UNITED STATES OF AMERICA

 COMMODITY FUTURES TRADING COMMISSION

 OPEN MEETING ON TWO FINAL RULE PROPOSALS

 UNDER THE DODD-FRANK WALL STREET REFORM

 AND CONSUMER PROTECTION ACT

 Washington, D.C.

 Tuesday, December 20, 2011
 2

 1 PARTICIPANTS:

 2 Commission Members:

 3 GARY GENSLER, Chairman

 4 BART CHILTON, Commissioner

 5 MARK WETJEN, Commissioner

 6 JILL E. SOMMERS, Commissioner

 7 SCOTT D. O'MALIA, Commissioner

 8 Staff:

 9 DAVID STAWICK, Office of the Secretariat

 10 Presentation No. 1: Final Rule on Swap Data

 Recordkeeping and Reporting Requirements

 11

 12 DAVID TAYLOR, Division of Market Oversight

 13 ANNE SCHUBERT, Division of Market Oversight

 14 JOHN RODGERS, Office of Data and Technology

 15 RICK SHILTS, Division of Market Oversight

 16 DAN BERKOVITZ, Office of General Counsel

 17 ANDREI KIRILENKO, Office of Chief Economist

 18 DAN MCKEEVER, Office of Chief Economist

 19 JACKIE MESA, Office of International Affairs

 20 BILL BANWO, Office of General Counsel

 21 JON DEBORD, Division of Clearing and Risk

 22
 3

 1 PARTICIPANTS (CONT'D):

 2 Presentation No. 2: Final Rule on Real-Time

 Reporting of Swap Transaction Data

 3

 4 JEFFREY STEINER, Division of Market Oversight

 5 TOM LEAHY, Division of Market Oversight

 6 RICK SHILTS, Division of Market Oversight

 7 JASON SHAFER, Office of General Counsel

 8 SUSAN NATHAN, Division of Market Oversight

 9

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 4

 1 P R O C E E D I N G S

 2 (9:36 a.m.)

 3 CHAIRMAN GENSLER: Good morning. This

 4 meeting will come to order. This is a public

 5 meeting of the Commodity Futures Trading

 6 Commission to consider final rules under

 7 Dodd-Frank Act. I'd like to welcome members of

 8 the public, market participants, members of the

 9 media, as well as those listening to the meeting

 10 on the phone, and watching the webcast.

 11 I'd like to thank each of Commissioners

 12 Sommers, Chilton, O'Malia, and Wetjen for their

 13 significant contribution in the rule-writing

 14 process, and particularly, though, today, I want

 15 to thank the CFTC's hardworking and dedicated

 16 staff.

 17 Under Dodd-Frank, this agency has been

 18 tasked to overseeing the swaps market, as you've

 19 heard me say probably often, a market seven times

 20 the size of the futures market, and far more

 21 complex. And the staff is working incredibly long

 22 and hard hours to consider public comment, to
 5

 1 consider input, to get these rules balances, not

 2 against a clock, but to get these new rules of the

 3 road in place to make these markets more

 4 transparent for the public and safer for the

 5 American public.

 6 I particularly want to express my

 7 gratitude, and I think it's probably the

 8 sentiments of all the Commissioners, that we hope

 9 that everybody at the CFTC and their families have

 10 a happy holidays in this holiday period. But it's

 11 the staff that truly makes all of us in this

 12 Commission better informed, makes any rules that

 13 we consider and actions we do more balanced and

 14 thoughtful, and, frankly, makes us look good, and

 15 I want to thank you.

 16 As the year draws to a close, I'd also

 17 like to reflect on just this past year for a

 18 moment, and what's been accomplished. This time

 19 last year, the agency was writing proposals, and I

 20 think Commissioner O'Malia was telling me about

 21 Macie's Christmas gift list. In fact, I think

 22 that was at the December 16th meeting, just one
 6

 1 year ago. Now, the CFTC has substantially

 2 completed that proposal phase, and last summer, we

 3 turned the corner and started towards finalizing

 4 rules. And, so far, actually, have considered and

 5 finalized -- including some that were early on --

 6 20 final rules, and, potentially, with the two

 7 rules on transparency today, maybe 22.

 8 Now, we have much to do after the first

 9 of the year, and we're working to complete these

 10 rules, as I say, thoughtfully, and not against a

 11 clock, and having received 27,000 public comment

 12 letters now; well over 1,100 meetings; and 14

 13 roundtables. And more roundtables -- there will

 14 definitely be more roundtables on some subjects

 15 we've announced. They'll be additional staff

 16 roundtables, as the staff comes forward and makes

 17 recommendations for additional roundtables on

 18 further Dodd-Frank subjects and even

 19 non-Dodd-Frank subjects. I think we benefit from

 20 these staff roundtables.

 21 Some of the major rules we finalized in

 22 the transparency field, even before today -- large
 7

 1 trader reporting and swap data repository

 2 registration -- and both of those rules have

 3 actually gone effective. We've started to receive

 4 large trader information, starting November 21st

 5 of this year. And we've also had several entities

 6 now start the process of registering a swap data

 7 repository. And importantly, I would note that as

 8 we finalized the large trader reporting rule, many

 9 of the people sitting at this table right here --

 10 John Rodgers, who heads up our technology efforts,

 11 Rich Shilts, and others from the Division of

 12 Market Oversight; I suspect many others -- reached

 13 out to market participants to ease the process of

 14 compliance. They had a regular dialogue -- I

 15 think it was weekly, if not twice a week -- and

 16 staff also developed a guidebook of data

 17 standards, which can be found on our website. In

 18 a similar fashion, if we are to finalize the rules

 19 today on data reporting, the staff will do the

 20 same thing here, and I hope the market

 21 participants will -- as they did -- graciously

 22 make themselves available to those phone calls,
 8

 1 and we'd look to put out guidebooks and so forth,

 2 as well.

 3 We've also finalized rules giving us

 4 more authority to effectively prosecute wrongdoers

 5 who recklessly manipulate markets and also rules

 6 rewarding whistleblowers, and these were effective

 7 August 15th and October 25th. And the

 8 whistleblower office here at the CFTC is now up,

 9 and we have a new director in place, which we're

 10 very pleased joined us just in the last -- I guess

 11 it was in the last week and a half or so.

 12 We have rules establishing risk

 13 management and other requirements of clearing

 14 organizations, and those go effective over a

 15 period of time throughout 2012 because we phased

 16 much of that implementation. We finalized

 17 position limit rules that similarly have a phasing

 18 over a period of time, and critically await us

 19 finalizing other rule -- the definition rules. I

 20 hope that we can move on those soon, but it's

 21 likely that we'll move on the entity definitions.

 22 I know Commissioner Chilton will keep asking me
 9

 1 about product definitions and we're working with

 2 the SEC on that. But I think entity definitions

 3 will tee up with the SEC in January, but product

 4 definitions probably after that.

 5 And we've also completed rules earlier

 6 this month on enhancing customer protection

 7 regarding investments of their funds. We hope to,

 8 in January, to take up further rules with regard

 9 to the segregation and protection of segregation

 10 for cleared swaps, as well.

 11 But today, we're looking at Swap Data

 12 Recordkeeping and Reporting and Real-Time

 13 Reporting Rules. We did notice last week for this

 14 meeting an additional exemptive relief, which the

 15 five of us signed off on yesterday, so we won't

 16 need to take that up today. But this exemptive

 17 relief is regarding the effective dates of

 18 Dodd-Frank. Just as we'd done in June or July of

 19 this past year, we wanted to give the markets

 20 relief that until we finalize our rules that they

 21 can continue, in essence, along the path that

 22 they've been on. And so, we've finalized
 10

 1 exemptive relief yesterday, providing market

 2 participants that certainty.

 3 In terms of today, I'll have statements

 4 of support for each of the rules, but in a

 5 nutshell, I think that they're both critical rules

 6 and go to the heart of what Congress wanted to

 7 address here, it's transparency. And one of the

 8 rules today is transparency to the regulators and

 9 the other is transparency to the public. Both are

 10 critically important because the more transparent

 11 a marketplace, the more liquid it is, the more

 12 competitive it is, and I think when it's more open

 13 and transparent, all the end-users get the benefit

 14 of lower costs in the marketplace. But, also,

 15 this first panel is going to talk to the data that

 16 goes to the data repositories for the regulators.

 17 That's critical so that the regulators and not

 18 just the CFTC can oversee the markets, police the

 19 markets for fraud and manipulation, but also

 20 regulators can see the data and help assess the

 21 risks in the system to the American public.

 22 And I think that today, critically,
 11

 1 we're going to move forward on both of these

 2 rules, as many of the Commissioners wanted to do

 3 at the same time. There is a significant phasing,

 4 as the teams will go through, but the phasing, in

 5 some instances, goes out two and three years. But

 6 the initial dates do start I think it's July 16th

 7 of next year. So, even the first dates are out

 8 six or seven months.

 9 And I think this will give regulators

 10 important information. By contract, in the '08

 11 crisis, there was a lack of market information to

 12 regulators and lack of market information to the

 13 public on this critical $300 trillion derivatives

 14 marketplace.

 15 I think today -- with that, I'm probably

 16 just going to turn it over to Commissioner

 17 Sommers.

 18 COMMISSIONER SOMMERS: Thank you, Mr.

 19 Chairman. And, as always, thank the teams that

 20 have worked so hard to have the rules that we have

 21 before us today. Both of these rules are fairly

 22 large and very complex, and I understand how hard
 12

 1 you've worked to have them before us today. So,

 2 really appreciate everything you've done so far.

 3 Today, we are considering very important

 4 data, recordkeeping, and reporting rules that are

 5 critical to ensuring that swap market activity is

 6 transparent to regulators and market participants

 7 alike. The rules that we are voting on today seek

 8 to strike a balance between obtaining necessary

 9 and timely market data while attempting to

 10 minimize the associated costs and burdens on

 11 markets and market participants. Make no mistake,

 12 these rules certainly have costs associated with

 13 them, but swap data recordkeeping and reporting

 14 are mandated by Dodd- Frank. Our job as

 15 regulators is to understand that legislative

 16 mandate, to identify the regulatory objectives

 17 that will give effect to that mandate, and set out

 18 to achieve those objectives in the least costly

 19 and burdensome way.

 20 For the swap data recordkeeping and

 21 reporting rules to function properly, we need to

 22 ensure there is consistency among domestic and
 13

 1 international regulators when it comes to unique

 2 swap identifiers, unique product identifies, and

 3 legal entity identifiers. I appreciate all the

 4 work and consultation that has been done in this

 5 area, and I am encouraged that we are heading in

 6 the right direction. I look forward to discussing

 7 how we can ensure consistency among our domestic

 8 and international colleagues. I supported the

 9 data recordkeeping and reporting requirements that

 10 were proposed last November, and I intend to

 11 support the final rules today.

 12 I did not vote for the real-time

 13 reporting proposals last December. Among my

 14 concerns were the differences between our proposed

 15 rules and the SEC's proposed rules, the block

 16 trade provisions, and the 15- minute time delay

 17 for reporting block trades. I am pleased that we

 18 will be re-proposing the block provisions, and

 19 that we have substantially revised the time delay

 20 provisions. Comment letters addressing these

 21 areas were very helpful and deserve credit for the

 22 Commission adopting a much more reasonable
 14

 1 approach in the final rules. I hope we follow

 2 this model in the future and adopt final rules

 3 that are much more reasonable than the rules we

 4 have initially proposed.

 5 When it comes to swaps markets, I

 6 believe a reasonable, measured approach is

 7 critical. Swap markets developed without our

 8 involvement -- and we have little experience with

 9 these markets -- the truth is, we don't know what

 10 the full impact of our rules will be and don't

 11 know whether the assumptions we operate under are

 12 valid. Given this knowledge gap, it makes more

 13 sense to start with a broader, more flexible

 14 approach, and become narrower and more restrictive

 15 only as it is necessary and after we have

 16 sufficient experience and data to make these

 17 decisions.

 18 I intend to vote for the real-time

 19 reporting rules but do have a couple of questions

 20 for the team. I want to hear about our

 21 cooperation and coordination with domestic and

 22 international regulators and whether we expect
 15

 1 there will be inconsistencies; how the timing of

 2 reporting requirements will work in the context of

 3 transactions that are executed and confirmed

 4 between parties in time zones halfway around the

 5 world; and whether we have any analysis that

 6 suggests the time delays we are setting in these

 7 final rules are the correct time delays.

 8 One last point I would like to make

 9 applies to a broader set of rules than the rules

 10 we are considering today. The preamble of the

 11 real-time reporting rules state that, a swap is

 12 economically related to a single contract, if it

 13 utilizes as its sole floating reference price, the

 14 prices generated directly or indirectly from the

 15 price of a single contract. The term is not

 16 defined in the rule text. The term "economically

 17 related" as well as "economically fungible" are

 18 also terms used in the context of other rules.

 19 The term "economically equivalent swap" appears in

 20 the Commission's final position limit rules,

 21 without much of a definition, and just two weeks

 22 ago the Commission voted on rules relating to the
 16

 1 determining whether a swap is made available to

 2 trade. Those proposed rules direct DCMs and SEFs

 3 to determine whether a swap is "economically

 4 equivalent" with another swap after considering

 5 each swap's material pricing terms, defining

 6 "economically related," "economically fungible,"

 7 and "economically equivalent" in a consistent way

 8 across all rules is important. If critical terms

 9 such as these are used in multiple places in

 10 Commission rules, the terms should have the same

 11 meaning each time they are used. I am not sure we

 12 have fully articulated definitions of these three

 13 very similar, yet different terms. I have

 14 concerns regarding the market implications as we

 15 continue to finalize rules without fully defining

 16 these similar terms.

 17 Thank you, again, to all the teams, and

 18 I look forward to the discussions.

 19 CHAIRMAN GENSLER: Thank you,

 20 Commissioner Sommers. Thank you, particularly, on

 21 the three different references to economically

 22 equivalent, fungible, and others, and I'm sure
 17

 1 once I get back from vacation, I'll get briefed on

 2 all of that. But it's a good point.

 3 Commissioner Chilton?

 4 COMMISSIONER CHILTON: Thanks, Mr.

 5 Chairman. Morning. Three points today. One,

 6 that this is a iterative process. As Commissioner

 7 Sommers was just talking about, we've taken the

 8 Block Trading Rule out of what we're doing today

 9 and it's because, under no uncertain terms, were

 10 we told that we got it wrong, quite frankly. And

 11 so, as we've said -- many of us over the last year

 12 -- if we get it wrong, we're going to acknowledge

 13 it and go back and try to rework it. So, it's

 14 been an iterative process to date, and the first

 15 point I want to make today is that it needs to be

 16 an iterative process as we go forward, also, that

 17 maybe there's something we don't know. Maybe we

 18 will learn something right away in what we've

 19 done, and we need to further clarify. I'm not

 20 saying we would do another rule, but we have

 21 options for interpretation, et cetera. And I'm

 22 not suggesting that these rules, in particular,
 18

 1 raise any specific concerns in that regard. I'm

 2 just saying that we don't check these off and say

 3 we're done with that; forget about it. It needs

 4 to continue to be an iterative process as we good

 5 forward with the implementation.

 6 The second point is that -- and I've

 7 talked about this a little bit before, but these

 8 are another good two rules that show that there

 9 actually is economic activity that's generated

 10 through Dodd-Frank rulemaking. It's easy in this

 11 town to paint things as black and white -- and you

 12 hear a lot of people talk about the job-killing

 13 Dodd-Frank Bill -- and we've done many rules that

 14 actually will create economic activity, and it's a

 15 case here today. For example, with regard to the

 16 swaps data repositories, third parties will be

 17 allowed to further analyze that data and come up

 18 with all sorts of innovative things that they may

 19 wish to sell. And so, that's one example.

 20 Another example would be the LEI -- the

 21 legal entity identifier and -- which is really

 22 historic. I mean, we are essentially creating a
 19

 1 Dewey decimal system for derivatives here -- first

 2 time ever -- and we have worked with our

 3 international colleagues on this. This isn't just

 4 the U.S. coming up with it. And there are all

 5 sorts of economic values that will come in the

 6 U.S., I think, because we're doing it first, but I

 7 think also to the industry globally.

 8 And then, the last point -- and the LEI

 9 is a good example of this -- there's a story --

 10 Jeremy Grant wrote a story today in the FT and it

 11 says, well, maybe they're not moving forward in

 12 the EU as fast as people had anticipated, and

 13 maybe we're going to not move as fast. I think

 14 people shouldn't get the impression that we are

 15 somehow slowing down because there's not an

 16 interest. The mandate of Dodd-Frank is alive and

 17 well here. We know what we're supposed to do.

 18 So, don't confuse thoughtful with a lessened

 19 interest. We're being thoughtful in what we're

 20 doing. We're helping to create an environment for

 21 economic activity. So, anyway, we're on the

 22 ground. We're doing it, and today's just another
 20

 1 example, I think, of how the process actually has

 2 worked well.

 3 Thanks, Mr. Chairman.

 4 CHAIRMAN GENSLER: Thanks, Commissioner

 5 Chilton. Commissioner O'Malia? And we can find

 6 out about Macie.

 7 COMMISSIONER O'MALIA: No chance on

 8 Macie. No reports on a Christmas list. She has

 9 been pretty good. It's day-by-day.

 10 CHAIRMAN GENSLER: All right.

 11 COMMISSIONER O'MALIA: All across

 12 America, families are trekking to the mall looking

 13 for the perfect Christmas and Hanukkah presents.

 14 The most sought-after holiday gifts are the

 15 high-tech gadgets. These gadgets are promised to

 16 make life better by staying in touch, staying

 17 informed, and, of course, looking cool.

 18 Therefore, it is fitting that the Commission is

 19 devoting the first night of Hanukkah and last few

 20 days of Christmas to gifting two final rules on

 21 data and technology. Both rules enhance the

 22 quality and quantity of information available
 21

 1 regulators, market participants, and public at

 2 large.

 3 The rules have as their goal improved

 4 transparency, price discovery, and market

 5 integrity. I have no doubt that the data is

 6 critical to performing our oversight mission, and

 7 our investment in technology is critical if we are

 8 to perform our mission competently. And I will

 9 have a couple of questions regarding technology

 10 and where we are in our investment.

 11 I greatly appreciate the cooperation of

 12 the Commission staff and thank both rule teams for

 13 their hard work to develop these rules in much

 14 greater flexibility than the proposals. I intend

 15 to support both rules. I believe both of these

 16 rules, in their final iterations, have made great

 17 strides to accommodate market participants' input,

 18 while balancing the needs of the Commission's own

 19 needs. I remain, however, concerned that the

 20 frustrating -- with the frustrating complexity,

 21 which is amplified by the fact that several key

 22 definitions have yet to be finalized and the
 22

 1 re-proposals have yet to be revealed.

 2 However, I believe it is an appropriate

 3 time to put these rules out in order to permit

 4 technology build- outs to occur on both sides, the

 5 market and the Commission.

 6 Today's two rules serve two important

 7 goals. The first, important swap transaction,

 8 level data, will be made available to the market

 9 to improve transparency, price discovery, and

 10 market integrity. Second, reporting will fulfill

 11 our own regulatory mandate, including systemic

 12 risk mitigation, market monitoring, and market

 13 abuse prevention.

 14 I recognize these rules will require

 15 market participants to build out complex and

 16 costly technology systems. And I think

 17 Commissioner Chilton and I see two sides of the

 18 same coin: The cost-benefit and analyses of both

 19 rules identify that each rule will impose costs of

 20 more than $100 million on the American economy,

 21 thus making each rule a major rule.

 22 Including these rules, this brings our
 23

 1 current total of major rules promulgated by the

 2 Commission to seven, which means that the handful

 3 of Dodd-Frank rules we've addressed so far have a

 4 minimum impact on the American economy of at least

 5 $700 million. Even with these substantial costs,

 6 the final rules did take into account many

 7 important steps to minimize the burden and to

 8 avoid redundant reporting requirements as compared

 9 to their draft proposals.

 10 The two final rules have harmonized

 11 their implementation and compliance timelines to

 12 avoid forcing market participants to meet

 13 disparate deadlines. For each of the rules, I

 14 would like to outline some of the specific changes

 15 that were made to accommodate the comments offered

 16 by market participants, which were very helpful.

 17 The final data keeping rule requires

 18 reporting of important swap data at a swap's

 19 creation and over the course of its life. All

 20 essential data will be provided in a timely

 21 fashion so that regulators have an up-to-date

 22 picture of a given swap at any point.
 24

 1 The first improvement to a rule is the

 2 streamlined reporting approach, where reporting is

 3 done by the reporting counterparty that the

 4 Commission believe has the easiest, fastest, and

 5 cheapest access to data. Importantly, for swaps

 6 executed on a SEF or DCM -- designated contract

 7 market -- and then cleared, reporting

 8 counterparties no longer need to report any

 9 creation data to SDR and this will eliminate

 10 redundant reporting.

 11 Second, the rule provides staggered

 12 reporting timelines depending on the asset class

 13 and the status of the counterparty. This phasing

 14 recognizes the many significant differences

 15 between asset classes and the counterparties.

 16 Third, the final rule now leaves certain

 17 technical decisions to the market. First, market

 18 participants have discretion to determine whether

 19 to report information on a life cycle or snapshot

 20 basis for any asset class. Second, it allows

 21 counterparties to report data to an SDR in any

 22 electronic normalized format acceptable to the
 25

 1 SDR. These revisions recognize industry practices

 2 and afford much needed flexibility.

 3 With regard to the real-time rule, I was

 4 particularly skeptical when this proposal was

 5 introduced in November of 2010. The proposed rule

 6 was vague, fell short of providing concrete

 7 direction, and did not follow statutory

 8 requirements that any rules we prescribe take into

 9 account whether public disclosure of such swap

 10 information will reduce market liquidity -- a

 11 significant concern of the end-user communities

 12 and a statutory requirement. While I remain

 13 concerned about the complexity of this rule, as

 14 well the interconnection with the upcoming

 15 re-proposal regarding block sizes, I believe this

 16 rule has significantly improved from its draft

 17 form.

 18 This rule provides for reasonable

 19 interim solutions, such as universal time delays

 20 and interim caps on the reporting of notional and

 21 principal amounts until such time as appropriate

 22 minimum block sizes are established when the rules
 26

 1 are finalized. These interim solutions are

 2 necessary to protect market participants

 3 conducting bilateral swaps in more illiquid

 4 markets through an upcoming re-proposal.

 5 The real-time public reporting rule

 6 addresses many concerns that were expressed by

 7 end-users. Specifically, the rule provides a

 8 longer time delay for end-users that are reporting

 9 parties to come into compliance with the real-time

 10 reporting requirements. Additionally, the final

 11 rules provide for the phasing in of longer time

 12 delays with respect to bilateral swaps in which at

 13 least one party is an end-user. As such end-users

 14 may not have the technology or infrastructure

 15 readily available to report such swaps to the SDR.

 16 The final rules, data fields, and time

 17 delays have been coordinated with the swap data

 18 rule and recordkeeping rules, thus enabling

 19 end-users to mitigate costs in reporting swap data

 20 to an SDR.

 21 I suspect that many participants will

 22 find the reporting timetables, which are both
 27

 1 participant- and asset class-dependent, confusing,

 2 and is frankly too long and too complex to attempt

 3 to describe in this statement. So, I'll ask the

 4 team to do that. However, I believe the rule is

 5 far more accommodating than the proposal.

 6 I understand the market will still have

 7 many questions related to the reporting of block

 8 sizes and provisions relating to public

 9 dissemination of off- facility swaps. These rules

 10 will be coming, including the re-proposal of the

 11 block rule.

 12 There are certainly many market

 13 participants who will benefit from a more focused

 14 dialogue with these new rules. I do appreciate

 15 the hard work of the teams and certainly their

 16 patience in helping me understand these confusing

 17 rules.

 18 I would like to wish all my colleagues

 19 and the Commission staff a very happy and safe

 20 holiday going forward. Thank you.

 21 CHAIRMAN GENSLER: Thank you,

 22 Commissioner O'Malia.
 28

 1 Commissioner Wetjen?

 2 COMMISSIONER WETJEN: Thank you,

 3 Chairman Gensler. Thank you, also, the

 4 professional staff for their efforts on these

 5 rules. A tremendous amount of work has gone into

 6 these technical and detailed rulemakings, and I

 7 appreciate that you have remained open to changes

 8 concerning the recommendations before us.

 9 The recent financial crisis was caused,

 10 in part, by a dearth of information about

 11 derivatives exposures throughout the financial

 12 markets. The two rules before us today are

 13 intended to increase transparency and to help us

 14 avoid the type of market disruption experienced in

 15 2008.

 16 This isn't part of my prepared remarks,

 17 but I was actually serving in Congress during the

 18 fall of 2008, and know from experience just how

 19 big of a challenge it was that the regulatory

 20 community did not have information about

 21 derivatives exposures, and I think the more

 22 important point about this that had they had that
 29

 1 information -- it's not clear for sure, but

 2 perhaps -- both the regulators and Congress might

 3 have responded differently to the crisis. So, I

 4 think what we're doing here is extremely

 5 important.

 6 First, the regulatory reporting rules

 7 ensure that the Commission has the necessary

 8 information to monitor systemic risks and craft

 9 appropriate regulatory responses when needed.

 10 Second, the real-time reporting rules equalize

 11 access to pricing information, which will benefit

 12 commercial firms and consumers.

 13 I also will be supporting both final

 14 rules. But I am mindful of the potential effects

 15 of the public- reporting rule that have been

 16 raised in the comment letters and during my

 17 meetings with market participants. Congress

 18 itself recognized that post-trade transparency,

 19 though essential, could impair market liquidity in

 20 some circumstances and instructed that our final

 21 reporting rules account for this risk. We are,

 22 therefore, faced with potentially conflicting
 30

 1 objectives. Congress directed us to "make swap

 2 transaction and pricing data available to the

 3 public," but it also directed that we protect the

 4 anonymity of counterparties and avoid reporting

 5 requirements and timelines that diminish liquidity

 6 or adversely affect pricing.

 7 I believe, however, that the staff's

 8 final recommendations strike an appropriate

 9 balance between these objectives. They set forth

 10 a measured reporting regime that is consistent

 11 with the language and intent of the Dodd-Frank

 12 Act. In order to protect market liquidity, the

 13 public reporting rules permit delayed reporting of

 14 swap transactions and will phase-in the

 15 implementation of shorter delays over a limited

 16 timeframe. In effect, all trades will be reported

 17 as block transactions until the Commission later

 18 establishes large notional and block thresholds,

 19 and does so in a manner that accounts for

 20 liquidity differences between and within asset

 21 classes.

 22 Today's regulations also establish
 31

 1 specific rounding conventions and permit the

 2 masking of trades above preliminary thresholds to

 3 account for execution and hedging risks and to

 4 protect the identity of market participants. This

 5 draws on the success of the TRACE model in the

 6 fixed income markets. And I am pleased that the

 7 regulations were revised to differentiate between

 8 market participants and to further differentiate

 9 between asset classes, with important anonymity

 10 protections for swaps in certain physical

 11 commodities.

 12 Commercial end-users and small market

 13 participants will not carry the reporting

 14 obligations in most cases. Where they do, they

 15 will be given additional time and will be able to

 16 report in a single, coordinated transmission to

 17 the swap data repository of their choice.

 18 With respect to the regulatory reporting

 19 rules, the Commission is taking important first

 20 steps that will lead to the development of

 21 universal legal entity, product, and swap

 22 identifiers. This information will enable the
 32

 1 Commission and other regulators to aggregate data

 2 and effectively perform regulatory

 3 responsibilities. Having comprehensive swap data

 4 in a standardized format is essential to assessing

 5 systemic risk, conducting market surveillance, and

 6 supervising market participants.

 7 As a final note, I am cognizant of the

 8 fact that these rules may not provide absolute

 9 clarity on every point, notwithstanding the

 10 staff's laudable work to make them as

 11 comprehensive but flexible as possible. To be

 12 sure, there are a wide variety of participants in

 13 these markets. There must be reporting

 14 consistency if we are to fully realize the

 15 benefits of transparency, and the application of

 16 these rules likely will require ongoing guidance

 17 to those responsible for compliance. The staff

 18 has assured me that it will continue to engage

 19 with the public and market participants throughout

 20 the implementation process.

 21 I want to thank the staff again for

 22 their commitment in this regard, and for their
 33

 1 hard work on these rules. Thank you.

 2 CHAIRMAN GENSLER: Thank you,

 3 Commissioner Wetjen. Thank all the Commissioners

 4 and excellent team. You know, we could introduce,

 5 or just -- who's going to take the lead, David?

 6 So, David Taylor, who's been our team

 7 lead; Anne Schubert, who also seems to be in each

 8 of our offices on this rule; Rick Shilts and

 9 Andrei Kirilenko and John Rodgers, who are all

 10 division directors of market oversight, our chief

 11 economist, and our technology -- because this rule

 12 has really been a collaboration around market

 13 oversight, economics, and all of the economists

 14 have been involved in this, it's just remarkable,

 15 and data. And then Dan and -- well, see, Dan

 16 Berkovitz, you didn't want to be at the table

 17 anymore. Bill Banwo is here instead -- all right

 18 -- the real person in the Office of General

 19 Counsel. So is it, David, you're going to take

 20 the lead?

 21 MR. TAYLOR: Good morning, Mr. Chairman

 22 and Commissioners. Before I begin, I would like
 34

 1 to thank my fellow team members for their help in

 2 preparing the final rule I'm about to present,

 3 dedicated staff from the Divisions of Market

 4 Oversight, Enforcement, Clearing and Risk, and

 5 Swap Dealer, and Intermediary Oversight; and from

 6 the Offices of International Affairs, the General

 7 Counsel, the Chief Economist; and last, but not

 8 least, Data and Technology, including staff from

 9 Chicago and New York, as well as Washington, were

 10 essential to completing this final rule.

 11 Today's staff is recommending that the

 12 Commission adopt a final rule regarding swap data

 13 recordkeeping and reporting requirements, a rule

 14 we believe is crucial to fulfilling the

 15 transparency, market supervision, and systemic

 16 risk mitigation purposes of the Dodd-Frank Act.

 17 This final rule will govern the reporting of swap

 18 data to swap data repositories, or SDRs. Its

 19 fundamental goal is to ensure that complete data

 20 concerning all swaps subject to the Commission's

 21 jurisdiction is maintained in SDRs, where it will

 22 not be disclosed publicly, but will be available
 35

 1 to the Commission and other financial regulators.

 2 In preparing this final rule, staff has

 3 considered and evaluated the 75 comment letters

 4 received, as well as extensive input from

 5 roundtable participants and consultations with

 6 U.S. and international regulators. We especially

 7 focused on comments regarding ways that

 8 recordkeeping and reporting burdens could be

 9 reduced.

 10 The final rule maintains the fundamental

 11 aspects of the proposed rule issued by the

 12 Commission in December last year. It also adjusts

 13 a number of aspects of the rule to streamline

 14 reporting and minimize burdens where possible,

 15 especially for swap counterparties who are not

 16 swap dealers or major swap participants, while

 17 continuing to require swap data reporting that

 18 will fulfill the objectives of the Dodd-Frank Act.

 19 The recordkeeping provisions of the

 20 final rule are based on the Commission's existing

 21 recordkeeping regulations. The rule generally

 22 calls for registered entities and counterparties
 36

 1 to keep records relating to swaps throughout the

 2 existence of each swap and for five years

 3 following final termination of the swap. Records

 4 kept by registered entities, swap dealers, and

 5 major swap participants must be readily accessible

 6 during the life of the swap and for two years

 7 thereafter and retrievable from storage within

 8 three business days during the remainder of the

 9 retention period. To reduce recordkeeping

 10 burdens, the final rule permits non-SD/MSP

 11 counterparties to keep records in either

 12 electronic or paper form and requires that such

 13 counterparties be able to retrieve records within

 14 five business days throughout the retention

 15 period.

 16 The data reporting provisions of the

 17 final rule require reporting of swap data from

 18 each of two important stages of the existence of a

 19 swap -- the creation of the swap and the

 20 continuation of the swap over its existence until

 21 its final termination. To ensure timeliness,

 22 accuracy, and completeness with respect to data,
 37

 1 the rule requires reporting of two types of data

 2 relating to the creation of a swap. The primary

 3 economic terms of the swap verified or matched by

 4 the counterparties at or shortly after the time of

 5 execution, and all of the terms of the swap

 6 included in the legal confirmation. To ensure

 7 inclusion of primary economic terms necessary for

 8 regulatory purposes, the rule specifies minimum

 9 primary economic terms -- or, as it's now called,

 10 PET data -- that must be reported for swaps in

 11 each asset class.

 12 The final rule requires continuation

 13 data reporting over the life of the swap. This

 14 includes reporting of all changes to the primary

 15 economic terms of the swap and reporting of the

 16 valuation of the swap.

 17 The final rule, as some Commissioners

 18 noted this morning, adopts a streamlined reporting

 19 regime that requires reporting by the registered

 20 entities or swap counterparties that the

 21 Commission believes have the easiest, fastest, and

 22 cheapest access to data, and those most likely to
 38

 1 have the necessary automated systems. The purpose

 2 of this regime is to reduce the burden on all

 3 market participants and enhance market efficiency

 4 while continuing to fulfill the purposes of the

 5 Dodd-Frank Act.

 6 Here are several important ways in which

 7 this is achieved. For swaps executed on a SEF or

 8 DCM and cleared by a DCO, non-SD/MSP

 9 counterparties will have no reporting obligations,

 10 and dealers and MSPs will only required to report

 11 valuation data. SEFs and DCMs will report all

 12 creation data as soon as technologically

 13 practicable after execution, and DCOs will report

 14 continuation data.

 15 For facility swaps, the DCO will report

 16 both creation data and continuation data if the

 17 swap is accepted for clearing within the deadline

 18 for PET data reporting by the reporting

 19 counterparty. This will provide an incentive for

 20 increased clearing of swaps. Here to, non-SD/MSP

 21 counterparties have no reporting obligations.

 22 Where a counterparty is required to
 39

 1 report, the rules minimize the reporting burden by

 2 providing that the reporting counterparty is a

 3 dealer or an MSP, wherever possible. In response

 4 to comments, the final rule makes foreign SDs or

 5 MSPs the reporting counterparty. When neither

 6 counterparty is an SD or MSP, but one is a

 7 financial entity as defined in the Dodd-Frank Act,

 8 in response to comments the rule makes the

 9 financial entity the reporting counterparty.

 10 The reporting deadlines in the final

 11 rule are coordinated with the dissemination delays

 12 in the Part 43 Real-Time Reporting Rule in order

 13 to reduce burdens by permitting a registered

 14 entity or reporting counterparty to fulfill

 15 obligations under both rules by making a single

 16 report.

 17 The final rule also extends and phases

 18 in reporting deadlines; for example, where the

 19 longest proposed rule deadline for reporting by a

 20 non-SD/MSP counterparty was 24 hours, the final

 21 rule calls for reporting within 48 business hours

 22 during the first year of reporting, 36 business
 40

 1 hours during the second year, and 24 business

 2 hours thereafter. These deadlines now exclude

 3 hours on weekend days and legal holidays, as

 4 requested by commenters. Deadlines for SDs and

 5 MSPs, while shorter, are also phased in over three

 6 years, and longer deadlines are provided in the

 7 more complex, other commodities asset class.

 8 The final rule calls for reporting

 9 changes to the primary economic terms of a swap

 10 during its continuation in a manner that ensures

 11 that data in the SDR remains current and accurate.

 12 Where the proposed rule required use of the life

 13 cycle reporting method in certain asset classes

 14 and use of the snapshot reporting method in

 15 others, the final rule does not mandate either

 16 method and leaves the choice to market

 17 participants in order to reduce burdens.

 18 Non-SD/MSP reporting counterparties will not be

 19 required to report valuation data for cleared

 20 swaps. That will be done by the DCO. And for

 21 uncleared swaps, they will only be required to

 22 report valuation data on a quarterly rather than a
 41

 1 daily basis. While the proposed rule called for

 2 possible reporting related to contract intrinsic

 3 data, master agreements, credit support

 4 agreements, and collateral, the final rule does

 5 not require such reporting.

 6 The final rule follows the proposed rule

 7 in calling for reporting of three unique

 8 identifies: A unique swap identified, or USI,

 9 that will tie together all data reported for a

 10 given swap; a legal entity identifier, or LEI,

 11 that will provide a precise, universal means of

 12 identifying the counterparties to each swap; and a

 13 unique product identifier, or UPI, and product

 14 classification system that will identify the

 15 underlying asset or assets of each swap. These

 16 identifiers will be crucial regulatory tools for

 17 linking data together across counterparties' asset

 18 classes, repositories, and transactions, so that

 19 regulators can actually use the data and SDRs to

 20 fulfill the purposes of the Dodd-Frank Act.

 21 The final rule takes a first touch

 22 approach to USI creation but excuses non-SD/MSP
 42

 1 reporting counterparties from this task. The rule

 2 takes note of the substantial progress toward an

 3 international LEI made by a global industry

 4 initiative and by international regulators. It

 5 also sets out technical and governance principles

 6 and reference data requirements for the LEI to be

 7 used in recordkeeping and reporting under the

 8 Commission's jurisdiction. The rule also provides

 9 for Commission designation of a UPI and product

 10 classification system, when a system meeting

 11 Commission requirements has been developed.

 12 To prevent data fragmentation, the final

 13 rule requires that all data for a given swap must

 14 be reported to a single SDR, the one to which data

 15 is first reported for the swap. The final rule

 16 follows the proposed rule in permitting

 17 third-party facilitation of data reporting, in

 18 providing for reporting to the Commission if there

 19 should be an asset class for which no SDR accepts

 20 data, and in providing for reporting of errors and

 21 omissions discovered in previously reported data.

 22 In response to comments, the final rule
 43

 1 permits voluntary supplemental reporting by market

 2 participants not required to report and provides

 3 for minimum information to be included in such

 4 reports in order to prevent double counting of the

 5 swaps involved.

 6 The final rule follows the proposed rule

 7 with respect to required data standards, directing

 8 SDRs to provide data to the Commission in the

 9 format required by the Commission, while

 10 permitting SDRs to accept data in various formats.

 11 Finally, the final rule responds to

 12 comments by phasing in the beginning of compliance

 13 by asset class and by counterparty type. It

 14 establishes three compliance dates: Compliance

 15 date one, the date on which registered entities,

 16 dealers, and MSPs must begin compliance with

 17 respect to swaps in the credit and interest rate

 18 asset classes, will be the later of July 16, 2012,

 19 or 60 days after issuance of Commission

 20 definitions of swap, swap dealer, and major swap

 21 participant; compliance date two, the date on

 22 which registered entities, dealers, and MSPs must
 44

 1 begin compliance for swaps in the equity foreign

 2 exchange, and other commodity asset classes will

 3 be 90 calendar days after compliance date one;

 4 compliance date three, the date on which

 5 non-SD/MSP counterparties must begin compliance in

 6 all asset classes will be 90 calendar days after

 7 compliance date two and 180 calendar days after

 8 compliance date one. This will give non-SD/MSP

 9 counterparties additional time to develop and test

 10 automated systems and prepare for compliance, and

 11 these dates are the same compliance dates in the

 12 Part 43 Real- Time Rule, so that, again, these

 13 reporting obligations can be aligned.

 14 That concludes my remarks, and we will

 15 be happy to answer any questions you may have.

 16 CHAIRMAN GENSLER: Thank you, David, and

 17 the team. The Chair will now entertain a motion

 18 to accept the staff recommendation concerning the

 19 final rule on data reporting.

 20 MR. SHILTS: So moved.

 21 COMMISSIONER CHILTON: Second.

 22 CHAIRMAN GENSLER: As I had mentioned, I
 45

 1 support this rule and enormously grateful to the

 2 team and the public that's given so much input. I

 3 do have a few questions, if I might?

 4 First, this rule addresses all of the

 5 swap data that happens after the effective dates,

 6 starting, I guess, next July 16th for some part of

 7 the market. Is that correct?

 8 MR. TAYLOR: Yes.

 9 CHAIRMAN GENSLER: So, for the

 10 pre-effective date swaps, whether they're prior to

 11 the President signing the bill in July of 2010,

 12 which will call pre-enactment swaps, are the swaps

 13 entered into after the enactment, but before the

 14 effective date, which I gather we have another

 15 term called -- what's it's called -- transition

 16 swaps?

 17 MR. TAYLOR: Historic, yeah.

 18 CHAIRMAN GENSLER: What are they called?

 19 MR. TAYLOR: You have pre-enactment

 20 swaps and transition swaps, together those are

 21 historical swaps.

 22 CHAIRMAN GENSLER: All right. So, while
 46

 1 I'll use your term historical swaps, I gather, but

 2 if you can tell the public this does not yet

 3 address the historical swaps, and we need to come

 4 back to do something which is Part 46, or does

 5 this address historical swaps?

 6 MR. TAYLOR: No, that's correct, Mr.

 7 Chairman. Historical swaps will be addressed by a

 8 companion rule. I'm sure all five of you will be

 9 delighted to know it is a smaller rule that will

 10 be forthcoming early in the new year, and it will

 11 be in Part 46.

 12 CHAIRMAN GENSLER: Okay. So, I look

 13 forward, and I'm sure the other Commissioners,

 14 after you take a well- deserved holiday break,

 15 that we see what you want to recommend to us on

 16 the historical swaps.

 17 My second question is, do you know if

 18 the Federal Register prints color?

 19 MR. TAYLOR: I don't, and we're going to

 20 ask about that. We will try to find a way to show

 21 the color differences in black and white --

 22 CHAIRMAN GENSLER: Well, if I can --
 47

 1 MR. TAYLOR: -- if we can.

 2 CHAIRMAN GENSLER: -- I mean, this is

 3 just one example of one of the color charts of

 4 implementation phasing that this team has put in.

 5 But can you maybe assure, if not by today, by

 6 tomorrow, but hopefully today, you get these --

 7 this chart on implementation phasing and also you

 8 have on pages 70 and 72 these wonderful diagrams,

 9 that they be up on our website, so that -- and

 10 this partly addresses Commissioner O'Malia's

 11 concern that I think that the team has done an

 12 excellent job about implementation phasing and

 13 thinking that this is not one size fits all. If

 14 it's an interest rate swap and it's done on a swap

 15 execution facility and it's cleared, that's one

 16 circumstance that's going to be effective July

 17 16th next year and would be reported pretty

 18 readily to a data repository.

 19 If on the other end of the spectrum it's

 20 two energy firms that are not swap dealers, and

 21 they're doing something that's a customized trade,

 22 that's not cleared, they're going to get a lot
 48

 1 more time, and it's going to be very different.

 2 And I think these pages on 70, 72 -- and the

 3 Federal Register may or may not do color, but our

 4 website does, and if you can put these up, I think

 5 it'd be helpful, too, and partially addresses

 6 Commissioner's O'Malia's point, but it helped me a

 7 lot.

 8 And then I have two other questions. In

 9 all of this you talk about interest rate swaps,

 10 and I take it that when you define rates, that

 11 includes cross-currency swaps, is that correct?

 12 MR. TAYLOR: That's correct, and that

 13 was in response to a number of comments from the

 14 market.

 15 CHAIRMAN GENSLER: Okay. But then

 16 separately, on what's called FX swaps, which is a

 17 separate category, can you tell me what happens?

 18 How does this rule tie into what the Treasury may

 19 be doing about FX swaps?

 20 MR. TAYLOR: My understanding, Mr.

 21 Chairman, is that Dodd-Frank itself provided that

 22 regardless of what the Treasury may do in
 49

 1 exempting FX transactions, they will have to be

 2 reported to SDRs. So, the rule follows the Act in

 3 that respect.

 4 CHAIRMAN GENSLER: Okay.

 5 MR. TAYLOR: The remaining transactions,

 6 it would fit into that asset class we put together

 7 as foreign exchange transactions, one part of

 8 which is what the bill defines as a foreign

 9 exchange swap, and we provide for reporting of

 10 those.

 11 CHAIRMAN GENSLER: And that reporting,

 12 if I recall, starts nine months after, so it would

 13 be starting October 16th instead of July 16th, is

 14 that correct?

 15 MR. TAYLOR: That's correct.

 16 CHAIRMAN GENSLER: And then, the last

 17 question, David, and I apologize, it's just a

 18 technical clean up. Could you look at Page 228?

 19 And I noted this just as I was walking in the room

 20 to you, if later you could take a look to see if

 21 there's one phrase in this paragraph A which is

 22 for a non-swap dealer counterparty that is a
 50

 1 financial entity under 2h(7) that I just wonder --

 2 this might be a technical clean up -- maybe needs

 3 to also be in next paragraph B, as I was rereading

 4 this last night.

 5 MR. TAYLOR: We'll be happy to take a

 6 look, Mr. Chairman and make a technical

 7 correction, if needed. I think it's correct the

 8 way it reads, and I actually think it reads the

 9 way it reads because of a request you made.

 10 CHAIRMAN GENSLER: It might well be --

 11 MR. TAYLOR: It's --

 12 CHAIRMAN GENSLER: -- that I don't

 13 remember, but just take a look to see if there's

 14 any technical thing.

 15 MR. TAYLOR: The key there is in the

 16 next paragraph, subparagraph B. We are granting

 17 extra time, but we're only -- you know, a longer

 18 reporting deadline, but we're only doing it for

 19 somebody who's not a dealer MSP, is not a

 20 financial. So, that's why it's in one paragraph

 21 and not the other.

 22 CHAIRMAN GENSLER: Yeah, the end-users
 51

 1 that we've all -- following congressional intent

 2 --

 3 MR. TAYLOR: Yes.

 4 CHAIRMAN GENSLER: -- giving a lot of

 5 deference to. This gives that deference, you

 6 think?

 7 MR. TAYLOR: Yes.

 8 CHAIRMAN GENSLER: Okay. Good. That's

 9 just really why I'm raising it.

 10 Commissioner Sommers?

 11 COMMISSIONER SOMMERS: Thank you, again,

 12 to this team and to David for all that he has done

 13 with regard to coordination with international

 14 regulators, and that's really the focus of my

 15 questions today.

 16 David, I guess my first question would

 17 be, if you could explain what you've done so far

 18 to coordinate with international regulators and

 19 whether you believe there will be any

 20 inconsistencies in what we are doing today and

 21 what they -- we hope -- eventually will do.

 22 MR. TAYLOR: Thank you, Commissioner.
 52

 1 We have had, as you noted, an extensive series of

 2 coordination meetings, not only with the SEC and

 3 the OFR in the United States about international

 4 aspects of this, but with a series -- we met with

 5 international regulators from 25 countries -- I

 6 won't read the whole list -- but the Financial

 7 Stability Board, the International Monetary Fund,

 8 the Bank for International Settlements, the OTC

 9 Derivatives Regulators Forum, and the OTC

 10 Derivatives Supervisors Group, the European

 11 Central Bank, the European Commission, like five

 12 other European organizations, the International

 13 Organization for Standardization and the

 14 Association of National Numbering Agencies. And

 15 the CFTC also chaired the CPSS-IOSCO Data Task

 16 Force that has produced a report ultimately for

 17 the G-20 about data reporting to repositories and,

 18 in particular, that recommended the LEI. We

 19 actually drafted the LEI sections of that report.

 20 Our principals for the LEI are very closely

 21 aligned with the principles in the OFR Policy

 22 Statement in the CPSS-IOSCO data report with the
 53

 1 approach that the SEC is taking and with the

 2 principles that have been discussed at the recent

 3 FSB-led LEI workshop, and that are being discussed

 4 now by an FSB-led small expert group that is

 5 preparing recommendations for international

 6 governance of the LEI system.

 7 In some sense, we're going first. This

 8 rule, to my knowledge, is going to be the first

 9 one in the world that fulfills the commitment that

 10 the G-20 made right after the financial crisis

 11 that all OTC derivatives should be reported to

 12 trade repositories by the end of 2012. So, I

 13 can't entirely answer whether we are precisely

 14 aligned with everyone else because we're first.

 15 But, to our knowledge, we've coordinated as

 16 closely as possible.

 17 COMMISSIONER SOMMERS: Thank you. And

 18 certainly cannot express how much appreciation we

 19 have because I know it hasn't been easy, but it

 20 doesn't work if there isn't global adherence to

 21 these standards. I mean, it's -- the usefulness

 22 dissipates considerably if we're the only ones
 54

 1 doing this. So, appreciate all your hard work

 2 there.

 3 With regard to the LEI utility, I had

 4 some concerns regarding the governance of that

 5 body and would hope that you could explain how we

 6 intend to ensure that this utility is abiding by

 7 the standards and principles that have been set

 8 out by international regulators.

 9 MR. TAYLOR: Sure. That concern,

 10 Commissioner, is shared by regulators across the

 11 world, and it has really driven -- it drove things

 12 in the CPSS-IOSCO Task Force. It drove the

 13 holding of the international LEI workshop that the

 14 FSB led at the end of September, and it is driving

 15 a group that the G-20 asked to have formed, a

 16 small group of international regulatory experts on

 17 this issue that had its first meeting earlier this

 18 month. The Commission is participating in that

 19 group and is going to come out by April -- which

 20 that may seem like a long time to some of us

 21 sitting here, but, trust me, in the international

 22 context, that is lightening speed -- with some
 55

 1 clear recommendations for the governance and

 2 control of the utility that will issue LEIs.

 3 The point is, really, the LEI, to be

 4 fully effective, needs to be a global LEI. It

 5 needs a consensus and an adoption by the whole

 6 world, and it needs, therefore, to come from a

 7 single source. But that means that regulators,

 8 starting with the Commission -- because we, again,

 9 are first in the world to mandate the use of the

 10 LEI by means of a rule, but other regulators will

 11 have the same interests -- need a way to ensure

 12 that throughout its operation, the whole LEI

 13 system follows governance principles that have

 14 been laid down by regulators.

 15 So, we've very carefully laid out in the

 16 rule governance principles that must be followed

 17 by any LEI whose use we mandate. We've also noted

 18 that the Commission will have a means to embody

 19 later any further principles for governance that

 20 come out of the international meetings on this

 21 subject.

 22 COMMISSIONER SOMMERS: Do you foresee
 56

 1 any sort of complications with compliance if there

 2 is more delays with other countries implementing

 3 their rules? So, you know, even though our

 4 deadlines are either July or 60 days after the

 5 definitions, what if other countries aren't until

 6 2013? Does that create complications for us or

 7 for the workability of this?

 8 MR. TAYLOR: And let me ask, are you

 9 focused still on LEIs or more generally?

 10 COMMISSIONER SOMMERS: I think in

 11 general.

 12 MR. TAYLOR: We have both the advantages

 13 and disadvantages of being the trailblazers, but I

 14 think this will work in practice. A great number

 15 of swaps are subject to our jurisdiction, and I

 16 believe we're giving appropriate lead time for the

 17 industry to prepare, once they've seen this rule,

 18 to set up and test their automated systems, so

 19 that reporting can actually work when it is

 20 supposed to start in the phased approach that

 21 we've taken. And we do have the advantage that

 22 the swaps marketplace, unlike regulators, is
 57

 1 international. So, major firms are going to set

 2 up to comply where they must with this rule, and I

 3 think that will help in future phases.

 4 My understanding, in general, is that

 5 the rules that are coming in our wake -- for

 6 instance, the European Commission will be doing

 7 rules over the course of the next year; are going

 8 to be taking the same fundamental approach that we

 9 take -- they may differ in some details, but this

 10 phased approach actually may have benefits.

 11 Lessons can be learned from our lead and taken

 12 into account. As Commission Chilton mentioned

 13 earlier, this will remain an iterative process and

 14 we will have ways to make adjustments when we see

 15 they're needed.

 16 COMMISSIONER SOMMERS: Thank you.

 17 CHAIRMAN GENSLER: Thank you,

 18 Commissioner Sommers. I might add that Jackie

 19 Mesa and I were honored to be over in this

 20 collective meeting in Paris that had been

 21 arranged, and you've done so much internationally,

 22 as well, and at the meeting, we informed folks
 58

 1 that we were likely to consider this rule. They'd

 2 all received an actual document, the actual draft

 3 text -- Hong Kong, Singapore, Japan, Canada,

 4 Europe, the U.S. Did I miss anybody, Jackie?

 5 So, we've gotten whatever feedback

 6 directly in the text, but, as David said, we'll be

 7 a little ahead of them in timing. And on the LEI,

 8 they were very constructive and felt it was -- I

 9 mean, it's an international organization. We're

 10 not going to run this, right? We're not running

 11 the LEI, somebody else is.

 12 MR. TAYLOR: The whole world will do it

 13 together in the end.

 14 CHAIRMAN GENSLER: Yeah, okay.

 15 Commissioner Chilton?

 16 COMMISSIONER CHILTON: Thank you.

 17 David, I had a colloquy with Mr. Radhakrishnan in

 18 an earlier meeting concerning the issue of

 19 bundling, and it's my understanding that our

 20 intent is to treat DCOs and SDRs equally in this.

 21 I know it's not recognized specifically in this

 22 rule, but is that your understanding, as well,
 59

 1 with regard to this rule?

 2 MR. TAYLOR: Yes, Commissioner. I

 3 think, in general, that's correct. Although I

 4 should say, our rule does not specifically address

 5 a bundling rule issue. We wouldn't be the right

 6 rule to do that.

 7 My understanding is that the SDR rule,

 8 which is already final, bars bundling of services

 9 by an SDR. And maybe for the public I should just

 10 explain briefly. We're not allowing SDRs to say

 11 if you want to report data to us, that's fine, but

 12 you also have to buy our expensive back- office

 13 services or, you know, some other service that we

 14 offer. You have to be able to come and simply buy

 15 the reporting service, if that's all you want to

 16 do. And I know some market participants have

 17 urged the Commission to apply that same principle

 18 with DCOs. That would, my understanding, have to

 19 be done in rules for DCOs. It's not a swap data

 20 reporting rule issue.

 21 COMMISSIONER CHILTON: Good. Thank you.

 22 I have another question regarding competition.
 60

 1 This bundling is competition, too, but

 2 the rule says that SDRs have to make the pricing

 3 data available in a non- discriminatory manner

 4 through the Internet or through some other

 5 electronic data feed that is widely published, in

 6 a machine readable format, and they should do this

 7 as technologically practicable.

 8 And so, my question is, in part, this

 9 keeps the SDRs from playing favorites by giving

 10 somebody a competitive advantage over someone

 11 else; what recourse do market participants have if

 12 they are concerned that an SDR is not providing

 13 the information in either a user-friendly readable

 14 format or not making the information available as

 15 technologically practicable?

 16 MR. TAYLOR: That's actually, probably,

 17 in my view, the best question of the day because I

 18 get to pass it off. That's actually Part 43.

 19 COMMISSIONER CHILTON: Oh, okay. Okay.

 20 MR. TAYLOR: Our data --

 21 COMMISSIONER CHILTON: Yeah, I'm sorry.

 22 I'm confused.
 61

 1 MR. TAYLOR: -- is invisible to the

 2 public, it's just visible to regulators. It's the

 3 part that goes out in real-time reporting that

 4 would involve that.

 5 COMMISSIONER CHILTON: Yeah, yeah, yeah,

 6 right. Okay. Thank you.

 7 We allow in here for voluntary

 8 reporting, which was sort of new to me and I was

 9 sort of surprised when we were briefed on it that

 10 people were interested in a voluntary reporting.

 11 Can you talk about that a little bit?

 12 MR. TAYLOR: Sure. I think we were

 13 mildly surprised, as well. Although I will say

 14 allowing voluntary supplemental reports, as we're

 15 calling them, is another way that we're aligning

 16 ourselves as closely as we can with international

 17 regulators. As you probably know, most of the

 18 rest of the world, it is one difference we have

 19 with them. Most of the rest of the world, as I

 20 understand it, is intending to require both

 21 counterparties to report. That's what's going on

 22 in voluntary reporting in rates and credit now.
 62

 1 There are some obvious advantages to that in terms

 2 of, you know, double-checking the accuracy and

 3 currency of the data, but there's a greater burden

 4 involved.

 5 The Dodd-Frank Act calls for a single

 6 reporting counterparty regime, and so, we have

 7 followed that, although nothing in the Act

 8 prohibits voluntary additional reporting. And we

 9 actually got several comments asking us to confirm

 10 that voluntary reporting by people not required to

 11 report was permitted and that we should provide

 12 for that. We heard from end-users, from

 13 repositories, from international regulators, and

 14 from roundtable participants, all suggesting that.

 15 We found it was technologically feasible to do

 16 that, and it could have benefits for data accuracy

 17 and also for counterparty business processes. And

 18 so, what we've done in the rule is to say we will

 19 permit these reports, but we built in a modest set

 20 of safeguards to be sure there's no double

 21 counting.

 22 If you're making a voluntary
 63

 1 supplemental report, you need to include an

 2 indication that this is a VSR. You need to

 3 include the USI for the swap that was officially

 4 reported, so that the records can be linked up and

 5 it's not double counted. You need to include the

 6 identity of the SDR, where the first report went,

 7 if this voluntary report is going somewhere else.

 8 You need to include the LEI of the counterparties.

 9 Just enough data to be sure you can sync up these

 10 records.

 11 This is also going to be useful in the

 12 international context because the law, in some

 13 other countries, may require a counterparty, who

 14 for us is a non-reporting counterparty, to report

 15 somewhere else, and that, therefore, links up with

 16 the way we addressed what we call international

 17 swaps in that context. We'll be able to exchange

 18 our USI with the identifier used in another

 19 country, so that both sides don't double count.

 20 COMMISSIONER CHILTON: I really commend

 21 you and the team for coming up with something

 22 that's adaptable to that, and I just think it's an
 64

 1 interesting note that people want to voluntarily

 2 report. This isn't a mandate for some folks and

 3 they want to voluntarily report.

 4 And I have one other question. Mr.

 5 Kirilenko, even today, we've talked about the size

 6 of the swaps market that Chairman said 300

 7 trillion, Bloomberg reported it was 700 trillion.

 8 Do you have an idea or do you have a source what

 9 you think the size of the swaps -- the OTC swaps

 10 market is?

 11 MR. KIRILENKO: I think the latest

 12 number that's -- and it links very closely to this

 13 day when we're going -- and we have these rules in

 14 front of the Commission that have to do with

 15 reporting. So, at some point, we'll actually know

 16 for sure what the size of this market is. The

 17 latest number that has sort of been used is a

 18 number reported by the Bank for International

 19 Settlements, which is the number based on the

 20 survey. So, the bank goes out and does a survey

 21 of market participants, and that number, I

 22 believe, is a little bit over $700 trillion in
 65

 1 notional.

 2 COMMISSIONER CHILTON: Okay. And maybe

 3 300 will be our part of the --

 4 CHAIRMAN GENSLER: I was just

 5 referencing that the U.S. size is judged to be

 6 somewhere about half of it --

 7 SPEAKER: Yeah.

 8 CHAIRMAN GENSLER: -- but also the

 9 controller of the currency has historically

 10 surveyed the top 25 -- or maybe it's the top 50,

 11 I'm not sure --

 12 MR. KIRILENKO: Institutions, right?

 13 CHAIRMAN GENSLER: Yeah, bank holding

 14 companies. And that adds up to about -- in the

 15 U.S. -- just under 300 trillion. That data's

 16 about six months old.

 17 COMMISSIONER CHILTON: The reason I ask

 18 is for two reasons. One, part of the whole -- and

 19 Commissioner Wetjen had to deal with this when he

 20 was Hill, but, you know, part of the diatribe

 21 against Dodd-Frank was if you pass all these

 22 rules, you know, the swaps market is going to
 66

 1 shrivel up and die. And it actually -- in

 2 actuality, it's been the other way, that's it's

 3 actually grown, it's expanded. And so, I'm not

 4 saying that there's a direct cause and effect, but

 5 it certainly didn't have what some of the

 6 naysayers said, the impact that it might have.

 7 And the second point is that while you

 8 have these numbers -- and of anybody in this

 9 entire building, I'm glad our chief economist has

 10 the numbers, but there's still some discrepancy as

 11 to what numbers we're talking about, and to me,

 12 that just shows the urgency that I was talking

 13 about earlier with the mandates of the law that we

 14 don't know. That we -- yeah, until we get these

 15 reporting and recordkeeping rules in place, we

 16 don't have all these trades on our radar screen.

 17 You know, once in a while they come in like a UFO

 18 and we have to deal with them, but we're not much

 19 safer than we have, despite what the Germans said

 20 about all the great things that we've done. Until

 21 we get these things all in place and get them done

 22 right, we're still not much better protected.
 67

 1 So, again, just to reiterate that we're

 2 going forward and I think this is a good rule, and

 3 I thank David, you and your team. And for the SDR

 4 folks, you have precursor of my question. Thanks.

 5 CHAIRMAN GENSLER: You know,

 6 Commissioner Chilton, you've highlighted something

 7 Congress foresaw, that this data was going to be

 8 really important to regulators, but they also

 9 mandated that we, at least twice a year, aggregate

 10 and summarize it and put it out in some summary

 11 form. It would be my hope -- it may not happen

 12 quickly -- that we take the lessons from this

 13 agency that we've for decades put out weekly data

 14 that aggregates something. Now, that's not going

 15 to happen immediately, and Congress said we only

 16 have to do it twice a year, but I would hope that

 17 we could move in the direction using technology to

 18 hopefully put aggregate data out that's relevant

 19 and helps the markets.

 20 COMMISSIONER CHILTON: Thanks.

 21 CHAIRMAN GENSLER: Commissioner O'Malia?

 22 COMMISSIONER O'MALIA: David and Anne,
 68

 1 you did a great job to inform us and put this rule

 2 together. So, I'm grateful for that.

 3 I have a number of questions here that

 4 probably don't need extensive answers but want to

 5 touch on a wide range of issues here. You talked

 6 about the phasing approach, and I'm curious as to

 7 what the factors you considered in determining the

 8 rates and credit asset classes would be subject

 9 to, what were the phasing criteria that you

 10 considered for those two to get them ready for the

 11 July 16th reporting deadline?

 12 MR. TAYLOR: Sure, Commissioner. Our

 13 phasing plan really responded to numerous comments

 14 and a good deal of input from roundtables that the

 15 Commission held. One key for us was that the

 16 industry said quite clearly that they needed six

 17 months after the final rule is passed to prepare

 18 and test automated systems and connections, and

 19 that made sense to us. We also learned that the

 20 asset classes vary in, if you like, maturity.

 21 Credit and rates already have considerable

 22 reporting going on. That situation is different
 69

 1 than some of the other asset classes. So, we took

 2 that into account, and then we also considered

 3 that additional time was needed for what I call

 4 the "nons" -- the non-dealers, non-MSPs -- who are

 5 less likely to already have automated systems and

 6 staff for this purpose, and that led us to phase

 7 by both asset class and counterparty type.

 8 COMMISSIONER O'MALIA: Thanks. In

 9 questions raised by Commissioner Sommers and then

 10 also by Commission Chilton was this international

 11 coordination, and you outlined where you've

 12 coordinated. But there's one provision that's

 13 frustrating international jurisdictions, and

 14 that's the indemnification provision. That

 15 actually may go so far as to fracture our data

 16 collection. Countries may be prohibited from

 17 relying on U.S. SDRs and requiring to set up their

 18 own. Some jurisdictions simply are -- it would be

 19 illegal for them to indemnity this. Where does

 20 that stand? How are we solving that?

 21 MR. TAYLOR: I'll answer that briefly,

 22 and Dan Berkovitz may want to add something about
 70

 1 the latest developments. That isn't directly

 2 addressed by our rule, but, of course, we're very

 3 aware of it and have participated in meetings

 4 about it.

 5 In general, my understanding is that

 6 Commission legal staff are searching for an

 7 appropriate way to make memorandums of

 8 understanding or other arrangements with

 9 international regulators so that the Commission

 10 could, in fact, share data with them all --

 11 COMMISSIONER O'MALIA: It's a statutory

 12 direction. How do we waive through a memorandum

 13 our statutory requirements? I don't want to

 14 belabor that point. I'd rather -- maybe if Jackie

 15 could kind of respond to some of this, what the

 16 international concerns are, and, I mean, this is

 17 pretty important as to how we're going to unify

 18 all our data here.

 19 MS. MESA: Mm-hmm. It is an important

 20 point. We have been working quite closely with

 21 international regulators on this point because a

 22 big concern is to have direct access to the data.
 71

 1 There are two ways that foreign regulators can

 2 access data and trade repositories, if we regulate

 3 that repository unless the indemnification

 4 provision applies. One is they can always get it

 5 through the CFTC for their regulatory needs, and

 6 provided they have appropriate confidentiality

 7 around that data we give them. And second, this

 8 was codified in the rule and Dan can also speak to

 9 this, but if that foreign regulator also registers

 10 the trade repository, then they can, in their own

 11 right, have direct access to the data without

 12 indemnification. Those are two ways. And that

 13 satisfies many of the foreign authorities, but not

 14 all, so, we're continuing to work with foreign

 15 regulators and thinking internally about

 16 additional ways within the law to give them that

 17 data. But it is a provision that, of course, we

 18 are going to abide by, and so, it's a little bit

 19 tricky. But, Dan, I don't know if you want to add

 20 a little bit more?

 21 MR. BERKOVITZ: I think that Jackie has

 22 correctly characterized where we are in terms of
 72

 1 the avenues for which a foreign regulator can get

 2 access to the SDR data under the SDR rule. One of

 3 the things we are looking at based on, as Jackie

 4 said, the feedback from the foreign regulators as

 5 to the scope of that rule and what it permits and

 6 doesn't is whether there are additional

 7 circumstances beyond those which are already

 8 provided in the SDR rule which a foreign regulator

 9 could get direct access without indemnification.

 10 And that's something we're looking at the legal

 11 options there, whether there is, indeed, any more

 12 flexibility under the statute.

 13 COMMISSIONER O'MALIA: Thank you very

 14 much. I'm sorry to spring this on you, Jackie.

 15 We weren't planning on it.

 16 Legal entity identifiers. Last week, we

 17 had a Technology Advisory Committee meeting on

 18 which we received comments on data standardization

 19 and they noted that the industry goal is to

 20 deliver 50,000 LEIs by June of 2012. That would

 21 obviously work well with our July 16th deadline,

 22 but are they the right 50,000, kind of the right
 73

 1 entities reporting the right data? I assume they

 2 would be the largest entities and, therefore,

 3 those are your first movers in this rule. Do you

 4 have any concerns that this is not on track or we

 5 wouldn't be ready with this current proposal as

 6 announced last week?

 7 MR. TAYLOR: No, Commissioner. It seems

 8 that that is going to work. We've worked very

 9 carefully to try to align our start date with the

 10 progress the industry is actually making. Real

 11 briefly, the 50,000 number, although it's an

 12 approximation, is the number of counterparties

 13 that the industry estimates will have to report

 14 under our rules. So, actually, on July 16, you

 15 would need only a subset of that number, which

 16 would be the counterparties in rates and credit.

 17 I want to commend the industry

 18 initiative that has gone forward with the LEI.

 19 They've been very cooperative, and they're taking

 20 the lead, going ahead, cleansing data, preparing

 21 to give LEIs -- you know, once our rule is there

 22 -- so that LEIs will be available when they're
 74

 1 needed for reporting.

 2 COMMISSIONER O'MALIA: On the UPI,

 3 you've stated that the Commission can designate

 4 it, but you didn't provide any details on

 5 timetable or criteria. Do you want to elaborate

 6 on those?

 7 MR. TAYLOR: I think in that area, out

 8 Technology Advisory Committee is already doing a

 9 considerable amount of work. It's coordinating

 10 with an industry initiative in that area. It's

 11 probably not quite as far down the road as the LEI

 12 initiative, which is why we were less prescriptive

 13 in the rule. But my understanding is that that's

 14 on track, it will happen, we'll take input from

 15 the industry, and when a system is available, it

 16 will go forward.

 17 COMMISSIONER O'MALIA: So, would you

 18 characterize our UPI initiative as the ability to

 19 designate them, but a placeholder until a solution

 20 can be developed?

 21 MR. TAYLOR: To some extent because you

 22 need a complete product classification system,
 75

 1 which I understand the industry is well along the

 2 road to producing. There will always be a small

 3 number of swaps they say bespoke in the industry

 4 that are so individual you won't be able to put a

 5 label -- a UPI itself -- on them. They'll have to

 6 be described using the taxonomy. But the great

 7 majority of swaps, you'll be able to give a UPI

 8 and that's coming along very well.

 9 COMMISSIONER O'MALIA: Good. We'll keep

 10 that team working on that to give you the tools

 11 you need.

 12 Let me close with technology. We have

 13 DMO and John Rogers, our chief technology guy.

 14 You said you had -- you know, the industry said,

 15 hey, we need six months to comply with this. How

 16 much time does the Commission need to comply with

 17 this, and where do we stand in terms of our

 18 ability to access all of this SDR data, the

 19 ability to aggregate it, implement automated

 20 solutions to kind of address the concerns that

 21 Commissioner Wetjen raised with analyzing and

 22 aggregating risk data?
 76

 1 This is not, you know, we're doing it.

 2 I'm looking for some specifics as what systems are

 3 we putting in place, when are they going to be

 4 ready, and how much will it cost?

 5 MR. ROGERS: Well, at this point, we are

 6 just beginning the activity of getting -- of

 7 discussing getting access to SDRs. As everyone, I

 8 believe, is aware, we have applications that are

 9 in place to form SDRs, so we're reaching out to

 10 those entities to discuss how to get access to

 11 them. I expect that we have the infrastructure --

 12 well, I believe we have the infrastructure in

 13 place to get that access. It's just a matter of

 14 the process that we will go through in order to

 15 gain that access with each SDR.

 16 We're looking at access so that people

 17 can examine data, but then, also, we'll be talking

 18 about access to reports that will be coming off of

 19 the SDRs, and how we'll be able to get access to

 20 those, as well, and how we might be able to bring

 21 -- you know, ask for data to come from the SDR or

 22 new reports to be generated based on that. So,
 77

 1 that's an activity that's already underway.

 2 We have been working on not specifically

 3 related to the SDR data, but generally speaking,

 4 related to the rules as they become final, so, for

 5 example, Part 20 or Part 39, access -- or the

 6 definition of the data standards that we will need

 7 to have in place so that we can begin to collect

 8 data and load them into repositories. So, in the

 9 example of the Part 20 data, we have been

 10 receiving data since November 22nd. With Part 39,

 11 we don't have a standard in place, but we're

 12 working towards that in accordance with the rule

 13 timelines that have been set out. In particular,

 14 for the Part 20 data, we have tools available

 15 presently to have people begin to examine data --

 16 tools like SAS and that sort of thing -- so that

 17 we can begin to analyze it already.

 18 In terms of systems that we need to

 19 build, we have lots of systems work that we need

 20 to do from -- whether it's -- and they are

 21 different, have different timelines depending upon

 22 what we're talking about, and we're really in the
 78

 1 analysis phase of that. So, for example, in the

 2 financial surveillance area, we are looking at

 3 data relative to risk, whether it's in interest

 4 rate swaps or credit default swaps, and

 5 determining data standards around those areas and

 6 figuring how we can leverage the technology that

 7 we already have in place to take advantage of it.

 8 We're also acquiring systems products, not

 9 actually building systems, but products that will

 10 help us with further analysis. And as we go

 11 through this process, we'll be determining whether

 12 -- you know, what systems we need to build on top

 13 of that, but that's pretty much the state that

 14 we're in.

 15 We know that we're going to have to

 16 build certain capabilities from a systems

 17 perspective. For example, a portal in order to be

 18 able to collect information to automate electronic

 19 forms, again, to help us collect information; a

 20 registration system for entities to apply, whether

 21 they be DCOs or SDRs or SEFs; whistleblower

 22 capability; and things of that nature. So,
 79

 1 there's a wide array of things that we're focusing

 2 on.

 3 COMMISSIONER O'MALIA: Do you intend to

 4 have this built-out by the end of 2012?

 5 MR. ROGERS: Not in every case. I would

 6 expect that in 2012 that we will have some portal

 7 capability, and I believe that we'll have some

 8 electronic forms capability in place.

 9 Registration is also a primary focus of ours. I

 10 believe that -- well, what we are intending to do

 11 is to do these things in an iterative approach and

 12 in phases, so we will have a release. But then, I

 13 believe -- I expect that we will be building upon

 14 them as time goes on, so certain capabilities in

 15 2012, but then continuing on into 2013, as well.

 16 COMMISSIONER O'MALIA: Do you have a

 17 specific cost, what it's going to take to

 18 build-out for any of these in 2012?

 19 MR. ROGERS: Not specifically system by

 20 system with me, no, I'm sorry.

 21 COMMISSIONER O'MALIA: Okay. Rick, can

 22 I ask you a question about DMO's analysis? What
 80

 1 do you need in terms of automated capabilities to

 2 take all the data that David's mandating be

 3 collected and turn it into something useful to

 4 establish risk parameters and other -- I mean,

 5 what are you looking for, specifically?

 6 MR. SHILTS: We've been working closely

 7 with John, and we're trying to -- or getting --

 8 have a process now, so we can start looking at

 9 some of the data that's in some of the SDRs now

 10 that's been submitted, and also looking at the

 11 data that we're getting in under the swap large

 12 trader, the Part 20 rules, and in the context of

 13 looking at the -- what's there and what types of

 14 alerts and what types of oversight, surveillance

 15 and what to do, and we're -- in that context we

 16 have a new deputy director for our surveillance

 17 group, and we're kind of thinking about the best

 18 way to be organized within our surveillance

 19 section to take on these additional

 20 responsibilities. So, I can't tell you right now

 21 exactly what types of alerts and systems we would

 22 need because we're still trying to figure out
 81

 1 exactly what's there and what the data looks like.

 2 We're getting some initial information from the

 3 swap large trader reports. And once we start

 4 looking more closely at what's in the data in the

 5 SDRs, then we'll try to -- you know, working with

 6 John, Andrei, and others, and trying to come up

 7 with the types of alerts and surveillance

 8 mechanisms we would need, and then how -- what's

 9 the best way to implement that, whether it's to

 10 buy software to develop systems in-house or

 11 whatever, but I can't tell you right now because

 12 we're still trying to get a better feel for

 13 exactly what the data looks like and the scope of

 14 the information (inaudible).

 15 COMMISSIONER O'MALIA: Can you give me a

 16 top 10 list of the top 10 most important

 17 surveillance things you need in terms of what this

 18 data will provide you? I mean, the data is a

 19 foundation for everything that we're going to do

 20 going forward, with analyzing risk, position

 21 limits, et cetera. What are your -- in terms of

 22 priorities, what are your top 10 in working with
 82

 1 Andrei or working with anybody, Ananda, as well?

 2 We're trying to understand what -- so we can stay

 3 focused on the highest priorities, so we can give

 4 John the wish list and get specific because it

 5 sounds like we're still in an iterative process,

 6 as he noted, about what we want to work on first,

 7 and we don't have the resources to chase down

 8 everything. So, we need to really focus and

 9 prioritize on these issues. That's all I have,

 10 Mr. Chairman.

 11 MR. TAYLOR: Mr. Chairman, before you go

 12 on, should I respond a little further to one

 13 question Commissioner Chilton asked?

 14 CHAIRMAN GENSLER: Absolutely.

 15 MR. TAYLOR: My bad. I misunderstood

 16 where he was trying to go with one question, and

 17 it's actually an important question, and we have a

 18 good answer for it.

 19 CHAIRMAN GENSLER: Is it better than the

 20 one that you can punt to Jeff?

 21 MR. TAYLOR: Yes.

 22 COMMISSIONER CHILTON: Look, these rules
 83

 1 are interrelated, is the point. Go ahead.

 2 MR. TAYLOR: They are. They are. And,

 3 you know, the question for Jeff will also be

 4 important, but I think, Commissioner, where you

 5 were trying to go in terms of our rule is do we do

 6 something to ensure that registered entities and

 7 reporting counterparties, especially the "nons,"

 8 have an easy way to report data to an SDR, and we

 9 do.

 10 In our rule on data standards, first of

 11 all, says that an SDR must provide data to the

 12 Commission in the formats that we determine, and

 13 the rule actually delegates to the chief

 14 information officer the ability to tell SDRs from

 15 time to time exactly how we want this done. But,

 16 very importantly, it also delegates to the chief

 17 information officer the authority to tell an SDR

 18 whether it needs to use a particular standard or

 19 standards in order to accommodate the needs of

 20 different communities of users. So, if small

 21 non-SD/MSP counterparties need to be able to

 22 report in a certain way to an SDR, we will have
 84

 1 the authority to ensure that SDRs take data in

 2 that way.

 3 COMMISSIONER CHILTON: Thanks for the

 4 clarification. Thank you.

 5 CHAIRMAN GENSLER: Thank you.

 6 COMMISSIONER WETJEN: Thanks, Mr.

 7 Chairman. I wanted to thank the team, again,

 8 especially for the informative briefing you

 9 provided a week or two ago. And David, I also

 10 enjoyed our discussion about some of your outside

 11 interests and hope some of those recent

 12 performances came off without a hitch.

 13 MR. TAYLOR: They did, although I guess

 14 I would observe when I give a downbeat the singers

 15 all come in together and they all sing in harmony,

 16 and I'm not sure that quite compares to this

 17 experience. (Laughter)

 18 COMMISSIONER O'MALIA: You got a 5-0

 19 vote. What are you complaining about? (Laughter)

 20 COMMISSIONER WETJEN: David, do you care

 21 to respond? (Laughter)

 22 MR. TAYLOR: No, we're delighted with
 85

 1 the vote.

 2 (Laughter)

 3 COMMISSIONER WETJEN: I've had the

 4 opportunity to meet with a number of people in

 5 addition to your team, and included in those

 6 meetings were some folks from the asset management

 7 community. And I wondered if you could just

 8 remind me and walk me through, again, how this

 9 final rule treats, with respect to the universal

 10 swap identifier, a contract that gets allocated

 11 post execution?

 12 MR. TAYLOR: Sure. And that's a bit

 13 complicated, but we hope we've clarified it in a

 14 way that will make this workable for the industry.

 15 Real briefly, our understanding is that in that

 16 context, typically a dealer does a swap with a

 17 firm that's an agent for its clients. The agent

 18 firm is not actually the counterparty of the

 19 dealer. The clients of the agent, in fact, have

 20 ISDA agreements or similar agreements with the

 21 dealer. The dealer knows collectively who they

 22 are and is willing to enter into swaps with them,
 86

 1 but at the moment of this first trade with the

 2 agent, it doesn't know exactly which clients are

 3 involved. The agent then, immediately afterwards,

 4 allocates the results of that original swap to its

 5 clients. It's a complicated process. It's not

 6 really alga rhythmic because clients have

 7 particular requirements, and it then -- the agent

 8 then informs the dealer who its counterparties

 9 actually are. And we felt that it was very

 10 important to have information on that whole

 11 situation.

 12 First of all, because real-time

 13 reporting needs to occur as soon as

 14 technologically practicable after execution, and

 15 also because it's important to regulators to have

 16 a current picture of the swap market, it's

 17 necessary for that original swap between the

 18 dealer and the agent to be reported, but,

 19 obviously, because the actual counterparties are

 20 the clients, once allocation has turned that

 21 original swap into several component swaps, you

 22 need to know about those as well.
 87

 1 And so, what we've provided is that the

 2 reporting counterparty, typically the dealer here,

 3 has to create a USI for that first swap with the

 4 agent and report it. It will report in that

 5 report the LEI of the agent as an agent, but it

 6 won't yet know the LEIs of its counterparties.

 7 Once it learns from the agent who the

 8 counterparties are, it will then also report those

 9 swaps, but it will include in those reports the

 10 original USI of the first swap, so that the SDR

 11 can link up all of these different transactions

 12 into one record and there won't be double

 13 counting.

 14 COMMISSIONER WETJEN: That was going to

 15 be my follow-up question, but that process

 16 addresses any concerns about double counting, it

 17 sounds like.

 18 MR. TAYLOR: We think so.

 19 COMMISSIONER WETJEN: Just one other

 20 question. A number of concerns were raised in the

 21 comments and in my meetings about some of the

 22 burdens on some of the smaller market
 88

 1 participants, and in the case of an uncleared

 2 swap, I wondered if you could describe what the

 3 reporting burdens would be for some of these

 4 various entities. For example, we had an

 5 interesting conversation with one group where we

 6 were reminded that, in some cases, you have a

 7 counterparty that can be a small family -- and

 8 just picking a state out of nowhere, Kansas --

 9 whose family might be sitting on a bunch of

 10 natural gas reservoirs and they're selling that

 11 commodity to a variety of different companies.

 12 So, how does a rule, in that example,

 13 treat the wildcatter family from Kansas and the

 14 company is buying that commodity from the family?

 15 MR. TAYLOR: Commissioner, we've tried

 16 to alleviate the burden for counterparties in that

 17 sort of situation, to the fullest extent we can

 18 and still fulfill the mandate of the Act that all

 19 swaps have to be reported. I mean, first of all,

 20 that counterparty will only have to report if it's

 21 in a swap with another non, because if there's a

 22 dealer, an MSP, the burden falls on the dealer or
 89

 1 the MSP. If this swap is transacted on a facility

 2 and it's cleared, there's no reporting at all for

 3 that counterparty, and even if it's not cleared --

 4 not mandatorily cleared and not executed in a

 5 platform, if the counterparty gets it accepted for

 6 clearing, the DCO will take over reporting at that

 7 point.

 8 Just checking my notes, here. If it's

 9 an on- facility, uncleared swap, that counterparty

 10 would only need to report continuation data during

 11 the existence of the swap. If it's an

 12 off-facility, uncleared swap, we've extended and

 13 phased in the creation data reporting deadlines to

 14 a considerable extent. That was the question

 15 about the clause the Chairman asked earlier. That

 16 counterparty would get considerably extended

 17 deadlines, and weekends and holidays are no longer

 18 included in that period.

 19 We've also lengthened the deadline for

 20 reporting changes to primary economic terms for

 21 these counterparties during the life of the swap,

 22 and we only ask for valuations to be reported on a
 90

 1 quarterly basis instead of the daily basis that's

 2 going to be required of dealers and MSPs. If the

 3 other counterparty is a foreign dealer or MSP, the

 4 burden is still going to fall on them. In

 5 response to comments from "nons," we've also

 6 differentiated if there is a financial entity on

 7 the other side of the swap, the burden will be

 8 placed on the financial entity. So, we've taken

 9 the burden away from your wildcatter family in

 10 Kansas, everywhere we can.

 11 COMMISSIONER WETJEN: Thank you for that

 12 response. Mr. Chairman, I knew Kansas produced a

 13 lot of great things, but I didn't realize it also

 14 produced natural gas. That was one of the many

 15 things I learned in the few weeks.

 16 CHAIRMAN GENSLER: Thank you,

 17 Commissioner Wetjen, for reminding of Kansas. I

 18 bet you that Commissioner Sommers knew that,

 19 though.

 20 COMMISSIONER WETJEN: Basketball, market

 21 regulators, natural gas.

 22 COMMISSIONER SOMMERS: And I also think
 91

 1 -- just should clarify for the record that you

 2 were randomly picking Kansas, not suggesting it

 3 was nowhere, right? (Laughter) Right. That's what

 4 I thought.

 5 COMMISSIONER WETJEN: Absolutely.

 6 CHAIRMAN GENSLER: I'm not touching

 7 that. (Laughter) If there are no further

 8 questions, I'd ask Mr. Stawick to call the roll,

 9 and then I have some assignments after that,

 10 though, so don't leave.

 11 MR. STAWICK: Commissioner Wetjen?

 12 COMMISSIONER WETJEN: Aye.

 13 MR. STAWICK: Commissioner Wetjen, aye.

 14 Commissioner O'Malia?

 15 COMMISSIONER O'MALIA: Aye.

 16 MR. STAWICK: Commissioner O'Malia, aye.

 17 Commissioner Chilton?

 18 COMMISSIONER CHILTON: Aye.

 19 MR. STAWICK: Commissioner Chilton, aye.

 20 Commissioner Sommers?

 21 COMMISSIONER SOMMERS: Aye.

 22 MR. STAWICK: Commissioner Sommers, aye.
 92

 1 Mr. Chairman?

 2 CHAIRMAN GENSLER: Aye.

 3 MR. STAWICK: Mr. Chairman, aye. Mr.

 4 Chairman, on this question, the ayes are five,

 5 the nayes are zero. And I would note that the

 6 vote is unanimous in the affirmative.

 7 CHAIRMAN GENSLER: As the ayes have it,

 8 unanimously the staff recommendation will be sent

 9 to the Federal Register. But before you standoff,

 10 since I'm going on vacation and I might not see

 11 you all, I'm going to do this in a public meeting.

 12 There are a few assignments that just came out --

 13 and if I've missed something -- but on the

 14 smallest stuff, David Taylor, if you could make

 15 sure that the color charts that we referenced --

 16 and work with Steve Adamske, get it up on the

 17 website because I think they're -- we shouldn't

 18 wait for the Federal Register to see if they're

 19 color charts. You were going to check on that

 20 Page 228, but also, Part 46, you know, you'll get

 21 some rest and then come back to us on the

 22 historical swaps.
 93

 1 I think that Commissioner Sommers raises

 2 an excellent point. So, Rick, can I identify you

 3 as the lead to work all of these different roles

 4 that might refer to economically equivalent or

 5 economically fungible, or the various terms that

 6 Commissioner Sommers referenced in the rules? Can

 7 you kind of coordinate and come back in January

 8 and brief the five of us on just -- and how you

 9 see it? Because most of them are in the Division

 10 of Market Oversight.

 11 I think this was going to happen anyway,

 12 but, John, Rick, and probably David and a bunch of

 13 others, to do just as you did in large trader

 14 reporting, to reach out to the market

 15 participants, and maybe as promptly, right after

 16 the holiday, as they want have those biweekly or

 17 twice a week calls and certainly do a guidebook on

 18 this because I think that was deemed to be helpful

 19 in the large trader, that you'll do that. But if

 20 I can give John, you, a special assignment --

 21 because I think Commissioner O'Malia's points

 22 resonated quite with me -- can you come back to us
 94

 1 in January with a specific technology plan for how

 2 we'll be ready by July 16th? And it may be

 3 phasing; it may be that not everything's going to

 4 happen July 16th, but when the SDRs are getting

 5 this information, starting July 16th, I think we

 6 should have direct technology hook- up and that

 7 the backbone's working. But if, in January, you

 8 could present and certainly work closely with all

 9 of us, particularly Commissioner O'Malia because

 10 he runs the Tech Advisory Committee, it would be

 11 really helpful to have that.

 12 And then one other thing that I

 13 mentioned, and I know Andrei -- and you and I have

 14 talked about this about five times already -- but

 15 can you come up with a game plan maybe in January,

 16 as well, working with John as to how come --

 17 starting July, maybe we could start to aggregate

 18 some of this information, and, just as we do in

 19 the weekly commitments, a trader's report;

 20 obviously, work with Rick's people, as well. But

 21 if would take the lead on that, Andrei, as to --

 22 you know, maybe we could even start doing some
 95

 1 aggregate stuff next summer or fall, depending

 2 upon what you come up with, so.

 3 COMMISSIONER WETJEN: Can I say one

 4 other thing?

 5 CHAIRMAN GENSLER: Yeah.

 6 COMMISSIONER WETJEN: I also want to

 7 mention that I found Commissioner O'Malia's Tech

 8 Advisory Committee meeting very valuable in terms

 9 of getting prepared for this meeting. A lot of

 10 what was covered there was very useful information

 11 that helped me a lot. So, I just wanted to

 12 mention that.

 13 CHAIRMAN GENSLER: Thank you all. And I

 14 guess now we can get Jeff, and some of you will

 15 stay at the table. But the real-time reporting

 16 team, thank you all, and have a happy holiday by

 17 the way.

 18 David, do I need at some -- David

 19 Stawick, do I need to do one of those -- the

 20 unanimous consents on technical clean-ups?

 21 MR. STAWICK: Yes, and I believe that

 22 that's programmed toward the end.
 96

 1 CHAIRMAN GENSLER: But I can do it now?

 2 MR. STAWICK: You may do it now.

 3 CHAIRMAN GENSLER: So, absent objection,

 4 do I do it? You know, I'd seek unanimous consent

 5 that they can make whatever technical clean-ups.

 6 Not hearing any objection --

 7 MR. STAWICK: Duly noted.

 8 CHAIRMAN GENSLER: All right. Don't we

 9 have name cards for two of you? I mean, you

 10 know, when -- oh, Dan brings his own. Jeff

 11 Steiner, Tom Leahy, I guess, will be taking the

 12 lead somewhere here on real-time reporting.

 13 Susan, it's good to see you back at the table.

 14 Ever present on these rules, Rick Shilts, the head

 15 of Division of Market Oversight. Dan McKeever's

 16 going to represent the Office of Chief Economist.

 17 Do you want to introduce yourself because I can't

 18 remember your last name?

 19 MR. SHAFER: Jason Shafer from OGC.

 20 CHAIRMAN GENSLER: Yeah. But Dan's

 21 behind you. But he trusts you.

 22 Jeff or Tom?
 97

 1 MR. STEINER: Thank you, Chairman

 2 Gensler and Commissioners. I'd like to thank the

 3 team for all of the --

 4 CHAIRMAN GENSLER: Pull the mic closer

 5 to you, maybe.

 6 MR. STEINER: Sorry. I'd like to thank

 7 the team for all of their hard work and the long

 8 hours on this final rule: Tom Leahy; Susan

 9 Nathan; Jason Shafer; Laurie Gussow; George

 10 Pullen; and Dan McKeever; additionally, the

 11 division directors and various staff throughout

 12 the different divisions. And, additionally, I

 13 would like to thank all of the Commissioners and

 14 their staffs for their insightful comments

 15 throughout this process.

 16 Section 727 of the Dodd-Frank Act added

 17 to the Commodity Exchange Act new Section

 18 2(a)(13), which establishes standards and

 19 requirements related to real- time reporting and

 20 the public availability of swap transaction and

 21 pricing data. This section directs the Commission

 22 to promulgate rules providing for the public
 98

 1 availability of such data in real-time, in such

 2 form, and at such times as the Commission deems

 3 appropriate to enhance price discovery.

 4 CEA Section 2(a)(13)(C) establishes the

 5 four categories of swaps for which transaction and

 6 pricing data must be reported to the public in

 7 real-time. Because these categories together

 8 comprise all swaps, the real- time reporting

 9 requirements apply to all swaps, including those

 10 swaps executed on or pursuant to the rules of a

 11 registered swap execution facility or a designated

 12 contract market, and those swaps executed

 13 bilaterally and not pursuant to the rules of a SEF

 14 or DCM, which we refer to in the rule as

 15 off-facility swaps.

 16 With regard cleared swaps, CEA Section

 17 2(a)(13)(E) directs the Commission to prescribe

 18 rules that: One, ensure that publicly disclosed

 19 information does not identify the participants;

 20 two, specify the criteria for determining what

 21 constitutes a large notional swap transaction or a

 22 block trade for particular markets and contracts;
 99

 1 three, specify the appropriate time delay for

 2 publicly disseminating large notional swaps or

 3 block trades to the public; and four, take into

 4 account whether public disclosure will materially

 5 reduce market liquidity.

 6 CEA Section 2(a)(13)(E) does not require

 7 explicitly that the rules promulgated by the

 8 Commission contain similar provisions for

 9 uncleared swaps; however, in exercising its

 10 authority under CEA Section 2(a)(13)(B), which

 11 states, "To make swap transaction and pricing data

 12 available to the public in such form and at such

 13 times as the Commission determines appropriate to

 14 enhance price discovery, the Commission is

 15 authorized to prescribe rules similar to those

 16 provisions in CEA Section 2(a)(13)(E) for such

 17 uncleared swaps."

 18 On December 7, 2010, the Commission

 19 published a Notice of Proposed Rulemaking,

 20 entitled "The Real-Time Public Reporting of Swap

 21 Transaction Data," which solicited public comment

 22 on proposed regulations implementing the mandate
 100

 1 of CEA Section 2(a)(13). The proposed rules were

 2 set out in a new section, Part 43. Proposed 43.1

 3 set out the purpose, scope, and rules of

 4 construction, while proposed definitions of terms

 5 and processes relevant to real-time public

 6 reporting were specified in Section 43.2.

 7 Proposed Section 43.3 established the

 8 method and timing for real-time public reporting

 9 and dissemination of swap transaction and pricing

 10 data. This rule also delineated the

 11 responsibilities of swap counterparties, SEFs,

 12 DCMs, and SDRs, and established procedures for

 13 recordkeeping, corrections of errors and omissions

 14 and hours of operation.

 15 Proposed Section 43.4 specified the

 16 format in which swap transaction and pricing data

 17 would be publicly disseminated and rules relating

 18 to anonymity.

 19 As proposed, Section 43.5 prescribed the

 20 criteria for determining what constitutes a large

 21 notional swap or a block trade, and it also

 22 specified the appropriate time delays for the
 101

 1 block trades and large notional swaps.

 2 Finally, Appendix A to proposed Part 43

 3 described all of the data fields that were to be

 4 publicly disseminated.

 5 The Commission received comments from 88

 6 different interested parties. These parties

 7 represented potential swap dealers, end-users,

 8 service providers, industry associations,

 9 potential SDRs, academics, and others. Staff has

 10 considered all of these comments, as well as

 11 comments received in numerous roundtables, in

 12 developing this final rule. Commission staff has

 13 also coordinated with other U.S. regulators and

 14 has also spoken with international regulators on

 15 this issue.

 16 This final rule governs the method and

 17 timing of real-time public reporting, the swap

 18 transaction and pricing data to be publicly

 19 disseminated, and the time delays for public

 20 dissemination of swap transaction and pricing

 21 data. The final rule takes into account whether

 22 public disclosure of swap transaction and pricing
 102

 1 data will identify the parties to a swap or the

 2 business transactions and market positions of any

 3 person, as well as the effects on market

 4 liquidity.

 5 In addition, in developing the final

 6 rule, staff has considered the costs and benefits

 7 to market participants and registered entities in

 8 light of the five broad areas of market concerns

 9 specified in CEA Section 15(a). While the

 10 Commission has adopted the Part 43 rules -- or

 11 plan -- hopefully adopts the Part 43 rules,

 12 substantially as proposed, there are several

 13 salient changes from the proposal.

 14 First, I want to note, as many of the

 15 Commissioners have noted before, two aspects of

 16 the regime for real-time public reporting that are

 17 not covered or addressed in this final rule and

 18 will be the subject of a further Notice of

 19 Proposed Rulemaking. Specifically, the final

 20 rules do not address the categorization of swaps

 21 and the determination of the appropriate minimum

 22 size relating to block trades and large notional
 103

 1 off-facility swaps. This means that until the

 2 Commission were to establish an appropriate

 3 minimum block size for a swap or a group of swaps,

 4 the time delays specified in the final rule will

 5 apply to all publicly reportable swap transactions

 6 that do not have appropriate minimum block sizes.

 7 The final rules also do not address the

 8 public dissemination of certain publicly

 9 reportable swap transactions in the other

 10 commodity asset class that: One, are not executed

 11 on or pursuant to the rules of a SEF or DCM; two,

 12 listed in an Appendix B to Part 43; or, three,

 13 economically related to a contract listed in

 14 Appendix B to Part 43. As a result, such publicly

 15 reportable swap transactions that don't fall into

 16 those categories, would not be subject to the Part

 17 43 rules at this time, and would be addressed in

 18 the further Notice of Proposed Rulemaking.

 19 While the proposing release permitted

 20 SEFs and DCMs to report data, either to an SDR or

 21 to a third-party service provider for public

 22 dissemination, the final rule requires that all
 104

 1 swap transaction and pricing data must be reported

 2 to the appropriate SDR regardless of whether the

 3 swap is executed on or pursuant to the rules of a

 4 regulated trading platform or bilaterally

 5 executed.

 6 SDRs must then ensure the public

 7 dissemination of all publicly reportable swap

 8 transactions. The final rules would permit the

 9 use of third parties to assist in both reporting

 10 and public dissemination requirements under Part

 11 43. However, the obligation to report or publicly

 12 disseminate would remain with the reporting party,

 13 SEF, DCM, or SDR, as applicable.

 14 The definition of publicly reportable

 15 swap transaction, which describes which swaps are

 16 subject to the rules of Part 43, has been modified

 17 from the proposing release to state that the swaps

 18 that must be reported and publicly disseminated

 19 pursuant to Part 43 must be either: One, any

 20 executed swap that is an arm's length transaction

 21 between two parties that results in a

 22 corresponding change in the market risk position
 105

 1 between the two parties; or, two, any termination,

 2 assignment, novation, exchange, transfer,

 3 amendment, conveyance, or extinguishing of rights

 4 or obligations of a swap that changes the pricing

 5 of the swap. This modification to the definition

 6 means that certain internal swaps between

 7 affiliates, as well as portfolio compression

 8 exercises, to the extent that they are not

 9 executed at arm's length, would not be publicly

 10 reportable swap transactions, and thus, not

 11 subject to the reporting and public dissemination

 12 requirements of Part 43 at this time.

 13 The final rules include various other

 14 changes in response to comments and consultation,

 15 including changes to the data fields that are

 16 required to be publicly disseminated. Also, the

 17 final rules delete any additional recordkeeping

 18 requirements beyond those required with respect to

 19 timestamps as such requirements are not necessary

 20 given the recordkeeping requirements and other

 21 Commission regulations. Further, the anonymity

 22 provisions in 43.4 have been clarified from the
 106

 1 proposing reliefs.

 2 The final rules provide time delays for

 3 public dissemination that differ based on the

 4 method of execution, underlying asset, and market

 5 participant, among other things. Time delays are

 6 described in Section 43.5, as well as Appendix C

 7 to Part 43. The time delays for public

 8 dissemination will be phased down over a two-year

 9 period, beginning on the relevant compliance

 10 dates, and I would stress that those time delays

 11 have been coordinated with the Part 45 time delays

 12 for reporting. Additionally, all notional amounts

 13 of publicly reportable swap transactions will be

 14 rounded and capped when publicly disseminated.

 15 In response to comments received, the

 16 compliance dates for this final rule will be

 17 phased in based on asset class, method of

 18 execution, and type of market participant. The

 19 first compliance date will begin on the later of

 20 July 16, 2012, or 60 days after finalizing certain

 21 other rules. Additional compliance dates will

 22 occur 90 days and 180 days following the first
 107

 1 compliance date. There's a chart, which is very

 2 similar to the chart that's been floating around

 3 for the Part 45 rules, and I think that chart

 4 would be made available on the CFTC website.

 5 COMMISSIONER O'MALIA: Hey, Jeff. Can I

 6 ask you a question?

 7 MR. STEINER: Yes.

 8 COMMISSIONER O'MALIA: It's identical,

 9 right?

 10 MR. STEINER: Yeah, it -- well --

 11 COMMISSIONER O'MALIA: You said, it's

 12 somewhat similar or --

 13 MR. STEINER: No. No, no. It is -- the

 14 phasing in is identical to everything.

 15 COMMISSIONER O'MALIA: That's what we

 16 need to hear.

 17 MR. STEINER: It is a different chart,

 18 however. And I'd also like to point out that,

 19 just to reiterate, that the final rules do reflect

 20 close coordination with the data recordkeeping and

 21 reporting final rule with respect to these

 22 compliance dates, the data fields to be publicly
 108

 1 disseminated and reported, time delays, and other

 2 various aspects, to ensure consistency, and in an

 3 effort to mitigate costs of reporting for

 4 reporting party SEFs and DCMs.

 5 Thank you, and we'd be happy to answer

 6 any questions.

 7 CHAIRMAN GENSLER: Thank you, Jeff. The

 8 Chair will entertain a motion to accept the staff

 9 recommendation concerning the final rule.

 10 COMMISSIONER SOMMERS: So moved.

 11 COMMISSIONER CHILTON: Second.

 12 CHAIRMAN GENSLER: Thank you. I support

 13 the final rule. I will have two or three

 14 questions, but I support the final rule to

 15 implement the real-time reporting mandate that

 16 Congress put in Dodd- Frank. I think that the

 17 public reporting regime for swaps is a critical

 18 component. As much as it's important that

 19 regulators get a window into this market, this

 20 will, for the first time, give the broad public a

 21 window. It will have time delays. We've decided,

 22 as Commissioner Chilton and others have noted, to
 109

 1 seek further public comment and re-propose the

 2 block rule itself, and I think it's only

 3 appropriate given the comments that we got on the

 4 initial block rule, and that the block rule that

 5 we -- I see Carl Kennedy sitting there. He was

 6 working on that. That when we do the block rule,

 7 that we'll get a lot of public comment, but

 8 they'll be just as these final real-time rules

 9 are, more nuanced and be different for different

 10 asset classes, rather than that which we had

 11 originally proposed, which was really across the

 12 board similar.

 13 But, in the meantime, the public will

 14 get real- time reporting, even with time delays

 15 for small and large transactions. And I think

 16 that that's critical because it will give the

 17 public information similar to what's worked for

 18 decades in the securities and futures markets;

 19 that real-time reporting after the trade happens,

 20 what's called post-trade transparency, lowers

 21 costs for market participants and consumers.

 22 And in response to commenters, the final
 110

 1 rule does provide for a phasing of compliance.

 2 And I thank you, Jeff, so you can put the color

 3 chart, the same color chart, also, up on the web.

 4 But my first question is, Jeff, will you also put

 5 this color chart up?

 6 MR. STEINER: Sure.

 7 CHAIRMAN GENSLER: This, Commissioner

 8 O'Malia, is different than the color chart --

 9 well, maybe they just did it for me? I don't

 10 know.

 11 MR. STEINER: We did.

 12 COMMISSIONER WETJEN: That looks

 13 proprietary, Mr. Chairman.

 14 CHAIRMAN GENSLER: Is this a proprietary

 15 color chart?

 16 MR. STEINER: No. I have other copies

 17 here if other Commissioners would like to see

 18 them. (Laughter)

 19 CHAIRMAN GENSLER: Yeah, you better get

 20 them to other Commissioners. But this is on -- I

 21 think it's very important that the proposed rule

 22 to help protect anonymity not only had time
 111

 1 delays, but it had masking of a certain size, and

 2 if you remind the listeners what we proposed, and

 3 then what this chart does.

 4 MR. STEINER: Right. In the proposal we

 5 had proposed a $250 million cap across the board,

 6 so if a -- and that's for asset classes. So, if a

 7 swap was executed at $400 million, what would be

 8 publicly disseminated would be 250 million plus.

 9 We've gone with a slightly different

 10 approach, based on comments that we've received

 11 and conversations with other U.S. regulators for

 12 the different asset classes. So, we've actually

 13 broken down the interest rate asset class into

 14 three different segments.

 15 So, we have a 0 to 2-year would be $250

 16 million cap; 2 to 10 would be a $100 million cap;

 17 and 10+ would be a $75 million cap. For FX, we

 18 have a $250 million cap. For the other commodity

 19 asset class, we have a $25 million cap; for

 20 credit, we have a $100 million cap; and for

 21 equity, we have a $250 million cap. So, we've

 22 slightly adjusted those.
 112

 1 CHAIRMAN GENSLER: So, I think that this

 2 rule provides the public the post-trade

 3 transparency, but it also accomplishes Congress'

 4 goal for anonymity and consideration of liquidity,

 5 that there's time delays and there's this masking

 6 of the larger trades in terms of sizes. The color

 7 chart's just helpful for a guy like me, you know,

 8 reading rule text.

 9 And we'll come to the block rule. We'll

 10 get public comments on a re-proposed block rule

 11 and finalize that, and once it's finalized,

 12 there'll be some portion of the market that's

 13 small, not blocks, that will be reported as soon

 14 as technologically practicable. Is that correct?

 15 MR. STEINER: Right. When the block

 16 size -- as a block size -- defined term is

 17 appropriate minimum block size is set for a

 18 particular swap or a group of swaps, anything that

 19 would be below that appropriate minimum block size

 20 would be publicly disseminated as soon as

 21 technologically practicable, and the ideas is that

 22 everything that is at or above that block size
 113

 1 would receive the time delays that are laid out in

 2 Section 43.5 and Appendix C of this final rule.

 3 CHAIRMAN GENSLER: My final question,

 4 Jeff, is related to something called 43.3 -- and

 5 you and I talked about this yesterday, so you know

 6 my question -- is that we say in 43.3 -- and I'm

 7 seeking clarification here -- but we say in 43.3

 8 that the swap execution facility, or the

 9 designated contract market, has to send this

 10 information to the swap data repository, and we

 11 give them some circumstances where they could

 12 disclose this information earlier to market

 13 participants.

 14 MR. STEINER: That's correct. The term

 15 that's been floating around for that, some market

 16 participants and others have called it --

 17 CHAIRMAN GENSLER: And you can bring it

 18 closer to your mic.

 19 MR. STEINER: Some market participants

 20 have referred to that as the embargo rule or

 21 whatever.

 22 CHAIRMAN GENSLER: Right. But this is
 114

 1 just one of those circumstances similar to

 2 Commissioner Sommers' earlier comment on

 3 economically equivalent. The term "market

 4 participant" here, I just wanted some

 5 clarification because today many trading platforms

 6 provide this information to subscribers, and I

 7 just want to ensure that what we're doing here

 8 doesn't stop market participants that currently do

 9 provide subscription services, that they can

 10 continue to do that.

 11 MR. STEINER: Right. You're correct.

 12 The language just states market participants. And

 13 what the intent behind that was, was to include

 14 persons with trading privileges on the platform,

 15 as well as other eligible market participants that

 16 would subscribe to the SEF or DCM for information

 17 services.

 18 CHAIRMAN GENSLER: So, I just wanted to

 19 clarify that, and I don't know whether fellow

 20 Commissioners want to ask their questions, but

 21 whether we put a footnote or something because I

 22 think it would be a sort of --
 115

 1 MR. STEINER: Yeah, absolutely.

 2 CHAIRMAN GENSLER: -- reverse course if

 3 the large trading platforms or these aspiring SEFs

 4 that are currently exempt commercial markets

 5 couldn't continue to do what they're doing.

 6 MR. STEINER: Yeah, that's right.

 7 CHAIRMAN GENSLER: All right.

 8 COMMISSIONER SOMMERS: I actually do

 9 have a question about that.

 10 CHAIRMAN GENSLER: No, please do.

 11 COMMISSIONER SOMMERS: If you're

 12 broadening the definition of market participant in

 13 --

 14 CHAIRMAN GENSLER: No, just for this.

 15 It's just for this purpose.

 16 COMMISSIONER SOMMERS: -- this rule. I

 17 understand that. Does that have any implications

 18 for market participants -- the definition of

 19 market participants as it applies to other rules

 20 if they're not really market participants?

 21 CHAIRMAN GENSLER: That's not my

 22 question, so I don't want to do that. I just
 116

 1 would not want this to somehow limit the current

 2 practice that aspiring SEFs currently sell -- you

 3 know, when I was re-reading this, I was worried

 4 that somehow we'd be limiting people doing what

 5 they already do.

 6 MR. STEINER: I mean, we could certainly

 7 state in there, if there was a footnote or

 8 something, that --

 9 CHAIRMAN GENSLER: I can't hear you,

 10 Jeff.

 11 MR. STEINER: We could certainly state

 12 that it would be limited to this particular rule.

 13 It is not a defined term in our rule. We do

 14 discuss it in the preamble, though, so.

 15 CHAIRMAN GENSLER: No, I don't --

 16 MR. STEINER: Yeah, we could clarify

 17 that.

 18 CHAIRMAN GENSLER: So, I'll let

 19 Commissioners ask their question. My question is

 20 just, I didn't take this to mean that it would

 21 limit what current practice is. That's what --

 22 MR. STEINER: That's right.
 117

 1 CHAIRMAN GENSLER: You know, that these

 2 exempt commercial markets or DCMs currently do

 3 something, that somehow we were going to stop them

 4 from doing what they currently do. Whatever

 5 language allows people to continue to do what

 6 they're doing would be helpful, is what I'm trying

 7 to -- but maybe somebody could help write a

 8 footnote with you --

 9 MR. STEINER: Sure.

 10 CHAIRMAN GENSLER: -- to do that.

 11 Commissioner Sommers?

 12 COMMISSIONER SOMMERS: I just have a

 13 couple of questions -- whether or not the CFTC and

 14 the SEC have coordinated on these rules. It was

 15 one of my biggest concerns in the proposal phase,

 16 and if we know, at this point, that the time

 17 delays are going to be consistent with what the

 18 SEC is doing?

 19 MR. STEINER: We absolutely have been

 20 coordinating with not only the SEC, but with the

 21 Federal Reserve Board and with the Treasury, and

 22 we've sent over drafts of our rules to ensure that
 118

 1 -- you know, for feedback and comments.

 2 Regarding the SEC, it's been I guess

 3 over a year now since their proposal's been out,

 4 so I know that through conversations they're

 5 thinking on certain points where we might have

 6 differences in this final rule from the proposal,

 7 some of their thinking has evolved. You know,

 8 there were some differences with respect to

 9 definition of publicly reportable swap

 10 transaction, the time delays, as you mentioned,

 11 but I've shared -- I've been talking and we've

 12 shared these documents with them, and at least at

 13 the staff level, they didn't think that there

 14 would be anything that would be inconsistent. I'd

 15 also point out that, you know, their markets are

 16 slightly different, too. So, if there were

 17 inconsistencies or differences, I think that they

 18 would be justified based on the markets.

 19 COMMISSIONER SOMMERS: Although there

 20 may be some asset classes that -- like credit,

 21 where it would be odd to have different time

 22 delays.
 119

 1 MR. STEINER: Right.

 2 COMMISSIONER SOMMERS: So, I'm just

 3 hoping that there's coordination.

 4 MR. STEINER: That's right. And we've

 5 shared everything that we have with them.

 6 COMMISSIONER SOMMERS: Okay. My other

 7 question with regard to the time delays is how we

 8 deal with swaps that are executed in different

 9 time zones? If you have a U.S. market participant

 10 and an Asian market participant, how are we

 11 dealing with the difference between executing a

 12 swap, confirming a swap, and having a time delay

 13 of 24 hours?

 14 MR. STEINER: Sure. Just to point out

 15 that the requirement to report the real-time data

 16 for a reporting party, SEFs, and DCMs is as soon

 17 as technologically practicable. That definition

 18 -- it's a defined term. It's very -- I think it's

 19 identical to what we proposed and it's broad to

 20 allow for a lot of flexibility in reporting times;

 21 however, we do have time delays for public

 22 dissemination, and those time delays match up with
 120

 1 the time delays that are in the Part 45 rules that

 2 the Commission just voted on.

 3 The rule requires SDRs to be able to

 4 accept and publicly disseminate that information

 5 that's reported to them -- 24 hours a day, 7 days

 6 a week, we provide for them to be able to certify

 7 with the Commission for closing times for

 8 maintenance. And, additionally, the rule would

 9 require that what's publicly disseminated be

 10 publicly disseminated with a universal coordinated

 11 time stamp, so that the time stamps globally would

 12 be the same, and people would be able to compare

 13 those transactions that are executed in -- you

 14 know, with a party in Japan, to a party in Europe,

 15 to a party in the U.S.

 16 Specifically, to the example that you

 17 had with a party in, let's say, Tokyo or

 18 somewhere, to the extent that that swap is between

 19 two non-swap dealers, non-MSPs, the time delays

 20 are in business hours for those if there's a

 21 non-SD/non-MSP. So if the swap were to take place

 22 at 12:00 p.m., Friday, Tokyo time, the clock would
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 1 start ticking from the time of execution there,

 2 and the time delay -- the requirement would still

 3 be as soon as technologically practicable to

 4 report that swap, but the time delay for public

 5 dissemination by the SDR wouldn't occur until

 6 12:00 p.m. the following Tuesday. And that's to

 7 take into account that the non-dealers, the

 8 non-MSPs, might not have the systems or staff in

 9 place, and we wouldn't want to require them to

 10 bring someone in on the weekend to report this if

 11 they couldn't do it.

 12 We don't have those business -- those

 13 same -- it's a little bit more strict --

 14 COMMISSIONER SOMMERS: Right.

 15 MR. STEINER: -- for SEF- and

 16 DCM-executed. You know, if it's

 17 platform-executed, we believe that the technology

 18 should be there to report those.

 19 And, also, with respect to bilateral

 20 swaps with a dealer or a MSP, we think that they

 21 should also have the ability to report within the

 22 time frames for the Part 45 rules, which, you
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 1 know, you could leverage that same data reporting

 2 stream, which is linked up to our public

 3 dissemination timelines.

 4 There are a couple of other nuances

 5 where we provide some additional leeway for if

 6 there's an end-user in a bilateral transaction,

 7 just as David described for the Part 45 rules.

 8 COMMISSIONER SOMMERS: Okay. Thank you.

 9 CHAIRMAN GENSLER: Commissioner Chilton?

 10 COMMISSIONER CHILTON: Thanks for your

 11 great work on this, the whole team.

 12 Jeff, it's my understanding that if a

 13 transaction is not subject to the clearing mandate

 14 -- for example, a swap in which an end-user is

 15 using the clearing exemption -- then it gets four

 16 hours and then two hours, right, and after the

 17 first year, the two hours? If at least one party

 18 is a swap dealer or MSP, is that the case? For

 19 example, when you have an airline trying to hedge

 20 their risk sort of far out the curve on crude oil

 21 swap, for example?

 22 MR. STEINER: Yes. The swap in the
 123

 1 example you described, the reporting times would

 2 be four hours the first year and then two hours

 3 after the first year, if at least one party were a

 4 dealer. I would point out a couple of things,

 5 though, to address your specific scenario about

 6 the hedging.

 7 If a swap is not executed on a SEF or

 8 DCM or is not one of the 28 contracts plus

 9 (inaudible), and those 28 contracts are the same

 10 contracts that were listed in the position limits

 11 rule or economically related to those contracts,

 12 then it would not be subject to these final Part

 13 43 rules at this time. Those swaps will be

 14 addressed in the re-proposal. A lot of that has

 15 to do with anonymity concerns on how to publicly

 16 disseminate those. So, jet fuel, for example,

 17 would not be covered under these final rules, if

 18 it was executed over-the-counter. If it was

 19 executed on a SEF or DCM, it would be. But a swap

 20 where the underlying asset is -- let's say NYMEX

 21 heating oil -- that would be covered since it's

 22 one of the contracts that are listed. These 28
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 1 contracts have very liquid futures and underlying

 2 cash markets.

 3 The second thing I would note is that

 4 the notional amount that's publicly disseminated,

 5 as we discussed, would be capped for the other

 6 commodity asset class at 25 million. So, what the

 7 market would see -- the public would see, would be

 8 25 million plus. So, a really large trade would

 9 only see that value. We think that the combo of

 10 the caps and the time delays, along with the fact

 11 that a chunk of the market that won't be subject

 12 to the rules at this time, would be adequate to

 13 lay off risk.

 14 Additionally, just one other thing is

 15 that if one of those -- if it was between two

 16 end-users, as was mentioned previously, they would

 17 receive significantly longer time delays.

 18 COMMISSIONER CHILTON: Okay. Thank you.

 19 I don't have any other questions.

 20 CHAIRMAN GENSLER: Thank you,

 21 Commissioner Chilton.

 22 Commissioner O'Malia?
 125

 1 COMMISSIONER O'MALIA: I'd like to,

 2 Jeff, build on that a little bit. What are the

 3 requirements -- let me ask this, how can you walk

 4 me through the analysis performed in order to

 5 ensure that the rules appropriately take into

 6 account whether public disclosure will materially

 7 reduce market liquidity as required under Section

 8 2?

 9 MR. STEINER: Sure. We really read

 10 through every comment and had a lot of interaction

 11 with market participants regarding our proposal, a

 12 lot of really great feedback. And we talked with

 13 them about the various asset classes, the states

 14 of the asset classes, and, you know, where

 15 liquidity lies, and in combining the time delays,

 16 which we had proposed a 15-minute time delay for

 17 block trades. And we're not addressing the sizes

 18 for those block trades at this time, but what the

 19 final rule will do for SEF- or DCM-executed trades

 20 and also trades subject to mandatory clearing in

 21 which there's a dealer, the first year would be a

 22 30-minute time delay, and then it would reduce
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 1 down to 15 minutes. That, combined with the caps,

 2 we believe, you know, during this period would

 3 adequately protect the liquidity in these markets.

 4 I think the caps, based on the conversations,

 5 would achieve that.

 6 COMMISSIONER O'MALIA: Well, I think you

 7 have correctly adjusted these to accommodate the

 8 market, based on the comments that we've received.

 9 But going forward, what do we need to think about

 10 if somebody says, hey, this actually isn't working

 11 for us -- whatever swap it is or contract or

 12 participant? Is there a solution set going

 13 forward or is that -- do we have to come up with

 14 another rulemaking based on kind of the actual

 15 trading behaviors?

 16 MR. STEINER: I think that -- and anyone

 17 else can, you know, express their opinion -- I

 18 think that, you know, as Commissioner Chilton

 19 mentioned, obviously, it's an evolving process,

 20 and what these rules do is introduce post-trade

 21 transparency to the market, so it's certainly an

 22 introduction to the marketplace. And I would
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 1 imagine that in the block trade re-proposal, I

 2 know that we're providing time delays here, and

 3 the block trade re- proposal is going to set the

 4 appropriate groupings of swaps, as well as the

 5 appropriate sizes for those swaps. So, those

 6 things I think can be taken into account going

 7 forward from the comments that are received from

 8 that, as well.

 9 COMMISSIONER O'MALIA: So, we have

 10 another shot using the block trade rules to do

 11 this. But we obviously won't have data or

 12 experience to inform those decisions, and I

 13 recognize we can't wait to do the block rule.

 14 What happens post-block if something is out of

 15 kilter?

 16 MR. STEINER: Well, I can't speak for

 17 exactly what's going to be in the block rule, but

 18 would anticipate that there would be a sort of

 19 look back based on the data that's collected in

 20 order to adjust sizes appropriately.

 21 COMMISSIONER O'MALIA: All right.

 22 Thanks. Do you want me --
 128

 1 MR. KIRILENKO: -- Commissioner, since

 2 you asked for clarification, and someone wants to

 3 add. I think these two rules, Part 43 and Part

 4 45, interact very well. I'm hearing that. As we

 5 collect data on the going through to swap dealer

 6 repositories, one of the particular variables or

 7 one of the particular sort of data points that it

 8 will be collecting, is sort of what kind of

 9 inventory of contracts to different or major sort

 10 of participants carry? That is -- and that would

 11 be indicative of just sort of how the marketplace

 12 is changing. And as we see that the marketplace

 13 is changing, we'll anticipate -- just like the

 14 example in the TRACE market shows, you will see,

 15 you know, dealers carrying a particular type of

 16 inventory, and that would be indicative to us that

 17 the change in the marketplace reflects whatever

 18 this rule intended.

 19 COMMISSIONER O'MALIA: And I appreciate

 20 that. I think you got it right. But what is the

 21 mechanism in the rule? And I guess the data will

 22 inform us about block sizes. I guess that's the
 129

 1 only --

 2 MR. STEINER: I was just informed that

 3 the intent in the re-proposal, one of the -- one

 4 of an alternative would be to -- and please,

 5 someone correct me if I'm wrong -- to allow the

 6 DMO director to adjust sizes if they notice that

 7 something was off or something like that.

 8 COMMISSIONER O'MALIA: Okay. Thank you.

 9 Can you please walk me through the real-time

 10 reporting requirements for inter-affiliate

 11 transactions and how you define inter-affiliate

 12 transactions?

 13 MR. STEINER: Sure. We don't define

 14 inter- affiliate transactions. What the final

 15 rule does is it has a definition of publicly

 16 reportable swap transaction. That is limited to

 17 those swaps that are executed at arm's length,

 18 that result in a corresponding change in market

 19 risk between the parties, and it also has the

 20 other language about termination, assignment,

 21 novation, exchange, et cetera, that result in a

 22 change in the price.
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 1 Additionally, in that definition, we

 2 provide examples of transactions that are not

 3 arm's length, that would not fall under the

 4 definition. That would include internal swaps

 5 between 100 percent owned subsidiaries of the same

 6 parent, as well as portfolio compression

 7 exercises, and, you know, these examples are not

 8 exhaustive, but they -- the standard under the

 9 definition is really what needs to be met, which

 10 is the arm's length standard.

 11 COMMISSIONER O'MALIA: So, you could

 12 have an affiliate that is less than 100 percent?

 13 MR. STEINER: Again, the standard in the

 14 rule is arm's length, so I would imagine that it's

 15 possible, but, you know, I mean --

 16 MR. LEAHY: I think one of the things

 17 we're trying to avoid is the reporting of

 18 transactions that don't face the market because

 19 those transactions may have misleading price

 20 information.

 21 COMMISSIONER O'MALIA: And I don't

 22 disagree with that. I think that's a great
 131

 1 response, but I think in the rule, your example as

 2 an affiliate is 100 percent, but the definition --

 3 the actual test is this arm's length test. And I

 4 think that people may be confused a little bit if

 5 they read the footnote that says it's 100 percent

 6 as an example, you could have put 71 percent, I

 7 guess. But --

 8 MR. STEINER: That's right. But we do

 9 clarify that the examples are not exhaustive and

 10 that there is a possibility that -- I mean,

 11 certainly, if it doesn't meet the test of arm's

 12 length, and as Tom just mentioned, we wouldn't

 13 want those.

 14 COMMISSIONER O'MALIA: Thank you.

 15 That's all I have.

 16 CHAIRMAN GENSLER: Thank you very much,

 17 Commissioner O'Malia.

 18 Commissioner Wetjen?

 19 COMMISSIONER WETJEN: Thanks, Mr.

 20 Chairman. Thanks again to the team for all your

 21 hard work on the rule, and thanks for the

 22 conversations we had concerning the rule.
 132

 1 I was going to build on, a little bit,

 2 the questioning by Commissioner O'Malia. You

 3 know, in some places, with respect to the masking

 4 provisions, there appears to be some

 5 differentiation between -- or within, rather,

 6 asset classes, and that's not done in the area of

 7 time delays, and I don't disagree with the

 8 judgment to do it in this way, but I was just kind

 9 of curious why it's done or why you don't

 10 differentiate within asset classes with respect to

 11 the time delays, but do so in the masking

 12 provisions?

 13 MR. STEINER: With respect to the time

 14 delays, we do have a differentiation with respect

 15 to the other commodity asset class for the

 16 bilateral swaps. The other four asset classes,

 17 they have different compliance dates, so, as we

 18 mentioned, the interest rate and credit would

 19 begin July 16th, and then 90 days after, the other

 20 three, but we do have a distinction for the other

 21 commodity asset class based on comments that we

 22 received and conversations that we've had. I
 133

 1 think consistency and many market participants

 2 would participate in multiple asset classes, so we

 3 chose to go the route of the caps to protect, and

 4 just for internal use, we think that it made more

 5 sense to go that way.

 6 COMMISSIONER WETJEN: Thank you.

 7 There's also this requirement that uncleared swaps

 8 be reported. And as I understand it from

 9 discussions with both your team and market

 10 participants, a lot of times these swaps will have

 11 -- or they'll have contained in the pricing some

 12 type of counterparty risk. I mean, is there -- I

 13 guess how and why is the pricing information for

 14 these swaps relevant if there is, in fact,

 15 embedded in the pricing some kind of counterparty

 16 risk, which is, you know, obviously, unique to

 17 that counterparty?

 18 MR. STEINER: So, these swaps would have

 19 a designation that they're bespoke or an

 20 indication that it's a pure bilateral swap. We do

 21 have a data field that breaks out, but doesn't

 22 break out credit separately. Credit's not
 134

 1 separately reportable. It's just sort of the

 2 difference in price, so that prices can be

 3 compared across different -- similar types of

 4 swaps. But we believe that the public

 5 dissemination of this data will actually provide

 6 market participants and the public with a clearer

 7 understanding of the depth of a particular market,

 8 the frequency and trading in that market, and the

 9 pricing of transactions with the same or similar

 10 underlying assets. And that, combined with the

 11 designation of -- that it's a bespoke transaction

 12 would enable market participants to actually

 13 utilize that data.

 14 COMMISSIONER WETJEN: That's all I have,

 15 Mr. Chairman.

 16 CHAIRMAN GENSLER: Thank you,

 17 Commissioner Wetjen. I'm going to ask unanimous

 18 consent first. If we can drop a footnote in the

 19 appropriate page to the question I asked Jeff, but

 20 it would be whatever footnote Mr. Auten, who works

 21 with Commissioner Sommers, and Eric Uzanis have

 22 worked out back here, or will work out in the next
 135

 1 six hours or whatever, you know, obviously, making

 2 sure that other Commissioners -- that it just

 3 narrowly basically says that DCM and exempt

 4 commercial markets, what they do now is still --

 5 fits in this thing; that somehow, that we're not

 6 gumming that up.

 7 COMMISSIONER O'MALIA: Mr. Chairman,

 8 you're asking for unanimous consent that we get a

 9 unanimous solution before we make the change, or

 10 --

 11 CHAIRMAN GENSLER: No, no. I'm just --

 12 that we accept whatever these -- I mean, they have

 13 -- you've worked out some footnote, right?

 14 COMMISSIONER O'MALIA: All right. As

 15 long as we all see it and agree to it.

 16 CHAIRMAN GENSLER: Yeah. Mr. Stawick?

 17 MR. STAWICK: Commissioner Wetjen?

 18 COMMISSIONER WETJEN: Aye.

 19 MR. STAWICK: Commissioner Wetjen, aye.

 20 Commissioner O'Malia?

 21 COMMISSIONER O'MALIA: Aye.

 22 MR. STAWICK: Commissioner O'Malia, aye.
 136

 1 Commissioner Chilton?

 2 COMMISSIONER CHILTON: Aye.

 3 MR. STAWICK: Commissioner Chilton, aye.

 4 Commissioner Sommers?

 5 COMMISSIONER SOMMERS: Aye.

 6 MR. STAWICK: Commissioner Sommers, aye.

 7 Mr. Chairman?

 8 CHAIRMAN GENSLER: Aye.

 9 MR. STAWICK: Mr. Chairman, aye. Mr.

 10 Chairman, on this question, the ayes are five,

 11 the nayes are zero, and the results of this vote

 12 is unanimous in the affirmative.

 13 CHAIRMAN GENSLER: The ayes having it,

 14 the staff recommendation is accepted, and it will

 15 be sent to the Federal Register.

 16 Our next scheduled public meeting is

 17 Wednesday, January 11th. The subjects of the

 18 rulemaking will be presented one week in advance

 19 on the website. And if there's no other -- okay,

 20 there's -- I did the technical corrections.

 21 Commissioner O'Malia?

 22 COMMISSIONER OMALIA: Well, on the
 137

 1 subject of the schedule, I would note, in your

 2 opening remarks, you said thoughtful and not

 3 against the clock, and I appreciate that. Several

 4 other Commissioners have referenced it, and I

 5 would even note that in David Taylor's rule that

 6 the data reporting requirements accommodate

 7 holidays. Now, we are obviously approaching some

 8 significant holidays, and we have a hearing on --

 9 a meeting on the 11th in which we're going for. I

 10 understand there's probably going to be a meeting

 11 on the 17th as well. That's a short week. That's

 12 only obviously a week to take on additional work,

 13 and I would hope that before you leave on your

 14 vacation, that you would give us our to-do list,

 15 and see if we can absolutely get that nailed down,

 16 so we know exactly what we need, we know which

 17 teams are going to have to be here over the

 18 holidays to respond to our questions because the

 19 17th -- due to the fact -- normally, we have two

 20 weeks in between meetings.

 21 CHAIRMAN GENSLER: Yeah.

 22 COMMISSIONER O'MALIA: We won't have
 138

 1 that and, you know, we move the 5th to the 11th,

 2 and I'm fine with that, but --

 3 CHAIRMAN GENSLER: I think I did that at

 4 the request of the Commission.

 5 COMMISSIONER O'MALIA: I completely --

 6 because the 5th was a tough time frame to meet, as

 7 well, but if you could, before you leave, that we

 8 would have that sense among the Commissioners so

 9 we know exactly what we're working on because

 10 staff needs --

 11 CHAIRMAN GENSLER: There --

 12 COMMISSIONER O'MALIA: -- to take it

 13 with on their holiday.

 14 CHAIRMAN GENSLER: I'll do this all

 15 publicly. There's five pens-down versions right

 16 now that we know of. There's this segregation for

 17 cleared swaps, and I would hope that we could

 18 possibly consider that on that first meeting in

 19 January. There's registration for the swap

 20 dealers and MSPs. There's both external and

 21 internal business conduct. The internal is just

 22 the, you know, what sometimes I call
 139

 1 internal-internal. It's not the documentation, as

 2 you know. And there's the -- I'll call it 4.15,

 3 the CPO rule.

 4 We're hoping in the next days to get all

 5 of you the entity definition, pens-down version.

 6 It's in very good shape, but it's still working

 7 its way through with the SEC and CFTC, and I think

 8 that's within days. So, those are the six

 9 possible for consideration in January, and I would

 10 be hopeful that we could maybe do segregation, the

 11 external business conduct, and the registration

 12 rule, possibly. But it's depending upon your

 13 feedback and input, and we'll -- as I say, we're

 14 not going to do this against a clock, we're going

 15 to do them based on the feedback and input. And

 16 if you all -- you know, but I know it's all flight

 17 schedules and everything. If everybody says,

 18 well, let's move the 17th a few days and move that

 19 back a week, you know, I'd have to work with

 20 everybody's schedule. And if you want to make the

 21 17th the following week, the 24th or the 25th,

 22 depending upon -- I'm open to that, too, if that
 140

 1 works for folks here.

 2 COMMISSIONER O'MALIA: Thank you very

 3 much.

 4 CHAIRMAN GENSLER: Since I'm going on

 5 vacation, did I -- I did it all before I'm leaving

 6 on vacation.

 7 COMMISSIONER O'MALIA: Yes, do you

 8 empower staff to negotiate on your behalf?

 9 (Laughter)

 10 CHAIRMAN GENSLER: Usually. Usually.

 11 COMMISSIONER O'MALIA: We look forward

 12 to your return.

 13 CHAIRMAN GENSLER: Yeah. If there are

 14 no further Commission business, I want to thank

 15 everybody for all their work. I think these are

 16 two incredibly important rules for the public, but

 17 I also want to wish you and your families well on

 18 this holiday time, and I will probably see you

 19 after the New Year.

 20 Do I have a motion to adjourn the

 21 meeting?

 22 COMMISSIONER SOMMERS: So moved.
 141

 1 CHAIRMAN GENSLER: All in favor? Aye.

 2 GROUP: Aye.

 3 CHAIRMAN GENSLER: Great.

 4 (Whereupon, at 12:05 p.m., the

 5 PROCEEDINGS were adjourned.)

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 1 CERTIFICATE OF NOTARY PUBLIC

 2 DISTRICT OF COLUMBIA

 3 I, Christine Allen, notary public in and

 4 for the District of Columbia, do hereby certify

 5 that the forgoing PROCEEDING was duly recorded and

 6 thereafter reduced to print under my direction;

 7 that the witnesses were sworn to tell the truth

 8 under penalty of perjury; that said transcript is a

 9 true record of the testimony given by witnesses;

 10 that I am neither counsel for, related to, nor

 11 employed by any of the parties to the action in

 12 which this proceeding was called; and, furthermore,

 13 that I am not a relative or employee of any

 14 attorney or counsel employed by the parties hereto,

 15 nor financially or otherwise interested in the

 16 outcome of this action.

 17

 18 (Signature and Seal on File)

 19 -----------------------------------

 20 Notary Public, in and for the District of Columbia

 21 My Commission Expires: January 14, 2013

 22