47668 Federal Register / Vol. 86, No. 163 / Thursday, August 26, 2021 / Notices 

9 17 CFR 200.30–3(a)(12). 

1See Exchange Act Release No. 86175 (Jun. 21, 

2019), 84 FR 43872, 53954 (Aug. 22, 2019) (‘‘Capital 

and Margin Adopting Release’’); see also Exchange 

Act Release No. 87780 (Dec. 18, 2019), 85 FR 6270, 

6345–49 (Feb. 4, 2020). 

2 17 CFR 240.3a71–6. 

3 15 U.S.C. 78o–10. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

CBOE–2021–049 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–CBOE–2021–049. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change 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 website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–CBOE–2021–049 and 

should be submitted on or before 

September 16, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.9

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2021–18347 Filed 8–25–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92716; S7–09–21] 

Notice of Substituted Compliance 

Application Submitted by the Spanish 

Financial Conduct Authority in 

Connection With Certain Requirements 

Applicable to Security-Based Swap 

Dealers and Major Security-Based 

Swap Participants Subject to 

Regulation in the Kingdom of Spain; 

Proposed Order 

August 20, 2021. 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Notice of application for 

substituted compliance determination; 

proposed order. 

SUMMARY: The Securities and Exchange 

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

is soliciting public comment on an 

application by the Spanish Comisio ́n 

Nacional del Mercado de Valores 

(‘‘CNMV’’) requesting that, pursuant to 

rule 3a71–6 under the Securities 

Exchange Act of 1934 (‘‘Exchange Act’’), 

the Commission determine that 

registered security-based swap dealers 

and registered major security-based 

swap participants (together, ‘‘SBS 

Entities’’) that are not U.S. persons and 

that are subject to certain regulation in 

the Kingdom of Spain (‘‘Spain’’) may 

comply with certain requirements under 

the Exchange Act via compliance with 

corresponding requirements of Spain 

and the European Union (‘‘EU’’). The 

Commission also is soliciting comment 

on a proposed Order providing for 

conditional substituted compliance in 

connection with the application. 

DATES: Submit comments on or before 

September 20, 2021. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/submitcomments.htm); or 

• Send an email to rule-comments@

sec.gov. Please include File Number S7– 

09–21 on the subject line. 

Paper Comments 

• Send paper comments to Vanessa 

A. Countryman, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE, Washington, DC 20549–1090. 

All submissions should refer to File 

Number S7–09–21. This file number 

should be included on the subject line 

if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/proposed.shtml). Typically, 

comments are also available for website 

viewing and printing in the 

Commission’s Public Reference Room, 

100 F Street NE, Washington, DC 20549, 

on official business days between the 

hours of 10 a.m. and 3 p.m. Due to 

pandemic conditions, however, access 

to the Commission’s public reference 

room is not permitted at this time. All 

comments received will be posted 

without change. Persons submitting 

comments are cautioned that the 

Commission does not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make publicly available. 

FOR FURTHER INFORMATION CONTACT: 

Carol M. McGee, Assistant Director, 

Laura Compton, Senior Special Counsel, 

or James Curley, Special Counsel, at 

202–551–5870, Office of Derivatives 

Policy, Division of Trading and Markets, 

Securities and Exchange Commission, 

100 F Street NE, Washington, DC 

20549–7010. 

SUPPLEMENTARY INFORMATION: The 

Commission is soliciting public 

comment on an application by the 

CNMV requesting that the Commission 

determine that SBS Entities that are not 

U.S. persons and that are subject to 

certain regulation in Spain may satisfy 

certain requirements under the 

Exchange Act by complying with 

comparable requirements in Spain, 

including relevant EU requirements. 

The Commission also is soliciting 

comment on a proposed Order, set forth 

in Attachment A, providing for 

conditional substituted compliance in 

connection with the CNMV application. 

I. Background 

On August 6, 2021, market 

participants began to count securitybased swap positions toward the 

thresholds for registration with the 

Commission as an SBS Entity.1

Exchange Act rule 3a71–6 2

conditionally provides that non-U.S. 

SBS Entities may satisfy certain 

requirements under Exchange Act 

section 15F 3 by complying with 

comparable regulatory requirements of a 


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4The Commission also has discussed the 

parameters of substituted compliance in connection 

with substituted compliance requests for other 

jurisdictions. See, e.g. , Exchange Act Release No. 

90378 (Nov. 9, 2020), 85 FR 72726 (Nov. 13, 2020) 

(‘‘German Substituted Compliance Notice and 

Proposed Order’’); Exchange Act Release No. 90765 

(Dec. 22, 2020), 85 FR 85686 (Dec. 29, 2020) 

(‘‘German Substituted Compliance Order’’); 

Exchange Act Release No. 92647 (Aug. 12, 2021), 

86 FR 46500 (Aug. 18, 2021) (‘‘German Substituted 

Compliance Notice and Proposed Amended 

Order’’); Exchange Act Release No. 90766 (Dec. 22, 

2020), 85 FR 85720 (Dec. 29, 2020) (‘‘French 

Substituted Compliance Notice and Proposed 

Order’’); Exchange Act Release No. 91477 (Apr. 5, 

2021), 86 FR 18341 (Apr. 8, 2021) (‘‘French 

Substituted Compliance Re-Opening Release’’); 

Exchange Act Release No. 92494 (July 23, 2021), 86 

FR 41612 (Aug. 2, 2021) (‘‘French Substituted 

Compliance Order’’); Exchange Act Release No. 

91476 (Apr. 5, 2021), 86 FR 18378 (Apr. 8, 2021) 

(‘‘UK Substituted Compliance Notice and Proposed 

Order’’); Exchange Act Release No. 92529 (July 30, 

2021), 86 FR 43318 (August 6, 2021) (‘‘UK 

Substituted Compliance Order’’); Exchange Act 

Release No. 92632 (Aug. 10, 2021), 86 FR 45770 

(Aug. 16, 2021) (‘‘Swiss Substituted Compliance 

Notice and Proposed Order’’). 

5See Exchange Act rule 3a71–6(d)(1) 

(requirements regarding business conduct and 

supervision, including internal risk management, 

internal supervision, antitrust considerations, 

disclosure of material risks and characteristics, 

disclosure of material incentives or conflicts of 

interest, ‘‘know your counterparty,’’ suitability, fair 

and balanced communications, daily mark 

disclosure, disclosure of clearing rights, eligible 

contract participant verification, special entities, 

and political contributions). 

6See Exchange Act rule 3a71–6(d)(2). 

7See Exchange Act rule 3a71–6(d)(3). 

8See Exchange Act rule 3a71–6(d)(4)–(5). 

9See Exchange Act rule 3a71–6(d)(6) 

(requirements regarding record creation, record 

maintenance, reporting, notification, and securities 

counts). 

10See Exchange Act rule 3a71–6(d)(7). 

Substituted compliance is not available for 

antifraud prohibitions and information-related 

requirements under section 15F. See Exchange Act 

rule 3a71–6(d)(1) (specifying that substituted 

compliance is not available in connection with the 

antifraud provisions of Exchange Act section 

15F(h)(4)(A) and Exchange Act rule 15Fh–4(a), 17 

CFR 240.15Fh–4(a), and the information-related 

provisions of Exchange Act sections 15F(j)(3) and 

15F(j)(4)(B)). Substituted compliance under rule 

3a71–6 also does not extend to certain other 

provisions of the federal securities laws that apply 

to security-based swaps, such as: (1) Additional 

antifraud prohibitions (see Exchange Act section 

10(b), 15 U.S.C. 78j(b), Exchange Act rule 10b–5, 17 

CFR 240.10b–5, and Securities Act of 1933 section 

17(a), 15 U.S.C. 77q(a)); (2) requirements related to 

transactions with counterparties that are not eligible 

contract participants (‘‘ECPs’’) (see Exchange Act 

section 6(l), 15 U.S.C. 78f(l); Securities Act of 1933 

section 5(e), 15 U.S.C. 77e(e)); (3) segregation of 

customer assets (see Exchange Act section 3E, 15 

U.S.C. 78c–5; Exchange Act rule 18a–4, 17 CFR 

240.18a–4); (4) required clearing upon counterparty 

election (see Exchange Act section 3C(g)(5), 15 

U.S.C. 78c–3(g)(5)); (5) regulatory reporting and 

public dissemination (see generally Regulation 

SBSR, 17 CFR 242.900 et seq. ); (6) SBS Entity 

registration (see Exchange Act section 15F(a) and 

(b)); and (7) registration of offerings (see Securities 

Act of 1933 section 5, 15 U.S.C. 77e). 

11See Exchange Act rule 3a71–6(a)(2)(i). 

12See Exchange Act rule 3a71–6(a)(2)(ii). The 

Commission, the CNMV and the Bank of Spain are 

in the process of negotiating a memorandum of 

understanding to address cooperation matters 

related to substituted compliance. Because the 

CNMV, Bank of Spain and European Central Bank 

(‘‘ECB’’) share responsibility for supervising 

compliance with certain provisions of EU and 

Spanish law, the Commission and the ECB have 

entered into a memorandum of understanding to 

address cooperation matters related to substituted 

compliance. These memoranda of understanding or 

other arrangements will need to be in place before 

the Commission may allow Covered Entities to use 

substituted compliance to satisfy obligations under 

the Exchange Act. The memorandum of 

understanding with the ECB can be found on its 

website at www.sec.gov under the ‘‘Substituted 

Compliance’’ tab, which is located on the ‘‘SecurityBased Swap Markets’’ page in the Division of 

Trading and Markets section of the site. The 

Commission expects to publish any memorandum 

of understanding with the CNMV and the Bank of 

Spain at the same location on the Commission’s 

website. 

13See Exchange Act rule 3a71–6(a)(3). The CNMV 

has satisfied this prerequisite in the Commission’s 

preliminary view, taking into account information 

and representations that the CNMV provided 

regarding certain Spanish and EU requirements that 

are relevant to the Commission’s ability to inspect, 

and access the books and records of, Covered 

Entities (as defined in the proposed Order). 

14 17 CFR 240.0–13. 

15See Commission rule 0–13(h). The Commission 

may take final action on a substituted compliance 

application no earlier than 25 days following 

publication of the notice in the Federal Register. 

16See Letter from Rodrigo Buenaventura, Chair, 

CNMV, dated August 20, 2021 (‘‘CNMV 

Application’’). The CNMV Application is available 

on the Commission’s website at: https:// 

www.sec.gov/page/exchange-act-substitutedcompliance-and-listed-jurisdiction-applicationssecurity-based-swap. 

17CFR 240.3a71–3(a)(4). 

18See para. (f)(1) of the proposed Order. 

foreign jurisdiction.4 Substituted 

compliance potentially is available in 

connection with requirements regarding 

business conduct and supervision; 5

chief compliance officers; 6 trade 

acknowledgment and verification; 7 nonprudentially regulated capital and 

margin; 8 recordkeeping and reporting; 9

portfolio reconciliation and dispute 

reporting, portfolio compression and 

trading relationship documentation.10

Substituted compliance in part is 

predicated on the Commission 

determining the analogous foreign 

requirements are ‘‘comparable’’ to the 

applicable requirements under the 

Exchange Act, after accounting for 

factors such as the ‘‘scope and 

objectives’’ of the relevant foreign 

regulatory requirements and the 

effectiveness of the relevant foreign 

authority’s or authorities’ supervisory 

and enforcement frameworks.11

Substituted compliance further requires 

that the Commission and the relevant 

foreign financial regulatory authorities 

have entered into an effective 

supervisory and enforcement 

memorandum of understanding and/or 

other arrangement addressing 

cooperation and other matters related to 

substituted compliance.12 A foreign 

financial regulatory authority may 

submit a substituted compliance 

application only if the authority 

provides ‘‘adequate assurances’’ that no 

law or policy would impede the ability 

of any entity that is directly supervised 

by the authority and that may register 

with the Commission ‘‘to provide 

prompt access to the Commission to 

such entity’s books and records or to 

submit to onsite inspection or 

examination by the Commission.’’ 13

Commission rule 0–13 14 addresses 

procedures for filing substituted 

compliance applications. The rule 

provides that the Commission will 

publish a notice when a completed 

application has been submitted and that 

any person may submit to the 

Commission ‘‘any information that 

relates to the Commission action 

requested in the application.’’ 15

II. The CNMV’s Substituted Compliance 

Request 

The CNMV has submitted a complete 

substituted compliance application to 

the Commission (‘‘CNMV 

Application’’).16 Pursuant to rule 0–13, 

the Commission is publishing notice of 

the CNMV Application together with a 

proposed Order to conditionally grant 

substituted compliance to an entity that 

(1) is a security-based swap dealer or 

major security-based swap participant 

registered with the Commission; (2) is 

not a ‘‘U.S. person,’’ as that term is 

defined in rule 3a71–3(a)(4) under the 

Exchange Act; 17 (3) is an investment 

firm authorized by the CNMV or a credit 

institution authorized by the ECB to 

provide investment services or perform 

investment activities in Spain; and (4) is 

a significant institution supervised by 

the CNMV and the ECB (with the 

participation of the Bank of Spain) 

(each, a ‘‘Covered Entity’’).18 In making 

its substituted compliance 

determination, the Commission will 

consider public comments on the 

CNMV Application and the proposed 

Order. 

The CNMV seeks substituted 

compliance for Covered Entities in 

connection with a number of 

requirements under Exchange Act 

section 15F. 

A. Relevant Market Participants and 

General Conditions 

The Commission will consider 

whether to allow substituted 

compliance to be used by any Covered 

Entity. 

B. Relevant Section 15F Requirements 

The CNMV requests that the 

Commission issue an order determining 


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19See part IV, infra. The CNMV is not requesting 

substituted compliance in connection with capital 

and margin requirements applicable to nonprudentially regulated SBS Entities (Exchange Act 

section 15F(e) and Exchange Act rules 18a–1 

through 18a–1d, 18a–2, and 18a–3, 17 CFR 

240.18a–1 through 18a–1d, 240.18a–2, and 

240.18a–3). 

20See part V, infra. 

21See part VI, infra. The CNMV is not requesting 

substituted compliance in connection with: eligible 

counterparty verification requirements (Exchange 

Act section 15F(h)(3)(A) and Exchange Act rule 

15Fh–3(a)(1), 17 CFR 240.15Fh–3(a)(1)); ‘‘special 

entity’’ provisions (Exchange Act sections 15F(h)(4) 

and (5); Exchange Act rule 15Fh–3(a)(2) and (3); 

and Exchange Act rules 15Fh–4(b) and 15Fh–5, 17 

CFR 240.15Fh–4(b) and 240.15Fh–5); and political 

contribution provisions (Exchange Act rule 15Fh– 

6, 17 CFR 240.15Fh–6). 

22See part VII, infra. 

23See Markets in Financial Instruments Directive, 

Directive 2014/65/EU (‘‘MiFID’’) (implemented in 

Spain by the Spanish Securities Market Act, Royal 

Legislative Decree 4/2015, of October 23 (‘‘SSMA’’), 

and Royal Decree 217/2008, of February 15 (‘‘RD 

217/2008’’)); see also Commission Delegated 

Regulation (EU) 2017/565 (‘‘MiFID Org Reg’’); 

Markets in Financial Instruments Regulation, 

Regulation (EU) 648/2012 (‘‘MiFIR’’); Commission 

Delegated Directive (EU) 2017/593 (‘‘MiFID 

Delegated Directive’’) (implemented in Spain in 

relevant part by the SSMA and RD 217/2008). 

24See European Market Infrastructure Regulation, 

Regulation (EU) 648/2012 (‘‘EMIR’’); see also 

Regulation (EU) 149/2013 (‘‘EMIR RTS’’); Delegated 

Regulation (EU) 2016/2251 (‘‘EMIR Margin RTS’’). 25See Capital Requirements Directive, Directive 

2013/36/EU (‘‘CRD’’) (implemented in Spain by the 

Act on Regulation, Supervision, and Solvency of 

Credit Institutions, Law 10/2014, of June 26 

(‘‘LOSSEC’’), Royal Decree 84/2015, of February 13 

(‘‘RD 84/2015’’), and Circular 2/2016, of February 

2, of the Bank of Spain (‘‘BoS Circular 2/2016’’), as 

well as in some portions of the SSMA and RD 217/ 

2008); see also Capital Requirements Regulation, 

Regulation (EU) 575/2013 (‘‘CRR’’); Commission 

Implementing Regulation (EU) 680/2014 (‘‘CRR 

Reporting ITS’’). 

26See Market Abuse Regulation, Regulation (EU) 

596/2014 (‘‘MAR’’); Commission Delegated 

Regulation (EU) 2016/958 (‘‘MAR Investment 

Recommendations Regulation’’); Anti-Money 

Laundering Directive, Directive (EU) 2015/849 

(‘‘MLD’’) (implemented in Spain by the Spanish 

Anti-Money Laundering Act, Law 10/2010, of April 

28 (‘‘SMLA’’)). 27 In support, the CNMV Application incorporates 

and relies on a series of European Commission 

analyses that compare EU requirements with 

applicable requirements under the Exchange Act, in 

addition to analyses specific to Spanish law and 

practices, in the areas of: risk control (see CNMV 

Application Appendix B category 1); recordkeeping, 

reporting, and notification (see the CNMV 

Application Appendix B category 2), internal 

supervision, chief compliance officer, and antitrust 

(see CNMV Application Appendix B category 3); 

and counterparty protection (see CNMV 

Application Appendix B category 4). 

28 In this context, the Commission recognizes that 

other regulatory regimes will have exclusions, 

exceptions and exemptions that may not align 

perfectly with the corresponding requirements 

under the Exchange Act. Where the Commission 

preliminarily has found that the Spanish regime 

produces comparable outcomes notwithstanding 

those particular differences, the Commission 

proposes to make a positive determination on 

substituted compliance. Where the Commission 

preliminarily has found that those exclusions, 

exemptions, and exceptions lead to outcomes that 

are not comparable, however, the Commission does 

not propose to provide for substituted compliance. 

29See paras. (f)(1)(i) and (ii) of the proposed 

Order. 

30See paras. (f)(1)(iii) and (iv) of the proposed 

Order. 

that—for substituted compliance 

purposes—applicable requirements in 

Spain are comparable with the 

following requirements under Exchange 

Act section 15F: 

• Risk control requirements— 

Requirements related to internal risk 

management, trade acknowledgment 

and verification, portfolio reconciliation 

and dispute resolution, portfolio 

compression, and trading relationship 

documentation.19

• Internal supervision, chief 

compliance officer and antitrust 

requirements—Requirements related to 

diligent supervision, conflicts of 

interest, information gathering, chief 

compliance officers, and antitrust 

considerations.20

• Counterparty protection 

requirements—Requirements related to 

disclosure of material risks and 

characteristics, disclosure of material 

incentives or conflicts of interest, 

‘‘know your counterparty,’’ suitability of 

recommendations, fair and balanced 

communications, disclosure of daily 

marks, and disclosure of clearing 

rights.21

• Recordkeeping, reporting, and 

notification requirements— 

Requirements related to making and 

keeping current certain prescribed 

records, preservation of records, 

reporting, and notification.22

C. Comparability Considerations and 

Proposed Order 

Because Spain is a member of the 

European Union, market participants in 

Spain are subject to Spanish 

requirements implemented pursuant to 

EU directives and to applicable EU 

regulations. Those include requirements 

related to: Organization, compliance, 

and conduct; 23 risk mitigation; 24

prudential matters; 25 and certain other 

matters relevant to the application.26 In 

the view of the Spanish Authorities, 

Spanish and EU requirements taken as 

a whole produce regulatory outcomes 

that are comparable to those of the 

relevant requirements under the 

Exchange Act.27

In the Commission’s preliminary 

view, requirements under the Exchange 

Act and requirements under Spanish 

and EU law maintain similar 

approaches with respect to achieving 

regulatory goals in several respects, but 

follow differing approaches or 

incorporate disparate elements in 

certain other respects. The Commission 

has considered those similarities and 

differences when analyzing 

comparability and developing 

preliminary views, while recognizing 

that differences in approach do not 

necessarily preclude substituted 

compliance in light of the Commission’s 

holistic, outcomes-oriented framework 

for assessing comparability.28

Based on the Commission’s analysis 

of the application and review of relevant 

Spanish and EU requirements, the 

proposed Order, located at Attachment 

A, would grant substituted compliance 

subject to specific conditions and 

limitations. When Covered Entities seek 

to rely on substituted compliance to 

satisfy particular requirements under 

the Exchange Act, non-compliance with 

the applicable Spanish requirements 

would lead to a violation of those 

Exchange Act requirements and 

potential enforcement action by the 

Commission (as opposed to automatic 

revocation of the substituted 

compliance order). 

III. Scope of and Conditions to 

Substituted Compliance 

A. Covered Entities for Which the 

Commission Is Proposing a Positive 

Conditional Substituted Compliance 

Determination 

Under the proposed Order, 

substituted compliance could be 

applied by ‘‘Covered Entities’’—a term 

that would limit the scope of the 

substituted compliance determination to 

SBS Entities that are subject to 

applicable Spanish requirements and 

oversight. Consistent with the 

parameters of substituted compliance 

under Exchange Act rule 3a71–6, the 

proposed ‘‘Covered Entity’’ definition 

provides that the relevant entity must be 

a security-based swap dealer or major 

security-based swap participant 

registered with the Commission, and 

that the entity cannot be a U.S. person.29

The proposed ‘‘Covered Entity’’ 

definition further would provide that 

the entity must be an investment firm or 

a credit institution authorized by the 

CNMV and the ECB to provide 

investment services or perform 

investment activities in the Kingdom of 

Spain and also must be a significant 

institution supervised by the CNMV and 

the ECB (with the participation of the 

Bank of Spain).30 These prongs of the 

definition are intended to help ensure 

that Covered Entities are subject to 


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31An SBS Entity’s ‘‘voluntary’’ compliance with 

the relevant Spanish requirements would not 

suffice for these purposes. Substituted compliance 

reflects an alternative means by which an SBS 

Entity may comply with applicable requirements 

under the Exchange Act, and thus mandates that the 

SBS Entity be subject to the requirements needed 

to establish comparability and face consequences 

arising from any failure to comply with those 

requirements. Moreover, the comparability 

assessment takes into account the effectiveness of 

the supervisory compliance program administered 

and the enforcement authority exercised by the 

CNMV, the Bank of Spain and the ECB, which 

would not be expected to promote comparable 

outcomes when compliance merely is ‘‘voluntary.’’ 

32See para. (a)(1) of the proposed Order. Under 

this condition, a Covered Entity’s relevant securitybased swap activities must constitute investment 

services or activities only to the extent that the 

relevant part of the proposed Order would require 

the Covered Entity to be subject to and comply with 

provisions of MiFID, SSMA, RD 217/2008 or related 

EU and Spanish requirements. The security-based 

swap activities need not be ‘‘investment services or 

activities’’ when the relevant part of the proposed 

Order would not require compliance with one of 

those provisions (e.g., paragraph (d)(6) of the 

proposed Order addressing substituted compliance 

for daily mark disclosure requirements). 

33See para. (a)(2) of the proposed Order. 

34See para. (a)(3) of the proposed Order. 

35See para. (a)(4) of the proposed Order. 

36See para. (a)(5)(i) of the proposed Order. In this 

regard, if the Covered Entity reasonably determines 

that the counterparty would be a financial 

counterparty if it were established in the EU and 

authorized by an appropriate EU authority 

(including Member State authorities), it must treat 

the counterparty as if the counterparty were a 

financial counterparty. 

37See para. (a)(5)(ii) of the proposed Order. 

38See para. (a)(6) of the proposed Order. 

39See para. (a)(7) of the proposed Order. 

40For example, the proposed Order would make 

substituted compliance for Exchange Act internal 

risk management, internal supervision, chief 

compliance officer, and ‘‘know your counterparty’’ 

requirements available to Covered Entities that are 

subject to and comply with, among other 

requirements, certain provisions of CRD, provisions 

of Spanish law that implement CRD, and related EU 

requirements. The CNMV, Bank of Spain, and ECB 

share responsibility for supervising compliance 

with each of these requirements. See paras. (b)(1), 

(c)(3), (d)(3) of the proposed Order. 

41See para. (a)(8) of the proposed Order. In 

accordance with the terms of the proposed Order, 

this arrangement will need to be in place at the time 

Continued 

relevant Spanish and EU requirements 

and oversight. 

B. Conditions to Substituted 

Compliance 

Substituted compliance under the 

proposed Order would be subject to a 

number of conditions and other 

prerequisites, to help ensure that the 

relevant Spanish requirements that form 

the basis for substituted compliance in 

practice will apply to the Covered 

Entity’s security-based swap business 

and activities, and to promote the 

Commission’s oversight over entities 

that avail themselves of substituted 

compliance. 

1. ‘‘Subject to and Complies With’’ 

Relevant Spanish and EU Requirements 

Each relevant section of the proposed 

Order would be subject to the condition 

that the Covered Entity ‘‘is subject to 

and complies with’’ the Spanish and EU 

requirements that are needed to 

establish comparability. Accordingly, 

the proposed Order would not provide 

substituted compliance when a Covered 

Entity is excused from compliance with 

relevant foreign provisions, such as, for 

example, if relevant Spanish or EU 

requirements do not apply to the 

security-based swap activities of a thirdcountry branch of a Spanish SBS Entity. 

In that event, the Covered Entity would 

not be ‘‘subject to’’ those requirements, 

and the Covered Entity could not rely 

on substituted compliance in 

connection with those activities.31

2. Additional General Conditions To 

Help Ensure Applicability of Relevant 

Spanish and EU Requirements 

Substituted compliance under the 

proposed Order further would be 

subject to general conditions intended 

to help ensure the applicability of 

relevant Spanish and EU requirements, 

and to facilitate the Commission’s 

oversight of firms that avail themselves 

of substituted compliance. In particular: 

• Activities as MiFID ‘‘investment 

services or activities’’—The Covered 

Entity’s security-based swap activities 

must constitute ‘‘investment services or 

activities’’ for purposes of applicable 

provisions under MiFID; Spanish 

requirements that implement MiFID; 

and/or other EU and/or Spanish 

requirements adopted pursuant to those 

provisions, and must fall within the 

scope of the firm’s authorization from 

the CNMV and the ECB.32

• Counterparties as MiFID ‘‘clients’’— 

The Covered Entity’s counterparty (or 

potential counterparty) must be a 

‘‘client’’ (or potential ‘‘client’’) for 

purposes of applicable provisions under 

MiFID; provisions of SSMA and/or RD 

217/2008 that implement MiFID; and/or 

other EU and Spanish requirements 

adopted pursuant to those provisions.33

• Security-based swaps as MiFID 

‘‘financial instruments’’—The relevant 

security-based swap must be a 

‘‘financial instrument’’ for purposes of 

applicable provisions under MiFID; 

provisions of SSMA and/or RD 217/ 

2008 that implement MiFID; and/or 

other EU and Spanish requirements 

adopted pursuant to those provisions.34

• Covered Entity as CRD 

‘‘institutions’’—The Covered Entity 

must be an ‘‘institution’’ for purposes of 

applicable provisions under CRD; 

provisions of LOSSEC, RD 84/2015, BoS 

Circular 2/2016, SSMA, and/or RD 217/ 

2008 that implement CRD; CRR; and/or 

other EU and Spanish requirements 

adopted pursuant to those provisions.35

• Counterparties as EMIR 

‘‘counterparties’’—If an applicable 

provision under EMIR, EMIR RTS, EMIR 

Margin RTS, and/or other EU 

requirements adopted pursuant to those 

provisions applies only to the Covered 

Entity’s activities with specified types of 

counterparties, and if the counterparty 

to the Covered Entity is not any of the 

specified types of counterparty, the 

Covered Entity must comply with the 

applicable provision as if the 

counterparty were the specified type of 

counterparty.36 In addition, the 

proposed Order would provide that a 

Covered Entity could not satisfy a 

condition requiring compliance with 

those EMIR-based provisions by 

complying with third country 

requirements that EU authorities may 

determine to be equivalent to EMIR.37

• Security-based swap status under 

EMIR—The relevant security-based 

swap must be, for purposes of 

applicable provisions under EMIR, 

EMIR RTS, EMIR Margin RTS, and/or 

other EU requirements adopted 

pursuant to those provisions, either (i) 

an ‘‘OTC derivative’’ or ‘‘OTC derivative 

contract,’’ as defined in EMIR article 

2(7), that has not been cleared by a 

central counterparty and otherwise is 

subject to the provisions of EMIR article 

11, EMIR RTS articles 11 through 15, 

and EMIR Margin RTS article 2; or (ii) 

cleared by a central counterparty that is 

authorized or recognized to clear 

derivatives contracts by a relevant 

authority in the EU.38

• Memoranda of Understanding—The 

Commission and the CNMV and the 

Bank of Spain must have an applicable 

memorandum of understanding or other 

arrangement addressing cooperation 

with respect to the Order at the time the 

Covered Entity makes use of substituted 

compliance.39 The CNMV, Bank of 

Spain, and ECB share responsibility for 

supervising compliance with some of 

the provisions of EU and Spanish law 

addressed by the proposed Order.40 To 

ensure the Commission’s ability to 

receive information about these Covered 

Entities that may belong to the ECB, the 

proposed Order would require that, at 

the time such a Covered Entity makes 

use of substituted compliance with 

respect to those requirements, the 

Commission and the ECB also must 

have a memorandum of understanding 

and/or other arrangement addressing 

cooperation with respect to the Order as 

it pertains to this ECB-owned 

information.41


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a Covered Entity makes use of substituted 

compliance by complying with any EU or Spanish 

requirements for which the CNMV, Bank of Spain, 

and ECB share supervisory responsibility. The 

Commission and the ECB have entered into a 

memorandum of understanding to address 

substituted compliance cooperation, a copy of 

which is on the Commission’s website at 

www.sec.gov under the ‘‘Substituted Compliance’’ 

tab, which is located on the ‘‘Security-Based Swap 

Markets’’ page in the Division of Trading and 

Markets section of the site. 

42See para. (a)(9) of the proposed Order. 

43 If the Covered Entity intends to rely on all the 

substituted compliance determinations in a given 

paragraph of the Order, it can cite that paragraph 

in the notice. For example, if the Covered Entity 

intends to rely on the substituted compliance 

determinations for Exchange Act risk control 

requirements in paragraph (b) of the proposed 

Order, it would indicate in the notice that it is 

relying on the determinations in paragraph (b). 

However, if the Covered Entity intends to rely on 

the internal risk management, trade 

acknowledgement and verification, and portfolio 

reconciliation and dispute resolution 

determinations, but not the portfolio compression 

and trading relationship documentation 

determinations, it would need to indicate in the 

notice that it is relying on paragraphs (b)(1) through 

(3) of the proposed Order. In this case, paragraphs 

(b)(4) and (b)(5) of the proposed Order (the portfolio 

compression and trading relationship 

documentation determinations, respectively) would 

be excluded from the notice and the Covered Entity 

would need to comply with Exchange Act portfolio 

compression and trading relationship 

documentation requirements. Further, as discussed 

below in part VII.B, the recordkeeping, reporting, 

notification, and securities count determinations in 

the proposed Order have been structured to provide 

Covered Entities with a high level of flexibility in 

selecting specific requirements within those 

requirements for which they want to rely on 

substituted compliance. For example, paragraph 

(e)(1)(i) of the proposed Order sets forth the 

Commission’s preliminary substituted compliance 

determinations with respect to the requirements of 

Exchange Act rule 18a–5, 17 CFR 240.18a–5. These 

proposed determinations are set forth in paragraphs 

(e)(1)(i)(A) through (O). If a Covered Entity intends 

to rely on some but not all of the determinations, 

it would need to identify in the notice the specific 

determinations in this paragraph it intends to rely 

on (e.g., paragraphs (d)(1)(i)(A), (B), (C), (D), (G), 

(H), (I), and (O)). For any determinations excluded 

from the notice, the Covered Entity would need to 

comply with the Exchange Act rule 18a–5 

requirement. 

44See part III.C, infra. 

45A Covered Entity would modify its reliance on 

the positive substituted compliance determinations 

in the proposed Order, and thereby trigger the 

requirement to update its notice, if it adds or 

subtracts determinations for which it is applying 

substituted compliance or completely discontinues 

its reliance on the proposed Order. 

46 17 CFR 240.18a–8(c). 

47See LOSSEC articles 116, 119, 121, and 122; 

and SSMA articles 276bis, 276ter, 276qua ́ter, and 

276quinquies. 

48See MiFID article 35(8). 

49See para. (a)(10)(i) of the proposed Order. 

50See para. (a)(10)(ii) of the proposed Order. 

51The entity-level requirements for which the 

Commission is proposing to make a positive 

substituted compliance determination are: Risk 

control requirements related to internal risk 

management, trade acknowledgement and 

verification, portfolio reconciliation and dispute 

resolution, portfolio compression, and trading 

relationship documentation; internal supervision 

• Notice of reliance on substituted 

compliance—A Covered Entity must 

notify the Commission of its intent to 

use substituted compliance.42 In the 

notice, the Covered Entity would need 

to identify each specific substituted 

compliance determination for which the 

Covered Entity intends to apply 

substituted compliance.43 If a Covered 

Entity elects not to apply substituted 

compliance with respect to a specific 

substituted compliance determination 

in the proposed Order, it must comply 

with the Exchange Act requirements 

subject to that determination. Further, 

except in the case of the counterparty 

protection requirements and linked 

recordkeeping requirements discussed 

below, the Commission has determined 

that the Exchange Act requirements 

subject to substituted compliance 

determinations in the proposed Order 

are entity-level requirements. Therefore, 

if a Covered Entity elects to apply 

substituted compliance to these entitylevel requirements, the Commission is 

proposing that it must do so at the entity 

level.44 Finally, a Covered Entity must 

promptly update the notice if it intends 

to modify its reliance on the positive 

substituted compliance determinations 

in the proposed Order.45

• Notification related to changes in 

capital category—Covered Entities with 

a prudential regulator would need to 

apply substituted compliance with 

respect to the requirements of Exchange 

Act rule 18a–8(c) and the requirements 

of Exchange Act rule 18a–8(h) as 

applied to Exchange Act rule 18a–8(c). 

Exchange Act rule 18a–8(c) generally 

requires every security-based swap 

dealer with a prudential regulator that 

files a notice of adjustment of its 

reported capital category with the 

Federal Reserve Board, the Office of the 

Comptroller of the Currency, or the 

Federal Deposit Insurance Corporation 

to give notice of this fact to the that 

same day by transmitting a copy to the 

Commission of the notice of adjustment 

of reported capital category in 

accordance with Exchange Act rule 18a– 

8(h).46 Exchange Act rule 18a–8(h) sets 

forth the manner in which every notice 

or report required to be given or 

transmitted pursuant to Exchange Act 

rule 18a–8 must be made. While 

Exchange Act rule 18a–8(c) is not linked 

to an Exchange Act capital requirement, 

it is linked to capital requirements in 

the U.S. promulgated by the prudential 

regulators. In its application, the CNMV 

cited various Spanish provisions as 

providing similar outcomes to the 

notifications requirements of Exchange 

Act Rule 18a–8.47 This general 

condition would be designed to clarify 

that a prudentially regulated Covered 

Entity must provide the Commission 

with copies of any notifications 

regarding changes in the Covered 

Entity’s capital situation required by 

Spanish law. The intent is to align the 

notification requirement with the EU 

and Spanish capital requirements 

applicable to the Covered Entity. 

3. European Union Cross-Border Matters 

The cross-border application of 

MiFID, MiFIR, MAR and EU and 

Member State requirements adopted 

pursuant to MiFID, MiFIR, or MAR 

raises special issues. For some 

provisions of MiFID and MiFIR (and 

other EU and Spanish requirements 

adopted pursuant to those provisions of 

MiFID and MiFIR), EU law allocates the 

responsibility for supervising and 

enforcing those requirements to 

authorities of the Member State in 

whose territory a Covered Entity 

provides certain services.48 To help 

ensure that the prerequisites to 

substituted compliance with respect to 

supervision and enforcement are 

satisfied in fact, when the proposed 

Order requires a Covered Entity to be 

subject to or comply with one of those 

MiFID or MiFIR provisions (or other EU 

or Spanish requirements adopted 

pursuant to those provisions of MiFID 

or MiFIR), the CNMV must be the 

authority responsible for supervision 

and enforcement of those requirements 

in relation to the particular service for 

which substituted compliance is used.49

Similarly, for some of the EU 

requirements under MAR (and other EU 

requirements adopted pursuant to 

MAR), EU law allocates the 

responsibility for supervising and 

enforcing those requirements to 

authorities of potentially multiple 

Member States. To help ensure that the 

prerequisites to substituted compliance 

with respect to supervision and 

enforcement are satisfied in fact, when 

the proposed Order requires a Covered 

Entity to be subject to or comply with 

one of those MAR requirements (or 

other EU requirements adopted 

pursuant to MAR), the Covered Entity 

may use substituted compliance only if 

one of the authorities responsible for 

supervision and enforcement of those 

requirements is the CNMV.50

C. Substituted Compliance for EntityLevel and Transaction-Level 

Requirements 

The proposed Order would permit a 

Covered Entity to use substituted 

compliance for one or more sets of 

entity-level Exchange Act 

requirements.51 For example, a Covered 


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and chief compliance officer requirements; and 

recordkeeping, reporting, notification, and 

securities count requirements (other than those 

linked to the counterparty protection rules). See 

Exchange Act Release No. 87005 (June 19, 2019) 84 

FR 68550, 68596 (Dec. 16, 2019) (‘‘Recordkeeping 

Adopting Release’’); Exchange Act Release No. 

78011 (June 8, 2016) 81 FR 39808, 39827 (June 17, 

2016) (‘‘Trade Acknowledgment and Verification 

Adopting Release’’); Exchange Act Adopting 

Release No. 87782 (Dec. 18, 2019) 85 FR 6359, 6378 

(Feb. 4, 2020) (‘‘Risk Mitigation Adopting Release’’); 

Business Conduct Adopting Release, 81 FR 30064. 

52For example, the proposed Order would 

require a Covered Entity applying substituted 

compliance for internal risk management 

requirements to comply with the comparable 

Spanish requirements with respect to all of its 

internal risk management systems. 

53 In the context of the EMIR counterparties 

condition in paragraph (a)(5), a Covered Entity must 

choose: (1) To apply substituted compliance 

pursuant to the Order—including compliance with 

paragraph (a)(5) as applicable—for a particular set 

of entity-level requirements with respect to all of its 

business that would be subject to the relevant 

EMIR-based requirement if the counterparty were 

the relevant type of counterparty; or (2) to comply 

directly with the Exchange Act with respect to such 

business. 

54The transaction-level requirements for which 

the Commission is proposing to make a positive 

substituted compliance determination are: 

Counterparty protection requirements related to 

disclosure of material risks and characteristics, 

disclosure of material incentives or conflicts of 

interest, ‘‘know your counterparty,’’ suitability of 

recommendations, fair and balanced 

communications, and disclosure of daily marks; 

and the recordkeeping requirements related to those 

counterparty protection requirements. See Business 

Conduct Adopting Release, 81 FR 30065. 

55The CNMV is not requesting substituted 

compliance in connection with Exchange Act rule 

18a–1(f) or Exchange Act rule 18a–2(c), which 

include additional internal risk management system 

requirements for non-prudentially regulated SBS 

Entities subject to the Commission’s capital and 

margin requirements. 

56See Exchange Act Release No. 68071 (Oct. 18, 

2012), 77 FR 70214, 70250 (Nov. 23, 2012) 

(proposing capital and margin requirements for SBS 

Entities and discussing certain risk management 

requirements). The CNMV Application discusses 

Spanish and EU internal risk management 

requirements. See CNMV Application Appendix B 

category 1 at 2–20. 

57 17 CFR 240.15Fi–2. 

58See Trade Acknowledgment and Verification 

Adopting Release, 81 FR 39808, 39809, 39820. The 

CNMV Application discusses Spanish and EU trade 

acknowledgment and verification requirements. See 

CNMV Application Appendix B category 1 at 21– 

34. 

59 17 CFR 240.15Fi–3. 

60See Risk Mitigation Adopting Release, 85 FR 

6359, 6360–61. The CNMV Application discusses 

Spanish and EU portfolio reconciliation and 

dispute resolution requirements. See CNMV 

Application Appendix B category 1 at 35–44. 

61 17 CFR 240.15Fi–4. 

62See Risk Mitigation Adopting Release, 85 FR 

6361. The CNMV Application discusses Spanish 

and EU portfolio compression requirements. See 

CNMV Application Appendix B category 1 at 44– 

46. 

63 17 CFR 240.15Fi–5. 

64See Risk Mitigation Adopting Release, 85 FR 

6361. The CNMV Application discusses Spanish 

and EU trading relationship documentation 

requirements. See CNMV Application Appendix B 

category 1 at 46–51. 

Entity could use substituted compliance 

for internal risk management 

requirements but comply directly with 

Exchange Act trade acknowledgment 

and verification; portfolio reconciliation 

and dispute reporting; portfolio 

compression; trading relationship 

documentation; internal supervision; 

chief compliance officer; and 

recordkeeping, reporting, and 

notification requirements. For any one 

set of entity-level requirements for 

which a Covered Entity uses substituted 

compliance, however, a Covered Entity 

must choose either to apply substituted 

compliance pursuant to the proposed 

Order with respect to all security-based 

swap business subject to the relevant 

Spanish and EU requirements or to 

comply directly with the Exchange Act 

with respect to all such business; a 

Covered Entity may not choose to apply 

substituted compliance for some of the 

business subject to the relevant Spanish 

or EU requirements and comply directly 

with the Exchange Act for another part 

of the business that is subject to the 

relevant Spanish and EU 

requirements.52 Additionally, for entitylevel Exchange Act requirements, if the 

Covered Entity also has security-based 

swap business that is not subject to the 

relevant Spanish requirements, the 

Covered Entity must either comply 

directly with the Exchange Act for that 

business or comply with the terms of 

another applicable substituted 

compliance order.53 For transactionlevel Exchange Act requirements,54 a 

Covered Entity may decide to apply 

substituted compliance for some of its 

security-based swap business and to 

comply directly with the Exchange Act 

(or comply with another applicable 

substituted compliance order) for other 

parts of its security-based swap 

business. 

The Commission preliminarily 

believes that this scope of substituted 

compliance strikes the right balance 

between providing Covered Entities 

flexibility to tailor the application of 

substituted compliance to their business 

needs and ensuring that substituted 

compliance is consistent with the 

Commission’s classification of the 

relevant Exchange Act requirements as 

either entity-level or transaction-level 

requirements. 

IV. Substituted Compliance for Risk 

Control Requirements 

A. CNMV Request and Associated 

Analytic Considerations 

The CNMV Application in part 

requests substituted compliance in 

connection with risk control 

requirements under the Exchange Act 

relating to: 

• Internal risk management—Internal 

risk management system requirements 

pursuant to Exchange Act section 

15F(j)(2) and relevant aspects of 

Exchange Act rule 15Fh–3(h)(2)(iii)(I).55

Those provisions address the obligation 

of SBS Entities to follow policies and 

procedures reasonably designed to help 

manage the risks associated with their 

business activities.56

• Trade acknowledgment and 

verification—Trade acknowledgment 

and verification requirements pursuant 

to Exchange Act section 15F(i) and 

Exchange Act rule 15Fi–2.57 Those 

provisions help avoid legal and 

operational risks by requiring definitive 

written records of transactions and for 

procedures to avoid disagreements 

regarding the meaning of transaction 

terms.58

• Portfolio reconciliation and dispute 

reporting—Portfolio reconciliation and 

dispute reporting requirements pursuant 

to Exchange Act section 15F(i) and 

Exchange Act rule 15Fi–3.59 Those 

provisions require that counterparties 

engage in portfolio reconciliation and 

resolve discrepancies in connection 

with uncleared security-based swaps 

and promptly notify the Commission 

and applicable prudential regulators 

regarding certain valuation disputes.60

• Portfolio compression—Portfolio 

compression requirements pursuant to 

Exchange Act section 15F(i) and 

Exchange Act rule 15Fi–4.61 Those 

provisions require that SBS Entities 

have procedures addressing bilateral 

offset, bilateral compression and 

multilateral compression in connection 

with uncleared security-based swaps.62

• Trading relationship 

documentation—Trading relationship 

documentation requirements pursuant 

to Exchange Act section 15F(i) and 

Exchange Act rule 15Fi–5.63 Those 

provisions require that SBS Entities 

have procedures to execute written 

security-based swap trading relationship 

documentation with their counterparties 

prior to, or contemporaneously with, 

executing certain security-based 

swaps.64

Taken as a whole, these risk control 

requirements help to promote market 

stability by mandating that SBS Entities 

follow practices that are appropriate to 

manage the market, credit, counterparty, 

operational, and legal risks associated 

with their security-based swap 

businesses. The Commission’s 

comparability assessment accordingly 

focuses on whether the analogous 

foreign requirements—taken as a 

whole—produce comparable outcomes 


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65See para. (b)(1) of the proposed Order. 

66Those disclosures address information 

regarding the status of the SBS Entity or its 

counterparty as an insured depository institution or 

financial counterparty, and regarding the possibility 

that in certain circumstances the SBS Entity or its 

counterparty may be subject to the insolvency 

regime set forth under Title II of the Dodd-Frank 

Act or the Federal Deposit Insurance Act, which 

may affect rights to terminate, liquidate, or net 

security-based swaps. See Risk Mitigation Adopting 

Release, 85 FR 6374 (discussing potential 

application of alternatives to the liquidation 

schemes established under the Securities Investor 

Protection Act of 1970 or the U.S. Bankruptcy 

Code). The absence of such disclosure would not 

appear to preclude a comparable regulatory 

outcome when the counterparty is not a U.S. 

person, as the insolvency-related consequences that 

are the subject of the disclosure would not be 

applicable to non-U.S. counterparties in most cases. 

See also EMIR Margin RTS (in part addressing 

procedures providing for or specifying the terms of 

agreements entered into by counterparties, 

including applicable governing law for non-cleared 

derivatives, and further providing that 

counterparties entering into a netting or collateral 

exchange agreement must perform an independent 

legal review regarding enforceability). 

67See also UK EMIR Margin RTS (in part 

addressing procedures providing for or specifying 

the terms of agreements entered into by 

counterparties, including applicable governing law 

for non-centrally cleared derivatives, and further 

providing that counterparties which enter into a 

netting or collateral exchange agreement must 

perform an independent legal review regarding 

enforceability). 

68See para. (b)(3)(ii) of the proposed Order. 

69 In proposing this dispute reporting 

requirement, the Commission recognized that 

valuation inaccuracies may lead to uncollaterialized 

credit exposure and the potential for loss in the 

event of default. See Exchange Act Release No. 

84861 (Dec. 19, 2018), 84 FR 4614, 4621 (Feb. 15, 

2019). It is important that the Commission be 

informed regarding valuation disputes affecting SBS 

Entities. 

70The principal difference between the two sets 

of requirements concerns the timing of notices. 

Under Exchange Act rule 15Fi–3, SBS Entities must 

promptly report to the Commission valuation 

disputes in excess of $20 million that have been 

outstanding for three or five business days 

(depending on the counterparty type). Under EMIR 

RTS article 15(2), firms must report at least 

monthly, to competent authorities, disputes 

between counterparties in excess of Ö15 million and 

outstanding for at least 15 business days. The 

Commission is mindful that the EU provision does 

not provide for notice as quickly as rule 15Fi–3(c), 

but in the Commission’s preliminary view, on 

balance this difference would not be inconsistent 

with the conclusion that the two sets of risk control 

requirements—taken as a whole—produce 

comparable regulatory outcomes. 

71The CNMV Application addresses Spanish and 

EU requirements that address Covered Entities’’ 

obligations related to internal supervision. See 

CNMV Application Appendix B category 3 at 1–59. 

72 17 CFR 240.15Fk–1. 

73The CNMV Application discusses Spanish and 

EU chief compliance officer requirements. See 

CNMV Application Appendix B category 3 at 60– 

89. 

74Section 15F(j)(6) prohibits firms from adopting 

any process or taking any action that results in any 

unreasonable restraint of trade or imposing any 

material anticompetitive burden on trading or 

clearing. The CNMV Application addresses EU 

antitrust requirements. See CNMV Application 

Appendix B category 3 at 26. 

with regard to providing that Covered 

Entities follow risk mitigation and 

documentation practices that are 

appropriate to the risks associated with 

their security-based swap businesses. 

B. Preliminary Views and Proposed 

Order 

1. General Considerations 

In the Commission’s preliminary view 

based on the CNMV Application and the 

Commission’s review of applicable 

provisions, relevant Spanish and EU 

requirements would produce regulatory 

outcomes that are comparable to those 

associated with the above risk control 

requirements, by subjecting Covered 

Entities to risk mitigation and 

documentation practices that are 

appropriate to the risks associated with 

their security-based swap businesses. 

Substituted compliance accordingly 

would be conditioned on Covered 

Entities being subject to the Spanish and 

EU provisions that in the aggregate 

establish a framework that produces 

outcomes comparable to those 

associated with these risk control 

requirements under the Exchange Act.65

While the Commission recognizes 

these and certain other differences 

between Spanish and EU requirements 

and the applicable risk control 

requirements under the Exchange Act, 

in the Commission’s preliminary view 

those differences on balance would not 

preclude substituted compliance for 

these requirements, particularly as 

requirement-by-requirement similarity 

is not needed for substituted 

compliance. 

2. Additional Conditions and Scope 

Issues 

Substituted compliance in connection 

with these requirements would be 

subject to certain additional conditions 

to help ensure the comparability of 

outcomes: 

a. Trading Relationship 

Documentation—Disclosure Regarding 

Legal and Bankruptcy Status 

Under the proposed Order, 

substituted compliance in connection 

with trading relationship 

documentation requirements would not 

extend to disclosures regarding legal 

and bankruptcy status that are required 

by Exchange Act rule 15Fi–5(b)(5) when 

the counterparty is a U.S. person.66

Documentation requirements under 

applicable Spanish and EU law do not 

address the disclosure of information 

related to insolvency procedures under 

U.S. law. However, the absence of such 

disclosure would not appear to preclude 

a comparable regulatory outcome when 

the counterparty is not a U.S. person, 

because the insolvency-related 

consequences that are the subject of the 

disclosure would not be applicable to 

non-U.S. counterparties in most cases.67

b. Portfolio Reconciliation and Dispute 

Reporting—EU Law-Required Dispute 

Reports to the Commission 

Under the proposed Order, 

substituted compliance further would 

be conditioned on the Covered Entity 

providing the Commission with reports 

regarding disputes between 

counterparties, on the same basis as the 

Covered Entity provides those reports to 

competent authorities pursuant to EU 

law.68 This condition promotes 

comparability with the Exchange Act 

requirements to report significant 

valuation disputes to the Commission,69

while leveraging EU reporting 

provisions to avoid the need for Covered 

Entities to create additional de novo 

reporting frameworks.70

V. Substituted Compliance for Internal 

Supervision, Chief Compliance Officers 

and Antitrust Requirements 

A. CNMV Request and Associated 

Analytic Considerations 

The CNMV also requests substituted 

compliance in connection with 

requirements under the Exchange Act 

relating to: 

• Internal supervision—Diligent 

supervision is required pursuant to 

Exchange Act rule 15Fh–3(h) and 

Exchange Act section 15F(j)(5) requires 

conflict of interest systems and 

procedures. These provisions generally 

require that SBS Entities establish, 

maintain, and enforce supervisory 

policies and procedures that reasonably 

are designed to prevent violations of 

applicable law, and implement certain 

systems and procedures related to 

conflicts of interest. Exchange Act 

section 15F(j)(4)(A) additionally 

requires systems and procedures to 

obtain necessary information to perform 

functions required under section 15F.71

• Chief compliance officers—Chief 

compliance officer requirements are set 

out in Exchange Act section 15F(k) and 

Exchange Act rule 15Fk–1.72 These 

provisions in general require that SBS 

Entities designate individuals with the 

responsibility and authority to establish, 

administer, and review compliance 

policies and procedures; to resolve 

conflicts of interest; and to prepare and 

certify an annual compliance report to 

the Commission.73

• Antitrust requirements—Additional 

requirements related to antitrust 

prohibitions specified by Exchange Act 

section 15F(j)(6).74


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75This portion of the proposed Order accordingly 

would extend generally to the internal supervision 

provisions of Exchange Act rule 15Fh–3(h), the 

requirement in Exchange Act section 15F(j)(4)(A) to 

have systems and procedures to obtain necessary 

information to perform functions required under 

Exchange Act section 15F; and the conflict of 

interest provisions of Exchange Act section 

15F(j)(5). See para. (c)(1) of the proposed Order. 

This portion of the proposed Order does not extend 

to the portions of rule 15Fh–3(h) that mandate 

supervisory policies and procedures in connection 

with: The internal risk management provisions of 

Exchange Act section 15F(j)(2) (which are 

addressed by paragraph (b)(1) of the proposed Order 

in connection with internal risk management); the 

information-related provisions of Exchange Act 

sections 15F(j)(3) and (j)(4)(B) (for which 

substituted compliance is not available); or the 

antitrust provisions of Exchange Act section 

15F(j)(6) (for which the Commission is not 

proposing to provide substituted compliance). See 

para. (c)(1)(iii) of the proposed Order. 

76See paras. (c)(1)(i), (c)(2)(i), and (c)(3) of the 

proposed Order. 

77See paras. (c)(1)(ii) and (c)(4) of the proposed 

Order. 

78As noted, substituted compliance does not 

extend to antifraud prohibitions or to certain other 

requirements under the Exchange Act (e.g., 

requirements related to transactions with 

counterparties that are not ECPs and segregation 

requirements). See note 10, supra. 

79For example, the CNMV is not requesting 

substituted compliance in connection with eligible 

counterparty verification requirements, ‘‘special 

entity’’ provisions, and political contribution 

provisions. See note 21, supra. 

80See para. (c)(2)(ii)(A) of the proposed Order. 

81See para. (c)(2)(ii)(B) of the proposed Order. 

82See para. (d)(2)(ii)(C) of the proposed Order. 

MiFID Org Reg article 22(2)(c) particularly requires 

that a Covered Entity’s compliance function ‘‘report 

to the management body, on at least an annual 

basis, on the implementation and effectiveness of 

the overall control environment for investment 

services and activities, on the risks that have been 

identified and on the complaints-handling reporting 

as well as remedies undertaken or to be 

undertaken[.]’’ Under the proposed condition, those 

reports, as submitted to the Commission and the 

Covered Entity’s management body, also would 

address the Covered Entity’s compliance with 

applicable Exchange Act requirements and other 

applicable conditions of the proposed Order (in 

addition to addressing the Covered Entity’s 

compliance with applicable Spanish and EU 

provisions). The Commission believes that this 

condition is necessary to promote comparable 

regulatory outcomes, particularly in light of the 

granular approach to substituted compliance, to 

ensure that the compliance report covers applicable 

Exchange Act requirements and proposed Order 

conditions if the Covered Entity uses substituted 

compliance for chief compliance officer 

requirements, whether or not the Covered Entity 

relies on substituted compliance for internal 

supervision. 

Taken as a whole, these internal 

supervision, chief compliance officer, 

and additional Exchange Act section 

15F(j) requirements help to promote 

SBS Entities’ use of structures, 

processes, and responsible personnel 

reasonably designed to promote 

compliance with applicable law; to 

identify and cure instances of noncompliance; and to manage conflicts of 

interest. The comparability assessment 

accordingly may focus on whether the 

analogous foreign requirements—taken 

as a whole—produce comparable 

outcomes with regard to providing that 

Covered Entities have structures and 

processes reasonably designed to 

promote compliance with applicable 

law; identify and cure instances of noncompliance; and to manage conflicts of 

interest, in part through the designation 

of an individual with responsibility and 

authority over compliance matters. 

B. Preliminary Views and Proposed 

Order 

1. General Considerations 

Based on the CNMV Application and 

the Commission’s review of applicable 

provisions, in the Commission’s 

preliminary view the relevant Spanish 

and EU requirements would produce 

regulatory outcomes that are comparable 

to those associated with the abovedescribed internal supervision, chief 

compliance officer, conflict of interest, 

and information-related requirements by 

providing that Covered Entities have 

structures and processes that reasonably 

are designed to promote compliance 

with applicable law and to identify and 

cure instances of non-compliance and 

manage conflicts of interest.75 As 

elsewhere, this part of the proposed 

Order conditions substituted 

compliance on Covered Entities being 

subject to and complying with specified 

Spanish and EU requirements that are 

necessary to establish comparability.76

The Commission recognizes that 

certain differences are present between 

those Spanish requirements and the 

applicable requirements under the 

Exchange Act. In the Commission’s 

preliminary view, on balance, however, 

those differences would not preclude 

substituted compliance within the 

relevant outcomes-oriented context. 

2. Additional Conditions and Scope 

Issues 

Substituted compliance in connection 

with these requirements would be 

subject to certain additional conditions 

to help ensure the comparability of 

outcomes: 

a. Internal Supervision—Application of 

Spanish and EU Supervisory and 

Compliance Requirements to Residual 

U.S. Requirements and Order 

Conditions 

Under the proposed Order, 

substituted compliance for internal 

supervision requirements would be 

conditioned on Covered Entities 

complying with applicable Spanish and 

EU internal supervision requirements as 

if those provisions also require the 

Covered Entity to comply with 

applicable requirements under the 

Exchange Act and the other applicable 

conditions of the proposed Order.77

Even with substituted compliance, 

Covered Entities still would be subject 

directly to a number of requirements 

under the Exchange Act and to the 

conditions of the proposed Order. In 

some cases, particular requirements 

under the Exchange Act are outside the 

ambit of substituted compliance.78 In 

other cases, certain requirements under 

the Exchange Act may not have 

comparable Spanish and EU 

requirements or may be outside the 

scope of the CNMV Application,79 or 

the Covered Entity may decide not to 

use substituted compliance for certain 

requirements under the Exchange Act. 

While the Spanish and EU regulatory 

framework in general reasonably 

appears to promote Covered Entities’ 

compliance with applicable Spanish 

and EU laws, those requirements do not 

appear to promote Covered Entities’ 

compliance with requirements under 

the Exchange Act that are not subject to 

substituted compliance, or to promote 

Covered Entities’ compliance with the 

applicable conditions to the proposed 

Order. This condition would address 

this issue, while still allowing Covered 

Entities to use their existing internal 

supervision and compliance frameworks 

to comply with the relevant Exchange 

Act requirements and proposed Order 

conditions, rather than having to 

establish separate special-purpose 

supervision and compliance 

frameworks. 

b. Chief Compliance Officers— 

Compliance Reports 

Under the proposed Order, 

substituted compliance in connection 

with the compliance report 

requirements under Exchange Act 

section 15F(k)(3) and Exchange Act rule 

15Fk–1(c) also would be subject to the 

conditions that the compliance reports 

required pursuant to MiFID Org Reg 

article 22(2)(c) must: (1) Be provided to 

the Commission at least annually and in 

the English language; 80 (2) include a 

certification signed by the chief 

compliance officer or senior officer of 

the Covered Entity that, to the best of 

the certifier’s knowledge and reasonable 

belief and under penalty of law, the 

report is accurate and complete in all 

material respects; 81 (3) address the 

Covered Entity’s compliance with 

applicable requirements under the 

Exchange Act and other applicable 

conditions of the proposed Order; 82 (4) 


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83See para. (c)(2)(ii)(D) of the proposed Order. 

The Commission believes that it is appropriate for 

the Commission to receive compliance reports 

shortly after their submission to the management 

body. Providing these reports to the Commission 

near the times that the Covered Entity submits them 

to the management body also will better align with 

the Spanish and EU regulatory framework, which 

permits a Covered Entity to prepare and submit to 

the management body multiple compliance reports 

throughout the year. The Commission views 15 

days as providing a reasonable time to translate 

reports, if needed, and convey them to the 

Commission. This deadline is intended to promote 

timely notice of compliance matters in a manner 

comparable to Exchange Act requirements, while 

also accounting for the annual deadline required 

under MiFID Org Reg article 22(2)(c) as well as the 

possibility that the Covered Entity may submit 

reports ahead of this annual deadline. 

84See para. (c)(2)(ii)(E) of the proposed Order. 

This requirement prevents a Covered Entity from 

notifying the Commission just prior to the due date 

of its annual Exchange Act compliance report that 

it will use substituted compliance for chief 

compliance officer requirements and then providing 

the Commission a Spanish compliance report that 

covers only a part of the year that would have been 

covered in the Exchange Act report. 

85 In practice, a Covered Entity may satisfy this 

condition by identifying relevant Exchange Act 

requirements and proposed Order conditions and 

reporting on the implementation and effectiveness 

of its controls with regard to compliance with those 

requirements and conditions. 

86See also German Substituted Compliance 

Order, 85 FR 85691–92; French Substituted 

Compliance Order, 86 FR 41642–43. The 

Commission is not taking any position regarding the 

applicability of the section 15F(j)(6) antitrust 

prohibitions in the cross-border context. Non-U.S. 

SBS Entities should assess the applicability of those 

prohibitions to their security-based swap 

businesses. 

87See Business Conduct Adopting Release, 81 FR 

29983–86. The CNMV Application discusses 

Spanish and EU requirements that address 

disclosure of material risks and characteristics and 

material incentives or conflicts of interest. See 

CNMV Application Appendix B category 4 at 16– 

33. 

88See Business Conduct Adopting Release, 81 FR 

29993–94. The CNMV Application discusses 

Spanish and EU ‘‘know your counterparty’’ 

requirements. See CNMV Application Appendix B 

category 4 at 41–48. 

89See Business Conduct Adopting Release, 81 FR 

29994–30000. 

90See Business Conduct Adopting Release, 81 FR 

29994–30000. The CNMV Application discusses 

Spanish and EU suitability requirements. See 

CNMV Application Appendix B category 4 at 49– 

60. 

91See Business Conduct Adopting Release, 81 FR 

30000–02. The CNMV Application discusses 

Spanish and EU fair and balanced communications 

requirements. See CNMV Application Appendix B 

category 4 at 1–15. 

92See Business Conduct Adopting Release, 81 FR 

29986–91. The CNMV Application discusses 

Spanish and EU daily mark disclosure 

requirements. See CNMV Application Appendix B 

category 4 at 34–40. 

93See Business Conduct Adopting Release, 81 FR 

29991–93. Exchange Act section 3C(g)(5) provides 

certain rights for counterparties to select the 

clearing agency at which a security-based swap is 

cleared. For all security-based swaps that an SBS 

Entity enters into with certain counterparties, the 

counterparty has the sole right to select the clearing 

agency at which the security-based swap is cleared. 

For security-based swaps that are not subject to 

be provided to the Commission no later 

than 15 days following the earlier of the 

submission of the report to the Covered 

Entity’s management body or the time 

the report is required to be submitted to 

the management body; 83 and (5) 

together cover the entire period that the 

Covered Entity’s annual compliance 

report referenced in Exchange Act 

section 15F(k)(3) and Exchange Act rule 

15Fk–1(c) would be required to cover.84

Although certain Spanish and EU 

requirements address a Covered Entity’s 

use of internal compliance reports, 

those provisions do not require it to 

submit compliance reports to the 

Commission. Under this condition, a 

Covered Entity could leverage the 

compliance reports that it otherwise 

must produce, by extending those 

reports to address compliance with the 

conditions of the proposed Order.85

The Commission recognizes that 

Covered Entities preparing multiple 

Spanish compliance reports each year 

may find it difficult to submit to those 

reports to the Commission throughout 

the year, each with a chief compliance 

officer or senior officer certification and 

a section addressing the Covered 

Entity’s compliance with U.S. 

requirements. However, on balance the 

Commission believes that these 

elements are necessary to achieve a 

regulatory outcome comparable to the 

Exchange Act. 

c. No Substituted Compliance in 

Connection With Antitrust 

Requirements 

Under the proposed Order, 

substituted compliance would not 

extend to Exchange Act section 15F(j)(6) 

(and related internal supervision 

requirements of Exchange Act rule 

15Fh–3(h)(2)(iii)(I)). Allowing an 

alternative means of compliance would 

not lead to outcomes comparable to that 

statutory prohibition.86

VI. Substituted Compliance for 

Counterparty Protection Requirements 

A. CNMV Request and Associated 

Analytic Considerations 

The CNMV further requests 

substituted compliance in connection 

with provisions under the Exchange Act 

relating to: 

• Disclosure of material risks and 

characteristics and material incentives 

or conflicts of interest—Exchange Act 

rule 15Fh–3(b) requires that SBS 

Entities disclose to certain 

counterparties to a security-based swap 

certain information about the material 

risks and characteristics of the securitybased swap, as well as material 

incentives or conflicts of interest that 

the SBS Entity may have in connection 

with the security-based swap. These 

provisions address the need for securitybased swap market participants to have 

information that is sufficient to make 

informed decisions regarding potential 

transactions involving particular 

counterparties and particular financial 

instruments.87

• ‘‘Know your counterparty’’— 

Exchange Act rule 15Fh–3(e) requires 

that SBS Entities establish, maintain, 

and enforce written policies and 

procedures to obtain and retain certain 

information regarding a counterparty 

that is necessary for conducting 

business with that counterparty. This 

provision accounts for the need that 

SBS Entities obtain essential 

counterparty information necessary to 

promote effective compliance and risk 

management.88

• Suitability—Exchange Act rule 

15Fh–3(f) requires a security-based 

swap dealer that recommends to certain 

counterparties a security-based swap or 

trading strategy involving a securitybased swap, to undertake reasonable 

diligence to understand the potential 

risks and rewards associated with the 

recommendation and to have a 

reasonable basis to believe that the 

recommendation is suitable for the 

counterparty.89 This provision accounts 

for the need to guard against securitybased swap dealers making unsuitable 

recommendations.90

• Fair and balanced 

communications—Exchange Act rule 

15Fh–3(g) requires that SBS Entities 

communicate with counterparties in a 

fair and balanced manner based on 

principles of fair dealing and good faith. 

These provisions promote complete and 

honest communications as part of SBS 

Entities’ security-based swap 

businesses.91

• Daily mark disclosure—Exchange 

Act rule 15Fh–3(c) requires that SBS 

Entities provide daily mark information 

to certain counterparties. These 

provisions address t he need for market 

participants to have effective access to 

daily mark information necessary to 

manage their security-based swap 

positions.92

• Clearing rights disclosure— 

Exchange Act rule 15Fh–3(d) requires 

that SBS Entities provide certain 

counterparties with information 

regarding clearing rights under the 

Exchange Act.93


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mandatory clearing (pursuant to Exchange Act 

sections 3C(a) and (b)) and that an SBS Entity enters 

into with certain counterparties, the counterparty 

also may elect to require clearing of the securitybased swap. Substituted compliance is not available 

in connection with these provisions. The CNMV 

Application discusses Spanish and EU clearing 

rights. See CNMV Application Appendix B category 

4 at 61–69. 

94See Business Conduct Adopting Release, 81 FR 

30065. For non-U.S. SBS Entities, the counterparty 

protection requirements under Exchange Act 

section 15F(h) apply only to the SBS Entity’s 

transactions with U.S. counterparties (apart from 

certain transactions conducted through a foreign 

branch of the U.S. counterparty), or to transactions 

arranged, negotiated, or executed by personnel 

located in a U.S. branch or office. See Exchange Act 

rule 3a71–3(c), 17 CFR 240.3a71–3(c) (exception 

from business conduct requirements for a securitybased swap dealer’s ‘‘foreign business’’); see also 

Exchange Act rule 3a71–3(a)(3), (8) and (9) 

(definitions of ‘‘transaction conducted through a 

foreign branch,’’ ‘‘U.S. business’’ and ‘‘foreign 

business’’). 

95See para. (d) of the proposed Order. 

96See paras. (d)(1) through (3), (d)(4)(i), and (d)(5) 

of the proposed Order (requirement to be subject to 

and comply with relevant Spanish and EU 

requirements in connection with substituted 

compliance for Exchange Act disclosure of material 

risks and characteristics, disclosures of material 

incentives or conflicts of interest, ‘‘know your 

counterparty,’’ suitability, and fair and balanced 

communications requirements); para. (d)(6) of the 

proposed Order (requirement to be required under 

Spanish and EU requirements to reconcile, and in 

fact reconcile, the portfolio containing the securitybased swap for which substituted compliance is 

applied, on each business day in connection with 

substituted compliance for daily mark disclosure 

requirements). 

97 17 CFR 240.15Fh–2(d). See para. (d)(4)(ii) of the 

proposed Order. 

98Annex II of MiFID describes which clients are 

‘‘professional clients.’’ Section I of Annex II 

describes the types of clients considered to be 

professional clients unless the client elects nonprofessional treatment; these clients are per se 

professional clients. Section II of Annex II describes 

the types of clients who may be treated as 

professional clients on request; these clients are 

elective professional clients. See MiFID Annex II. 

A retail client is a client who is not a professional 

client. See MiFID article 4(1)(11). 

99The Commission recognizes that Exchange Act 

rules permit security-based swap dealers, when 

making a recommendation to an ‘‘institutional 

counterparty,’’ to satisfy some elements of the 

suitability requirement if the security-based swap 

dealer reasonably determines that the counterparty 

or its agent is capable of independently evaluating 

relevant investment risks, the counterparty or its 

agent represents in writing that it is exercising 

independent judgment in evaluating 

recommendations, and the security-based swap 

dealer discloses to the counterparty that it is acting 

as counterparty and is not undertaking to assess the 

suitability of the recommendation for the 

counterparty. See Exchange Act rule 15Fh–3(f)(2). 

However, the institutional counterparties to whom 

this alternative applies are only a subset of the 

‘‘professional clients’’ to whom more narrowly 

tailored suitability requirements apply under 

MiFID. The institutional counterparty alternative 

under the Exchange Act would remain available, in 

accordance with its terms, for recommendations 

that are not eligible for, or for which a Covered 

Entity does not rely on, substituted compliance. 

100See para. (d)(6) of the proposed Order. This 

approach would provide substituted compliance for 

daily mark requirements based on comparability of 

outcomes without the need to distinguish between 

U.S. person counterparties and other 

counterparties, and would avoid reliance on 

Spanish and EU trade reporting or mark-to-market 

(or mark-to-model) requirements. The Spanish and 

EU mark-to-market (or mark-to-model) requirements 

direct certain types of derivatives counterparties to 

mark-to-market (or mark-to-model) uncleared 

transactions each day but do not require disclosure 

of those marks to counterparties. Moreover, though 

Spanish and EU trade reporting requirements direct 

certain derivatives counterparties to report to a EU 

trade repository updated daily valuations for each 

OTC derivative contract, in practice U.S. 

counterparties may encounter challenges when 

attempting to access daily marks reported to 

Continued 

Taken as a whole, the counterparty 

protection requirements under section 

15F of the Exchange Act help to ‘‘bring 

professional standards of conduct to, 

and increase transparency in, the 

security-based swap market and to 

require [SBS Entities] to treat parties to 

these transactions fairly.’’ 94 The 

comparability assessment accordingly 

may focus on whether the analogous 

foreign requirements—taken as a 

whole—produce similar outcomes with 

regard to promoting professional 

standards of conduct, increasing 

transparency, and requiring Covered 

Entities to treat parties fairly. 

B. Preliminary Views and Proposed 

Order 

1. General Considerations 

Based on the CNMV Application and 

the Commission’s review of applicable 

provisions, in the Commission’s 

preliminary view, the relevant Spanish 

and EU requirements produce 

regulatory outcomes that are comparable 

to counterparty protection requirements 

under Exchange Act section 15F(h) 

related to disclosure of material risks 

and characteristics, disclosure of 

material incentives or conflicts of 

interest, ‘‘know your counterparty,’’ 

suitability, fair and balanced 

communications, and daily mark 

disclosure, by subjecting Covered 

Entities to obligations that promote 

standards of professional conduct, 

transparency, and the fair treatment of 

parties. The proposed Order accordingly 

would provide conditional substituted 

compliance in connection with those 

requirements.95 The proposed Order 

preliminarily does not provide 

substituted compliance in connection 

with requirements related to clearing 

rights disclosure, however, for reasons 

addressed below. 

In taking this proposed approach, the 

Commission recognizes that there are 

certain differences between relevant 

Spanish and EU requirements, on the 

one hand, and the relevant disclosure, 

‘‘know your counterparty,’’ suitability, 

and communications requirements 

under the Exchange Act, on the other 

hand. On balance, however, in the 

Commission’s preliminary view, those 

differences, when coupled with the 

conditions in the proposed Order, are 

not so material as to be inconsistent 

with substituted compliance within the 

requisite outcomes-oriented framework. 

As elsewhere, the counterparty 

protection provisions of the proposed 

Order in part condition substituted 

compliance on Covered Entities being 

subject to, and complying with, 

specified Spanish and EU requirements 

that are necessary to establish 

comparability.96 Substituted 

compliance in connection with these 

counterparty protection requirements 

also would be subject to specific 

conditions and limitations necessary to 

promote consistency in regulatory 

outcomes. 

2. Additional Conditions and Scope 

Issues 

a. Suitability—Limitation to per se 

Professional Clients 

Under the proposed Order, 

substituted compliance in connection 

with the suitability provisions of 

Exchange Act rule 15Fh–3(f) in part 

would be conditioned on the 

requirement that the counterparty be a 

per se ‘‘professional client’’ as defined 

in MiFID and not be a ‘‘special entity’’ 

as defined in Exchange Act section 

15F(h)(2)(C) and Exchange Act rule 

15Fh–2(d).97 Accordingly, the proposed 

Order would not provide substituted 

compliance for Exchange Act suitability 

requirements for a recommendation 

made to a counterparty that is a ‘‘retail 

client’’ or an elective ‘‘professional 

client,’’ as such terms are defined in 

MiFID,98 or for a ‘‘special entity’’ as 

defined in the Exchange Act. In the 

Commission’s preliminary view, absent 

such a condition the MiFID suitability 

requirements would not be expected to 

produce a counterparty protection 

outcome that is comparable with the 

outcome produced by the suitability 

requirements under the Exchange Act.99

b. Daily Mark Disclosure—Limitation to 

Security-Based Swaps in Portfolios 

Required To Be Reconciled and in Fact 

Reconciled Each Business day 

The proposed Order would provide 

substituted compliance in connection 

with daily mark disclosure requirements 

pursuant to Exchange Act rule 15Fh– 

3(c) to the extent that the Covered Entity 

participates in daily portfolio 

reconciliation exercises that include the 

relevant security-based swap pursuant 

to Spanish and EU requirements.100


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multiple EU trade repositories with which they may 

not otherwise have business relationships. In 

addition, the information may be less current, given 

the time necessary for reporting and for the trade 

repository to make the information available. 

101See EMIR RTS article 13(3)(a)(i); EMIR article 

10. 

102See note 93, supra. 

103 17 CFR 240.18a–5. The CNMV Application 

discusses Spanish and EU recordmaking 

requirements. See CNMV Application Appendix B 

category 2 at 3–27, 55–57. 

104 17 CFR 240.18a–6. The CNMV Application 

discusses Spanish and EU record preservation 

requirements. See CNMV Application Appendix B 

category 2 at 28–54, 57–58. 

105 17 CFR 240.18a–7. The CNMV Application 

discusses Spanish and EU requirements that 

address firms’’ obligations to make certain reports. 

See CNMV Application Appendix B category 2 at 

59–62. 

106 17 CFR 240.18a–8. The CNMV Application 

discusses Spanish and EU requirements that 

address firms’’ obligations to make certain 

notifications. See CNMV Application Appendix B 

category 2 at 62–64. 

107The CNMV Application discusses Spanish and 

EU requirements that address firms’ record 

preservation obligations related to records that 

firms are required to create, as well as additional 

records such as records of communications. See 

CNMV Application Appendix B category 2 at 2–3. 

Spanish and EU portfolio reconciliation 

requirements for uncleared OTC 

derivative contracts include a 

requirement to exchange valuations of 

those contracts directly between 

counterparties. The required frequency 

of portfolio reconciliations varies 

depending on the types of 

counterparties and the size of the 

portfolio of OTC derivatives between 

them, with daily reconciliation required 

only for the largest portfolios. For 

security-based swaps to which the EU’s 

daily portfolio reconciliation 

requirements apply (i.e., security-based 

swaps of a financial counterparty or 

non-financial counterparty subject to 

the clearing obligation in EMIR, if the 

counterparties have 500 or more OTC 

derivatives contracts outstanding with 

each other 101), the Commission 

preliminarily views these requirements 

as comparable to Exchange Act 

requirements. For all other securitybased swaps in portfolios that are not 

required to be reconciled on each 

business day, the Commission 

preliminarily views the EU’s portfolio 

reconciliation requirements as not 

comparable to Exchange Act 

requirements and is proposing not to 

make a positive substituted compliance 

determination. 

c. No Substituted Compliance in 

Connection With Clearing Rights 

Disclosure Requirements 

The proposed Order would not 

provide substituted compliance in 

connection with clearing rights 

disclosure requirements pursuant to 

Exchange Act rule 15Fh–3(d). The 

CNMV Application cites certain 

provisions related to clearing rights in 

the EU that are unrelated to, and do not 

require disclosure of, the clearing rights 

provided by Exchange Act section 

3C(g)(5).102 Moreover, unlike the rule 

15Fh–3(d) disclosure requirements, the 

section 3C(g)(5) clearing rights 

themselves are not eligible for 

substituted compliance. Accordingly, in 

the Commission’s preliminary view, 

substituted compliance based on EU 

clearing provisions would not lead to 

comparable disclosure of a 

counterparty’s Exchange Act clearing 

rights and is not proposing to make a 

positive substituted compliance 

determination for clearing rights 

disclosure requirements. 

VII. Substituted Compliance for 

Recordkeeping, Reporting, and 

Notification Requirements 

A. CNMV Request and Associated 

Analytic Considerations 

The CNMV Application in part 

requests substituted compliance for 

requirements applicable to SBS Entities 

with a prudential regulator under the 

Exchange Act relating to: 

• Record Making—Exchange Act rule 

18a–5 requires prescribed records to be 

made and kept current.103

• Record Preservation—Exchange Act 

rule 18a–6 requires preservation of 

records.104

• Reporting—Exchange Act rule 18a– 

7 requires certain reports.105

• Notification—Exchange Act rule 

18a–8 requires notification to the 

Commission when certain financial or 

operational problems occur.106

• Daily Trading Records—Exchange 

Act section 15F(g) requires SBS Entities 

to maintain daily trading records.107

Taken as a whole, the recordkeeping, 

reporting, and notification requirements 

that apply to SBS Entities with a 

prudential regulator are designed to 

promote the prudent operation of the 

firm’s security-based swap activities, 

assist the Commission in conducting 

compliance examinations of those 

activities, and alert the Commission to 

potential financial or operational 

problems that could impact the firm and 

its customers. The comparability 

assessment accordingly may focus on 

whether the analogous foreign 

requirements—taken as a whole— 

produce comparable outcomes with 

regard to recordkeeping, reporting, 

notification, and related practices that 

support the Commission’s oversight of 

these registrants. A foreign jurisdiction 

need not have analogues to every 

requirement under Commission rules to 

receive a positive substituted 

compliance determination. 

B. Preliminary Views and Proposed 

Order 

1. General Considerations 

Based on the CNMV Application and 

the Commission’s review of applicable 

provisions, in the Commission’s 

preliminary view, the relevant EU and 

Spanish requirements, subject to the 

conditions and limitations of the 

proposed Order, would produce 

regulatory outcomes that are comparable 

to the outcomes associated with the vast 

majority of the recordkeeping, reporting, 

and notification requirements under the 

Exchange Act applicable to SBS Entities 

with a prudential regulator pursuant to 

Exchange Act section 15F(g) and 

Exchange Act rules 18a–5, 18a–6, 18a– 

7, and 18a–8. 

In reaching this preliminary 

conclusion, the Commission recognizes 

that there are certain differences 

between the EU and Spanish 

requirements and the Exchange Act 

requirements. In the Commission’s 

preliminary view, on balance, those 

differences generally would not be 

inconsistent with substituted 

compliance for these requirements. 

Requirement-by-requirement similarity 

is not needed for substituted 

compliance. 

However, the Commission is 

structuring its preliminary substituted 

compliance determinations in the 

proposed Order to provide Covered 

Entities with greater flexibility to select 

which distinct requirements within the 

broader rule for which they would 

apply substituted compliance. This 

would not preclude a Covered Entity 

from applying substituted compliance 

for the entire rule (subject to conditions 

and limitations). However, it would 

permit the Covered Entity to apply 

substituted compliance with respect to 

certain requirements of a given rule and 

to comply directly with the remaining 

requirements. This granular approach to 

making substituted compliance 

determinations with respect to discrete 

requirements within Exchange Act rules 

18a–5, 18a–6, 18a–7, and 18a–8 

(collectively, the ‘‘recordkeeping, 

reporting, and notification rules’’) is 

intended to permit Covered Entities to 

leverage existing recordkeeping and 

reporting systems that are designed to 

comply with the broker-dealer 

recordkeeping and reporting 

requirements on which the 

recordkeeping and reporting 

requirements applicable to SBS Entities 


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108See French Substituted Compliance Order, 86 

FR at 41649; UK Substituted Compliance Order, 86 

FR at 43360. 109See, e.g. , Exchange Act Release No. 71958 

(Apr. 17, 2014), 79 FR 25194, 25199–200 (May 2, 

2014). 

110See French Substituted Compliance Order, 

French Substituted Compliance Order, 86 FR at 

41650; UK Substituted Compliance Order, 86 FR at 

43361. 

111See French Substituted Compliance Order, 86 

FR at 41650; UK Substituted Compliance Order, 86 

FR at 43361. 

112See paras. (a)(1) through (18) of Exchange Act 

rule 18a–5. 

113See paras. (b)(1) through (14) of Exchange Act 

rule 18a–6. 

114See para. (e)(1) of the proposed Order. 

are based. For example, it may be more 

efficient for a Covered Entity to comply 

with certain Exchange Act requirements 

within a given recordkeeping, reporting, 

or notification rule (rather than apply 

substituted compliance) because it can 

utilize systems that its affiliated brokerdealer has implemented to comply with 

them. This proposed approach is 

consistent with the approach taken by 

the Commission in the French and UK 

Substituted Compliance Orders.108

As applied to Exchange Act rules 

18a–5 and 18a–6, this approach of 

providing greater flexibility results in 

preliminary substituted compliance 

determinations with respect to the 

different categories of records these 

rules require SBS Entities with a 

prudential regulator to make, keep 

current, and/or preserve. The objective 

of these rules—taken as a whole—is to 

assist the Commission in monitoring 

and examining for compliance with 

substantive Exchange Act requirements 

applicable to SBS Entities with a 

prudential regulator (e.g., business 

conduct requirements) as well as to 

promote the prudent operation of these 

firms.109 The Commission preliminarily 

believes the comparable EU and 

Spanish recordkeeping rules achieve 

these outcomes with respect to 

compliance with substantive EU and 

Spanish requirements for which 

preliminary positive substituted 

compliance determinations are being 

made in this proposed Order (e.g., the 

preliminary positive substituted 

compliance determinations with respect 

to the majority of the Exchange Act 

business conduct requirements). At the 

same time, the recordkeeping rules 

address different categories of records 

through distinct requirements within 

the rules. Each requirement with respect 

to a specific category of records (e.g., 

paragraph (b)(1) of Exchange Act rule 

18a–5 addressing trade blotters) can be 

viewed in isolation as a distinct 

recordkeeping rule. Therefore, it may be 

appropriate to make substituted 

compliance determinations at this level 

of Exchange Act rules 18a–5 and 18a– 

6. 

As discussed in more detail below, 

the Commission’s preliminary view is 

that substituted compliance is 

appropriate for most of the requirements 

applicable to SBS Entities with a 

prudential regulator within the 

recordkeeping, reporting, and 

notification rules. However, certain of 

the discrete requirements in these rules 

are fully or partially linked to 

substantive Exchange Act requirements 

for which substituted compliance is not 

available or for which a positive 

substituted compliance determination 

would not be made under the proposed 

Order. In these cases, a preliminary 

positive substituted compliance 

determination is not be made for the 

requirement that is fully linked to the 

substantive requirement or to the part of 

the requirement that is linked to the 

substantive requirement. In particular, a 

preliminary positive substituted 

compliance determination is not being 

made, in full or in part, for 

recordkeeping, reporting, or notification 

requirements linked to the following 

Exchange Act rules for which 

substituted compliance is not available 

or a preliminary positive substituted 

compliance determination is not being 

made: (1) Exchange Act rule 15Fh–4 

(‘‘Rule 15Fh–4 Exclusion’’); (2) 

Exchange Act rule 15Fh–5 (‘‘Rule 15Fh– 

5 Exclusion’’); (3) Exchange Act rule 

15Fh–6 (‘‘Rule 15Fh–6 Exclusion’’); (4) 

Exchange Act rule 18a–4 (‘‘Rule 18a–4 

Exclusion’’); (5) Regulation SBSR 

(‘‘Regulation SBSR Exclusion’’); (6) 

Form SBSE and its variations (‘‘Form 

SBSE Exclusion’’); (7) Exchange Act rule 

15Fh–1 Exclusion (‘‘Rule 15Fh–1 

Exclusion’’), and (8) Exchange Act rule 

15Fh–2 (‘‘Rule 15Fh–2 Exclusion’’). 

This proposed approach is consistent 

with the approach taken by the 

Commission in the French and UK 

Substituted Compliance Orders.110

In addition, certain of the 

requirements in the recordkeeping, 

reporting, and notification rules are 

expressly linked to substantive 

Exchange Act requirements where a 

preliminary positive substituted 

compliance determination is being 

made under the proposed Order. In 

these cases, substituted compliance 

with the linked requirement in the 

recordkeeping, reporting, or notification 

rule is conditioned on the Covered 

Entity applying substituted compliance 

to the linked substantive Exchange Act 

requirement. This is the case regardless 

of whether the requirement is fully or 

partially linked to the substantive 

Exchange Act requirement. The 

recordkeeping, reporting, and 

notification requirements that are linked 

to a substantive Exchange Act 

requirement are designed and tailored to 

assist the Commission in monitoring 

and examining an SBS Entity’s 

compliance with the substantive 

Exchange Act requirement. EU and 

Spanish recordkeeping, reporting, and 

notification requirements are designed 

to perform a similar role with respect to 

the substantive EU and Spanish 

requirements to which they are linked. 

Consequently, this condition is 

designed to ensure that the records, 

reports, and notifications of a Covered 

Entity align with the substantive 

Exchange Act or EU or Spanish 

requirement to which they are linked. 

For these reasons, under the proposed 

Order, substituted compliance for 

recordkeeping, reporting, and 

notification requirements linked to the 

following Exchange Act rules would be 

conditioned on the Covered Entity 

applying substituted compliance to the 

linked substantive Exchange Act rule: 

(1) Exchange Act rule 15Fh–3, except 

paragraphs (a) and (d) for which 

substituted compliance was not 

requested (‘‘Rule 15Fh–3 Condition’’); 

(2) Exchange Act rule 15Fi–2 (‘‘Rule 

15Fi–2 Condition’’); (3) Exchange Act 

rule 15Fi–3 (‘‘Rule 15Fi–3 Condition’’); 

(4) Exchange Act rule 15Fi–4 (‘‘Rule 

15Fi–4 Condition’’); (5) Exchange Act 

rule 15Fi–5 (‘‘Rule 15Fi–5 Condition’’); 

and (6) Exchange Act rule 15Fk–1 

(‘‘Rule 15Fk–1 Condition’’). This 

proposed approach is consistent with 

the approach taken by the Commission 

in the French and UK Substituted 

Compliance Orders.111

2. Exchange Act Rule 18a–5 

Exchange Act rule 18a–5 requires SBS 

Entities to make and keep current 

various types of records. The 

requirements for SBS Entities without a 

prudential regulator are set forth in 

paragraph (a) of the rule.112 The 

requirements for SBS Entities with a 

prudential regulator are set forth in 

paragraph (b) of the rule.113 The 

Commission is making a preliminary 

positive substituted compliance 

determination for many of the 

requirements of paragraph (b) of 

Exchange Act rule 18a–5 in the granular 

manner discussed above.114

However, certain of the requirements 

in these paragraphs are linked to 

substantive Exchange Act requirements 

for which substituted compliance is not 

available or a preliminary positive 

substituted compliance determination 

would not be made under the proposed 


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115A positive preliminary substituted compliance 

determination would not be made for the following 

requirements of Exchange Act rule 18a–5 because 

they are linked to a substantive Exchange Act 

requirement for which the proposed Order would 

not provide substituted compliance: (1) Exchange 

Act rules 18a–5(b)(9) and (10) are fully linked to 

Exchange Act rule 18a–4 and, therefore, would be 

subject to the Rule 18a–4 Exclusion; (2) Exchange 

Act rule 18a–5(b)(12) is fully linked to Exchange 

Act rule 15Fh–6 and, therefore, would be subject to 

the Rule 15F–6 Exclusion; (3) the portions of 

Exchange Act rule 18a–5(b)(13) that relates to 

Exchange Act rule 15Fh–4 would be subject to the 

Rule 15Fh–4 Exclusion; (4) the portion of Exchange 

Act rule 18a–5(b)(13) that relates to Exchange Act 

rule 15Fh–5 would be subject to the 15Fh–5 

Exclusion; (5) the portion of Exchange Act rule 18a– 

5(b)(13) that relates to Exchange Act rule 15Fh–1 

would be subject to the 15Fh–1 Exclusion; and (6) 

the portion of Exchange Act rule 18a–5(b)(13) that 

relates to Exchange Act rule 15Fh–2 would be 

subject to the 15Fh–2 Exclusion. 

116Substituted compliance with the following 

requirements of Exchange Act rule 18a–5 would be 

conditioned on the Covered Entity applying 

substituted compliance to the linked substantive 

Exchange Act requirement: (1) Exchange Act rules 

18a–5(b)(6) and (b)(11) are linked to Exchange Act 

rule 15Fi–2 and, therefore, would be subject to the 

Rule 15Fi–2 Condition; (2) Exchange Act rule 18a– 

5(b)(13) is linked to Exchange Act rule 15Fh–3 and, 

therefore, would be subject to the Rule 15Fh–3 

Condition; (3) Exchange Act rule 18a–5(b)(13) is 

linked to Exchange Act rule 15Fk–1, and therefore, 

would be subject to the Rule 15Fk–1 Condition; (4) 

Exchange Act rules 18a–5(b)(14)(i) and (ii) are 

linked to Exchange Act rule 15Fi–3 and, therefore, 

would be subject to the Rule 15Fi–3 Condition; and 

(5) Exchange Act rule 18a–5(b)(14)(iii) is linked to 

Exchange Act rule 15Fi–4 and, therefore, would be 

subject to the Rule 15Fi–4 Condition. 

117See para. (e)(1)(ii)(B) of the proposed Order. 

118See para. (e)(1)(ii)(A) of the proposed Order. 

119The chart below does not include the 

proposed conditions for applying substituted 

compliance to Exchange Act rule 18a–5; namely 

that the Covered Entity: (1) Must be subject to and 

comply with specified requirements of foreign law; 

and (2) as discussed below, must promptly furnish 

to a representative of the Commission upon request 

an English translation of a record. See para. (e)(7) 

of the proposed Order (setting forth the English 

translation requirement). 

Order. In these cases, a positive 

substituted compliance determination 

would not be made for the linked 

requirement in Exchange Act rule 18a– 

5 or the portion of the requirement in 

Exchange Act rule 18a–5 that is linked 

to the substantive Exchange Act 

requirement.115

In addition, certain of the 

requirements in Exchange Act rule 18a– 

5 are fully or partially linked to 

substantive Exchange Act requirements 

where a preliminary positive substituted 

compliance determination would be 

made under the proposed Order. In 

these cases, substituted compliance 

with the requirement in Exchange Act 

rule 18a–5 would be conditioned on the 

Covered Entity applying substituted 

compliance to the linked substantive 

Exchange Act requirement.116

In addition, the proposed Order 

would allow a Covered Entity to apply 

substituted compliance on a transactionby-transaction basis for the 

Commission’s recordkeeping 

requirements that are linked with the 

counterparty protection requirements in 

Exchange Act rule 15Fh–3.117 This 

approach is intended to be consistent 

with the Commission preliminarily 

allowing Covered Entities to apply 

substituted compliance on a transactionby-transaction basis for the 

Commission’s counterparty protection 

requirements. 

Under the proposed Order, 

substituted compliance in connection 

with the record making requirements of 

Exchange Act rule 18a–5 would be 

subject to the condition that the Covered 

Entity: (1) Preserves all of the data 

elements necessary to create the records 

required by Exchange Act rules 18a– 

5(b)(1), (2), (3), and (7); and (2) upon 

request furnishes promptly to 

representatives of the Commission the 

records required by those rules (‘‘SEC 

Format Condition’’).118 This proposed 

condition is modeled on the alternative 

compliance mechanism in paragraph (c) 

of Exchange Act rule 18a–5. In effect, a 

Covered Entity applying substituted 

compliance with respect to these 

requirements of Exchange Act rule 18a– 

5 would need to comply with the 

comparable EU and Spanish 

requirements. However, under the SEC 

Format Condition, the Covered Entity 

would need to produce a record that is 

formatted in accordance with the 

requirements of Exchange Act rule 18a– 

5 at the request of Commission staff. 

The objective is to require—on a very 

limited basis—the production of a 

record that consolidates the information 

required by Exchange Act rules 18a– 

5(b)(1), (2), (3), and (7) in a single record 

and, as applicable, in a blotter or ledger 

format. This will assist the Commission 

staff in reviewing the information on the 

record. 

The following table summarizes the 

Commission’s preliminary positive 

substituted compliance determinations 

with respect to requirements of 

Exchange Act rule 18a–5 by listing in 

each row: (1) The paragraph of the 

proposed Order that sets forth the 

preliminary determination; (2) the 

paragraph(s) of Exchange Act rule 18a– 

5 to which the preliminary 

determination applies; (3) a brief 

description of the records required by 

the paragraph(s); and (4) a brief 

description of any additional conditions 

to applying substituted compliance to 

the requirements, including any partial 

exclusions because portions of the 

requirements are linked to substantive 

Exchange Act requirements for which 

the proposed Order would not provide 

substituted compliance.119

EXCHANGE ACT RULE 18a–5 

[Record making] 

Order paragraph Rule paragraph Rule description Additional conditions 

and partial exclusions 

(e)(1)(i)(A) .................... (b)(1) ........................... Trade blotters .................................................. SEC Format Condition. 

(e)(1)(i)(B) .................... (b)(2) ........................... Account ledgers .............................................. SEC Format Condition. 

(e)(1)(i)(C) .................... (b)(3) ........................... Stock record .................................................... SEC Format Condition. 

(e)(1)(i)(D) .................... (b)(4) ........................... Memoranda of brokerage orders .................... N/A. 

(e)(1)(i)(E) .................... (b)(5) ........................... Memoranda of proprietary orders ................... N/A. 

(e)(1)(i)(F) .................... (b)(6) ...........................

(b)(11) .........................

Confirmations, trade verification ..................... Rule 15Fi–2 Condition. 

(e)(1)(i)(G) ................... (b)(7) ........................... Accountholder information .............................. SEC Format Condition. 

(e)(1)(i)(H) .................... (b)(8) ........................... Associated person’s employment application N/A. 

(e)(1)(i)(I) ..................... (b)(13) ......................... Compliance with business conduct requirements.(1) Rule 15Fh–3 Condition. 

(2) Rule 15Fk–1 Condition. 

(3) Rule 15Fh–1 Exclusion. 

(4) Rule 15Fh–2 Exclusion. 

(5) Rule 15Fh–4 Exclusion. 

(6) Rule 15Fh–5 Exclusion. 


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120See 17 CFR 240.18a–6. 

121Paras. (a)(1), (b)(1), (d)(2)(i), and (d)(3)(i) of 

Exchange Act rule 18a–6 apply to SBS Entities 

without a prudential regulator. Paras. (a)(2), (b)(2), 

(d)(2)(ii), and (d)(3)(ii) of Exchange Act rule 18a– 

6 apply to SBS Entities with a prudential regulator. 

Paras. (c), (d)(1), (d)(4), and (d)(5) of Exchange Act 

rule 18a–6 apply to SBS Entities irrespective of 

whether they have a prudential regulator. 

122A positive substituted compliance 

determination would not be made for the following 

requirements of Exchange Act rule 18a–6 because 

they are linked to a substantive Exchange Act 

requirement for which the proposed Order would 

not provide substituted compliance: (1) Exchange 

Act rule 18a–6(b)(2)(vi) is fully linked to Regulation 

SBSR and, therefore, would be subject to the 

Regulation SBSR Exclusion; (2) Exchange Act rule 

18a–6(b)(2)(viii) is fully linked to Exchange Act rule 

15Fh–4 and, therefore, would be subject to the Rule 

15Fh–4 Exclusion; (3) Exchange Act rule 18a– 

6(b)(2)(viii) is fully linked to Exchange Act rule 

15Fh–5 and, therefore, would be subject to the Rule 

15Fh–5 Exclusion; (4) Exchange Act rule 18a– 

6(b)(2)(v) is fully linked to Exchange Act rule 18a– 

4 and, therefore, would be subject to the Rule 18a– 

4 Exclusion; (5) the portion of Exchange Act rule 

18a–6(c) relating to Form SBSE and its variations 

would be subject to the Form SBSE Exclusion; (6) 

the portion of Exchange Act rule 18a–6(b)(2)(vii) 

that relates to Exchange Act rule 15Fh–1 would be 

subject to the 15Fh–1 Exclusion; (7) the portion of 

Exchange Act rule 18a–6(b)(2)(vii) that relates to 

Exchange Act rule 15Fh–2 would be subject to the 

15Fh–2 Exclusion; (8) the portion of Exchange Act 

rule 18a–6(b)(2)(vii) that relates to Exchange Act 

rule 15Fh–4 would be subject to the 15Fh–4 

Exclusion; (9) the portion of Exchange Act rule 18a– 

6(b)(2)(vii) that relates to Exchange Act rule 15Fh– 

5 would be subject to the 15Fh–5 Exclusion; and 

(10) the portion of Exchange Act rule 18a– 

6(b)(2)(vii) that relates to Exchange Act rule 15Fh– 

6 would be subject to the 15Fh–6 Exclusion. 

123Substituted compliance with the following 

requirements of Exchange Act rule 18a–6 would be 

conditioned on the Covered Entity applying 

substituted compliance to the linked substantive 

Exchange Act requirement: (1) Exchange Act rule 

18a–6(b)(2)(vii) is linked to Exchange Act rule 

15Fh–3 and, therefore, would be subject to the Rule 

15Fh–3 Condition; (2) Exchange Act rule 18a– 

6(b)(2)(vii) is linked to Exchange Act rule 15Fk–1 

and, therefore, would be subject to the Rule 15Fk– 

1 Condition; (3) Exchange Act rules 18a–6(d)(4) and 

(d)(5) are linked to Exchange Act rule 15Fi–3 and, 

therefore, would be subject to the Rule 15Fi–3 

Condition; (4) Exchange Act rules 18a–6(d)(4) and 

(d)(5) are linked to Exchange Act rule 15Fi–4 and, 

therefore, would be subject to the Rule 15Fi–4 

Condition; and (5) Exchange Act rules 18a–6(d)(4) 

and (d)(5) are linked to Exchange Act rule 15Fi–5 

and, therefore, would be subject to the Rule 15Fi– 

5 Condition. 

EXCHANGE ACT RULE 18a–5—Continued 

[Record making] 

Order paragraph Rule paragraph Rule description Additional conditions 

and partial exclusions 

(e)(1)(i)(J) .................... (b)(14)(i) .....................

(b)(14)(ii) .....................

Portfolio reconciliation ..................................... Rule 15Fi–3 Condition. 

(e)(1)(i)(K) .................... (b)(14)(iii) .................... Portfolio compression ..................................... Rule 15Fi–4 Condition. 

The following table summarizes the 

Commission’s preliminary 

determinations with respect to 

requirements of Exchange Act rule 18a– 

5 for which a positive substituted 

compliance determination would not be 

made because they are fully linked to 

substantive Exchange Act requirements 

for which the proposed Order would not 

provide substituted compliance by 

listing in each row: (1) The paragraph of 

the proposed Order that sets forth the 

determination; (2) the paragraph of 

Exchange Act rule 18a–5 to which the 

determination applies; (3) a brief 

description of the records required by 

the paragraph; and (4) a brief 

description of why the requirement is 

excluded from substituted compliance. 

EXCHANGE ACT RULE 18a–5 

[Record making] 

Order paragraph Rule paragraph Rule description Exclusion 

(e)(1)(ii)(C) ................... (b)(9) ........................... Possession or control records ........................ Rule 18a–4 Exclusion. 

(e)(1)(ii)(C) ................... (b)(10) ......................... Reserve computations .................................... Rule 18a–4 Exclusion. 

(e)(1)(ii)(C) ................... (b)(12) ......................... Political contribution records ........................... Rule 15Fh–6 Exclusion. 

3. Exchange Act Rule 18a–6 

Exchange Act rule 18a–6 requires an 

SBS Entity to preserve certain types of 

records if it makes or receives them (in 

addition to the records the SBS Entity 

is required to make and keep current 

pursuant to Exchange Act rule 18a– 

5).120 Exchange Act rule 18a–6 also 

prescribes the time period that these 

additional records and the records 

required to be made and kept current 

pursuant to Exchange Act rule 18a–5 

must be preserved and the manner in 

which they must be preserved. 

Paragraphs (a) through (d) of 

Exchange Act rule 18a–6 identify the 

records that an SBS Entity must retain 

if it makes or receives them and 

prescribes the retention periods for 

these records as well as for the records 

that must be made and kept current 

pursuant to Exchange Act rule 18a–5. 

Certain of these paragraphs prescribe 

requirements separately for SBS Entities 

without a prudential regulator and SBS 

Entities with a prudential regulator.121

The proposed Order would make 

substituted compliance available for the 

requirements of these paragraphs 

applicable to SBS Entities with a 

prudential regulator. As discussed 

below, the Commission is making a 

preliminary positive substituted 

compliance determination for many of 

the requirements of these paragraphs 

applicable to SBS Entities with a 

prudential regulator. 

However, certain of these 

requirements are fully or partially 

linked to substantive Exchange Act 

requirements for which a preliminary 

positive substituted compliance 

determination would not be made under 

the proposed Order. In these cases, a 

positive substituted compliance 

determination would not be made for 

the linked requirement in Exchange Act 

rule 18a–6.122

In addition, certain of the 

requirements in Exchange Act rule 18a– 

6 are fully or partially linked to 

substantive Exchange Act requirements 

where a positive substituted compliance 

determination would be made under the 

proposed Order. In these cases, 

substituted compliance with the 

requirement in Exchange Act rule 18a6 would be conditioned on the Covered 

Entity applying substituted compliance 

to the linked substantive Exchange Act 

requirement.123

Paragraph (e) of Exchange Act rule 

18a–6 sets forth the requirements for 

preserving records electronically. 

Paragraph (f) sets forth requirements for 


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124See paras. (e)(2)(i)(L) and (M) of the proposed 

Order. 

125The chart below does not include the 

proposed conditions for applying substituted 

compliance to Exchange Act rule 18a–6; namely 

that the Covered Entity: (1) Must be subject to and 

complies with the requirements of foreign law; and 

(2) must promptly furnish to a representative of the 

Commission upon request an English translation of 

a record. See para. (e)(7) of the proposed Order 

(setting forth the English translation requirement). 

when records are prepared or 

maintained by a third party. The Order 

would make substituted compliance 

available for the requirements of 

paragraphs (e) and (f) of Exchange Act 

rule 18a–6 with respect to Covered 

Entities with a prudential regulator.124

Paragraph (g) of Exchange Act rule 

18a–6 requires an SBS Entity to furnish 

promptly to a representative of the 

Commission legible, true, complete, and 

current copies of those records of the 

SBS Entity that are required to be 

preserved under Exchange Act rule 18a– 

6, or any other records of the SBS Entity 

that are subject to examination or 

required to be made or maintained 

pursuant to section 15F of the Exchange 

Act that are requested by a 

representative of the Commission. The 

proposed Order would not make 

substituted compliance available for the 

requirements of paragraph (g) of 

Exchange Act rule 18a–6 because there 

is no comparable requirement in the EU 

or Spain to produce these records to a 

representative of the Commission. 

The following table summarizes the 

Commission’s preliminary positive 

substituted compliance determinations 

with respect to requirements of 

Exchange Act rule 18a-6 by listing in 

each row: (1) The paragraph of the 

proposed Order that sets forth the 

determination; (2) the paragraph(s) of 

Exchange Act rule 18a–6 to which the 

determination applies; (3) a brief 

description of the records required by 

the paragraph(s); and (4) a brief 

description of any additional conditions 

to applying substituted compliance to 

the requirements, including any partial 

exclusions because portions of the 

requirements are linked to substantive 

Exchange Act requirements for which 

the proposed Order would not provide 

substituted compliance.125

EXCHANGE ACT RULE 18a–6 

[Record preservation] 

Order paragraph Rule paragraph Rule description Conditions and partial exclusions 

(e)(2)(i)(A) .................... (a)(2) ........................... 6 year record preservation .............................. N/A. 

(e)(2)(i)(B) .................... (b)(2)(i) ....................... 3 year record preservation .............................. N/A. 

(e)(2)(i)(C) .................... (b)(2)(ii) ....................... Communications ............................................. N/A. 

(e)(2)(i)(D) .................... (b)(2)(iii) ...................... Account documents ........................................ N/A. 

(e)(2)(i)(E) .................... (b)(2)(iv) ...................... Written agreements ......................................... N/A.

(e)(2)(i)(F) .................... (b)(2)(vii) ..................... Business conduct standard records ............... (1) Rule 15Fh–3 Condition. 

(2) Rule 15Fk–1 Condition. 

(3) Rule 15Fh–1 Exclusion. 

(4) Rule 15Fh–2 Exclusion. 

(5) Rule 15Fh–4 Exclusion. 

(6) Rule 15Fh–5 Exclusion. 

(7) Rule 15Fh–6 Exclusion. 

(e)(2)(i)(G) ................... (c) ............................... Corporate documents ..................................... Form SBSE Exclusion. 

(e)(2)(i)(H) .................... (d)(1) ........................... Associated person’s employment application N/A. 

(e)(2)(i)(I) ..................... (d)(2)(ii) ....................... Regulatory authority reports ........................... N/A. 

(e)(2)(i)(J) .................... (d)(3)(ii) ....................... Compliance, supervisory, and procedures 

manuals.

N/A. 

(e)(2)(i)(K) .................... (d)(4), (d)(5) ................ Portfolio reconciliation ..................................... (1) Rule 15Fi–3 Condition. 

(2) Rule 15Fi–4 Condition. 

(3) Rule 15Fi–5 Condition. 

(e)(2)(i)(L) .................... (e) ............................... Electronic storage system ............................... N/A. 

(e)(2)(i)(M) ................... (f) ................................ Third-party recordkeeper ................................ N/A. 

The following table summarizes the 

Commission’s preliminary 

determinations with respect to 

requirements of Exchange Act rule 18a– 

6 for which a positive substituted 

compliance determination would not be 

made because they are fully linked to 

substantive Exchange Act requirements 

for which the proposed Order would not 

provide substituted compliance by 

listing in each row: (1) The paragraph of 

the proposed Order that sets forth the 

determination; (2) the paragraph of 

Exchange Act rule 18a–6 to which the 

determination applies; (3) a brief 

description of the records required by 

those paragraph; and (4) a brief 

description of why the requirement is 

excluded from substituted compliance. 

EXCHANGE ACT RULE 18a–6 

[Preservation] 

Order paragraph Rule paragraph Rule description Exclusion 

(e)(2)(ii) ........................ (b)(2)(v) ...................... Information supporting financial reports ......... Rule 18a–4 Exclusion. 

(e)(2)(ii) ........................ (b)(2)(vi) ...................... Regulation SBSR information ......................... Regulation SBSR Exclusion. 

(e)(2)(ii) ........................ (b)(2)(viii) .................... Special entity documents ................................ (1) Rule 15Fh–4 Exclusion. 

(2) Rule 15Fh–5 Exclusion. 


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126See Order Designating Financial Industry 

Regulatory Authority, Inc., to Receive Form X–17A– 

5 (FOCUS Report) from Certain Security-Based 

Swap Dealers and Major Security-Based Swap 

Participants, Exchange Release No. 88866 (May 14, 

2020). 

127Under the proposed Order, Covered Entities 

with a prudential regulator would need to present 

the information reported in the FOCUS Report in 

accordance with GAAP that the firm uses to prepare 

publicly available or available to be issued general 

purpose financial statements in its home 

jurisdiction instead of U.S. GAAP if other GAAP, 

such as International Financial Reporting Standards 

(IFRS) as issued by the International Accounting 

Standards Board (IASB), is used by the Covered 

Entity in preparing publicly available or available 

to be issued general purpose financial statements in 

Spain. 

128The Manner and Format condition is included 

in the French and UK Substituted Compliance 

Orders. See French Substituted Compliance Order, 

86 FR at 41651; UK Substituted Compliance Order, 

83 FR at 43361–62. 

129The chart below does not include the 

proposed conditions for applying substituted 

compliance to Exchange Act rule 18a–7; namely 

that the Covered Entity: (1) Must be subject to and 

comply with specified requirements of foreign law; 

and (2) must promptly furnish to a representative 

of the Commission upon request an English 

translation of a report. See para. (e)(7) of the 

proposed Order (setting forth the English 

translation requirement). 

130See 17 CFR 240.18a–8. 

4. Exchange Act Rule 18a–7 

Exchange Act rule 18a–7 requires SBS 

Entities, on a monthly basis (if not 

prudentially regulated) or on a quarterly 

basis (if prudentially regulated), to file 

an unaudited financial and operational 

report on the FOCUS Report Part II (if 

not prudentially regulated) or Part IIC (if 

prudentially regulated). The 

Commission will use the FOCUS 

Reports filed by the SBS Entities to both 

monitor the financial and operational 

condition of individual SBS Entities and 

to perform comparisons across SBS 

Entities. The FOCUS Report Part IIC 

elicits less information than the FOCUS 

Report Part II because the Commission 

does not have responsibility for 

overseeing the capital and margin 

requirements applicable to these 

entities. 

The FOCUS Report Parts II and IIC are 

standardized forms that elicit specific 

information through numbered line 

items. This facilitates cross-firm 

analysis and comprehensive monitoring 

of all SBS Entities registered with the 

Commission. Further, the Commission 

has designated the Financial Industry 

Regulatory Authority, Inc. (‘‘FINRA’’) to 

receive the FOCUS Reports from SBS 

Entities.126 Broker-dealers registered 

with the Commission currently file their 

FOCUS Reports with FINRA through the 

eFOCUS system it administers. Using 

FINRA’s eFOCUS system will enable 

broker-dealers, security-based swap 

dealers, and major security-based swap 

participants to file FOCUS Reports on 

the same platform using the same 

preexisting templates, software, and 

procedures. 

Paragraph (a)(2) of Exchange Act rule 

18a–7 requires SBS Entities with a 

prudential regulator to file the FOCUS 

Report Part IIC on a quarterly basis. The 

proposed Order would provide 

substituted compliance for this 

requirement subject to the condition 

that the Covered Entity file with the 

Commission periodic unaudited 

financial and operational information in 

the manner and format specified by the 

Commission by order or rule (‘‘Manner 

and Format Condition’’) and present the 

financial information in accordance 

with generally accepted accounting 

principles (‘‘GAAP’’) that the firm uses 

to prepare general purpose publicly 

available or available to be issued 

financial statements in Spain (‘‘Spanish 

GAAP Condition’’).127 The Commission 

believes that it would be appropriate to 

condition substituted compliance with 

respect to Exchange Act rule 18a–7 on 

the Covered Entity filing unaudited 

financial and operational information in 

a manner and format that facilitates 

cross-firm analysis and comprehensive 

monitoring of all SBS Entities registered 

with the Commission.128 For example, 

the Commission could by order or rule 

require Covered Entities with a 

prudential regulator to file the financial 

and operational information with 

FINRA using the FOCUS Report Part IIC 

but permit the information input into 

the form to be the same information the 

SBS Entity reports to the CNMV. 

The following table summarizes the 

Commission’s proposed preliminary 

positive substituted compliance 

determinations with respect to 

requirements of Exchange Act rule 18a– 

7 by listing in each row: (1) The 

paragraph of the proposed Order that 

sets forth the determination; (2) the 

paragraph of Exchange Act rule 18a–7 to 

which the determination applies; (3) a 

brief description of the report required 

by the paragraph; and (4) a brief 

description of any additional conditions 

to applying substituted compliance to 

the requirements.129

EXCHANGE ACT RULE 18a–7 

[Reporting] 

Order paragraph Rule paragraph Rule description Conditions 

(e)(3)(i) .......................... (a)(2) ........................................... File FOCUS Reports ................... (1) Manner and Format Condition. 

(2) Spanish GAAP Condition. 

5. Exchange Act Rule 18a–8 

Exchange Act rule 18a–8 requires SBS 

Entities to send notifications to the 

Commission if certain adverse events 

occur.130 The proposed Order would 

provide substituted compliance for the 

requirements of Exchange Act rule 18a– 

8 applicable to SBS Entities with a 

prudential regulator (subject to 

conditions and limitations). In 

particular, the requirements of: (1) 

Paragraph (c) of Exchange Act Rule 18a– 

8 that an SBS Entity that is a securitybased swap dealer and that files a notice 

of adjustment to its reported capital 

category with a U.S. prudential 

regulator must transmit a copy of the 

notice to the Commission; (2) paragraph 

(d) of the rule that an SBS Entity 

provide notification to the Commission 

if it fails to make and keep current 

books and records under Exchange Act 

rule 18a–5 and to transmit a subsequent 

report on steps being taken to correct 

the situation; and (3) paragraph (h) of 

the rule setting forth how to make the 

notifications required by Exchange Act 

18a–8. 

Under the proposed Order, 

substituted compliance in connection 

with the notification requirements of 

Exchange Act rule 18a–8 would be 

subject to the condition that the Covered 

Entity: (1) Simultaneously sends a copy 

of any notice required to be sent by EU 

or Spanish notification laws to the 

Commission in the manner specified on 

the Commission’s website (i.e., the ‘‘SEC 

Filing Condition’’); and (2) includes 

with the transmission the contact 

information of an individual who can 

provide further information about the 

matter that is the subject of the notice 

(i.e., the ‘‘Contact Information 

Condition’’). The purpose of this 

condition is to alert the Commission to 

financial or operational problems that 


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131The chart below does not include the 

proposed conditions for applying substituted 

compliance to Exchange Act rule 18a–8; namely 

that the Covered Entity: (1) Must be subject to and 

comply with specified requirements of foreign law; 

and (2) must promptly furnish to a representative 

of the Commission upon request an English 

translation of a notification. See para. (e)(7) of the 

proposed Order (setting forth the English 

translation requirement). 

132See 15 U.S.C. 78o–10(g). 

133See SSMA Article 194(1); and RD 217/2008 

Article 32(1). 

134See para. (e)(5) to the proposed Order. 

135See Exchange Act section 15F(f); Exchange Act 

rule 18a–6(g). French and UK Substituted 

Compliance Orders do not extend substituted 

compliance to these requirements. See French 

Substituted Compliance Order, 86 FR at 41650; UK 

Substituted Compliance Order, 86 FR at 43361. 

could adversely affect the firm—the 

objective of Exchange Act rule 18a–8. 

In addition, the Order does not 

provide substituted compliance for 

paragraph (g) of Exchange Act rule 18a– 

8 that an SBS Entity that is a securitybased swap dealer provide notification 

if it fails to make a required deposit into 

its special reserve account for the 

exclusive benefit of security-based swap 

customers under Exchange Act rule 

18a–4. Substituted compliance is not 

available for Exchange Act rule 18a–4. 

In addition, the proposed Order 

would not provide substituted 

compliance for paragraph (g) of 

Exchange Act rule 18a–8 that an SBS 

Entity that is a security-based swap 

dealer provide notification if it fails to 

make a required deposit into its special 

reserve account for the exclusive benefit 

of security-based swap customers under 

Exchange Act rule 18a–4. Substituted 

compliance is not available for 

Exchange Act rule 18a–4. 

The following table summarizes the 

Commission’s proposed preliminary 

positive substituted compliance 

determinations with respect to 

requirements of Exchange Act rule 18a– 

8 by listing in each row: (1) The 

paragraph of the proposed Order that 

sets forth the determination; (2) the 

paragraph of Exchange Act rule 18a–8 to 

which the determination applies; (3) a 

brief description of the notification 

required by the paragraph; and (4) a 

brief description of any additional 

conditions to applying substituted 

compliance to the requirements.131

EXCHANGE ACT RULE 18a–8 

[Notification] 

Order 

paragraph 

Rule 

paragraph Rule description Conditions 

(e)(4)(i)(B) .................... (c) ............................... Prudential regulator capital category adjustment notices.(1) SEC Filing Condition. 

(2) Contact Information Condition. 

(e)(4)(i)(C) .................... (d) ............................... Books and records notices ............................. (1) SEC Filing Condition. 

(2) Contact Information Condition. 

The following table summarizes the 

Commission’s preliminary 

determinations with respect to 

requirements of Exchange Act rule 18a– 

8 for which a positive substituted 

compliance determination would not be 

made because they are fully linked to 

substantive Exchange Act requirements 

for which the proposed Order would not 

provide substituted compliance by 

listing in each row: (1) The paragraph of 

the proposed Order that sets forth the 

determination; (2) the paragraph of 

Exchange Act rule 18a–8 to which the 

determination applies; (3) a brief 

description of the notification required 

by the paragraph; and (4) the exclusion 

from substituted compliance. 

EXCHANGE ACT RULE 18a–8 

[Notification] 

Order 

paragraph 

Rule 

paragraph Rule description Exclusion 

(e)(4)(ii)(C) ................... (g) ............................... Reserve account notices ................................ Rule 18a–4 Exclusion. 

6. Exchange Act Section 15F(g) 

Exchange Act Section 15F(g) requires 

SBS Entities, including SBS Entities 

with a prudential regulator, to maintain 

daily trading records.132 The 

Commission preliminarily believes EU 

and Spanish laws produce a comparable 

result in terms of its daily trading 

recordkeeping requirements.133

Accordingly, the Commission 

preliminarily is making a positive 

substituted compliance determination 

for the self-executing requirements in 

this paragraph.134

7. Examination and Production of 

Records 

The proposed Order would not extend 

to, and Covered Entities would remain 

subject to, the requirement of Exchange 

Act section 15F(f) to keep books and 

records open to inspection by any 

representative of the Commission and 

the requirement of Exchange Act rule 

18a–6(g) to furnish promptly to a 

representative of the Commission 

legible, true, complete, and current 

copies of those records of the Covered 

Entity that are required to be preserved 

under Exchange Act rule 18a–6, or any 

other records of the Covered Entity that 

are subject to examination or required to 

be made or maintained pursuant to 

Exchange Act section 15F that are 

requested by a representative of the 

Commission.135

Consequently, every Covered Entity 

registered with the Commission, 

whether complying directly with 

Exchange Act requirements or relying 

on substituted compliance as a means of 

complying with the Exchange Act, 

would be required to satisfy the 

inspection and production requirements 

imposed on such entities under the 

Exchange Act. Covered Entities would 

be able to make, keep, and preserve 

records, subject to the proposed 

conditions described above, in a manner 

prescribed by applicable EU and 

Spanish requirements. As an element of 

its substituted compliance application, 

the CNMV has provided the 

Commission with adequate assurances 

that no law or policy would impede the 

ability of any entity that is directly 

supervised by the authority and that 


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136See para. (e)(7) to the proposed Order. 

137See French Order, 86 FR at 41651; UK Order, 

86 FR at 43361. 

138See generally Business Conduct Adopting 

Release, 81 FR 30079. 

may register with the Commission to 

provide prompt access to the 

Commission to such entity’s books and 

records or to submit to onsite inspection 

or examination by the Commission. 

Consistent with those assurances and 

the requirements that apply to all 

Covered Entities under the Exchange 

Act, Covered Entities operating under 

the proposed Order would need to keep 

books and records open to inspection by 

any representative of the Commission 

and to furnish promptly to a 

representative of the Commission 

legible, true, complete, and current 

copies of those records of the firm that 

these entities are required to preserve 

under Exchange Act rule 18a–6 (which 

would include records for which a 

positive substituted compliance 

determination is being made with 

respect to Exchange Act rule 18a–6 

under the Order), or any other records 

of the firm that are subject to 

examination or required to be made or 

maintained pursuant to Exchange Act 

section 15F that are requested by a 

representative of the Commission. 

8. English Translations 

The proposed Order provides that to 

the extent documents are not prepared 

in the English language, Covered 

Entities would need to furnish to a 

representative of the Commission upon 

request an English translation of any 

record, report, or notification of the 

Covered Entity that is required to be 

made, preserved, filed, or subject to 

examination pursuant to Exchange Act 

section 15F or the proposed Order.136

This condition would be designed to 

addresses difficulties that Commission 

examinations staff would have 

examining Covered Entities that furnish 

documents in a foreign language. The 

English translations would need to be 

provided promptly. This condition is 

included in the French and UK 

Substituted Compliance Orders.137

VIII. Additional Considerations 

Regarding Supervisory and 

Enforcement Effectiveness in Spain 

A. General Considerations 

As noted above, Exchange Act rule 

3a71–6 provides that the Commission’s 

assessment of the comparability of the 

requirements of the foreign financial 

regulatory system must account for ‘‘the 

effectiveness of the supervisory program 

administered, and the enforcement 

authority exercised’’ by the foreign 

financial regulatory authority. This 

prerequisite accounts for the 

understanding that substituted 

compliance determinations should 

reflect the reality of the foreign 

regulatory framework, in that rules that 

appear high-quality on paper 

nonetheless should not form the basis 

for substituted compliance if—in 

practice—market participants are 

permitted to fall short of their regulatory 

obligations. This prerequisite, however, 

also recognizes that differences among 

the supervisory and enforcement 

regimes should not be assumed to 

reflect flaws in one regime or 

another.138

In connection with these 

considerations, the CNMV Application 

includes information regarding the 

Spanish supervisory and enforcement 

framework applicable to derivatives 

markets and market participants. This 

includes information regarding the 

supervisory and enforcement authority 

afforded to authorities in Spain to 

promote compliance with applicable 

requirements, applicable supervisory 

and enforcement tools and capabilities, 

consequences of non-compliance, and 

the application of supervisory and 

enforcement practices in the crossborder context. After review of this 

information, the Commission 

preliminarily believes that the 

framework is reasonably designed to 

promote compliance with the laws 

where substituted compliance has been 

requested. 

In preliminarily concluding that the 

relevant supervisory and enforcement 

considerations are consistent with 

substituted compliance, the 

Commission particularly has considered 

the following factors: 

B. Supervisory Framework in Spain 

Supervision of Covered Entities 

located in Spain is conducted by the 

CNMV and the ECB. The Bank of Spain 

informed the staff that it does not have 

supervisory authority over significant 

credit institutions in the areas where 

substituted compliance has been 

requested, although, as explained 

below, it does play a role in the 

supervision of anti-money laundering 

laws. In addition, the CNMV and the 

Bank of Spain cooperate closely and 

have frequent communications 

regarding the supervision of firms to 

accomplish their respective missions. 

The ECB, through joint supervisory 

teams (‘‘JSTs’’), supervises firms for 

compliance with the CRD and CRR, 

including all capital requirements. The 

CNMV and the ECB have the ability to 

request records needed for supervision 

from firms through the supervisory 

process. In addition, the CNMV and the 

ECB set annual priorities and conduct 

thematic reviews, which are used to 

enhance supervision in specific 

regulatory areas. The results of these 

thematic reviews are made public to 

provide transparency to the industry. 

The CNMV uses a risk-based 

approach to supervision to determine 

which firms will receive the most 

supervisory attention. Under the 

CNMV’s risk framework, the largest 

banks providing investment services are 

included in the top tier. The CNMV is 

in daily contact with the largest firms 

through phone calls and emails and also 

conducts meetings with senior 

management. The CNMV uses a number 

of tools to supervise Covered Entities. 

For the largest firms, the CNMV 

conducts periodic monitoring of the 

confidential reports submitted by the 

firms to the CNMV regarding the 

conduct of business rules. This 

information is analyzed against existing 

information at the CNMV and, if red 

flags are spotted, different actions can 

be taken. For example, the information 

in the reports may be used to determine 

whether the firm should undergo an 

onsite inspection or a limited review. If 

red flags are spotted at several firms, a 

thematic review may be launched to 

obtain more information from these 

entities. 

The CNMV creates an annual 

supervision plan based on the 

information available on each one of the 

entities under the CNMV’s supervision 

(e.g., systemic and financial risk, 

complaints received, previous 

supervisory experience with the firm, 

etc.) and the time that has passed since 

the last visit. This plan is based on an 

analysis of the potential risks in the 

sector and is shared with the Bank of 

Spain but is not otherwise made public. 

The CNMV uses a risk-based process to 

determine when it will conduct an 

onsite examination looking at factors 

such as systemic risks, types of services 

provided, types of products distributed, 

complaints, and the time since the last 

on-site inspection. The CNMV plans its 

onsite examinations as part of the 

annual supervision plan but can also 

decide to conduct a limited review of 

certain areas if issues or concerns arise 

during the year. At the end of the onsite 

portion of the examination, a report is 

issued and a formal Letter of Findings 

(‘‘LoF’’) is communicated to the firm. 

The LoF is addressed to the Compliance 

Officer who must inform the firm’s 

Board of Directors. A copy of the LoF is 

also sent to the Bank of Spain. 

Firms are required to give a formal 

response to the LoF containing their 


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observations, a commitment that the 

firm will change its procedures and 

resolve any deficiencies observed, and 

confirmation that the entity’s Board of 

Directors has been informed of the 

CNMV LoF and of the response given. 

Within six months, the firm must 

provide a compliance report describing 

how the firm has corrected deficiencies 

observed during the inspection. The 

CNMV verifies that changes have been 

made through desk reviews or in a 

subsequent onsite visit. If follow-up 

measures are deemed necessary, the 

CNMV will launch a supervisory 

activity to assess the new procedures in 

place at the firm. If appropriate changes 

have not been made or the conduct is 

severe, the CNMV may refer the matter 

to CNMV’s enforcement program. 

The coordination of compliance with 

the anti-money laundering laws is done 

by the Commission for the Prevention of 

Money Laundering and Monetary 

Offenses (‘‘COPBLAC’’), through 

cooperation arrangements with the Bank 

of Spain and the CNMV. The Executive 

Service of the Commission for the 

Prevention of Money Laundering and 

Monetary Offences (‘‘SEPBLAC’’) works 

with the Bank of Spain and the CNMV 

to supervise Covered Entities for 

compliance with the anti-money 

laundering laws. The Bank of Spain and 

CNMV follow a risk-based approach to 

perform supervisory activities, with 

their main supervisory task to determine 

the AML/CFT risk profile of the firm. 

The Bank of Spain and CNMV also 

conduct onsite inspections based on an 

annual supervisory plan, which is 

approved by COPBLAC. After an 

inspection, the Bank of Spain and 

CNMV share a summary of conclusions 

and, where appropriate, 

recommendations, with the firm. The 

firm addresses the recommendations 

through a remediation plan that is 

monitored by the Bank of Spain or 

CNMV. The inspection report is shared 

with COPBLAC, who ultimately decides 

on what binding supervisory measures 

or sanctions to impose. 

Supervision of the CRD and CRR is 

conducted through the ECB’s single 

supervisory mechanism and executed 

by JSTs comprising of ECB staff, Bank 

of Spain staff, and staff from other 

countries in the EU where the 

significant institution has a subsidiary 

or branch. The Bank of Spain assigns 

multiple supervisors to the JST for a 

significant institution headquartered in 

Spain. The head of the JST is from the 

ECB and generally is not from the 

country where the significant institution 

is located. As part of its day-to-day 

supervision, the JST analyzes the 

supervisory reporting, financial 

statements, and internal documentation 

of supervised entities. The JSTs hold 

regular and ad hoc meetings with the 

supervised entities at various levels of 

staff seniority. They conduct ongoing 

risk analyses of approved risk models, 

and analyze and assess the recovery 

plans of supervised entities. The various 

supervisory activities typically result in 

supervisory measures addressed to the 

supervised institution. Supervisory 

activities and decisions result in a 

number of routine steps such as the 

monitoring of compliance by the JST 

and, if necessary, enforcement measures 

and sanctions. In addition to ongoing 

supervision, the JST may conduct indepth reviews on certain topics by 

organizing a dedicated onsite mission 

(e.g., an inspection or an internal model 

investigation). The onsite inspections 

are carried out by an independent 

inspection team, which works in close 

cooperation with the respective JST. 

C. Enforcement Authority in Spain 

CNMV is empowered to investigate 

and sanction very serious, serious, and 

minor infringements of law. The most 

common source of information 

regarding infringements is the 

supervisory activity of the Supervision 

Department and the Secondary Markets 

Department. In addition, CNMV may 

initiate investigations based on 

whistleblower complaints. According to 

CNMV, when a breach is committed by 

a credit institution, a report from the 

Bank of Spain is a prerequisite for 

imposing sanctions for serious or very 

serious infringements. The Bank of 

Spain has informed the staff that it does 

not have enforcement authority over 

significant credit institutions in the 

areas where substituted compliance has 

been requested. As described below, 

enforcement of the CRD and CRR for 

violations detected by the joint 

supervisory teams is conducted by the 

ECB. In addition, violations related to 

anti-money laundering are investigated 

and sanctioned by SEPBLAC, which has 

sole enforcement decision-making 

power with regard to the Spanish 

Money Laundering Act. 

CNMV has an array of investigative 

capacities that enable it to detect and 

enforce against breaches of relevant 

laws. It is empowered to perform its 

enforcement functions with respect to 

both legal and natural persons, 

including those persons holding 

directorships or executive positions in 

Covered Firms. Among the investigative 

tools available to CNMV are: The power 

to inspect on premises of a Covered 

Firm, the power to compel documents, 

information, and statements, and the 

power to obtain electronic 

communications for third parties with 

the subject’s consent, or pursuant to 

judicial authorization. Upon receiving 

and considering a supervisory report 

containing sound evidence of a possible 

infringement, CNMV’s enforcement unit 

prepares a legal assessment regarding 

the findings contained the report, and 

provides the assessment and the report 

to CNMV’s Executive Committee. The 

Executive Committee then determines 

whether to initiate a sanctioning 

procedure. At the conclusion of such 

procedures, a wide range of possible 

sanctions may be imposed including, 

among others: Public reprimand, 

pecuniary sanctions up to 30MÖ, 

suspension or restriction of the type or 

volume of transactions the sanctioned 

party may carry out in the securities 

markets, disqualification from holding a 

directorship or executive post a 

financial institution for up to ten years, 

or disgorgement of profits made or 

losses avoided as a result of the 

infringement. CNMV is not empowered 

to enter into settlement agreements, but 

may impose a penalty discounted by 

40% where the sanctioned party 

undertakes early payment, recognizes 

liabilities and waives the right to appeal 

within the administrative bodies. In the 

event the procedure continues, a 20% 

discount may be granted upon early 

payment (and waiver of the right to 

appeal the decision before the 

administrative body) at any time prior to 

the adoption of final decision. CNMV 

publicizes all serious and very serious 

infringements without undue delay 

provided publication is proportionate 

and would not jeopardize financial 

stability. 

Misconduct detected by the JSTs is 

addressed primarily by the ECB. Under 

the SSM Regulations, the ECB is 

empowered to address issues of 

noncompliance with applicable 

European Union law by directly 

imposing enforcement measures on 

supervised entities or requiring the 

CNMV to use its national enforcement 

powers. It also may choose to impose 

administrative penalties or request that 

the CNMV open sanctioning 

proceedings. In particular, the ECB may 

impose administrative pecuniary 

penalties, and may impose fines and 

periodic penalty payments per day of 

infringement. Where appropriate, the 

ECB may exercise its enforcement 

authority in parallel with supervisory 

measures. 

Where infringements of the SMLA 

occur, the SEPBLAC is empowered to 

conduct necessary inspections to verify 

compliance with the obligations relating 

to the functions assigned to it. In this 

regard, the obliged persons and their 


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139See German Substituted Compliance Order, 85 

FR 85688–89; French Substituted Compliance 

Order, 86 FR 41616–22; UK Substituted Compliance 

Order, 86 FR 43321–31; German Substituted 

Compliance Notice and Proposed Amended Order, 

86 FR 46501–03. 140See German Substituted Compliance Notice 

and Proposed Order, 85 FR 72740–43; French 

Substituted Compliance Notice and Proposed 

Order, 85 FR 85736–39; French Substituted 

Compliance Re-Opening Release, 86 FR 18341–49; 

UK Substituted Compliance Notice and Proposed 

Order, 86 FR 18406–11; German Substituted 

Compliance Notice and Proposed Amended Order, 

86 FR 46523–27. 

141See German Substituted Compliance Order, 85 

FR 85689–91; French Substituted Compliance 

Order, 86 FR 41622–29; UK Substituted Compliance 

Order, 86 FR at 43331–37; German Substituted 

Compliance Notice and Proposed Amended Order, 

86 FR 46503–04. 

employees, directors and agents are 

required to cooperate to the fullest 

extent possible with the staff of the 

SEPBLAC, providing unrestricted access 

to as much information or 

documentation as is required, including 

books, accounts, records, software, 

magnetic files, internal reports, minutes, 

official statements and any other related 

matters subject to inspection. However, 

the SEPBLAC is not competent to 

accede to obtain third party records 

(such as internet service providers or 

telephone records). Various sanctions 

are available to the SEPBLAC when 

infringements are determined to have 

occurred. Among the sanctions that the 

SEPBLAC may impose are: Public 

reprimand, a fine of no less than 

150,000Ö imposed against the Covered 

Entity, plus additional fines against 

those individuals in administrative or 

management positions who were 

responsible for the Covered Entity’s 

violation, and withdrawal of 

administrative authorization for the 

Covered Entity. 

IX. Request for Comment 

Commenters are invited to address all 

aspects of the application, the 

Commission’s preliminary views and 

the proposed Order. 

A. General Aspects of the Comparability 

Assessments and Proposed Order 

The Commission requests comment 

regarding the preliminary views and 

proposed Order in connection with each 

of the general ‘‘regulatory outcome’’ 

categories addressed above. 

Commenters particularly are invited to 

address, among other issues, whether 

the relevant Spanish and EU provisions 

generally are sufficient to produce 

regulatory outcomes that are comparable 

to the outcomes associated with 

requirements under the Exchange Act, 

and whether the conditions and 

limitations of the proposed Order would 

adequately address potential gaps in the 

relevant regulatory outcomes or would 

otherwise result in any implementation 

or other practical issues. Further, the 

Commission requests comment 

regarding whether the proposed 

conditions and limitations guard against 

comparability gaps arising from the 

cross-border application of Spanish and 

EU requirements (including when SBS 

Entities conduct security-based swap 

business through branches located in 

the United States or in third countries). 

Should the Commission require Covered 

Entities to be subject to and comply 

with additional or alternative 

limitations and/or conditions to achieve 

a comparable regulatory outcome, or are 

any of the proposed limitations or 

conditions unnecessary to achieve a 

comparable regulatory outcome? 

Explain why or why not. 

With respect to the proposed 

conditions and limitations, commenters 

also are invited to address any 

differences between Spanish regulatory 

requirements and frameworks and the 

German, French, or UK requirements 

and frameworks that formed the basis 

for the Commission’s conditional grant 

of substituted compliance for Germany, 

France, and the UK and/or for the 

Commission’s proposal to amend its 

conditional grant of substituted 

compliance for Germany.139 Would the 

responses to any of the questions that 

the Commission asked in connection 

with the German, French, and/or UK 

notices and proposed orders differ if 

those questions applied to Spanish 

regulatory requirements and 

frameworks? 140

B. Risk Control Requirements 

The Commission further requests 

comment regarding the proposed grant 

of substituted compliance in connection 

with requirements under the Exchange 

Act related to internal risk management, 

trade acknowledgement and 

verification, portfolio reconciliation and 

dispute reporting, portfolio 

reconciliation, and trading relationship 

documentation. Commenters 

particularly are invited to address the 

basis for substituted compliance in 

connection with those risk control 

requirements, and the proposed 

conditions and limitations connected to 

substituted compliance for those 

requirements. Do Spanish and EU laws 

taken as a whole produce regulatory 

outcomes that are comparable to 

Exchange Act requirements? In this 

regard, commenters are invited to 

address the Spanish and EU laws that a 

Covered Entity would have to be subject 

to and comply with in connection with 

each substituted compliance 

determination for a particular set of risk 

control requirements. With respect to 

each substituted compliance 

determination, the Commission seeks 

comment on the following matters: (1) 

Will the Covered Entity’s status being 

subject to, and its compliance with, the 

Spanish and EU laws listed in the 

determination result in a comparable 

regulatory outcome; (2) are there 

additional or alternative Spanish and/or 

EU laws that Covered Entities should be 

required to be subject to and comply 

with to achieve a comparable regulatory 

outcome; and (3) are any of the Spanish 

and/or EU laws listed in the 

determination unnecessary to achieve a 

comparable regulatory outcome? 

Explain why or why not. 

With respect to trading relationship 

documentation requirements, the 

Commission invites commenters to 

address the proposed exclusion of 

certain legal and bankruptcy status 

disclosures from the proposed 

substituted compliance for trading 

relationship documentation 

requirements when the counterparty is 

a U.S. person. Do any additional or 

alternative Spanish and/or EU 

requirements require Covered Entities to 

make the legal and bankruptcy 

disclosures described in Exchange Act 

rule 15Fi–5(b)(5)? 

With respect to portfolio 

reconciliation and dispute reporting 

requirements, the Commission also 

invites commenters to address the 

condition requiring a Covered Entity to 

provide the Commission with reports 

regarding disputes between 

counterparties on the same basis as the 

Covered Entity provides those reports to 

competent authorities pursuant to 

Spanish and EU law. Would differences 

in the timing of dispute reports made 

pursuant to Exchange Act requirements 

as compared to reports made pursuant 

to Spanish and EU law make Spanish 

and EU portfolio reconciliation and 

dispute reporting requirements not 

comparable to Exchange Act 

requirements? 

Commenters further are invited to 

address any differences between 

Spanish regulatory requirements and 

frameworks and the German, French, 

and UK requirements and frameworks 

that formed the basis for the 

Commission’s conditional grants of 

substituted compliance for certain risk 

control requirements in those countries 

and/or for the Commission’s proposal to 

amend its conditional grant of 

substituted compliance for Germany.141

Would the responses to any of the 

questions that the Commission asked in 

connection with the German, French 

and/or UK notices and proposed orders 


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142See note 140, supra. 

143See German Substituted Compliance Order, 85 

FR 85691–92; French Substituted Compliance 

Order, 86 FR 41639–43; UK Substituted Compliance 

Order, 86 FR 43347–53; German Substituted 

Compliance Notice and Proposed Amended Order, 

86 FR 46503–04, 46511. 

144See note 140, supra. 

differ if those questions applied to 

Spanish regulatory requirements and 

frameworks? 142

C. Internal Supervision, Chief 

Compliance Officer and Antitrust 

Requirements 

The Commission requests comment 

regarding the proposed grant of 

substituted compliance in connection 

with requirements under the Exchange 

Act related to internal supervision and 

chief compliance officer requirements. 

Commenters particularly are invited to 

address the basis for substituted 

compliance in connection with internal 

supervision and chief compliance 

officer requirements, and the proposed 

conditions and limitations connected to 

substituted compliance for those 

requirements. Do Spanish and EU laws 

taken as a whole produce regulatory 

outcomes that are comparable to 

Exchange Act requirements? In this 

regard, commenters are invited to 

address the Spanish and EU laws that a 

Covered Entity would have to be subject 

to and comply with in connection with 

the substituted compliance 

determinations for internal supervision 

and chief compliance officer 

requirements. With respect to each 

substituted compliance determination, 

the Commission seeks comment on the 

following matters: (1) Will the Covered 

Entity’s status being subject to, and its 

compliance with, the Spanish and EU 

laws listed in the determination result 

in a comparable regulatory outcome; (2) 

are there additional or alternative 

Spanish and/or EU laws that Covered 

Entities should be required to be subject 

to and comply with to achieve a 

comparable regulatory outcome; and (3) 

are any of the Spanish and/or EU laws 

listed in the determination unnecessary 

to achieve a comparable regulatory 

outcome? Explain why or why not. 

With respect to internal supervision 

requirements, the Commission invites 

commenters to address the proposed 

condition that would require a Covered 

Entity to comply with applicable 

Spanish and EU internal supervision 

requirements as if those provisions also 

require the Covered Entity to comply 

with applicable requirements under the 

Exchange Act and the other applicable 

conditions of the proposed Order. 

Should the Commission require 

additional or alternative conditions 

relating to internal supervision of the 

Covered Entity’s compliance with the 

Exchange Act and the applicable 

conditions of the proposed Order? 

Explain why or why not. 

With respect to chief compliance 

officer requirements, the Commission 

also invites commenters to address the 

proposed conditions requiring the 

Covered Entity to provide the 

Commission with each of its MiFID Org 

Reg compliance reports. The 

Commission seeks comment on the 

following matters: (1) Would an 

additional or alternative certification 

and/or scope of each compliance report 

produce a more comparable outcome; 

(2) are the proposed certification and/or 

scope requirements unnecessary to 

achieve a comparable regulatory 

outcome; (3) would an alternative 

deadline for the Covered Entity to 

provide these reports to the Commission 

produce a more comparable regulatory 

outcome? Explain why or why not. 

Commenters further are invited to 

address the Commission’s preliminary 

determination not to grant substituted 

compliance for Exchange Act antitrust 

requirements. The Commission seeks 

comment on the following matters: (1) 

Will the Covered Entity’s status being 

subject to, and its compliance with, the 

Spanish and EU laws listed in the 

CNMV Application result in a 

comparable regulatory outcome; and (2) 

are there additional or alternative 

Spanish and/or EU laws that Covered 

Entities could be required to be subject 

to and comply with to achieve a 

comparable regulatory outcome? 

Explain why or why not. 

Commenters further are invited to 

address any differences between 

Spanish regulatory requirements and 

frameworks and the German, French, 

and/or UK requirements and 

frameworks that formed the basis for the 

Commission’s conditional grants of 

substituted compliance for certain 

internal supervision and chief 

compliance officer requirements in 

those countries and/or for the 

Commission’s proposal to amend its 

conditional grant of substituted 

compliance for Germany.143 Explain 

why or why not. Would the responses 

to any of the questions about internal 

supervision, chief compliance officer, 

and antitrust requirements that the 

Commission asked in connection with 

the German, French, and/or UK notices 

and proposed orders differ if those 

questions applied to Spanish regulatory 

requirements and frameworks? 144

Explain why or why not. 

D. Counterparty Protection 

Requirements 

The Commission requests comment 

regarding the proposed grant of 

substituted compliance in connection 

with certain counterparty protection 

requirements under the Exchange Act. 

Commenters particularly are invited to 

address the basis for substituted 

compliance in connection with 

counterparty protection requirements, 

and the proposed conditions and 

limitations connected to substituted 

compliance for those requirements. Do 

Spanish and EU laws taken as a whole 

produce regulatory outcomes that are 

comparable to Exchange Act 

requirements? In this regard, 

commenters are invited to address the 

Spanish and EU laws that a Covered 

Entity would have to be subject to and 

comply with in connection with each 

substituted compliance determination 

for a particular set of counterparty 

protection requirements. With respect to 

each substituted compliance 

determination, the Commission seeks 

comment on the following matters: (1) 

Will the Covered Entity’s status being 

subject to, and its compliance with, the 

Spanish and EU laws listed in the 

determination result in a comparable 

regulatory outcome; (2) are there 

additional or alternative Spanish and/or 

EU laws that Covered Entities should be 

required to be subject to and comply 

with to achieve a comparable regulatory 

outcome; and (3) are any of the Spanish 

and/or EU laws listed in the 

determination unnecessary to achieve a 

comparable regulatory outcome? 

Explain why or why not. 

With respect to suitability 

requirements, the Commission also 

invites commenters to address the 

proposed limitation of substituted 

compliance to recommendations to 

counterparties that are per se 

professional clients as defined in MiFID 

and that are not special entities for 

purposes of the Exchange Act. Would 

Spanish and EU suitability requirements 

for elective professional clients, retail 

clients and/or special entities produce 

regulatory outcomes comparable to 

Exchange Act suitability requirements? 

Explain why or why not. 

With respect to daily mark disclosure 

requirements, the Commission also 

invites commenters to address the 

proposed limitation of substituted 

compliance to security-based swaps in 

portfolios that the Covered Entity is 

required to reconcile, and in fact does 

reconcile, on each business day. Are 

there additional or alternative Spanish 

and/or EU laws that apply to a broader 


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145See German Substituted Compliance Order, 85 

FR 85692–95; French Substituted Compliance 

Order, 86 FR 41643–48; UK Substituted Compliance 

Order, 86 FR 43353–59; German Substituted 

Compliance Notice and Proposed Amended Order, 

86 FR 46511–12. 

146See note 140, supra. 

range of security-based swaps? Explain 

why or why not. 

Commenters further are invited to 

address the Commission’s preliminary 

determination not to grant substituted 

compliance for Exchange Act clearing 

rights disclosure requirements. The 

Commission seeks comment on the 

following matters: (1) Will the Covered 

Entity’s status being subject to, and its 

compliance with, the Spanish and EU 

laws listed in the CNMV Application 

result in a comparable regulatory 

outcome; and (2) are there additional or 

alternative Spanish and/or EU laws that 

Covered Entities could be required to be 

subject to and comply with to achieve 

a comparable regulatory outcome? 

Explain why or why not. 

Commenters further are invited to 

address any differences between 

Spanish regulatory requirements and 

frameworks and the German, French, 

and/or UK requirements and 

frameworks that formed the basis for the 

Commission’s conditional grants of 

substituted compliance for certain of 

those counterparty protection 

requirements in those countries and/or 

for the Commission’s proposal to amend 

its conditional grant of substituted 

compliance for Germany.145 Explain 

why or why not. Would the responses 

to any of the questions about 

counterparty protection requirements 

that the Commission asked in 

connection with the German, French, 

and/or UK notices and proposed orders 

differ if those questions applied to 

Spanish regulatory requirements and 

frameworks? 146 Explain why or why 

not. 

E. Recordkeeping, Reporting, and 

Notification 

The Commission requests comment 

regarding the proposed grants of 

substituted compliance in connection 

with requirements under the Exchange 

Act related to recordkeeping, reporting, 

and notification, as well as the 

requirement of Exchange Act section 

15F(g). Commenters particularly are 

invited to address the basis for 

substituted compliance in connection 

with those requirements, and the 

proposed conditions and limitations 

connected to substituted compliance for 

those requirements. Do EU and Spanish 

law taken as a whole produce regulatory 

outcomes that are comparable to those 

of Exchange Act section 15F(g) and 

Exchange Act rules 18a–5, 18a–6, 18a– 

7, and 18a–8? In this regard, 

commenters are invited to address the 

EU and Spanish laws cited for each 

substituted compliance determination 

with respect to the distinct requirements 

within the recordkeeping, reporting, and 

notification rules (i.e., the rules for 

which a more granular approach to 

substituted compliance is being taken). 

With respect to each substituted 

compliance determination, the 

Commission seeks comment on the 

following matters: (1) Will the EU and 

Spanish laws cited for the 

determination result in a comparable 

regulatory outcome; (2) are there 

additional or alternative EU or Spanish 

laws that should be cited to achieve a 

comparable regulatory outcome; and (3) 

are any of the EU or Spanish laws cited 

for the determination unnecessary to 

achieve a comparable regulatory 

outcome? 

Commenters particularly are invited 

to address the proposed condition with 

respect to Exchange Act rule 18a–5 that 

the Covered Entity: (1) Preserve all of 

the data elements necessary to create the 

records required by Exchange Act rules 

18a–5(b)(1), (2), (3), and (7); and (2) 

upon request furnish promptly to 

representatives of the Commission the 

records required by those rules. Do the 

relevant EU and Spanish laws require 

Covered Entities to retain the data 

elements necessary to create the records 

required by these rules? If not, please 

identify which data elements are not 

preserved pursuant to the relevant EU 

and Spanish laws. Further, how 

burdensome would it be for a Covered 

Entity to format the data elements into 

the records required by these rules (e.g., 

a blotter, ledger, or securities record, as 

applicable) if the firm was requested to 

do so? In what formats do Covered 

Entities in Spain produce this 

information to the CNMV or other EU or 

Spanish authorities? How do those 

formats differ from the formats required 

by Exchange Act rules 18a–5(b)(1), (2), 

(3), and (7)? 

Is it appropriate to structure the 

Commission’s substituted compliance 

determinations in the proposed Order to 

provide Covered Entities with greater 

flexibility to select which distinct 

requirements within the broader 

recordkeeping, reporting, and 

notification rules for which they want to 

apply substituted compliance? Explain 

why or why not. For example, would it 

be more efficient for a Covered Entity to 

comply with certain Exchange Act 

requirements within a given rule (rather 

than apply substituted compliance) 

because it can utilize systems that its 

affiliated broker-dealer has 

implemented to comply with them? If 

so, explain why. If not, explain why not. 

Is it appropriate to permit Covered 

Entities to take a more granular 

approach to the requirements within the 

recordkeeping rules? For example, 

would this approach make it more 

difficult for the Commission to get a 

comprehensive understanding of the 

Covered Entity’s security-based swap 

activities and financial condition? 

Explain why or why not. Would it be 

overly complex for the Covered Entity to 

administer a firm-wide recordkeeping 

system under this approach? Explain 

why or why not. 

Certain of the Commission’s 

recordkeeping and notification 

requirements are fully or partially 

linked to substantive Exchange Act 

requirements for which a positive 

substituted compliance determination 

preliminarily would not be made under 

the proposed Order. In these cases, 

should the Commission not make a 

positive substituted compliance 

determination for the fully linked 

requirement in the recordkeeping or 

notification rules or to the portion of the 

requirement that is linked to a 

substantive Exchange Act requirement? 

In particular, should the Commission 

not make a positive substituted 

compliance determination for 

recordkeeping or notification 

requirements linked to the following 

Exchange Act rules for which a positive 

substituted compliance determination is 

preliminarily not being made: (1) 

Exchange Act rule 15Fh–4; (2) Exchange 

Act rule 15Fh–5; (3) Exchange Act rule 

15Fh–6; (4) Exchange Act rule 18a–4; (5) 

Regulation SBSR; (6) Form SBSE and its 

variations; (7) Exchange Act rule 15Fh– 

1; and (8) Exchange Act rule 15Fh–2? If 

not, explain why. 

Certain of the requirements in the 

Commission’s recordkeeping rules are 

linked to substantive Exchange Act 

requirements where a positive 

substituted compliance determination is 

being made under the proposed Order. 

In these cases, should a positive 

substituted compliance determination 

for the linked requirement in the 

recordkeeping rule be conditioned on 

the Covered Entity applying substituted 

compliance to the linked substantive 

Exchange Act requirement? If not, 

explain why. Should this be the case 

regardless of whether the requirement is 

fully or partially linked to the 

substantive Exchange Act requirement? 

If not, explain why. In particular, 

should substituted compliance for 

recordkeeping, reporting, and 

notification requirements linked to the 

following Exchange Act rules be 

conditioned on the Covered Entity 


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147See German Substituted Compliance Order, 85 

FR 85695–97; French Substituted Compliance 

Order, 86 FR 41648–57; UK Substituted Compliance 

Order, 86 FR 43359–69; German Substituted 

Compliance Notice and Proposed Amended Order, 

86 FR 46512–22. 

148 17 CFR 200.30–3(a)(89). 

applying substituted compliance to the 

linked substantive Exchange Act rule: 

(1) Exchange Act rule 15Fh–3; (2) 

Exchange Act rule 15Fi–2; (3) Exchange 

Act rule 15Fi–3; (4) Exchange Act rule 

15Fi–4; (5) Exchange Act rule 15Fi–5; 

and (6) Exchange Act rule 15Fk–1? If 

not, explain why. 

Commenters also are invited to 

address the preliminary positive 

substituted compliance determination 

with respect to Exchange Act rule 18a– 

7, which would be conditioned on the 

Covered Entity filing financial and 

operational information with the 

Commission in the manner and format 

specified by the Commission by order or 

rule. Should the Commission require 

Covered Entities to file the financial and 

operational information using the 

FOCUS Report Part IIC? Are there line 

items on the FOCUS Report Part IIC that 

elicit information that is not included in 

the reports Covered Entities with a 

prudential regulator file with the CNMV 

or other EU or Spanish authorities? If so, 

do Covered Entities with a prudential 

regulator record that information in 

their required books and records? Please 

identify any information that is elicited 

in the FOCUS Report Part IIC that is not: 

(1) Included in the financial reports 

filed by Covered Entities with the 

CNMV; or (2) recorded in the books and 

records required of Covered Entities. 

Would the answer to these questions 

change if references to FFIEC Form 031 

were not included in the FOCUS Report 

Part IIC? If so, how? As a preliminary 

matter, as a condition of substituted 

compliance should Covered Entities file 

a limited amount of financial and 

operational information on the FOCUS 

Report Part IIC for a period of two years 

to further evaluate the burden of 

requiring all applicable line items to be 

filled out? If so, which line items should 

be required? To the extent that Covered 

Entities otherwise report or record 

information that is responsive to the 

FOCUS Report Part IIC, how could the 

information on this report be integrated 

into a database of filings the 

Commission or its designee will 

maintain for filers of the FOCUS Report 

Parts IIC (e.g., the eFOCUS system) to 

achieve the objective of being able to 

perform cross-form analysis of 

information entered into the uniquely 

numbered line items on the forms? 

Commenters further are invited to 

address any differences between 

Spanish regulatory requirements and 

frameworks and the German, French, 

and/or UK requirements and 

frameworks that formed the basis for the 

Commission’s conditional grants of 

substituted compliance for 

recordkeeping, reporting, and 

notification requirements in those 

countries and/or for the Commission’s 

proposal to amend its conditional grant 

of substituted compliance for 

Germany.147 Would the responses to 

any of the questions about those 

requirements that the Commission 

asked in connection with the German, 

French, and/or UK notices and 

proposed orders differ if those questions 

applied to Spanish regulatory 

requirements and frameworks? 

F. Supervisory and Enforcement Issues 

The Commission further requests 

comment regarding how to weigh 

considerations regarding supervisory 

and enforcement effectiveness in Spain 

as part of the comparability 

assessments. Commenters particularly 

are invited to address relevant issues 

regarding the effectiveness of Spanish 

supervision and enforcement over firms 

that may register with the Commission 

as SBS Entities, including but not 

limited to issues regarding: 

• The relevant Spanish authorities for 

the supervision and enforcement of the 

areas of law where substituted 

compliance has been requested and the 

supervision and enforcement role 

played by each authority; 

• Spanish supervisory and 

enforcement authority, supervisory 

inspection practices, and the use of 

alternative supervisory and/or 

enforcement tools and practices; 

• Spanish supervisory and 

enforcement effectiveness with respect 

to derivatives such as security-based 

swaps; and 

• Spanish supervision and 

enforcement in the cross-border context 

(e.g., any differences between the 

oversight of firms’ businesses within 

Spain and the oversight of activities and 

branches outside of Spain, including 

within the United States). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.148

Jill M. Peterson, 

Assistant Secretary. 

Attachment A 

It is hereby determined and ordered, 

pursuant to rule 3a71–6 under the 

Exchange Act, that a Covered Entity (as 

defined in paragraph (g)(1) of this 

Order) may satisfy the requirements 

under the Exchange Act that are 

addressed in paragraphs (b) through (e) 

of this Order so long as the Covered 

Entity is subject to and complies with 

relevant requirements of the Kingdom of 

Spain and the European Union and with 

the conditions of this Order, as 

amended or superseded from time to 

time. 

(a) General Conditions 

This Order is subject to the following 

general conditions, in addition to the 

conditions specified in paragraphs (b) 

through (e): 

(1) Activities as MiFID ‘‘investment 

services or activities.’’ For each 

condition in paragraphs (b) through (e) 

of this Order that requires the 

application of, and the Covered Entity’s 

compliance with, provisions of MiFID; 

provisions of SSMA and/or RD 217/ 

2008 that implement MiFID; and/or 

other EU and Spanish requirements 

adopted pursuant to those provisions, 

the Covered Entity’s relevant securitybased swap activities constitute 

‘‘investment services’’ or ‘‘investment 

activities,’’ as defined in MiFID article 

4(1)(2) and in SSMA article 140, and fall 

within the scope of the Covered Entity’s 

authorization from the CNMV and the 

ECB to provide investment services and/ 

or perform investment activities in the 

Kingdom of Spain. 

(2) Counterparties as MiFID ‘‘clients.’’ 

For each condition in paragraphs (b) 

through (e) of this Order that requires 

the application of, and the Covered 

Entity’s compliance with, provisions of 

MiFID; provisions of SSMA and/or RD 

217/2008 that implement MiFID; and/or 

other EU and Spanish requirements 

adopted pursuant to those provisions, 

the relevant counterparty (or potential 

counterparty) to the Covered Entity is a 

‘‘client’’ (or potential ‘‘client’’), as 

defined in MiFID article 4(1)(9) and in 

the First Additional Provision of Royal 

Decree Law 14/2018, of 28 September. 

(3) Security-based swaps as MiFID 

‘‘financial instruments.’’ For each 

condition in paragraphs (b) through (e) 

of this Order that requires the 

application of, and the Covered Entity’s 

compliance with, provisions of MiFID; 

provisions of SSMA and/or RD 217/ 

2008 that implement MiFID; and/or 

other EU and Spanish requirements 

adopted pursuant to those provisions, 

the relevant security-based swap is a 

‘‘financial instrument,’’ as defined in 

MiFID article 4(1)(15) and in the Annex 

to SSMA. 

(4) Covered Entity as CRD/CRR 

‘‘institution.’’ For each condition in 

paragraph (b) through (e) of this Order 

that requires the application of, and the 

Covered Entity’s compliance with, the 

provisions of CRD; provisions of 

LOSSEC, RD 84/2015, BoS Circular 2/ 


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2016, SSMA, and/or RD 217/2008 that 

implement CRD; CRR; and/or other EU 

and Spanish requirements adopted 

pursuant to those provisions, the 

Covered Entity is an ‘‘institution,’’ as 

defined in CRD article 3(1)(3) and CRR 

article 4(1)(3), and either a credit 

institution, as defined in LOSSEC article 

1 (in the case of a provision of LOSSEC, 

RD 84/2015, and/or BoS Circular 2/ 

2016), or an investment firm, as defined 

in SSMA article 138 (in the case of a 

provision of SSMA and/or RD 217/2008 

that implements CRD). 

(5) Counterparties as EMIR 

‘‘counterparties.’’ For each condition in 

paragraphs (b) through (e) of this Order 

that requires the application of, and the 

Covered Entity’s compliance with, 

provisions of EMIR, EMIR RTS, EMIR 

Margin RTS, and/or other EU 

requirements adopted pursuant to those 

provisions, if the relevant provision 

applies only to the Covered Entity’s 

activities with specified types of 

counterparties, and if the counterparty 

to the Covered Entity is not any of the 

specified types of counterparty, the 

Covered Entity complies with the 

applicable condition of this Order: 

(i) As if the counterparty were the 

specified type of counterparty; in this 

regard, if the Covered Entity reasonably 

determines that the counterparty would 

be a financial counterparty if it were 

established in the EU and authorized by 

an appropriate EU authority, it must 

treat the counterparty as if the 

counterparty were a financial 

counterparty; and 

(ii) Without regard to the application 

of EMIR article 13. 

(6) Security-based swap status under 

EMIR. For each condition in paragraphs 

(b) through (e) of this Order that 

requires the application of, and the 

Covered Entity’s compliance with, 

provisions of EMIR, EMIR RTS, EMIR 

Margin RTS, and/or other EU 

requirements adopted pursuant to those 

provisions, either: 

(i) The relevant security-based swap is 

an ‘‘OTC derivative’’ or ‘‘OTC derivative 

contract,’’ as defined in EMIR article 

2(7), that has not been cleared by a 

central counterparty and otherwise is 

subject to the provisions of EMIR article 

11, EMIR RTS articles 11 through 15, 

and EMIR Margin RTS article 2; or 

(ii) The relevant security-based swap 

has been cleared by a central 

counterparty that is authorized or 

recognized to clear derivatives contracts 

by a relevant authority in the EU. 

(7) Memorandum of Understanding 

with the Spanish Authorities. The 

Commission and the CNMV and the 

Bank of Spain have a supervisory and 

enforcement memorandum of 

understanding and/or other arrangement 

addressing cooperation with respect to 

this Order at the time the Covered Entity 

complies with the relevant requirements 

under the Exchange Act via compliance 

with one or more provisions of this 

Order. 

(8) Memorandum of Understanding 

Regarding ECB-Owned Information. The 

Commission and the ECB have a 

supervisory and enforcement 

memorandum of understanding and/or 

other arrangement addressing 

cooperation with respect to this Order 

as it pertains to information owned by 

the ECB at the time the Covered Entity 

complies with the relevant requirements 

under the Exchange Act via compliance 

with one or more provisions of this 

Order. 

(9) Notice to Commission. A Covered 

Entity relying on this Order must 

provide notice of its intent to rely on 

this Order by notifying the Commission 

in writing. Such notice must be sent to 

the Commission in the manner specified 

on the Commission’s website. The 

notice must include the contact 

information of an individual who can 

provide further information about the 

matter that is the subject of the notice. 

The notice must also identify each 

specific substituted compliance 

determination within paragraphs (b) 

through (e) of this Order for which the 

Covered Entity intends to apply 

substituted compliance. A Covered 

Entity must promptly provide an 

amended notice if it modifies its 

reliance on the substituted compliance 

determinations in this Order. 

(10) European Union Cross-Border 

Matters. 

(i) If, in relation to a particular service 

provided by a Covered Entity, 

responsibility for ensuring compliance 

with any provision of MiFID or MiFIR 

or any other EU or Spanish requirement 

adopted pursuant to MiFID or MiFIR 

listed in paragraphs (b) through (e) of 

this Order is allocated to an authority of 

the Member State of the European 

Union in whose territory a Covered 

Entity provides the service, the CNMV 

must be the authority responsible for 

supervision and enforcement of that 

provision or requirement in relation to 

the particular service. 

(ii) If responsibility for ensuring 

compliance with any provision of MAR 

or any other EU requirement adopted 

pursuant to MAR listed in paragraphs 

(b) through (e) of this Order is allocated 

to one or more authorities of a Member 

State of the European Union, one of 

such authorities must be the CNMV. 

(11) Notification Requirements 

Related to Changes in Capital. A 

Covered Entity that is prudentially 

regulated relying on this Order must 

apply substituted compliance with 

respect to the requirements of Exchange 

Act rule 18a–8(c) and the requirements 

of Exchange Act rule 18a–8(h) as 

applied to Exchange Act rule 18a–8(c). 

(b) Substituted Compliance in 

Connection With Risk Control 

Requirements 

This Order extends to the following 

provisions related to risk control: 

(1) Internal risk management. The 

requirements of Exchange Act section 

15F(j)(2) and related aspects of 

Exchange Act rule 15Fh–3(h)(2)(iii)(I), 

provided that 

(i) The Covered Entity is subject to 

and complies with the requirements of: 

(A) MiFID articles 16 and 23; SSMA 

articles 193, 194, 208bis, 220bis, 221, 

222, 223, and 224; and RD 217/2008 

articles 30, 30bis, 30ter, 30qua ́ter, 

30quinqies, 30sexies, 32, 41, 42, 43, 44, 

45, 46, 47, 48, 61, 66, 67, 68, 69, 70, 71, 

72, 72bis, 72ter, 73, 74, 74bis, 74ter, 75, 

75bis, 76, 76bis, and 79; and, if the 

Covered Entity is a credit institution, 

also BoS Circular 2/2016 article 43 and 

RD 84/2015 article 22; 

(B) MiFID Org Reg articles 21 through 

37, 72 through 76 and Annex IV; 

(C) CRD articles 74, 76, 79 through 87, 

88(1), 91(1) and (2), 91(7) through (9), 

92, 94, and 95; SSMA articles 182(1) 

and (2) and 183(1) and (2); and RD 217/ 

2008 article 35; and, if the Covered 

Entity is a credit institution, also 

LOSSEC articles 24, 25, 26, 27, 28, 29, 

32, 33, 34, 36, 37, and 38; RD 84/2015 

articles 29, 30, 31, 32, 33, 34, 35, 36, 37, 

39, 41, 42, 43, 44, 46, 47, 48, 49, 50, 51, 

52, 53, and 54; and BoS Circular 2/2016 

articles 26, 27, 28, 29, 30, 31, 32, 33(4), 

34, 35, 36, 37, 38, 39, 40, 41, 46, 47, 48, 

49, 50, 51, 52, and 60; and, if the 

Covered Entity is an investment firm, 

also SSMA articles 183(3), 184, 184bis, 

185, 185bis, 186, 188, 189(1) through (3) 

and (5), 189bis, 189ter, and 192bis; and 

RD 217/2008 articles 14(1)(f), 20, 20bis, 

21, 22, 24, 31, 31bis, 36, 38, 39(1) and 

(2), 40, 88, 90, 91, 92, 93, 94, 95, 96, 

97(1)–(3), and 98; 

(D) CRR articles 286 through 288 and 

293; and 

(E) EMIR Margin RTS article 2; 

(ii) If the Covered Entity is an 

investment firm, the Covered Entity is 

not exempt from certain provisions of 

RD 217/2008 pursuant to RD 217/2008 

article 87(2) and/or (3) and/or exempt 

from SSMA article 189 pursuant to 

SSMA article 189(6) and/or (7); and 

(iii) If the Covered Entity is an 

investment firm, the Covered Entity 

establishes, maintains, and implements 

policies and procedures for management 

of residual risk associated with the use 


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of recognized credit risk mitigation 

techniques described in RD 217/2008 

article 103(1)(c). 

(2) Trade acknowledgement and 

verification. The requirements of 

Exchange Act rule 15Fi–2, provided that 

the Covered Entity is subject to and 

complies with the requirements of EMIR 

article 11(1)(a) and EMIR RTS article 12. 

(3) Portfolio reconciliation and 

dispute reporting. The requirements of 

Exchange Act rule 15Fi–3, provided 

that: 

(i) The Covered Entity is subject to 

and complies with the requirements of 

EMIR article 11(1)(b) and EMIR RTS 

articles 13 and 15; and 

(ii) The Covered Entity provides the 

Commission with reports regarding 

disputes between counterparties on the 

same basis as it provides those reports 

to competent authorities pursuant to 

EMIR RTS article 15(2). 

(4) Portfolio compression. The 

requirements of Exchange Act rule 

15Fi–4, provided that the Covered 

Entity is subject to and complies with 

the requirements of EMIR RTS article 

14. 

(5) Trading relationship 

documentation. The requirements of 

Exchange Act rule 15Fi–5, other than 

paragraph (b)(5) to that rule when the 

counterparty is a U.S. person, provided 

that the Covered Entity is subject to and 

complies with the requirements of EMIR 

article 11(1)(a), EMIR RTS article 12, 

and EMIR Margin RTS article 2. 

(c) Substituted Compliance in 

Connection With Internal Supervision 

and Compliance Requirements and 

Certain Exchange Act Section 15F(j) 

Requirements 

This Order extends to the following 

provisions related to internal 

supervision and compliance and 

Exchange Act section 15F(j) 

requirements: 

(1) Internal supervision. The 

requirements of Exchange Act rule 

15Fh–3(h) and Exchange Act sections 

15F(j)(4)(A) and (j)(5), provided that: 

(i) The Covered Entity is subject to 

and complies with the requirements 

identified in paragraph (d)(3) of this 

Order and complies with the other 

conditions in that paragraph; 

(ii) The Covered Entity complies with 

paragraph (c)(4) of this Order; and 

(iii) This paragraph (c) does not 

extend to the requirements of paragraph 

(h)(2)(iii)(I) to rule 15Fh–3 to the extent 

those requirements pertain to 

compliance with Exchange Act sections 

15F(j)(2), (j)(3), (j)(4)(B) and (j)(6), or to 

the general and supporting provisions of 

paragraph (h) to rule 15Fh–3 in 

connection with those Exchange Act 

sections. 

(2) Chief compliance officers. The 

requirements of Exchange Act section 

15F(k) and Exchange Act rule 15Fk–1, 

provided that: 

(i) The Covered Entity is subject to 

and complies with the requirements 

identified in paragraph (c)(3) of this 

Order and complies with the other 

conditions in that paragraph; 

(ii) All reports required pursuant to 

MiFID Org Reg article 22(2)(c) must 

also: 

(A) Be provided to the Commission at 

least annually, and in the English 

language; 

(B) Include a certification signed by 

the chief compliance officer or senior 

officer (as defined in Exchange Act rule 

15Fk–1(e)(2)) of the Covered Entity that, 

to the best of the certifier’s knowledge 

and reasonable belief and under penalty 

of law, the report is accurate and 

complete in all material respects; 

(C) Address the Covered Entity’s 

compliance with: 

(i) Applicable requirements under the 

Exchange Act; and 

(ii) The other applicable conditions of 

this Order in connection with 

requirements for which the Covered 

Entity is relying on this Order; 

(D) Be provided to the Commission no 

later than 15 days following the earlier 

of: 

(i) The submission of the report to the 

Covered Entity’s management body; or 

(ii) The time the report is required to 

be submitted to the management body; 

and 

(E) Together cover the entire period 

that the Covered Entity’s annual 

compliance report referenced in 

Exchange Act section 15F(k)(3) and 

Exchange Act rule 15Fk–1(c) would be 

required to cover. 

(3) Applicable supervisory and 

compliance requirements. (i) Paragraphs 

(c)(1) and (c)(2) are conditioned on the 

Covered Entity being subject to and 

complying with the following 

requirements: 

(A) MiFID articles 16 and 23; SSMA 

articles 193, 194, 208bis, 220bis, 221, 

222, 223, and 224; and RD 217/2008 

articles 30, 30bis, 30ter, 30qua ́ter, 

30quinqies, 30sexies, 32, 41, 42, 43, 44, 

45, 46, 47, 48, 61, 66, 67, 68, 69, 70, 71, 

72, 72bis, 72ter, 73, 74, 74bis, 74ter, 75, 

75bis, 76, 76bis, and 79; and, if the 

Covered Entity is a credit institution, 

also BoS Circular 2/2016 article 43 and 

RD 84/2015 article 22; 

(B) MiFID Org Reg articles 21 through 

37, 72 through 76 and Annex IV; 

(C) CRD articles 74, 76, 79 through 87, 

88(1), 91(1) and (2), 91(7) through (9), 

92, 94, and 95; SSMA articles 182(1) 

and (2) and 183(1) and (2); and RD 217/ 

2008 article 35; and, if the Covered 

Entity is a credit institution, also 

LOSSEC articles 24, 25, 26, 27, 28, 29, 

32, 33, 34, 36, 37, and 38; RD 84/2015 

articles 29, 30, 31, 32, 33, 34, 35, 36, 37, 

39, 41, 42, 43, 44, 46, 47, 48, 49, 50, 51, 

52, 53, and 54; and BoS Circular 2/2016 

articles 26, 27, 28, 29, 30, 31, 32, 33(4), 

34, 35, 36, 37, 38, 39, 40, 41, 46, 47, 48, 

49, 50, 51, 52, and 60; and, if the 

Covered Entity is an investment firm, 

also SSMA articles 183(3), 184, 184bis, 

185, 185bis, 186, 188, 189(1) through (3) 

and (5), 189bis, 189ter, and 192bis; and 

RD 217/2008 articles 14(1)(f), 20, 20bis, 

21, 22, 24, 30, 31, 31bis, 36, 38, 39(1) 

and (2), 40, 88, 90, 91, 92, 93, 94, 95, 

96, 97(1)–(3), and 98; 

(D) CRR articles 286 through 288 and 

293; and 

(E) EMIR Margin RTS article 2. 

(ii) Paragraphs (c)(1) and (c)(2) also 

are conditioned on the Covered Entity’s 

compliance with the following 

conditions: 

(A) If the Covered Entity is an 

investment firm, the Covered Entity is 

not exempt from certain provisions of 

RD 217/2008 pursuant to RD 217/2008 

article 87(2) and/or (3) and/or exempt 

from SSMA article 189 pursuant to 

SSMA article 189(6) and/or (7); and 

(B) If the Covered Entity is an 

investment firm, the Covered Entity 

establishes, maintains, and implements 

policies and procedures for management 

of residual risk associated with the use 

of recognized credit risk mitigation 

techniques described in RD 217/2008 

article 103(1)(c). 

(4) Additional condition to paragraph 

(c)(1). Paragraph (c)(1) further is 

conditioned on the requirement that the 

Covered Entity complies with the 

provisions specified in paragraph (c)(3) 

as if those provisions also require 

compliance with: 

(i) Applicable requirements under the 

Exchange Act; and 

(ii) The other applicable conditions of 

this Order in connection with 

requirements for which the Covered 

Entity is relying on this Order. 

(d) Substituted Compliance in 

Connection With Counterparty 

Protection Requirements 

This Order extends to the following 

provisions related to counterparty 

protection: 

(1) Disclosure of information 

regarding material risks and 

characteristics. The requirements of 

Exchange Act rule 15Fh–3(b) relating to 

disclosure of material risks and 

characteristics of one or more securitybased swaps subject thereto, provided 

that the Covered Entity, in relation to 


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that security-based swap, is subject to 

and complies with the requirements of 

MiFID article 24(4); SSMA articles 

209(1) and (3) and 210(1); RD 217/2008 

articles 65 and 77(1); and MiFID Org 

Reg articles 48–50. 

(2) Disclosure of information 

regarding material incentives or 

conflicts of interest. The requirements of 

Exchange Act rule 15Fh–3(b) relating to 

disclosure of material incentives or 

conflicts of interest that a Covered 

Entity may have in connection with one 

or more security-based swaps subject 

thereto, provided that the Covered 

Entity, in relation to that security-based 

swap, is subject to and complies with 

the requirements of either: 

(i) MiFID article 23(2) and (3); RD 

217/2008 article 61(2) and (3); and 

MiFID Org Reg articles 33–35; 

(ii) MiFID article 24(9); MiFID 

Delegated Directive article 11(5); and 

SSMA articles 220ter, 220qua ́ter, and 

220quinquies; RD 217/2008 articles 62, 

63, and 64; or 

(iii) MAR article 20(1) and MAR 

Investment Recommendations 

Regulation articles 5 and 6. 

(3) ‘‘Know your counterparty.’’ The 

requirements of Exchange Act rule 

15Fh–3(e), as applied to one or more 

security-based swap counterparties 

subject thereto, provided that the 

Covered Entity, in relation to the 

relevant security-based swap 

counterparty, is subject to and complies 

with the requirements of MiFID article 

16(2); SSMA article 193(2)(a); RD 217/ 

2008 article 30; MiFID Org Reg articles 

21, 22, 25, and 26 and applicable parts 

of Annex I; CRD articles 74(1) and 85(1); 

SSMA articles 182(1) and 193(3)(b); RD 

217/2008 article 35; MLD articles 11 and 

13; SMLA articles 3(1)–(2), 4, 5, 6, 7(1) 

through (4), 7(7), 7(8), and 8; MLD 

articles 8(3) and 8(4)(a) as applied to 

internal policies, controls and 

procedures regarding recordkeeping of 

customer due diligence activities; and 

SMLA article 26 as applied to policies 

and procedures regarding recordkeeping 

of customer due diligence activities; 

and, if the Covered Entity is a credit 

institution, also LOSSEC article 29(1); 

RD 84/2015 articles 43 and 52(1); BoS 

Circular 2/2016 article 28; and, if the 

Covered Entity is an investment firm, 

also SSMA article 189bis and RD 217/ 

2008 article 96(1). 

(4) Suitability. The requirements of 

Exchange Act rule 15Fh–3(f), as applied 

to one or more recommendations of a 

security-based swap or trading strategy 

involving a security-based swap subject 

thereto, provided that: 

(i) The Covered Entity, in relation to 

the relevant recommendation, is subject 

to and complies with the requirements 

of MiFID articles 24(2) and (3) and 25(1) 

and (2); SSMA articles 208ter(1) and (2), 

209(2), 212, 213, and 220sexies; RD 217/ 

2008 articles 66, 71, 72, 72bis, 72ter, 73, 

74, 74bis, 74ter, 75, 75bis, 76bis, and 80; 

CNMV Technical Guide 4/2017; and 

MiFID Org Reg articles 21(1)(b) and (d), 

54, and 55; and 

(ii) The counterparty to which the 

Covered Entity makes the 

recommendation is a ‘‘professional 

client’’ mentioned in MiFID Annex II 

section I and in SSMA article 205 and 

RD 217/2008 article 58 and is not a 

‘‘special entity’’ as defined in Exchange 

Act section 15F(h)(2)(C) and Exchange 

Act rule 15Fh–2(d). 

(5) Fair and balanced 

communications. The requirements of 

Exchange Act rule 15Fh–3(g), as applied 

to one or more communications subject 

thereto, provided that the Covered 

Entity, in relation to the relevant 

communication, is subject to and 

complies with the requirements of: 

(i) Either MiFID articles 24(1) and (3) 

and SSMA articles 208 and 209(2) or 

MiFID article 30(1) and SSMA article 

207(4); and 

(ii) MiFID articles 24(4) and (5); 

SSMA articles 209(1) and (3) and 210(1); 

RD 217/2008 article 77; MiFID Org Reg 

articles 46–48; MAR articles 12(1)(c), 15 

and 20(1); and MAR Investment 

Recommendations Regulation articles 3 

and 4. 

(6) Daily mark disclosure. The 

requirements of Exchange Act rule 

15Fh–3(c), as applied to one or more 

security-based swaps subject thereto, 

provided that the Covered Entity is 

required to reconcile, and does 

reconcile, the portfolio containing the 

relevant security-based swap on each 

business day pursuant to EMIR articles 

11(1)(b) and 11(2) and EMIR RTS article 

13. 

(e) Substituted Compliance in 

Connection With Recordkeeping, 

Reporting, and Notification 

Requirements 

This Order extends to the following 

provisions that apply to a Covered 

Entity related to recordkeeping, 

reporting, and notification: 

(1)(i) Make and keep current certain 

records. The requirements of the 

following provisions of Exchange Act 

rule 18a–5, provided that the Covered 

Entity complies with the relevant 

conditions in this paragraph (e)(1)(i) and 

with the applicable conditions in 

paragraph (e)(1)(ii): 

(A) The requirements of Exchange Act 

rule 18a–5(b)(1), provided that the 

Covered Entity is subject to and 

complies with the requirements of 

MiFID Org Reg articles 74, 75, and 

Annex IV; MiFIR article 25(1); 

(B) The requirements of Exchange Act 

rule 18a–5(b)(2), provided that the 

Covered Entity is subject to and 

complies with the requirements of 

MiFID Delegated Directive article 2; 

MiFID Org Reg articles 72, 74 and 75; 

EMIR article 39(4); RD 217/2008 article 

41; 

(C) The requirements of Exchange Act 

rule 18a–5(b)(3), provided that the 

Covered Entity is subject to and 

complies with the requirements of CRR 

article 103; MiFID articles 16(6), 25(5), 

and 25(6); MiFID Org Reg articles 59, 74, 

75 and Annex IV; MiFIR article 25(1); 

EMIR articles 9(2) and 11(1)(a); SSMA 

articles 194(1), 218, and 211; and RD 

217/2008 articles 3, 32(1), and 82; 

(D) The requirements of Exchange Act 

rule 18a–5(b)(4), provided that the 

Covered Entity is subject to and 

complies with the requirements of 

MiFID Org Reg article 59; EMIR articles 

9(2) and 11(1)(a); MiFID articles 16(6), 

25(5), and 25(6); SSMA articles 194(1), 

218, and 211; and RD 217/2008 articles 

3, 32(1), and 82; 

(E) The requirements of Exchange Act 

rule 18a–5(b)(5), provided that the 

Covered Entity is subject to and 

complies with the requirements of 

MiFID Org Reg articles 74, 75, and 

Annex IV; and MiFIR article 25(1); 

(F) The requirements of Exchange Act 

rules 18a–5(b)(6) and (b)(11), provided 

that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

CRR articles 103, 105(3), and 105(10); 

CRD article 73; MiFID articles 16(6), 

25(5), 25(6); MiFID Delegated Directive 

article 2; MiFID Org Reg articles 59, 74, 

75, and Annex IV; MiFIR article 25(1); 

EMIR articles 9(2), 11(1)(a), and 39(4); 

SSMA articles 194(1), 218, 211, 276bis, 

276ter, 276qua ́ter, and 276quinquies; 

and RD 217/2008 articles 3, 32(1), 41, 

and 82; and 

(2) The Covered Entity applies 

substituted compliance for the 

requirements of Exchange Act rule 

15Fi–2 pursuant to this Order; 

(G) The requirements of Exchange Act 

rule 18a–5(b)(7), provided that the 

Covered Entity is subject to and 

complies with the requirements of 

MiFIR article 25(1); MLD4 articles 11 

and 13; MiFID article 25(2); SMLA 

articles 3 through 7; and SSMA article 

213; 

(H) The requirements of Exchange Act 

rule 18a–5(b)(8), provided that the 

Covered Entity is subject to and 

complies with the requirements of 

MiFID Org Reg articles 21(1)(d), 35; CRD 

articles 88, 91(1), 91(8); MiFID articles 

9(1) and 16(3); SSMA articles 193(2)(b) 


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and 208bis; LOSSEC articles 24(1) and 

29(2); and BoS Circular 2/2016 Rule 

32(1); 

(I) The requirements of Exchange Act 

rule 18a–5(b)(13), regarding one or more 

provisions of Exchange Act rules 15Fh– 

3 or 15Fk–1 for which substituted 

compliance is available under this 

Order, provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

MiFID Org Reg articles 72, 73, and 

Annex I; MiFID articles 16(6) and 25(2); 

MLD articles 11 and 13; EMIR article 

39(5); SSMA articles 194(1) and 213; RD 

217/2008 article 32(1); and SMLA 

articles 3 through 7, in each case with 

respect to the relevant security-based 

swap or activity; 

(2) With respect to the portion of 

Exchange Act rule 18a–5(b)(13) that 

relates to one or more provisions of 

Exchange Act rule 15Fh–3 for which 

substituted compliance is available 

under this Order, the Covered Entity 

applies substituted compliance for such 

business conduct standard(s) of 

Exchange Act rule 15Fh–3 pursuant to 

this Order, as applicable, with respect to 

the relevant security-based swap or 

activity; and 

(3) With respect to the portion of 

Exchange Act rule 18a–5(b)(13) that 

relates to Exchange Act rule 15Fk–1, the 

Covered Entity applies substituted 

compliance for Exchange Act section 

15F(k) and Exchange Act rule 15Fk–1 

pursuant to this Order; 

(J) The requirements of Exchange Act 

rule 18a–5(b)(14)(i) and (ii), provided 

that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

EMIR article 11(1)(b) and EMIR RTS 

article 15(1)(a); and 

(2) The Covered Entity applies 

substituted compliance for Exchange 

Act rule 15Fi–3 pursuant to this Order; 

and 

(K) The requirements of Exchange Act 

rule 18a–5(b)(14)(iii), provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

EMIR article 11(1)(b) and EMIR RTS 

article 15(1)(a), in each case with 

respect to such security-based swap 

portfolio(s); and 

(2) The Covered Entity applies 

substituted compliance for Exchange 

Act rule 15Fi–4 pursuant to this Order. 

(ii) Paragraph (e)(1)(i) is subject to the 

following further conditions: 

(A) Paragraphs (e)(1)(i)(A) through (C) 

and (G) are subject to the condition that 

the Covered Entity preserves all of the 

data elements necessary to create the 

records required by the applicable 

Exchange Act rules cited in such 

paragraphs and upon request furnishes 

promptly to representatives of the 

Commission the records required by 

those rules; 

(B) A Covered Entity may apply the 

substituted compliance determination 

in paragraph (e)(1)(i)(I) to records of 

compliance with Exchange Act rule 

15Fh–3(b), (c), (e), (f) and (g) in respect 

of one or more security-based swaps or 

activities related to security-based 

swaps; and 

(C) This Order does not extend to the 

requirements of Exchange Act rule 18a– 

5(b)(9), (b)(10) or (b)(12). 

(2)(i) Preserve certain records. The 

requirements of the following 

provisions of Exchange Act rule 18a–6, 

provided that the Covered Entity 

complies with the relevant conditions in 

this paragraph (e)(2)(i) and with the 

applicable conditions in paragraph 

(e)(2)(ii): 

(A) The requirements of Exchange Act 

rule 18a–6(a)(2), provided that the 

Covered Entity is subject to and 

complies with the requirements of 

MiFID Org Reg articles 72, 74, 75, and 

Annex IV; CRR article 103; MiFIR article 

25(1); EMIR article 9(2); MiFID articles 

16(6) and 69(2); CRD article 73; MiFID 

Delegated Directive article 2; SSMA 

articles 194(1), 234, 276bis, 276ter, 

276qua ́ter, and 276quinquies; and RD 

217/2008 articles 32(1) and 41; 

(B) The requirements of Exchange Act 

rule 18a–6(b)(2)(i), provided that the 

Covered Entity is subject to and 

complies with the requirements of 

MiFID Org Reg articles 72, 74, 75, and 

Annex IV; CRR article 103; MiFIR article 

25(1); EMIR article 9(2); MiFID articles 

16(6) and 69(2); CRD article 73; MiFID 

Delegated Directive article 2; SSMA 

articles 194(1), 234, 276bis, 276ter, 

276qua ́ter, and 276quinquies; and RD 

217/2008 articles 32(1) and 41; 

(C) The requirements of Exchange Act 

rule 18a–6(b)(2)(ii), provided that the 

Covered Entity is subject to and 

complies with the requirements of CRR 

article 103; MiFID Org Reg articles 72, 

73, 74, 75, 76, Annex I and Annex IV; 

MiFIR article 25(1); EMIR article 9(2); 

CRD article 73; MiFID articles 16(6), 

16(7); MiFID Delegated Directive article 

2; SSMA articles 194(1) through (3), 

276bis, 276ter, 276qua ́ter, and 

276quinquies; and RD 217/2008 articles 

32(1) through (8) and 41; 

(D) The requirements of Exchange Act 

rule 18a–6(b)(2)(iii), provided that the 

Covered Entity is subject to and 

complies with the requirements of EMIR 

article 9(2); MiFID Org Reg articles 72(1) 

and 73; MiFID article 16(6); SSMA 

articles 194(1); and RD 217/2008 article 

32(1); 

(E) The requirements of Exchange Act 

rule 18a–6(b)(2)(iv), provided that the 

Covered Entity is subject to and 

complies with the requirements of 

MiFID Org Reg articles 72(1) and 73; 

MiFIR article 25(1); EMIR article 9(2); 

MiFID article 16(6); SSMA articles 

194(1); and RD 217/2008 article 32(1); 

(F) The requirements of Exchange Act 

rule 18a–6(b)(2)(vii), regarding one or 

more provisions of Exchange Act rules 

15Fh–3 or 15Fk–1 for which substituted 

compliance is available under this 

Order, provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

EMIR article 9(2); MLD articles 11 and 

13; MiFID Org Reg article 72(1); MiFID 

article 16(6); SMLA articles 3 through 7; 

SSMA articles 194(1); and RD 217/2008 

article 32(1), in each case with respect 

to the relevant security–based swap or 

activity; 

(2) With respect to the portion of 

Exchange Act rule 18a–6(b)(2)(vii) that 

relates to one or more provisions of 

Exchange Act rule 15Fh–3 for which 

substituted compliance is available 

under this Order, the Covered Entity 

applies substituted compliance for such 

business conduct standard(s) of 

Exchange Act rule 15Fh–3 pursuant to 

this Order, as applicable, with respect to 

the relevant security–based swap or 

activity; and 

(3) With respect to the portion of 

Exchange Act rule 18a–6(b)(2)(vii) that 

relates to Exchange Act rule 15Fk–1, the 

Covered Entity applies substituted 

compliance for Exchange Act section 

15F(k) and Exchange Act rule 15Fk–1 

pursuant to this Order; 

(G) The requirements of Exchange Act 

rule 18a–6(c), provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

MiFID Org Reg articles 21(1)(f) and 

72(1); MiFID article 16(6); SSMA 

articles 194(1); and RD 217/2008 article 

32(1); and 

(2) This Order does not extend to the 

requirements of Exchange act rule 18a– 

6(c) relating to Forms SBSE, SBSE–A, 

SBSE–C, SBSE–W, all amendments to 

these forms, and all other licenses or 

other documentation showing the 

registration of the Covered Entity with 

any securities regulatory authority or 

the U.S. Commodity Futures Trading 

Commission; 

(H) The requirements of Exchange Act 

rule 18a–6(d)(1), provided that the 

Covered Entity is subject to and 

complies with the requirements of 

MiFID Org Reg articles 35 and 72(1); 

CRD articles 88, 91(1), 91(8); MiFID 

article 9(1), 16(3), 16(6); LOSSEC 

articles 24(1) and 29(1)–(2); SSMA 

articles 193(2)(b), 194(1), and 208bis; RD 

217/2008 articles 30, 31, and 32(1); and 

BoS Circular 2/2016 Rule 32(1); 


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(I) The requirements of Exchange Act 

rule 18a–6(d)(2)(ii), provided that the 

Covered Entity is subject to and 

complies with the requirements of EMIR 

article 9(2); MiFID Org Reg articles 72(1) 

and 72(3); MiFID article 16(6); SSMA 

articles 194(1); and RD 217/2008 article 

32(1); 

(J) The requirements of Exchange Act 

rule 18a–6(d)(3)(ii), provided that the 

Covered Entity is subject to and 

complies with the requirements of 

MiFID Org Reg articles 21(1)(f), 72, 73, 

and Annex I; MiFID article 16(6); SSMA 

articles 194(1); and RD 217/2008 article 

32(1); 

(K) The requirements of Exchange Act 

rule 18a–6(d)(4) and (d)(5), provided 

that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

EMIR article 9(2); MiFID Org Reg 

articles 24, 25(2), 72(1) and 73; MiFID 

articles 16(2), 16(6), and 25(5); SSMA 

articles 193(2)(a), 194(1), and 218; and 

RD 217/2008 articles 30(2), 32(1), and 

82; and 

(2) The Covered Entity applies 

substituted compliance for Exchange 

Act rules 15Fi–3, 15Fi–4, and 15Fi–5 

pursuant to this Order; 

(L) The requirements of Exchange Act 

rule 18a–6(e), provided that the Covered 

Entity is subject to and complies with 

the requirements of MiFID Org Reg 

articles 21(2), 58, 72(1) and 72(3); MiFID 

articles 16(5), 16(6); SSMA articles 

193(3) and 194(1); and RD 217/2008 

article 32(1); and 

(M) The requirements of Exchange 

Act rule 18a–6(f), provided that the 

Covered Entity is subject to and 

complies with the requirements of 

MiFID Org Reg article 31(1); MiFID 

article 16(5); and SSMA article 193(3). 

(ii) Paragraph (e)(2)(i) is subject to the 

following further conditions: 

(A) A Covered Entity may apply the 

substituted compliance determination 

in paragraph (e)(2)(i)(F) to records 

related to Exchange Act rule 15Fh–3(b), 

(c), (e), (f) and (g) in respect of one or 

more security–based swaps or activities 

related to security–based swaps; and 

(B) This Order does not extend to the 

requirements of Exchange Act rule 18a– 

6(b)(2)(v), (b)(2)(vi), or (b)(2)(viii). 

(3) File Reports. The requirements of 

the following provisions of Exchange 

Act rule 18a–7, provided that the 

Covered Entity complies with the 

relevant conditions in this paragraph 

(e)(3): 

(i) The requirements of Exchange Act 

rule 18a–7(a)(2) and the requirements of 

Exchange Act rule 18a–7(j) as applied to 

the requirements of Exchange Act rule 

18a–7(a)(2), provided that: 

(A) The Covered Entity is subject to 

and complies with the requirements of 

CRR articles 99, 394, 430 and Part Six: 

Title II and Title III; CRR Reporting ITS 

annexes I, II, III, IV, V, VIII, IX, X, XI, 

XII and XIII, as applicable; and 

(B) The Covered Entity files periodic 

unaudited financial and operational 

information with the Commission or its 

designee in the manner and format 

required by Commission rule or order 

and presents the financial information 

in the filing in accordance with 

generally accepted accounting 

principles that the Covered Entity uses 

to prepare general purpose publicly 

available or available to be issued 

financial statements in Spain. 

(4)(i) Provide Notification. The 

requirements of the following 

provisions of Exchange Act rule 18a–8, 

provided that the Covered Entity 

complies with the relevant conditions in 

this paragraph (e)(4)(i) and with the 

applicable conditions in paragraph 

(e)(4)(ii): 

(A) The requirements of Exchange Act 

rule 18a–8(c) and the requirements of 

Exchange Act rule 18a–8(h) as applied 

to the requirements of Exchange Act 

rule 18a–8(c), provided that the Covered 

Entity is subject to and complies with 

the requirements of LOSSEC articles 

116, 119, 121, and 122; and SSMA 

articles 276bis, 276ter, 276qua ́ter, and 

276quinquies; 

(B) The requirements of Exchange Act 

rule 18a–8(d) and the requirements of 

Exchange Act rule 18a–8(h) as applied 

to the requirements of Exchange Act 

rule 18a–8(d), provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

LOSSEC articles 116, 119, 121, and 122; 

and SSMA articles 276bis, 276ter, 

276qua ́ter, and 276quinquies; and 

(2) This Order does not extend to the 

requirements of Exchange Act rule 18a– 

8(d) to give notice with respect to books 

and records required by Exchange Act 

rule 18a–5 for which the Covered Entity 

does not apply substituted compliance 

pursuant to this Order; 

(ii) Paragraph (e)(4)(i) is subject to the 

following further conditions: 

(A) The Covered Entity: 

(1) Simultaneously sends a copy of 

any notice required to be sent by 

Spanish law cited in this paragraph of 

the Order to the Commission in the 

manner specified on the Commission’s 

website; and 

(2) Includes with the transmission the 

contact information of an individual 

who can provide further information 

about the matter that is the subject of 

the notice; and 

(B) This Order does not extend to the 

requirements of paragraph (g) of rule 

18a–8 or to the requirements of 

Exchange Act rule 18a–8(h) as applied 

to such requirements. 

(5) Daily Trading Records. The 

requirements of Exchange Act section 

15F(g), provided that the Covered Entity 

is subject to and complies with the 

requirements of SSMA Article 194(1); 

and RD 217/2008 Article 32(1). 

(6) Examination and Production of 

Records. Notwithstanding the forgoing 

provisions of paragraph (e) of this 

Order, this Order does not extend to, 

and Covered Entities remain subject to, 

the requirement of Exchange Act section 

15F(f) to keep books and records open 

to inspection by any representative of 

the Commission and the requirement of 

Exchange Act rule 18a–6(g) to furnish 

promptly to a representative of the 

Commission legible, true, complete, and 

current copies of those records of the 

Covered Entity that are required to be 

preserved under Exchange Act rule 18a– 

6, or any other records of the Covered 

Entity that are subject to examination or 

required to be made or maintained 

pursuant to Exchange Act section 15F 

that are requested by a representative of 

the Commission. 

(7) English Translations. 

Notwithstanding the forgoing provisions 

of paragraph (e) of this Order, to the 

extent documents are not prepared in 

the English language, Covered Entities 

must promptly furnish to a 

representative of the Commission upon 

request an English translation of any 

record, report, or notification of the 

Covered Entity that is required to be 

made, preserved, filed, or subject to 

examination pursuant to Exchange Act 

section 15F of this Order. 

(f) Definitions 

(1) ‘‘Covered Entity’’ means an entity 

that: 

(i) Is a security–based swap dealer or 

major security–based swap participant 

registered with the Commission; 

(ii) Is not a ‘‘U.S. person,’’ as that term 

is defined in rule 3a71–3(a)(4) under the 

Exchange Act; and 

(iii) Is an investment firm or a credit 

institution authorized by the CNMV and 

the ECB to provide investment services 

and/or perform investment activities in 

the Kingdom of Spain; and 

(iv) Is a significant institution 

supervised by the CNMV and the ECB 

(with the participation of the BoS). 

(2) ‘‘MiFID’’ means the ‘‘Markets in 

Financial Instruments Directive,’’ 

Directive 2014/65/EU, as amended from 

time to time. 

(3) ‘‘MiFID Org Reg’’ means 

Commission Delegated Regulation (EU) 

2017/565, as amended from time to 

time. 


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47696 Federal Register / Vol. 86, No. 163 / Thursday, August 26, 2021 / Notices 

1 15 U.S.C. 77f(b). 

2 15 U.S.C. 78m(e). 

3 15 U.S.C. 78n(g). 

4 15 U.S.C. 77f(b)(2). The annual adjustments are 

designed to adjust the fee rate in a given fiscal year 

so that, when applied to the aggregate maximum 

offering prices at which securities are proposed to 

be offered for the fiscal year, it is reasonably likely 

to produce total fee collections under Section 6(b) 

equal to the ‘‘target fee collection amount’’ required 

by Section 6(b)(6)(A) for that fiscal year. 

5 15 U.S.C. 78m(e)(4) and 15 U.S.C. 78n(g)(4). 

6 15 U.S.C. 77f(b)(6)(A). 

7The Commission annually adjusts for inflation 

the civil monetary penalties that can be imposed 

under the statutes administered by Commission, as 

required by the Federal Civil Penalties Inflation 

Adjustment Act Improvements Act of 2015, 

pursuant to guidance from the Office of 

Management and Budget (‘‘OMB’’). See OMB 

December 16, 2019, Memorandum for the Heads of 

Executive Departments and Agencies, M–20–05, on 

‘‘Implementation of Penalty Inflation Adjustments 

for 2020, Pursuant to the Federal Civil Penalties 

Inflation Adjustment Act Improvements Act of 

2015.’’ 

8This value was announced on July 13, 2021. See 

https://www.bls.gov/news.release/archives/cpi_

07132021.htm. 

9See Supplemental Tables, ‘‘CPI–U News Release 

Companion File’’ from the July 13, 2021, press 

release. 

(4) ‘‘MiFID Delegated Directive’’ 

means Commission Delegated Directive 

(EU) 2017/593, as amended from time to 

time. 

(5) ‘‘MiFIR’’ means Regulation (EU) 

600/2014, as amended from time to 

time. 

(6) ‘‘EMIR’’ means the ‘‘European 

Market Infrastructure Regulation,’’ 

Regulation (EU) 648/2012, as amended 

from time to time. 

(7) ‘‘EMIR RTS’’ means Commission 

Delegated Regulation (EU) 149/2013, as 

amended from time to time. 

(8) ‘‘EMIR Margin RTS’’ means 

Commission Delegated Regulation (EU) 

2016/2251, as amended from time to 

time. 

(9) ‘‘CRD’’ means Directive 2013/36/ 

EU, as amended from time to time. 

(10) ‘‘CRR’’ means Regulation (EU) 

575/2013, as amended from time to 

time. 

(11) ‘‘CRR Reporting ITS’’ means 

Commission Implementing Regulation 

(EU) 680/2014, as amended from time to 

time. 

(12) ‘‘MLD’’ means Directive (EU) 

2015/849, as amended from time to 

time. 

(13) ‘‘MAR’’ means the ‘‘Market 

Abuse Regulation,’’ Regulation (EU) 

596/2014, as amended from time to 

time. 

(14) ‘‘MAR Investment 

Recommendations Regulation’’ means 

Commission Delegated Regulation (EU) 

2016/958, as amended from time to 

time. 

(15) ‘‘CNMV’’ means the Spanish 

Comisio ́n Nacional del Mercado de 

Valores. 

(16) ‘‘BoS’’ means the Spanish Banco 

de Espan ̃ a. 

(17) ‘‘ECB’’ means the European 

Central Bank. 

(18) ‘‘Accounting Directive’’ means 

Directive 2013/34/EU of the European 

Parliament and of the Council of 26 June 

2013, as amended from time to time. 

(19) ‘‘BRRD’’ means Bank Recovery 

and Resolution Directive 2014/59/EU of 

the European Parliament and of the 

Council of 15 May 2014, as amended 

from time to time. 

(20) ‘‘SSMA’’ means the Spanish 

Securities Market Act, Royal Legislative 

Decree 4/2015, of October 23, as 

amended from time to time. 

(21) ‘‘RD 217/2008’’ means Royal 

Decree 217/2008, of February 15, as 

amended from time to time. 

(22) ‘‘LOSSEC’’ means the Act on 

Regulation, Supervision, and Solvency 

of Credit Institutions, Law 10/2014, of 

June 26, as amended from time to time. 

(23) ‘‘RD 84/2015’’ means Royal 

Decree 84/2015, of February 13, as 

amended from time to time. 

(24) ‘‘BoS Circular 2/2016’’ means 

Circular 2/2016, of February 2, of the 

Bank of Spain, as amended from time to 

time. 

(25) ‘‘SMLA’’ means the Spanish 

Anti-Money Laundering Act, Law 10/ 

2010, of April 28, as amended from time 

to time. 

(26) ‘‘Prudentially regulated’’ means a 

Covered Entity that has a ‘‘prudential 

regulator’’ as that term is defined in 

Exchange Act section 3(a)(74). 

[FR Doc. 2021–18335 Filed 8–25–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release Nos. 33–10965; 34–92720/August 

23, 2021] 

Order Making Fiscal Year 2022 Annual 

Adjustments to Registration Fee Rates 

I. Background 

The Commission collects fees under 

various provisions of the securities 

laws. Section 6(b) of the Securities Act 

of 1933 (‘‘Securities Act’’) requires the 

Commission to collect fees from issuers 

on the registration of securities.1 Section 

13(e) of the Securities Exchange Act of 

1934 (‘‘Exchange Act’’) requires the 

Commission to collect fees on specified 

repurchases of securities.2 Section 14(g) 

of the Exchange Act requires the 

Commission to collect fees on specified 

proxy solicitations and statements in 

corporate control transactions.3 These 

provisions require the Commission to 

make annual adjustments to the 

applicable fee rates. 

II. Fiscal Year 2022 Annual Adjustment 

to Fee Rates 

Section 6(b)(2) of the Securities Act 

requires the Commission to make an 

annual adjustment to the fee rate 

applicable under Section 6(b).4 The 

annual adjustment to the fee rate under 

Section 6(b) of the Securities Act also 

sets the annual adjustment to the fee 

rates under Sections 13(e) and 14(g) of 

the Exchange Act.5

Section 6(b)(2) sets forth the method 

for determining the annual adjustment 

to the fee rate under Section 6(b) for 

fiscal year 2022. Specifically, the 

Commission must adjust the fee rate 

under Section 6(b) to a ‘‘rate that, when 

applied to the baseline estimate of the 

aggregate maximum offering prices for 

[fiscal year 2022], is reasonably likely to 

produce aggregate fee collections under 

[Section 6(b)] that are equal to the target 

fee collection amount for [fiscal year 

2022].’’ That is, the adjusted rate is 

determined by dividing the ‘‘target fee 

collection amount’’ for fiscal year 2022 

by the ‘‘baseline estimate of the 

aggregate maximum offering prices’’ for 

fiscal year 2022. 

III. Target Fee Collection Amount for 

FY 2022 

The statutory ‘‘target fee collection 

amount’’ for fiscal year 2021 and ‘‘each 

fiscal year thereafter’’ is ‘‘an amount 

that is equal to the target fee collection 

amount for the prior fiscal year, 

adjusted by the rate of inflation.’’ 6 The 

target fee collection amount for fiscal 

year 2021 was $709,554,300. To adjust 

the fiscal year 2021 target fee collection 

amount by the rate of inflation to 

determine the fiscal year 2022 target fee 

collection amount, the Commission has 

determined that it will use an approach 

similar to one that it uses to annually 

adjust civil monetary penalties by the 

rate of inflation.7 Under this approach, 

the Commission will use the year-overyear change, rounded to five decimal 

places, in the Consumer Price Index for 

All Urban Consumers (‘‘CPI–U’’), not 

seasonally adjusted, in calculating the 

target fee collection amount, which is 

then rounded to the nearest whole 

dollar. The calculation for the fiscal year 

2022 target fee collection amount is 

described in more detail below. 

The most recent CPI–U index value, 

not seasonally adjusted, available for 

use by the Commission at the time this 

fee rate update was prepared was for 

June 2021. This value is 271.696.8 The 

CPI–U index value, not seasonally 

adjusted, for June 2020 is 257.797.9


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