[Federal Register Volume 80, Number 43 (Thursday, March 5, 2015)]
[Notices]
[Pages 12048-12054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-05053]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74394; File No. 600-33]


Self-Regulatory Organizations; Bloomberg STP LLC; Notice of 
Filing of Application for Exemption From Registration as a Clearing 
Agency

February 27, 2015.

I. Introduction

    On March 15, 2013, Bloomberg STP LLC (``BSTP'') filed with the 
Securities and Exchange Commission (``Commission'') an application on 
Form CA-1 for exemption from registration as a clearing agency pursuant 
to section 17A of the Securities Exchange Act of 1934 (``Exchange 
Act'') and Rule 17Ab2-1 thereunder. BSTP amended its application on May 
7, 9, and 10, July 11, August 8, September 18, and November 21, 2013, 
December 19, 2014, and January 22, 2015. BSTP is requesting an 
exemption from clearing agency registration in connection with its 
proposal to offer an electronic trade confirmation (``ETC'') service 
and a matching service. The Commission is publishing this notice in 
order to solicit comments from interested persons on the exemption 
request.\1\ The Commission will consider any comments it receives in 
making its determination whether to grant BSTP's request for an 
exemption from clearing agency registration.
---------------------------------------------------------------------------

    \1\ The descriptions set forth in this notice regarding the 
structure and operations of BSTP have been largely derived from 
information contained in BSTP's amended Form CA-1 application and 
publicly available sources. The application and non-confidential 
exhibits thereto are available on the Commission's Web site.
---------------------------------------------------------------------------

II. Background

A. BSTP Organization

    BSTP is a limited liability company organized under the laws of the 
State of Delaware, and is wholly-owned by Bloomberg L.P. (``BLP''). BLP 
is a global business and financial information and news company that is 
headquartered in New York, with offices around the world. BLP's 
principal product is the Bloomberg Professional service, which provides 
financial market information, data, news and analytics to banks, 
broker-dealers, institutional investors,

[[Page 12049]]

governmental bodies and other business and financial professionals 
worldwide.\2\
---------------------------------------------------------------------------

    \2\ See Exhibit C for a graphic description of the BSTP's 
organizational structure.
---------------------------------------------------------------------------

    BSTP proposes to provide ETC and matching services for fixed-income 
and equity trades as described in its Form CA-1 application. An 
overview of BSTP's proposed matching service is presented in Part III 
below. BSTP will enter into a Software License Agreement and a License 
and Services Agreement with its parent, BLP. Under the terms and 
conditions of such agreements, BLP will provide BSTP with software, 
hardware, administrative, operational and other support services. BSTP 
has established a Board of Directors to oversee its operations, and 
intends to establish an Advisory Board consisting of industry members 
and users of the matching service, including representatives from sell-
side firms, buy-side institutions and custodians.\3\ The mission of the 
Advisory Board of BSTP is to provide advice and recommendations to the 
Board of Directors of BSTP that will assist BSTP in fulfilling the 
policy goals of the Exchange Act in a manner that meets all applicable 
legal requirements and serves the interests of users of the 
confirmation matching service and the public at large.\4\
---------------------------------------------------------------------------

    \3\ See Exhibit S at 8-12.
    \4\ See Exhibit S at 11-12.
---------------------------------------------------------------------------

B. Matching as a Clearing Agency Function

    On April 6, 1998, the Commission issued an interpretive release 
regarding matching services \5\ (the ``Matching Release'').\6\ In the 
Matching Release, the Commission concluded that matching constitutes a 
clearing agency function, specifically the ``comparison of data 
respecting the terms of settlement of securities transactions,'' within 
the meaning of section 3(a)(23)(A) of the Exchange Act.\7\ Therefore, 
any person providing independent matching services must either register 
with the Commission as a clearing agency or obtain an exemption from 
registration pursuant to section 17A of the Exchange Act and Rule 
17Ab2-1 thereunder.\8\ In 2001, the Commission granted an exemption 
from registration as a clearing agency to Omgeo, a subsidiary of The 
Depository Trust and Clearing Corporation (``DTCC'') and Thomson 
Financial, to conduct ETC and matching services.\9\ BSTP has applied 
for a similar exemption from registration as a clearing agency to 
provide ETC and matching services.
---------------------------------------------------------------------------

    \5\ The term ``matching service'' as used here means an 
electronic service to centrally match trade information between a 
broker-dealer and its institutional customer.
    \6\ See Confirmation and Affirmation of Securities Trades; 
Matching, Exchange Act Release No. 34-39829 (Apr. 6, 1998), 63 FR 
17943 (Apr. 13, 1998).
    \7\ In addition, on July 1, 2011, the Commission published a 
conditional temporary exemption from clearing agency registration 
for entities that perform for security-based swap transactions 
certain post-trade processing services, including matching services. 
See Exchange Act Release No. 34-64796 (Jul. 1, 2011), 76 FR 39963 
(Jul. 7, 2011) (providing an exemption from registration under 
Section 17A(b) of the Exchange Act, and stating that ``[t]he 
Commission is using its authority under section 36 of the Exchange 
Act to provide a conditional temporary exemption, until the 
compliance date for the final rules relating to registration of 
clearing agencies that clear security-based swaps pursuant to 
sections 17A(i) and (j) of the Exchange Act, from the registration 
requirement in section 17A(b)(1) of the Exchange Act to any clearing 
agency that may be required to register with the Commission solely 
as a result of providing Collateral Management Services, Trade 
Matching Services, Tear Up and Compression Services, and/or 
substantially similar services for security-based swaps''). The 
order facilitated the Commission's identification of entities that 
operate in that area and that accordingly may fall within the 
clearing agency definition.
    \8\ See 15 U.S.C. 78q-1 and 17 CFR 240.17Ab2-1.
    \9\ See Global Joint Venture Matching Services--U.S., LLC; Order 
Granting Exemption From Registration as a Clearing Agency, Exchange 
Act Release No. 34-44188 (Apr. 17, 2001), 66 FR 20494 (Apr. 23, 
2001) (``Omgeo Exemptive Order''). On July 24, 2013, DTCC announced 
that it had entered into an agreement with Thomson Financial to 
acquire full ownership of Omgeo.
---------------------------------------------------------------------------

III. BSTP's Proposed Matching Service

    BSTP's proposed matching service for fixed-income and equity trades 
will compare post-trade information from a broker-dealer and the 
broker-dealer's institutional customer and reconcile such information 
to generate an affirmed confirmation. It will operate as follows \10\:
---------------------------------------------------------------------------

    \10\ BSTP provides an additional matching workflow in which 
custodians send matched confirmations to the matching service and 
the matching service submits such matched confirmations as affirmed 
confirmations to The Depository Trust Company (``DTC'').
---------------------------------------------------------------------------

    1. A customer routes an order to its firm.
    2. The firm executes the order and then sends a notice of execution 
(``NOE'') to the customer.
    3. For voice executed trades, the customer affirms to the firm the 
trade details contained in the NOE. For trades executed electronically, 
the electronic trading platform records the trade in the blotters of 
the customer and the firm.
    4. The customer sends to the matching service, the firm, and the 
customer's custodian allocation information for the trade.
    5. The firm then submits to the matching service trade data 
corresponding to each allocation, including settlement instructions 
and, as applicable, commissions, taxes, and fees.
    6. The matching service next compares the customer's allocation 
information (containing multiple fields of data) \11\ with the firm's 
trade data to determine whether the information contained in each field 
matches. If all required fields match, the matching service generates a 
matched confirmation and sends it to the firm, the customer, and other 
entities designated by the customer (e.g., the customer's custodian). 
The matching service will typically perform this step in less than one 
second.
---------------------------------------------------------------------------

    \11\ According to its application, BSTP notes that it will 
follow DTC's format for delivering matched confirmations to DTC. 
Further, BSTP will obtain a control number from DTC for each trade 
record, cross-reference such control number to the confirmation and 
subsequent affirmation of the trade, and include such control number 
when delivering the affirmation of the trade to the depository at 
DTC. See Exhibit S at 12.
---------------------------------------------------------------------------

    7. After the matching service creates the matched confirmation, the 
matching service submits it to DTC as an ``affirmed confirmation.'' 
\12\ From there, the trade goes into DTC's settlement process.
---------------------------------------------------------------------------

    \12\ BSTP notes that its proposed confirmation matching process 
eliminates multiple steps in the manual workflow, such as DTC's 
producing a confirmation for the institution to review and the 
institution's reviewing and affirming the confirmation.
---------------------------------------------------------------------------

    According to BSTP, a customer will be eligible to use the matching 
service once its broker-dealer and, as applicable, its fund service 
provider have enabled the customer to use the matching service. A 
customer may also subscribe to the matching service directly. BSTP will 
make available to matching service users an interactive reporting tool 
that will display matching statistics, and users will be able to access 
specific details regarding matched and unmatched allocations filtered 
by counterparty, investment type, and status.
    Other than the matching service, BSTP states it will not perform 
any other functions of a clearing agency requiring registration under 
section 17A of the Exchange Act, such as net settlement, maintaining a 
balance of open positions between buyers and sellers, marking 
securities to the market, or handling funds or securities.\13\
---------------------------------------------------------------------------

    \13\ See Exhibit J at 9.
---------------------------------------------------------------------------

IV. BSTP's Request for an Exemption

A. Introduction

    BSTP believes its proposed matching service would improve 
reliability and stability in the post-trade processing of securities 
transactions. According to BSTP, the matching service will offer 
tangible benefits to the securities industry by: (i) Adding choice and

[[Page 12050]]

redundancy and eliminating a single point of dependency, thereby 
increasing the reliability and stability of matching service support 
available to market participants; (ii) decreasing overall costs to 
market participants; and (iii) by introducing competition, increasing 
the potential for development of new and enhanced functionality.\14\
---------------------------------------------------------------------------

    \14\ See Exhibit J at 10.
---------------------------------------------------------------------------

    BSTP believes that the proposed matching service will increase the 
speed and accuracy of confirmation matching, as the proposed matching 
service will be ``seamlessly integrated with other tools used by the 
financial industry, including the Bloomberg Professional service, BLP's 
and third-party order management systems, electronic trading 
functionality and other post-trade functionality.'' \15\ BSTP states 
that these synergies will help to improve the speed, accuracy and 
reliability of the post-trade environment by reducing the number of 
required connections and therefore the potential for error in the 
matching process. As a result, the speed of confirmation matching is 
improved and the accuracy of allocations processing is enhanced, 
resulting in prompt and accurate clearance and settlement of trades.
---------------------------------------------------------------------------

    \15\ As BSTP's application notes, a Bloomberg Professional 
service subscription includes a post-trade trade affirmation 
function known as ``VCON,'' which is used by a substantial number of 
buy-side and sell-side firms. VCON allows an institution and its 
broker-dealer that agree to a trade over the telephone, by email, or 
otherwise to reconcile the economics of the trade in a thorough 
manner. In response to requests from multiple buy-side and sell-side 
customers, Bloomberg decided to enhance its existing VCON function 
by adding a confirmation matching service for DTC-eligible 
securities. See Exhibit S at 7-8.
---------------------------------------------------------------------------

    BSTP believes that the market will benefit from the availability of 
functions to be provided by BSTP along with the existing functions 
provided by BLP that together will allow professional investors to 
analyze potential trades, route an order to a broker, receive an 
execution notice from the broker, enter trade details and allocations, 
receive a matched confirmation, and send an affirmed confirmation to 
the depository at DTC using the same provider. By making available a 
confirmation matching service accessible via the Bloomberg Professional 
service, which is commonly also used for electronic trading and post-
trade processing, BSTP states that its proposed matching service will 
afford the securities industry the opportunity to use complementary 
services from start to finish.
    BSTP states that it will devote resources to helping users and 
potential users of the matching service further the goal of straight-
through-processing, compressed settlement cycles and, ultimately, a 
reduction of risk throughout the financial markets. In sum, BSTP 
believes that its matching service will increase overall matching 
capacity in the market, eliminate a single point of dependency, and 
introduce price competition to the market, which will reduce costs to 
market participants.

B. Conditions to Exemption From Registration

    BSTP represents in its Form CA-1 that it would comply with the list 
of conditions found below regarding its operations and interoperability 
with other matching providers.\16\ The Commission preliminarily 
believes that the conditions are important tools to facilitate 
effective systems interoperability. By establishing a framework that 
allows the customers of multiple service providers to conduct 
transactions without having to join each matching provider, the 
Commission preliminarily believes that the interoperability conditions 
help facilitate the linking of clearance and settlement facilities.\17\
---------------------------------------------------------------------------

    \16\ See Exhibit S at 13-19. On November 19, 2014, the 
Commission adopted Regulation Systems Compliance and Integrity 
(``Reg SCI''), which would require ``SCI entities'' to comply with 
requirements for policies and procedures with respect to their 
automated systems that support the performance of their regulated 
activities. See Exchange Act Release No. 34-73639 (Nov. 19, 2014), 
79 FR 72251, 72271 (Dec. 5, 2014). Rule 1000(a) of Reg SCI would 
define an ``SCI entity'' to include, among other things, a 
registered clearing agency and an exempt clearing agency subject to 
the Commission's Automation Review Policies (``ARP''). In 
particular, the term ``exempt clearing agency subject to ARP'' 
includes ``an entity that has received from the Commission an 
exemption from registration as a clearing agency under section 17A 
of the Exchange Act, and whose exemption contains conditions that 
relate to the Commission's [ARP] Policies, or any Commission 
regulation that supersedes or replaces such policies.'' The 
Commission notes that the below conditions would meet the definition 
described in Rule 1000(a) of Reg SCI, requiring an exempt clearing 
agency subject to ARP to meet the applicable requirements set forth 
in Reg SCI.
    \17\ See 15 U.S.C. 78q-1(a)(1)(D).
---------------------------------------------------------------------------

C.1. Operational Conditions
    (1) Before beginning the commercial operation of its matching 
service, BSTP shall provide the Commission with an audit report that 
addresses all the areas discussed in the Commission's Automation Review 
Policies (``ARP'').\18\
---------------------------------------------------------------------------

    \18\ See Exchange Act Release Nos. 34-27445 (Nov. 16, 1989), 54 
FR 48703 (Nov. 24, 1989) (``ARP I''), and 34-29185 (May 9, 1991), 56 
FR 22490 (May 15, 1991) (``ARP II''); see also Memorandum from the 
Securities and Exchange Commission Division of Market Regulation to 
SROs and NASDAQ (June 1, 2001) (``Guidance for Systems Outages and 
System Change Notifications''), available at http://www.sec.gov/divisions/marketreg/sro-guidance-for-systems-outage-06-01-2001.pdf.
---------------------------------------------------------------------------

    (2) BSTP shall provide the Commission with annual reports and any 
associated field work prepared by competent, independent audit 
personnel that are generated in accordance with the annual risk 
assessment of the areas set forth in the ARP. BSTP shall provide the 
Commission (beginning in its first year of operation) with annual 
audited financial statements prepared by competent independent audit 
personnel.
    (3) BSTP shall report all significant systems outages to the 
Commission. If it appears that the outage may extend for thirty minutes 
or longer, BSTP shall report the systems outage immediately. If it 
appears that the outage will be resolved in less than thirty minutes, 
BSTP shall report the systems outage within a reasonable time after the 
outage has been resolved.
    (4) BSTP shall provide the Commission with 20 business days advance 
notice of any material changes that BSTP makes to the matching service. 
These changes will not require the Commission's approval before they 
are implemented.
    (5) BSTP shall respond and require its service providers (including 
BLP) to respond to requests from the Commission for additional 
information relating to the matching service and ETC service, and 
provide access to the Commission to conduct on-site inspections of all 
facilities (including automated systems and systems environment), 
records, and personnel related to the matching service and the ETC 
service. The requests for information shall be made and the inspections 
shall be conducted solely for the purpose of reviewing the matching 
service's and the ETC service's operations and compliance with the 
federal securities laws and the terms and conditions in any exemptive 
order issued by the Commission with respect to BSTP's matching service 
and the ETC service.
    (6) BSTP shall supply the Commission or its designee with periodic 
reports regarding the affirmation rates for institutional transactions 
effected by institutional investors that utilize its matching service 
and ETC service.\19\
---------------------------------------------------------------------------

    \19\ DTC submits monthly affirmation/confirmation reports to the 
appropriate self-regulatory organizations. The Commission 
anticipates a similar schedule for BSTP.
---------------------------------------------------------------------------

    (7) BSTP shall preserve a copy or record of all trade details, 
allocation instructions, central trade matching results, reports and 
notices sent to customers, service agreements, reports

[[Page 12051]]

regarding affirmation rates that are sent to the Commission or its 
designee, and any complaint received from a customer, all of which 
pertain to the operation of its matching service and ETC service. BSTP 
shall retain these records for a period of not less than five years, 
the first two years in an easily accessible place.
    (8) BSTP shall not perform any clearing agency function (such as 
net settlement, maintaining a balance of open positions between buyers 
and sellers, or marking securities to the market) other than as 
permitted in an exemption issued by the Commission.
    (9) Before beginning the commercial operation of its matching 
service, BSTP shall provide the Commission with copies of the service 
agreement between BLP and BSTP and shall notify the Commission of any 
material changes to the service agreement.
C.2. Interoperability Conditions
    (1) BSTP shall develop, in a timely and efficient manner, fair and 
reasonable linkages between BSTP's matching service and other matching 
services that are registered with the Commission or that receive or 
have received from the Commission an exemption from clearing agency 
registration that, at a minimum, allow parties to trades that are 
processed through one or more matching services to communicate through 
one or more appropriate effective interfaces with other matching 
services.
    (2) BSTP shall devise and develop interfaces with other matching 
services that enable end-user clients or any service that represents 
end-user clients to BSTP (``end-user representative'') to gain a single 
point of access to BSTP and other matching services. Such interfaces 
must link with each other matching service so that an end-user client 
of one matching service can communicate with all end-user clients of 
all matching services, regardless of which matching service completes 
trade matching prior to settlement.
    (3) If any intellectual property proprietary to BSTP is necessary 
to develop, build, and operate links or interfaces to BSTP's matching 
service, as described in these conditions, BSTP shall license such 
intellectual property to other matching services seeking linkage to 
BSTP on fair and reasonable terms for use in such links or interfaces.
    (4) BSTP shall not engage in any activity inconsistent with the 
purposes of section 17A(a)(2) of the Exchange Act,\20\ which section 
seeks the establishment of linked or coordinated facilities for 
clearance and settlement of transactions. In particular, BSTP will not 
engage in activities that would prevent any other matching service from 
operating a matching service that it has developed independently from 
BSTP's matching service.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78q-1(a)(2)(A)(ii).
---------------------------------------------------------------------------

    (5) BSTP shall support industry standards in each of the following 
categories: communication protocols (e.g., TCP/IP, SNA); message and 
file transfer protocols and software (e.g., FIX, WebSphere MQ, SWIFT); 
message format standards (e.g., FIX); and message languages and 
metadata (e.g., XML). However, BSTP need not support all existing 
industry standards or those listed above by means of example. Within 
three months of regulatory approval, BSTP shall make publicly known 
those standards supported by BSTP's matching service. To the extent 
that BSTP decides to support other industry standards, including new 
and modified standards, BSTP shall make these standards publicly known 
upon making such decision or within three months of updating its system 
to support such new standards, whichever is sooner. Any translation to/
from these published standards necessary to communicate with BSTP's 
system shall be performed by BSTP without any significant delay or 
service degradation of the linked parties' services.
    (6) BSTP shall make all reasonable efforts to link with each other 
matching service in a timely and efficient manner, as specified below. 
Upon written request, BSTP shall negotiate with each other matching 
service to develop and build an interface that allows the two to link 
matching services (``interface''). BSTP shall involve neutral industry 
participants in all negotiations to build or develop interfaces and, to 
the extent feasible, incorporate input from such participants in 
determining the specifications and architecture of such interfaces. 
Absent adequate business or technological justification,\21\ BSTP and 
the requesting other matching service shall conclude negotiations and 
reach a binding agreement to develop and build an interface within 120 
calendar days of BSTP's receipt of the written request. This 120-day 
period may be extended upon the written agreement of both BSTP and the 
other matching service engaged in negotiations. For each other matching 
service with whom BSTP reaches a binding agreement to develop and build 
an interface, BSTP shall begin operating such interface within 90 days 
of reaching a binding agreement and receiving all the information 
necessary to develop and operate it. This 90-day period may be extended 
upon the written agreement of both BSTP and the other matching service. 
For each interface and within the same time BSTP must negotiate and 
begin operating each interface, BSTP and the other matching service 
shall agree to ``commercial rules'' for coordinating the provision of 
matching services through their respective interfaces, including 
commercial rules: (A) Allocating responsibility for performing matching 
services; and (B) allocating liability for service failures. BSTP shall 
also involve neutral industry participants in negotiating applicable 
commercial rules and, to the extent feasible, take input from such 
participants into account in agreeing to commercial rules. At a 
minimum, each interface shall enable BSTP and the other matching 
service to transfer between them all trade and account information 
necessary to fulfill their respective matching responsibilities as set 
forth in their commercial rules (``trade and account information''). 
Absent an adequate business or technological justification, BSTP shall 
develop and operate each interface without imposing conditions that 
negatively impact the other matching service's ability to innovate its 
matching service or develop and offer other value-added services 
relating to its matching service or that negatively impact the other 
matching service's ability to compete effectively against BSTP.
---------------------------------------------------------------------------

    \21\ The failure of neutral industry participants to be 
available or to submit their input within the 120 day or 90 day time 
periods set forth in this paragraph shall not constitute an adequate 
business or technological justification for failing to adhere to the 
requirements set forth in this paragraph.
---------------------------------------------------------------------------

    (7) In order to facilitate fair and reasonable linkages between 
BSTP and other matching services, BSTP shall publish or make available 
to any other matching service the specifications for any interface and 
its corresponding commercial rules that are in operation within 20 days 
of receiving a request for such specifications and commercial rules. 
Such specifications shall contain all the information necessary to 
enable any other matching services not already linked to BSTP through 
an interface to establish a linkage with BSTP through an interface or a 
substantially similar interface. BSTP shall link to any other matching 
service, if the other matching service so opts, through an interface 
substantially similar to any interface and its corresponding commercial 
rules that BSTP is currently operating. BSTP shall begin operating such 
substantially similar interface and commercial rules with the other 
matching service within 90 days of receiving all the information 
necessary to operate that link. This 90-

[[Page 12052]]

day period may be extended upon the written agreement of both BSTP and 
the other matching service that plans to use that link.
    (8) BSTP and respective other matching services shall bear their 
own costs of building and maintaining an interface, unless otherwise 
negotiated by the parties.
    (9) BSTP shall provide to all other matching services and end-user 
representatives that maintain linkages with BSTP sufficient advance 
notice of any material changes, updates, or revisions to its interfaces 
to allow all parties who link to BSTP through affected interfaces to 
modify their systems as necessary and avoid system downtime, 
interruption, or system degradation.
    (10) BSTP and each other matching service shall negotiate fair and 
reasonable charges and terms of payment for the use of their interface 
with respect to the sharing of trade and account information 
(``interface charges''). In any fee schedule adopted under conditions 
C.2(10), C.2(11), or C.2(12) herein, BSTP's interface charges shall be 
equal to the interface charges of the respective other matching 
service.
    (11) If BSTP and the other matching service cannot reach agreement 
on fair and reasonable interface charges within 60 days of receipt of 
the written request, BSTP and the other matching service shall submit 
to binding arbitration under the rules promulgated by the American 
Arbitration Association. The arbitration panel shall have 60 days to 
establish a fee schedule. The arbitration panel's establishment of a 
fee schedule shall be binding on BSTP and the other matching service 
unless and until the fee schedule is subsequently modified or abrogated 
by the Commission or BSTP and the other matching service mutually agree 
to renegotiate.
    (12)(A) The following parameters shall be considered in determining 
fair and reasonable interface charges: (i) The variable cost incurred 
for forwarding trade and account information to other matching 
services; (ii) the average cost associated with the development of 
links to end-users and end-user representatives; and (iii) BSTP's 
interface charges to other matching services. (B) The following factors 
shall not be considered in determining fair and reasonable interface 
charges: (i) The respective cost incurred by BSTP or the other matching 
service in creating and maintaining interfaces; (ii) the value that 
BSTP or the other matching service contributes to the relationship; 
(iii) the opportunity cost associated with the loss of profits to BSTP 
that may result from competition from other matching services; (iv) the 
cost of building, maintaining, or upgrading BSTP's matching service; or 
(v) the cost of building, maintaining, or upgrading value added 
services to BSTP's matching service. (C) In any event, the interface 
charges shall not be set at a level that unreasonably deters entry or 
otherwise diminishes price or non-price competition with BSTP by other 
matching services.
    (13) BSTP shall not charge its customers more for use of its 
matching service when one or more counterparties are customers of other 
matching services than BSTP charges its customers for use of its 
matching service when all counterparties are customers of BSTP. BSTP 
shall not charge customers any additional amount for forwarding to or 
receiving trade and account information from other matching services 
called for under applicable commercial rules.
    (14) BSTP shall maintain its quality, capacity, and service levels 
in the interfaces with other matching services (``matching services 
linkages'') without bias in performance relative to similar 
transactions processed completely within BSTP's service. BSTP shall 
preserve and maintain all raw data and records necessary to prepare 
reports tabulating separately the processing and response times on a 
trade-by-trade basis for (A) completing its matching service when all 
counterparties are customers of BSTP; (B) completing its matching 
service when one or more counterparties are customers of other matching 
services; or (C) forwarding trade information to other matching 
services called for under applicable commercial rules. BSTP shall 
retain the data and records for a period not less than six years. 
Sufficient information shall be maintained to demonstrate that the 
requirements of condition C.2(15) below are being met. BSTP and its 
service providers shall provide the Commission with reports regarding 
the time it takes BSTP to process trades and forward information under 
various circumstances within thirty days of the Commission's request 
for such reports. However, BSTP shall not be responsible for 
identifying the specific cause of any delay in performing its matching 
service where the fault for such delay is not attributable to BSTP.
    (15) BSTP shall process trades or facilitate the processing of 
trades by other matching services on a first-in-time priority basis. 
For example, if BSTP receives trade and account information that BSTP 
is required to forward to other matching services under applicable 
commercial rules (``pass-through information'') prior to receiving 
trade and account information from BSTP's customers necessary to 
provide matching services for a trade in which all parties are 
customers of BSTP (``intra-hub information''), BSTP shall forward the 
pass-through information to the designated other matching service prior 
to processing the intra-hub information. If, on the other hand, the 
information were to come in the reverse order, BSTP shall process the 
intra-hub information before forwarding the pass-through information.
    (16) BSTP shall sell access to its databases, systems or 
methodologies for transmitting settlement instructions (including 
settlement instructions from investment managers, broker-dealers, and 
custodian banks) and/or transmitting trade and account information to 
and receiving authorization responses from settlement agents on fair 
and reasonable terms to other matching services and end-user 
representatives. Such access shall permit other matching services and 
end-user representatives to draw information from those databases, 
systems, and methodologies for transmitting settlement instructions 
and/or transmitting trade and account information to and receiving 
authorization responses from settlement agents for use in their own 
matching services or end-user representatives' services. The links 
necessary for other matching services and end-user representatives to 
access BSTP's databases, systems or methodologies for transmitting 
settlement instructions and/or transmitting trade and account 
information to and receiving authorization responses from settlement 
agents will comply with conditions C.2(3), C.2(5), C.2(9), C.2(14) and 
C.2(15) above.
    (17) For the first five years from the date of an exemptive order 
issued by the Commission with respect to BSTP's matching service, BSTP 
shall provide the Commission with reports every six months sufficient 
to document BSTP's adherence to the obligations relating to interfaces 
set forth in conditions C.2(6) through C.2(13) and C.2(16) above. BSTP 
shall incorporate into such reports information including but not 
limited to: (A) All other matching services linked to BSTP; (B) the 
time, effort, and cost required to establish each link between BSTP and 
other matching services; (C) any proposed links between BSTP and other 
matching services as well as the status of such proposed links; (D) any 
failure or inability to establish such proposed links or fee schedules 
for interface charges; (E) any written complaint received from other 
matching services

[[Page 12053]]

relating to its established or proposed links with BSTP; and (F) if 
BSTP failed to adhere to any of the obligations relating to interfaces 
set forth in conditions C.2(6) through C.2(13) and C.2(16) above, its 
explanation for such failure. The Commission shall treat information 
submitted in accordance with this condition as confidential, non-public 
information, subject to the provisions of applicable law. If any other 
matching service seeks to link with BSTP more than five years after 
issuance of an exemptive order issued by the Commission with respect to 
BSTP's matching service, BSTP shall notify the Commission of the other 
matching service's request to link with BSTP within ten days of 
receiving such request. In addition, BSTP shall provide reports to the 
Commission in accordance with this paragraph commencing six months 
after the initial request for linkage is made until one year after BSTP 
and the other matching service begin operating their interface. The 
Commission reserves the right to request reports from BSTP at any time. 
BSTP shall provide the Commission with such updated reports within 
thirty days of the Commission's request.
    (18) BSTP shall also publish or make available upon request to any 
end-user representative the necessary specifications, protocols, and 
architecture of any interface created by BSTP for any end-user 
representative.

V. Statutory Standards

A. Statutory Process for Registering or Exempting Clearing Agencies

    Section 17A(b)(1) of the Exchange Act requires all clearing 
agencies to register with the Commission before performing any of the 
functions of a clearing agency.\22\ However, section 17A(b)(1) also 
states that, upon its own motion or upon a clearing agency's 
application, the Commission may conditionally or unconditionally exempt 
said clearing agency from any provisions of section 17A or the rules or 
regulations thereunder if the Commission finds that such exemption is 
consistent with the public interest, the protection of investors, and 
the purposes of section 17A, including the prompt and accurate 
clearance and settlement of securities transactions and the 
safeguarding of securities and funds.
---------------------------------------------------------------------------

    \22\ See 15 U.S.C. 78q-1(b) and 17 CFR 240.17Ab2-1.
---------------------------------------------------------------------------

    In the Matching Release, the Commission noted that an entity that 
limited its clearing agency functions to providing matching services 
might not have to be subject to the full range of clearing agency 
regulation. The Matching Release stated that the Commission anticipated 
that an entity seeking an exemption from clearing agency registration 
for matching would be required to: (1) Provide the Commission with 
information on its matching services and notice of material changes to 
its matching services; (2) establish an electronic link to a registered 
clearing agency that provides for the settlement of its matched trades; 
(3) allow the Commission to inspect its facilities and records; and (4) 
make periodic disclosures to the Commission regarding its operations.
    In 2001, the Commission approved an application by Omgeo, then a 
joint venture between DTCC and Thomson Financial, for an exemption from 
registration as a clearing agency to provide matching services.\23\ 
Omgeo's exemption from clearing agency registration was subject to 
conditions that were substantially similar to the conditions set forth 
in Part IV.C above.
---------------------------------------------------------------------------

    \23\ See supra note 9.
---------------------------------------------------------------------------

B. BSTP's Compliance With Statutory Standards

    BSTP's matching service would be the only clearing agency function 
that it would perform under an exemptive order. BSTP believes that the 
undertakings it has proposed as a condition of obtaining an exemption 
from clearing agency registration are consistent with the public 
interest, the protection of investors, and the purposes of section 17A 
of the Exchange Act.
    BSTP represents in its Form CA-1 that it will comply with all of 
the conditions described in Part IV.C above. Preliminarily, the 
Commission does not believe, however, that BSTP, in the absence of 
performing the functions of a clearing agency other than the matching 
service described here, raises the same concerns as an entity that 
performs a wider range of clearing agency functions. For example, BSTP 
would not be operating as a self-regulatory organization with the 
powers to enforce its rules against its members. Accordingly, the 
Commission preliminarily believes it may not be necessary to require 
BSTP to satisfy all of the standards for registrants under section 17A 
of the Exchange Act because the proposed conditions should establish a 
sufficiently robust regulatory framework. Further, the Commission 
preliminarily believes that granting BSTP an exemption from 
registration as a clearing agency would be consistent with the 
Commission's past practice, and that additional matching service 
providers should promote innovation and reduce costs for investors.
    In evaluating BSTP's application, the Commission intends to 
consider whether BSTP is so organized and has the capacity to be able 
to facilitate prompt and accurate matching services. Subject to the 
specific operational, interoperability and access conditions to which 
it has agreed, the Commission preliminarily believes this to be the 
case. In particular, BSTP has represented that the addition of a new 
matching service into a single provider market will not adversely 
affect current users of the existing matching service offered by Omgeo. 
BSTP states that the proposed matching service will ensure that users 
will have full flexibility to use the central matching service of their 
choice at any time, and will have the ability to choose whether or not 
to use the matching service or another service on a per-trade basis. 
BSTP represents that users will not be locked into using BSTP's 
matching service over any alternative, whether by contract, 
functionality or otherwise.\24\ BSTP believes that market participants 
seek ``interoperability'' through the ability to connect to multiple 
providers and the resulting improvements to reliability and stability 
in the post-trade space that would flow from this type of service 
offering.
---------------------------------------------------------------------------

    \24\ See Exhibit J at 10.
---------------------------------------------------------------------------

    The Commission requests comment on whether the conditions are 
sufficient to promote the purposes of section 17A of the Exchange Act 
and to allow the Commission to adequately monitor the effects of BSTP's 
proposed activities on the national system for the clearance and 
settlement of securities transactions. In addition, the Commission 
invites commenters to address whether granting BSTP an exemption from 
clearing agency registration would impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
section 17A of the Exchange Act.

VI. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed 
exemption is consistent with the public interest, the protection of 
investors, and the purposes of section 17A of the Exchange Act. To the 
extent possible, commenters are requested to provide empirical data and 
other factual support for their views. In addition, the Commission 
seeks comment generally on the following issues:

[[Page 12054]]

    1. In light of the passage of time since the adoption of the Omgeo 
Exemptive Order, developments in technology, and enhancements in market 
practices, are the proposed conditions to the exemptive order 
appropriate? Specifically, are all of the conditions designed to 
facilitate interoperability necessary? Could the Commission continue to 
promote the purposes of section 17A of the Exchange Act by additional 
modification or elimination of some or all of the conditions? If so, 
which conditions should be modified or eliminated?
    2. What, if any, effect will moving from a single provider to two 
or more providers have on the efficiency of the trade settlement 
process?
    3. What, if any, impact will the introduction of a second provider 
have on pricing, quality of service, and innovation?
    4. Will the introduction of one or more additional providers 
increase or reduce risk in the marketplace?
    5. Does BSTP's application for exemption from registration help 
achieve the underlying policy objectives of the Exchange Act? Why or 
why not? In particular, please address whether granting an exemption 
from registration does or does not further the goals of promoting 
investor protection and the integrity of the securities markets.
    6. Are the proposed conditions to the exemptive order sufficient to 
promote the purposes of section 17A of the Exchange Act and to allow 
the Commission to adequately monitor the effects of BSTP's proposed 
activities on the national system for the clearance and settlement of 
securities transactions? Why or why not?
    7. Would the links and interfaces with other matching services as 
described in BSTP's application have a positive or negative effect on 
other matching services that are registered with the Commission or that 
receive from the Commission an exemption from clearing agency 
registration? Why or why not? Should the proposed condition to develop 
an interface with another matching service provider be made mandatory, 
rather than only upon request from another provider?
    8. Would the links and interfaces with other matching services as 
described in BSTP's application have a positive or negative effect on 
end-user clients of all matching services, regardless of which matching 
service completes trade matching prior to settlement? Why or why not?
    Comments may be submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#b1c3c4ddd49cd2dedcdcd4dfc5c2f1c2d4d29fd6dec7"><span class="__cf_email__" data-cfemail="2a585f464f07494547474f445e596a594f49044d455c">[email protected]</span></a>. Please include 
File Number 600-33 on the subject line; or

Paper Comments

    <bullet> Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090. All submissions should refer to File Number 
600-33.

To help us process and review your comments more efficiently, please 
use only one method. The Commission will post all comments on the 
Commission's Internet Web site (http://www.sec.gov/rules/other.shtml).
    Copies of the submission, all subsequent amendments, all written 
statements with respect to the application that are filed with the 
Commission, and all written communications relating to the application 
between the Commission and any person, other than those that may be 
withheld from the public in accordance with the provisions of 5 U.S.C. 
552, will be available for Web site viewing and printing in the 
Commission's Public Reference Section, 100 F Street NE., Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number 600-33 
and should be submitted on or before April 6, 2015.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
---------------------------------------------------------------------------

    \25\ 17 CFR 200.30-3(a)(16).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-05053 Filed 3-4-15; 8:45 am]
 BILLING CODE 8011-01-P


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>