

also include provisions modeled on 

§ 1.31(c)(2) requiring an SBSEF that 

maintains electronic records to establish 

appropriate systems and controls that 

ensure the authenticity and reliability of 

electronic records. 

Paragraph (e) of Proposed Rule 826 

would provide that all records required 

to be kept by an SBSEF pursuant to Rule 

826 would be subject to examination by 

any representative of the Commission 

pursuant to section 17(b) of the SEA, 

which is the source of the Commission’s 

examination authority for registered 

brokers (among other types of registered 

entities). Proposed Rule 826(e) is 

designed only to remind SBSEFs of this 

statutory authority and would not seek 

to limit or expand that authority using 

the Commission’s powers over SBSEFs 

in section 3D of the SEA. 


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469Since a ‘‘foreign trader’’ in § 1.37(c) is 

executing transactions on the SEF, it must be a 

member of the SEF. Because the term ‘‘member’’ is 

used elsewhere in the CFTC rules pertaining to 

SEFs, the term ‘‘member’’ as used throughout 

Regulation SE is defined in Rule 802. The term 

‘‘non-U.S. member,’’ also found in Rule 802, is 

defined as ‘‘a member of a security-based swap 

execution facility that is not a U.S. person.’’ 

470See supra note 32. 

471Section 3D(d)(10) of the SEA, 15 U.S.C. 78c– 

4(d)(10). 

472Section 5h(f)(11) of the CEA, 7 U.S.C. 7b– 

3(f)(11). 

473The Commission has not adapted the guidance 

from appendix B pertaining to CEA Core Principle 

11 into its rule. As explained in the Proposing 

Release, it is not appropriate to adapt this guidance 

into a rule that applies to SBSEFs because the SEA 

(which applies to SBSEFs) does not have a 

provision that is closely comparable to section 15(b) 

of the CEA (which applies to SEFs). See Proposing 

Release, supra note 1, 87 FR at 28917 n.196. 

Furthermore, the guidance pertaining to CEA Core 

Principle 10 for SEFs sets out only a general 

approach to how the CFTC addresses antitrust 

issues applying to SEFs and does not include 

provisions that can readily be adapted into rule 

text. Id. 

474Section 3D(d)(11) of the SEA, 15 U.S.C. 78c– 

4(d)(11). 

475 7 U.S.C. 7b–3(f)(12). 

476Section 37.1200 of subpart M repeats the 

statutory text of Core Principle 12. There are no 

other provisions in subpart M, nor is there any 

guidance or acceptable practices associated with 

Core Principle 12 in appendix B to part 37. The 

CFTC has proposed additional rules regarding the 

mitigation of conflicts of interest but has not 

adopted any such rules. See CFTC, Requirements 

for Derivatives Clearing Organizations, Designated 

Contract Markets, and Swap Execution Facilities 

Regarding the Mitigation of Conflicts of Interest, 75 

FR 63732 (Oct. 18, 2010); CFTC, Governance 

Requirements for Derivatives Clearing 

Organizations, Designated Contract Markets, and 

Swap Execution Facilities; Additional 

Requirements Regarding the Mitigation of Conflicts 

of Interest, 76 FR 722 (Jan. 6, 2011). 

477See infra section VIII. 

478Section 3D(d)(12) of the SEA, 15 U.S.C. 78c– 

4(d)(12). 

479Section 5h(f)(13) of the CEA, 7 U.S.C. 7b– 

3(f)(13). 

480See Proposing Release, supra note 1, 87 FR at 

28919. 

481See Letter from Chris Barnard to Commission 

at 2 (May 21, 2022) (submitted under cover email 

dated June 6, 2022). 

482See id. 

483See Bloomberg Letter, supra note 18, at 8. 

Proposed Rule 826 would include a 

paragraph (f) that is not modeled on any 

provision of § 1.31 or § 45.2, but rather 

on § 1.37(c) of the CFTC’s rules, which 

would provide: ‘‘Each designated 

contract market and swap execution 

facility shall keep a record in permanent 

form, which shall show the true name, 

address, and principal occupation or 

business of any foreign trader executing 

transactions on the facility or exchange. 

In addition, upon request, a designated 

contract market or swap execution 

facility shall provide to the Commission 

information regarding the name of any 

person guaranteeing such transactions 

or exercising any control over the 

trading of such foreign trader.’’ 

Proposed Rule 826(f) is modeled closely 

on § 1.37(c), except that it would use the 

term ‘‘non-U.S. member’’ rather than 

‘‘foreign trader.’’ 469

The Commission received no 

comments on Proposed Rule 826 and is 

adopting Rule 826 as proposed, with 

minor technical modifications,470 for 

the reasons stated in the Proposing 

Release. 

J. Rule 827—Core Principle 10— 

Antitrust Considerations 

SEA Core Principle 10 471 provides 

that, unless necessary or appropriate to 

achieve the purposes of the SEA, an 

SBSEF shall not: (1) adopt any rules or 

take any actions that result in any 

unreasonable restraint of trade, or (2) 

impose any material anticompetitive 

burden on trading or clearing. CEA Core 

Principle 11 472 is substantively 

identical. Proposed Rule 827 would 

implement SEA Core Principle 10 and 

reiterate the statutory text of the Core 

Principle.473

The Commission did not receive any 

comments on Proposed Rule 827 and is 

adopting Rule 827 as proposed, for the 

reasons stated in the Proposing Release. 

K. Rule 828—Core Principle 11— 

Conflicts of Interest 

SEA Core Principle 11 474 requires an 

SBSEF to establish and enforce rules to 

minimize conflicts of interest in its 

decision-making process and to 

establish a process for resolving the 

conflicts of interest. CEA Core Principle 

12 475 is substantively identical, and the 

CFTC implemented CEA Core Principle 

12 in subpart M of part 37.476

Proposed Rule 828 would implement 

SEA Core Principle 11. Paragraph (a) of 

Rule 828, like § 37.1200, would repeat 

the statutory text of the Core Principle. 

Paragraph (b) would direct an SBSEF to 

comply with the requirements of Rule 

834, which, as discussed below, would 

implement section 765 of the DoddFrank Act for both SBSEFs and SBS 

exchanges.477

The Commission received no 

comments on Proposed Rule 828 and is 

adopting Rule 828 as proposed for the 

reasons stated in the Proposing Release. 

L. Rule 829—Core Principle 12— 

Financial Resources 

Core Principle 12 478 sets forth certain 

requirements related to the financial 

resources of an SBSEF. Paragraph (a)(1) 

requires an SBSEF to have adequate 

financial, operational, and managerial 

resources to discharge each 

responsibility of the SBSEF, as 

determined by the Commission. 

Paragraph (a)(2) would provide that the 

financial resources of an SBSEF shall be 

considered to be adequate if the value 

of the financial resources: (i) enables the 

organization to meet its financial 

obligations to its members and 

participants notwithstanding a default 

by the member or participant creating 

the largest financial exposure for that 

organization in extreme but plausible 

market conditions; and (ii) exceeds the 

amount that would enable the SBSEF to 

cover operating costs of the SBSEF for 

a one-year period, as calculated on a 

rolling basis. Finally, paragraphs (b) 

through (g) provide details and 

instruction on how to comply with the 

requirements of Core Principle 12. 

CEA Core Principle 13 for SEFs 479 is 

substantively identical to SEA Core 

Principle 12 but lacks the clause in 

section 3D(d)(12)(B)(i) of the SEA 

relating to an SBSEF meeting financial 

obligations to members and participants 

notwithstanding a default by the 

member or participant creating the 

largest financial exposure for the SBSEF 

in extreme but plausible market 

conditions. As described in the 

Proposing Release, the Commission 

modeled Rule 829 on subpart N of part 

37 of the CFTC’s rules,480 which 

implements CEA Core Principle 13 for 

SEFs. 

1. Rule 829(a)—General 

Paragraph (a) of Proposed Rule 829 

would repeat the statutory text of SEA 

Core Principle 12. 

One commenter states that the 

language in paragraph (a)(2)(i) of 

Proposed Rule 829 that requires an 

SBSEF to have sufficient financial 

resources ‘‘to meet its financial 

obligations to its members 

notwithstanding a default by a member 

creating the largest financial exposure 

for that organization in extreme but 

plausible market conditions’’ is not 

adequate.481 The commenter believes 

that an SBSEF should be required to 

have resources significantly in excess of 

this requirement because, during 

financial uncertainties and stress, the 

SBSEF would need even greater 

resources.482

Another commenter states that the 

same provision, paragraph (a)(2)(i) of 

Proposed Rule 829, is overly 

burdensome and unnecessary.483 The 

commenter states that the provision 

would add significantly to the amount 

of capital required to operate an SBSEF 

with little corresponding benefit to the 

market. The commenter argues that 

trading platforms such as SEFs and 

SBSEFs will have credit exposure to a 

member in limited circumstances and 


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484See id. 

485The technical modification removes a stray 

parenthesis. 

486 17 CFR 37.1301; see also Proposing Release, 

supra note 1, 87 FR at 28918. 

487 17 CFR 37.1302; see also Proposing Release, 

supra note 1, 87 FR at 28918. 

488 17 CFR 37.1303; see also Proposing Release, 

supra note 1, 87 FR at 28919. 

489 17 CFR 37.1304; see also Proposing Release, 

supra note 1, 87 FR at 28919. 

for very limited periods of time. 

Therefore, this commenter states, 

requiring a trading platform to maintain 

capital sufficient to cover the largest 

financial exposure of a member trading 

on the SBSEF, when the trading 

platform will not be called upon to 

cover the cost of a default, is 

unnecessary and overly burdensome. 

The commenter also states that the 

provision is not in the parallel CFTC 

rule. The commenter suggests 

eliminating the provision or, in the 

alternative, affirm that satisfying the 

financial requirements in Rule 829(b), 

relating to having adequate resources to 

enable an SBSEF to comply with the 

SEA and applicable Commission rules 

for one year, would be sufficient to 

satisfy the requirements of Rule 829(a) 

as well.484

The requirements of Proposed Rule 

829(a)(2)(i), which repeats the statutory 

text of SEA Core Principle 12, do not 

need to be more stringent, as suggested 

by the first commenter. The provision 

requires an SBSEF to have adequate 

resources to ‘‘meet its financial 

obligations to its members’’ even in case 

of a default by a member creating the 

largest financial exposure. By the plain 

meaning of its terms, the provision 

requires that an SBSEF meet its 

financial obligations. The Commission 

does not see a benefit to requiring an 

SBSEF to have the financial resources 

that exceed its obligations. As long as an 

SBSEF’s obligations are met, its 

members can be made whole with 

respect to any obligations of the SBSEF 

and the SBSEF can continue to operate. 

Therefore, ensuring that an SBSEF can 

meet its financial obligations is 

sufficient. Furthermore, the provision 

itself already envisions ‘‘extreme but 

plausible market conditions,’’ analogous 

to the ‘‘conditions of financial 

uncertainty and stress’’ that the 

commenter discusses. 

At the same time, Proposed Rule 

829(a)(2)(i) should not be eliminated, 

and the rules should not be interpreted 

in a manner that allows the 

requirements of Proposed Rule 

829(a)(2)(i) to be satisfied by complying 

with Proposed Rule 829(b). First, the 

requirement that an SBSEF be able to 

cover its financial obligations even 

when its largest member defaults is in 

the statutory language of the SEA, and 

the Commission is not adopting a rule 

inconsistent with this requirement. The 

statutory language is an appropriate 

requirement to impose on SBSEFs 

because it seeks to address a plausible 

risk caused by the default of a member, 

a financial risk that, if an SBSEF has not 

accounted for it, could endanger the 

SBSEF’s ability to continue to operate. 

While, the commenter is correct that the 

CFTC’s rules do not have a similar 

provision, it is also the case that the 

CEA does not have a similar provision. 

Therefore, while the Commission is, as 

explained above, generally striving for 

harmonization with the CFTC, the 

Commission is not modifying Proposed 

Rule 829(a) to remove the requirement 

that an SBSEF have adequate resources 

to meet its financial obligations to its 

members even in case of a default by a 

member creating the largest financial 

exposure. Second, the Commission will 

not affirm that it will, as requested by 

a commenter, interpret the rules in a 

manner that allows the requirement of 

Rule 829(a) to be satisfied by satisfying 

the requirements of Rule 829(b). The 

scope of Proposed Rule 829(a) and 

Proposed Rule 829(b) are different. 

Proposed Rule 829(a) would in general 

address having adequate financial (and 

operational and managerial) resources to 

discharge each responsibility of an 

SBSEF. Proposed Rule 829(b) would 

specifically address the financial (not 

operational or managerial) resources 

that are necessary to comply with one 

type (not each type) of responsibility of 

the SBSEF, i.e., compliance with section 

3D of the SEA and the applicable 

Commission rules. Because Proposed 

Rule 829(a) would address topics 

beyond the scope of Proposed Rule 

829(b), including the topic of a default 

by a member creating the largest 

financial exposure, the requirements of 

Proposed Rule 829(a) cannot be satisfied 

by merely satisfying the requirements of 

Proposed Rule 829(b). 

For the reasons discussed above, the 

Commission is adopting Rule 829(a) as 

proposed, with a minor technical 

modification.485

2. Rule 829(b)—General Requirements 

Paragraph (b) of Proposed Rule 829 is 

closely modeled on § 37.1301 of the 

CFTC’s rules,486 and it requires an 

SBSEF to maintain financial resources 

that are adequate to enable it to comply 

with the SBSEF Core Principles set forth 

in the SEA and the Commission rules 

for a one-year period, calculated on a 

rolling basis. 

The Commission did not receive any 

comments and is adopting Rule 829(b) 

as proposed for the reasons stated in the 

Proposing Release. 

3. Rule 829(c)—Types of Financial 

Resources 

Paragraph (c) of Proposed Rule 829 is 

closely modeled on § 37.1302 of the 

CFTC’s rules,487 and it describes the 

types of financial resources that may 

satisfy the requirements of Rule 829(b). 

The Commission did not receive any 

comments on Proposed Rule 829(c) and 

is adopting Rule 829(c) as proposed for 

the reasons stated in the Proposing 

Release. 

4. Rule 829(d)—Liquidity of Financial 

Resources 

Paragraph (d) of Proposed Rule 829 is 

closely modeled on § 37.1303 of the 

CFTC’s rules,488 and would provide that 

the financial resources allocated by an 

SBSEF to meet the financial resources 

requirements shall include 

unencumbered, liquid financial assets 

equal to at least the greater of three 

months of projected operating costs or 

the projected costs needed to wind 

down the SBSEF’s operations. If an 

SBSEF lacks sufficient unencumbered, 

liquid financial assets, it may satisfy 

this obligation by obtaining a committed 

line of credit in an amount at least equal 

to the deficiency. 

The Commission did not receive any 

comments on Proposed Rule 829(d) and 

is adopting Rule 829(d) as proposed for 

the reasons stated in the Proposing 

Release. 

5. Rule 829(e)—Computation of Costs 

To Meet Financial Resources 

Requirement 

Paragraph (e) of Proposed Rule 829 is 

closely modeled on § 37.1304 of the 

CFTC’s rules,489 and would require an 

SBSEF, each fiscal quarter, to make a 

reasonable calculation of its projected 

operating costs and wind-down costs in 

order to determine its applicable 

obligations under Rule 829. Paragraph 

(e) would further provide that the 

SBSEF shall have reasonable discretion 

in determining the methodology used to 

compute such amounts, provided that 

the Commission may review the 

methodology and require changes as 

appropriate. Proposed Rule 829(e) 

would also append language based on 

the CFTC guidance from appendix B to 

part 37 concerning the following topics, 

all of which relate to computation of 

costs: (i) reasonableness of calculating 

projected operating costs and what may 

be excluded from such calculation; (ii) 


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490The technical modification corrects an 

incorrect internal cross-reference to a paragraph in 

the rule. 

491 17 CFR 37.1305; see also Proposing Release, 

supra note 1, 87 FR at 28919. 

492 17 CFR 37.1306; see also Proposing Release, 

supra note 1, 87 FR at 28919. 

493See supra note 32. The Commission has also 

changed the word ‘‘paragraph’’ in Rule 829(g)(5) to 

the plural form. 

494Section 3D(d)(13)(A) of the SEA, 15 U.S.C. 

78c–4(d)(13). 

495Section 5h(f)(14) of the CEA, 7 U.S.C. 7b– 

3(f)(14). 

496See § 37.1401(c) (providing that SEFs 

determined by the CFTC to be critical financial 

markets are subject to more stringent requirements); 

§ 37.1401(d); § 37.1401(j) (providing that part 40 

governs the obligations of registered entities that the 

CFTC has determined to be critical financial 

markets, with respect to maintenance and 

geographic dispersal of disaster recovery resources 

sufficient to meet a same-day recovery time 

objective in the event of a wide-scale disruption). 

497The provisions in subpart O relating to 

‘‘critical financial markets’’ reference § 40.9 of the 

CFTC’s rules, which is marked as ‘‘Reserved.’’ 

498See Rule 1000 of Regulation SCI (defining 

‘‘SCI entity’’). In Nov. 2014, the Commission 

adopted Regulation Systems Compliance and 

Integrity (‘‘SCI’’) to strengthen the technology 

infrastructure of the U.S. securities markets, reduce 

the occurrence of systems issues in those markets, 

improve their resiliency when technological issues 

arise, and establish an updated and formalized 

regulatory framework, thereby helping to ensure 

more effective Commission oversight of such 

systems. See Regulation Systems Compliance and 

Integrity, SEA Release No. 73639 (Nov. 19, 2014), 

79 FR 72252 (Dec. 5, 2014). 

499See id., 79 FR at 72363–64 (reviewing 

comments received regarding the potential 

application of Regulation SCI to SBSEFs, among 

others). 

500See Regulation Systems Compliance and 

Integrity, SEA Release No. 97143 (Mar. 15, 2023), 

88 FR 23146 (Apr. 14, 2023) (Proposed 

Amendments) (File No. S7–07–23). 

501See Bloomberg Letter, supra note 18, at 18. 

502See supra section VI.L (discussing Core 

Principle 12). 

proration of expenses; and (iii) 

allocation of expenses among affiliates. 

The Commission did not receive any 

comments on Proposed Rule 829(e) and 

is adopting Rule 829(e) as proposed, 

with a minor technical modification for 

the reasons stated in the Proposing 

Release.490

6. Rule 829(f)—Valuation of Financial 

Resources 

Paragraph (f) of Proposed Rule 829 is 

closely modeled on § 37.1305 of the 

CFTC’s rules,491 and would provide 

that, no less than each fiscal quarter, an 

SBSEF must compute the current 

market value of each financial resource 

used to meet its obligations under Rule 

829 and that reductions in value to 

reflect market and credit risk 

(‘‘haircuts’’) shall be applied as 

appropriate. 

The Commission did not receive any 

comments on Proposed Rule 829(f) and 

is adopting Rule 829(f) as proposed for 

the reasons stated in the Proposing 

Release. 

7. Rule 829(g)—Reporting to the 

Commission 

Paragraph (g) of Proposed Rule 829 is 

closely modeled on § 37.1306 of the 

CFTC’s rules,492 and would address 

reporting to the Commission regarding 

an SBSEF’s financial resources. 

Paragraph (g)(1) would generally 

provide that, each fiscal quarter, or at 

any time upon Commission request, an 

SBSEF shall report the amount of 

financial resources necessary to meet 

the requirements of Rule 829 and the 

market value of each financial resource 

available, and shall provide the 

Commission with financial statements 

prepared in accordance with GAAP. 

Paragraph (g)(2) would provide that the 

calculations required under Rule 829(g) 

shall be made as of the last business day 

of the SBSEF’s fiscal quarter. Paragraph 

(g)(3) would generally require the 

SBSEF to provide the Commission with 

sufficient documentation to explain its 

methodology for computing its financial 

requirements. Paragraph (g)(4) would 

generally provide the timing for 

submission of reports and supporting 

documentation. Paragraph (g)(5) would 

require an SBSEF to provide notice to 

the Commission no later than 48 hours 

after it knows or reasonably should 

know that it no longer meets its 

obligations under Rule 829(b) and (d). 

Paragraph (g)(6) would require the use 

of EDGAR to submit reports and 

documentation required under Rule 

829. 

The Commission did not receive any 

comments on Proposed Rule 829(g) and 

is adopting Rule 829(g) as proposed, 

with minor technical modifications, for 

the reasons stated in the Proposing 

Release.493

M. Rule 830—Core Principle 13— 

System Safeguards 

Paragraph (A) of SEA Core Principle 

13 494 provides that an SBSEF must 

establish and maintain a program of risk 

analysis and oversight to identify and 

minimize sources of operational risk, 

through the development of appropriate 

controls and procedures, and automated 

systems, that are reliable and secure and 

that have adequate scalable capacity. 

Paragraph (B) requires that an SBSEF 

must also establish and maintain 

emergency procedures, backup 

facilities, and a plan for disaster 

recovery that allow for the timely 

recovery and resumption of operations; 

and the fulfillment of the 

responsibilities and obligations of the 

SBSEF. Finally, paragraph (C) of SEA 

Core Principle 13 requires an SBSEF to 

periodically conduct tests to verify that 

the backup resources of the SBSEF are 

sufficient to ensure continued order 

processing and trade matching; price 

reporting; market surveillance; and 

maintenance of a comprehensive and 

accurate audit trail. CEA Core Principle 

14 495 is substantively identical to SEA 

Core Principle 13, and the CFTC 

implemented this Core Principle 

through subpart O of part 37, which is 

entitled ‘‘System Safeguards.’’ 

Proposed Rule 830 is closely modeled 

on subpart O of part 37 of the CFTC’s 

rules, except in one aspect. Subpart O 

includes language relating to ‘‘critical 

financial markets,’’ 496 which is a 

designation applied by the CFTC to 

certain of its registrants that would 

subject them to more stringent 

requirements, although the CFTC has 

not yet adopted any such 

requirements.497 A similar concept in 

the SEC’s rules is ‘‘SCI entity.’’ 498 When 

adopting Regulation SCI, the 

Commission considered whether it 

should apply Regulation SCI to SBSEFs, 

among other entities, and determined 

not to do so,499 and when proposing 

amendments to Regulation SCI in 2023 

to, among other things, expand the 

definition of ‘‘SCI entity,’’ the 

Commission did not propose to include 

SBSEFs as SCI entities.500

One commenter states that it has seen 

no changes in the SBS market that 

should cause the Commission to revisit 

its decision not to apply Regulation SCI 

to SBSEFs. The commenter states that, 

as the Commission has noted, the 

greatest operations risk to a dually 

registered entity is likely to arise from 

the swap business rather than the SBS 

business. From this standpoint, 

according to the commenter, it is 

appropriate for the Commission to align 

with the CFTC approach to ensure that 

SEFs and SBSEFs alike have adequate 

system safeguards and business 

continuity protocols that are aligned 

with this risk.501

Subpart O is reasonably designed to 

promote SEF operational capability, and 

that the most appropriate way to 

implement SEA Core Principle 13 is to 

closely harmonize with the CFTC’s rules 

that implement the corresponding Core 

Principle. As with SEA Core Principle 

12 (Financial resources),502 the 

Commission recognizes that the swap 

business of a dually registered SEF/ 

SBSEF is likely to be much larger than 

its SBS business. Therefore, the greatest 

operational risk to a dually registered 

entity is likely to arise from the swap 

business rather than the SBS business, 

so it would be logical for the SEC to 


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503While subpart O frequently uses the term 

‘‘market participant,’’ Proposed Rule 830 would 

substitute the term ‘‘member’’ in these places, since 

the rule pertains to market participants who are 

engaging as members of the SEF/SBSEF. See supra 

note 362. 

504See supra note 32. 

505Section 3D(d)(14) of the SEA, 15 U.S.C. 78c– 

4(d)(14). 

506Section 5h(f)(15) of the CEA, 7 U.S.C. 7b– 

3(f)(15). 

507 In addition, the requirement in Proposed Rule 

831 that the CCO’s annual compliance report be 

submitted electronically to the Commission, based 

on § 37.1501(e)(2), includes an added clause to 

provide that the submission must be made using the 

EDGAR system and must be provided as an 

Interactive Data File in accordance with Rule 405 

of Regulation S–T, in conformance with other rules 

in Regulation SE requiring electronic submissions. 

See Proposed Rule 831(j)(2). 

508Subpart P uses the term ‘‘board of directors,’’ 

while the Commission proposed to use the term 

‘‘governing board’’ instead throughout proposed 

Regulation SE. See Proposing Release, supra note 1, 

87 FR at 28877 n.29. 

509See supra section VI.B.9. 

510Proposed Rule 831(c) would provide that, in 

determining whether the background and skills of 

a potential CCO are appropriate for fulfilling the 

responsibilities of the role of the CCO, an SBSEF 

would have the discretion to base its determination 

on the totality of the qualifications of the potential 

CCO, including, but not limited to, compliance 

experience, related career experience, training, 

potential conflicts of interest, and any other 

relevant factors. 

511See Letter from Chris Barnard (May 20, 2022) 

(submitted under cover email dated June 6, 2022). 512See id. 

defer to the CFTC’s approach for 

ensuring that SEFs have adequate 

system safeguards and business 

continuity protocols. Different or 

additive requirements imposed by the 

SEC could increase costs for SEF/ 

SBSEFs while generating benefits that 

are marginal at best. The Commission 

does not observe any differences in the 

SBS market relative to the swaps market 

that warrant imposing different or 

additive operational capability 

requirements on SBSEFs. Additionally, 

because SBSEFs are not SCI entities and 

the corresponding CFTC rule has not 

imposed additional requirements on 

critical financial markets, it is not 

necessary or appropriate to adapt into 

Rule 830 the language of subpart O 

applicable to critical financial 

markets.503

Therefore, the Commission is 

adopting Rule 830 as proposed, with 

minor technical modifications.504

N. Rule 831—Core Principle 14— 

Designation of Chief Compliance Officer 

SEA Core Principle 14 505 requires 

each registered SBSEF to designate a 

chief compliance officer (‘‘CCO’’), and 

requires the CCO to review the SBSEF’s 

compliance with the Core Principles, 

resolve conflicts of interest, be 

responsible for establishing and 

administering policies and procedures 

required under the Core Principles, 

establish procedures for the remediation 

of noncompliance, prepare and sign an 

annual report that describes the SBSEF’s 

compliance, certify that the report is 

accurate and complete, and submit the 

report to the Commission. CEA Core 

Principle 15 for SEFs 506 is substantively 

identical. 

Proposed Rule 831 would implement 

SEA Core Principle 14 and is closely 

modeled on subpart P of part 37, with 

two minor substantive exceptions.507

The first relates to disqualification of 

the CCO. Section 37.1501(b)(2)(ii) states: 

‘‘No individual disqualified from 

registration pursuant to sections 8a(2) or 

8a(3) of the [CEA] may serve as a chief 

compliance officer.’’ The Commission 

proposed instead, in Rule 831(c)(2), that 

no individual that would be disqualified 

from serving on an SBSEF’s governing 

board 508 or committees pursuant to the 

criteria set forth in § 242.819(i) may 

serve as the CCO. As noted above,509 the 

disqualification criteria in Rule 819(i) 

are adapted from § 1.63 of the CFTC’s 

rules. Second, the Commission adapted 

the acceptable practices pertaining to 

CEA Core Principle 15 into paragraph 

(c) of Proposed Rule 831.510

The Commission received one 

comment on Proposed Rule 831. The 

commenter states that he fully supports 

the intent of the proposed regulations 

and believes that the CCO role is the 

single most important compliance role 

in an SBSEF and that it is critical that 

its job description, and the entity’s 

rules, structures, and procedures, act to 

secure and maintain the CCO’s 

independence. For example, the 

commenter states, the CCO should have 

a single compliance role and no other 

competing role or responsibility that 

could create conflicts of interest or 

threaten its independence. Therefore, 

the commenter suggests that the rules 

restrict the CCO position from being 

held by an attorney who represents the 

SBSEF or its board of directors, such as 

an in-house or general counsel. The 

commenter also states that the 

remuneration of the CCO must be 

specifically designed in such a way that 

avoids potential conflicts of interest 

with its compliance role.511

The commenter further states that 

although the CCO would normally 

report to an executive officer, the CCO 

must also have a direct reporting line to 

the independent directors, and the CCO 

should report to the audit committee at 

least yearly. The commenter strongly 

recommends amending § 242.831 such 

that the authority and sole 

responsibility to designate or remove 

the CCO, or to materially change its 

duties and responsibilities, vests only 

with the independent directors and not 

with the full board. This would help, 

the commenter states, to ensure the 

independence of the CCO within the 

entity and would possibly mitigate the 

need to promulgate rules requiring the 

SBSEF to insulate the CCO from undue 

pressure and coercion or to address the 

potential conflict between and among 

compliance interests, commercial 

interests and ownership interests of an 

SBSEF.512

The CFTC has implemented CEA Core 

Principle 14 for SEFs in an appropriate 

way, and that closely harmonizing with 

subpart P of part 37 would yield 

comparable regulatory benefits while 

imposing only marginal additional 

costs. While the commenter’s 

suggestions would support the 

independence of the CCO, key 

provisions of paragraph (b) of Proposed 

Rule 831 would sufficiently protect the 

independence and authority of an 

SBSEF’s CCO in performing the 

required functions. Significantly, 

paragraph (b)(1) would require that the 

position of CCO carry with it sufficient 

authority and resources to fulfill the 

position’s duties, and paragraph (b)(2) 

would provide that the CCO shall have 

supervisory authority over all staff 

acting at the CCO’s direction. The 

SBSEF remains responsible for 

establishing and administering required 

policies and procedures. 

The Commission also recognizes that 

most SBSEFs are likely to be dually 

registered SEF/SBSEFs and that the 

swaps business of a dually registered 

SEF/SBSEF is likely to be much larger 

than its SBS business. Therefore, the 

greatest compliance risks to a dually 

registered entity are likely to arise from 

the swap business rather than the SBS 

business, and it is thus logical for the 

SEC to harmonize with the CFTC’s rules 

regarding the CCO. There are strong 

economic incentives for a dually 

registered entity to appoint the same 

individual to serve as the CCO for both 

the swap and SBS businesses, and for 

the CCO to carry out their functions 

under a similar set of rules. Different or 

additive requirements imposed by the 

SEC could increase costs for SEF/ 

SBSEFs while generating benefits that 

are marginal at best. The Commission 

does not observe any differences in the 

SBS market relative to the swaps market 

that warrant imposing different or 

additive CCO requirements on SBSEFs 

relating to the CCO. 

For the reasons discussed above, the 

Commission is adopting Rule 831 as 


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513See supra note 32. The Commission has also 

deleted an extraneous ‘‘and’’ at the end of the text 

of Rule 831(a)(1)(v). 

514See supra section V.F (discussing the trade 

execution requirement of section 3C(h) of the SEA); 

see also Proposing Release, supra note 1, 87 FR at 

28922–25 (discussing proposed Rule 832 in more 

detail). 

515See Proposing Release, supra note 1, 87 FR at 

28922–23. 

516See SEA section 3C(a)(1), 15 U.S.C. 78c– 

3(a)(1). 

517Transactions effected through the foreign 

branch of a U.S. person would be subject to the 

trade execution requirement, as ‘‘a foreign branch 

has no separate existence from the U.S. person 

itself.’’ See Proposing Release, supra note 1, 87 FR 

at 28923. 

518Better Markets Letter, supra note 18, at 14–15. 

519 Id. at 15–16. This commenter cited Citigroup’s 

experience with certain structured investment 

vehicles during the 2008 financial crisis, which this 

commenter states Citigroup ‘‘chose’’ to bring onto 

its balance sheet even though it had no legal 

obligation to do so. See id. 

520See Citadel Letter, supra note 18, at 16. 

521 Id. (citing Benos, E., Payne, R., and Vasios, M., 

Centralized trading, transparency and interest rate 

swap market liquidity: evidence from the 

implementation of the Dodd-Frank Act, Bank of 

England Staff Working Paper, at 30 (May 2018), 

available at https://www.bankofengland.co.uk/-/ 

media/boe/files/working-paper/2018/centralizedtrading-transparency-and-interest-rate-swapmarket-liquidity-update). 

522 Id. 

523See ISDA–SIFMA Letter, supra note 18, at 12– 

13. 

524 Id. at 12. 

525See id. at 13. 

526 Id. 

proposed, with minor technical 

modifications.513

VII. Cross-Border Rules 

A. Rule 832—Cross-Border Mandatory 

Trade Execution 

Given the global nature of the SBS 

market, where there is frequent 

interaction among counterparties 

domiciled in different jurisdictions, the 

Commission proposed Rule 832 to 

address when the trade execution 

requirement would apply to a crossborder SBS transaction.514 The 

proposed rule would be consistent with 

the Commission’s territorial approach to 

applying Title VII requirements in other 

contexts, where relevant activity need 

not occur wholly within the United 

States or solely between U.S. persons for 

Title VII requirements to apply.515 As 

discussed further below, the relevant 

activity here is ‘‘to engage in a securitybased swap’’ in whole or in part in the 

United States.516

Paragraph (a) of Rule 832 would 

provide that the trade execution 

requirement set forth in section 3C(h) of 

the SEA shall not apply to an SBS 

unless at least one counterparty to the 

SBS is a ‘‘covered person’’ as defined in 

paragraph (b). Paragraph (b) of Rule 832 

would define the term ‘‘covered person’’ 

with respect to a particular securitybased swap, as any person that is: (1) a 

U.S. person; 517 (2) a non-U.S. person 

whose performance under an SBS is 

guaranteed by a U.S. person; or (3) a 

non-U.S. person who, in connection 

with its SBS dealing activity, uses U.S. 

personnel located in a U.S. branch or 

office, or personnel of an agent of such 

non-U.S. person located in a U.S. 

branch or office, to arrange, negotiate, or 

execute a transaction. Taken together, 

the provisions of Rule 832 apply to 

persons who are—consistent with the 

relevant statutory provisions added by 

Title VII—engaging in SBS in the United 

States. 

Two commenters express support for 

Rule 832 or its subparts. Specifically, 

one commenter states that inclusion of 

paragraphs (b)(2) and (b)(3) in the 

proposed rule—where one counterparty 

of an SBS transaction is a non-U.S. 

person whose performance under an 

SBS is guaranteed by a U.S. person 

(‘‘guaranteed person transactions’’), and 

where one counterparty of an SBS 

transaction is a non-U.S. person who, in 

connection with its SBS dealing 

activity, uses U.S. personnel located in 

a U.S. branch or office, or personnel of 

an agent of such non-U.S. person 

located in a U.S. branch or office, to 

arrange, negotiate, or execute a 

transaction (‘‘ANE transactions’’), 

respectively—are ‘‘appropriately broad 

[and] will help prevent attempted 

evasion of the trade execution 

requirement by ensuring that it will 

apply where there is a significant 

connection to the U.S., even when 

neither counterparty is a U.S. 

person.’’ 518

While generally supportive of Rule 

832, this commenter believes that, in 

addition to guaranteed person 

transactions, the rule should also cover 

transactions that include a ‘‘de facto 

guarantee’’ by a U.S. person, which this 

commenter states represents ‘‘an 

unspoken but nevertheless powerful 

arrangement whereby a parent or other 

U.S. person has a virtually irresistible 

incentive to cover the losses incurred by 

another affiliated entity’’ given the 

reputational impact a failure of even a 

non-guaranteed affiliate could have.519

Another commenter expresses 

support for paragraph (b)(3) of Rule 832 

relating to ANE transactions.520 This 

commenter agrees that such transactions 

fall within the Commission’s 

jurisdiction, even if they are booked to 

non-U.S. entities, and believes that, 

given the Commission’s supervisory 

interests and policy objectives, it is 

warranted for the Commission to 

exercise its jurisdiction over ANE 

transactions. This commenter states 

that, ‘‘following the CFTC granting noaction relief from the trade execution 

requirement for ANE transactions, 

interdealer trading activity in EUR 

interest rate swaps began to be booked 

almost exclusively to non-U.S. entities, 

a fact pattern that academic research 

found was ‘consistent with (although 

not direct proof of) swap dealers 

strategically choosing the location of the 

desk executing a particular trade in 

order to avoid trading in a more 

transparent and competitive 

setting.’ ’’ 521 The commenter states that 

this is ‘‘an outcome to avoid in the SBS 

market.’’ 522

Several commenters oppose certain 

aspects of Rule 832. One commenter 

disagrees with the Commission’s 

application of the trade execution 

requirement to transactions involving 

foreign branches of U.S. persons, as well 

as to guaranteed person transactions.523

This commenter believes that 

‘‘mandatory trade execution is not 

designed to address or mitigate systemic 

risk’’ and, thus, it is unnecessary to 

extend SBSEF rules to transactions with 

non-U.S. counterparties ‘‘where the lack 

of such rules would have no ability of 

posing risk to the U.S. financial 

system.’’ 524 This commenter states that 

guaranteed entities (by definition nonU.S. persons) and foreign branches of 

U.S. persons are both subject to the laws 

and regulations of their home country or 

the foreign jurisdictions in which they 

and their counterparties operate, 

respectively, and the commenter states 

that imposing the rule’s mandatory 

trading obligations on them in 

transactions with non-U.S. 

counterparties would result in 

duplicative regulation, which would 

increase compliance costs and add 

complexity and inefficiencies to crossborder trading.525 This commenter also 

states that foreign trading venues are 

already subject to comprehensive 

regulatory oversight in their home 

jurisdictions and, based on its 

experience with the CFTC’s SEF trading 

rules prior to the grant of equivalency to 

major foreign trading platforms in 

Europe and Asia, ‘‘foreign platforms 

will deny access to any entity with any 

connection to the United States, no 

matter how remote, for fear of being 

captured by the SEC’s regime’’ and will 

further fragment SBS markets.526

Several commenters also oppose 

subjecting ANE transactions to the trade 

execution requirement in Rule 832(b)(3). 

One commenter believes that ANE 

transactions fall outside the 

jurisdictional reach of Title VII, and that 


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527 Id. at 11. 

528 Id. This commenter states that rules related to 

mandatory platform execution are intended to 

provide counterparties with a sufficient level of pretrade price transparency and that they should be 

addressed by the market regulators in the 

jurisdiction where the majority of trading activity 

is taking place. See id. 

529 Id. at 12. 

530See SIFMA AMG Letter, supra note 18, at 11; 

Tradeweb Letter, supra note 18, at 3–4; ISDA– 

SIFMA Letter, supra note 18, at 11–12. 

531SIFMA AMG Letter, supra note 18, at 11. 

532 ISDA–SIFMA Letter, supra note 18, at 12. 

533Tradeweb Letter, supra note 18, at 4–5. 

534See id. at 4; ISDA–SIFMA Letter, supra note 

18, at 12. See also SIFMA AMG Letter, supra note 

18, at 11. 

535 ISDA–SIFMA Letter, supra note 18, at 12. See 

also Tradeweb Letter, supra note 18, at 4; SIFMA 

AMG Letter, supra note 18, at 11. Section VII.B, 

infra, discusses the exemptions under Rule 833. 

536 ISDA–SIFMA Letter, supra note 18, at 12 n.28. 

See also CFTC, Cross-Border Application of the 

Registration Thresholds and Certain Requirements 

Applicable to Swap Dealers and Major Swap 

Participants, 85 FR 56924, 56961–63 (Sept. 14, 

2020); CFTC Release No. 8212–20 (July 23, 2020) 

(CFTC Withdraws ‘‘ANE’’ Staff Advisory and Issues 

New Cross-Border No-Action Relief). 

537SIFMA AMG Letter, supra note 18, at 11. 

538See ISDA–SIFMA Letter, supra note 18, at 11 

n.26. Specifically, this commenter appreciates the 

Commission’s clarification that the ‘‘covered 

person’’ definition is a transaction-based test but 

believes that the rule text could be more explicit in 

such regard by replacing: in prong (2) of the 

definition ‘‘a security-based swap’’ with ‘‘that 

security-based swap;’’ and in prong (3) of the 

definition ‘‘a transaction’’ with ‘‘that security-based 

swap transaction.’’ 

539See SIFMA AMG Letter, supra note 18, at 11– 

12. 

540See supra note 32. 

541Section 3C(h)(1) of the SEA (requiring trade 

execution ‘‘[w]ith respect to transactions involving 

security-based swaps subject to the clearing 

requirement of subsection (a)(1)’’ of the SEA). 

542Section 3C(a)(1) of the SEA (‘‘It shall be 

unlawful for any person to engage in a securitybased swap unless that person submits such 

security-based swap for clearing to a clearing 

agency that is registered under this Act or a clearing 

agency that is exempt from registration . . . .’’). 

543Proposing Release, supra note 1, 87 FR at 

28923 (citing Application of ‘‘Security-Based Swap 

Dealer’’ and ‘‘Major Security-Based Swap 

Participant’’ Definitions to Cross-Border SecurityBased Swap Activities; Republication, SEA Release 

No. 72472 (June 25, 2014), 79 FR 47278, 47289 

(Aug. 12, 2014) (‘‘2014 Cross-Border Adopting 

Release’’)). 

‘‘the location of personnel or agents 

within the United States should not 

form the basis for extending the 

[Commission’s] trading 

mandate. . . .’’ 527 This commenter 

states that, when assessing the necessity 

of extending the extraterritorial reach of 

a particular ruleset, ‘‘it is important to 

consider the objectives of individual 

rulesets’’ and further states that 

‘‘platform trading rules are not intended 

to address or mitigate risk, and 

therefore, the Commission should 

exercise more flexibility’’ when 

deciding whether these rules should 

extend to ANE transactions.528 This 

commenter believes that including ANE 

transactions ‘‘would bring a random 

selection of additional transactions into 

scope merely due to some supporting 

role played by a U.S. based sales person, 

trader or other function caught up in 

ANE.’’ 529

Several commenters warn of negative 

implications for the SBS market from 

applying the trade execution 

requirements to ANE transactions.530

One commenter expresses concern 

generally about the rule’s ‘‘complexities 

and over-broad reach.’’ 531 Another 

commenter states that firms and 

platforms would be required to make 

representations ‘‘that no ANE 

touchpoint is present in the U.S. for any 

SBS subject to the trading mandate’’ so 

as not to run afoul of Rule 832’s 

requirements, which this commenter 

states would ‘‘require the development 

of a costly parallel infrastructure 

completely devoid of U.S. 

touchpoints. . . .’’ 532 Similarly, 

another commenter states that, without 

regulatory certainty and clear 

jurisdictional boundaries, market 

participants may be unsure of which 

rules apply to a particular SBS 

transaction because ‘‘non-U.S. 

counterparties and platform operators 

frequently do not know whether a 

transaction involves U.S. ANE 

activities,’’ which this commenter states 

will likely result in confusion among 

market participants and platform 

operators and may result in some 

market participants deciding not to 

transact in SBS at all.533

These commenters also state that 

foreign jurisdictions have adopted 

robust regulatory regimes that already 

subject non-U.S. persons and foreign 

trading venues to comparable and 

comprehensive regulations in their 

respective jurisdictions.534 These 

commenters contrast the Commission’s 

proposed approach with the CFTC’s 

efforts ‘‘to curtail the U.S.’ approach to 

extra-territoriality in light of the 

progress made by other jurisdictions in 

establishing robust derivatives 

regulatory regimes,’’ 535 with one noting 

that, in adopting its cross-border rules 

for certain swap-market participants in 

2020, the CFTC announced that it 

would not consider ANE as a relevant 

factor in non-U.S. dealers’ swap 

transactions.536 Another commenter 

asks the Commission to be mindful of 

whether CFTC-registered SEFs would be 

forced to change their rules in order 

comply with the new proposed SBSEF 

rules.537

Finally, one commenter requests that 

the Commission make more explicit that 

the ‘‘covered person’’ definition in Rule 

832 is a transaction-based test,538 while 

another commenter requests additional 

clarity about the application of the 

rule.539

The Commission has considered the 

comments received for Rule 832 and is 

adopting the rule as proposed, with 

minor technical modifications.540 As an 

initial matter, the Commission disagrees 

with those comments suggesting that 

Rule 832 may exceed the Commission’s 

statutory authority. The trade execution 

requirement of section 3C(h)(1) provides 

that the Commission’s authority with 

respect to trade execution is coextensive with the Commission’s 

authority to require SBS clearing under 

section 3C(a)(1) of SEA.541 And the 

clearing requirement of section 3C(a)(1) 

provides for SBS clearing when a person 

is ‘‘engage[d] in a security-based swap’’ 

in the United States.542 Thus, consistent 

with the Commission’s territorial 

approach and Title VII, the relevant 

domestic activity that triggers the 

execution requirement is engaging in an 

SBS in the United States. 

Rule 832 fits comfortably within the 

bounds of that statutory authority. A 

U.S. person undertaking SBS 

transactions within the United States is, 

as no commenter disputes, engaging in 

an SBS in the United States (irrespective 

of whether the counterparty is overseas). 

And this is true even if the U.S. person 

is undertaking the SBS transaction from 

a foreign office. As the Commission has 

explained, ‘‘a foreign office has no 

separate existence from the U.S. person 

itself.’’ 543 It is the U.S. based entity that 

has legal and financial responsibility for 

the SBS transaction and for the ensuing 

obligations that will flow from the 

transaction over the life of the SBS. 

Thus, it is reasonable to understand the 

U.S. entity to have engaged in the 

United States in the SBS even if the 

initial undertaking (i.e., the SBS 

transaction) occurred in the entity’s 

foreign office. 

For similar reasons, a non-U.S. person 

who enters an SBS with another nonU.S. person has nonetheless engaged in 

an SBS in the United States (at least in 

part) if that SBS arrangement is 

guaranteed by a U.S. person. When a 

non-U.S. person operates with a 

guarantee from a U.S. person for the 

non-U.S. person’s performance under an 

SBS, the SBS arrangement is 

economically equivalent and 

substantially identical with a 

transaction entered into directly with 

the U.S. guarantor. With such an 

arrangement, an essential element of the 

transaction from the viewpoint of the 


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544 In the alternative, the Commission relies on 

the anti-evasion authority of section 30(c) of the 

SEA, 15 U.S.C. 78dd(c), as statutory authority for 

Rule 832. Section 30(c) authorizes the Commission 

to apply Title VII requirements to persons 

transacting a business ‘‘without the jurisdiction of 

the United States’’ if they contravene rules that the 

Commission has prescribed as ‘‘necessary or 

appropriate to prevent the evasion of any 

provision’’ of Title VII. For example, without Rule 

832(b)(2), U.S. persons could have an incentive to 

evade the trade execution requirement by engaging 

in SBS via a guaranteed affiliate, while the 

economic reality of transactions arising from that 

activity—including the risks these transactions 

introduce to the U.S. market—would be no different 

in most respects than transactions entered into 

directly by U.S. persons. See Proposing Release, 

supra note 1, 87 FR at 28923 n.228. And, without 

Rule 832(b)(3), non-U.S. persons could retain the 

benefits of operating in the United States while 

avoiding compliance with the trade execution 

requirement. See id. at 28923 n.230. 

545See supra note 523 and accompanying text. 

546See supra note 519 and accompanying text. 

547See supra note 524 and accompanying text. 

548See Capital, Margin, and Segregation Release, 

supra note 100. 

549See Regulation SBSR Release, supra note 102. 

550See SBSD and MSBSP Registration Release, 

supra note 99. 

551Core Principles of section 3D(d) of the SEA, 

15 U.S.C. 78c–4(d). 

552See, e.g., Rule 815 (methods of execution); 

Rule 816 (trade execution requirement); Rule 825 

(Core Principle 8—timely publication of trading 

information). 

553See, e.g., Rule 819(c) (Core Principle 2—access 

requirements). 

554See, e.g., Rule 829 (Core Principle 12— 

financial resources). 

555See, e.g., Rule 823(c) (Core Principle 6— 

financial integrity of transactions). 

556See, e.g., Rule 820 (Core Principle 3—SBS not 

readily susceptible to manipulation); Rule 821(Core 

Principle 4—monitoring of trading and trade 

processing); Rule 823 (Core Principle 6—financial 

integrity of transactions). 

557See supra notes 527–537 and accompanying 

text. 

guaranteed person’s counterparty is the 

legal and financial obligations such a 

guarantee imposes on the U.S. guarantor 

(without which there would be no need 

to include the U.S. guarantor) and 

brings the U.S. person legally and 

financially into the transaction as an 

interested party. This economic reality 

makes it appropriate to include 

guaranteed non-U.S. persons within the 

definition of ‘‘covered persons’’ in Rule 

832. 

Further, the statutory language is, in 

the Commission’s view, reasonably 

understood to encompass a non-U.S. 

person who, in connection with its SBS 

dealing activity, uses U.S. personnel 

located in a U.S. branch or office, or 

personnel of an agent of such non-U.S. 

person located in a U.S. branch or 

office, to arrange, negotiate, or execute 

an SBS transaction. These activities rise 

to the level of engaging in an SBS in the 

United States. Undertaking critical steps 

in an SBS transaction qualifies as 

engaging in an SBS in the United States, 

no less than placing ultimate legal or 

financial responsibility for an SBS with 

a person in the United States (as occurs 

in the cases discussed above of an SBS 

transaction involving either a foreign 

office of a U.S. person or a U.S. 

guarantor). 

The Commission’s assessment of the 

relevant domestic activities that 

constitute engaging in an SBS is 

consistent not only with the statutory 

text, but also the statutory objectives 

underlying the execution requirement. 

These objectives include, among other 

things, helping to ensure the financial 

stability of U.S. persons engaged in SBS 

transactions, the promotion of 

transparency in price formation for SBS 

transactions that have a nexus to the 

U.S. securities markets, and the 

prevention of manipulation, price 

distortion and disruptions of the 

delivery or cash settlement process 

within the U.S. market system. Each of 

the components of Rule 832 helps to 

advance one or more of these statutory 

goals and, thus, further supports the 

Commission’s reasonable understanding 

of what constitutes engaging in an SBS 

in the United States.544

With that general explanation of how 

Rule 832 fits comfortably within our 

statutory authority, the Commission will 

address the specific comments that were 

received on the rule. For the reasons 

discussed above, the Commission 

disagrees with the comment that Rule 

832 should not extend the trade 

execution requirement to transactions 

involving foreign branches of U.S. 

persons or guaranteed person 

transactions.545 With respect to the 

commenter that believes Rule 832’s 

definition of ‘‘covered person’’ should 

also cover a transaction that includes a 

‘‘de facto guarantee’’ by a U.S. 

person,546 the Commission appreciates 

that, even for an affiliate that is not a 

guaranteed person, a dealer or large 

trader might be unwilling to allow such 

an affiliate to fail because of the 

reputational and other consequences 

such a failure might have on its 

interactions with potential 

counterparties. At the same time, given 

the lack of a legal obligation by the ‘‘de 

facto guarantor,’’ it is not clear how the 

Commission could determine—before 

the fact—which ‘‘de facto guarantees’’ 

exist and which such ‘‘de facto 

guarantors’’ should be included, or how 

market participants, including 

counterparties, would be able to 

determine the applicability of 

Regulation SE to a transaction 

potentially subject to a ‘‘de facto 

guarantee.’’ Thus, the Commission is 

not including ‘‘de facto guarantee’’ 

transactions within Rule 832’s 

definition of ‘‘covered persons.’’ 

For the reasons discussed above, as 

well as the reasons discussed 

immediately below, the Commission 

also disagrees with the argument that 

the Commission should not extend 

SBSEF rules, which include mandatory 

trade execution, to transactions with 

non-U.S. counterparties (even if they 

involve guaranteed persons) where the 

lack of such rules would have no ability 

of posing risk to the U.S. financial 

system.547 While Title VII’s trade 

execution requirements do not relate to 

systemic risk in precisely the same 

manner that certain other Title VII 

rules—such as capital, margin, and 

segregation requirements for SBSDs and 

MSBSPs,548 post-trade reporting and 

public dissemination of SBS 

transactions,549 registration and 

regulation of SBSDs and MSBSPs,550

among others—the Commission 

disagrees with the notion that the trade 

execution and other SBSEF 

requirements are not important in 

addressing and mitigating risk, 

including potentially systemic risk, to 

the U.S. financial system. The 

application of the trade execution 

requirement to a cross-border SBS 

transaction is not simply a matter of 

whether a particular form of execution 

(such as RFQ-to-3 or the use of an order 

book) is required. Instead, the 

application of this requirement to such 

a transaction would subject the 

transaction to the various requirements 

of Regulation SE, many of which relate 

to mitigating risks to the counterparties 

of the transaction and, ultimately, the 

U.S. financial system. The Core 

Principles for SBSEFs—which are set 

forth in the Dodd-Frank Act 551 and 

implemented in the rules of Regulation 

SE—seek to, among other things, 

provide for transparency in price 

formation for SBS,552 impartial access to 

SBS trading,553 the financial resources 

of SBS trading venues,554 the efficient 

submission of eligible SBS transactions 

to central clearing,555 and the 

prevention of manipulation, price 

distortion, and disruptions of the 

delivery or cash settlement process.556

With respect to commenters’ views 

opposing the inclusion of ANE 

transactions in Rule 832,557 the 

Commission understands that this 

differs from the CFTC’s policy towards 

ANE transactions and is cognizant of the 

potential complexities and costs that 

can arise if market participants are 

unsure of which jurisdictions’ rules 

apply to a particular SBS transaction. 


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558See supra note 534 and accompanying text. 

559Proposing Release, supra note 1, 87 FR at 

28924. 

560See infra section VII.B (discussing crossborder exemptions under Rule 833, including 

exemptions relating to the trade execution 

requirement under Rule 833(b)). The Commission 

may consider, among other things, the extent to 

which the SBS traded in a foreign jurisdiction are 

subject to a comparable trade-execution 

requirement. 

561See supra note 537 and accompanying text. 

562See infra notes 624–627 and accompanying 

text. 

563According to one commenter, these issues no 

longer apply in the SBS markets given that the 

CFTC resolved it ‘‘when it granted equivalency to 

major foreign trading platforms in Europe and 

Asia.’’ See supra note 526 and accompanying text. 

The CFTC has granted orders of exemptions to 

certain markets pursuant to CEA section 5h(g), 

which authorizes the CFTC to exempt, 

conditionally or unconditionally, a SEF from 

registration under CEA section 5h if the CFTC finds 

that the facility is ‘‘subject to comparable, 

comprehensive supervision and regulation on a 

consolidated basis by . . . the appropriate 

governmental authorities in the home country of the 

facility.’’ See ‘‘Exemption of Foreign Swap Trading 

Facilities from SEF Registration,’’ available at 

https://www.cftc.gov/International/ 

ForeignMarketsandProducts/ExemptSEFs. 

564See supra notes 527 and 529 and 

accompanying text. 

565See supra note 564 and accompanying text. 

566See 2019 Cross-Border Adopting Release, 

supra note 218, 85 FR at 6274. 

567 Id. at 6275–76. Background information 

includes information regarding (1) current or 

historic pricing, volatility or market depth, and (2) 

trends or predictions regarding pricing, volatility, or 

market depth, as well as information related to risk 

management. See id. at 6275. 

568No client responsibility would mean that the 

U.S. personnel have not been assigned, and do not 

otherwise exercise, client responsibility in 

connection with the transaction. See id. at 6275–76. 

569Not receiving any transaction-linked 

compensation means the U.S. personnel do not 

receive compensation based on, or otherwise linked 

to, the completion of individual transactions on 

which the U.S. personnel provide market color. See 

id. 

570See id. at 6275. 

571See supra notes 566–570 and accompanying 

text. 

572See Proposing Release, supra note 1, 87 FR at 

28923 (citing Regulation SBSR—Reporting and 

Dissemination of Security-Based Swap Information, 

SEA Release No. 78321 (July 14, 2016), 81 FR 

53546, 53591 (Aug. 12, 2016) (‘‘Regulation SBSR 

Adopting Release II’’)). 

The Commission also recognizes 

commenters’ views that certain foreign 

jurisdictions have adopted ‘‘robust’’ 

regulatory regimes.558 However, the 

purpose of Rule 832 is to ‘‘address when 

the . . . trade execution requirement 

applies to a cross-border SBS 

transaction.’’ 559 Absent an exemption, 

the trade execution requirement applies 

in cross-border contexts wherever 

covered persons are involved in an SBS 

transaction, regardless of whether the 

relevant foreign jurisdictions have 

robust regulatory regimes—such as 

those the Commission may consider in 

connection with a foreign trading 

venue’s application to the Commission 

for an exemption from the trade 

execution requirement under Rule 

833(b).560

In adopting Rule 832, the Commission 

has been mindful of its impact on CFTCregistered SEFs and, as a commenter 

suggests,561 whether they might be 

forced to change their rules because of 

the Commission’s ANE approach for 

SBSEFs. As discussed below in section 

VII.B with respect to applications for 

exemptions relating to the trade 

execution requirement under Rule 

833(b), foreign trading venues that have 

already received exemptive relief from 

the CFTC for swaps trading where 

robust regulatory regimes may exist 

with requirements comparable to those 

applicable to SBS transactions in the 

United States may apply for exemptive 

relief under Rule 833(b). If exempted 

under Rule 833(b), trading of SBS on 

such foreign trading venues would not 

require CFTC-registered SEFs to change 

their rules.562 Similarly, for SBS 

transactions that the Commission 

exempts from the trade execution 

requirement based on an application 

submitted under Rule 833(b), the 

concerns expressed by commenters 

regarding complexities and costs would 

no longer be applicable,563 and 

commenters’ concerns regarding the 

Commission’s treatment of ANE 

transactions should be allayed as well, 

because the effect of such exemptions 

would likely result in SBS transactions 

in foreign jurisdictions with what may 

be considered robust regulatory regimes 

being exempt from the Commission’s 

trade execution requirement and, in 

practice, have similar treatment of 

transactions on applicable foreign 

trading venues as the CFTC. On the 

other hand, if the Commission does not 

grant an exemption to such an SBS 

transaction, that would mean that the 

Commission would not have made a 

finding that granting such an exemption 

would be in the public interest and 

consistent with the protection of 

investors, in light of any information 

submitted with the application which 

the Commission may have considered 

regarding comparable requirements in 

that foreign jurisdiction. For such SBS 

transactions, it would be appropriate for 

the trade execution requirements to 

apply. 

The Commission also disagrees with 

the characterization of Rule 832 with 

respect to ANE transactions as bringing 

‘‘a random selection of additional 

transactions into scope’’ and the belief 

that the location of personnel in the 

United States should not form the basis 

for applying the Commission’s trade 

execution requirement.564 The mere fact 

that an entity has personnel located in 

the U.S. does not subject an SBS 

transaction to the trade execution 

requirement; rather, it is the role such 

personnel play in arranging, negotiating, 

or executing the transaction that brings 

them within the definition of ‘‘covered 

person’’ for purposes of Rule 832. ANE 

transactions would not be a ‘‘random 

selection of additional transactions;’’ 565

instead, it would be appropriate to 

apply its carefully considered and 

tailored guidance given in other Title 

VII requirements for the phrase 

‘‘arranged, negotiated, or executed’’ for 

the purposes of the application of the 

trade execution requirement in the 

cross-border context. 

Specifically, the Commission has 

clarified that Title VII requirements 

using an ‘‘arranged, negotiated, or 

executed’’ test are not triggered in 

certain circumstances where the marketfacing activity of U.S. personnel is ‘‘so 

limited that it would not implicate the 

regulatory interests underlying the 

relevant Title VII requirements.’’ 566

Such instances arise when U.S. 

personnel provide ‘‘market color’’ in 

connection with SBS transactions, 

where such market color is ‘‘limited to 

background information regarding 

pricing or market conditions associated 

with particular instruments or with 

markets more generally’’ 567 and when 

the U.S. personnel have no client 

responsibility 568 and do not receive any 

transaction-linked compensation.569

However, market-facing activity by 

personnel located in the United States 

also would not be ‘‘market color’’ (i.e., 

would be considered to be ‘‘arranged, 

negotiated, or executed’’) if such activity 

involves: providing recommendations, 

such as recommending particular 

instruments; providing predictions 

regarding potential merits or risks of, or 

providing trading ideas or strategies 

relating to, a proposed security-based 

swap transaction; structuring a 

particular SBS transaction; or finalizing 

or reaching agreement with respect to 

any pricing or non-pricing element, 

such as underlier, notional amount or 

tenor, that must be resolved to complete 

an SBS transaction.570

With this existing guidance that 

applies to cross-border ANE 

transactions subject to Rule 832,571

declining to apply Title VII 

requirements to SBS transactions of 

foreign entities that use U.S. personnel 

to engage in ANE transactions would 

allow such entities to exit the Title VII 

regulatory regime without exiting the 

U.S. market.572 This is problematic 


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573Proposing Release, supra note 1, 87 FR at 

28923 n.230. See also supra note 521 and 

accompanying text (providing an example of swap 

dealers strategically choosing the location of the 

desk executing a particular trade in order to avoid 

trading in a more transparent and competitive 

setting after no-action relief from the trade 

execution requirement for ANE transaction). 

574See supra note 538 and accompanying text. 

575See Proposing Release, supra note 1, 87 FR at 

28922 n.221 (‘‘The proposed term ‘covered person’ 

is designed to apply on a transaction-by-transaction 

basis.’’). 

576With respect to the commenter that requested 

additional clarity with respect to Rule 832, see 

supra note 539 and accompanying text, the 

Commission’s discussion of the rule in this section 

including, for example, the applicability of existing 

guidance with respect to ANE transactions and the 

availability of exemptions under Rule 833(b) from 

the mandatory trade execution requirement as 

discussed in section VII.B below, should provide 

market participants with more clarity on when and 

to whom the rule’s requirements would apply. 

577See supra notes 32 and 540. 

578See 15 U.S.C. 78c–4(a)(1) (stating that no 

person may operate a facility for the trading or 

processing of SBS, unless the facility is registered 

as an SBSEF or national securities exchange). 

579A ‘‘broker’’ is generally defined as a person 

engaged in the business of effecting transactions in 

securities for the account of others. See Section 

3(a)(4) of the SEA, 15 U.S.C. 78c(a)(4). Section 

15(a)(1) of the SEA, 15 U.S.C. 78o(a)(1), generally 

provides that it shall be unlawful for any broker to 

make use of the mails or any means or 

instrumentality of interstate commerce to effect any 

transactions in, or to induce or attempt to induce 

the purchase or sale of, any security unless such 

broker is registered in accordance with SEA section 

15(b). See also infra section XI (discussing Rule 

15a–12). 

580 15 U.S.C. 78mm(a)(1). 

581 17 CFR 240.0–12 (setting forth procedures for 

filing applications for orders for exemptive relief 

under section 36 of the SEA). 

582An application for an exemption under Rule 

833(a) could be submitted by a foreign SBS trading 

venue itself or by another interested party. For 

example, a financial regulatory authority in a 

foreign jurisdiction could submit an application 

under Rule 833(a) on behalf of one or more SBS 

trading venues licensed and regulated in that 

jurisdiction. 

583 15 U.S.C. 78c(a)(1). 

584 15 U.S.C. 78c(a)(77). 

585 15 U.S.C. 78c(a)(4). 

586 15 U.S.C. 78c–4(a)(1) (stating that no person 

may operate a facility for the trading or processing 

of SBS, unless the facility is registered as an SBSEF 

or national securities exchange). 

587For the remainder of this discussion, an 

exemption under SEA section 36 and Rule 833(a) 

will be referred to simply as a ‘‘Rule 833(a) 

exemption.’’ In addition, the Commission will use 

the term ‘‘trading venue covered by an exemption 

order under Rule 833’’ (or a similar formulation) 

rather than ‘‘exempt exchange,’’ ‘‘exempt SBSEF’’ 

or ‘‘exempt broker’’ because, pursuant to an 

exemption granted under Rule 833(a), the covered 

trading venue would no longer be an exchange, 

SBSEF, or broker (as defined by the SEA). 

588However, as discussed further below, the Rule 

833(a) exemption is designed to address only 

activities related to providing a market place for 

SBS. An entity that engages in other SBS-related 

activity or any activity involving non-SBS securities 

would, with respect to such other SBS-related 

activity or any activity involving non-SBS 

securities, still be subject to any applicable 

requirements to register with the Commission as a 

national securities exchange, SBSEF, or broker, or 

to comply with other requirements applicable to 

such entities under the SEA or Commission rules 

thereunder. 

589See 15 U.S.C. 78mm(a)(1). Unlike the CFTC, 

which has exemptive authority under section 5h(g) 

of the CEA, the Commission would not be required 

to find that the foreign trading venue is subject to 

comparable, comprehensive supervision and 

regulation by a U.S. or foreign regulator. 

because, as the Commission stated in 

the Proposing Release, ‘‘applying the 

trade execution requirement to such 

persons is necessary or appropriate as a 

prophylactic measure to help prevent 

the evasion of the provisions of the SEA 

that were added by the Dodd-Frank Act, 

and thus help prevent the relevant 

purposes of the Dodd-Frank Act from 

being undermined. Without this rule, 

non-U.S. persons could retain the 

benefits of operating in the United 

States while avoiding compliance with 

the trade execution requirement.’’ 573

Finally, with respect to the request by 

one commenter that the Commission 

revise the ‘‘covered person’’ definition 

in Rule 832 to make more explicit that 

it is a transaction-based test,574 the 

Commission affirms again that the 

definition is intended to apply on a 

transaction-by-transaction basis,575 and 

views the language in the rule (e.g., 

‘‘with respect to a particular securitybased swap’’) as sufficiently clear in this 

regard.576

Accordingly, for the reasons 

discussed above, the Commission is 

adopting Rule 832 as proposed, with 

minor technical modifications.577

B. Rule 833—Cross-Border Exemptions 

for Foreign Trading Venues and 

Relating to the Trade Execution 

Requirement 

As discussed above, Rule 832 

specifies when the trade execution 

requirement applies to an individual 

cross-border SBS transaction. When 

covered persons (as defined in Rule 832) 

are members of a foreign trading venue 

for SBS (a ‘‘foreign SBS trading venue’’) 

with respect to SBS transacted on that 

venue, whether or not such SBS are 

subject to the trade execution 

requirement, the foreign SBS trading 

venue could be required to register with 

the Commission as a national securities 

exchange or SBSEF 578 or, because the 

foreign SBS trading venue would be 

facilitating the execution of SBS 

between persons, a broker.579

To address the situation of a foreign 

SBS trading venue that wishes to avoid 

registering with the Commission in one 

or more of these capacities, the 

Commission proposed Rule 833(a). Rule 

833(a), which would specify that a 

foreign SBS trading venue can request 

that the Commission grant it an 

exemption under section 36(a)(1) of the 

SEA 580 by submitting, pursuant to SEA 

Rule 0–12,581 a complete application for 

exemptive relief. Rule 833(a) would also 

provide that such an application under 

section 36(a)(1) and Rule 0–12, relating 

to the status of the foreign SBS trading 

venue under the SEA, may state that the 

application is also submitted pursuant 

to Rule 833(a).582 When such an 

application is submitted pursuant to 

Rule 833(a), the Commission would 

consider the submission as an 

application to exempt the foreign SBS 

trading venue, with respect to its 

providing a market place for SBS, from: 

the definition of ‘‘exchange’’ in section 

3(a)(1) of the SEA; 583 the definition of 

‘‘security-based swap execution facility’’ 

in section 3(a)(77) of the SEA; 584 the 

definition of ‘‘broker’’ in section 3(a)(4) 

of the SEA; 585 and section 3D(a)(1) of 

the SEA.586 Because a foreign SBS 

trading venue for which the 

Commission grants an exemptive order 

under SEA section 36 and Rule 

833(a) 587 would be exempt from these 

definitions and from section 3D(a)(1) of 

the SEA, the foreign SBS trading venue 

would not be required to register with 

the Commission as a national securities 

exchange, SBSEF, or broker, or to 

comply with other requirements 

applicable to such entities under the 

SEA or Commission rules thereunder.588

As with other exemptions issued 

pursuant to section 36, to issue a Rule 

833(a) exemption, the Commission 

would be required to find that the 

exemption is necessary or appropriate 

in the public interest, and consistent 

with the protection of investors.589 As 

contemplated in section 36(a)(1), the 

Commission may issue a Rule 833(a) 

exemption with conditions. 

The Commission also proposed Rule 

833(b), which would address requests 

for exemptive relief relating to the 

application of the trade execution 

requirement to transactions executed on 

a foreign SBS trading venue. Rule 

833(b)(2) would provide that, in 

considering whether to issue a Rule 

833(b) exemption, the Commission may 

consider: (i) the extent to which the SBS 

traded in the foreign jurisdiction 

covered by the request are subject to a 

trade execution requirement comparable 

to that in section 3C(h) of the SEA and 

the Commission’s rules thereunder; (ii) 

the extent to which trading venues in 

the foreign jurisdiction covered by the 

request are subject to regulation and 

supervision comparable to that under 

the SEA, including section 3D of the 

SEA, and the Commission’s rules 

thereunder; (iii) whether the foreign 

trading venue or venues where covered 


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590For a more detailed discussion of the items in 

Rule 833(b)(2) that the Commission may consider, 

see Proposing Release, supra note 1, 87 FR at 

28925–26. 

591Bloomberg Letter, supra note 18, at 18. 

However, as discussed below in this section VII.B, 

this commenter criticizes various aspects of Rule 

833. 

592Better Markets Letter, supra note 18, at 16. 

593 Id. 

594Bloomberg Letter, supra note 18, at 7. 

595 Id. 

596See SIFMA AMG Letter, supra note 18, at 11– 

12. 

597See Bloomberg Letter, supra note 18, at 6; 

Tradeweb Letter, supra note 18, at 5–6; ISDA– 

SIFMA Letter, supra note 18, at 14. See also ICE 

Letter, supra note 18, at 4. 

598Tradeweb Letter, supra note 18, at 6. 

599Bloomberg Letter, supra note 18, at 6. See also 

ICE Letter, supra note 18, at 4 (stating that ‘‘EU and 

UK based multilateral trading facilities are not 

required under their home country regulation to 

ensure that a request-for-quote be sent to three 

different recipients or offer a central-limit-orderbook’’ and thus the proposed criteria cannot be 

satisfied from the outset); Bloomberg Letter, supra 

note 18, at 19 (stating that ‘‘at least three 

Bloomberg-affiliated [foreign venues] would seek an 

exemption’’ but may be ‘‘effectively barred at the 

door by the Proposal’s requirement that securitybased swaps are subject to a trade execution 

requirement in the foreign jurisdiction that is 

comparable to that in 15 U.S.C. 78c–3(h) and the 

Commission’s rules thereunder’’); ISDA–SIFMA 

Letter, supra note 18, at 14 (stating that hardly any 

(if any at all) foreign trading venues would be able 

to enjoy an Exempt SBSEF status and that, as far 

as the commenter is aware, none of the CFTC 

recognized multilateral trading facilities or 

organized trading facilities are required to offer a 

central limit order books on their platforms). 

600Bloomberg Letter, supra note 18, at 7. 

601 ISDA–SIFMA Letter, supra note 18, at 15. 

602See Bloomberg Letter, supra note 18, at 6–7. 

See also Tradeweb Letter, supra note 18, at 6. 

603 ISDA–SIFMA Letter, supra note 18, at 15. See 

also Tradeweb Letter, supra note 18, at 6. 

persons intend to trade SBS have 

received an exemptive order 

contemplated by Rule 833(a); and (iv) 

any other factor that the Commission 

believes is relevant for assessing 

whether the exemption is in the public 

interest and consistent with the 

protection of investors.590

As with other exemptions issued 

pursuant to section 36, to issue a Rule 

833(b) exemption, the Commission 

would be required to find that the 

exemption is necessary or appropriate 

in the public interest, and consistent 

with the protection of investors. As 

contemplated by section 36(a)(1), the 

Commission may issue a Rule 833(b) 

exemption with conditions. 

One commenter expresses general 

support for the establishment of a rule 

granting exemptions for foreign trading 

venues and for cross-border trade 

execution exemptions, noting that 

‘‘difficulties that can arise when the 

trade execution requirement applies in 

two separate jurisdictions’’ and that ‘‘it 

is important for market participants and 

trading venues to have regulatory 

certainty while maintaining flexibility 

in where transactions may be 

consummated.’’ 591

Another commenter believes the 

Commission’s proposed exemption rule 

should be made more robust to prevent 

evasion of the SBSEF registration and 

trade execution requirements. This 

commenter believes that Rule 833 does 

not provide meaningful standards for 

how the Commission will assess 

requests for such exemptions, which 

this commenter believes is insufficient, 

and provides the Commission with 

‘‘unreasonably broad, nearly unlimited, 

discretion, in how it assess foreign 

swaps regulatory frameworks,’’ which 

this commenter believes may result in 

the Commission ‘‘facilitating evasion of 

Title VII.’’ 592 This commenter states 

that the Dodd-Frank Act ‘‘requires that 

the SEC must, at the very least . . . 

make an affirmative determination that 

such an application demonstrates that 

the exemption could not be used to 

evade those requirements[, which 

would] require the SEC [to] make a 

credible, comprehensive determination 

that the foreign regulatory requirements 

applicable to the applicant is actually 

written, applied and enforced, are the 

same as those that would otherwise 

apply to the applicant absent an 

exemption.’’ 593

One commenter argues that Rule 

833(b)’s requirements are unnecessary if 

a foreign trading venue has received an 

exemption under Rule 833(a), given that 

the Commission would be required to 

find that the Rule 833(a) exemption is 

‘‘necessary or appropriate in the public 

interest and consistent with the 

protection of investors,’’ which this 

commenter believes ‘‘should be 

sufficient for the purposes of trading 

SBS on foreign trading venues, even 

when the trade execution requirement 

applies.’’ 594 Thus, this commenter 

requests that the Commission ‘‘remove 

the 833(b) exemption and clarify that 

. . . if a foreign trading venue has been 

granted an 833(a) exemption . . ., a 

market participant should be permitted 

to trade SBS on that venue.’’ 595

Another commenter does not believe 

the exemptions in Rule 833 are 

sufficiently clear, and requests that the 

Commission consider setting forth 

charts or examples to better facilitate 

compliance.596

With respect to Rule 833(b) 

specifically, several comments appear to 

anticipate that, in order for a transaction 

on a foreign SBS trading venue to 

qualify for the trade execution 

exemption under Rule 833(b), the 

relevant foreign jurisdiction would have 

to require RFQ-to-3 or an order book for 

Required Transactions.597 One 

commenter states that ‘‘the CFTC, 

appropriately in our view, recognized 

that there are multiple ways that a 

regulator can ensure appropriate pretrade transparency and competition, 

such that restricting execution methods 

to [central limit order books] and RFQto-3 systems are not the only ways to 

achieve these objectives. Failing to 

recognize this fact in the course of 

making comparability determinations 

would incorrectly turn the statutory 

comparability standard into a test for 

identical rules.’’ 598 Two commenters 

state that it would be difficult for many 

foreign SBS trading venues to 

demonstrate comparability if RFQ-to-3 

and an order book were required, with 

one stating that ‘‘[f]ew jurisdictions 

require RFQ to 3, and some do not 

require SBS to be traded on an 

organized trading venue.’’ 599

Two commenters oppose requiring an 

exemption under Rule 833 to depend 

upon a ‘‘rule-by-rule’’ comparison or 

analysis. One commenter states that this 

would be ‘‘unduly burdensome and at 

odds with the overall goal of achieving 

comparable outcomes.’’ 600 The other 

commenter requests that the 

Commission adopt ‘‘a more flexible 

approach to the recognition of foreign 

trading venues—one that relies on 

holistic outcomes and governing 

principles, rather than a rule-by-rule 

analysis.’’ 601

Several commenters believe that Rule 

833, as they understand it, would result 

in various negative consequences. One 

commenter states that covered persons 

would not be able to fulfill the trade 

execution requirement and that, as a 

result, market participants would then 

be forced to trade on a limited subset of 

venues, disrupting liquidity and 

requiring them to expend time and 

resources in onboarding to a compliant 

trading venue.602 Another commenter 

warns that ‘‘the limited liquidity in the 

SBS market is not going to withstand 

significant disruptions, increased costs, 

and market fragmentation, thus making 

it more likely for market participants to 

exit the SBS markets entirely.’’ 603 This 

commenter believes that the 

Commission’s approach ‘‘will force 

market participants to trade SBS within 

the jurisdictional borders of the United 

States, restricting access to global 

liquidity and thus further diminishing 

already thin SBS markets,’’ rather than 

‘‘the decision where to trade the most 

standardized and liquid swaps [being] 

dictated by the available liquidity and 


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604 ISDA–SIFMA Letter, supra note 18, at 14. 

605See ICE Letter, supra note 18, at 4. 

606 Id. 

607 Id. at 4–5. 

608Bloomberg Letter, supra note 18, at 7. See also 

ISDA–SIFMA Letter, supra note 18, at 14–15; 

Tradeweb Letter, supra note 18, at 6. 

609 ICI Letter, supra note 18, at 14. 

610Bloomberg Letter, supra note 18, at 7. See also 

ICE Letter, supra note 18, at 4. See also ISDA– 

SIFMA Letter, supra note 18, at 14. 

611Bloomberg Letter, supra note 18, at 7. 

612 ICI Letter, supra note 18, at 14. See also 

Bloomberg Letter, supra note 18, at 7, 18; ISDA– 

SIFMA Letter, supra note 18, at 14–15; Tradeweb 

Letter, supra note 18, at 6. 

613See Bloomberg Letter, supra note 18, at 7, 18; 

ISDA–SIFMA Letter, supra note 18, at 14–15; 

Tradeweb Letter, supra note 18, at 6. 

614See Bloomberg Letter, supra note 18, at 18–19; 

ISDA–SIFMA Letter, supra note 18, at 14–15. 

615See ICE Letter, supra note 18, at 5; ISDA– 

SIFMA Letter, supra note 18, at 15; Tradeweb 

Letter, supra note 18, at 6. 

616 ISDA–SIFMA Letter, supra note 18, at 15. 

617See Proposing Release, supra note 1, 87 FR at 

28924. 

618For example, although a foreign trading venue 

covered by a Rule 833(a) exemption would be 

exempt from the definition of ‘‘broker,’’ that 

exemption would extend only to the operation of 

a market place for SBS and would not permit the 

foreign trading venue to otherwise act as a 

securities broker using U.S. jurisdictional means. 

619The Commission also emphasizes that a Rule 

833(a) exemption would not have any impact on 

section 6(l) of the SEA, 15 U.S.C. 78f(l), which 

makes it unlawful for any person to effect a 

transaction in an SBS with or for a person that is 

not an ECP, unless such transaction is effected on 

a national securities exchange registered pursuant 

to section 6(b) of the SEA. Because a foreign SBS 

trading venue covered by a Rule 833(a) exemption 

would not be registered as a national securities 

exchange, the foreign SBS trading venue would not 

be permitted to effect SBS transactions with or for 

a covered person that is not an ECP. 

620Section 3D(e) of the SEA gives the 

Commission authority to exempt an SBSEF from 

registration if it is subject to comparable, 

comprehensive supervision and regulation by the 

CFTC. See 15 U.S.C. 78c–4(e). 

621See supra notes 597–599 and accompanying 

text. 

prices in global markets.’’ 604 Similarly, 

another commenter contrasts the 

approach taken under Rule 833 with the 

approach the CFTC has taken to exempt 

certain foreign SEFs from SEF 

registration, and states that Rule 833 

would prevent covered persons from 

trading SBS on such exempt SEFs and 

would impair their ability to manage 

risk effectively.605 If covered persons are 

no longer able to trade SBS on these 

venues, this commenter states, they also 

‘‘may not find it feasible to trade other 

instruments, such as swaps and foreign 

corporate debt, due to the bifurcation of 

liquidity that will result.’’ 606 This 

commenter states that the ability to 

combine trading interest in related 

products on the same trading platform 

is critical to the effective transfer of risk 

within the financial system, and 

preventing ‘‘this single pool of liquidity 

jeopardizes that risk transfer and 

impairs price formation and ultimately 

increases systemic risk.’’ 607

These commenters argue that the 

Commission should instead align with 

the CFTC’s approach to exemptions, 

which does not require exempt foreign 

SEFs to have order books or to satisfy 

the RFQ-to-3 requirement, stating that 

the CFTC’s ‘‘flexible, outcomes-based 

approach serves market participants 

well.’’ 608 One commenter argues for the 

Commission to avoid the ‘‘unintended 

economic disadvantage if other global 

market participants avoid trading with 

the managers’ non-US fund clients 

solely to avoid being subject to the 

Commission’s SBSEF requirements’’ 

and the significant costs and burdens 

that would arise if the two regulatory 

approaches produce different outcomes 

for swaps and SBS.609 These 

commenters state that the CFTC has 

‘‘already granted exemptions to a 

number of foreign trading venues across 

jurisdictions in Europe and Asia,’’ 610

with one commenter stating that the 

‘‘CFTC process, while imperfect, 

provides a more streamlined and 

workable approach for the 

Commission.’’ 611

These commenters argue that the 

Commission should ‘‘ensure that its 

proposed approach to granting 

exemption will produce outcomes 

similar to those of the CFTC’’ so as to 

‘‘further harmonize with the CFTC’s 

SEF framework, and promote 

consistency and simplicity. . . .’’ 612

Several of these commenters 

recommend that the Commission grant 

automatic exemptions for trading 

venues that are currently exempt under 

the CFTC’s rules.613 Some commenters 

stated that this approach would be 

consistent with the Commission’s 

general approach of harmonizing closely 

with the CFTC’s SEF rules where 

appropriate and also stated that, as there 

are no distinctions outside of the United 

States between the regulation of swaps 

and the regulation of SBS, SBS are 

currently traded on foreign venues that 

have been recognized by the CFTC.614

Three commenters requested that the 

Commission recognize such exemptions 

(i.e., CFTC-exempt SEFs as ‘‘exempt’’ 

SBSEFs) at the adoption of Regulation 

SE.615 And one of these three 

commenters also requests that, in the 

alternative, and ‘‘in order to avoid 

duplicative or conflicting regulation 

. . . the Commission grant an 

exemption from the trade execution 

requirement if the SBS transaction at 

issue is subject to mandatory trading in 

another jurisdiction.’’ 616

The Commission has considered the 

comments received for Rule 833 and is 

adopting the rule as proposed. As the 

Commission stated in the Proposing 

Release,617 Rule 833(a) is designed to 

address only activities relating to 

providing a market place for SBS and 

would not extend to trading in any other 

type of security or to other activities 

with respect to SBS.618 A foreign SBS 

trading venue covered by an exemptive 

order under Rule 833(a) might offer 

trading in other types of securities; 

however, the exemptive order would 

permit covered persons to trade only 

SBS on that trading venue without 

causing the trading venue to have to 

register with the Commission as a 

national securities exchange, SBSEF, or 

broker. The exemptive order would not 

address any registration obligations that 

might arise from any other SBS-related 

activity or any activity involving nonSBS securities by the foreign trading 

venue.619

The bulk of the comments received 

opposing Rule 833 appear to emanate 

from commenters’ interpretation—and 

misunderstanding—of what would be 

required in order to receive a Rule 

833(b) exemption. The Commission 

proposed Rule 833(b) to address 

requests for exemptive relief relating to 

the application of the trade execution 

requirement under section 3C(h) of the 

SEA to transactions executed on a 

foreign SBS trading venue. Pursuant to 

section 3C(h) of the SEA, an SBS that is 

subject to the trade execution 

requirement must be executed on an 

exchange, on an SBSEF registered under 

section 3D of the SEA, or on an SBSEF 

that is exempt from registration under 

section 3D(e) of the SEA.620 As a result, 

a covered person (as defined in Rule 

832) would not be permitted to execute 

an SBS that is subject to the trade 

execution requirement on a foreign SBS 

trading venue unless that venue has 

registered with the Commission as a 

national securities exchange or an 

SBSEF, or has received an exemption 

under section 3D(e) of the SEA. 

Several commenters interpret the rule 

and the Commission’s discussion of the 

rule in the Proposing Release to mean 

that a foreign SBS trading venue must 

have RFQ-to-3 and an order book for 

Required Transactions in order for 

transactions on that venue to qualify for 

a Rule 833(b) exemption.621 These 

commenters, however, are incorrect in 

this understanding of the requirements 

for a Rule 833(b) exemption. 

First, Rule 833(b)(2) does not contain 

a list of items that ‘‘are required,’’ but 

rather lists items that the Commission 

‘‘may consider’’ when it receives a 


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622Rule 833(b)(2). 

623Proposing Release, supra note 1, 87 FR at 

28925 (emphasis added). 

624See supra section V.E (discussing methods of 

execution and Rule 815). 

625 In the Proposing Release, the Commission 

stated its preliminary belief that ‘‘the use of singledealer platforms to discharge any mandatory 

trading execution requirement’’ would not meet the 

proposed rule’s requirements. See Proposing 

Release, supra note 1, 87 FR at 28925. 

626See www.cftc.gov/International/ 

ForeignMarketsandProducts/ExemptSEFs (listing 

foreign swap trading facilities that the CFTC has 

exempted from its SEF registration requirements, 

including certain such facilities in the European 

Union, Japan, and Singapore). Market practices 

continued in this regard without change after the 

United Kingdom (‘‘UK’’) withdrew from the 

European Union, based upon a CFTC staff no-action 

letter addressing certain UK swap trading facilities. 

See CFTC Letter No. 22–16 (Dec. 1, 2022), available 

at https://www.cftc.gov/csl/22-16/download. 

627Several commenters describe the negative 

consequences that would occur because, they 

believe, the Commission’s Rule 833(b) exemption 

would require foreign jurisdictions to require RFQto-3 and order book methods of execution, which 

these commenters believe forecloses many foreign 

trading venues from obtaining exemptive relief from 

the Commission for their SBS trading even though 

they have received similar exemptions from their 

CFTC. See supra notes 602–611 and accompanying 

text. Similarly, one commenter requests that, in the 

alternative, the Commission grant an exemption 

from the trade execution requirement if the SBS 

transaction at issue is subject to mandatory trading 

in another jurisdiction. See supra note 616 and 

accompanying text. As the Commission has 

explained, Rule 833(b) exemptions are not limited 

to those jurisdictions that require RFQ-to-3 and 

order books, but rather Rule 833(b)(2)(i) states that 

the Commission may consider the extent to which 

SBS transactions are subject to a trade execution 

requirement comparable to such methods of 

execution. Accordingly, SEFs would not be 

foreclosed from obtaining exemptive relief from the 

Commission for their SBS trading. For this reason, 

the Commission also does not agree with the 

commenter’s suggested alternative to grant an 

exemption from the trade execution requirement if 

the SBS transaction at issue is subject to mandatory 

trading in another jurisdiction, because exemptive 

relief under 833(b) may be applied for in such 

instances, which would give the Commission the 

opportunity to appropriately consider the 

applicable facts and circumstances. 

628See supra notes 600–601 and accompanying 

text. 

629See supra note 600 and accompanying text. 

630See Proposed Rule 833(b)(2)(ii) and Proposing 

Release, supra note 1, 87 FR at 28925. 

631See supra notes 612–615 and accompanying 

text. 

632See supra note 615 and accompanying text. 

See also supra note 626. 

633See infra section VIII. See also infra note 787 

and accompanying text. 

634See supra note 593 and accompanying text. 

request for a Rule 833(b) exemption.622

And second, Rule 833(b)(2)(i) states, in 

relevant part, that the Commission may 

consider ‘‘the extent to which the 

security-based swaps traded in the 

foreign jurisdiction covered by the 

request are subject to a trade execution 

requirement comparable to that in 

section 3C(h) of the Act . . . and the 

Commission’s rules thereunder.’’ 

(Emphasis added.) In the Proposing 

Release, the Commission described this 

requirement by stating that ‘‘a trade 

execution requirement in a foreign 

jurisdiction would not be comparable to 

the trade execution requirement under 

the SEA if the foreign jurisdiction’s 

rules did not require SBS products 

subject to that requirement to be 

executed through means comparable to 

Required Transactions as described in 

Rule 815 (e.g., if the foreign jurisdiction 

allowed the use of single-dealer 

platforms to discharge any mandatory 

trading execution requirement in that 

jurisdiction).’’ 623 That is, the 

Commission’s proposed rule would not 

require foreign SBS trading venues to 

have RFQ-to-3 and an order book in 

order for the Commission to consider 

their SBS executions for an exemption 

under Rule 833(b). 

While, as commenters correctly state, 

for Required Transactions, Rule 815 

requires SBS transactions to be executed 

through a limit order book or an RFQto-3 system,624 neither the text of Rule 

833(b) nor the Commission’s description 

of Rule 833(b) states that a limit order 

book or an RFQ-to-3 system is required 

to receive a Rule 833(b) exemption.625

The phrase ‘‘comparable to’’ does not 

carry the same meaning as phrases such 

as ‘‘identical to’’ or ‘‘substantially 

similar to,’’ and the Commission uses 

this phrase with respect to Rule 833(b) 

exemptions because SBS transactions 

would not be disqualified from 

receiving a Rule 833(b) exemption 

simply because they were not executed 

through a limit order book or an RFQto-3 system. Rather, the Commission 

agrees with commenters that there may 

be foreign SBS trading venues—many of 

which have already received exemptive 

relief from the CFTC for swaps 

trading 626—that may be appropriate 

candidates for exemptive relief, that are 

subject to what may be considered 

robust regulatory regimes for SBS 

trading. With respect to such foreign 

SBS trading venues, the Commission 

encourages market participants to 

submit a request for exemptive relief 

under Rule 833(b) if they seek to be 

exempt from the Commission’s trade 

execution requirement for their SBS 

transactions.627

Certain commenters also object that, 

in their understanding, a Rule 833(b) 

exemption request would require a 

‘‘rule-by-rule’’ comparison or 

analysis,628 which one commenter 

characterized as unduly burdensome.629

In addition to Rule 833(b)(2)(i) 

discussed above, another relevant factor 

(among others) that the Commission 

may consider is whether the trading 

venues in the foreign jurisdiction are 

subject to regulation and supervision 

comparable to that under the SEA, 

including section 3D of the SEA and the 

Commission’s rules thereunder, which 

the Commission described in the 

Proposing Release to include being 

subject to rules designed to foster 

comparable levels of pre- and post-trade 

transparency, access, and liquidity.630

An 833(b) exemptive request 

generally should include an analysis 

that could assist the Commission’s 

determination as to whether the 

regulation and supervision of a foreign 

SBS trading venue in an applicable 

foreign jurisdiction is subject to 

regulation and supervision comparable 

to that under the SEA. Given the central 

roles the jurisdiction’s applicable laws, 

rules and regulations, as well as a 

foreign SBS trading venue’s own rules, 

play in such a determination, an 

exemptive request generally should 

include an analysis of these 

requirements. A precise form of any 

such analysis—whether it is done as a 

‘‘rule-by-rule’’ comparison or through 

some other methodology (e.g., in a more 

holistic manner)—is not specified by 

Rule 833(b), would be at the discretion 

of the entity submitting the exemptive 

request, and should be provided in 

order to help the Commission and its 

staff understand what requirements 

apply to the foreign SBS trading venue. 

With respect to the comments that the 

Commission should automatically 

provide exemptions for foreign trading 

venues that have received a parallel 

exemption from the CFTC for their SEF 

trading,631 and that the Commission 

should do so contemporaneously with 

adopting Regulation SE,632 while doing 

so would promote consistency, 

simplicity, and harmonization with the 

CFTC’s SEF rules, such a blanket 

exemption would not afford the 

Commission the opportunity to 

appropriately consider the relevant facts 

and circumstances in support of a 

finding that an exemption is necessary 

or appropriate in the public interest and 

consistent with the protection of 

investors. However, persons interested 

in submitting a request for exemptive 

relief should be mindful of the 

implementation period that will take 

place before Regulation SE’s 

requirements take effect, as described in 

more detail below.633

With respect to the comment that the 

provisions of Rule 833 are not robust 

enough,634 the Commission disagrees. 

Importantly, in order to issue any 

exemption under Rule 833, the 

Commission would be required to find 

that the exemption is necessary or 


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635See supra note 595 and accompanying text. 

636With respect to the commenter that requested 

additional clarity with respect to Rule 833, see 

supra note 596 and accompanying text, the 

Commission’s discussion of the exemptions, 

including the standard of ‘‘comparable to’’ and the 

type of analysis that should be presented, should 

provide market participants with more clarity on 

how a person could seek exemptive relief. 

637 15 U.S.C. 8343. 

638The Commission recognizes that promulgating 

rules under section 765 alone will not result in a 

highly competitive market for SBS. There could be 

other ways for anticompetitive forces to impede the 

growth of SBS trading on transparent, regulated 

platforms other than by misuse of a large voting 

interest in the trading venue. For example, a large 

SBS dealer or coalition of SBS dealers, even absent 

any voting interest in any SBSEF or SBS exchange, 

could threaten to move their business elsewhere 

unless given an unfair advantage by the trading 

venue. A large SBS dealer or coalition of SBS 

dealers also could conspire to shut out end users 

who sought to trade more actively on these 

transparent, regulated venues rather than 

continuing to trade in the bilateral OTC markets. 

The Commission will be alert to any such 

anticompetitive practices and consider appropriate 

prophylactic measures. At present, adopting rules 

under section 765 is a necessary and appropriate 

first step to guard against conflicts of interest 

arising on SBSEFs and SBS exchanges. See 

Proposing Release, supra note 1, 87 FR at 28930. 

639See Regulation MC Proposal, supra note 21. 

640See Proposing Release, supra note 1, 87 FR at 

28874. 

641See id. at 29001–03. 

642SIFMA AMG Letter, supra note 18, at 12. 

643 Id. 

644See id. 

appropriate in the public interest and 

consistent with the protection of 

investors, and the Commission may 

issue the exemptive relief with 

conditions. A blanket grant of 

exemptive relief would be inconsistent 

with carefully considering whether a 

specific exemptive request meets the 

applicable standard and might lead to a 

greater percentage of SBS transactions 

being executed beyond the scope of any 

U.S. regulatory oversight. 

Finally, the Commission disagrees 

with the commenter that suggested that 

Rule 833(b)’s requirements are 

unnecessary if a foreign trading venue 

has received an exemption under Rule 

833(a).635 The two exemptions under 

Rule 833 provide exemptive relief from 

different requirements of the SEA and 

are also directed at different entities. 

Specifically, a Rule 833(a) exemption 

provides exemptive relief to a foreign 

trading venue that, absent the 

exemption, could be required to register 

with the Commission as an exchange, 

SBSEF, and/or broker if it traded SBS 

(regardless of whether such SBS are 

subject to the trade execution 

requirement). On the other hand, Rule 

833(b)’s exemption provides exemptive 

relief to the counterparties of an SBS 

transaction with respect to the trading 

execution requirement in section 3C(h) 

of the SEA.636

Accordingly, for the reasons 

discussed above, the Commission is 

adopting Rule 833 as proposed. 

VIII. Rule 834—Implementation of 

Section 765 of the Dodd-Frank Act and 

Governance of SBSEFs and SBS 

Exchanges 

Section 765(a) of the Dodd-Frank 

Act 637 provides in relevant part that, to 

mitigate conflicts of interest, the 

Commission ‘‘shall adopt rules which 

may include numerical limits on the 

control of, or the voting rights with 

respect to’’ any clearing agency that 

clears SBS, or on the control of any 

SBSEF or SBS exchange by certain bank 

holding companies, certain nonbank 

financial companies, an affiliate of such 

a bank holding company or nonbank 

financial company, an SBS dealer, major 

SBS participant, or person associated 

with an SBS dealer or major SBS 

participant.638 Section 765(b) states that 

the purpose of the statutory provision is 

‘‘to improve the governance of, or to 

mitigate systemic risk, promote 

competition, or mitigate conflicts of 

interest in connection with’’ an SBS 

dealer or major SBS participant’s 

conduct of business with, a clearing 

agency, SBSEF, or SBS exchange and in 

which such SBS dealer or major SBS 

participant ‘‘has a material debt or 

equity investment.’’ Finally, section 

765(c) provides in relevant part that, in 

adopting rules pursuant to section 765, 

the Commission shall consider any 

conflicts of interest arising from the 

amount of equity owned by a single 

investor, the ability to vote, cause the 

vote of, or withhold votes entitled to be 

cast on any matters by the holders of the 

ownership interest. 

In 2010, the Commission proposed 

Regulation MC to implement section 

765.639 In view of the significant 

amount of time that had elapsed and the 

significant evolution in the swap and 

SBS markets since the proposal of 

Regulation MC, the Commission 

withdrew that proposal,640 and 

proposed Rule 834 to implement section 

765 of the Dodd-Frank Act with respect 

to SBSEFs and SBS exchanges.641

A. Rule 834(a) 

Paragraph (a) of Proposed Rule 834 

would define terms used in Rule 834. 

The Commission received no comments 

on of Proposed Rule 834(a) and is 

adopting Rule 834(a) as proposed for the 

reasons stated in the Proposing Release. 

B. Rule 834(b) 

Paragraph (b) of Proposed Rule 834 

would impose a cap on the size of the 

voting rights that an individual member 

of an SBSEF or SBS exchange may own 

or direct, barring an SBSEF or SBS 

exchange from permitting any of its 

members, either alone or together with 

any officer, principal, or employee of 

the member, to: 

(1) Own, directly or indirectly, 20% 

or more of any class of voting securities 

or of other voting interest in the SBSEF 

or SBS exchange; or 

(2) Directly or indirectly vote, cause 

the voting of, or give any consent or 

proxy with respect to the voting of, any 

interest that exceeds 20% of the voting 

power of any class of securities or of 

other ownership interest in the SBSEF 

or SBS exchange. 

One commenter supports the 

Commission’s goal to adopt rules that 

aim to achieve better governance and 

mitigation of conflicts of interest that 

arise out of the operation of SBSEFs, but 

the commenter opposes Rule 834 

because it believes that the rule would 

disrupt the closely harmonized rules 

with the CFTC, as the CFTC has not 

adopted corresponding provisions for its 

SEF registrants. This commenter 

recommends that the Commission, like 

the CFTC, should focus on board 

governance, conflicts of interest, and 

antitrust considerations rather than 

proscriptive, bright line rules. The 

commenter states that the Commission’s 

concerns regarding conflicts of interest 

‘‘can best be addressed by ensuring 

compliance with the SBSEF Core 

Principles rather than an additional 

regulation,’’ 642 and specifically that the 

proposed 20 percent limitation on the 

voting interest that may be held by 

members of any SBSEF or SBS exchange 

‘‘goes beyond what is necessary to 

effectively mitigate conflicts of 

interest.’’ 643 Rather, this commenter 

states, the ownership limit would limit 

access to necessary capital and act as 

barriers to entry for SBSEFs and SBS 

exchanges. The commenter also states 

that section 765 of Dodd-Frank does not 

require the Commission to restrict the 

ability to hold significant ownership 

interests in SBSEFs and that the 

statutory language instead provides that 

the Commission is authorized to adopt 

rules upon determining, after review, 

that such restrictions are necessary or 

appropriate to improve the governance 

of SBSEFs or to mitigate systemic risk, 

to promote competition, or mitigate 

conflicts of interest.644

Another commenter states that that 

the proposed 20% voting cap 

requirement could potentially thwart 

the Commission’s objective to ensure 

that only incremental changes would be 


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645See ISDA–SIFMA Letter, supra note 18, at 16. 

646See WMBAA Letter, supra note 18, at 2. 

647 Id. 648See id. at 2–3. 

649See supra note 642. 

650See SEA sections 6(b)(2) and 6(c), 15 U.S.C. 

78f(b)(2) and 78f(c). Alternative Trading Systems, 

by contrast, are subject to ‘‘fair access’’ 

requirements only if they meet certain volume 

trading thresholds. See Rule 301(b)(5)(i), 17 CFR 

242.301(b)(5)(i). 

necessary to adopt the SBSEF 

framework. The proposed cap, this 

commenter states, may require SEFs to 

set up an entirely new legal entity with 

a different governance structure, making 

it more challenging to obtain dual 

registration. The commenter also states 

that the conflicts of interest rules 

implemented by the CFTC, which do 

not include a 20% voting cap, 

sufficiently address any conflicts of 

interest concerns, as SEFs have operated 

under those rules for almost 10 years, 

and there have been no observable 

issues that would warrant such a 

regulatory shift.645

One commenter states that it strongly 

opposes Rule 834 and that, as written, 

Rule 834 would have the effect of 

prohibiting certain SBSEF participants 

from having common ownership and 

control as the SBSEF. An SBSEF, the 

commenter states, would likely not be 

able to onboard an affiliated introducing 

broker, even if the introducing broker 

would be subject to the same rules and 

practices as an unaffiliated participant. 

The commenter states that some CFTCregistered SEFs, including the 

commenter’s member firms, have 

affiliated introducing-broker 

participants that execute their 

respective swaps business on their 

affiliated SEFs, and the affiliated 

transactions make up a majority of the 

SEF’s business. The commenter states 

that these firms may choose not to 

register as an SBSEF and take on the 

costs and burdens of being an SBSEF if 

they cannot accommodate their 

affiliate’s trade execution needs, which 

would thwart the goal of developing a 

competitive landscape of regulated SBS 

market places.646

This commenter further states that it 

and many others previously opposed 

these hard caps when they were 

proposed in 2010, and that—with a 

decade of experience operating SEFs 

and venues for other financial products, 

including Commission regulated 

alternative trading systems—the 

commenter still believes the rule’s 

approach is ‘‘too heavy-handed’’ a way 

to solve a problem that has been more 

than adequately addressed through less 

burdensome measures.647 The 

commenter states that the CFTC never 

adopted its proposed ownership/ 

governance prohibition for SEFs, that 

the CFTC’s existing conflicts of interest 

rules have proven satisfactory, and that, 

rather than mandating ownership limits, 

the Commission should instead permit 

SBSEFs to exercise reasonable 

discretion as to its mechanisms for 

mitigating conflicts of interest and 

should rely instead on the conflict of 

interest and antitrust provisions already 

embedded in the SBSEF regulatory 

regime.648

The Commission has considered the 

comments and, as discussed below, is 

modifying Proposed Rule 834 to provide 

an exemption from the ownership and 

voting caps for an SBSEF that has 

mitigated the potential conflict of 

interest with respect to compliance with 

the rules of the SBSEF by entering into 

an agreement with a registered futures 

association or a national securities 

association for the provision of 

regulatory services that encompass, at a 

minimum, real-time market monitoring, 

investigations, and investigation reports. 

The 20% cap in Proposed Rule 834(b) 

is designed to balance competing policy 

interests. On one hand, execution 

venues need capital, expertise, and 

liquidity to establish and grow. 

Historically, market participants who 

become members of an execution venue 

are a source of all three components, 

and any person contributing capital to a 

new venture might reasonably expect to 

have a voting interest commensurate 

with the amount of capital contributed. 

Too low a cap, even if imposed in the 

name of eliminating conflicts of interest, 

could have the unintended effect of 

impeding the development of execution 

venues for SBS altogether, if market 

participants who become members have 

no (or substantially limited) ability to 

vote their equity interest. 

On the other hand, allowing a 

member of an SBSEF or SBS exchange 

too large a voting interest could 

undermine the public policy benefits of 

having transparent, fair, and regulated 

markets for the trading of SBS. A 

member of an SBSEF or SBS exchange 

with a sufficiently large voting interest 

could exercise undue influence over the 

rules and policies applicable to 

members, the venue’s access criteria, 

decisions regarding access, and 

disciplinary matters, among other 

things. In particular, members who are 

SBS dealers and conduct a significant 

amount of business in the bilateral OTC 

market have incentives to restrict the 

scope of SBS that an SBSEF or SBS 

exchange makes eligible for trading. 

Trading in a market with robust order 

competition and pre-trade transparency 

reduces search costs for end users and 

liquidity seekers and reduces the 

information and bargaining asymmetry 

of end users and liquidity seekers 

relative to SBS dealers. An SBS dealer 

with a large voting interest in an SBSEF 

or SBS exchange, if it perceived that 

trading on the regulated venue was 

diminishing the rents obtained from its 

bilateral OTC business, might seek to 

utilize its voting influence in a number 

of ways to degrade the capability of the 

regulated venue, thus making the OTC 

market by comparison a more attractive 

option. 

Capping a member’s voting interest at 

20% strikes a reasonable balance 

between these competing interests, 

absent additional measures to ensure 

that a member or members with large 

voting power could tilt the playing field 

in their favor. And the Commission does 

not agree with the comment that a more 

general focus on board governance, 

conflicts of interest, and antitrust 

considerations, or on simply ensuring 

compliance with the SBSEF Core 

Principles,649 is sufficient to address 

this concern because, based on its long 

experience in regulating the markets on 

which the instruments underlying SBS 

trade, the ownership and voting 

structure of a regulated entity can give 

rise to conflicts of interest between the 

organization’s business interests and its 

regulatory obligations. Further, even if 

the CFTC has not to date adopted its 

own ownership and governance 

prohibitions for SEFs, the appropriate 

comparison with respect to ownership 

and governance for SBSEFs is national 

securities exchanges, because both types 

of entities operate markets to which fair 

or impartial access requirements 

comprehensively apply.650 Therefore, 

SBSEFs should be subject to ownership 

restrictions that are similar to those in 

the rules of national securities 

exchanges, as approved by the 

Commission, which limit ownership by 

any one member and do not permit an 

exchange to merely ‘‘exercise reasonable 

discretion’’ with respect to its 

mechanisms for mitigating conflicts of 

interest. 

The Commission, however, 

appreciates the concerns expressed by 

commenters that a cap of 20% on voting 

interest in all cases could prevent 

would-be SBSEFs from onboarding their 

affiliated introducing brokers, and that 

the burdens imposed in setting up an 

SBSEF that is legally remote from 

affiliated introducing brokers may 

dissuade current SEFs from registering 

as SBSEFs, which would lead to their 

ceasing to offer SBS trading on their 


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651See supra notes 645–648. 

652See infra section VI.B.3. 

653See Proposing Release, supra note 1, 87 FR at 

28927 and n.257. 

platforms.651 Therefore, the Commission 

is modifying Rule 834 as proposed to 

add new paragraph (b)(3) to provide an 

exemption from the 20% cap for an 

SBSEF that has entered into an 

agreement with a registered futures 

association or a national securities 

association for the provision of 

regulatory services that encompass, at a 

minimum, real-time market monitoring 

and investigations and investigation 

reports. 

This exemption, which is conditioned 

upon an SBSEF conducting its market 

monitoring and investigative activities 

through a self-regulatory body that has 

broader membership than an individual 

SBSEF and that does not operate its own 

SBSEF, would mitigate concerns that 

members with large ownership shares 

might be given preferential treatment 

with respect to their compliance with 

the SBSEF’s rules. And the exemption 

should also, by permitting SBSEFs to 

exceed the 20% ownership and voting 

cap, serve to facilitate the formation and 

registration of SBSEFs, thereby also 

facilitating the movement of SBS trading 

to venues that are more transparent and 

that have affirmative regulatory 

obligations. 

The Commission acknowledges that 

this exemption, because it focuses on 

surveillance and compliance functions, 

does not directly address concerns 

about an SBSEF adopting rules that 

hamper impartial access to an SBSEF, 

restrict the scope of SBS that might 

trade on a given SBSEF, or degrade the 

capability of a given SBSEF in ways that 

would favor a member’s OTC SBS 

business. These concerns, however, can 

be addressed in other ways. With 

respect to impartial access, the 

requirements of Proposed Rule 819(c), 

together with the guidance the 

Commission has provided regarding the 

application of that rule,652 set clear 

limits on the ability of an SBSEF to 

favor the interest of any members, 

including its large members, by unfairly 

excluding other market participants. 

And competition among SBSEFs will 

discourage any individual SBSEF from 

declining to list particular SBS or from 

degrading the capability of the SBSEF to 

favor a member, as trading in the 

affected SBS may migrate not to the 

OTC market, but to a direct competitor. 

Because the Commission has 

modified Proposed Rule 834 to provide 

for an exemption from the 20% 

ownership and voting cap, it is not the 

case that, as one commenter states, 

existing SEFs would necessarily be 

required to set up a new legal entity to 

operate an SBSEF, making it more 

challenging to obtain dual registration 

and potentially thwarting the 

Commission’s objective to ensure that 

only incremental changes would be 

necessary to adopt the SBSEF 

framework. And although the 

Commission’s proposed ownership rule 

departs from the CFTC’s rules for SEFs, 

which do not include caps on 

ownership or voting, the Commission is 

also mindful of the trading relationship 

between SBS and their underlying 

securities—which trade on exchanges 

that have a similar 20% ownership and 

voting cap as a result of their 

Commission-approved rules—and the 

Commission wishes to avoid creating a 

regulatory incentive for activity to 

migrate from trading securities on 

national securities exchanges to trading 

SBS on SBSEF. For similar reasons, it 

would not be appropriate to extend the 

exemption in new paragraph (b)(3) of 

Proposed Rule 834 to SBS exchanges. 

Providing an exemption from the 20% 

ownership and voting cap requirements 

for SBS exchanges in Proposed Rule 

834(b)(1) would result in different 

treatment from other national securities 

exchanges simply because one set of 

exchanges trades SBS, and this is not a 

sufficient reason to permit different 

ownership structures only for those 

exchanges, as this could lead to 

regulatory arbitrage by creating 

incentives for new exchanges to register 

first as SBS exchanges, without the 

ownership and voting caps, and then 

seek to amend their rulebooks to 

commence trading in cash equities. As 

it stated in the Proposing Release, the 

Commission proposed to apply the 20% 

ownership and voting on SBS exchanges 

based on its ‘‘long experience with 

handling questions of member influence 

over national securities exchanges 

raised in applications to register with 

the Commission on Form 1 and in 

governance rule filings made on SEA 

Form 19b–4,’’ 653 and SBSEF rules 

seeking to manage conflicts of interest 

would not by themselves be sufficient to 

mitigate conflict-of-interest concerns 

when those concerns arise from one or 

a few SBS dealers or a major SBS 

participants having majority voting 

rights in an SBSEF or SBS exchange in 

which they are a member. 

Finally, the Commission reiterates 

that Proposed Rule 834(b) would cover 

both direct and indirect voting interests. 

The purpose of including indirect 

voting interest is to prevent potential 

circumvention of the 20% cap if, for 

example, a member placed its voting 

interest in an SBSEF or SBS exchange 

of 20% or more in a shell company or 

other affiliate and directed how the 

shell company or affiliate casts those 

votes. Accordingly, Proposed Rule 

834(b) would look through the nonmember entities holding interests in 

SBSEFs and SBS exchanges to consider 

whether any member could indirectly 

control 20% or more of the voting 

interest through the non-member entity 

having the direct interest. Furthermore, 

Proposed Rule 834(b) would look 

through the corporate structure of the 

SBSEF or SBS exchange to consider 

whether any member could indirectly 

have 20% or more of the voting interest 

in the underlying trading venue. For 

example, an SBSEF or SBS exchange 

could be wholly owned by a holding 

company. In such a case, the voting 

restriction in Proposed Rule 834(b) 

would apply to the voting interest in the 

parent holding company held by a 

member of the child SBSEF or SBS 

exchange, since a direct voting interest 

of 20% or more in the parent would 

equate to an indirect voting interest of 

20% or more in the child trading venue. 

And, similar to its approach to 

indirect voting interest, Proposed Rule 

834(b) would aggregate the voting 

interest of the member itself with the 

voting interest held by any officer, 

principal, or employee of the member 

for purposes of determining compliance 

with the 20% cap. Without this 

provision, the member—or an officer, 

principal, or employee of the member— 

could split the voting interest held in 

the SBSEF or SBS exchange across 

multiple persons who would likely be 

voting that interest in concert, thereby 

potentially acting as a conflict of 

interest. The Commission did not 

receive comments on the aggregation-ofinterest aspect of Proposed Rule 834(b). 

For these reasons, the Commission is 

adopting Rule 834(b) with the 

modifications discussed above. 

C. Rule 834(c) 

Paragraph (c) of Proposed Rule 834 

would include requirements designed to 

reinforce the 20% cap in paragraph (b). 

Paragraph (c) would require the rules of 

each SBSEF and SBS exchange to be 

reasonably designed, and have an 

effective mechanism, to: 

(1) Deny effect to the portion of any 

voting interest held by a member in 

excess of the 20% limitation; 

(2) Compel a member who possesses 

a voting interest in excess of the 20% 

limitation to divest enough of that 

voting interest to come within that limit; 

and 

(3) Obtain information relating to its 

ownership and voting interests owned 


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87224 Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Rules and Regulations 

654The Commission has corrected an internal 

cross-reference within Proposed Rule 834. 

655Proposed Rule 834(a)(2) would define ‘‘major 

disciplinary committee’’ as a committee of persons 

who are authorized by an SBSEF to conduct 

disciplinary hearings, to settle disciplinary charges, 

to impose disciplinary sanctions, or to hear appeals 

thereof in cases involving any violation of the rules 

of the SBSEF except those which are related to 

decorum or attire, financial requirements, or 

reporting or recordkeeping and do not involve 

fraud, deceit, or conversion. 

656Proposed Rule 834(e)(1)(ii), read together with 

Proposed Rule 834(b), would allow four members 

of an SBSEF or SBS exchange to control up to 80% 

of the voting interest (assuming that each of the four 

holds 20%). Under Proposed Rule 834(e)(1)(ii), at 

least 20% of the voting interest would have to be 

held by non-members. 

657Paragraph (g)(1)(i)(A) of Proposed Rule 834, 

however, would incorporate only four of the five 

prongs in § 1.69(b)(1)(i). The Commission did not 

propose to include a prong about being associated 

with a named party of interest through a ‘‘broker 

association,’’ as defined in § 156.1 of the CFTC’s 

rules, as that concept does not exist under the SEA. 658Thus, the relevant language in Rule 

834(g)(1)(ii)(C) would read, ‘‘Such determination 

must include a review of any positions, whether 

maintained at that security-based swap execution 

facility, SBS exchange, or elsewhere, held in the 

member’s personal accounts or the proprietary 

accounts of the member’s affiliated firm that the 

security-based swap execution facility or SBS 

exchange reasonably expects could be affected by 

the significant action.’’ Proposed Rule 834(a)(3) 

would define a ‘‘member’s affiliated firm’’ as a firm 

in which the member is a principal or an employee, 

and Proposed Rule 834(a)(5) would define 

‘‘significant action’’ to include several types of 

actions or rule changes by an SBSEF or SBS 

exchange that could be implemented without the 

Commission’s prior approval related to addressing 

an emergency and certain changes in margin levels. 

or controlled, directly or indirectly, by 

its members. 

The Commission received no 

comments on Proposed Rule 834(c) and 

is adopting Rule 834(c) as proposed, 

with minor technical modifications,654

for the reasons stated in the Proposing 

Release. 

D. Rule 834(d) 

Paragraph (d) of Proposed Rule 834 is 

designed to mitigate conflicts of interest 

in the disciplinary process of an SBSEF 

or SBS exchange and would provide as 

follows: ‘‘Each security-based swap 

execution facility and SBS exchange 

shall ensure that its disciplinary 

processes preclude any member, or 

group or class of its members, from 

dominating or exercising 

disproportionate influence on the 

disciplinary process. Each major 

disciplinary committee or hearing panel 

thereof shall include sufficient different 

groups or classes of its members so as 

to ensure fairness and to prevent special 

treatment or preference for any person 

or member in the conduct of the 

responsibilities of the committee or 

panel.’’ Paragraph (d) of Proposed Rule 

834 would recognize that one way that 

a conflict of interest could manifest 

itself is in the disciplinary process. 

Therefore, the Commission proposed, as 

the first sentence of Proposed Rule 

834(d), that each SBSEF and SBS 

exchange should ‘‘preclude any 

member, or group or class of its 

members, from dominating or exercising 

disproportionate influence on the 

disciplinary process.’’ 

The second sentence of Proposed Rule 

834(d) is adapted from § 1.64 of the 

CFTC’s rules, which addresses the 

composition of various SRO governing 

boards and major disciplinary 

committees.655 Proposed Rule 834(d) 

would reflect the Commission’s belief 

that an SBSEF or SBS exchange should 

be mindful of its different membership 

interests, and how they are represented 

on disciplinary committees and hearing 

panels in particular matters, to avoid 

potential conflicts of interest. 

The Commission received no 

comments on Proposed Rule 834(d) and 

is adopting Rule 834(d) as proposed for 

the reasons stated in the Proposing 

Release. 

E. Rule 834(e) 

Paragraph (e) of Proposed Rule 834 is 

closely modeled on § 1.64(b). Paragraph 

(e)(1)(i) would require each SBSEF and 

SBS exchange to ensure that 20% or 

more of the persons who are eligible to 

vote routinely on matters being 

considered by the governing board 

(excluding those members who are 

eligible to vote only in the case of a tie 

vote by the governing board) are persons 

who are knowledgeable of SBS trading 

or financial regulation, or otherwise 

capable of contributing to governing 

board deliberations. Paragraphs (e)(1)(ii) 

through (v) of Proposed Rule 834 are 

based on four of the prongs in 

§ 1.64(b)(1)(ii) and would provide that 

20% or more of the persons who are 

eligible to vote routinely on matters 

being considered by the governing board 

(excluding those members who are 

eligible to vote only in the case of a tie 

vote by the governing board) must not 

be: members of the SBSEF or SBS 

exchange; 656 salaried employees of the 

SBSEF or SBS exchange; primarily 

performing services for the SBSEF or 

SBS exchange in a capacity other than 

as a member of the governing board; or 

officers, principals, or employees of a 

firm which holds a membership at the 

SBSEF or SBS exchange, either in its 

own name or through an employee on 

behalf of the firm. 

Paragraph (e)(2) of Proposed Rule 834, 

modeled on § 1.64(b)(3), would require 

each SBSEF and SBS exchange to 

ensure that membership of its governing 

board includes a diversity of groups or 

classes of its members. 

The Commission did not receive 

comments on Proposed Rule 834(e) and 

is adopting Rule 834(e) as proposed, for 

the reasons stated in the Proposing 

Release. 

F. Rule 834(f) 

Paragraph (f) of Proposed Rule 834 is 

based closely on § 1.64(d) and would 

require each SBSEF and SBS exchange 

to submit to the Commission, within 30 

days after each governing board 

election, a list of the governing board’s 

members, the groups or classes of 

members that they represent, and how 

the composition of the governing board 

otherwise meets the requirements of 

Rule 834. 

The Commission received no 

comments on Proposed Rule 834(f) and 

is adopting Rule 834(f) as proposed for 

the reasons stated in the Proposing 

Release. 

G. Rule 834(g) 

Paragraph (g) of Proposed Rule 834 is 

modeled on § 1.69, which requires an 

SRO to further address the avoidance of 

conflicts of interest in the execution of 

its self-regulatory functions. Proposed 

Rule 834(g) closely follows the 

paragraph structure and language of 

§ 1.69, with a few minor exceptions 

(beyond modifying the rule’s 

application to SBSEFs and SBS 

exchanges, rather than, in the CFTC 

original, all SROs). First, paragraph 

(g)(1)(i)(A) of Proposed Rule 834 is 

based closely on § 1.69(b)(1)(i) and 

would set out the types of relationships 

with the named party of interest that 

would create a conflict of interest for a 

member of the governing board, 

disciplinary committee, or oversight 

panel.657 Second, Proposed Rule 

834(g)(1)(ii)(C) is a simplified version of 

§ 1.69(b)(2)(iii). Rather than 

incorporating the first four prongs of 

§ 1.69(b)(2)(iii), which cross-reference 

definitions elsewhere in the CFTC’s 

rules, Rule 834(g)(1)(ii)(C) would 

instead incorporate only the final, catchall prong, which would cover any 

positions held by any member of an 

SBSEF’s governing board, disciplinary 

committees, or oversight committees 

that would have been covered under the 

other four prongs.658 Third, Proposed 

Rule 834(g)(1)(ii)(C) would omit a 

requirement in § 1.69(b)(2)(iv) that an 

SRO, when making a determination of 

whether a conflict of interest exists, 

must take into consideration ‘‘[t]he most 

recent large trader reports and clearing 

records available to the self-regulatory 

organization.’’ These types of reports 


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659 17 CFR 240.19b–4. 

660 15 U.S.C. 78c–4(d)(2). 

661As discussed above, see supra section VI.B.7, 

Proposed Rule 819(g)(13)(ii) would permit an 

SBSEF to adopt a summary fine schedule for 

violations of rules relating to the failure to timely 

submit accurate records required for clearing or 

verifying each day’s transactions, which may be 

summarily imposed against persons within the 

SBSEF’s jurisdiction for violating such rules. 

Furthermore, an SBSEF’s summary fine schedule 

could allow for warning letters to be issued for firsttime violations or violators. If adopted, a summary 

fine schedule would be required by Proposed Rule 

819(g)(13)(ii) to provide for progressively larger 

fines for recurring violations. A summary fine 

schedule, if an SBSEF elects to adopt one, would 

have to be part of the SBSEF’s rules, and thus 

would need to be submitted to the Commission. See 

Proposed Rule 819(g)(13)(ii). 

may not be as prevalent in the securities 

and SBS markets as the swaps market. 

The final, catch-all prong in 

§ 1.69(b)(2)(iv)—‘‘Any other source of 

information that is held by and 

reasonably available to the selfregulatory organization’’—would 

suffice, and proposed it as Rule 

834(g)(1)(ii)(C)(2). 

The Commission did not receive 

comments on paragraph (g) of Proposed 

Rule 834 and is adopting Rule 834(g) as 

proposed, for the reasons stated in the 

Proposing Release. 

H. Rule 834(h) 

Proposed Rule 834(h) would require 

each SBSEF and SBS exchange to 

maintain in effect various rules that 

would be required under Rule 834. An 

SBSEF would be required to file these 

rules under Rule 806 or Rule 807 of 

Regulation SE; an SBS exchange would 

be required to file such rules under 

existing SEA Rule 19b–4.659 Proposed 

Rule 834(h) is loosely modeled on 

various provisions in §§ 1.64 and 1.69 

providing that the SRO rules required 

under those CFTC rules must be filed 

with the CFTC pursuant to relevant 

provisions of the CEA and the CFTC’s 

rules thereunder. 

The Commission received no 

comments on Proposed Rule 834(h) and 

is adopting Rule 834(h) as proposed for 

the reasons stated in the Proposing 

Release. 

IX. Rule 835—Notice to Commission by 

SBSEF of Final Disciplinary Action, 

Denial or Conditioning of Membership, 

or Denial or Limitation of Access 

The Commission proposed Rule 835 

to require an SBSEF to provide the 

Commission notice of a final 

disciplinary action, a final action with 

respect to a denial or conditioning of 

membership, or a final action with 

respect to a denial or limitation of 

access. Such notice is designed to 

ensure that the Commission is kept 

aware of significant disciplinary actions, 

denials or conditionings of membership, 

or denials or limitations on access by 

SBSEFs that could be the subject of an 

aggrieved person’s request for review by 

the Commission. The requirement to 

provide notice to the Commission 

would also obligate an SBSEF to be 

cognizant of, and make records for, each 

such instance, and such records would 

become a necessary part of the record 

should the aggrieved person seek 

Commission review of the SBSEF’s 

action. 

Specifically, paragraph (a) of 

Proposed Rule 835 would provide that, 

if an SBSEF issues a final disciplinary 

action against a member, or takes a final 

action with respect to a denial or 

conditioning of membership, or a final 

action with respect to a denial or 

limitation of access of a person to any 

services offered by the SBSEF, the 

SBSEF shall file a notice of such action 

with the Commission within 30 days 

and serve a copy on the affected person. 

Proposed Rule 835(a) would use the 

phrase ‘‘final disciplinary action against 

a member’’ (emphasis added) because 

an SBSEF may utilize its disciplinary 

authority under Core Principle 2 

(Compliance with Rules) in section 3D 

of the SEA 660 only with respect to its 

members; but uses the phrase ‘‘denies or 

limits access of a person’’ (emphasis 

added) because the person whose access 

is denied or limited might not be a 

member. For example, a person that is 

denied membership by an SBSEF would 

fall under this category. 

Paragraph (b)(1) of Proposed Rule 835 

would provide that, for purposes of 

paragraph (a), a disciplinary action 

would not be considered final unless: 

(1) the affected person has sought an 

adjudication or hearing with respect to 

the matter, or otherwise exhausted their 

administrative remedies at the SBSEF; 

and (2) the disciplinary action is not a 

summary action permitted under Rule 

819(g)(13)(ii).661 In addition, paragraph 

(b)(2) of Proposed Rule 835 would 

provide that, for purposes of paragraph 

(a), a disposition of a matter with 

respect to a denial or conditioning of 

membership, or a denial or limitation of 

access, would not be considered final 

unless such person has sought an 

adjudication or hearing, or otherwise 

exhausted their administrative remedies 

at the SBSEF with respect to such 

matter. 

Paragraph (c) of Proposed Rule 835 

would provide that the notice required 

under Rule 835(a) must include the 

name of the member or the associated 

person and last known address, as 

reflected in the SBSEF’s records, of the 

member or associated person, as well as 

the name of the person, committee, or 

other organizational unit of the SBSEF 

that initiated the disciplinary action or 

access restriction. In the case of a final 

disciplinary action, the notice would be 

required to include a description of the 

acts or practices, or omissions to act, 

upon which the sanction is based, 

including, as appropriate, the specific 

rules that the SBSEF has found to have 

been violated; a statement describing 

the respondent’s answer to the charges; 

and a statement of the sanction imposed 

and the reasons for such sanction. In the 

case of a denial or conditioning of 

membership or a denial or limitation of 

access, the notice would be required to 

include: the financial or operating 

difficulty of the prospective member or 

member (as the case may be) upon 

which the SBSEF determined that the 

prospective member or member could 

not be permitted to do, or continue to 

do, business with safety to investors, 

creditors, other members, or the SBSEF; 

the pertinent failure to meet 

qualification requirements or other 

prerequisites for membership or access 

and the basis upon which the SBSEF 

determined that the person concerned 

could not be permitted to have 

membership or access with safety to 

investors, creditors, other members, or 

the SBSEF; or the default of any 

delivery of funds or securities to a 

clearing agency by the member. Finally, 

the notice would be required to include 

the effective date of such final 

disciplinary action, denials or 

conditioning of membership, or denial 

or limitation of access, as well as any 

other information that the SBSEF may 

deem relevant. 

The Commission received no 

comments on Proposed Rule 835. 

Because the language of paragraphs 

(b)(1)(i) and (b)(2) should more clearly 

state that certain actions by an SBSEF 

shall not be ‘‘final’’ unless the affected 

person has exhausted their 

administrative remedies at the SBSEF, 

the Commission is modifying the phrase 

‘‘person has sought an adjudication or 

hearing, or otherwise exhausted their 

administrative remedies’’ in both 

paragraphs (b)(1)(i) and (b)(2) so that it 

now reads simply, ‘‘person has 

exhausted their administrative 

remedies,’’ and is adopting Rule 835 as 

modified. 

X. Amendments to Existing Rule 3a1–1 

Under the Sea—Exemptions From the 

Definition of ‘‘Exchange’’ 

An entity that meets the definition of 

‘‘security-based swap execution facility’’ 

would also likely meet the definition of 

‘‘exchange’’ set forth in section 3(a)(1) of 


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662 15 U.S.C. 78c(a)(1). 

663 17 CFR 240.3b–16. See also supra section III.A 

(discussing Rule 803 and the requirements and 

procedures for registration, including the overlap 

between the definitions of ‘‘exchange’’ and 

‘‘security-based swap execution facility’’). See also 

infra note 678 and accompanying text (discussing 

the Commission’s proposed amendments to Rule 

3b–16). 

664See § 3D(a)(1) of the SEA, 15 U.S.C. 78c– 

4(a)(1) (‘‘No person may operate a facility for the 

trading or processing of security-based swaps, 

unless the facility is registered as a security-based 

swap execution facility or as a national securities 

exchange under this section’’). 

665 2011 SBSEF Proposal, supra note 6, 76 FR at 

10958. 

666 15 U.S.C. 78mm(a)(1). 

667 17 CFR 240.3a1–1. 

668An SBSEF that fails to comply with the 

condition to the exemption provided under 

paragraph (a)(4) of Rule 3a1–1 would no longer 

qualify for the exemption and might thus be 

operating as an unregistered exchange under the 

section 5 of the SEA. 15 U.S.C. 78e. Section 5 also 

generally provides that a broker or dealer may not 

use any facility of an exchange to effect or report 

any transaction in a security unless that exchange 

is registered as a national securities exchange or is 

exempt from registration by reason of the limited 

volume of transactions effected on the exchange. 

Brokers and dealers who are members of a 

registered SBSEF would not be in violation of 

section 5 by effecting or reporting any SBS 

transactions on that SBSEF, because an SBSEF that 

qualifies for the exemption under Rule 3a1–1(a)(4) 

would not be an exchange within the meaning of 

section 5. 

669As discussed above, see supra note 37 and 

accompanying text, such a trading session is also 

referred to as a ‘‘forced-trading session.’’ 

670See supra note 37; Proposing Release, supra 

note 1, 87 FR at 28878. 

671See id. 

672See Proposing Release, supra note 1, 87 FR at 

28878. This exemption would cover only the 

forced-trading session of an SBS clearing agency; 

any other exchange activity that a clearing agency 

might engage in could remain subject to the SEA 

provisions and the Commission’s rules thereunder 

applying to national securities exchanges or 

alternative trading systems. 

673Specifically, the Commission proposed to 

amend the introductory language of existing 

paragraph (b) of Rule 3a1–1, which states: 

‘‘Notwithstanding paragraph (a) of this rule, an 

organization, association, or group of persons shall 

not be exempt under this rule from the definition 

of ‘exchange’ if . . . .’’ Paragraph (b) then sets out 

procedural and substantive criteria for the 

Commission to revoke an exemption under 

paragraph (a) of Rule 3a1–1 if an exchange’s share 

of the market in any one of the specified classes of 

securities exceeds a defined threshold. 

674See Keeney Letter, supra note 95; ISDA– 

SIFMA Letter, supra note 18, at 17. 

675See Keeney Letter, supra note 95 (stating that 

the exemption would permit clearing agencies to 

‘‘do the bidding of exchanges’’ while being exempt 

from reporting requirements). 

676See Proposing Release, supra note 1, 87 FR at 

28932 (‘‘This exemption would cover only the 

forced-trading session of an SBS clearing agency; 

any other exchange activity that a clearing agency 

might engage in could remain subject to the SEA 

provisions and the Commission’s rules thereunder 

applying to exchanges.’’). 

the SEA 662 and the interpretation of 

that definition set forth in Rule 3b–16 

thereunder.663 Thus, absent an 

exemption, an entity needing to register 

with the Commission as an SBSEF 

would also likely need to register with 

the Commission as a national securities 

exchange.664 The Commission has 

previously stated that it ‘‘believes that 

Congress specifically provided a 

comprehensive regulatory framework 

for SBSEFs in the [SEA], as amended by 

the Dodd Frank Act, and therefore that 

such entities that are registered as 

SBSEFs should not also be required to 

register and be regulated as national 

securities exchanges.’’ 665

Therefore, the Commission proposed 

to exercise its authority under section 

36(a)(1) of the SEA 666 to exempt an 

SBSEF from the definition of 

‘‘exchange’’—and thus the obligation to 

register as a national securities 

exchange—if it provides a market place 

solely for the trading of SBS (and no 

securities other than SBS) and has 

registered with the Commission as an 

SBSEF. To effect this exemption, the 

Commission proposed to amend Rule 

3a1–1 under the SEA 667 by adding new 

paragraph (a)(4). 

The proposed amendment would add 

new paragraph (a)(4) to existing Rule 

3a1–1 to provide that an organization, 

association, or group of persons that has 

registered with the Commission as an 

SBSEF pursuant to Rule 803 and 

provides a market place for no securities 

other than SBS is exempt from the 

definition of ‘‘exchange’’ under section 

3(a)(1) of the SEA, and thus would not 

be subject to the requirement in section 

5 of the SEA to register as a national 

securities exchange or obtain a lowvolume exemption.668

In addition, the Commission proposed 

new paragraph (a)(5) to existing Rule 

3a1–1 under the SEA, which would 

provide that an organization, 

association, or group of persons shall be 

exempt from the definition of the term 

‘‘exchange’’ if that organization, 

association, or group of persons has 

registered with the Commission as a 

clearing agency pursuant to section 17A 

of the SEA and limits its exchange 

functions to operation of a trading 

session that is designed to further the 

accuracy of end-of-day valuations.669 As 

noted above, this provision would 

codify a series of exemptions that the 

Commission has granted over several 

years to SBS clearing agencies that 

operate ‘‘forced trading’’ sessions.670 As 

part of the clearing and risk 

management processes, an SBS clearing 

agency must establish an end-of-day 

valuation for any SBS in which any of 

its members has a cleared position. 

Certain SBS clearing agencies utilize a 

valuation mechanism whereby they 

require clearing members to submit 

indicative settlement prices for SBS 

products, and, to provide an incentive 

for accurate submissions, the clearing 

agency can require those members to 

trade at those quoted prices. The precise 

means by which the clearing agency 

matches quotes from different clearing 

members could cause the clearing 

agency to fall within the definition of 

‘‘exchange’’ in section 3(a)(1) of the 

SEA. The Commission has previously 

found that it was necessary or 

appropriate in the public interest and 

consistent with the protection of 

investors to exempt clearing agencies 

that engage in this activity from the 

definition of ‘‘exchange,’’ 671 and the 

Commission proposed to codify this 

exemption.672

Finally, the Commission proposed to 

amend the introductory language of 

paragraph (b) of Rule 3a1–1 to cover 

only paragraphs (a)(1) through (a)(3), not 

paragraph (a) as a whole.673 The 

changed language is designed to clarify 

that the revocation provisions would 

not apply to organizations, associations, 

or groups of persons who fall within 

amended Rule 3a1–1(a)(4) or (a)(5). 

Thus, even if a registered SBSEF were 

to become a substantial market, Rule 

3a1–1(b), as proposed to be amended, 

would not afford a basis for the 

Commission to revoke an SBSEF’s 

exemption from the definition of 

‘‘exchange’’ under Rule 3a1–1(a)(4), 

which would force the SBSEF to register 

as a national securities exchange (to 

avoid being an unregistered exchange). 

The Commission received two 

comment letters regarding the proposed 

amendments to Rule 3a1–1.674 One 

commenter does not support an 

exemption for clearing agencies from 

the definition of exchange, stating that 

the exemption would create a 

loophole.675 However, the limited scope 

of the exemption—which applies solely 

to trades that a clearing agency requires 

its members to undertake in support of 

the accuracy of the clearing agency’s 

end-of-day valuation process—is 

sufficiently narrow to prevent use of the 

exemption as a loophole allowing 

clearing agencies to act as, or on behalf 

of exchanges, without sufficient public 

reporting. The language of new 

paragraph (a)(5) of Rule 3a1–1, however, 

should more precisely reflect that the 

Commission is codifying exemptive 

relief that was provided with respect to 

trading sessions to support end-of-day 

valuations of SBS,676 and the 

Commission is therefore modifying 

paragraph (a)(5) to add the words ‘‘of 


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677See ISDA–SIFMA Letter, supra note 18, at 17. 

678See Amendments Regarding the Definition of 

‘‘Exchange’’ and Alternative Trading Systems 

(ATSs) That Trade U.S. Treasury and Agency 

Securities, National Market System (NMS) Stocks, 

and Other Securities, SEA Release No. 94062 (Jan. 

26, 2022), 87 FR 15496 (Mar. 18, 2022) (File No. S7– 

02–22) (‘‘Rule 3b–16 Proposal’’). See also 

Reopening of Comment Periods for ‘‘Private Fund 

Advisers; Documentation of Registered Investment 

Adviser Compliance Reviews’’ and ‘‘Amendments 

Regarding the Definition of ‘Exchange’ and 

Alternative Trading Systems (ATSs) That Trade 

U.S. Treasury and Agency Securities, National 

Market System (NMS) Stocks, and Other 

Securities,’’ SEA Release No. 94868 (May 9, 2022), 

87 FR 29059 (May 12, 2022) (S7–02–22); 

Supplemental Information and Reopening of 

Comment Period for Amendments Regarding the 

Definition of ‘‘Exchange,’’ SEA Release No. 97309 

(Apr. 14, 2023), 88 FR 29448 (May 5, 2023) (File 

No. S7–02–22). 

679See ISDA–SIFMA Letter, supra note 18, at 17. 

680 Id. 

681See id. 

682See 15 U.S.C. 78c(a)(1). 

683See supra note 32. 

684See SEA section 3(a)(4), 15 U.S.C. 78c(a)(4). 

685 15 U.S.C. 78o(a) and 78o(b). Section 15(a)(1) 

generally provides that, absent an exception or 

exemption, a broker or dealer that uses the mails 

or any means of interstate commerce to effect 

transactions in, or to induce or attempt to induce 

the purchase or sale of, any security must register 

with the Commission. Section 15(b) generally 

provides the manner of registration of brokers and 

dealers and other requirements applicable to 

registered brokers and dealers. 

686As discussed in note 47, supra, a person that 

is acting as a broker solely because it is acting as 

an SBSEF is currently exempt from the requirement 

to register with the Commission as a broker and the 

Commission’s rules under the SEA that apply to 

brokers. This exemption will expire upon the 

earliest compliance date for the Commission’s final 

rules regarding SBSEF registration. 

687See 17 CFR 240.10b–10 and 240.10b–16. 

688The Commission’s proposal would not have 

exempted SBSEFs from registration as brokers. 

Rather, given the registration and regulatory 

requirements that were being proposed for SBSEFs 

through Regulation SE, the Commission proposed 

for such SBSEFs to be deemed registered as brokers 

so as to prevent subjecting those entities to a 

second, separate registration process as well as 

duplicative additional regulatory requirements. As 

discussed in the Proposing Release, an additional 

layer of registration processes and duplicative 

requirements would not be appropriate or 

necessary. See Proposing Release, supra note 1, 87 

FR 28933. 

security-based swaps’’ at the end of the 

paragraph. 

Another commenter supports the 

proposed amendments and also 

addresses another Commission 

rulemaking related to the definition of 

‘‘exchange.’’ 677 The Commission has 

separately proposed certain 

amendments to Rule 3b–16, a rule 

which defines certain terms used in the 

statutory definition of ‘‘exchange’’ 

under section 3(a)(1) of the SEA.678 The 

commenter states that the Commission 

should exempt from the definition of 

‘‘exchange’’ any market place that solely 

trades SBS, whether or not that market 

place is registered as an SBSEF.679 This 

commenter states that the Commission 

has ‘‘proposed to expand Rule 3b–16 

substantially’’ and that this proposal, if 

adopted, would ‘‘reverse the previous 

relationship between the ‘exchange’ 

definition (as interpreted in Rule 3b–16) 

and the SBSEF definition.’’ 680 This 

commenter states that an organization 

that makes available certain methods for 

parties to interact regarding SBS might 

fall within the expanded definition of 

exchange but outside the definition of 

SBSEF and therefore be required to 

register as an exchange because SBSEF 

registration would be unavailable.681

The Commission does not agree with 

the commenter’s request to extend the 

Rule 3a1–1 exemption from the 

‘‘exchange’’ definition to any entity that 

provides a market place for no securities 

other than SBS, regardless of whether 

they are registered as an SBSEF. 

The purpose of the exemption under 

Rule 3a1–1(a)(4) is not to universally 

exempt from the definition of 

‘‘exchange’’ all entities that provide a 

market place for no securities other than 

SBS. Rather, given that Congress has 

provided a regulatory framework for 

SBSEFs through the Dodd Frank Act, 

the exemption is narrowly designed to 

avoid burdening registered SBSEFs with 

a second regulatory framework— 

namely, registration as national 

securities exchanges. Further, creating 

that commenter’s suggested exemption 

in Rule 3a1–1(a) would create a 

regulatory gap in which some entities 

that meet the definition of exchange are 

registered neither as national securities 

exchanges nor as SBSEFs. The language 

of new paragraph (a)(4) of Rule 3a1–1, 

however, should more closely track the 

language and scope of section 3(a)(1) of 

the SEA, which uses the term ‘‘market 

place or facilities,’’ rather than the term 

‘‘market place,’’ 682 and the Commission 

is therefore modifying proposed 

paragraph (a)(4) of Rule 3a1–1 to replace 

the term ‘‘market place’’ with the term 

‘‘market place or facilities.’’ 

Accordingly, for the reasons 

discussed above, the Commission is 

adopting the amendments to Rule 3a1– 

1 with the modifications to paragraphs 

(a)(4) and (a)(5) discussed above and 

with minor technical modifications.683

XI. Rule 15a–12—SBSEFs as Registered 

Brokers; Relief From Certain Broker 

Requirements 

An SBSEF, by facilitating the 

execution of SBS between persons, also 

is engaged in the business of effecting 

transactions in securities for the account 

of others and therefore meets the SEA 

definition of ‘‘broker.’’ 684 Absent an 

exception or exemption, an SBSEF—in 

addition to being subject to the 

registration and regulatory requirements 

for SBSEFs—would also be required to 

register with the Commission as a 

broker pursuant to sections 15(a) and 

15(b) of the SEA 685 and would be 

subject to all regulatory requirements 

applicable to brokers.686 For example, 

brokers and dealers must comply with 

a number of rules that govern their 

conduct, including those relating to 

customer confirmations and disclosure 

of credit terms in margin 

transactions.687

The Commission proposed new Rule 

15a–12 under the SEA, which would 

deem registration with the Commission 

as an SBSEF to also constitute 

registration as a broker, and which 

would exempt a registered SBSEF from 

many broker requirements in light of the 

SBSEF regulatory regime to which it 

would also be subject. The 

accommodation provided in Rule 15a– 

12, however, would not be available to 

an SBSEF that engages in other types of 

brokerage activity. 

Paragraph (a) of Proposed Rule 15a– 

12 would define the term ‘‘SBSEF–B’’ to 

mean an SBSEF that does not engage in 

any securities activity other than 

facilitating the trading of SBS on or 

through the SBSEF. Thus, an SBSEF 

that acts as agent to SBS counterparties 

or that acts in a discretionary manner 

with respect to the execution of SBS 

transactions, could not avail itself of 

Rule 15a–12. Also, if an inter-dealer 

broker elects not to separate its interdealer broker functions from its SBSEF 

(by, for example, housing them in 

separate legal entities), and instead 

chooses to operate the SBSEF in the 

same legal entity as the inter-dealer 

broker, the entity could avail itself of 

Rule 15a–12 because it would not be an 

SBSEF–B under the rule. 

Paragraph (b) of Proposed Rule 15a– 

12 would provide that an SBSEF–B, if 

it registered as an SBSEF pursuant to 

Rule 803, would be deemed also to have 

registered with the Commission 

pursuant to sections 15(a) and (b) of the 

SEA.688

Paragraphs (c) and (d) of Proposed 

Rule 15a–12 would set out the scope of 

broker requirements from which an 

SBSEF–B is exempt and which broker 

requirements would continue to apply. 

Paragraph (c) would provide that an 

SBSEF–B would be exempt from any 

provision of the SEA or the 

Commission’s rules thereunder 

applicable to brokers that by its terms 

requires, prohibits, restricts, limits, 

conditions, or affects the activities of a 

broker, unless such provision specifies 


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689 15 U.S.C. 78o(b)(4). 

690 15 U.S.C. 78o(b)(6). 

691 15 U.S.C. 78q(b). 

692 15 U.S.C. 78aaa, et seq. 

693See https://www.sipc.org/about-sipc/sipcmission (‘‘In a liquidation under the Securities 

Investor Protection Act, SIPC and the courtappointed Trustee work to return customers’ 

securities and cash as quickly as possible. Within 

limits, SIPC expedites the return of missing 

customer property by protecting each customer up 

to $500,000 for securities and cash (including a 

$250,000 limit for cash only).’’). 

694See 15 U.S.C. 78ddd(d). 

695 15 U.S.C. 78bbb. 

696 15 U.S.C. 78mm(a)(1) (giving the Commission 

exemptive authority, including the ability to 

exempt any person or classes of persons from any 

provision of the SEA or any rules thereunder, to the 

extent that such exemption is necessary or 

appropriate in the public interest, and is consistent 

with the protection of investors). 

697See supra note 32. 

698See supra note 6. 

699See supra notes 45–47 and accompanying text. 

700See June 2011 Exemptive Order, supra note 

46, 76 FR at 36293 (granting temporary exemptive 

relief from SEA section 3D(a)(1), 15 U.S.C. 78c– 

4(a)(1)). 

701See id. at 36293 (granting temporary 

exemptive relief from SEA section 3D, 15 U.S.C. 

78c–4). 

702See July 2011 Exemptive Order, supra note 46, 

76 FR at 39934. 

703See id. 

704See id.; see also Requirements for SecurityBased Swap Dealers, Major Security-Based Swap 

Participants, and Broker-Dealers; Capital Rule for 

Certain Security-Based Swap Dealers, SEA Release 

No. 87005 (Sept. 19, 2019), 84 FR 68550, 68602 

(Dec. 16, 2019) (‘‘Recordkeeping and Reporting 

Adopting Release’’). 

705 15 U.S.C. 78cc(b). 706See June 2011 Exemptive Order, supra note 

46, 76 FR at 36305–06. 707See id. at 36293; July 2011 Exemptive Order, 

supra note 46, 76 FR at 39934. 

708See June 2011 Exemptive Order, supra note 

46, 76 FR at 36306. 

709 17 CFR 240.17Ad–24. 

710 15 U.S.C. 78c(a)(23). 

711See SEA Release No. 90667 (Dec. 16, 2020), 86 

FR 7637 (Feb. 1, 2021). 

712See id., 86 FR at 7650; SEA Release No. 64796 

(July 1, 2011), 76 FR 39963, 39964 (July 7, 2011) 

(‘‘2011 Clearing Agency Exemption’’). 

that it applies to an SBSEF. Paragraph 

(d) of Proposed Rule 15a–12 would 

provide that, notwithstanding paragraph 

(c), an SBSEF–B is still subject to 

section 15(b)(4),689 section 15(b)(6),690

and section 17(b) of the SEA.691

Finally, paragraph (e) of Proposed 

Rule 15a–12 would exempt an SBSEF– 

B from the Securities Investor Protection 

Act (‘‘SIPA’’).692 SIPA established the 

Securities Investor Protection 

Corporation (‘‘SIPC’’), which oversees 

the liquidation of member firms that 

close when a member firm is bankrupt 

or in financial trouble and customer 

assets are missing.693 SIPC protection is 

funded by assessments made on 

member firms.694

Section 2 of SIPA 695 states that, 

unless otherwise provided, the SEA 

shall apply as if SIPA constituted an 

amendment to, and was included as a 

section of, the SEA. An SBSEF–B, by 

definition, would operate only as an 

SBSEF. It would not be equitable to 

require an SBSEF–B to become a 

member of SIPC and pay SIPC 

assessments, because the SBSEF–B 

would not have brokerage customers 

and would not hold any customer funds 

or securities. Accordingly, under section 

36(a)(1) of the SEA,696 the Commission 

finds that it is necessary or appropriate 

in the public interest, and is consistent 

with the protection of investors, to 

exempt SBSEF–Bs from any 

requirement under SIPA, including the 

requirement to pay assessments to the 

SIPC insurance fund. The Commission 

is codifying this exemption as Rule 15a– 

12(e). 

The Commission received no 

comments on Proposed Rule 15a–12 and 

is adopting Rule 15a–12 as proposed, 

with minor technical modifications,697

for the reasons stated in the Proposing 

Release. 

XII. Termination of Temporary 

Exemptions 

As discussed above and in the 

Proposing Release, after issuing the 

2011 SBSEF Proposal,698 the 

Commission granted the Temporary 

SBSEF Exemptions.699 In relevant part, 

Temporary SBSEF Exemptions have: 

(1) Allowed an entity that trades SBS 

and is not currently registered as a 

national securities exchange, or that 

cannot yet register as an SBSEF because 

final rules for such registration have not 

yet been adopted, to continue trading 

SBS during this temporary period 

without registering as a national 

securities exchange or SBSEF; 700

(2) Exempted national securities 

exchanges (to the extent that they also 

operate an SBSEF and use the same 

electronic trade execution system for 

listing and executing trades of SBS on 

or through the exchange and the facility) 

from the requirement to identify 

whether electronic trading of those SBS 

is taking place on or through the 

national securities exchange or the 

SBSEF; 701

(3) Exempted any person, other than 

a clearing agency acting as a central 

counterparty in security-based swaps, 

that, solely due to its activities relating 

to security-based swaps, would fall 

within the definition of exchange and 

thus be required to register as an 

exchange from the requirement to 

register as a national securities exchange 

in sections 5 and 6 of the Exchange 

Act; 702

(4) Permitted brokers and dealers to 

effect transactions in SBS on an 

exchange that is operating without 

registering as a national securities 

exchange in reliance on the exemption 

described above; 703

(5) Exempted SBSEFs from the broker 

registration requirements of section 

15(a)(1) of the SEA; 704 and 

(6) Exempted any SBS contract 

entered into on or after July 16, 2011, 

from being void or considered voidable 

by reason of section 29 of the SEA 705

because any person that is a party to the 

SBS contract violated a provision of the 

Exchange Act that was amended or 

added by subtitle B of Title VII of the 

Dodd Frank Act and for which the 

Commission has taken the view that 

compliance will be triggered by 

registration of a person or by adoption 

of final rules by the Commission, or for 

which the Commission has provided an 

exception or exemptive relief herein, 

until such date as the Commission 

specifies.706

In the Temporary SBSEF Exemptions, 

the Commission specified that the 

exemptive relief would expire ‘‘on the 

earliest compliance date set forth in any 

of the final rules regarding registration 

of SBSEFs,’’ 707 or in the case of the 

relief regarding section 29 of the SEA, 

‘‘until such date as the Commission 

specifies.’’ 708

Additionally, in 2020, the 

Commission adopted Rule 17Ad–24 

under the SEA 709 to exempt from the 

definition of ‘‘clearing agency’’ in 

section 3(a)(23) of the SEA 710 certain 

entities, including a registered SBSEF, 

that would be deemed to be a clearing 

agency solely by reason of (a) functions 

performed by such institution as part of 

customary dealing activities or 

providing facilities for comparison of 

data respecting the terms of settlement 

of securities transactions effected on 

such registered SBSEF, respectively; or 

(b) acting on behalf of a clearing agency 

or participant therein in connection 

with the furnishing by the clearing 

agency of services to its participants or 

the use of services of the clearing agency 

by its participants.711 In adopting the 

rule, the Commission explained that an 

entity performing such functions that 

triggers the requirement to register as a 

clearing agency—but that is not yet 

registered with the Commission as an 

SBSEF—could rely on a temporary 

exemption from the requirement to 

register as a clearing agency that the 

Commission issued in 2011.712 In the 

Proposing Release, the Commission 

sought public comment on whether it 

should ‘‘sunset’’ the 2011 Clearing 

Agency Exemption and stated that it 


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713See Proposing Release, supra note 1, 87 FR at 

28934. 

714See infra section XVI (discussing compliance 

schedule). 

715 15 U.S.C. 78cc(b). 

716The structured data requirements are generally 

consistent with objectives of the recently enacted 

Financial Data Transparency Act (‘‘FDTA’’), which 

directs the Commission and other financial 

regulators of data standards for collections of 

information. Such data standards would need to 

meet specified criteria relating to openness and 

machine-readability and promote interoperability of 

financial regulatory data across members of the 

Financial Stability Oversight Council. See James M. 

Inhofe National Defense Authorization Act for 

Fiscal Year 2023, Public Law 117–263, tit. LVIII, 

136 Stat. 2395, 3421–39 (Dec. 23, 2022). 

717See Proposing Release, supra note 1, 87 FR at 

28872, 28972–73. 

718See Letter from Campbell Pryde, President and 

CEO, XBRL US, to Secretary, Commission, at 2 

(June 10, 2022) (‘‘XBRL US Letter’’); Bloomberg 

Letter, supra note 18, at 20–21. 

719See XBRL US Letter, supra note 718, at 2. 

preliminarily believed that, if it adopted 

a framework for the registration of 

SBSEFs, the 2011 Clearing Agency 

Exemption would no longer be 

necessary because entities carrying out 

the functions of SBSEFs would be able 

to register with the Commission as such, 

thereby falling within the exemption 

from the definition of ‘‘clearing agency’’ 

in existing Rule 17Ad–24.713

The Commission received no 

comment regarding the sunsetting of 

past exemptive relief for entities 

operating as SBSEFs. Upon the 

effectiveness of Regulation SE, the 

exemptive relief described above would 

no longer be necessary, because SBSEFs 

will be able to register with the 

Commission and will be subject to 

regulatory obligations under Regulation 

SE. Therefore, the Commission is 

sunsetting the exemptive relief 

consistent with the compliance 

schedule for Regulation SE.714 Thus, the 

exemptive relief described above will 

terminate 180 days after the Effective 

Date of Regulation SE, which will be 60 

days after the date of publication in the 

Federal Register, except that (1) with 

respect to an SBSEF that has filed an 

application to register with the 

Commission on Form SBSEF within 180 

days of the Effective Date of Regulation 

SE, as well as trading of SBS on such 

an SBSEF, the relief will terminate 240 

days after the Effective Date of 

Regulation SE; and (2) with respect to 

an SBSEF that filed an application to 

register on Form SBSEF within 180 days 

after the Effective Date of Regulation SE 

and whose application on Form SBSEF 

is complete for purposes of Rule 

803(b)(5) (having responded to requests 

by the Commission’s staff for revisions 

or amendments) within 240 days after 

the effective date, as well as trading of 

SBS on such an SBSEF, the exemptive 

relief will terminate 30 days after the 

Commission acts to approve or deny the 

SBSEF’s application on Form SBSEF. 

Specifically with respect to the 

exemptive relief providing that any SBS 

contract entered into on or after July 16, 

2011, will not be void or considered 

voidable by reason of section 29 of the 

SEA 715 because any person that is a 

party to the SBS contract violated a 

provision of the Exchange Act that was 

amended or added by subtitle B of Title 

VII of the Dodd Frank Act and for which 

the Commission has taken the view that 

compliance will be triggered by 

registration of a person or by adoption 

of final rules by the Commission, or for 

which the Commission has provided an 

exception or exemptive relief herein, 

this exemptive relief will continue to 

apply to SBS entered into between July 

16, 2011, and the date 30 days after the 

Commission acts to approve the first 

SBSEF registration. 

For any entity currently relying on the 

2011 Clearing Agency Exemption that 

becomes required to register as a 

clearing agency, the exemptive relief 

will terminate 180 days after the 

Effective Date of Regulation SE, which 

will be 60 days after the date of 

publication in the Federal Register, 

except that (1) with respect to an entity 

that has filed an application to register 

as a clearing agency with the 

Commission on Form CA–1 within 180 

days of the Effective Date of Regulation 

SE, the relief will terminate 240 days 

after the Effective Date of Regulation SE; 

and (2) with respect to an entity that has 

filed an application on Form CA–1 

within 180 days after the Effective Date 

of Regulation SE and whose application 

on Form CA–1 is complete (having 

responded to requests by the 

Commission’s staff for revisions or 

amendments) within 240 days after the 

effective date, the exemptive relief will 

terminate 30 days after the Commission 

acts to approve or disapprove the 

application on Form CA–1. 

XIII. Electronic Filings Under 

Regulation SE 

A. Use of Electronic Filing Systems and 

Structured Data 

Various provisions of proposed 

Regulation SE would have required 

registered SBSEFs (or SBSEF applicants) 

to file specified information 

electronically with the Commission 

using the EDGAR system in Inline 

XBRL, a structured, machine-readable 

data language.716 These provisions 

include: 

• Rule 803(b)(1)(i) and (b)(3), 

regarding filings of, and amendments to, 

a Form SBSEF application. 

• Rules 803(e) and 803(f), regarding 

requests to withdraw or vacate an 

application for registration. 

• Rule 804(a)(1), regarding filings for 

listing products for trading by 

certification. 

• Rule 805(a)(1), regarding filings for 

voluntary submission of new products 

for Commission review and approval. 

• Rule 806(a)(1), regarding filings for 

voluntary submission of rules for 

Commission review and approval. 

• Rule 807(a)(1), regarding filings for 

self-certification of rules. 

• Rule 807(d), regarding filings of 

weekly notifications to the Commission 

of rules and rule amendments that were 

not required to be certified. 

• Rule 829(g)(6), regarding 

submission to the Commission of 

reports related to financial resources 

and related documentation. 

• Rule 831(j)(2), regarding submission 

to the Commission of the annual 

compliance report of SBSEF’s CCO. 

In addition to including these 

requirements in each of the rules listed 

above, the Commission proposed to 

amend Rule 405 of Regulation S–T to 

reflect these requirements.717 The 

Commission received comments 

specifically regarding the proposed 

methods and formats of electronic filing 

in Regulation SE discussed above.718

One commenter states that if certain 

entities report a portion of needed data 

to one regulator (CFTC) and the rest of 

the data to a different regulator (SEC), 

data consumers will be required to 

extract data from two different datasets 

to provide a complete picture. The 

commenter states that if data reported to 

the CFTC is in PDF or HTML format, 

and data reported to the SEC is in 

machine-readable (XBRL) format, this 

will increase the complexity of data 

access.719 Another commenter does not 

believe that EDGAR is the appropriate 

system for these filings. The commenter 

believes that requiring the use of 

EDGAR will require most filers to retain 

a third-party vendor and incur 

substantial costs and may have the 

potential to deter market participants 

from entering this space, noting that a 

more appropriate alternative filing 

process, the Commission’s Electronic 

Form Filing System (EFFS), a secure, 

web-based electronic filing application 

used to process filings from SROs and 

SCI entities, is already available, and its 

use would harmonize the filing 

approach with SBS exchanges, and 

more broadly with the approach taken 

by the CFTC. Alternatively, the 


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720See Bloomberg Letter, supra note 18, at 20–21. 

721The Commission is, in light of its renumbering 

of the provisions relating to Form SBSEF, see supra 

section III.B, and because Form SBSEF will not 

appear in the Code of Federal Regulations, 

replacing ‘‘17 CFR 249.2001 of this chapter’’ with 

‘‘referenced in 17 CFR 249.1701 of this chapter.’’ 

722 In addition to the custom XML exhibits to 

Form SBSEF that will be submitted via EDGAR, the 

Commission is also adopting as proposed the 

requirement in Rule 825 of Regulation SE that 

SBSEFs post Daily Market Data Reports on their 

websites using a custom XML schema and a PDF 

renderer, both of which the Commission will make 

available on its website. See supra section VI.H. 

723 In addition to these copies of existing 

documents, the Commission is requiring Exhibit U 

to Form SBSEF, which includes any information in 

the application that is subject to a confidential 

treatment request, to be filed as an unstructured 

PDF attachment. The confidential information that 

an applicant includes on Exhibit U could be 

responsive to disclosure requirements set forth in 

multiple other Form SBSEF Exhibits (potentially 

spanning multiple different data languages or 

formats). As a result, implementing technical 

validations on the structuring of the information on 

Exhibit U would not be technically feasible. 

724See Registration Instructions to Form SBSEF, 

referenced in 17 CFR 249.1701. Rule 405 of 

Regulation S–T sets forth the requirements for 

commenter encourages the Commission 

to adopt the process used by the CFTC, 

which permits filings (including initial 

registration filings, quarterly financial 

filings and rulebook filings) to be made 

via a dedicated portal in PDF form.720

As discussed in further detail below, 

taking into account comments received, 

the Commission is requiring SBSEFs to 

submit the information related to rule 

and product filings under Rules 804 to 

807 of Regulation SE in unstructured 

format via EFFS in order to alleviate 

compliance burdens on SBSEFs. 

The Commission has considered the 

comments received on the provisions 

regarding electronic filing in Regulation 

SE discussed above and is adopting 

Inline XBRL and EDGAR requirements 

for some, but not all, of the disclosures 

that Regulation SE will require. 

Specifically, Regulation SE will require 

SBSEFs to file the information under the 

following rules electronically via 

EDGAR using Inline XBRL: 

• Rule 829, regarding submission to 

the Commission of reports related to 

financial resources and related 

documentation. 

• Rule 831, regarding submission to 

the Commission of the annual 

compliance report of the SBSEF’s CCO. 

• Exhibits C through F to Form 

SBSEF, regarding governing board 

fitness standards and composition; 

organizational structure; personnel 

qualifications; and staffing 

requirements, respectively. 

• Exhibits H through L to Form 

SBSEF, regarding material pending legal 

proceedings; financial information 

(except for any copies of agreements 

filed with the exhibit); affiliate financial 

information; dues, fees, and other 

charges for services; and compliance 

with Core Principles, respectively. 

• Exhibit P through S to Form SBSEF, 

regarding disciplinary and enforcement 

protocols; operation of trading systems 

or platforms; rules prohibiting specific 

trade practices; and the maintenance of 

trading data, respectively. 

For these specific disclosures, the 

Commission is adopting as proposed the 

requirement that they be made through 

EDGAR using Inline XBRL and is 

adopting the amendments to Rule 405 as 

proposed, with minor technical 

modifications.721

For certain other disclosures required 

under Regulation SE, in a change from 

the proposal, the Commission is 

requiring the use of a custom XML data 

language rather than Inline XBRL. 

Specifically, Regulation SE will require 

SBSEFs to file the following information 

electronically via EDGAR using custom 

XML: 

• Rules 803(e) and 803(f), regarding 

requests for withdrawal or vacation 

applications. 

• The Form SBSEF Cover Sheet. 

• Exhibit A to Form SBSEF, regarding 

the SBSEF’s ownership information 

(except for any copies of agreements 

filed along with the Exhibit). 

• Exhibit B to Form SBSEF, regarding 

the officers, directors, and other control 

persons of the SBSEF. 

• Exhibit G to Form SBSEF, regarding 

organizational documents (except for 

copies of organizational documents filed 

with the Exhibit). 

• Exhibit M to Form SBSEF, 

regarding rules and technical manuals 

(except for copies of rules and technical 

manuals filed with the Exhibit). 

• Exhibit N to Form SBSEF, regarding 

agreements and contracts (except for 

copies of agreements and contracts). 

• Exhibit T to Form SBSEF, regarding 

clearing agencies.722

The Commission is requiring some 

disclosures to be structured in Inline 

XBRL, and other disclosures to be 

structured in custom XML, because 

Inline XBRL is well-suited for certain 

types of content—such as financial 

statements and extended narrative 

discussions—whereas other types of 

content can be readily captured using 

custom XML data languages that yield 

smaller file sizes than Inline XBRL and 

thus facilitate more streamlined data 

processing. Such custom XML 

languages also enable EDGAR to 

generate fillable web forms that will 

permit SBSEFs to input disclosures into 

form fields rather than encode their 

disclosures in custom XML themselves, 

thus likely easing compliance burdens 

on SBSEFs. 

Certain Form SBSEF exhibits also 

include requirements to attach copies of 

existing documents, such as copies of 

by-laws, written agreements, and 

compliance manuals. The Commission 

is requiring SBSEFs to file these copies 

of documents as unstructured PDF 

attachments to the otherwise structured 

Form SBSEF filing.723 Requiring 

SBSEFs to retroactively structure such 

existing documents, which were 

prepared for purposes outside of 

fulfilling the Commission’s disclosure 

requirements, could impose compliance 

burdens on SBSEFs that may not be 

justified in light of the commensurate 

informational benefits associated with 

having such documents in structured 

form. The specific requirements to 

include these attached copies are 

included in the following provisions of 

Regulation SE: 

• Exhibit A to Form SBSEF 

(specifically, copies of agreements 

through which persons may control or 

direct the management or policies of the 

SBSEF). 

• Exhibit G to Form SBSEF 

(specifically, copies of the SBSEF’s 

organizational documents). 

• Exhibit I to Form SBSEF 

(specifically, copies of agreements 

supporting the SBSEF’s conclusions 

regarding the liquidity of its financial 

assets). 

• Exhibit M to Form SBSEF 

(specifically, copies of the SBSEF’s 

rules, technical manuals, guides, or 

other instructions). 

• Exhibit N to Form SBSEF 

(specifically, copies of agreements or 

contracts that enable the SBSEF’s 

compliance with Core Principles). 

• Exhibit O to Form SBSEF 

(specifically, copies of the SBSEF’s 

compliance manual). 

To implement the reduced scope of 

Inline XBRL requirements for Form 

SBSEF compared to the proposed rules, 

the Commission is making changes to 

the rule text for Form SBSEF, Rule 803 

of Regulation SE, and Rule 405 of 

Regulation S–T. In the Registration 

Instructions to Form SBSEF, rather than 

requiring the disclosures on Form 

SBSEF to be provided as an Interactive 

Data File in accordance with Rule 405 

of Regulation S–T as proposed, the final 

rule text lists a subset of Form SBSEF 

Exhibits that are to be provided as an 

Interactive Data File in accordance with 

Rule 405 of Regulation S–T, and 

clarifies that the Interactive Data File 

requirement does not extend to copies 

of existing documents.724 In Rule 803 of 


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Interactive Data File submissions. Rule 405(b) of 

Regulation SE sets forth the content to be included 

within the Interactive Data File, and Rule 405(a)(3) 

of Regulation S–T specifies Inline XBRL as the data 

language to be used for Interactive Data File 

submissions. In a technical change from the 

proposed rule text, the Commission is expanding 

the group of entities listed within Rule 405(a)(3) of 

Regulation S–T to add electronic filers subject to 

Regulation SE, reflecting the addition of electronic 

filers subject to Regulation SE to Rule 405(b) of 

Regulation S–T in the proposed and final rule text. 

725See Rule 803(b)(1)(i) of Regulation SE. We 

have made conforming changes to Rules 803(b)(3), 

(e), and (f) to narrow the proposed Inline XBRL 

requirements for Form SBSEF amendments, 

withdrawal requests, and vacation requests. See 

Rules 803(b)(3), 803(e), and 803(f) of Regulation SE. 

726See the introductory text, subparagraphs (a)(2), 

(a)(4), and (b)(5)(ii), and Note 1 to Rule 405 of 

Regulation S–T. 

727See Securities Act Release No. 10514 (June 28, 

2018), 83 FR 40846, 40847 (Aug. 16, 2018). Inline 

XBRL allows filers to embed XBRL data directly 

into an HTML document, eliminating the need to 

tag a copy of the information in a separate XBRL 

exhibit. See id., 83 FR at 40851. 

728See supra note 139. 

729See infra section XVII.C.3(f). 

730See Rules 804(a)(1), 805(a)(1), 806(a)(1), 

807(a)(1), and 807(d)(1) of Regulation SE. 

731See Rule 816(a)(1) of Regulation SE. 

732See Instruction (a) to the Security-Based Swap 

Execution Facility Sheet adopted as § 249.1702. 

733See the introductory text, subparagraphs (a)(2), 

(a)(4), and (b)(5)(ii), and Note 1 to Rule 405 of 

Regulation S–T. 

734See supra section IV.E. 

735See supra note 140. 

736 Id. 

737See Letter from Stephan Wolf, CEO, Global 

Legal Entity Identifier Foundation, at 1–2 (June 10, 

2022) (‘‘GLEIF Letter’’) at 1–2; Bloomberg Letter, 

supra note 18, at 11–12. 

Regulation SE, rather than requiring 

SBSEF applicants to file Form SBSEF as 

an Interactive Data File in accordance 

with Rule 405 of Regulation S–T as 

proposed, the final rule text requires 

SBSEF applicants to file the information 

specified in the Registration Instructions 

to Form SBSEF (i.e., the listed Exhibits) 

as an Interactive Data File in accordance 

with Rule 405 of Regulation S–T.725 In 

Rule 405 of Regulation S–T, the final 

rule text omits references to 

subparagraphs of Rule 803 that were 

included within the scope of the 

proposed rule text, while retaining the 

references to information specified in 

the Registration Instructions to Form 

SBSEF.726

Requiring use of EDGAR and 

structured data languages for certain 

disclosures under Regulation SE has 

benefits. Requiring SBSEFs to make 

required certain filings via EDGAR will 

provide the Commission and the public 

with a centralized, publicly accessible 

electronic database for SBSEF-provided 

data in the form that is most accessible 

and useful to regulators, market 

participants, and the public alike. The 

use of EDGAR also enables technical 

validation of the disclosures, thus 

potentially reducing the incidence of 

non-discretionary errors (e.g., the 

inclusion of text for a disclosure that 

should contain only numbers) in those 

Regulation SE disclosures that are filed 

via EDGAR. Moreover, requiring 

structured data languages for many of 

the reported disclosures will make those 

disclosures more easily available and 

accessible to, and reusable by, market 

participants and the Commission for 

retrieval, aggregation, and comparison 

across different SBSEFs and time 

periods, as compared to an unstructured 

PDF, HTML, or ASCII format 

requirement for those disclosures.727

Permitting all Regulation SE disclosures 

to be filed entirely in PDF, HTML, or 

ASCII format, while perhaps simpler for 

the SBSEF making the filings, would 

reduce the accessibility of information 

in the filings to the Commission and to 

market participants who will access 

these filings through EDGAR. Further, 

harmonizing with the CFTC in this 

regard by permitting all Regulation SE 

filings to be made entirely in PDF 

format, as the CFTC does, would not 

carry comparable benefits to 

harmonization of other aspects of 

Regulation SE. The benefits of using 

EDGAR and structured data highlighted 

above justify the potential 

inconvenience to registrants, as well as 

to data users, of having to access two 

separate databases to extract 

information regarding SEC-regulated 

SBSEFs and CFTC-regulated SEFs. 

As discussed above, in a change from 

the proposal, the Commission is 

requiring SBSEFs to provide the rule 

and product filings required under 

Rules 804 through 807and 816 of 

Regulation SE through EFFS in an 

unstructured format, rather than 

providing them through EDGAR in 

Inline XBRL. While the information in 

SBSEF rule and product filings will not 

be machine-readable, the absence of 

structuring requirements for rule and 

product filings under Regulation SE 

(which aligns with the current rule and 

product filing process for SROs) 728 will 

help contain compliance burdens for 

SBSEFs, because SBSEFs will not be 

subject to compliance costs associated 

with structuring those filings.729 In light 

of the significant volume of other 

machine-readable data regarding 

SBSEFs that will be available to the 

market and data users under Regulation 

SE, this requirement having a lower 

compliance burden justifies the lack of 

machine-readability for the information 

in rule and product filings required 

under Rules 804 through 807 and 816 of 

Regulation SE. 

To implement the change from the 

proposed Inline XBRL and EDGAR 

filing requirement to the final 

unstructured format and EFFS 

requirement for rule and product filings, 

the Commission is modifying the rule 

text for Rules 804 through 807 of 

Regulation SE, the Security-Based Swap 

Execution Facility Cover Sheet that the 

Commission is adopting as § 249.1702, 

and Rule 405 of Regulation S–T. For 

Rules 804 through 807, the final rule 

text specifies that SBSEFs must file the 

rule and product filings through the 

EFFS system, rather than through the 

EDGAR system as an Interactive Data 

File in accordance with Rule 405 of 

Regulation S–T as proposed.730 The 

Commission is not making analogous 

changes to Rule 816 of Regulation SE, 

because Rule 816 instructs SBSEFs to 

follow the procedures under Rule 806 or 

807 of Regulation SE.731 For the 

Security-Based Swap Execution Facility 

Cover Sheet, the final rule text specifies 

that SBSEFs must file the cover sheet 

using the EFFS system, rather than 

using the EDGAR system in accordance 

with Rule 405 of Regulation S–T as 

proposed.732 In Rule 405 of Regulation 

S–T, the final rule text omits references 

to subparagraphs of Rules 804 through 

807 and the Security-Based Swap 

Execution Facility Cover Sheet that 

were included within the scope of the 

proposed rule text.733

B. Use of Identifiers 

As discussed above, the Commission 

is adopting, as § 249.1702, a submission 

cover sheet and instructions that an 

SBSEF must use for filings submitted 

pursuant to Rules 804 through 807 and 

816. 

Paragraph (a) of the submission cover 

sheet instructions provides that a 

properly completed submission cover 

sheet must accompany all rule and 

product submissions submitted 

electronically to the Commission by an 

SBSEF.734 Per paragraph (a), a properly 

completed submission cover sheet 

would include, among other things, the 

name and platform ID of the SBSEF.735

Currently, LEIs issued through the 

GLEIS are the only allowable platform 

IDs that may be used by registered 

SBSEFs.736

The Commission received comments 

on the use of LEIs, as well as the 

potential use of other identifiers in 

filings to the Commission under 

Regulation SE.737 One commenter 

supports the Commission’s effort to 

include the LEI for identifying SBSEFs, 

stating that the Commission’s decision 

to include the LEI creates consistency 

and transparency for the identification 


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738See GLEIF Letter, supra note 737, at 1. 

739See id. at 1–2. 

740See Bloomberg Letter, supra note 18, at 11–12. 

741See supra section VI.B. 

742See, e.g., 15 U.S.C. 78c–4(d)(2)(A) (directing 

an SBSEF to ‘‘establish and enforce compliance’’ 

with its rules) (emphasis added); 15 U.S.C. 78c– 

4(d)(2)(C) (directing an SBSEF to ‘‘establish and 

enforce trading, trade processing, and participation 

rules that will deter abuses and have the capacity 

to detect, investigate, and enforce those rules’’) 

(emphasis added). 

743See supra section VI.B. See also Rule 819(c)(3) 

(relating to limitations on access, including 

suspensions and permanent bars); Rule 819(g) 

(relating to disciplinary procedures and sanctions). 

744See 15 U.S.C. 78c–4(d)(2)(A)(ii) (directing an 

SBSEF to establish and enforce compliance with 

any rule that imposes any limitation on access to 

the facility); 15 U.S.C. 78c–4(d)(2)(B)(i) (requiring 

an SBSEF to provide market participants with 

impartial access to the market). 

745See Proposing Release, supra note 1, 87 FR at 

18935–37; See also part 9 of the CFTC’s rules (Rules 

Relating to Review of Exchange Disciplinary, 

Access Denial or Other Adverse Actions). For 

purposes of part 9, the term ‘‘exchange’’ includes 

a SEF. 

746 17 CFR 201.101. 

747 17 CFR 201.202. 

748See infra sections XIV.E and F. 

749 17 CFR 201.210. 

of execution facilities, while also 

enabling information sharing across 

agencies.738 The commenter points out 

that the LEI is the only global standard 

for legal entity identification and argues 

that by implementing the LEI more 

comprehensively the Commission 

would set forth a consistent 

identification scheme highlighted by the 

LEI. The commenter also supports the 

inclusion of the Unique Product 

Identifier (‘‘UPI’’), which is also an 

International Organization for 

Standardization (‘‘ISO’’) standard, as 

well as the Financial Instrument Global 

Identifier (‘‘FIGI’’), an adopted U.S. 

standard, arguing that open, nonproprietary data standards, which are 

established by voluntary standard 

bodies, facilitate the open exchange of 

information for regulators.739

Another commenter agrees that 

standard identifiers such as LEI, FIGI, 

and UPI should be included in an 

SBSEF’s other reporting obligations 

under Regulation SE. In particular, this 

commenter highlights a number of the 

potential benefits of FIGI, a unique, 

publicly available identifier that covers 

financial instruments across asset 

classes that arise, expire, and change on 

a daily basis. The commenter states that 

it developed FIGI to help solve licensing 

challenges and shortcomings in data 

organizations and governance that 

persist in the current regionally based 

security identifier numbering 

approaches. The commenter states that 

one of the benefits of FIGI is that it 

enables interoperability between other 

identification systems and does not 

force the use of a single identification 

system, which could lower costs when 

interacting between legacy systems, 

which may depend upon a single 

identifier, and newer systems, which 

typically have a more modern 

architecture. As a general matter, the 

commenter believes that firms should be 

permitted to choose among identifiers 

and have the flexibility to adopt, 

integrate, or switch to other identifiers 

as appropriate. According to the 

commenter, this would allow firms to 

orient decisions around reducing costs 

of integration or realizing added benefits 

that offset any such integration cost 

concerns.740

The Commission has considered the 

comments received on the provisions 

regarding LEIs and other identifiers. The 

Commission is adopting the submission 

cover sheet and instructions as 

proposed because LEIs issued through 

the GLEIS are currently the only 

allowable platform IDs that may be used 

by registered SBSEFs, and as such it is 

appropriate and acceptable for them to 

be used on the submission cover sheet. 

With respect to other identifiers 

discussed by the commenters (i.e., UPI 

and FIGI), as well as other identifiers 

that may be under development globally 

by various entities, because they are not 

currently allowable IDs, it would not be 

appropriate or acceptable for them to be 

used on the submission cover sheet. 

XIV. Amendments to Commission’s 

Rules of Practice for Appeals of SBSEF 

Actions 

As noted above,741 SEA Core 

Principle 2 directs an SBSEF to exercise 

regulatory powers over its market.742

Under Rule 819 of Regulation SE, an 

SBSEF could take a variety of 

disciplinary actions against a member 

that is found to violate the SBSEF’s 

rules, including fining the member, 

limiting the member’s access, or barring 

the member entirely.743 SEA Core 

Principle 2 also requires an SBSEF to 

establish rules governing access to its 

market.744 An SBSEF could apply those 

rules in such a way as to limit a person’s 

access to the SBSEF or to deny access 

entirely without due process. 

Recognizing these concerns, in the 

Proposing Release, the Commission 

proposed a number of amendments to 

its Rules of Practice to allow for appeals 

for final disciplinary actions taken by an 

SBSEF, for denials or conditionings of 

membership, and for limitations or 

denials of access, noting that the CFTC 

has similar procedures with respect to 

SEFs.745

The Commission did not receive any 

comments on these proposed 

amendments to its Rules of Practice. 

General principles of due process 

necessitate an appeals procedure for 

SBSEF members aggrieved by 

disciplinary action taken by an SBSEF. 

Therefore, the Commission is adopting 

the amendments to its Rules of Practice 

as proposed, as detailed below, with a 

minor modification to Rule 442. 

A. Amendment to Rule 101 

Existing Rule 101 of the Commission’s 

Rules of Practice 746 sets out definitions 

for several terms used in the Rules of 

Practice. In particular, existing Rule 

101(a)(9) defines ‘‘proceeding’’ with 

respect to applications of review of 

actions by a variety of entities that are 

subject to the Commission’s 

jurisdiction. The Commission proposed 

a new paragraph (a)(9)(ix) of Rule 101 

that provides that an application for a 

review of a determination (such as a 

final disciplinary action or a limitation 

or denial of access to any service) by an 

SBSEF would be a ‘‘proceeding’’ and 

thereby trigger the applicability of the 

Rules of Practice. 

The Commission received no 

comment on the proposed amendment 

to Rule 101 and is adopting this 

amendment to Rule 101 as proposed. 

B. Amendment to Rule 202 

Existing Rule 202 of the Commission’s 

Rules of Practice 747 permits a party in 

certain proceedings before the 

Commission to make a motion to specify 

certain procedures with respect to such 

proceeding. Rule 202(a) excludes certain 

types of proceedings, including 

enforcement or disciplinary 

proceedings, proceedings to review a 

determination by an SRO, and 

proceedings to review a determination 

of the Public Company Accounting 

Oversight Board (‘‘PCAOB’’). Because 

the Commission proposed new Rules 

442 and 443, which set out specific 

procedures with respect to proceedings 

to review a determination of an 

SBSEF,748 the Commission proposed to 

revise Rule 202(a) to add these SBSEFrelated proceedings to the list of 

exclusions. 

The Commission received no 

comment on the proposed amendment 

to Rule 202 and is adopting this 

amendment to Rule 202 as proposed. 

C. Amendment to Rule 210 

Existing Rule 210 of the Commission’s 

Rules of Practice 749 sets out 

Commission rules with respect to 

parties, limited participants, and amici 

curiae in various proceedings before the 

Commission. Paragraph (a)(1) of Rule 


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750See infra sections XIV.E and F. 

751Such an application would be required to 

identify the SBSEF’s determination complained of, 

set forth in summary form a statement of alleged 

errors in the action and supporting reasons therefor, 

and state an address where the applicant can be 

served. The application would be expected not to 

exceed two pages in length, and the notice of 

appearance required by § 201.102(d) would have to 

accompany the application if the applicant is to be 

represented by a representative. Any exception to 

an action not supported in an opening brief that 

complies with § 201.450(b) could, at the discretion 

of the Commission, be deemed to have been waived 

by the applicant. 

752 17 CFR 201.442(c). 

753The Commission received one comment 

describing the ability of persons aggrieved by 

certain actions by an SBSEF to apply for 

Commission review as ‘‘some kind of mandatory 

arbitration process, overseen by a self governing 

regulatory body,’’ and stating that this would not 

help retail investors. See Kevin Letter, supra note 

95. The review of SBSEF action under Rule 442 

would not be arbitration by a self-governing 

regulatory body but instead review by the Federal 

agency tasked by Congress with regulating SBSEFs. 

Further, only ECPs would be eligible to trade SBS 

on an SBSEF, and any offer or sale of SBS to ‘‘retail 

investors’’ would have to be effected on a national 

securities exchange. See SEA section 6(l), 15 U.S.C. 

78f(l) (‘‘It shall be unlawful for any person to effect 

a transaction in a security-based swap with or for 

a person that is not an eligible contract participant, 

unless such transaction is effected on a national 

securities exchange . . . .’’). 

754See supra section XIV.D. 

755 17 CFR 201.442(d) and (e). 

210 states that persons shall not be 

granted leave to become a party or nonparty participant on a limited basis in 

an enforcement or disciplinary 

proceeding, a proceeding to review a 

determination by an SRO, or a 

proceeding to review a determination by 

the PCAOB, except as authorized by 

paragraph (c) of Rule 210 (which 

permits limited instances in which 

persons may participate for Commission 

disciplinary and enforcement 

proceedings). Because the Commission 

proposed new Rules 442 and 443, which 

set out specific procedures with respect 

to proceedings to review a 

determination of an SBSEF,750 the 

Commission proposed to revise Rule 

210 to exclude proceedings to review a 

determination by an SBSEF among the 

types of proceedings from which 

persons may be granted leave to become 

a party or a non-party participant on a 

limited basis. 

The Commission received no 

comment on the proposed amendment 

to Rule 210 and is adopting this 

amendment to Rule 210 as proposed. 

D. Amendment to Rule 401 

The Commission proposed to amend 

existing Rule 401 of its Rules of Practice 

by adding a new paragraph (f). 

Paragraph (f)(1) would permit any 

person aggrieved by a stay of action by 

an SBSEF entered in accordance with 

Rule 442(c) to make a motion to lift the 

stay. The Commission could also, at any 

time, on its own motion determine 

whether to lift the automatic stay. 

Paragraph (f)(2) would provide that the 

Commission may lift a stay summarily, 

without notice and opportunity for 

hearing. Finally, paragraph (f)(3) would 

provide that the Commission may 

expedite consideration of a motion to 

lift a stay of action by an SBSEF, 

consistent with the Commission’s other 

responsibilities. Where consideration is 

expedited, persons opposing the lifting 

of the stay could file a statement in 

opposition within two days of service of 

the motion requesting lifting of the stay 

unless the Commission, by written 

order, specifies a different period. 

It is appropriate to allow persons 

affected by certain stays of action by an 

SBSEF the opportunity to make a 

motion to request the lifting of the stay. 

As discussed below, pursuant to Rule 

442, an aggrieved person can file an 

application for review with the 

Commission with respect to a final 

disciplinary action, a final action with 

respect to a denial or conditioning of 

membership, or a final action with 

respect to a denial or limitation of 

access. The filing of such an application 

would operate as a stay of the SBSEF’s 

determination, and because of this 

automatic stay procedure, an aggrieved 

person or the SBSEF itself should be 

afforded a mechanism by which it could 

request the Commission to lift the stay, 

in addition to the Commission’s ability 

under Rule 401(f)(2) to lift a stay 

summarily, without notice and 

opportunity of hearing. 

The Commission received no 

comment on Proposed Rule 401(f) and 

is adopting Rule 401(f) as proposed. 

E. Rule 442—Right to Appeal 

Proposed Rule 442 would establish 

the right to an appeal to the Commission 

of certain final actions taken by an 

SBSEF and would set out certain 

procedural matters relating to any such 

appeal. Paragraph (a) of Rule 442 

provides that an application for review 

by the Commission may be filed by any 

person who is aggrieved by a 

determination of an SBSEF with respect 

to any: (1) final disciplinary action, as 

defined in Rule 835(b)(1); (2) final 

action with respect to a denial or 

conditioning of membership, as defined 

in Rule 835(b)(2); or (3) final action with 

respect to a denial or limitation of 

access to any service offered by the 

SBSEF, as defined in Rule 835(b)(2). 

Paragraph (b) of Rule 442 sets forth 

the procedure in such cases. 

Specifically, an aggrieved person can 

file an application for review with the 

Commission (pursuant to existing Rule 

151) within 30 days after the notice filed 

by the SBSEF with the Commission 

pursuant to Rule 835 is received by the 

aggrieved person, and must serve the 

application on the SBSEF at the same 

time.751 The Commission is modifying 

the text of Rule 442(b) from the proposal 

to clarify that the 30-day period for 

filing an application for review will not 

be extended absent a showing of 

extraordinary circumstances and that 

Rule 442(b) will be the exclusive 

remedy for seeking an extension of the 

30-day period. Strict compliance with 

filing deadlines facilitates finality and 

encourages parties to act timely in 

seeking review. 

Paragraph (c) of Rule 442 provides 

that filing an application for review 

with the Commission pursuant to Rule 

835(b) would operate as a stay of the 

SBSEF’s determination, unless the 

Commission otherwise orders either 

pursuant to a motion filed in accordance 

with Rule 401(f) or upon its own 

motion.752

It is appropriate for the filing of an 

application for review to operate as an 

automatic stay of the SBSEF’s 

determination, because that 

determination could have the effect of 

significantly or even permanently 

damaging an aggrieved person’s 

business while the Commission was 

conducting a review, which could take 

substantial time.753 In addition, the 

Commission proposed in Rule 401(f) a 

procedure whereby a person aggrieved 

by such stay, including the SBSEF, can 

request that the Commission lift the 

stay.754 The rules also contain certain 

requirements relating to certification of 

the record and service of the index.755

Specifically, within 14 days after receipt 

of an application for review, an SBSEF 

would be required to certify and file 

with the Commission one unredacted 

copy of the record upon which it took 

the complained-of action. The SBSEF 

would be required to file electronically 

with the Commission one copy of an 

index of the record and serve one copy 

of the index on each party, subject to the 

requirements in Rule 442(d)(2) relating 

to sensitive personal information; if 

applicable, these filings would have to 

be certified that they have complied 

with the requirements relating to 

sensitive personal information. These 

requirements are appropriate to ensure 

that sensitive personal information is 

not improperly or inadvertently 

disseminated by an SBSEF as part of its 

filing of the record relating to the appeal 

review. 


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756 17 CFR 201.443. 

757 17 CFR 201.450. 

758 17 CFR 201.460. 

759 17 CFR 200.30–3. 

760 In the Proposing Release, the Commission 

stated that it ‘‘may address delegations of its 

authority in the adopting release for Regulation 

SE.’’ Proposing Release, supra note 1, 87 FR at 

28877. 

761 5 U.S.C. 553(b)(3)(A). 

762See 5 U.S.C. 804(3)(C) (the term ‘‘rule’’ does 

not include ‘‘any rule of agency organization, 

procedure, or practice that does not substantially 

affect the rights or obligations of non-agency 

parties’’). 

763 5 U.S.C. 60 et seq. 

764See 5 U.S.C. 601(2). 

765See 5 CFR 1320.3. 

766 15 U.S.C. 78w(a)(2). 

767See 17 CFR 200.30–3 and 17 CFR 200.30–14 

(sub-delegation language applicable as a result of 

the addition of subparagraphs related to Regulation 

SE to the existing rules). 

The Commission received no 

comment on Proposed Rule 442 and is 

adopting Rule 442 as proposed, with the 

modification to Rule 442(b) described 

above. 

F. Rule 443—Sua sponte Review by 

Commission 

New Rule 443 756 provides that the 

Commission, on its own initiative, can 

order review of any determination by an 

SBSEF (which would include a final 

disciplinary action, a final action with 

respect to a denial or conditioning of 

membership, or a final action with 

respect to a denial or limitation of 

access to any services) that could be 

subject to an application for review 

pursuant to Rule 442(a) within 40 days 

after the SBSEF filed notice thereof. 

Rule 443 further provides that the 

Commission can, at any time before 

issuing its decision, raise or consider 

any matter that it deems material, 

whether or not raised by the parties. If 

it does so, the Commission must, under 

Rule 443, give notice to the parties and 

an opportunity for supplemental 

briefing with respect to issues not 

briefed by the parties, where the 

Commission believes that such briefing 

could significantly aid the decisional 

process. It is appropriate that the 

Commission have the ability to review 

any determination filed by an SBSEF 

that could be subject to an application 

for review under Rule 442(a), even 

without an appeal of that determination 

by an aggrieved party, should the 

Commission believe that further 

consideration is warranted. Therefore, 

the rule provides the Commission 

authority to obtain additional 

information through supplemental 

briefings, as needed. 

The Commission received no 

comment on Proposed Rule 443 and is 

adopting Rule 443 as proposed. 

G. Amendment to Rule 450 

Existing Rule 450 of the Commission’s 

Rules of Practice 757 sets out 

requirements for briefs filed with the 

Commission. Rule 450(a) sets out a 

briefing schedule, and paragraph (a)(2) 

provides that the briefing schedule 

order shall be issued within 21 days, or 

such longer time as provided by the 

Commission, of receipt by the 

Commission of various types of appeals. 

The Commission proposed to amend 

Rule 450 by adding a new paragraph 

(a)(2)(iv) providing that the 21 days 

would be triggered by ‘‘[r]eceipt by the 

Commission of an Index to the record of 

a determination by a security-based 

swap execution facility filed pursuant to 

§ 201.442(d).’’ 

The Commission received no 

comment on the proposed amendment 

to Rule 450 and is adopting this 

amendment to Rule 450 as proposed. 

H. Amendment to Rule 460 

Existing Rule 460 of the Commission’s 

Rules of Practice 758 states that the 

Commission shall determine each 

matter on the basis of the record. Rule 

460(a) defines the contents of the record 

with respect to various types of action. 

The Commission proposed a new 

paragraph (a)(4) of Rule 460, which 

states that, in a proceeding for a final 

decision before the Commission 

reviewing a determination of an SBSEF, 

the record shall consist of: (i) the record 

certified by the SBSEF pursuant to 

§ 201.442(d); (ii) any application for 

review; and (iii) any submissions, 

moving papers, and briefs filed on 

appeal or review. 

The Commission received no 

comment on the proposed amendment 

to Rule 460 and is adopting this 

amendment to Rule 460 as proposed. 

XV. Amendments to Delegations of 

Authority in Rule 30–3 and Rule 30–14 

In connection with the adoption of 

Regulation SE, the Commission is 

revising its rules delegating authority to 

the Director of the Division of Trading 

and Markets (‘‘TM Division Director’’) 

and to the General Counsel in order to 

delegate authority to take actions 

necessary to carry out the rules under 

Regulation SE and to facilitate the 

operation of the regulatory structure 

created in Regulation SE.759 These 

revisions are intended to conserve 

Commission resources and increase the 

effectiveness and efficiency of the 

Commission’s process for handling 

certain processes required by Regulation 

SE and for resolving appeals of SBSEF 

final actions.760 Congress has authorized 

such delegation by Public Law 87–592, 

76 Stat. 394, 15 U.S.C. 78d–1(a), which 

provides that the Commission ‘‘shall 

have the authority to delegate, by 

published order or rule, any of its 

functions to . . . an employee or 

employee board, including functions 

with respect to hearing, determining, 

ordering, certifying, reporting, or 

otherwise acting as to any work, 

business or matter.’’ 

The Commission finds, in accordance 

with the Administrative Procedure Act 

(‘‘APA’’), that these amendments to the 

delegations of authority relate solely to 

agency organization, procedure, or 

practice.761 Accordingly, the APA’s 

provisions regarding notice of 

rulemaking and opportunity for public 

comment are not applicable to these 

rules. These rules do not substantially 

affect the rights or obligations of nonagency parties and pertain to increasing 

efficiency of internal Commission 

operations. For the same reasons, the 

provisions of the Small Business 

Regulatory Enforcement Fairness Act 

are not applicable to these rules.762

Additionally, the provisions of the 

Regulatory Flexibility Act,763 which 

apply only when notice and comment 

are required by the APA or other law, 

are not applicable to these rules.764 The 

amendments to these rules do not 

contain any collection of information 

requirements as defined by the 

Paperwork Reduction Act of 1995.765 To 

the extent that these rules relate to 

agency information collections during 

the conduct of administrative 

proceedings, they are exempt from 

review under the PRA. Further, because 

these amendments impose no new 

burdens on private parties, the 

amendments will not have any impact 

on competition for purposes of section 

23(a)(2) of the Exchange Act.766

Accordingly, the Commission is 

amending its rules, by adding new 

paragraphs (95)–(102) to Rule 30–3, to 

delegate authority to the Division 

Director to perform certain actions 

necessitated by Regulation SE. The 

Commission is also amending 

paragraphs (4), (5), (7), and (8) of Rule 

30–14 (17 CFR 200.30–14) to delegate 

authority to the General Counsel to 

perform certain actions in connection 

with Commission review proceedings of 

SBSEF actions. Under these delegations, 

the Division Director or the General 

Counsel, as applicable, (or, under his or 

her direction, such person or persons as 

might be designated from time to time 

by the Chairman of the Commission 767) 

is authorized to perform the actions 

discussed below. Notwithstanding these 


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768 17 CFR 200.30–3(l) and 17 CFR 200.30–14(l). 769See 17 CFR 200.30–3(a)(95), as adopted 

herein. 770See 17 CFR 200.30–3(a)(96), as adopted 

herein. 

771See 17 CFR 200.30–3(a)(97), as adopted 

herein. 

772See 17 CFR 200.30–3(a)(98), as adopted 

herein. 

773See 17 CFR 200.30–3(a)(99), as adopted 

herein. 

774See 17 CFR 200.30–3(a)(100), as adopted 

herein. 

delegations, the Division Director or the 

General Counsel, as applicable, may 

submit any matter he or she believes 

appropriate to the Commission.768

Furthermore, any action taken by the 

Division Director or the General 

Counsel, as applicable, pursuant to 

delegated authority would be subject to 

Commission review as provided by 

Rules 430 and 431 of the Commission’s 

Rules of Practice, 17 CFR 201.430– 

201.431 and 15 U.S.C. 78d–1(b). 

A. Delegated Authority Related to 

SBSEF Registration and Form SBSEF 

With respect to certain Commission 

actions related to the registration 

process for SBSEFs and the review of 

Form SBSEF under Rule 803 and Rule 

808, the Division Director has delegated 

authority: to publish notice on the 

Commission’s website of a completed 

Form SBSEF and make available on the 

Commission’s website certain specified 

parts of a Form SBSEF; to notify the 

applicant that its application is 

incomplete; to request from the 

applicant additional information and 

documentation necessary; to notify the 

applicant that its application is 

materially incomplete and to specify the 

deficiencies in the application, for 

purposes of staying the 180-day period 

for Commission review of the Form 

SBSEF; and to issue an order vacating 

the SBSEF’s registration and to send a 

copy of the related request and order of 

vacation to all other SBSEFs, SBS 

exchanges, and registered clearing 

agencies that clear security-based 

swaps.769

B. Delegated Authority Related to New 

Products Proposed by an SBSEF 

With respect to certain Commission 

actions related to self-certification of 

new products by an SBSEF under Rule 

804, the Division Director has delegated 

authority: to stay for a period of up to 

90 days the effectiveness of a securitybased swap execution facility’s selfcertification of a new product; to 

publish notice on the Commission’s 

website of a 30-day period for public 

comment; and to withdraw the stay or 

notify the security-based swap 

execution facility that the Commission 

objects to the proposed certification.770

With respect to certain Commission 

actions related to voluntary submission 

of new products by an SBSEF under 

Rule 805, the Division Director has 

delegated authority: to notify the 

submitting SBSEF that a submission for 

a new product does not comply with 

paragraph (a) of Rule 805; to make the 

SBSEF’s submission publicly available 

on the Commission’s website; to extend 

by an additional 45 days the period for 

consideration of a new product 

voluntarily submitted by an SBSEF if 

the product raises novel or complex 

issues that require additional time to 

analyze, and to notify the SBSEF of the 

same; to issue an extension of such 

longer period as to which the SBSEF 

agrees in writing; to approve a proposed 

new product and provide notice of the 

approval to the SBSEF; to notify the 

SBSEF that the Commission will not, or 

is unable to, approve the product, and 

to specify the nature of the issues raised 

and the specific provision of the SEA or 

the Commission’s rules thereunder, that 

the product violates, appears to violate, 

or potentially violates but which cannot 

be ascertained from the submission.771

C. Delegated Authority Related to New 

Rules or Rule Amendments Proposed by 

an SBSEF 

With respect to certain Commission 

actions related to proposed rules or rule 

amendments proposed by an SBSEF 

under Rule 806, the Division Director 

will have delegated authority: to notify 

the submitting SBSEF that a submission 

for a new rule or rule amendment does 

not comply with paragraph (a) of Rule 

806; to make the SBSEF’s submission 

publicly available on the Commission’s 

website; to extend by an additional 45 

days the period for consideration of a 

proposed rule or rule amendment 

voluntarily submitted by an SBSEF if 

the proposed rule or rule amendment 

raises novel or complex issues that 

require additional time to review or is 

of major economic significance, the 

submission is incomplete, or the 

requester does not respond completely 

to the Commission questions in a timely 

manner, and to notify the SBSEF of the 

same; to issue an extension of such 

longer period as to which the SBSEF 

agrees in writing; to approve a proposed 

rule or rule amendment and provide 

notice of the approval to the SBSEF; to 

notify the SBSEF that the Commission 

will not, or is unable to, approve the 

new rule or rule amendment, and to 

specify the nature of the issues raised 

and the specific provisions of the SEA 

or the Commission’s rules thereunder, 

including the form or content 

requirements of Rule 806, with which 

the new rule or rule amendment is 

inconsistent or appears to be 

inconsistent; and to approve a proposed 

rule or a rule amendment, including 

changes to terms and conditions of a 

product, on an expedited basis under 

such conditions as shall be specified in 

the written notification.772

In addition, the Division Director has 

delegated authority to undertake certain 

Commission actions related to proposed 

rules or rule amendments self-certified 

by an SBSEF under Rule 807. 

Specifically, the Division Director has 

delegated authority: to make publicly 

available on the Commission’s website a 

security-based swap execution facility’s 

filing of new rules and rule amendments 

pursuant to the self-certification 

procedures of Rule 807; to stay for a 

period of up to 90 days the effectiveness 

of an SBSEF’s self-certification of a new 

rule or rule amendment; to publish 

notice on the Commission’s website of 

a 30-day period for public comment; 

and to withdraw the stay or notify the 

security-based swap execution facility 

that the Commission objects to the 

proposed certification.773

D. Delegated Authority Related To 

Request for Joint Interpretation 

With respect to a request by an 

SBSEF, the Commission, or the CFTC, 

for a joint interpretation of whether a 

proposed product is a swap, securitybased swap, or mixed swap under 

existing SEA Rule 3a68–2, as 

contemplated by Rule 809, the Division 

Director has delegated authority to 

provide written notice to an SBSEF of 

a stay or tolling pending issuance of a 

joint interpretation.774

E. Delegated Authority Related to SBSEF 

Submissions Contemplated by Rule 811 

With respect to information relating to 

SBSEF compliance under Rule 811, the 

Division Director has delegated 

authority: to request pursuant to Rule 

811(a) that an SBSEF file with the 

Commission information related to its 

business as a security-based swap 

execution facility, and to specify the 

form, manner, and timeframe for the 

filing; to request pursuant to Rule 811(b) 

that an SBSEF file with the Commission 

a written demonstration that it is in 

compliance with one or more Core 

Principles or with its other obligations 

under the SEA or the Commission’s 

rules thereunder and to specify the 

form, manner, and timeframe for such a 

filing; to specify, pursuant to Rule 

811(c)(2), the form and manner of the 

notification required pursuant to Rule 

811(c)(1) by an SBSEF of any 


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775See 17 CFR 200.30–3(a)(101), as adopted 

herein. 

776See 17 CFR 200.30–3(a)(102), as adopted 

herein. 

777See 17 CFR 200.30–14(4) through (5) and (7) 

through (8), as adopted herein. 

778See Proposing Release, supra note 1, 87 FR at 

28937. 

779See Tradeweb Letter, supra note 18, at 6–7. 

780See Bloomberg Letter, supra note 18, at 21. 

781See ISDA–SIFMA Letter, supra note 18, at 6. 

782See id. 

783See supra notes 181–185 and accompanying 

text. 

transaction involving the direct or 

indirect transfer of 50 percent or more 

of the equity interest in the securitybased swap execution facility, and to 

request supporting documentation of 

the transaction; to specify the form and 

manner of the certification required 

pursuant to Rule 811(c)(4) that an 

SBSEF meets all of the requirements of 

section 3D of the SEA and the 

Commission rules thereunder; and to 

specify the form and manner of the 

submission by an SBSEF of documents 

filed in any material legal proceeding to 

which the security-based swap 

execution facility is a party or its 

property or assets is subject, as specified 

in Rule 811(d)(1), or in any material 

legal proceeding instituted against any 

officer, director, or other official of the 

SBSEF from conduct in such person’s 

capacity as an official of the SBSEF, as 

specified in Rule 811(d)(2), and to 

request further documents.775

F. Delegated Authority Related to 

Information Sharing 

With respect to certain Commission 

actions related to information sharing 

under Rule 822, the Division Director 

has delegated authority to require that 

an SBSEF provide information in its 

possession to the Commission and to 

specify the form and manner of that 

provision, and to require an SBSEF 

share information with other regulatory 

organizations, data repositories, and 

third-party data reporting services as 

necessary and appropriate to fulfill the 

SBSEF’s regulatory and reporting 

responsibilities.776

G. Delegated Authority Related to 

Commission Review Proceedings 

With respect to Commission review 

proceedings for final disciplinary 

actions taken by an SBSEF, for denials 

or conditionings of membership, and for 

limitations or denials of access, the 

General Counsel has delegated 

authority: to determine that an 

application for review has been 

abandoned and then to issue an order 

dismissing the application; to determine 

applications to stay Commission orders 

pending appeal of those orders to the 

federal courts and to determine 

application to vacate such stays; to grant 

or deny requests for oral argument 

before the Commission; and to 

determine whether to lift the automatic 

stay of a disciplinary sanction imposed 

by an SBSEF.777

XVI. Compliance Schedule 

In the Proposing Release, the 

Commission stated that it intended to 

include a compliance schedule along 

with any final rules, and it sought 

public comment to assist it in 

developing an appropriate compliance 

schedule.778 The Commission received 

several comments. 

One commenter agrees that SEF 

operators can leverage their experience 

with SEF registration and operation in 

order to comply with any final SBSEF 

rules, but states that creating and 

maintaining a new platform, regardless 

of any similarities to existing systems, 

will inevitably require substantial time 

and resources to ensure operational, 

technical, and regulatory compliance. 

This commenter suggests that the 

Commission provide a compliance 

timeline of at least 12 months following 

the effective date of any final rules.779

Another commenter states that, while 

substantial harmonization should lower 

compliance and operations costs by 

allowing SBSEFs and market 

participants to use their existing 

procedures and systems, it is still 

important to allow sufficient lead time 

for potential SBSEFs and market 

participants to come into compliance 

with the new regulatory framework. The 

commenter states that existing SEFs will 

need to make certain technological 

changes to their platform to conform to 

the new rules and that additional time 

will be required for testing, finalizing a 

new rulebook, and putting in place the 

requisite agreements with SBSEF 

clients. This commenter states that the 

Commission should set a compliance 

date that is at least 18 months from the 

date of effectiveness of any final rule.780

One commenter states that, absent a 

phased-in implementation approach, 

the SBS market could suffer from 

significant disruptions. Therefore, this 

commenter states, the Commission 

should provide ‘‘phased-in compliance’’ 

with the required methods of execution, 

whereby a MAT SBS product may be 

executed on an SBSEF via any method 

of execution until such time as it is 

determined through notice and 

comment that an appropriate level of 

liquidity exists to enable an order book 

or RFQ-to-3 system. This commenter 

states that, when considering the lack of 

liquidity in SBS products, pre-trade 

price transparency via the proposed 

RFQ-to-3 requirement could negatively 

affect liquidity provision for end-users 

because, if clients are required to show 

their hand to three liquidity providers, 

it may lead to information leakage and 

an inability to hedge their risks through 

SBS markets. This is particularly so, the 

commenter says, because there are only 

a relatively small number of active 

dealers for many SBS products.781

This commenter further states that an 

RFQ-to-3 requirement would also be 

problematic for SBS equities, where 

current execution processes are very 

different from their swaps counterpart, 

and where common trading practices 

and counterparty exchanges would not 

be possible on an RFQ-to-3 or order 

book system. The commenter states that 

it has compared the credit swaps 

activity that occurred on-venue in 2012 

(before the CFTC trade execution 

requirement became effective) with the 

credit SBS activity that occurs on venue 

today. The commenter reports that the 

result is that 48.2% of AMRS CDX 

trading client volume was on-venue in 

2012, while only 4.9% of AMRS SNCDS 

trading client volume occurred onvenue in 2022 (up to the date of the 

commenter’s letter). The commenter 

states that this shows that the swaps 

market was much more ready for the 

implementation of the trade execution 

requirement than the credit SBS market 

is today.782

The Commission agrees that some 

period of time will be required for 

would-be SBSEFs not only to register 

with the Commission, but also to create 

a new platform; put in place policies, 

procedures, and arrangements to ensure 

operational, technical and regulatory 

compliance; establish its own rules; and 

put in place the requisite agreements 

with SBSEF clients. The Commission 

does not agree, however, with the 

comment that a separate, ‘‘phased-in’’ 

compliance schedule should be put in 

place for the required methods of 

execution and that the Commission 

should engage in future notice and 

comment before applying the required 

methods of execution to SBS that have 

been made available to trade. First, no 

SBS are currently subject to a clearing 

determination, so it would not be 

possible for any SBSEF to make an SBS 

available to trade and subject it to the 

required methods of execution. Second, 

as discussed above, before an SBS 

becomes subject to the trade execution 

requirement, the Commission would 

have had multiple opportunities to 

consider the trading characteristics of 

the SBS.783 Even after the Commission 

has made a clearing determination with 


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784See supra sections IV.A and B. 

785 17 CFR 240.19b–4. 

786See supra section XII. 

787Once Regulation SE has become effective, 

applications for exemptions under Rule 833 may 

also be submitted. See supra section VII.B 

(discussing cross-border exemptions for foreign 

trading venues and relating to the trade execution 

requirement). 

788See supra section XII (discussing the 

rescission of exemptive relief). 

789See Public Law 111–203 Preamble. 

790The regulation of SBSEFs includes, among 

other things, requiring SBSEFs to comply with the 

Core Principles set forth in section 3D(d) of the 

SEA. See supra section VI. 

791Among other things, the Commission is 

adopting Form SBSEF for persons seeking to 

register with the Commission as an SBSEF and a 

submission cover sheet and instructions to be used 

in rule and product filings made by SBSEFs. 

792See also section VII.A supra and XVII.B.2 infra 

(discussing the global nature of the SBS market). 

respect to an SBS, to make that SBS 

‘‘available to trade,’’ an SBSEF would, 

under Rule 816(a)(1), have to make a 

filing with the Commission under Rule 

806 or Rule 807—both of which would 

allow the Commission to find that a 

filing was not consistent with the 

requirements of the SEA or Regulation 

SE.784 This filing would, under Rule 

816(b), have to address, as appropriate, 

a number of relevant factors, including 

whether there are ready and willing 

buyers and sellers; the frequency or size 

of transactions; the trading volume; the 

number and types of market 

participants; the bid/ask spread; and the 

usual number of resting firm or 

indicative bids and offers. And a 

national securities exchange that wished 

to make an SBS ‘‘available to trade’’ 

would have to file a rule change under 

Rule 19b–4,785 and that proposed rule 

change would be subject to Commission 

review for compliance with the 

requirements of the SEA. Therefore, the 

Commission is not adopting a separate, 

‘‘phased-in’’ compliance schedule for 

the required methods of execution. 

Further, with respect to commenters 

who proposed specific timeframes for 

implementation (e.g., 12 months or 18 

months), the Commission’s proposed 

compliance schedule is better designed 

to facilitate timely and achievable 

implementation of Regulation SE 

because it reflects that the entities that 

are likely to register as SBSEFs have 

been accustomed to operating SBS 

trading platforms pursuant to exemptive 

relief granted by the Commission.786

Thus, it is appropriate to provide these 

entities with a reasonable period of 

time—through a compliance schedule 

tied to the completion of the steps 

required for registration as an SBSEF— 

to come into compliance with the 

requirements of Regulation SE. Further, 

because most, if not all, entities that 

seek to register as SBSEFs will be CFTCregistered SEFs—and because the 

Commission has sought to harmonize 

both the registration form and exhibits 

for SBSEFs and the substance of the 

rules applicable to SBSEFs with the 

CFTC regulations applicable to SEFs— 

the entities seeking to register as 

SBSEFs will be able to complete the 

each of the steps necessary for 

registration in the allotted periods. 

Therefore, the Commission is 

adopting the following compliance 

schedule for Regulation SE. The SBSEF 

rules shall become effective 60 days 

after the date of publication in the 

Federal Register (‘‘Effective Date’’). 

Once Regulation SE has become 

effective, any entity that meets the 

definition of SBSEF may file an 

application to register with the 

Commission on Form SBSEF at any time 

after the Effective Date.787 As discussed 

above,788 the Temporary SBSEF 

Exemptions will expire 180 days after 

the Effective Date for any entity that has 

not filed an application to register with 

the Commission on Form SBSEF. Thus, 

an entity that meets the definition of 

SBSEF and engages in such activities 

but fails to submit an application on 

Form SBSEF by 180 days after the 

Effective Date would be in violation of 

the registration requirement of Rule 803. 

For an entity that has submitted an 

application on Form SBSEF by 180 days 

after the Effective Date, the exemptive 

relief relating to SBSEF registration 

would expire 240 days after the 

Effective Date, except with respect to an 

entity whose application on Form 

SBSEF is complete (having responded to 

requests by the Commission’s staff for 

revisions or amendments) within 240 

days of the Effective Date. An entity that 

has submitted an application within 180 

days of the Effective Date and whose 

application is complete within 240 days 

of the Effective Date will continue to 

benefit from the exemption from 

registration until 30 days after the 

Commission acts to approve or 

disapprove the application on Form 

SBSEF. 

XVII. Economic Analysis 

A. Introduction 

To increase the transparency and 

oversight of the OTC derivatives 

market,789 Title VII of the Dodd-Frank 

Act requires the Commission to 

undertake a number of rulemakings to 

implement the regulatory framework for 

SBS that is set forth in the legislation, 

including among other things, (1) the 

registration and regulation 790 of 

SBSEFs; and (2) mitigating conflicts of 

interest with respect to SBSEFs, SBS 

exchanges, and SBS clearing agencies. 

To satisfy these statutory mandates, the 

Commission is adopting Regulation SE 

and associated forms under section 3D 

of the SEA that would create a regime 

for the registration and regulation of 

SBSEFs and address other issues 

relating to SBS execution generally.791

One of the rules being adopted as part 

of Regulation SE, Rule 834, implements 

section 765 of the Dodd-Frank Act, 

which is intended to mitigate conflicts 

of interest at SBSEFs and SBS 

exchanges. Other rules being adopted as 

part of Regulation SE address the crossborder application of the SEA’s trading 

venue registration requirements and the 

trade execution requirement for SBS. 

In addition, the Commission is 

amending existing Rule 3a1–1 under the 

SEA to exempt, from the SEA definition 

of ‘‘exchange,’’ registered SBSEFs that 

provide a market place for no securities 

other than SBS, and certain registered 

clearing agencies. The Commission is 

also adopting new Rule 15a–12 under 

the SEA that, while affirming that an 

SBSEF also would be a broker under the 

SEA, would exempt a registered SBSEF 

from certain broker requirements. The 

Commission is also adopting certain 

new rules and amendments to its Rules 

of Practice to allow persons who are 

aggrieved by certain actions by an 

SBSEF to apply for review by the 

Commission. 

Currently, SBS trade in the OTC 

market, rather than on regulated trading 

venues. The existing market for SBS is 

opaque, with little, if any, pre-trade 

transparency. With limited 

transparency, the information 

asymmetry between liquidity providers 

(i.e., SBS dealers) and end users could 

be significant. Specifically, liquidity 

providers may observe information 

about the trading process (e.g., trading 

interest, quotes, order flows, and trades) 

that end users typically cannot observe. 

The SBS market also is decentralized 

such that market participants incur 

search costs to locate other market 

participants in order to trade. 

While the SBS market is 

decentralized, it also is interconnected 

and global in scope.792 SBS dealers can 

have hundreds of counterparties, 

consisting of end users and other SBS 

dealers. Trading venues may serve 

hundreds of end user and SBS dealer 

participants. SBS transactions arranged, 

negotiated, or executed by personnel 

located in the U.S. may involve wholly 

foreign counterparties. Furthermore, 

U.S. persons may choose to trade SBSs 

on foreign venues, which are subject to 


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793Only ECPs are eligible to trade on an SBSEF, 

and retail investors would have access to an SBS 

only after an SBS exchange has filed a proposed 

rule change with the Commission under Rule 19b– 

4, 17 CFR 240.19b–4, to amend its rules to permit 

the listing of a registered SBS, with that proposed 

rule change being published for public comment. 

See supra note 103. 

794See, e.g., Nasdaq v. SEC, 34 F.4th 1105, 1111– 

15 (D.C. Cir. 2022). This approach also follows SEC 

staff guidance on economic analysis for rulemaking. 

See Staff’s ‘‘Current Guidance on Economic 

Analysis in SEC Rulemaking’’ (Mar. 16, 2012), 

available at https://www.sec.gov/divisions/riskfin/ 

rsfi_guidance_econ_analy_secrulemaking.pdf (‘‘The 

economic consequences of proposed rules 

(potential costs and benefits including effects on 

efficiency, competition, and capital formation) 

should be measured against a baseline, which is the 

best assessment of how the world would look in the 

absence of the proposed action.’’); Id. at 7 (‘‘The 

baseline includes both the economic attributes of 

the relevant market and the existing regulatory 

structure.’’). The best assessment of how the world 

would look in the absence of the proposed or final 

action typically does not include recently proposed 

actions, because doing so would improperly assume 

the adoption of those proposed actions. 

795See Further Definition of ‘‘Swap Dealer,’’ 

‘‘Security-Based Swap Dealer,’’ ‘‘Major Swap 

Participant,’’ ‘‘Major Security-Based Swap 

Participant’’ and ‘‘Eligible Contract Participant,’’ 

SEA Release No. 66868 (Apr. 27, 2012), 77 FR 

30596 (May 23, 2012) (‘‘Intermediary Definitions 

Adopting Release’’). 

796See Application of ‘‘Security-Based Swap 

Dealer’’ and ‘‘Major Security-Based Swap 

Participant’’ Definitions to Cross-Border SecurityBased Swap Activities, SEA Release No. 72472 

(June 25, 2014), 79 FR 47278 (Aug. 12, 2014) 

(‘‘Cross-Border Adopting Release’’). 

797See Security-Based Swap Data Repository 

Registration, Duties, and Core Principles, SEA 

Release No. 74246 (Feb. 11, 2015), 80 FR 14438 

(Mar. 19, 2015) (‘‘SDR Rules and Core Principles 

Adopting Release’’). 

798See Regulation SBSR Adopting Release I, 

supra note 140. 

799See Registration Process for Security-Based 

Swap Dealers and Major Security-Based Swap 

Participants, SEA Release No. 75611 (Aug. 5, 2015), 

80 FR 48964 (Aug. 14, 2015) (‘‘Registration 

Adopting Release’’). 

800See Security-Based Swap Transactions 

Connected with a Non-U.S. Person’s Dealing 

Activity That Are Arranged, Negotiated, or 

Executed By Personnel Located in a U.S. Branch or 

Office or in a U.S. Branch or Office of an Agent; 

Security-Based Swap Dealer De Minimis Exception, 

SEA Release No. 77104 (Feb. 10, 2016), 81 FR 8598 

(Feb. 19, 2016) (‘‘ANE Adopting Release’’). 

801See Business Conduct Standards Release, 

supra note 101. 

802See Trade Acknowledgment and Verification 

of Security-Based Swap Transactions, SEA Release 

No. 78011 (June 8, 2016), 81 FR 39808 (June 17, 

2016) (‘‘Trade Acknowledgment and Verification 

Adopting Release’’). 

803See Regulation SBSR—Reporting and 

Dissemination of Security-Based Swap Information, 

SEA Release No. 78321 (July 14, 2016), 81 FR 53546 

(Aug. 12, 2016) (‘‘Regulation SBSR Adopting 

Release II’’). 

804See Applications by Security-Based Swap 

Dealers or Major Security-Based Swap Participants 

for Statutorily Disqualified Associated Persons To 

Effect or Be Involved in Effecting Security-Based 

Swaps, SEA Release No. 84858 (Dec. 19, 2018), 84 

FR 4906 (Feb. 19, 2019) (‘‘Rule of Practice 194 

Adopting Release’’). 

805See Capital, Margin, and Segregation 

Requirements for Security-Based Swap Dealers and 

Major Security-Based Swap Participants and Capital 

and Segregation Requirements for Broker-Dealers, 

SEA Release No. 86175 (June 21, 2019), 84 FR 

43872 (Aug. 22, 2019) (‘‘Capital, Margin, and 

Segregation Adopting Release’’). 

806See Recordkeeping and Reporting Adopting 

Release, supra note 704. 

807See Risk Mitigation Techniques for Uncleared 

Security-Based Swaps, SEA Release No. 87782 (Dec. 

18, 2019), 85 FR 6359 (Feb. 4, 2020) (‘‘Risk 

Mitigation Adopting Release’’). 

808See Cross-Border Application of Certain 

Security-Based Swap Requirements, SEA Release 

No. 87780 (Dec. 18, 2019), 85 FR 6270 (Feb. 4, 2020) 

(‘‘Cross-Border Amendments Adopting Release’’). 

809See Exemption from the Definition of 

‘‘Clearing Agency’’ for Certain Activities of 

Security-Based Swap Dealers and Security-Based 

Swap Execution Facilities, SEA Release No. 90667 

(Dec. 16, 2020), 86 FR 7637 (Feb. 1, 2021) 

(‘‘Clearing Exemption Adopting Release’’). 

810See supra section III and note 46. 

811See Key Dates for Registration of SecurityBased Swap Dealers and Major Security-Based 

Swap Participants, available at https://

www.sec.gov/page/key-dates-registration-securitybased-swap-dealers-and-major-security-basedswap-participants. 

812See List of Registered Security-Based Swap 

Dealers and Major Security-Based Swap 

Participants, available at https://www.sec.gov/files/ 

list-sbsds-msbsps-9-28-2023-locked-final.xlsx 

(providing the list of registered SBS dealers and 

major SBS participants that was updated as of Sept. 

28, 2023). 

OTC derivatives regulations imposed by 

local regulatory authorities. 

The adopted rules and amendments 

will affect SBSEFs, SBS exchanges, 

foreign SBS trading venues, and ECPs 

(i.e., SBS dealers and end users).793 In 

addition, the adopted rules and 

amendments will affect entities that act 

as third-party service providers to 

SBSEFs. 

The Commission is mindful of the 

economic effects, including the costs 

and benefits, of the adopted rules and 

amendments. Section 3(f) of the SEA, 15 

U.S.C. 78c(f), directs the Commission, 

when engaging in rulemaking where it 

is required to consider or determine 

whether an action is necessary or 

appropriate in the public interest, to 

consider, in addition to the protection of 

investors, whether the action will 

promote efficiency, competition, and 

capital formation. In addition, section 

23(a)(2) of the SEA, 15 U.S.C. 78w(a)(2), 

requires the Commission, when making 

rules under the SEA, to consider the 

impact that the rules would have on 

competition, and 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 SEA. 

The analysis below addresses the 

likely economic effects of the adopted 

rules and amendments, including their 

anticipated and estimated benefits and 

costs and their likely effects on 

efficiency, competition, and capital 

formation. The Commission also 

discusses the potential economic effects 

of certain alternatives to the approaches 

taken in this release. The Commission 

received a number of comments related 

to various aspects of the economic 

analysis in the Proposing Release. The 

Commission has considered and 

responds to these comments in the 

sections that follow. 

B. Economic Baseline 

1. Existing Regulatory Framework 

The economic analysis appropriately 

considers existing regulatory 

requirements, including recently 

adopted rules, as part of its economic 

baseline against which the costs and 

benefits of the adopted rules and 

amendments are measured.794 The 

analysis includes provisions of the SEA, 

as amended by the Dodd-Frank Act, that 

currently govern the SBS market, and 

rules adopted by the Commission 

thereunder, including in the 

Intermediary Definitions Adopting 

Release,795 the Cross-Border Adopting 

Release,796 the SDR Rules and Core 

Principles Adopting Release,797 the 

Regulation SBSR Adopting Release I,798

the Registration Adopting Release,799

the ANE Adopting Release,800 the 

Business Conduct Adopting Release,801

the Trade Acknowledgement and 

Verification Adopting Release,802 the 

Regulation SBSR Adopting Release II,803

the Rule of Practice 194 Adopting 

Release,804 the Capital, Margin, and 

Segregation Adopting Release,805 the 

Recordkeeping and Reporting Adopting 

Release,806 the Risk Mitigation Adopting 

Release,807 the Cross-Border 

Amendments Adopting Release,808 and 

the Clearing Exemption Adopting 

Release.809 The baseline also includes 

the Temporary SBSEF Exemptions 810

and the CFTC rules that apply to CFTCregistered SEFs. 

2. Security-Based Swap Data, Market 

Participants, Dealing Structures, Levels 

of Security-Based Swap Trading 

Activity, and Market Participant 

Domiciles 

Final SBS Entity registration rules 

have been adopted and compliance was 

required as of November 1, 2021.811 As 

of September 28, 2023, there were 51 

entities registered with the Commission 

as SBS dealers, and no entity registered 

as a major SBS participant.812 One 

commenter asserts that not all registered 

SBS dealers are consistently active in 

trading SBS. Trading activity in the SBS 

markets tends to be more concentrated 

among a subset of such registered SBS 


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813See ISDA–SIFMA Letter, supra note 18, at 2 

n.5. 

814See SEC Approves Registration of First 

Security-Based Swap Data Repository; Sets the First 

Compliance Date for Regulation SBSR, available at 

https://www.sec.gov/news/press-release/2021-80. 

815 DDR operates as a registered SBSDR for 

security-based swap transactions in the credit, 

equity, and interest rate derivatives asset classes. 

ITV operates as a registered SBSDR for securitybased swap transactions in the credit derivatives 

asset class. See Security-Based Swap Data 

Repositories; DTCC Data Repository (U.S.) LLC; 

Order Approving Application for Registration as a 

Security-Based Swap Data Repository, Exchange 

Act Release No. 91798 (May 7, 2021), 86 FR 26115 

(May 12, 2021); Security-Based Swap Data 

Repositories; ICE Trade Vault, LLC; Order 

Approving Application for Registration as a 

Security-Based Swap Data Repository, Exchange 

Act Release No. 92189 (June 16, 2021), 86 FR 32703 

(June 22, 2021). The statistics presented herein are 

based on the Report on Security-Based Swaps 

Pursuant to section 13(m)(2) of the Securities 

Exchange Act of 1934, that the Commission issued 

on Mar. 20, 2023 and is available at https://

www.sec.gov/files/report-security-based-swaps032023.pdf (‘‘SBS Report’’). 

816 In this release, interest-rate security-based 

swaps refer to non-CDS debt security-based swaps, 

which are primarily total return swaps that 

replicate the payoff of a bond or a narrow index of 

bonds, where the buyer usually pays either a fixed 

or floating benchmark rate to the seller in exchange 

for the total return of the bond or the narrow index 

of bonds. These swaps are a subset of over-thecounter derivatives in the interest-rate asset class. 

817Active security-based swaps are those that 

have been neither terminated nor reached their 

scheduled maturity and are therefore open 

positions as of Nov. 25, 2022. Gross notional 

amount outstanding represents the total outstanding 

notional value of active, market-facing securitybased swaps on Nov. 25, 2022. Security-based 

swaps are considered to be ‘‘market-facing’’ when 

they are executed at arms-length between third 

parties. While a reporting party is only required to 

report a transaction to one SBSDR—either DDR or 

ITV—some uncleared security-based swaps in DDR 

also appear in ITV. As of Nov. 25, 2022, there were 

605 active credit security-based swaps in ITV that 

were reported as uncleared (0.4% of the 154,903 

active credit security-based swaps in ITV). The 605 

active credit security-based swaps had a gross 

notional outstanding of $4.73 billion (0.3% of the 

approximately $1,900 billion gross notional 

outstanding of all active credit security-based swaps 

in ITV). These statistics provide an upper bound of 

the overlap between ITV and DDR and indicate that 

the overlap is very limited in scope. See SBS 

Report, supra note 815, at 4, 10. 

818An equity swap references a single underlier 

while an equity portfolio swap involves a portfolio 

wrapper under which multiple swaps can be traded 

with operational efficiency. See ISDA, Central 

Clearing in the Equity Derivatives Market: An ISDA 

Study (June 2014) at 10, available at https://

www.isda.org/a/6PDDE/central-clearing-in-the-eqdmarket-final.pdf; ISDA Taxonomy 2.0—Finalized, 

ISDA.org (Sept. 4, 2019), available at https://

www.isda.org/a/o1MTE/ISDA-Taxonomy_EQ-CRFX-IR_v2.0__3-_September_2019-FINAL.xls. 

dealers, which increases liquidity 

concerns in these markets.813

Market participants such as SBS 

dealers and major SBS participants were 

required to report security-based swap 

transactions to registered security-based 

swap data repositories (‘‘SBSDRs’’) 

pursuant to Regulation SBSR beginning 

on November 8, 2021.814

The Commission uses information 

reported pursuant to Regulation SBSR to 

two registered SBSDRs—Depository 

Trust & Clearing Corporation Data 

Repository (‘‘DDR’’) and ICE Trade 

Vault (‘‘ITV’’)—to describe the 

baseline.815 Table 1 shows that U.S. 

security-based swaps market activity is 

split across three asset classes: credit, 

equity, and interest rate.816 Based on 

information reported to DDR, as of 

November 25, 2022, there were 

approximately 523,000, 3.4 million, and 

5,700 active security-based swaps in the 

credit, equity, and interest rate asset 

classes, respectively. The gross notional 

amounts outstanding in the credit, 

equity, and interest rate asset classes 

were respectively, approximately $2.8, 

$3.6, and $0.18 trillion.817 Based on 

information reported to ITV, as of 

November 25, 2022, there were 

approximately 155,000 active credit 

security-based swaps with gross 

notional amount outstanding of 

approximately $1.9 trillion. 

Table 1 also shows that U.S. SBS 

market participants trade a variety of 

security-based swaps in each of the 

three asset classes. Based on 

information reported to DDR, as of 

November 25, 2022, for active credit 

security-based swaps, single-name 

corporate CDS constitute the largest 

product type, with approximately 

364,000 active CDS and $1.6 trillion 

gross notional amount outstanding. The 

second largest active credit securitybased swaps product type consists of 

single-name sovereign CDS, with 

approximately 94,000 active CDS and 

$0.9 trillion gross notional amount 

outstanding. 

For active equity security-based 

swaps, equity portfolio swaps constitute 

the largest product type, with 

approximately 2.3 million active equity 

portfolio swaps and $1.7 trillion gross 

notional amount outstanding. The 

second largest active equity securitybased swaps product type consists of 

equity swaps, with approximately 

492,000 active equity swaps and $1.2 

trillion gross notional amount 

outstanding.818

In the interest rate asset class, exotics 

constitute the largest product type, with 

approximately $0.1 trillion gross 

notional amount and 4,400 active exotic 

swaps outstanding. 

Based on information reported to ITV, 

as of November 25, 2022, active credit 

security-based swaps fall into two 

product types. Single-name corporate 

CDS constitute the largest product type, 

with approximately 135,000 active CDS 

and $1.3 trillion gross notional amount 

outstanding. The second largest active 

credit security-based swaps product 

type consists of single-name sovereign 

CDS, with approximately 20,000 active 

CDS and $0.5 trillion gross notional 

amount outstanding. 

TABLE 1—GROSS NOTIONAL AMOUNT AND ACTIVE SECURITY-BASED SWAPS OUTSTANDING ON NOV. 25, 2022, 

CATEGORIZED BY ASSET CLASS AND PRODUCT CLASSIFICATION a

SBSDR Asset class Product type 

Gross notional 

amount 

outstanding 

(millions of 

USD) 

Active 

security-based 

swap count 

DDR ..................... Credit ............................................. Index .......................................................................... 44,407 2,992 

Single-Name: Corporate ............................................ 1,556,315 364,465 

Single-Name: Sovereign ............................................ 900,072 93,807 

Total Return Swap b .................................................. 156,849 49,867 

Other c ........................................................................ 122,970 12,081 

Total ....................................................................... 2,780,613 523,212 

Equity ............................................. Portfolio Swap ........................................................... 1,688,672 2,266,706 

Swap .......................................................................... 1,183,279 491,508 

Contract For Difference ............................................. 398,952 642,965 

Option ........................................................................ 6,915 1,281 

Forward ...................................................................... 5,663 1,393 


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819For cleared security-based swaps where at 

least one counterparty is an SBS Entity, Table 2 

reflects the security-based swaps entered into by 

each of the original counterparties, but does not 

include the positions of the clearing agencies 

themselves. For uncleared security-based swaps, 

Table 2 reflects the security-based swaps entered 

into by each of the original counterparties. See SBS 

Report, supra note 815, at 5. 

TABLE 1—GROSS NOTIONAL AMOUNT AND ACTIVE SECURITY-BASED SWAPS OUTSTANDING ON NOV. 25, 2022, 

CATEGORIZED BY ASSET CLASS AND PRODUCT CLASSIFICATION a—Continued 

SBSDR Asset class Product type 

Gross notional 

amount 

outstanding 

(millions of 

USD) 

Active 

security-based 

swap count 

Other d ........................................................................ 330,136 41,115 

Total ....................................................................... 3,613,617 3,444,968 

Interest Rate .................................. Exotic ......................................................................... 153,306 4,419 

Forward ...................................................................... 23,818 1,164 

Other e ........................................................................ 868 122 

Total ....................................................................... 177,992 5,705 

ITV ....................... Credit ............................................. Single-Name: Corporate ............................................ 1,348,002 134,741 

Single-Name: Sovereign ............................................ 544,414 20,162 

Total ....................................................................... 1,892,416 154,903 

aFor cleared security-based swaps in DDR, this table incorporates only one of the two security-based swaps that result from the clearing process. For ITV, this table incorporates all of the cleared security-based swaps. bAs a general matter, total return swaps include non-CDS debt-based security swaps, equity-based security swaps, and mixed swaps. 

Counterparties in the total return swaps market use the contracts to obtain exposure, usually leveraged, to the total economic performance of a 

security or index and benefit from not having to own the security itself. Market participants, such as mutual funds, hedge funds, and endowments, use total return swaps to obtain exposure in markets where they would face difficulties purchasing or selling the underlying security (e.g., 

a market participant may find it difficult to buy a foreign company’s security or locate a security to sell short) while taking advantage of the capital 

efficiencies of not holding the security in their inventories. c Includes the following products reported to SBSDRs: exotic, index tranche, swaptions, and other single-name (e.g., asset-backed, loan, and 

municipal security-based swaps). d ‘‘Other’’ is a category in the DDR Equity Product ID field. All Product ID categories are listed in the table. 

e Includes the following products reported to SBSDRs: inflation, debt option, and cross-currency. 

Table 2 shows that both SBS Entities 

and non-SBS Entities participate in all 

three asset classes in the U.S. securitybased swap market. Based on 

information reported to DDR, as of 

November 25, 2022, SBS Entities and 

non-SBS Entities had, respectively, 

entered into approximately 813,000 and 

234,000 active credit security-based 

swaps.819 The gross notional amounts 

outstanding of the active credit securitybased swaps held by SBS Entities and 

non-SBS Entities were, respectively, 

approximately $4.4 and $1.2 trillion. 

In the equity asset class, SBS Entities 

and non-SBS Entities had, respectively, 

entered into approximately 4.0 million 

and 2.9 million active equity securitybased swaps. The gross notional 

amounts outstanding of the active 

equity security-based swaps held by 

SBS Entities and non-SBS Entities were, 

respectively, approximately $4.5 and 

$2.7 trillion. 

In the interest rate asset class, SBS 

Entities and non-SBS Entities had, 

respectively, entered into approximately 

6,200 and 5,200 active interest rate 

security-based swaps. The gross 

notional amounts outstanding of the 

active interest rate security-based swaps 

held by SBS Entities and non-SBS 

Entities were, respectively, 

approximately $0.2 and $0.1 trillion. 

Based on information reported to ITV, 

as of November 25, 2022, SBS Entities 

and non-SBS Entities had, respectively, 

entered into approximately 123,000 and 

33,000 active credit security-based 

swaps. The gross notional amounts 

outstanding of the active credit securitybased swaps held by SBS Entities and 

non-SBS Entities were, respectively, 

approximately $1.6 and $0.3 trillion. 

TABLE 2—GROSS NOTIONAL AMOUNT AND ACTIVE SECURITY-BASED SWAPS OUTSTANDING ON NOV. 25, 2022, 

CATEGORIZED BY ASSET CLASS AND REGISTRANT TYPE a

SBSDR Asset class Registrant type 

Gross notional 

amount 

outstanding 

(millions of 

USD) 

Active 

security-based 

swap count 

DDR ..................... Credit ............................................. Total ........................................................................... 5,561,226 1,046,424 

SBS Entities ........................................................... 4,403,130 812,647 

Other ...................................................................... 1,158,096 233,777 

Equity ............................................. Total ........................................................................... 7,227,234 6,889,936 

SBS Entities ........................................................... 4,490,592 4,013,393 

Other ...................................................................... 2,736,642 2,876,543 

Interest Rate .................................. Total ........................................................................... 355,984 11,410 

SBS Entities ........................................................... 210,663 6,214 

Other ...................................................................... 145,321 5,196 

ITV ....................... Credit ............................................. Total ........................................................................... 1,897,249 155,578 

SBS Entities ........................................................... 1,632,251 122,831 


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820 DTCC–TIW provided weekly positions and 

monthly transaction files for single-name and 

index-based CDS that had been received voluntarily 

from market participants. These data cover all 

positions and transactions where one of the 

counterparties is a U.S. entity or the reference entity 

is a U.S. entity, with status as a U.S. entity 

determined by DTCC–TIW. In DTCC–TIW, the 

Commission observes end of week CDS positions 

for all U.S. entities, foreign counterparties to a U.S. 

entity, or foreign counterparties trading a CDS 

referencing a U.S. underlying entity. The DTCC– 

TIW data have limitations. The data do not address 

two foreign counterparties with CDS referencing 

foreign underlying entities. In addition, the DTCC– 

TIW data do not provide any intra-weekly CDS 

position information, nor any information on the 

underlying security holdings of reference entities. 

The Commission had used DTCC–TIW data in prior 

rulemakings, most recently in Prohibition Against 

Fraud, Manipulation, or Deception in Connection 

with Security-Based Swaps; Prohibitions Against 

Undue Influence over Chief Compliance Officers, 

SEA Release No. 97656 (June 7, 2023), 88 FR 42546 

(June 30, 2023). 

821See supra note 820 (discussing DTCC–TIW 

data limitations). The Commission also relies on 

qualitative information regarding market structure 

and evolving market practices provided by 

commenters and the knowledge and expertise of 

Commission staff. 

822 Dealers are generally persons engaged in the 

business of buying and selling securities for their 

own account, through a broker or otherwise. 15 

U.S.C. 78c(a)(5). SEA Rule 3a71–1 defines the term 

security-based swap dealer. 17 CFR 240.3a71–1. 

823Transacting agents participate directly in the 

single-name CDS market, without relying on an 

intermediary, on behalf of their principals. For 

example, a university endowment may hold a 

position in a single-name CDS that is established by 

an investment adviser that transacts on the 

endowment’s behalf. In this case, the university 

endowment is a principal that uses the investment 

adviser as its transacting agent. 

824These 2,397 transacting agents, which are 

presented in more detail in Table 3 below, include 

all DTCC-defined ‘‘firms’’ shown in DTCC–TIW as 

transaction counterparties that report at least one 

transaction to DTCC–TIW as of Sep. 2022. The staff 

in the Division of Economic and Risk Analysis 

classified these transacting agents by matching 

names, automatically or manually, to third-party 

databases. See, e.g., ANE Adopting Release, 81 FR 

8602, at n.43. Manual classification was based in 

part on searches of the EDGAR and Bloomberg 

databases, the SEC’s Investment Adviser Public 

Disclosure database (available at https://

adviserinfo.sec.gov/), and a firm’s public website or 

the public website of the account represented by a 

firm. The staff also matched names using 

International Swaps and Derivatives Association 

(ISDA) protocol adherence letters available on the 

ISDA website. See ISDA, Small Bang Protocol List 

of Adhering Parties, available at https://

www.isda.org/traditional-protocol/small-bangprotocol/adhering-parties/; ISDA, Small Bang 

Protocol List of Adhering Parties, https://

www.isda.org/traditional-protocol/big-bangprotocol/adhering-parties/. 

825See 15 U.S.C. 80b–1 through 80b–21. The staff 

in the Division of Economic and Risk Analysis 

determined whether an entity is an SEC registered 

investment adviser using the Investment Adviser 

Public Disclosure website. See supra note 824. 

TABLE 2—GROSS NOTIONAL AMOUNT AND ACTIVE SECURITY-BASED SWAPS OUTSTANDING ON NOV. 25, 2022, 

CATEGORIZED BY ASSET CLASS AND REGISTRANT TYPE a—Continued 

SBSDR Asset class Registrant type 

Gross notional 

amount 

outstanding 

(millions of 

USD) 

Active 

security-based 

swap count 

Other ...................................................................... 264,998 32,747 

aFor cleared security-based swaps where at least one counterparty is an SBS Entity, Table 2 reflects the security-based swaps entered into by 

each of the original counterparties, but does not include the positions of the clearing agencies themselves. For uncleared security-based swaps, 

Table 2 reflects the security-based swaps entered into by each of the original counterparties. 

In addition to information reported to 

registered SBSDRs, the Commission also 

uses nonpublic data from the DTCC 

Derivatives Repository Limited Trade 

Information Warehouse (‘‘DTCC–TIW’’) 

to describe the baseline, specifically the 

single-name CDS market. DTCC–TIW 

provided data regarding the activity of 

market participants in the single-name 

CDS market during the period from 

November 2006 to September 2022.820

The Commission acknowledges that 

limitations in the data constrain the 

extent to which it is possible to 

quantitatively characterize the securitybased swap market.821

Firms that act as SBS dealers 822 play 

a central role in the single-name CDS 

market. Based on an analysis of singlename CDS data in DTCC–TIW in the 12- 

month period from October 2021 to 

September 2022, accounts of registered 

SBS dealer firms intermediated 

transactions with a gross notional 

amount of approximately $1.7 trillion, 

with approximately 66% of the gross 

notional intermediated by the top five 

SBS dealer accounts. 

These SBS dealers transact with 

hundreds or thousands of 

counterparties. One SBS dealer (when 

accounts are sorted by number of 

counterparties) transacted with over a 

thousand counterparty accounts, 

consisting of both other SBS dealers and 

non-SBS dealers. The next 13% of SBS 

dealers each transacted with 500 to 

1,000 counterparty accounts; the 

following 21% of SBS dealers each 

transacted with 100 to 500 counterparty 

accounts; and 64% of SBS dealers each 

transacted security-based swaps with 

fewer than 100 counterparty accounts in 

the 12-month period from October 2021 

to September 2022. The median number 

of counterparty accounts across SBS 

dealers is 18 (the mean is approximately 

172). Non-SBS dealer counterparties 

transacted almost exclusively with these 

SBS dealers. The median non-SBS 

dealer counterparty transacted with one 

SBS dealer account (with an average of 

approximately 1.8 SBS dealer accounts) 

in the 12-month period from October 

2021 to September 2022. 

Non-SBS dealer single-name CDS 

market participants include, but are not 

limited to, investment companies, 

pension funds, private funds, sovereign 

entities, and industrial companies. The 

Commission observes that most users of 

CDS that are not SBS dealers do not 

engage in trading directly, but trade 

through banks, investment advisers, or 

other types of firms, which are 

collectively referred to as transacting 

agents, consistent with DTCC–TIW 

terminology.823 Based on an analysis of 

DTCC–TIW data, there were 2,397 

transacting agents that engaged directly 

in trading between November 2006 and 

September 2022.824

As shown in Table 3 below, 

approximately 79% of these transacting 

agents were identified as investment 

advisers, of which approximately 40% 

(about 32% of all transacting agents) 

were registered as investment advisers 

under the Investment Advisers Act.825

Although investment advisers were the 

vast majority of transacting agents, the 

transactions they executed account for 

only 15% of all single-name CDS 

trading activity reported to DTCC–TIW, 

measured by number of transactionsides (each transaction has two 

transaction sides, i.e., two transaction 

counterparties). The vast majority of 

transactions (81.3%) measured by 

number of transaction-sides were 

executed by ISDA-recognized SBS 

dealers. 


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826 ‘‘Accounts’’ as defined in the DTCC–TIW 

context are not equivalent to ‘‘accounts’’ in the 

definition of ‘‘U.S. person’’ in SEA Rule 3a71– 

3(a)(4)(i)(C). They also do not necessarily represent 

separate legal persons. One entity or legal person 

might have multiple accounts. For example, a bank 

may have one DTCC–TIW account for its U.S. 

headquarters and one DTCC–TIW account for one 

of its foreign branches. 

827Unregistered investment advisers include all 

investment advisers not registered under the 

Investment Advisers Act and might include 

investment advisers registered with a state or a 

foreign authority, as well as investment advisers 

that are exempt reporting advisers under section 

203(l) or 203(m) of the Investment Advisers Act. 

828Most of the funds that could not be classified 

appear to be private funds. For the purposes of this 

discussion, ‘‘private fund’’ encompasses various 

unregistered investment vehicles, including hedge 

funds, private equity funds, and venture capital 

funds. There remain over almost 7,000 DTCC–TIW 

accounts unclassified by type. Although 

unclassified, Commission staff manually reviewed 

each account to verify that it was not likely to be 

a special entity under SEA Rule 15Fh–2(d) and 

instead was likely to be an entity such as a 

corporation, an insurance company, or a bank. 

TABLE 3—THE NUMBER OF TRANSACTING AGENTS BY COUNTERPARTY TYPE AND THE FRACTION OF TOTAL TRADING

ACTIVITY, FROM NOV. 2006 THROUGH SEP. 2022, REPRESENTED BY EACH COUNTERPARTY TYPE

Transacting agents Number Percent 

Transaction 

share 

(percent) 

Investment Advisers .................................................................................................................... 1,891 78.9 15.0 

—SEC registered ......................................................................................................................... 762 31.8 10.0 

Banks (non-ISDA-recognized SBS dealers) ................................................................................ 279 11.6 3.3 

Pension Funds ............................................................................................................................. 31 1.3 0.1 

Insurance Companies .................................................................................................................. 49 2.0 0.2 

ISDA-Recognized SBS Dealers a ................................................................................................ 17 0.7 81.3 

Other b .......................................................................................................................................... 130 5.4 0.2 

Total ...................................................................................................................................... 2,397 100.0 100 

aFor the purpose of this analysis, the ISDA-recognized SBS dealers are those identified by ISDA as belonging to the G14 or G16 dealer group 

during the period. See, e.g., ISDA, 2010 ISDA Operations Benchmarking Survey (2010), available at https://www.isda.org/a/5eiDE/isda-operations-survey-2010.pdf. bThis category excludes clearing counterparties (CCPs). Same-day cleared trades are recorded in the DTCC dataset as two clearing legs, 

each between a CCP (ICE Clear Credit, ICE Clear Europe, and LCH.Clearnet) and the original counterparty in the underlying trade. As these are 

not price-forming trades, the counts in the last column of the table are adjusted to reflect the original counterparties, excluding a CCP. Though 

original counterparties cannot be paired up to same-day cleared trades, to adjust for same-day clearing each leg against the CCP is counted as 

one half of a transaction and the notional amount of the trade is halved as well. 

Principal holders of CDS risk 

exposure are represented by ‘‘accounts’’ 

in DTCC–TIW.826 The staff’s analysis of 

these accounts in DTCC–TIW shows 

that the 2,397 transacting agents 

classified in Table 3 represent 16,061 

principal risk holders. Table 4 below 

classifies these principal risk holders by 

their counterparty type and whether 

they are represented by a registered or 

unregistered investment adviser.827 For 

instance, banks in Table 3 allocated 

transactions across 375 accounts, of 

which 35 were represented by 

investment advisers. In the remaining 

instances, banks traded for their own 

accounts. Meanwhile, ISDA-recognized 

SBS dealers in Table 3 allocated 

transactions across 104 accounts. 

Private funds are the largest type of 

account holders that the Commission 

was able to classify.828

TABLE 4—THE NUMBER AND PERCENTAGE OF ACCOUNT HOLDERS—BY TYPE—WHO PARTICIPATE IN THE SBS MARKET

THROUGH A REGISTERED INVESTMENT ADVISER, AN UNREGISTERED INVESTMENT ADVISER, OR DIRECTLY AS A

TRANSACTING AGENT, FROM NOV. 2006 THROUGH SEP. 2022 

Account holders by type Number 

Represented by a 

registered investment 

adviser 

Represented by an 

unregistered investment 

adviser 

Participant is a 

transacting agent a

(percent) (percent) (percent) 

Private Funds ............................................................................ 4,816 2,486 52 2,271 47 59 1 

DFA Special Entities ................................................................. 1,631 1,565 96 44 3 22 1 

Registered Investment Companies ........................................... 1,454 1,367 94 83 6 4 0 

Banks (non-ISDA-recognized SBS dealers) ............................. 375 26 7 9 2 340 91 

Insurance Companies ............................................................... 356 219 62 49 14 88 25 

ISDA-Recognized SBS Dealers ................................................ 104 0 0 0 0 104 100 

Foreign Sovereigns ................................................................... 98 71 72 7 7 20 20 

Non-Financial Corporations ...................................................... 129 96 74 10 8 23 18 

Finance Companies .................................................................. 62 46 74 0 0 16 26 

Other/Unclassified ..................................................................... 7,036 4,262 61 2,477 35 297 4 

All .............................................................................................. 16,061 10,138 63 4,950 31 973 6 

aThis column reflects the number of participants who are also trading for their own accounts. 

As depicted in Figure 1 below, 

domiciles of new accounts participating 

in the single-name CDS market have 

shifted over time. It is unclear whether 

these shifts represent changes in the 

types of participants active in this 

market, changes in reporting, or changes 

in transaction volumes in CDS 

referencing particular underliers. For 

example, the percentage of new entrants 

that are foreign accounts increased from 

24.4% in the first quarter of 2008 to 

approximately 53% in the third quarter 

of 2022, which might reflect an increase 

in participation by foreign account 

holders in the single-name CDS market, 

though the total number of new entrants 

that are foreign accounts decreased from 


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829These estimates were calculated by 

Commission staff using DTCC–TIW data. 

830See Charles Levinson, U.S. banks moved 

billions in trades beyond the CFTC’s reach, Reuters 

(Aug. 21, 2015) (retrieved from Factiva database). 

The estimates of 21 and 6 were calculated by 

Commission staff using DTCC–TIW data. 

831See supra note 820 (discussing the singlename CDS transactions that are in the DTCC–TIW 

data). 

832The start of this decline predates the 

enactment of the Dodd-Frank Act and the proposal 

of rules thereunder. 

112 in the first quarter of 2008 to 62 in 

the third quarter of 2022.829

Additionally, the percentage of the 

subset of new entrants that are foreign 

accounts managed by U.S. persons 

increased from 4.6% in the first quarter 

of 2008 to 5.2% in the third quarter of 

2022, and the absolute number changed 

from 21 to 6, which also might reflect 

more specifically the flexibility with 

which market participants can 

restructure their market participation in 

response to regulatory intervention, 

competitive pressures, and other 

incentives.830 At the same time, 

apparent changes in the percentage of 

new accounts with foreign domiciles 

might also reflect improvements in 

reporting by market participants to 

DTCC–TIW, an increase in the 

percentage of transactions between U.S. 

and non-U.S. counterparties, and/or 

increased transactions in single-name 

CDS on U.S. reference entities by 

foreign persons.831

Figure 2 below describes the 

percentage of global, notional 

transaction volume in North American 

corporate single-name CDS reported to 

DTCC–TIW between January 2011 and 

September 2022, separated by whether 

transactions are between two ISDArecognized SBS dealers (‘‘interdealer 

transactions’’) or whether a transaction 

has at least one non-SBS dealer 

counterparty. Figure 2 also shows that 

the portion of the notional volume of 

North American corporate single-name 

CDS represented by interdealer 

transactions has remained fairly 

constant through 2015, before falling 

from approximately 68% in 2015 to 

under 40% in 2022. This change 

corresponds to the availability of 

clearing to non-SBS dealers. Interdealer 

transactions continue to represent a 

significant fraction of trading activity, 

even as notional volume has declined 

over the past 12 years,832 from just 


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833For purposes of this discussion, the 

Commission has assumed that the registered office 

location reflects the place of domicile for the fund 

or account, but this domicile does not necessarily 

correspond to the location of an entity’s sales or 

trading desk. See ANE Adopting Release, 81 FR at 

8607 n.83. 

834These estimates do not indicate the fraction of 

North American corporate single-name CDS 

transactions that would be subject to the trade 

execution requirement, if it were in force for such 

transactions. In particular, if the trade execution 

requirement were in force for North American 

corporate single-name CDS, a foreign subsidiary of 

a U.S. entity transacting in such CDS would only 

be subject to the trade execution requirement if the 

U.S. parent provides a guarantee to the foreign 

subsidiary. 

under $2 trillion in 2011 to less than 

$500 billion in 2022. 

The high level of interdealer trading 

activity reflects the central position of a 

small number of SBS dealers, each of 

which intermediates trades with many 

hundreds of counterparties. While the 

Commission is unable to quantify the 

current level of trading costs for singlename CDS, these SBS dealers appear to 

enjoy market power as a result of their 

small number and the large proportion 

of order flow that they intermediate. 

As shown in Figure 3 below, half of 

the trading activity in North American 

corporate single-name CDS was between 

counterparties domiciled in the United 

States and counterparties domiciled 

abroad. Using the self-reported 

registered office location of the DTCC– 

TIW accounts as a proxy for domicile, 

the Commission estimates that only 

13% of the global transaction volume by 

notional volume between January 2008 

and September 2022 was between two 

U.S.-domiciled counterparties, 

compared to 50% entered into between 

one U.S.-domiciled counterparty and a 

foreign-domiciled counterparty, and 

37% entered into between two foreigndomiciled counterparties.833

If the Commission instead considers 

the number of cross-border transactions 

from the perspective of the domicile of 

the corporate group (e.g., by classifying 

a foreign bank branch or foreign 

subsidiary of a U.S. entity as domiciled 

in the United States), the percentages 

shift significantly. Under this approach, 

the fraction of transactions entered into 

between two U.S.-domiciled 

counterparties increases to 36% and 

remains at 50% for transactions entered 

into between a U.S.-domiciled 

counterparty and a foreign-domiciled 

counterparty.834 By contrast, the 

proportion of activity between two 

foreign-domiciled counterparties drops 

from 37% to 14%. This change in 


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835Since the Commission is unable to pair up the 

same-day cleared trades, this 80.7% estimate is 

based on bilateral trades that were not same-day 

cleared in the 12-month period from Oct. 2021 to 

Sept. 2022. 

836See Rule 194 Proposing Release, 80 FR at 

51711. 

837See ISDA–SIFMA Letter, supra note 18, at 2 

(agreeing with the Commission’s statement in the 

Proposing Release that the SBS market is a small 

fraction of the swap market). 838As of Nov. 25, 2022, the SBS market had a 

gross notional amount outstanding of 

approximately $8.5 trillion (see supra section I and 

section XVII.B.2, Table 1), while the swap market 

(comprising, for purposes of this discussion, swaps 

in the interest rate, credit, and foreign-exchange 

asset classes) had a gross notional amount 

outstanding of approximately $352 trillion. See 

supra section I. The gross notional amount 

outstanding in single-name CDS (both corporate 

and sovereign) was approximately $4.3 trillion (see 

supra section XVII.B.2, Table 1), while the gross 

notional amount outstanding in index CDS 

(including index CDS tranches) was approximately 

$4.5 trillion. Data on gross notional amount 

outstanding in index CDS is from CFTC Swaps 

Report, available at https://www.cftc.gov/ 

MarketReports/SwapsReports/L3Grossexp.html 

(accessed on Sept. 27, 2023). 

respective shares based on different 

classifications suggests that the activity 

of foreign subsidiaries of U.S. firms and 

foreign branches of U.S. banks accounts 

for a higher percentage of SBS activity 

than U.S. subsidiaries of foreign firms 

and U.S. branches of foreign banks. It 

also demonstrates that financial groups 

based in the United States are involved 

in an overwhelming majority 

(approximately 86%) of all reported 

transactions in North American 

corporate single-name CDS. 

Financial groups based in the United 

States are also involved in a majority of 

interdealer transactions in North 

American corporate single-name CDS. 

Of the transactions on North American 

corporate single-name CDS between two 

ISDA-recognized SBS dealers and their 

branches or affiliates over the 12-month 

period from October 2021 to September 

2022, 80.7% of transaction notional 

volume involved at least one account of 

an entity with a U.S. parent.835 In 

addition, a majority of North American 

corporate single-name CDS transactions 

occur in the interdealer market or 

between SBS dealers and foreign nonSBS dealers, with the remaining portion 

of the market consisting of transactions 

between SBS dealers and U.S.-person 

non-SBS dealers. Specifically, 86% of 

North American corporate single-name 

CDS transactions involved either two 

ISDA-recognized SBS dealers or an 

ISDA-recognized SBS dealer and a 

foreign non-SBS dealer. Approximately 

14% of such transactions involved an 

ISDA-recognized SBS dealer and a U.S.- 

person non-SBS dealer. 

3. Other Markets and Regulatory 

Frameworks 

The numerous financial markets are 

integrated, often attracting the same 

market participants that trade across 

corporate bond, swap, and SBS markets, 

among others.836 This is 

notwithstanding the fact that the SBS 

market is a small fraction of the swap 

market 837 and the single-name CDS 

market, which falls under SEC 

jurisdiction, is slightly smaller than the 

index CDS market, which falls under 

CFTC jurisdiction.838 For example, 

persons who register as SBS dealers and 

major SBS participants are likely also to 

be engaged in swap activity. In part, this 

overlap reflects the relationship 

between single-name CDS contracts, 

which are SBS, and index CDS 

contracts, which may be swaps or SBS. 

A single-name CDS contract covers 

default events for a single reference 

entity or reference security. Index CDS 

contracts and related products make 

payouts contingent on the default of 

index components and allow 

participants in these instruments to gain 

exposure to the credit risk of the basket 

of reference entities that comprise the 

index, which is a function of the credit 

risk of the index components. A default 

event for a reference entity that is an 


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839 ‘‘Correlation’’ typically refers to linear 

relationships between variables; ‘‘dependence’’ 

captures a broader set of relationships that may be 

more appropriate for certain swaps and SBS. See, 

e.g., George Casella & Roger L. Berger, Statistical 

Inference 171 (2nd ed. 2002). 

840See Business Conduct Standards Release, 

supra note 101, 81 FR at 30108; Christopher L. 

Culp, Andria van der Merwe, & Bettina J. Starkle, 

Single-name Credit Default Swaps: A Review of the 

Empirical Academic Literature 71–85 (ISDA Study, 

Sept. 2016), available at https://www.isda.org/a/ 

KSiDE/single-name-cdsliterature-review-culp-vander-merwe-staerkleisda.pdf; Patrick Augustin, Marti 

G. Subrahmanyam, Dragon Y. Tang, & Sarah Q. 

Wang, Credit Default Swaps: Past, Present, and 

Future, 8 Ann. Rev. Fin. Econ. 175 (2016). 

841See ICE Letter, supra note 18, at 1–2; ICI 

Letter, supra note 18, at 1; Tradeweb Letter, supra 

note 18, at 1–2. 

842See CFTC, Swap Execution Facilities 

(registered) (retrieved June 28, 2023), available at 

https://www.cftc.gov/IndustryOversight/ 

IndustryFilings/SwapExecutionFacilities?Status=

Registered&Date_From=&Date_To=&Show_All=0. 

843For purposes of this discussion, options on 

index CDS and index CDS tranches are included as 

part of index CDS. For SEFs that list index CDS for 

trading, see BGC Derivative Markets, L.P. Contract 

Specifications (Oct. 31, 2022), available at http://

www.bgcsef.com/wp-content/uploads/2022/11/ 

BGC-SEF-Contract-Specifications_10-31-22.pdf; 

Bloomberg SEF LLC Rulebook (Dec. 5, 2022), 

available at https://assets.bbhub.io/professional/ 

sites/10/BSEF-Effective-Rulebook.pdf; GFI Swaps 

Exchange: Products & Contract Specifications, GFI 

Group, available at http://www.gfigroup.com/ 

markets/gfi-sef/products/; ICE Swap Trade, LLC, 

Swap Execution Facility Rulebook Version: 2.42 

(effective May 8, 2023), available at https://

www.theice.com/publicdocs/swap_trade/ 

Rulebook.pdf; TW SEF LLC, Swap Execution 

Facility Rules (effective Jan. 6, 2023), available at 

https://www.tradeweb.com/48ceb9/globalassets/ 

our-businesses/market-regulation/sef-rulebook-jan2023/tw-sef-rulebook-1.6.23.pdf; Tradition SEF, 

Appendix B to Tradition SEF Rulebook: Credit 

Product Listing, available at https://

www.traditionsef.com/assets/regulatory/RulebookAppendix-B-TSEF-Rulebook-6-02-2023.pdf; tpSEF 

Inc., tpSEF Inc. Rulebook Appendix B: tpSEF Inc. 

Swap Specifications (effective Mar. 7, 2023), 

available at https://www.tullettprebon.com/swap_

execution_facility/documents/tpSEF%20- 

%20Rulebook%20-%20Appendix%20B%20- 

%20Swap%20Specifications.pdf?2023411. 

844 Index CDS volume traded on SEFs is from 

Futures Industry Association’s SEF Tracker. See 

SEF Tracker Historical Volume, FIA, available at 

https://www.fia.org/monthly-volume. 

845The estimates presented in this section differ 

from those presented in the Proposing Release, 

supra note 1, 87 FR at 28946, because of a number 

of reasons. First, staff from the Division of 

Economic and Risk Analysis derived the estimates 

presented herein using reports of SBS transactions 

executed between Nov. 8, 2021, and Dec. 2, 2022, 

whereas in the Proposing Release, the staff used 

reports of SBS transactions executed between Nov. 

8, 2021, and Feb. 28, 2022. Second, the staff 

implemented additional filters to the reports of SBS 

transactions to (1) more accurately identify and 

exclude from the analysis those SBS transactions 

that arise from the allocation of an executed 

bunched order; (2) exclude potentially erroneous 

reports (e.g., SBS transactions with extremely large 

or small notional amount or SBS transactions with 

improperly sequenced timestamps); (3) identify the 

current version of a given report; and (4) exclude 

duplicate reports. 

846The one new transaction in interest rate SBS, 

discussed earlier in this section, was executed on 

a U.S. platform. 

847See ISDA–SIFMA Letter, supra note 18, at 2. 

index component will result in payoffs 

on both single-name CDS written on the 

reference entity and index CDS written 

on indices that contain the reference 

entity. Because of this relationship 

between the payoffs of single-name CDS 

and index CDS products, the prices of 

these products depend upon one 

another,839 creating hedging 

opportunities across these markets. 

These hedging opportunities mean 

that participants that are active in one 

market are likely to be active in the 

other. Commission staff analysis of 

approximately 3,829 DTCC–TIW 

accounts that participated in the market 

for single-name CDS in the 12-month 

period from October 2021 to September 

2022 revealed that approximately 2,836 

of those accounts, or 74%, also 

participated in the market for index 

CDS. Of the accounts that participated 

in both markets, data regarding 

transactions in these 12 months suggest 

that, conditional on an account 

transacting in notional volume of index 

CDS in the top third of accounts, the 

probability of the same account landing 

in the top third of accounts in terms of 

single-name CDS notional volume is 

approximately 53%; by contrast, the 

probability of the same account landing 

in the bottom third of accounts in terms 

of single-name CDS notional volume is 

only 12%. As a result of cross-market 

participation, informational efficiency, 

pricing, and liquidity may spill over 

across markets.840

Of the 51 registered SBS dealers, 44 

are dually registered with the CFTC as 

swap dealers and are therefore subject to 

CFTC requirements for entities 

registered with the CFTC as swap 

dealers. Further, of the 51 registered 

SBS dealers, 30 have a prudential 

regulator. 

4. Number of Entities That Likely Will 

Register as SBSEFs 

Entities that will seek to register with 

the Commission as SBSEFs are likely to 

be SEFs that are active in the index CDS 

market. Three commenters are generally 

supportive of this belief, stating that the 

entities most likely to register as SBSEFs 

are those that are already registered with 

the CFTC as SEFs.841 No commenters 

express disagreement with this belief. 

Currently, 24 SEFs are registered with 

the CFTC.842 Of these SEFs, seven list 

index CDS for trading.843 If these SEFs 

were to list single-name CDS or other 

SBS for trading, they would be required 

to register as SBSEFs with the 

Commission. In 2022, index CDS 

volume on U.S. SEFs was distributed as 

follows: one SEF had the largest share 

of index CDS volume (in notional 

amount) at $10.6 trillion (68%); one SEF 

had the second largest share at $3.4 

trillion (22%); and the remaining 10% 

of volume was shared among four other 

SEFs.844 The number of SBSEF 

registrants most likely falls between two 

and seven, but there is uncertainty 

around the upper end of this estimate. 

The likely number of SBSEF registrants 

is five. 

5. SBS Trading on Platforms 

By analyzing SBS transactions 

reported to registered SBSDRs,845 the 

Commission has estimated the extent of 

SBS trading on platforms. Of the new 

transactions in credit SBS executed 

between November 8, 2021, and 

December 2, 2022, 14,163 were executed 

on platforms (2% of all new transactions 

in credit SBS). During the same period, 

329 new transactions in equity SBS 

were executed on platforms (less than 

0.01% of all new transactions in equity 

SBS), while one new transaction in 

interest rate SBS was executed on a 

platform (0.01% of all new transactions 

in interest rate SBS). These observations 

suggest that the vast majority of SBS 

trading continues to be conducted 

bilaterally in the OTC market. 

The Commission identified 18 

platforms on which new SBS 

transactions were executed between 

November 8, 2021, and December 2, 

2022. Of these 18 platforms, 14 are 

foreign SBS trading venues and four are 

U.S. SBS trading venues. Of the four 

U.S. SBS trading venues, two are CFTCregistered SEFs and two are affiliated 

with CFTC-registered SEFs. Of the new 

transactions in credit SBS executed 

between November 8, 2021, and 

December 2, 2022, 710 were executed 

on non-U.S. platforms and involved at 

least one counterparty that is a U.S. 

person or a non-U.S. person whose 

performance under the SBS is 

guaranteed by a U.S. person (0.1% of all 

new transactions in credit SBS). During 

the same period, 241 new transactions 

in equity SBS were executed on a nonU.S. platform and involved at least one 

counterparty that is a U.S. person or a 

non-U.S. person whose performance 

under the SBS is guaranteed by a U.S. 

person (less than 0.01% of all new 

transactions in equity SBS 

transactions).846

One commenter states that only a 

minority of SEFs currently offer trading 

in SBS and SEFs that do offer trading in 

SBS estimate that they have 

approximately 50 or fewer trades per 

day in SBS.847 As discussed earlier, the 

Commission identified two CFTCregistered SEFs on which new SBS 


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848See G20, Leaders’ Statement: The Pittsburgh 

Summit (Sept. 24–25, 2009) at para. 13. 

849See, e.g., G20, Osaka Summit Declaration 

(June 28–29, 2019) at para. 19; Rome Summit 

Declaration (Oct. 30–31, 2021) at para. 40. 

850Apart from the 12 foreign jurisdictions, the 

United States is considered to have platform trading 

requirements in place based on the CFTC’s 

implementation of platform trading requirements. 

See FSB, OTC Derivatives Market Reforms: 

Implementation Progress in 2022 Tables 1 & K (Nov. 

7, 2022), available at https://www.fsb.org/wpcontent/uploads/P071122.pdf (describing progress 

made towards implementing platform trading 

requirements in 2022) and FSB, OTC Derivatives 

Market Reforms: 2019 Progress Report on 

Implementation Table A (Oct. 15, 2019), available 

at https://www.fsb.org/2019/10/otc-derivativesmarket-reforms-2019-progress-report-onimplementation/ (discussing the CFTC’s 

implementation of platform trading requirements). 

851These jurisdictions are China (bond forwards; 

certain currency forwards, options, and swaps); the 

European Union (certain index CDS and certain IRS 

denominated in Euro); India (certain overnight 

index swaps); Indonesia (equity and commodity 

derivative products); Japan (selected Yendenominated IRS); Mexico (certain Pesodenominated IRS); Singapore (certain IRS 

denominated in Euro, U.S. dollar, and British 

pound); and United Kingdom (certain index CDS 

and certain IRS denominated in Euro and certain 

IRS denominated in British pound). See FSB, 2019 

Progress Report (Table R); FSB, Implementation 

Progress in 2022 (footnote 12), supra note 850, and 

Financial Conduct Authority, Register of derivatives 

subject to the trading obligation under article 28 of 

UK MiFIR (July 24, 2023), available at https://

register.fca.org.uk/servlet/ 

servlet.FileDownload?file=0150X000006gbbG. In its 

2022 report, see supra note 850, the FSB noted no 

change in status in the implementation of platform 

trading requirements since its 2019 report. 

852See, e.g., Trade Acknowledgement and 

Verification Adopting Release, supra note 802, 81 

FR at 39809. 

853See Citadel Letter, supra note 18, at 8. 

854 Id. 

855 Id. 

856 Id. 

857 Id. 

transactions were executed between 

November 8, 2021, and December 2, 

2022. During this period, one CFTCregistered SEF had on average 2.4 new 

SBS transactions executed per day, 

while the other CFTC-registered SEF 

had on average 2.8 new SBS 

transactions executed per day. These 

estimates are broadly consistent with 

the commenter’s estimate. 

6. Global Regulatory Efforts 

In 2009, the G20 leaders—whose 

membership includes the United States, 

18 other countries, and the European 

Union—addressed global improvements 

in the OTC derivatives market. They 

expressed their view on a variety of 

issues relating to OTC derivatives 

contracts.848 In subsequent summits, the 

G20 leaders have returned to OTC 

derivatives regulatory reform and 

reaffirmed their goal of completing such 

reform.849

Foreign legislative and regulatory 

efforts have generally focused on five 

areas: (1) moving standardized OTC 

derivatives onto organized trading 

platforms; (2) requiring central clearing 

of OTC derivatives; (3) requiring posttrade reporting of transaction data to 

trade repositories; (4) establishing or 

enhancing capital requirements for noncentrally cleared OTC derivatives 

transactions; and (5) establishing or 

enhancing margin and other risk 

mitigation requirements for noncentrally cleared OTC derivatives 

transactions. The rules being adopted in 

this release concern the registration and 

regulation of SBSEFs, a type of 

organized trading platform. 

As of the end of 2022, platform 

trading requirements were in force in 12 

foreign jurisdictions while seven 

jurisdictions were in the process of 

proposing legislation or rules to 

implement platform trading 

requirements.850 Eight foreign 

jurisdictions have made determinations 

with respect to the specific OTC 

derivatives that are required to be traded 

on platforms.851

7. Trading Models 

Unlike the markets for cash equity 

securities and listed options, the market 

for SBS currently is characterized by 

bilateral negotiation in the OTC swap 

market; is largely decentralized; has 

many non-standardized instruments; 

and has many SBS that are not centrally 

cleared. The lack of uniform rules 

concerning the trading of SBS and the 

one-to-one nature of trade negotiation in 

SBS has resulted in different models for 

the trading of these securities, ranging 

from bilateral negotiations carried out 

over the telephone, to RFQ systems (e.g., 

single-dealer and multi-dealer RFQ 

platforms), request-for-stream protocol, 

and limit order books outside the 

United States, as more fully described 

below. The use of electronic media to 

execute transactions in SBS varies 

greatly across trading models, with 

some models being highly electronic 

whereas others rely almost exclusively 

on non-electronic means such as the 

telephone. The reasons for use of, or 

lack of use of, electronic media vary 

from such factors as user preference to 

limitations in the existing infrastructure 

of certain trading platforms. The 

description below of the ways in which 

SBS may be traded is based in part on 

discussions with market participants 

and incorporates comments received on 

the Proposing Release. 

The Commission uses the term 

‘‘bilateral negotiation’’ to refer to the 

model whereby one party uses the 

telephone, email, or other 

communications to contact directly a 

potential counterparty to negotiate an 

SBS transaction. Once the terms are 

agreed, the SBS transaction is executed 

and the terms are memorialized.852 In a 

bilateral negotiation, there might be no 

pre-trade or post-trade transparency 

available to the market because only the 

two parties to the transaction are aware 

of the terms of the negotiation and the 

final terms of the agreement. Further, no 

terms of the proposed transaction are 

firm until the transaction is executed. 

However, reputational costs generally 

serve as a deterrent to either party’s 

failing to honor any quoted terms. 

Dealer-to-customer bilateral negotiation 

currently is used for all SBS asset 

classes, and particularly for trading in 

less liquid SBS, in situations where the 

parties prefer a privately negotiated 

transaction, such as for a large notional 

transaction, or in other circumstances in 

which it is not cost-effective for a party 

to the trade to use one of the execution 

methods described below. 

One commenter elaborates on this 

model of trading, focusing specifically 

on dealer-to-client trading in the SBS 

market.853 According to this commenter, 

at the moment, dealer-to-client trading 

in security-based swaps is largely 

opaque and fragmented, with most 

executions arising out of one-to-one 

private negotiations. When engaging 

with clients, liquidity providers 

typically provide ‘‘indicative’’ quotes 

(as opposed to firm binding quotes), 

inviting interested clients to follow-up 

bilaterally in order to obtain an 

executable price for a specific 

instrument.854 Given that these 

executable prices are often only then 

honored at that exact moment in time, 

clients are unable to effectively put 

liquidity providers in competition and 

have little to no pre-trade transparency 

regarding other available prices in the 

market.855 Instead clients face the 

choice of either accepting the first 

executable price received or starting 

over with a new one-to-one negotiation, 

where pricing could move against the 

client as its trading interest is 

sequentially disclosed to additional 

market participant.856 The commenter 

states that this opaque and fragmented 

execution process impairs client access 

to best execution by denying clients the 

ability to effectively compare and 

evaluate the quality of prices.857

Another model for the trading of SBS 

is the RFQ system. An RFQ system 

typically allows market participants to 

obtain quotes for a particular SBS by 

simultaneously sending messages to one 

or more potential respondents (SBS 


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858See Lynn Riggs, Esen Onur, David Reiffen, and 

Haoxiang Zhu, Swap Trading After Dodd-Frank: 

Evidence from Index CDS, 137 J. Financial 

Economics 857 (2020) (finding that, in the index 

CDS market, an initiating participant is more likely 

to send RFQs to its relationship dealers, i.e., its 

clearing members or dealers with whom it has 

traded more actively in the recent past). 

859See id. (finding that, in the index CDS market, 

a dealer’s response rate to an RFQ declines with the 

number of dealers included in the RFQ). 

860See Amendments to Exchange Act Rule 3b–16 

Regarding the Definition of ‘‘Exchange’’; Regulation 

ATS for ATSs That Trade U.S. Government 

Securities, NMS Stocks, and Other Securities; 

Regulation SCI for ATSs That Trade U.S. Treasury 

Securities and Agency Securities SEA Release No. 

94062 (Jan. 26, 2022), 87 FR 15496 (Mar. 18, 2022) 

(‘‘ATS–G Proposal’’), section VIII.B.1.a therein. 

861See Citadel Letter, supra note 18, at 13; MFA 

Letter, supra note 18, at 8. See also supra section 

V.E.1(b)(iii). See also Lynn Riggs, Esen Onur, David 

Reiffen, and Haoxiang Zhu, Swap Trading After 

Dodd-Frank: Evidence from Index CDS, 137 J. 

Financial Economics 857 (2020) (documenting that 

this trading protocol—also referred to as ‘‘request 

for streaming’’—is one of the trading protocols used 

in the trading of index CDS on SEFs). 

862With respect to swaps traded on CFTCregistered SEFs, CFTC regulation § 37.9(a) provides 

that Required Transactions that are not block trades 

must generally be executed via an order book or 

RFQ system. CFTC regulations §§ 37.9(d) and (e) 

contain exceptions to the § 37.9(a) execution 

requirements for certain package transactions and 

error trades, respectively. See supra section V.E. 

863Under CFTC rules applicable to the swaps 

markets, § 37.9(f) prohibits the practice of post-trade 

name give-up for swaps that are executed, prearranged, or pre-negotiated anonymously on or 

pursuant to the rules of a SEF and intended to be 

cleared, subject to an exception related to certain 

package transactions. See supra section V.E 

(discussing Rule 815). 

864See Public Law 111–203, 763(a) (adding 

section 3C(a)(1) of the SEA). 865See id. See also Public Law 111–203, 761(a) 

(adding section 3(a)(77) of the SEA to define the 

term ‘‘security-based swap execution facility’’). 

dealers).858 The initiating participant is 

typically required to provide 

information related to the request in a 

message, which may include the name 

of the initiating participant, SBS 

identifier, side, and size. SBS dealers 

that observe the initiating participant’s 

request have the option to respond to 

the request with a price quote.859 These 

respondents are often, though not 

always, pre-selected. The initiating 

participant can then select among the 

respondents by either accepting one of 

multiple responses or rejecting all 

responses, usually within a ‘‘good for’’ 

time period. After the initiating 

participant and a respondent agree on 

the terms of the trade, the trade will 

then proceed to post-trade processing. 

RFQ systems provide a certain degree 

of pre-trade transparency in that the 

initiating participant can observe the 

quotes it receives (if any) in response to 

its RFQ. The number of quotes received 

depends, in part, on the number of 

respondents that are invited to 

participate in the RFQ. As the 

Commission discussed elsewhere, 

several factors may influence the 

number of respondents that are invited 

to participate in an RFQ.860 First, the 

RFQ system itself may limit the total 

number of respondents that can be 

selected for a single RFQ, typically to 

five counterparties. This limitation may 

encourage SBS dealers to respond to 

RFQs, since it reduces the number of 

other SBS dealers they would compete 

with in any give request session. 

Second, the initiating participant may 

have an incentive to limit the degree of 

information leakage. If the trade the 

initiating participant is seeking to 

complete with the help of the RFQ is 

not completely filled in that one 

session, and other participants know 

this, quotes the initiating participant 

receives elsewhere may be affected, 

including in subsequent RFQ sessions. 

Third, respondents and initiators both 

have an incentive to limit price impact 

because of the expense it will add to the 

offsetting trade that must follow. 

Specifically, an SBS dealer who takes a 

position to fill a customer order through 

an RFQ will often subsequently offset 

that position in the interdealer market. 

If a large number of SBS dealers are 

invited to participate in an RFQ, this 

would lead to widespread knowledge 

that the SBS dealer with the winning 

bid will now try to offset that position, 

which could impact the prices available 

to that dealer in the interdealer market. 

Two commenters describe the 

‘‘request-for-stream’’ trading protocol, 

which allows liquidity providers to 

stream firm prices on trading platforms 

such as those run by SEFs.861 These 

firm prices are not required to be 

communicated to clients sending an 

RFQ on these trading platforms. 

A fourth model for the trading of SBS 

is a limit order book system or similar 

system, which the Commission 

understands is not yet in operation for 

the trading of SBS in the United 

States.862 Today, securities and futures 

exchanges in the United States display 

a limit order book in which firm bids 

and offers are posted for all participants 

to see, with the identity of the parties 

withheld until a transaction occurs.863

Bids and offers are then matched based 

on price-time priority or other 

established parameters and trades are 

executed accordingly. The quotes on a 

limit order book system are firm. In 

general, a limit order book system also 

provides greater pre-trade transparency 

than the models described above, 

because participants can view bids and 

offers before placing their bids and 

offers. However, broadly 

communicating trading interest, 

particularly about a large trade, might 

increase hedging costs, and thus costs to 

investors, as reflected in the prices from 

the SBS dealers. The system can also 

provide post-trade transparency, to the 

extent that participants can see the 

terms of executed transactions. 

The models described above represent 

broadly the types of trading of SBS in 

the OTC market today. These examples 

may not represent every method in 

existence today, but the discussion 

above is intended to give an overview of 

the models without providing the 

nuances of each particular type. 

C. Benefits and Costs 

The Commission’s consideration of 

the benefits and costs of the adopted 

rules and amendments takes into 

account the connection between the 

trade execution requirement and the 

mandatory clearing requirement 

mandated by Congress. Specifically, the 

Dodd-Frank Act amended the SEA to 

require, among other things, the 

following with respect to SBS 

transactions: (1) transactions in SBS 

must be cleared through a clearing 

agency if they are required to be 

cleared; 864 and (2) if the SBS is subject 

to the clearing requirement, the 

transaction must be executed on an 

exchange or on an SBSEF registered 

under section 3D of the SEA or an 

SBSEF exempt from registration under 

section 3D(e) of the SEA, unless no 

SBSEF or exchange makes such SBS 

available for trading or the SBS is 

subject to the clearing exception in 

section 3C(g) of the SEA.865 The benefits 

and costs associated with the trade 

execution requirement will not 

materialize unless and until the 

Commission makes mandatory clearing 

determinations, i.e., determining what 

SBS transactions must be cleared by a 

clearing agency. 

The general approach to finalizing 

requirements relating to SBS execution 

could mitigate costs associated with the 

adopted rules and amendments. As 

discussed in section I, the Commission’s 

approach is to harmonize as closely as 

practicable with analogous CFTC rules 

for SEFs, unless a reason exists to do 

otherwise in a particular area. Based on 

the Commission’s belief that SBSEF 

registrants likely would be registered 

SEFs that have established systems and 

policies and procedures to comply with 

CFTC rules, the Commission’s general 

approach potentially will result in 

compliance costs for registered SBSEFs 

that are lower than compliance costs 

that would have resulted had the 

Commission chosen not to harmonize 

its approach as closely as practicable 


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866 In section XVIII infra, for purposes of the PRA, 

the Commission estimates burdens applicable to a 

stand-alone SBSEF. However, the Commission 

anticipates that most if not all SBSEFs will be 

dually registered with the CFTC as SEFs, and thus 

will already be complying with relevant CFTC rules 

that have analogs to rules contained within 

Regulation SE. Therefore, the Commission’s burden 

estimates may be larger for stand-alone SBSEF than 

may exist in practice, considering the effect of 

overlapping CFTC rules. 

867See Bloomberg Letter, supra note 18, at 2, 10, 

18; ICE Letter, supra note 18, at 2; ISDA–SIFMA 

Letter, supra note 18, at 2; SIFMA AMG Letter, 

supra note 18, at 5; Tradeweb Letter, supra note 18, 

at 1–2. 

868 In certain prior Title VII releases, the 

Commission had referred to such costs and benefits 

as programmatic costs and benefits. See, e.g., 

Regulation SBSR Adopting Release I, supra note 

140. 

869For example, Rule 826, among other things, 

requires an SBSEF to maintain records of its 

business activities (including a complete audit trail) 

for a period of five years and report to the 

Commission such information as the Commission 

determines to be necessary or appropriate for 

performing the duties of the Commission under the 

SEA. See infra this section for a discussion of how 

Regulation SE would provide the means for the 

Commission to gain better insight into and 

oversight of SBSEFs and the SBS market. 

870Rules 803(a)(2) and (3) require an SBSEF to 

offer, at a minimum, an order book for SBS trading, 

subject to certain exceptions related to package 

transactions. Rule 815(a) requires SBS transactions 

subject to the trade execution requirement to be 

executed using either an order book or via an RFQto-3 system. Rule 816 sets forth the process by 

which an SBSEF would subject an SBS to the trade 

execution requirement. Rule 817 informs market 

participants of the date on which the trade 

execution requirement for a particular SBS 

commences. Rule 832 describes those cross-border 

SBS transactions that would be subject to the trade 

execution requirement. 

871See, e.g., Ananth Madhavan, Market 

Microstructure: A Practitioner’s Guide, 58 Fin. 

Analysts J., at 38 (2002) (nondisclosure of pre-trade 

price information benefits dealers by reducing price 

competition). 

872See, e.g., Ekkehart Boehmer, et al., Lifting the 

Veil: An Analysis of Pre-trade Transparency at the 

NYSE, 60 J. Fin. 783 (2005) (greater pre-trade price 

transparency leads to more efficient pricing). 

873See Evangelos Benos, Richard Payne, and 

Michalis Vasios, Centralized Trading, 

Transparency, and Interest Rate Swap Market 

Liquidity: Evidence from the Implementation of the 

Dodd-Frank Act, 55 J. Fin. and Quantitative 

Analysis 159 (2020) (finding, among other things, 

that imposition of the CFTC’s trade execution 

requirement improved the liquidity of IRS that were 

subject to the requirement, and that the liquidity 

improvement was associated with more intense 

competition between swap dealers); Y.C. Loon and 

Zhaodong (Ken) Zhong, Does Dodd-Frank Affect 

OTC Transaction Costs and Liquidity? Evidence 

from Real-Time CDS Trade Reports, 119 J. Fin. 

Econ. 645 (2016) (finding that index CDS 

transactions executed on SEFs have lower 

transaction costs and improved liquidity than index 

CDS transactions executed bilaterally). 

874See, e.g., Ananth Madhavan, et al., Should 

Securities Markets Be Transparent?, 8 J. Fin. 

Markets 265 (2005) (finding that an increase in pretrade price transparency leads to lower liquidity 

and higher execution costs, because limit-order 

traders are reluctant to submit orders given that 

their orders essentially represent free options to 

other traders). 

with analogous CFTC rules for SEFs.866

Several commenters state that the 

Commission’s general approach would 

mitigate costs for registered SBSEFs and 

SBS market participants.867

In assessing the economic impact of 

the adopted rules and amendments, the 

Commission considers the broader costs 

and benefits associated with the 

application of the adopted rules and 

amendments, including the costs and 

benefits of applying the substantive 

Title VII requirements to the trading of 

SBS.868 The Commission’s analysis also 

considers ‘‘assessment’’ costs—i.e., 

those that arise from current and future 

market participants expending resources 

to assess how they will be affected by 

Regulation SE, and could incur 

expenses in making this assessment 

even if they ultimately are not subject to 

rules for which they made an 

assessment. 

Many of the benefits and costs 

discussed below are difficult to 

quantify. These benefits and costs 

would depend on how potential SBSEFs 

and their prospective members respond 

to the adopted rules and amendments. 

If potential SBSEFs perceive the costs 

associated with operating registered 

SBSEFs to be high, such that few or no 

entities come forward to register as 

SBSEFs, there could be no triggering of 

the trade execution requirement, which 

depends on MAT determinations made 

by registered SBSEFs (or exchanges). 

Under this scenario, the future state of 

the SBS market likely will not differ 

from the current baseline and the 

potential costs and benefits discussed 

below will not materialize. An 

alternative scenario is that prospective 

SBSEFs perceive the costs associated 

with operating registered SBSEFs to be 

high but nevertheless register as SBSEFs 

because they expect to be able to pass 

on such costs to their members to help 

maintain the commercial viability of 

operating a registered SBSEF. MAT 

determinations by registered SBSEFs 

will move trading of the products 

covered by the determinations onto 

SBSEFs, which can generate benefits 

and costs associated with increased pretrade transparency, in addition to 

benefits and costs associated with the 

operation of regulated markets. A third 

possibility is that entities come forward 

to register as SBSEFs because they 

perceive the associated costs of 

operating SBSEFs to be low in light of 

the close harmonization of Regulation 

SE with analogous CFTC SEF rules. If 

these registered SBSEFs do not make 

MAT determinations and thus do not 

trigger the trade execution requirement, 

the benefits and costs associated with 

increased pre-trade transparency likely 

will not arise. If SBSEF trading is 

limited because of an absence of MAT 

determinations, the benefits and costs 

associated with the operation of 

regulated markets potentially will be 

limited as well. A fourth possibility is 

that entities do come forward to register 

as SBSEFs because they perceive the 

associated costs of operating SBSEFs to 

be low and these registered SBSEFs 

make MAT determinations and trigger 

the trade execution requirement. Under 

this scenario, the benefits and costs 

associated with increased pre-trade 

transparency and regulated markets 

likely will arise. The Commission does 

not have the data to determine which of 

the above possibilities will prevail 

following the adoption of the rules and 

amendments considered herein. 

The Commission has attempted to 

quantify economic effects where 

possible, but much of the discussion of 

economic effects is necessarily 

qualitative. 

1. Overarching Benefits of the Rules and 

Amendments 

Broadly, the Commission anticipates 

that the new rules and amendments may 

bring several overarching benefits to the 

SBS market. 

Improved Transparency. The final 

rules would enable the Commission to 

obtain information about SBSEFs, 

thereby facilitating the Commission’s 

oversight of these entities.869

In addition, the requirements relating 

to pre-trade transparency would 

increase pre-trade transparency in the 

market for SBS.870 Increased pre-trade 

price transparency should allow an 

increased number of market participants 

to better see the trading interest of other 

market participants prior to trading, 

which should lead to increased price 

competition among market 

participants.871 The requirements with 

respect to pre-trade price transparency 

should lead to more efficient pricing in 

the SBS market.872

Evidence from the swap market 

suggests that an increase in pre-trade 

transparency is associated with 

improved liquidity and reduced 

transaction costs.873 The Commission is 

not aware of any difference between the 

swap market and the SBS market that 

would cause the empirical findings 

regarding the impact of pre-trade price 

transparency on liquidity and 

transaction costs not to carry over into 

the SBS market, when implemented. 

The Commission is mindful that, under 

certain circumstances, pre-trade price 

transparency could also discourage the 

provision of liquidity by some market 

participants.874 However, having two 


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875See Bloomberg Letter, supra note 18, at 1; 

Citadel Letter, supra note 18, at 8. 

876See Citadel Letter, supra note 18, at 8. 

877See ICI Letter, supra note 18, at 11 n.6. 

878See Rules 819, 821, 822, and 826. 

879See Rule 820. 

880See Rule 824(b)(1). 

881See supra section XVII.B.2. 

882See Rules 819(c)(4) and 819(g)(14); Rules 442 

and 443; amendments to Rules 101, 202, 210, 401, 

450, and 460. Rule 442(b), among other things, 

clarifies that the 30-day period for filing an 

application for review will not be extended absent 

a showing of extraordinary circumstances, which is 

intended to encourage parties to act timely in 

seeking review. 

883See ICI Letter, supra note 18, at 2. 

884See id.; SIFMA AMG Letter, supra note 18, at 

11. 

885See ICI Letter, supra note 18, at 2. 

execution methods for Required 

Transactions (limit order book and RFQto-3) would provide market participants 

with flexibility in the degree of pretrade transparency they wish to employ. 

Using RFQ-to-3, a market participant 

could choose to reveal its trading 

interest to no more than three market 

participants; using a limit order book, 

the market participant would reveal its 

trading interest to all other market 

participants that have access to the same 

limit order book, which may exceed 

three market participants. The flexibility 

in the degree of pre-trade transparency 

should diminish potential concerns 

associated with the exposure of pretrade trading interest. 

Two commenters agree that the 

proposal would increase transparency 

in the SBS market.875 One of these 

commenters believes that the 

introduction of multilateral trading 

protocols would increase pre-trade 

transparency and competition, which 

should improve liquidity conditions, 

reduce transaction costs, and facilitate 

execution quality analysis, as clients 

will be able to put liquidity providers in 

direct competition.876

One commenter believes that 

proposed Rule 819(c) would help ensure 

that investment advisers to regulated 

funds will be able to participate on 

SBSEFs, accessing the pricing and other 

market information that may be 

available on SBSEF, which would 

increase transparency in the derivatives 

market.877 The Commission agrees that 

Rule 819(c), by requiring an SBSEF to 

provide any ECP with impartial access 

to its market(s) and market services, 

would help ensure that ECPs, including 

investment advisers, are able to access 

pricing and other market information on 

SBSEFs thereby increasing transparency 

in the SBS market. 

Improved oversight of trading. 

Regulation SE requires, among other 

things, that SBSEFs maintain an audit 

trail and automated trade surveillance 

system; conduct real-time market 

monitoring; establish and enforce rules 

for information collection; and comply 

with reporting and recordkeeping 

requirements.878 These requirements are 

designed to provide an SBSEF with 

sufficient information to oversee trading 

on its market, including detecting and 

deterring abusive trading practices. 

Additionally, an SBSEF shall permit 

trading only in SBS that are not readily 

susceptible to manipulation 879 and 

adopt rules that are reasonably designed 

to allow the SBSEF to intervene as 

necessary to maintain markets with fair 

and orderly trading and to prevent or 

address manipulation or disruptive 

trading practices.880

This framework could enhance 

investor protection and increase 

confidence in a well-regulated market 

among SBS market participants, which 

could in turn make them more willing 

to increase their participation or entice 

new participants. An increase in 

participation in the SBS market would, 

all else being equal, benefit the SBS 

market as a whole. Further, to the extent 

that market participants utilize SBS to 

better manage their risk with respect to 

a position in underlying securities or 

assets, their participation in the SBS 

market could impact their willingness to 

participate in the underlying asset 

markets. Thus, Regulation SE could 

benefit the securities markets overall by 

encouraging a more efficient, and 

potentially higher, level of capital 

investment. 

Improved access and competition. 

Currently, the SBS market is dominated 

by a small group of SBS dealers.881 A 

mandatory clearing determination by 

the Commission, followed by a MAT 

determination by one or more SBSEFs 

or exchanges, should help foster greater 

competition in the trading of SBS by 

promoting greater order interaction and 

increasing access to and participation 

on SBSEFs. The final rules provide a 

framework for allowing a number of 

trading venues to register as SBSEFs and 

thus more effectively compete for 

business in SBS. Furthermore, Rule 827 

is designed to promote competition 

generally by prohibiting an SBSEF from 

adopting any rules or taking any actions 

that unreasonably restrain trade or 

imposing any material anticompetitive 

burden on trading or clearing. 

Rule 819(c), among other things, 

requires an SBSEF to provide any ECP 

with impartial access to its market(s) 

and market services. Rule 819(c)(4), 

Rule 819(g)(14), along with the new 

rules and amendments to the 

Commission’s Rules of Practice allow 

persons who are aggrieved by a final 

disciplinary action, a final action with 

respect to a denial or conditioning of 

membership, or a final action with 

respect to a denial or limitation of 

access by an SBSEF to file an 

application for review by the 

Commission in a timely manner.882

These rules and amendments are 

designed to improve access to, foster 

confidence in, and provide for the 

oversight of SBSEF functions by 

creating a procedure for making appeals 

to the Commission. 

Taken together, these rules and 

amendments should foster greater 

access to SBSEFs by SBS market 

participants, which in turn could 

promote greater participation by 

liquidity providers on SBSEFs. 

Increased participation on SBSEFs 

could increase competition in liquidity 

provision and lower trading costs, 

which may lead to increased 

participation in the SBS market. One 

commenter agrees that Rule 819(c), in 

particular, would increase competition 

in the SBS market. The commenter 

further states that the rule would 

increase liquidity, efficiency, and 

fairness in the SBS market.883 The 

Commission agrees that Rule 819(c), 

together with the other rules described 

earlier, could increase competition in 

the SBS market, specifically 

competition in liquidity provision as 

discussed above. To the extent that 

increased competition in liquidity 

provision lowers bid-offer spreads and 

transaction costs, liquidity and 

efficiency in the SBS market would 

increase. Rule 819(c), by requiring an 

SBSEF to provide any ECP with 

impartial access to its market(s) and 

market services, would help ensure that 

all ECPs will receive the same treatment 

with respect to access to the SBSEF’s 

market(s) and market services and thus 

help to increase fairness in the SBS 

market. 

Two commenters believe that 

Proposed Rule 815(f), which is designed 

to prohibit post-trade name give up for 

an SBS that is executed anonymously 

on an SBSEF and intended to be 

cleared, would increase participation on 

SBSEFs and in turn increase 

competition, liquidity, and 

efficiency.884 One of these commenters 

also believes the proposed rule would 

increase fairness in the SBS markets.885

Rules 815(f) and 815(g) could generate 

such beneficial effects. The practice of 

post-trade name give-up increases the 

risk of information leakage and can 


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886See Citadel Letter, supra note 18, at 11 (stating 

that PTNGU, by revealing counterparty identities, 

can be used as a policing mechanism by dealers to 

deter buy-side access and participation). 

887See Public Law 111–203, Preamble. 

888See Rules 804, 805, 806, and 807. 

889See Rule 811. 890See Rules 819(d)(4) and 826. 

deter participation by liquidity seekers 

on SBSEFs. By prohibiting such a 

practice for an SBS that is executed 

anonymously on an SBSEF and 

intended to be cleared, Rule 815(f) 

would reduce the risk of information 

leakage and encourage more liquidity 

seekers to participate on SBSEFs. 

Further, by helping to protect the 

anonymity of market participants, Rule 

815(f) could encourage a more diverse 

set of market participants to transact in 

anonymous order books. 

Rule 815(g) specifies that SBSEFs 

shall establish and enforce rules that 

provide that a security-based swap that 

is intended to be cleared at the time of 

the transaction, but is not accepted for 

clearing at a registered clearing agency, 

shall be void ab initio. The rule would 

ensure that a trade that is rejected for 

clearing would not become a bilateral 

transaction, in which case the 

counterparties would have to divulge 

their identities. As such, the rule would 

reduce the risk of information leakage 

and protect the anonymity of market 

participants for SBS that is executed 

anonymously and intended to be 

cleared, but is nonetheless rejected for 

clearing. This in turn could increase 

participation on SBSEFs by liquidity 

seekers and those wishing to transact in 

anonymous order books, similar to Rule 

815(f). 

Increased participation by liquidity 

seekers on SBSEFs could in turn 

increase participation by liquidity 

providers and promote competition in 

liquidity provision. Greater 

participation in anonymous order books 

also could promote competition in 

liquidity provision if erstwhile liquidity 

seekers choose to provide liquidity in 

competition with SBS dealers in these 

order books. To the extent that 

increased competition in liquidity 

provision lowers bid-offer spreads and 

transaction costs, liquidity and 

efficiency in the SBS market would 

increase. 

By helping to protect the anonymity 

of those that transact in anonymous 

order books, the rule would deprive SBS 

dealers of a means of deterring access to 

and participation in such order books by 

buy-side market participants.886 Thus, 

Rule 815(g) could help promote a level 

playing field by ensuring that both buyside market participants and dealers can 

participate in these order books. 

Regulation SE would promote 

competition among entities that act as 

third-party service providers to SBSEFs. 

Rule 819(c) would, among other things, 

require an SBSEF to provide any 

independent software vendor with 

impartial access to its market(s) and 

market services. The rule would provide 

a level playing field to software vendors 

with respect to access to SBSEFs and 

promote competition among these 

vendors as they vie for an SBSEF’s 

business. Rule 819(e) would permit an 

SBSEF to contract with a registered 

futures association, a DCM, a national 

securities exchange, a national 

securities association, or another SBSEF 

for the provision of services to assist in 

complying with the SEA and 

Commission rules thereunder, as 

approved by the Commission. By 

permitting an SBSEF to choose from a 

range of regulatory services providers, 

Rule 819(e) could promote competition 

among regulatory services providers. To 

the extent that increased competition 

among independent software vendors 

and regulatory services providers 

incentivizes them to offer cheaper, 

higher quality services to SBSEFs 

thereby lowering their costs, market 

participants that are SBSEF members 

could benefit to the extent the SBSEFs 

pass on the cost savings in the form of 

lower fees to their members. Lower fees 

for SBSEF members would help reduce 

the overall costs of trading on SBSEFs 

and increase the efficiency of SBS 

trading. 

Improved Commission oversight. One 

of the goals of the Dodd-Frank Act is to 

increase regulatory oversight of SBS 

trading relative to the existing OTC SBS 

market.887 Regulation SE would provide 

the means for the Commission to gain 

better insight into and oversight of 

SBSEFs and the SBS market by, among 

other things, allowing the Commission 

to review new rules, rule amendments, 

and product listings by SBSEFs 888 and 

to obtain other relevant information 

from SBSEFs.889

Additionally, Rule 826(b) requires 

every SBSEF to keep full, complete, and 

systematic records of all activities 

relating to its business with respect to 

SBS. In addition, Rule 819(f) requires an 

SBSEF to capture and retain a full audit 

trail of activity on its facility. The 

records required to be kept by an SBSEF 

would help the Commission to 

determine whether an SBSEF is 

operating in compliance with the SEA 

and the Commission’s rules thereunder. 

The audit trail data required to be 

captured and retained would facilitate 

the ability of the SBSEF and the 

Commission to carry out their respective 

obligations under the SEA, by 

facilitating the detection of abusive or 

manipulative trading activity, allowing 

reconstructions of activity on the 

SBSEF, and generally understanding the 

causes of both specific trading events 

and general market activity. 

Furthermore, Rule 835 requires an 

SBSEF to provide the Commission 

notice of a final disciplinary action, a 

final action with respect to a denial or 

conditioning of membership, or a final 

action with respect to a denial or 

limitation of access, which facilitates 

the Commission’s review of the SBSEF’s 

disciplinary process and exercise of its 

regulatory powers, providing the 

Commission an additional tool to carry 

out its oversight responsibilities. Rule 

813 provides for Commission oversight 

of SBSEFs in their use of information 

collected for regulatory purposes and is 

designed to deter the misappropriation 

or misuse of such information. Rule 

824(c) requires an SBSEF to, among 

other things, promptly notify the 

Commission of its exercise of emergency 

authority and provide information 

related to the use of that authority. The 

registration requirements and related 

Form SBSEF, and the CCO’s annual 

compliance report, which are further 

discussed below, would also help the 

Commission with its oversight 

responsibilities. 

Improved automation. To comply 

with Regulation SE’s requirements 

relating to recordkeeping and 

surveillance, an SBSEF potentially 

would need to invest in and develop 

automated technology systems to store, 

monitor, and communicate a variety of 

trading data, including orders, RFQs, 

RFQ responses, and quotations.890 The 

final rules should promote increased 

automation in the SBS market, although 

CFTC-registered SEFs that plan to 

register as SBSEFs are already deploying 

automated systems that could be 

supplemented to support an SBS 

business. In addition, the automation 

and systems development associated 

with the regulation of SBSEFs could 

provide SBS market participants with 

new platforms and tools to execute and 

process transactions in SBS more 

rapidly and at a lower expense per 

transaction. Such increased efficiency 

could enable members of the SBSEF to 

handle increased volumes of SBS with 

greater efficiency and timeliness. 

2. Benefits Associated With Specific 

Rules 

In addition to the broad benefits that 

the Commission anticipates as a result 

of the rules and amendments adopted in 


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891Unless otherwise stated, quantified benefits in 

this section are adjusted for CPI inflation using data 

published by the Bureau of Labor Statistics. See CPI 

Inflation Calculator, U.S. Bureau of Labor Statistics, 

available at https://www.bls.gov/data/inflation_

calculator.htm. 

892See SEA section 3D(a)(1), 15 U.S.C. 78c– 

4(a)(1). 893See supra section III. 

894The Commission previously estimated that an 

entity would incur costs of $301,400 to register as 

a broker-dealer and become a member of a national 

securities association. See Cross-Border 

Amendments Adopting Release, 85 FR at 6312. 

Adjusted for inflation through Dec. 2022, these 

costs are $345,826. 

895The Commission previously estimated that an 

entity would incur ongoing annual costs of $54,800 

to maintain broker-dealer registration and 

membership of a national securities association. See 

Cross-Border Amendments Adopting Release, 85 FR 

6312. Adjusted for inflation through Dec. 2022, 

these costs are $62,878. The estimation of ongoing 

annual costs is based on the assumption that the 

entity would use existing staff to perform the 

functions of the registered broker-dealer and would 

not incur incremental costs to hire new staff. To the 

extent that the entity chooses to hire new staff, the 

ongoing annual costs would likely be higher. 

this release, individual rules could bring 

particular benefits to the SBS market.891

These include the following: 

Registration requirements and Form 

SBSEF. SBSEF registration is required 

under the Dodd-Frank Act.892 Rule 

818(a) incorporates the requirement 

under the Dodd-Frank Act that an 

SBSEF, in order to be registered and 

maintain registration, must comply with 

the Core Principles in section 3D(d) of 

the SEA and the Commission’s rules 

thereunder. The registration process 

described in Rule 803 implements this 

statutory requirement and assists the 

Commission in overseeing and 

regulating the SBS market. The 

information to be provided on Form 

SBSEF is designed to enable the 

Commission to assess whether an 

applicant has the capacity and the 

means to perform the duties of an 

SBSEF and to comply with the Core 

Principles and other requirements 

imposed on SBSEFs. Rule 803 is closely 

modelled on analogous CFTC 

registration requirements for SEFs. The 

choice to align the Commission’s 

registration requirements for SBSEFs 

with the CFTC’s requirements for SEFs 

is designed to achieve the 

abovementioned benefits while 

imposing only marginal costs on SBSEF 

registrants, who likely are SEFs. Finally, 

Rule 814(a) helps provide regulatory 

certainty for an entity that operates both 

an exchange and an SBSEF by clarifying 

that such an entity is required to 

separately register the two facilities 

pursuant to section 6 of the SEA and 

Rule 803, respectively. 

Exemptions (Rule 833, Rule 816(e), 

amendments to Rule 3a1–1, and Rule 

15a–12). Rule 833 is designed to 

preserve access to foreign markets by 

‘‘covered persons’’ (as defined in Rule 

832). As discussed in section XVII.B.2, 

an analysis of SBS transaction data 

indicates that certain trades executed on 

foreign SBS trading venues involve at 

least one counterparty that is a covered 

person. Absent the rule, these trading 

venues might elect to avoid having 

members that are covered persons if 

those venues do not wish to register 

with the Commission in some capacity 

(such as an exchange or SBSEF). In 

addition, covered persons will not be 

permitted to execute SBS that are 

subject to the trade execution 

requirement on these venues if the 

venues do not register with the 

Commission in some capacity (such as 

an exchange or SBSEF) or obtain an 

appropriate exemption. This would 

limit access to foreign SBS trading 

venues by covered persons, potentially 

making it harder for them to locate 

counterparties and obtain liquidity for 

SBS that trade on those venues. This in 

turn could increase their trading costs 

because they might spend more time 

and effort to locate counterparties or 

because they have less bargaining power 

relative to the remaining pool of 

potential counterparties with which 

they could trade. To the extent that a 

foreign SBS trading venue can obtain a 

Rule 833(a) exemption, it could 

continue to provide members that are 

covered persons with access to and 

liquidity on its market. Furthermore, a 

Rule 833(b) exemption would allow 

covered persons to continue accessing 

foreign SBS trading venues to execute 

SBS that are subject to the SEA’s trade 

execution requirement. 

Currently, all trading venues that 

trade SBS—whether domestic or 

foreign—are exempt from having to 

register as a national securities exchange 

or SBSEF on account of the SBS trading 

business. This exemption expires when 

the Commission’s rules for registering 

and regulating SBSEFs come into 

force.893 Thus, removal of the existing 

exemption restores the status quo ante, 

where the SEA itself, as amended by the 

Dodd-Frank Act, requires entities 

meeting the definition of ‘‘securitybased swap execution facility’’ or 

‘‘exchange’’ and falling within the 

territorial jurisdiction of the SEA to 

register with the Commission. By 

offering foreign SBS trading venues the 

possibility of an exemption from the 

definitions of ‘‘security-based swap 

execution facility’’ and ‘‘exchange’’ as 

well as from section 3D(a)(1) of the SEA, 

Rule 833(a) allows foreign SBS trading 

venues to operate in conditions similar 

to the current baseline (if the 

Commission ultimately grants an 

exemption under Rule 833(a)). 

Paragraph (a)(4) of Rule 3a1–1 

provides that an entity that has 

registered with the Commission as an 

SBSEF and provides a market place for 

no securities other than SBS will not fall 

within the definition of ‘‘exchange’’ and 

thus will not be subject to the 

requirement in section 5 of the SEA to 

register as a national securities exchange 

(or obtain a low-volume exemption). 

The benefit of the amendment is to 

clarify to prospective SBSEF applicants 

that, if they register with the 

Commission as SBSEFs, they will not 

face duplicative registration and 

regulatory requirements as exchanges. 

In addition, paragraph (a)(5) of Rule 

3a1–1 codifies a series of exemptions 

that the Commission has granted over 

several years to SBS clearing agencies 

that operate ‘‘forced trading’’ sessions to 

support end-of-day valuations of SBS. 

Because the amendment is intended to 

codify existing exemptions, any 

associated economic effects would be 

minimal. 

New Rule 15a–12 is designed to 

minimize overlapping compliance 

burdens for SBSEFs, which are also 

brokers under the SEA, that restrict their 

activity to engaging in the business of 

operating an SBSEF (and no other 

broker activities). Absent the rule, such 

SBSEFs (defined as ‘‘SBSEF–Bs’’ for 

purposes of Rule 15a–12) will need to 

register as SBSEFs and be subject to the 

SBSEF regulatory regime, in addition to 

registering as brokers and being subject 

to the broker regulatory regime. Rule 

15a–12 allows an SBSEF–B to satisfy the 

requirement to register as a broker by 

registering as an SBSEF under Rule 803 

and exempts an SBSEF–B from SIPA 

and other broker requirements, except 

for sections 15(b)(4), 15(b)(6), and 17(b) 

of the SEA. As a result of the rule, 

SBSEF–Bs could avoid incurring 

duplicative and unnecessary 

compliance burdens. Each SBSEF–B 

could save an estimated $345,826 in 

initial broker registration costs 894 and 

$62,878 in annual ongoing costs of 

meeting broker registration 

requirements.895 In deriving these 

estimates, the Commission assumes that 

the activities an SBSEF–B performs to 

register and maintain registration as a 

broker do not overlap with those that it 

performs to register and maintain 

registration as an SBSEF–B. If there is 

an overlap in such activities, the 

estimated cost savings could be smaller. 

Each SBSEF–B could save an estimated 

$821 in ongoing costs associated with 

satisfying broker minimum capital 


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896Absent the rule, an SBSEF–B would comply 

with the minimum net capital requirement of 

$5,000 for a registered broker-dealer because it 

would not receive, owe, or hold customer funds or 

securities; carry customer accounts; and engage in 

certain other activities. See Rule 15c3–1(a)(2)(vi) 

under the SEA, 17 CFR 240.15c3–1(a)(2)(vi). The 

Commission estimates the cost of capital using the 

annual stock returns on a value-weighted portfolio 

of financial stocks from 1988 to 2022 (see Kenneth 

French, 48 Industry Portfolios, available at http:// 

mba.tuck.dartmouth.edu/pages/faculty/ken.french/ 

ftp/48_Industry_Portfolios_CSV.zip (accessed on 

May 18, 2023). These returns were averaged to 

arrive at an estimate of 16.41%. The cost of capital 

= 16.41% × $5,000 = $820.50 or approximately 

$821. 

897The Commission estimates the number of 

SBSEF–Bs as the number of entities that likely will 

register as SBSEFs. See supra section XVII.B.4. 

Aggregate initial savings = $345,826 × 5 (number of 

SBSEF–Bs) = $1,729,130. Aggregate annual ongoing 

savings = ($62,878 + $821) × 5 (number of SBSEFs) 

= $318,495. 

898See Rules 804(a)(3)(iv) and 807(a)(6)(iv). 

899The SBSEF remains responsible for 

establishing and administering required policies 

and procedures. See supra section VI.N. 

900See Rules 831(a)(2)(iii) and (h)(2). 

901See Rules 834(b) to (g). 

requirements.896 The estimated 

aggregate initial and annual ongoing 

savings are $1,729,130 and $318,495, 

respectively.897

Rule and product filings. Rules 806 

and 807 set forth alternative filing 

processes for a new rule or rule 

amendment of a registered SBSEF, and 

Rules 804 and 805 set forth alternative 

filing processes for an SBSEF to file an 

SBS product that it wishes to list. Rule 

810 would address new product filings 

by an entity that has applied for SBSEF 

registration but has not yet been 

registered, or by a dormant SBSEF 

seeking reinstatement of its registration. 

The self-certification processes of Rules 

804 and 807 require SBSEFs to include 

a certification that the product, rule, or 

rule amendment, as the case may be, 

complies with the SEA and Commission 

rules thereunder.898 The information to 

be provided by the SBSEF under Rules 

804, 805, and 810 will further the ability 

of the Commission to obtain information 

regarding SBS that an SBSEF intends to 

list on its market. The rules will assist 

the Commission in overseeing and 

regulating the trading of SBS and to 

help ensure that SBSEFs operate in 

compliance with the SEA. 

In addition, Rule 806(a)(5), which 

requires an SBSEF to explain the 

anticipated benefits and potential 

anticompetitive effects on market 

participants of a proposed new rule or 

rule amendment, potentially could help 

foster a competitive SBS market because 

it could prompt SBSEFs to consider the 

positive as well as negative aspects of 

their proposed rules or rule 

amendments with respect to 

competition. Rule 808 is designed to 

facilitate the public’s ability to obtain 

information from SBSEF applications as 

well as rule and product filings. Rule 

808(a) specifies the parts of an SBSEF 

application that the Commission shall 

make publicly available unless 

confidential treatment is obtained 

pursuant to SEA Rule 24b–2. Rule 

808(b) provides that the Commission 

shall make an SBSEF’s rule and product 

filings publicly available unless 

confidential treatment is obtained 

pursuant to SEA Rule 24b–2. Rule 

808(c) provides that the terms and 

conditions of a product submitted to the 

Commission pursuant to any of Rules 

804 through 807 shall be made publicly 

available at the time of submission 

unless confidential treatment is 

obtained pursuant to SEA Rule 24b–2. 

Rule 809 provides a mechanism for 

the staying of a product certification or 

the tolling of a review period for a filing 

by an SBSEF relating to a product while 

the appropriate jurisdictional 

classification of that product is 

determined. The rule is designed to 

provide regulatory certainty for SBSEFs 

and market participants who may be 

interested in trading products whose 

classification as an SBS subject to SEC 

jurisdiction or a swap subject to CFTC 

jurisdiction is unclear. In particular, 

Rule 809 would help ensure that 

determinations regarding whether the 

SEC or CFTC appropriately has 

jurisdiction over a product are made 

before the product is traded. 

The Commission’s election to model 

Rules 804 through 810 closely on 

analogous rules in part 40 of the CFTC’s 

rules that apply to SEFs (and other 

registered entities) is designed to 

promote efficiency. Utilizing the same 

processes for rule and product filings, 

with which dually registered SEF/ 

SBSEFs are familiar, would impose only 

minimal burdens on such entities while 

obtaining the similar regulatory benefits 

as the CFTC rules. In some cases, where 

a new rule or rule amendment affects 

both the swap and SBS business of a 

dually registered entity, the same or a 

very similar filing could be made to 

each of the CFTC and SEC, in lieu of 

having to make different filings to 

support the same rule change. 

Chief Compliance Officer. Rule 831, 

among other things, requires the CCO of 

an SBSEF to submit an annual 

compliance report to the Commission. 

The report will assist the Commission in 

carrying out its oversight of the SBSEFs 

and the SBS market by providing the 

Commission with information about the 

compliance activities of SBSEFs. 

Furthermore, by requiring an SBSEF to 

designate an individual as the CCO and 

making the CCO responsible for 

ensuring compliance with the SEA and 

the Commission’s rules thereunder, 

Rule 831 would promote regulatory 

compliance on SBSEFs and the SBS 

market generally.899 This in turn would 

further the goal of moving SBS trading 

away from opaque and unregulated OTC 

markets and onto transparent and 

regulated markets by promoting 

effective regulation of the latter. 

Conflicts of Interest. Rule 831, among 

other things, requires the CCO to resolve 

material conflicts of interest that may 

arise in consultation with the governing 

board or the senior officers of the 

SBSEF.900 Rule 828(a) requires an 

SBSEF to establish and enforce rules to 

minimize conflicts of interest in its 

decision-making process and establish a 

process for resolving the conflicts of 

interest. Rule 828(b) would require an 

SBSEF to comply with the requirements 

of Rule 834, which is designed to 

implement section 765 of the DoddFrank Act with respect to SBSEFs and 

SBS exchanges. Rule 834, among other 

things, imposes a 20% cap on the voting 

interest held by an individual member 

of an SBSEF or SBS exchange, mitigates 

conflicts of interest in the disciplinary 

process of an SBSEF or SBS exchange, 

sets forth certain minimum 

requirements for the composition of the 

governing board of an SBSEF or SBS 

exchange, sets forth reporting 

requirements related to governing board 

elections, and addresses the avoidance 

of conflicts of interest in the execution 

of regulatory functions by an SBSEF or 

SBS exchange.901

The rules would mitigate conflicts of 

interest between an SBSEF or SBS 

exchange and its members as discussed 

in section VIII. Relative to the bilateral 

OTC SBS market, SBSEFs and SBS 

exchanges promote competition 

between liquidity providers, potentially 

forcing them to lower their prices for 

supplying liquidity (e.g., narrowing bidask spread) and reducing their profits 

from liquidity provision. However, if 

SBS dealers or major SBS participants 

were able to restrict access to such 

venues by, for example, exercising their 

voting interest in an SBSEF or SBS 

exchange, they could stifle competition 

in SBSEFs and SBS exchanges and 

preserve their profits from liquidity 

provision. Regulation SE, by mitigating 

such conflicts of interest could help 

ensure access to SBSEFs and SBS 

exchanges and in turn increase 

competition in liquidity provision and 

lower transaction costs. Rules 834(e), (f), 

and (g) also may promote good 

governance at SBSEFs and SBS 

exchanges. To the extent that improved 


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902See Rule 825(c)(3). 

903 In addition, the associated PDF renderer will 

provide users with a human-readable document for 

those who prefer to review manually individual 

reports, while still providing a uniform 

presentation. 

904See XBRL US Letter, supra note 718, at 2. 

905See 17 CFR 242.907(a)(2) (requiring 

information to be submitted to SDRs in an ‘‘opensource structured data format that is widely used 

by participants’’). 

906See infra section XVII.C.3 for a discussion of 

the specific content of the Daily Market Data Report 

and how it differs from the SBS transaction reports 

disseminated under Regulation SBSR. 

907This includes the documents required under: 

Rule 803(b)(1)(i) and (3) (filings of, and 

amendments to, specified exhibits in a Form SBSEF 

application); Rules 803(e) and 803(f) (requests to 

withdraw or vacate an application for registration); 

Rule 829(g)(6) (submission to the Commission of 

reports related to financial resources and related 

documentation); and Rule 831(j)(2) (submission to 

the Commission of the annual compliance report of 

the SBSEF’s CCO). See supra section XIII.A. 

908The custom XML requirements apply to 

information required under Rules 803(e) and (f) 

regarding withdrawal or vacation applications; the 

Form SBSEF Cover Sheet; and Exhibits A, B, G, M, 

N, and T to Form SBSEF. The Inline XBRL 

requirements apply to information required under 

Rules 829 and 831 regarding financial resources 

reports and CCO compliance reports, respectively; 

and Exhibits C through F, H through L, and P 

through S to Form SBSEF. See supra section XIII.A. 

See also supra notes 724–726 and accompanying 

text (discussing the final rule text revisions that 

implement the reduced scope of Inline XBRL 

requirements for Form SBSEF). 

909See Rule 831. 

910See XBRL US Letter, supra note 718, at 2. 

governance result in more effective 

oversight by SBSEFs and SBS exchanges 

of their markets, market participants 

may benefit. These benefits could be 

limited to the extent that prospective 

SBSEFs and SBS exchanges already 

have rules in place that comply with the 

rules. 

Structured Data Requirements. Rule 

825(c)(3) requires an SBSEF to publish 

a Daily Market Data Report on its 

website without charge or usage 

restrictions and in a downloadable and 

machine-readable format using the most 

recent version of the associated XML 

schema and PDF renderer as published 

on the Commission’s website.902

Requiring the Daily Market Data Report 

to be provided in a structured, machinereadable data language (using a 

Commission-created XML schema) will 

facilitate the use of the price, trading 

volume, and other trading data on the 

report by end users such as SBS market 

participants and market observers. By 

including a structured data requirement, 

the information in the report will be 

made available in a consistent and 

openly accessible manner that will 

allow for automatic processing by 

software applications, thus enabling 

search capabilities and statistical and 

comparative analyses across SBSEFs 

and date ranges.903 This will ensure that 

SBS market participants and market 

observers seeking to use the data will 

not have to spend time manually 

collecting and entering the data into a 

format that allows for analysis. 

One commenter stated that using 

custom XML rather than Inline XBRL 

‘‘would essentially require re-creating 

what XBRL already offers’’ and that the 

use of custom XML ‘‘would result in 

added costs for all stakeholders, 

reduced efficiencies in adapting to 

changes, and the inability to commingle 

datasets.’’ 904 The Daily Market Data 

Report, which includes the trade count, 

the total notional amount traded, and 

the opening and closing price, is wellsuited for custom XML as the 

information would easily fit within a 

table and the use of custom XML would 

make the file size of the document 

smaller than would be the case with 

Inline XBRL, which helps to reduce 

operating system overhead. Posting the 

Daily Market Data Report would not 

impose significant costs to prospective 

and actual SBSEFs due to the limited 

extent and complexity of the required 

data points to be reported, and because 

SBSEFs are already required to use 

structured data to fulfill their reporting 

requirements under Regulation SBSR905

and therefore would have relevant 

systems in place to structure and 

publicly disseminate other SBS trading 

information.906 While the use of custom 

XML will make it more difficult for data 

users to aggregate and compare the data 

points on the Daily Market Data Report 

with data points in other Inline XBRL 

datasets in an efficient manner, the 

streamlined schema and reduced file 

size justify that drawback. 

Regulation SE requires SBSEFs to file 

disclosures required under various 

provisions in the EDGAR system using 

structured (machine-readable) data 

languages.907 Requiring a centralized 

filing location and a machine-readable 

data language for these disclosures will 

facilitate access, retrieval, analysis, and 

comparison of the disclosed information 

across different SBSEFs and time 

periods by the Commission and the 

public, thus potentially augmenting the 

informational benefits of the various 

disclosure requirements discussed 

herein. Also, because EDGAR provides 

basic technical validation capabilities, 

the use of EDGAR could reduce the 

incidence of technical errors (e.g., letters 

instead of numbers in a field requiring 

only numbers) and thereby improve the 

quality of the structured disclosures. 

The structured data requirements 

under Regulation SE will facilitate 

access to the structured information in 

the filings, enabling Commission staff to 

perform more efficient retrieval, 

aggregation, and comparison across 

different SBSEFs and time periods, as 

compared to an unstructured PDF, 

HTML, or ASCII format requirement. 

The functionality enabled by a machinereadable data requirement will allow 

staff to better utilize the structured 

information in Regulation SE filings to 

ensure compliance with the SEA and 

rules and regulations thereunder 

applicable to SBSEFs (e.g., by enabling 

efficient staff identification of material 

changes to compliance policies or 

material non-compliance matters to 

gauge the soundness of SBSEF 

compliance programs), thus ultimately 

furthering the Commission’s mission of 

maintaining fair, orderly, and efficient 

markets. 

In a change from the proposal, 

Regulation SE will require some of the 

structured disclosures to be filed in 

custom XML rather than Inline 

XBRL.908 Because both custom XML 

and Inline XBRL are structured data 

languages that result in machinereadable disclosures, the 

aforementioned benefits would apply in 

both cases. Inline XBRL specifically 

provides the ability to tag detailed facts 

within narrative text blocks, and is thus 

well-suited to accommodate many 

disclosures required under proposed 

Regulation SE, several of which require 

extended narrative discussions (e.g., the 

chief compliance officer’s report 

required under Rule 831).909 In 

addition, certain required disclosures 

consist of financial information (e.g., the 

financial statements of the SBSEF 

required under Exhibit I to Form 

SBSEF), and Inline XBRL is designed 

specifically for the accurate capture and 

communication of financial 

information, among other uses. A 

benefit specific to custom XML 

disclosures is that EDGAR can create 

fillable web forms allowing SBSEFs, at 

their option, to input their disclosures 

manually and have EDGAR convert 

them into the specific custom XML data 

language, removing the need for SBSEFs 

to structure the disclosures in the 

custom XML data language themselves. 

This added flexibility may ease 

compliance burdens for any SBSEFs 

that choose to use the fillable web form. 

One commenter noted that an Inline 

XBRL requirement for the proposed 

disclosures would allow financial 

identification and textual data in both a 

human- and machine-readable format 

consistently in a fashion that would 

allow Form SBSEF data to be 

commingled with other SEC-reported 

datasets.910 While we generally agree 

that Inline XBRL provides such benefits 


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911This includes attached copies of existing 

documents required under Exhibits A, G, I, M, N, 

and O to Form SBSEF. See supra section XIII.A. See 

also supra notes 724–726 and accompanying text 

(discussing the final rule text revisions that 

implement the reduced scope of Inline XBRL 

requirements for Form SBSEF). 

912See Bloomberg Letter, supra note 18, at 20. See 

also supra notes 730–733 (discussing the final rule 

text revisions that implement the requirement for 

SBSEFs to file rule and product filings in 

unstructured format using the EFFS system). 

913Unless otherwise stated, quantified costs in 

this section are adjusted for CPI inflation using data 

published by the Bureau of Labor Statistics. See CPI 

Inflation Calculator, U.S. Bureau of Labor Statistics, 

available at https://www.bls.gov/data/inflation_

calculator.htm. 

914See supra section XVII.C (noting that the 

benefits and costs associated with the trade 

execution requirement would not materialize unless 

and until the Commission makes a mandatory 

clearing determination). 

915See Citadel Letter, supra note 18, at 16. 

916See, e.g., Ananth Madhavan, Market 

Microstructure: A Survey, J. of Fin. Markets, Vol. 3 

(2000). 

917The potential costs associated with SBS trades 

of a larger notional size could be affected by a 

definition of ‘‘block trade’’ that includes a block 

trade threshold that market participants could rely 

on for the exception from the Required Transaction 

requirement in Rule 815(a)(2). As discussed in 

section V.E.1(c)(i), supra, a block-trade exception 

for SBSs subject to the trade-execution requirement, 

provided that ‘‘block trade’’ is appropriately 

defined for those SBSs, can help ensure that large 

trades are not significantly more difficult and costly 

to execute because of the risks posed by information 

leakage and the potential for adverse price 

movement, which could significantly impair 

liquidity in the markets for those SBSs. 918See Rule 815(d)(2) and Rule 815(d)(3). Neither 

an SBS that is intended to be cleared (even if it is 

not required to be cleared) nor a swap subject to a 

CFTC trade execution requirement would create an 

exception from required methods of execution for 

a Required Transaction that is part of the same 

package. 

related to data use, the greater 

compliance flexibility afforded by 

custom XML merits using custom XML 

for the specified disclosures. 

In another change from the proposal, 

where Regulation SE requires copies of 

existing documents (e.g., copies of 

manuals, contracts, organizational 

documents) to be attached to filings, 

those copies will be filed as 

unstructured PDF attachments.911 The 

absence of structuring requirements for 

these documents will further reduce 

compliance burdens on SBSEFs, and 

although the content of those copies 

will not be machine-readable, we do not 

believe the informational benefits 

associated with having such documents 

in structured form would be significant 

enough to merit requiring SBSEFs to 

retroactively structure such existing 

documents. In addition, filings related 

to new SBSEF rules and products under 

Rules 804 through 807 and 816 will be 

filed as unstructured documents 

through the EFFS system rather than 

through EDGAR. As noted by one 

commenter, the absence of structuring 

requirements for these filings will 

similarly reduce compliance burdens on 

SBSEFs.912

3. Costs 

Although Regulation SE would 

benefit the SBS market, the Commission 

recognizes that Regulation SE also 

would entail certain costs.913 Some 

costs are difficult to precisely quantify 

and are discussed below. The 

Commission is mindful that any rules it 

may adopt with respect to SBSEFs 

under the Dodd-Frank Act may impact 

the incentives of market participants 

with respect to where and how they 

trade SBS. If the rules adopted by the 

Commission are, or are perceived to be, 

too costly for trading venues to comply 

with, fewer entities than expected may 

seek to register as SBSEFs, which would 

not further the goal of moving a greater 

percentage of SBS trading from opaque 

and unregulated OTC markets to 

transparent and regulated trading 

venues. In addition, if the rules for 

trading on an SBSEF are perceived as 

too burdensome by market participants, 

SBS trading may continue in the OTC 

market absent a mandatory clearing 

determination and a triggering of the 

mandatory trade execution requirement, 

thus frustrating the goals of the DoddFrank Act.914 Even if the trade 

execution requirement is triggered for 

an SBS, market participants that wish to 

avoid being subject to the requirement 

may do so by strategically choosing the 

location of the desk executing a trade in 

that SBS.915 At the same time, if the 

rules relating to SBSEFs are too lenient, 

they may have little or no impact on the 

market structure and surveillance of the 

SBS market relative to the status quo, 

which could result in the loss of many 

of the benefits discussed above and fail 

to achieve the goals of the Dodd-Frank 

Act. 

In addition, SBS traded on SBSEFs 

may be perceived to be subject to 

increased costs, monetary and 

otherwise. For example, the 

requirements related to pre-trade 

transparency could cause market 

participants to reveal valuable economic 

information regarding their trading 

interest more broadly than they may 

believe would be economically prudent 

and could discourage participation in 

the SBS market. An additional impact of 

pre-trade transparency is perceived 

costs associated with front-running, if 

customers or SBS dealers are required to 

show their trading interest before a trade 

is executed. These potential costs of pretrade transparency may change market 

participants’ trading strategies, which 

could result in them working more 

orders or finding ways to attempt to 

hide their interest.916 These potential 

costs would likely vary based on the 

notional size of the SBS transaction and, 

in particular, would likely be greater for 

market participants engaging in SBS 

trades of a larger notional size.917 If 

market participants view Regulation SE 

as too burdensome with respect to pretrade transparency, SBS dealers may be 

less willing to supply liquidity for SBS 

that trade on SBSEFs or exchanges, thus 

adversely affecting liquidity and 

competition. However, such effects 

could be mitigated by Rules 815(d)(2) 

and Rules 815(d)(3) that provide an 

exception for certain package 

transactions that allows for flexible 

methods of execution for what would be 

otherwise Required Transactions.918

On the other hand, if the requirements 

with respect to pre-trade transparency 

bring about only a marginal increase in 

pre-trade transparency, the result could 

be that there would be no substantive 

change from the status quo, including 

no benefits of alleviating informational 

asymmetries, increasing price 

competition, and supplying better 

executions beyond the changes in 

response to the other requirements of 

the Dodd-Frank Act. This actual impact 

would depend on the degree of pretrade transparency required and the 

characteristics of the trading market. 

The rules are intended to provide for 

greater pre-trade transparency than 

currently exists without requiring pretrade transparency in a manner that 

would cause participants to avoid 

providing liquidity on SBSEFs. 

There would be transaction costs, 

such as fees and connectivity costs, that 

trading counterparties would incur in 

executing or trading SBS subject to the 

trade execution requirement on SBSEFs. 

Likewise, although unregulated trading 

venues exist in today’s OTC derivatives 

market, the Commission does not have 

information regarding what, if any, fees 

and connectivity costs are associated 

with transacting on these unregulated 

trading venues. In the Proposing 

Release, the Commission invited 

comment on the likely fees and costs 

associated with transacting on SBSEFs 

as well as fees and costs associated with 

transacting on unregulated trading 

venues that exist in today’s OTC 

derivatives market. Commenters did not 

provide estimates of likely fees and 

costs associated with transacting on 

SBSEFs or fees and costs associated 

with transacting on unregulated trading 

venues. 

As discussed in section XVII.B, 

prospective SBSEF registrants are likely 


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919See infra section XVII.C.3(c) (discussing the 

costs that these entities might incur to list SBS 

products). 

920 In the Proposing Release, the Commission 

estimated that the one-time costs associated with 

changes to systems, policies, and procedures would 

range between $25,000 and $1.5 million per SBSEF, 

depending on the changes needed. The Commission 

estimated the annual ongoing costs to be between 

$1 million and $2 million. See Proposing Release, 

supra note 1, 87 FR at 28953. Adjusting for inflation 

in 2022, the Commission now estimates that the 

one-time costs associated with changes to systems, 

policies, and procedures would range between 

$25,000 × 1.0557 (CPI inflation adjustment for 2022) 

= $26,392.50 or approximately $26,393 and $1.5 

million × 1.0557 (CPI inflation adjustment for 2022) 

= $1,583,550 per SBSEF, depending on the changes 

needed. In the aggregate, the one-time costs 

associated with changes to systems, policies, and 

procedures would range between $26,393 × 5 

SBSEFs = $131,965 and $1,583,550 × 5 SBSEFs = 

$7,917,750, depending on the changes needed. 

Adjusting for inflation in 2022, the Commission 

now estimates the annual ongoing costs per SBSEF 

to be between $1 million × 1.0557 (CPI inflation 

adjustment for 2022) = $1,055,700 and $2 million 

× 1.0557 (CPI inflation adjustment for 2022) = 

$2,111,400. In the aggregate, the annual ongoing 

costs would be between $1,055,700 × 5 SBSEFs = 

$5,278,500 and $2,111,400 × 5 SBSEFs = 

$10,557,000. One commenter states that any 

potential differences between SEC rules and 

analogous CFTC rules would require SBSEF 

registrants to devote resources toward assessing the 

potential gaps and consequences of regulatory 

divergence. See Bloomberg Letter, supra note 18, at 

10. Such costs would be part of the one-time costs 

associated with changes to systems, policies, and 

procedures. It is possible that SBSEF registrants 

might incur additional costs toward assessing the 

potential gaps and consequences of regulatory 

divergence. In that case, the one-time costs 

associated with changes to systems, policies, and 

procedures could be higher than the Commission’s 

estimates. 

921See supra section XVII.C and note 867. 

922See ICI Letter, supra note 18, at 5. 

923See id. at 6. 

924 Id. 

925These six factors are: (1) whether there are 

ready and willing buyers and sellers; (2) the 

frequency or size of transactions; (3) the trading 

volume; (4) the number and types of market 

participants; (5) the bid/ask spread; or (6) the usual 

number of resting firm or indicative bids and offers. 

See Rule 816(b). 

926See ICI Letter, supra note 18, at 11. 

927See supra section XVII.C.1 (discussing the 

benefits of increased pre-trade transparency). 

928See WMBAA Letter, supra note 18, at 2. 

929See SIFMA AMG Letter, supra note 18, at 12. 

to be CFTC-registered SEFs that are 

active in the index CDS market. Because 

the final rules are harmonized as closely 

as practicable with analogous CFTC 

rules for SEFs, unless a reason exists to 

do otherwise in a particular area, much 

of the systems, policies, and procedures 

that are used to support SEF trading also 

could be used to support SBSEF trading. 

The prospective SBSEF registrants 

likely would incur marginal costs 

associated with listing SBS products on 

their venues 919 and making limited 

changes to their systems, policies, and 

procedures to comply with SEC rules 

that differ slightly from analogous CFTC 

rules. The Commission estimates the 

one-time costs associated with such 

changes to systems, policies, and 

procedures would range between 

$26,393 and $1,583,550 per SBSEF and 

between $131,965 and $7,917,750 in the 

aggregate, depending on the changes 

needed. These cost ranges reflect 

significant uncertainties about the 

extent of changes that different 

registrants might need. The annual 

ongoing costs of maintaining the 

technology (e.g., ensuring any necessary 

technological updates and 

improvements are made) and applying 

the technology to ongoing compliance 

requirements are estimated to be in the 

range of $1,055,700 to $2,111,400 per 

SBSEF and in the range of $5,278,500 to 

$10,557,000 in the aggregate.920

Several commenters agree that the 

Commission’s general approach to 

finalizing requirements relating to SBS 

execution would mitigate costs for 

registered SBSEFs.921

One commenter is concerned that 

Rule 816 as proposed would permit 

SBSEFs to make an SBS available to 

trade even absent objective evidence of 

a sufficiently liquid trading market.922

According to the commenter, requiring 

SBS with insufficient liquidity to be 

traded via an order book or an RFQ 

system would raise a significant risk of 

revealing investment advisers’ sensitive 

portfolio management strategies.923

Such information leakage could lead to 

front-running of funds’ trades and to 

other abusive trading practices that 

would negatively affect the pricing of 

SBS and of other related instruments, 

resulting in higher investment costs for 

investment advisers’ clients, including 

funds and their investors.924 The 

Commission agrees that an 

inappropriate MAT determination such 

as the one described by the commenter 

could result in higher investment costs 

for investment advisers’ clients by 

increasing the risk of information 

leakage, front-running, and other 

abusive trading practices. Regulation SE 

as adopted would address concerns 

related to inappropriate MAT 

determinations. As discussed in section 

V.F.2, the Commission will have the 

opportunity to review all SBSEF MAT 

determinations, whether they are selfcertified or voluntarily filed for 

Commission approval, to consider 

whether those determinations are 

adequately supported by evidence and 

consistent with the SEA and the rules 

thereunder, including the six factors to 

be considered for MAT determinations 

under Rule 816(b).925 In the absence of 

such evidence, the Commission can 

decline to approve or can stay and then 

object to a MAT petition, which will 

ultimately allow the Commission to 

prevent an inappropriate MAT 

determination from taking effect. 

One commenter states that requiring a 

fund to disclose its trading interest in an 

SBS of a large notional size to multiple 

participants—via an order book or an 

RFQ system—would enable 

opportunistic market participants to 

piece together information about the 

fund’s holdings or investment strategy 

and lead to front-running of those 

potential trades.926 The Commission 

agrees that requiring a fund to disclose 

its trading interest in an SBS of a large 

notional size to multiple participants 

via an order book or an RFQ system 

could impose costs associated with 

information leakage and front-running. 

However, these costs have to be 

considered in light of the benefits of 

increased pre-trade transparency: 

increased price competition, increased 

price efficiency, improved liquidity, and 

reduced transaction costs.927 By 

adopting two execution methods for 

Required Transactions (limit order book 

and RFQ-to-3), market participants have 

flexibility in the degree of pre-trade 

transparency they wish to employ, 

which should diminish potential 

concerns associated with the exposure 

of pre-trade trading interest. Further, a 

market participant that wishes to engage 

in Permitted Transactions of a large 

notional size can choose any method of 

execution that is offered by an SBSEF 

and is not restricted to using a limit 

order book or RFQ-to-3. For these 

transactions, any costs associated with 

information leakage and front-running 

likely would not be different from those 

costs that would prevail under the 

baseline. 

One commenter states that Proposed 

Rule 834 would have the effect of 

prohibiting certain SBSEF participants 

from having common ownership and 

control as the SBSEF. The commenter is 

concerned that the proposed rule would 

prevent prospective SBSEFs that are 

CFTC-registered SEFs from onboarding 

their affiliated introducing brokers 

because doing so would exceed the 

ownership and voting caps set forth in 

Proposed Rule 834(b).928 Another 

commenter is concerned that the rule’s 

20% ownership cap would limit access 

to capital and act as barriers to entry for 

SBSEF and SBS exchanges.929

Observing that the CFTC did not adopt 

rules analogous to Proposed Rule 834, 

the commenters suggest that the 

proposed rule, if adopted, would be a 

fundamental departure from the CFTC’s 

rules, minimizing many of the other 


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930See id.; WMBAA Letter, supra note 18, at 3. 

931See WMBAA Letter, supra note 18, at 3. 

932See MFA Letter, supra note 18, at 13. 

933See id. Regulation SE does not address any 

exemption from clearing requirements. 934See Proposed Rule 825(c)(1)(iii). 935See Proposed Rule 825(c)(4). 936See 17 CFR 16.01(e). The Commission views 

the requirement to keep each Daily Market Data 

Report on an SBSEF’s website for one year, see 

Proposed Rule 825(c)(5), as a small additional 

burden for an SBSEF and does not view it as a 

significant departure from harmonization with the 

CFTC’s SEF regime. 937The Commission is also, pursuant to its 

determination not to adopt a definition of ‘‘block 

trade’’ at this time, deleting the words ‘‘including 

block trades but’’ from the text of paragraph (c)(i) 

and (ii) of Rule 825, and is adding the words ‘‘after 

such time as the Commission adopts a definition of 

‘block trade’ ’’ to paragraph (c)(iii) of Rule 825 

(formerly paragraph (c)(iv) of Proposed Rule 825) 

which will have no effect on the requirement as 

compared to the proposed rule. See supra section 

VI.H. 938See 17 CFR 242.900 et seq. 

benefits of a harmonized regime, and 

thwart efforts to smoothly implement 

Regulation SE.930 One commenter 

further states that some CFTC registered 

SEFs, which are prospective SBSEFs, 

might have to review their ownership 

and governance structure and, possibly, 

amend their organization.931

In response to these concerns, the 

Commission is adopting Rule 834(b)(3), 

which provides an exemption from the 

ownership and voting caps for an 

SBSEFs that has mitigated the potential 

conflict of interest with respect to 

compliance with the rules of the SBSEF 

by entering into an agreement with a 

registered futures association or a 

national securities association for the 

provision of regulatory services that 

encompass, at a minimum, real-time 

monitoring under Rule 819(d)(5) and 

investigations and investigation reports 

under Rule 819(d)(6). This exemption 

should address concerns regarding 

certain SBSEF participants not being 

able to have common ownership and 

control as the SBSEF (provided these 

appropriate conditions are met); the 

onboarding of affiliated introducing 

brokers by certain prospective SBSEFs; 

access to capital and entry barriers; and 

potential disruption or delays to the 

implementation of Regulation SE. 

With respect to the Daily Market Data 

Report required by Proposed Rule 825, 

one commenter states that the Daily 

Market Data Report would require 

inappropriate and detrimental 

disclosures that would undermine the 

Commission’s goal of fostering a 

competitive and efficient market for SBS 

trading. This commenter states that 

there are significant differences in the 

information required to be reported 

under the SEC and CFTC regimes. The 

commenter states that Proposed Rule 

825(c)(1) increases the burden on 

SBSEFs compared to SEFs by requiring 

additional information regarding sale 

and offer prices, as well as qualitative 

descriptions of certain data that are 

reported.932

This commenter further states that the 

Commission’s proposal does not address 

why the CFTC’s approach would not be 

acceptable in the context of SBSEFs and 

does not justify the increased 

operational costs to SBSEFs (which will 

ultimately be passed on to members). 

The commenter also states that the 

Commission has not considered the 

costs and potential for duplicative 

requirements in the context of 

Regulation SBSR reporting 

requirements. The commenter 

concludes that, in sum, the Daily Market 

Data Report is overly granular and 

duplicative, is unnecessary for 

transparency purposes, and could 

negatively impact the market and 

market participants. The commenter 

states that the Commission should 

therefore remove the Daily Market Data 

Report in favor of harmonizing with the 

analogous CFTC rules and that, if the 

Commission does not eliminate the 

Daily Market Data Report requirement 

altogether, it should adopt additional 

masking protections for trades, 

specifically with respect to block trades. 

Failure to do so, the commenter states, 

would cause inappropriate and 

detrimental disclosures and would 

‘‘negate the benefits that the rule 

purports to achieve by exempting block 

trades from clearing [sic] 

requirements.’’ 933

As discussed in Section IV.H, many of 

the reporting requirements of the Daily 

Market Data Report under Proposed 

Rule 825 are closely aligned with the 

data required to be disclosed on a daily 

basis by SEFs under § 16.01 of the 

CFTC’s rule. Further, the Commission is 

modifying Proposed Rule 825 to resolve 

the two differences between the 

proposed Daily Market Data Report and 

the existing CFTC reporting scheme 

under § 16.01: (1) that the Daily Market 

Data Report would include the number 

of block trades executed; 934 and (2) that 

the Daily Market Data Report would be 

posted on the SBSEF’s website no later 

than the beginning of trading on the 

next business day,935 while the 

information required by § 16.01 must be 

made public no later than the next 

business day.936

Rule 825(c)(1), as adopted, does not 

require the disclosure of the number of 

block trades.937 Further, Rule 825(c)(4), 

as adopted, requires the publication of 

the Daily Market Data Report ‘‘as soon 

as reasonably practicable on the next 

business day after the day to which the 

information pertains, but in no event 

later than 7 a.m. on the next business 

day.’’ With these modifications, the data 

called for by Rule 825(c)(1) is consistent 

with the required daily disclosures for 

SEFs. These modifications should help 

address concerns regarding increased 

burden on SBSEFs compared to SEFs, 

increased operational costs to SBSEFs, 

the Daily Market Data Report being 

overly granular, and negative impact on 

the market and market participants. The 

fact that Rule 825(c)(1), as adopted, does 

not require the disclosure of the number 

of block trades would obviate the need 

to adopt masking protections for block 

trades and address the commenter’s 

concern about inappropriate and 

detrimental disclosures that would 

adversely affect competition and 

efficiency in the SBS market. To the 

extent that the disclosure of the number 

of block trades prompts market prices to 

move against the dealers that facilitated 

such block trades thereby raising their 

hedging costs, dealers could raise the 

price of liquidity provision (e.g., by 

widening the bid-ask spread) charged to 

market participants, increase transaction 

costs, and reduce the efficiency of SBS 

trading. To the extent that the cost of 

transacting block trades increases, 

market participants may choose to exit 

the SBS market and trade alternative 

securities. This in turn could reduce 

participation and competition in the 

SBS market. Rule 825(c)(1), by not 

requiring the disclosure of the number 

of block trades, should mitigate these 

potential adverse effects on competition 

and efficiency in the SBS market. 

With respect to the concern that the 

Daily Market Data Report is duplicative 

of Regulation SBSR and unnecessary for 

transparency purposes, the former 

performs a function that is different 

from the reporting and public 

dissemination of SBS transactions 

required by Regulation SBSR.938 The 

Daily Market Data Report would 

consolidate trading information by 

venue and provide useful summary 

information about SBS trading on an 

SBSEF for all market participants 

without requiring them to incur costs to 

collect, process, and aggregate 

information from individual reports of 

SBS transactions that are executed on an 

SBSEF and publicly disseminated 

pursuant to Regulation SBSR. In 

addition, the Daily Market Data Report 

provides information regarding trading 

on an SBSEF that is not available in the 

SBS transaction reports that are publicly 

disseminated pursuant to Regulation 

SBSR. Among other things, the Daily 

Market Data Report would provide the 


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939See Rules 825(c)(1)(iv) through (vi) and 

825(c)(2). 

940See 2019 Cross-Border Adopting Release, 

supra note 218, 85 FR at 6347 (providing no-action 

relief with respect to Rule 902 of Regulation SBSR, 

17 CFR 242.902, for reports of credit SBS 

transaction disseminated with a capped size of $5 

million). 

941See SIFMA AMG Letter, supra note 18, at 11. 

942See ISDA–SIFMA Letter, supra note 18, at 12. 

943See Tradeweb Letter, supra note 18, at 4–5. 

944See SIFMA AMG Letter, supra note 18, at 11. 

945See supra notes 624–627 and accompanying 

text. 

946See supra note 599; Bloomberg Letter, supra 

note 18, at 6, 19; ICE Letter, supra note 18, at 4; 

ISDA–SIFMA Letter, supra note 18, at 14; Tradeweb 

Letter, supra note 18, at 6. 

947See supra note 602–607 and accompanying 

text. 

948See supra notes 597–599 and accompanying 

text. 

949 In the Proposing Release, the Commission 

stated its preliminary belief that ‘‘the use of singledealer platforms to discharge any mandatory 

trading execution requirement’’ would not meet the 

proposed rule’s requirements. See Proposing 

Release, supra note 1, 87 FR at 28925. 

950See supra note 626. 

951 In section XVIII infra, for purposes of the PRA, 

the Commission estimates burdens applicable to a 

stand-alone SBSEF. However, most if not all 

SBSEFs will be dually registered with the CFTC as 

SEFs and thus will already be complying with 

relevant CFTC rules that have analogs to rules in 

Regulation SE. Therefore, the Commission’s burden 

estimates are greater for stand-alone SBSEFs than 

may actually take place for those already registered 

with the CFTCs because of the effect of the CFTC’s 

corresponding rules. 

opening and closing price; the price that 

is used for settlement purposes, if 

different from the closing price; the 

lowest price of a sale or offer, whichever 

is lower; the highest price of a sale or 

bid, whichever is higher; the method 

used by the SBSEF in determining 

nominal prices and settlement prices; 

and a description of the manner in 

which discretion is used to determine 

the opening and/or closing ranges or the 

settlement prices.939 Further, because 

the transaction reports for credit SBS are 

permitted to be capped at a notional 

volume of $5 million,940 market 

participants would be unable to glean 

the information provided by the Daily 

Market Data Report—which would 

publish daily total notional volumes 

based on uncapped transaction 

amounts—from the individual reports of 

SBS transactions under Regulation 

SBSR. Thus, the Daily Market Data 

Report would provide market 

participants, at little to no cost, with 

information about pricing and trading 

volume for SBS on SBSEFs that goes 

beyond the information that could be 

obtained from SBS transaction reports 

that are publicly disseminated pursuant 

to Regulation SBSR. 

Several commenters are concerned 

that Proposed Rule 832(b)(3), which 

would apply the trade execution 

requirement to ANE transactions, could 

create complexities,941 prompt market 

participants and platforms to develop 

costly infrastructure to avoid engaging 

in ANE transactions,942 confuse market 

participants and platforms and reduce 

market participation.943 One commenter 

asks the Commission to be mindful of 

whether CFTC-registered SEFs would be 

forced to change their rules in order 

comply with the new proposed SBSEF 

rules.944 With respect to the concern 

that CFTC-registered SEFs might be 

forced to change their rules because of 

the Commission’s ANE approach for 

SBSEFs, foreign trading venues that 

have already received exemptive relief 

from the CFTC for swaps trading where 

robust regulatory regimes may exist 

with requirements comparable to those 

applicable to SBS transactions in the 

United States might seek and obtain 

exemptive relief under Rule 833(b). If 

exempted under Rule 833(b), trading of 

SBS on such foreign trading venues 

would not require CFTC-registered SEFs 

to change their rules.945 Similarly, for 

SBS transactions that the Commission 

exempts from the trade execution 

requirement based on an application 

submitted under Rule 833(b), the 

concerns expressed by commenters 

regarding complexities and costs would 

no longer be applicable. The effect of 

such exemptions would likely result in 

SBS transactions in foreign jurisdictions 

with what may be considered robust 

regulatory regimes to be exempt from 

the Commission’s trade execution 

requirement and, in practice, have 

similar treatment of transactions on 

applicable foreign trading venues as the 

CFTC. This should address concerns 

about confusion among market 

participants and platforms in foreign 

jurisdictions; the regulatory certainty 

provided by the exemptions should help 

to mitigate any adverse effects on 

market participation and obviate the 

need to develop costly infrastructure to 

avoid engaging in ANE transactions. 

Several commenters are concerned 

that many foreign SBS trading venues 

would not be able to obtain a Rule 

833(b) exemption because they believe 

the rule would require foreign 

jurisdictions to require RFQ-to-3 and 

order book methods of execution, while 

hardly any foreign jurisdictions have 

identical requirements, with some 

jurisdictions not requiring SBS to be 

traded on an organized trading 

venue.946 These commenters believe 

that the inability of foreign trading 

venues to obtain a Rule 833(b) 

exemption would result in various 

negative consequences: increased costs; 

disruption and fragmentation of the SBS 

markets; reduced liquidity and 

participation in the SBS markets; 

impaired risk transfer, risk management, 

and price formation; and increased 

systemic risk.947

The Commission acknowledges the 

concerns raised by commenters, which 

appear to emanate from commenters’ 

interpretation—and misunderstanding— 

of what would be required in order to 

receive a Rule 833(b) exemption. 

Specifically, several commenters 

interpret the rule and the Commission’s 

discussion of the rule in the Proposing 

Release to mean that a foreign SBS 

trading venue must have RFQ-to-3 and 

an order book for Required Transactions 

in order for transactions on that venue 

to qualify for a Rule 833(b) 

exemption.948 As discussed in Section 

VII.B, the proposed rule would not 

require foreign SBS trading venues to 

have RFQ-to-3 and an order book in 

order for the Commission to consider 

their SBS executions for an exemption 

under Rule 833(b). Neither the text of 

Rule 833(b) nor the Commission’s 

description of Rule 833(b) states that a 

limit order book or an RFQ-to-3 system 

is required to receive a Rule 833(b) 

exemption.949 There may be foreign SBS 

trading venues—many of which have 

already received exemptive relief from 

the CFTC for swaps trading 950—that 

may be appropriate candidates for 

exemptive relief, that are subject to what 

may be considered robust regulatory 

regimes for SBS trading. With respect to 

such foreign SBS trading venues, the 

Commission encourages market 

participants to submit a request for 

exemptive relief under final Rule 833(b) 

if they seek to be exempt from the 

Commission’s trade execution 

requirement for their SBS transactions. 

This discussion should address 

concerns about the potential 

unavailability of a Rule 833(b) 

exemption to SBS foreign trading 

venues and the negative consequences 

that could arise if SBS foreign trading 

venues are unable to obtain a Rule 

833(b) exemption. 

We detail below cost estimates for 

specifics parts of the adopted rules. 

Many of these cost estimates are based 

on the PRA estimates of costs and 

burdens from section XVIII.951

(a) Registration Requirements for 

SBSEFs and Form SBSEF 

The registration provisions would 

impose costs on entities that seek 

registration as SBSEFs. The Commission 

estimates that initial filings on Form 

SBSEF by prospective SBSEFs seeking 

to register with the Commission 


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952 $100,300 = 1,475 burden hours × $68/hour 

blended hourly rate. The $68/hour blended hourly 

rate is the $59/hour blended hourly rate computed 

by the CFTC and adjusted for CPI inflation through 

Dec. 2022. The CFTC used the blended hourly wage 

to estimate PRA costs associated with part 37. See 

infra section XVIII.D.2(a); OMB, Supporting 

Statement for New and Revised Information 

Collections: Core Principles and Other 

Requirements for Swap Execution Facilities, OMB 

Control Number 3038–0074, Attachment A (July 7, 

2021), available at https://omb.report/icr/202107- 

3038-004/doc/113431800.pdf. 

953See infra section XVIII.D.2(b). This estimate 

excludes the paperwork burdens associated with 

registration requirements for SBSEFs and Form 

SBSEF and provisions of certain rules to be 

discussed subsequently. 

954 $131,580 = 1,935 burden hours × $68/hour 

blended hourly rate. See supra note 952 (derivation 

of the $68/hour blended hourly rate). 

955 $33,000 = 300 hours × $110/hour blended 

hourly rate. The $110/hour blended hourly rate is 

the $96.26/hour blended hourly rate computed by 

the CFTC and adjusted for CPI inflation through 

Dec. 2022. The CFTC used the blended hourly rate 

to estimate PRA costs associated with part 40. See 

infra section XVIII.D.3(a); OMB, Supporting 

Statement for Information Collection Renewal: 

OMB Control Number 3038–0093, Attachment A 

(July 10, 2020), available at https://omb.report/icr/ 

202005-3038-001/doc/101274002.pdf. The platform 

ID requirement on the submission cover sheet 

would not impose burdens for obtaining a platform 

ID, because an SBSEF (whether registered or 

exempt) is already required under Rule 903(a) of 

Regulation SBSR to obtain an LEI to identify itself 

as its platform ID. See supra section IV.E and n.140. 

956 $604 = 1.25 hours × $483/hour national hourly 

rate for an attorney. The per-hour figure for an 

attorney is from SIFMA’s Management and 

Professional Earnings in the Securities Industry— 

2013, as modified by Commission staff to adjust for 

inflation (through Dec. 2022) and to account for an 

1,800-hour work-year, and multiplied by 5.35 to 

account for bonuses, firm size, employee benefits, 

and overhead. See infra section XVIII.D.3(b)(ii); 

Supporting Statement for the Paperwork Reduction 

Act New Information Collection Submission for 

Rule 3a68–2 (Interpretation of Swaps, SecurityBased Swaps, and Mixed Swaps) and Rule 3a68– 

4(c) (Process for Determining Regulatory Treatment 

for Mixed Swaps), OMB Control Number 3235– 

0685, Supporting Statement A (Dec. 23, 2021), 

available at https://omb.report/icr/202112-3235- 

018/doc/117438500.pdf. 

957 $88 = 1.25 hour × $70/hour hourly rate for a 

financial manager. The $70/hour hourly rate is the 

$65/hour hourly rate computed by the CFTC and 

adjusted for CPI inflation through Dec. 2022. The 

CFTC used the hourly rate to estimate PRA costs 

associated with part 1.6. See infra section 

XVIII.D.4(a); OMB, Supporting Statement for New 

and Revised Information Collections: OMB Control 

Number 3038–0033 (Oct. 29, 2021), available at 

https://omb.report/icr/202110-3038-001/doc/ 

115991000.pdf. 

958 $27,142 = 399.15 hours × $68/hour blended 

hourly rate. The burdens associated with this rule 

are not different from burdens associated with rules 

that have part 37 analogs. Thus, it would be 

appropriate to apply the $68/hour blended hourly 

rate to estimate the paperwork related costs 

associated with this rule. See infra section 

XVIII.D.4(c). See also supra note 952 (derivation of 

the $68/hour blended hourly rate). 

959 $1,208 = 2.5 hours × $483/hour national 

hourly rate for an attorney. See infra section 

XVIII.D.4. See also supra note 956 (derivation of the 

national hourly rate for an attorney). 

960 $162 = 2 hours × $81/hour national hourly rate 

for a compliance clerk. See infra section 

XVIII.D.4(f). The per-hour figure for a compliance 

clerk is from SIFMA’s Office Salaries in the 

Securities Industry—2013, as modified by 

Commission staff to adjust for inflation (through 

Dec. 2022) and to account for an 1,800-hour workyear, and multiplied by 5.35 to account for bonuses, 

firm size, employee benefits, and overhead. 

961First year costs: $115,920 = 240 hours × $483/ 

hour national hourly rate for an attorney. Costs in 

each subsequent year: $77,280 = 160 hours × $483/ 

hour national hourly rate for an attorney. See infra 

section XVIII.D.5(a). See also supra note 956 

(derivation of the national hourly rate for an 

attorney). 

962 $50,880 = 120 hours × $424/hour national 

hourly rate for a compliance attorney. The estimate 

of 120 burden hours is based on the Commission’s 

estimate that five SBSEFs and three SBS exchanges 

will incur paperwork burdens associated with Rules 

834(b) and (c). See infra section XVIII.D.4(g). The 

per-hour figure for a compliance attorney is from 

SIFMA’s Management and Professional Earnings in 

the Securities Industry—2013, as modified by 

Commission staff to adjust for inflation (through 

Dec. 2022) and to account for an 1,800-hour workyear, and multiplied by 5.35 to account for bonuses, 

firm size, employee benefits, and overhead. 

963 $680 = 10 hours × $68/hour blended hourly 

rate. Further, the costs incurred by SBSEFs = 5 

(number of SBSEFs) × 1.25 hours per SBSEF × $68/ 

hour blended hourly rate = $425. The burdens 

associated with this rule are not different from 

burdens associated with rules that have part 37 

analogs. Thus, it is appropriate to apply the $68/ 

hour blended hourly rate to estimate the paperwork 

related costs associated with this rule. See infra 

section XVIII.D.4(g). See also supra note 952 

(derivation of the $68/hour blended hourly rate). 

964 $1,088 = 16 hours × $68/hour blended hourly 

rate. The burdens associated with this rule are not 

different from burdens associated with rules that 

have part 37 analogs. Thus, it is appropriate to 

apply the $68/hour blended hourly rate to estimate 

the paperwork related costs associated with this 

rule. See infra section XVIII.D.4(g). See also supra 

note 952 (derivation of the $68/hour blended hourly 

rate). 

965 $21,735 = 45 hours × $483/hour national 

hourly rate for an attorney. See infra section 

XVIII.D.5(b). See also supra note 956 (derivation of 

the national hourly rate for an attorney). 

966The Commission estimates the financial 

resources that SBSEFs would need to hold pursuant 

to Rule 829(b) as their projected operating costs. See 

Rule 829(b). Further, the Commission estimates 

SBSEFs’ projected operating costs as the sum of the 

aggregate ongoing annual costs incurred by SBSEFs 

to comply with Regulation SE. Thus, SBSEFs’ 

estimated projected operating costs = $131,580 

(ongoing compliance with other requirements that 

are similar to the remainder of part 37) + $33,000 

(rule and product filing processes by SBSEFs) + 

$604 (Rule 809) + $88 (Rule 811(d)) + $27,142 (Rule 

819(i)) + $1,208 (Rule 819(j)) + $162 (Rule 826(f)) 

Continued 

pursuant to Rule 803 would result in 

aggregate initial costs of $100,300 for 

prospective SBSEFs.952

(b) Ongoing Compliance With Other 

Requirements That Are Similar to the 

Remainder of Part 37 

As discussed in section XVIII.D.2.b, 

the Commission estimates the aggregate 

annual paperwork burden for SBSEFs to 

comply with all of the SBSEF rules that 

have analogs in part 37 to be 1935 

hours.953 These burdens are estimated 

to impose aggregate ongoing annual 

costs of $131,580 on SBSEFs.954

(c) Rule and Product Filing Processes for 

SBSEFs 

The Commission estimates that the 

aggregate ongoing annual costs incurred 

by all SBSEFs to prepare and submit 

rule and product filings under Rules 

804, 805, 806, and 807 (including the 

cover sheet) would be $33,000.955

(d) Rules 809, 811, 819, 826, 829, 833, 

834, and 835 

The Commission estimates the 

aggregate ongoing annual costs incurred 

by SBSEFs to comply with Rule 809 

would be $604.956

The Commission estimates the 

aggregate ongoing annual costs incurred 

by SBSEFs to comply with requests for 

documents or information pursuant to 

Rule 811(d) would be $88.957

The Commission estimates the 

aggregate ongoing annual costs incurred 

by SBSEFs to comply with Rule 819(i) 

would be $27,142.958

The Commission estimates the 

aggregate ongoing annual costs incurred 

by SBSEFs to comply with Rule 819(j) 

would be $1,208.959

The Commission estimates the 

aggregate ongoing annual costs incurred 

by SBSEFs to update information 

required by Rule 826(f) would be 

$162.960 The Commission estimates that 

interested parties would incur aggregate 

one-time costs of $115,920 in the first 

year and $77,280 in each subsequent 

year to submit exemption requests 

under one or both paragraphs of Rule 

833.961

The Commission estimates that 

SBSEFs and SBS exchanges would incur 

aggregate one-time costs of $50,880 

associated with drafting and 

implementing rules to comply with 

Rules 834(b) and (c).962

The Commission estimates that 

SBSEFs and SBS exchanges would incur 

aggregate ongoing annual costs of $680 

to comply with Rules 834(d), 834(e), 

and 834(f).963

The Commission estimates that 

SBSEFs and SBS exchanges would incur 

aggregate one-time costs of $1,088 to 

comply with Rule 834(g).964

The Commission estimates that 

SBSEFs would incur aggregate ongoing 

annual costs of $21,735 to comply with 

Rule 835.965

SBSEFs likely would incur costs to 

comply with the financial resources 

requirement of Rule 829(b). Assuming 

that SBSEFs satisfy this requirement by 

holding financial resources in the form 

of their own capital pursuant to Rule 

829(c)(1), the Commission estimates that 

SBSEFs would incur an aggregate 

annual cost of capital of $35,436.966


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+ $425 (Rules 834(d), (e), and (f)) + $21,735 (Rule 

835) = $215,943. Thus, the Commission estimates 

that SBSEFs would hold $215,943 in the form of 

their own capital to comply with Rule 829(b). The 

Commission estimates SBSEFs’ cost of capital to be 

16.41%. See supra note 896 (describing how the 

cost of capital is estimated). SBSEFs’ aggregate 

annual cost of capital = $215,943 × 16.41% = 

$35,436. The Commission acknowledges that there 

is uncertainty associated with this estimate. The 

estimate does not account for the fact that SBSEFs 

may use reasonable discretion in determining the 

methodologies used to calculate projected operating 

costs and wind down costs, pursuant to Rule 829(e). 

Depending on how SBSEFs exercise this reasonable 

discretion, the resulting methodologies could yield 

projected operating costs and in turn, required 

financial resources, that may be higher or lower 

than the Commission’s estimate. 

967The CFTC’s experience overseeing SEFs 

would appear to support the belief that SBSEFs 

would hold unencumbered, liquid financial assets 

rather than obtain a line of credit to comply with 

Rule 829(d). In a previous rulemaking, the CFTC 

noted that most SEFs satisfy the liquidity 

requirement of § 37.1303 (the analog of Rule 829(d)) 

through maintaining liquid assets rather than 

obtaining a line of credit. See CFTC, Swap 

Execution Facilities, 86 FR 9224, 9242 n.247 (Feb. 

11, 2021) (‘‘2021 SEF Amendments Adopting 

Release’’). 

968 $19,320 = 40 hours × $483/hour national 

hourly rate for an attorney. This estimate is based 

on an estimated 40 hours of in-house legal or 

compliance staff’s time to establish a procedure of 

requesting and collecting representations from 

trading counterparties, taking into account that 

such representations may be built into a form of 

standardized trading documentation. See supra 

note 956 (derivation of the national hourly rate for 

an attorney). 

969This is based on an estimate of the time 

required for a programmer analyst to modify the 

software to track the covered person status of a 

counterparty, including consultation with internal 

personnel, and an estimate of the time such 

personnel would require to ensure that these 

modifications conformed to the definition of 

‘‘covered person’’ (as defined in Rule 832). $15,758 

= (2 hours × $424/hour national hourly rate for a 

compliance attorney) + (4 hours × $360/hour 

national hourly rate for a compliance manager) + 

(40 hours × $280/hour national hourly rate for a 

programmer analyst) + (4 hours × $266/hour 

national hourly rate for a senior internal auditor) + 

(2 hours × $603/hour rate for a Chief Financial 

Officer). The per-hour figures for compliance 

attorney, compliance manager, programmer analyst, 

and senior internal auditor are from SIFMA’s 

Management & Professional Earnings in the 

Securities Industry—2013, as modified by 

Commission staff to adjust for inflation (through 

Dec. 2022) and to account for an 1,800-hour workyear, and multiplied by 5.35 to account for bonuses, 

firm size, employee benefits, and overhead. The 

hourly rate for a Chief Financial Officer is the $473 

hourly rate for the same position used in the CrossBorder Adopting Release (see 78 FR 31140 n.1425) 

and adjusted for inflation through Dec. 2022. 

970Total one-time costs per entity = $19,320 

(compliance policy and procedure) + $15,758 

(systems) = $35,078. Aggregate one-time costs = 86 

entities × $35,078 = $3,016,708. 

971See 17 CFR 242.907(a)(2) (requiring 

information to be submitted to SDRs in an ‘‘opensource structured data format that is widely used 

by participants’’). 972See supra note 920 and accompanying text. 

SBSEFs could lower this cost if their 

capital consists of financial assets that 

generate a return that would serve to 

offset the cost of capital. However, this 

cost mitigation is potentially limited by 

Rule 829(d), which would require an 

SBSEF to include among the financial 

resources it holds a certain amount of 

unencumbered, liquid financial assets 

(i.e., cash and/or highly liquid 

securities),967 that tend to generate little 

or no return. 

(e) Assessment Costs 

The Commission estimates that 86 

entities likely would incur assessment 

costs as a result of Rule 832, based on 

a staff analysis of counterparties to U.S. 

single-name CDS for the 12-month 

period from October 2021 to September 

2022. Such costs would be related 

primarily to the identification of the 

counterparty status and origination 

location of the transaction to determine 

whether the trade execution 

requirement would apply. Market 

participants would request 

representations from their transaction 

counterparties to determine the U.S.- 

person status of their counterparties. In 

addition, if the transaction is guaranteed 

by a U.S. person, the guarantee would 

be part of the trading documentation 

and, therefore, the existence of the 

guarantee would be a readily 

ascertainable fact. Similarly, market 

participants would be able to rely on 

their counterparties’ representations as 

to whether a transaction is arranged, 

negotiated, or executed by a person 

within the United States. Therefore, the 

assessment costs associated with Rule 

832 should be limited to the costs of 

establishing a compliance policy and 

procedure of requesting and collecting 

representations from trading 

counterparties and maintaining the 

collected representations as part of the 

market participants’ recordkeeping 

procedures. Such assessment costs 

would be approximately $19,320 per 

entity.968 Requesting and collecting 

representations would be part of the 

standardized transaction process 

reflected in the policies and procedures 

regarding SBS transactions and trading 

practices and should not result in 

separate assessment costs. 

The Commission also considers the 

likelihood that market participants 

could implement systems to keep track 

of counterparty status for purposes of 

future trading of SBS that are similar to, 

if not the same as, the systems 

implemented by market participants for 

purposes of assessing SBS dealer or 

major SBS participant status. 

Implementation of such a system would 

involve one-time programming costs of 

$15,758 per entity.969 Therefore, the 

Commission estimates the total one-time 

costs per entity associated with Rule 

832 could be $35,078 and the aggregate 

one-time costs could be $3,016,708.970

To the extent that market participants 

have incurred costs relating to similar or 

the same assessments with respect to 

counterparty status and transaction 

location for other Title VII requirements, 

their assessment costs with respect to 

Rule 832 may be less. 

(f) Structured Data and Electronic Filing 

Costs 

As mentioned previously, the 

Commission will require many of the 

disclosures required under Regulation 

SE to be provided via EDGAR in a 

structured data language. SBSEFs will 

likely incur limited costs to comply 

with the proposed requirement in Rule 

825(c)(3) to publish Daily Market Data 

Reports using the most recent versions 

of the associated XML schema and PDF 

renderer as published on the 

Commission’s website. Because SBSEFs 

are required to use structured data to 

fulfill their reporting requirements 

under Regulation SBSR, the compliance 

cost associated with the Rule 825(c)(3) 

requirement will be limited to the cost 

prospective SBSEF registrants will incur 

to update their systems to incorporate 

the Commission’s XML schema for 

Daily Market Data Reports.971 Such 

costs are included among the costs for 

prospective SBSEF registrants in making 

limited changes to their systems, 

policies, and procedures to comply with 

proposed SEC rules that differ slightly 

from analogous CFTC rules, as 

discussed in further detail above.972

With respect to the Inline XBRL 

requirements for various disclosures 

required under Regulation SE, SBSEFs 

will incur initial Inline XBRL 

implementation costs (such as the cost 

of training in-house staff to prepare 

filings in Inline XBRL, and the cost to 

license Inline XBRL filing preparation 

software from vendors) and ongoing 

Inline XBRL compliance burdens that 

will result from the tagging 

requirements, because prospective 

SBSEF registrants are not currently 

subject to Inline XBRL requirements. 

The custom XML requirements under 

Regulation SE will not impose these 

costs on SBSEFs, because SBSEFs will 

have the option of complying with those 

requirements by completing a fillable 

web form rather than structuring the 

disclosures in custom XML themselves. 

Also, as discussed in greater detail 

below, the Inline XBRL implementation 

costs could be mitigated to some extent, 

because six of the seven SEFs that list 

index CDS for trading (i.e., the pool of 

likely SBSEF applicants) have parent or 

affiliate entities that make filings in 

Inline XBRL, which raises the 


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973AICPA, XBRL Costs for Small Companies 

Have Declined 45% since 2014 (2018), available at 

https://us.aicpa.org/content/dam/aicpa/ 

interestareas/frc/accountingfinancialreporting/xbrl/ 

downloadabledocuments/xbrl-costs-for-smallcompanies.pdf. This survey was limited to 

operating companies, and was conducted before the 

transition from XBRL to Inline XBRL and the 

implementation of cover page tagging requirements 

for periodic reports. 

974See 17 CFR 232.10(b). 

975See supra note 920 and accompanying text. 

976See supra section XVII.C.2. 

977See supra section XVII.B.2. 978See supra sections XVII.C.1 (discussing 

improved access and competition as an overarching 

benefit of the rules and amendments) and XVII.C.2 

(discussing how rules that mitigate conflicts of 

interest between an SBSEF or SBS exchange and its 

members could help ensure access to SBSEFs and 

SBS exchanges and in turn increase competition in 

liquidity provision and lower transaction costs). 979See infra section XVII.D.2. 

980See supra section XVII.C.1 (discussing 

improved access and competition as an overarching 

benefit). 

981See supra section XVII.C.2 (discussing benefits 

associated with rule and product filings). 

982See supra section XVII.C.1 (discussing 

improved access and competition as an overarching 

benefit). 

possibility that some (if not most) 

SBSEFs might be able to take advantage 

of the knowledge of Inline XBRL 

possessed by their parent or affiliate 

entities. 

Further, the compliance costs 

associated with the structured data 

requirements, as adjusted for inflation, 

will likely decrease over time. SBSEFs 

will likely comply with structuring 

requirements more efficiently after 

gaining experience over repeated filings, 

though such an effect will likely be 

diminished for affected entities that 

already have experience structuring 

similar data in other documents. Thirdparty vendors of structured data 

compliance software or services may 

decrease the prices of their products 

over time; the XBRL compliance costs 

reported in the 2018 AICPA survey of 

smaller operating companies reflect 

such a trend, as they represented a 45% 

decline in average cost and a 69% 

decline in median cost from 2014.973

In addition to costs associated with 

structured data requirements, because 

prospective SBSEF registrants are not 

currently subject to EDGAR 

requirements, hey will incur a one-time 

compliance burden of submitting a 

Form ID as required by Rule 10(b) of 

Regulation S–T.974 The aforementioned 

costs are included among the costs for 

prospective SBSEF registrants in making 

limited changes to their systems, 

policies, and procedures to comply with 

proposed SEC rules that differ slightly 

from analogous CFTC rules, as 

discussed in further detail above.975

As noted above, we are requiring 

SBSEFs to submit rule and product 

filings in unstructured format using 

EFFS, rather than structuring the filings 

and submitting them via EDGAR.976 As 

a result of this change from the 

proposal, SBSEFs will not incur the 

compliance costs associated with 

applying Inline XBRL tags to their rule 

and product filings. We agree with one 

commenter who noted that an Inline 

XBRL requirement would cause SBSEFs 

to incur related compliance costs, 

although we do not agree that such costs 

would be so substantial as to serve as a 

potential market entry deterrent, or 

would create an unlevel playing field 

whereby national securities exchanges 

would have a competitive advantage 

over SBSEFs due to these discrepant 

costs. Rather, we are requiring rule and 

product filings to be filed through EFFS 

in unstructured format, because we 

believe the alleviation of compliance 

burdens resulting from the absence of a 

structuring requirement merits the 

lesser volume of machine-readable data, 

especially in light of the significant 

volume of structured SBSEF data 

available pursuant to other Regulation 

SE provisions. 

D. Effects on Efficiency, Competition, 

and Capital Formation 

The new rules and amendments 

would likely affect competition, capital 

formation, and efficiency in various 

ways discussed below. 

1. Competition 

As discussed earlier, currently, the 

SBS market is dominated by a small 

group of SBS dealers.977 A mandatory 

clearing determination by the 

Commission, followed by a MAT 

determination by one or more SBSEFs, 

should help foster greater competition 

in the trading of SBS by promoting 

greater order interaction and increasing 

participation on SBSEFs. The final rules 

provide a framework for allowing a 

number of trading venues to register as 

SBSEFs and thus more effectively 

compete for business in SBS. 

Furthermore, Rule 827 is designed to 

promote competition generally by 

prohibiting an SBSEF from adopting any 

rules or taking any actions that 

unreasonably restrain trade or impose 

any material anticompetitive burden on 

trading or clearing. Additionally, rules 

that improve access to SBSEFs by 

market participants (e.g., Rule 819(c)) 

could increase participation and 

competition in liquidity provision in the 

SBS market.978 Rules that improve 

regulatory oversight, market integrity, 

and market predictability on SBSEFs 

and rules that reduce the risk of trading 

disruption on SBSEFs likely would 

increase market participants’ confidence 

in the soundness of SBSEFs.979 To the 

extent that greater confidence in the 

soundness of SBSEFs increases 

participation by liquidity providers on 

SBSEFs, competition in liquidity 

provision could increase. To the extent 

that increased competition in liquidity 

provision reduces the price of liquidity 

provision (e.g., bid-ask spread), market 

participants could benefit in terms of 

lower transaction costs. 

Rules 815(f) and 815(g), by reducing 

the risk of information leakage and 

protecting market participants’ 

anonymity for an SBS that is 

anonymously executed on an SBSEF 

and intended to be cleared, could 

increase participation on SBSEFs. This 

in turn could increase competition in 

liquidity provision, liquidity, and 

efficiency in the SBS market.980

Rule 806(a)(5), which requires an 

SBSEF to explain the anticipated 

benefits and potential anticompetitive 

effects on market participants of a 

proposed new rule or rule amendment, 

potentially could help foster a 

competitive SBS market because it 

could prompt SBSEFs to consider the 

positive as well as negative aspects of 

their proposed rules or rule 

amendments with respect to 

competition.981

As discussed earlier, Rules 819(c) and 

819(e) would promote competition 

among entities that act as third-party 

service providers to SBSEFs. To the 

extent that increased competition 

among third-party service providers 

incentivizes them to offer cheaper, 

higher quality services to SBSEFs 

thereby lowering their costs, market 

participants that are SBSEF members 

could benefit if the SBSEFs pass on the 

cost savings in the form of lower fees to 

their members.982 Lower fees for SBSEF 

members would help reduce the overall 

costs of trading on SBSEFs and increase 

the efficiency of SBS trading. 

2. Capital Formation 

Regulation SE could promote capital 

formation by helping to improve 

regulatory oversight, market integrity, 

and market predictability. Regulation SE 

requires, among other things, that 

SBSEFs maintain an audit trail and 

automated trade surveillance system; 

conduct real-time market monitoring; 

establish and enforce rules for 

information collection; and comply with 

reporting and recordkeeping 

requirements. These requirements are 

designed to provide an SBSEF with 

sufficient information to oversee trading 

on its market, including detecting and 


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983See Rules 819, 821, 822, 826 and supra section 

XVII.C.1 (discussing improved oversight of trading 

by SBSEFs as an overarching benefit of the rules 

and amendments). 

984See supra section XVII.C.1 (discussing 

improved Commission oversight as an overarching 

benefit of the rules and amendments). 

985See supra section XVII.C.2 (discussing the 

benefits associated with Rule 831). 

986See supra note 978. 

987For example, the Commission’s election to 

model Rules 804 through 810 closely on analogous 

rules in part 40 of the CFTC’s rules that apply to 

SEFs (and other registered entities) would impose 

minimal burdens on dually registered SEF/SBSEFs 

while obtaining similar regulatory benefits as the 

CFTC rules. In some cases, where a new rule or rule 

amendment affects both the swap and SBS business 

of a dually registered entity, the same or a very 

similar filing could be made to each of the CFTC 

and SEC, in lieu of having to make different filings 

to support the same rule change. See supra section 

XVII.C.2 (discussing the benefits associated with 

rule and product filings). 

988See supra section XVII.D.1. 

989See supra section XVII.C.1 (discussing 

improved automation as an overarching benefit of 

the rules and amendments). 

990See supra section XVII.D.1. 

991See supra section XVII.C.1 (discussing the 

different degrees of pre-trade transparency 

associated with limit order book and RFQ-to-3). 

992See SIFMA AMG Letter, supra note 18, at 5; 

Bloomberg Letter, supra note 18, at 11; WMBAA 

Letter, supra note 18, at 3; ICE Letter, supra note 

18, at 5. 

deterring abusive trading practices.983

The audit trail and recordkeeping and 

reporting requirements, by providing 

the Commission access to information 

about SBSEFs, will increase the 

Commission’s ability to assess risks in 

the SBS market and to oversee the 

market, which all else being equal 

should reduce the amount of risky or 

abusive behavior in the SBS market.984

Further, Rule 831, the requirements 

relating to the CCO, would promote 

regulatory compliance on SBSEFs and 

the SBS market generally.985 In 

addition, Regulation SE provides for 

various safeguards to help promote 

market integrity, including Rule 819(c) 

relating to impartial access to the 

SBSEF 986 and Rule 830 relating to 

systems safeguards. Rule 812(a) would 

help to improve predictability in the 

market by providing that a transaction 

entered into on or pursuant to the rules 

of an SBSEF shall not be void, voidable, 

subject to rescission, otherwise 

invalidated, or rendered unenforceable 

as a result of a violation by the SBSEF 

of the provisions of section 3D of the 

SEA or the Commission’s rules 

thereunder. Any resulting increase in 

regulatory oversight, market integrity, 

and market predictability likely would 

increase market participants’ confidence 

in the soundness of SBSEFs, which in 

turn could spill over into increased 

confidence in the soundness of the SBS 

market more broadly. Such increased 

confidence could lead to the greater use 

of SBS, particularly those traded on 

SBSEFs, by corporate entities to hedge 

their business risks and investors to 

hedge their portfolio risks with respect 

to positions in underlying securities. To 

the extent that corporate entities can 

improve their hedging efficiency with 

SBS, they may divert resources from 

precautionary savings into productive 

assets, thereby promoting capital 

formation. To the extent that investors 

can improve their hedging efficiency 

with SBS, they may be more willing to 

invest in the underlying securities, 

which should facilitate capital raising 

and formation by issuers. Therefore, the 

adopted rules would help encourage 

capital formation. 

Also, by reducing the risk of trading 

disruptions on SBSEFs, Rules 829 and 

830 could increase market participants’ 

confidence in the soundness of SBSEFs, 

which in turn could lead to the greater 

use of SBS traded on SBSEFs thereby 

promoting capital formation as 

discussed above. 

3. Efficiency 

The general approach of harmonizing 

as closely as practicable with analogous 

CFTC rules for SEFs, unless a reason 

exists to do otherwise in a particular 

area, likely will generate cost 

efficiencies and reduced burdens for 

SBSEF registrants that likely would be 

registered SEFs that have established 

systems and policies and procedures to 

comply with CFTC rules.987 Further, 

increased competition among thirdparty service providers, as a result of 

Rules 819(c) and 819(e), could lower 

SBSEFs’ costs and bring about greater 

efficiency in their operation and SBS 

trading.988

The automation and systems 

development associated with the 

regulation of SBSEFs could provide SBS 

market participants with new platforms 

and tools to execute and process 

transactions in SBS more rapidly and at 

a lower expense per transaction. Such 

increased efficiency could enable 

members of the SBSEF to handle 

increased volumes of SBS with greater 

efficiency and timeliness.989

The requirements with respect to pretrade price transparency could lead to 

more efficient pricing in the SBS 

market. The rules are designed to 

increase pre-trade price transparency for 

SBS, which should aid market 

participants in evaluating current 

market prices for SBS, thereby 

furthering more efficient price 

discovery. Increased pre-trade price 

transparency, coupled with increased 

competition in liquidity provision as 

discussed above,990 could decrease the 

spread in quoted prices and lead to 

higher efficiency in the trading of SBS. 

The Commission recognizes the 

possibility that pre-trade price 

transparency could cause market 

participants to reveal more information 

about trading interest than they believe 

would be economically desirable. If 

market participants consider that pretrade price transparency requirements 

are too burdensome and choose not to 

participate in the market, market 

efficiency could be reduced insofar as 

these market participants forgo any 

potential economic benefits that may 

have resulted from transacting in the 

SBS market. However, several factors 

mitigate such concerns. First, pursuant 

to Rule 815(c)(2), an SBSEF may offer 

any execution method for Permitted 

Transactions. Thus, a market participant 

engaging in a Permitted Transaction 

may choose to use an execution method 

that reveals the desired, or at least 

preferred, amount of information about 

trading interest. Second, pursuant to 

Rule 815(a)(2), an SBSEF will be 

required to offer two execution methods 

for Required Transactions (limit order 

book and RFQ-to-3). Thus, market 

participants have flexibility in the 

degree of pre-trade transparency they 

wish to employ, which should attenuate 

potential concerns associated with 

revealing too much information about 

trading interest.991 Rules 829 and 830 

may reduce the risk of trading 

disruptions on SBSEFs that may 

otherwise prevent market participants 

from impounding information into SBS 

prices through market activity (e.g., 

order submission), and thus could 

improve the price efficiency in the SBS 

market. 

E. Reasonable Alternatives 

The Commission considered a 

number of alternatives when finalizing 

the rules and amendments in this 

release. 

1. Abbreviated Registration Procedures 

for CFTC-Registered SEFs 

Several commenters suggest that the 

Commission provide abbreviated 

registration procedures for CFTCregistered SEFs either by using the 

Commission’s exemptive authority to 

provide a streamlined registration 

process for such applicants 992 or by 

permitting such applicants to register 

utilizing their current documentation 

filed pursuant to the requirements of 

Form SEF with an accompanying 

addendum reflecting only those changes 

necessary to fulfill the specific 

requirements of proposed Regulation 


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993See ICE Letter, supra note 18, at 5. 

994See SIFMA AMG Letter, supra note 18, at 5; 

Bloomberg Letter, supra note 18, at 11; WMBAA 

Letter, supra note 18, at 3. 

995See supra section XVII.B.4. 

996See WMBAA Letter, supra note 18, at 4; ICE 

Letter, supra note 18, at 2. 

997See WMBAA Letter, supra note 18, at 4. 

998 In this context, SBSEFs that wish to list 

products expeditiously likely will not choose to list 

them pursuant to Rule 805, which requires a 45-day 

review period that could be extended for an 

additional 45 days. See Rules 805(c) and (d). 

999See Bloomberg Letter, supra note 18, at 3, 16; 

Citadel Letter, supra note 18, at 6–7; MFA Letter, 

supra note 18, at 2, 9–11; SIFMA AMG Letter, supra 

note 18, at 4. 

1000See supra section XVII.B. 

SE, in lieu of filing a new Form 

SBSEF.993 Some of these commenters 

believe that a streamlined registration 

process would ease the burden of new 

requirements imposed on potential 

dual-registrants, be more efficient, lower 

registration costs, encourage the entry of 

market participants, and expedite the 

establishment and operation of 

SBSEFs.994 The Commission 

acknowledges that the alternative could 

potentially have such beneficial effects. 

However, the adopted approach is 

preferable to the alternative. As a 

general matter, the SBSEF registration 

process is intended for all applicants. 

While entities that will seek to register 

as SBSEFs are likely to be CFTCregistered SEFs,995 the registration 

process should nevertheless address the 

possibility that some applicants might 

not be CFTC-registered SEFs. Requiring 

all applicants to follow the same 

registration process will provide a level 

playing field for all applicants by 

avoiding conferring a competitive 

advantage on applicants that are CFTCregistered SEFs. This in turn may 

encourage the entry of additional market 

participants. As discussed in section 

III.A.2., the adopted approach supports 

consistency in the review by the 

Commission and its staff of applications 

for registration of SBSEFs and avoids 

introducing bias or prejudice into the 

Commission’s review. Such consistency 

could in turn increase the efficiency of 

the review process and help expedite 

the establishment and operation of 

SBSEFs. 

2. Shorten Review Period for SelfCertified Product Listing 

In connection with the ten-businessday review period under Proposed Rule 

804(a)(2), two commenters recommend 

a shorter review period of one business 

day to harmonize with the CFTC’s 

approach.996 Alternatively, one of the 

commenters suggests a two-businessday review period.997 According to 

these commenters, a shorter review 

period will allow market operators to 

meet participants’ demands to transact 

on regulated platforms in a reasonable 

period of time; accommodate 

participants’ needs to hedge risk in a 

timely manner; and increase the 

competitive benefit and innovation 

incentive to SBSEFs to develop new 

products by making it less attractive for 

other SBSEFs to list ‘‘look alike’’ 

products. In finalizing Rule 804(a)(2), 

the Commission has considered the 

trade-off between the benefits of a 

shorter review period as described by 

the commenters and the benefits of 

having sufficient time to review a new 

product filing and to issue a stay if 

warranted. The ten-business-day review 

period set forth in final Rule 804(a)(2) 

strikes an appropriate balance between 

these sets of benefits. To the extent that 

the ten-business-day review period 

limits market operators’ ability to meet 

participants’ demands to transact on 

regulated platforms in a reasonable 

period of time, that limitation is 

appropriate in light of the benefits of 

having sufficient time to review a new 

product filing and to issue a stay if 

warranted. While a shorter review 

period may accommodate market 

participants’ need to hedge risk in a 

timely manner, these market 

participants also could hedge their risk 

during the ten-business-day review 

period, albeit in the OTC SBS market. 

The Commission does not believe the 

additional hedging benefit, if any, 

associated with a shorter review period 

is sufficient to justify adopting this 

alternative. Rule 804 may not 

necessarily limit the competitive benefit 

and innovation incentive to SBSEFs to 

develop new products. SBSEFs that 

wish to list ‘‘look alike’’ products also 

will face a ten-business-day review 

period if they list such products 

pursuant to Rule 804.998 Thus, such 

SBSEFs will lag behind the SBSEF that 

first lists a given SBS, which could 

capture a significant portion, if not 

most, of the revenues associated with 

the trading of that product. Even if the 

10-day review period were to reduce the 

first-to-market competitive advantage of 

an SBSEF that first lists a given SBS, the 

extent of such an advantage may vary 

considerably based on other factors in 

the SBSEF market. Ultimately, the need 

for the Commission to have sufficient 

time to review a new product before it 

is listed and thereby help ensure it 

meets regulatory requirements aimed to 

protect investors and support fair and 

efficient markets justifies this potential 

competitive effect. Accordingly, the 

adopted approach is preferable to the 

alternative. 

3. Incorporate CFTC’s Impartial Access 

Requirement Guidance 

Several commenters urge the 

Commission to incorporate the CFTC’s 

impartial access requirement guidance 

with respect to access to SBSEFs into 

the text of Rule 819. According to these 

commenters, such an alternative would 

provide market participants with 

guidance and clarity regarding how 

Proposed Rule 819(c) will be interpreted 

and applied in practice. The 

commenters believe that the alternative 

would increase competition, 

transparency, and liquidity in the SBS 

markets; lower transaction costs through 

increased competition; and result in 

greater market-led innovation in the 

SBS markets.999 The Commission 

acknowledges that the alternative could 

have beneficial effects on competition, 

transaction costs, transparency, 

liquidity, and innovation as the 

commenters asserts. However, the 

alternative raises several concerns. First, 

if, in the future, the CFTC’s impartial 

access requirement guidance were to be 

modified, the regulatory regime for SEFs 

might differ from that for SBSEFs. This 

in turn could limit harmonization with 

the CFTC’s regulatory regime and 

potentially increase compliance burdens 

for market participants if they have to 

comply with different requirements for 

SEFs and SBSEFs. 

Second, as discussed in section VI.B.3 

above, efforts to undermine the 

principle of impartial access may take 

myriad forms over time. It is preferable 

to emphasize the principle of impartial 

access in the rule text as an affirmative 

requirement with which to comply. The 

adopted approach would incentivize 

SBSEFs to constantly review their 

practices to ensure compliance with the 

principle of impartial access. The 

Commission also considered the 

alternative of incorporating into the text 

of Rule 819 a non-exclusive list of the 

means that may violate the principle of 

impartial access. This alternative would 

raise the same concerns discussed 

above. 

The adopted approach may 

nevertheless generate the beneficial 

effects suggested by the commenters. 

Rule 819(c) is broad enough to permit 

market participants to use the same 

practices that they are using pursuant to 

the CFTC guidance. Consistent with the 

Commission’s belief that prospective 

SBSEF registrants are likely to be CFTCregistered SEFs that are active in the 

index CDS market,1000 prospective 

SBSEF registrants likely will use the 

systems, policies, and procedures that 

were created to comply with the CFTC 


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1001See Division of Clearing and Risk, Division of 

Market Oversight and Division of Swap Dealer and 

Intermediary Oversight Guidance on Application of 

Certain Commission Regulations to Swap Execution 

Facilities, CFTC (Nov. 14, 2013), n.3, available at 

https://www.cftc.gov/sites/default/files/idc/groups/ 

public/@newsroom/documents/file/ 

dmostaffguidance111413.pdf. 

1002See supra sections XVII.C.1 (discussing 

improved access and competition as an overarching 

benefit of the rules and amendments) and XVII.D.1 

(discussing how the new rules and amendments 

would likely affect competition). 

1003See supra section XVII.C.1 (discussing 

improved transparency, increased liquidity, and 

reduced transaction costs as overarching benefits of 

the rules and amendments). 

1004See supra section XVII.C.1 (discussing 

improved automation as an overarching benefit of 

the rules and amendments). 

1005See Citadel Letter, supra note 18, at 6; MFA 

Letter, supra note 18, at 11–12; SIFMA AMG Letter, 

supra note 18, at 9. 

1006See Citadel Letter, supra note 18, at 5; MFA 

Letter, supra note 18, at 12; SIFMA AMG Letter, 

supra note 18, at 9. 

1007CFTC staff guidance on STP states that 

‘‘[derivatives clearing organizations] clearing swaps 

that are executed competitively on or subject to the 

rules of a . . . SEF and are accepting or rejecting 

trades within 10 seconds after submission are 

compliant with the timing standard of Regulation 

39.12(b)(7).’’ See CFTC 2013 STP Guidance, supra 

note 273. 

1008See supra section XVII.B. 

1009See supra section XVII.C.1 (discussing that 

increased pre-trade transparency could increase 

price competition and price efficiency; improve 

liquidity; reduce transaction costs; and facilitate 

execution quality analysis). 

1010See MFA Letter, supra note 18, at 5–6. 

1011 Id. 

1012See ICI Letter, supra note 18, at 10. 

1013See Bloomberg Letter, supra note 18, at 14. 

guidance to comply with Rule 819(c) in 

order to limit their compliance burdens. 

The Commission is adopting Rule 

815(g), which specifies that SBSEFs 

shall establish and enforce rules that 

provide that a security-based swap that 

is intended to be cleared at the time of 

the transaction, but is not accepted for 

clearing at a registered clearing agency, 

shall be void ab initio. This rule would 

obviate the need for breakage 

agreements for SBS that are intended to 

be cleared, one of the items prohibited 

by the CFTC’s guidance.1001 As 

discussed in section XVII.C, Regulation 

SE may bring several benefits to the SBS 

market including, among other things, 

increased competition,1002

transparency, and liquidity; reduced 

transaction costs; 1003 and market 

innovation in the form of new platforms 

and tools to execute and process SBS 

transactions more efficiently.1004 In 

light of the above, the adopted approach 

is preferable to the alternative. 

4. Harmonize With CFTC’s STP 

Requirements 

In connection with Proposed Rule 

823, several commenters recommend 

that the Commission harmonize with 

CFTC’s STP requirements by 

establishing STP standards, 

incorporating relevant CFTC guidance, 

and prohibiting breakage agreements for 

SBS that are intended to be cleared.1005

The commenters suggest the alternative 

could reduce market, credit, and 

operational risks; facilitate hedging 

activity; avoid complexity and costs; 

increase competition; promote trading 

on SBSEFs and electronic trading; and 

increase transparency, liquidity, and 

fairness in the SBS markets.1006 The 

Commission acknowledges that the 

alternative could have beneficial effects 

as suggested by the commenters. 

However, the alternative raises several 

concerns. First, if, in the future, the 

CFTC’s staff guidance were to be 

modified, the regulatory regime for SEFs 

might differ from that for SBSEFs. This 

in turn could limit harmonization with 

the CFTC’s regulatory regime and 

potentially increase compliance burdens 

for market participants if they have to 

comply with different requirements for 

SEFs and SBSEFs. Second, the 

timeframes for a clearinghouse to accept 

or reject a trade for clearing set forth in 

the CFTC staff guidance could become 

outdated with advances in 

technology.1007 If that were to occur, 

changing those timeframes would be 

more difficult if they were included as 

part of Regulation SE, or even as 

Commission guidance included as part 

of this release. Any delays in changing 

those timeframes could mean that 

market participants would not be able to 

benefit from any reductions in market, 

credit, and operational risks associated 

with the technological advances that 

render obsolete the timeframes set forth 

in the CFTC staff guidance. 

The adopted approach may 

nevertheless generate the beneficial 

effects suggested by the commenters. As 

discussed in section VI.F.3, Rule 823(c) 

is broad enough to permit market 

participants to use the same practices 

that they are using pursuant to the CFTC 

guidance. Consistent with the 

Commission’s belief that prospective 

SBSEF registrants are likely to be CFTCregistered SEFs that are active in the 

index CDS market,1008 prospective 

SBSEF registrants likely will use the 

systems, policies, and procedures that 

were created to comply with the CFTC 

guidance to comply with Rule 823(c) in 

order to limit their compliance burdens. 

Further, to comply with the impartial 

access requirements of Rule 819(c), 

registered SBSEFs would, among other 

things, avoid acts that purposefully 

delay clearing submission in order to 

favor certain market participants over 

others. Lastly, the Commission is 

adopting Rule 815(g), which specifies 

that SBSEFs shall establish and enforce 

rules that provide that a security-based 

swap that is intended to be cleared at 

the time of the transaction, but is not 

accepted for clearing at a registered 

clearing agency, shall be void ab initio. 

This rule would obviate the need for 

breakage agreements for SBS that are 

intended to be cleared. Accordingly, the 

adopted approach is preferable to the 

alternative. 

5. No Block Trade Exception 

In finalizing Regulation SE, the 

Commission considered the alternative 

of not adopting a block trade exception 

from the Required Transaction 

requirement in Rule 815(a)(2) for credit 

SBS. This alternative could extend the 

benefits of increased pre-trade 

transparency 1009 to SBS transactions of 

a larger notional size. However, this 

alternative would deviate from the 

CFTC’s approach to block trades and 

thus reduce harmonization with the 

CFTC regime for swaps. In addition, as 

one commenter expressed, under this 

alternative, market participants would 

have difficulty executing, or would be 

unable to execute, large bona fide 

trades, since they would be required to 

do so only through the order book. This 

would increase the cost of trading and 

hedging, the commenter says, which 

could reduce participation in certain 

markets, resulting in less liquidity and 

increased volatility.1010 This commenter 

asserts that exempting block trades from 

order book and RFQ execution 

requirements is critical to the 

functioning of the SBS markets, 

particularly to execute large trades 

without affecting price.1011 Another 

commenter states that the proposed 

exception for block trades would 

provide flexibility for market 

participants executing SBS transactions 

of a significantly large size and mitigate 

the risks of information leakage and 

impairment of market liquidity.1012

Another commenter agrees with the 

Proposing Release’s assessment that the 

block exception to the required methods 

of execution balances the promotion of 

price competition and all-to-all trading 

against the potential costs to the market 

participants who wish to trade large 

orders, the importance of which they 

note is more acute in the SBS market, 

which is a smaller and less liquid 

market than the swap market.1013

The Commission agrees with 

commenters that a block-trade exception 

is appropriate for credit SBS, not only 

to maintain harmonization with the 

CFTC regime for swaps but also to 


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1014See Proposing Release, supra note 1, 87 FR 

at 28896. 

1015See supra section V.E.1(c)(ii) and Citadel 

Letter, supra note 18, at 9; ICI Letter, supra note 18, 

at 10–12; MFA Letter, supra note 18, at 5–8; SIFMA 

AMG Letter, supra note 18, at 10; ISDA–SIFMA 

Letter, supra note 18, at 7–9. 

1016See supra note 219. 

1017See MFA Letter, supra note 18, at 6–7. 

1018See ICI Letter, supra note 18, at 12–13. 

1019See, e.g., Viral V. Acharya and Lasse Heje 

Pedersen, Asset Pricing With Liquidity Risk, 77 J. 

Fin. Econ. 375 (2005) and Yakov Amihud, 

Illiquidity and Stock Returns: Cross-Section and 

Time-Series Effects, 5 J. Fin. Markets 31 (2002) 

(suggesting that the expected return of a stock, or 

cash equity security, increases as its liquidity 

decreases. To the extent that a cash equity security’s 

expected return measures the cost of capital 

associated with cash equity financing, the cited 

research suggests that when a cash equity security’s 

liquidity decreases, its cost of capital may 

increase.). 

1020See supra section XVII.D.3. 

1021 Id. 

1022 Id. 

facilitate trading of credit SBS. This 

approach, which is consistent with the 

approach of the CFTC for swaps, will be 

especially important in the smaller, less 

liquid credit SBS markets if and when 

a clearing determination has been made 

for one or more SBS. A block-trade 

exception for credit SBSs subject to the 

trade-execution requirement, provided 

that ‘‘block trade’’ is appropriately 

defined for those SBSs, can help ensure 

that large trades are not significantly 

more difficult and costly to execute 

because of the risks posed by 

information leakage and the potential 

for adverse price movement, which 

could significantly impair liquidity in 

the markets for those SBSs. 

Accordingly, the adopted approach is 

preferable to the alternative. 

6. Adopting Proposed Block Trade 

Definition Now 

In finalizing Regulation SE, the 

Commission considered the alternative 

of adopting the proposed definition of 

‘‘block trade’’ under Rule 802. For the 

third prong of the ‘‘block trade’’ 

definition, the Commission proposed 

that the SBS be based on a single credit 

instrument (or issuer of credit 

instruments) or a narrow-based index of 

credit instruments (or issuers of credit 

instruments) having a notional size of 

$5 million or greater.1014

As discussed earlier,1015 a number of 

commenters raise concerns that the 

proposed $5 million block-trade 

threshold for all credit SBSs would not 

be sufficiently tailored to the unique 

and varying trading and risk 

characteristics of the full range of credit 

SBS, creating the potential for the 

adverse market risks that commenters 

point out may arise from having a onesize-fits-all block threshold. 

As discussed above, the Commission 

acknowledges these commenters’ 

concerns. Further, unless and until the 

Commission has made a mandatory 

clearing determination regarding an 

SBS, it is not necessary to define a 

block-trade threshold for SBS, and it 

would be appropriate for the 

Commission to identify a block-trade 

threshold in the future after considering 

credit SBS transaction data and credit 

SBS markets at that time. In addition, 

the Commission agrees with 

commenters that additional 

consideration of credit SBS transaction 

data would help the Commission 

determine the appropriate block-trade 

threshold for credit SBS products, 

including whether different thresholds 

should apply to different types or 

groups of SBS. The Commission also 

agrees with commenters that the credit 

SBS markets are likely to evolve over 

time and that analysis of market data 

continues to be an important aspect of 

setting appropriate thresholds for both 

block trades and credit SBS public trade 

reporting.1016

Therefore, as discussed above, the 

Commission is not adopting the 

proposed definition of ‘‘block trade’’ 

under Proposed Rule 802, or any other 

block-trade threshold. Instead, Rule 802 

will include a note that a definition of 

‘‘block trade’’ has not yet been adopted. 

This would allow the Commission to 

identify a block-trade threshold in the 

future after considering credit SBS 

transaction data and the evolution of the 

credit SBS markets. In light of the 

above, the adopted approach is 

preferable to the alternative. 

7. Block Trade Definition for Equity SBS 

In finalizing Regulation SE, the 

Commission considered the alternative 

of adopting a definition of ‘‘block trade’’ 

applicable to equity SBS. One 

commenter suggests that the alternative 

would facilitate timely and efficient 

executions of equity SBS thereby 

supporting risk management activities, 

encourage the use of equity SBS for 

legitimate business purposes, including 

hedging, and facilitate capital 

formation.1017 Another commenter 

argues that the alternative would avoid 

information leakage regarding a market 

participant’s investment strategies.1018

The Commission acknowledges that 

the alternative could have beneficial 

effects as suggested by the commenters. 

However, as discussed in section 

V.E.1(c)(iii), an inappropriate block 

trade threshold for equity SBSs could 

create incentives for market participants 

to trade equity SBS over cash equities, 

listed equity options, and equity swaps. 

The Commission is concerned, in 

particular, that a shift in trading activity 

away from cash equities and listed 

equity options towards equity SBS 

could generate several adverse effects. 

First, such a shift in trading activity 

could reduce participation in the cash 

equities and listed equity options 

markets, including participation by 

liquidity providers. Reduced 

participation by liquidity providers 

could reduce competition in liquidity 

provision in these markets, which in 

turn could increase trading costs and 

decrease liquidity. Trading in these 

markets could become less efficient 

because of increased trading costs and 

decreased liquidity. Second, to the 

extent that trading becomes more costly 

in the cash equities and listed equity 

options markets, trading in these 

markets could be reduced, which could 

impede the incorporation of new 

information into the prices of cash 

equities and listed equity options 

through trading. This in turn could 

reduce price efficiency in the cash 

equities and listed equity options 

markets. Third, decreased liquidity in 

the cash equities market could raise the 

cost of capital for cash equities,1019

which in turn could discourage firms 

from issuing cash equity securities to 

finance investment projects and reduce 

capital formation. 

The adopted approach may 

nevertheless generate the beneficial 

effects suggested by the commenters. 

Regulation SE would increase pre-trade 

price transparency and competition in 

liquidity provision, which could 

decrease the spread in quoted prices 

and lead to higher efficiency in the 

trading of SBS.1020 In addition, the 

automation and systems development 

associated with the regulation of 

SBSEFs could provide SBS market 

participants with new platforms and 

tools to execute and process 

transactions in SBS more rapidly and at 

a lower expense per transaction. Such 

increased efficiency could enable 

members of the SBSEF to handle 

increased volumes of SBS with greater 

efficiency and timeliness.1021 Further, 

increased competition among thirdparty service providers, as a result of 

Rules 819(c) and 819(e), could lower 

SBSEFs’ costs and bring about greater 

efficiency in their operation and SBS 

trading.1022

As discussed in section XVII.D.2, 

Regulation SE could improve regulatory 

oversight, market integrity, and market 

predictability, which could lead to the 

greater use of SBS (including equity 

SBS) and promote capital formation. 


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1023See supra section XVII.D.2. 

1024See supra sections XVII.D.3 and XVII.C.1 

(discussing the different degrees of pre-trade 

transparency associated with limit order book and 

RFQ-to-3). 

1025See Bloomberg Letter, supra note 18, at 7, 18; 

ICE Letter, supra note 18, at 5; ISDA–SIFMA Letter, 

supra note 18, at 15; Tradeweb Letter, supra note 

18, at 6. 

1026 ISDA–SIFMA Letter, supra note 18, at 15. 

1027See Proposing Release, supra note 1, 87 FR 

at 28956–57. 

1028See supra section XVII.C.3(f). 

1029 44 U.S.C. 3501 et seq. 

1030See Proposing Release, 87 FR at 28958–69. 

Also, by reducing the risk of trading 

disruptions on SBSEFs, Rules 829 and 

830 could increase market participants’ 

confidence in the soundness of SBSEFs, 

which in turn could lead to the greater 

use of SBS traded on SBSEFs thereby 

promoting capital formation.1023

Regulation SE would address 

concerns about information leakage in 

various ways. First, pursuant to Rule 

815(c)(2), an SBSEF may offer any 

execution method for Permitted 

Transactions. Thus, a market participant 

engaging in a Permitted Transaction 

(e.g., a large trade in equity SBS) may 

choose to use an execution method that 

reveals the desired, or at least preferred, 

amount of information about trading 

interest. Second, pursuant to Rule 

815(a)(2), an SBSEF will be required to 

offer two execution methods for 

Required Transactions (limit order book 

and RFQ-to-3). Thus, market 

participants have flexibility in the 

degree of pre-trade transparency they 

wish to employ, which should attenuate 

potential concerns associated with 

revealing too much information about 

trading interest.1024

In addition, until the Commission has 

made a clearing determination with 

respect to equity SBS, equity SBS will 

be able to trade OTC, just as their 

underlying cash equities can trade OTC. 

Moreover, before making a clearing 

determination for an equity SBS—which 

would create the circumstances in 

which equity SBS might be MAT and 

therefore subject to the trade-execution 

requirement—the Commission would 

have the opportunity to solicit and 

consider additional public comment on 

the effect of such a determination, 

including comment with respect to the 

concerns commenters have raised to 

date regarding, among other things, 

timely and efficient executions, 

hedging, and capital formation. 

In light of the above, the adopted 

approach is preferable to the alternative. 

8. Alternatives to Rule 833 

In finalizing Rule 833, the 

Commission considered alternative 

approaches suggested by commenters. 

Four commenters suggest that the 

Commission grant automatic 

exemptions for foreign trading venues 

that are currently exempt under the 

CFTC’s rules.1025 One commenter 

suggests the Commission grant an 

exemption from the trade execution 

requirement if the SBS transaction at 

issue is subject to mandatory trading in 

another jurisdiction.1026

With respect to these alternatives, the 

Commission is concerned that granting 

automatic exemptions would not afford 

the Commission the opportunity to 

appropriately consider the relevant facts 

and circumstances in support of a 

finding that an exemption is necessary 

or appropriate in the public interest and 

consistent with the protection of 

investors. Further, to the extent that 

there are certain CFTC exempt foreign 

trading venues that do not intend to 

offer trading in SBS, it is unclear how 

the Commission’s granting of an 

automatic exemption to these venues 

would benefit market participants that 

wish to trade SBS on regulated 

platforms. In light of the above, the 

adopted approach is preferable to these 

alternatives. 

9. Alternatives From Proposal 

The Commission also considered 

certain alternatives discussed in the 

Proposing Release: (1) not harmonizing 

Regulation SE with analogous CFTC 

rules; (2) harmonizing the third prong of 

the definition of ‘‘block trade’’ with the 

third prong of the CFTC definition of 

‘‘block trade’’; (3) requiring SBSEFs to 

submit the information in the Daily 

Market Data Report directly to the 

Commission; (4) requiring an exemption 

order under Rule 833(a) to apply to a 

foreign trading venue only if it traded 

SBS and no other types of securities; (5) 

applying the revocation provisions of 

Rule 3a1–1(b) to SBSEFs and clearing 

agencies that are covered by paragraphs 

(a)(4) and (a)(5), respectively of Rule 

3a1–1; and (6) not exempting SBSEF-Bs 

from section 17(a) of the SEA.1027 With 

respect to the alternative of not 

harmonizing Regulation SE with 

analogous CFTC rules, commenters 

generally agreed with the Commission’s 

approach vis-a`-vis this alternative. The 

Commission did not receive comments 

addressing the other alternatives and 

continues to believe that its approach 

with respect to these alternatives is 

appropriate, and believes the rules as 

adopted are preferable to these 

alternatives. 

10. Structured Disclosure Alternative 

The Commission also considered the 

alternative of requiring, as proposed, 

Inline XBRL for all SBSEF filings other 

than Daily Market Data Reports under 

Rule 825. However, limiting the scope 

of Inline XBRL requirements under 

Regulation SE will ease compliance 

burdens for SBSEFs while maintaining 

a significant level of machinereadability for SBSEF data available to 

market participants and public data 

users as well as Commission staff. Some 

of the disclosures proposed with Inline 

XBRL structuring will still be structured 

in the final rule, but with a custom XML 

requirement rather than an Inline XBRL 

requirement. This will allow SBSEFs to, 

at their option, input those disclosures 

into fillable web forms rather than 

structure the disclosures in the custom 

XML data language themselves, thereby 

providing greater flexibility to SBSEFs 

and potentially easing compliance 

burdens. For copies of existing 

documents attached to Form SBSEF, 

and for rule and product filings that 

were proposed with an Inline XBRL 

requirement will instead be filed in 

unstructured formats. Given the reduced 

compliance burdens on SBSEFs 

resulting from a more limited scope of 

Inline XBRL requirements, the adopted 

rules are preferable to the 

alternative.1028

XVIII. Paperwork Reduction Act 

Certain provisions of the rules in 

Regulation SE contain new ‘‘collection 

of information’’ requirements within the 

meaning of the Paperwork Reduction 

Act of 1995 (‘‘PRA’’).1029 The 

Commission published a notice 

requesting comment on these 

collections 1030 and submitted the 

proposed collection of information 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 Regulation SE, and OMB Control 

Number 3235–0793 has been assigned. 

As adopted, Regulation SE creates a 

regime for the registration and 

regulation of SBSEFs and addresses 

other issues relating to SBS execution. 

In addition, the Commission is 

amending Rule 3a1–1 under the SEA to 

exempt a registered SBSEF from the 

statutory definition of ‘‘exchange.’’ 

Furthermore, the Commission is 

adopting new Rule 15a–12 under the 

SEA that, while affirming that an SBSEF 

would also be a broker under the SEA, 

would exempt a registered SBSEF from 

certain broker requirements under the 

SEA. 

Regulation SE includes rules 

regarding the registration of a 

prospective SBSEF on Form SBSEF, the 


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Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Rules and Regulations 87267 

1031 15 U.S.C. 78c–4(d). As adopted, Regulation 

SE contains 36 separately designated rules (800 to 

835, inclusive), which (if adopted) would be located 

in 17 CFR 242; a Form SBSEF (with instructions); 

and a submission cover sheet (with instructions). If 

adopted, the form and the submission cover sheet 

would be located in 17 CFR 249. 

1032See supra section II.A (discussing Rule 800); 

section II.B (discussing Rule 801); section II.C 

(discussing Rule 802); section III.A (discussing the 

registration provisions contained in Rule 803); 

section III.B (discussing Form SBSEF); section IV.A 

(discussing Rule 804); section IV.B (discussing Rule 

805); section IV.C (discussing Rule 806); section 

IV.D (discussing Rule 807); section IV.GIV.F 

(discussing Rule 808); section IV.G (discussing Rule 

809); section IV.H (discussing Rule 810); section 

V.A (discussing Rule 811); section V.B (discussing 

Rule 812); section V.C (discussing Rule 813); 

section V.D (discussing Rule 814); section V.E 

(discussing Rule 815); section V.F (discussing Rule 

816); section V.G (discussing Rule 817); section 

VI.A (discussing Rule 818); section VI.B (discussing 

Rule 819); section VI.C (discussing Rule 820); 

section VI.D (discussing Rule 821); section VI.E 

(discussing Rule 822); section VI.F (discussing Rule 

823); section VI.G (discussing Rule 824); section 

VI.H (discussing Rule 825); section VI.I (discussing 

Rule 826); section VI.J (discussing Rule 827); 

section VI.K (discussing Rule 828); section VI.L 

(discussing Rule 829); section VI.M (discussing 

Rule 830); section VI.N (discussing Rule 831); 

section VII.A (discussing Rule 832); section VII.B 

(discussing Rule 833); section VIII (discussing Rule 

834); section IX (discussing the notice required by 

Rule 835); section X (discussing amendments to 

Rule 3a1–1); section XI (discussing proposed Rule 

15a–12); section XIV (discussing new rules and 

amendments to the Commission’s Rules of 

Practice). 

filing of new or amended rules or new 

products with the Commission, and 

rules implementing the Core Principles 

for SBSEFs under section 3D(d) of the 

SEA.1031 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. 

A. Summary of Collection of 

Information 

The rules and rule amendments 

contained in Regulation SE include a 

collection of information within the 

meaning of the PRA for SBSEFs that are 

required to comply with Regulation SE 

and file a Form SBSEF with the 

Commission for registration as an 

SBSEF and, among other things, submit 

certain filings to the Commission 

pursuant to Rules 804–807 with respect 

to new products and proposed rule 

changes. In addition, Rule 833 includes 

a collection of information within the 

meaning of the PRA for persons that 

wish to seek an exemption order under 

that rule, and Rule 834 includes a 

collection of information within the 

meaning of the PRA for SBS exchanges 

(in addition to SBSEFs). The 

Commission generally is adopting 

Regulation SE as proposed, except for 

certain sections that have been modified 

in response to comments received. The 

modified Rules that have associated 

paperwork burdens are Rules 804, 815, 

819, 825, and 834. Each of these 

modifications and their impact on the 

paperwork burden are described in 

more detail below. 

Many of the rules that constitute 

Regulation SE are modeled after 

analogous CFTC rules, with only minor 

edits to reflect differences between the 

statutory regimes of the two agencies. 

Entities that are most likely to register 

with the Commission as SBSEFs are 

those already registered with the CFTC 

as SEFs. Such entities have made 

substantial investments in systems, 

policies, and procedures to comply with 

and adapt to the regulatory system 

developed by the CFTC. Harmonization 

will allow these dually registered 

entities to utilize their existing systems, 

policies, and procedures to comply with 

the Commission’s SBSEF rules, and SEF 

members would likely face only 

marginal additional burdens to trade 

SBS as well as swaps on those SEF/ 

SBSEFs. In light of these factors, the 

Commission has based many of its 

paperwork burden estimates on CFTC 

burden estimates calculated for 

analogous CFTC rules. 

The CFTC estimated PRA burdens by 

aggregating the burdens produced by a 

group of related rules, as explained 

more fully in section XX(D) below. In 

most cases, the Commission has 

modeled its methodology, assumptions, 

and calculations on those used by the 

CFTC with respect to its SEF 

regulations, while making adjustments 

that reflect differences between the scale 

of the market for swaps relative to the 

market for SBS—for example, the 

estimated number of SBSEFs, number of 

SBS market participants, and number of 

SBS transactions—as necessary. The 

Commission received no comments on 

its proposed PRA methodology, 

assumptions, calculations, and 

estimates, and such an approach 

continues to be appropriate. As noted 

above, almost all of the burden 

estimates are based on CFTC estimates 

that have been approved by OMB. The 

CFTC estimates that serve as the basis 

for the Commission’s estimates have not 

changed since the Proposing Release has 

been published, with the exception of 

one estimate for Rule 811(d). 

Consequently, the Commission 

continues to estimate the burdens as 

those set forth in the Proposing Release, 

except for one adjustment to match a 

subsequent adjustment in the CFTC 

estimate relevant to Rule 811(d). As 

explained in more detail below, for 

rules that have been modified that 

contain associated paperwork burdens, 

the modifications do not result in any 

change in paperwork burden. 

The following is a summary of the 

rules contained in Regulation SE.1032

The paperwork burdens associated with 

each rule in Regulation SE are discussed 

in section XX(D) below. 

Rule No. and title Overview of rule 

Paperwork 

burden 

created? 

800—Scope ................................................................................ States that the provisions of this section shall apply to every 

SBSEF that is registered or is applying to become registered as an SBSEF under section 3D of the SEA.

No. 

801—Applicable provisions ......................................................... Requires an SBSEF to comply with all applicable Commission rules, including any related definitions and cross-referenced sections.No. 

802—Definitions .......................................................................... Definitions .................................................................................. No. 

803—Requirements and procedures for registration ................. Sets out a process for registering with the Commission as an 

SBSEF, including the submission of Form SBSEF.

Yes. 

804—Listing products for trading by certification ....................... Procedures by which an SBSEF, via self-certification, may list 

a product for trading.

Yes.a

805—Voluntary submission of new products for Commission 

review and approval.

Procedures for voluntary submission of new products for 

Commission review and approval.

Yes. 

806—Voluntary submission of rules for Commission review 

and approval.

Procedures for voluntary submission of new rules or rule 

amendments for Commission review and approval.

Yes. 


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87268 Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Rules and Regulations 

Rule No. and title Overview of rule 

Paperwork 

burden 

created? 

807—Self-certification of rules .................................................... Procedures by which an SBSEF can implement a new rule or 

rule amendment via self-certification.

Yes. 

808—Availability of public information ........................................ Sets out the information that will be made public with respect 

to applications to become an SBSEF as well as filings relating to rules and products.

No. 

809—Staying of certification and tolling of review period pending jurisdictional determination.Provides for a stay of a product certification or tolling of a review period for a product where it is unclear whether the 

product should be classified as an SBS under the jurisdiction of the SEC or a swap under the jurisdiction of the 

CFTC pending the issuance of a joint interpretation by the 

SEC and CFTC clarifying which agency has jurisdiction 

over the product.

Yes. 

810—Product filings by SBSEFs that are not yet registered 

and by dormant SBSEFs.

Provides that an applicant for registration as an SBSEF may 

submit for Commission review and approval an SBS’s 

terms and conditions or rules prior to listing the product as 

part of its application for registration.

Yes. 

811—Information relating to SBSEF compliance ....................... Provides that an SBSEF shall submit information to the Commission that the Commission requests, including demonstrations that the SBSEF is in compliance with one or 

more Core Principles, notification of a transfer 50% or more 

of the equity interest in the SBSEF, and information about 

pending legal proceedings.

Yes. 

812—Enforceability ..................................................................... Provides that a transaction entered into on or pursuant to the 

rules of an SBSEF shall not be void, voidable, subject to 

rescission, otherwise invalidated, or rendered unenforceable because of a violation by the SBSEF of section 3D of 

the SEA or the Commission’s rules thereunder; also requires an SBSEF to provide each counterparty to a transaction on the SBSEF with a written record of all the terms 

of the transaction that were agreed to on the SBSEF.

Yes. 

813—Prohibited use of data collected for regulatory purposes Provides that an SBSEF shall not use for business or marketing purposes any proprietary data or personal information that it collects or receives, from or on behalf of any 

person, for the purpose of fulfilling its regulatory obligations, without such person’s consent; also requires the 

SBSEF not to condition access to its markets on such consent and provide that the SBSEF may, where necessary for 

regulatory purposes, share such data or information with 

other registered SBSEFs or exchanges.

No. 

814—Entity operating both a national securities exchange and 

SBSEF.

Provides that an entity that intends to operate both a national 

securities exchange and an SBSEF shall separately register the two facilities pursuant to section 6 of the SEA and 

Rule 803, respectively; also provides that a national securities exchange shall, to the extent that the exchange also 

operates an SBSEF and uses the same electronic trade 

execution system, identify whether electronic trading of 

SBS is taking place on or through the national securities 

exchange or the SBSEF.

No. 

815—Methods of execution for Required and Permitted Transactions.Provides that a Required Transaction must be executed on 

an SBSEF through an order book or RFQ system, whereas 

a Permitted Transaction can be executed in any manner; 

also requires an SBSEF to maintain rules and procedures 

that facilitate the resolution of error trades and that an 

SBSEF shall not generally disclose the identity of a 

counterparty to an SBS that is executed anonymously and 

intended to be cleared.

Yes. 

816—Trade execution requirement and exemptions therefrom Sets out a process and standards for an SBSEF to MAT an 

SBS; also establishes certain exemptions from the trade 

execution requirement.

Yes. 

817—Trade execution compliance schedule .............................. Provides that an SBS transaction shall be required to be executed on an SBS exchange or SBSEF upon the later of a 

determination by the Commission that the SBS is required 

to be cleared and 30 days after a MAT determination submission or certification for that SBS is approved or certified, 

respectively.

No. 

818—Core Principle 1 (Compliance with Core Principles) ......... Requires a registered SBSEF to comply with the SEA’s Core 

Principles for SBSEFs.

Yes. 


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Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Rules and Regulations 87269 

Rule No. and title Overview of rule 

Paperwork 

burden 

created? 

819—Core Principle 2 (Compliance with rules) ......................... Requires a registered SBSEF to establish, comply with, and

enforce its own rules—including rules regarding market access; rules governing trading, trade processing, and participation that will deter abuses; rules governing the operation 

of the SBSEF; and rules to capture and retain an audit 

trail—and have the capacity to detect, investigate, and enforce those rules; also requires an SBSEF to establish 

rules that generally prohibit employees from trading any 

covered interest or disclosing any material, non-public information obtained as a result of their employment by the 

SBSEF; also requires an SBSEF to maintain in effect rules 

that render a person ineligible to serve on the SBSEF’s disciplinary committees, arbitration panels, oversight panels, 

or governing board who has been found to have committed 

enumerated offenses.

Yes. 

820—Core Principle 3 (SBS not readily susceptible to manipulation).Requires an SBSEF to permit trading only in SBS that are 

not readily susceptible to manipulation.

Yes. 

821—Core Principle 4 (Monitoring of trading and trade processing).Requires an SBSEF to establish and enforce rules detailing 

trading and trade processing procedures, and to monitor 

trading and market activity to prevent manipulation, price 

distortion, and delivery or settlement disruptions; also requires an SBSEF to demonstrate that it has access to sufficient information to assess whether trading on its market or 

in the underlying assets or indexes is being used to affect 

prices on its market.

Yes. 

822—Core Principle 5 (Ability to obtain information) ................. Requires an SBSEF to establish and enforce rules that would 

allow it to obtain any information necessary to comply with 

section 3D of the SEA and to provide that information to 

the Commission on request.

Yes. 

823—Core Principle 6 (Financial integrity of transactions) ........ Requires an SBSEF to establish and enforce rules for ensuring the financial integrity of SBS on its facility, including the 

clearance and settlement of the SBS; also requires that 

SBS that are required to be cleared shall be cleared by a 

registered clearing agency (or a clearing agency that has 

obtained an exemption from clearing agency registration to 

provide central counterparty services for SBS), that the 

SBSEF provide for minimum financial standards for its 

members, and that the SBSEF monitor its members for 

compliance with those standards.

Yes. 

824—Core Principle 7 (Emergency authority) ............................ Requires an SBSEF to adopt rules to provide for the exercise 

of emergency authority, in order for the SBSEF to maintain 

fair and orderly trading and prevent or address manipulation or disruptive trading practices.

Yes. 

825—Core Principle 8 (Timely publication of trading information).Requires an SBSEF to make public timely information on 

price, trading volume, and other trading data on SBS transactions, as required by Regulation SBSR, and to publish on 

its website a Daily Market Data Report.

Yes. 

826—Core Principle 9 (Recordkeeping and reporting) .............. Sets forth recordkeeping and reporting obligations for 

SBSEFs and requires an SBSEF to maintain, for a period 

of five years and in a form and manner acceptable to the 

Commission, records of all activities relating to the business of the facility, including a complete audit trail,.

Yes. 

827—Core Principle 10 (Antitrust considerations) ..................... Provides that, unless necessary or appropriate to achieve the 

purposes of the SEA, an SBSEF shall not adopt any rules 

or take any actions that result in any unreasonable restraint 

of trade or impose any material anticompetitive burden on 

trading or clearing.

No. 

828—Core Principle 11 (Conflicts of interest) ............................ Requires an SBSEF to establish and enforce rules to minimize conflicts of interest in its decision-making process and 

to establish a process for resolving such conflicts.

Yes. 

829—Core Principle 12 (Financial resources) ............................ Requires an SBSEF to have adequate financial, operational, 

and managerial resources to discharge its responsibilities; 

would also set forth the standards used to calculate the 

adequacy of such resources and require certain reports to 

the Commission.

Yes. 


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1033See, e.g., Proposed Rule 803(b)(1) (requiring 

an entity that wishes to register with the 

Commission as an SBSEF to submit a Form SBSEF). 

Rule No. and title Overview of rule 

Paperwork 

burden 

created? 

830—Core Principle 13 (System safeguards) ............................ Requires an SBSEF to establish and maintain a program of 

automated systems and risk analysis to identify and minimize sources of operational risk, through the development 

of appropriate controls and procedures; would also require 

an SBSEF to establish and maintain emergency procedures, backup facilities, and a plan for disaster recovery; 

conduct periodic tests to verify those resources are sufficient; and notify the Commission promptly of any cyber incidents and material planned changes to the SBSEF’s systems safeguards.

Yes. 

831—Core Principle 14 (Designation of CCO) ........................... Requires an SBSEF to designate a CCO and set forth regulatory and reporting obligations for the CCO.Yes. 

832—Cross-border mandatory trade execution ......................... Explains when the SEA’s trade execution requirement applies 

to a cross-border SBS transaction.

No. 

833—Cross-border exemptions .................................................. Provides for a process by which the Commission, upon making the requisite findings, could grant exemptions from the 

SEA definitions of ‘‘exchange,’’ ‘‘security-based swap execution facility,’’ and ‘‘broker’’ and exempt cross-border SBS 

from the SEA’s trade execution requirement.

Yes. 

834—Mitigation of conflicts of interest of SBSEFs and SBS exchanges.Provides that each SBSEF and SBS exchange must create 

and maintain rules to mitigate conflicts of interest between 

SBSEFs and SBS exchanges and their members, including 

by prohibiting members from owning 20% or more of the 

voting securities of an SBSEF or SBS exchange (with certain exceptions), and from exercising disproportionate influence in disciplinary proceedings; would also require each 

SBSEF and SBS exchange to submit to the Commission 

after every governing board election a list of each governing board’s members, the groups they represent, and 

how the composition of the board complies with the requirements of Rule 834.

Yes. 

835—Notice to Commission by SBSEF of final disciplinary action or denial or limitation of access.Provides that, if an SBSEF issues a final disciplinary action 

against a member, denies or conditions membership, or 

denies or limits access of a person to any services offered 

by the SBSEF, the SBSEF shall file a notice of such action 

with the Commission within 30 days and serve a copy on 

the affected person.

Yes. 

3a1–1—proposed amendments .................................................. Exempts from the SEA definition of ‘‘exchange’’ a registered 

SBSEF that provides a market place for no securities other 

than SBS, and an entity that has registered with the Commission as a clearing agency and limits its exchange functions to operation of a trading session that is designed to 

further the accuracy of end-of-day valuations.

No. 

15a–12—Exemption for certain SBSEFs from certain broker 

requirements.

Exempts a registered SBSEF from certain broker requirements while affirming that an SBSEF is a broker under the 

SEA.

No. 

Rules and amendments to the Commission’s Rules of Practice New rules and amendments to the Rules of Practice to allow 

persons who are aggrieved by a final disciplinary action, a 

denial or conditioning of membership, or a denial or limitation of access by an SBSEF to seek an application for review by the Commission.

No **. 

Amendments to Delegations of Authority in Rules 30–3 and 

30–14.

Amendments to Commission’s rules delegating authority to 

the Division Director and to the General Counsel in order to 

delegate authority to take actions necessary to carry out 

the rules under Regulation SE and to facilitate the operation of the regulatory structure created in Regulation SE.

No **. 

** The Commission finds, in accordance with section 553(b)(3)(A) of the Administrative Procedure Act (‘‘APA’’), 5 U.S.C. 553(b)(3)(A), that the 

revisions to the Commission’s Rules of Practice, as well as the amendments to the Commission’s delegations of authority to the Director of Trading and Markets pursuant to 17 CFR 200.30–3 and to the General Counsel pursuant to 17 CFR 200.30–14, relate solely to agency organization, 

procedure, or practice. They are therefore not subject to the provisions of the APA requiring notice, opportunity for public comment, and publication. To the extent that these rules relate to agency information collections during the conduct of administrative proceedings, they are exempt 

from review under the PRA. Notwithstanding this finding, the Commission published certain proposed changes to the Commission’s Rules of 

Practice for notice and comment in the Proposing Release but received no specific comments pertaining to them. See supra section XIV. 

B. Proposed Use of Information 

1. Registration Requirements and Form 

SBSEF 

Regulation SE imposes various 

requirements relating to SBSEF 

registration, which are set forth in Rule 

803.1033

The information collected pursuant to 

these adopted rules will enhance the 

ability of the Commission to determine 

whether to approve the registration of 

an entity as an SBSEF; to monitor and 

oversee SBSEFs; to determine whether 


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1034See, e.g., Proposed Rule 819(a)(2) (requiring 

an SBSEF to establish and enforce trading, trade 

processing, and participation rules). 

1035See, e.g., Proposed Rule 829 (requiring an 

SBSEF, quarterly or upon Commission request, to 

provide the Commission a report that includes the 

amount of financial resources necessary to meet the 

requirements of Rule 829). 

1036See Proposed Rule 826 (requiring an SBSEF 

to maintain records of all activities relating to the 

business of the facility, including a complete audit 

trail, and to report information to the Commission 

upon request). 

1037See Proposed Rule 825 (requiring an SBSEF 

to make publicly available a ‘‘Daily Market Data 

Report’’). 

SBSEFs initially comply, and continue 

to operate in compliance, with the SEA, 

including the Core Principles applicable 

to SBSEFs; to carry out its statutorily 

mandated oversight functions; and to 

maintain accurate and updated 

information regarding SBSEFs. Because 

the registration information will be 

publicly available, except to the extent 

that a request for confidential treatment 

is granted, it could also be useful to an 

SBSEF’s members, other market 

participants, other regulators, and the 

public generally. 

2. Requirements for SBSEFs To 

Establish Rules 

Various provisions of Regulation SE 

require SBSEFs to establish certain 

rules, policies, and procedures to 

comply with applicable requirements of 

the SEA and the Commission’s rules 

thereunder.1034 The rules also will help 

an SBSEF’s members to understand and 

comply with the rules of the SBSEF. 

3. Reporting Requirements for SBSEFs 

Various provisions of Regulation SE 

require SBSEFs and certain other 

persons to submit reports or provide 

specified information.1035 This 

information will generally be used by 

the Commission in its oversight of 

SBSEFs and the SBS markets; certain of 

the information to be collected could be 

used by market participants to confirm 

their SBS transactions. 

4. Recordkeeping Required Under 

Regulation SE 

Regulation SE requires an SBSEF to 

keep specified records.1036 The audit 

trail information required to be 

maintained under Regulation SE will 

aid the SBSEF in detecting and 

deterring fraudulent and manipulative 

acts with respect to trading on its 

market, as well as help the SBSEF to 

fulfill the statutory requirement in Core 

Principle 4 that an SBSEF monitor 

trading in SBS, including through 

comprehensive and accurate trade 

reconstructions. In addition, 

Commission access to these records will 

provide a valuable tool to help the 

Commission carry out its oversight 

responsibility over SBSEFs and the SBS 

markets in general. 

5. Timely Publication of Trading 

Information Requirement for SBSEFs 

Regulation SE imposes certain 

publication burdens on SBSEFs in Rule 

825.1037

The requirement contained in Rule 

825 that an SBSEF have the capacity to 

electronically capture, transmit, and 

disseminate information on price, 

trading volume, and other trading data 

on all SBS executed on or through the 

SBSEF will assist the SBSEF in carrying 

out its regulatory responsibilities under 

the SEA and enable the SBSEF to 

comply with reasonable requests to 

provide information to others. 

Furthermore, Rule 825 requires an 

SBSEF to publish a Daily Market Data 

Report that is designed to provide 

market observers with a daily snapshot 

of market activity on the SBSEF. 

6. Rule Filing and Product Filing 

Processes for SBSEFs 

Regulation SE establishes various 

filing requirements applicable to 

SBSEFs. Rules 804 and 805 provide 

mechanisms for an SBSEF to submit 

filings for new products that it seeks to 

list either through a self-certification 

process or by voluntarily requesting 

Commission approval, respectively. 

Rules 806 and 807 require an SBSEF to 

submit new rule or rule amendments 

either through a self-certification 

process or by voluntarily requesting 

Commission approval, respectively. 

Rule 808 addresses the public 

availability of certain information in an 

application to register as an SBSEF and 

SBSEF filings made under the selfcertification procedures or pursuant to 

Commission review and approval. Rule 

809 establishes procedures for 

addressing a situation where an SBSEF 

wishes to list a product and it is unclear 

whether that product is an SBS or swap 

(i.e., whether it properly falls under the 

jurisdiction of the SEC or the CFTC). 

Rule 810 provides that an applicant for 

registration as an SBSEF may submit for 

Commission review and approval an 

SBS’s terms and conditions or rules 

prior to listing the product as part of its 

application for registration. 

The information collected under 

Rules 804 and 805 will help the 

Commission assess whether an SBS 

listed by an SBSEF complies with 

relevant provisions of the SEA. In 

addition, this information will assist the 

Commission in overseeing the SBSEF’s 

compliance with its regulatory 

obligations generally and to learn about 

developments in the SBS product 

market. Rules 804 and 805 also provide 

a mechanism whereby market 

participants, other SBSEFs, other 

regulators, and the public generally 

could learn what products an SBSEF 

intends to list and to obtain information 

regarding such products. 

The information collected under 

Rules 806 and 807 will help the 

Commission assess whether a new rule 

or rule amendment of an SBSEF 

complies with relevant provisions of the 

SEA and assist the Commission in 

overseeing the SBSEF’s compliance 

with its regulatory obligations generally. 

Rules 806 and 807 also provide a 

mechanism whereby an SBSEF’s 

members (and prospective members) 

could learn what new rules or rule 

amendments the SBSEF intends to 

apply in its market. 

The information collected under 

Rules 809 and 810 will help the 

Commission assess an SBSEF’s 

compliance with relevant provisions of 

the SEA and assist the Commission in 

overseeing the SBSEF’s compliance 

with its regulatory obligations. This 

information also will be useful to the 

SBSEF’s members, because they would 

be subject to such new or amended rules 

or products and thus would have an 

interest in learning about those rules or 

products. Other market participants, 

other SBSEFs, and other regulators, as 

well as the public generally, may find 

information about proposed new or 

amended rules or products useful. 

7. Requirements Relating to the CCO 

Regulation SE includes Rule 831 that 

would set out requirements relating to 

an SBSEF’s CCO. 

The information that will be collected 

under Rule 831 will help ensure 

compliance by SBSEFs with relevant 

provisions of the SEA and assist the 

Commission in overseeing SBSEFs 

generally. The Commission could use 

the annual compliance report to help it 

evaluate whether an SBSEF is carrying 

out its statutorily mandated regulatory 

obligations and, among other things, to 

discern the scope of any denials of 

access or refusals to grant access by the 

SBSEF and to obtain information on the 

status of the SBSEF’s regulatory 

compliance program. The SBSEF’s 

fourth-quarter financial report will 

provide the Commission with important 

information on the financial health of 

the SBSEF. 


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1038See, e.g., Proposed Rule 819(d)(3) (requiring 

an SBSEF to establish and maintain sufficient 

compliance staff and resources to ensure that it can 

conduct effective audit trail reviews, trade practice 

surveillance, market surveillance, and real-time 

market monitoring). 

1039See Proposing Release, supra note 1, 87 FR 

at 28963. 

1040 Id. The Commission anticipates that such 

persons could include foreign SBS trading venues, 

foreign authorities that license and regulate those 

trading venues, or covered persons (as defined in 

Rule 832) who are members of such trading venues. 

1041See also supra note 626 (discussing a CFTC 

staff no-action letter addressing certain UK swap 

trading facilities). 

1042See Proposing Release, supra note 1, 87 FR 

at 28963. 

1043See Core Principles and Other Requirements 

for Swap Execution Facilities (May 17, 2013), 78 FR 

33476, 33548–49 (June 4, 2013) (Final Rule PRA for 

CFTC part 37); Swap Execution Facility 

Requirements (Nov. 27, 2020), 85 FR 82313, 82324 

(Dec. 18, 2020) (Final Rule PRA for 17 CFR 36.1); 

Core Principles and Other Requirements for Swap 

Execution Facilities: OMB Control Number 3038– 

0074 Supporting Statements (last updated July 26, 

2021), available at https://omb.report/omb/3038- 

0074 (PRA Supporting Statements for CFTC Core 

Principles for SEFs, 17 CFR 36.1); Provisions 

Common to Registered Entities (July 19, 2011), 76 

FR 44776, 44789–90 (July 27, 2011) (Final Rule PRA 

for CFTC part 40); part 40, Provisions Common to 

Registered Entities: OMB Control Number 3038– 

0093 Supporting Statements (last updated Feb. 4, 

2021), available at https://omb.report/omb/3038- 

0093 (PRA Supporting Statements for CFTC part 40, 

17 CFR 36.1); Notification of Pending Legal 

Proceedings: OMB Control Number 3038–0033 

Supporting Statements (last updated Oct. 29, 2021), 

available at https://omb.report/omb/3038-0033 

(PRA Supporting Statements for 17 CFR 1.60(a), (c), 

and (e)); Adaptation of Regulations To Incorporate 

Swaps (Oct. 16, 2012), 77 FR 66288, 66306–08 

(Nov. 2, 2012) (Final Rule PRA for 17 CFR 1.59 and 

1.37(c)); Recordkeeping (May 23, 2017), 82 FR 

24479, 24485 (May 30, 2017) (Final Rule PRA for 

17 CFR 1.31); Adaptation of Regulations to 

Incorporate Swaps-Exclusion of Utility OperationsRelated Swaps with Utility Special Entities from De 

Minimis Threshold: OMB Control Number 3038– 

0090 Supporting Statements (last updated July 1, 

2020), available at https://omb.report/omb/3038- 

0090 (PRA Supporting Statements for 17 CFR 1.31, 

1.37(c), 1.59, and 1.67); Service on Self-Regulatory 

Organization Governing Boards or Committees by 

Persons with Disciplinary Histories (Feb. 27, 1990), 

55 FR 7884, 7890 (Mar. 6, 1990) (Final Rule PRA 

for 17 CFR 1.63); Final Rule and Rule Amendments 

Concerning Composition of Various Self-Regulatory 

Organization Governing Boards and Major 

Disciplinary Committees (June 29, 1993), 58 FR 

37644, 37653 (July 13, 1993) (Final Rule PRA 

for§ 1.64); Voting by Interested Members of SelfRegulatory Organization Governing Boards and 

Committees (Dec. 23, 1998), 64 FR 16, 22 (Jan. 4, 

1999) (Final Rule PRA for 17 CFR 1.69); Rules 

Pertaining to Contract Markets and Their Members: 

OMB Control Number 3038–0022 Supporting 

Statements (last updated Dec. 21, 2010), available 

at https://omb.report/omb/3038-0022 (PRA 

Supporting Statements for 17 CFR 1.63, 1.64, and 

1.69); Swap Data Recordkeeping and Reporting 

Requirements (Dec. 20, 2011), 77 FR 2136, 2171– 

76 (Jan. 13, 2012) (Final Rule PRA for 17 CFR 45.2); 

Swap Data Recordkeeping and Reporting 

Requirements: OMB Control Number 3038–0096 

Supporting Statements (last updated Mar. 16, 2021), 

available at https://omb.report/omb/3038-0096 

(PRA Supporting Statements for 17 CFR 45.2); 

Repeal of the Exempt Commercial Market and 

Exempt Board of Trade Exemptions (Sept. 28, 

2015), 80 FR 59575, 59576 (Oct. 2, 2015) (Final Rule 

PRA for 17 CFR 15.05). 

1044Rule 835, which requires SBSEFs to file with 

the Commission notices of final disciplinary actions 

and denials and limitations of access, is not based 

on a CFTC rule but rather on an existing 

Commission rule that imposes a similar filing 

requirement on SROs. Therefore, the Commission is 

utilizing the burden estimates in its rulemaking for 

SROs to estimate the burdens of this rule for 

SBSEFs. 

8. Surveillance Systems Requirements 

for SBSEFs 

The rules that require an SBSEF to 

maintain surveillance systems and to 

monitor trading 1038 are designed to 

promote compliance by an SBSEF with 

its obligations under the SEA to oversee 

trading on its market, and to prevent 

manipulation and other unlawful 

activity or disruption of its market. 

C. Respondents 

The respondents subject to the 

collection of information burdens 

associated with Regulation SE are: (1) 

SBSEFs (and entities wishing to register 

with the Commission as SBSEFs); (2) in 

the case of Rule 833, persons that seek 

an exemption order under that rule; and 

(3) in the case of Rule 834, SBS 

exchanges. 

Currently there are no registered 

SBSEFs. Based on the number of SEFs 

registered with the CFTC that trade 

index CDS (the closest analog to singlename CDS, which is likely to be the 

product most frequently traded on SECregistered SBSEFs), as well as general 

industry information, the Commission 

preliminarily estimated that five entities 

will seek to register as SBSEFs and thus 

become subject to the collection of 

information requirements of these 

rules.1039 The Commission did not 

receive comments about its estimate of 

the number of SBSEF registrants, and its 

initial estimate continues to be 

reasonable. 

The Commission preliminarily 

estimated that three persons would 

request exemption orders under one or 

both paragraphs of Rule 833.1040 The 

CFTC has granted three exemptions 

similar to those contemplated by Rule 

833,1041 which suggests that the number 

of jurisdictions having organized trading 

venues for swap and SBS products that 

overlap with products traded on similar 

venues in the United States is not large. 

The Commission did not receive 

comments about its estimate of the 

number of persons requesting 

exemption orders under Rule 833, and 

its initial estimate continues to be 

reasonable. 

The Commission preliminarily 

estimated that three entities will operate 

as SBS exchanges.1042 These are likely 

to be existing national securities 

exchanges that, in the future, seek to list 

SBS and thereby become SBS 

exchanges. The Commission did not 

receive comments about its estimate of 

the number of SBS exchanges, and its 

initial estimate continues to be 

reasonable. 

The Commission considered whether 

any provision of proposed Regulation 

SE would impose any burdens (as 

defined in the PRA) on SBSEF members 

but received no comments on this point 

and continues to estimate that the 

provisions of Regulation SE would not 

impose PRA burdens on SBSEF 

members. 

D. Total Annual Reporting and 

Recordkeeping Burden 

1. Overview 

The CFTC, based on its experience in 

developing rules for SEFs and regulating 

the SEF market, has over the years 

developed, refined, and received 

approval from OMB for paperwork 

burden hours estimates, both for SEF 

rules directly as well as for ancillary 

rules on which various rules in 

Regulation SE are modeled.1043 Those 

estimates are presented in the form of 

aggregate totals for compliance with: 

• Part 37 of the CFTC regulations 

regarding initial registration 

requirements applicable to SEFs; 

• Part 37 regarding other 

requirements applicable to SEFs, 

including the statutory Core Principles; 

• Part 40 of the CFTC regulations 

regarding requirements applicable to 

SEFs (and other CFTC-registered 

entities); and 

• 17 CFR 1.60(a), 1.60(c), 1.60(e), 

36.1, 1.59, 1.63, 1.67, 15.05, 1.37(c), 

1.64, and 1.69 regarding requirements 

applicable to SEFs (and other CFTCregistered entities). 

The rules applicable to SBSEFs are, 

with limited exceptions discussed 

above, substantively similar to those 

applicable to SEFs. Therefore, the 

Commission is basing its estimates for 

the paperwork burdens for SBSEFs on 

the CFTC’s paperwork burden 

calculations for analogous rules that 

apply to SEFs, which have been 

approved by OMB.1044 However, in 

certain cases, the paperwork burdens 

estimated by the CFTC are scaled down 

for SBSEFs to account for the likelihood 

that there will be fewer SBSEFs than 

SEFs and that the SBS business of 

dually registered SEF/SBSEFs is likely 

to be smaller than the swap business. 

Although there are minor differences 

between the CFTC rules and the 

Commission rules being adopted, the 

Commission does not need to 


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1045When the CFTC adopted the SEF rules in 

2013, the CFTC took a similar approach to burden 

hours estimation. The CFTC relied on the aggregate 

burden hours for three types of entities that it 

regulated (DCMs, derivatives transaction execution 

facilities, and certain exempt commercial markets) 

and applied those burden hours to SEFs 

unadjusted, even though there are differences 

between the regulations that govern SEFs and those 

that govern the other entities. The CFTC noted that 

those entities, like SEFs, were subject to certain 

statutory Core Principles and rules thereunder, and 

that, despite variations in the applicable 

regulations, it was still appropriate to use the 

average aggregate burden number for those entities 

as the estimate for SEFs without adjustment. See 

CFTC, Core Principles and Other Requirements for 

Swap Execution Facilities, 78 FR at 33548–51. 

1046However, there may be instances in which a 

rule would require an SBSEF to generate the same 

paperwork that is already being created pursuant to 

a CFTC rule. In such cases, compliance with the 

existing CFTC requirement would satisfy the SEC 

requirement, and in reality there would be few or 

de minimis burdens imposed on dually registered 

SEF/SBSEFs. 

1047See Proposing Release, supra note 1, 87 FR 

at 28969. 

1048As discussed below, the Commission has 

revised its burden estimate for Rule 811(d) due to 

a corresponding revision by the CFTC of its 

analogous rule. 

1049See OMB, Supporting Statement for New and 

Revised Information Collections: Core Principles 

and Other Requirements for Swap Execution 

Facilities, OMB Control Number 3038–0074, 

Attachment A (July 7, 2021), available at https://

omb.report/icr/202107-3038-004/doc/ 

113431800.pdf. 

1050 1,935 hours = 387 hours (annual burden per 

respondent) × 5 (number of respondents). 

1051See OMB, Supporting Statement for New and 

Revised Information Collections, OMB Control 

Number 3038–0074, at 8 (estimating that on a net 

basis the total burden hours imposed on each SEF 

will be 387 hours). 

1052As discussed previously, the Commission 

proposed to incorporate portions of the CFTC 

guidance into certain rules in Regulation SE. The 

Commission is now adopting those portions of the 

CFTC guidance as proposed into the rules of 

Regulation SE. The CFTC guidance clarifies 

portions of its rules by suggesting means for 

compliance and does not fundamentally alter those 

rules. When the CFTC adopted this guidance into 

its regulations, it did not alter its burden hours 

estimate. See, e.g., 2021 SEF Amendments 

Adopting Release. Therefore, no adjustments to the 

CFTC estimates, on which the Commission is 

basing its own estimates, would be appropriate 

despite adapting that guidance into the 

Commission’s rules. 

substantially deviate from the CFTC’s 

estimates of aggregated burden hours for 

compliance (beyond scaling back the 

CFTC’s estimates to account for the 

smaller number of SBSEFs, and the 

smaller size of the SBS market relative 

to the swaps market). These minor 

differences between the CFTC’s existing 

rules for SEFs and the Commission’s 

rules for SBSEFs are prompted, in some 

cases, by minor differences between the 

statutory provisions that apply to SEFs 

under the CEA and the statutory 

provisions that apply to SBSEFs under 

the SEA, and, in other cases, by 

differences between the swaps market 

and SBS market. In either case, 

however, the Commission anticipates 

that the burdens on SBSEFs would be 

substantially similar to the burdens set 

out in the CFTC estimates, which serve 

as the basis for the Commission’s 

estimates.1045 Furthermore, basing the 

burden estimates for SBSEFs on the 

CFTC’s estimates for SEFs would be 

more accurate than using burden hours 

estimates for any other entity that the 

Commission currently regulates (e.g., 

national securities exchanges) because 

SBSEFs share many more similarities 

with SEFs than they do with any other 

SEC-registered entities. 

The Commission anticipates that most 

if not all entities that seek to register 

with the Commission as SBSEFs will 

also register, or will already be 

registered, with the CFTC as SEFs. With 

a few exceptions, the rules being 

adopted by the Commission are adapted 

from existing rules of the CFTC. With 

these rules, the Commission intends to 

obtain comparable regulatory benefits as 

the CFTC rules while imposing only 

marginal additional burdens on SEF/ 

SBSEFs. However, for purposes of its 

PRA analysis, the Commission will 

estimate the burdens as if a respondent 

were subject only to the Commission’s 

rules.1046

The burden hours discussed below 

represent annual/ongoing burdens, with 

three exceptions that represent initial, 

one-time burdens: registration burdens 

for SBSEFs under Rule 803, exemption 

requests regarding foreign SBS trading 

venues under Rule 833, and certain 

rules under Rules 834(b) and (c). 

The Commission requested comments 

on its entire proposed approach to 

estimating burden hours and received 

no comment.1047 The Commission 

continues to estimate the burdens at the 

levels set forth in the Proposing Release. 

Therefore, for any provision that the 

Commission is adopting as proposed, it 

is not changing its preliminary estimate, 

except in one instance to account for an 

update in an estimate by the CFTC that 

the Commission is using to base its 

burden estimates.1048 For any provision 

that the Commission is modifying from 

the proposal, as discussed in more 

detail below, the Commission estimates 

that the modification would result in no 

change in the burden estimate compared 

to the proposal. 

2. Aggregate Burdens for Rules Modeled 

After CFTC Part 37 Rules 

(a) Registration Requirements for 

SBSEFs and Form SBSEF 

A submission by an entity wishing to 

register with the Commission as an 

SBSEF would be required to be made on 

Form SBSEF, pursuant to Rule 803, on 

a one-time basis. The Commission 

estimates that five entities initially 

would seek to register with the 

Commission as SBSEFs. The 

Commission estimates the burdens of 

Rule 803 and Form SBSEF to be per 

respondent and aggregate of 295 and 

1,475 hours, respectively. These entities 

would incur initial, one-time burdens, 

because once an entity is registered as 

an SBSEF, its registration obligations are 

complete. The Commission’s estimate 

regarding the initial burden that an 

entity would incur to file a Form SBSEF 

is informed by the estimates made by 

the CFTC for the completion of Form 

SEF and compliance with § 37.3 of the 

CFTC regulations (which governs 

registration of SEFs). Form SBSEF 

requests almost exactly the same 

information as required by Form SEF, 

and Rule 803 is substantially similar to 

§ 37.3. The CFTC has estimated that the 

initial compliance burden associated 

with its registration requirements in 

§ 37.3 and Form SEF to be 295 hours per 

SEF applicant.1049 For purposes of 

calculating burden hours, the CFTC 

considered the entire SEF application 

process to constitute a single 

information collection; the Commission 

is utilizing the same approach for 

SBSEFs. SBSEFs would likely prepare 

Form SBSEF internally. 

(b) Ongoing Compliance With Other 

Requirements That Are Similar to the 

Remainder of Part 37 

The Commission estimates the 

aggregate ongoing annual hour burden 

for compliance with all of the SBSEF 

rules that have analogs in part 37 to be 

1,935 hours.1050 The CFTC has 

estimated that the compliance burden 

for all of the sections of part 37 

combined, other than the initial burden 

of 295 hours per SEF for registrationrelated compliance discussed above, to 

be an ongoing annual burden of 387 

hours per SEF.1051 With the exception 

of § 37.600, which implements a CEA 

Core Principle for SEFs relating to 

position limits that is not present in the 

SEA, every other section of part 37 has 

an analog in proposed Regulation SE 

that is substantively similar.1052

Therefore, the aggregate CFTC estimate 

of 387 hours per SEF per year serves as 

a reasonable estimate for the annual 

hourly burden on each SBSEF. 

As noted above, the Commission is 

adopting Rule 815 and 819 as proposed, 

except that it is: (1) removing the 

proposed definition of a ‘‘Block Trade’’, 

a term used in Rule 815, from Rule 802 

and reserving that definition; (2) 

modifying Rule 815(d)(2) and (d)(3) to 


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narrow the scope of the packagetransaction exception to the method of 

execution requirements of Rule 815; (3) 

adding section (g) to Rule 815 to specify 

that a security-based swap that is 

intended to be cleared at the time of the 

transaction, but is not accepted for 

clearing at a registered clearing agency, 

shall be void ab initio; (4) amending 

Rule 819(e) to permit SBSEFs to 

contract with DCMs for the provision of 

services to assist in complying with the 

SEA and Commission rules thereunder, 

as approved by the Commission; (5) 

adding sections (c)(4) and (g)(14) to Rule 

819 to address Commission review of: 

(i) denial or limitation of access to any 

service or denial or conditioning of 

membership by an SBSEF and (ii) 

disciplinary sanctions imposed by an 

SB SEF; and (6) removing certain 

mentions of block trades in various 

places throughout Rule 819 because as 

mentioned above, a definition of that 

term has not been adopted. Although 

these changes may have a practical 

impact on respondents’ SBS trading 

activity, the Commission estimates that 

they do not increase or decrease the 

burden hours for compliance with the 

Core Principles that are similar to the 

remainder of part 37. The changes 

simply: (1) make modifications to 

accommodate reserving the definition 

for a block trade; (2) narrow the scope 

of an exception relating to packagetransactions; (3) automatically declare 

trades intended to be cleared but not 

accepted for clearing to be void ab 

initio; (4) permit SBSEFs to contract 

with DCMs for certain services; and (5) 

address Commission review of certain 

actions taken by SBSEFs. None of these 

changes requires additional recordkeeping or reporting burdens (or results 

in a decrease in record-keeping and 

reporting obligations). Therefore, the 

Commission estimates that the perrespondent or aggregate totals of 387 

hours and 1,935 hours, respectively. 

In addition, the Commission is 

modifying Rule 825 to make changes to 

what type of information is required to 

be submitted in and timing of 

publication of the daily market data 

report and to remove certain mentions 

of block trades because that term will 

not be defined in Regulation SE at this 

time. Rule 825 will not require the 

disclosure of the number of block trades 

and will require publication of the 

report as soon as reasonably practicable 

on the next business day but no later 

than 7 a.m. (rather than before the 

beginning of trading) and several 

mentions of block trades in Rule 825(c) 

have been removed. Not requiring the 

disclosure of the number of block trades 

will have a negligible impact on the 

reporting burden of preparing the daily 

market data report. Rule 825 requires 

the report to contain numerous items. 

The Commission estimates that 

eliminating block trades from one of the 

required items (trade count) will reduce 

the hours burden for compiling the 

report by a negligible amount. Similarly, 

changing the timing of the publication 

of the report will have no impact on 

burden hours. The Commission 

estimates that it will not require a 

greater or fewer number of hours to 

compile the report as a result of the 

change in timing for publication as it is 

the same report that is being compiled. 

Therefore, the Commission continues to 

estimate a per-respondent and aggregate 

totals of 387 hours and 1,935 hours, 

respectively. 

As discussed in more detail below, 

certain SBSEF rules being adopted in 

Regulation SE are derived from other 

parts of the CFTC’s rules (e.g., part 40) 

and the burdens for those rules will be 

based on the appropriate burden hours 

of the corresponding CFTC part. For 

reference, the following table lists all 

sections of part 37 and the 

corresponding SBSEF rule. Please see 

above for more detailed descriptions of 

a particular SBSEF rule. 

CFTC part 37 section 

(387 aggregate burden hours 

per SEF not including § 37.3 

(registration) 

Topic 

Analogous SBSEF Rule # 

(387 aggregate burden hours per SBSEF 

not including Rule 803 (registration) and certain 

other rules not modeled on part 37 rules 

(discussed separately in the following sections) 

37.1 ................................................. Scope ......................................................................... 800. 

37.2 ................................................. Applicable provisions ................................................. 801.

37.4 ................................................. Procedures for listing products .................................. 810. 

37.5 ................................................. Compliance ................................................................ 811. 

37.6 ................................................. Enforceability ............................................................. 812. 

37.7 ................................................. Prohibited use of data ............................................... 813. 

37.8 ................................................. Entities operating as SEFs and DCMs ..................... 814. 

37.9 ................................................. Methods of execution ................................................ 815. 

37.10 ............................................... Process to make swaps available for trade .............. 816. 

37.11 ............................................... Reserved section ....................................................... not applicable. 

37.12 ............................................... Trade execution compliance schedule ...................... 817. 

37.100 ............................................. CP 1 (compliance with Core Principles) ................... 818 (CP1). 

37.200 through 37.206 .................... CP 2 (compliance with rules) .................................... 819 (CP2). 

37.300 through 37.301 .................... CP 3 (manipulation) ................................................... 820 (CP3). 

37.400 through 37.408 .................... CP 4 (monitoring of trading and trade processing) ... 821 (CP4). 

37.500 through 37.504 .................... CP 5 (ability to obtain information) ............................ 822 (CP5). 

37.600 through 37.601 .................... CP 6 (position limits) ................................................. no equivalent requirement in the SEA; CP numbering diverges after this point. 

37.700 through 37.703 .................... CP 7 (financial integrity of transactions) ................... 823 (CP6). 

37.800 through 37.801 .................... CP 8 (emergency authority) ...................................... 824 (CP7). 

37.900 through 37.901 .................... CP 9 (publication of trading information) .................. 825 (CP 8). 

37.1000 through 37.1001 ................ CP 10 (recordkeeping and reporting) ........................ 826 (CP 9). 

37.1100 through 37.1101 ................ CP 11 (anti-trust) ....................................................... 827 (CP10). 

37.1200 ........................................... CP 12 (conflicts of interest) ....................................... 828 (CP 11). 

37.1300 through 37.1307 ................ CP 13 (financial resources) ....................................... 829 (CP 12). 

37.1400 through 37.1401 ................ CP 14 (system safeguards) ....................................... 830 (CP 13). 

37.1500 through 1501 ..................... CP 15 (CCO) ............................................................. 831 (CP 14). 

Appendix A (Form SEF) .................. Form SEF .................................................................. Form SBSEF a. 

Appendix B ...................................... Guidance relating to Core Principles ........................ guidance incorporated throughout rules 818 through 

831. 

aThe burdens of registering using Form SBSEF are discussed in the previous section. 


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1053See 75 FR 67282 (Nov. 2, 2010) (CFTC 

proposal to amend 17 CFR 40.2 through 40.5); 

OMB, Supporting Statement for Information 

Collection Renewal: OMB Control Number 3038– 

0093, Attachment A (July 10, 2020), available at 

https://omb.report/icr/202005-3038-001/doc/ 

101274002.pdf (noting the estimated average 

number of hours to burden hours report is 2 hours, 

and the number of annual responses from each 

entity is 100). 

1054Each of the filings that is required by Rules 

804 through 807 would have to include a 

submission cover sheet that is modeled on the cover 

sheet and instructions used by SEFs in conjunction 

with analogous filings with the CFTC, with the 

submitting entity checking the appropriate box to 

indicate which type of the filing it is making. Any 

burden hours attributable to a respondent 

completing this cover sheet, which is an integral 

part of the filing, are not estimated separately from 

the paperwork burden of the substantive filing. 

Instead, they are contained within the aggregate 

burden hours estimate for rule and product filings 

pursuant to Rules 804 through 807, which are based 

upon the CFTC’s estimates. See supra note 1053. 

1055See supra note 1053. 

1056 60 hours = 30 (number of responses per year 

per respondent) × 2 hours (burden per response). 

1057 300 hours = 60 hours (annual burden per 

respondent pursuant to Rules 804, 805, 806, and 

807) × 5 (number of respondents). 

1058 17 CFR 240.3a68–2. 

1059OMB recently approved an extension without 

change of the collection for Rule 3a68–2. See 

Supporting Statement for the Paperwork Reduction 

Act New Information Collection Submission for 

Rule 3a68–2 (Interpretation of Swaps, SecurityBased Swaps, and Mixed Swaps) and Rule 3a68– 

4(c) (Process for Determining Regulatory Treatment 

for Mixed Swaps), OMB Control Number 3235– 

0685, Supporting Statement A (Dec. 23, 2021), 

available at https://omb.report/icr/202112-3235- 

018/doc/117438500.pdf. 

1060See supra section IV.E. 

3. Aggregate Burdens for Rules Modeled 

on CFTC Part 40 Rules 

A number of rules contained in 

Regulation SE are modeled on rules in 

part 40 of the CFTC’s rules, including 

§§ 40.2 (Listing products for trading by 

certification), 40.3 (Voluntary 

submission of new products for 

Commission review and approval), 40.5 

(Voluntary submission of rules for 

Commission review and approval), and 

40.6 (Self-certification of rules). The 

Commission is adopting Rules 804, 805, 

806, and 807—which are closely 

modeled on §§ 40.2, 40.3, 40.5, and 

40.6, respectively—in order to 

harmonize with the procedures that the 

CFTC applies to SEFs with respect to 

establishing new rules and listing 

products. In addition, Rule 808 is 

modeled after § 40.8 and provides that 

certain information in a Form SBSEF 

application or a rule or product filing 

would be made publicly available, 

unless confidential treatment is 

obtained pursuant to Rule 24b–2. Rule 

809 is loosely modeled after § 40.12 and 

sets forth a mechanism for a tolling of 

the period for consideration of a product 

pending the issuance by the SEC and 

the CFTC of joint interpretation 

clarifying which agency has jurisdiction 

over the product. 

(a) Rule and Product Filing Processes for 

SBSEFs 

Rules 804 and 805 require an SBSEF 

to submit filings for new products that 

it seeks to list. Under Rules 806 and 

807, an SBSEF is required to submit rule 

filings for new rules or rule 

amendments, including changes to a 

product’s terms or conditions. The 

Commission’s estimate regarding the 

burdens that an SBSEF would incur to 

comply with the rule and product filing 

processes in Rules 804, 805, 806, and 

807 is informed by the estimates made 

by the CFTC for compliance with 

§§ 40.2, 40.3, 40.5, and 40.6, the burden 

hours for which have been approved by 

OMB.1053 The Commission is estimating 

a total of five SBSEF respondents. The 

Commission estimates that the aggregate 

ongoing annual hourly burden for all 

SBSEFs to prepare and submit rule and 

product filings under Rules 804, 805, 

806, and 807 (including the cover 

sheet 1054) would be 300 hours. 

Based on the CFTC’s experience with 

SEFs, the Commission estimates that on 

average an SBSEF would incur an 

ongoing annual burden of 2 hours of 

work per rule or product filing. 

Although the CFTC estimated an 

average of 100 responses per year per 

respondent,1055 an estimate of 30 

responses is appropriate given the more 

limited scope of the SBS market, as 

opposed to the swaps market. This 

would result in a total estimated 

ongoing annual burden of 60 hours per 

respondent 1056 and 300 hours for all the 

respondents annually.1057

As noted above, the Commission is 

stating in this release that, where a 

respondent is seeking to list a new 

category of product of which there 

would be multiple specific products 

based on different underlying securities, 

separate submissions under Rule 804 

with respect to each underlying security 

would not be required, but the 

submission made would have to address 

why each of the included underlying 

securities meets the relevant standards 

required by Regulation SE. ‘‘Blanket’’ 

certifications—e.g., a single submission 

for all equity total return security-based 

swaps to be listed—would not meet the 

requirements of Rule 804. This 

flexibility does not result in any 

increase or decrease in estimated 

burden hours. Any time savings from 

the ability to combine submissions 

under Rule 804 is likely to be 

substantially, if not fully, offset by the 

burden of drafting the explanation of 

why each of the included underlying 

securities meets the relevant standards 

required by Regulation SE. Therefore, 

the changes do not increase or decrease 

the burden hours for compliance with 

the rules pertaining to new product 

filings under Rules 804 and 805. Indeed, 

as described above, the per-respondent 

estimate for the requirements related to 

the rule and product filing processes of 

60 hours was an estimate informed by 

the CFTC’s similar provisions and was 

meant to encompass the combined 

burdens that an SBSEF would incur to 

comply with the rule and product filing 

processes in Rules 804, 805, 806, and 

807. Therefore, the Commission 

continues to estimate the perrespondent and aggregate totals to be 60 

hours and 300 hours, respectively. 

(b) Burdens Related to Rules Modeled 

After Other Part 40 Rules 

(i) Rule 802 

Certain definitions contained in Rule 

802 are modeled after provisions of part 

40. These definitions do not result in 

any paperwork burden. 

(ii) Rule 809 

Rule 809 is loosely modeled on 

§ 40.12 of the CFTC’s rules and would 

apply when an SBSEF wishes to list a 

product and it is unclear whether the 

product should be classified as an SBS 

subject to the jurisdiction of the SEC or 

a swap subject to the jurisdiction of the 

CFTC. Rule 809 provides that a product 

certification made by an SBSEF 

pursuant to Rule 804 shall be stayed, or 

the review period for a product that has 

been submitted for Commission 

approval by an SBSEF pursuant to Rule 

805 shall be tolled, upon a request, 

made pursuant to Rule 3a68–2 under 

the SEA 1058 by the SBSEF, the SEC, or 

the CFTC, for a joint interpretation of 

whether the product is a swap, SBS, or 

mixed swap. 

Rule 809 itself does not include a 

process for determining whether the 

SEC or CFTC has jurisdiction over a 

product. Rule 809 would enable the SEC 

to stay or toll the product filing while 

the SEC and CFTC consider a joint 

interpretation under existing SEA Rule 

3a68–2, the burden hours of which have 

already been approved by OMB.1059 The 

only burden imposed on an SBSEF 

under Rule 809 would be checking a 

box on the submission cover sheet when 

the SBSEF intends to request a joint 

interpretation from the Commission and 

the CFTC pursuant to SEA Rule 3a68– 

2.1060 The Commission estimates that 


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1061The establishment of a registration regime 

and listing procedures for SBSEFs could affect the 

distribution, but likely not the total number, of 

requests for joint interpretations under Rule 3a68– 

2 of the SEA. SBS products may be developed in 

the bilateral market before they are listed on 

SBSEFs, and there are incentives to resolving 

jurisdictional issues before they can develop 

traction in the market. Accordingly, requests for a 

joint interpretation under Rule 3a68–2 could occur 

before such products are listed by an SBSEF, and 

such requests are already considered in the 

approved PRA burden estimates for Rule 3a68–2. 

1062 1.25 hours = 1 (number of responses per year 

per respondent) × 0.25 hours (burden per response) 

× 5 (number of respondents). 

1063 1 (number of responses per year per 

respondent) × 0.25 hours (burden per response) × 

5 (number of respondents) = 1.25 hour. 

1064See OMB, Supporting Statement for New and 

Revised Information Collections: OMB Control 

Number 3038–0033 (Oct. 29, 2021), available at 

https://omb.report/icr/202110-3038-001/doc/ 

115991000.pdf. 

1065 In its preliminary estimates, the Commission 

based its burden hour calculations upon CFTC 2018 

submission to OMB. The Commission is now 

updating the numbers to reflect numbers from the 

2021 submission to OMB. The result is the per 

response burden has increased from .2 hours to .25 

hours. See OMB, Supporting Statement for New and 

Revised Information Collections: OMB Control 

Number 3038–0033 (Oct. 29, 2021), available at 

https://omb.report/icr/202110-3038-001/doc/ 

115991000.pdf. 

1066 1 (number of responses per year per 

respondent) × 79.83 hours (burden per response) × 

5 (number of respondents) = 399.15 hours. 

1067See CFTC, Service on Self-Regulatory 

Organization Governing Boards or Committees by 

Persons with Disciplinary Histories (Feb. 27, 1990), 

55 FR 7884, 7890 (Mar. 6, 1990) (final rule PRA for 

§ 1.63). 

1068Rule 819(j) does not address any of the 

requirements or process concerning taking final 

disciplinary actions; it merely requires that a notice 

be provided. A provision of Regulation SCI, Rule 

1000(b)(4)(i), also requires providing a simple 

notice and the Commission estimated that it would 

take 0.5 hours to prepare and such a notice. See 

Regulation Systems Compliance and Integrity; Final 

Rule, SEA Release No. 73639 (Nov. 19, 2014), 79 FR 

72251, 72381 (Dec. 5, 2014). 

1069 2.5 hours (0.5 hours of in-house counsel time) 

× (1 responses per year) × (5 respondents). The once 

per year estimate is based on a previous CFTC 

estimate included in its submission to OMB for 

§ 1.67 along with other rules. 

each such request would impose a 

burden of 0.25 hours. Furthermore, the 

Commission estimates that each SBSEF 

would make one such request per 

year.1061 Accordingly, the aggregate 

ongoing annual burden for all SBSEFs to 

comply with Rule 809 would be 1.25 

hours.1062 This work, should it be 

required, is likely to be conducted 

internally. 

4. Aggregate Burdens for Rules Modeled 

After CFTC Rules Other Than Parts 37 

and 40 

Adopted rules similar to rules of the 

CFTC other than part 37 and part 40 are 

Rules 811(d), 816(e), 819(h), 819(i), 

819(j), 819(k), 826(f), and 834. These 

rules generate various categories of 

burdens for SBSEFs or market 

participants. 

(a) Rule 811(d) 

Section 1.60 of the CFTC’s rules 

requires a SEF to provide the CFTC with 

copies of any legal proceeding to which 

it is a party, or to which its property or 

assets is subject. 

Paragraph (d) of Rule 811 adapts 

paragraphs (a), (c), and (e) of § 1.60 to 

apply to SBSEFs. Paragraph (d)(1) 

requires an SBSEF to provide the 

Commission a copy of the complaint, 

any dispositive or partially dispositive 

decision, any notice of appeal filed 

concerning such decision, and such 

further documents as the Commission 

may thereafter request filed in any 

material legal proceeding to which the 

SBSEF is a party or to which its 

property or assets are subject. Paragraph 

(d)(2) requires an SBSEF to provide 

notices of similar actions against any 

officer, director, or other official of the 

SBSEF from conduct in such person’s 

capacity as an official of the SBSEF 

alleging violations of certain 

enumerated actions. 

The Commission estimates that an 

SBSEF would provide the information 

required by Rule 811(d) once per year, 

and that each submission would take 

0.25 hours. Thus, the Commission 

estimates that the aggregate ongoing 

annual burden for all SBSEFs to comply 

with requests for documents or 

information pursuant to Rule 811(d) 

would be 1.25 hours.1063 The 

Commission is basing its estimate on the 

CFTC estimate included in its 

submission to OMB for § 1.60 of the 

CFTC’s rules, for which the CFTC 

estimated that each of the 97 entities to 

which the rule applies makes, on 

average, one submission of documents 

to the Commission per year. The CFTC 

further estimated that the time required 

to prepare one submission is 

approximately 0.25 hour, totaling 24.25 

hours (97 × 0.25) annually.1064

For PRA purposes, it is reasonable to 

apply the CFTC’s approach to Rule 

811(d).1065 This work, should it be 

required, is likely to be conducted 

internally. 

(b) Rule 819(h) 

Paragraph (h) of Rule 819 generally 

prohibits persons who are employees of 

an SBSEF, or who otherwise might have 

access to confidential information 

because of their role with the SBSEF, 

from improperly utilizing that 

information. Rule 819(h) is modeled on 

§ 1.59 of the CFTC’s rules. The 

Commission does not estimate that this 

rule would result in a paperwork 

burden. 

(c) Rule 819(i) 

Paragraph (i) of Rule 819 bars persons 

with specified disciplinary histories 

from serving on the governing board or 

committees of an SBSEF and impose 

certain other duties on the SBSEF 

associated with that fundamental 

requirement. Rule 819(i) is modeled on 

§ 1.63 of the CFTC’s rules. 

The Commission estimates that an 

SBSEF would provide the information 

required by Rule 819(i) once per year, 

and that each submission would take 

79.83 hours. Thus, the Commission 

estimates that the aggregate ongoing 

annual burden for all SBSEFs to comply 

with Rule 819(i) would be 399.15 

hours.1066 The Commission is basing 

this estimate on the estimate the CFTC 

included in its submission to OMB for 

its adoption of § 1.63, where the CFTC 

estimated that each respondent would 

make, on average, one such submission 

to the CFTC per year. The CFTC further 

estimated that the time required to 

prepare one submission is 

approximately 79.83 hours.1067

For PRA purposes, it is reasonable to 

apply the CFTC’s approach to Rule 

819(i), and this work is likely to be 

conducted internally. 

(d) Rule 819(j) 

Paragraph (j) of Rule 819 is modeled 

on § 1.67 of the CFTC’s rules. Rule 

819(j)(1) provides that, upon any final 

disciplinary action in which an SBSEF 

finds that a member has committed a 

rule violation that involved a 

transaction for a customer, whether 

executed or not, and that resulted in 

financial harm to the customer, the 

SBSEF must promptly provide written 

notice of the disciplinary action to the 

member. 

The Commission estimates that an 

SBSEF would need 0.5 hours to prepare 

a notice and provide it to a member. 

This estimate is based on a previous 

Commission estimate for the time that it 

would take to prepare and submit a 

simple notice.1068 The Commission 

estimates that these notices would occur 

once per year at each SBSEF, resulting 

in an aggregate ongoing annual burden 

to comply with Rule 819(j) of 2.5 

hours.1069 This work, should it be 

required, is likely to be conducted 

internally. 

(e) Rule 819(k) 

Paragraph (k) of Rule 819 requires 

non-U.S. persons who trade on an 

SBSEF to have an agent for service 

process, which could be an agent of its 

own choosing or, by default, the SBSEF. 


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1070 1 (number of responses per year per 

respondent) × 0.40 hours (burden per response) × 

5 (number of respondents) = 2 hours. 

1071 1 (number of responses per respondent) × 15 

hours (burden per response) × 8 (5 SBSEFs + 3 SBS 

exchanges) = 120 hours. Rule 834(a) contains 

defined terms and would not result in a paperwork 

burden. 

1072Regulation MC Proposal, supra note 21, 75 

FR at 65916. 

1073 Id. 

1074See supra section VIII.B for discussion of the 

20% restriction. 

1075 10 hours = 1 (number of responses per 

respondent) × 1.25 hours (burden per response) × 

8 (number of SBSEF + SBS exchange respondents). 

1076Regulation MC Proposal, supra note 21, 75 

FR at 65932. 

1077While § 1.41(d) created an exemption from 

the requirements of section 5a(a)(12)(A) of the CEA 

for contract market rules not related to terms and 

conditions, the CFTC did not break out the portion 

of the burden hours for which this amendment is 

responsible. Therefore, to be conservative, the 

Commission is including it in its estimate for the 

burden hours of Rules 834(d), (e), and (f). 

1078See 58 FR 37644, 37653. 

1079 16 hours = 1 (number of responses per 

respondent) × 2 hours (burden per response) × 8 

(number of SBSEF + SBS exchange respondents). 

1080See 64 FR at 16, 22. 

1081 26 hours = 10 hours (from the second 

sentence of Rules 834(d), 834(e), and 834(f)) + 16 

hours (from Rule 834(g)) + 0 hours (from Rule 

834(h). 

1082See supra text accompanying note 1041. 

Rule 819(k) is modeled on provisions of 

§ 15.05 of the CFTC’s rules that apply to 

SEFs. The Commission does not 

estimate that this rule would result in a 

paperwork burden. 

(f) Rule 826(f) 

Rule 826(f) is modeled on § 1.37(c) 

and requires an SBSEF to keep a record 

in permanent form, which shall show 

the true name, address, and principal 

occupation or business of any non-U.S. 

member that executes transactions on 

the SBSEF and must, upon request, 

provide to the Commission information 

regarding the name of any person 

guaranteeing such transactions or 

exercising any control over the trading 

of such non-U.S. member. 

The Commission estimates that each 

SBSEF would need to update 

information required by Rule 826(f) 

once per year and that each submission 

would take 0.4 hours. Thus, the 

Commission estimates that the aggregate 

ongoing annual burden for all SBSEFs to 

comply with requests for documents or 

information pursuant to Rule 826(f) 

would be 2 hours.1070 The Commission 

is basing its estimate on the estimate 

included by the CFTC in its submission 

to OMB regarding § 1.37(c), where the 

CFTC estimated that it would take a SEF 

0.4 hours to prepare each record in 

accordance with § 1.37(c). 

For PRA purposes, it is reasonable to 

apply the CFTC’s approach to Rule 

826(f). This work, should it be required, 

is likely to be conducted internally. 

(g) Rule 834 

Rule 834 of Regulation SE implements 

section 765 of the Dodd-Frank Act with 

respect to SBSEFs and SBS exchanges 

and, in addition, adapt certain CFTC 

rules that are designed to mitigate 

conflicts of interest at SEFs (and other 

CFTC-registered entities). Rule 834 

provides that each SBSEF and SBS 

exchange must create and maintain 

rules to mitigate conflicts of interest 

between SBSEFs and SBS exchanges 

and their members, including by 

prohibiting members from owning 20% 

or more of the voting rights of an SBSEF 

or SBS exchange and from exercising 

disproportionate influence in 

disciplinary proceedings. Rule 834 also 

requires each SBSEF and SBS exchange 

to submit to the Commission after every 

governing board election a list of each 

governing board’s members, the groups 

they represent, and how the 

composition of the board complies with 

the requirements of Rule 834. 

Establishing such rules and submitting 

such lists to the Commission would 

result in a paperwork burden for 

SBSEFs and SBS exchanges. 

The Commission estimates that Rules 

834(b) and (c) together would have an 

initial, one-time paperwork burden of 

15 hours per entity associated with 

drafting and implementing any such 

rules, for an aggregate one-time 

paperwork burden of 120 hours.1071

Rules 834(b) and (c) are substantially 

similar to Proposed Rule 702(c) of 

Regulation MC.1072 In its PRA analysis 

for Proposed Rule 702(c), the 

Commission estimated that there would 

be a one-time paperwork burden of 15 

hours per entity associated with drafting 

and implementation of any such rules 

by each SBSEF or SBS exchange.1073

While the Commission is modifying 

Rule 834(b) to provide an exception to 

the 20% restriction mentioned above to 

SBSEFs that have entered into an 

agreement with a registered futures 

association or a national securities 

association for the provision of certain 

specified regulatory services, the 

Commission does not estimate that this 

exception would result in a change in 

burden hours for compliance with Rule 

834(b). The modification does not affect 

the information collection under this 

rule, as it does not involve any record 

keeping, reporting, or third-party 

disclosure obligations. Therefore, the 

Commission is not altering its estimate 

of 15 hours per entity for Rule 

834(b).1074

Additionally, the Commission 

estimates that Rule 834(d), Rule 834(e), 

and Rule 834(f), combined, would result 

in an aggregate ongoing annual 

paperwork burden of 10 hours.1075

Rules 834(d), (e), and (f) are 

substantially similar to Proposed Rule 

702(h) in Regulation MC in 2010 1076

and CFTC § 1.64(c)(4), CFTC § 1.64(b), 

and CFTC § 1.64(d), respectively. The 

Commission is basing its estimate on the 

CFTC’s estimate that Rules 1.41(d),1077

1.63, 1.64, and 1.67 would result in an 

average annual paperwork burden of 

1.25 hours per response that was 

included in its submission to OMB.1078

The Commission estimates that Rule 

834(g) would have an aggregate ongoing 

annual burden of 16 hours.1079 Rule 

834(g) is substantially similar to § 1.69 

of the CFTC’s rules, and the 

Commission is basing its estimate on the 

CFTC’s estimate for § 1.69 of 2 hours per 

response that was included in its 

submission to OMB.1080

The Commission does not estimate 

that Rule 834(h) would result in a 

paperwork burden not already included 

in the above estimates. Rule 834(h) 

incorporates into a single rule the 

requirements for an SBSEF to file rules 

to comply with Rule 834. As it has 

already described the paperwork 

burdens of Rules 834(b) through (g), the 

Commission does not estimate that Rule 

834(h) would result in a separate 

paperwork burden not already included 

above. Thus, the total aggregate ongoing 

annual burden is estimated at 26 

hours.1081

5. Miscellaneous Burdens 

(a) Rule 833 

Rule 833 describes how exemptions 

could be obtained for foreign SBS 

trading venues from the SEA definitions 

of ‘‘exchange,’’ ‘‘security-based swap 

execution facility,’’ and ‘‘broker’’ and 

how SBS executed on a foreign trading 

venue could become exempt from the 

SEA’s trade execution requirement. 

Based on the CFTC’s experience in the 

SEF market,1082 the Commission 

estimates that there would be three 

requests for an exemption order under 

either or both paragraphs (a) and (b) of 

Rule 833 in the first year and two 

requests in each subsequent year; and 

that each submission would require an 

initial, one-time burden of 80 hours. 

Once an exemption has been granted to 

an applicant, no further action would be 

required. The Commission estimates the 

burden to submit an exemption request 

under one or both paragraphs of Rule 

833 would be 240 hours in the first 


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1083 240 hours (80 hours of in-house counsel time) 

× (3 respondents). 

1084 160 hours (80 hours of in-house counsel time) 

× (2 respondents). This estimate is informed by Rule 

908(c) of the Commission’s Regulation SBSR, which 

sets forth the requirements surrounding requests 

under which regulatory reporting and public 

dissemination of SBS transactions can be satisfied 

by complying with the rules of a foreign jurisdiction 

rather than the parallel rules applicable in the 

United States. The materials necessary to support 

such a request under Rule 908(c) are broadly similar 

to the materials necessary to support a request for 

an exemption order under one or both paragraphs 

of Rule 833. The Commission estimated that the 

burden of a request under Rule 908(c) would be 80 

hours of in-house counsel time; therefore, the 

Commission estimates that burden for submitting 

documents and information in support of a request 

for an exemption order under Rule 833 would be 

the same. 

1085A provision of Regulation SCI, Rule 

1000(b)(4)(i), also requires providing a simple 

notice and the Commission estimated that it would 

take 0.5 hours to prepare and such a notice. See 

Regulation Systems Compliance and Integrity; Final 

Rule, SEA Release No. 73639 (Nov. 19, 2014), 79 FR 

72251, 72381 (Dec. 5, 2014). 

1086 45 hours (0.75 hours of in-house counsel 

time) × (12 responses per year) × (5 respondents). 

1087 5 U.S.C. 601 et seq. 

1088 5 U.S.C. 603(a). 

1089Although section 601(b) of the RFA defines 

the term ‘‘small entity,’’ the statute permits agencies 

to formulate their own definitions. The Commission 

has adopted definitions for the term ‘‘small entity’’ 

for the purposes of Commission rulemaking in 

accordance with the RFA. Those definitions, as 

relevant to this rulemaking, are set forth in Rule 0– 

10 under the SEA, 17 CFR 240.0–10. See SEA 

Release No. 18452 (Jan. 28, 1982), 47 FR 5215 (Feb. 

4, 1982) (File No. AS–305). 

year 1083 and 160 hours in each 

subsequent year.1084

(b) Rule 835 

Rule 835 provides that, if an SBSEF 

issues a final disciplinary action against 

a member, takes final action with 

respect to a denial or conditioning 

membership, or takes final action with 

respect to a denial or limitation of 

access of a person to any services 

offered by the SBSEF, the SBSEF shall 

file a notice of such action with the 

Commission within 30 days and serve a 

copy on the affected person. 

The Commission estimates that it 

would take 0.5 hours to prepare this 

notice and provide it to the Commission 

and the affected person. This estimate is 

based on a previous Commission 

estimate for the time that it would take 

to prepare and submit a simple 

notice.1085 The Commission estimates 

that it would take an additional 0.25 

hours to create and serve a copy of that 

notice on the affected person. The 

Commission estimates that these notices 

would occur once per month at each 

SBSEF, resulting in an aggregate annual 

burden to comply with Rule 835 of 45 

hours.1086 This work, should it be 

required, is likely to be conducted 

internally. 

6. Total Paperwork Burden Under 

Proposed Regulation SE 

Based on the foregoing, the 

Commission estimates that the total onetime burden for all SBSEFs, persons that 

seek an exemption order under Rule 

833, and SBS exchanges combined 

pursuant to the requirements under 

Regulation SE is equal to 1,995 hours. 

The Commission estimates that annual 

ongoing burden for all SBSEFs, persons 

that seek an exemption order under 

Rule 833, and SBS exchanges combined 

pursuant to the requirements under 

Regulation SE is equal to 2,712.15 

hours. 

SUMMARY OF AGGREGATE BURDEN HOURS

Rule or provision 

Burden hours 

per 

respondent 

One-time or ongoing Respondents Total hours 

Registration (Rule 803, Form SBSEF) ............................... 295 One-Time ............................. 5 1,475 

Rules modeled on CFTC part 37 (other than registration) 387 Ongoing ................................ 5 1,935 

Rule and product filing processes (Rules 804 through 

807).

60 Ongoing ................................ 5 300 

809 ...................................................................................... 0.25 Ongoing ................................ 5 1.25 

811(d) .................................................................................. 0.25 Ongoing ................................ 5 1.25 

819(i) ................................................................................... 79.83 Ongoing ................................ 5 399.15 

819(j) ................................................................................... 0.5 Ongoing ................................ 5 2.5 

826(f) ................................................................................... 0.4 Ongoing ................................ 5 2 

833 ...................................................................................... 80 One-Time ............................. a 3 and 2 240 and 160 

834(b) through (c) ............................................................... 15 One-Time ............................. 8 120 

834(d) through (g) ............................................................... 3.25 Ongoing ................................ 8 26 

835 ...................................................................................... 9 Ongoing ................................ 5 45 

aThree respondents in the first year and then two each subsequent year. 

E. Collection of Information is 

Mandatory 

The collections of information 

imposed on SBSEFs throughout 

Regulation SE is mandatory for 

registered SBSEFs. The collection of 

information with respect to Rule 833 is 

mandatory for persons that seek an 

exemption order under Rule 833. The 

collection of information with respect to 

Rule 834 is mandatory for SBS 

exchanges. 

F. Responses to Collection of 

Information Will Not Be Confidential 

The collection of information required 

under Regulation SE would generally 

not be kept confidential, unless 

confidential treatment is requested and 

granted by the Commission pursuant to 

Rule 24b–2 under the SEA. 

G. Retention Period of Recordkeeping 

Requirements 

Although recordkeeping and retention 

requirements have not yet been 

established for SBSEFs, the Commission 

is authorized to adopt such rules under 

section 3D of the SEA. Rule 826 under 

Regulation SE implements section 

3D(d)(9) of the SEA to require an SBSEF 

to maintain records, for a minimum of 

five years, of all activities relating to the 

business of the SBSEF, including a 

complete audit trail. 

XIX. Regulatory Flexibility Certification 

The Regulatory Flexibility Act 

(‘‘RFA’’) 1087 requires Federal agencies, 

in promulgating rules, to consider the 

impact of those rules on small entities. 

Section 603(a) of the Administrative 

Procedure Act,1088 as amended by the 

RFA, generally requires the Commission 

to undertake a final regulatory flexibility 

analysis of rules it is adopting, unless 

the Commission certifies that the rules 

would not have a significant impact on 

a substantial number of ‘‘small 

entities.’’ 1089 Section 605(b) of the RFA 

states that this requirement shall not 

apply to any proposed rule or proposed 

rule amendment which, if adopted, 


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1090See 5 U.S.C. 605(b). 

1091See Proposing Release, supra note 1, 87 FR 

at 28969–70. 

1092See 17 CFR 240.0–10(a). 

1093 17 CFR 240.17a–5(d). 

1094See 17 CFR 240.0–10(c). 

1095These entities would include firms involved 

in investment banking and securities dealing; 

securities brokerage; commodity contracts dealing; 

commodity contracts brokerage; securities and 

commodity exchanges; portfolio management; 

investment advice; trust, fiduciary and custody 

activities; miscellaneous intermediation; and 

miscellaneous financial investment activities. See 

SBA’s Table of Small Business Size Standards, 

Subsector 523. 

1096See supra text accompanying note 1041. 

1097 17 CFR 242.601. 

1098See 17 CFR 240.0–10(e). 

1099These entities would include firms involved 

in investment banking and securities dealing, 

securities brokerage, commodity contracts dealing, 

commodity contracts brokerage, securities and 

commodity exchanges, miscellaneous 

intermediation, portfolio management, investment 

advice, trust, fiduciary and custody activities, and 

miscellaneous financial investment activities. See 

SBA’s Table of Small Business Size Standards, 

Subsector 523. 

would not have a significant economic 

impact on a substantial number of small 

entities.1090 In the Proposing Release, 

the Commission certified, pursuant to 

section 605(b) of the RFA, that that the 

proposed rules, form, and cover sheet 

under Regulation SE and the related 

rules and rule amendments, if adopted, 

would not have a significant economic 

impact on a substantial number of small 

entities for purposes of the RFA.1091 The 

Commission solicited but did not 

receive any comments on the 

certification as it related to the entities 

impacted by Regulation SE. The 

Commission’s analysis of the existing 

information relating to entities subject 

to Regulation SE, for purposes of the 

RFA, is discussed below. 

A. SBSEFs 

Most of Regulation SE, and the related 

rules and rule amendments, apply to 

registered SBSEFs (or entities that are 

seeking to register with the Commission 

as SBSEFs). In the Dodd-Frank Act, 

Congress defined SBSEFs as a new type 

of trading venue for SBS and mandated 

the registration of these entities. Based 

on its understanding of the market, and 

review of and consultation with 

industry sources, the Commission 

estimates that five entities will seek to 

register as SBSEFs and thus would be 

subject to Regulation SE and the related 

rules and rule amendments. 

For purposes of Commission 

rulemaking in connection with the 

FRFA, a small entity includes: (1) when 

used with reference to an ‘‘issuer’’ or a 

‘‘person,’’ other than an investment 

company, an ‘‘issuer’’ or ‘‘person’’ that, 

on the last day of its most recent fiscal 

year, had total assets of $5 million or 

less; 1092 or (2) a broker-dealer with total 

capital (net worth plus subordinated 

liabilities) of less than $500,000 on the 

date in the prior fiscal year as of which 

its audited financial statements were 

prepared pursuant to Rule 17a–5(d) 

under the SEA,1093 or, if not required to 

file such statements, a broker-dealer 

with total capital (net worth plus 

subordinated liabilities) of less than 

$500,000 on the last business day of the 

preceding fiscal year (or in the time that 

it has been in business, if shorter); and 

is not affiliated with any person (other 

than a natural person) that is not a small 

business or small organization.1094

Under the standards adopted by the 

Small Business Administration 

(‘‘SBA’’), entities in financial 

investments and related activities 1095

are considered small entities if they 

have $41.5 million or less in annual 

receipts. 

Most, if not all, SBSEFs would be 

large business entities or subsidiaries of 

large business entities, and that every 

SBSEF (or its parent entity) would have 

assets in excess of $5 million (or in the 

case of a broker-dealer, total capital of 

less than $500,000) and annual receipts 

in excess of $41,500,000. Therefore, for 

purposes of the RFA none of the 

potential SBSEFs would be considered 

small entities. 

B. Persons Requesting an Exemption 

Order Pursuant to Rule 833 

Rule 833 describes how foreign SBS 

trading venues could become exempt 

from the SEA definitions of ‘‘exchange,’’ 

‘‘security-based swap execution 

facility,’’ and ‘‘broker’’ and how SBS 

executed on a foreign trading venue 

could become exempt from the SEA’s 

trade execution requirement. Based on 

the fact that the CFTC has granted 

similar exemptions with respect to three 

foreign jurisdictions,1096 the 

Commission estimates that there would 

be three requests under one or both 

paragraphs of Rule 833 in the first year 

and two in each subsequent year. These 

requests would likely be submitted by 

foreign SBS trading venues, foreign 

authorities that license and regulate 

those trading venues, or covered 

persons (as defined in Rule 832) who 

are members of such trading venues. 

Based on the Commission’s existing 

information about the SBS market, the 

Commission estimates that for purposes 

of the FRFA no person likely to request 

an exemption order pursuant to Rule 

833 would be considered a small entity. 

The Commission estimates that most, if 

not all, of the persons requesting 

exemptions would be large business 

entities or subsidiaries of large business 

entities, and on its own, or through its 

parent entity, would have assets in 

excess of $5 million (or in the case of 

a broker-dealer, total capital of less than 

$500,000) and annual receipts in excess 

of $41,500,000. Therefore, the 

Commission estimates that for purposes 

of the RFA they would not be 

considered small entities. 

C. SBS Exchanges 

Certain rules under Regulation SE 

apply to SBS exchanges. Currently, 

there are no SBS exchanges. However, 

the Commission estimates that there 

could be up to three entities that would 

be considered SBS exchanges and 

would thus be subject to certain 

requirements of Regulation SE. 

For purposes of Commission 

rulemaking in connection with the RFA, 

a small entity includes, when used with 

reference to an exchange, an exchange 

that has been exempted from the 

reporting requirements of Rule 601 of 

Regulation NMS 1097 and is not affiliated 

with any person (other than a natural 

person) that is not a small business or 

small organization.1098 Under the 

standards adopted by the SBA, entities 

involved in financial investments and 

related activities 1099 are considered 

small entities if they have $41.5 million 

or less in annual receipts. 

Based on these definitions and the 

Commission’s existing information 

about national securities exchanges, for 

purposes of the RFA the entities likely 

to be considered SBS exchanges would 

not be considered small entities. Under 

the standard requiring exemption from 

the reporting requirements of Rule 601 

under the SEA, none of the exchanges 

subject to Regulation SE is a ‘‘small 

entity’’ for the purposes of the RFA. In 

addition, the Commission estimates that 

any SBS exchange would have annual 

receipts in excess of $41,500,000. 

Therefore, for purposes of the RFA, no 

potential SBS exchange would be 

considered small entities. 

D. Certification 

For the foregoing reasons, the 

Commission certifies, pursuant to 

section 605(b) of Title 5 of the U.S. 

Code, that the rules, form, and cover 

sheet under Regulation SE and the 

related rules and rule amendments will 

not have a significant economic impact 

on a substantial number of small 

entities. 

XX. Other Matters 

If any of the provisions of these rules, 

or the application thereof to any person 

or circumstance, is held to be invalid, 

such invalidity shall not affect other 


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87280 Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Rules and Regulations 

1100 5 U.S.C. 801 et seq. 

provisions or application of such 

provisions to other persons or 

circumstances that can be given effect 

without the invalid provision or 

application. 

Pursuant to the Congressional Review 

Act,1100 the Office of Information and 

Regulatory Affairs has designated these 

rules as not a ‘‘major rule’’ as defined 

by 5 U.S.C. 804(2). 

Statutory Authority 

Pursuant to the SEA (particularly 

sections 3(b), 3C, 3D, and 36 thereof, 15 

U.S.C. 78c, 78c–3, 78c–4, and 78mm, 

respectively) and the Dodd-Frank Act 

(particularly section 765 thereof, 15 

U.S.C. 8343), the Commission is 

amending §§ 201.101, 201.202, 201.210, 

201.401, 201.450, 201.460, 232.405, and 

240.3a1–1 of chapter II of title 17 of the 

Code of Federal Regulations and is 

adopting new §§ 201.442, 201.443, 

240.15a–12, and 242.800 through 

242.835, as set forth below. 

List of Subjects 

17 CFR Part 200 

Organization; Conduct and Ethics; 

and Information and Requests. 

17 CFR Part 201 

Administrative practice and 

procedure. 

17 CFR Part 232 

Administrative practice and 

procedure, Confidential business 

information, Incorporation by reference, 

Reporting and recordkeeping 

requirements, Securities. 

17 CFR Part 240 

Brokers, Dealers, Registration, 

Securities. 

17 CFR 242 and 249 

Brokers, Security-based swap 

execution facilities, Reporting and 

recordkeeping requirements. 

For the reasons stated in the 

preamble, the Commission is amending 

title 17, chapter II of the Code of the 

Federal Regulations as follows: 

PART 200—ORGANIZATION; 

CONDUCT AND ETHICS; 

INFORMATION AND REQUESTS 

■ 1. The authority citation for part 200 

continues to read as follows: 

Authority: 5 U.S.C. 552, 552a, 552b, and 

557; 11 U.S.C. 901 and 1109(a); 15 U.S.C. 

77c, 77e, 77f, 77g, 77h, 77j, 77o, 77q, 77s, 

77u, 77z–3, 77ggg(a), 77hhh, 77sss, 77uuu, 

78b, 78c(b), 78d, 78d–1, 78d–2, 78e, 78f, 78g, 

78h, 78i, 78k, 78k–1, 78l, 78m, 78n, 78o, 

78o–4, 78q, 78q–1, 78w, 78t–1, 78u, 78w, 

78ll(d), 78mm, 78eee, 80a–8, 80a–20, 80a–24, 

80a–29, 80a–37, 80a–41, 80a–44(a), 80a– 

44(b), 80b–3, 80b–4, 80b–5, 80b–9, 80b–10(a), 

80b–11, 7202, and 7211 et seq.; 29 U.S.C. 

794; 44 U.S.C. 3506 and 3507; Reorganization 

Plan No. 10 of 1950 (15 U.S.C. 78d); sec. 8G, 

Pub. L. 95–452, 92 Stat. 1101 (5 U.S.C. App.); 

sec. 913, Pub. L. 111–203, 124 Stat. 1376, 

1827; sec. 3(a), Pub. L. 114–185, 130 Stat. 

538; E.O. 11222, 30 FR 6469, 3 CFR, 1964– 

1965 Comp., p. 36; E.O. 12356, 47 FR 14874, 

3 CFR, 1982 Comp., p. 166; E.O. 12600, 52 

FR 23781, 3 CFR, 1987 Comp., p. 235; 

Information Security Oversight Office 

Directive No. 1, 47 FR 27836; and 5 CFR 

735.104 and 5 CFR parts 2634 and 2635, 

unless otherwise noted. 

Subpart A—Organization and Program 

Management 

■ 2. Amend § 200.30–3 by adding 

paragraphs (a)(95) through (102) to read 

as follows: 

§ 200.30–3 Delegation of authority to 

Director of Division of Trading and Markets. 

* * * * * 

(a) * * * 

(95) Pursuant to §§ 242.803 and 

242.808(a) and (b) of this chapter (Rules 

803 and 808(a) and (b)): 

(i) To publish notice on the 

Commission’s website of a completed 

application (‘‘Form SBSEF’’), to register 

as a security-based swap execution 

facility; 

(ii) To make available on the 

Commission’s website certain specified 

parts of a Form SBSEF; 

(iii) To notify the applicant that its 

application is incomplete and will not 

be deemed to have been submitted for 

purposes of the Commission’s review; 

(iv) To request from the applicant any 

additional information and 

documentation necessary to review an 

application; 

(v) To notify the applicant that its 

application is materially incomplete and 

to specify the deficiencies in the 

application, for purposes of staying the 

180-day period for Commission review 

of the Form SBSEF; and 

(vi) Upon receipt of a request 

submitted in good form by a securitybased swap execution facility for 

vacation of its registration, to issue an 

order vacating the security-based swap 

execution facility’s registration and to 

send a copy of the request and its order 

to all other security-based swap 

execution facilities, national securities 

exchanges that trade security-based 

swaps, and registered clearing agencies 

that clear security-based swaps. 

(96) Pursuant to §§ 242.804(c)(1) and 

(2) and 242.808(b) of this chapter: 

(i) To make publicly available on the 

Commission’s website a security-based 

swap execution facility’s filing of new 

products pursuant to the selfcertification procedures of § 242.804 of 

this chapter; 

(ii) To stay for a period of up to 90 

days the effectiveness of a securitybased swap execution facility’s selfcertification of a new product; 

(iii) To publish notice on the 

Commission’s website of a 30-day 

period for public comment; and 

(iv) To withdraw the stay or notify the 

security-based swap execution facility 

that the Commission objects to the 

proposed certification. 

(97) Pursuant to §§ 242.805(b) through 

(e) and 242.808(b) of this chapter: 

(i) To make publicly available on the 

Commission’s website a security-based 

swap execution facility’s filing of new 

products for Commission review and 

approval pursuant to § 242.805 of this 

chapter (Rule 805); 

(ii) To notify the submitting securitybased swap execution facility that a 

submission for a new product does not 

comply with paragraph (a) of § 242.805 

of this chapter (Rule 805); 

(iii) To extend by an additional 45 

days the period for consideration of a 

new product voluntarily submitted by a 

security-based swap execution facility 

to the Commission for approval, if the 

product raises novel or complex issues 

that require additional time to analyze, 

and to notify the security-based swap 

execution facility of the extension 

within the initial 45-day review period 

and briefly describe the nature of the 

specific issue(s) for which additional 

time for review is required; 

(iv) To extend the period for 

consideration of a new product 

voluntarily submitted by a securitybased swap execution facility to the 

Commission for approval by such longer 

period as to which the security-based 

swap execution facility agrees in 

writing; 

(v) To approve a proposed new 

product and provide notice of the 

approval to the security-based swap 

execution facility; 

(vi) To notify the security-based swap 

execution facility that the Commission 

will not, or is unable to, approve the 

product, and to specify the nature of the 

issues raised and the specific provision 

of the Act or the Commission’s rules 

thereunder, including the form or 

content requirements § 242.805(a) of 

this chapter, that the product violates, 

appears to violate, or potentially 

violates but which cannot be 

ascertained from the submission. 

(98) Pursuant to §§ 242.806(b) through 

(e) and 242.808(b) of this chapter: 

(i) To make publicly available on the 

Commission’s website a security-based 


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swap execution facility’s filing of new 

rules and rule amendments for 

Commission review and approval 

pursuant to § 242.806(a) of this chapter; 

(ii) To notify the submitting securitybased swap execution facility that a 

submission for a new rule or rule 

amendment does not comply with 

§ 242.806(a) of this chapter; 

(iii) To extend by an additional 45 

days the period for consideration of a 

new rule or rule amendment voluntarily 

submitted by a security-based swap 

execution facility to the Commission, if 

the proposed rule or rule amendment 

raises novel or complex issues that 

require additional time to review or is 

of major economic significance, the 

submission is incomplete, or the 

requester does not respond completely 

to the Commission questions in a timely 

manner, and to notify the security-based 

swap execution facility of the extension 

within the initial 45-day review period 

and briefly describe the nature of the 

specific issue(s) for which additional 

time for review is required; 

(iv) To extend the period for 

consideration of a new rule amendment 

voluntarily submitted by a securitybased swap execution facility to the 

Commission for approval by such longer 

period as to which the security-based 

swap execution facility agrees in 

writing; 

(v) To approve a proposed rule or rule 

amendment and provide notice of the 

approval to the security-based swap 

execution facility; 

(vi) To notify a security-based swap 

execution facility that the Commission 

will not, or is unable to, approve the 

new rule or rule amendment and to 

specify the nature of the issues raised 

and the specific provision of the Act or 

the Commission’s rules thereunder, 

including the form or content 

requirements of this section, with which 

the new rule or rule amendment is 

inconsistent or appears to be 

inconsistent with the Act or the 

Commission’s rules thereunder, 

including the form or content 

requirements of Rule 806, with which 

the new rule or rule amendment is 

inconsistent or appears to be 

inconsistent; and 

(vii) To approve a proposed rule or a 

rule amendment, including changes to 

terms and conditions of a product, on an 

expedited basis under such conditions 

as shall be specified in the written 

notification. 

(99) Pursuant to §§ 242.807(c) and 

242.808(b) of this chapter: 

(i) To make publicly available on the 

Commission’s website a security-based 

swap execution facility’s filing of new 

rules and rule amendments pursuant to 

the self-certification procedures of 

§ 242.807 of this chapter; 

(ii) To stay for a period of up to 90 

days the effectiveness of a securitybased swap execution facility’s selfcertification of a new rule or rule 

amendment; 

(iii) To publish notice on the 

Commission’s website of a 30-day 

period for public comment; and 

(iv) To withdraw the stay or notify the 

security-based swap execution facility 

that the Commission objects to the 

proposed certification. 

(100) Pursuant to §§ 242.809 of this 

chapter, to provide written notice to a 

security-based swap execution facility 

of a stay or tolling pending issuance of 

a joint interpretation upon request for a 

joint interpretation of whether a 

proposed product is a swap, securitybased swap, or mixed swap made 

pursuant to § 240.3a68–2 of this chapter 

by the security-based swap execution 

facility, the Commission, or the 

Commodity Futures Trading 

Commission. 

(101) Pursuant to § 242.811 of this 

chapter: 

(i) To request pursuant § 242.811(a) of 

this chapter that a security-based swap 

execution facility file with the 

Commission information related to its 

business as a security-based swap 

execution facility, and to specify the 

form, manner, and timeframe for the 

filing by the security-based swap 

execution facility; 

(ii) To request pursuant to 

§ 242.811(b) of this chapter that a 

security-based swap execution facility 

file with the Commission a written 

demonstration, containing supporting 

data, information, and documents, that 

it is in compliance with one or more 

Core Principles or with its other 

obligations under the Act or the 

Commission’s rules thereunder, to 

specify the Core Principles and other 

obligations under the Act or the 

Commission’s rules that the securitybased swap execution facility’s filing 

must address, and to specify the form, 

manner, and timeframe for the securitybased swap execution facility’s filing; 

(iii) To specify, pursuant to 

§ 242.811(c)(2) of this chapter, the form 

and manner of the notification required 

pursuant to § 242.811(c)(1) of this 

chapter by a security-based swap 

execution facility of any transaction 

involving the direct or indirect transfer 

of 50 percent or more of the equity 

interest in the security-based swap 

execution facility, and to request 

supporting documentation of the 

transaction; 

(iv) To specify the form and manner 

of the certification required pursuant to 

§ 242.811(c)(4) of this chapter; and 

(v) To specify the form and manner of 

the submission by a security-based swap 

execution facility of documents filed in 

any material legal proceeding to which 

the security-based swap execution 

facility is a party or its property or 

assets is subject, as specified in 

§ 242.811(d)(1) of this chapter, or in any 

material legal proceeding instituted 

against any officer, director, or other 

official of the security-based swap 

execution facility from conduct in such 

person’s capacity as an official of the 

security-based swap execution facility, 

as specified in § 242.811(d)(2) of this 

chapter, and to request further 

documents. 

(102) Pursuant to § 242.822 of this 

chapter (Rule 822), to require that a 

security-based swap execution provide 

information in its possession to the 

Commission and to specify the form and 

manner of that provision, and to require 

a security-based swap execution facility 

to share information with other 

regulation organizations, data 

repositories, and third-party data 

reporting services as necessary and 

appropriate to fulfill the security-based 

swap execution facility’s regulatory and 

reporting responsibilities. 

* * * * * 

■ 3. Amend § 200.30–14 by revising 

paragraphs (h)(4), (h)(5), (h)(7), and 

(h)(8) to read as follows: 

§ 200.30–14 Delegation of authority to the 

General Counsel. 

* * * * * 

(h) * * * 

(4) With respect to proceedings 

conducted under sections 19(d), (e), and 

(f) of the Securities Exchange Act of 

1934, 15 U.S.C. 78s(d), (e), and (f), Title 

I of the Sarbanes–Oxley Act of 2002, 15 

U.S.C. 7211–7219, and § 201.442 of this 

chapter (Rule 442 of the Commission’s 

Rules of Practice) to determine that an 

application for review under any of 

those sections has been abandoned, 

under the provisions of’§ 201.420, 

§ 201.440, or § 201.442 of this chapter 

(Rule 420, Rule 440, or Rule 442 of the 

Commission’s Rules of Practice), or 

otherwise, and accordingly to issue an 

order dismissing the application. 

(5) With respect to proceedings 

conducted pursuant to the Securities 

Exchange Act of 1934, 15 U.S.C. 78a et 

seq., the Investment Company Act of 

1940, 15 U.S.C. 80a–1 et seq., the 

Investment Advisers Act of 1940, 15 

U.S.C. 80b–1 et seq., the provisions of 

§ 201.102(e) or § 201.442 of this chapter 

(Rule 102(e) or Rule 442 of the 

Commission’s Rules of Practice), and 


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Title I of the Sarbanes–Oxley Act of 

2002, 15 U.S.C. 7211–7219, to 

determine applications to stay 

Commission orders pending appeal of 

those orders to the federal courts and to 

determine application to vacate such 

stays. 

* * * * * 

(7) In connection with Commission 

review of actions taken by selfregulatory organizations pursuant to 

sections 19(d), (e), and (f) of the 

Securities Exchange Act of 1934, 15 

U.S.C. 78s(d), (e), and (f), by the Public 

Company Accounting Oversight Board 

pursuant to Title I of the Sarbanes– 

Oxley Act of 2002, 15 U.S.C. 7211–7219, 

or by a security-based swap execution 

facility pursuant to § 201.442 of this 

chapter (Rule 442 of the Commission’s 

Rules of Practice) to grant or deny 

requests for oral argument in accordance 

with the provisions of § 201.451 of this 

chapter (Rule 451 of the Commission’s 

Rules of Practice). 

(8) In connection with Commission 

review of actions taken by the Public 

Company Accounting Oversight Board 

pursuant to Title I of the Sarbanes-Oxley 

Act of 2002, 15 U.S.C. 7211–7219, or by 

a security-based swap execution facility 

pursuant to § 201.442 of this chapter 

(Rule 442 of the Commission’s Rules of 

Practice), to determine whether to lift 

the automatic stay of a disciplinary 

sanction. 

* * * * * 

PART 201—RULES OF PRACTICE 

■ 4. The general authority citation for 

part 201 continues to read as follows: 

Authority: 15 U.S.C. 77s, 77sss, 78w, 78x, 

80a–37, and 80b–11; 5 U.S.C. 504(c)(1). 

* * * * * 

Subpart D—Rules of Practice 

■ 5. The authority citation subpart D is 

revised to read as follows: 

Authority: 15 U.S.C. 77f, 77g, 77h, 77h–1, 

77j, 77s, 77u, 77sss, 78c(b), 78d–1, 78d–2, 

78l, 78m, 78n, 78o(d), 78o–3, 78o–10(b)(6), 

78s, 78u–2, 78u–3, 78v, 78w, 80a–8, 80a–9, 

80a–37, 80a–38, 80a–39, 80a–40, 80a–41, 

80a–44, 80b–3, 80b–9, 80b–11, 80b–12, 7202, 

7215, and 7217. 

■ 6. Amend § 201.101 by adding 

paragraph (a)(9)(ix) to read as follows: 

§ 201.101 Definitions. 

(a) * * * 

(9) * * * 

(ix) By the filing, pursuant to 

§ 201.442, of an application for review 

of a determination of a security-based 

swap execution facility; 

* * * * * 

■ 7. Amend § 201.202 by revising 

paragraph (a) to read as follows: 

§ 201.202 Specification of procedures by 

parties in certain proceedings. 

(a) Motion to specify procedures. In 

any proceeding other than an 

enforcement or disciplinary proceeding, 

a proceeding to review a determination 

by a self-regulatory organization 

pursuant to §§ 201.420 and 201.421, a 

proceeding to review a determination of 

the Board pursuant to §§ 201.440 and 

201.441, or a proceeding to review a 

determination by a security-based swap 

execution facility pursuant to 

§§ 201.442 and 201.443, a party may, at 

any time up to 20 days prior to the start 

of a hearing, make a motion to specify 

the procedures necessary or appropriate 

for the proceeding with particular 

reference to: 

(1) Whether there should be an initial 

decision by a hearing officer; 

(2) Whether any interested division of 

the Commission may assist in the 

preparation of the Commission’s 

decision; and 

(3) Whether there should be a 30-day 

waiting period between the issuance of 

the Commission’s order and the date it 

is to become effective. 

* * * * * 

■ 8. Amend § 201.210 by revising the 

paragraph (a) heading, (a)(1), paragraph 

(b) heading, (b)(1), and paragraph (c) 

introductory text to read as follows: 

§ 201.210 Parties, limited participants and 

amici curiae. 

(a) Parties in an enforcement or 

disciplinary proceeding, a proceeding to 

review a self- regulatory organization 

determination, a proceeding to review a 

Board determination, or a proceeding to 

review a determination by a securitybased swap execution facility. (1) 

Generally. No person shall be granted 

leave to become a party or a non-party 

participant on a limited basis in an 

enforcement or disciplinary proceeding, 

a proceeding to review a determination 

by a self- regulatory organization 

pursuant to §§ 201.420 and 201.421, a 

proceeding to review a determination by 

the Board pursuant to §§ 201.440 and 

201.441, or a proceeding to review a 

determination by a security-based swap 

execution facility pursuant to 

§§ 201.442 and 201.443, except as 

authorized by paragraph (c) of this 

section. 

* * * * * 

(b) Intervention as party. (1) 

Generally. In any proceeding, other than 

an enforcement proceeding, a 

disciplinary proceeding, a proceeding to 

review a self-regulatory determination, a 

proceeding to review a Board 

determination, or a proceeding to 

review a security-based swap execution 

facility determination, any person may 

seek leave to intervene as a party by 

filing a motion setting forth the person’s 

interest in the proceeding. No person, 

however, shall be admitted as a party to 

a proceeding by intervention unless it is 

determined that leave to participate 

pursuant to paragraph (c) of this section 

would be inadequate for the protection 

of the person’s interests. In a proceeding 

under the Investment Company Act of 

1940, any representative of interested 

security holders, or any other person 

whose participation in the proceeding 

may be in the public interest or for the 

protection of investors, may be admitted 

as a party upon the filing of a written 

motion setting forth the person’s interest 

in the proceeding. 

* * * * * 

(c) Leave to participate on a limited 

basis. In any proceeding, other than an 

enforcement proceeding, a disciplinary 

proceeding, a proceeding to review a 

self-regulatory determination, a 

proceeding to review a Board 

determination, or a proceeding to 

review a security-based swap execution 

facility determination, any person may 

seek leave to participate on a limited 

basis as a non-party participant as any 

matter affecting the person’s interests: 

* * * * * 

■ 9. Amend § 201.401 by adding 

paragraph (f) to read as follows: 

§ 201.401 Consideration of stays. 

* * * * * 

(f) Lifting of stay of action by a 

security-based swap execution facility. 

(1) Availability. Any person aggrieved 

by a stay of action by a security-based 

swap execution facility entered in 

accordance with § 201.442(c) may make 

a motion to lift the stay. The 

Commission may, at any time, on its 

own motion determine whether to lift 

the automatic stay. 

(2) Summary action. The Commission 

may lift a stay summarily, without 

notice and opportunity for hearing. 

(3) Expedited consideration. The 

Commission may expedite 

consideration of a motion to lift a stay 

of action by a security-based swap 

execution facility, consistent with the 

Commission’s other responsibilities. 

Where consideration is expedited, 

persons opposing the lifting of the stay 

may file a statement in opposition 

within two days of service of the motion 

requesting lifting of the stay unless the 

Commission, by written order, shall 

specify a different period. 

■ 10. Add § 201.442 to read as follows: 


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Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Rules and Regulations 87283 

§ 201.442 Appeal of determination by 

security-based swap execution facility. 

(a) Application for review; when 

available. An application for review by 

the Commission may be filed by any 

person who is aggrieved by a 

determination of a security-based swap 

execution facility with respect to any: 

(1) Final disciplinary action, as 

defined in § 240.835(b)(1) of this 

chapter; 

(2) Final action with respect to a 

denial or conditioning of membership, 

as defined in § 240.835(b)(2) of this 

chapter; or 

(3) Final action with respect to a 

denial or limitation of access to any 

service offered by the security-based 

swap execution facility, as defined in 

§ 240.835(b)(2) of this chapter. 

(b) Procedure. An aggrieved person 

may file an application for review with 

the Commission pursuant to § 201.151 

within 30 days after the notice filed 

with the Commission pursuant to 

§ 242.835 of this chapter by the securitybased swap execution facility of the 

determination is received by the 

aggrieved person. The Commission will 

not extend this 30-day period, absent a 

showing of extraordinary circumstances. 

This section is the exclusive remedy for 

seeking an extension of the 30-day 

period. The aggrieved person shall serve 

the application on the security-based 

swap execution facility at the same 

time. The application shall identify the 

determination complained of, set forth 

in summary form a statement of alleged 

errors in the action and supporting 

reasons therefor, and state an address 

where the applicant can be served. The 

application should not exceed two 

pages in length. If the applicant will be 

represented by a representative, the 

application shall be accompanied by the 

notice of appearance required by 

§ 201.102(d). Any exception to an action 

not supported in an opening brief that 

complies with § 201.450(b) may, at the 

discretion of the Commission, be 

deemed to have been waived by the 

applicant. 

(c) Stay of determination. Filing an 

application for review with the 

Commission pursuant to paragraph (b) 

of this section operates as a stay of the 

security-based swap execution facility’s 

determination, unless the Commission 

otherwise orders either pursuant to a 

motion filed in accordance with 

§ 201.401(f) or upon its own motion. 

(d) Certification of the record; service 

of the index. Within 14 days after 

receipt of an application for review, the 

security-based swap execution facility 

shall certify and file electronically in 

the form and manner specified by the 

Office of the Secretary one unredacted 

copy of the record upon which it took 

the complained-of action. 

(1) The security-based swap execution 

facility shall file electronically with the 

Commission one copy of an index of 

such record in the form and manner 

specified by the Commission and shall 

serve one copy of the index on each 

party. If such index contains any 

sensitive personal information, as 

defined in paragraph (d)(2) of this 

section, the security-based swap 

execution facility also shall file 

electronically with the Commission one 

redacted copy of such index, subject to 

the requirements of paragraph (d)(2) of 

this section. 

(2) Sensitive personal information 

includes a Social Security number, 

taxpayer identification number, 

financial account number, credit card or 

debit card number, passport number, 

driver’s license number, State-issued 

identification number, home address 

(other than city and State), telephone 

number, date of birth (other than year), 

names and initials of minor children, as 

well as any unnecessary health 

information identifiable by individual, 

such as an individual’s medical records. 

Sensitive personal information shall not 

be included in, and must be redacted or 

omitted from, all filings. 

(i) Exceptions. The following 

information may be included and is not 

required to be redacted from filings: 

(A) The last four digits of a financial 

account number, credit card or debit 

card number, passport number, driver’s 

license number, and State-issued 

identification number; 

(B) Home addresses and telephone 

numbers of parties and persons filing 

documents with the Commission; and 

(C) Business telephone numbers. 

(ii) [Reserved] 

(e) Certification. Any filing made 

pursuant to this section, other than the 

record upon which the action 

complained of was taken, must include 

a certification that any information 

described in paragraph (d)(2) of this 

section has been omitted or redacted 

from the filing. 

■ 11. Add § 201.443 to read as follows: 

§ 201.443 Commission consideration of 

security-based swap execution facility 

determinations. 

(a) Commission review other than 

pursuant to an application for review. 

The Commission may, on its own 

initiative, order review of any 

determination by a security-based swap 

execution facility that could be subject 

to an application for review pursuant to 

§ 201.442(a) within 40 days after the 

security-based swap execution facility 

provided notice to the Commission 

thereof. 

(b) Supplemental briefing. The 

Commission may at any time before 

issuing its decision raise or consider any 

matter that it deems material, whether 

or not raised by the parties. The 

Commission will give notice to the 

parties and an opportunity for 

supplemental briefing with respect to 

issues not briefed by the parties where 

the Commission believes that such 

briefing could significantly aid the 

decisional process. 

■ 12. Amend § 201.450, by: 

■ a. Redesignating paragraphs (a)(2)(iv) 

and (a)(2)(v) as paragraphs (a)(2)(v) and 

(a)(2)(vi); and 

■ b. Adding new paragraph (a)(2)(iv). 

The addition reads as follows: 

§ 201.450 Briefs filed with the 

Commission. 

(a) * * * 

(2) * * * 

(iv) Receipt by the Commission of an 

index to the record of a determination 

by a security-based swap execution 

facility filed pursuant to § 201.442(d). 

* * * * * 

■ 13. Amend § 201.460 by adding 

paragraph (a)(4) to read as follows: 

§ 201.460 Record before the Commission. 

* * * * * 

(a) * * * 

(4) In a proceeding for final decision 

before the Commission reviewing a 

determination of a security-based swap 

execution facility, the record shall 

consist of: 

(i) The record certified pursuant to 

§ 201.442(d) by the security-based swap 

execution facility; 

(ii) Any application for review; and 

(iii) Any submissions, moving papers, 

and briefs filed on appeal or review. 

* * * * * 

PART 232—REGULATION S–T— 

GENERAL RULES AND REGULATIONS 

FOR ELECTRONIC FILINGS 

■ 14. The general authority citation for 

part 232 continues to read as follows: 

Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 

77j, 77s(a), 77z–3, 77sss(a), 78c(b), 78l, 78m, 

78n, 78o(d), 78w(a), 78ll, 80a–6(c), 80a–8, 

80a–29, 80a–30, 80a–37, 80b–4, 80b–6a, 80b– 

10, 80b–11, 7201 et seq.; and 18 U.S.C. 1350, 

unless otherwise noted. 

* * * * * 

■ 15. Amend § 232.405 by: 

■ a. Revising the introductory text, 

paragraphs (a)(2), (a)(3)(i) introductory 

text, (a)(3)(ii), (a)(4), and (b)(5) 

introductory text; 

■ b. Adding paragraph (b)(5)(ii); and 

■ c. Revising Note 1 to § 232.405. 


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87284 Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Rules and Regulations 

The revisions and addition read as 

follows: 

§ 232.405 Interactive Data File 

submissions. 

This section applies to electronic 

filers that submit Interactive Data Files. 

Section 229.601(b)(101) of this chapter 

(Item 601(b)(101) of Regulation S–K), 

General Instruction F of § 249.311 (Form 

11–K), paragraph (101) of Part II— 

Information Not Required to be 

Delivered to Offerees or Purchasers of 

Form F–10 (§ 239.40 of this chapter), 

§ 240.13a–21 of this chapter (Rule 13a– 

21 under the Exchange Act), paragraph 

101 of the Instructions as to Exhibits of 

Form 20–F (§ 249.220f of this chapter), 

paragraph B.(15) of the General 

Instructions to Form 40–F (§ 249.240f of 

this chapter), paragraph C.(6) of the 

General Instructions to Form 6–K 

(§ 249.306 of this chapter), § 240.17Ad– 

27(d) of this chapter (Rule 17Ad–27(d) 

under the Exchange Act), Note D.5 of 

§ 240.14a–101 of this chapter (Rule 14a– 

101 under the Exchange Act), Item 1 of 

§ 240.14c–101 of this chapter (Rule 14c– 

101 under the Exchange Act), General 

Instruction I of § 249.333 of this chapter 

(Form F–SR), General Instruction C.3.(g) 

of Form N–1A (§§ 239.15A and 274.11A 

of this chapter), General Instruction I of 

Form N–2 (§§ 239.14 and 274.11a–1 of 

this chapter), General Instruction C.3.(h) 

of Form N–3 (§§ 239.17a and 274.11b of 

this chapter), General Instruction C.3.(h) 

of Form N–4 (§§ 239.17b and 274.11c of 

this chapter), General Instruction C.3.(h) 

of Form N–6 (§§ 239.17c and 274.11d of 

this chapter), General Instruction 2.(l) of 

Form N–8B–2 (§ 274.12 of this chapter), 

General Instruction 5 of Form S–6 

(§ 239.16 of this chapter), General 

Instruction C.4 of Form N–CSR 

(§§ 249.331 and 274.128 of this chapter), 

§§ 242.829 and 831 of this chapter 

(Rules 829 and 831 of Regulation SE), 

and the Registration Instructions to 

Form SBSEF (§ 249.1701 of this chapter) 

specify when electronic filers are 

required or permitted to submit an 

Interactive Data File (§ 232.11), as 

further described in note 1 to this 

section. This section imposes content, 

format, and submission requirements for 

an Interactive Data File, but does not 

change the substantive content 

requirements for the financial and other 

disclosures in the Related Official Filing 

(§ 232.11). 

(a) * * * 

(2) Be submitted only by an electronic 

filer either required or permitted to 

submit an Interactive Data File as 

specified by § 229.601(b)(101) of this 

chapter (Item 601(b)(101) of Regulation 

S–K), Instruction F of Form 11–K 

(§ 249.311 of this chapter), paragraph 

(101) of Part II—Information Not 

Required to be Delivered to Offerees or 

Purchasers of Form F–10 (§ 239.40 of 

this chapter), § 240.13a–21 of this 

chapter (Rule 13a–21 under the 

Exchange Act), paragraph 101 of the 

Instructions as to Exhibits of Form 20– 

F (§ 249.220f of this chapter), paragraph 

B.(15) of the General Instructions to 

Form 40–F (§ 249.240f of this chapter), 

paragraph C.(6) of the General 

Instructions to Form 6–K (§ 249.306 of 

this chapter), § 240.17Ad–27(d) of this 

chapter (Rule 17Ad–27(d) under the 

Exchange Act), Note D.5 of § 240.14a– 

101 of this chapter (Rule 14a–101 under 

the Exchange Act), Item 1 of § 240.14c– 

101 of this chapter (Rule 14c–101 under 

the Exchange Act), General Instruction I 

to Form F–SR (§ 249.333 of this 

chapter), General Instruction C.3.(g) of 

Form N–1A (§§ 239.15A and 274.11A of 

this chapter), General Instruction I of 

Form N–2 (§§ 239.14 and 274.11a–1 of 

this chapter), General Instruction C.3.(h) 

of Form N–3 (§§ 239.17a and 274.11b of 

this chapter), General Instruction C.3.(h) 

of Form N–4 (§§ 239.17b and 274.11c of 

this chapter), General Instruction C.3.(h) 

of Form N–6 (§§ 239.17c and 274.11d of 

this chapter), General Instruction 2.(l) of 

Form N–8B–2 (§ 274.12 of this chapter), 

General Instruction 5 of Form S–6 

(§ 239.16 of this chapter), General 

Instruction C.4 of Form N–CSR 

(§§ 249.331 and 274.128 of this chapter), 

§§ 242.829 and 242.831 of this chapter 

(Rules 829 and 831 of Regulation SE), 

and the Registration Instructions to 

Form SBSEF (§ 249.1701 of this 

chapter), as applicable; 

* * * * * 

(3) * * * 

(i) If the electronic filer is not a 

management investment company 

registered under the Investment 

Company Act of 1940 (15 U.S.C. 80a et 

seq.), a separate account as defined in 

section 2(a)(14) of the Securities Act (15 

U.S.C. 77b(a)(14)) registered under the 

Investment Company Act of 1940, a 

business development company as 

defined in section 2(a)(48) of the 

Investment Company Act of 1940 (15 

U.S.C. 80a–2(a)(48)), a unit investment 

trust as defined in Section 4(2) of the 

Investment Company Act of 1940 (15 

U.S.C. 80a–4), or a clearing agency that 

provides a central matching service, or 

is subject to §§ 242.800 through 242.835 

(Regulation SE), and is not within one 

of the categories specified in paragraph 

(f)(1)(i) of this section, as partly 

embedded into a filing with the 

remainder simultaneously submitted as 

an exhibit to: 

* * * * * 

(ii) If the electronic filer is a 

management investment company 

registered under the Investment 

Company Act of 1940 (15 U.S.C. 80a et 

seq.), a separate account (as defined in 

section 2(a)(14) of the Securities Act (15 

U.S.C. 77b(a)(14)) registered under the 

Investment Company Act of 1940, a 

business development company as 

defined in section 2(a)(48) of the 

Investment Company Act of 1940 (15 

U.S.C. 80a–2(a)(48)), a unit investment 

trust as defined in Section 4(2) of the 

Investment Company Act of 1940 (15 

U.S.C. 80a–4), or a clearing agency that 

provides a central matching service, or 

is subject to §§ 242.800 through 242.835 

(Regulation SE), and is not within one 

of the categories specified in paragraph 

(f)(1)(ii) of this section, as partly 

embedded into a filing with the 

remainder simultaneously submitted as 

an exhibit to a filing that contains the 

disclosure this section requires to be 

tagged; and 

(4) Be submitted in accordance with 

the EDGAR Filer Manual and, as 

applicable, Item 601(b)(101) of 

§ 229.601(b)(101) of this chapter 

(Regulation S–K), General Instruction F 

of Form 11–K (§ 249.311 of this 

chapter), paragraph (101) of Part II— 

Information Not Required to be 

Delivered to Offerees or Purchasers of 

Form F–10 (§ 239.40 of this chapter), 

§ 240.13a–21 of this chapter (Rule 13a– 

21 under the Exchange Act), paragraph 

101 of the Instructions as to Exhibits of 

Form 20–F (§ 249.220f of this chapter), 

paragraph B.(15) of the General 

Instructions to Form 40–F (§ 249.240f of 

this chapter), paragraph C.(6) of the 

General Instructions to Form 6–K 

(§ 249.306 of this chapter), § 240.17Ad– 

27(d) of this chapter (Rule 17Ad–27(d) 

under the Exchange Act), Note D.5 of 

§ 240.14a–101 of this chapter (Rule 14a– 

101 under the Exchange Act), Item 1 of 

§ 240.14c–101 of this chapter (Rule 14c– 

101 under the Exchange Act), General 

Instruction I to Form F–SR (§ 249.333 of 

this chapter), General Instruction C.3.(g) 

of Form N–1A (§§ 239.15A and 274.11A 

of this chapter), General Instruction I of 

Form N–2 (§§ 239.14 and 274.11a–1 of 

this chapter), General Instruction C.3.(h) 

of Form N–3 (§§ 239.17a and 274.11b of 

this chapter), General Instruction C.3.(h) 

of Form N–4 (§§ 239.17b and 274.11c of 

this chapter), General Instruction C.3.(h) 

of Form N–6 (§§ 239.17c and 274.11d of 

this chapter), Instruction 2.(l) of Form 

N–8B–2 (§ 274.12 of this chapter); 

General Instruction 5 of Form S–6 

(§ 239.16 of this chapter); General 

Instruction C.4 of Form N–CSR 

(§§ 249.331 and 274.128 of this chapter), 

§§ 242.829 and 831 of this chapter 


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Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Rules and Regulations 87285 

(Rules 829 and 831 of Regulation SE), 

and the Registration Instructions to 

Form SBSEF (§ 249.1701 of this 

chapter), as applicable. 

(b) * * * 

(5) If the electronic filer is a clearing 

agency that provides a central matching 

service, or is subject to §§ 242.800 

through 242.835 (Regulation SE), an 

Interactive Data File must consist only 

of a complete set of information for all 

corresponding data in the Related 

Official Filing, no more and no less, as 

follows: 

* * * * * 

(ii) For electronic filers subject to 

Regulation SE, the content of documents 

required to be filed electronically under 

§§ 242.829 and 242.831 of this chapter 

(Rules 829 and 831 of Regulation SE); 

and the Registration Instructions to 

§ 249.1701 of this chapter (Form 

SBSEF), as applicable. 

* * * * * 

Note 1 to § 232.405: Section 

229.601(b)(101) of this chapter (Item 

601(b)(101) of Regulation S–K) specifies the 

circumstances under which an Interactive 

Data File must be submitted and the 

circumstances under which it is permitted to 

be submitted, with respect to § 239.11 of this 

chapter (Form S–1), § 239.13 of this chapter 

(Form S–3), § 239.25 of this chapter (Form S– 

4), § 239.18 of this chapter (Form S–11), 

§ 239.31 of this chapter (Form F–1), § 239.33 

of this chapter (Form F–3), § 239.34 of this 

chapter (Form F–4), § 249.310 of this chapter 

(Form 10–K), § 249.308a of this chapter 

(Form 10–Q), and § 249.308 of this chapter 

(Form 8–K). General Instruction F of 

§ 249.311 of this chapter (Form 11–K) 

specifies the circumstances under which an 

Interactive Data File must be submitted, and 

the circumstances under which it is 

permitted to be submitted, with respect to 

Form 11–K. Paragraph (101) of Part II— 

Information not Required to be Delivered to 

Offerees or Purchasers of § 239.40 of this 

chapter (Form F–10) specifies the 

circumstances under which an Interactive 

Data File must be submitted and the 

circumstances under which it is permitted to 

be submitted, with respect to Form F–10. 

Paragraph 101 of the Instructions as to 

Exhibits of § 249.220f of this chapter (Form 

20–F) specifies the circumstances under 

which an Interactive Data File must be 

submitted and the circumstances under 

which it is permitted to be submitted, with 

respect to Form 20–F. Paragraph B.(15) of the 

General Instructions to § 249.240f of this 

chapter (Form 40–F) and Paragraph C.(6) of 

the General Instructions to § 249.306 of this 

chapter (Form 6–K) specify the 

circumstances under which an Interactive 

Data File must be submitted and the 

circumstances under which it is permitted to 

be submitted, with respect to § 249.240f of 

this chapter (Form 40–F) and § 249.306 of 

this chapter (Form 6–K). Section 240.17Ad– 

27(d) of this chapter (Rule 17Ad–27(d) under 

the Exchange Act) specifies the 

circumstances under which an Interactive 

Data File must be submitted with respect the 

reports required under Rule 17Ad–27. Note 

D.5 of § 240.14a–101 of this chapter 

(Schedule 14A) and Item 1 of § 240.14c–101 

of this chapter (Schedule 14C) specify the 

circumstances under which an Interactive 

Data File must be submitted with respect to 

Schedules 14A and 14C. Section 240.13a–21 

of this chapter (Rule 13a–21 under the 

Exchange Act) and General Instruction I to 

§ 249.333 of this chapter (Form F–SR) specify 

the circumstances under which an Interactive 

Data File must be submitted, with respect to 

Form F–SR. §§ 242.829 and 242.831 of this 

chapter (Rules 829 and 831 of Regulation SE) 

and the Registration Instructions to 

§ 249.1701 of this chapter (Form SBSEF), as 

applicable, specify the circumstances under 

which an Interactive Data File must be 

submitted with respect to filings made under 

Regulation SE. 

PART 240—GENERAL RULES AND 

REGULATIONS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 16. The general authority citation for 

part 240 continues to read as follows: 

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 

77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 

77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f, 

78g, 78i, 78j, 78j–1, 78j–4, 78k, 78k–1, 78l, 

78m, 78n, 78n–1, 78o, 78o–4, 78o–10, 78p, 

78q, 78q–1, 78s, 78u–5, 78w, 78x, 78dd, 78ll, 

78mm, 80a–20, 80a–23, 80a–29, 80a–37, 80b– 

3, 80b–4, 80b–11, 7201 et seq., and 8302; 7 

U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 

U.S.C. 1350; and Pub. L. 111–203, 939A, 124 

Stat. 1376 (2010); and Pub. L. 112–106, sec. 

503 and 602, 126 Stat. 326 (2012), unless 

otherwise noted. 

* * * * * 

■ 17. Amend § 240.3a1–1 by: 

■ a. Removing the word ‘‘or’’ from the 

end of paragraph (a)(2); 

■ b. Removing the period from the end 

of paragraph (a)(3) and adding a 

semicolon in its place; 

■ c. Adding paragraphs (a)(4) and (5); 

and 

■ d. Revising paragraph (b) introductory 

text. 

The additions and revisions read as 

follows: 

§ 240.3a1–1 Exemption from the definition 

of ‘‘Exchange’’ under section 3(a)(1) of the 

Act. 

* * * * * 

(a) * * * 

(4) Has registered with the 

Commission as a security-based swap 

execution facility pursuant § 242.803 of 

this chapter and provides a market place 

or facilities for no securities other than 

security-based swaps; or 

(5) Has registered with the 

Commission as a clearing agency 

pursuant to section 17A of the Act (15 

U.S.C. 78q–1) and limits its exchange 

functions to operation of a trading 

session that is designed to further the 

accuracy of end-of-day valuations of 

security-based swaps. 

(b) Notwithstanding paragraphs (a)(1) 

through (3) of this section, an 

organization, association, or group of 

persons shall not be exempt under this 

section from the definition of 

‘‘exchange,’’ if: 

* * * * * 

■ 18. Add § 240.15a–12 to read as 

follows: 

§ 240.15a–12 Exemption for certain 

security-based swap execution facilities 

from certain broker requirements. 

(a) For purposes of this section, an 

SBSEF–B means a security-based swap 

execution facility that does not engage 

in any securities activity other than 

facilitating the trading of security-based 

swaps on or through the security-based 

swap execution facility. 

(b) An SBSEF–B that registers with 

the Commission pursuant to § 242.803 

of this chapter shall be deemed also to 

have registered with the Commission 

pursuant to sections 15(a) and (b) of the 

Act (15 U.S.C. 78o(a)(1) and (b)). 

(c) Except as provided in paragraph 

(d) of this section, an SBSEF–B shall be 

exempt from any provision of the Act or 

the Commission’s rules thereunder 

applicable to brokers that, by its terms, 

requires, prohibits, restricts, limits, 

conditions, or affects the activities of a 

broker, unless such provision specifies 

that it applies to a security-based swap 

execution facility. 

(d) Notwithstanding paragraph (c) of 

this section, the following provisions of 

the Act and the Commission’s rules 

thereunder shall apply to an SBSEF–B: 

(1) Section 15(b)(4) of the Act (15 

U.S.C. 78o(b)(4)); 

(2) Section 15(b)(6) of the Act (15 

U.S.C. 78o(b)(6)); and 

(3) Section 17(b) of the Act (15 U.S.C. 

78q(b)). 

(e) An SBSEF–B shall be exempt from 

the Securities Investor Protection Act. 

PART 242—REGULATIONS M, SHO, 

ATS, AC, NMS, SE, AND SBSR, AND 

CUSTOMER MARGIN REQUIREMENTS 

FOR SECURITY FUTURES 

■ 19. The authority citation for part 242 

is revised to read as follows: 

Authority: 15 U.S.C. 77g, 77q(a), 77s(a), 

78b, 78c, 78c–4, 78g(c)(2), 78i(a), 78j, 78k– 

1(c), 78l, 78m, 78n, 78o(b), 78o(c), 78o(g), 

78q(a), 78q(b), 78q(h), 78w(a), 78dd–1, 

78mm, 80a–23, 80a–29, 80a–37, and 8343. 

■ 20. The heading for part 242 is revised 

to read as set forth above. 

■ 21. Add §§ 242.800 through 242.835 

to read as follows: 


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Regulation SE—Registration and 

Regulation of Security-Based Swap 

Execution Facilities 

Sec. 

* * * * * 

242.800 Scope. 

242.801 Applicable provisions. 

242.802 Definitions. 

242.803 Requirements and procedures for 

registration. 

242.804 Listing products for trading by 

certification. 

242.805 Voluntary submission of new 

products for Commission review and 

approval. 

242.806 Voluntary submission of rules for 

Commission review and approval. 

242.807 Self-certification of rules. 

242.808 Availability of public information. 

242.809 Stay of certification and tolling of 

review period pending jurisdictional 

determination. 

242.810 Product filings by security-based 

swap execution facilities that are not yet 

registered and by dormant security-based 

swap execution facilities. 

242.811 Information relating to securitybased swap execution facility 

compliance. 

242.812 Enforceability. 

242.813 Prohibited use of data collected for 

regulation purposes. 

242.814 Entity operating both a national 

securities exchange and security-based 

swap execution facility. 

242.815 Methods of execution for Required 

and Permitted Transactions. 

242.816 Trade execution requirement and 

exemptions therefrom. 

242.817 Trade execution compliance 

schedule. 

242.818 Core Principle 1—Compliance with 

core principles. 

242.819 Core Principle 2—Compliance with 

rules. 

242.820 Core Principle 3—Security-based 

swaps not readily susceptible to 

manipulation. 

242.821 Core Principle 4—Monitoring of 

trading and trade processing. 

242.822 Core Principle 5—Ability to obtain 

information. 

242.823 Core Principle 6—Financial 

integrity of transactions. 

242.824 Core Principle 7—Emergency 

authority. 

242.825 Core Principle 8—Timely 

publication of trading information. 

242.826 Core Principle 9—Recordkeeping 

and reporting. 

242.827 Core Principle 10—Antitrust 

considerations. 

242.828 Core Principle 11—Conflicts of 

interest. 

242.829 Core Principle 12—Financial 

resources. 

242.830 Core Principle 13—System 

safeguards. 

242.831 Core Principle 14—Designation of 

chief compliance officers. 

242.832 Application of the trade execution 

requirement to cross-border securitybased swap transactions. 

242.833 Cross-border exemptions. 

242.834 Mitigation of conflicts of interest of 

security-based swap execution facilities 

and certain exchanges. 

242.835 Notice to Commission by securitybased swap execution facility of final 

disciplinary action or denial or 

limitation of access. 

§ 242.800 Scope. 

The provisions of §§ 242.800 through 

242.835 shall apply to every securitybased swap execution facility that is 

registered or is applying to become 

registered as a security-based swap 

execution facility under section 3D of 

the Securities Exchange Act (‘‘Act’’). 

§ 242.801 Applicable provisions. 

A security-based swap execution 

facility shall comply with the 

requirements of §§ 242.800 through 

242.835 and all other applicable 

Commission rules, including any related 

definitions and cross- referenced 

sections. 

§ 242.802 Definitions. 

The following terms, and any other 

terms defined within §§ 242.800 

through 242.835, are defined as follows 

solely for purposes of §§ 242.800 

through 242.835: 

Business day means the intraday 

period of time starting at 8:15 a.m. and 

ending at 4:45 p.m. eastern standard 

time or eastern daylight saving time, 

whichever is currently in effect in 

Washington, DC, on all days except 

Saturdays, Sundays, and Federal 

holidays in Washington, DC. 

Committee member means a member, 

or functional equivalent thereof, of any 

committee of a security-based swap 

execution facility. 

Correcting trade means a trade 

executed and submitted for clearing to 

a registered clearing agency with the 

same terms and conditions as an error 

trade other than any corrections to any 

operational or clerical error and the time 

of execution. 

Disciplinary committee means any 

person or committee of persons, or any 

subcommittee thereof, that is authorized 

by a security-based swap execution 

facility or SBS exchange to issue 

disciplinary charges, to conduct 

disciplinary proceedings, to settle 

disciplinary charges, to impose 

disciplinary sanctions, or to hear 

appeals thereof in cases involving any 

violation of the rules of the securitybased swap execution facility or SBS 

exchange, except those cases where the 

person or committee is authorized 

summarily to impose minor penalties 

for violating rules regarding decorum, 

attire, the timely submission of accurate 

records for clearing or verifying each 

day’s transactions, or other similar 

activities. 

Dormant product means: 

(1) Any security-based swap listed on 

security-based swap execution facility 

that has no open interest and in which 

no trading has occurred for a period of 

12 complete calendar months following 

a certification to, or approval by, the 

Commission; provided, however, that 

no security-based swap initially and 

originally certified to, or approved by, 

the Commission within the preceding 

36 complete calendar months shall be 

considered to be a dormant product; 

(2) Any security-based swap of a 

dormant security-based swap execution 

facility; or 

(3) Any security-based swap not 

otherwise a dormant product that a 

security-based swap execution facility 

self-declares through certification to be 

a dormant product. 

Dormant rule means: 

(1) Any rule of a security-based swap 

execution facility which remains 

unimplemented for 12 consecutive 

calendar months following a 

certification with, or an approval by, the 

Commission; or 

(2) Any rule or rule amendment of a 

dormant security-based swap execution 

facility. 

Dormant security-based swap 

execution facility means a securitybased swap execution facility on which 

no trading has occurred for the previous 

12 consecutive calendar months; 

provided, however, that no securitybased swap execution facility shall be 

considered to be a dormant securitybased swap execution facility if its 

initial and original Commission order of 

registration was issued within the 

preceding 36 consecutive calendar 

months. 

Electronic trading facility means a 

trading facility that operates by means 

of an electronic or telecommunications 

network and maintains an automated 

audit trail of bids, offers, and the 

matching orders or the execution of 

transactions on the facility. 

Emergency means any occurrence or 

circumstance that, in the opinion of the 

governing board of a security-based 

swap execution facility, or a person or 

persons duly authorized to issue such 

an opinion on behalf of the governing 

board of the security-based swap 

execution facility under circumstances 

and pursuant to procedures that are 

specified by rule, requires immediate 

action and threatens or may threaten 

such things as the fair and orderly 

trading in, or the liquidation of or 

delivery pursuant to, any security-based 

swaps, including: 


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(1) Any manipulative or attempted 

manipulative activity; 

(2) Any actual, attempted, or 

threatened corner, squeeze, congestion, 

or undue concentration of positions; 

(3) Any circumstances which may 

materially affect the performance of 

security-based swaps or transactions, 

including failure of the payment system 

or the bankruptcy or insolvency of any 

market participant; 

(4) Any action taken by any 

governmental body, or any other 

security-based swap execution facility, 

market, or facility which may have a 

direct impact on trading or clearing and 

settlement; and 

(5) Any other circumstance which 

may have a severe, adverse effect upon 

the functioning of the security-based 

swap execution facility. 

Employee means any person hired or 

otherwise employed on a salaried or 

contract basis by a security-based swap 

execution facility, but does not include: 

(1) Any governing board member 

compensated by the security-based 

swap execution facility solely for 

governing board activities; or 

(2) Any committee member 

compensated by a security-based swap 

execution facility solely for committee 

activities; or 

(3) Any consultant hired by a 

security-based swap execution facility. 

Error trade means any trade executed 

on or subject to the rules of a securitybased swap execution facility that 

contains an operational or clerical error. 

Governing board means the board of 

directors of a security-based swap 

execution facility, or for a securitybased swap execution facility whose 

organizational structure does not 

include a board of directors, a body 

performing a function similar to a board 

of directors. 

Governing board member means a 

member, or functional equivalent 

thereof, of the governing board of a 

security-based swap execution facility. 

Member, with respect to a national 

securities exchange, has the same 

meaning as in section 3(a)(3) of the Act. 

Member, with respect to a securitybased swap execution facility, means an 

individual, association, partnership, 

corporation, or trust owning or holding 

a membership in, admitted to 

membership representation on, or 

having trading privileges on the 

security-based swap execution facility. 

Non-U.S. member means a member of 

a security-based swap execution facility 

that is not a U.S. person. 

Offsetting trade means a trade 

executed and submitted for clearing to 

a registered clearing agency with terms 

and conditions that economically 

reverse an error trade that was accepted 

for clearing. 

Order book means an electronic 

trading facility, a trading facility, or a 

trading system or platform in which all 

market participants in the trading 

system or platform have the ability to 

enter multiple bids and offers, observe 

or receive bids and offers entered by 

other market participants, and transact 

on such bids and offers. 

Oversight panel means any panel, or 

any subcommittee thereof, authorized 

by a security-based swap execution 

facility or security-based swap exchange 

(‘‘SBS exchange’’) to recommend or 

establish policies or procedures with 

respect to the surveillance, compliance, 

rule enforcement, or disciplinary 

responsibilities of the security-based 

swap execution facility or SBS 

exchange. 

Records has the meaning as in section 

3(a)(37) of the Act (15 U.S.C. 78c(a)(37)). 

Rule means any constitutional 

provision, article of incorporation, 

bylaw, rule, regulation, resolution, 

interpretation, stated policy, advisory, 

terms and conditions, trading protocol, 

agreement, or instrument corresponding 

thereto, including those that authorize a 

response or establish standards for 

responding to a specific emergency, and 

any amendment or addition thereto or 

repeal thereof, made or issued by a 

security-based swap execution facility 

or by the governing board thereof or any 

committee thereof, in whatever form 

adopted. 

SBS exchange means a national 

securities exchange that posts or makes 

available for trading security-based 

swaps. 

Security-based swap execution facility 

has the same meaning as in section 

3(a)(77) of the Act (15 U.S.C. 78c(a)(77)) 

but does not include an entity that is 

registered with the Commission as a 

clearing agency pursuant to section 17A 

of the Act (15 U.S.C. 78q–1) and limits 

its security-based swap execution 

facility functions to operation of a 

trading session that is designed to 

further the accuracy of end-of-day 

valuations. 

Senior officer means the chief 

executive officer or other equivalent 

officer of a security-based swap 

execution facility. 

Terms and conditions means any 

definition of the trading unit or the 

specific asset underlying a securitybased swap, description of the payments 

to be exchanged under a security-based 

swap, specification of cash settlement or 

delivery standards and procedures, and 

establishment of buyers’ and sellers’ 

rights and obligations under the 

security-based swap. Terms and 

conditions of a security-based swap 

include provisions relating to the 

following: 

(1) Identification of the major group, 

category, type, or class in which the 

security-based swap falls (such as a 

credit or equity security-based swap) 

and of any further sub-group, category, 

type, or class that further describes the 

security-based swap; 

(2) Notional amounts, quantity 

standards, or other unit size 

characteristics; 

(3) Any applicable premiums or 

discounts for delivery of a non-par 

product; 

(4) Trading hours and the listing of 

security-based swaps; 

(5) Pricing basis for establishing the 

payment obligations under, and markto-market value of, the security-based 

swap including, as applicable, the 

accrual start dates, termination, or 

maturity dates, and, for each leg of the 

security-based swap, the initial cash 

flow components, spreads, and points, 

and the relevant indexes, prices, rates, 

coupons, or other price reference 

measures; 

(6) Any price limits, trading halts, or 

circuit breaker provisions, and 

procedures for the establishment of 

daily settlement prices; 

(7) Payment and reset frequency, day 

count conventions, business calendars, 

and accrual features; 

(8) If physical delivery applies, 

delivery standards and procedures, 

including fees related to delivery or the 

delivery process, alternatives to 

delivery, and applicable penalties or 

sanctions for failure to perform; 

(9) If cash-settled, the definition, 

composition, calculation, and revision 

of the cash settlement price, and the 

settlement currency; 

(10) Payment or collection of option 

premiums or margins; 

(11) Option exercise price, if it is 

constant, and method for calculating the 

exercise price, if it is variable; 

(12) Threshold prices for an option, 

the existence of which is contingent 

upon those prices; 

(13) Any restrictions or requirements 

for exercising an option; and 

(14) Life cycle events. 

Trading facility. (1) In general. The 

term trading facility means a person or 

group of persons that constitutes, 

maintains, or provides a physical or 

electronic facility or system in which 

multiple participants have the ability to 

execute or trade agreements, contracts, 

or transactions: 

(i) By accepting bids or offers made by 

other participants that are open to 

multiple participants in the facility or 

system; or 


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(ii) Through the interaction of 

multiple bids or multiple offers within 

a system with a pre- determined nondiscretionary automated trade matching 

and execution algorithm. 

(2) Exclusions. (i) The term trading 

facility does not include: 

(A) A person or group of persons 

solely because the person or group of 

persons constitutes, maintains, or 

provides an electronic facility or system 

that enables participants to negotiate the 

terms of and enter into bilateral 

transactions as a result of 

communications exchanged by the 

parties and not from interaction of 

multiple bids and multiple offers within 

a predetermined, nondiscretionary 

automated trade matching and 

execution algorithm; 

(B) A government securities dealer or 

government securities broker, to the 

extent that the dealer or broker executes 

or trades agreements, contracts, or 

transactions in government securities, or 

assists persons in communicating about, 

negotiating, entering into, executing, or 

trading an agreement, contract, or 

transaction in government securities (as 

the terms government securities dealer, 

government securities broker, and 

government securities are defined in 

section 3(a) of the Act); or 

(C) A facility on which bids and 

offers, and acceptances of bids and 

offers effected on the facility, are not 

binding. 

(ii) Any person, group of persons, 

dealer, broker, or facility described in 

paragraphs (2)(i)(A) through (C) of this 

definition of trading facility is excluded 

from the meaning of the term ‘‘trading 

facility’’ without any prior specific 

approval, certification, or other action 

by the Commission. 

(3) Special rule. A person or group of 

persons that would not otherwise 

constitute a trading facility shall not be 

considered to be a trading facility solely 

as a result of the submission to a 

registered clearing agency of 

transactions executed on or through the 

person or group of persons. 

U.S. person has the same meaning as 

in § 240.3a71–3(a)(4) of this chapter. 

Note 1 to § 242.802. The Commission 

has not yet adopted a definition of 

‘‘block trade.’’ 

§ 242.803 Requirements and procedures 

for registration. 

(a) Requirements for registration. (1) 

Any person operating a facility that 

offers a trading system or platform in 

which more than one market participant 

has the ability to execute or trade 

security-based swaps with more than 

one other market participant on the 

system or platform shall register the 

facility as a security-based swap 

execution facility under this section or 

as a national securities exchange 

pursuant to section 6 of the Act. 

(2) A security-based swap execution 

facility shall, at a minimum, offer an 

order book. 

(3) A security-based swap execution 

facility is not required to provide an 

order book under this section for 

transactions defined in § 242.815(d)(2), 

(3), and (4) except that a security-based 

swap execution facility must provide an 

order book under this section for 

Required Transactions that are 

components of transactions defined in 

§ 242.815(d)(2), (3), and (4) when such 

Required Transactions are not executed 

as components of transactions defined 

in § 242.815(d)(2), (3), and (4). 

(b) Procedures for full registration. (1) 

Request to register. An entity requesting 

registration as a security-based swap 

execution facility shall: 

(i) File electronically a complete Form 

SBSEF (referenced in § 249.1701), or 

any successor forms, and all information 

and documentation described in such 

forms with the Commission using the 

EDGAR system and, for the information 

specified in the Registration Instructions 

to Form SBSEF, as an Interactive Data 

File in accordance with § 232.405 of this 

chapter; and 

(ii) Provide to the Commission, upon 

the Commission’s request, any 

additional information and 

documentation necessary to review an 

application. 

(2) Request for confidential treatment. 

(i) An applicant requesting registration 

as a security-based swap execution 

facility shall identify with particularity 

any information in the application that 

will be subject to a request for 

confidential treatment pursuant to 

§ 240.24b–2 of this chapter. 

(ii) As set forth in § 242.808, certain 

information provided in an application 

shall be made publicly available. 

(3) Amendment of application prior to 

full registration. An applicant amending 

a pending application for registration as 

a security-based swap execution facility 

or requesting an amendment to an order 

of registration shall file an amended 

application electronically with the 

Commission using the EDGAR system 

and, for the information specified in the 

Registration Instructions to Form 

SBSEF, as an Interactive Data File in 

accordance with § 232.405 of this 

chapter. 

(4) Effect of incomplete application. If 

an application is incomplete pursuant to 

paragraph (b)(1) of this section, the 

Commission shall notify the applicant 

that its application will not be deemed 

to have been submitted for purposes of 

the Commission’s review. 

(5) Commission review period. The 

Commission shall approve or deny an 

application for registration as a securitybased swap execution facility within 

180 days of the filing of the application. 

If the Commission notifies the person 

that its application is materially 

incomplete and specifies the 

deficiencies in the application, the 

running of the 180-day period shall be 

stayed from the time of such notification 

until the application is resubmitted in 

completed form, provided that the 

Commission shall have not less than 60 

days to approve or deny the application 

from the time the application is 

resubmitted in completed form. 

(6) Commission determination. (i) The 

Commission shall issue an order 

granting registration upon a 

Commission determination, in its own 

discretion, that the applicant has 

demonstrated compliance with the Act 

and the Commission’s rules applicable 

to security-based swap execution 

facilities. If deemed appropriate, the 

Commission may issue an order 

granting registration subject to 

conditions. 

(ii) The Commission may issue an 

order denying registration upon a 

Commission determination, in its own 

discretion, that the applicant has not 

demonstrated compliance with the Act 

and the Commission’s rules applicable 

to security-based swap execution 

facilities. If the Commission denies an 

application, it shall specify the grounds 

for the denial. 

(c) Reinstatement of dormant 

registration. A dormant security-based 

swap execution facility may reinstate its 

registration under the procedures of 

paragraph (b) of this section. The 

applicant may rely upon previously 

submitted materials if such materials 

accurately describe the dormant 

security-based swap execution facility’s 

conditions at the time that it applies for 

reinstatement of its registration. 

(d) Request for transfer of registration. 

(1) A security-based swap execution 

facility seeking to transfer its 

registration from its current legal entity 

to a new legal entity as a result of a 

corporate change shall file a request for 

approval to transfer such registration 

with the Commission in the form and 

manner specified by the Commission. 

(2) A request for transfer of 

registration shall be filed no later than 

three months prior to the anticipated 

corporate change; or in the event that 

the security-based swap execution 

facility could not have known of the 

anticipated change three months prior 


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to the anticipated change, as soon as it 

knows of such change. 

(3) The request for transfer of 

registration shall include the following: 

(i) The underlying agreement that 

governs the corporate change; 

(ii) A description of the corporate 

change, including the reason for the 

change and its impact on the securitybased swap execution facility, including 

its governance and operations, and its 

impact on the rights and obligations of 

members; 

(iii) A discussion of the transferee’s 

ability to comply with the Act, 

including the core principles applicable 

to security-based swap execution 

facilities and the Commission’s rules 

thereunder; 

(iv) The governing documents of the 

transferee, including, but not limited to, 

articles of incorporation and bylaws; 

(v) The transferee’s rules marked to 

show changes from the current rules of 

the security-based swap execution 

facility; 

(vi) A representation by the transferee 

that it: 

(A) Will be the surviving entity and 

successor-in-interest to the transferor 

security-based swap execution facility 

and will retain and assume, without 

limitation, all of the assets and 

liabilities of the transferor; 

(B) Will assume responsibility for 

complying with all applicable 

provisions of the Act and the 

Commission’s rules thereunder; 

(C) Will assume, maintain, and 

enforce all rules implementing and 

complying with the core principles 

applicable to security-based swap 

execution facilities, including the 

adoption of the transferor’s rulebook, as 

amended in the request, and that any 

such amendments will be submitted to 

the Commission pursuant to § 242.806 

or § 242.807; 

(D) Will comply with all regulatory 

responsibilities except if otherwise 

indicated in the request, and will 

maintain and enforce all regulatory 

programs; and 

(E) Will notify members of all changes 

to the transferor’s rulebook prior to the 

transfer and will further notify members 

of the concurrent transfer of the 

registration to the transferee upon 

Commission approval and issuance of 

an order permitting this transfer. 

(vii) A representation by the 

transferee that upon the transfer: 

(A) It will assume responsibility for 

and maintain compliance with core 

principles for all security-based swaps 

previously made available for trading 

through the transferor, whether by 

certification or approval; and 

(B) None of the proposed rule changes 

will affect the rights and obligations of 

any member. 

(4) Upon review of a request for 

transfer of registration, the Commission, 

as soon as practicable, shall issue an 

order either approving or denying the 

request. 

(e) Request for withdrawal of 

application for registration. An 

applicant for registration as a securitybased swap execution facility may 

withdraw its application submitted 

pursuant to paragraph (b) of this section 

by filing a withdrawal request 

electronically with the Commission 

using the EDGAR system. Withdrawal of 

an application for registration shall not 

affect any action taken or to be taken by 

the Commission based upon actions, 

activities, or events occurring during the 

time that the application was pending 

with the Commission. 

(f) Request for vacation of registration. 

A security-based swap execution facility 

may request that its registration be 

vacated by filing a vacation request 

electronically with the Commission 

using the EDGAR system at least 90 

days prior to the date that the vacation 

is requested to take effect. Upon receipt 

of such request, the Commission shall 

promptly order the vacation to be 

effective upon the date named in the 

request and send a copy of the request 

and its order to all other security-based 

swap execution facilities, SBS 

exchanges, and registered clearing 

agencies that clear security-based 

swaps. Vacation of registration shall not 

affect any action taken or to be taken by 

the Commission based upon actions, 

activities, or events occurring during the 

time that the security-based swap 

execution facility was registered by the 

Commission. From and after the date 

upon which the vacation became 

effective the said security-based swap 

execution facility can thereafter be 

registered again by applying to the 

Commission in the manner provided in 

paragraph (b) of this section for an 

original application. 

§ 242.804 Listing products for trading by 

certification. 

(a) General. A security-based swap 

execution facility must comply with the 

submission requirements of this section 

prior to listing a product for trading that 

has not been approved under § 242.805 

or that remains a dormant product 

subsequent to being submitted under 

this section or approved under 

§ 242.805. A submission shall comply 

with the following conditions: 

(1) The security-based swap execution 

facility has filed its submission 

electronically with the Commission 

using the EFFS system; 

(2) The Commission has received the 

submission by the open of business on 

the business day that is 10 business 

days preceding the product’s listing; 

and 

(3) The submission includes: 

(i) A copy of the submission cover 

sheet in accordance with the 

instructions therein; 

(ii) A copy of the product’s rules, 

including all rules related to its terms 

and conditions; 

(iii) The intended listing date; 

(iv) A certification by the securitybased swap execution facility that the 

product to be listed complies with the 

Act and the Commission’s rules 

thereunder; 

(v) A concise explanation and 

analysis of the product and its 

compliance with applicable provisions 

of the Act, including core principles, 

and the Commission’s rules thereunder. 

This explanation and analysis shall 

either be accompanied by the 

documentation relied upon to establish 

the basis for compliance with applicable 

law, or incorporate information 

contained in such documentation, with 

appropriate citations to data sources; 

(vi) A certification that the securitybased swap execution facility posted a 

notice of pending product certification 

with the Commission and a copy of the 

submission, concurrent with the filing 

of a submission with the Commission, 

on the security-based swap execution 

facility’s website. Information that the 

security-based swap execution facility 

seeks to keep confidential may be 

redacted from the documents published 

on the security-based swap execution’s 

website but must be republished 

consistent with any determination made 

pursuant to § 240.24b–2 of this chapter; 

and 

(vii) A request for confidential 

treatment, if appropriate, as permitted 

under § 240.24b–2 of this chapter. 

(b) Additional information. If 

requested by Commission staff, a 

security-based swap execution facility 

shall provide any additional evidence, 

information, or data that demonstrates 

that the security-based swap meets, 

initially or on a continuing basis, the 

requirements of the Act or the 

Commission’s rules or policies 

thereunder. 

(c) Stay of certification of product. (1) 

General. The Commission may stay the 

certification of a product submitted 

pursuant to paragraph (a) of this section 

by issuing a notification informing the 

security-based swap execution facility 

that the Commission is staying the 

certification of the product on the 


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grounds that the product presents novel 

or complex issues that require 

additional time to analyze, the product 

is accompanied by an inadequate 

explanation, or the product is 

potentially inconsistent with the Act or 

the Commission’s rules thereunder. The 

Commission will have an additional 90 

days from the date of the notification to 

conduct the review. 

(2) Public comment. The Commission 

shall provide a 30-day comment period 

within the 90-day period in which the 

stay is in effect, as described in 

paragraph (c)(1) of this section. The 

Commission shall publish a notice of 

the 30-day comment period on the 

Commission’s website. Comments from 

the public shall be submitted as 

specified in that notice. 

(3) Expiration of a stay of certification 

of product. A product subject to a stay 

pursuant to this paragraph shall become 

effective, pursuant to the certification, at 

the expiration of the 90-day review 

period described in paragraph (c)(1) of 

this section, unless the Commission 

withdraws the stay prior to that time, or 

the Commission notifies the securitybased swap execution facility during the 

90-day time period that it objects to the 

proposed certification on the grounds 

that the product is inconsistent with the 

Act or the Commission’s rules. 

§ 242.805 Voluntary submission of new 

products for Commission review and 

approval. 

(a) Request for approval. A securitybased swap execution facility may 

request that the Commission approve a 

new or dormant product prior to listing 

the product for trading, or if a product 

was initially submitted under § 242.804, 

subsequent to listing the product for 

trading. A submission requesting 

approval shall: 

(1) Be filed electronically with the 

Commission using the EFFS system; 

(2) Include a copy of the submission 

cover sheet in accordance with the 

instructions therein; 

(3) Include a copy of the rules that set 

forth the security-based swap’s terms 

and conditions; 

(4) Include an explanation and 

analysis of the product and its 

compliance with applicable provisions 

of the Act, including the core principles 

and the Commission’s rules thereunder. 

This explanation and analysis shall 

either be accompanied by the 

documentation relied upon to establish 

the basis for compliance with the 

applicable law, or incorporate 

information contained in such 

documentation, with appropriate 

citations to data sources; 

(5) Describe any agreements or 

contracts entered into with other parties 

that enable the security-based swap 

execution facility to carry out its 

responsibilities; 

(6) Include, if appropriate, a request 

for confidential treatment as permitted 

under § 240.24b–2 of this chapter; 

(7) Certify that the security-based 

swap execution facility posted a notice 

of its request for Commission approval 

of the new product and a copy of the 

submission, concurrent with the filing 

of a submission with the Commission, 

on the security-based swap execution 

facility’s website. Information that the 

security-based swap execution facility 

seeks to keep confidential may be 

redacted from the documents published 

on the security-based swap execution 

facility’s website but must be 

republished consistent with any 

determination made pursuant to 

§ 240.24b–2 of this chapter; and 

(8) Include, if requested by 

Commission staff, additional evidence, 

information, or data demonstrating that 

the security-based swap meets, initially 

or on a continuing basis, the 

requirements of the Act, or other 

requirement for registration under the 

Act, or the Commission’s rules or 

policies thereunder. The security-based 

swap execution facility shall submit the 

requested information by the open of 

business on the date that is two business 

days from the date of request by 

Commission staff, or at the conclusion 

of such extended period agreed to by 

Commission staff after timely receipt of 

a written request from the securitybased swap execution facility. 

(b) Standard for review and approval. 

The Commission shall approve a new 

product unless the terms and conditions 

of the product violate the Act or the 

Commission’s rules thereunder. 

(c) Forty-five-day review. A product 

submitted for Commission approval 

under this paragraph shall be deemed 

approved by the Commission 45 days 

after receipt by the Commission, or at 

the conclusion of an extended period as 

provided under paragraph (d) of this 

section, unless notified otherwise 

within the applicable period, if: 

(1) The submission complies with the 

requirements of paragraph (a) of this 

section; and 

(2) The submitting security-based 

swap execution facility does not amend 

the terms or conditions of the product 

or supplement the request for approval, 

except as requested by the Commission 

or for correction of typographical errors, 

renumbering, or other non-substantive 

revisions, during that period. Any 

voluntary, substantive amendment by 

the security-based swap execution 

facility will be treated as a new 

submission under this section. 

(d) Extension of time. The 

Commission may extend the 45-day 

review period in paragraph (c) of this 

section for: 

(1) An additional 45 days, if the 

product raises novel or complex issues 

that require additional time to analyze, 

in which case the Commission shall 

notify the security-based swap 

execution facility within the initial 45- 

day review period and shall briefly 

describe the nature of the specific 

issue(s) for which additional time for 

review is required; or 

(2) Any extended review period to 

which the security-based swap 

execution facility agrees in writing. 

(e) Notice of non-approval. The 

Commission, at any time during its 

review under this section, may notify 

the security-based swap execution 

facility that it will not, or is unable to, 

approve the product. This notification 

will briefly specify the nature of the 

issues raised and the specific provision 

of the Act or the Commission’s rules 

thereunder, including the form or 

content requirements of paragraph (a) of 

this section, that the product violates, 

appears to violate, or potentially 

violates but which cannot be 

ascertained from the submission. 

(f) Effect of non-approval. (1) 

Notification to a security-based swap 

execution facility under paragraph (e) of 

this section of the Commission’s 

determination not to approve a product 

does not prejudice the security-based 

swap execution facility from 

subsequently submitting a revised 

version of the product for Commission 

approval, or from submitting the 

product as initially proposed pursuant 

to a supplemented submission. 

(2) Notification to a security-based 

swap execution facility under paragraph 

(e) of this section of the Commission’s 

refusal to approve a product shall be 

presumptive evidence that the securitybased swap execution facility may not 

truthfully certify under § 242.804 that 

the same, or substantially the same, 

product does not violate the Act or the 

Commission’s rules thereunder. 

§ 242.806 Voluntary submission of rules 

for Commission review and approval. 

(a) Request for approval of rules. A 

security-based swap execution facility 

may request that the Commission 

approve a new rule, rule amendment, or 

dormant rule prior to implementation of 

the rule, or if the request was initially 

submitted under § 242.806 or § 242.807, 

subsequent to implementation of the 

rule. A request for approval shall: 


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(1) Be filed electronically with the 

Commission using the EFFS system; 

(2) Include a copy of the submission 

cover sheet in accordance with the 

instructions therein; 

(3) Set forth the text of the rule or rule 

amendment (in the case of a rule 

amendment, deletions and additions 

must be indicated); 

(4) Describe the proposed effective 

date of the rule or rule amendment and 

any action taken or anticipated to be 

taken to adopt the proposed rule by the 

security-based swap execution facility 

or by its governing board or by any 

committee thereof, and cite the rules of 

the security-based swap execution 

facility that authorize the adoption of 

the proposed rule; 

(5) Provide an explanation and 

analysis of the operation, purpose, and 

effect of the proposed rule or rule 

amendment and its compliance with 

applicable provisions of the Act, 

including the core principles relating to 

security-based swap execution facilities 

and the Commission’s rules thereunder 

and, as applicable, a description of the 

anticipated benefits to market 

participants or others, any potential 

anticompetitive effects on market 

participants or others, and how the rule 

fits into the security-based swap 

execution facility’s framework of 

regulation; 

(6) Certify that the security-based 

swap execution facility posted a notice 

of the pending rule with the 

Commission and a copy of the 

submission, concurrent with the filing 

of a submission with the Commission, 

on the security-based swap execution 

facility’s website. Information that the 

security-based swap execution facility 

seeks to keep confidential may be 

redacted from the documents published 

on the security-based swap execution 

facility’s website but must be 

republished consistent with any 

determination made pursuant to 

§ 240.24b–2 of this chapter; 

(7) Provide additional information 

which may be beneficial to the 

Commission in analyzing the new rule 

or rule amendment. If a proposed rule 

affects, directly or indirectly, the 

application of any other rule of the 

security-based swap execution facility, 

the pertinent text of any such rule must 

be set forth and the anticipated effect 

described; 

(8) Provide a brief explanation of any 

substantive opposing views expressed to 

the security-based swap execution 

facility by governing board or committee 

members, members of the security-based 

swap execution facility, or market 

participants that were not incorporated 

into the rule, or a statement that no such 

opposing views were expressed; and 

(9) As appropriate, include a request 

for confidential treatment as permitted 

under § 240.24b–2 of this chapter. 

(b) Standard for review and approval. 

The Commission shall approve a new 

rule or rule amendment unless the rule 

or rule amendment is inconsistent with 

the Act or the Commission’s rules 

thereunder. 

(c) Forty-five-day review. A rule or 

rule amendment submitted for 

Commission approval under paragraph 

(a) of this section shall be deemed 

approved by the Commission 45 days 

after receipt by the Commission, or at 

the conclusion of such extended period 

as provided under paragraph (d) of this 

section, unless the security-based swap 

execution facility is notified otherwise 

within the applicable period, if: 

(1) The submission complies with the 

requirements of paragraph (a) of this 

section; 

(2) The security-based swap execution 

facility does not amend the proposed 

rule or supplement the submission, 

except as requested by the Commission, 

during the pendency of the review 

period, other than for correction of 

typographical errors, renumbering, or 

other non- substantive revisions. Any 

amendment or supplementation not 

requested by the Commission will be 

treated as the submission of a new filing 

under this section. 

(d) Extension of time for review. The 

Commission may further extend the 

review period in paragraph (c) of this 

section for: 

(1) An additional 45 days, if the 

proposed rule or rule amendment raises 

novel or complex issues that require 

additional time for review or is of major 

economic significance, the submission 

is incomplete, or the requestor does not 

respond completely to Commission 

questions in a timely manner, in which 

case the Commission shall notify the 

submitting security-based swap 

execution facility within the initial 45- 

day review period and shall briefly 

describe the nature of the specific issues 

for which additional time for review 

shall be required; or 

(2) Any period, beyond the additional 

45 days provided in paragraph (d)(1) of 

this section, to which the security-based 

swap execution facility agrees in 

writing. 

(e) Notice of non-approval. Any time 

during its review under this section, the 

Commission may notify the securitybased swap execution facility that it will 

not, or is unable to, approve the new 

rule or rule amendment. This 

notification will briefly specify the 

nature of the issues raised and the 

specific provision of the Act or the 

Commission’s rules thereunder, 

including the form or content 

requirements of this section, with which 

the new rule or rule amendment is 

inconsistent or appears to be 

inconsistent with the Act or the 

Commission’s rules thereunder. 

(f) Effect of non-approval. (1) 

Notification to a security-based swap 

execution facility under paragraph (e) of 

this section does not prevent the 

security-based swap execution facility 

from subsequently submitting a revised 

version of the proposed rule or rule 

amendment for Commission review and 

approval or from submitting the new 

rule or rule amendment as initially 

proposed in a supplemented 

submission. The revised submission 

will be reviewed without prejudice. 

(2) Notification to a security-based 

swap execution facility under paragraph 

(e) of this section of the Commission’s 

determination not to approve a 

proposed rule or rule amendment shall 

be presumptive evidence that the 

security-based swap execution facility 

may not truthfully certify the same, or 

substantially the same, proposed rule or 

rule amendment under § 242.807(a). 

(g) Expedited approval. 

Notwithstanding the provisions of 

paragraph (c) of this section, changes to 

a proposed rule or a rule amendment, 

including changes to terms and 

conditions of a product that are 

consistent with the Act and the 

Commission’s rules thereunder, may be 

approved by the Commission at such 

time and under such conditions as the 

Commission shall specify in the written 

notification; provided, however, that the 

Commission may, at any time, alter or 

revoke the applicability of such a notice 

to any particular product or rule 

amendment. 

§ 242.807 Self-certification of rules. 

(a) Required certification. A securitybased swap execution facility shall 

comply with the following conditions 

prior to implementing any rule—other 

than a rule delisting or withdrawing the 

certification of a product with no open 

interest and submitted in compliance 

with paragraphs (a)(1), (2), and (6) of 

this section—that has not obtained 

Commission approval under § 242.806, 

or that remains a dormant rule 

subsequent to being submitted under 

this section or approved under 

§ 242.806. 

(1) The security-based swap execution 

facility has filed its submission 

electronically with the Commission 

using the EFFS system. 

(2) The security-based swap execution 

facility has provided a certification that 


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it posted a notice of pending 

certification with the Commission and a 

copy of the submission, concurrent with 

the filing of a submission with the 

Commission, on the security-based 

swap execution facility’s website. 

Information that the security-based 

swap execution facility seeks to keep 

confidential may be redacted from the 

documents published on the securitybased swap execution facility’s website, 

but it must be republished consistent 

with any determination made pursuant 

to § 240.24b–2 of this chapter. 

(3) The Commission has received the 

submission not later than the open of 

business on the business day that is 10 

business days prior to the security-based 

swap execution facility’s 

implementation of the rule or rule 

amendment. 

(4) The Commission has not stayed 

the submission pursuant to § 242.807(c). 

(5) A new rule or rule amendment 

that establishes standards for 

responding to an emergency shall be 

submitted pursuant to § 242.807(a). A 

rule or rule amendment implemented 

under procedures of the governing 

board to respond to an emergency shall, 

if practicable, be filed with the 

Commission prior to implementation or, 

if not practicable, be filed with the 

Commission at the earliest possible time 

after implementation, but in no event 

more than 24 hours after 

implementation. Any such submission 

shall be subject to the certification and 

stay provisions of paragraphs (b) and (c) 

of this section. 

(6) The rule submission shall include: 

(i) A copy of the submission cover 

sheet in accordance with the 

instructions therein (in the case of a rule 

or rule amendment that responds to an 

emergency, ‘‘Emergency Rule 

Certification’’ should be noted in the 

description section of the submission 

cover sheet); 

(ii) The text of the rule (in the case of 

a rule amendment, deletions and 

additions must be indicated); 

(iii) The date of intended 

implementation; 

(iv) A certification by the securitybased swap execution facility that the 

rule complies with the Act and the 

Commission’s rules thereunder; 

(v) A concise explanation and 

analysis of the operation, purpose, and 

effect of the proposed rule or rule 

amendment and its compliance with 

applicable provisions of the Act, 

including core principles relating to 

security-based swap execution facilities 

and the Commission’s rules thereunder; 

(vi) A brief explanation of any 

substantive opposing views expressed to 

the security-based swap execution 

facility by governing board or committee 

members, members of the security-based 

swap execution facility, or market 

participants, that were not incorporated 

into the rule, or a statement that no such 

opposing views were expressed; and 

(vii) As appropriate, a request for 

confidential treatment pursuant to the 

procedures provided in § 240.24b–2 of 

this chapter. 

(7) The security-based swap execution 

facility shall provide, if requested by 

Commission staff, additional evidence, 

information, or data that may be 

beneficial to the Commission in 

conducting a due diligence assessment 

of the filing and the security-based swap 

execution facility’s compliance with any 

of the requirements of the Act or the 

Commission’s rules or policies 

thereunder. 

(b) Review by the Commission. The 

Commission shall have 10 business days 

to review the new rule or rule 

amendment before the new rule or rule 

amendment is deemed certified and can 

be made effective, unless the 

Commission notifies the security-based 

swap execution facility during the 10- 

business-day review period that it 

intends to issue a stay of the 

certification under paragraph (c) of this 

section. 

(c) Stay. (1) Stay of certification of 

new rule or rule amendment. The 

Commission may stay the certification 

of a new rule or rule amendment 

submitted pursuant to paragraph (a) of 

this section by issuing a notification 

informing the security-based swap 

execution facility that the Commission 

is staying the certification of the rule or 

rule amendment on the grounds that the 

rule or rule amendment presents novel 

or complex issues that require 

additional time to analyze, the rule or 

rule amendment is accompanied by an 

inadequate explanation, or the rule or 

rule amendment is potentially 

inconsistent with the Act or the 

Commission’s rules thereunder. The 

Commission will have an additional 90 

days from the date of the notification to 

conduct the review. 

(2) Public comment. The Commission 

shall provide a 30-day comment period 

within the 90-day period in which the 

stay is in effect, as described in 

paragraph (c)(1) of this section. The 

Commission shall publish a notice of 

the 30-day comment period on the 

Commission website. Comments from 

the public shall be submitted as 

specified in that notice. 

(3) Expiration of a stay of certification 

of new rule or rule amendment. A new 

rule or rule amendment subject to a stay 

pursuant to this paragraph shall become 

effective, pursuant to the certification, at 

the expiration of the 90-day review 

period described in paragraph (c)(1) of 

this section, unless the Commission 

withdraws the stay prior to that time, or 

the Commission notifies the securitybased swap execution facility during the 

90-day time period that it objects to the 

proposed certification on the grounds 

that the proposed rule or rule 

amendment is inconsistent with the Act 

or the Commission’s rules thereunder. 

(d) Notification of rule amendments. 

Notwithstanding the rule certification 

requirement of paragraph (a) of this 

section, a security-based swap execution 

facility may place the following rules or 

rule amendments into effect without 

certification to the Commission if the 

following conditions are met: 

(1) The security-based swap execution 

facility provides to the Commission at 

least weekly a summary notice of all 

rule amendments made effective 

pursuant to this paragraph during the 

preceding week. Such notice must be 

labeled ‘‘Weekly Notification of Rule 

Amendments’’ and need not be filed for 

weeks during which no such actions 

have been taken. One copy of each such 

submission shall be furnished 

electronically using the EFFS system; 

and 

(2) The rule governs: 

(i) Non-substantive revisions. 

Corrections of typographical errors, 

renumbering, periodic routine updates 

to identifying information about the 

security-based swap execution facility, 

and other such non-substantive 

revisions of a product’s terms and 

conditions that have no effect on the 

economic characteristics of the product; 

(ii) Fees. Fees or fee changes, other 

than fees or fee changes associated with 

market making or trading incentive 

programs, that: 

(A) Total $1.00 or more per contract, 

and 

(B) Are established by an independent 

third party or are unrelated to delivery, 

trading, clearing, or dispute resolution. 

(iii) Survey lists. Changes to lists of 

banks, brokers, dealers, or other entities 

that provide price or cash market 

information to an independent third 

party and that are incorporated by 

reference as product terms; 

(iv) Approved brands. Changes in lists 

of approved brands or markings 

pursuant to previously certified or 

Commission approved standards or 

criteria; 

(v) Trading months. The initial listing 

of trading months, which may qualify 

for implementation without notice 

pursuant to paragraph (d)(3)(ii)(F) of 

this section, within the currently 

established cycle of trading months; or 


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(vi) Minimum tick. Reductions in the 

minimum price fluctuation (or ‘‘tick’’). 

(3) Notification of rule amendments 

not required. Notwithstanding the rule 

certification requirements of paragraph 

(a) of this section, a security-based swap 

execution facility may place the 

following rules or rule amendments into 

effect without certification or notice to 

the Commission if the following 

conditions are met: 

(i) The security-based swap execution 

facility maintains documentation 

regarding all changes to rules; and 

(ii) The rule governs: 

(A) Transfer of membership or 

ownership. Procedures and forms for the 

purchase, sale, or transfer of 

membership or ownership, but not 

including qualifications for membership 

or ownership, any right or obligation of 

membership or ownership, or dues or 

assessments; 

(B) Administrative procedures. The 

organization and administrative 

procedures of a security-based swap 

execution facility’s governing bodies 

such as a governing board, officers, and 

committees, but not voting 

requirements, governing board, or 

committee composition requirements or 

procedures, decision-making 

procedures, use or disclosure of material 

non-public information gained through 

the performance of official duties, or 

requirements relating to conflicts of 

interest; 

(C) Administration. The routine daily 

administration, direction, and control of 

employees, requirements relating to 

gratuity and similar funds, but not 

guaranty, reserves, or similar funds; 

declaration of holidays; and changes to 

facilities housing the market, trading 

floor, or trading area; 

(D) Standards of decorum. Standards 

of decorum or attire or similar 

provisions relating to admission to the 

floor, badges, or visitors, but not the 

establishment of penalties for violations 

of such rules; 

(E) Fees. Fees or fee changes, other 

than fees or fee changes associated with 

market making or trading incentive 

programs, that: 

(1) Are less than $1.00; or 

(2) Relate to matters such as dues, 

badges, telecommunication services, 

booth space, real-time quotations, 

historical information, publications, 

software licenses, or other matters that 

are administrative in nature; and 

(F) Trading months. The initial listing 

of trading months which are within the 

currently established cycle of trading 

months. 

§ 242.808 Availability of public 

information. 

(a) The Commission shall make 

publicly available on its website the 

following parts of an application to 

register as a security-based swap 

execution facility, unless confidential 

treatment is obtained pursuant to 

§ 240.24b–2 of this chapter: 

(1) Transmittal letter and first page of 

the application cover sheet; 

(2) Exhibit C; 

(3) Exhibit G; 

(4) Exhibit L; and 

(5) Exhibit M. 

(b) The Commission shall make 

publicly available on its website, unless 

confidential treatment is obtained 

pursuant to § 240.24b–2 of this chapter, 

a security-based swap execution 

facility’s filing of new products 

pursuant to the self-certification 

procedures of § 242.804, new products 

for Commission review and approval 

pursuant to § 242.805, new rules and 

rule amendments for Commission 

review and approval pursuant to 

§ 242.806, and new rules and rule 

amendments pursuant to the selfcertification procedures of § 242.807. 

(c) The terms and conditions of a 

product submitted to the Commission 

pursuant to § 242.804, 242.805, 242.806, 

or 242.807 shall be made publicly 

available at the time of submission 

unless confidential treatment is 

obtained pursuant to § 240.24b–2 of this 

chapter. 

§ 242.809 Staying of certification and 

tolling of review period pending 

jurisdictional determination. 

(a) A product certification made by a 

security-based swap execution facility 

pursuant to § 242.804 shall be stayed, or 

the review period for a product that has 

been submitted for Commission 

approval by a security-based swap 

execution facility pursuant to § 242.805 

shall be tolled, upon request for a joint 

interpretation of whether the product is 

a swap, security-based swap, or mixed 

swap made pursuant to § 240.3a68–2 of 

this chapter by the security-based swap 

execution facility, the Commission, or 

the Commodity Futures Trading 

Commission. 

(b) The Commission shall provide the 

security-based swap execution facility 

with a written notice of the stay or 

tolling pending issuance of a joint 

interpretation. 

(c) The stay shall be withdrawn, or 

the approval review period shall 

resume, if a joint interpretation finding 

that the Commission has jurisdiction 

over the product is issued. 

§ 242.810 Product filings by securitybased swap execution facilities that are not 

yet registered and by dormant securitybased swap execution facilities. 

(a) An applicant for registration as a 

security-based swap execution facility 

may submit a security-based swap’s 

terms and conditions prior to listing the 

product as part of its application for 

registration. 

(b) Any security-based swap terms 

and conditions or rules submitted as 

part of a security-based swap execution 

facility’s application for registration 

shall be considered for approval by the 

Commission at the time the Commission 

issues the security-based swap 

execution facility’s order of registration. 

(c) After the Commission issues the 

order of registration, the security-based 

swap execution facility shall submit a 

security-based swap’s terms and 

conditions, including amendments to 

such terms and conditions, new rules, 

or rule amendments pursuant to the 

procedures in §§ 242.804, 242.805, 

242.806, and 242.807. 

(d) Any security-based swap terms 

and conditions or rules submitted as 

part of an application to reinstate the 

registration of a dormant security-based 

swap execution facility shall be 

considered for approval by the 

Commission at the time the Commission 

approves the reinstatement of 

registration of the dormant securitybased swap execution facility. 

§ 242.811 Information relating to securitybased swap execution facility compliance. 

(a) Request for information. Upon the 

Commission’s request, a security-based 

swap execution facility shall file with 

the Commission information related to 

its business as a security-based swap 

execution facility in the form and 

manner, and within the timeframe, 

specified by the Commission. 

(b) Demonstration of compliance. 

Upon the Commission’s request, a 

security-based swap execution facility 

shall file with the Commission a written 

demonstration, containing supporting 

data, information, and documents, that 

it is in compliance with one or more 

core principles or with its other 

obligations under the Act or the 

Commission’s rules thereunder, as the 

Commission specifies in its request. The 

security-based swap execution facility 

shall file such written demonstration in 

the form and manner, and within the 

timeframe, specified by the 

Commission. 

(c) Equity interest transfer. (1) Equity 

interest transfer notification. A securitybased swap execution facility shall file 

with the Commission a notification of 

any transaction involving the direct or 


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indirect transfer of 50 percent or more 

of the equity interest in the securitybased swap execution facility. The 

Commission may, upon receiving such 

notification, request supporting 

documentation of the transaction. 

(2) Timing of notification. The equity 

interest transfer notice described in 

paragraph (c)(1) of this section shall be 

filed with the Commission in a form and 

manner specified by the Commission at 

the earliest possible time, but in no 

event later than the open of business 10 

business days following the date upon 

which the security-based swap 

execution facility enters into a firm 

obligation to transfer the equity interest. 

(3) Rule filing. Notwithstanding the 

foregoing, if any aspect of an equity 

interest transfer described in paragraph 

(c)(1) of this section requires a securitybased swap execution facility to file a 

rule, the security-based swap execution 

facility shall comply with the applicable 

rule filing requirements of § 242.806 or 

§ 242.807. 

(4) Certification. Upon an equity 

interest transfer described in paragraph 

(c)(1) of this section, the security-based 

swap execution facility shall file with 

the Commission, in a form and manner 

specified by the Commission, a 

certification that the security-based 

swap execution facility meets all of the 

requirements of section 3D of the Act 

and the Commission rules thereunder, 

no later than two business days 

following the date on which the equity 

interest of 50 percent or more was 

acquired. 

(d) Pending legal proceedings. (1) A 

security-based swap execution facility 

shall submit to the Commission a copy 

of the complaint, any dispositive or 

partially dispositive decision, any 

notice of appeal filed concerning such 

decision, and such further documents as 

the Commission may thereafter request 

filed in any material legal proceeding to 

which the security-based swap 

execution facility is a party or its 

property or assets is subject. 

(2) A security-based swap execution 

facility shall submit to the Commission 

a copy of the complaint, any dispositive 

or partially dispositive decision, any 

notice of appeal filed concerning such 

decision, and such further documents as 

the Commission may thereafter request 

filed in any material legal proceeding 

instituted against any officer, director, 

or other official of the security-based 

swap execution facility from conduct in 

such person’s capacity as an official of 

the security-based swap execution 

facility and alleging violations of: 

(i) The Act or any rule, regulation, or 

order under the Act; 

(ii) The constitution, bylaws, or rules 

of the security-based swap execution 

facility; or 

(iii) The applicable provisions of State 

law relating to the duties of officers, 

directors, or other officials of business 

organizations. 

(3) All documents required by this 

paragraph (d) to be submitted to the 

Commission shall be submitted 

electronically in a form and manner 

specified by the Commission within 10 

days after the initiation of the legal 

proceedings to which they relate, after 

the date of issuance, or after receipt by 

the security-based swap execution 

facility of the notice of appeal, as the 

case may be. 

(4) For purposes of this paragraph (d), 

a ‘‘material legal proceeding’’ includes 

but is not limited to actions involving 

alleged violations of the Act or the 

Commission rules thereunder. However, 

a legal proceeding is not ‘‘material’’ for 

the purposes of this rule if the 

proceeding is not in a Federal or State 

court or if the Commission is a party. 

§ 242.812 Enforceability. 

(a) A transaction entered into on or 

pursuant to the rules of a security-based 

swap execution facility shall not be 

void, voidable, subject to rescission, 

otherwise invalidated, or rendered 

unenforceable as a result of a violation 

by the security-based swap execution 

facility of the provisions of section 3D 

of the Act or the Commission’s rules 

thereunder. 

(b) A security-based swap execution 

facility shall, as soon as technologically 

practicable after the time of execution of 

a transaction entered into on or 

pursuant to the rules of the facility, 

provide a written record to each 

counterparty of all of the terms of the 

transaction that were agreed to on the 

facility, which shall legally supersede 

any previous agreement regarding such 

terms. 

§ 242.813 Prohibited use of data collected 

for regulatory purposes. 

A security-based swap execution 

facility shall not use for business or 

marketing purposes any proprietary data 

or personal information it collects or 

receives, from or on behalf of any 

person, for the purpose of fulfilling its 

regulatory obligations; provided, 

however, that a security-based swap 

execution facility may use such data or 

information for business or marketing 

purposes if the person from whom it 

collects or receives such data or 

information clearly consents to the 

security-based swap execution facility’s 

use of such data or information in such 

manner. A security-based swap 

execution facility shall not condition 

access to its market(s) or market services 

on a person’s consent to the securitybased swap execution facility’s use of 

proprietary data or personal information 

for business or marketing purposes. A 

security-based swap execution facility, 

where necessary for regulatory 

purposes, may share such data or 

information with one or more securitybased swap execution facilities or 

national securities exchanges registered 

with the Commission. 

§ 242.814 Entity operating both a national 

securities exchange and security-based 

swap execution facility. 

(a) An entity that intends to operate 

both a national securities exchange and 

a security-based swap execution facility 

shall separately register the two 

facilities pursuant to section 6 of the Act 

and § 242.803, respectively. 

(b) A national securities exchange 

shall, to the extent that the exchange 

also operates a security-based swap 

execution facility and uses the same 

electronic trade execution system for 

listing and executing trades of securitybased swaps on or through the exchange 

and the facility, identify whether 

electronic trading of such security-based 

swaps is taking place on or through the 

national securities exchange or the 

security-based swap execution facility. 

§ 242.815 Methods of execution for 

Required and Permitted Transactions. 

(a) Execution methods for Required 

Transactions. (1) Required Transaction 

means any transaction involving a 

security-based swap that is subject to 

the trade execution requirement in 

section 3C(h) of the Act. 

(2) Execution methods. (i) Each 

Required Transaction that is not a block 

trade shall be executed on a securitybased swap execution facility in 

accordance with one of the following 

methods of execution, except as 

provided in paragraph (d) or (e) of this 

section: 

(A) An order book; or 

(B) A request-for-quote system that 

operates in conjunction with an order 

book. 

(ii) In providing either one of the 

execution methods set forth in 

paragraph (a)(2)(i)(A) or (B) of this 

section, a security-based swap execution 

facility may for purposes of execution 

and communication use any means of 

interstate commerce, including, but not 

limited to, the mail, internet, email, and 

telephone, provided that the chosen 

execution method satisfies the 

requirements for order books in 

§ 242.802 of this chapter or in paragraph 

(a)(3) of this section for request-forquote systems. 


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(3) Request-for-quote system means a 

trading system or platform in which a 

market participant transmits a request 

for a quote to buy or sell a specific 

instrument to no less than three market 

participants in the trading system or 

platform, to which all such market 

participants may respond. The three 

market participants shall not be 

affiliates of or controlled by the 

requester and shall not be affiliates of or 

controlled by each other. A securitybased swap execution facility that offers 

a request-for-quote system in connection 

with Required Transactions shall 

provide the following functionality: 

(i) At the same time that the requester 

receives the first responsive bid or offer, 

the security-based swap execution 

facility shall communicate to the 

requester any firm bid or offer 

pertaining to the same instrument 

resting on any of the security-based 

swap execution facility’s order books; 

(ii) The security-based swap 

execution facility shall provide the 

requester with the ability to execute 

against such firm resting bids or offers 

along with any responsive orders; and 

(iii) The security-based swap 

execution facility shall ensure that its 

trading protocols provide each of its 

market participants with equal priority 

in receiving requests for quotes and in 

transmitting and displaying for 

execution responsive orders. 

(b) Time delay requirement for 

Required Transactions on an order 

book. (1) Time delay requirement. With 

regard to Required Transactions, a 

security-based swap execution facility 

shall require that a broker or dealer who 

seeks to either execute against its 

customer’s order or execute two of its 

customers’ orders against each other 

through the security-based swap 

execution facility’s order book, 

following some form of pre-arrangement 

or pre-negotiation of such orders, be 

subject to at least a 15-second time 

delay between the entry of those two 

orders into the order book, such that one 

side of the potential transaction is 

disclosed and made available to other 

market participants before the second 

side of the potential transaction, 

whether for the broker’s or dealer’s own 

account or for a second customer, is 

submitted for execution. 

(2) Adjustment of time delay 

requirement. A security-based swap 

execution facility may adjust the time 

period of the 15-second time delay 

requirement described in paragraph 

(b)(1) of this section, based upon a 

security-based swap’s liquidity or other 

product-specific considerations; 

however, the time delay shall be set for 

a sufficient period of time so that an 

order is exposed to the market and other 

market participants have a meaningful 

opportunity to execute against such 

order. 

(c) Execution methods for Permitted 

Transactions. (1) Permitted Transaction 

means any transaction not involving a 

security-based swap that is subject to 

the trade execution requirement in 

section 3C(h) of the Act. 

(2) Execution methods. A securitybased swap execution facility may offer 

any method of execution for each 

Permitted Transaction. 

(d) Exceptions to required methods of 

execution for package transactions. (1) 

For purposes of this paragraph, a 

package transaction consists of two or 

more component transactions executed 

between two or more counterparties 

where: 

(i) At least one component transaction 

is a Required Transaction; 

(ii) Execution of each component 

transaction is contingent upon the 

execution of all other component 

transactions; and 

(iii) The component transactions are 

priced or quoted together as one 

economic transaction with simultaneous 

or near-simultaneous execution of all 

components. 

(2) A Required Transaction that is 

executed as a component of a package 

transaction that includes a component 

security-based swap that is subject 

exclusively to the Commission’s 

jurisdiction, but is not subject to the 

clearing requirement under section 3C 

of the Act and is not intended to be 

cleared, may be executed on a securitybased swap execution facility in 

accordance with paragraph (c)(2) of this 

section as if it were a Permitted 

Transaction; 

(3) A Required Transaction that is 

executed as a component of a package 

transaction that includes a component 

that is not a security-based swap may be 

executed on a security-based swap 

execution facility in accordance with 

paragraph (c)(2) of this section as if it 

were a Permitted Transaction. This 

provision shall not apply to: 

(i) A Required Transaction that is 

executed as a component of a package 

transaction in which all other nonsecurity-based swap components are 

U.S. Treasury securities; 

(ii) A Required Transaction that is 

executed as a component of a package 

transaction in which all other nonsecurity-based swap components are 

contracts for the purchase or sale of a 

commodity for future delivery; 

(iii) A Required Transaction that is 

executed as a component of a package 

transaction in which all other nonsecurity-based swap components are 

agency mortgage-backed securities; 

(iv) A Required Transaction that is 

executed as a component of a package 

transaction that includes a component 

transaction that is the issuance of a 

bond in a primary market; and 

(v) A Required Transaction that is 

executed as a component of a package 

transaction in which all other nonsecurity-based swap components are 

swaps that are subject to a trade 

execution requirement under 17 CFR 

37.9. 

(4) A Required Transaction that is 

executed as a component of a package 

transaction that includes a component 

security-based swap that is not 

exclusively subject to the Commission’s 

jurisdiction may be executed on a 

security-based swap in accordance with 

paragraph (c)(2) of this section as if it 

were a Permitted Transaction. 

(e) Resolution of operational and 

clerical error trades. (1) A securitybased swap execution facility shall 

maintain rules and procedures that 

facilitate the resolution of error trades. 

Such rules shall be fair, transparent, and 

consistent; allow for timely resolution; 

require members to provide prompt 

notice of an error trade—and, as 

applicable, offsetting and correcting 

trades—to the security-based swap 

execution facility; and permit members 

to: 

(i) Execute a correcting trade, in 

accordance with paragraph (c)(2) of this 

section, regardless of whether it is a 

Required or Permitted Transaction, for 

an error trade that has been rejected 

from clearing as soon as technologically 

practicable, but no later than one hour 

after a registered clearing agency 

provides notice of the rejection; or 

(ii) Execute an offsetting trade and a 

correcting trade, in accordance with 

paragraph (c)(2) of this section, 

regardless of whether it is a Required or 

Permitted Transaction, for an error trade 

that was accepted for clearing as soon as 

technologically practicable, but no later 

than three days after the error trade was 

accepted for clearing at a registered 

clearing agency. 

(2) If a correcting trade is rejected 

from clearing, then the security-based 

swap execution facility shall not allow 

the counterparties to execute another 

correcting trade. 

(f) Counterparty anonymity. (1) 

Except as otherwise required under the 

Act or the Commission’s rules 

thereunder, a security-based swap 

execution facility shall not directly or 

indirectly, including through a thirdparty service provider, disclose the 

identity of a counterparty to a securitybased swap that is executed 


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anonymously and intended to be 

cleared. 

(2) A security-based swap execution 

facility shall establish and enforce rules 

that prohibit any person from directly or 

indirectly, including through a thirdparty service provider, disclosing the 

identity of a counterparty to a securitybased swap that is executed 

anonymously and intended to be 

cleared. 

(3) For purposes of paragraphs (f)(1) 

and (2) of this section, ‘‘executed 

anonymously’’ shall include a securitybased swap that is pre-arranged or prenegotiated anonymously, including by a 

member of the security-based swap 

execution facility. 

(4) For a package transaction that 

includes a component transaction that is 

not a security-based swap intended to 

be cleared, disclosing the identity of a 

counterparty shall not violate 

paragraphs (f)(1) or (2) of this section. 

For purposes of this paragraph (f), a 

‘‘package transaction’’ consists of two or 

more component transactions executed 

between two or more counterparties 

where: 

(i) Execution of each component 

transaction is contingent upon the 

execution of all other component 

transactions; and 

(ii) The component transactions are 

priced or quoted together as one 

economic transaction with simultaneous 

or near-simultaneous execution of all 

components. 

(g) Transactions not accepted for 

clearing. A security-based swap 

execution facility shall establish and 

enforce rules that provide that a 

security-based swap that is intended to 

be cleared at the time of the transaction, 

but is not accepted for clearing at a 

registered clearing agency, shall be void 

ab initio. 

§ 242.816 Trade execution requirement 

and exemptions therefrom. 

(a) General. (1) Required submission. 

A security-based swap execution facility 

that makes a security-based swap 

available to trade in accordance with 

paragraph (b) of this section, shall 

submit to the Commission its 

determination with respect to such 

security-based swap as a rule, pursuant 

to the procedures under § 242.806 or 

§ 242.807. 

(2) Listing requirement. A securitybased swap execution facility that 

makes a security-based swap available 

to trade must demonstrate that it lists or 

offers that security-based swap for 

trading on its trading system or 

platform. 

(b) Factors to consider. To make a 

security-based swap available to trade 

for purposes of section 3C(h) of the Act, 

a security-based swap execution facility 

shall consider, as appropriate, the 

following factors with respect to such 

security-based swap: 

(1) Whether there are ready and 

willing buyers and sellers; 

(2) The frequency or size of 

transactions; 

(3) The trading volume; 

(4) The number and types of market 

participants; 

(5) The bid/ask spread; or 

(6) The usual number of resting firm 

or indicative bids and offers. 

(c) Applicability. Upon a 

determination that a security-based 

swap is available to trade on a securitybased swap execution facility or 

national securities exchange, all other 

security-based swap execution facilities 

and SBS exchanges shall comply with 

the requirements of section 3C(h) of the 

Act in listing or offering such securitybased swap for trading. 

(d) Removal. The Commission may 

issue a determination that a securitybased swap is no longer available to 

trade upon determining that no securitybased swap execution facility or SBS 

exchange lists such security-based swap 

for trading. 

(e) Exemptions to trade execution 

requirement. (1) A security-based swap 

transaction that is executed as a 

component of a package transaction that 

also includes a component transaction 

that is the issuance of a bond in a 

primary market is exempt from the trade 

execution requirement in section 3C(h) 

of the Act. For purposes of paragraph (e) 

of this section, a package transaction 

consists of two or more component 

transactions executed between two or 

more counterparties where: 

(i) At least one component transaction 

is subject to the trade execution 

requirement in section 3C(h) of the Act; 

(ii) Execution of each component 

transaction is contingent upon the 

execution of all other component 

transactions; and 

(iii) The component transactions are 

priced or quoted together as one 

economic transaction with simultaneous 

or near-simultaneous execution of all 

components. 

(2) Section 3C(h) of the Act does not 

apply to a security-based swap 

transaction that qualifies for an 

exception under section 3C(g) of the 

Act, or any exemption from the clearing 

requirement that is granted by the 

Commission, for which the associated 

requirements are met. 

(3)(i) Section 3C(h) of the Act does not 

apply to a security-based swap 

transaction that is executed between 

counterparties that qualify as ‘‘eligible 

affiliate counterparties,’’ as defined 

below. 

(ii) For purposes of this paragraph 

(e)(3), counterparties will be ‘‘eligible 

affiliate counterparties’’ if: 

(A) One counterparty, directly or 

indirectly, holds a majority ownership 

interest in the other counterparty, and 

the counterparty that holds the majority 

interest in the other counterparty 

reports its financial statements on a 

consolidated basis under Generally 

Accepted Accounting Principles or 

International Financial Reporting 

Standards, and such consolidated 

financial statements include the 

financial results of the majority-owned 

counterparty; or 

(B) A third party, directly or 

indirectly, holds a majority ownership 

interest in both counterparties, and the 

third party reports its financial 

statements on a consolidated basis 

under Generally Accepted Accounting 

Principles or International Financial 

Reporting Standards, and such 

consolidated financial statements 

include the financial results of both of 

the counterparties. 

(iii) For purposes of this paragraph 

(e)(3), a counterparty or third party 

directly or indirectly holds a majority 

ownership interest if it directly or 

indirectly holds a majority of the equity 

securities of an entity, or the right to 

receive upon dissolution, or the 

contribution of, a majority of the capital 

of a partnership. 

§ 242.817 Trade execution compliance 

schedule. 

(a) A security-based swap transaction 

shall be subject to the requirements of 

section 3C(h) of the Act upon the later 

of: 

(1) A determination by the 

Commission that the security-based 

swap is required to be cleared as set 

forth in section 3C(a) or any later 

compliance date that the Commission 

may establish as a term or condition of 

such determination or following a stay 

and review of such determination 

pursuant to section 3C(c) of the Act and 

§ 240.3Ca–1 of this chapter thereunder; 

and 

(2) Thirty days after the available-totrade determination submission or 

certification for that security-based 

swap is, respectively, deemed approved 

under § 242.806 or deemed certified 

under § 242.807. 

(b) Nothing in this section shall 

prohibit any counterparty from 

complying voluntarily with the 

requirements of section 3C(h) of the Act 

sooner than as provided in paragraph (a) 

of this section. 


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§ 242.818 Core Principle 1—Compliance 

with core principles. 

(a) In general. To be registered, and 

maintain registration, as a securitybased swap execution facility, the 

security-based swap execution facility 

shall comply with the core principles 

described in section 3D of the Act, and 

any requirement that the Commission 

may impose by rule or regulation. 

(b) Reasonable discretion of securitybased swap execution facility. Unless 

otherwise determined by the 

Commission, by rule or regulation, a 

security-based swap execution facility 

described in paragraph (a) of this 

section shall have reasonable discretion 

in establishing the manner in which it 

complies with the core principles 

described in section 3D of the Act. 

§ 242.819 Core Principle 2—Compliance 

with rules. 

(a) General. A security-based swap 

execution facility shall: 

(1) Establish and enforce compliance 

with any rule established by such 

security-based swap execution facility, 

including the terms and conditions of 

the security-based swaps traded or 

processed on or through the facility, and 

any limitation on access to the facility; 

(2) Establish and enforce trading, 

trade processing, and participation rules 

that will deter abuses and have the 

capacity to detect, investigate, and 

enforce those rules, including means to 

provide market participants with 

impartial access to the market and to 

capture information that may be used in 

establishing whether rule violations 

have occurred; and 

(3) Establish rules governing the 

operation of the facility, including rules 

specifying trading procedures to be used 

in entering and executing orders traded 

or posted on the facility. 

(b) Operation of security-based swap 

execution facility and compliance with 

rules. (1) A security-based swap 

execution facility shall establish rules 

governing the operation of the securitybased swap execution facility, 

including, but not limited to, rules 

specifying trading procedures to be 

followed by members when entering 

and executing orders traded or posted 

on the security-based swap execution 

facility. 

(2) A security-based swap execution 

facility shall establish and impartially 

enforce compliance with the rules of the 

security-based swap execution facility, 

including, but not limited to: 

(i) The terms and conditions of any 

security-based swaps traded or 

processed on or through the securitybased swap execution facility; 

(ii) Access to the security-based swap 

execution facility; 

(iii) Trade practice rules; 

(iv) Audit trail requirements; 

(v) Disciplinary rules; and 

(vi) Mandatory trading requirements. 

(c) Access requirements. (1) Impartial 

access to markets and market services. 

A security-based swap execution facility 

shall provide any eligible contract 

participant and any independent 

software vendor with impartial access to 

its market(s) and market services, 

including any indicative quote screens 

or any similar pricing data displays, 

provided that the facility has: 

(i) Criteria governing such access that 

are impartial, transparent, and applied 

in a fair and non-discriminatory 

manner; 

(ii) Procedures whereby eligible 

contract participants provide the 

security-based swap execution facility 

with written or electronic confirmation 

of their status as eligible contract 

participants, as defined by the Act and 

Commission rules thereunder, prior to 

obtaining access; and 

(iii) Comparable fee structures for 

eligible contract participants and 

independent software vendors receiving 

comparable access to, or services from, 

the security-based swap execution 

facility. 

(2) Jurisdiction. Prior to granting any 

eligible contract participant access to its 

facilities, a security-based swap 

execution facility shall require that the 

eligible contract participant consent to 

its jurisdiction. 

(3) Limitations on access. A securitybased swap execution facility shall 

establish and impartially enforce rules 

governing any decision to allow, deny, 

suspend, or permanently bar an eligible 

contract participant’s access to the 

security-based swap execution facility, 

including when a decision is made as 

part of a disciplinary or emergency 

action taken by the security-based swap 

execution facility. 

(4) Commission review with respect to 

a denial or limitation of access to any 

service or a denial or conditioning of 

membership. (i) In general. An 

application for review by the 

Commission may be filed by any person 

who is aggrieved by a determination of 

a security-based swap execution facility 

with respect to any final action with 

respect to a denial or limitation of 

access to any service offered by the 

security-based swap execution facility 

or any final action with respect to a 

denial or conditioning of membership, 

as defined in § 242.835(b)(2) of this 

chapter (Rule 835(b)(2)), in accordance 

with § 201.442 of this chapter (Rule of 

Practice 442). 

(ii) Standard to govern Commission 

review. In reviewing such a 

determination, if the Commission finds 

that the specific grounds on which such 

denial, limitation, or conditioning is 

based exist in fact, that such denial, 

limitation, or conditioning is in 

accordance with the rules of the 

security-based swap execution facility, 

and that such rules are, and were 

applied in a manner, consistent with the 

purposes of the Exchange Act, the 

Commission, by order, shall dismiss the 

proceeding. If the Commission does not 

make any such finding or if it finds that 

such denial, limitation, or conditioning 

imposes any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Exchange Act, the 

Commission, by order, shall set aside 

the action of the security-based swap 

execution facility and require it to admit 

such person to membership or 

participation or grant such person 

access to services offered by the 

security-based swap execution facility. 

(d) Rule enforcement program. A 

security-based swap execution facility 

shall establish and enforce trading, trade 

processing, and participation rules that 

will deter abuses and it shall have the 

capacity to detect, investigate, and 

enforce those rules. 

(1) Abusive trading practices 

prohibited. A security-based swap 

execution facility shall prohibit abusive 

trading practices on its markets by 

members. A security-based swap 

execution facility that permits 

intermediation shall prohibit customerrelated abuses including, but not limited 

to, trading ahead of customer orders, 

trading against customer orders, 

accommodation trading, and improper 

cross trading. Specific trading practices 

that shall be prohibited include frontrunning, wash trading, pre-arranged 

trading (except for transactions 

approved by or certified to the 

Commission pursuant § 242.806 or 

§ 242.807, respectively), fraudulent 

trading, money passes, and any other 

trading practices that a security-based 

swap execution facility deems to be 

abusive. A security-based swap 

execution facility shall also prohibit any 

other manipulative or disruptive trading 

practices prohibited by the Act or by the 

Commission pursuant to Commission 

regulation. 

(2) Capacity to detect and investigate 

rule violations. A security-based swap 

execution facility shall have 

arrangements and resources for effective 

enforcement of its rules. Such 

arrangements shall include the authority 

to collect information and documents 

on both a routine and non-routine basis, 

including the authority to examine 


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books and records kept by the securitybased swap execution facility’s 

members and by persons under 

investigation. A security-based swap 

execution facility’s arrangements and 

resources shall also facilitate the direct 

supervision of the market and the 

analysis of data collected to determine 

whether a rule violation has occurred. 

(3) Compliance staff and resources. A 

security-based swap execution facility 

shall establish and maintain sufficient 

compliance staff and resources to ensure 

that it can conduct effective audit trail 

reviews, trade practice surveillance, 

market surveillance, and real-time 

market monitoring. The security-based 

swap execution facility’s compliance 

staff shall also be sufficient to address 

unusual market or trading events as they 

arise, and to conduct and complete 

investigations in a timely manner, as set 

forth in paragraph (d)(6) of this section. 

(4) Automated trade surveillance 

system. A security-based swap 

execution facility shall maintain an 

automated trade surveillance system 

capable of detecting potential trade 

practice violations. The automated trade 

surveillance system shall load and 

process daily orders and trades no later 

than 24 hours after the completion of 

the trading day. The automated trade 

surveillance system shall have the 

capability to detect and flag specific 

trade execution patterns and trade 

anomalies; compute, retain, and 

compare trading statistics; reconstruct 

the sequence of market activity; perform 

market analyses; and support system 

users to perform in-depth analyses and 

ad hoc queries of trade-related data. 

(5) Real-time market monitoring. A 

security-based swap execution facility 

shall conduct real-time market 

monitoring of all trading activity on its 

system(s) or platform(s) to identify any 

market or system anomalies. A securitybased swap execution facility shall have 

the authority to adjust trade prices or 

cancel trades when necessary to 

mitigate market disrupting events 

caused by malfunctions in its system(s) 

or platform(s) or errors in orders 

submitted by members. Any trade price 

adjustments or trade cancellations shall 

be transparent to the market and subject 

to standards that are clear, fair, and 

publicly available. 

(6) Investigations and investigation 

reports. (i) Procedures. A security-based 

swap execution facility shall establish 

and maintain procedures that require its 

compliance staff to conduct 

investigations of possible rule 

violations. An investigation shall be 

commenced upon the receipt of a 

request from Commission staff or upon 

the discovery or receipt of information 

by the security-based swap execution 

facility that indicates a reasonable basis 

for finding that a violation may have 

occurred or will occur. 

(ii) Timeliness. Each compliance staff 

investigation shall be completed in a 

timely manner. Absent mitigating 

factors, a timely manner is no later than 

12 months after the date that an 

investigation is opened. Mitigating 

factors that may reasonably justify an 

investigation taking longer than 12 

months to complete include the 

complexity of the investigation, the 

number of firms or individuals involved 

as potential wrongdoers, the number of 

potential violations to be investigated, 

and the volume of documents and data 

to be examined and analyzed by 

compliance staff. 

(iii) Investigation reports when a 

reasonable basis exists for finding a 

violation. Compliance staff shall submit 

a written investigation report for 

disciplinary action in every instance in 

which compliance staff determines from 

surveillance or from an investigation 

that a reasonable basis exists for finding 

a rule violation. The investigation report 

shall include the reason the 

investigation was initiated; a summary 

of the complaint, if any; the relevant 

facts; compliance staff’s analysis and 

conclusions; and a recommendation as 

to whether disciplinary action should be 

pursued. 

(iv) Investigation reports when no 

reasonable basis exists for finding a 

violation. If after conducting an 

investigation, compliance staff 

determines that no reasonable basis 

exists for finding a rule violation, it 

shall prepare a written report including 

the reason the investigation was 

initiated; a summary of the complaint, 

if any; the relevant facts; and 

compliance staff’s analysis and 

conclusions. 

(v) Warning letters. The rules of a 

security-based swap execution facility 

may authorize its compliance staff to 

issue a warning letter to a person or 

entity under investigation or to 

recommend that a disciplinary panel 

take such an action. No more than one 

warning letter may be issued to the 

same person or entity found to have 

committed the same rule violation 

within a rolling 12-month period. 

(e) Regulatory services provided by a 

third party. (1) Use of regulatory service 

provider permitted. A security-based 

swap execution facility may choose to 

contract with a registered futures 

association (under section 17 of the 

Commodity Exchange Act), a board of 

trade designated as a contract market 

(under section 5 of the Commodity 

Exchange Act), a national securities 

exchange, a national securities 

association, or another security-based 

swap execution facility (each a 

‘‘regulatory service provider’’), for the 

provision of services to assist in 

complying with the Act and 

Commission rules thereunder, as 

approved by the Commission. A 

security-based swap execution facility 

that chooses to contract with a 

regulatory service provider shall ensure 

that such provider has the capacity and 

resources necessary to provide timely 

and effective regulatory services, 

including adequate staff and automated 

surveillance systems. A security-based 

swap execution facility shall at all times 

remain responsible for the performance 

of any regulatory services received, for 

compliance with the security-based 

swap execution facility’s obligations 

under the Act and Commission rules 

thereunder, and for the regulatory 

service provider’s performance on its 

behalf. 

(2) Duty to supervise regulatory 

service provider. A security-based swap 

execution facility that elects to use the 

service of a regulatory service provider 

shall retain sufficient compliance staff 

to supervise the quality and 

effectiveness of the regulatory services 

provided on its behalf. Compliance staff 

of the security-based swap execution 

facility shall hold regular meetings with 

the regulatory service provider to 

discuss ongoing investigations, trading 

patterns, market participants, and any 

other matters of regulatory concern. A 

security-based swap execution facility 

shall also conduct periodic reviews of 

the adequacy and effectiveness of 

services provided on its behalf. Such 

reviews shall be documented carefully 

and made available to the Commission 

upon request. 

(3) Regulatory decisions required from 

the security-based swap execution 

facility. A security-based swap 

execution facility that elects to use the 

service of a regulatory service provider 

shall retain exclusive authority in all 

substantive decisions made by its 

regulatory service provider, including, 

but not limited to, decisions involving 

the cancellation of trades, the issuance 

of disciplinary charges against members, 

and denials of access to the trading 

platform for disciplinary reasons. A 

security-based swap execution facility 

shall document any instances where its 

actions differ from those recommended 

by its regulatory service provider, 

including the reasons for the course of 

action recommended by the regulatory 

service provider and the reasons why 

the security-based swap execution 

facility chose a different course of 

action. 


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(f) Audit trail. A security-based swap 

execution facility shall establish 

procedures to capture and retain 

information that may be used in 

establishing whether rule violations 

have occurred. 

(1) Audit trail required. A securitybased swap execution facility shall 

capture and retain all audit trail data 

necessary to detect, investigate, and 

prevent customer and market abuses. 

Such data shall be sufficient to 

reconstruct all indications of interest, 

requests for quotes, orders, and trades 

within a reasonable period of time and 

to provide evidence of any violations of 

the rules of the security-based swap 

execution facility. An acceptable audit 

trail shall also permit the security-based 

swap execution facility to track a 

customer order from the time of receipt 

through execution on the security-based 

swap execution facility. 

(2) Elements of an acceptable audit 

trail program. (i) Original source 

documents. A security-based swap 

execution facility’s audit trail shall 

include original source documents. 

Original source documents include 

unalterable, sequentially identified 

records on which trade execution 

information is originally recorded, 

whether recorded manually or 

electronically. Records for customer 

orders (whether filled, unfilled, or 

cancelled, each of which shall be 

retained or electronically captured) 

shall reflect the terms of the order, an 

account identifier that relates back to 

the account’s owner(s), the time of order 

entry, and the time of trade execution. 

A security-based swap execution facility 

shall require that all orders, indications 

of interest, and requests for quotes be 

immediately captured in the audit trail. 

(ii) Transaction history database. A 

security-based swap execution facility’s 

audit trail program shall include an 

electronic transaction history database. 

An adequate transaction history 

database shall include a history of all 

indications of interest, requests for 

quotes, orders, and trades entered into 

a security-based swap execution 

facility’s trading system or platform, 

including all order modifications and 

cancellations. An adequate transaction 

history database shall also include: 

(A) All data that are input into the 

trade entry or matching system for the 

transaction to match and clear; 

(B) The customer type indicator code; 

and 

(C) Timing and sequencing data 

adequate to reconstruct trading. 

(iii) Electronic analysis capability. A 

security-based swap execution facility’s 

audit trail program shall include 

electronic analysis capability with 

respect to all audit trail data in the 

transaction history database. Such 

electronic analysis capability shall 

ensure that the security-based swap 

execution facility has the ability to 

reconstruct indications of interest, 

requests for quotes, orders, and trades, 

and identify possible trading violations 

with respect to both customer and 

market abuse. 

(iv) Safe-storage capability. A 

security-based swap execution facility’s 

audit trail program shall include the 

capability to safely store all audit trail 

data retained in its transaction history 

database. Such safe-storage capability 

shall include the capability to store all 

data in the database in a manner that 

protects it from unauthorized alteration, 

as well as from accidental erasure or 

other loss. Data shall be retained in 

accordance with the recordkeeping 

requirements of § 242.826 (Core 

Principle 9). 

(3) Enforcement of audit trail 

requirements. (i) Annual audit trail and 

recordkeeping reviews. A security-based 

swap execution facility shall enforce its 

audit trail and recordkeeping 

requirements through at least annual 

reviews of all members and persons and 

firms subject to the security-based swap 

execution facility’s recordkeeping rules 

to verify their compliance with the 

security-based swap execution facility’s 

audit trail and recordkeeping 

requirements. Such reviews shall 

include, but are not limited to, reviews 

of randomly selected samples of frontend audit trail data for order routing 

systems; a review of the process by 

which user identifications are assigned 

and user identification records are 

maintained; a review of usage patterns 

associated with user identifications to 

monitor for violations of user 

identification rules; and reviews of 

account numbers and customer type 

indicator codes in trade records to test 

for accuracy and improper use. 

(ii) Enforcement program required. A 

security-based swap execution facility 

shall establish a program for effective 

enforcement of its audit trail and 

recordkeeping requirements. An 

effective program shall identify 

members, persons, and firms subject to 

the security-based swap execution 

facility’s recordkeeping rules that have 

failed to maintain high levels of 

compliance with such requirements, 

and impose meaningful sanctions when 

deficiencies are found. Sanctions shall 

be sufficient to deter recidivist behavior. 

No more than one warning letter shall 

be issued to the same person or entity 

found to have committed the same 

violation of audit trail or recordkeeping 

requirements within a rolling 12-month 

period. 

(g) Disciplinary procedures and 

sanctions. A security-based swap 

execution facility shall establish trading, 

trade processing, and participation rules 

that will deter abuses and have the 

capacity to enforce such rules through 

prompt and effective disciplinary 

action, including suspension or 

expulsion of members that violate the 

rules of the security-based swap 

execution facility. 

(1) Enforcement staff. (i) A securitybased swap execution facility shall 

establish and maintain sufficient 

enforcement staff and resources to 

effectively and promptly prosecute 

possible rule violations within the 

disciplinary jurisdiction of the securitybased swap execution facility. 

(ii) The enforcement staff of a 

security-based swap execution facility 

shall not include members or other 

persons whose interests conflict with 

their enforcement duties. 

(iii) A member of the enforcement 

staff shall not operate under the 

direction or control of any person or 

persons with trading privileges at the 

security-based swap execution facility. 

(iv) The enforcement staff of a 

security-based swap execution facility 

may operate as part of the securitybased swap execution facility’s 

compliance department. 

(2) Disciplinary panels. A securitybased swap execution facility shall 

establish one or more disciplinary 

panels that are authorized to fulfill their 

obligations under the rules of this 

section. Disciplinary panels shall meet 

the composition requirements of 

§ 242.834(d), and shall not include any 

members of the security-based swap 

execution facility’s compliance staff or 

any person involved in adjudicating any 

other stage of the same proceeding. 

(3) Notice of charges. If compliance 

staff authorized by a security-based 

swap execution facility or disciplinary 

panel thereof determines that a 

reasonable basis exists for finding a 

violation and adjudication is warranted, 

it shall direct that the person or entity 

alleged to have committed the violation 

be served with a notice of charges. A 

notice of charges shall adequately state 

the acts, conduct, or practices in which 

the respondent is alleged to have 

engaged; state the rule or rules alleged 

to have been violated (or about to be 

violated); advise the respondent that it 

is entitled, upon request, to a hearing on 

the charges; and prescribe the period 

within which a hearing on the charges 

may be requested. If the rules of the 

security-based swap execution facility 

so provide, a notice may also advise: 


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(i) That failure to request a hearing 

within the period prescribed in the 

notice, except for good cause, may be 

deemed a waiver of the right to a 

hearing; and 

(ii) That failure to answer or to deny 

expressly a charge may be deemed to be 

an admission of such charge. 

(4) Right to representation. Upon 

being served with a notice of charges, a 

respondent shall have the right to be 

represented by legal counsel or any 

other representative of its choosing in 

all succeeding stages of the disciplinary 

process, except by any member of the 

security-based swap execution facility’s 

governing board or disciplinary panel, 

any employee of the security-based 

swap execution facility, or any person 

substantially related to the underlying 

investigations, such as a material 

witness or respondent. 

(5) Answer to charges. A respondent 

shall be given a reasonable period of 

time to file an answer to a notice of 

charges. The rules of a security-based 

swap execution facility governing the 

requirements and timeliness of a 

respondent’s answer to a notice of 

charges shall be fair, equitable, and 

publicly available. 

(6) Admission or failure to deny 

charges. The rules of a security-based 

swap execution facility may provide 

that, if a respondent admits or fails to 

deny any of the charges, a disciplinary 

panel may find that the violations 

alleged in the notice of charges for 

which the respondent admitted or failed 

to deny any of the charges have been 

committed. If the security-based swap 

execution facility’s rules so provide, 

then: 

(i) The disciplinary panel may impose 

a sanction for each violation found to 

have been committed; 

(ii) The disciplinary panel shall 

promptly notify the respondent in 

writing of any sanction to be imposed 

and shall advise the respondent that the 

respondent may request a hearing on 

such sanction within the period of time, 

which shall be stated in the notice; and 

(iii) The rules of a security-based 

swap execution facility may provide 

that, if a respondent fails to request a 

hearing within the period of time stated 

in the notice, the respondent will be 

deemed to have accepted the sanction. 

(7) Denial of charges and right to 

hearing. Where a respondent has 

requested a hearing on a charge that is 

denied, or on a sanction set by the 

disciplinary panel, the respondent shall 

be given an opportunity for a hearing in 

accordance with the rules of the 

security-based swap execution facility. 

(8) Settlement offers. (i) The rules of 

a security-based swap execution facility 

may permit a respondent to submit a 

written offer of settlement at any time 

after an investigation report is 

completed. The disciplinary panel 

presiding over the matter may accept 

the offer of settlement, but may not alter 

the terms of a settlement offer unless the 

respondent agrees. 

(ii) The rules of a security-based swap 

execution facility may provide that, in 

its discretion, a disciplinary panel may 

permit the respondent to accept a 

sanction without either admitting or 

denying the rule violations upon which 

the sanction is based. 

(iii) If an offer of settlement is 

accepted, the panel accepting the offer 

shall issue a written decision specifying 

the rule violations it has reason to 

believe were committed, including the 

basis or reasons for the panel’s 

conclusions, and any sanction to be 

imposed, which shall include full 

customer restitution where customer 

harm is demonstrated, except where the 

amount of restitution or to whom it 

should be provided cannot be 

reasonably determined. If an offer of 

settlement is accepted without the 

agreement of the enforcement staff, the 

decision shall adequately support the 

disciplinary panel’s acceptance of the 

settlement. Where applicable, the 

decision shall also include a statement 

that the respondent has accepted the 

sanctions imposed without either 

admitting or denying the rule violations. 

(iv) The respondent may withdraw its 

offer of settlement at any time before 

final acceptance by a disciplinary panel. 

If an offer is withdrawn after 

submission, or is rejected by a 

disciplinary panel, the respondent shall 

not be deemed to have made any 

admissions by reason of the offer of 

settlement and shall not be otherwise 

prejudiced by having submitted the 

offer of settlement. 

(9) Hearings. A security-based swap 

execution facility shall adopt rules that 

provide for the following minimum 

requirements for any hearing: 

(i) The hearing shall be fair, shall be 

conducted before members of the 

disciplinary panel, and shall be 

promptly convened after reasonable 

notice to the respondent. A securitybased swap execution facility need not 

apply the formal rules of evidence for a 

hearing; nevertheless, the procedures for 

the hearing may not be so informal as 

to deny a fair hearing; 

(ii) No member of the disciplinary 

panel for the hearing may have a 

financial, personal, or other direct 

interest in the matter under 

consideration; 

(iii) In advance of the hearing, the 

respondent shall be entitled to examine 

all books, documents, or other evidence 

in the possession or under the control 

of the security-based swap execution 

facility. The security-based swap 

execution facility may withhold 

documents that are privileged or 

constitute attorney work product; were 

prepared by an employee of the 

security-based swap execution facility 

but will not be offered in evidence in 

the disciplinary proceedings; may 

disclose a technique or guideline used 

in examinations, investigations, or 

enforcement proceedings; or disclose 

the identity of a confidential source; 

(iv) The security-based swap 

execution facility’s enforcement and 

compliance staffs shall be parties to the 

hearing, and the enforcement staff shall 

present their case on those charges and 

sanctions that are the subject of the 

hearing; 

(v) The respondent shall be entitled to 

appear personally at the hearing, to 

cross-examine any persons appearing as 

witnesses at the hearing, to call 

witnesses, and to present such evidence 

as may be relevant to the charges; 

(vi) The security-based swap 

execution facility shall require persons 

within its jurisdiction who are called as 

witnesses to participate in the hearing 

and produce evidence. The securitybased swap execution facility shall 

make reasonable efforts to secure the 

presence of all other persons called as 

witnesses whose testimony would be 

relevant. The rules of a security-based 

swap execution facility may provide 

that a sanction may be summarily 

imposed upon any person within its 

jurisdiction whose actions impede the 

progress of a hearing; and 

(vii) If the respondent has requested a 

hearing, a copy of the hearing shall be 

made and shall become a part of the 

record of the proceeding. The record 

shall not be required to be transcribed 

unless: 

(A) The transcript is requested by 

Commission staff or the respondent; 

(B) The decision is appealed pursuant 

to the rules of the security-based swap 

execution facility; or 

(C) The decision is reviewed by the 

Commission pursuant to § 201.442 of 

this chapter. In all other instances, a 

summary record of a hearing is 

permitted. 

(10) Decisions. Promptly following a 

hearing conducted in accordance with 

the rules of the security-based swap 

execution facility, the disciplinary panel 

shall render a written decision based 

upon the weight of the evidence 

contained in the record of the 

proceeding and shall provide a copy to 

the respondent. The decision shall 

include: 


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(i) The notice of charges or a summary 

of the charges; 

(ii) The answer, if any, or a summary 

of the answer; 

(iii) A summary of the evidence 

produced at the hearing or, where 

appropriate, incorporation by reference 

of the investigation report; 

(iv) A statement of findings and 

conclusions with respect to each charge 

and a complete explanation of the 

evidentiary and other basis for such 

findings and conclusions with respect to 

each charge; 

(v) An indication of each specific rule 

that the respondent was found to have 

violated; and 

(vi) A declaration of all sanctions 

imposed against the respondent, 

including the basis for such sanctions 

and the effective date of such sanctions. 

(11) Emergency disciplinary actions. 

(i) A security-based swap execution 

facility may impose a sanction, 

including suspension, or take other 

summary action against a person or 

entity subject to its jurisdiction upon a 

reasonable belief that such immediate 

action is necessary to protect the best 

interest of the market place. 

(ii) Any emergency disciplinary 

action shall be taken in accordance with 

a security-based swap execution 

facility’s procedures that provide for the 

following: 

(A) If practicable, a respondent should 

be served with a notice before the action 

is taken, or otherwise at the earliest 

possible opportunity. The notice shall 

state the action, briefly state the reasons 

for the action, and state the effective 

time and date, and the duration of the 

action. 

(B) The respondent shall have the 

right to be represented by legal counsel 

or any other representative of its 

choosing in all proceedings subsequent 

to the emergency action taken. The 

respondent shall be given the 

opportunity for a hearing as soon as 

reasonably practicable and the hearing 

shall be conducted before the 

disciplinary panel pursuant to the rules 

of the security-based swap execution 

facility. 

(C) Promptly following the hearing, 

the security-based swap execution 

facility shall render a written decision 

based upon the weight of the evidence 

contained in the record of the 

proceeding and shall provide a copy to 

the respondent. The decision shall 

include a description of the summary 

action taken; the reasons for the 

summary action; a summary of the 

evidence produced at the hearing; a 

statement of findings and conclusions; a 

determination that the summary action 

should be affirmed, modified, or 

reversed; and a declaration of any action 

to be taken pursuant to the 

determination, and the effective date 

and duration of such action. 

(12) Right to appeal. The rules of a 

security-based swap execution facility 

may permit the parties to a proceeding 

to appeal promptly an adverse decision 

of a disciplinary panel in all or in 

certain classes of cases. Such rules may 

require a party’s notice of appeal to be 

in writing and to specify the findings, 

conclusions, or sanctions to which 

objection are taken. If the rules of a 

security-based swap execution facility 

permit appeals, then both the 

respondent and the enforcement staff 

shall have the opportunity to appeal 

and: 

(i) The security-based swap execution 

facility shall establish an appellate 

panel that is authorized to hear appeals. 

The rules of the security-based swap 

execution facility may provide that the 

appellate panel may, on its own 

initiative, order review of a decision by 

a disciplinary panel within a reasonable 

period of time after the decision has 

been rendered; 

(ii) The composition of the appellate 

panel shall be consistent with 

§ 242.834(d) and shall not include any 

members of the security-based swap 

execution facility’s compliance staff or 

any person involved in adjudicating any 

other stage of the same proceeding. The 

rules of a security-based swap execution 

facility shall provide for the appeal 

proceeding to be conducted before all of 

the members of the appellate panel or a 

panel thereof; 

(iii) Except for good cause shown, the 

appeal or review shall be conducted 

solely on the record before the 

disciplinary panel, the written 

exceptions filed by the parties, and the 

oral or written arguments of the parties; 

and 

(iv) Promptly following the appeal or 

review proceeding, the appellate panel 

shall issue a written decision and shall 

provide a copy to the respondent. The 

decision issued by the appellate panel 

shall adhere to all the requirements of 

paragraph (g)(10) of this section to the 

extent that a different conclusion is 

reached from that issued by the 

disciplinary panel. 

(13) Disciplinary sanctions. (i) In 

general. All disciplinary sanctions 

imposed by a security-based swap 

execution facility or its disciplinary 

panels shall be commensurate with the 

violations committed and shall be 

clearly sufficient to deter recidivism or 

similar violations by other members. All 

disciplinary sanctions, including 

sanctions imposed pursuant to an 

accepted settlement offer, shall take into 

account the respondent’s disciplinary 

history. In the event of demonstrated 

customer harm, any disciplinary 

sanction shall also include full customer 

restitution, except where the amount of 

restitution or to whom it should be 

provided cannot be reasonably 

determined. 

(ii) Summary fines for violations of 

rules regarding timely submission of 

records. A security-based swap 

execution facility may adopt a summary 

fine schedule for violations of rules 

relating to the failure to timely submit 

accurate records required for clearing or 

verifying each day’s transactions. A 

security-based swap execution facility 

may permit its compliance staff, or a 

designated panel of security-based swap 

execution facility officials, to summarily 

impose minor sanctions against persons 

within the security-based swap 

execution facility’s jurisdiction for 

violating such rules. A security-based 

swap execution facility’s summary fine 

schedule may allow for warning letters 

to be issued for first-time violations or 

violators. If adopted, a summary fine 

schedule shall provide for progressively 

larger fines for recurring violations. 

(14) Commission review of a 

disciplinary sanction. (i) In general. An 

application for review by the 

Commission may be filed by any person 

who is aggrieved by a determination of 

a security-based swap facility with 

respect to any final disciplinary action, 

as defined in § 242.835(b)(1) of this 

chapter (Rule 835(b)(1)), in accordance 

with § 201.442 of this chapter (Rule of 

Practice 442). 

(ii) Standard to govern Commission 

review. (A) In reviewing such a 

determination, if the Commission finds 

that such person has engaged in such 

acts or practices, or has omitted such 

acts, as the security-based swap 

execution facility has found him to have 

engaged in or omitted, that such acts or 

practices, or omissions to act, are in 

violation of the Exchange Act, the rules 

or regulations thereunder, or the rules of 

the security-based swap execution 

facility, and that such provisions are, 

and were applied in a manner, 

consistent with the purposes of 

Exchange Act, the Commission, by 

order, shall so declare and, as 

appropriate, affirm the sanction 

imposed by the security-based swap 

execution facility, modify the sanction 

in accordance with paragraph (C) of this 

subsection, or remand to the securitybased swap execution facility for further 

proceedings; or 

(B) if the Commission does not make 

any such finding it shall, by order, set 

aside the sanction imposed by the 

security-based swap execution facility 


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and, if appropriate, remand to the 

security-based swap execution facility 

for further proceedings. 

(C) If the Commission, having due 

regard for the public interest and the 

protection of investors, finds that a 

sanction imposed by a security-based 

swap execution facility upon such 

person imposes any burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Exchange Act or is 

excessive or oppressive, the 

Commission may cancel, reduce, or 

require the remission of such sanction. 

(h) Activities of security-based swap 

execution facility’s employees, 

governing board members, committee 

members, and consultants. (1) 

Definitions. The following definitions 

shall apply only in this paragraph (h): 

(i) Covered interest, with respect to a 

security-based swap execution facility, 

means: 

(A) A security-based swap that trades 

on the security-based swap execution 

facility; 

(B) A security of an issuer that has 

issued a security that underlies a 

security-based swap that is listed on 

that facility; or 

(C) A derivative based on a security 

that falls within paragraph (h)(1)(i)(B) of 

this section. 

(ii) Pooled investment vehicle means 

an investment company registered 

under the Investment Company Act of 

1940 in which no covered interest 

constitutes more than 10 percent of the 

investment company’s assets. 

(2) Required rules. A security-based 

swap execution facility must maintain 

in effect rules which have been 

submitted to the Commission pursuant 

to § 242.806 or § 242.807 that, at a 

minimum, prohibit an employee of the 

security-based swap execution facility 

from: 

(i) Trading, directly or indirectly, any 

covered interest; and 

(ii) Disclosing to any other person any 

material, non-public information which 

such employee obtains as a result of 

their employment at the security-based 

swap execution facility, where such 

employee has or should have a 

reasonable expectation that the 

information disclosed may assist 

another person in trading any covered 

interest; provided, however, that such 

rules shall not prohibit disclosures 

made in the course of an employee’s 

duties, or disclosures made to another 

security-based swap execution facility, 

court of competent jurisdiction, or 

representative of any agency or 

department of the Federal or State 

government acting in their official 

capacity. 

(3) Possible exemptions. A securitybased swap execution facility may adopt 

rules, which must be submitted to the 

Commission pursuant to § 242.806 or 

§ 242.807, which set forth circumstances 

under which exemptions from the 

trading prohibition contained in 

paragraph (h)(2)(i) of this section may be 

granted; such exemptions are to be 

administered by the security-based 

swap execution facility on a case-bycase basis. Specifically, such 

circumstances may include: 

(i) Participation by an employee in a 

pooled investment vehicle where the 

employee has no direct or indirect 

control with respect to transactions 

executed for or on behalf of such 

vehicle; 

(ii) Trading by an employee in a 

derivative based on a pooled investment 

vehicle that falls within paragraph 

(h)(3)(i) of this section; 

(iii) Trading by an employee in a 

derivative based on an index in which 

no covered interest constitutes more 

than 10 percent of the index; and 

(iv) Trading by an employee under 

circumstances enumerated by the 

security-based swap execution facility 

in rules which the security-based swap 

execution facility determines are not 

contrary to applicable law, the public 

interest, or just and equitable principles 

of trade. 

(4) Prohibited conduct. (i) No 

employee, governing board member, 

committee member, or consultant of a 

security-based swap execution facility 

shall: 

(A) Trade for such person’s own 

account, or for or on behalf of any other 

account, in any covered interest on the 

basis of any material, non-public 

information obtained through special 

access related to the performance of 

such person’s official duties as an 

employee, governing board member, 

committee member, or consultant; or 

(B) Disclose for any purpose 

inconsistent with the performance of 

such person’s official duties as an 

employee, governing board member, 

committee member, or consultant any 

material, non-public information 

obtained through special access related 

to the performance of such duties. 

(ii) No person shall trade for such 

person’s own account, or for or on 

behalf of any other account, in any 

covered interest on the basis of any 

material, non-public information that 

such person knows was obtained in 

violation of this paragraph (h)(4) from 

an employee, governing board member, 

committee member, or consultant. 

(i) Service on security-based swap 

execution facility governing boards or 

committees by persons with disciplinary 

histories. (1) A security-based swap 

execution facility shall maintain in 

effect rules which have been submitted 

to the Commission pursuant to 

§ 242.806 or § 242.807 that render a 

person ineligible to serve on its 

disciplinary committees, arbitration 

panels, oversight panels, or governing 

board who: 

(i) Was found within the prior three 

years by a final decision of a securitybased swap execution facility, a selfregulatory organization, an 

administrative law judge, a court of 

competent jurisdiction, or the 

Commission to have committed a 

disciplinary offense; 

(ii) Entered into a settlement 

agreement with a security-based swap 

execution facility, a court of competent 

jurisdiction, or the Commission within 

the prior three years in which any of the 

findings or, in the absence of such 

findings, any of the acts charged 

included a disciplinary offense; 

(iii) Currently is suspended from 

trading on any security-based swap 

execution facility, is suspended or 

expelled from membership with a selfregulatory organization, is serving any 

sentence of probation, or owes any 

portion of a fine imposed pursuant to: 

(A) A finding by a final decision of a 

security-based swap execution facility, a 

self-regulatory organization, an 

administrative law judge, a court of 

competent jurisdiction, or the 

Commission that such person 

committed a disciplinary offense; or 

(B) A settlement agreement with a 

security-based swap execution facility, a 

court of competent jurisdiction, or the 

Commission in which any of the 

findings or, in the absence of such 

findings, any of the acts charged 

included a disciplinary offense; 

(iv) Currently is subject to an 

agreement with the Commission, a 

security-based swap execution facility, 

or a self-regulatory organization not to 

apply for registration with the 

Commission or membership in any selfregulatory organization; 

(v) Currently is subject to or has had 

imposed on him or her within the prior 

three years a Commission registration 

revocation or suspension in any 

capacity for any reason, or has been 

convicted within the prior three years of 

any felony; or 

(vi) Currently is subject to a denial, 

suspension, or disqualification from 

serving on a disciplinary committee, 

arbitration panel, or governing board of 

any security-based swap execution 

facility or self-regulatory organization. 

(2) No person may serve on a 

disciplinary committee, arbitration 

panel, oversight panel or governing 


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board of a security-based swap 

execution facility if such person is 

subject to any of the conditions listed in 

paragraphs (i)(1)(i) through (vi) of this 

section. 

(3) A security-based swap execution 

facility shall submit to the Commission 

a schedule listing all those rule 

violations which constitute disciplinary 

offenses and, to the extent necessary to 

reflect revisions, shall submit an 

amended schedule within 30 days of the 

end of each calendar year. A securitybased swap execution facility shall 

maintain and keep current the schedule 

required by this section, and post the 

schedule on the security-based swap 

execution facility’s website so that it is 

in a public place designed to provide 

notice to members and otherwise ensure 

its availability to the general public. 

(4) A security-based swap execution 

facility shall submit to the Commission 

within 30 days of the end of each 

calendar year a certified list of any 

persons who have been removed from 

its disciplinary committees, arbitration 

panels, oversight panels, or governing 

board pursuant to the requirements of 

this section during the prior year. 

(5) Whenever a security-based swap 

execution facility finds by final decision 

that a person has committed a 

disciplinary offense and such finding 

makes such person ineligible to serve on 

that security-based swap execution 

facility’s disciplinary committees, 

arbitration panels, oversight panels, or 

governing board, the security-based 

swap execution facility shall inform the 

Commission of that finding and the 

length of the ineligibility in a form and 

manner specified by the Commission. 

(6) For purposes of this paragraph: 

(i) Arbitration panel means any 

person or panel empowered by a 

security-based swap execution facility 

to arbitrate disputes involving the 

security-based swap execution facility’s 

members or their customers. 

(ii) Disciplinary offense means: 

(A) Any violation of the rules of a 

security-based swap execution facility, 

except a violation resulting in fines 

aggregating to less than $5,000 within a 

calendar year involving: 

(1) Decorum or attire; 

(2) Financial requirements; or 

(3) Reporting or recordkeeping; 

(B) Any rule violation which involves 

fraud, deceit, or conversion or results in 

a suspension or expulsion; 

(C) Any violation of the Act or the 

Commission’s rules thereunder; or 

(D) Any failure to exercise 

supervisory responsibility when such 

failure is itself a violation of either the 

rules of the security-based swap 

execution facility, the Act, or the 

Commission’s rules thereunder. 

(E) A disciplinary offense must arise 

out of a proceeding or action which is 

brought by a security-based swap 

execution facility, the Commission, any 

Federal or State agency, or other 

governmental body. 

(iii) Final decision means: 

(A) A decision of a security-based 

swap execution facility which cannot be 

further appealed within the securitybased swap execution facility, is not 

subject to the stay of the Commission or 

a court of competent jurisdiction, and 

has not been reversed by the 

Commission or any court of competent 

jurisdiction; or 

(B) Any decision by an administrative 

law judge, a court of competent 

jurisdiction, or the Commission which 

has not been stayed or reversed. 

(j) Notification of final disciplinary 

action involving financial harm to a 

customer. 

(1) Upon any final disciplinary action 

in which a security-based swap 

execution facility finds that a member 

has committed a rule violation that 

involved a transaction for a customer, 

whether executed or not, and that 

resulted in financial harm to the 

customer: 

(i) The security-based swap execution 

facility shall promptly provide written 

notice of the disciplinary action to the 

member; and 

(ii) The security-based swap 

execution facility shall have established 

a rule pursuant to § 242.806 or § 242.807 

that requires a member that receives 

such a notice to promptly provide 

written notice of the disciplinary action 

to the customer, as disclosed on the 

member’s books and records. 

(2) A written notice required by 

paragraph (j)(1) of this section must 

include the principal facts of the 

disciplinary action and a statement that 

the security-based swap execution 

facility has found that the member has 

committed a rule violation that involved 

a transaction for the customer, whether 

executed or not, and that resulted in 

financial harm to the customer. 

(3) Solely for purposes of this 

paragraph (j): 

(i) Customer means a person that 

utilizes an agent in connection with 

trading on a security-based swap 

execution facility. 

(ii) Final disciplinary action means 

any decision by or settlement with a 

security-based swap execution facility 

in a disciplinary matter which cannot be 

further appealed at the security-based 

swap execution facility, is not subject to 

the stay of the Commission or a court of 

competent jurisdiction, and has not 

been reversed by the Commission or any 

court of competent jurisdiction. 

(k) Designation of agent for non-U.S. 

member. (1) A security-based swap 

execution facility that admits a non-U.S. 

person as a member shall be deemed to 

be the agent of the non-U.S. member 

with respect to any security-based 

swaps executed by the non-U.S. 

member. Service or delivery of any 

communication issued by or on behalf 

of the Commission to the security-based 

swap execution facility shall constitute 

valid and effective service upon the 

non-U.S. member. The security-based 

swap execution facility which has been 

served with, or to which there has been 

delivered, a communication issued by 

or on behalf of the Commission to a 

non-U.S. member shall transmit the 

communication promptly and in a 

manner which is reasonable under the 

circumstances, or in a manner specified 

by the Commission in the 

communication, to the non-U.S. 

member. 

(2) It shall be unlawful for a securitybased swap execution facility to permit 

a non-U.S. member to execute securitybased swaps on the facility unless the 

security-based swap execution facility 

prior thereto informs the non-U.S. 

member in writing of the requirements 

of this section. 

(3) The requirements of paragraphs 

(k)(1) and (2) of this section shall not 

apply if the non-U.S. member has duly 

executed and maintains in effect a 

written agency agreement in compliance 

with this paragraph with a person 

domiciled in the United States and has 

provided a copy of the agreement to the 

security-based swap execution facility 

prior to effecting any transaction on the 

security-based swap execution facility. 

This agreement must authorize the 

person domiciled in the United States to 

serve as the agent of the non-U.S. 

member for purposes of accepting 

delivery and service of all 

communications issued by or on behalf 

of the Commission to the non-U.S. 

member and must provide an address in 

the United States where the agent will 

accept delivery and service of 

communications from the Commission. 

This agreement must be filed with the 

Commission by the security-based swap 

execution facility prior to permitting the 

non-U.S. member to effect any 

transactions in security-based swaps. 

Such agreements shall be filed in a 

manner specified by the Commission. 

(4) A non-U.S. member shall notify 

the Commission immediately if the 

written agency agreement is terminated, 

revoked, or is otherwise no longer in 

effect. If the security-based swap 

execution facility knows or should 


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87304 Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Rules and Regulations 

know that the agreement has expired, 

been terminated, or is no longer in 

effect, the security-based swap 

execution facility shall notify the 

Commission immediately. 

§ 242.820 Core Principle 3—Securitybased swaps not readily susceptible to 

manipulation. 

The security-based swap execution 

facility shall permit trading only in 

security-based swaps that are not 

readily susceptible to manipulation. 

§ 242.821 Core Principle 4—Monitoring of 

trading and trade processing. 

(a) General. The security-based swap 

execution facility shall: 

(1) Establish and enforce rules or 

terms and conditions defining, or 

specifications detailing: 

(i) Trading procedures to be used in 

entering and executing orders traded on 

or through the facilities of the securitybased swap execution facility; and 

(ii) Procedures for trade processing of 

security-based swaps on or through the 

facilities of the security-based swap 

execution facility; and 

(2) Monitor trading in security-based 

swaps to prevent manipulation, price 

distortion, and disruptions of the 

delivery or cash settlement process 

through surveillance, compliance, and 

disciplinary practices and procedures, 

including methods for conducting realtime monitoring of trading and 

comprehensive and accurate trade 

reconstructions. 

(b) Market oversight obligations. A 

security-based swap execution facility 

shall: 

(1) Collect and evaluate data on its 

members’ market activity on an ongoing 

basis in order to detect and prevent 

manipulation, price distortions, and, 

where possible, disruptions of the 

physical-delivery or cash-settlement 

process; 

(2) Monitor and evaluate general 

market data in order to detect and 

prevent manipulative activity that 

would result in the failure of the market 

price to reflect the normal forces of 

supply and demand; 

(3) Demonstrate an effective program 

for conducting real-time monitoring of 

trading for the purpose of detecting and 

resolving abnormalities. A securitybased swap execution facility shall 

employ automated alerts to detect 

abnormal price movements and unusual 

trading volumes in real time and 

instances or threats of manipulation, 

price distortion, and disruptions on at 

least a T + 1 basis. The T + 1 detection 

and analysis should incorporate any 

additional data that becomes available 

on a T + 1 basis, including the trade 

reconstruction data; 

(4) Demonstrate the ability to 

comprehensively and accurately 

reconstruct daily trading activity for the 

purpose of detecting instances or threats 

of manipulation, price distortion, and 

disruptions; and 

(5) Have rules in place that allow it to 

intervene to prevent or reduce market 

disruptions. Once a threatened or actual 

disruption is detected, the securitybased swap execution facility shall take 

steps to prevent the market disruption 

or reduce its severity. 

(c) Monitoring of physical-delivery 

security-based swaps. For physicaldelivery security-based swaps, the 

security-based swap execution facility 

shall demonstrate that it: 

(1) Monitors a security-based swap’s 

terms and conditions as they relate to 

the underlying asset market; and 

(2) Monitors the availability of the 

supply of the asset specified by the 

delivery requirements of the securitybased swap. 

(d) Additional requirements for cashsettled security-based swaps. (1) For 

cash-settled security-based swaps, the 

security-based swap execution facility 

shall demonstrate that it monitors the 

pricing of the reference price used to 

determine cash flows or settlement. 

(2) For cash-settled security-based 

swaps listed on the security-based swap 

execution facility where the reference 

price is formulated and computed by 

the security-based swap execution 

facility, the security-based swap 

execution facility shall demonstrate that 

it monitors the continued 

appropriateness of its methodology for 

deriving that price and shall promptly 

amend any methodologies that result, or 

are likely to result, in manipulation, 

price distortions, or market disruptions, 

or impose new methodologies to resolve 

the threat of disruptions or distortions. 

(3) For cash-settled security-based 

swaps listed on the security-based swap 

execution facility where the reference 

price relies on a third-party index or 

instrument, including an index or 

instrument traded on another venue, the 

security-based swap execution facility 

shall demonstrate that it monitors for 

pricing abnormalities in the index or 

instrument used to calculate the 

reference price and shall conduct due 

diligence to ensure that the reference 

price is not susceptible to manipulation. 

(e) Ability to obtain information. (1) A 

security-based swap execution facility 

shall demonstrate that it has access to 

sufficient information to assess whether 

trading in security-based swaps listed 

on its market, in the index or instrument 

used as a reference price, or in the 

underlying asset for its listed securitybased swaps is being used to affect 

prices on its market. The security-based 

swap execution facility shall 

demonstrate that it can obtain position 

and trading information directly from 

members that conduct substantial 

trading on its facility or through an 

information-sharing agreement with 

other venues or a third-party regulatory 

service provider. If the position and 

trading information is not available 

directly from its members but is 

available through information-sharing 

agreements with other trading venues or 

a third-party regulatory service 

provider, the security-based swap 

execution facility should cooperate in 

such information-sharing agreements. 

(2) A security-based swap execution 

facility shall have rules that require its 

members to keep records of their 

trading, including records of their 

activity in the underlying asset, and 

related derivatives markets, and make 

such records available, upon request, to 

the security-based swap execution 

facility or, if applicable, to its regulatory 

service provider and the Commission. 

The security-based swap execution 

facility may limit the application of this 

requirement to only those members that 

conduct substantial trading on its 

facility. 

(f) Risk controls for trading. A 

security-based swap execution facility 

shall establish and maintain risk control 

mechanisms to prevent and reduce the 

potential risk of market disruptions, 

including, but not limited to, market 

restrictions that pause or halt trading 

under market conditions prescribed by 

the security-based swap execution 

facility. Such risk control mechanisms 

shall be designed to avoid market 

disruptions without unduly interfering 

with that market’s price discovery 

function. The security-based swap 

execution facility may choose from 

among controls that include: pre-trade 

limits on order size, price collars or 

bands around the current price, message 

throttles, daily price limits, and intraday 

position limits related to financial risk 

to the clearing member, or design other 

types of controls, as well as clear errortrade and order-cancellation policies. 

Within the specific array of controls that 

are selected, the security-based swap 

execution facility shall set the 

parameters for those controls, so that the 

specific parameters are reasonably likely 

to serve the purpose of preventing 

market disruptions and price 

distortions. 

(g) Trade reconstruction. A securitybased swap execution facility shall have 

the ability to comprehensively and 

accurately reconstruct all trading on its 

facility. All audit-trail data and 

reconstructions shall be made available 


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to the Commission in a form, manner, 

and time that is acceptable to the 

Commission. 

(h) Regulatory service provider. A 

security-based swap execution facility 

shall comply with the rules in this 

section through a dedicated regulatory 

department or by contracting with a 

regulatory service provider pursuant to 

§ 242.819(e). 

§ 242.822 Core Principle 5—Ability to 

obtain information. 

(a) General. The security-based swap 

execution facility shall: 

(1) Establish and enforce rules that 

will allow the facility to obtain any 

necessary information to perform any of 

the functions described in section 3D of 

the Act; 

(2) Provide the information to the 

Commission on request; and 

(3) Have the capacity to carry out such 

international information-sharing 

agreements as the Commission may 

require. 

(b) Establish and enforce rules. A 

security-based swap execution facility 

shall establish and enforce rules that 

will allow the security-based swap 

execution facility to have the ability and 

authority to obtain sufficient 

information to allow it to fully perform 

its operational, risk management, 

governance, and regulatory functions 

and any requirements under this 

section, including the capacity to carry 

out international information-sharing 

agreements as the Commission may 

require. 

(c) Collection of information. A 

security-based swap execution facility 

shall have rules that allow it to collect 

information on a routine basis, allow for 

the collection of non-routine data from 

its members, and allow for its 

examination of books and records kept 

by members on its facility. 

(d) Provide information to the 

Commission. A security-based swap 

execution facility shall provide 

information in its possession to the 

Commission upon request, in a form 

and manner specified by the 

Commission. 

(e) Information-sharing agreements. A 

security-based swap execution facility 

shall share information with other 

regulatory organizations, data 

repositories, and third-party data 

reporting services as required by the 

Commission or as otherwise necessary 

and appropriate to fulfill its regulatory 

and reporting responsibilities. 

Appropriate information-sharing 

agreements can be established with such 

entities, or the Commission can act in 

conjunction with the security-based 

swap execution facility to carry out such 

information sharing. 

§ 242.823 Core Principle 6—Financial 

integrity of transactions. 

(a) General. The security-based swap 

execution facility shall establish and 

enforce rules and procedures for 

ensuring the financial integrity of 

security-based swaps entered on or 

through the facilities of the securitybased swap execution facility, including 

the clearance and settlement of securitybased swaps pursuant to section 

3C(a)(1) of the Act. 

(b) Required clearing. Transactions 

executed on or through the securitybased swap execution facility that are 

required to be cleared under section 

3C(a)(1) of the Act or are voluntarily 

cleared by the counterparties shall be 

cleared through a registered clearing 

agency or a clearing agency that has 

obtained an exemption from clearing 

agency registration to provide central 

counterparty services for security-based 

swaps. 

(c) General financial integrity. A 

security-based swap execution facility 

shall provide for the financial integrity 

of its transactions: 

(1) By establishing minimum financial 

standards for its members, which shall, 

at a minimum, require that each 

member qualify as an eligible contract 

participant; 

(2) For transactions cleared by a 

registered clearing agency: 

(i) By ensuring that the security-based 

swap execution facility has the capacity 

to route transactions to the registered 

clearing agency in a manner acceptable 

to the clearing agency for purposes of 

clearing; and 

(ii) By coordinating with each 

registered clearing agency to which it 

submits transactions for clearing, in the 

development of rules and procedures to 

facilitate prompt and efficient 

transaction processing. 

(d) Monitoring for financial 

soundness. A security-based swap 

execution facility shall monitor its 

members to ensure that they continue to 

qualify as eligible contract participants. 

§ 242.824 Core Principle 7—Emergency 

authority. 

(a) The security-based swap execution 

facility shall adopt rules to provide for 

the exercise of emergency authority, in 

consultation or cooperation with the 

Commission, as is necessary and 

appropriate, including the authority to 

liquidate or transfer open positions in 

any security-based swap or to suspend 

or curtail trading in a security-based 

swap. 

(b) To comply with this core 

principle, a security-based swap 

execution facility shall adopt rules that 

are reasonably designed to: 

(1) Allow the security-based swap 

execution facility to intervene as 

necessary to maintain markets with fair 

and orderly trading and to prevent or 

address manipulation or disruptive 

trading practices, whether the need for 

intervention arises exclusively from the 

security-based swap execution facility’s 

market or as part of a coordinated, crossmarket intervention; 

(2) Have the flexibility and 

independence to address market 

emergencies in an effective and timely 

manner consistent with the nature of the 

emergency, as long as all such actions 

taken by the security-based swap 

execution facility are made in good faith 

to protect the integrity of the markets; 

(3) Take market actions as may be 

directed by the Commission, including, 

in situations where a security-based 

swap is traded on more than one 

platform, emergency action to liquidate 

or transfer open interest as directed, or 

agreed to, by the Commission or the 

Commission’s staff; 

(4) Include procedures and guidelines 

for decision-making and 

implementation of emergency 

intervention that avoid conflicts of 

interest; 

(5) Include alternate lines of 

communication and approval 

procedures to address emergencies 

associated with real-time events; and 

(6) Allow the security-based swap 

execution facility, to address perceived 

market threats, to impose or modify 

position limits, impose or modify price 

limits, impose or modify intraday 

market restrictions, impose special 

margin requirements, order the 

liquidation or transfer of open positions 

in any contract, order the fixing of a 

settlement price, extend or shorten the 

expiration date or the trading hours, 

suspend or curtail trading in any 

contract, transfer customer contracts 

and the margin, or alter any contract’s 

settlement terms or conditions, or, if 

applicable, provide for the carrying out 

of such actions through its agreements 

with its third-party provider of clearing 

or regulatory services. 

(c) A security-based swap execution 

facility shall promptly notify the 

Commission of its exercise of emergency 

authority, explaining its decisionmaking process, the reasons for using its 

emergency authority, and how conflicts 

of interest were minimized, including 

the extent to which the security-based 

swap execution facility considered the 

effect of its emergency action on the 

underlying markets and on markets that 

are linked or referenced to the contracts 

traded on its facility, including similar 


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87306 Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Rules and Regulations 

markets on other trading venues. 

Information on all regulatory actions 

carried out pursuant to a security-based 

swap execution facility’s emergency 

authority shall be included in a timely 

submission of a certified rule pursuant 

to § 242.807. 

§ 242.825 Core Principle 8—Timely 

publication of trading information. 

(a)(1) The security-based swap 

execution facility shall make public 

timely information on price, trading 

volume, and other trading data on 

security-based swaps to the extent 

prescribed by the Commission. 

(2) The security-based swap execution 

facility shall be required to have the 

capacity to electronically capture and 

transmit and disseminate trade 

information with respect to transactions 

executed on or through the facility. 

(b) A security-based swap execution 

facility shall report security-based swap 

transaction data as required by 

§§ 242.900 through 242.909 (Regulation 

SBSR). 

(c) A security-based swap execution 

facility shall make available a ‘‘Daily 

Market Data Report’’ containing the 

information required in paragraphs 

(c)(1) and (2) of this section in a manner 

and timeframe required by this section. 

(1) Contents. The Daily Market Data 

Report of a security-based swap 

execution facility for a business day 

shall contain the following information 

for each tenor of each security-based 

swap traded on that security-based swap 

execution facility during that business 

day: 

(i) The trade count (excluding error 

trades, correcting trades, and offsetting 

trades); 

(ii) The total notional amount traded 

(excluding error trades, correcting 

trades, and offsetting trades); 

(iii) The total notional amount of 

block trades, after such time as the 

Commission adopts a definition of 

‘‘block trade’’ in § 242.802 of this 

chapter (Rule 802); 

(iv) The opening and closing price; 

(v) The price that is used for 

settlement purposes, if different from 

the closing price; and 

(vi) The lowest price of a sale or offer, 

whichever is lower, and the highest 

price of a sale or bid, whichever is 

higher, that the security-based swap 

execution facility reasonably determines 

accurately reflects market conditions. 

Bids and offers vacated or withdrawn 

shall not be used in making this 

determination. A bid is vacated if 

followed by a higher bid or price and an 

offer is vacated if followed by a lower 

offer or price. 

(2) Additional information. A 

security-based swap execution facility 

must record the following information 

with respect to security-based swaps on 

that reporting market: 

(i) The method used by the securitybased swap execution facility in 

determining nominal prices and 

settlement prices; and 

(ii) If discretion is used by the 

security-based swap execution facility 

in determining the opening and/or 

closing ranges or the settlement prices, 

an explanation that certain discretion 

may be employed by the security-based 

swap execution facility and a 

description of the manner in which that 

discretion may be employed. 

Discretionary authority must be noted 

explicitly in each case in which it is 

applied (for example, by use of an 

asterisk or footnote). 

(3) Form of publication. A securitybased swap execution facility shall 

publicly post the Daily Market Data 

Report on its website: 

(i) In a downloadable and machinereadable format using the most recent 

versions of the associated XML schema 

and PDF renderer as published on the 

Commission’s website; 

(ii) Without fees or other charges; 

(iii) Without any encumbrances on 

access or usage restrictions; and 

(iv) Without requiring a user to agree 

to any terms before being allowed to 

view or download the Daily Market Data 

Report, such as by waiving any 

requirements of this paragraph (c)(3). 

Any such waiver agreed to by a user 

shall be null and void. 

(4) Timing of publication. A securitybased swap execution facility shall 

publish the Daily Market Data Report on 

its website as soon as reasonably 

practicable on the next business day 

after the day to which the information 

pertains, but in no event later than 7 

a.m. on the next business day. 

(5) Duration. A security-based swap 

execution facility shall keep each Daily 

Market Data Report available on its 

website in the same location as all other 

Daily Market Data Reports for no less 

than one year after the date of first 

publication. 

§ 242.826 Core Principle 9— 

Recordkeeping and reporting. 

(a) In general. (1) A security-based 

swap execution facility shall: 

(i) Maintain records of all activities 

relating to the business of the facility, 

including a complete audit trail, in a 

form and manner acceptable to the 

Commission for a period of five years; 

and 

(ii) 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. 

(2) The Commission shall adopt data 

collection and reporting requirements 

for security-based swap execution 

facilities that are comparable to 

corresponding requirements for clearing 

agencies and security-based swap data 

repositories. 

(b) Required records. A security-based 

swap execution facility shall keep full, 

complete, and systematic records, 

together with all pertinent data and 

memoranda, of all activities relating to 

its business with respect to securitybased swaps. Such records shall 

include, without limitation, the audit 

trail information required under 

§ 242.819(f) and all other records that a 

security-based swap execution facility is 

required to create or obtain under 

§§ 242.800 through 242.835 (Regulation 

SE). 

(c) Duration of retention. (1) A 

security-based swap execution facility 

shall keep records of any security-based 

swap from the date of execution until 

the termination, maturity, expiration, 

transfer, assignment, or novation date of 

the transaction, and for a period of not 

less than five years, the first two years 

in an easily accessible place, after such 

date. 

(2) A security-based swap execution 

facility shall keep each record other 

than the records described in paragraph 

(c)(1) of this section for a period of not 

less than five years, the first two years 

in an easily accessible place, from the 

date on which the record was created. 

(d) Record retention. (1) A securitybased swap execution facility shall 

retain all records in a form and manner 

that ensures the authenticity and 

reliability of such records in accordance 

with the Act and the Commission’s 

rules thereunder. 

(2) A security-based swap execution 

facility shall, upon request of any 

representative of the Commission, 

promptly furnish to the representative 

legible, true, complete, and current 

copies of any records required to be kept 

and preserved pursuant to this section. 

(3)(i) An electronic record shall be 

retained in a form and manner that 

allows for prompt production at the 

request of any representative of the 

Commission. 

(ii) A security-based swap execution 

facility maintaining electronic records 

shall establish appropriate systems and 

controls that ensure the authenticity and 

reliability of electronic records, 

including, without limitation: 

(A) Systems that maintain the 

security, signature, and data as 

necessary to ensure the authenticity of 


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the information contained in electronic 

records and to monitor compliance with 

the Act and the Commission’s rules 

thereunder; 

(B) Systems that ensure that the 

security-based swap execution facility is 

able to produce electronic records in 

accordance with this section, and 

ensure the availability of such electronic 

records in the event of an emergency or 

other disruption of the security-based 

swap execution facility’s electronic 

record retention systems; and 

(C) The creation and maintenance of 

an up-to-date inventory that identifies 

and describes each system that 

maintains information necessary for 

accessing or producing electronic 

records. 

(e) Record examination. All records 

required to be kept by a security-based 

swap execution facility pursuant to this 

section are subject to examination by 

any representative of the Commission 

pursuant to section 17(b) of the Act (15 

U.S.C. 78q). 

(f) Records of non-U.S. members. A 

security-based swap execution facility 

shall keep a record in permanent form, 

which shall show the true name, 

address, and principal occupation or 

business of any non-U.S. member that 

executes transactions on the facility. 

Upon request, the security-based swap 

execution facility shall provide to the 

Commission information regarding the 

name of any person guaranteeing such 

transactions or exercising any control 

over the trading of such non-U.S. 

member. 

§ 242.827 Core Principle 10—Antitrust 

considerations. 

Unless necessary or appropriate to 

achieve the purposes of the Act, the 

security-based swap execution facility 

shall not: 

(a) Adopt any rules or take any 

actions that result in any unreasonable 

restraint of trade; or 

(b) Impose any material 

anticompetitive burden on trading or 

clearing. 

§ 242.828 Core Principle 11—Conflicts of 

interest. 

(a) The security-based swap execution 

facility shall: 

(1) Establish and enforce rules to 

minimize conflicts of interest in its 

decision-making process; and 

(2) Establish a process for resolving 

the conflicts of interest. 

(b) A security-based swap execution 

facility shall comply with the 

requirements of § 242.834. 

§ 242.829 Core Principle 12—Financial 

resources. 

(a) In general. (1) The security-based 

swap execution facility shall have 

adequate financial, operational, and 

managerial resources to discharge each 

responsibility of the security-based 

swap execution facility, as determined 

by the Commission. 

(2) The financial resources of a 

security-based swap execution facility 

shall be considered to be adequate if the 

value of the financial resources: 

(i) Enables the organization to meet its 

financial obligations to its members 

notwithstanding a default by a member 

creating the largest financial exposure 

for that organization in extreme but 

plausible market conditions; and 

(ii) Exceeds the total amount that 

would enable the security-based swap 

execution facility to cover the operating 

costs of the security-based swap 

execution facility for a one-year period, 

as calculated on a rolling basis. 

(b) General requirements. A securitybased swap execution facility shall 

maintain financial resources on an 

ongoing basis that are adequate to 

enable it to comply with the core 

principles set forth in section 3D of the 

Act and any applicable Commission 

rules. Financial resources shall be 

considered adequate if their value 

exceeds the total amount that would 

enable the security-based swap 

execution facility to cover its projected 

operating costs necessary for the 

security-based swap execution facility 

to comply with section 3D of the Act 

and applicable Commission rules for a 

one-year period, as calculated on a 

rolling basis pursuant to paragraph (e) of 

this section. 

(c) Types of financial resources. 

Financial resources available to satisfy 

the requirements of this section may 

include: 

(1) The security-based swap execution 

facility’s own capital, meaning its assets 

minus its liabilities calculated in 

accordance with generally accepted 

accounting principles in the United 

States; and 

(2) Any other financial resource 

deemed acceptable by the Commission. 

(d) Liquidity of financial resources. 

The financial resources allocated by a 

security-based swap execution facility 

to meet the ongoing requirements of 

paragraph (b) of this section shall 

include unencumbered, liquid financial 

assets (i.e., cash and/or highly liquid 

securities) equal to at least the greater of 

three months of projected operating 

costs, as calculated on a rolling basis, or 

the projected costs needed to wind 

down the security-based swap execution 

facility’s operations, in each case as 

determined under paragraph (e) of this 

section. If a security-based swap 

execution facility lacks sufficient 

unencumbered, liquid financial assets to 

satisfy its obligations under this section, 

the security-based swap execution 

facility may satisfy this requirement by 

obtaining a committed line of credit or 

similar facility in an amount at least 

equal to such deficiency. 

(e) Computation of costs to meet 

financial resources requirement. (1) A 

security-based swap execution facility 

shall, each fiscal quarter, make a 

reasonable calculation of its projected 

operating costs and wind-down costs in 

order to determine its applicable 

obligations under this section. The 

security-based swap execution facility 

shall have reasonable discretion in 

determining the methodologies used to 

compute such amounts. 

(i) Calculation of projected operating 

costs. A security-based swap execution 

facility’s calculation of its projected 

operating costs shall be deemed 

reasonable if it includes all expenses 

necessary for the security-based swap 

execution facility to comply with the 

core principles set forth in section 3D of 

the Act and any applicable Commission 

rules, and if the calculation is based on 

the security-based swap execution 

facility’s current level of business and 

business model, taking into account any 

projected modification to its business 

model (e.g., the addition or subtraction 

of business lines or operations or other 

changes), and any projected increase or 

decrease in its level of business over the 

next 12 months. A security-based swap 

execution facility may exclude the 

following expenses (‘‘excludable 

expenses’’) from its projected operating 

cost calculations: 

(A) Costs attributable solely to sales, 

marketing, business development, 

product development, or recruitment 

and any related travel, entertainment, 

event, or conference costs; 

(B) Compensation and related taxes 

and benefits for personnel who are not 

necessary to ensure that the securitybased swap execution facility is able to 

comply with the core principles set 

forth in section 3D of the Act and any 

applicable Commission rules; 

(C) Costs for acquiring and defending 

patents and trademarks for securitybased swap execution facility products 

and related intellectual property; 

(D) Magazine, newspaper, and online 

periodical subscription fees; 

(E) Tax preparation and audit fees; 

(F) The variable commissions that a 

voice-based security-based swap 

execution facility may pay to its trading 

specialists, calculated as a percentage of 

transaction revenue generated by the 


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voice-based security-based swap 

execution facility; and 

(G) Any non-cash costs, including 

depreciation and amortization. 

(ii) Prorated expenses. A securitybased swap execution facility’s 

calculation of its projected operating 

costs shall be deemed reasonable if an 

expense is prorated and the securitybased swap execution facility: 

(A) Maintains sufficient 

documentation that reasonably shows 

the extent to which an expense is 

partially attributable to an excludable 

expense; 

(B) Identifies any prorated expense in 

the financial reports that it submits to 

the Commission pursuant to paragraph 

(g) of this section; and 

(C) Sufficiently explains why it 

prorated any expense. Common 

allocation methodologies that may be 

used include actual use, headcount, or 

square footage. A security-based swap 

execution facility may provide 

documentation, such as copies of 

service agreements, other legal 

documents, firm policies, audit 

statements, or allocation methodologies 

to support its determination to prorate 

an expense. 

(iii) Expenses allocated among 

affiliates. A security-based swap 

execution facility’s calculation of its 

projected operating costs shall be 

deemed reasonable if it prorates any 

shared expense that the security-based 

swap execution facility pays for, but 

only to the extent that such shared 

expense is attributable to an affiliate and 

for which the security-based swap 

execution facility is reimbursed. To 

prorate a shared expense, the securitybased swap execution facility shall: 

(A) Maintain sufficient 

documentation that reasonably shows 

the extent to which the shared expense 

is attributable to and paid for by the 

security-based swap execution facility 

and/or affiliated entity. The securitybased swap execution facility may 

provide documentation, such as copies 

of service agreements, other legal 

documents, firm policies, audit 

statements, or allocation methodologies, 

that reasonably shows how expenses are 

attributable to, and paid for by, the 

security-based swap execution facility 

and/or its affiliated entities to support 

its determination to prorate an expense; 

(B) Identify any shared expense in the 

financial reports that it submits to the 

Commission pursuant to paragraph (g) 

of this section; and 

(C) Sufficiently explain why it 

prorated the shared expense. 

(2) Notwithstanding any provision of 

paragraph (e)(1) of this section, the 

Commission may review the 

methodologies and require changes as 

appropriate. 

(f) Valuation of financial resources. 

No less than each fiscal quarter, a 

security-based swap execution facility 

shall compute the current market value 

of each financial resource used to meet 

its obligations under this section. 

Reductions in value to reflect market 

and credit risk (‘‘haircuts’’) shall be 

applied as appropriate. 

(g) Reporting to the Commission. (1) 

Each fiscal quarter, or at any time upon 

Commission request, a security-based 

swap execution facility shall provide a 

report to the Commission that includes: 

(i) The amount of financial resources 

necessary to meet the requirements of 

this section, computed in accordance 

with the requirements of paragraph (e) 

of this section, and the market value of 

each available financial resource, 

computed in accordance with the 

requirements of paragraph (f) of this 

section; and 

(ii) Financial statements, including 

the balance sheet, income statement, 

and statement of cash flows of the 

security-based swap execution facility. 

(A) The financial statements shall be 

prepared in accordance with generally 

accepted accounting principles in the 

United States, prepared in English, and 

denominated in U.S. dollars. 

(B) The financial statements of a 

security-based swap execution facility 

that is not domiciled in the United 

States, and is not otherwise required to 

prepare financial statements in 

accordance with generally accepted 

accounting principles in the United 

States, may satisfy the requirement in 

paragraph (g)(1)(ii)(A) of this section if 

such financial statements are prepared 

in accordance with either International 

Financial Reporting Standards issued by 

the International Accounting Standards 

Board, or a comparable international 

standard as the Commission may 

otherwise accept in its discretion. 

(2) The calculations required by this 

paragraph (g) shall be made as of the last 

business day of the security-based swap 

execution facility’s applicable fiscal 

quarter. 

(3) With each report required under 

paragraph (g) of this section, the 

security-based swap execution facility 

shall also provide the Commission with 

sufficient documentation explaining the 

methodology used to compute its 

financial requirements under this 

section. Such documentation shall: 

(i) Allow the Commission to reliably 

determine, without additional requests 

for information, that the security-based 

swap execution facility has made 

reasonable calculations pursuant to 

paragraph (e) of this section; and 

(ii) Include, at a minimum: 

(A) A total list of all expenses, 

without any exclusion; 

(B) All expenses and the 

corresponding amounts, if any, that the 

security-based swap execution facility 

excluded or prorated when determining 

its operating costs, calculated on a 

rolling basis, required under this 

section, and the basis for any 

determination to exclude or prorate any 

such expenses; 

(C) Documentation demonstrating the 

existence of any committed line of 

credit or similar facility relied upon for 

the purpose of meeting the requirements 

of this section (e.g., copies of 

agreements establishing or amending a 

credit facility or similar facility); and 

(D) All costs that a security-based 

swap execution facility would incur to 

wind down its operations, the projected 

amount of time for any such wind-down 

period, and the basis of its 

determination for the estimation of its 

costs and timing. 

(4) The reports and supporting 

documentation required by this section 

shall be filed not later than 40 calendar 

days after the end of the security-based 

swap execution facility’s first three 

fiscal quarters, and not later than 90 

calendar days after the end of the 

security-based swap execution facility’s 

fourth fiscal quarter, or at such later 

time as the Commission may permit, in 

its discretion, upon request by the 

security-based swap execution facility. 

(5) A security-based swap execution 

facility shall provide notice to the 

Commission no later than 48 hours after 

it knows or reasonably should know 

that it no longer meets its obligations 

under paragraphs (b) and (d) of this 

section. 

(6) A security-based swap execution 

facility shall provide the report and 

documentation required by this section 

to the Commission electronically using 

the EDGAR system as an Interactive 

Data File in accordance with § 232.405 

of this chapter. 

§ 242.830 Core Principle 13—System 

safeguards. 

(a) In general. The security-based 

swap execution facility shall: 

(1) Establish and maintain a program 

of risk analysis and oversight to identify 

and minimize sources of operational 

risk, through the development of 

appropriate controls and procedures, 

and automated systems, that: 

(i) Are reliable and secure; and 

(ii) Have adequate scalable capacity; 

(2) Establish and maintain emergency 

procedures, backup facilities, and a plan 

for disaster recovery that allow for: 

(i) The timely recovery and 

resumption of operations; and 


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(ii) The fulfillment of the 

responsibilities and obligations of the 

security-based swap execution facility; 

and 

(3) Periodically conduct tests to verify 

that the backup resources of the 

security-based swap execution facility 

are sufficient to ensure continued: 

(i) Order processing and trade 

matching; 

(ii) Price reporting; 

(iii) Market surveillance; and 

(iv) Maintenance of a comprehensive 

and accurate audit trail. 

(b) Requirements. (1) A security-based 

swap execution facility’s program of risk 

analysis and oversight with respect to 

its operations and automated systems 

shall address each of the following 

categories of risk analysis and oversight: 

(i) Enterprise risk management and 

governance. This category includes, but 

is not limited to: Assessment, 

mitigation, and monitoring of security 

and technology risk; security and 

technology capital planning and 

investment; governing board and 

management oversight of technology 

and security; information technology 

audit and controls assessments; 

remediation of deficiencies; and any 

other elements of enterprise risk 

management and governance included 

in generally accepted best practices. 

(ii) Information security. This 

category includes, but is not limited to, 

controls relating to: Access to systems 

and data (including least privilege, 

separation of duties, account 

monitoring, and control); user and 

device identification and 

authentication; security awareness 

training; audit log maintenance, 

monitoring, and analysis; media 

protection; personnel security and 

screening; automated system and 

communications protection (including 

network port control, boundary 

defenses, and encryption); system and 

information integrity (including 

malware defenses and software integrity 

monitoring); vulnerability management; 

penetration testing; security incident 

response and management; and any 

other elements of information security 

included in generally accepted best 

practices. 

(iii) Business continuity-disaster 

recovery planning and resources. This 

category includes, but is not limited to: 

Regular, periodic testing and review of 

business continuity-disaster recovery 

capabilities; the controls and 

capabilities described in paragraphs 

(b)(3) and (10) of this section; and any 

other elements of business continuitydisaster recovery planning and 

resources included in generally 

accepted best practices. 

(iv) Capacity and performance 

planning. This category includes, but is 

not limited to: Controls for monitoring 

the security-based swap execution 

facility’s systems to ensure adequate 

scalable capacity (including testing, 

monitoring, and analysis of current and 

projected future capacity and 

performance, and of possible capacity 

degradation due to planned automated 

system changes); and any other 

elements of capacity and performance 

planning included in generally accepted 

best practices. 

(v) Systems operations. This category 

includes, but is not limited to: System 

maintenance; configuration 

management (including baseline 

configuration, configuration change and 

patch management, least functionality, 

and inventory of authorized and 

unauthorized devices and software); 

event and problem response and 

management; and any other elements of 

system operations included in generally 

accepted best practices. 

(vi) Systems development and quality 

assurance. This category includes, but is 

not limited to: Requirements 

development; pre-production and 

regression testing; change management 

procedures and approvals; outsourcing 

and vendor management; training in 

secure coding practices; and any other 

elements of systems development and 

quality assurance included in generally 

accepted best practices. 

(vii) Physical security and 

environmental controls. This category 

includes, but is not limited to: Physical 

access and monitoring; power, 

telecommunication, and environmental 

controls; fire protection; and any other 

elements of physical security and 

environmental controls included in 

generally accepted best practices. 

(2) In addressing the categories of risk 

analysis and oversight required under 

paragraph (b)(1) of this section, a 

security-based swap execution facility 

shall follow generally accepted 

standards and best practices with 

respect to the development, operation, 

reliability, security, and capacity of 

automated systems. 

(3) A security-based swap execution 

facility shall maintain a business 

continuity-disaster recovery plan and 

business continuity-disaster recovery 

resources, emergency procedures, and 

back-up facilities sufficient to enable 

timely recovery and resumption of its 

operations and resumption of its 

ongoing fulfillment of its 

responsibilities and obligations as a 

security-based swap execution facility 

following any disruption of its 

operations. Such responsibilities and 

obligations include, without limitation: 

Order processing and trade matching; 

transmission of matched orders to a 

registered clearing agency for clearing, 

where appropriate; price reporting; 

market surveillance; and maintenance of 

a comprehensive audit trail. A securitybased swap execution facility’s business 

continuity-disaster recovery plan and 

resources generally should enable 

resumption of trading and clearing of 

security-based swaps executed on or 

pursuant to the rules of the securitybased swap execution facility during the 

next business day following the 

disruption. A security-based swap 

execution facility shall update its 

business continuity-disaster recovery 

plan and emergency procedures at a 

frequency determined by an appropriate 

risk analysis, but at a minimum no less 

frequently than annually. 

(4) A security-based swap execution 

facility satisfies the requirement to be 

able to resume its operations and 

resume its ongoing fulfillment of its 

responsibilities and obligations during 

the next business day following any 

disruption of its operations by 

maintaining either: 

(i) Infrastructure and personnel 

resources of its own that are sufficient 

to ensure timely recovery and 

resumption of its operations and 

resumption of its ongoing fulfillment of 

its responsibilities and obligations as a 

security-based swap execution facility 

following any disruption of its 

operations; or 

(ii) Contractual arrangements with 

other security-based swap execution 

facilities or disaster recovery service 

providers, as appropriate, that are 

sufficient to ensure continued trading 

and clearing of security-based swaps 

executed on the security-based swap 

execution facility, and ongoing 

fulfillment of all of the security-based 

swap execution facility’s 

responsibilities and obligations with 

respect to such security-based swaps, in 

the event that a disruption renders the 

security-based swap execution facility 

temporarily or permanently unable to 

satisfy this requirement on its own 

behalf. 

(5) A security-based swap execution 

facility shall notify Commission staff 

promptly of all: 

(i) Electronic trading halts and 

material system malfunctions; 

(ii) Cyber-security incidents or 

targeted threats that actually or 

potentially jeopardize automated system 

operation, reliability, security, or 

capacity; and 

(iii) Activations of the security-based 

swap execution facility’s business 

continuity-disaster recovery plan. 


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(6) A security-based swap execution 

facility shall provide Commission staff 

timely advance notice of all material: 

(i) Planned changes to automated 

systems that may impact the reliability, 

security, or adequate scalable capacity 

of such systems; and 

(ii) Planned changes to the securitybased swap execution facility’s program 

of risk analysis and oversight. 

(7) As part of a security-based swap 

execution facility’s obligation to 

produce books and records in 

accordance with § 242.826 (Core 

Principle 9), the security-based swap 

execution facility shall provide to the 

Commission the following systemsafeguards-related books and records, 

promptly upon the request of any 

Commission representative: 

(i) Current copies of its business 

continuity-disaster recovery plans and 

other emergency procedures; 

(ii) All assessments of its operational 

risks or system safeguards-related 

controls; 

(iii) All reports concerning system 

safeguards testing and assessment 

required by this chapter, whether 

performed by independent contractors 

or by employees of the security-based 

swap execution facility; and 

(iv) All other books and records 

requested by Commission staff in 

connection with Commission oversight 

of system safeguards pursuant to the Act 

or Commission rules, or in connection 

with Commission maintenance of a 

current profile of the security-based 

swap execution facility’s automated 

systems. 

(v) Nothing in paragraph (b)(7) of this 

section shall be interpreted as reducing 

or limiting in any way a security-based 

swap execution facility’s obligation to 

comply with § 242.826 (Core Principle 

9). 

(8) A security-based swap execution 

facility shall conduct regular, periodic, 

objective testing and review of its 

automated systems to ensure that they 

are reliable, secure, and have adequate 

scalable capacity. A security-based swap 

execution facility shall also conduct 

regular, periodic testing and review of 

its business continuity-disaster recovery 

capabilities. Such testing and review 

shall include, without limitation, all of 

the types of testing set forth in this 

paragraph (b)(8). 

(i) Definitions. As used in this 

paragraph (b)(8): 

Controls means the safeguards or 

countermeasures employed by the 

security-based swap execution facility 

to protect the reliability, security, or 

capacity of its automated systems or the 

confidentiality, integrity, and 

availability of its data and information, 

and to enable the security-based swap 

execution facility to fulfill its statutory 

and regulatory responsibilities. 

Controls testing means assessment of 

the security-based swap execution 

facility’s controls to determine whether 

such controls are implemented 

correctly, are operating as intended, and 

are enabling the security-based swap 

execution facility to meet the 

requirements of this section. 

Enterprise technology risk assessment 

means a written assessment that 

includes, but is not limited to, an 

analysis of threats and vulnerabilities in 

the context of mitigating controls. An 

enterprise technology risk assessment 

identifies, estimates, and prioritizes 

risks to security-based swap execution 

facility operations or assets, or to market 

participants, individuals, or other 

entities, resulting from impairment of 

the confidentiality, integrity, and 

availability of data and information or 

the reliability, security, or capacity of 

automated systems. 

External penetration testing means 

attempts to penetrate the security-based 

swap execution facility’s automated 

systems from outside the systems’ 

boundaries to identify and exploit 

vulnerabilities. Methods of conducting 

external penetration testing include, but 

are not limited to, methods for 

circumventing the security features of 

an automated system. 

Internal penetration testing means 

attempts to penetrate the security-based 

swap execution facility’s automated 

systems from inside the systems’ 

boundaries, to identify and exploit 

vulnerabilities. Methods of conducting 

internal penetration testing include, but 

are not limited to, methods for 

circumventing the security features of 

an automated system. 

Security incident means a 

cybersecurity or physical security event 

that actually jeopardizes or has a 

significant likelihood of jeopardizing 

automated system operation, reliability, 

security, or capacity, or the availability, 

confidentiality or integrity of data. 

Security incident response plan 

means a written plan documenting the 

security-based swap execution facility’s 

policies, controls, procedures, and 

resources for identifying, responding to, 

mitigating, and recovering from security 

incidents, and the roles and 

responsibilities of its management, staff, 

and independent contractors in 

responding to security incidents. A 

security incident response plan may be 

a separate document or a business 

continuity-disaster recovery plan 

section or appendix dedicated to 

security incident response. 

Security incident response plan 

testing means testing of a security-based 

swap execution facility’s security 

incident response plan to determine the 

plan’s effectiveness, identify its 

potential weaknesses or deficiencies, 

enable regular plan updating and 

improvement, and maintain 

organizational preparedness and 

resiliency with respect to security 

incidents. Methods of conducting 

security incident response plan testing 

may include, but are not limited to, 

checklist completion, walk-through or 

table-top exercises, simulations, and 

comprehensive exercises. 

Vulnerability testing means testing of 

a security-based swap execution 

facility’s automated systems to 

determine what information may be 

discoverable through a reconnaissance 

analysis of those systems and what 

vulnerabilities may be present on those 

systems. 

(ii) Vulnerability testing. A securitybased swap execution facility shall 

conduct vulnerability testing of a scope 

sufficient to satisfy the requirements set 

forth in paragraph (b)(10) of this section. 

(A) A security-based swap execution 

facility shall conduct such vulnerability 

testing at a frequency determined by an 

appropriate risk analysis. 

(B) Such vulnerability testing shall 

include automated vulnerability 

scanning, which shall follow generally 

accepted best practices. 

(C) A security-based swap execution 

facility shall conduct vulnerability 

testing by engaging independent 

contractors or by using employees of the 

security-based swap execution facility 

who are not responsible for 

development or operation of the systems 

or capabilities being tested. 

(iii) External penetration testing. A 

security-based swap execution facility 

shall conduct external penetration 

testing of a scope sufficient to satisfy the 

requirements set forth in paragraph 

(b)(10) of this section. 

(A) A security-based swap execution 

facility shall conduct such external 

penetration testing at a frequency 

determined by an appropriate risk 

analysis. 

(B) A security-based swap execution 

facility shall conduct external 

penetration testing by engaging 

independent contractors or by using 

employees of the security-based swap 

execution facility who are not 

responsible for development or 

operation of the systems or capabilities 

being tested. 

(iv) Internal penetration testing. A 

security-based swap execution facility 

shall conduct internal penetration 

testing of a scope sufficient to satisfy the 


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requirements set forth in paragraph 

(b)(10) of this section. 

(A) A security-based swap execution 

facility shall conduct such internal 

penetration testing at a frequency 

determined by an appropriate risk 

analysis. 

(B) A security-based swap execution 

facility shall conduct internal 

penetration testing by engaging 

independent contractors, or by using 

employees of the security-based swap 

execution facility who are not 

responsible for development or 

operation of the systems or capabilities 

being tested. 

(v) Controls testing. A security-based 

swap execution facility shall conduct 

controls testing of a scope sufficient to 

satisfy the requirements set forth in 

paragraph (b)(10) of this section. 

(A) A security-based swap execution 

facility shall conduct controls testing, 

which includes testing of each control 

included in its program of risk analysis 

and oversight, at a frequency 

determined by an appropriate risk 

analysis. Such testing may be conducted 

on a rolling basis. 

(B) A security-based swap execution 

facility shall conduct controls testing by 

engaging independent contractors or by 

using employees of the security-based 

swap execution facility who are not 

responsible for development or 

operation of the systems or capabilities 

being tested. 

(vi) Security incident response plan 

testing. A security-based swap 

execution facility shall conduct security 

incident response plan testing sufficient 

to satisfy the requirements set forth in 

paragraph (b)(10) of this section. 

(A) A security-based swap execution 

facility shall conduct such security 

incident response plan testing at a 

frequency determined by an appropriate 

risk analysis. 

(B) A security-based swap execution 

facility’s security incident response plan 

shall include, without limitation, the 

security-based swap execution facility’s 

definition and classification of security 

incidents, its policies and procedures 

for reporting security incidents and for 

internal and external communication 

and information sharing regarding 

security incidents, and the hand-off and 

escalation points in its security incident 

response process. 

(C) A security-based swap execution 

facility may coordinate its security 

incident response plan testing with 

other testing required by this section or 

with testing of its other business 

continuity-disaster recovery and crisis 

management plans. 

(D) A security-based swap execution 

facility may conduct security incident 

response plan testing by engaging 

independent contractors or by using 

employees of the security-based swap 

execution facility. 

(vii) Enterprise technology risk 

assessment. A security-based swap 

execution facility shall conduct 

enterprise technology risk assessment of 

a scope sufficient to satisfy the 

requirements set forth in paragraph 

(b)(10) of this section. 

(A) A security-based swap execution 

facility shall conduct enterprise 

technology risk assessment at a 

frequency determined by an appropriate 

risk analysis. A security-based swap 

execution facility that has conducted an 

enterprise technology risk assessment 

that complies with this section may 

conduct subsequent assessments by 

updating the previous assessment. 

(B) A security-based swap execution 

facility may conduct enterprise 

technology risk assessments by using 

independent contractors or employees 

of the security-based swap execution 

facility who are not responsible for 

development or operation of the systems 

or capabilities being assessed. 

(9) To the extent practicable, a 

security-based swap execution facility 

shall: 

(i) Coordinate its business continuitydisaster recovery plan with those of its 

members that it depends upon to 

provide liquidity, in a manner adequate 

to enable effective resumption of 

activity in its markets following a 

disruption causing activation of the 

security-based swap execution facility’s 

business continuity-disaster recovery 

plan; 

(ii) Initiate and coordinate periodic, 

synchronized testing of its business 

continuity- disaster recovery plan with 

those of members that it depends upon 

to provide liquidity; and 

(iii) Ensure that its business 

continuity-disaster recovery plan takes 

into account the business continuitydisaster recovery plans of its 

telecommunications, power, water, and 

other essential service providers. 

(10) The scope for all system 

safeguards testing and assessment 

required by this section shall be broad 

enough to include the testing of 

automated systems and controls that the 

security-based swap execution facility’s 

required program of risk analysis and 

oversight and its current cybersecurity 

threat analysis indicate is necessary to 

identify risks and vulnerabilities that 

could enable an intruder or 

unauthorized user or insider to: 

(i) Interfere with the security-based 

swap execution facility’s operations or 

with fulfillment of its statutory and 

regulatory responsibilities; 

(ii) Impair or degrade the reliability, 

security, or adequate scalable capacity 

of the security-based swap execution 

facility’s automated systems; 

(iii) Add to, delete, modify, exfiltrate, 

or compromise the integrity of any data 

related to the security-based swap 

execution facility’s regulated activities; 

or 

(iv) Undertake any other unauthorized 

action affecting the security-based swap 

execution facility’s regulated activities 

or the hardware or software used in 

connection with those activities. 

(11) Both the senior management and 

the governing board of a security-based 

swap execution facility shall receive 

and review reports setting forth the 

results of the testing and assessment 

required by this section. A securitybased swap execution facility shall 

establish and follow appropriate 

procedures for the remediation of issues 

identified through such review, as 

provided in paragraph (b)(12) of this 

section, and for evaluation of the 

effectiveness of testing and assessment 

protocols. 

(12) A security-based swap execution 

facility shall identify and document the 

vulnerabilities and deficiencies in its 

systems revealed by the testing and 

assessment required by this section. The 

security-based swap execution facility 

shall conduct and document an 

appropriate analysis of the risks 

presented by such vulnerabilities and 

deficiencies, to determine and 

document whether to remediate or 

accept the associated risk. When the 

security-based swap execution facility 

determines to remediate a vulnerability 

or deficiency, it must remediate in a 

timely manner given the nature and 

magnitude of the associated risk. 

§ 242.831 Core Principle 14—Designation 

of chief compliance officer. 

(a)(1) In general. Each security-based 

swap execution facility shall designate 

an individual to serve as a chief 

compliance officer. 

(2) Duties. The chief compliance 

officer shall: 

(i) Report directly to the board or to 

the senior officer of the facility; 

(ii) Review compliance with the core 

principles in this subsection; 

(iii) In consultation with the board of 

the facility, a body performing a 

function similar to that of a board, or the 

senior officer of the facility, resolve any 

conflicts of interest that may arise; 

(iv) Be responsible for establishing 

and administering the policies and 

procedures required to be established 

pursuant to this section; 

(v) Ensure compliance with the Act 

and the rules and regulations issued 


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under the Act, including rules 

prescribed by the Commission pursuant 

to section 3D of the Act; 

(vi) Establish procedures for the 

remediation of noncompliance issues 

found during compliance office reviews, 

look backs, internal or external audit 

findings, self-reported errors, or through 

validated complaints; and 

(vii) Establish and follow appropriate 

procedures for the handling, 

management response, remediation, 

retesting, and closing of noncompliance 

issues. 

(3) Annual reports. (i) In general. In 

accordance with rules prescribed by the 

Commission, the chief compliance 

officer shall annually prepare and sign 

a report that contains a description of: 

(A) The compliance of the securitybased swap execution facility with the 

Act; and 

(B) The policies and procedures, 

including the code of ethics and conflict 

of interest policies, of the security-based 

swap execution facility. 

(ii) [Reserved] 

(4) Requirements. The chief 

compliance officer shall: 

(i) Submit each report described in 

paragraph (a)(3) of this section with the 

appropriate financial report of the 

security-based swap execution facility 

that is required to be submitted to the 

Commission pursuant to this section; 

and 

(ii) Include in the report a 

certification that, under penalty of law, 

the report is accurate and complete. 

(b) Authority of chief compliance 

officer. (1) The position of chief 

compliance officer shall carry with it 

the authority and resources to develop, 

in consultation with the governing 

board or senior officer, the policies and 

procedures of the security-based swap 

execution facility and enforce such 

policies and procedures to fulfill the 

duties set forth for chief compliance 

officers in the Act and the Commission’s 

rules thereunder. 

(2) The chief compliance officer shall 

have supervisory authority over all staff 

acting at the direction of the chief 

compliance officer. 

(c) Qualifications of chief compliance 

officer. (1) The individual designated to 

serve as chief compliance officer shall 

have the background and skills 

appropriate for fulfilling the 

responsibilities of the position. 

(2) No individual that would be 

disqualified from serving on a securitybased swap execution facility’s 

governing board or committees pursuant 

to the criteria set forth in § 242.819(i) 

may serve as a chief compliance officer. 

(3) In determining whether the 

background and skills of a potential 

chief compliance officer are appropriate 

for fulfilling the responsibilities of the 

role of the chief compliance officer, a 

security-based swap execution facility 

has the discretion to base its 

determination on the totality of the 

qualifications of the potential chief 

compliance officer, including, but not 

limited to, compliance experience, 

related career experience, training, 

potential conflicts of interest, and any 

other relevant factors to the position. 

(d) Appointment and removal of chief 

compliance officer. (1) Only the 

governing board or the senior officer 

may appoint or remove the chief 

compliance officer. 

(2) The security-based swap execution 

facility shall notify the Commission 

within two business days of the 

appointment or removal, whether 

interim or permanent, of a chief 

compliance officer. 

(e) Compensation of the chief 

compliance officer. The governing board 

or the senior officer shall approve the 

compensation of the chief compliance 

officer. 

(f) Annual meeting with the chief 

compliance officer. The chief 

compliance officer shall meet with the 

governing board or senior officer of the 

security-based swap execution facility at 

least annually. 

(g) Information requested of the chief 

compliance officer. The chief 

compliance officer shall provide any 

information regarding the regulatory 

program of the security-based swap 

execution facility as requested by the 

governing board or the senior officer. 

(h) Duties of chief compliance officer. 

The duties of the chief compliance 

officer shall include, but are not limited 

to, the following: 

(1) Overseeing and reviewing 

compliance of the security-based swap 

execution facility with section 3D of the 

Act and the Commission rules 

thereunder; 

(2) Taking reasonable steps, in 

consultation with the governing board 

or the senior officer of the securitybased swap execution facility, to resolve 

any material conflicts of interest that 

may arise, including, but not limited to: 

(i) Conflicts between business 

considerations and compliance 

requirements; 

(ii) Conflicts between business 

considerations and the requirement that 

the security-based swap execution 

facility provide fair, open, and impartial 

access as set forth in § 242.819(c); and 

(iii) Conflicts between a securitybased swap execution facility’s 

management and members of the 

governing board; 

(3) Establishing and administering 

written policies and procedures 

reasonably designed to prevent 

violations of the Act and the rules of the 

Commission; 

(4) Taking reasonable steps to ensure 

compliance with the Act and the rules 

of the Commission; 

(5) Establishing procedures 

reasonably designed to handle, respond, 

remediate, retest, and resolve 

noncompliance issues identified by the 

chief compliance officer through any 

means, including any compliance office 

review, look-back, internal or external 

audit finding, self-reported error, or 

validated complaint; 

(6) Establishing and administering a 

compliance manual designed to 

promote compliance with the applicable 

laws, rules, and regulations and a 

written code of ethics for the securitybased swap execution facility designed 

to prevent ethical violations and to 

promote honesty and ethical conduct by 

personnel of the security-based swap 

execution facility; 

(7) Supervising the regulatory 

program of the security-based swap 

execution facility with respect to trade 

practice surveillance; market 

surveillance; real-time market 

monitoring; compliance with audit trail 

requirements; enforcement and 

disciplinary proceedings; audits, 

examinations, and other regulatory 

responsibilities (including taking 

reasonable steps to ensure compliance 

with, if applicable, financial integrity, 

financial reporting, sales practice, 

recordkeeping, and other requirements); 

and 

(8) Supervising the effectiveness and 

sufficiency of any regulatory services 

provided to the security-based swap 

execution facility by a regulatory service 

provider in accordance with 

§ 242.819(e). 

(i) Preparation of annual compliance 

report. The chief compliance officer 

shall, not less than annually, prepare 

and sign an annual compliance report 

that covers the prior fiscal year. The 

report shall, at a minimum, contain: 

(1) A description and self-assessment 

of the effectiveness of the written 

policies and procedures of the securitybased swap execution facility, including 

the code of ethics and conflict of 

interest policies, to reasonably ensure 

compliance with the Act and applicable 

Commission rules; 

(2) Any material changes made to 

compliance policies and procedures 

during the coverage period for the report 

and any areas of improvement or 

recommended changes to the 

compliance program; 


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(3) A description of the financial, 

managerial, and operational resources 

set aside for compliance with the Act 

and applicable Commission rules; 

(4) Any material non-compliance 

matters identified and an explanation of 

the corresponding action taken to 

resolve such non-compliance matters; 

and 

(5) A certification by the chief 

compliance officer that, to the best of 

their knowledge and reasonable belief, 

and under penalty of law, the annual 

compliance report is accurate and 

complete in all material respects. 

(j) Submission of annual compliance 

report and related matters. (1) 

Furnishing the annual compliance 

report prior to submission to the 

Commission. Prior to submission to the 

Commission, the chief compliance 

officer shall provide the annual 

compliance report for review to the 

governing board or, in the absence of a 

governing board, to the senior officer. 

Members of the governing board and the 

senior officer shall not require the chief 

compliance officer to make any changes 

to the report. 

(2) Submission of annual compliance 

report to the Commission. The annual 

compliance report shall be submitted 

electronically to the Commission using 

the EDGAR system as an Interactive 

Data File in accordance with § 232.405 

of this chapter not later than 90 calendar 

days after the end of the security-based 

swap execution facility’s fiscal year. The 

security-based swap execution facility 

shall concurrently file the annual 

compliance report with the fourthquarter financial report pursuant to 

§ 242.829(g). 

(3) Amendments to annual 

compliance report. (i) Promptly upon 

discovery of any material error or 

omission made in a previously filed 

annual compliance report, the chief 

compliance officer shall file an 

amendment with the Commission to 

correct the material error or omission. 

The chief compliance officer shall 

submit the amended annual compliance 

report to the governing board, or in the 

absence of a governing board, to the 

senior officer, pursuant to paragraph 

(j)(1) of this section. 

(ii) An amendment shall contain the 

certification required under paragraph 

(i)(5) of this section. 

(4) Request for extension. A securitybased swap execution facility may 

request an extension of time to file its 

annual compliance report from the 

Commission. Reasonable and valid 

requests for extensions of the filing 

deadline may be granted at the 

discretion of the Commission. 

(k) Recordkeeping. A security-based 

swap execution facility shall maintain 

all records demonstrating compliance 

with the duties of the chief compliance 

officer and the preparation and 

submission of annual compliance 

reports consistent with § 242.826 (Core 

Principle 9). 

§ 242.832 Application of the trade 

execution requirement to cross-border 

security-based swap transactions. 

(a) The trade execution requirement 

set forth in section 3C(h) of the Act shall 

not apply in connection with a securitybased swap unless at least one 

counterparty to the security-based swap 

is a ‘‘covered person’’ as defined in 

paragraph (b) of this section. 

(b) A ‘‘covered person’’ means, with 

respect to a particular security-based 

swap, any person that is: 

(1) A U.S. person; 

(2) A non-U.S. person whose 

performance under a security-based 

swap is guaranteed by a U.S. person; or 

(3) A non-U.S. person who, in 

connection with its security-based swap 

dealing activity, uses U.S. personnel 

located in a U.S. branch or office, or 

personnel of an agent of such non-U.S. 

person located in a U.S. branch or 

office, to arrange, negotiate, or execute 

a transaction. 

§ 242.833 Cross-border exemptions. 

(a) Exemptions for foreign trading 

venues for security-based swaps. An 

application for an order for exemptive 

relief under section 36(a)(1) of the Act 

(15 U.S.C. 78mm(a)(1)) relating to the 

registration status under the Act of a 

foreign trading venue for security-based 

swaps that has one or more members 

who are covered persons, as defined in 

§ 242.832, with respect to security-based 

swaps transacted on that venue may 

state that the application also is 

submitted pursuant to this paragraph 

(a). In such case, the Commission will 

consider the submission as an 

application to exempt the foreign 

trading venue, with respect to its 

providing a market place for securitybased swaps, from: 

(1) The definition of ‘‘exchange’’ in 

section 3(a)(1) of the Act (15 U.S.C. 

78c(a)(1)); 

(2) The definition of ‘‘security-based 

swap execution facility’’ in section 

3(a)(77) of the Act (15 U.S.C. 78c(a)(77)); 

(3) The definition of ‘‘broker’’ in 

section 3(a)(4) of the Act (15 U.S.C. 

78c(a)(4)); and 

(4) Section 3D(a)(1) of the Act (15 

U.S.C. 78c–4(a)(1)). 

(b) Exemptions relating to the trade 

execution requirement. (1) An 

application for an order for exemptive 

relief under section 36(a)(1) of the Act 

(15 U.S.C. 78mm(a)(1)) relating to the 

application of the trade execution 

requirement in section 3C(h) of the Act 

(15 U.S.C. 78c–3(h)) to security-based 

swaps executed on a foreign trading 

venue, may state that the application 

also is submitted pursuant to this 

paragraph (b). 

(2) When considering an application 

under section 36 of the Act (15 U.S.C. 

78mm) and this paragraph (b), the 

Commission may consider: 

(i) The extent to which the securitybased swaps traded in the foreign 

jurisdiction covered by the request are 

subject to a trade execution requirement 

comparable to that in section 3C(h) of 

the Act (15 U.S.C. 78c–3(h)) and the 

Commission’s rules thereunder; 

(ii) The extent to which trading 

venues in the foreign jurisdiction 

covered by the request are subject to 

regulation and supervision comparable 

to that under the Act, including section 

3D of the Act (15 U.S.C. 78c–4), and the 

Commission’s rules thereunder; 

(iii) Whether the foreign trading 

venue or venues where covered persons, 

as defined in § 242.832, intend to trade 

security-based swaps have received an 

exemption order contemplated by 

paragraph (a) of this section; and 

(iv) Any other factor that the 

Commission believes is relevant for 

assessing whether the exemption is in 

the public interest and consistent with 

the protection of investors. 

§ 242.834 Mitigation of conflicts of interest 

of security-based swap execution facilities 

and certain exchanges. 

(a) Definitions. For purposes of this 

section: 

Family relationship of a person means 

the person’s spouse, former spouse, 

parent, stepparent, child, stepchild, 

sibling, stepbrother, stepsister, 

grandparent, grandchild, uncle, aunt, 

nephew, niece, or in-law. 

Major disciplinary committee means a 

committee of persons who are 

authorized by a security-based swap 

execution facility to conduct 

disciplinary hearings, to settle 

disciplinary charges, to impose 

disciplinary sanctions, or to hear 

appeals thereof in cases involving any 

violation of the rules of the securitybased swap execution facility except 

those which: 

(i) Are related to decorum or attire, 

financial requirements, or reporting or 

recordkeeping; and 

(ii) Do not involve fraud, deceit, or 

conversion. 

Member’s affiliated firm is a firm in 

which the member is a principal or an 

employee. 


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Named party in interest means a 

person or entity that is identified by 

name as a subject of any matter being 

considered by a governing board, 

disciplinary committee, or oversight 

panel. 

Significant action includes any of the 

following types of actions or rule 

changes by a security-based swap 

execution facility or SBS exchange that 

can be implemented without the 

Commission’s prior approval: 

(i) Any actions or rule changes which 

address an emergency; and 

(ii) Any changes in margin levels that 

are designed to respond to extraordinary 

market conditions such as an actual or 

attempted corner, squeeze, congestion, 

or undue concentration of positions, or 

that otherwise are likely to have a 

substantial effect on prices in any 

contract traded or cleared at such 

security-based swap execution facility 

or SBS exchange; but does not include 

any rule not submitted for prior 

Commission approval because such rule 

is unrelated to the terms and conditions 

of any security-based swap traded at 

such security-based swap execution 

facility or SBS exchange. 

(b) Ownership and voting limitations. 

Each security-based swap execution 

facility and SBS exchange shall not 

permit any of its members, either alone 

or together with any officer, principal, 

or employee of the member, to: 

(1) Own, directly or indirectly, 20 

percent or more of any class of voting 

securities or of other voting interest in 

the security-based swap execution 

facility or SBS exchange; or 

(2) Directly or indirectly vote, cause 

the voting of, or give any consent or 

proxy with respect to the voting of, any 

interest that exceeds 20 percent of the 

voting power of any class of securities 

or of other ownership interest in the 

security-based swap execution facility 

or SBS exchange. 

(3) The ownership and voting 

limitations in paragraphs (b)(1) and (2) 

of this section shall not apply to an 

SBSEF that has, pursuant to 

§ 242.819(e), entered into an agreement 

with a registered futures association or 

a national securities association for the 

provision of regulatory services that 

encompass, at a minimum, real-time 

market monitoring under § 242.819(d)(5) 

and investigations and investigation 

reports under § 242.819(d)(6). 

(c) Enforcement of limitations. The 

rules of each security-based swap 

execution facility and SBS exchange 

must be reasonably designed, and have 

an effective mechanism, to: 

(1) Deny effect to the portion of any 

voting interest held by a member in 

excess of the limitations in paragraph 

(b) of this section; 

(2) Compel a member who possesses 

a voting interest in excess of the 

limitations in paragraph (b) of this 

section to divest enough of that voting 

interest to come within those 

limitations; and 

(3) Obtain information relating to its 

ownership and voting interests owned 

or controlled, directly or indirectly, by 

its members. 

(d) Disciplinary committees and 

hearing panels. Each security-based 

swap execution facility and SBS 

exchange shall ensure that its 

disciplinary processes preclude any 

member, or group or class of its 

members, from dominating or exercising 

disproportionate influence on the 

disciplinary process. Each major 

disciplinary committee or hearing panel 

thereof shall include sufficient different 

groups or classes of its members so as 

to ensure fairness and to prevent special 

treatment or preference for any person 

or member in the conduct of the 

responsibilities of the committee or 

panel. 

(e) Governing board composition. 

Each security-based swap execution 

facility and SBS exchange shall ensure 

that: 

(1) Twenty percent or more of the 

persons who are eligible to vote 

routinely on matters being considered 

by the governing board (excluding those 

members who are eligible to vote only 

in the case of a tie vote by the governing 

board) are: 

(i) Knowledgeable of security-based 

swap trading or financial regulation, or 

otherwise capable of contributing to 

governing board deliberations; 

(ii) Not members of the security-based 

swap execution facility or SBS 

exchange; 

(iii) Not salaried employees of the 

security-based swap execution facility 

or SBS exchange; 

(iv) Not primarily performing services 

for the security-based swap execution 

facility or SBS exchange in a capacity 

other than as a member of the governing 

board; and 

(v) Not officers, principals, or 

employees of a firm which holds a 

membership at the security-based swap 

execution facility or SBS exchange, 

either in its own name or through an 

employee on behalf of the firm; and 

(2) The membership of the governing 

board includes a diversity of groups or 

classes of its members. The securitybased swap execution facility or SBS 

exchange must be able to demonstrate 

that the board membership fairly 

represents the diversity of interests at 

such security-based swap execution 

facility or SBS exchange and is 

otherwise consistent with the 

composition requirements of this 

section. 

(f) Providing information about the 

board to the Commission. Each securitybased swap execution facility and SBS 

exchange shall submit to the 

Commission, within 30 days after each 

governing board election, a list of the 

governing board’s members, the groups 

or classes of its members that they 

represent, and how the composition of 

the governing board otherwise meets the 

requirements of this section. 

(g) Voting by interested members of 

governing boards and various 

committees of security-based swap 

execution facilities and SBS exchanges. 

(1) Rules required. Each security-based 

swap execution facility and SBS 

exchange shall maintain in effect rules 

to address the avoidance of conflicts of 

interest in the execution of its regulatory 

functions. Such rules must provide for 

the following: 

(i) Relationship with named party in 

interest. (A) Nature of relationship. A 

member of a governing board, 

disciplinary committee, or oversight 

panel of a security-based swap 

execution facility or SBS exchange must 

abstain from such body’s deliberations 

and voting on any matter involving a 

named party in interest where such 

member: 

(1) Is a named party in interest; 

(2) Is an employer, employee, or 

fellow employee of a named party in 

interest; 

(3) Has any other significant, ongoing 

business relationship with a named 

party in interest, not including 

relationships limited to executing 

security-based swaps opposite of each 

other or to clearing security-based 

swaps through the same clearing 

member; or 

(4) Has a family relationship with a 

named party in interest. 

(B) Disclosure of relationship. Prior to 

the consideration of any matter 

involving a named party in interest, 

each member of a governing board, 

disciplinary committee, or oversight 

panel of a security-based swap 

execution facility or SBS exchange must 

disclose to the appropriate staff of the 

security-based swap execution facility 

or SBS exchange whether they have one 

of the relationships listed in paragraph 

(g)(1)(i)(A) of this section with a named 

party in interest. 

(C) Procedure for determination. Each 

security-based swap execution facility 

and SBS exchange must establish 

procedures for determining whether any 

member of its governing board, 

disciplinary committees, or oversight 


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committees is subject to a conflicts 

restriction in any matter involving a 

named party in interest. Taking into 

consideration the exigency of the 

committee action, such determinations 

should be based upon: 

(1) Information provided by the 

member pursuant to paragraph 

(g)(1)(i)(B) of this section; and 

(2) Any other source of information 

that is held by and reasonably available 

to the security-based swap execution 

facility or SBS exchange. 

(ii) Financial interest in a significant 

action. (A) Nature of interest. A member 

of the governing board, disciplinary 

committee, or oversight panel of a 

security-based swap execution facility 

or SBS exchange must abstain from such 

body’s deliberations and voting on any 

significant action if the member 

knowingly has a direct and substantial 

financial interest in the result of the 

vote based upon either exchange or nonexchange positions that could 

reasonably be expected to be affected by 

the action. 

(B) Disclosure of interest. Prior to the 

consideration of any significant action, 

each member of a governing board, 

disciplinary committee, or oversight 

panel of a security-based swap 

execution facility or SBS exchange must 

disclose to the appropriate staff of the 

security-based swap execution facility 

or SBS exchange the position 

information referred to in paragraph 

(g)(1)(ii)(C) of this section that is known 

to them. This requirement does not 

apply to members who choose to abstain 

from deliberations and voting on the 

subject significant action. 

(C) Procedure for determination. Each 

security-based swap execution facility 

and SBS exchange must establish 

procedures for determining whether any 

member of its governing board, 

disciplinary committees, or oversight 

committees is subject to a conflicts 

restriction under this section in any 

significant action. Such determination 

must include a review of any positions, 

whether maintained at that securitybased swap execution facility, SBS 

exchange, or elsewhere, held in the 

member’s personal accounts or the 

proprietary accounts of the member’s 

affiliated firm that the security-based 

swap execution facility or SBS exchange 

reasonably expects could be affected by 

the significant action. 

(D) Bases for determination. Taking 

into consideration the exigency of the 

significant action, such determinations 

should be based upon: 

(1) Information provided by the 

member with respect to positions 

pursuant to paragraph (f)(2)(ii)(B) of this 

section; and 

(2) Any other source of information 

that is held by and reasonably available 

to the security-based swap execution 

facility or SBS exchange. 

(iii) Participation in deliberations. (A) 

Under the rules required by this section, 

a governing board, disciplinary 

committee, or oversight panel of a 

security-based swap execution facility 

or SBS exchange may permit a member 

to participate in deliberations prior to a 

vote on a significant action for which 

they otherwise would be required to 

abstain, pursuant to paragraph (g)(1)(ii) 

of this section, if such participation 

would be consistent with the public 

interest and the member recuses from 

voting on such action. 

(B) In making a determination as to 

whether to permit a member to 

participate in deliberations on a 

significant action for which they 

otherwise would be required to abstain, 

the deliberating body shall consider the 

following factors: 

(1) Whether the member’s 

participation in deliberations is 

necessary for the deliberating body to 

achieve a quorum in the matter; and 

(2) Whether the member has unique 

or special expertise, knowledge, or 

experience in the matter under 

consideration. 

(C) Prior to any determination 

pursuant to paragraph (g)(1)(iii)(A) of 

this section, the deliberating body must 

fully consider the position information 

which is the basis for the member’s 

direct and substantial financial interest 

in the result of a vote on a significant 

action pursuant to paragraph (g)(1)(ii) of 

this section. 

(iv) Documentation of determination. 

The governing boards, disciplinary 

committees, and oversight panels of 

each security-based swap execution 

facility and SBS exchange must reflect 

in their minutes or otherwise document 

that the conflicts determination 

procedures required by this section have 

been followed. Such records also must 

include: 

(A) The names of all members who 

attended the meeting in person or who 

otherwise were present by electronic 

means; 

(B) The name of any members who 

voluntarily recused themselves or were 

required to abstain from deliberations 

and/or voting on a matter and the reason 

for the recusal or abstention, if stated; 

and 

(C) Information on the position 

information that was reviewed for each 

member. 

(h) Rules required. (1) A securitybased swap execution facility shall 

maintain in effect rules to comply with 

this section that have been submitted to 

the Commission pursuant to § 242.806 

or § 242.807. 

(2) An SBS exchange shall maintain 

in effect rules to comply with this 

section that have been submitted to the 

Commission pursuant to § 240.19b-4 of 

this chapter. 

§ 242.835 Notice to Commission by 

security-based swap execution facility of 

final disciplinary action or denial or 

limitation of access. 

(a) If a security-based swap execution 

facility issues a final disciplinary action 

against a member, or takes final action 

with respect to a denial or conditioning 

membership, or takes final action with 

respect to a denial or limitation of 

access of a person to any services 

offered by the security-based swap 

execution facility, the security-based 

swap execution facility shall file a 

notice of such action with the 

Commission within 30 days and serve a 

copy on the affected person. 

(b) For purposes of paragraph (a) of 

this section: 

(1) A disciplinary action shall not be 

considered ‘‘final’’ unless: 

(i) The affected person has exhausted 

their administrative remedies at the 

security-based swap execution facility; 

and 

(ii) The disciplinary action is not a 

summary action permitted under 

§ 242.819(g)(13)(ii). 

(2) A disposition of a matter with 

respect to a denial or conditioning of 

membership, or a denial or limitation of 

access shall not be considered ‘‘final’’ 

unless such person has exhausted their 

administrative remedies at the securitybased swap execution facility with 

respect to such matter. 

(c) A notice required by paragraph (a) 

of this section shall provide the 

following information: 

(1) The name of the member and its 

last known address, as reflected in the 

security-based swap execution facility’s 

records; 

(2) The name of the person, 

committee, or other organizational unit 

of the security-based swap execution 

facility that initiated the disciplinary 

action or access restriction; 

(3) In the case of a final disciplinary 

action: 

(i) A description of the acts or 

practices, or omissions to act, upon 

which the sanction is based, including, 

as appropriate, the specific rules that 

the security-based swap execution 

facility has found to have been violated; 

(ii) A statement describing the 

respondent’s answer to the charges; and 

(iii) A statement of the sanction 

imposed and the reasons therefor; 

(4) In the case of a final action with 

respect to a denial or conditioning of 


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membership, or a denial or limitation of 

access: 

(i) The financial or operating 

difficulty of the member or prospective 

member (as the case may be) upon 

which the security-based swap 

execution facility determined that the 

member or prospective member could 

not be permitted to do, or continue to 

do, business with safety to investors, 

creditors, other members, or the 

security-based swap execution facility; 

(ii) The pertinent failure to meet 

qualification requirements or other 

prerequisites for membership or access 

and the basis upon which the securitybased swap execution facility 

determined that the person concerned 

could not be permitted to have 

membership or access with safety to 

investors, creditors, other members, or 

the security-based swap execution 

facility; or 

(iii) The default of any delivery of 

funds or securities to a clearing agency 

by the member; 

(5) The effective date of the final 

disciplinary action, or final action with 

respect to a denial or conditioning of 

membership, or a denial or limitation of 

access; and 

(6) Any other information that the 

security-based swap execution facility 

may deem relevant. 

PART 249—FORMS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 22. The general authority citation for 

part 249 continues to read in part as 

follows: 

Authority: 15 U.S.C. 78a et seq. and 7201 

et seq.; 12 U.S.C. 5461 et seq.; 18 U.S.C. 1350; 

Sec. 953(b), Pub. L. 111–203, 124 Stat. 1904; 

Sec. 102(a)(3), Pub. L. 112–106, 126 Stat. 309 

(2012); Sec. 107, Pub. L. 112–106, 126 Stat. 

313 (2012), Sec. 72001, Pub. L. 114–94, 129 

Stat. 1312 (2015), and secs. 2 and 3, Pub. L. 

116–222, 134 Stat. 1063 (2020), unless 

otherwise noted. 

* * * * * 

■ 23. Add subpart R to read as follows: 

Subpart R—Forms for Registration of, 

and Filings by, Security-Based Swap 

Execution Facilities 

Sec. 

249.1701 Form SBSEF. 

249.1702 Security-Based Swap Execution 

Facility Cover Sheet. 

§ 249.1701 Form SBSEF, for application 

for registration as a security-based swap 

execution facility or to amend such 

application or registration. 

This form shall be used for 

application for registration as a securitybased swap execution facility, pursuant 

to section 3D of the Securities Exchange 

Act of 1934 (15 U.S.C. 78c–4) and 

§ 242.803 of this chapter, or to amend 

such application or registration. 

§ 249.1702 Submission cover sheet, for 

rule and product submissions. 

This submission cover sheet shall be 

used by registered security-based swap 

execution facilities for making 

submissions pursuant to §§ 242.804 

through 242.807, 242.809, and 242.816). 

■ 24. Add Form SBSEF (referenced in 

§ 249.1701). 

Note: Form SBSEF is attached as Appendix 

A to this document. Form SBSEF will not 

appear in the Code of Federal Regulations. 

■ 25. Add Security-Based Swap 

Execution Facility Submission Cover 

Sheet (referenced in § 249.1702). 

Note: Security-Based Swap Execution 

Facility Submission Cover Sheet is attached 

as Appendix B to this document. The 

Security-Based Swap Execution Facility 

Submission Cover Sheet will not appear in 

the Code of Federal Regulations. 

By the Commission. 

Dated: November 2, 2023. 

J. Matthew DeLesDernier, 

Deputy Secretary. 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendix A—Form SBSEF 

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[FR Doc. 2023–24587 Filed 12–14–23; 8:45 am] 

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