20536 Federal Register / Vol. 77, No. 66 / Thursday, April 5, 2012 / Rules and Regulations 

1 15 U.S.C. 77a et seq. 

2 15 U.S.C. 78a et seq. 

3 15 U.S.C. 77aaa et seq. 

4The Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Public Law 111–203, 124 

Stat. 1376 (2010). 

5Section 712(d) of the Dodd-Frank Act provides 

that the Commission and the CFTC, in consultation 

with the Board of Governors of the Federal Reserve 

System, shall jointly further define the terms 

‘‘swap,’’ ‘‘security-based swap,’’ ‘‘swap dealer,’’ 

‘‘security-based swap dealer,’’ ‘‘major swap 

participant,’’ ‘‘major security-based swap 

participant,’’ ‘‘eligible contract participant,’’ and 

‘‘security-based swap agreement.’’ These terms are 

defined in Sections 721 and 761 of the Dodd-Frank 

Act and, with respect to the term ‘‘eligible contract 

participant,’’ in Section 1a(18) of the Commodity 

Exchange Act (‘‘CEA’’) [7 U.S.C. 1a(18)], as redesignated and amended by Section 721 of the 

Dodd-Frank Act. In April 2011, the SEC and the 

CFTC jointly proposed rules and interpretations to 

further define the terms ‘‘swap,’’ ‘‘security-based 

swap,’’ and ‘‘security-based swap agreement.’’ See 

Further Definition of ‘‘Swap,’’ ‘‘Security-Based 

Swap,’’ and ‘‘Security-Based Swap Agreement’’; 

Mixed Swaps; Security-Based Swap Agreement 

Recordkeeping, Release No. 33–9204 (Apr. 29, 

2011), 76 FR 29818 (May 23, 2011), corrected in 

Release No. 33–9204A (June 1, 2011), 76 FR 32880 

(June 7, 2011). In December 2010, the SEC and the 

CFTC jointly proposed rules and interpretations to 

further define the terms ‘‘Swap Dealer,’’ ‘‘SecurityBased Swap Dealer,’’ ‘‘Major Swap Participant,’’ 

‘‘Major Security-Based Swap Participant’’ and 

‘‘Eligible Contract Participant.’’ See Further 

Definition of ‘‘Swap Dealer,’’ ‘‘Security-Based Swap 

Dealer,’’ ‘‘Major Swap Participant,’’ ‘‘Major 

Security-Based Swap Participant’’ and ‘‘Eligible 

Contract Participant’’, Release No. 34–63452 (Dec. 

7, 2010), 75 FR 80174 (Dec. 21, 2010) 

(‘‘Intermediaries Definitions Release’’). 

6See Public Law 111–203, § 763(a) (adding 

Exchange Act Section 3C [15 U.S.C. 78c–3]). 

7See Public Law 111–203, §§ 763(i) and 766(a) 

(adding Exchange Act Sections 13(m)(1)(G) and 

13A(a)(1) [15 U.S.C. 78m(m)(1)(G) and 78m–1(a)(1)], 

respectively). 

8See Public Law 111–203, § 763(a) (adding 

Exchange Act Section 3C [15 U.S.C. 78c–3]). See 

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

Act Section 3(a)(77) [15 U.S.C. 78c(a)(77)] (defining 

the term ‘‘security-based swap execution facility’’)), 

and Registration and Regulation of Security-Based 

Swap Execution Facilities, Release No. 34–63825 

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

(‘‘Security-Based SEF Proposing Release’’). See 

footnote 12 below for a discussion of the clearing 

exception in Exchange Act Section 3C(g) [15 U.S.C. 

78c–3(g)]. 

9See, e.g., Report of the Senate Committee on 

Banking, Housing, and Urban Affairs regarding The 

Restoring American Financial Stability Act of 2010, 

S. Rep. No. 111–176 at 34 (stating that ‘‘[s]ome parts 

of the OTC market may not be suitable for clearing 

and exchange trading due to individual business 

needs of certain users. Those users should retain 

the ability to engage in customized, uncleared 

Space Flight Participant 

Signature: llllllllllllllll

Printed Name: llllllllllllll

Federal Aviation Administration of the 

Department of Transportation on Behalf 

of the United States Government 

By: lllllllllllllllllll

Its: lllllllllllllllllll

Associate Administrator for Commercial 

Space Transportation 

PART 460—HUMAN SPACE FLIGHT 

REQUIREMENTS 

■ 35. The authority citation for part 460 

is revised to read as follows: 

Authority: 51 U.S.C. 50901–50923. 

Title 49—Transportation 

Subtitle A—Office of the Secretary of 

Transportation 

PART 1—ORGANIZATION AND 

DELEGATION OF POWERS AND 

DUTIES 

■ 36. The authority citation for part 1 

continues to read as follows: 

Authority: 49 U.S.C. 322; 46 U.S.C. 

2104(a); 28 U.S.C. 2672; 31 U.S.C. 3711(a)(2); 

Pub. L. 101–552, 104 Stat. 2736; Pub. L. 106– 

159, 113 Stat. 1748; Pub. L. 107–71, 115 Stat. 

597; Pub. L. 107–295, 116 Stat. 2064; Pub. L. 

108–136, 117 Stat. 1392; Pub. L. 101–115, 

103 Stat. 691; Pub. L. 108–293, 118 Stat. 

1028; Pub. L. 109–364, 120 Stat. 2083; Pub. 

L. 110–140, 121 Stat. 1492; Pub. L. 110–432, 

122 Stat. 4848. 

■ 37. Revise § 1.47(v) to read as follows: 

§ 1.47 Delegations to Federal Aviation 

Administrator. 

* * * * * 

(v) Carry out the functions vested in 

the Secretary by 51 U.S.C. Subtitle V. 

* * * * * 

Issued in Washington, DC, on March 25, 

2012. 

Pamela Hamilton-Powell, 

Director, Office of Rulemaking. 

[FR Doc. 2012–8196 Filed 4–4–12; 8:45 am] 

BILLING CODE 4910–13–P 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 230, 240 and 260 

[Release Nos. 33–9308; 34–66703; 39–2484; 

File No. S7–22–11] 

RIN 3235–AL16 

Exemptions for Security-Based Swaps 

Issued by Certain Clearing Agencies 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Final rule. 

SUMMARY: We are adopting exemptions 

under the Securities Act of 1933, the 

Securities Exchange Act of 1934, and 

the Trust Indenture Act of 1939 for 

security-based swaps issued by certain 

clearing agencies satisfying certain 

conditions. The final rules exempt 

transactions by clearing agencies in 

these security-based swaps from all 

provisions of the Securities Act, other 

than the Section 17(a) anti-fraud 

provisions, as well as exempt these 

security-based swaps from Exchange 

Act registration requirements and from 

the provisions of the Trust Indenture 

Act, provided certain conditions are 

met. 

DATES: Effective Date: The final rules are 

effective April 16, 2012. 

FOR FURTHER INFORMATION CONTACT: 

Andrew Schoeffler, Special Counsel, 

Office of Capital Markets Trends, 

Division of Corporation Finance, at 

(202) 551–3860, U.S. Securities and 

Exchange Commission, 100 F Street, 

NE., Washington, DC 20549–3628. 

SUPPLEMENTARY INFORMATION: We are 

adopting Rule 239 under the Securities 

Act of 1933 (‘‘Securities Act’’).1 We are 

also adopting Rule 12a–10 and an 

amendment to Rule 12h–1 under the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’) 2 and Rule 4d–11 

under the Trust Indenture Act of 1939 

(‘‘Trust Indenture Act’’).3

I. Background and Summary 

On July 21, 2010, the President signed 

the Dodd-Frank Act into law.4 Title VII 

of the Dodd-Frank Act (‘‘Title VII’’) 

provides the Securities and Exchange 

Commission (‘‘SEC’’ or the 

‘‘Commission’’) and the Commodity 

Futures Trading Commission (‘‘CFTC’’) 

with the authority to regulate over-thecounter (‘‘OTC’’) derivatives in light of 

the recent financial crisis. 

Title VII provides that the CFTC will 

regulate ‘‘swaps,’’ the SEC will regulate 

‘‘security-based swaps,’’ and the CFTC 

and SEC will jointly regulate ‘‘mixed 

swaps.’’ 5 Title VII amends the Exchange 

Act to require, among other things, the 

following: (1) Transactions in securitybased swaps must be submitted for 

clearing to a clearing agency if such 

security-based swap is one that the 

Commission has determined is required 

to be cleared, unless an exception from 

mandatory clearing applies; 6 (2) 

transactions in security-based swaps 

must be reported to a registered 

security-based swap data repository 

(‘‘SDR’’) or the Commission; 7 and (3) if 

a security-based swap is subject to 

mandatory clearing, transactions in 

security-based swaps must be executed 

on an exchange or a registered or 

exempt security-based swap execution 

facility (‘‘security-based SEF’’), unless 

no exchange or security-based SEF 

makes such security-based swap 

available for trading or the securitybased swap transaction is subject to the 

clearing exception in Exchange Act 

Section 3C(g).8

Title VII seeks to ensure that, 

wherever possible and appropriate, 

security-based swaps are cleared.9


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Federal Register / Vol. 77, No. 66 / Thursday, April 5, 2012 / Rules and Regulations 20537 

contracts while bringing in as much of the OTC 

market under the centrally cleared and exchangetraded framework as possible.’’). 

10Section 763(a) of the Dodd-Frank Act added 

Section 3C to the Exchange Act. See 15 U.S.C. 78c– 

3. See also Process for Submissions for Review of 

Security-Based Swaps for Mandatory Clearing and 

Notice Filing Requirements for Clearing Agencies; 

Technical Amendments to Rule 19b–4 and Form 

19b–4 Applicable to All Self-Regulatory 

Organizations, Release No. 34–63557 (Dec. 15, 

2010), 75 FR 82490 (Dec. 30, 2010) (‘‘Mandatory 

Clearing Proposing Release’’). 

11See Exchange Act Section 3C(b) [15 U.S.C. 78c– 

3(b)] and Mandatory Clearing Proposing Release. In 

the Mandatory Clearing Proposing Release, we 

proposed rules to establish processes for (i) clearing 

agencies registered with the Commission to submit 

for review each security-based swap, or any group, 

category, type or class of security-based swaps, that 

the clearing agency plans to accept for clearing for 

a determination by the Commission of whether the 

security-based swap, or group, category, type or 

class of security-based swap is required to be 

cleared, and to determine the manner of notice the 

clearing agency must provide to its members of 

such submission, and (ii) how the Commission may 

stay the requirement that a security-based swap is 

subject to mandatory clearing. 

12See Exchange Act Section 3C(g) [15 U.S.C. 78c– 

3(g)] and Mandatory Clearing Proposing Release. 

Section 3C(g)(1) provides that a security-based swap 

otherwise subject to mandatory clearing is not 

required to be cleared if one party to the securitybased swap is not a financial entity, is using 

security-based swaps to hedge or mitigate 

commercial risk, and notifies the Commission, in a 

manner set forth by the Commission, how it 

generally meets its financial obligations associated 

with entering into non-cleared security-based 

swaps. See 15 U.S.C. 78c–3(g)(1). 

13See 15 U.S.C. 78s(b) and 12 U.S.C. 5465(e). See 

also Mandatory Clearing Proposing Release. 

14Currently, three clearing agencies are permitted 

to clear certain credit default swaps, which are 

security-based swaps. See footnote 30 below. A 

clearing agency could begin clearing other securitybased swaps if its rules permit clearing of such 

other security-based swaps. 

15See Exchange Act Section 3(a)(23) [15 U.S.C. 

78c(a)(23)]. 

16A CCP is an entity that interposes itself 

between the counterparties to a securities 

transaction, acting functionally as the buyer to 

every seller and the seller to every buyer. See 

Clearing Agency Standards for Operation and 

Governance, Release No. 34–64017 (Mar. 3, 2011), 

76 FR 14472 (Mar. 16, 2011) (‘‘Clearing Agency 

Standards Proposing Release’’). 

17 ‘‘Novation’’ is a ‘‘process through which the 

original obligation between a buyer and seller is 

discharged through the substitution of the CCP as 

seller to buyer and buyer to seller, creating two new 

contracts.’’ Committee on Payment and Settlement 

Systems, Technical Committee of the International 

Organization of Securities Commissioners, 

Recommendations for Central Counterparties 

(November 2004) at 66. 

18See Cecchetti, Gyntelberg and Hollanders, 

Central counterparties for over-the-counter 

derivatives, BIS Quarterly Review, September 2009, 

available at http://www.bis.org/publ/qtrpdf/ 

r_qt0909f.pdf. 

19See Mandatory Clearing Proposing Release and 

proposed Rule 3Ca–2. 

20See Mandatory Clearing Proposing Release and 

Public Law 111–203, § 763(a) (adding Exchange Act 

Section 3C [15 U.S.C. 78c–3]). 

21 Id. 22See Exchange Act Section 3C [15 U.S.C. 78c– 

3]) and proposed Exchange Act Rule 3Ca–2. 

23See 15 U.S.C. 78s(b) and 12 U.S.C. 5465(e). As 

we note above, this ability to clear security-based 

swaps exists even before the adoption of rules 

implementing the mandatory clearing requirement. 

24See Public Law 111–203, § 768(a)(1) (amending 

Securities Act Section 2(a)(1) [15 U.S.C. 77b(a)(1)]). 

See also Public Law 111–203, § 761(a)(2) (amending 

Exchange Act Section 3(a)(10) [15 U.S.C. 

78c(a)(10)]). 

25See Securities Act Section 5 [15 U.S.C. 77e]. 

26We note that a registered security-based SEF 

would not be a national securities exchange for 

purposes of the Exchange Act. Therefore, Exchange 

Act Sections 12(a) and (b) would not be applicable 

to transactions effected through such facilities. 

Paragraph (a)(1) of new Exchange Act 

Section 3C establishes a mandatory 

clearing requirement for certain 

security-based swaps.10 Exchange Act 

Section 3C(b) sets forth a process by 

which we would determine whether a 

security-based swap or any group, 

category, type or class of security-based 

swap that a clearing agency plans to 

accept for clearing is required to be 

cleared.11 If we make a determination 

that a security-based swap is required to 

be cleared, then parties may not engage 

in such a security-based swap without 

submitting it for clearing, unless an 

exception applies.12 If we make a 

determination that a security-based 

swap is not required to be cleared, such 

security-based swap may still be cleared 

on a non-mandatory basis by the 

clearing agency if it has rules that 

permit it to clear such security-based 

swap.13 Further, pending the adoption 

of rules implementing the mandatory 

clearing requirement, a clearing agency 

may clear security-based swaps that the 

clearing agency’s rules permit it to 

clear.14

Clearing agencies are broadly defined 

under the Exchange Act and may 

undertake a variety of functions.15 One 

such function is to act as a central 

counterparty (‘‘CCP’’).16 For example, 

when a security-based swap between 

two counterparties that are members of 

a CCP is executed and submitted for 

clearing, the original contract is 

extinguished and is replaced by two 

new contracts where the CCP is the 

buyer to the seller and the seller to the 

buyer. This process is known as 

‘‘novation.’’ 17 At that point, the original 

counterparties are no longer 

counterparties to each other. As a result, 

the creditworthiness and liquidity of the 

CCP is substituted for the 

creditworthiness and liquidity of the 

original counterparties.18

Under the rules we proposed 

regarding mandatory clearing, to meet 

the clearing requirement in Exchange 

Act Section 3C, the parties would be 

required to submit security-based swaps 

required to be cleared to a clearing 

agency that functions as a CCP for 

central clearing.19 Those proposed rules 

also would establish procedures for a 

clearing agency to submit to us for a 

review each security-based swap, or 

group, category, type or class of 

security-based swap that the clearing 

agency plans to accept for clearing. We 

would review the submission and make 

a determination about whether the 

security-based swap, or group, category, 

type or class of security-based swap, is 

required to be cleared.20 Under the 

statute and the proposed rules, the 

submission would be publicly available 

and a public comment period would be 

provided with respect to whether the 

clearing requirement will apply.21

If we determine that a security-based 

swap, or group, category, type, or class 

of security-based swap, is required to be 

cleared, counterparties would be 

required to submit such security-based 

swaps negotiated and entered into 

bilaterally to the clearing agency for 

novation.22 If we determine that a 

security-based swap, or group, category, 

type, or class of security-based swap, is 

not required to be cleared, such 

security-based swap, or group, category, 

type, or class of security-based swap, 

may still be cleared on a voluntary basis 

by a clearing agency that functions as a 

CCP if the clearing agency has rules that 

permit it to clear such security-based 

swap.23 For security-based swaps 

submitted for novation, the CCP will be 

the issuer of new security-based swaps. 

Because the definition of ‘‘security’’ 

in the Securities Act was amended in 

Title VII to include security-based 

swaps,24 the novation of a securitybased swap by a clearing agency 

functioning as a central counterparty 

involves an offer and sale by the 

clearing agency of a security (the 

security-based swap) under the 

Securities Act. The Securities Act 

requires that any offer and sale of a 

security must either be registered under 

the Securities Act or made pursuant to 

an exemption from registration.25

Certain provisions of the Exchange Act 

relating to the registration of classes of 

securities and the indenture 

qualification provisions of the Trust 

Indenture Act also potentially will 

apply to security-based swaps. The 

provisions of Section 12 of the Exchange 

Act could, without an exemption, 

require that security-based swaps be 

registered before a transaction could be 

effected on a national securities 

exchange.26 In addition, registration of a 

class of security-based swaps under 

Section 12(g) of the Exchange Act will 

be required if the security-based swap is 

considered an equity security and there 

are more than 500 record holders of a 


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20538 Federal Register / Vol. 77, No. 66 / Thursday, April 5, 2012 / Rules and Regulations 

27See 15 U.S.C. 77aaa et seq. 

28See Order Granting Temporary Exemptions 

under the Securities Exchange Act of 1934 in 

Connection with Request on Behalf of ICE Clear 

Europe Limited Related to Central Clearing of 

Credit Default Swaps, and Request for Comments, 

Release No. 34–60372 (Jul. 23, 2009), 74 FR 37748 

(Jul. 29, 2009); Order Granting Temporary 

Exemptions under the Securities Exchange Act of 

1934 in Connection with Request on Behalf of Eurex 

Clearing AG Related to Central Clearing of Credit 

Default Swaps, and Request for Comments, Release 

No. 34–60373 (Jul. 23, 2009), 74 FR 37740 (Jul. 29, 

2009); Order Granting Temporary Exemptions 

Under the Securities Exchange Act of 1934 in 

Connection With Request of Chicago Mercantile 

Exchange Inc. and Citadel Investment Group, L.L.C. 

Related to Central Clearing of Credit Default Swaps, 

and Request for Comments, Release No. 34–59578 

(Mar. 13, 2009), 74 FR 11781 (Mar. 19, 2009); Order 

Granting Temporary Exemptions Under the 

Securities Exchange Act of 1934 in Connection With 

Request on Behalf of ICE US Trust LLC Related to 

Central Clearing of Credit Default Swaps, and 

Request for Comments, Release No. 34–59527 (Mar. 

6, 2009), 74 FR 10791 (Mar. 12, 2009); and Order 

Granting Temporary Exemptions Under the 

Securities Exchange Act of 1934 in Connection with 

Request of LIFFE Administration and Management 

and LCH.Clearnet Ltd. Related to Central Clearing 

Of Credit Default Swaps, and Request for 

Comments, Release No. 34–59164 (Dec. 24, 2008), 

74 FR 139 (Jan. 2, 2009). The Commission 

subsequently extended and, in certain cases, 

modified certain of these temporary exemptive 

orders. See Release No. 34–61973 (Apr. 23, 2010), 

75 FR 22656 (Apr. 29, 2010) and Release No. 34– 

63389 (Nov. 29, 2010), 75 FR 75520 (Dec. 3, 2010) 

(extending the order granted to ICE Clear Europe, 

Limited); Release No. 34–61975 (Apr. 23, 2010), 75 

FR 22641 (Apr. 29, 2010) and Release No. 34–63390 

(Nov. 29, 2010), 75 FR 75518 (Dec. 3, 2010) 

(extending and modifying the order granted to 

Eurex Clearing AG); Release No. 34–61164 (Dec. 14, 

2009), 74 FR 67258 (Dec. 18, 2009), Release No. 34– 

61803 (Mar. 30, 2010), 75 FR 17181 (Apr. 5, 2010), 

and Release No. 34–63388 (Nov. 29, 2010), 75 FR 

75522 (Dec. 3, 2010) (extending and modifying the 

order granted to Chicago Mercantile Exchange Inc.); 

and Release No. 34–61119 (Dec. 4, 2009), 74 FR 

65554 (Dec. 10, 2009), Release No. 34–61662 (Mar. 

5, 2010), 75 FR 11589 (Mar. 11, 2010), and Release 

No. 34–63387 (Nov. 29, 2010), 75 FR 75502 (Dec. 

3, 2010) (extending and modifying the order granted 

to ICE US Trust LLC). LIFFE A&M and 

LCH.Clearnet Ltd. allowed their temporary 

exemptive orders to lapse without seeking an 

extension. 

29See Temporary Exemptions for Eligible Credit 

Default Swaps to Facilitate Operation of Central 

Counterparties to Clear and Settle Credit Default 

Swaps, Release No. 33–8999 (Jan. 14, 2009), 74 FR 

3967 (Jan. 22, 2009) (‘‘Temporary CDS Exemptions 

Release’’). The temporary rules exempt eligible 

credit default swaps from all provisions of the 

Securities Act, other than the Section 17(a) antifraud provisions, the Exchange Act registration 

requirements, and the provisions of the Trust 

Indenture Act, provided certain conditions were 

met (‘‘temporary exemptions for eligible CDS’’). We 

subsequently extended the expiration date of the 

temporary rules until April 16, 2012. See Extension 

of Temporary Exemptions for Eligible Credit Default 

Swaps to Facilitate Operation of Central 

Counterparties to Clear and Settle Credit Default 

Swaps, Release No. 33–9232 (Jul. 1, 2011), 76 FR 

40223 (Jul. 8, 2011) (‘‘Temporary CDS Exemptions 

Extension Release’’). 

30Title VII contains provisions that ‘‘deem 

registered’’ as a clearing agency for the purposes of 

clearing security-based swaps clearing agencies that 

met certain conditions. See Public Law 111–203, 

§ 763(b) (adding Exchange Act Section 17A(l) [15 

U.S.C. 78q–1(l)]. Three clearing agencies that had 

temporary exemptive orders permitting them to 

clear eligible CDS were deemed registered under 

this provision and currently are performing the 

functions of a CCP for eligible CDS. These clearing 

agencies are ICE Clear Credit LLC (f/k/a ICE U.S. 

Trust LLC), ICE Clear Europe, Ltd., and Chicago 

Mercantile Exchange Inc. As a result of the deemed 

registered provision, we had to grant a temporary 

exemptive order to these clearing agencies only 

relating to Sections 5 and 6 of the Exchange Act. 

This temporary exemptive order will expire upon 

the earliest compliance date set forth in any of the 

final Title VII rules regarding registration of 

security-based SEFs. See Order Granting Temporary 

Exemptions under the Securities Exchange Act of 

1934 in Connection with the Pending Revision of 

the Definition of ‘‘Security’’ to Encompass SecurityBased Swaps, and Request for Comment, Release 

No. 34–64795 (Jul. 1, 2011). The new temporary 

exemptive order contains conditions similar to 

those set forth in the temporary exemptive orders 

in effect prior to the deemed registered provisions 

pursuant to which certain clearing agencies were 

permitted to clear eligible CDS. See footnote 28 

above. 

31See Exemption for Standardized Options From 

Provisions of the Securities Act of 1933 and From 

the Registration Requirements of the Securities 

Exchange Act of 1934, Release No. 33–8171 (Dec. 

23, 2002), 68 FR 1 (Jan. 2, 2003) (‘‘Standardized 

Options Release’’). See also Securities Act Rule 238 

[17 CFR 230.238] and Exchange Act Rule 12h–1(d) 

[17 CFR 240.12h–1(d)]. 

32See Exemptions For Security-Based Swaps 

Issued By Certain Clearing Agencies, Release No. 

33–9222 (June 9, 2011), 76 FR 34920 (June 15, 2011) 

(‘‘Proposing Release’’). 

33 In July 2011, the Commission adopted interim 

exemptions under the Securities Act, the Exchange 

Act and the Trust Indenture Act for uncleared 

security-based swaps that prior to July 16, 2011 

were ‘‘security-based swap agreements’’ and not 

securities but became securities due to the 

provisions of Title VII. See Exemptions for SecurityBased Swaps, Release No. 33–9231 (Jul. 1, 2011), 76 

FR 40605 (Jul. 11, 2011) (‘‘Interim SBS Exemptions 

Release’’). These interim exemptions will expire 

upon the compliance date for the final rules the 

Commission may adopt further defining both the 

terms ‘‘security-based swap’’ and ‘‘eligible contract 

participant.’’ Further, the Division of Corporation 

Finance issued a no-action letter that addressed the 

availability of these interim exemptions to offers 

and sales of security-based swaps that are based on 

or reference only loans or indexes only of loans. See 

Cleary Gottlieb Steen & Hamilton LLP (July 15, 

2011). We understand that the staff intends to 

withdraw this no-action letter upon the compliance 

date for the final rules the Commission may adopt 

further defining both the terms ‘‘security-based 

swap’’ and ‘‘eligible contract participant.’’ 

34The Commission received the following letters 

that commented specifically on the proposed 

exemptions: Letter from Richard M. Whiting, 

Executive Director and General Counsel, Financial 

Services Roundtable, Robert Pickel, Chief Executive 

Officer, International Swaps and Derivatives 

Association, and Kenneth E. Bentsen, Jr., Executive 

Vice President, Public Policy and Advocacy, 

Securities Industry and Financial Markets 

Association (‘‘FSR/ISDA/SIFMA Letter’’); letter 

from Bruce Bolander, Gibson, Dunn & Crutcher 

LLP, dated Aug. 22, 2011 (‘‘Gibson Dunn Letter’’); 

letter from Scott Pintoff, General Counsel, GFI 

Group Inc., dated Jul. 25, 2011 (‘‘GFI Letter’’); letter 

from Lawrence J. Kramer, dated Jun. 22, 2011 

(‘‘Kramer Letter’’); letter from Thomas A. Prentice, 

Ph.D., dated Jun. 21, 2011 (‘‘Prentice Letter’’); and 

letter from William Michael Cunningham, Creative 

Investment Research, Inc., dated Jul. 4, 2011 (‘‘CIR 

Letter’’). The letter from Scott C. Goebel, Senior 

Vice President, General Counsel, Fidelity 

particular class of security-based swaps 

at the end of a fiscal year. Further, 

without an exemption, the Trust 

Indenture Act requires qualification of 

an indenture for security-based swaps 

considered to be debt.27

The provisions of Title VII do not 

contain an exemption from Securities 

Act or Exchange Act registration, or 

from Trust Indenture Act qualification, 

for security-based swaps. However, we 

believe that compliance by the clearing 

agency with the registration and 

qualification provisions of these Acts 

likely will be impracticable and 

frustrate the purposes of Title VII. We 

have taken action in the past to facilitate 

clearing of certain credit default swaps 

by clearing agencies functioning as 

CCPs. For example, prior to enactment 

of the Dodd-Frank Act, we permitted 

five clearing agencies to clear certain 

credit default swaps (‘‘eligible CDS’’) on 

a temporary conditional basis.28 To 

facilitate the operation of clearing 

agencies as CCPs for eligible CDS, we 

also adopted temporary exemptions 

from certain provisions of the Securities 

Act, the Exchange Act and the Trust 

Indenture Act, subject to certain 

conditions.29 In the adopting release, we 

noted that we believed that the 

existence of CCPs for CDS would be 

important in helping to reduce 

counterparty risks inherent in the CDS 

market.30 In addition to those actions 

with respect to eligible CDS, as 

discussed further below, we adopted 

exemptions under the Securities Act 

and the Exchange Act for certain 

standardized options.31

On June 9, 2011, we proposed 

exemptions from the registration 

requirements of the Securities Act and 

the Exchange Act, and from the 

qualification requirements of the Trust 

Indenture Act, for security-based swaps 

issued by certain clearing agencies 

satisfying certain conditions to facilitate 

the intent of Dodd-Frank Act with 

respect to mandatory clearing of 

security-based swaps.32 The proposed 

rules would exempt certain transactions 

by clearing agencies in these securitybased swaps from all provisions of the 

Securities Act, other than the Section 

17(a) anti-fraud provisions, as well as 

exempt these security-based swaps from 

the Exchange Act registration 

requirements and from the provisions of 

the Trust Indenture Act, provided 

certain conditions are met.33

The Proposing Release requested 

comment on a variety of significant 

aspects of the proposed exemptions. We 

received seven comment letters in 

connection with the Proposing Release, 

of which six commented on the 

proposed exemptions.34 Most 


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Investments, dated Dec. 8, 2011, did not address the 

proposed exemptions but commented on rules the 

Commodity Futures Trading Commission proposed 

relating to collateral posted in connection with 

cleared derivatives trades. 

35See FSR/ISDA/SIFMA Letter; Gibson Dunn 

Letter; GFI Letter; and CIR Letter. We also received 

comments that disagreed with CDS trading or the 

SBS exemptions generally. One individual 

commentator did not believe the Commission 

should adopt the proposed exemptions because this 

commentator believes they would facilitate trading 

in CDS, which this commentator objected to in 

some circumstances. See Kramer Letter. Another 

individual commentator opposed the proposed 

exemptions, but did not provide any explanation 

for the reason. See Prentice Letter. 

36See FSR/ISDA/SIFMA Letter; Gibson Dunn 

Letter; GFI Letter; and CIR Letter. 

37See GFI Letter. 

38 Id. 39See Proposing Release at 30; and Interim SBS 

Exemptions Release at 16. 

40 Id. 

41The Commission received one comment letter 

on the Interim SBS Exemptions Release from an 

individual that opposed the interim exemptions; 

however, this commentator did not provide any 

explanation for the reason. 

42See footnote 30 above for a discussion of the 

clearing agencies that are deemed registered for 

purposes of clearing security-based swaps. As noted 

above, three clearing agencies that had temporary 

exemptive orders relating to the clearing of eligible 

CDS were deemed registered under this provision 

and currently are performing the functions of a CCP 

for eligible CDS. 

43The Dodd-Frank Act contains provisions 

permitting the Commission to provide exemptions 

from clearing agency registration with respect to 

security-based swaps in limited instances. See 

footnote 49 below. The final rules cover securitybased swaps, including mixed swaps, issued by 

clearing agencies that the Commission specifically 

exempts from registration as a clearing agency by 

rule, regulation, or order. 

44 15 U.S.C. 77q. This exemption is similar to the 

Securities Act exemptions for standardized options 

and security futures products. See Securities Act 

Rule 238 [17 CFR 230.238] and Securities Act 

Section 3(a)(14) [15 U.S.C. 77c(a)(14)]. 45The exemption for the security-based swap 

transaction from Securities Act registration will not 

apply to any securities that may be delivered in 

settlement or payment of any obligations under the 

security-based swap (e.g. a physically settled credit 

default swap). With respect to such securities 

transactions, the parties to the security-based swap 

must either be able to rely on another exemption 

from the registration requirements of the Securities 

Act or must register such transaction. In evaluating 

the availability of an exemption from the Securities 

Act registration requirements, if such a securitybased swap may be settled or paid through the 

delivery of a security, then the transaction in the 

underlying or referenced security will be 

considered to occur at the same time as the 

transaction in the related security-based swap. In 

this connection, we note that the Dodd-Frank Act 

amended Securities Act Section 2(a)(3) to provide 

that security-based swaps could not be used by an 

issuer, its affiliates, or underwriters to circumvent 

the registration requirements of Securities Act 

Section 5 with respect to the issuer’s securities 

underlying the security-based swap. See 15 U.S.C. 

77b(a)(3). As amended, Section 2(a)(3) provides that 

‘‘[a]ny offer or sale of a security-based swap by or 

on behalf of the issuer of the securities upon which 

such security-based swap is based or is referenced, 

an affiliate of the issuer, or an underwriter, shall 

constitute a contract for sale of, sale of, offer for 

sale, or offer to sell such securities.’’ As a result, 

such issuer, affiliate, or underwriter would have to 

comply with the registration requirements of the 

Securities Act with respect to such underlying or 

referenced security, unless another exemption from 

registration was available. 

commentators supported the proposed 

exemptions and did not suggest any 

changes to the exemptions as they 

applied to security-based swaps issued 

by a registered or exempt clearing 

agency in its function as a CCP.35 As 

discussed below, a few commentators 

suggested additional exemptions for 

security-based swaps. We have 

reviewed and considered all of the 

comments that we received relating to 

the proposed exemptions. 

As described in detail below, we are 

adopting the rules as proposed without 

modification. The exemptions we are 

adopting in this release cover all 

security-based swaps that may be 

cleared, including eligible CDS that 

currently are being issued in reliance on 

the temporary exemptions for eligible 

CDS that expire on April 16, 2012. 

II. Discussion of the Final Rules and 

Amendments 

A. Exemption From Securities Act 

Registration—Securities Act Rule 239 

1. Proposed Rule 

We proposed Securities Act Rule 239 

to exempt the offer and sale of securitybased swaps that are or will be issued 

to eligible contract participants by, and 

in a transaction involving, a clearing 

agency that is registered under Section 

17A of the Exchange Act or exempt from 

such registration by rule, regulation or 

order of the Commission in its function 

as a CCP, from all provisions of the 

Securities Act, except the anti-fraud 

provisions of Section 17(a), subject to 

certain conditions. 

2. Comments 

Commentators generally supported 

proposed Securities Act Rule 239.36 We 

received only one specific comment on 

the proposed rule.37 This commentator 

suggested that the Commission provide 

an exemption under the Securities Act 

similar to the proposed rule for 

transactions in uncleared security-based 

swaps entered into between eligible 

contract participants and effected 

through any trading platform.38 This 

commentator did not provide any 

explanation as to why such exemption 

was needed, including how securitybased swap trading platforms operate, 

that would enable us to evaluate 

whether another exemption under the 

Securities Act is necessary or 

appropriate. 

We requested comment in the 

Proposing Release and in the Interim 

SBS Exemptions Release as to whether 

security-based swaps are or will be 

transacted in a manner that would not 

permit the parties to rely on existing 

exemptions under the Securities Act.39

We also requested comment in these 

releases on whether the Commission 

should consider additional exemptions 

under the Securities Act for securitybased swaps traded on a national 

securities exchange or security-based 

SEF with eligible contract 

participants.40 This commentator’s 

suggestion related to exemptions 

affecting transactions that do not 

involve registered or exempt clearing 

agencies and appears responsive to the 

request for whether additional 

exemptions should be considered. Thus, 

we believe that this commentator’s 

suggestion relating to uncleared 

security-based swaps is more 

appropriate to be considered in 

connection with the Interim SBS 

Exemptions Release and, therefore, we 

are not adopting rules at this time 

providing exemptions that would apply 

to uncleared security-based swaps, 

including those that may be effected on 

or through trading platforms.41

3. Final Rule 

We are adopting Securities Act Rule 

239 without any changes from the 

proposal. The final rule exempts the 

offer and sale of security-based swaps 

that are or will be issued to eligible 

contract participants by, and in a 

transaction involving, a clearing agency 

that is registered under Section 17A of 

the Exchange Act 42 or exempt from 

such registration 43 by rule, regulation or 

order of the Commission (‘‘registered or 

exempt clearing agency’’) in its function 

as a CCP, from all provisions of the 

Securities Act, except the anti-fraud 

provisions of Section 17(a), subject to 

the conditions described below.44 Thus, 

Securities Act Rule 239 as adopted 

permits the offer and sale of securitybased swaps to eligible contract 

participants that are or will be issued 

by, and in a transaction involving, a 

registered or exempt clearing agency in 

its function as a CCP without requiring 

compliance with Section 5 of the 

Securities Act.45

Consistent with the proposal, under 

Securities Act Rule 239 as adopted, the 

offer and sale of a security-based swap 

is exempt from the provisions of the 

Securities Act, other than Section 17(a), 

if the following conditions are satisfied: 

• The security-based swap is or will 

be issued by a clearing agency that is 

registered with us under Section 17A of 

the Exchange Act or exempt from such 

registration by rule, regulation or order 

of the Commission; 


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20540 Federal Register / Vol. 77, No. 66 / Thursday, April 5, 2012 / Rules and Regulations 

46Eligible contract participant is defined in CEA 

Section 1a(18) (as re-designated and amended by 

Section 721 of the Dodd-Frank Act). See also Public 

Law 111–203, § 761(a) (adding Exchange Act 

Section 3(a)(65) [15 U.S.C. 78c(a)(65)], which refers 

to the definition of eligible contract participant in 

the CEA). The definition of eligible contract 

participant contained the CEA (as amended by the 

Dodd-Frank Act) includes: Financial institutions; 

insurance companies; investment companies; 

commodity pools; business entities, such as 

corporations, partnerships, and trusts; employee 

benefit plans; government entities, such as the 

United States, a State or local municipality, a 

foreign government, a multinational or 

supranational government entity, or an 

instrumentality, agency or department of such 

entities; market professionals, such as broker 

dealers, futures commission merchants, floor 

brokers, and investment advisors; and natural 

persons with a specified dollar amount invested on 

a discretionary basis. For certain of the entities and 

market professionals, the definition also contains 

certain conditions relating to the amount of assets 

or amount of monies invested on a discretionary 

basis. For a complete description of the definition, 

see CEA Section 1a(18) and Section 721 of the 

Dodd-Frank Act. Further, the Dodd-Frank Act 

authorized the CFTC and the SEC to jointly further 

define the definition of eligible contract participant. 

See Section 712(d)(1) of the Dodd-Frank Act. In 

December 2010, the CFTC and the SEC jointly 

proposed rules to further define the definition of 

eligible contract participant primarily relating to 

commodity pools and foreign exchange 

transactions. See Intermediaries Definitions 

Release. 

47 15 U.S.C. 78q–1. See also discussion in 

Mandatory Clearing Proposing Release. 

48 Id. 

49Section 763(b) of the Dodd-Frank Act amended 

the Exchange Act and added Section 17(k) [15 

U.S.C. 78q(k)], which provides that ‘‘[t]he 

Commission may exempt, conditionally or 

unconditionally, a clearing agency from registration 

under this section for the clearing of security-based 

swaps if the Commission determines that the 

clearing agency is subject to comparable, 

comprehensive supervision and regulation by the 

Commodity Futures Trading Commission or the 

appropriate government authorities in the home 

country of the agency. Such conditions may 

include, but are not limited to, requiring that the 

clearing agency be available for inspection by the 

Commission and make available all information 

requested by the Commission.’’ Thus, although we 

have the authority under the Exchange Act, as 

amended by the Dodd-Frank Act, to provide 

exemptions from clearing agency registration, our 

authority to grant an exemption from registration 

for clearing agencies that clear security-based swaps 

is different than it is for other clearing agencies. 

50As we noted above, when functioning as a CCP, 

a clearing agency’s creditworthiness and liquidity 

are substituted for the creditworthiness and 

liquidity of the original counterparties. See footnote 

18 above and accompanying text. 

51See Standardized Options Release. 

52Because the novation generally occurs after the 

counterparties have agreed to enter into the bilateral 

security-based swap being novated, the investment 

decision by the counterparties already has occurred. 

53We note, however, that a member or other user 

of a clearing agency may have an interest in the 

financial condition of the clearinghouse because the 

member or user will be relying on the ability of the 

clearinghouse to meet its obligations with respect 

to cleared transactions. We have proposed that 

registered clearing agencies be required to make 

their audited financial statements and other 

information about themselves publicly available. 

See Clearing Agency Standards Proposing Release. 

• The Commission has determined 

that the security-based swap is required 

to be cleared or the registered or exempt 

clearing agency is permitted to clear the 

security-based swap pursuant to its 

rules; 

• The security-based swap is sold 

only to an eligible contract participant 

(as defined in Section 1a(18) of the 

Commodity Exchange Act) in a 

transaction involving the registered or 

exempt clearing agency in its function 

as a CCP with respect to the securitybased swap; 46 and 

• For each security-based swap that is 

offered or sold in reliance upon this 

exemption, the following information is 

included in an agreement covering the 

security-based swap the registered or 

exempt clearing agency provides to, or 

makes available to, its counterparty or is 

posted on a publicly available Web site 

maintained by the registered or exempt 

clearing agency: 

• A statement identifying any 

security, issuer, loan, or narrow-based 

security index underlying the securitybased swap; 

• A statement indicating the security 

or loan to be delivered (or class of 

securities or loans), or if cash settled, 

the security, loan or narrow-based 

security index (or class of securities or 

loans) whose value is to be used to 

determine the amount of the settlement 

obligation under the security-based 

swap; and 

• A statement of whether the issuer of 

any security or loan, each issuer of a 

security in a narrow-based security 

index, or each referenced issuer 

underlying the security-based swap is 

subject to the reporting requirements of 

Exchange Act Section 13 or Section 

15(d) and, if not subject to such 

reporting requirements, whether public 

information, including financial 

information, about any such issuer is 

available and where the information is 

available. 

We believe this exemption will 

further the goal in the Dodd-Frank Act 

of central clearing of security-based 

swaps. Without exempting the offers 

and sales of such security-based swaps 

by a registered or exempt clearing 

agency in its function as a CCP from the 

Securities Act (other than Section 17(a)), 

we believe that a registered or exempt 

clearing agency may not be able to clear 

security-based swaps in the manner 

contemplated by the Dodd-Frank Act 

and our proposed rules implementing 

its provisions. Therefore, we believe 

that with the above conditions, an 

exemption from the Securities Act is 

necessary and appropriate in the public 

interest and consistent with the 

protection of investors. 

i. Registered or Exempt Clearing Agency 

Issuing Security-Based Swaps in Its 

Function as a CCP 

Consistent with the proposal, the 

Securities Act exemption applies only 

to offers and sales of security-based 

swaps that are or will be issued by, and 

in a transaction involving, a clearing 

agency in its function as a CCP that is 

either registered with us or exempt from 

such registration by rule, regulation or 

order of the Commission. Registered 

clearing agencies are regulated by us 

under the Exchange Act and must 

comply with the standards in the 

Exchange Act, including the 

requirements of Section 17A.47 The 

activities of such clearing agencies 

relating to the clearing or submission for 

clearing of security-based swaps are 

subject to regulation under the 

Exchange Act and applicable rules 

thereunder.48 The Securities Act 

exemption also is available for securitybased swaps that are issued by a 

clearing agency that we have exempted 

from registration with us by rule, 

regulation, or order, subject to such 

terms and conditions contained in any 

exemption.49 We believe it is 

appropriate to make the Securities Act 

exemption available to security-based 

swaps issued by exempt clearing 

agencies because in granting an 

exemption the Commission could 

impose appropriate conditions to the 

availability of the exemption that would 

provide protection to investors. 

The Securities Act exemption applies 

to the extent the clearing agency will 

issue or is issuing the security-based 

swap in its function as a CCP and 

applies to transactions involving such 

clearing agency.50 We note that a 

clearing agency’s role as a CCP and an 

issuer of security-based swaps is similar 

to a clearing agency’s role with respect 

to standardized options.51 We believe 

that a clearing agency’s role as a CCP for 

security-based swaps, similar to a 

clearing agency’s role with respect to 

standardized options, is fundamentally 

different from a conventional issuer that 

registers transactions in its securities 

under the Securities Act.52 For example, 

the purchaser of a security-based swap 

does not, except in the most formal 

sense, make an investment decision 

regarding the clearing agency.53 Rather, 

the security-based swap investment 

decision is based on the referenced 

security, loan, narrow-based security 

index, or issuer. In this circumstance, 

coupled with the other conditions to the 

Securities Act exemption, we do not 

believe that Securities Act registration 

of the offer and sale of security-based 

swaps by a clearing agency in its 


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54See Mandatory Clearing Proposing Release. 

55See Mandatory Clearing Proposing Release. For 

those security-based swaps that are submitted and 

not required to be cleared, the clearing agency in 

its function as a CCP may still clear those securitybased swaps if it is permitted by its rules. 

56Exchange Act Section 3C(h) specifies that 

transactions in security-based swaps that are subject 

to the clearing requirement of Exchange Act Section 

3C(a)(1) must be executed on an exchange or on a 

security-based SEF registered with us (or a securitybased SEF exempt from registration), unless no 

exchange or security-based SEF makes the securitybased swap available to trade or the security-based 

swap transaction is subject to the clearing exception 

in Exchange Act Section 3C(g). See Public Law 111– 

203, § 763 (adding Exchange Act Section 3C(h) [15 

U.S.C. 78c–3(h)]). Exchange Act Section 3D(e) 

allows the Commission to exempt a security-based 

SEF from registration if the Commission finds that 

the security-based SEF is subject to comparable 

comprehensive supervision and regulation on a 

consolidated basis by the CFTC. See 15 U.S.C. 78c– 

4(e). The Commission proposed (but has not yet 

adopted) Regulation SB SEF under the Exchange 

Act that is designed to create a registration 

framework for security-based SEFs, establish rules 

with respect to Title VII’s requirement that a 

security-based SEF must comply with the fourteen 

enumerated core principles and enforce compliance 

with those principles, and implement a process for 

a security-based SEF to submit to the Commission 

proposed changes to its rules. See footnote 8 above. 

57The exemption would be limited to securitybased swaps issued by and in a transaction 

involving a registered or exempt clearing agency in 

its function as a CCP. 

58See Security-Based SEF Proposing Release. 

59Standardized options and security futures 

products are only traded on a national securities 

exchange and thus are subject to listing standards. 

See Securities Act Section 3(a)(14) [15 U.S.C. 

77c(a)(14)], Exchange Act Section 12(a) [15 U.S.C. 

78l(a)], and Exchange Act Rule 12h–1(e) [17 CFR 

240.12h–1(e)]. See also footnote 31 above. 

60See Public Law 111–203, § 768(b) (adding 

Securities Act Section 5(d) [15 U.S.C. 77e(d)]). 61See Public Law 111–203, § 763(e) (adding 

Exchange Act Section 6(l) [15 U.S.C. 78f(l)]). 62See also Public Law 111–203, § 763(e) (adding 

Exchange Act Section 6(l) [15 U.S.C. 78f(l)]). 63See Public Law 111–203, § 768(b) (adding 

Securities Act Section 5(d) [15 U.S.C. 77e(d)]). 64See Section 768(b) of the Dodd-Frank Act 

(adding new Securities Act Section 5(d) [15 U.S.C. 

77e(d)]) (‘‘Notwithstanding the provisions of section 

3 or 4, unless a registration statement meeting the 

requirements of section 10(a) is in effect as to a 

security-based swap, it shall be unlawful for any 

person, directly or indirectly, to make use of any 

means or instruments of transportation or 

communication in interstate commerce or of the 

mails to offer to sell, offer to buy or purchase or sell 

a security-based swap to any person who is not an 

eligible contract participant as defined in section 

1a(18) of the Commodity Exchange Act [7 U.S.C. 

1a(18)].’’). 

function as a CCP to eligible contract 

participants is necessary. 

ii. Security-Based Swaps the 

Commission Determines Are Required 

To Be Cleared or That a Clearing Agency 

Is Permitted To Clear Pursuant to Its 

Rules 

In the Mandatory Clearing Release, we 

proposed rules to implement the 

provisions of the Dodd-Frank Act 

regarding mandatory and voluntary 

clearing of security-based swaps, or 

groups, categories, or types or classes of 

security-based swaps.54 Those proposed 

rules would establish procedures for a 

clearing agency to submit for a review 

the security-based swap, or group, 

category, type or class of security-based 

swap, that the clearing agency plans to 

accept for clearing. As proposed, we 

would review the submission and make 

a determination of whether the securitybased swap, or group, category, type or 

class of security-based swap, is required 

to be cleared.55

Consistent with the purposes of the 

Dodd-Frank Act, the Securities Act 

exemption is intended to facilitate 

clearing of security-based swaps that the 

Commission determines are subject to 

mandatory clearing, or that are 

permitted to be cleared pursuant to the 

clearing agency’s rules. Consequently, 

under the Securities Act exemption a 

registered or exempt clearing agency is 

entitled to rely on the exemption to 

issue, in its function as a CCP, securitybased swaps that we determine are 

required to be cleared. In addition, the 

Securities Act exemption is available to 

a registered or exempt clearing agency 

issuing a security-based swap, in its 

function as a CCP, that is not subject to 

mandatory clearing but is permitted to 

be cleared pursuant to the clearing 

agency’s rules. The Securities Act 

exemption is not available for securitybased swaps issued by a registered or 

exempt clearing agency in its function 

as a CCP that are not required to be 

cleared or permitted by its rules to be 

cleared. 

The Dodd-Frank Act also provides 

that if a security-based swap is subject 

to the mandatory clearing requirement, 

it must be traded on an exchange or a 

registered or exempt security-based SEF, 

unless no security-based SEF makes 

such security-based swap available to 

trade.56 Thus, it is possible that a 

security-based swap could be subject to 

mandatory clearing without being 

traded on an exchange or security-based 

SEF. The Securities Act exemption is 

available for security-based swaps that 

are subject to the mandatory clearing 

requirement or are permitted to be 

cleared pursuant to the clearing 

agency’s rules,57 regardless of whether 

such security-based swaps also are 

traded on a national securities exchange 

or through a security-based SEF.58 We 

believe that if the conditions to the 

Securities Act exemption are satisfied, 

then the protections provided for in the 

analogous exemptions for standardized 

options and security futures arising 

from the requirement for exchange 

trading, such as compliance with the 

statutory listing standards, are not 

needed here.59 Unlike security future 

products that may be purchased by any 

person, under the Dodd-Frank Act 

security-based swaps may only be 

offered and sold to eligible contract 

participants either pursuant to an 

exemption from the registration 

requirements of the Securities Act and 

in transactions not effected on a 

national securities exchange or in 

registered offerings effected on a 

national securities exchange. No offers 

or sales of security-based swaps may be 

made to non-eligible contract 

participants unless there is an effective 

registration statement under the 

Securities Act covering transactions in 

such security-based swap 60 and any 

security-based swap transaction with a 

non-eligible contract participant must 

be effected on a national securities 

exchange.61 As a result, security-based 

swaps issued by a registered or exempt 

clearing agency in its function as a CCP 

may only be offered and sold to eligible 

contract participants, unless there is an 

effective registration statement and the 

transaction is effected on a national 

securities exchange. Thus, because only 

eligible contract participants may enter 

into the security-based swaps not traded 

on a national securities exchange, we do 

not believe it is necessary to condition 

the Securities Act exemption on 

whether the security-based swap is 

traded on a national securities 

exchange. In addition, including such a 

provision could frustrate the goals of the 

Dodd-Frank Act because the DoddFrank Act did not restrict transactions 

with eligible contract participants to 

transactions on national securities 

exchanges. Consequently, the Securities 

Act exemption does not include such a 

requirement. 

iii. Sales Only to Eligible Contract 

Participants 

Under the Dodd-Frank Act, only an 

eligible contract participant may enter 

into security-based swaps other than on 

a national securities exchange.62 In 

addition, security-based swaps that are 

not registered pursuant to the Securities 

Act can only be sold to eligible contract 

participants.63 New Securities Act 

Section 5(d) specifically provides that it 

is unlawful to offer to buy, purchase, or 

sell a security-based swap to any person 

that is not an eligible contract 

participant, unless the transaction is 

registered under the Securities Act.64

Given that Congress determined it is 

appropriate to limit the availability of 

registration exemptions under the 

Securities Act to eligible contract 

participants, consistent with the 


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65For issuers that are not subject to Exchange Act 

reporting requirements, the following are some nonexclusive examples of issuers that may have 

information publicly available, including financial 

information about the issuer, or circumstances in 

which public information about a security may be 

available: (1) An entity that voluntarily files 

Exchange Act reports; (2) an entity that makes 

Securities Act Rule 144(d)(4) information available 

to any person; (3) a foreign private issuer whose 

securities are listed outside the United States; (4) a 

foreign sovereign issuer with outstanding debt; 

(5) for periods before July 21, 2010 an asset-backed 

security issued in a registered transaction with 

publicly available distribution reports (for periods 

after July 21, 2010, asset-backed issuers will 

continue to be subject to reporting); and (6) an 

asset-backed security issued or guaranteed by the 

Federal National Mortgage Association (‘‘Fannie 

Mae’’), the Federal Home Loan Mortgage 

Corporation (‘‘Freddie Mac’’) or the Government 

National Mortgage Association (‘‘Ginnie Mae’’). 

66We note that eligible contract participants may 

enter into security-based swaps on a bilateral basis 

in reliance on an available exemption from the 

registration requirements of the Securities Act. The 

exemptions we are adopting in this release to 

facilitate clearing of security-based swaps do not 

apply to these bilateral transactions, even if they 

subsequently are novated or otherwise cleared in 

transactions to which the exemptions we are 

adopting in this release apply. 

67As part of the process for submitting securitybased swaps to us for a determination of whether 

such security-based swaps are subject to mandatory 

clearing, the Dodd-Frank Act requires us to take 

into account several factors, such as the existence 

of significant outstanding notional exposures, 

trading liquidity, and adequate pricing data, when 

reviewing a submission to clear security-based 

swaps by a clearing agency. Much of the 

information that the registered or exempt clearing 

agency will be required to include in its agreement 

or on its Web site, as a condition to the exemption, 

likely will already be included in the description 

of the security-based swaps that the clearing agency 

identifies publicly that it is going to clear. In 

addition to the security-based swap submission 

provisions, the Dodd-Frank Act and the rules 

proposed under the Act relating to reporting 

requirements, trade acknowledgments and 

verification, and business conduct would require 

certain disclosures relating to security-based swaps, 

some of which may potentially overlap with the 

information requirement we are adopting in this 

release. See, e.g., Mandatory Clearing Proposing 

Release, Regulation SBSR—Reporting and 

Dissemination of Security-Based Swap Information, 

Release No. 63346 (Nov. 19, 2010), 75 FR 75207 

(Dec. 2, 2010) (‘‘SBSR Proposing Release’’), Trade 

Acknowledgment and Verification of SecurityBased Swap Transactions, Release No. 34–63727 

(Jan. 14, 2011), 76 FR 3859 (Jan. 21, 2011) (‘‘Trade 

Acknowledgement and Verification Proposing 

Release’’), and Business Conduct Standards for 

Security-Based Swap Dealers and Major SecurityBased Swap Participants, Release No. 34–64766 

(Jun. 29, 2011), 76 FR 42396 (Jul. 18, 2011). 

68 In addition, the rules proposed in the Trade 

Acknowledgement and Verification Proposing 

Release and the SBSR Proposing Release would 

require information about the security-based swap 

to be reported to the security-based swap data 

repository. 

proposal, we believe it is appropriate to 

limit the Securities Act exemption to 

security-based swaps entered into with 

eligible contract participants. 

iv. Disclosures Relating to the SecurityBased Swaps 

The Securities Act exemption requires 

the registered or exempt clearing agency 

to disclose, either in its agreement 

regarding the security-based swap or on 

its publicly available Web site, certain 

information with respect to the securitybased swap. Consistent with the 

proposal, this information includes the 

following: 

• A statement identifying any 

security, issuer, loan, or narrow-based 

security index underlying the securitybased swap; 

• A statement indicating the security 

or loan to be delivered (or class of 

securities or loans), or if cash settled, 

the security, loan, or narrow-based 

security index (or class of securities or 

loans) whose value is to be used to 

determine the amount of the settlement 

obligation under the security-based 

swap; and 

• A statement of whether the issuer of 

any security or loan, each issuer of a 

security in a narrow-based security 

index, or each referenced issuer 

underlying the security-based swap is 

subject to the reporting requirements of 

Exchange Act Section 13 or Section 

15(d) and, if not subject to such 

reporting requirements, whether public 

information, including financial 

information, about any such issuer is 

available, and, if so, the location where 

the information is available. 

The purpose of the requirement relating 

to the availability of information is to 

inform investors about whether there is 

publicly available information about the 

issuer of the referenced security or the 

referenced issuer.65 We are not 

conditioning the Securities Act 

exemption on whether the issuer is 

subject to Exchange Act reporting or 

whether there is publicly available 

financial information about such issuer. 

As noted above, the Securities Act 

exemption for offers and sales of 

security-based swaps issued by, and in 

a transaction involving, a registered or 

exempt clearing agency in its function 

as a CCP is limited to security-based 

swaps entered into with an eligible 

contract participant. The Dodd-Frank 

Act did not restrict eligible contract 

participants’ ability to enter into 

security-based swaps based on whether 

or not there is publicly-available 

information about the issuer of the 

referenced security or loan or the 

referenced issuer.66 As a result, and in 

light of the nature of the other 

regulatory safeguards,67 we are not 

conditioning the Securities Act 

exemption on the actual availability or 

delivery of such information. 

While the Dodd-Frank Act does not 

condition clearing of security-based 

swaps on the availability of such 

information, we believe it is important 

for eligible contract participants to 

understand whether such information is 

publicly available. The availability (or 

absence) of public information is 

generally important to eligible contract 

participants and the registered or 

exempt clearing agency in evaluating 

and pricing the security-based swap. 

Therefore, the Securities Act exemption 

requires disclosure about whether such 

information is available. 

If the issuer of the referenced security 

or loan or the referenced issuer is not 

subject to Exchange Act reporting, but 

there is publicly available information 

about the issuer, the clearing agency is 

required under the Securities Act 

exemption to disclose that fact and 

disclose where the information is 

available. This disclosure could include, 

for example, a statement that the issuer 

is listed on a particular foreign exchange 

and where information about issuers on 

such exchange can be found. 

Under the Securities Act exemption, 

the required information could be 

provided in the agreement covering the 

security-based swap the registered or 

exempt clearing agency provides or 

makes available to the counterparty or 

on a publicly available Web site 

maintained by the clearing agency. We 

understand that master agreements and 

related schedules for security-based 

swaps generally contain detailed 

information about the terms of the 

security-based swaps.68 In addition, 

each registered clearing agency is 

required to post and maintain a current 

and complete version of its rules on its 

Web site. Thus, we believe that parties 

engaging in security-based swaps 

transactions would be familiar with 

looking to the agreements or a clearing 

agency’s Web site to obtain information. 

Given that clearing agencies generally 

provide information in agreements and 

maintain publicly available Web sites, 

we believe that providing the 

information we are requiring to be 

disclosed in the agreement for the 

security-based swap or on the clearing 

agency’s publicly available Web site 

would not pose significant burdens for 

clearing agencies. 

B. Exemptions From Exchange Act 

Section 12 Registration—Exchange Act 

Rules 12a–10 and Rule 12h–1(h) 

1. Proposed Rule and Amendment 

We proposed Exchange Act Rule 12a– 

10 to exempt security-based swaps that 

are or have been issued by a registered 

or exempt clearing agency in reliance on 

the proposed exemption under the 

Securities Act from the registration 


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69See FSR/ISDA/SIFMA Letter; Gibson Dunn 

Letter; GFI Letter; and CIR Letter. 

70See GFI Letter; and FSR/ISDA/SIFMA Letter. 

71See GFI Letter. 

72See FSR/ISDA/SIFMA Letter. This 

commentator stated its view that investors in 

security-based swaps are primarily concerned with 

the referenced security or loan, issuer or narrowbased security index, and not the counterparty that 

is issuing the swap and that requiring an eligible 

contract participant to register a class of securitybased swaps would be burdensome and would not 

provide any meaningful or useful information about 

the security-based swaps This commentator stated 

its view that the ongoing periodic reporting 

requirements and proxy rules, among other 

requirements, that are triggered by registration 

under the Exchange Act would not make sense to 

apply in the context of security-based swaps. Id. 

73See Proposing Release at 30; and Interim SBS 

Exemptions Release at 16. 

74 Id. 

75See footnote 41 above for a discussion of 

comments received on the Interim SBS Exemptions 

Release. 

76 15 U.S.C. 78l(g) and Exchange Act Rule 12g– 

1 [17 CFR 240.12g–1]. 

77 15 U.S.C. 78l(a). 

78 15 U.S.C. 78l(g). 

79Exchange Act Rules 12h–1(d) and 12h–1(e) 

provide similar exemptions for options and futures, 

respectively. See 17 CFR 240.12h–1(d) and (e). 

requirements of Section 12(a) of the 

Exchange Act under certain conditions. 

We also proposed an amendment to 

Exchange Act Rule 12h–1 to exempt 

security-based swaps that are or have 

been issued by a registered or exempt 

clearing agency from the registration 

requirements of Section 12(g) of the 

Exchange Act under certain conditions. 

2. Comments 

Commentators generally supported 

the proposed rule and amendment.69

We received only two specific 

comments on the proposed rule and 

amendment.70 One commentator 

suggested that the Commission provide 

exemptions under the Exchange Act 

similar to the proposed rule and 

amendment for transactions in 

uncleared security-based swaps entered 

into between eligible contract 

participants and effected through any 

trading platform.71 This commentator 

did not provide any explanation as to 

why such exemptions were needed, 

including how security-based swap 

trading platforms operate, that would 

enable us to evaluate whether other 

exemptions under the Exchange Act are 

necessary or appropriate. Another 

commentator suggested that the 

Commission provide an exemption 

under Section 12(g) of the Exchange Act 

similar to the proposed amendment for 

uncleared security-based swaps 

transactions entered into solely between 

eligible contract participants.72

We requested comment in the 

Proposing Release and in the Interim 

SBS Exemptions Release as to whether 

security-based swaps are or will be 

transacted in a manner that would not 

permit the parties to rely on existing 

exemptions under the Exchange Act.73

We also requested comment in these 

releases on whether the Commission 

should consider additional exemptions 

under the Exchange Act for securitybased swaps traded on a national 

securities exchange or security-based 

SEF with eligible contract 

participants.74 These commentators’ 

suggestions related to exemptions 

affecting transactions that do not 

involve registered or exempt clearing 

agencies and appear responsive to the 

request for whether additional 

exemptions should be considered. Thus, 

we believe that these commentators’ 

suggestions relating to uncleared 

security-based swaps are more 

appropriate to be considered in 

connection with the Interim SBS 

Exemptions Release and, therefore, we 

are not adopting rules at this time 

providing exemptions that would apply 

to uncleared security-based swaps, 

including those that may be effected on 

or through trading platforms.75

3. Final Rule and Amendment 

Section 12(a) of the Exchange Act 

makes it unlawful for any broker or 

dealer to effect a transaction in a nonexempt security on a national securities 

exchange unless the security has been 

registered under Section 12(b) of the 

Exchange Act for trading on that 

exchange. Section 12(g)(1) of the 

Exchange Act, as modified by rule, 

requires any issuer with more than 

$10,000,000 in total assets and a class of 

equity securities held by 500 or more 

persons to register such security with 

us.76

Rule 12b–1 under the Exchange Act 

prescribes the procedures for 

registration under both Section 12(b) 

and Section 12(g) of the Exchange Act. 

Absent an exemption, security-based 

swaps that will be traded on national 

securities exchanges would be required 

to be registered under Section 12(b) of 

the Exchange Act. A registered or 

exempt clearing agency issuing a 

security-based swap would be required, 

without an available exemption, to 

register the security-based swaps under 

Section 12(b) of the Exchange Act before 

such security-based swaps could be 

traded on a national securities 

exchange. In addition, if the securitybased swaps were considered equity 

securities of the registered or exempt 

clearing agency, the registration 

provisions of Section 12(g) of the 

Exchange Act could apply. 

As noted above, just as a registered or 

exempt clearing agency is different from 

a conventional issuer that registers 

transactions in its securities under the 

Securities Act, it is also different with 

respect to registering a class of its 

securities, in this case the securitybased swap issued by the registered or 

exempt clearing agency, under the 

Exchange Act. Therefore, we are 

adopting two rules relating to Exchange 

Act registration of security-based swaps 

that are or have been issued by a 

registered or exempt clearing agency in 

its function as a CCP. 

We are adopting new Rule 12a–10 

under the Exchange Act without any 

changes from the proposal to exempt 

security-based swaps that are or have 

been issued by a registered or exempt 

clearing agency in reliance on Securities 

Act Rule 239 from Section 12(a) of the 

Exchange Act under certain 

conditions.77 Exchange Act Rule 12a–10 

as adopted provides that Exchange Act 

Section 12(a) does not apply to any 

security-based swap that: 

• Is or will be issued by a registered 

or exempt clearing agency in its 

function as a CCP with respect to the 

security-based swap; 

• The Commission has determined is 

required to be cleared, or that the 

clearing agency is permitted to clear 

pursuant to its rules; 

• Is sold to an eligible contract 

participant in reliance on Securities Act 

Rule 239; and 

• Is traded on a national securities 

exchange registered pursuant to Section 

6(a) of the Exchange Act. 

We also are adopting an amendment 

to Exchange Act Rule 12h–1 without 

any changes from the proposal to 

exempt security-based swaps that are or 

have been issued by a registered or 

exempt clearing agency from the 

provisions of Section 12(g) of the 

Exchange Act under certain 

conditions.78 Exchange Act Rule 12h– 

1(h) as adopted exempts from Section 

12(g) of the Exchange Act security-based 

swaps that are issued by a registered or 

exempt clearing agency in its function 

as a CCP, whether or not such securitybased swap is traded on a national 

securities exchange registered pursuant 

to Section 6(a) of the Exchange Act or 

a registered or exempt security-based 

SEF.79 In addition, the security-based 

swaps being issued by the registered or 

exempt clearing agency in its function 

as a CCP must be required to be cleared, 

or be permitted to be cleared pursuant 

to the clearing agency’s rules, and may 

only be sold to eligible contract 

participants. 

As we noted in the discussion of 

Securities Act Rule 239, we believe the 


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80As noted above, a member or other user of the 

clearing agency may have an interest in the 

financial condition of the clearinghouse. 

81See Public Law 111–203 § 763(b). 

82See Exchange Act Section 12(a) [15 U.S.C. 

78l(a)]; Exchange Act Rule 12a–9 [17 CFR 240.12a– 

9]; and Exchange Act Rules 12h–1(d) and (e) [17 

CFR 240.12h–1(d) and (e)]. 

83We recognize that security-based swaps that 

will be issued by a clearing agency, as well as 

security-based swaps that will not be cleared, may 

be traded on or through a national securities 

exchange or a security-based SEF. If the national 

securities exchange or security-based SEF is acting 

only in its capacity as a system or platform for 

trading securities, we do not believe it would be 

offering or selling the security-based swaps that are 

being traded or transacted by market participants on 

or through its system or platform, for purposes of 

either the Securities Act or the Exchange Act 

registration provisions applicable to security-based 

swaps. If the security-based swap being traded on 

or through the national securities exchange or 

security-based SEF will, by its terms, be cleared by 

a clearing agency in its function as a CCP, the 

security-based swap will be issued by such clearing 

agency, similar to standardized options and 

security-future products that are traded on national 

securities exchanges and cleared by registered 

clearing agencies. For a security-based swap that 

will not, by its terms, be cleared by a clearing 

agency in its function as a CCP, market participants 

must evaluate the availability of exemptions under 

the Securities Act and the Exchange Act for their 

security-based swap transactions. 

84See FSR/ISDA/SIFMA Letter; Gibson Dunn 

Letter; GFI Letter; and CIR Letter. 

85See GFI Letter; and FSR/ISDA/SIFMA Letter. 

86 Id. One of these commentators stated its view 

that because a security-based swap is a contract 

between two persons, security-based swap 

counterparties would not meaningfully benefit from 

the substantive and procedural protections of the 

Trust Indenture Act. This commentator also stated 

its view that eligible contract participants are 

capable of enforcing obligations under securitybased swaps without the protections of the Trust 

Indenture Act and, therefore, that imposing the 

requirements of the Trust Indenture Act on 

security-based swaps would not further the goals of 

the Trust Indenture Act and would introduce 

unnecessary costs and burdens to these 

transactions. See FSR/ISDA/SIFMA Letter. 

87See footnote 41 above for a discussion of 

comments received on the Interim SBS Exemptions 

Release. 

88The Trust Indenture Act applies to debt 

securities sold through the use of the mails or 

interstate commerce. Section 304 of the Trust 

Indenture Act exempts from the Trust Indenture 

Act a number of securities and transactions. Section 

304(a) of the Trust Indenture Act exempts securities 

that are exempt under Securities Act Section 3(a) 

but does not exempt from the Trust Indenture Act 

securities that are exempt by Commission rule. 

Accordingly, while Securities Act Rule 239 exempts 

the offer and sale of security-based swaps satisfying 

certain conditions from all the provisions of the 

Securities Act (other than Section 17(a)), the Trust 

Indenture Act would continue to apply absent Rule 

4d–11. 

89See Rule 4d–11T [17 CFR 260.4d–11T]. See 

also footnote 29 above. 

90See 15 U.S.C. 77bbb(a). 

91 15 U.S.C. 77bbb(a). 

interest of investors in the securitybased swap is primarily with respect to 

the referenced security or loan, 

referenced issuer or referenced narrowbased security index, and not with 

respect to the registered or exempt 

clearing agency functioning as the 

CCP.80 Therefore, we believe that 

requiring registration of security-based 

swaps under the Exchange Act would 

not provide additional useful 

information or meaningful protection to 

investors with respect to the securitybased swap. In addition, the other 

consequences of Exchange Act 

registration, such as requirements for 

ongoing periodic reporting and 

application of the proxy rules to the 

clearing agency, would not be 

meaningful in the context of securitybased swaps. At the same time, 

requiring such registration likely would 

impose burdens on clearing agencies 

issuing security-based swaps.81

Therefore, based on the discussion 

above, we believe that exempting the 

registered or exempt clearing agency 

from the requirements of the Exchange 

Act arising from Section 12(a) or 12(g) 

is necessary or appropriate in the public 

interest and is not inconsistent with the 

public interest or the protection of 

investors. 

In addition, we note that similar 

Exchange Act exemptions exist for 

standardized options issued by a 

registered options clearing agency and 

security futures products issued by a 

registered or exempt clearing agency.82

We believe that it is appropriate to 

establish comparable regulatory 

treatment for security-based swaps 

issued by a registered or exempt 

clearing agency with respect to the 

applicability of Section 12 of the 

Exchange Act to security-based swaps 

issued by a registered or exempt 

clearing agency. Moreover, we believe it 

is important to further the goal of 

facilitating clearing of security-based 

swaps while maintaining appropriate 

investor protection. 

Consistent with the proposal, 

security-based swaps that will not be 

cleared by a registered or exempt 

clearing agency in its function as a CCP 

but are listed for trading on a national 

securities exchange or registered or 

exempt security-based SEF will not be 

able to rely on these exemptions from 

registration under Section 12(b) or 

Section 12(g) of the Exchange Act.83

C. Exemption From the Trust Indenture 

Act—Trust Indenture Act Rule 4d–11 

1. Proposed Rule 

We proposed Rule 4d–11 under 

Section 304(d) of the Trust Indenture 

Act that would exempt any securitybased swap offered and sold in reliance 

on Securities Act Rule 239 from having 

to comply with the provisions of the 

Trust Indenture Act. 

2. Comments 

Commentators generally supported 

the proposed rule.84 We received only 

two specific comments on the proposed 

rule.85 Consistent with the comments 

noted above, these commentators 

suggested that the Commission provide 

an exemption under the Trust Indenture 

Act similar to the proposed rule for 

certain uncleared security-based swap 

transactions involving eligible contract 

participants.86 As noted above, these 

commentators’ suggestions related to 

exemptions affecting transactions that 

do not involve registered or exempt 

clearing agencies and appear responsive 

to the request for whether additional 

exemptions should be considered. Thus, 

we believe that these commentators’ 

suggestions relating to uncleared 

security-based swaps are more 

appropriate to be considered in 

connection with the Interim SBS 

Exemptions Release and, therefore, we 

are not adopting rules at this time 

providing exemptions that would apply 

to uncleared security-based swaps, 

including those that may be effected on 

or through trading platforms.87

3. Final Rule 

We are adopting Rule 4d–11 under 

Section 304(d) of the Trust Indenture 

Act without any changes from the 

proposal. Final Rule 4d–11 exempts any 

security-based swap offered and sold in 

reliance on Securities Act Rule 239 from 

having to comply with the provisions of 

the Trust Indenture Act.88 We adopted 

a similar exemption on a temporary 

basis for eligible CDS.89

The Trust Indenture Act is aimed at 

addressing problems that unregulated 

debt offerings pose for investors and the 

public,90 and provides a mechanism for 

debtholders to protect and enforce their 

rights with respect to the debt. We do 

not believe that the protections 

contained in the Trust Indenture Act are 

needed to protect eligible contract 

participants to whom a sale of a 

security-based swap is made in reliance 

on Securities Act Rule 239. The 

identified problems that the Trust 

Indenture Act is intended to address 

generally do not occur in the offer and 

sale of security-based swaps.91 For 

example, security-based swaps are 

contracts between two parties and, as a 

result, do not raise the same problem 

regarding the ability of parties to enforce 

their rights under the instruments as 

would, for example, a debt offering to 

the public. Moreover, through novation, 

the clearing agency functionally 

becomes the counterparty to the buyer 

and the seller, and, in the case where 


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92See Security-Based SEF Proposing Release 

(proposed rules relating to security-based SEFs 

would allow for transactions in uncleared securitybased swaps to occur on registered security-based 

SEFs). 

93Counterparties engaging in an uncleared 

security-based swap may rely upon the relief 

discussed in footnote 33 above, which is not 

affected by this rulemaking. However, such relief 

will expire upon the compliance date for the final 

rules the Commission may adopt further defining 

both the terms ‘‘security-based swap’’ and ‘‘eligible 

contract participant.’’ 

94See footnote 64 above and accompanying text. 

95See Gibson Dunn Letter. 

96See 5 U.S.C. 553(d). 

97See 5 U.S.C. 553(d)(1) and (3). 

98Only the three clearing agencies that have been 

actively engaged as CCPs in clearing eligible CDS 

in reliance on the temporary exemptions for eligible 

CDS will initially be eligible to rely upon the 

exemptions contained in the final rules because the 

clearing agency rules currently only cover certain 

eligible CDS. 

99See footnote 30 above. 

buyer and seller are both members of 

the CCP, each would look directly to the 

clearing agency to satisfy the obligations 

under the security-based swap. As a 

consequence, enforcement of 

contractual rights and obligations under 

the security-based swap would occur 

directly between such parties, and the 

Trust Indenture Act provisions would 

not provide any additional meaningful 

substantive or procedural protections. 

Accordingly, due to the nature of 

security-based swaps as contracts that 

will be or have been issued by a 

registered or exempt clearing agency in 

its function as a CCP, we do not believe 

the protections contained in the Trust 

Indenture Act are needed with respect 

to these instruments. Therefore, we 

believe the exemption is necessary or 

appropriate in the public interest, 

consistent with the protection of 

investors and the purposes fairly 

intended by the Trust Indenture Act. 

D. Implications of Security-Based Swaps 

as Securities 

The exemptions we are adopting in 

this release are not available for 

security-based swaps that are not 

cleared (‘‘uncleared security-based 

swaps’’), including, for example, 

uncleared security-based swaps entered 

into on organized markets, such as a 

security-based SEF or a national 

securities exchange. It is our 

understanding that transactions 

involving uncleared security-based 

swaps entered into between eligible 

contract participants may occur today 

on organized platforms that would 

likely register as security-based SEFs, 

and we understand that this activity 

will likely continue after the full 

implementation of Title VII.92 As noted 

above, security-based swaps are 

included in the definition of security 

under the Securities Act and the 

Exchange Act and are subject to the full 

panoply of the federal securities laws, 

including the registration requirements 

of Section 5 of the Securities Act and 

Section 12 of the Exchange Act. Because 

the exemptions we are adopting in this 

release are not available with respect to 

uncleared security-based swaps, 

counterparties that are eligible contract 

participants and engaging in an 

uncleared security-based swap would 

have to either rely on other available 

exemptions from the registration 

requirements of the Securities Act, the 

Exchange Act, and, if applicable, the 

Trust Indenture Act, or consider 

whether to register such transaction 

and/or class of security.93

Further, as noted above, securitybased swap transactions involving 

persons that are not eligible contract 

participants, whether the transaction is 

cleared or not cleared, must be 

registered under the Securities Act and 

effected on a national securities 

exchange.94 One commentator suggested 

that the Commission adopt a simplified 

disclosure and registration scheme for 

those security-based swaps transactions 

that may involve persons who are not 

eligible contract participants.95 As the 

commentator’s suggestions are outside 

the scope of the proposed rules, we are 

not considering the suggestions as part 

of this rulemaking. In the future, we 

may evaluate the need for a simplified 

disclosure and registration scheme for 

security-based swaps that may be 

offered and sold to persons who are not 

eligible contract participants. 

E. Expiration of Temporary Exemptions 

for Eligible CDS 

As noted above, we adopted the 

temporary exemptions for eligible CDS 

to facilitate the operation of clearing 

agencies functioning as CCPs for eligible 

CDS. Those exemptions expire on April 

16, 2012. The exemptions we are 

adopting in this release cover all 

security-based swaps that may be 

cleared, including eligible CDS that 

currently are being issued in reliance on 

the temporary exemptions for eligible 

CDS. Clearing agencies that have been 

actively engaged as CCPs in clearing 

eligible CDS transactions in reliance on 

the temporary exemptions for eligible 

CDS will be required to comply with the 

conditions of the exemptions we are 

adopting in this release upon the 

effective date of the final rules. 

III. Certain Administrative Law Matters 

The final rules will become effective 

on April 16, 2012. The Administrative 

Procedure Act generally requires that an 

agency publish an adopted rule in the 

Federal Register 30 days before it 

becomes effective.96 This requirement, 

however, does not apply if a substantive 

rule grants or recognizes an exemption 

or relieves a restriction or if the 

Commission finds good cause not to 

delay the effective date.97 The 

Commission finds that the final rules 

meet both criteria. 

The final rules provide exemptions 

under the Securities Act, the Exchange 

Act and the Trust Indenture Act for 

security-based swaps issued by a 

registered or exempt clearing agency in 

its function as a CCP. In addition, as 

discussed above, we adopted the 

temporary exemptions for eligible CDS 

to facilitate the operation of clearing 

agencies as CCPs for eligible CDS. The 

exemptions we are adopting in this 

release cover all security-based swaps 

that may be cleared, including eligible 

CDS that currently are being issued in 

reliance on the temporary exemptions 

for eligible CDS. Given that the 

temporary exemptions for eligible CDS 

will expire on April 16, 2012, the final 

rules are needed to be effective by that 

date in order to continue facilitating the 

operation of CCPs in clearing eligible 

CDS. 

Although the final rules condition the 

exemptions on the registered or exempt 

clearing agency disclosing certain 

information with respect to the securitybased swaps it clears, we believe that 

providing this information will not pose 

significant transition burdens for the 

three clearing agencies that have been 

actively engaged as CCPs in clearing 

eligible CDS in reliance on the 

temporary exemptions for eligible CDS, 

which expire on April 16, 2012.98 As 

noted above, these three clearing 

agencies are deemed registered as 

clearing agencies for purposes of 

clearing security-based swaps and are 

able to engage as CCPs in clearing 

eligible CDS, in part, pursuant to the 

temporary exemptive order relating to 

Sections 5 and 6 of the Exchange Act.99

The temporary exemptive order 

contains the conditions relating to, 

among other things, available 

information about the eligible CDS and 

the underlying reference entity of such 

eligible CDS. Since these clearing 

agencies have been required to comply 

with these conditions, they should have 

the information readily available 

regarding the eligible CDS that they 

would need to comply with the 

conditions of the final rules we are 

adopting in this release. The final rules 

provide that these clearing agencies 

either make the information publicly 


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100See discussion in Section V.C. below. 

101See, e.g., the discussion in the Mandatory 

Clearing Proposing Release and the Clearing 

Agencies Proposing Release. 

102See, e.g., Securities Act Section 3(a)(14) [15 

U.S.C. 77c(a)(14)]; Securities Act Rule 238 [17 CFR 

230.238]; Exchange Act Section 12(a) [15 U.S.C. 

78l]; and Exchange Act Rules 12h–1(d) and (e) [17 

CFR 240.12h–1(d) and (e)]. 

103Section 23(a)(2) of the Exchange Act requires 

us, when adopting rules under the Exchange Act, 

to consider the impact that any new rule would 

have on competition. 15 U.S.C. 78w(a)(2). Section 

23(a)(2) prohibits us from adopting any rule that 

would impose a burden on competition that is not 

necessary or appropriate in furtherance of the 

purposes of the Exchange Act. In addition, Section 

2(b) of the Securities Act and Section 3(f) of the 

Exchange Act require us, when engaging in 

rulemaking where we are required to consider or 

determine whether an action is necessary or 

appropriate in the public interest, to also consider 

whether the action will promote efficiency, 

competition, and capital formation. 15 U.S.C. 77b(b) 

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

available on the clearing agency’s Web 

site or in an agreement the clearing 

agency provides or makes available to 

its counterparty to the security-based 

swap transaction. As discussed below, 

we estimate that each clearing agency 

will spend approximately 2 hours in 

order to comply with this information 

disclosure requirement.100

IV. Economic Analysis 

As discussed above, we are adopting 

rules and amendments to existing rules 

to provide certain exemptions under the 

Securities Act, the Exchange Act, and 

the Trust Indenture Act for securitybased swaps issued by a registered or 

exempt clearing agency in its function 

as a CCP. The final rules, which have 

not been changed from the proposal, 

exempt security-based swaps that are or 

will be issued to eligible contract 

participants by, and in a transaction 

involving, a registered or exempt 

clearing agency in its function as a CCP 

from all provisions of the Securities Act, 

other than the Section 17(a) antifraud 

provision, as well as from the 

registration requirements under 

Exchange Act Section 12 and the 

provisions of the Trust Indenture Act. 

We requested comment on the 

economic analysis included in the 

Proposing Release, but we did not 

receive any comments. 

The final rules are intended to further 

the goal of central clearing of securitybased swaps by providing exemptions 

for the issuance of security-based swaps 

by a registered or exempt clearing 

agency in its function as a CCP from 

certain regulatory provisions that might 

otherwise impair their ability to engage 

in such clearing activities. Without an 

exemption, (1) a security-based swap 

transaction involving a registered or 

exempt clearing agency functioning as a 

CCP would have to be registered under 

the Securities Act; (2) the security-based 

swaps that are or have been issued in a 

transaction involving a registered or 

exempt clearing agency functioning as a 

CCP would have to be registered as a 

class of securities under the Exchange 

Act; and (3) the provisions of the Trust 

Indenture Act would apply. We believe 

that requiring compliance with these 

provisions likely would unnecessarily 

impede central clearing of securitybased swaps and that the exemptions 

are necessary to facilitate the intent of 

the Dodd-Frank Act with respect to 

mandatory clearing of security-based 

swaps. Absent these exemptions, we 

believe that registered or exempt 

clearing agencies would incur 

additional costs due to compliance with 

the registration requirements of the 

Securities Act and the Exchange Act 

solely because of their clearing 

functions.101

The final rules should facilitate 

clearing of security-based swaps by 

clearing agencies functioning as CCPs at 

minimal cost to the CCP. Because 

reliance on the exemptions will not 

require any filing with or submission to 

us, other than costs incurred to comply 

with the information condition of 

Securities Act Rule 239, the costs of 

being able to rely on such exemptions, 

we believe, are minimal. 

The exemptions would treat securitybased swaps issued or cleared by a 

registered or exempt clearing agency in 

its function as a CCP in the same 

manner as similar types of securities, 

such as security futures products and 

standardized options.102 The 

exemptions are similar to the temporary 

exemptions for eligible CDS. A 

registered or exempt clearing agency 

issuing security-based swaps in its 

function as a CCP would benefit from 

the exemptions because it would not 

have to file registration statements 

covering the offer and sale of the 

security-based swaps. If a registered or 

exempt clearing agency is not required 

to register the offer and sale of securitybased swaps, it would not have to incur 

the costs of such registration, including 

legal and accounting costs. Some of 

these costs, such as the costs of 

obtaining audited financial statements, 

may still be incurred by the clearing 

agency as a result of other regulatory 

requirements for clearing agencies. 

Exchange Act Rule 12a–10 provides 

that the Exchange Act Section 12(a) 

does not apply to any security-based 

swap that is issued by a registered or 

exempt clearing agency in reliance on 

Securities Act Rule 239 and traded on 

a national securities exchange. In 

addition, Exchange Act Rule 12h–1(h) 

exempts from Exchange Act Section 

12(g) security-based swaps that are 

issued by a registered or exempt 

clearing agency in reliance on Securities 

Act Rule 239, whether or not such 

security-based swap is traded on a 

national securities exchange or a 

registered or exempt security-based SEF. 

Thus, the clearing agency will not incur 

the costs of registration or the costs 

associated with Exchange Act periodic 

reporting. The availability of 

exemptions under the Securities Act, 

the Exchange Act, and the Trust 

Indenture Act means that registered or 

exempt clearing agencies will not incur 

the costs associated with registering 

transactions or classes of securities, 

such as costs associated with preparing 

documents describing security-based 

swaps, preparing indentures, or 

arranging for the services of a trustee. 

The final rules we are adopting 

exempt offers and sales of securitybased swaps that are or will be issued 

to eligible contract participants by, and 

in a transaction involving, a registered 

or exempt clearing agency in its 

function as a CCP from all provisions of 

the Securities Act, other than the 

Section 17(a) antifraud provision, as 

well as from the registration 

requirements under Section 12 of the 

Exchange Act and the provisions of the 

Trust Indenture Act.103 Because these 

exemptions are available to any 

registered or exempt clearing agency 

offering and selling security-based 

swaps to an eligible contract participant, 

in its function as a CCP, we do not 

believe that the exemptions impose a 

burden on competition. In contrast, we 

believe the exemptions as adopted will 

facilitate moving security-based swaps 

into centralized clearing, furthering the 

goal of the Dodd-Frank Act to reduce 

systemic risk while improving market 

access to hedging instruments that can 

contribute to lower costs of raising 

capital. In addition, we believe the 

exemptions will promote efficiency by 

treating security-based swaps issued by 

clearing agencies in a manner similar to 

standardized options and security 

futures issued by clearing agencies. 

Harmonizing the regulatory treatment of 

these securities under the Securities 

Act, Exchange Act, and the Trust 

Indenture Act should reduce the 

potential for regulatory arbitrage 

between such products. 

We also believe that the ability to 

novate security-based swaps with 

registered or exempt clearing agencies 

functioning as CCPs will improve the 

transparency of the security-based swap 

market and provide greater assurance to 


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Federal Register / Vol. 77, No. 66 / Thursday, April 5, 2012 / Rules and Regulations 20547 

104See Regulation of Clearing Agencies, Release 

No. 34–16900 (Jun. 17. 1980), 45 FR 41920 (Jun. 23, 

1980); and Exchange Act Rule 19b–4(l) and (m) [17 

CFR 240.19b–4(l) and (m)]. 

105 15 U.S.C. 78j(b). 

106 15 U.S.C. 77k and 77l. 

107See 15 U.S.C. 77q and 15 U.S.C. 78j(b). 

108We estimate that the total annual reporting 

burden for clearing agencies to provide the 

information in their agreements relating to securitybased swaps or on their Web site to comply with 

Securities Act Rule 239(b)(3) will be 240 hours. We 

also estimate that 75% of the burden of preparation 

is carried by the clearing agency internally and that 

25% of the burden is carried by outside 

professionals retained by the clearing agency at an 

average cost of $400 per hour. See discussion in 

Section V.C. below. 

109 44 U.S.C. 3501 et seq. 

participants as to the capacity of the 

counterparty to perform its obligations 

under the security-based swap. We 

believe that clearing agencies providing 

the information required by Securities 

Act Rule 239(b)(3) may provide 

transparency among clearing agencies 

because it will make it easier for 

clearing agencies and eligible contract 

participants to determine what securitybased swaps are being cleared. We 

believe that increased transparency in 

the security-based swap market could 

help to limit market turmoil and thereby 

facilitate the capital formation process. 

We recognize that a consequence of 

the exemptions would be the 

unavailability of certain remedies under 

the Securities Act and the Exchange Act 

and certain protections under the Trust 

Indenture Act. Absent an exemption, a 

clearing agency may have to file a 

registration statement covering the offer 

and sale of the security-based swaps, 

may have to register the class of eligible 

security-based swaps that it has issued 

or cleared under the Exchange Act, and 

may have to satisfy the applicable 

provisions of the Trust Indenture Act, 

which would provide investors with 

civil remedies in addition to antifraud 

remedies. A registration statement 

covering the offer and sale of securitybased swaps may provide certain 

information about the clearing agency, 

security-based swap contract terms, and 

the identification of the particular 

reference securities, issuers, and loans 

underlying the security-based swap. 

However, it would not necessarily 

provide the type of information 

necessary to assess the risk of the 

reference issuer, security, narrow-based 

security index, or loan. Further, while a 

registration statement would provide 

information to eligible contract 

participants, as well as to the market as 

a whole, registered clearing agencies 

already are required to make their 

audited financial statements and other 

information about themselves publicly 

available.104 While an investor would be 

able to pursue an antifraud action in 

connection with the purchase and sale 

of security-based swaps under Exchange 

Act Section 10(b),105 it would not be 

able to pursue civil remedies under 

Securities Act Sections 11 or 12.106 We 

could still pursue an antifraud action in 

the offer and sale of security-based 

swaps issued by a clearing agency.107

Securities Act Rule 239(b)(3) requires 

a clearing agency availing itself of the 

Securities Act exemption to include in 

an agreement covering the securitybased swap the clearing agency provides 

or makes available to its counterparty or 

include on a publicly available Web site 

maintained by the clearing agency: 

• A statement identifying any 

security, issuer, loan, or narrow-based 

security index underlying the securitybased swap; 

• A statement indicating the 

securities or loans to be delivered (or 

class of securities or loans), or if cash 

settled, the securities, loans or narrowbased security index (or class of 

securities or loans) whose value will 

determine the settlement obligation 

under the security-based swap; and 

• A statement of whether the issuer of 

any security or loan, each issuer of a 

security in a narrow-based security 

index, or each referenced issuer 

underlying the security-based swap is 

subject to the reporting requirements of 

Exchange Act Section 13 or Section 

15(d) and, if not subject to such 

reporting requirements, whether public 

information, including financial 

information, about any such issuer is 

available and where the information is 

available. 

We believe some of the information 

the clearing agency will make available 

will be the same information the 

clearing agency collects and analyzes in 

making its business decision to plan to 

accept the security-based swap, or any 

group, category, type, or class of 

security-based swaps, for clearing. A 

clearing agency may incur costs in 

providing or making available this 

information in order to rely on the 

exemption.108

V. Paperwork Reduction Act 

A. Background 

Certain provisions of Securities Act 

Rule 239 would result in ‘‘collection of 

information requirements’’ within the 

meaning of the Paperwork Reduction 

Act of 1995 (‘‘PRA’’).109 We published 

a notice requesting comment on the 

collection of information requirements 

in the Proposing Release for Securities 

Act Rule 239 and we submitted these 

requirements to the Office of 

Management and Budget (‘‘OMB’’) for 

review in accordance with the PRA. We 

requested comment on the collection of 

information requirements included in 

the Proposing Release for Securities Act 

Rule 239, but we did not receive any 

comments. 

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless it displays a currently valid 

control number. The title for this 

collection of information is: 

• ‘‘Rule 239’’ (new collection of 

information). 

Rule 239 is a new collection of 

information under the Securities Act. 

This new collection of information 

relates to the information requirements 

for clearing agencies seeking to rely on 

the final rules. There is no mandatory 

retention period for the information 

disclosed, and the information disclosed 

will be made publicly available on the 

clearing agency’s Web site or in an 

agreement the clearing agency provides 

or makes available to its counterparty to 

the security-based swap transaction. 

The collection of information is 

mandatory and it will not be kept 

confidential. 

B. Summary of Collection of 

Information 

As discussed above, one condition to 

the availability of the exemption 

provided in Securities Act Rule 239 for 

offers and sales of security-based swaps 

issued by, and in a transaction 

involving, a registered or exempt 

clearing agency in its function as a CCP 

is that such registered or exempt 

clearing agency has an agreement 

covering the security-based swap that is 

provided or made available to its 

counterparty or a publicly available 

Web site maintained by the registered or 

exempt clearing agency that contains 

the following: 

• A statement identifying any 

security, issuer, loan, or narrow-based 

security index underlying the securitybased swap; 

• A statement indicating the security 

or loan to be delivered (or class of 

securities or loans), or if cash settled, 

the security, loan or narrow-based 

security index (or class of securities or 

loans) whose value is to be used to 

determine the amount of the settlement 

obligation under the security-based 

swap; and 

• A statement of whether the issuer of 

any security or loan, each issuer of a 

security in a narrow-based security 

index, or each referenced issuer 

underlying the security-based swap is 

subject to the reporting requirements of 


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20548 Federal Register / Vol. 77, No. 66 / Thursday, April 5, 2012 / Rules and Regulations 

110These clearing agencies are ICE Clear Credit 

LLC (f/k/a ICE U.S. Trust LLC), ICE Clear Europe, 

Ltd., and the Chicago Mercantile Exchange Inc. See 

footnote 30 above. 

111We do not expect there to be a large number 

of clearing agencies that clear security-based swaps, 

based on the significant level of capital and other 

financial resources necessary for the formation of a 

clearing agency. 

112 In the Proposing Release, we estimated that 

four to six clearing agencies may plan to centrally 

clear security-based swaps and seek to rely on the 

exemptions because at that time four clearing 

agencies were authorized to clear eligible CDS 

pursuant to certain temporary exemptive orders. 

See footnote 28 above. However, subsequent to the 

Proposing Release, three of these clearing agencies 

were deemed registered under Exchange Act 

Section 17A and currently are performing the 

functions of a CCP for eligible CDS. The fourth 

clearing agency was not deemed registered under 

Exchange Act Section 17A and because its 

temporary exemptive order has expired it is not 

currently performing the functions of a CCP for 

eligible CDS. See footnote 30 above. 

113As noted above, three clearing agencies are 

deemed registered as clearing agencies for purposes 

of clearing security-based swaps and are able to 

engage as CCPs in clearing eligible CDS, in part, 

pursuant to the temporary exemptive order relating 

to Sections 5 and 6 of the Exchange Act. The 

temporary exemptive order contains conditions to 

such relief relating to, among other things, available 

information about the eligible CDS and the 

underlying reference entity of such eligible CDS. 

See footnote 30 above. We also note that we 

proposed rules in the Mandatory Clearing 

Proposing Release and the SBSR Proposing Release 

that would require some of the same information as 

the requirements adopted in this release. If we 

adopt those rules with information collections 

similar to that adopted in this release, we may 

adjust our PRA estimates. 

114 In the Mandatory Clearing Proposing Release, 

we estimated that four hours would be required by 

a clearing agency to post a security-based swap 

submission on its Web site to comply with 

proposed Rule 19b–4(o)(5). We believe that the 

information that would be required to rely on the 

exemptions we are adopting in this release is less 

extensive than the information that would be 

required in a security-based swap submission. 

Therefore, we estimate that the burden to include 

the information that would be required to rely on 

the exemptions in an agreement or on the clearing 

agency’s Web site would be less than the burden to 

post a security-based swap submission. 

115 In the Mandatory Clearing Proposing Release, 

we estimated that each clearing agency will submit 

20 security-based swap submissions annually. Each 

submission will relate to a security-based swap, or 

group, category, type or class of security-based 

swap that the clearing agency plans to accept for 

clearing. We are using that estimate as the basis for 

our estimate as to how many times per year a 

clearing agency would be required to provide the 

information in reliance on the exemptions. 

116 5 U.S.C. 605(b). 

Exchange Act Section 13 or Section 

15(d) and, if not subject to such 

reporting requirements, whether public 

information, including financial 

information, about any such issuer is 

available and where the information is 

available. 

C. Paperwork Reduction Act Burden 

Estimates 

For purposes of the PRA, we estimate 

that there will be an annual incremental 

increase in the paperwork burden for 

clearing agencies as issuers of securitybased swaps to comply with our new 

collection of information requirements. 

The disclosure provisions of Securities 

Act Rule 239 apply to registered or 

exempt clearing agencies relying on the 

exemption from the registration 

requirements of the Securities Act. 

These disclosure provisions will require 

those relying on the exemption to make 

certain information about security-based 

swaps that may be cleared by the 

registered or exempt clearing agency 

available to eligible contract 

participants and other market 

participants. This estimate is consistent 

with the estimate in the Proposing 

Release and we received no comments 

on this estimate. 

Currently, three clearing agencies 

clear eligible CDS, which include 

security-based swaps.110 The obligation 

to centrally clear certain security-based 

swap transactions is a new requirement 

under Title VII of the Dodd-Frank Act, 

and clearing agencies that are deemed 

registered as clearing agencies are 

eligible to clear security-based swaps. 

Based on the fact that there are currently 

three clearing agencies authorized to 

clear security-based swaps and that 

there could conceivably be a few more 

in the foreseeable future,111 we estimate 

that three to six clearing agencies may 

plan to centrally clear security-based 

swaps and seek to rely on the 

exemptions we are adopting in this 

release, and therefore, would be subject 

to the collection of information.112 For 

purposes of the PRA, we estimate six 

clearing agencies would seek to rely on 

the exemptions we are adopting in this 

release. This estimate is consistent with 

the estimate in the Proposing Release 

and we received no comments on this 

estimate. 

We believe that a registered or exempt 

clearing agency issuing security-based 

swaps in its function as a CCP could 

incur some costs associated with 

disclosing, or providing or making 

available, certain information in 

accordance with Securities Act Rule 

239, either in its agreement regarding 

the security-based swap or on its 

publicly available Web site, with respect 

to the security-based swap. A clearing 

agency also could incur costs associated 

with updating the information on its 

Web site or in its agreements, if 

necessary. The purpose of the 

requirement is to inform investors about 

whether there is publicly available 

information about the issuer of the 

referenced security or referenced issuer 

and we believe that a clearing agency 

likely already would be collecting and 

making public the type of information 

required by the final rule.113

We estimate that each registered or 

exempt clearing agency issuing securitybased swaps in its function as a CCP 

will spend approximately 2 hours each 

time it provides or updates the 

information in its agreements relating to 

security-based swaps or on its Web 

site.114 We estimate that each registered 

or exempt clearing agency will provide 

or update the information 20 times per 

year.115 Therefore, we estimate that the 

total annual reporting burden for 

clearing agencies to provide the 

information in their agreements relating 

to security-based swaps or on their Web 

site to comply with Securities Act Rule 

239(b)(3) will be 240 hours (20 × 2 hours 

× 6 respondents). We estimate that 75% 

of the burden of preparation is carried 

by the clearing agency internally and 

that 25% of the burden is carried by 

outside professionals retained by the 

clearing agency at an average cost of 

$400 per hour. These estimates are 

consistent with the estimates in the 

Proposing Release and we received no 

comments on these estimates. 

D. Recordkeeping Requirements 

There is no recordkeeping 

requirement associated with Securities 

Act Rule 239. 

VI. Regulatory Flexibility Act 

Certification 

Under Section 605(b) of the 

Regulatory Flexibility Act,116 we 

certified that, when adopted, Rule 239 

under the Securities Act, Rule 12a–10 

under the Exchange Act, the 

amendment to Rule 12h–1 under the 

Exchange Act, and Rule 4d–11 under 

the Trust Indenture Act would not have 

a significant economic impact on a 

substantial number of small entities. 

This certification, including our basis 

for the certification, was included in 

Part VIII of the Proposing Release. We 

solicited comments on the potential 

impact of these rules and amendment 

on small entities, but received none. 

The final rules are identical to the 

proposed rules. Accordingly, there have 

been no changes to the proposal that 

would alter the basis upon which the 

certification was made. 

VII. Statutory Authority and Text of the 

Rules and Amendments 

The rules and amendments described 

in this release are being adopted under 

the authority set forth in Sections 19 

and 28 of the Securities Act, Sections 

3C, 12(h), 23(a) and 36 of the Exchange 


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Federal Register / Vol. 77, No. 66 / Thursday, April 5, 2012 / Rules and Regulations 20549 

Act and Section 304(d) of the Trust 

Indenture Act. 

List of Subjects in 17 CFR Parts 230, 

240 and 260 

Reporting and recordkeeping 

requirements, Securities. 

Text of the Rules and Amendments 

For the reasons set out in the 

preamble, the Commission is amending 

Title 17, Chapter II, of the Code of 

Federal Regulations as follows: 

PART 230—GENERAL RULES AND 

REGULATIONS, SECURITIES ACT OF 

1933 

■ 1. The authority citation for Part 230 

continues to read, in part, as follows: 

Authority: 15 U.S.C. 77b, 77b note, 77c, 

77d, 77f, 77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 

78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o–7 note, 

78t, 78w, 78ll(d), 78mm, 80a–8, 80a–24, 80a– 

28, 80a–29, 80a–30, and 80a–37, unless 

otherwise noted. 

* * * * * 

■ 2. Section 230.239 is added to read as 

follows: 

§ 230.239 Exemption for offers and sales 

of certain security-based swaps. 

(a) Provided that the conditions of 

paragraph (b) of this section are satisfied 

and except as expressly provided in 

paragraph (c) of this section, the Act 

does not apply to any offer or sale of a 

security-based swap that: 

(1) Is issued or will be issued by a 

clearing agency that is either registered 

as a clearing agency under Section 17A 

of the Securities Exchange Act of 1934 

(15 U.S.C. 78q–1) or exempt from 

registration under Section 17A of the 

Securities Exchange Act of 1934 

pursuant to a rule, regulation, or order 

of the Commission (‘‘eligible clearing 

agency’’), and 

(2) The Commission has determined 

is required to be cleared or that is 

permitted to be cleared pursuant to the 

eligible clearing agency’s rules. 

(b) The exemption provided in 

paragraph (a) of this section applies 

only to an offer or sale of a securitybased swap described in paragraph (a) 

of this section if the following 

conditions are satisfied: 

(1) The security-based swap is offered 

or sold in a transaction involving the 

eligible clearing agency in its function 

as a central counterparty with respect to 

such security-based swap; 

(2) The security-based swap is sold 

only to an eligible contract participant 

(as defined in Section 1a(18) of the 

Commodity Exchange Act (7 U.S.C. 

1a(18))); and 

(3) The eligible clearing agency posts 

on its publicly available Web site at a 

specified Internet address or includes in 

its agreement covering the securitybased swap that the eligible clearing 

agency provides or makes available to 

its counterparty the following: 

(i) A statement identifying any 

security, issuer, loan, or narrow-based 

security index underlying the securitybased swap; 

(ii) A statement indicating the 

security or loan to be delivered (or class 

of securities or loans), or if cash settled, 

the security, loan, or narrow-based 

security index (or class of securities or 

loans) whose value is to be used to 

determine the amount of the settlement 

obligation under the security-based 

swap; and 

(iii) A statement of whether the issuer 

of any security or loan, each issuer of a 

security in a narrow-based security 

index, or each referenced issuer 

underlying the security-based swap is 

subject to the reporting requirements of 

Sections 13 or 15(d) of the Securities 

Exchange Act of 1934 (15 U.S.C. 78m 

and 78o) and, if not subject to such 

reporting requirements, whether public 

information, including financial 

information, about any such issuer is 

available and where the information is 

available. 

(c) The exemption provided in 

paragraph (a) of this section does not 

apply to the provisions of Section 17(a) 

of the Act (15 U.S.C. 77q(a)). 

PART 240—GENERAL RULES AND 

REGULATIONS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 3. The authority citation for Part 240 

continues to read, in part, as follows: 

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 

77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 

77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j, 

78j–1, 78k, 78k–1, 78l, 78m, 78n, 78n–1, 78o, 

78o–4, 78p, 78q, 78s, 78u–5, 78w, 78x, 78ll, 

78mm, 80a–20, 80a–23, 80a–29, 80a–37, 80b– 

3, 80b–4, 80b–11, and 7201 et seq., 18 U.S.C. 

1350, 12 U.S.C. 5221(e)(3), and Pub. L. 111– 

203, 939A, 124 Stat. 1376 (2010), unless 

otherwise noted. 

* * * * * 

■ 4. Section 240.12a–10 is added to read 

as follows: 

§ 240.12a–10 Exemption of security-based 

swaps from section 12(a) of the Act. 

The provisions of Section 12(a) of the 

Act (15 U.S.C. 78l(a)) do not apply to 

any security-based swap that: 

(a) Is issued or will be issued by a 

clearing agency registered as a clearing 

agency under Section 17A of the Act (15 

U.S.C. 78q–1) or exempt from 

registration under Section 17A of the 

Act pursuant to a rule, regulation, or 

order of the Commission, in its function 

as a central counterparty with respect to 

the security-based swap; 

(b) The Commission has determined 

is required to be cleared or that is 

permitted to be cleared pursuant to the 

clearing agency’s rules; 

(c) Is sold to an eligible contract 

participant (as defined in Section 1a(18) 

of the Commodity Exchange Act (7 

U.S.C. 1a(18))) in reliance on Rule 239 

under the Securities Act of 1933 (17 

CFR 230.239); and 

(d) Is traded on a national securities 

exchange registered pursuant to Section 

6(a) of the Act (15 U.S.C. 78f(a)). 

■ 5. Section 240.12h–1 is amended by 

adding paragraph (h) to read as follows: 

§ 240.12h–1 Exemptions from registration 

under section 12(g) of the Act. 

* * * * * 

(h) Any security-based swap that is 

issued by a clearing agency registered as 

a clearing agency under Section 17A of 

the Act (15 U.S.C. 78q–1) or exempt 

from registration under Section 17A of 

the Act pursuant to a rule, regulation, or 

order of the Commission in its function 

as a central counterparty that the 

Commission has determined must be 

cleared or that is permitted to be cleared 

pursuant to the clearing agency’s rules, 

and that was sold to an eligible contract 

participant (as defined in Section 1a(18) 

of the Commodity Exchange Act (7 

U.S.C. 1a(18))) in reliance on Rule 239 

under the Securities Act of 1933 (17 

CFR 230.239). 

* * * * * 

PART 260—GENERAL RULES AND 

REGULATIONS, TRUST INDENTURE 

ACT OF 1939 

■ 6. The authority citation for Part 260 

continues to read as follows: 

Authority: 15 U.S.C. 77eee, 77ggg, 77nnn, 

77sss, 78ll(d), 80b–3, 80b–4, and 80b–11. 

* * * * * 

■ 7. Section 260.4d–11 is added to read 

as follows: 

§ 260.4d–11 Exemption for security-based 

swaps offered and sold in reliance on Rule 

239 under the Securities Act of 1933 (17 

CFR 230.239). 

Any security-based swap offered and 

sold in reliance on Rule 239 under the 

Securities Act of 1933 (17 CFR 230.239), 

whether or not issued under an 

indenture, is exempt from the Act. 

Dated: March 30, 2012. 

By the Commission. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2012–8141 Filed 4–4–12; 8:45 am] 

BILLING CODE P 


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